Eric Murrietta

On March 4, 2009 - both Fannie Mae and Freddie Mac, are to unveil how they will handle the plan laid out by President Obama almost two weeks ago. While the financial markets continuing to reel, (see AIG losses, the DOW falling, and GE closing at its lowest point since 1993) the housing market isn't faring much better.

It is time! Panic seemingly begets more panic in this market. Here is the "plan" in its simplest form.

The plan supposedly will "...help up to 7 to 9 million families restructure or refinance their mortgages to avoid foreclosure."

1. Affordability: Provide access to low-cost refinancing for responsible homeowners suffering from falling home prices.

• This is designed to help people who own "Fannie Mae and Freddie Mac loans to refinance through these two institutions." This will hopefully help reduce monthly payments by effectively lowering interest rates for these families.

Opinion: This will most likely be some sort of streamline refinance. I believe you will have to work through the investor that owns the loan, i.e. Countrywide, Flagstar Bank, Chase, etc. and they will be able to use the "streamline" program to lower your rate and ease the pressure on you with regards to monthly payments.

2. Stability: Create a $75 Billion Homeowner Stability initiative to Reach up to 3 to 4 million at-risk homeowners.

• This is designed to help people behind on their payments, who can commit to reasonable monthly payments, stay in their homes. This will most likely be in the form of loan modifications with each individual borrower that requests or is in need of this assistance. The government will share in this effort with the mortgage holder "responsible for bringing down interest rates so that the borrower's monthly mortgage payment is no more than 38 percent of his/her income", next the government would match the reduction dollar for dollar to bring the ratio down to 31 percent. This would be kept in place for five years and then gradually go up to the conforming rate at time of modifcation.

Opinion: These loan modifications will help in the short term but the long term effect will be unknown. The problem is less about payments (in some cases) and more a question of equity. For example, even if they lower the rate to 1.5% and keep it their for five years but the person is upside down by almost 150K, do they really offset. If after five years it balloons back up to 6.5%, whose to say that the equity has returned and they can sell. It just results in a delayed foreclosure.

Further notes:

• Homeowner Affordability - only available up to 105% LTV. If you owe $210K, house is worth $200K then you can do it. Any more than that and you go to the stability plan.
• Homeowner Stability - Don't have to be behind on mortgage payments, basically loan modifications without the fee.

Stay tuned for details on the program on March 4, 2009.

*Quotes taken from "Homeowner Affordability and Stability Plan: Executive Summary"

Week in Review:

• FHA Increases Conforming Loan Limits - On Wednesday, HUD released a statement saying that until December 1, 2009 they are increasing the mortgage maximum for FHA loans for certain counties in the US. Maricopa County was one of those that benefited from this recent change. The new max loan limit is up to $346,250 from $271,050 as it had been since the beginning of the year. This just means more affordability with less down payment and more refinance options for people that have a higher LTV. (It works too as a customer that I was working with on a conventional refinance would be out of luck without this most recent change.)

• President Obama's Budget ---Out of Control??? -- It's too hard to tell yet. Is the government still recklessly spending while the majority of Americans cut back? Is it going to help? Each week the news continues to come out that the numbers are the "worst we have experienced in a quarter century", that "the climb up is a long road", and that "soon the banks may be nationalized." Considerably all those phrases are hard to digest. Can his new budget and stimulus plan really make a difference? It is even as bad as the States individually withholding tax refund checks.

• Homebuyer tax credit differences... ­­-- Attached to this email, in addition to the rate sheet, is a form that shows the changes in the tax credit for FTHB. Just some ammunition for you if you are out and about this weekend holding open houses and a young couple stumbles in the door and is excited to find their first house. Key points: 1) $8000 tax credit, 2) For homes purchased between Jan. 1 2009 - Dec. 1, 2009, 3) if own home for at least 3 years, doesn't have to be repaid, 4) Can claim it on taxes for 2008 with amended return or can alter tax withholdings from current job and claim credit in 2009 (consult accountant for more information.)

Enjoy the beautiful first weekend in March as we celebrate the end of February 2009. Make it a great day.

Here is some interesting news for the past week:

•1) Lenders changing minimum FICO score on FHA to 620 - That is right, what one lender does, the others soon follow. Case in point, MI companies now require greater than 720 Fico scores for any LTV over 85% in distressed markets. So, when one lender decided to require the min score of 620 for FHA loans, they all began to follow suit. There are still a few FHA options out there for people with less than 620 and an "Approve/Eligible" rating through AUS, but the options for that product are slowly going away. It is imperative that the serious buyers talk with a lender and get council as to how to proceed so that they aren't wasting your precious time as a realtor.

•2) Homeowner Affordability and Stability Plan - Be on the lookout for interesting news early in March...March 4^th to be exact. That is when Fannie Mae and Freddie Mac are unveiling their responses to the plan that President Obama laid out on Wednesday. His new plan is supposed to "help up to 7 to 9 million families restructure or refinance their mortgages to avoid foreclosure." The plan also calls to support lower mortgage rates by increasing and "strengthening confidence in Fannie Mae and Freddie Mac". The plan will include everything from loan modifications, to principal write downs, to streamlined refinance. At the very least it may be an option for those people hurt by the housing mess.

•3) Rates hovering around 5% -- I fear that soon enough these rates will be gone. Perhaps not...perhaps, the new plan by the executive office in the government will be able to keep rates lower and push them even lower. Maybe, just maybe something that they try to do will happen, instead of every other time when the "plans" go the wrong way. I think maybe this one will be different. Only time will tell.

Best of luck.

The President of the company that I currently work for, 1st Advantage Mortgage, will sometimes make short videos explaining interesting items in the market, from how MBS work to why rates are the way they are. Case in point, last Saturday we received the following video regarding rates in the mid 4's. I thought and still think it is a great explanation for all those people that are on the fence when it comes to rates. Sometimes, it is better to get the best deal now, then to wait for the perfect deal and find it never comes.

Either way the video, "Where's my 4.5% rate?", may help to explain the phenomena out there with regards to people waiting to refinance for that ever elusive rate.

P.S. If rates get to 4.5% and hover there for more than a week or so, I will be the first to say it may have been worth the wait.

Yesterday, the senate ok'd the increase of the first time homebuyer tax credit from $7500 to $15,000. Though this hasn't been passed, it should help to entice more people who are renting to get into the mindset of someday owning their own home.

The link to the article is here: http://news.yahoo.com/s/ap/20090205/ap_on_go_co/congress_stimulus

They will likely pass this bill by the end of the week. I will provide more details when it passes legislation.