Bill Black CMP CDPE MLO #49242

WHITE HOUSE PLANS TO WIND DOWN FANNIE AND FREDDIE

Congress will consider three suggestions.

A fundamental reform for the housing market. For two-and-a-half years, economists and housing industry analysts have wondered what would happen with Fannie Mae and Freddie Mac. On February 11, they got an answer: the Obama administration announced plans to shut down both of the troubled mortgage giants by 2018 or sooner.1

As he met with the press, Treasury Secretary Timothy Geithner cited the "very broad consensus" that the government should play "a much smaller role" in the housing market. Capitol Hill Republicans would agree, pointing to the $154 billion price tag for the 2008 bailout of both firms. (That is the Treasury's estimate.)2,3

The choices on the table. The Obama administration's white paper offers three proposals to Congress, with the hope of legislation emerging by 2014.1,2,4,5

· Option 1. The government walks away from the mortgage market except for the FHA, VHA and a few other programs designed to help low-income and moderate-income homebuyers.

· Option 2. The government offers a kind of downside protection. In addition to backing home loans via the entities mentioned in Option 1, it would also provide "reinsurance" to guarantee private mortgages in the event of a real estate downturn and/or recession. But the guarantee would only apply in a crisis.

· Option 3. A variation of Option 2 that would provide a "reinsurance" backstop for a range of mortgage investments already guaranteed by private insurers. The "reinsurance" would take effect if a private insurer couldn't pay (i.e., if its shareholders were wiped out).

The timeline. The Obama administration may be long gone by the time all this plays out, but here is the three-stage conception of how it will wind down both agencies.2,6

· Stage 1. Between now and 2014, the government gradually reduces its subsidy for the housing market. The conforming loan limit for Fannie and Freddie - now $729,000 in some metro areas - is scheduled to shrink to $625,000 in October. In addition, Fannie and Freddie would start to require 10% down for all loans and fees would rise for the government guarantee.

· Stage 2. Starting around 2013-2014, the federal government will "accelerate the pace of transition" (in Geithner's words) to a mortgage market based in private capital with government intervention occurring only as needed.

· Stage 3. This stage depends on Congress. The idea is that by the middle of this decade, legislation emerges spelling out Option 1, Option 2 or Option 3 above in detail and a new law is passed.

The big picture.

By the end of this decade, it could be considerably harder to buy a home. If the government gets out of the mortgage market (or at least drastically reduces its role), a major influx of private capital needs to flow into the housing system to replace the federal subsidy, with the following possible effects:

· A 30-year fixed rate mortgage could become significantly more expensive. How much more expensive? In early February, Credit Suisse projected that interest rates on a basic 30-year FRM could rise by up to 2% if Fannie and Freddie disappeared.7

· If the Option 1 scenario occurs, you could see considerably fewer FRMs and more ARMs. In fact, you would likely see fewer fixed-rate mortgages if Options 2 or 3 were chosen by Congress.

· Big banks could grab a bigger chunk of the mortgage market.

· Higher mortgage rates could negatively impact home sales - and in turn, home prices.

We'll have to wait and see how this all plays out, all while hoping it won't lead to a decline in home ownership.

Just sending a quick reminder of our upcoming credit workshop this Tuesday February 22^nd @ 6:30!

Salmon Creek Executive Suites

2101 NE 129^th St., Ste 219

Vancouver, WA 98686

You’re going to want to bring with you something to take notes with and any questions that you may have.

I just met with a savvy investor today looking at finally getting off the fence and buying a couple investment properties. He came to me with the expectations of putting 25% down and needing 6 months reserves for his other 4 properties he currently has in his portfolio...

I asked if he knew about Fannie Mae's Homepath Program-

He was not aware of this so I explained the benefits- no appraisal, 90% financing and NO MORTGAGE INSURANCE NEEDED.... He instantly assumed this must be good to be true and wondered exactly what kind of a dump he needed to buy- he was looking for newer so we looked at this one for $179,000.

Only $17,900 down leaving money for qualifying reserves.... He is blown away and can't wait to contiune looking on line for these great deals.

I specialize in Homepath financing and it does have some quarks but by far THE best deal on the market when it comes to lending. If you or someone you know are interested in Homepath financing please give me a call today.

So I posted an article from NAR on Facebook and someone commented what if values drop another 10% and here is my answer.

Ok- Let’s run the numbers at a 10% drop the first year of ownership but a conservative 2% year after year 2-5 and say we have a $200,000 purchase with 10% down at 4.5% on a Lender Paid Mortgage Insurance (LPMI) program with a $180,000 loan today we have a payment of $912 and $235 for T&I vs. rent at $1250 and rental insurance at $25.00.

So $1275 to rent vs. $1147.00 to own assuming a 28% tax bracket is $241 per month benefit with another $237.00 going toward principal reduction. So in a five year period with a conservative 2% rental appreciation you end up paying $79,561.00 in rent and $68,822 in mortgage but $15,916 goes toward principal and $13,974 goes toward tax benefit making a net cost to own at $38,933 with a net savings of $40,628.

Now with the 10% drop the first year we are still at $196,748 but our loan balance is $164,084 so we have $32,664 in equity after five years! BOOM- its time to buy before rates go up!

Wells Fargo makes some drastic changes prior to what some feel will be another law passed by the government to increase the speed of a short sale.

I had a discussion today with the operations manager at the Law office of Robert C. Russell and she has not yet heard of these new changes that have been announced but she has no doubt that it will be yet another hurdle to step over.

Here is what we found-

Time allowed for buyer to close on short sales-

• If foreclosure date is within 0-11 days
  • All pending short sales within 11 days of foreclosure date will be rejected & closed immediately and returned back to negotiator or Realtor. For those homeowners wanting to keep their house in Washington State and find themselves in this situation we strongly encourage you to reach out to a default specialist that has the solutions to help.

• Foreclosure Date set 11 days out or more-
  • Buyer will be granted 30 days to close- no extensions or exceptions
  • Must have approval letter from buyers lenders or proof of funds
  • Written approval from all Jr. liens before an acceptance letter is given
    

If no foreclosure date is set buyer has 60 days to close from Wells Fargo. If at anytime foreclosure date is set they move to the 30 day mark.

We feel this is the beginning of the clearing house that will be coming right around the corner and working with a successful lender with fast tuen times will be the key to marketing these properties. Our current turn times at Loan Network is 48 hours in underwriting and pre-approval letters are same day.