If we look back at the history of the latest real estate downturn, and according to Realty Trac, the current wave of foreclosures started roughly in July of 2007. In August of the same year the number of foreclosures peaked at close to 250,000 fillings. That monthly number is somewhere near what some call the “plateau” seen in February of 2010 but yet far off from the average month during any given month of 2006 of less than 100,000 nationwide. Let’s forget for now the fillings of Bankruptcies filed during the same periods.

Currently, FHA represents the majority of purchase loans in the US. According to the HUD/FHA guidelines the eligibility for the seasoning (the “waiting time”) of a foreclosure before an individual can purchase again is 3 years. 2 years for a chapter 7 bankruptcy and 1 year for a chapter 13 bankruptcy with proof of on time payments to the trustee. Over the last few months I have received significant amounts of emails and calls asking “when can I buy gain?”.

At first the idea of a defaulted home owner buying another property seemed outlandish but when we go back and realize that the main reason that the cycle started was due to a sub prime mortgages that after a 2 year teaser rate became impossible to pay back at rates close to or, in some cases, above 10%. Fast forward 3 years and here we are in a completely different environment with rates at historical lows of 5% for a 30 year fixed. Home values have decreased across the country and some markets are down 25%. Granted that the aggressive underwriting guidelines are gone for forgettable future  and now the pendulum has moved almost to much in the other direction there will be a true opportunity for the hard working American that has not lost sight of the dream of owning a home.

Although the unemployment rate represents a HUGE issue for the overall economy it may not be the case for the housing market. If we do the math and subtract the current 11% in California versus the +/-4.5% that we had, before the economy took a nose dive, that only eliminates an additional 5% of the general population but with home ownership at historical lows of 64.5% that number truly eliminates less than 2% of the former homeowners.

We all know that price is the point at which the supply curve meets the demand. The fact is that under normal circumstances the largest portion of the population that becomes “new homeowners” are couples that have recently gotten married or had a baby. That population has not gone away. There are just as many people getting married and having kids in 2010 as there were in 2007. One last potential increase in demand is the possibility of our troops coming home and obtaining financing via the VA system. If we add all these factors together the outlook may not be as bleak some economist have already predicted further declines for the remainder of the year.

Could we have seen the worst of the housing market in our lifetimes and face greener pastures? I sure hope so.

I am in the middle of a very unusual situation. My company gave my borrower an FHA loan for the short sale that we had been negotiating since April 2009 in Oceanside, CA.

Today I get a frantic email from my borrower that closed escrow and recorded January 22nd stating that she gave the key and instructions to the contractor to get into the home to do some work. When the contractor got there they found that the lock was changed and there was a sheet of paper on the window labeled “Notice of Trustee’s Sale”, dated 2/1/2010.

I immediately called the listing agent to find out what was going on. Unfortunately, the agents response was to point the finger at me for not being able to close the loan within the necessary time, 2 weeks, on an FHA loan. They were not able to get an answer from the lender for 9 months and it is my fault that I could not pull a miracle? He still assured me that it was a “typical example of the right hand not knowing what the left hand was doing”. The auction date for this property is 2/26. I sure hope that the recording takes priority over the banks intentions.

Doing my best to console the buyer but this is definitely a first for me. If this has happened to you before please share.

If you are reading this you are probably familiar with Seth Godin and his unbelievable abilities to communicate and verbalize things that we think about every day related to marketing but, for one reason or another, we fail  transform into any sort of action. Yesterday I had an “aha moment” (Jeffrey Gitomer) that  made me think of Seth’s book “The Purple Cow” immediately.  I went to my local, Carlsbad, CA,  Baskin Robbins. I had been there at least 100 times before. Every time I had been there prior to today I felt like I was paying too much for a scoop of ice cream but I enjoyed it so I treated myself maybe once a month. So I happened to walk in and I got my favorite, a scoop of “Rocky Road”. After handing over the $2.97 I picked up my cone that was sitting in the tray with the holes in it thinking my gosh $2.97. As I was walking out of the store the scoop of ice cream felt out of the cone and my biggest concern was OMG I am such an uncoordinated human being. My biggest concern was about the mess I made. The owner, who I had never interacted with before, asked to please stop cleaning and as I was about to tell him how sorry I was he had already placed a new scoop on a new cone and it was sitting on the tray and the owner was there with a mop. When I offered to pay he refused and instead thanked me for my loyal business. I thanked him profusely but the $2.97 did not feel that bad anymore. That was truly remarkable.

What makes this experience even more remarkable is that I emailed Seth my experience as soon as I had access to email. Much to my surprise he replied, “great story, Michael! enjoy the ice cream.”

Last night I saw the movie Avatar. What a treat! For those of you that have not seen it, check out the trailer and you will hear the line, “son, you are not in Kansas anymore”. That prompted a thought- provoking concept that required a new post.

If we look at the latest Case Schiller report, the first thing we notice is that there was an improvement of 0.5% in home values nationwide, YTD Nov 2009. If we drill down the data it becomes quite obvious that the west led the nation with a 2.9% improvement in values.  California is one of the most badly-hammered states of the Great Recession.  My local paper, San Diego North County Times announced a 7% improvement in home values for our area. If you are familiar with North County San Diego, then you know that La Costa, La Jolla, Del Mar, and Carlsbad are generally all in the $1 million plus range.

More often than not we get multiple reports contradicting each other within minutes from the major agencies like Reuters and CNBC.  And the fact that national trends are primarily broadcast on the major news programs highlights the importance of focusing on the local numbers (see earlier post “San Diego Real Estate Outlook 2010”).  One of the best tools we have to gauge our local markets is social media. Although brilliant in its global reach, it’s also indispensable in keeping one’s pulse on the local micro-economy.  Several years ago it was paramount for the mortgage professional to be licensed in every possible state, but today I believe we need to have extraordinary knowledge of our immediate neighborhoods to succeed.  (Not to mention the nugget that 60-70% of mortgage professionals have jumped ship, which presents a huge opportunity).

Social media, having gained the momentum that it has, definitely means we are not in Kansas anymore.  One cannot prevent progress, or ignore its impact on the global, as well as the micro-economy.

Michael Mekler is an active loan officer. Reach Michael via email at mmekler@fhaexpert.net or call toll-free to 1-888-218-0094

They say “You can take the boy out of New York but you can NEVER take the New York out of the boy”. I am proof that this is undoubtedly true.  At first, when we moved to San Diego 9 years ago, the culture shock was pretty dramatic. It took years to find a half-decent pizza place, and I have yet to find a bagel that is even close to an H & H. In fact, I have had H & H bagels shipped overnight via Fedex for my wife’s birthday. I also miss Yankee Stadium with all my heart, but I do get to see them with my Uncle Steve every time they come to Anaheim. But most of all I miss my friends, family, and the NY people in general, of course.  It has been 9 years of adapting to different politics, different people, different lifestyle, less-than-adequate pizza, but I’ll never go back!

The truth is that I can honestly say that the 70 degree weather year round, the awesome beaches (dolphins all the time), the outdoor life, the world famous San Diego Zoo, great schools and the family life in general fills the aforementioned voids. Living in Carlsbad, a suburb of the City of San Diego is a real treat. We don’t have to deal with much traffic and the general entrepreneurial spirit makes it a great community. My oldest son adapted rather quickly from Snow Skiing to surfing and from ice skating to roller blading.

The great news from anybody considering the move is that real estate has come down in value significantly, at least for the time being. Mortgage rates are also at historical lows, so in essence there is no time like the present to take the plunge. Depending on the area that you are considering, a large number of homes are being sold in the $400’s. The reassurance of my decision to move here is magnified 10 fold every Thanksgiving when there is a massive nor’easter in the North East.

Since I am in the Real Estate field I must make the statement that there are a number of outstanding Realtors and mortgage lenders, like yours truly, to make the dream a reality.

Michael Mekler is an active loan officer. Reach Michael via email at mmekler@fhaexpert.net or call toll-free to 1-888-218-0094

In an environment where most offers are made through FHA loans or VA loans there are significant steps to increase your chances by 60-70% of buying the home that you have your heart set on:

1. Get a full underwriters pre-approval for your loan. Any mortgage broker can issue a pre-qualification letter. They are truly worthless. Bank Owned Properties are managed by asset managers and they take only the offers that they feel have the best chances of closing and closing fast. When you deal with a reputable mid-sized direct lender submitting a credit package to the underwriter is a very simple process. Once you have this approval your loan can close inside of 2 weeks.
2. Go through this process so you know exactly how much home you can afford comfortably. My stomach turns when I hear borrowers asking “how much house can I afford?” The question that you need to prepared to ask is how much money can I pay every month for housing without affecting my current lifestyle.
3. Once you are pre-approved you have a greater chance to eliminate any last minute surprises. You will know exactly how much money you need to bring to the table or ask for a concession from the seller(not recommended) so the closing can go smoothly and the transaction does not fall apart in the last minute.
4. Once you start the process of the pre-approval you start to develop the relationships that will be on YOUR side through the process. The lender can recommend a Realtor or the Realtor can recommend the lender. Regardless of which one happens first, the Realtor should have the insight to have you pre-approved first.
5. Most bank owned properties will require you that you get pre-qualified by the lender that foreclosed on the property.  Don’t let anybody bully you into using their lender. Once you have an underwriter’s pre-approval you can prove your income and credit worthiness. Shop, shop and shop for the individuals that give you the highest degree of confidence in achieving your goals. Buying a home is a big investment driven by emotions. Once you see the house that looks like the dream home, you will do everything in your power to try to get it. This is not the best way to shop for your home. Talk with several Lenders and choose the one that YOU feel most comfortable with.

The great news is that the latest announcements by FHA and HUD regarding flipping properties will only accelerate the process of the cash investors running out of funds. THE GAME HAS CHANGED. DO NOT LOSE YOUR PATIENCE NOW. The credits for first time home buyers is still in effect and the rates are still at historical lows. Find a lender you trust and get an “full underwriter’s pre-approval”. If they refuse, call around or me and I will be happy to guide you in the right direction.

Michael Mekler is an active loan officer. Reach Michael via email at mmekler@fhaexpert.net or call toll-free to 1-888-218-0094

Yesterday, Thursday, January 21st, the much anticipated Mortgagee newsletter about risk-based pricing was released by HUD.  This represents the first of two landmark changes in the agency’s guidelines for this year.

In December HUD (Housing and Urban Development), the agency that oversees the underwriting of FHA loans, had warned that these changes were on the way for “risk-based pricing”.  In other words, the riskier the borrower the more expensive the loan and/or the higher the interest rate.  The second announcement was leaked last Friday, January 15th, imposing a one-year moratorium on the FHA guideline that previously had prevented investors from flipping homes to FHA borrowers within the first 90 days of ownership.  Prior to this announcement investors were only able to sell these homes via Conventional, VA or private funds (cash).

1) Risk Based Pricing:  To sum up the ‘Mortgagee letter 2010-02′ published by HUD, this change represents an increase of 0.5% of the loan amount to the Up Front Private Mortgage Insurance Premiums on all FHA loans.  As an example, under the old plan, for a loan amount of $300,000 the consumer had to buy a mortgage insurance policy of $5,250 to insure the loan against default.  After April 5th 2010, the same policy will go up to $6,750. That is an increase of about 29%.  The explanation is simple.  After the demise of the Sub-prime era, FHA became the only lending source for buyers that had less than perfect credit, and also only required a 3.5% down payment.  This provides home buyers the option of having very little “skin in the game”.  In 2007 FHA loans represented less than 5% of all the loans originated in the US.  In 2008 these loans began to gain popularity and in 2009 they represented the majority (80%+) of the loans for first time home buyers.  My bet is that even with the increase in the Mortgage Insurance Premium, these loans will not lose ANY of their current popularity.

2) The second change, designed to allow quicker foreclosure resale’s, may have a very significant effect on our overall economy.  If you are a first time home buyer, I don’t need to tell you how frustrating and lengthy the process you have to go through in order to get an offer accepted, especially if your financing includes an FHA loan.  It feels at times as if the money to purchase the property is not green.  By placing a moratorium on the 90 day waiting rule to flip a property, we might be giving the first time home buyer a fair shot to get an offer to buy a home accepted.  Investors need to unload these properties as quickly as possible.  The rule specifies that as long as the profit from the resale is 20% or less no further action is required.  However, if the profit is higher than 20%, the seller must provide proof of the improvements made to the property to substantiate the higher price.  In addition, most lenders will require a second appraisal to make sure the buyer is not paying above-market pricing, and the lender is not getting into a negative-equity position.

The silver lining of these changes is this:   the increase in PMI will offset losses already incurred by HUD, and not decrease the volume of FHA borrowers.  The lifting of the 90-day rule gives FHA borrowers a better chance of being able to buy a rehabbed home.

Michael Mekler is an active loan officer. Reach Michael via email at mmekler@fhaexpert.net or call toll-free to 1-888-218-0094

First time home buyers are in luck. The housing market is ripe if you know how to play it right. Interest rates are low, federal incentives are available through the rest of the year, while steady inventory of homes remains. Buying a home for the first time while exciting, can be a fairly stressful process. Finding the right home, making an offer, qualifying for a mortgage and moving are all tasks in and of themselves. First time home buyers read on to learn more about current market trends and if you should you buy now?

What to know for first time home buyers:

Overabundance of Choice

Considering the housing market has been in a slump for some time, buyers have quite the inventory to choose from. This surplus includes the homes being sold by owners, but also the brand new homes that were built before the market was inundated with property. In fact, if the first time home buyer takes his or her time and scours all the options available, there are great deals to be had.

Many brand new home builders have been sitting on houses for more than six months and offer lots of upgrades and incentives to purchase a new build that has been sitting empty. They are desperate to sell the homes that have been sitting and are willing to cut major deals.

Other sellers that have been sitting with their homes for sale over the past year or so just want to sell them. They are willing to also offer great incentives such as money towards or paying all closing costs while offering other incentives just to get you to purchase their home. Take your time and really make a list of what you want in a home. The market is now yours so enjoy looking for that perfect home.

Favorable Prices

A trend has emerged this past year: steadily falling home prices. Depending on the area you live in, market prices on homes have dropped to a 4-year low. Houses that were selling and appraised for $500,000 a year ago are on the market for about just over four hundred thousand at this time.

What do these drastic drops in home prices mean to you as a first time home buyer? This means that you are looking in a market where home prices are the same as they were four years ago. This is good news, because once you purchase a home, there really is no other way to go but up in terms of its market value. In the long run, purchasing a home when the market is down will work in your favor. Also keep in mind that many homes have been on the market for awhile so don’t be afraid to negotiate the price with motivated sellers. Remember, when the seller’s market is down, the buyer’s market is right.

Affordable Financing

Finding money for a down payment on a home and figuring out just how you’re going to finance everything is one of the most terrifying aspects of buying a home. It is true that foreclosures are at an all time high, which can be a hindrance to first-time buyers in need of financing, so many first time buyers are using services to make sure their credit is good and have high credit scores before applying. This means that many lenders are not freely handing out mortgages as they did a few years ago. Given the consequences of creative lending that lead to the closures of several major lending companies, banks and lenders alike have adopted more stringent financing practices.

New home buyers will have more opportunities to get a great interest rate on a fixed mortgage loan. A low fixed rate means consistent payments unlike the adjustable rate mortgages that contributed to several foreclosures in the past year. Just make sure that you have done your homework and know what you qualify for before heading out into the housing market, and keeping realistic financial expectations.

If you are a first time home buyer, now is a great time to take advantage of current housing market prices. In addition, you can benefit from the lessons learned from frenzied buying, unmanageable interest rates, and overall poor financing foresight. Enjoy the process and take your time looking for the right home and of course, Happy House Hunting!

about just over four hundred thousand at this time.

I received a tweet this weekend from a well respected mortgage social media contributor. I was extremely disappointed (trying to be PC here) at the kind and quality of the commentary. The link redirected me to a, supposedly, mortgage guru based out of Atlanta. The video expressed that the Mortgage Brokers and small Corresponding lenders would not welcome the new latest news from HUD allowing the non-HUD approved businesses to have access to FHA programs without having to go through the audits and allowing the wholesale lender to manage the quality controls and necessary compliance requirements. I am quite baffled at the fact the ANYBODY in our industry would be opposed to this change. The argument was based solely on the fact that the “larger” wholesale lenders would make the market and force everybody else out of the business. Haven’t we all suffered enough and adapted to enough changes that the ones are still standing will make it through this minor fears?

My take on this issue is the constant bickering coming from the direct lenders siding with Barney Frank et. al. on this erroneous  assumption that the brokers “destroyed” our economy. I would be happy to share some videos and examples on how the direct lenders run, in some cases, a much shadier and less regulated side of the business with less educational requirements. Who is anybody fooling? Most of the people that are jumping from broker to banker are doing it mainly because they do not want to disclose compensation of SRP/YSP. Isn’t that shady on its own? If you have done a good job and you know you have earned the rebate what are you afraid of?

I love the correspondent side but more than that I love the power to choose. We are still in a free country and it is a shame that with everything that is going on in our business, people are making remarks to create fear to run additional people out. As this person ripped the quality of NAMB and glorified the power of the ABA I was disgusted.

I am a huge fan of Gittomer’s work and specifically “The Little Yellow/Gold Book of Yes Attitude. Bringing doom and gloom to twitter as someone respected only hurts.

Here are the 5 things you need to know about these changes:

1. Changes are effective for case numbers assigned on or after April 15th, 2010.
2. New upfront mortgage insurance premium (UFMIP) will be 2.25% for all purchase and refinance loans. The premium for H4H and HECM is 2.0%.
3. This change applies to all standard FHA Single Family Programs except the following: Title I, Section 247-Hawaiian Homelands, Section 248-Indian Reservations, Section 223e-Declining Neighborhoods or Section 238c-Military Impact areas in Georgia and New York
4. Annual premiums will not change at this time
5. There will be no discount on the UFMIP for first-time homebuyers with pre-purchase counseling.

By now we’ve all had a chance to read, listen and watch the economists, gurus, and professors for some of the most prestigious academic institutions in the world analyze the economy.   I know I have grown tired of listening to speculative predictions that swing from utopia to apocalypse.  In this post, I will do my best to narrow down the items that should interest the masses the most:  jobs; home prices; and interest rates.

My biggest disclaimer is that although I have read outlooks from people all over the county,  I am a firm believer that what happens in your state, county, and community stays there.   For example, if  solar energy becomes all the rage in San Diego in 2010 through rebates and incentives, we cannot assume that in Seattle, Washington, which only has a fraction of the sunny days that San Diego has, will benefit by a similar job creation in that field.

1. Jobs. Yes, I do believe that solar energy will be a major catalyst for job creation in Southern California.  2009 was a year in which the prices for gas, and energy in general went up, so if you ask any solar panel installer, they had a pretty busy year. What prevented this industry from exploding and creating thousand of desperately needed jobs?  The lack of connection between someone like me =) who can readily finance these projects, and the solar energy installers.  Bridging this gap will take some time since consumers are not yet educated on how to obtain financing for such a project.   San Diego is a county rich in biotechnology research.  With the reduction of innovative life saving medications from the Pharmaceutical sector, Biotech represents the bulk of hope for the future of health care as well as local job creation.  If we widen our scope outside of San Diego, a very different picture materializes, depending on where you look.  Each county in each state represents its own micro-capsule of the job market, and therefore its own unique challenges and opportunities.
2. Home prices.  Unfortunately this is a “hangover” that will take time and a lot of bitter pills to get over.  Wall Street had a TREMENDOUS hunger, and paid originators top dollars for putting borrowers into risky loans.  It was not the Mortgage Broker that created the bubble.  I worked for a direct lender during the 2004-2007 years and the phone rang off the hook asking for the “1% percent payment”.  Lenders compensated handsomely for being top producing branches in closing these adjustable and sub-prime loans.  As a member of the management team I made it my mission to explain every detail of negative amortization consequences.  At that time, the consumer did not care.  The party ended eventually but most of these toxic assets, in my opinion, have been flushed out, and the affordability ratios are starting to make sense again.  Back in 2006 only 11% of the median household in Southern California could afford to make payments on median-priced homes.  Today this percentage has gone above 40%.  Keeping in mind that the national home ownership percentage is about 64%, this represents a significant improvement and the trend will continue through the first half of the year as long as interest rates stay low.  We will see a surge in purchases through June due to the now-expanded tax credit.
3. Interest Rates. One of the minds that I respect tremendously, Barry Habib, claims that this is the easiest prediction:  ”rates will reach at least 6-7% by the end of 2010″.  Barry makes several good points as to why this will happen.  Although the fed had announced that it will stop buying Mortgage-Backed Securities, what many believe is the single biggest factor for keeping rates at bay, in my opinion Bernanke has left the door ajar to the possibility of continuing to purchase these securities.  The amounts of mortgages that have been bought are massive, $1.13 trillion.  This accounts for, depending who you ask, anywhere between 70-90% of all mortgages since the program started in 2009.  But lets face it, these are massively problematic times, and the Fed Chairman and Secretary Geithner have committed to not make the same mistakes made during the Great Depression (acting prematurely in easing their economy-saving strategies).  In my opinion, this is not such an easy one to predict.  If rates go up, the real estate market could come to a halt and we know this is the single worst blow the economy would suffer. I don’t think rates will go higher than 6%.

All in all, we all have important responsibilities.  We must embrace our communities as micro-economies that if nurtured and supported, will flourish.  As each city, county, state begins to heal economically, then naturally the national economy will heal as a whole.  In addition, we can all make a difference in our communities by aggressively networking to support local businesses and entrepreneurs, and enjoying the simpler things in life, especially the ones you love.

Michael Mekler is an active loan officer. Reach Michael via email at mmekler@fhaexpert.net or call toll-free to 1-888-218-0094

If solar energy affordability is a goal for you please contact me.  There is an excellent chance that you can start saving hundreds of dollars a month almost immediately.

For the last 6 weeks I have attended several webinars, live classes and spent countless hours reading the changes coming on 1/1/2010 with regards to the new lending disclosures. I did it because I had to. I know that once my first set of disclosures go out EVERYBODY related to the transaction will get a call  from the consumer asking for an explanation of the credits and debits.

The most challenging questions that all parties will be the following:

1. Why is my Loan Officer sending me a form asking me to shop for services that I don’t even understand, ie Title Insurance, Escrow, Appraisers etc.?
2. The last page of the Good Faith Estimate gives me a grid to compare the best rate and terms. It appears that when if I go through a Bank I don’t get any credits but when I go to a Mortgage Broker  I get thousands back. Why?
3. My loan officer has explained that this document is just an estimate, and he calculated all the fees on the high side so that he does not have to submit a whole new set of disclosures if there are changes. How can I trust this is true?

The bottom line is that the creation of new disclosures will create enough confusion to make one heads spin. In a world where the excellent Loan Officers just survives, you need to be extraordinary to do well. This of course means that as you are making your business plans for 2010 you must account for most of your time being in front of the Real Estate agents and consumers with extremely simple and easy to understand language for EVERY line item in the new Good Faith Estimate. At least for the first quarter of 2010 or until the dust settles a bit. Of course by then there will be a whole new set of rules.

Over the last 12 months we have heard the saying numerous times “You don’t really know who is swimming naked until the tide goes out”. As a trusted professional in the business my approach has been, and will continue to be, to try to figure out the science behind how the tides work.

I would love to share my experience and presentations that have already helped many Realtors and consumers in the last several years to simplify and take the stress away from the home buying transactions.

mmekler@fhaexpert.net

The answer is simple: from one Fed Chairman’s term to the next.

 It was not that long ago when the Pay Option ARM, also known as Negative Amortization Loans, where offered attractively by all major lenders such as Washington Mutual, Countrywide, Downey Savings, and World Savings (formerly Bank of The West).  Wall Street’s hunger for these products was insatiable.  As a direct lender based in California, the pressure from major investors in New York to offer these products before any Fannie, Freddie or other Alt-A products was tremendous.  In 2004, Fed Chairman Alan Greenspan began calling these products “exotic mortgages”.  Ironically, rumors were flying around the lending community that several of his own properties had such mortgages.

Fast forward past the bubble, to Bernanke’s term and the beginning of 2007 when the downturn began to rear its ugly head.  Mass numbers of defaulted loans and the subsequent implosion of the aforementioned major lenders, and we now have “toxic assets”.  Wall Street has absolutely no interest in continuing to offer them, and “bailout” has become a household term.

Having lived in New York City for years I had a chance to gamble at times with Stock Options. We know that there are several hedge funds that are exclusively investing in Calls or Puts.  At times these options outperform every major index but there are probably just as many, or more, that go bankrupt.  Yet for whatever reason, these Hedge Funds are not called “toxic” (nor are any type of bailout by the government.  Well, not officially).

The validity of the comparison between Stock Options and the Pay Option Arm is not as outlandish as Barney Frank (D. Massachusetts) would argue.  The similarity lies in the risk factor and subsequent payoff.  The difference lies in the absence of regulation on behalf of Frank’s Finance Committee, until now of course that the real estate bubble has burst like a mushroom cloud.  

Everyone that’s ever bought Stock Options has had to sign additional disclosures acknowledging the fact that they understood the risks associated with these investments.  The Pay Option Arms were also targeted towards the investor that was bullish on the sustained and rapid appreciation of their investment: their most valuable material possession, their home.  However, the disclosures associated with these loans were free from the foreboding language of risk that the borrower was taking. To be fair, not many had the foresight to predict the severity of the current fall of the housing market, but the Finance Committee is supposed to do more then play Monday-morning quarterback with our economy, right?

So now all of these products are deemed toxic.   The Wall Street investor for these mortgages is now suffering for the lack of regulatory checks and balances for not only the Pay Option ARMS but the Sub-Prime and Alt-A, no-documentation home loans (no documentation!).  The Mortgage Broker is the subsequent fall guy, even though the lenders allowed the de-regulated system to run amuck.  Bailouts abound.  Party over.

As the current leadership fights for a recovery plan to stop the wave of foreclosures (no documentation!) the question remains:  Will some of the products that are currently toxic come back as the lending industry shows signs of life?  Or will we have to wait until the next Fed Chairman?

Has the Treasury Secretary lied to the people in need of a bailout?

You decide.

November 12, 2008

In a statement made on national television the The Treasury Secretary, Hank Paulson, claims “ I believe we have taken the necessary steps to prevent a broad systemic event. Both at home and around the world we have already seen signs of improvement“. Have you seen or felt the improvement?. Just days before every major financial agency was scrambling and announcing major measures to streamline the Loan Modification process.

With unemployment rising at levels not seen since the great depression, and with the major automakers at the brink of bankruptcy, the Treasury Secretary has decided that the focus needs to be shifted into the consumer loans, IE. Credit Card loans, instead of the previous focus of fixing the mortgage market.

What does this mean to you?

Simply put, load up your credit cards, get into more debt and forget about ever repaying anything. Hopefully you will be able to declare bankruptcy, wipe out your debt that is not secured by your home and ruin your credit. Not a solution in my book but a good way to get more money out of the tax payer and pour salt on an open wound. Secretary Paulson made it clear that he does not have to apologize to anybody because has the ability to change policies as he sees fit.

Now the really good news

In the last couple of weeks, it was announced that more lenders are jumping into a “Streamline Loan Modification System”. What this means to the homeowner in need is that more consumers that can prove significant hardship will be able to stay in their homes if they can prove that they make enough money to afford the new reduced payment terms. I have heard a number of complaints from the “responsible” homeowners that claim it is not fair for their neighbors to get better terms and why it should not be rolled out to EVERYBODY that owes more than their home is worth. My answer to that one is:

1) Would you rather see a foreclosure sign or a property in disrepair next to your property?

2) Are you willing to see your credit suffer the same way that it gets hit to the people that are in financial distress?

America is under tremendous financial stress due to a deteriorating home values. It is not a time to be greedy.

October 1st is right around the corner and the impacts of the reform are already making an impact in the mortgage business. Hopefully it will help more people achieve the dream of owning a home. That is, once the media stops focusing on the doom and gloom of the Lehman failure and the bailouts that are going on almost every week. Yesterday was an incredible opportunity for many borrowers to lock into FHA fixed loans for 30 years at 5.375%. FHA loans currently have climbed from less than 5% early last year, 2007, to close to 50% of all loans being writen today. The fact is that October 1st should represent the opening of gates for MANY consumers that otherwise would have fallen into an adjustable rate or subprime loan into a loan that provides numerous benefits both short and long term.

For the consumer in need to refinance to save their home, this also represents a tremendous oportunity on many fronts. With the large number of foreclosures, lenders are eager to work out new terms with the homeowners to keep them in the home. The biggest challenge is that the homeowners psychology, once they have become late on their mortgage, is one that hits them so hard that they lose all hope and diminishes any motivation to get into a long and painful road filled with red tape and anxiety to save their home. The facts are that for those who find the energy and will to reach out for help will keep their homes. There are millions of bank owned properties. The lenders will do one of several things:

1. Reduce the current interest rate significantly
2. Reduce the principal balance or place that diference in a defered interest free non secured loan
3. A combination of both

I have seen some loan reductions of 50% or higher allowing homeowners to preserve their credit without foreclosure and be able to have manageable monthly payments.

Unfortunately, there are still plenty of bad apples that claim to be experts in “Loan Modifications” and FHA lending. Most of these new companies are entering a business to capitalize on the already beaten up consumer charging money upfront and giving empty promises. In some cases the true experts, licensed and/or attorney’s will ask for a refundable fee to be placed in escrow.

* FHA Press Release *  

WASHINGTON  - Tens of thousands of families could be eligible this year to purchase or refinance their homes using affordable, government-backed mortgages, thanks to the economic growth package signed into law by President Bush.  The Economic Stimulus Act of 2008 will allow HUD’s Federal Housing Administration (FHA) to temporarily increase its loan limits and insure larger mortgages at a more affordable price in high cost areas of the country.  

“The Bush Administration is expanding the pool of eligible borrowers, enabling more American families to qualify for safe, affordable FHA-insured mortgage loans.  These temporarily higher loan limits are a shot in the arm for communities trying to sustain property values, bringing much-needed liquidity to the mortgage market, while helping many current homeowners who desperately need to refinance,” said HUD Secretary Alphonso Jackson at a forum on how to prevent foreclosure at the Operation Hope Center in Los Angeles and a Hope Now Alliance event in Anaheim.

Beginning tomorrow, HUD will offer temporary FHA loan limits that will range from $271,050 to $729,750.  Overall, the change in loan limits will help provide economic stability to America ‘s communities and give nearly 240,000 additional homeowners and homebuyers a safer, more affordable mortgage alternative.  The maximum amount of $729,750 will only be applicable to extremely high-cost metropolitan areas such as: Los Angeles County , San Francisco County , Orange County , and Santa Barbara County .  Previously, FHA’s loan limits in these very high-cost areas were capped at $362,790.

The Economic Stimulus Act of 2008 permits FHA to insure loans on amounts up to 125 percent of the area median house price, when that amount is between the national minimum ($271,050) and maximum ($729,750). The new minimum and maximum loan limits are based on 65 percent and 175 percent of the conforming loan limits for Government-Sponsored Enterprises in 2008, which is $417,000.  The FHA used a combination of existing government data sets and available commercial information to determine the median sales price for each area.  The change in loan limits are applicable to all FHA-insured mortgage loans endorsed after HUD publishes the increased loan limits tomorrow, and it lasts until December 31, 2008 .  

By increasing loan limits nationwide, FHA will provide much needed liquidity and stability to housing markets across the country.  Already, as conventional sources of mortgage credit have been contracting, FHA has been filling the void. From September to December 2007, FHA facilitated more than $38 billion of much-needed mortgage activity in the housing market, more than $15 billion of which was through FHASecure, FHA’s refinancing product.  By focusing on 30-year fixed rate mortgages, FHA helps homeowners avoid and escape the risks associated exotic subprime mortgage products, which have resulted in rising default and foreclosure rates.

“This is not an easy crisis to address, and there is no silver-bullet, but I know that we can help hundreds of thousands of people keep their homes, and we can calm the waters,” said Jackson .

In January 2009, FHA’s maximum loan limit will return to $362,790, unless the U.S. Congress approves bipartisan legislation to permanently increase loan limits as part of the FHA Modernization bill, which is still awaiting final approval on Capitol Hill.  

“In January 2009 the loan limits will return to their previous setting,” Jackson said.  ”That is why we need to permanently raise the loan limits to an acceptable level that more accurately reflect housing prices nationwide.  We also need to make the minimum down payment more flexible and create a fairer insurance premium structure.  This will allow more families to use FHA.”  

FHA loan limits are based on the county in which the property is located.  However, for properties located in metropolitan or micropolitan statistical areas, the limit is set at that of the county with the highest limit within the metropolitan or micropolitan area.  

The new temporary FHA loan limits for California are attached below.  The full text of the Secretary’s remarks can be found on the HUD website.

Democratic leaders on Wednesday called on President Bush to appoint a “mortgage czar” to coordinate the federal response to the subprime mortgage crisis, saying the administration’s response so far has been inadequate. Senate Majority Leader Harry Reid, D-Nev., characterized the mortgage woes and the accompanying wave of foreclosures as a “national crisis” and said the administration had been slow to recognize the problem.The new special adviser would serve as a watchdog to monitor the markets for potential problems and work with regulators.Atop the Democrats’ agenda are proposals to overhaul the Federal Housing Administration (FHA) and increase the role of the mortgage finance giants Fannie Mae and Freddie Mac in boosting the markets.In more immediate action, the House is expected to vote Thursday on a measure (HR 3648) to help ease the tax burden on some homeowners facing foreclosure, and a House panel will mark up a bill (HR 3609) to modify certain bankruptcy rules to help people seeking to restructure home loans.Sen. Richard C. Shelby, R-Ala., ranking member of the Banking, Housing and Urban Affairs Committee, said the ideas being promoted by Democratic leaders were already under consideration.Shelby said officials at Treasury and the Federal Reserve are handling the subprime crisis and little would be gained by the addition of a new adviser. “Their efforts should continue unimpeded by another layer of bureaucracy,” he said.The House has passed a regulatory overhaul of Fannie Mae and Freddie Mac (HR 1427) and a bill to modernize the FHA (HR 1852).Christopher J. Dodd, D-Conn., who chairs the Senate Banking Committee, said his panel is “committed to working with the president to get FHA modernization legislation to his desk shortly.”Reaching a deal on Fannie and Freddie could prove more difficult. Democrats want the administration to further raise the investment portfolio caps on Fannie and Freddie, which together total about $1.5 trillion.Recently, Fannie and Freddie’s regulator said the government-sponsored enterprises (GSEs) could make relatively small increases in their portfolios. Lawmakers have said that the response is not enough.Sen. Charles E. Schumer, D-N.Y., plans to offer legislation to temporarily boost the portfolio caps by 10 percent. Fannie and Freddie would be required to use at least 80 percent of the money freed up by the change to help struggling subprime borrowers refinance loans.Meanwhile, discussions with the administration on steps that could be taken without legislation are progressing.The administration has suggested that any portfolio increases should be part of a broad overhaul of Fannie and Freddie. Both companies weathered major accounting scandals in recent years.Democrats are unlikely to tackle a broader overhaul and are leaning toward addressing the portfolio increase as a stand-alone issue. Barney Frank, D-Mass., who chairs the House Financial Services Committee, suggested that a temporary, subprime-focused portfolio increase could be acceptable.Schumer also called for action: “We should not wait for the full GSE reform to get the needed relief, because in the next three to six months things are going to get very bad.” About 2 million American homeowners are at risk of losing their homes to foreclosure. That includes many subprime borrowers who purchased mortgage products that are now resetting to much higher payment rates.Elsewhere, the House Judiciary Commercial and Administrative Law panel will mark up the bill that would allow bankruptcy courts to modify the terms of a home mortgage, a step not allowed under law.Rep. Brad Miller, D-N.C., said the changes could help keep as many as 600,000 people in their homes over the next two years by allowing them to restructure the terms of their loans. On the House floor, lawmakers are likely to approve the measure that would remove a tax quirk that can hit homeowners whose debt is forgiven through foreclosure, sale or loan restructuring. The bill is similar to an administration proposal, though the president prefers a temporary provision that would not be offset with new revenue

The Bush administration announced a new mortgage industry coalition on Wednesday aimed at helping homeowners avoid being trapped in a rising tide of foreclosures.

Treasury Secretary Henry M. Paulson Jr. said the initiative would help coordinate efforts by financial companies to help an estimated 2 million homeowners whose introductory mortgages with low rates are now resetting at much higher rates, greatly increasing the risk they will default on the loans.

“A combination of stagnant or falling house prices, low down payment mortgages and resetting adjustable-rate mortgage rates are creating real challenges for many American homeowners,” Mr. Paulson said in a statement.

He said that 11 of the largest mortgage service companies, representing 60 percent of all mortgages in the country, had agreed to join the new coalition. Other members will include mortgage counseling agencies, investors and large trade organizations.

“These leaders recognize that by working together, coordinating and scaling up their activities, they will be able to work toward the goal to help more homeowners,” Mr. Paulson said.

The initiative, which has been named Hope Now, follows an announcement by President Bush on Aug. 31 that the administration was making changes in the Federal Home Loan Administration insured-loan program so that more people could qualify for F.H.A.-insured loans.

Democrats, however, have criticized the administration, saying the actions so far have been too little and too late to significantly address a growing foreclosure crisis as homeowners struggle to deal with sharp increases in their adjustable mortgage payments.

The rising defaults, which started in the market for subprime mortgages — loans offered to people with weak credit histories — upset global financial markets in August, prompting the Federal Reserve to cut interest rates last month to make sure the country did not get pushed into a recession.

Mr. Paulson said the new coalition had put together an “aggressive plan to reach more homeowners and help them find a way to stay in their homes.”

He said that he was happy to see that the American Securitization Forum, which represents investors who buy mortgages that have been repackaged into securities, had agreed to join the alliance. He expressed hope that the group would grow to represent more than 60 percent of outstanding mortgages.

“We need greater participation if we are going to get to all those that need help as quickly as possible,” he said.

According to some estimates, mortgages converting from low teaser rates could mean an extra $250 to $300 in monthly payments on a typical $1,200 monthly mortgage payment.

WASHINGTON – President George W. Bush today announced that HUD’s Federal Housing Administration (FHA) will help an estimated 240,000 families avoid foreclosure by enhancing its refinancing program effective immediately. Under the new FHASecure plan, FHA will allow families with strong credit histories who had been making timely mortgage payments before their loans reset-but are now in default-to qualify for refinancing.

In addition, FHA will implement risk-based premiums that match the borrower’s credit profile with the insurance premium they pay-i.e., riskier borrowers pay more. This common-sense, risk-based pricing structure will begin on January 1, 2008.

“Many hard-working American families who were able to make their mortgage payments under the initial teaser terms of the exotic loan are now struggling to make ends meet because their rates have doubled or tripled,” said HUD Secretary Alphonso Jackson. “FHASecure will bring stability to the housing market and give eligible families who were in good financial standing before their loans reset a chance to keep their homes.”

The combination of FHASecure and risk-based premium pricing will permit FHA to return to the role it was originally designed to play, bringing stability to the real estate market by helping break today’s cycle of foreclosures and price depreciation and creating much needed liquidity in the now-constricted mortgage market.

FHA has recently experienced a substantial increase in the number of conventional borrowers refinancing into FHA products. With FHASecure, it can help even more. The number of these refinancing transactions has tripled since the start of 2006. FHA’s transactions are projected to surpass 100,000 loans by the end of the fiscal year. To date, these figures do not include refinances for delinquent borrowers.

The FHASecure initiative will operate under the same safe guidelines as the FHA’s existing mortgage insurance program without affecting FHA’s financial health. Eligible homeowners will be required to meet strict underwriting guidelines and pay a mortgage insurance premium, which offsets the risk to FHA’s insurance fund at no cost to the taxpayer.

The risk-based insurance premium structure will further expand FHA’s reach to additional underserved borrowers, particularly minorities and first-time homebuyers who have been disproportionately lured into exotic mortgages, and enhance the FHA’s overall risk management. The move to risk-based premiums ensures that FHA remains on solid financial footing as a self-financed agency for the long-term.

FHASecure, like all FHA products, will be underwritten to ensure the borrowers have the ability to repay the loan, will require escrow for taxes and insurance, and will continue to offer unprecedented foreclosure prevention assistance. The FHA has never permitted and will not include pre-payment penalties or teaser rates that are common in exotic mortgages and have caused much of the current market troubles.

To qualify for FHASecure, eligible homeowners must meet the following five criteria:

1. A history of on-time mortgage payments before the borrower’s teaser rates expired and loans reset;
2. Interest rates must have or will reset between June 2005 and December 2008;
3. Three percent cash or equity in the home;
4. A sustained history of employment; and
5. Sufficient income to make the mortgage payment.

“FHASecure is designed for families who are good borrowers but were steered into high-cost loans with teaser rates,” said Assistant Secretary for Housing-FHA Commissioner Brian Montgomery. “These homeowners, many of whom are minorities, need a safe, affordable mortgage product that will help build wealth. All FHA borrowers pay mortgage insurance premiums to offset claims to the FHA insurance fund and ultimately prevent risk to the taxpayer.”

FHASecure will also bring much-needed liquidity to the mortgage market. FHA anticipates more lenders will offer FHA-insured loans, pool them, and securitize them with the Government National Mortgage Association (Ginnie Mae), which has the full faith and credit of the U.S. government. This guarantee makes Ginnie Mae’s mortgage-backed securities the safest on the market and helps to channel greater capital into the housing market, benefiting U.S. homeowners.

Since its inception in 1934, FHA has helped almost 35 million people become homeowners, making it the largest insurer of mortgages in the world. The 109th Congress introduced the Expanding American Homeownership Act in June 2006 which would enable FHA to be a safe option for more underserved low- and moderate-income and minority families so they can achieve the American Dream of homeownership. Today, President Bush also urged Congress to quickly pass the Administration’s FHA modernization proposal to help more families in need.

For more information about FHASecure and other FHA products, please call 1-800-CALL-FHA or visit www.fha.gov or www.hud.gov. For a list of your local homeownership center or a HUD-approved housing counseling center, go to www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm