Jay Williams, Mortgage Loan Officer Getting You The Right Loan

The news media reports tell you that home values have experienced the largest declines in many, many years. Has this become an obstacle in your decision for purchasing a home?

I can understand your anxiety. Who wants to purchase a home when you believe it will immediately decline in value?

Understand this, real estate is local!! The new media reports national trends. Very rarely, if ever, do they dig deeper through the report.

Just a few days ago the Federal Housing Finance Agency published the latest Housing Price Report for the quarter ending December 31, 2008. Yes, this report disclosed that the purchase-only price index fell 3.4% in the fourth quarter. This is the largest quarterly decline in the 18 year history of this index. The all-transactions index, which includes appraised values deriving from refinance activity, fell 4.5% during 2008.

To view the entire Federal Housing Agency report click here.

What about your local area? How have home values performed in your location? Is anyone reporting to you this information?

Let me share with you the statistics in my location. Let me first share with the data for my state, North Carolina. The purchase only index reflects that home prices declined 3.66% in 2008. But did you know that over a 5 year period that home prices in North Carolina have increased 21.64%? Would you believe that since 1991 that home values in my state have increased 93.87%?. This is the data contained in the report.

Let me take you a bit deeper and give you information for my home location. In Greenville, NC home values declined 0.38% in 2008, but have increased 18.25% over the most recent 5 year period, according to the all transactions home price index.

Why don’t we look at this in terms of dollars rather than percentages? For every $100,000 in values home prices declined $380 in the last year. In Greenville, NC home values have increased $18,250 over the last 5 years per $100,000 in value.

Data I don’t have is what is occurring in the sub-division that you are interested in. Contact your real estate agent and request information by sub-division. What were homes selling for in your chosen sub-division a year ago, two years ago? What have homes been selling for recently? After all, all real estate is local.

The phrase, “this is a buyers market”, should tell you it is time to buy! With proper research you can find homes at a good value in neighborhoods that historically do well.

I will tell you this, if you are planning to buy with the intent to sell within the next two years, then this many not be the market for you. If you are planning to purchase a home and intend to continue to own that property for longer than 5 years, there may be no better time than now to purchase that home.

Remember, you are considering purchasing a home. A place to protect you from the cold and rain.

Just some quick advice:

• Meet with a trusted knowledgeable mortgage lender to determine both your pre-approval and comfort level for the price range of the home you are looking to buy

Engage a professional real estate agent to provide you with market data in your location. Have them provide you with sales information for the past couple of years for your desired neighborhoods.

Be patient, be selective and dig deep. You will be OK.

This is your moment. It is a buyers market!

Jay Williams

http://www.myhomeloanwithjay.com

The final component mentioned in the Stability section of the White House housing plan has a stated goal of supporting local communities. Information concerning this in the Executive Summary is, at best, sketchy. We will want to review the details, once they are released March 4^th.

Strengthening FHA Programs and Providing Support for Local Communities

• Ease restrictions in Federal Housing Administration Programs, Including Hope for Homeowners
• Strengthening Communities Hardest Hit by the Financial Housing Crisis

The current Hope for Homeowners, as I understand, has experienced limited success. This initiative was designed to assist struggling homeowners with an avenue for refinancing. Under the Obama plan, the following issues are to be addressed:

• Reduce fees paid by borrowers
• Provide greater flexibility for lenders to modify loans in trouble
• Allow for borrowers with higher debt ratios to qualify
• Allow payments to servicers of existing loans

The “strengthening communities” is an area for which, in my opinion, we should keep a watchful eye. At first blush, you may think “this sounds like a worthy goal”. As with most government programs the devil will be in the details.

• HUD will award $2 billion in competitive Neighborhood Stabilization Program grants for innovative programs to reduce foreclosures
• Provide and additional $1.5 billion to provide renter assistance to “reduce homelessness and entry into shelters”

I have not had any direct experience with the Hope for Homeowners program. Therefore, I am unfamiliar with why it has not been more effective. For those of you that have worked with Hope for Homeowners, I am interested in you sharing your experiences.

I find myself viewing the Neighborhood Stabilization Grant program with suspicion and curiosity. If programs are made available in my market area I think it will be incumbent to become familiar with the programs. If for no other reason than being a professional resource to home owners.

My suspicions arise from what will be the underlying or hidden agenda from the groups that will receive these funds. I know I have not seen the details yet, but this is one for which I am going to keep a watchful eye.

I am imagining “community organizations” here. I don’t know about you, but I am going to be looking for ACORN. This has all the possibility of government corruption. Pay offs to groups that assist legislators win elections and re-elections.

We as voters need to be ferreting out where this money is going. What is the connection between the community organization and the congressmen in that particular district?

Maybe I’m being too cynical. Nonetheless, I am looking for ACORNS!

What are your thoughts? Am I being too cynical? Do you know of worthy community organizations, in your area that can apply funds like this appropriately?

Comments Welcome!

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Stability

Loan Modifications

Consistent Guidelines

Here Comes the Judge

What the Fed

Jay Williams

www.myhomeloanwithjay.com

I have been breaking down the Homeowner Affordability and Stability Plan and providing a review of the plan’s various components. We are awaiting more details to be provided by the Administration, due to be released March 4^th. The source of this review comes from the White House.

The component I am reviewing today is one for which I have great trepidation. I’m interested in hearing what you think.

Allowing Judicial Modifications of Home Mortgages During Bankruptcy for Borrowers Who Have Run Out of Options

This provision will allow bankruptcy judges to modify mortgages. (OH MY!)

• The portion of mortgage loan balances in excess of mortgage balances will be treated as unsecured debt
• The judge will then develop an affordable plan for homeowners to continue making payments
• Homeowners must have first requested loan modifications from their lender and substantiate they have complied with request to furnish essential information
• Legislation will be forthcoming to incorporate loans guaranteed FHA and VA loans
• Last, but certainly not least and I quote “This provision will apply only to existing mortgages under Fannie Mae and Freddie Mac conforming loan limits, so that millionaire homes don’t clog the bankruptcy courts”

I don’t know about you, but the idea of granting the power to modify loans to judges scares me to death. I don’t have tremendous faith in our judges. I often hear of goof-ball decisions being handed down.

I can just see the bankruptcy lawyers celebrating over this. Will this have the unintended consequence of encouraging homeowners to file bankruptcy? Judges can reduce the balance and establish a repayment plan for the remaining balance? Isn’t this where a number of people will actually want to end up?

If you are going to have this provision, what’s up with limiting this option to those at or below the conforming loan limit? Does this administration just hate people of greater means? What about those states where property values, several years ago, had climbed to the point that a large number of mortgages were above the conforming limit? Is there going to be no assistance in some the hardest hit areas?

Can someone out there calm my fears? Or do you anticipate something else that will make me pull my hair out? I’m looking forward to hearing from you!

Gird up your loins!

Next Up

Looking for acorns

Related Posts

Affordable refinancing

Stability

Loan Modifications

Consistent Guidelines

What the Fed

Jay Williams

www.myhomeloanwithjay.com

The details of the President’s Homeowner Affordability and Stability Plan are to be announced on March 4^th. I have been reviewing the executive summary and fact sheet for the plan which is posted on the White House web site. Click here for your reading enjoyment.

Under the stability section components 2 (B&C) read as follows

2(B) Clear and Consistent Guidelines for Loan Modification

2(C) Requiring All Financial Stability Plan Recipients to Use Guidance for Loan Modifications

Clear and Consistent Guidelines for Loan Modifications

The premise for this component is that mortgage servicers, in some cases, have not common sense loan modifications for fear of incurring lawsuits. The fact there have not been consistent guidelines that pertain to everyone opens the servicers up to litigation based upon the potential disparity of modifications offered.

The FDIC, FHA, the Federal Housing Finance Agency and banking and credit union regulators are to be working with the President Obama’s administration to “bring order and consistency to foreclosure mitigation”.

Fannie Mae and Freddie Mac are to use these loan modification guidelines on all loans they guarantee. All loans owned or guaranteed by the Federal government will apply the same guidelines. This will include loans guaranteed or owned by Ginnie Mae, FHA, the FDIC, Federal Reserve, the Treasury Department, VA and the Department of Agriculture. It is the Administrations intent to apply these loan modification guidelines across the entire mortgage industry.

My opinion: As with most things I can see the pros and cons with this. On one hand it does seem appropriate to have a set guidelines so they can be applied evenly across the board. On the other hand guidelines that are to rigid, can prevent the kind of flexibility that may be needed. There will need to be the ability to deal with exceptions.

An issue that his developing with new loan applications is that underwriters all too often are unwilling to underwrite except under strict application of loan program guidelines. Exceptions are not allowed in cases where it makes sense.

Requiring All Financial Stability Plan Recipients to Use Guidance for Loan Modifications

It’s my way or the highway. Plain and simple and don’t you forget it!

What is your opinion? What have you heard of the loan modification process to this point? What do you see as possible unintended consequences? Is this the change we’ve been looking for?

Next Up

Judicial Modifications

Related Homeowner Affordability and Stability Posts

Part 1

Part 2

Part 2 (a)

What the Fed

Jay Williams

www.myhomeloanwithjay.com

Reviewing the Housing Affordability and Stability Plan I intend to dig a little deeper in the leg directed toward stability. This initiative creates $75 billion to reach up to 3 to 4 million at-risk homeowners. Oh my!!!

I wrote about the affordability section earlier and you can view that post by clicking here. I also have written an overview of the stability component. You can view the entire plan by going to the White House web site.

Section A of the stability component is an initiative to reach up to 3 to 4 million at-risk homeowners. This is being presented as a shared partnership to help people “struggling” to meet their mortgage payments. It also strives to help stabilize home prices. Sounds noble, but how is it supposed to work?

Who is this program designed to reach?

• At-risk homeowners—focusing on borrowers that have high mortgage payments as it relates to their gross income. It also intends to address in someway those that owe more than their home is worth. These borrowers may be eligible for loan modifications. Eligibility for the loan modifications will end in three years.
• Homeowners that have not missed payments—the premise is to try and reach homeowners that have not yet gone delinquent, but may be in danger of doing so. This, in my opinion, is a welcome agenda. Up to this point to be eligible for loan modifications or short sales you must be at least 30 days delinquent. By then there is little incentive for the homeowners to fight it out. You may as well give up and go into foreclosure.
• Restrictions—this is for owner occupied homes only and is limited to mortgagesless than or equal to the conforming loan limits of Fannie Mae and Freddie Mac. This is generally $417,000. This restriction to the conforming loan limit concers me. In many areas there are high levels of mortgage balances above that limit. Where is the help for that homeowner?
• Provisions for people that have high total debt levels—for this you are eligible if your total debt ratio (housing payments plus other monthly debt payments/monthly gross income) is 55% or greater. You will be required to enter a HUD certified debt counseling program as a condition to the loan modification.

How does the program work?

• Reduce monthly payments—If identified and accepted for loan modification the first target is to reduce the PITI payments down to a level of 38% of gross monthly income. Want to know what PITI means, click here. If the lender will further reduce the PITI to 31% the government will share in the cost of that reduction with the lender. Reducing from 38% to 31% the government pays half. The lender could also opt to reduce the principal and as such the government would share in the same cost as described above. Modified payments would be in effect for 5 years
• Incentives for servicers—Mortgage servicers that negotiate loan modifications under this program, will receive $1,000.00. They will continue to receive $1,000 for up to three years if the homeowner remains current. Expect a lot of call if you are running a few days late!
• Additional incentives—If the modification is negotiated while the borrower is still current mortage servicers will receive an additional $1,500.00 and mortgage holders will receive $500.00. Will the servicers and holders focus on smaller loan balances first? Greater percentage of income received on smaller loan balances.
• Additional borrower incentives—After modification if the homeowner will remain current on their payments the will receive a $1,000.00 credit to their principal balance for each of the five years. Lower payments and a possible $5,000.00 principal reduction, uh what are we doing for homeowners that are not overextended?
• Home price decline reserve payments—Set up with the FDIC a $10 billion insurance fund that will tied to a housing price index. On modified loans if home prices continue to decline holders or mortgages will be provided insurance payments. Payments can be set aside as reserves against potential losses. Any one see the possibility of the costs on this running away with us?

Measuring Effectiveness

• Protecting taxpayers—The program states that if the expected cost of the loan modification for the lender is higher than the direct cost of foreclosure, the borrower will not be eligible. Sounds like a catch here! The Treasury will not provide subsidies to reduce interest rates below 2%. Is there any one out there that would like a 2% mortgage?
• Counseling and Outreach—HUD will make available funding for non-profit counseling to improve outreach and communications. Focusing on disadvantaged communities. Can anyone say ACORN?
• Oversight and tracking data—A standardized data gathering and reporting system that will be reviewed quarterly. The quarterly meetings will be with the Treasury, FDIC, the Federal Reserve, HUD and the Federal Housing Finance Agency. I wonder how much the oversight reporting will cost, what’s left of, private industry? Is this going to be another Sarbanes-Oxley? A system with such high cost that the financial institutions (those not nationalized) will just opt out?
• Incentives to take alternatives to foreclosures—Lenders to receive incentives to completing short sales and deed in lieu of foreclosure. No cost estimates or provisions listed on this one. We all know how well the short sale provision has been working.

Well there you have it, fleshing out details now available addressing stability of the Obama plan. More details are to be made available from the government on March 4^th.

Unintended consequences, there will be many. Do you think this is a good thing? What questions do you have? What problems or opportunities do you see?

I would like to hear from you!

Stay tuned for additional posts on the Homeowner Affordability and Stability Plan

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Jay Williams

www.myhomeloanwithjay.com