Nicole Lahti, Austin Texas Mortgage

The Obama Administration announced its Making Home Affordable plan last week which it hopes will help keep people in their homes, and sustain property values by reducing foreclosures. The plan has three initiatives -- the refinance initiative, loan modification initiative and low mortgage rate initiative. The first two initiatives were expanded on in last week's announcement -- I'm currently working acertaining all their details and how it affects the real estate market, so check back shortly for a post about the plan. In the meantime, you can read a preview of the plan I wrote prior to last week's official announcement.

The U.S. unemployment figures also dominated headlines as 651,000 jobs were lost in February, pushing our unemployment rate to 8.1%, the highest rate in over 25 years. The Dow also pierced through 7,000 for the first time since 1997.

Mortgage Rates

Negative news in the stock market helped improve mortgage rates from where they began the week; however, they remained relatively unchanged from the previous week. Bankrate.com's national survey of large lenders reported an average 30-year fixed rate mortgage for last week of 5.41%, although that sounds a little high in my opinion.

Forecast for the Week

This week is relatively quiet with not many economic reports due out. However, the volatility in the stock market and details from the Making Home Affordable Plan can change mortgage rates rather quickly. Retail Sales and Consumer Sentiment Index will be announced Thursday and Friday which will likely be negative as more Americans loose their jobs and rein in their spending. Therefore, keep an eye out for how these reports affect mortgage rates. Remember the correlation between economic data and mortgage rates -- weaker than expected economic data is generally good for rates, and visa versa. However, this equation hasn't always held true in our current economic times as investors flee to the least risky investments.

If you know me, then you know how much I LOVE AUSTIN. The people, live music, nightlife and sporting events are great, but since having my son, Ethan, a year ago, I've had to expand my social life to family-friendly events too. A few weekends ago, Stephen (my husband), Ethan and I planned our "Austintatious" family outing to Austin's Farmer's Market and the Austin Children's Museum. Unfortunately, Ethan crashed & burned before we could take him to the museum, but we did enjoy a stroll through the market.

If you live in Austin, are moving or visiting here, you need to check out the Austin's Farmer's Market. Not only do local vendors sell great food and products, but its a great place to experience Austin's unique spirit and talents.

We went to the downtown market on Saturday morning (there's another market on Wednesday afternoons on 46th and Lamar) where I immediately loaded up on some fair-trade, organic Joe from Texas Coffee Traders. You never realize how bad your coffee is at home is until you drink the good stuff. If only they had a baby-blend, then maybe Ethan could've made it to the museum.

As a mom, I'm always looking for creative ways to get Ethan to eat his veggies (without dredging them in Velveeta, mmmm) so we picked-up one of Kala's Nepalese Samosas which is like an empanada filled with potatoes, peas and carrots. Mommy LOVED it, Ethan not so much, which is why it ended-up all over my hand when it projected right out of his mouth. Awesome. Not a problem, SO.A.P. (short for South Austin People) was just down the way with a handwashing station (genius). Have you ever tried their product? Amazing! Locally made, natural, botanical soaps and lotions. I picked-up a couple for the home.

To enjoy more local fare at home, I decided to buy some food to cook with. Immediately, I was drawn to Naegelin Farm's colorful array of veggies. I heard somewhere the more color you eat the better; and it couldn't get anymore colorful than the Rainbow Swiss Chard. What was I planning on cooking with it? No idea, but I figured whatever it was would look pretty (yes, pretty) so I bought some and found a great Giada De Laurentiis recipe when I got home.

We were on our way out when we ran into Leonor from Oaxacan Tameleo -- you couldn't really miss her brightly colored clothes and pottery balancing on her head. I moseyed on over to her booth, and realized she was a cook after my own heart selling homemade Oaxacan mole. This isn't the brown, sweet mole we're used to in Texas; Oaxacan mole is red and a tad-bit spicier (not an Ethan dish), and very tasty. Even my friend, Julio, from Mexico gave it a thumbs up when he came over for dinner that evening (it was complimented, of course, by my delicious Mexican rice, email me for recipe). If you buy this stuff, make sure to get a few jars. I like my chicken swimming in mole, and one jar doesn't cut it for four servings.

Apparently, you also need to try Leonor's tamales; two people went by her booth asking for some and were pretty disappointed to hear she ran out.

So if you're new to Austin, relocating to Austin, or have been in Austin for awhile but have never made it out, you need to visit the Austin Farmer's Market. Not only can you buy great products in a fun, refreshing environment, but its a perfect way to support local businesses. The money you spend here, stays here, and supports the people you know and communities you're a part of.

The $787 Billion stimulus plan called the American Recovery and Reinvestment Act (HR 1) conquered headlines last week when it was signed into law on Tuesday, February 17th. Portions of the bill of particular interest to the real estate community are: The $8,000 First-time Homebuyer Tax Credit and $11 Billion Appropriated to USDA Rural Development Loans (click the links for details on those portions of the bill).

A day before our gargantuan stimulus passed, President Obama also announced details of his Homeowner Affordability and Stability Plan which he hopes will stabilize housing by reducing foreclosures and keeping mortgage rates low. Full details of the plan will be announced on March 4th, but here is a preview of the program in the meantime.

Mortgage Rates

The stock market plunged 7% last week, but that unfortunately didn't translate into significantly lower mortgage rates. The week ended with an average 30 year fixed rate of 5.34%, down slightly from last week's 5.44%.

What to Look Out for This Week

A few reports could affect mortgage rates this week, including:

Wednesday: New Home Sales Report

Thursday: Existing Home Sales Report and Durable Goods Report

Friday: Gross Domestic Product (GDP) Report, as GDP is the broadest measure of economic activity

USDA's Rural Housing Service was another recipient of stimulus funds last week through HR 1. This comes as a surprise -- a representative from my local Rural Development (or RD) office said last week they were not anticipating a new appropriation of funds from Congress until March. USDA direct loans received $1,000,000,000 and guaranteed loans received $10,472,000,000 in last week's stimulus.

The country burned through RD funds last year as the loan program became wildly popular since it was one of the VERY few $0 down loan programs. Much like FHA, RD does not fund loans, but provides lenders with an insurance guaranty against the borrower's default. Since running out of funds, some lenders have ceased funding RD loans as they could not receive a guaranty from the Rural Development office. However, many lenders continued to fund RD loans in anticipation of receiving their loans' guaranties when RD funds were made available by Congress.

You may be asking yourself a couple questions:

What's the big deal?

Aside from the sheer quantity of funds, this demonstrates how determined Congress is to inject money into the housing market. I called my local USDA office today to gather their thoughts on receiving new funds, and they had no idea new funds had been appropriated! I actually told them about the money they had received and read the bill's verbiage to the representative. He said this was surprising because they usually get their new funds when the new budget comes out in March.

Why should I care about Rural Housing?

Well, if you're thinking about buying a home its a true $0 down loan program; and we all know how its nearly impossible to find those nowadays. Borrowers who qualify don't need a down-payment and they can finance their closing costs, pre-paid items and certain repairs into their loan. The monthly payment is less than FHA's minimum 3.5% down because rates are comparable and there is no monthly mortgage insurance!

Do I need to buy a home in the "sticks" to qualify?

No, actually. You do need to buy a home deemed "rural" by RD; however, there are plenty of neighborhoods in the Austin-area that qualify, including some areas of Pflugerville, Hutto, Leander, Liberty Hill, Buda, Kyle, Lago Vista.

Click the link below and input a specific property address to see if it meets RD geographic limitations:

USDA Property Eligibility

Do I need to make close to nothing to qualify?

No, again. There are income limitations, but you get some pretty hefty adjustments to your income for kids, elderly & verifiable childcare expenses.

Click the link below to use RD's easy income calculator:

USDA Income Eligibility

USDA Rural Development really is a great loan program to utilize, especially with rates as low as they are. Not to mention, you receive an $8,000 tax credit if you're a first-time homebuyer. Hate to put it this way, but the government is practically paying people to buy homes nowadays.

If you're interested in learning more details on Rural Development loans, see below for a presentation I gave at Independence Title last week on the program.

On February 16th President Obama went to Phoenix, one of the hardest hit foreclosure areas, to unveil his The Homeowner Affordability and Stability Plan which he believes will bring stability to the housing market.

The plan's full details will not be available until March 4th, but here's a preview of the three initiatives in the meantime.

1. Refinance Initiative: Refinancing Homeowners with Less Than 20% Equity, or Owe More Than Home's Value

Families who own less than 20% equity in their homes have a difficult time refinancing and taking advantage of historically low interest rates. Therefore, the refinance initiative in the plan provides refinancing help for homeowners with less than 20% equity in their homes, or who owe more than their home is worth.

This initiative is open to homeowners who have conforming loans which are guaranteed by Fannie Mae and Freddie Mac, and who owe up to 5% more than their home is worth. According to the plan, “credit-worthy” or “responsible” homeowners can refinance their mortgage into a 30- or 15-year, fixed-rate loan based on current market rates. The refinanced loan cannot include prepayment penalties or balloon payments. For many families, this low-cost refinancing may help reduce their mortgage payments by up to thousands of dollars per year.

Here is an example of Family A (own less than 20% equity):

• In 2006: Family A took a 30-year fixed rate mortgage of $207,000 on a house worth $260,000 at the time. (The family put just over 20% down.) They received a Fannie Mae conforming loan with an interest rate of 6.50%.

• Today: Family A has about $200,000 remaining on their mortgage but their home value has fallen 15 percent to $221,000. Their “loan-to-value” ratio is now 90%, making them ineligible for a Fannie Mae refinancing.
• Under the Refinancing Plan: Family A can refinance to a rate of 5.16%. This would reduce their annual payments by nearly $2,350.

Here is an example of Family B (owe more than their house is worth):

• In 2006: Family B took a 30-year fixed rate mortgage of $350,000 on a house worth $475,000 at the time. (The family put just over 26% down.) They received a Fannie Mae conforming loan with an interest rate of 6.50%.
• Today: Family B has about $337,460 remaining on their mortgage but their home value has fallen to $400,000. Their “loan-to-value” ratio is now 84%, making them ineligible for a Fannie Mae refinancing.
• Under the Refinancing Plan: Family B can refinance to a rate of 5.16%. This would reduce their annual payments by nearly $4,000.

2. Stability Initiative: Loan Modifications for Homeowners Facing Foreclosure

Families facing the prospect of foreclosure can benefit from this stability initiative as it encourages lenders to pursue loan modifications. Lenders are encouraged to lower homeowners' payments to 31 percent of their income by lowering their interest rate to as low as 2% or by extending the terms of the loan. In addition, lenders can also lower the principal owed by the borrower, with Treasury sharing in the costs.

Homeowners do not need to be delinquent on their mortgage to qualify for this program (which is the criticism of many current loan modifications). Investment properties are not eligible for this program.

Here is an example of Family C:

• In 2006: Family C took out a 30-year subprime mortgage of $220,000, on a house worth $230,000 at the time (they put less than 5% down). The interest rate on their mortgage is 7.5%.
• Today: Family C has $214,016 remaining on their mortgage but their home value has fallen 18% to $189,000. Also, in November, one parent in Family C was moved from full-time to part-time work, causing a significant negative shock to their income. Their loan is now 113% the value of their home, making them “underwater” and unable to sell their house. Meanwhile, their monthly mortgage payment is $1,538 and their monthly income has fallen to $3,650, meaning the ratio of their monthly mortgage debt to income is 42%.
• Under the Homeowner Stability Initiative: Family C can get a government sponsored modification that – for five years – will reduce their mortgage payment by $406 a month. After those five years, Family C’s mortgage payment will adjust upward at a moderate, phased-in level.

How Loan Modifications Work Between the Homeowner, Servicer, Lender & Government

• A Shared Effort to Reduce Monthly Payments: For a sample household with payments adding up to 43 percent of his monthly income, the lender would first be responsible for bringing down interest rates so that the borrower’s monthly mortgage payment is no more than 38 percent of his or her income. Next, the initiative would match further reductions in interest payments dollar-for-dollar with the lender to bring that ratio down to 31 percent. If that borrower had a $220,000 mortgage, that could mean a reduction in monthly payments by over $400. That lower interest rate must be kept in place for five years, after which it 2 could gradually be stepped up to the conforming loan rate in place at the time of the modification. Lenders will also be able to bring down monthly payments by reducing the principal owed on the mortgage, with Treasury sharing in the costs.

• “Pay for Success” Incentives to Servicers: Servicers will receive an up-front fee of $1,000 for each eligible modification meeting guidelines established under this initiative. They will also receive “pay for success” fees – awarded monthly as long as the borrower stays current on the loan – of up to $1,000 each year for three years.

• Incentives to Help Borrowers Stay Current: To provide an extra incentive for borrowers to keep paying on time, the initiative will provide a monthly balance reduction payment that goes straight towards reducing the principal balance of the mortgage loan. As long as a borrower stays current on his or her loan, he or she can get up to $1,000 each year for five years.

• Reaching Borrowers Early: To keep lenders focused on reaching borrowers who are trying their best to stay current on their mortgages, an incentive payment of $500 will be paid to servicers, and an incentive payment of $1,500 will be paid to mortgage holders, if they modify at-risk loans before the borrower falls behind.

• Home Price Decline Reserve Payments: To encourage lenders to modify more mortgages and enable more families to keep their homes, the Administration -- together with the FDIC -- has developed an innovative partial guarantee initiative. The insurance fund – to be created by the Treasury Department at a size of up to $10 billion – will be designed to discourage lenders from opting to foreclose on mortgages that could be viable now out of fear that home prices will fall even further later on. Holders of mortgages modified under the program would be provided with an additional insurance payment on each modified loan, linked to declines in the home price index.

3. Supporting Low Mortgage Rates by Ensuring Confidence in Fannie & Freddie

The Treasury will be utilizing funds authorized to it by Congress in 2008 to keep mortgage rates low by injecting capital into the GSE's. $200 billion will be used for the Treasury's Preferred Stock Purchase Agreement, and the Treasury will continue to purchase the GSE's mortgage-backed securities on the secondary market. Treasury will also be increasing the size of the GSEs’ retained mortgage portfolios allowed under the agreements – by $50 billion to $900 billion – along with corresponding increases in the allowable debt outstanding.

There are more qualifications to qualify for initiatives #1 and #2, but I've summarized them in an effort to shorten this post. See the full Housing Affordability and Stability Plan Executive Summary for more qualifications.

Sources:

Housing Affordability and Stability Executive Summary

Housing Affordability and Stability Housing Example

Housing Affordability and Stability Fact Sheet