Karl Christen Credit Restoration Specialist

Often you hear different theories in regards to where real estate values should be. The reality is often different then what one may hear. For years I've been under the impression that real estate is a function of supply and demand. You have a certain number of homes, and a certain number of buyers, and that will dictate value. There may still be some truth to this theory, especially when you look at over built Florida, California, Nevada and Arizona. But is it really just an issue with supply and demand?

Could the real issue be income? That's right, what you claim on your taxes each year. Income pure and simple is the barometer of what housing values should be in the United States. Until the late 1990's and early 2000's, income had been used primarily to determine a borrowers ability to pay their mortgage. With the advent of stated income loans, this barometer was chucked out the window, and we're now dealing with the aftermath of this mistake.

So how do you determine values and what should be a red flag when looking at real estate? Good questions, and there of course is more to evaluating a house then this simple formula, but this you may want to use as a baseline in evaluating real estate in the future. Most experts agree that one should take the median income in a particular region, and then find out what the median real estate values are for that same area. If the real estate values is greater then 2.8 times the medium income, then the property is in what most would consider a real estate bubble.

Example, in the state of Utah, 2008 real estate values in October were $218,000 for the state of Utah. However, the median income level was just below 59,000. If you take the income level, and times it by 2.8, you come up with $165,000. This would suggest that values are 25% higher then income levels in Utah as a whole. This of course is statewide, and each region in the state is going to be somewhat different, but as a whole you can see that values are still not in line with income. The other factor that has not been computed yet into these raw numbers is the shift in income that will occur in 2009. Many Utah jobs were related to the construction, real estate and mortgage industries. The median income number will most likely fall again from it's high in 2007 of $63,000.

So what does this mean? It means that Salt Lake and Utah values may continue to slide in 2009. I wouldn't be surprised to see an adjustment of 15-25%. The closer you get to the 2.8 factor in relationship to income will determine which housing values will drop the most. Those homes that are 5 to 6 times median income levels may suffer the most. I think Salt Lake's employment situation may save it from dropping 25%, but a 10-15% further adjustment maybe in line before normal real estate conditions can take place.

I highly recommend that real estate agents and mortgage professionals attend their local association meetings. Just found out about a gem of a concept, and now feel foolish that I didn't know more about this program. It's been sitting there right in front of my eyes, but like most I've become lazy in regards to "seller assisted Down Payment assistance", and hadn't realized what kind of programs were available in my community. This next one is fantastic if our looking at purchasing a house in another 12 to 36 months. The problem is that it won't help you buy a house today, because there are some minimal savings requirements that do not allow access to the full power of the program until you've been in it for 12 months.

The program I'm referring to is called, UIDAN, or Utah Individual Development Account Network.

"The Utah Individual Development Account Network (UIDAN) Program is an investment strategy and multi-faceted financial education program designed to help provide low to moderate income individuals and families with the opportunity, incentive, and institutional support necessary for them to save for and acquire productive assets that promise a higher income, new wealth and self-sufficiency" source - UIDAN website.

This program was developed so that big corporations could reinvest within the communities that they serve. The program helps these low to moderate income individuals manage their finances and do what most Americans do not understand. SAVE MONEY!!!

What's great about this program, is that the future homeowner for each dollar saved, will be matched by three times the amount saved. So $1 dollar saved, equals $4 dollars that can be used for their future down payment! Their is a maximum cap allowed on the funds that you can save for the down payment, but there is NO requirement to pay back these funds after closing on your home. Most city and private grant's require have a minimum requirement for living in the home or you have to pay back the grant. You can open one of these IDA's with a minimum balance of $15.00, and you can save up to $1500.00 maximum in an IDA account, which would result in $6000.00 being available for your future down payment!

There are a few requirements though that you have to meet. Here are the minimum requirements listed below.

• Must have a SSN or Federal Tax ID number
• Must be 18 years of age or older
• Less then 10,000 in household assets, cars are excluded
• Wages from full-time, part-time or be self employed.
• Live in Utah

You also need to meet basic income standards, they do allow you to max 200% of federally mandated poverty levels. But here is an easier way to understand the requirement.

• 1 Household member - $20,800 or less
• 2 Household members - $28,000 or less
• 3 Household members - $35,200 or less
• 4 Household members - $42,400 or less
• 5 Household members - $49,000 or less
• 6 Household members - $56,800 or less
• 7 Household members - $64,000 or less
• 8 Household members - $71,200 or less
• each additional member add $6960 for each member.

There are some other requirements as well that you have to agree to attend or follow....

• Make monthly savings of at least $15.00 a month and no more than $62.50 a month
• Minimum of 12 months in program, maximum of 36 months in program.
• Attend personal finance and money management workshop series, 8 hours education.
• Complete asset training for selected asset goal, prior to purchase of asset.
• Support one another through ongoing peer support meetings.
• Regular contact with case manager throughout program.
• Address any credit issues that could keep you from meeting asset goal.
• Agree to follow program rules and responsibilities.

I'm including a link to the UIDAN website, and you can contact me if you have any questions regarding the program.

801-599-4291

Just arrived home from the Camelot Resort, which is located just outside of Fruitland Utah. Here is the website link for Camelot Resorts.

Our extended family on my wife's side spent the last three days there, great environment for kids and families. Fantastic facility and the owners are very friendly as well.

We had 40 family members there and it didn't cost more then $1400 dollars to rent out the main lodge for two nights. The resort is withing 20 minutes of starvation reservoir, and 25 minutes from Strawberry reservoir. So if you like to water ski or fish this is the place! The rock formations that surround this property are simply stunning, the fresh air and amazing scenery are fantastic.

The best part was how close it was to the Wasatch front. Only an hour and fourty five minute drive from Salt Lake City or Provo Utah. I'll be posting some amazing night time photo's that my brother-in-law and I took one night during our short stay.

Finally, there are a number of wonderful lots in this area that are for sale. Not a bad summer cabin or winter cabin if you like to snowmobile or cross country ski.

The Fair Housing Administration as part of the stimulus package that has been just passed, has raised limits in some markets to fantastic limits. In reality, how many of these home owners can qualify with FHA guidelines, and what type of credit do these borrowers need to attain these loans. Both questions are important, because limited information that's been available is now suggesting that there will be a number of conditions imposed by the lenders. But these same lenders will also benefit from the protection these loan provide through FHA and the government.

The real question is if that 620 FICO score borrower will have more of a chance on their previously classified jumbo loan, and will a few bumps on their credit record not be a big issue with most of these lenders. The answer to this question is uncertain. Few lenders have even reacted quickly enough to the new limits, and with current underwriting back logs with FHA loans, these limits are yet to be tested with most wholesale lenders.

My bet is that underwriting guidelines will be still difficult. Regardless of the protection provided by the mortgage insurance on these accounts, my feeling is that due to liquidity issues and the fact that the banks have been burned with so many of these sub prime loans, that you have about a snow ball's chance in hades to get approved if your looking weak with your credit. I really hope that I'm wrong, but recent bank write offs are not a recipe for a reduction in underwriting standards. I actually think lenders will be more resistant to anyone they deem as a payment risk.

My recommendation is that you follow closely Jeff Belongers blog, and I will be posting more substantial updates in regards to underwriting issues regarding FHA loans. I don't want to discourage anyone but if you do have a questionable credit history, the best option would be to work really hard in correcting any mistakes that the bureau's could have made. Another trend I've noticed often is that a number of credit card companies are willing to remove late payments if their client is aggressive in making those missed payments. I've also noticed many more actual mistakes by creditors, so you really need to work closely with a credit specialist.

Finally, if your a consumer, make sure you work closely with someone who really understands the FHA process. I know my comments earlier in this post may not seem entirely positive, but in reality each underwriter is different, and each bank has it's own policies within FHA's guidelines. Therefore the door may slam shut at one bank but be wide open with another. It pays to be patient and persistent!