Mike West

Treasury Department Takes Over Freddie Mac and Fannie Mae! What does that mean for me?

Treasury Secretary Henry Paulson announced the takeover of Freddie Mac and Fannie Mae on Sunday, September 7, 2008. The two mortgage giants were the primary purchasers of mortgages on the secondary market and the major influencers of loan guidelines and interest rates across the country.

Pressure from foreign and domestic investors helped prompt the government's move. The Federal Housing Finance Agency, or FHFA, will have management control of these organizations. They had been operating under that agencies regulation.

This is a clear indication that the housing crisis in this country has had a major impact on an international scale. Buyers, sellers and borrowers are not the only ones impacted.

A recent Wall Street Journal article indicated that analysts expect that the average 30-year mortgage rate could come down a quarter to a half of a percentage point in the coming weeks.

Pundits tell us to expect a tightening of loan guidelines in the near future. Qualified borrowers will be able to enjoy a lower cost of funds. However, the pool of qualified borrowers is likely to be smaller.

100% financing is almost a thing of the past and second loans are very difficult to obtain. However, the market is nothing if not resilient. Investors will find a way. The only question is how long it will take them.

This sudden drop in interest rates coupled with the significant drop in housing prices makes this an excellent time to buy. Those who wait for better market conditions are likely to miss out on the opportunities extant.

If you, a friend or family member have been thinking of purchasing a home or other property, now is the time. Let's start the search

How can I get the best deal on a home? Where do I start? Part 2

Once you have made the decision that you would like would like to own a home you should start your research. There are literally thousands of property search web sites that you can use. You can select any of them but don't put the cart before the horse.

The prudent move is to address the financing BEFORE you do the shopping. Most good real estate related web sites have a calculator to let you calculate what the payments on any particular property are going to be. Unfortunately, it is not that simple. Most of them calculate payments for people with the very best credit record and with an ideal down payment. Congratulations if you are one of the very small percent of buyers who can actually qualify for those loans. Most of us can not.

For a moment, put yourself in the lender's place. If you were going to loan your hard earned cash to a buyer what kind of buyer would you accept? What kind would you reject? As with any investment, the greater the risk the greater the reward.

Since most loans are sold on the secondary market, Freddie Mac and Fannie Mae are the largest government sponsored players, most lenders use these corporation's guidelines for their loans in order to make it easier to sell the loans.

There are also portfolio lenders, those that keep and service their loans for the entire term of that loan. They usually have a niche market and specialize in a specific kind of loan, one that allows them to maximize their investor's return.

In any case, you as the borrower are going to have to meet lender guidelines in order to qualify for any loan. There are several key factors, or cornerstones of any loan. Each is discussed in some detail below:

First, the borrower's credit score and credit payment history: There are three major credit repositories, Experian, Trans Union and Equifax. Each apply their version of the FICO formula to create your credit score (Fair Isaac Corporation mathematical formula applied to your reported credit history. The goal of this score is to predict the likelihood of your having a 90 day late mortgage payment in the future. Scores range from 350 to 850. Buyers with scores under 500 can not qualify for a home loan. It is difficult to qualify for a loan if your score is under 620. People with scores over 740 have less trouble if all other factors in their loan scenario are in line with lender guidelines. In general, the higher the credit score the lower your interest rate and payment.

Late payments, especially late mortgage payments have a negative impact on your score. Foreclosures, bankruptcies, judgments and tax leans are also major problems on your credit report.

The second key factor is your debt-to-equity ratio. There are two ratios here. The first is the ratio of your total housing costs as a percentage of your gross income (income before taxes and deductions). The second is the ratio of all reported debt-minimum payments only-of your credit card, charge card, vehicle loans. student loans and other reported debt, along with your housing costs--principal, interest, taxes, homeowner's insurance and Home Owner's Association Dues, if applicable-as a percentage of your gross income.

Lenders like your ratio to be a low as possible. Most people have little trouble with this factor if their ratio is under 38%. Some lenders will allow up to 55%, but with a higher risk the cost of funds is much higher. You also have to be comfortable with the payment and the effect it will have on your lifestyle.

The third factor is the debt-to-equity ratio. The percentage of the value of the property the loan or loans will represent. The larger the buyer's down payment, the safer the loan is for the lender. Most lenders want a buyer to put 20% or more down, resulting in an 80% loan-to-value. The cost of funds increases sharply as this ratio increases. The increases come in exactly 5% increments, so a ratio of 80.1% to 85% comes with a higher interest rate and payment; a ratio of 85.1% to 90% is higher yet; a ratio of 90.1% to 95% costs even more. Loans for ratios over 95% are much more difficult to obtain in the post "mortgage meltdown" market. A few are available for a very few borrowers, but the cost is usually very high.

The final factor is the subject property itself. The lenders are loaning money to the borrower, but the collateral is the home. Every purchase loan application must be accompanied by a property appraisal. The appraiser must determine the market value of the property and that appraisal must be acceptable to the lender. If a buyer agrees to purchase a home at a price over market value they will have to pay the difference out of their own pocket as part of the transaction before the lender will approve and fund the loan.

If you are still reading you must be really interested in making a purchase. This can all be very confusing.

The easiest way to wade through the process is to select a loan consultant, discuss the process with them, provide them with the requested documents and have them get you pre-qualified for a loan amount. Once you are armed with that information, you will know what price range in which to shop and what kind of a bite the payment is going to take out of your wallet.

If you are serious, your loan consultant can verify your financial data and get you pre-approved for a loan. It will not take very long. A pre-approval letter carries considerable weight when it is added to a purchase offer on any home. Many sellers even required one before they take an offer seriously.

As a senior loan consultant and REALTOR, I would be happy to help you navigate through the process. If I represent you in the purchase and assist you in obtaining the necessary financing, I will contribute $ 1000 towards your closing costs at close of escrow.

Just give me a call.

How can I get the best deal on a home? Where do I start?

The home buying process can be daunting. There are many variables involved and my home purchase is likely to be the largest that I ever make. I don't want to make any mistakes and I DO NOT WANT TO PAY TOO MUCH!

Thousands of prospective home buyers ask themselves these questions every day. Most understand that home ownership has both benefits and drawbacks. A monthly house payment is almost always going to be more than rent. How is it going to affect my lifestyle? If I do make a purchase, am I going to be house poor for the rest of my life? A home purchase is a major commitment, am I ready for that?

One of the major advantages of home ownership is long term appreciation. Although the downturn in the market over the past few years belies the fact, single family homes appreciate 6.7% per year on average. Buying a home now, after a major market correction, is likely to put the buyer in an excellent position to reap the benefits of that long term appreciation in a few years. And don't forget the tax advantages of home ownership. Both interest and property taxes are deductable. So Uncle Sam and the Governator pitch in to help you make that house payment each month. Finally, when you buy it, it is YOURS. You can paint it any color YOU want; you can change it any way YOU want. There is no landlord making up rules that you have to follow: The American Dream.

Once you decide that the possibility of home ownership warrants a little investigation it is time to do some research. Today, most potential buyers start their search on the Internet. There is so much information available the one can get overloaded quickly.

If you take it one step at a time, with an organized approach, things will fall into place more quickly than you might think. The purpose of this Blog thread is to help the prospective buyer with that organized approach. Every few days a new piece of the puzzle will be added.

Feel free to ask questions at any time. Every buyer's situation is different and there are over 500,000 licensed real estate agents in California ready and willing to help. Of course, I would like to think that I am your best selection!!

Tune it for the next segment.

"D" Day Single Family Home Statistics for El Dorado Hills and Folsom, CA.

At this writing there are:

403 active listings in El Dorado Hills
259 active listings in Folsom

In May of 2008:

58 homes sold in El Dorado Hills
70 homes sold in Folsom

The resulting absorption rate (number of months inventory available,
based on the previous months sales):

6.9 Months in El Dorado Hills
3.7 Months in Folsom

This is a good sign for the market. Declining inventory rates are an indication that the marked is stabilizing and an indicator that prices may soon start to rebound. However, the experts tell us that the rebound will be slow due to the recession.

A review of the properties in these areas Pending Sale (waiting for completion of inspections and financing) shows that 11.4% of the homes were on the market for a week or less and a full 26% were on the market for two weeks or less. Properties that are properly priced are selling. The average DOM (Days on Market) for all Pending sales was 89.

REO (Bank Owned) properties are selling faster than those in the general population with an average DOM of 85 and 27.7% of the Pending REO properties were on the market for two weeks or less.

Naturally, Short Sale properties are selling slower, with an average DOM of 120 and 21% of the Pending Short Sales on the market for two weeks or less.

There is NO question that the local real estate market is heating up!

Continuing in my quest to learn about the REO sales in the El Dorado Hills and Folsom, CA areas I present the sales data for May of 2008. The number of REO properties that sold in May increased by one from April.

The number of REO properties in May that were on the market for two weeks or less climbed to 48.1% while the number of properties that had been on the market for longer than 60 days decreased to 14.8% of those sold. Several were on the market for a very long time, skewing the Days on Market figure.

REO properties also continue to sell for less per square foot than do the general population of homes sold in the same area for May of 2008, 88.2% to be precise.

There are also a large number of REO properties that sold for at or above the final asking price. One would suspect that buyers are negotiating for additional funds to complete needed repairs and to cover closing costs.

Folsom/El Dorado Hills Sold REO Properties--May 2008
Original Listing Price @ SP as % SP as %
DOM Listing Price Time of Offer Sold Price Original Price Final Price
1 Fol 216 $267,900.00 $229,800.00 $229,800.00 85.78% 100.00%
2 Fol 12 $280,900.00 $280,900.00 $290,000.00 103.24% 103.24%
3 Fol 18 $339,900.00 $339,900.00 $305,000.00 89.73% 89.73%
4 Fol 3 $299,000.00 $299,000.00 $310,000.00 103.68% 103.68%
5 Fol 3 $339,900.00 $339,900.00 $320,000.00 94.15% 94.15%
6 Fol 45 $374,900.00 $369,90 0.00 $327,000.00 87.22% 88.40%
7 Fol 15 $324,900.00 $324,900.00 $334,000.00 102.80% 102.80%
8 Fol 4 $354,900.00 $354,000.00 $349,000.00 98.34% 98.59%
9 Fol 6 $319,900.00 $319,900.00 $350,000.00 109.41% 109.41%
10 EDH 6 $379,900.00 $379,900.00 $379,900.00 100.00% 100.00%
11 Fol 40 $375,900.00 $375,900.00 $380,500.00 101.22% 101.22%
12 Fo 28 $449,000.00 $429,000.00 $395,000.00 87.97% 92.07%
14 Fol 191 $403,900.00 $403,900.00 $400,000.00 99.03% 99.03%
15 Fol 4 $409,900.00 $409,900.00 $420,050.00 102.48% 102.48%
16 EDH 60 $459,900.00 $424,900.00 $425,000.00 92.41% 100.02%
17 EDH 0 $420,000.00 $420,000.00 $440,000.00 104.76% 104.76%
18 Fol 72 $499,900.00 $424,900.00 $441,000.00 88.22% 103.79%
19 EDH 9 $444,900.00 $444,900.00 $471,000.00 105.87% 105.87%
21 EDH 26 $524,900.00 $524,900.00 $507,000.00 96.59% 96.59%
22 Fol 4 $494,000.00 $494,000.00 $525,000.00 106.28% 106.28%
23 Fol 46 $625,000.00 $625,000.00 $575,000.00 92.00% 92.00%
24 EDH 358 $674,500.00 $607,050.00 $590,000.00 87.47% 97.19%
25 EDH 34 $619,900.00 $619,900.00 $619,900.00 100.00% 100.00%
26 EDH 10 $671,900.00 $671,900.00 $650,000.00 96.74% 96.74%
27 EDH 10 $924,900.00 $924,900.00 $924,900.00 100.00% 100.00%
AVERAGES 47 97.4% 99.4%

REO Sold Cost Per Square Foot: $ 179 (88.2%)
Total Sold Cost Per Square Foot: $ 203

Total Number of REO Homes Sold in May for area: 27 (21.6% of total)
Total Number of Homes Sold: 125