2009 window of opportunity?

After having a discussion with my lender associate, I gleened some of his insights in the financial market and found the information very insightful. I pass his insight and give my spin on the current housing and financial markets. As you factor in your plans in 2009, keep in mind the following information.

Could we see 4% in the future for mortgage rates? YES, in fact they are there now.

The Federal Reserve has announced plans to push mortgage rates lower in order to stimulate demand in the housing market - more on that later in this letter. If rates drop any lower, it may start a refinance frenzy that will slow down the time it takes to get loans approved. If you are considering a refinance, it's wise to start the process now and "float" until it reaches a rate you want to lock in.

It's official...the high balance loan limits for Fannie/Freddie/FHA are permanent.

The limits by county: SLO - $561,200; Santa Barbara $603,750; LA, SF & San Jose - $625,500. If you have or need a jumbo loan, you should really look into finance options with rates this low. Keep in mind, loans larger than $417,000 have some restrictions on them. Call for details.

New mortgage rule locks out some investors from getting conforming loans.

Fannie Mae and Freddie Mac have established a new eligibility rule for borrowers owning multiple properties. If you want to get a loan on an investment property, then you can't own more than four financed properties.

FHA Rescue program - "Hope for Homeowners"- launched in October 2008.

This was a part of the new housing act passed in July 2008. To avoid large foreclosure losses, existing lenders can take a smaller loss and write down a mortgage to 90 percent of the current appraised value, and then the borrower has to share at least 50% of all future appreciation with FHA. The existing lender has to voluntarily agree to what amounts to a "short" refinance (as opposed to a short sale). This program is not widely available yet - keep you posted.

Loan modification firms require big non-refundable deposits... but not at CEDC.

There's been horror stories reported about some loan modification companies that have sprung up recently to help homeowners with unaffordable loans. But I've heard it's different with an organization called the Cabrillo Economic Development Corporation and their Neighbor Works Home Ownership Center in Santa Maria. Their mortgage resolution is low cost - $3.50 for a credit report. They are located at 1660 S. Broadway, Suite 200. Phone: (805) 614-0267.

The Fed to buy $500+ billion of mortgage bonds...it could end up owning your loan.

The Federal Reserve announced a plan to purchase $500 billion of mortgage bonds from Fannie Mae and Freddie Mac. This is significant: some homeowners will be making mortgage payments that will be directly forwarded to the Fed. In a sense, this plan may do what the $700 billion bailout was meant to: relieve banks of their illiquid assets. And speaking of bailouts...

"Helicopter Ben" Bernanke is conducting his own economic recovery program.

While everyone is watching Treasury Secretary Henry Paulson and his $700 billion bailout, Federal Reserve Chairman Ben Bernanke has been calmly and determinedly attacking the economic crisis - and his plan is measured in trillions, not billions. Bernanke gave a speech in 2002 describing how in times of financial crisis the Federal Reserve could flood the economy with capital...the Fed could "drop buckets of money from a helicopter". Ben is in the chopper...

The Fed's weapon of choice: "quantitative easing" (ie., printing money...lots of it).

The Federal Reserve has an expandable balance sheet and is off-budget - not subject to any appropriations or debt limits because it is not taxpayer money - basically free money to Congress and the President. The Fed had assets of about $900 billion before the latest turmoil began in September of 2008, since then the Fed has more than doubled its assets to $2.2 trillion. So over $1 trillion of newly created money has just been pumped into the system through loans the Fed has made to banks, investment and insurance firms. Another trillion dollars will be injected with the new mortgage bond purchase plan and another plan to buy student loan and credit card debt.

What are the risks of the current inflated money supply?

Having expanded the money supply so quickly, the Fed may not have the political courage or even the foresight to shrink it fast enough once the crisis has passed, and the extra liquidity could fuel inflation, however remote that sounds now. And we know inflation brings higher interest rates to combat it. So how do you hedge against the possible inflation risk down the road? If you have an ARM, then you might refinance now and lock in today's historically low fixed rates if you are able to.

What are the opportunities of the current inflated money supply?

If you are a renter or investor and can plan on owning for at least 5 years, then you should seriously consider buying property right now. If you buy undervalued real estate and finance it with today's low fixed rates, you could end up paying down the debt with very cheap dollars in the future - possibly even 60 cents on the dollar when inflation returns to more historical norms.

The buyer window of opportunity is upon us.

Learn about the housing market, available loans, and homeowner tax benefits. Call for details, or if you have any questions about real estate or mortgage financing. Call me today at 805.264.7772.