With many new plans on the table to help stabilize the economy in 2009, there is increased momentum in Washington to allocate some of the $700 billion in TARP funds to continue to help stabilize the mortgage and real estate market as well.
In fact, Treasury Secretary nominee Timothy Geithner is working on plans to revamp the way TARP is used to make foreclosure prevention a bigger priority. Congress has made it known that it likely won't release any more TARP funds until some of the money is earmarked for housing.
President-Elect Obama has been shy on details but has said that within a month or two he would unveil "a sweeping effort to address the foreclosure crisis so that we can keep responsible families in their homes."
What Items could be in a new plan?
TARP funds for homeowners: Barney Frank, House Financial Services Chairman, is writing a bill that would impose conditions on the use of any more TARP money and in a memo to colleagues called for "substantial efforts" to be made to reduce foreclosures.
Frank said that his bill will call for $40 billion or $50 billion from TARP funds to be used for foreclosure mitigation. And he's calling on the Treasury to implement a plan by April 1.
That plan essentially may be a version of a plan proposed by FDIC Chairwoman Sheila Bair. Bair's plan would systematically modify loans and provide a government guarantee to protect investors in the event a homeowner re-defaults after the loan has been modified.
The plan also must reduce the costs and write down requirements for lenders and borrowers of the Hope for Homeowners program, which began in October but has helped virtually no one.
That program offers full government backing for lenders that agree to write down a mortgage to below a home's appraised value. But the loss to lenders can be greater than that reduction because many troubled homeowners are also "under water" due to falling home prices - meaning they owe more on their home than its current market value. So as the law was initially passed, to participate in Hope for Homeowners, lenders in many cases would have to lock in a sizeable loss.
"We wrote it too restrictively. ... [Now] we'll make it more user-friendly," Frank told reporters on Friday.
Bankruptcy law reform: Senate Banking Chairman Christopher Dodd, and Sen. Richard Durbin, said that Citigroup has agreed to support a proposal that the lending industry has strongly opposed that would allow bankruptcy judges to write down the primary mortgages of homeowners filing for bankruptcy.
The bank's support of the proposal is based on the condition that the change only apply to existing mortgages and that homeowners filing for bankruptcy notify their lenders 10 days before to give them a chance to modify the mortgage.
Other lenders and housing industry interests -- including the powerful National Association of Home Builders -- have also started to lower their resistance to so-called bankruptcy cram downs.
The long-held argument against cram downs is that they would cause rates to rise because mortgage securities investors would demand a higher interest rate to compensate for the risk that a judge could rewrite mortgage contracts on terms disadvantageous to the investor.
Larger home buyer tax breaks: The National Association of Home Builders has been pushing for all home buyers to get a temporary tax credit for buying a primary residence worth up to 10% of the purchase price. A tax credit is a dollar-for-dollar reduction of one's tax liability.
Currently, only first-time buyers may get a temporary tax credit worth up to $7,500 for a limited period of time. But that credit functions more as an interest-free loan from Uncle Sam because the home buyer has to repay it over time.
Neither Dodd nor Senate Finance member Charles Schumer endorsed the idea of an actual tax credit. Dodd said a tax credit would not help prevent foreclosures but could spur economic growth.
And Schumer said there was "broad support" among members of the Senate Finance Committee to make tax policy changes to support housing, particularly existing homes as opposed to newly constructed ones.
Lower Interest Rates: Group such as the National Association of Realtors, among others, has pushed for the Treasury Department to take a more active role in driving mortgage rates down by buying securities backed by 30-year fixed-rate mortgages from Fannie Mae and Freddie Mac.
Frank has suggested that in order to use TARP funds, Treasury must commit to using some money to "stimulate demand for home purchases ... including through ensuring the availability of affordable mortgage rates for qualified home buyers."
A plan already in place at the Federal Reserve has already had the effect of lowering rates on the 30-year fixed to record lows. The Fed is buying up to $500 billion in mortgage-backed securities backed by Fannie and Freddie, a move that bolstered confidence in the mortgage giants' ability to continue to buy and back loans in the secondary market.
Another idea that has been floated recently is to have Uncle Sam use money to buy down points on home buyers' mortgages to lower interest rates
For more information on current programs for existing and potential home owners, please contact Bill Kamboukos and Carlos Felix of Strategic Mortgage at (480) 219-3682 or by emailing: info@strategicmtgaz.com or online at www.strategicmtgaz.com
New Year For Mortgage & Real Estate:
Many Changes Implemented And On The Horizon
Now that the holidays are over and 2009 has finally begun, it is time to take a look at many new changes on the forefront for the mortgage and real estate marketplace. With 2008 finally in the rearview mirror, we are certain to still see greater Government intervention and changes that may make 2009 a brighter year than the last. With that being said we will begin to take a look at some of the key factors in 2009, this week we look at changes to FHA mortgages.
FHA Financing
2008 was certainly a year that saw a revival of the FHA mortgage and 2009 will be a year where FHA loans will continue to play a major role in the mortgage marketplace.
As previously mentioned in recent articles, the minimum down payment on an FHA mortgage has now been increased to 3.5%, from 3.0%. While not a tremendous change, this can affect home buyers who are on the verge of purchasing a home. For instance, a buyer looking at a $200,000 home will now need an additional $1,000 for down payment.
As well, FHA loan limits in many metropolitan areas have now been reduced. Locally in Arizona, the loan limits in Maricopa and Pinal County have been reduced to $271,050, which represents a major change from the $346,250 limit that we saw in 2008. This will force loans with higher balances to use conventional financing.
In addition, there have been some changes to refinance options for homeowners. First, there is an option potentially available for homeowners who are in an existing FHA loan to refinance into a new FHA loan without an appraisal. This is significant considering the recent drop in interest rates, as it may allow borrowers the ability to refinance with a lower payment, without an appraisal. This will only be available for homeowners with an existing FHA mortgage and all other standard qualifications will still apply.
On the other side of the spectrum, the FHA will implement stricter guidelines on cash out refinances. As any cash out refinance transaction with a loan to value over 85% will require two independent appraisals. This is undoubtedly a tool for the FHA to make sure they are taking more precaution with this type of higher risk loan.
These are just some of the many changes that will affect the mortgage and real estate market. As always, we will continue to keep you updated on the most relevant events a weekly basis throughout the new year
For more information on current mortgage programs, rates and more, please contact Bill Kamboukos and Carlos Felix of Strategic Mortgage at (480) 219-3682 or by emailing: info@strategicmtgaz.com or online at www.strategicmtgaz.com
Is It Time For Another Home Buying Boom?
Potential Buyers Have Many Factors In Their Favor Heading Into 2009
As we head into 2009, there is still a great deal of uncertainty on the horizon in the economic landscape. However, quietly we are seeing an environment created that has many favorable factors to potential homeowners. So the question left to be asked is, will 2009 create a rebound in home buying and thus potentially the housing market? Only time will tell, for the mean time, we do know the following factors will help encourage homeowners to choose 2009 to purchase.
Interest Rates Near Record Lows
The recent down turn in interest rates has seen interest rates hit near record lows, near 5%. This has created an environment of more buying power for potential homeowners, as monthly payments have become more affordable. Couple this with a program such as Strategic Mortgage's below market finance program available from select sellers and you could potentially purchase a home with an interest below 5%.
Decreased Home Prices
In addition to low interest rates, low home prices have created a buyer's market that is favorable for potential homeowners as well. We are now in a market with homes that are priced very competitively. Not to mention all of the value in purchasing bank owned foreclosures and short sale properties as well.
Many Home Loan Programs Still Available
Despite much information to the contrary, if you are home buyer looking to purchase a home to live in, there are still many good loan programs available. You may need to have a small down payment or a family member who can gift you the amount for down payment, but there are still many quality loan programs available for home buyers.
Tax Benefits
The final key benefit available to potential buyers in the current market is that of tax benefits. First, we have the first time home buyer tax credit which will run until June 30, 2009. This will provide a $7,500 tax credit for first time buyers who purchase a home before the deadline and the credit can be claimed when filing 2008 taxes. This is a great way to recoup down payment or provide extra funds to make improvements to a recently purchased home.
In addition, numerous others tax benefits to home ownership are present in regard to home buying. As mortgage insurance remains tax deductible through 2009. As well as the power of mortgage interest writeoffs can help many homeowners with good paying job save plenty of money, even if the pay the same or more for their mortgage, as they formerly did for rent.
All of these factors have created an environment that is very favorable to potential home buyers in 2009. As such, as we approach 2009 we may very see a rebound in home buying.
For more information on home buying and all mortgage related questions, please contact Bill Kamboukos and Carlos Felix of Strategic Mortgage at (480) 219-3682 or by emailing: info@strategicmtgaz.com or online at www.strategicmtgaz.com
Answers To Commonly Asked Refinance Questions
Should my new rate be 2 percent lower than my current rate to make it worthwhile?
The quick answer to this is, no. You do not have to wait until mortgage interest rates drop by 2 percent before you consider refinancing your mortgage.
The decision to refinance your home is dependent on many things, including how long you plan to be in the house, how much lower the interest rate will be on your new loan, the closing costs for the new loan, your equity position in the home and whether you plan to do a cash-out refinancing.
With a regular refinance, you're trying to take advantage of lower interest rates to lower your monthly payments. If you have enough equity in your home, you may even have a side benefit of being able to stop paying private mortgage insurance.
In ordered, to take advantage of a lower rate you'll have to close on a new loan and pay the closing costs associated with that loan. This is true even if you opt for a no-cash or low-cash closing. With a no-cash or low-cash closing, the costs still are there; they just are paid for either with a higher interest rate or are included in the principal balance of the loan. (There's truly no such thing as a free lunch.)
If you don't plan on being in the house very long, then the lower payments associated with the refinancing won't cover these closing costs. So you must weigh the options, but the bottom line is that you do not need a 2 percent interest rate deduction to make refinancing worthwhile.
Should I refinance with my current lender or use the services of a mortgage broker?
The question of using your existing lender versus a mortgage broker is one that many homeowners looking to refinance have. On one hand, the borrower believes that having an established relationship and paying their mortgage on time will allow them to receive better terms and fees for their lender to keep their business, rather than lose it to a refinance. This same notion is often also perceived by many borrowers in relation to a bank or credit union that they may have a relationship with as well. The unfortunate situation in today's economic environment is that this does not necessarily mean better rates and fees.
A mortgage broker has the ability to shop the mortgage around for you, especially in an environment of lower rates and find the best terms on a mortgage for your specific situation. This will allow you in the end to see all possible options available and not just the options available at one lender. It is however important to make sure you are dealing with a reputable mortgage brokerage with professionals such as Strategic Mortgage.
What is the difference between the rate and the APR?
Another common question received is the difference in the actual interest rate and the APR. The annual percentage rate adjusts the mortgage interest rate to reflect estimated closing costs, including points paid at closing and mortgage insurance.
The Truth in Lending Act requires lenders to provide the APR when advertising a mortgage loan and provide prospective borrowers with the loan's APR upon request. APRs aren't perfect, since closing costs are estimated and the lender can round off by up to a quarter-percent.
Therefore, the APR is not your actual interest rate paid on the loan, but factors in the cost of obtaining a loan and lists that as an interest rate as well on the loan disclosures.
If I have low rate on an adjustable rate mortgage should I refinance to a fixed rate now?
Many homeowners with lower rates on their adjustable rate mortgages have held off refinancing to fixed rates as interest rates have hovered around 6%. Now with rates a full percentage point lower, many homeowners are wondering if now is the time to refinance into a fixed rate mortgage for the long term. The answer, more often than not, is yes.
With interest rates at near historic lows, now may finally be the time to refinance to a fixed rate. Many homeowners have been content to take a wait and see approach and while some believe that rates may decline lower, if housing and the mortgage market has taught us anything, it is to expect the unexpected. Now may be your best opportunity to lock into a fixed rate for the long term and refinance out of your adjustable rate mortgage.
For more information to questions on refinancing in the current market, please contact Bill Kamboukos and Carlos Felix of Strategic Mortgage at (480) 219-3682 or by emailing: info@strategicmtgaz.com or online at www.strategicmtgaz.com
Rates Stay Low, But Help For Home Owners Delayed
FDIC Plan - Round 2
In its first go round, the Bush administration denied enactment of FDIC Chairwoman Sheila Bair's controversial loan modification plan, however now lawmakers are taking matters into their own hands.
However new legislation has now been introduced incorporating Bair's proposal to systematically modify loans and provide a government guarantee against default. The measure is estimated to ultimately save 1.5 million homeowners from foreclosure and would cost $24.4 billion, which Waters would take from the $700 billion financial industry bailout bill.
The new bill however will likely have to be reintroduced when the new Congress takes office next year unless similar measures are worked into any new bailout proposals. Several banks and mortgage finance companies Fannie Mae and Freddie Mac have recently put their own loan modification plans into place. And as part of its federal bailout, Citigroup must start modifying loans in accordance with Bair's guidelines.
Meanwhile, the number of homes falling into foreclosure is rising daily. A record 1.35 million homes are in foreclosure and a historic high 6.99% of borrowers are behind on their payments, the Mortgage Bankers Association reported last week.
Bair has long been a proponent of systematic loan modifications, and has put her plan into action at IndyMac, which the FDIC took over in July. Officials had modified 5,000 loans as of mid-November.
So What Is The Plan?
First, housing payments for delinquent borrowers two months or more late would be reduced to 31% of gross monthly income. To get there, mortgage rates could be set as low as 3% for five years, before increasing at an annual rate of 1 percentage point until they hit the prevailing market rate. Loan terms could be extended to as long as 40 years.
Each loan will be tested to see whether it is more beneficial to modify or to foreclose.
Second, to encourage servicers and investors to participate, the government would share up to 50% of the losses if a borrower who had been helped ended up in default anyway. The risk of re-default had been one obstacle to getting lenders on board with systematic modification plans. This guarantee takes the program a step further than what's currently being done.
In addition, the FDIC would pay servicers who process mortgages $1,000 for each re-worked loan.
As we enter the end of the year, this plan is one of a host plans that may be unveiled when congress reconvenes. In this market it appears that only certainty is uncertainty. Right now as interest rates remain low, many are waiting on the sidelines for lower rates, but there are no guarantees that we may see these. In addition, other borrowers are waiting for government mortgage relief and that may not come anytime soon either. For more information on what the right move for your current situation as a home owner or potential home owner may be, do not hesitate to contact us.
For more information on these programs and more, please contact Bill Kamboukos and Carlos Felix of Strategic Mortgage at (480) 219-3682 or by emailing: info@strategicmtgaz.com or online at www.strategicmtgaz.com
My name is Bill Kamboukos and I am the owner and broker of Strategic Mortgage a Tempe based mortgage broker.
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