Mortgage and Real Estate Blog

IGNORE THE HEADLINES AND STOP WATCHING THE NEWS

Saint Paul, MN. Foreclosure foreclosure foreclosure. That is all we see and hear. This would have you believing Chicken Little that the sky is falling. Yes, there are a lot of personal financial disasters with a record number of people losing their homes. The vast majority fall into two categories:

• EXISTING homeowners who were encouraged to load up on debt by using home equity loans to pay for anything and everything, stripping away the safety and security of their equity position. I constantly speak to people who have owned their home 10, 15, 20-years, who owe 100% of TODAYS VALUE. I must ask. Is that a banking industry issue, or a consumer gone crazy issue?
• NEW homeowners who over bought using 100% financing and high risk adjustable and interest only loans. Home owners were drawn to these loans like bugs to a bug zapper because they allowed them to buy more expensive homes while keeping payments low, albeit temporarily. Again, a banking industry issue, or a consumer gone crazy issue?

The reality, while the numbers are at record highs, the overall percentage is extremely low. Adjustable rate mortgages cover only a small fraction of homes. Sub-prime loans makes up only a fraction of adjustable loans. Furthermore, most foreclosures end up with the lender recovering much of the original principal. So why is there such enormous unease with consumers and the financial markets?

THE GOOD NEWS. For every foreclosure there is a first-time home buyer getting a fantastic deal! As values increased, many first-time buyers were priced right out of the market. With the finance everyone for anything party over, home prices have fallen nationwide around 5%. Some markets even more.

This won't last for ever. Yet many people are sitting on the sidelines waiting, hoping, for prices to fall further. Look at the chart below. If one assumes a little further drop in home prices, does it really make sense to wait to buy? Rates are low today, but as the economy recovers, rates should go up to stem inflation. A 30-year fixed rate under 6.00% may soon be only a distant memory.

THE BOTTOM LINE: If you are financially ready to buy a home, plan on living in it for 4 to 5-years or longer, you are almost foolish NOT to buy a home today.

Learn more at www.MnHomesAndLoans.com

Copyright 2008, Joe Metzler, www.JoeMetzler.com. All Rights Reserved.

THE DEATH OF 100% ZERO DOWN FINANCING?  

MINNEAPOLIS, MN: Lenders nationwide employ a variety of sophisticated risk modeling tools to help assess key factors that shape the future direction of the housing market, including housing supply, foreclosure inventory, delinquencies, employment rates, and price appreciation trends. Based on lender assessments, significant market downturns have been noted in many areas of the country.  

HISTORY LESSON: For a refresher, up until the late 1990's, there really was no such things as 100% home financing EXCEPT for a VA loan. FHA 3% down was your only low down payment option, as standard loans required 5% down. The first zero down loans required excellent credit scores, and no real payment shock. If you had great credit, were successfully paying your rent, you could buy a home zero down if the mortgage payment was about equal or lower than your rent.  

By 2005, Zero down 100% financing was the norm. Just about everyone could get financing. Furthermore, many loans were made to homeowners with somewhat non-traditional or "non-conforming" situations, be it a poor credit history, inability to document income, or any number of factors that do not fit within the traditional "box" for home loans. These loans are often called "Sub-Prime", or "Alt-A", meaning that they were somewhat riskier in nature than A credit, prime, or traditional loans.  

WHAT'S HAPPENING TODAY: As a result of today's market, and in order to continue to provide loans for qualified borrowers, both lenders and the private mortgage insurance companies have been making dramatic changes across the board. The biggest change is what appears to be the imminent death of most 100% financing options.    

Consumers looking to buy with 100% financing better get approved, pick out a home and close immediately. By March 1, 2008, these loans will be near impossible to find. New credit score requirements, and lack of availability to get mortgage insurance on anything over 95% loan-to-value will rule the land.  

WHAT DOES THIS MEAN: Simply put, lenders again are demanding quality people with some skin in the game (down payment). What were the old rules (pre 1999) are back again. FHA with a gift from your parents for down payment is already very popular again. A few state and county bond programs will be available, but much harder to find. VA loans for Veterans still exist.  

IS THIS THE END OF THE HOUSING MARKET? NO! Somehow we all managed to come up with down payment and buy homes we could afford before zero down and crazy lending helped create the boom that turned bust. Will it be difficult over the short-term, probably. But truly, the only challenge will be the time it takes for the consumer mindset to forget zero down, easy lending, and return to having good credit, with a little saving for down payment.  

Learn more at http://www.joemetzler.com

Congress Acts to Promote Homeownership - Economic Stimulus Package Passes Congress

The Senate & House last night passed the stimulus package that includes higher mortgage limits for both FHA and the GSEs. The original stimulus proposals only involved tax issues. Because of the importance of this legislation, the bill could be signed by the President as early as today.

Below are the key provisions of the bill with respect to the mortgages.

First, it is a temporary increase that expires on December 31, 2008.   We will discuss the FHA and GSE changes separately below.

FHA

The mortgage limit provisions include four temporary changes for the FHA program.   (As a reminder, the FHA modernization bill includes higher mortgage limits. It is possible that legislation could make this provision permanent or limit the FHA maximum limit to $417,000 as the Senate bill does.)

*         Raises the base loan limit ("floor") to 65% of the current GSE limit ($417,000) = $271,050

This provision is effective the day the President signs the bill.

*         Raises the maximum FHA loan limit from $362,750 to $729,750 (175% of the GSE base limit - $417,000)

*   Secretary has the discretion to raise the maximum loan limit by $100,000 in an area at the $729,750 limit for any size residence (including 2-4 family units).

Only "high cost areas in California and Hawaii (Honolulu) are likely to increase to the $729,750 maximum.  Washington D.C., for example, will increase to about $600,000 based on our analysis of available data. 

*         Increases the calculation factor from 95% to 125% of area median sales price for determining "high cost" areas.  We have an updated list of affected areas. 

*         Implements Fannie Mae/Freddie Mac ratios for calculating maximum loan amounts for two-, three- and four-family units in all of the above categories.

Fannie Mae and Freddie Mac two-,three- and four family unit properties increase the same percentage that the single family limit increases. In 2006. the GSE single family limit increased 15.95% and the mortgage limits
for multiple units increased 15.95%.

This change should result in a significant increase in FHA limits for multi-unit properties.  In the past, FHA used fixed percentages of the single family limit  (i.e. 107% of single family for two family unit, 130% for three-family unit and 150% for four-family units).  For example, under the new provision, if the single family limit increases slightly over 100% in a "high cost area" (from $362,790 to $729,750), we would assume the multiple unit amounts would increase the same percentage (slightly over 100%).

Fannie Mae & Freddie Mac

The bill raises the GSE maximum loan limit to $729,750.  The bill states that the GSE limits should follow the HUD mortgage limit calculation process and therefore the GSEs and FHA will have the same limits in areas that
exceed $417,000.   Fannie Mae and Freddie Mac's current limit will, in effect, become their "floor" ($417,000).   There are a number of markets that will benefit dramatically from this change to the GSE mortgage limits, though not as many as NAR advocated. NAR will continue to advocate for broader expansion of the loan limits. 

THIS DOES NOT MEAN EVERYONE GETS $729,750! Many area of the country will only see SMALL increases!

Give it a couple of weeks, then consult your LOCAL mortgage professional for your areas new (temporary) loan limit!

IMPORTANT MESSAGE FOR HOMEOWNERS -- WASHINGTON UPDATE

As part of the economic stimulus package being negotiated by House Democrats and the Treasury Department, Fannie and Freddie loan limits will increased for one year up to $730,000.   The increase will be adjusted for local markets at 125% of local median home price.  The move will significantly improve liquidity and pricing in the jumbo market.   The agreement also includes raising the FHA loan limits to the same amount.  We are trying to confirm whether the other provisions of FHA reform will be included (such as lowering downpayment requirements).   But at a minimum, the loan limits will be increased.

This represents an agreement in principle and must still go through the legislative process.  My best guess is that will happen sometime after the State of the Union next week, likely progressing into early February.

This is the most significant action to date proposed by the federal government to stabilize the housing market and should allow for many people to refinance into a new mortgage loan at todays low interestt rates.

Here in the Minneapolis / Saint Paul, Minnesota area, and the rest of the country, home owners and future home buyers have been hearing quite a bit of talk from newspapers, television and the Internet on the "Mortgage Accelerator" programs. Have you heard of them? They can go by the name "mortgage accelerator" or "all-in-one" mortgage, "MMA" (money  merge account), and "Home Ownership Accelerator".

These products are simply a new financial tool for homeowners to pay off their mortgage and leverage their own income (the bank of YOU). There are an increasing number of mortgage companies offering these products and it is important to me that you have a good knowledge of how it works from your Minnesota Mortgage source!

You may be thinking...pay off my mortgage? For our parents, the answer was always YES. Do it as fast as you can. For the past 10-years, the standard answer has been "NO"!  We now are obsessed with the mentality of ‘leverage', and trained to use record low mortgage rates to our advantage as cheap money to be invested elsewhere. We have gone from consumers who only buy what we can afford, to financing everything in hope for a bigger payoff.

But the fact is that the only real result of this has been that we are no longer a nation of savers. Today, baby boomer's are approaching retirement with less than we need banked. So, how will we fund our retirement? 85% of homeowners are counting on home equity to support their retirement plans! Not a bad plan, except that price appreciation is easing and interest rates are rising. So, retirement is looming, most notably for Baby Boomer's, and the crazy price appreciation we are counting on has come to a screaching halt!

So, we need a fresh solution. If we can't count on appreciation to build equity, we need to pay down our mortgage debt more aggressively to build equity. The best solution is to ‘retire' your home loan debt before you retire so that you don't have to use some of your hard-earned retirement money to make mortgage payments or worse, sell the house and downsize.

Retiring without a mortgage allows for a lot more options:

• You can stay in your own home for a while
• You can downsize and have a sizable chunk of equity to invest
• You can travel more to see family and the world

Are they real, and do they work? Well, yes, they are real and they work. They all use the same basic concept. There are quite a few programs that I have heard about and researched, but only is the clear winner to help your accomplish this retirement objective. The product is called the "Home Ownership Accelerator". The competing programs can work, but the reason this one is the best is that is wraps everything into one simple easy to use (shall I say idiot proof) program.

It allows you to do something for yourself, putting your own money to work more aggressively:

• Saves thousands in interest
• Pays off your mortgage in about half the time
• Does not force you to change your spending habits to accomplish your goal

Buy now, pay later. The mortgage business for years now has done a masterful job of creating loan products that make home loans more affordable. Zero Down, Interest Only, Teaser Adjustable loans, Option ARM loans, and Home Equity loans for just about anything.

The End of Easy Money. A decade of low-interest lending allowed U.S. consumers to run up debt. But with rates higher, and housing prices flat, they can no longer borrow their way out of trouble.

Many people, especially baby-boomers, are now waking up to the challenge of paying off their homes before retirements. These homeowners are starting to realize that its time to STOP cashing out their equity and start cashing it back in to avoid having hefty mortgage payments that will prevent retirement or limit their retirement lifestyle.

This loan focuses on people who want to pay off their home and debt, rather than expand it, or simply tread water by constantly hitting the reset button with a new standard refinance.

The Accelerator is your mortgage, checking, savings and equity line of credit combined into one flexible and powerful account. By bringing together your accounts, the CMG Home Ownership Accelerator can help you make your money work harder and reduce the amount of interest you pay on your mortgage.

Just by using your checking account you're reducing your mortgage balance, so you only pay interest on the lower amount. And the lower your balance, the lower your interest expense, so you start saving immediately. This will help you to pay off your mortgage years earlier. And as is simply a normal checking account, you have access to your cash anytime you like. It's the same with your savings - when you need them, they're there.

Read our extensive web site to learn all about this great loan, including: A quick Home Ownership Accelerator overview, a detailed Home Ownership Accelerator Movie explaining everything, read common Home Ownership Accelerator questions, read actual Accelerator customer testimonials, cut through the clutter with Home Ownership Accelerator myths, and even sign up for a FREE Home Ownership Accelerator Seminar. The Accelerator not right for you? Check out our full line of traditional low rate, low cost conventional mortgages

We need to take control of our future financial planning NOW to make sure we live a comfortable retirement. More and more tools are available to help us get there. This new product, the Home Ownership Accelerator, is an exciting addition to that tool box.

Take a test drive of this mortgage program to see for free how it would work for you.  Then contact us, your Minnesota Mortgage professionals for a FREE, No Cost, No Obligation complimentary consultation.

Bank of America to buy Countrywide 

BofA has a good name... If they are smart, they will dump the Countrywide name ASAP.

Anyway, its a bunch of press release crap, but here you go:

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Text straight from an E-Mail by Todd A. Dal Porto Senior Managing Director and President
Countrywide^®, America's Wholesale Lender^®

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Dear Valued Business Partner:

Over the last four decades, Countrywide has enabled approximately 20 million borrowers to achieve the dream of homeownership. In order to enhance what we have worked so hard to build over the years, Countrywide has taken a decisive step to ensure our continued industry leadership. Today, we announced that Bank of America, which has been an important financial partner of Countrywide for many years, will be acquiring our Company. BofA is one of the largest and most influential financial institutions in the United States and internationally, and we firmly believe that the combination of Countrywide and BofA will create the most powerful mortgage franchise in the world.

As you will see in the below press release announcing this transaction, BofA has announced that it plans to operate Countrywide separately under the Countrywide brand, with integration occurring no sooner than 2009. We are confident that both our servicing and origination businesses, as well as other aspects of our operations will be substantially enhanced as a result of this transaction. Notable, in statements from BofA today, is the mention of the Wholesale distribution network.

Please know that Countrywide deeply appreciates our partnership with you — past, present and future.

For nearly 40 years, we have focused on real estate finance and have helped millions of Americans realize the dream of homeownership. Thank you for continuing to choose Countrywide. Your partnership is invaluable, and we look forward to continuing to play a critical role in your long-term growth and success.

BIG BAD LENDERS:

The beauty of a blog is the ability to spread the word. A blog called "Calculated Risk", written by Tanta is available now that describes how Countrywide Home Loans got caught recreating foreclosure notices in court!

Yup, forging documents to better their position in court!

Mortgage giant Countrywide has a long history of mistreating customers and other nefarious activities. Countrywide, in and of itself, especially with the promotion of the Option ARM loans nationwide, and their dominance of the sub-prime market before it collapsed, has had a major impact of the foreclosure numbers nationwide.

Their ad's play on TV all day, everyday, on all channels across the country trying to woe in more suckers by saying. "Nobody can do what Countrywide can". How true that statement is... Because every other lender can do it better, and CHEAPER!

READ HER BLOG

FHA loans can help first-time buyers

So, you want to buy a home? If you have little or no money for a down payment, weak or no credit, an FHA loan could be what you need to buy a house.

The Federal Housing Administration, a part of the Department of Housing and Urban Development, was created 70 years ago to help first-time buyers, especially low-to-moderate income families and minorities, get the home financing they need.

Since the federal government guarantees repayment, the lender knows it will not lose money on the deal. That allows the bank or mortgage company to offer competitive rates on a loan that's easier to qualify for than some conventional loans.

You can get an FHA-backed loan from many lenders. Most small brokers can’t offer them, and many lenders have only recently jumped on the FHA wagon as sub-prime loans have basically gone away, so be sure to contact someone with plenty of FHA experience (like us!) when inquiring about FHA.

FHA loans aren't as popular as the once were, primarily for four reasons:

• Because the limits on how much you can borrow didn't keep up with soaring home prices. (check your areas loan limit)

• The explosion of loan products that were easier to offer customers

• The explosion of small brokers unable to offer FHA loans put people into loans they could offer

• FHA loans are more complicated for the Loan Officer, so many never took the time to learn them.

As a result, the FHA loan numbers are way down from years past, but with a wave of foreclosures making alternatives such as sub-prime loans and 100% financing more difficult to obtain, FHA is growing in popularity again, and every first-time buyer should at least consider an FHA loan. Your parents probably got an FHA loan to buy their first home!

You don't need a big down payment and your lender can help you get it
An FHA mortgage current requires only 3% down -- that's $30 for every $1,000 you borrow. Don't have it. No problem. It can be a gift from a relative, friend or an organization that provides financial assistance. At the time of writing this, pending legislation is attempting to lower the down payment to just 1.5% down - so be sure to inquire with your mortgage professional about current guidelines.

Your credit doesn't have to be perfect (but you can’t be horrible!)
On conventional loans, think square peg into square hole. FHA is more liberal, and while they look at credit scores, your score isn’t as important. No credit score at all? No problem.

Your overall picture is more important to FHA. FHA cares about your record of paying your bills, and paying them on time, for at least the past two years. It will overlook minor lapses on your credit history if there's a well documented reasonable excuse such as losing a job or serious illness. But your bill-paying prowess is a critical factor for every application. In the end, the FHA does have rules that determine who gets a mortgage and who doesn't, but again, think more liberal, and more willing to work with you.

 There are things the FHA will not overlook. If you've:

• Declared bankruptcy, you must wait two years from the date of discharge and have re-established good credit before you can apply.
• Lost a home through foreclosure, you must wait three years and have a clean credit history during that time.

FHA doesn’t lend trouble

The maximum house payment FHA allows (Your debt-to-income ratio) may be considerably lower for an FHA loan than a conventional loan. That sounds bad, but is actually good.

Add your total mortgage payment (principal, interest, taxes, hazard insurance, mortgage insurance and homeowner's dues, if they apply) to regular monthly obligations, such as credit card debt, auto loans, student loans or court-ordered payments like child support or alimony. (Utilities, food, clothing and so forth are not factored in). Then you divide this total by your monthly income, which is the before-tax income of those making the payments.

You can qualify for an FHA loan if your monthly debt payments are no more than 43% of your income. Most conventional loans can get loan approval significantly higher (as much as 64.99%), which allows you to buy a lot more home than you probably should. This is a giant factor in the mortgage meltdown. People bought more house than they should have!

There are many different types of mortgages to choose from

The FHA offers the typical 30-year fixed-rate loans and short-term adjustable loans, but doesn’t offer high risk loans like interest-only mortgages.

Competitive rates.

The interest rate will depend on your credit history, with the best rates given to those with the best record of paying their bills and earning a steady income.

But in general, you can expect an FHA loan to be very competitive to any other loan you might qualify for.  An FHA loan is almost guaranteed to be cheaper than a sub-prime loan, which had been very popular the past ten years. That's why it's critical to seek an FHA loan before accepting such a high-cost mortgage.

Limits on how much you can borrow
FHA has one drawback, and that is the maximum amount you're allowed to borrow depends on where you live. It's easy to check the maximum loan amounts in your area.

They are working on increasing the maximum loan limits in the future, so be sure to check before you assume.

The Bottom Line

FHA loans have helped thousands of people buy their first homes. Could one help you? Contact an FHA professional like us for a free no cost, no obligation analysis of your situation, you could be a homeowner a month from now!

More info: www.JoeMetzler.com

U.S. Home Foreclosures UP 68% last month... Or NOT?

Saint paul, Minnesota. December 2007: Home owners increasingly failed to keep up with their mortgage payments in November, as the number of foreclosure filings APPEARED to increase a whopping 68% compared with November 2006 according to Realty-Trac, Inc.

October 2007 filings had fallen 10% from Oct 2006 numbers, and August to September 2007 was down 8% from the same period in 2006.

If you look at November 2007 numbers, this works out to allegedly be 1 in 617 households in foreclosure.

You may notice I keep saying appear and allegedly? This is because as usual, one must look a bit deeper into quick disastrous doom and gloom sound bites from the media.

The filings report numbers include all default notices, auction sale notices, and bank repossessions.

But, a huge portion of these defaults are from people who took out mortgages in 2004, 2005, and 2006. These also correlate to a huge up-tick in 80/20 type loans. While I haven't been able to find exact numbers, I can tell you from my day to day loan originations that the vast majority of those people got two loans in order to purchase their home.

There is also statistical data of people overwhelmed by the HELOC (Home Equity Line Of Credit) they took out to pay credit cards, cars, vacations, and more. Many of these people previously were in good loan-to-value positions, but took out the equity loan up to 100% of the homes value. The big surge in equity loans was also in 2003 - 2006.

If you are defaulting on your first mortgage, your most likely defaulting on your second mortgage (or third for that matter). The numbers provided by Realty-Trac fail to compensate for that fact, and only make a small mention that some people may receive more than once notice if they have multiple mortgages. 

So is it really 1 in 617 homes, or something significantly less?

Read all my blogs at www.MetzlerMortgage.com/mortgageblog

Mortgage Insurance is Once Again Tax Deductible for Borrowers!   

Saint Paul, Minnesota. December 2007:

Turbulence in the mortgage marketplace has been big news in 2007. But here's something bigger...and better! MI Tax Deductibility is back and this time for three more years.

This week, our United States Congress has approved or renewed several tax relief measures to keep the dream of homeownership alive for both new homebuyers and existing homeowners. The extension of MI tax deductibility is top among them. The legislation itself is no different than what was passed last year. MI premiums are still fully deductible for taxpayers earning up to $100,000, and partially deductible for those with incomes between $100,000 and $109,000. The only difference is that the deduction now applies to policies written through the 2010 calendar year.

Extending MI tax deductibility is a crucial move for many reasons:

• Risky low down payment loans are no longer a viable option and are being replaced by more secure loans with mortgage insurance.
• Mortgage insurance is not only safe and predictable, but it's also cancelable and packed with features borrowers want today
• Consumers today have an increased understanding of how mortgage insurance can benefit them, and the extension of MI Tax Deductibility will help continue that trend.

Consumers, Lenders, and Realtors - Visit http://www.smartermi.com to learn more.