The Fed Has Lowered House Prices By Over $20,000

I have said for 11 years that the interest rate on a mortgage is more important than the price of a home when it comes to calculating the monthly payment of a home. Let me prove it to you—

On November 24th when this HUGE mortgage bond rally started, FHA mortgage rates were at 6%. Today, they are at 5%, a decrease of 1%. Thus, on a $200k loan a buyer’s monthly payment just dropped $127!

This is equal to a price drop of $21,182 in the last 22 days! This is GREAT news!!!

The Fed Lowers Rates

Today the Federal Reserve lowered short-term interest rates, the Fed Funds Rate, by 3/4%.

Here is some of what they said in their policy statement--

· The risk of inflation has decreased appreciably.
· The Fed will continue buying large quantities of mortgage backed securities or MBSs and will expands its purchase of MBS if needed.
· Weak economic conditions are likely to warrant exceptionally low Fed Funds Rate for some time.
· Going forward the Fed’s focus will be to support the functioning of the financial markets and to stimulate the economy. (No mention of their mandate about containing inflation.)

Here is what I think we will see happen--

* We will probably see the Fed Funds Rate at 2% or lower throughout 2009.

· It appears that the Fed is committed to keeping mortgage rates super low. How low? I don’t know for sure. I would assume with 99% certainty a rate below 5.50% and with 60% certainty rates below 5%.

· For how long? I could see this being the case for 6 to 9 months maybe. Why? Fewer people normally buy a home in the dead of winter and we are 4 months away from the peak buying and selling season. Or until housing sales rebound nicely nationwide.

Freedom For New Home Buyers

For the last several years big home builders have forced their clients to use their in-house lender to receive the discounts that the builders offer on their homes. In turn, their in-house lenders put hundreds of thousands, if not millions of people into crappy sub-prime loans. Why? Sub-prime loans paid them better. But, this is about to change.

I read an article this week about the new RESPA changes coming into effect on January 16, 2009. RESPA is maybe the most important set of laws that regulate housing and lending in our country and HUD is implementing changes that BENEFIT YOU.

Home builders will no longer be allowed to offer special financing or closing cost incentives to their clients if they use their preferred lender. Builders must offer these incentives to every buyer no matter what mortgage company the buyers choose! Yeah! Builders can no longer require the use of a certain settlement provider such as a mortgage company when offering any discounts or incentives.

Buyers will soon be free to choose their lender when buying a new home!

More Good News for Colorado Housing

It was reported this week that there 14% fewer foreclosures completed in our great state in the first 9 months of the year compared to the first 9 months of 2007. This is the first time we have seen a year over year decline since 2003!

Kathi Williams, Director of the Colorado Division of Housing, said she is “cautiously optimistic about the future.”

A second report revealed that Colorado’s delinquency rate is below average. This week TransUnion reported the delinquency rate on mortgages throughout the country as of September 30th. They define their delinquency rate as at least 2 months behind on their mortgage payments.

In Colorado our delinquency rate is 3.38% which is 15% below the national average of 3.96%. On average the national delinquency rate is normally around 2%; but has risen considerably in the last 18 months.

What does this mean for first time home buyers? The end of Denver homes being on "sale" is nearly over and will probably end in 2009. Don't miss out on this once in a generation sale.

Mortgage Rates at 4.50%???

On Wednesday afternoon it was announced that the Treasury is considering a plan to lower mortgage rates to 4.50% to stimulate the housing market and our economy. And this was widely reported by the media as I have received several calls on Thursday and Friday about this.

How would they do this? It appears that the Treasury is considering buying more Mortgage Backed Securities from Fannie, Freddie, and Ginnie and financing these purchases by issuing new Treasury debt, probably 10 year T-bills which are currently yielding under 3%. Thus, creating a spread and making money just like a bank does. How I love the power of Arbitrage!

Personally, I believe the Treasury could accomplish this by saying just 1 additional word—explicit. If Hank Paulson and Ben Bernanke would just say that the Treasury “explicitly” guarantees the MBS’ of Fannie and Freddie, mortgage rates would tumble without 1 penny spent. But, I don’t know any politician who knows how to do anything without spending money. Ugh!

Denver Home Prices Up 2.8%

In the 3rd quarter S&P/Case-Shiller Index Report it revealed that Denver has had the 3rd best performing real estate market in the country when compared to 19 other large metropolitan areas. Here in the Denver MSA our prices have only dropped 5.4% in the last 12 months. Many large cities have seen double digit price drops with some markets seeing drops of over 25% in the last year.

However, since March 2008, which was our lowest reading for the year, prices have INCREASED 2.8%. WOW! I bet you did not know that.

In their quarterly reports S&P/Case-Shiller breaks out their data by price ranges as well, which is very helpful. Here is what I learned--

Homes priced under $212,570--
* Prices are down 6.8% in the last year.
* Prices are up 5.4% since March 2008

Homes priced between $212,571-$317,033
* Prices are down 4.8% in the last year
* Prices are up 4.2% since March 2008

Homes priced above $317,033
* Prices are down 5.4% in the last year
* Prices are up just 1.3% since March 2008

This data tells us that lower priced homes are peforming the best in the last 6 months, the 2nd and 3rd quarter. For the highest priced homes, the market appears to be softening in the last 6 months when compared to the previous 6 months. This is probably due to the difficulty of getting a mortgage as home prices rise above $439,000 (conforming loan amount of $417,000/95% LTV).

A second good sign is that inventory levels are dropping which should help cause prices to rise. Currently, we are seeing some of our lowest inventory levels in 3 years.

Only 1 Bank Will Approve This Loan

For many years I have said thousands of times "Cash is King!" Let me be the first to tell you: The King Is Dead!!!

Two clients tell the story the best. One gentleman could put $100,000 down on a $200,000 house; but I could not get him approved for even a FHA loan! Why? His credit report consisted only of 4 unpaid collection accounts. And I was not allowed to verify non-traditional credit like rent, utilities, insurance payments because his traditional credit report was filled only with collections. A 50% LTV did not matter!

A second client is a young lady fresh out of college with her first professional job. Her problem: she has no traditional credit or credit score. Thus, I added her Dad to the loan as a non-occupying co-borrower which FHA allows. Her Dad is giving her $40k for a down payment. His credit is perfect and he has a 7 figure income. I have their FHA loan approved through FHA's Total Scorecard underwriting software. Easy loan? Wrong!

Knowing that she has no credit score, I thought this could be a problem. It was! 11 of my 15 FHA banks said "NO!" Three of them said maybe if I can verify at least 3 or 4 non-traditional credit tradelines for her. Only one bank has said YES to this loan as approved by FHA!

So, who is the new King? The new King is definitely credit and credit scores. In fact, most banks and the PMI companies require that a borrower have at least 3 traditional credit tradelines open for at least 12 months regardless of any on-line approval that I receive from Fannie, Freddie, FHA, or VA.

Say hello to the new KING.

What Makes Me Scream!

Nothing makes me scream louder than Mortgage Professionals telling people that mortgage rates are tied or linked to the 10 Year Treasury Bill. Plus hundreds of "Talking Heads" in the media believe and say this as well.

NO THEY ARE NOT!!!!!!!!!!!!!!!

The last 2 days of trading make my point as the 10 Year Treasury Bill is up over 400 basis points in price as the yield has plummeted over 1/2% to 3.01%. On Thursday, the 30 Year Treasury Bond's yield or rate dropped .64%.

But, in the last 2 days the 6.00% Fannie Mae 30 year bond has gained a grand total of 11 basis points in price!!! And mortgage rates have remain unchanged. You see mortgage rates are directly correlated with the sale of mortgage bonds and nothing else.

If your Mortgage Professional ever says that mortgage rates are tied or linked to the 10 Year Treasury Bill, please please tell them that they are wrong. Then, hire a Mortgage Professional who knows the TRUTH and can advise you the best.

Posted on November 21, 2008

It's Not A Waiter's Market

On Tuesday NAR, the National Association of Realtors released their third quarter report on real estate sales in every MSA in the country. The headline for Denver was "prices drop 11% in the last year!" Watch out the sky is falling!

Now, let's look at the facts. Yes, median prices dropped 11% from September 2007 thru September 2008. But, what's happening recently? For the 3rd quarter prices were unchanged from the 2nd quarter. And prices actually rose .7% in the 2nd quarter. That's two quarters in a row of good news!

Almost all of the 11% drop occured in the 4th quarter last year when prices dropped 9.5% in those 3 months.

Home prices are firming up in Denver and the Case-Shiller Index reveals that March 2008 was probably the bottom of the market here in Denver. It's a buyer's market, NOT a waiter's market!

EZ Way To Calculate Your Mortgage Payment

Currently, 30 year fixed mortgage rates have been at or hovering around 6.00% for most of the year. With rates exactly at 6% today here is how to calculate your monthly mortgage payment--

Every $10,000 you borrow costs you $60 a month.
Every $100,000 you borrow costs you $600 a month.

Thus, if you borrow $220,000 on your new mortgage your principal and interest payment will be $ 1,320 approximately. Now this payment does not include your payments for property taxes, homeowner's insurance or mortgage insurance if needed.

Most people are surprised by how little money they save if they put an extra $10,000 down. This is why I normally recommend you keep YOUR money in the bank and not in your house under the mattress. Keep your money where it is safe and you can get to it in an emergency such as illness, death, or job loss.

Don't forget this maxim: It's better to have and not need, then to need and not have.

Denver Market One of the 7 Best

According to Smart Money Magazine November 2008 issue they named Denver one of the 7 most promising cities for a real estate rebound in the near future. I would agree.

In the magazine they quoted the PMI Group’s quarterly risk survey which might be the best risk assessment survey in the business and here is what they said,

“According to PMI’s ‘Risk Index,’ which estimates the odds of prices falling in a given market, at least 65 percent of the nation’s 386 metro areas have less than a 10 percent chance of seeing lower prices two years from now." Denver’s risk is under 2%!

I believe there is a lot of pentup demand in Denver from homeowners who want to move up or to a new neighborhood. 2009 could be a great year for home sales in Denver.
To read the story yourself, click below

http://www.smartmoney.com/Personal-Finance/Real-Estate/Now-for-the-Good-News-on-Home-Prices/

Why My Job Is So Tough

Back in the pre-historic ages of mortgage lending, June 2007, mortgage lending was so easy. I remember in early 2007 a new on-line lender appeared that allowed people to close their own mortgage by themselves without a Loan Officer or Mortgage Professional. It was deemed so easy to get a mortgage that anyone could do it and save money at the same time. It was like self checkout at the grocery store.

This week I have been working with a young lady who is a recent college graduate and she has a good job and some money saved. Should be easy? Wrong! Her problem is she has been part of the Secret Witness Protection Program from the credit bureaus, meaning that she does not exist with them, because she has not credit and no credit score.

So, I add her Dad as a co-borrower with her on her FHA mortgage. Her Dad has great credit, lots of money, and a very high income. Their loan is approved through FHA's on-line mortgage approval software called Total Scorecard.

My work is done right? Not anymore! Many banks won't accept FHA's approval of the loan because she has no traditional credit or credit score. Loan denied.

Thankfully, a few banks will let us compile non-traditional credit for her if we can. By doing so this will certify that she is a good credit risk. If this does not work, I will go to Plan C which contains a little secret that I know that will help her greatly within 30 to 60 days and get her loan approved then.

I keep telling myself that all this difficulty means job security for me. What do you think?

Alarming Changes From Experian and TransUnion

This week I had a client who pulled his own credit reports and credit scores from all 3 credit bureaus. What alarmed me is that Experian and TransUnion are apparently using a new credit scoring model with consumers that is NOT compatible with traditional credit scores that we as a mortgage company use.

Both Experian and TransUnion are using a new model for scores where the range of scores is 500 to 990; whereas, we use scores that range from 300 to 850.

For this client his credit score with these 2 bureaus were 842 and 852 which is considered a “B” grade in these models. Thus, I don’t know what his credit scores are with my model and my model is what is used in our industry.

Thus, I would recommend that you do not PAY any money to Experian and TransUnion for their credit scores with them as these scores are nearly worthless in my opinion.

Take Advantage of Banks While You Can

In October the inventory of unsold homes in Denver plummeted by 20.1% from October 2007 inventory levels. This October there were 23,120 unsold homes available; last October there were nearly 29,000 homes for sale in the Denver metro area.

Somewhat surprisingly the number of homes placed under contract in October was only down 3% from October 2007 levels as 4,504 homes were placed under contract. For all the rotten economic news in September and October I expected that this number would be down by 20% or more. But, people are still buying homes in Denver. Why? Prices have dropped and there are some incredible deals out there.

Speaking of prices, the average price of a single family home is down 13.6% from October 2007 and the median price is down 12%. Why are prices dropping? The majority of the reason is the mix of homes selling. Last year less than 1% of homes in Denver sold for under $100,000. This year homes selling for under $100k make up 15% approximately of all home sales. Plus, on the top end, there are very few homes selling that are priced above $750k. Thus, both the average and median prices have dropped.

Personally, I think there is a lot of pent up demand for people and families wanting to move who have chosen to sit still right now. Second, once these bank owned properties at super low prices, begin to make up a much smaller percentage of our home sales (say under 5%), I believe home prices will rise very quickly here in Denver. Currently the average home price is $250k and I think it will quickly rise back above $300k in the next 3 years.

Baron Rothschild a very wealthy businessman in the early 1800’s in London said, “you buy when there’s blood in the streets.” And the banks are bleeding. Go and take advantage of them. It’s your chance.

Denver Home Prices Rise 4.1%

This week the S&P Case-Shiller Index was released with information from the month of August.

This report is the most widely reported real estate report in the country currently. For Denver, home prices have increased 4.1% in the last 6 months since March! This continues to be great news.

It appears that for Denver, March was the bottom of the market. Hopefully, this bottom will hold through this credit crunch the last 2 months and the slower winter months.

For the last 12 months Denver home prices are down 5% which makes us the 4th best large real estate market in the country according to Case-Shiller. Nationally, home prices in the 20 largest cities dropped 16% in the last 12 months

Details of $7,500 Tax Credit/Refund

Now of course there is some fine print with the $7,500 tax credit that you may be eligible for and here is some fine print you must be aware of—

· There are income limits for this tax credit that begin at $75,000 for individual taxpayers and $150,000 for married filing jointly taxpayers.

· You can’t buy a home from a family member.

· You can’t obtain a mortgage from CHFA, a down payment assistance loan type, and receive the tax credit.

· You must own the home at the end of that taxable year. Believe it or not this has come up with one of my clients already.

· If you are married filing jointly both spouses must not have owned a home in the last 3 years.

· If you are married filing separately, then one spouse could take a $3750 tax credit.

· It 2 or more unmarried people buy their first home together it appears and I assume that each person would get a portion of the $7,500 tax credit. For example, 3 buyers each would get a $2,500 tax credit. This is not set in stone however.

· Please consult your tax advisor for more details and realize some of these details may not be worked out yet.

One other great benefit of this bill is even if you buy a home in the first 6 months of 2009 you can receive the credit and refund on your 2008 tax return.

This bill comes at a great time in Denver for first time home buyers as it appears that our market has already hit bottom and in some parts of town home prices never did drop (Wash Park, Platte Park, Stapleton, parts of Highlands Ranch, parts of SW Jefferson County).

So take advantage of this great offer by June 30, 2009.

What Only 1 First Time Home Buyer Knew

Since July 30th when President Bush signed into law The Housing and Economic Recovery Act of 2008 I have been amazed how few first time home buyers know about a great provision in this bill that applies to them. How few? Only one first time home buyer, out of dozens that I have talked to, in the last 3 months have known about this benefit and he was a financial advisor.

One of the main provisions of this bill is a $7,500 tax CREDIT for eligible first time home buyers and a tax CREDIT is far better than a tax deduction. This credit will directly reduce your IRS tax bill by up to $7,500. In instance, if your income tax owed to the IRS this year is $9,000 and you paid to the IRS through employer withholdings $9,000, you would be eligible for a $7,500 tax refund!

If your total tax bill is only $6,000 and you paid $6,000 already to the IRS through your withholdings on your paycheck, you will receive a refund of $7,500 which is more than you paid in!

Would you like Uncle Sam to give you $7,500 next year when you file your tax returns? If so, here is what you have to do—

· First, be a first time home buyer defined as someone who has not owned a home in the last 3 years.
· Buy a home with a value of $75,000 or more. If you buy a cheaper home your credit will be a little smaller.
· Must, buy a home between April 9, 2008 and June 30, 2009.

Please realize that this is money that does have to be repaid to the IRS over 15 years beginning in tax year 2010 in increments of $502 a year. Thus, it is essentially an interest free loan, which is the best kind of loan. You get all the benefit now (Instant Gratification) that you repay over time.

Now, how can you use this money to buy your first home? Really the only way possible is to obtain a loan from a family member for the amount of your down payment, normally 3% of the sales price. Then, next year repay them when you get your tax refund. Another idea is adjust your W-4 Withholdings with your employer so that more money stays in your pocket. This would be a great idea if you intend to buy your first home in 2009.

Are Mortgages Still Available?

Ever since the Treasury Department took over Fannie Mae and Freddie Mac in early September millions of people are wondering “are mortgages still available?” The resounding answer is YES! If the following statements describe you and your situation, mortgages are still available for you—

· You have been employed for the last 6 months.
· Your earnings from work are by salary or hourly pay.

· If you receive commissions, you have received them for at least 2 years.

· If you are self-employed you have been so for at least 2 years and you can prove your net income with your tax returns.

· You can “round up” at least $1,000 (legally of course).

· Your credit score is 580 or higher (if your credit score is below 580, I can help you improve it).

So, you may be thinking that I must be describing only awful sub-prime loans are still available. Far from it! Sub-prime loans are basically non-existent anymore.

The loans I am talking about are FHA loans, which are insured by the government. FHA loans are great loans for both first time buyers and repeat home buyers. What are the benefits of a FHA loan?

· Fixed rate loan terms of 15-30 years providing you with peace of mind.

· Great interest rates—if your credit score is less than 740 almost always a FHA loan will give you a lower rate than a conventional loan from Fannie or Freddie.

· Only 3% down through end of 2008. In January this increases to 3.5%.

· Only need a 580 credit score to be approved.

· Much cheaper mortgage insurance than on a conventional loan.

· Down payment can be gifted to you or lent to you by a family member.

· A co-borrower such as a parent who will not live in the home is allowed.

· Down payment assistance loans are allowed.

· No hefty pre-payment penalties.

FHA loans have come back “en vogue” in the last 15 months with many mortgage professionals. For me they have always been “en vogue” as I HATED doing sub-prime loans for two reasons. First, they are bad loans for my clients. Second, don’t even get me started about how these sub-prime lenders treated me and my clients before closing. I would blow a gasket! Ugh!

This is why I have only closed 6 sub-prime loans in nearly 11 years and hundreds of FHA loans in that time. It’s all about doing what is best for my clients and my own sanity.

Denver's Foreclosure Rate Keeps Dropping

According to today’s Realty Trac Report on foreclosure activity around the country, Realty Trac reported that both Colorado’s and Denver’s foreclosure activity have dropped for 2 quarters in a row! This is great news!

In the third quarter foreclosure filings of all types dropped 11% from the 2nd quarter at the state level and in Denver foreclosure filings dropped 13% in the 3rd quarter!

As of September 30th foreclosure filings in the state are down 31% from September 2007.

In Denver the percentage of household units with a foreclosure notice dropped to .91% in the 3rd quarter. The highest in the nation was Stockton, CA at 3.69%. In March, Denver’s ratio put it at the 11th worst in the country; now Denver is only 26th worst in the country. We are moving our way down this terrible list.

As the Case-Shiller Index has shown it appears that March 2008 was the bottom of the market here in Denver and this data supports this conclusion as well.

What a great time to buy a home in Colorado! I will leave with this quote from Warren Buffett last week, "A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful." Now's the time to buy.

No Down Payment--No Problem

Despite all the doom and gloom, government restrictions, and tight credit markets no down payment loans are still available for some people. In fact, there are still four options available.

The best option and always has been is a VA loan for qualified military veterans. VA loans are government insured loans that feature a great fixed rate and no monthly mortgage insurance.

The second option is combining a FHA loan with a down payment assistance loan from a city, county or state municipality. For example, the City of Aurora has one of the best programs called HOAP for first time home buyers. Arapahoe County has a similar program and Douglas County has their own program too. Two other programs exist for anywhere in the state and one is called CHAC and the second one is CHFA.

Each of these programs features a maximum income limit to qualify. For each program besides CHFA the income limit is $45,900 for a family of two people. Whereas, CHFA’s income limit for a family of two is $71,800.

Most of these programs have no monthly payment on the second mortgage. Next, interest rates on these loans are really low. Third, some of these loans will even help you pay your closing costs. Fourth, these programs do require a minimum investment from you, normally $1,000 or a little more.

CHFA also offers down payment assistance loans for current and previous home owners. The income limit for a family of two for these loans is over $82,000.

The third option is obtaining gift money from a family member or your employer or a qualified non-profit organization. However, seller funded down payment assistance programs, like Nehemiah, are no longer allowed.

A fourth option, which is new, is a loan from a family member. You can now borrow money from a family member and then you could repay them next year with your income tax refund of up to $7,500 if you are a qualifying first time home buyer.

To learn more please follow these links—
http://www.chfainfo.com/

http://coloradohousingassistance.org/

http://www.auroragov.org/AuroraGov/Departments/Neighborhood_Services/Community_Development/021459?ssSourceNodeId=967&ssSourceSiteId=621

http://douglascountyhousingpartnership.org/

http://www.co.arapahoe.co.us/Departments/CS/hcdsindex.asp

How Not To Become A Statistic

Do you want to become a statistic?
Do you want to lose your first home to foreclosure?

If you answered both of these questions “no”; then you should read this post.

In the last year I have discovered that the home buyers I am talking to are very concerned about becoming a statistic, a negative and sad statistic at that. The statistic is a home owner who loses their home to foreclosure or short sale in the future. No one wants this to happen to them as we have all seen and heard their stories. In fact, you may know someone who has gone through this “living hell”.

Millions of Americans have been taken advantage of by their mortgage professional who put them into a home and mortgage they really can’t afford. True?

So, how do you protect yourself? Here are two things you can do to protect yourself. First, decide on a budget for your mortgage payment. What can you realistically afford? If you currently pay $1,000 a month in rent and you can save $500 a month after paying your taxes and contributing to your retirement account, then you should be able to afford at least a $1,500 mortgage payment and maybe more because of the tax benefits. You also might have to re-prioritize your spending and your goals to be able to buy a home. So, please do your homework.

Second, only work with a mortgage professional who asks you the following question when you first talk with them—“what is your monthly budget for your house payment?” Why is this important? First, this question tells me that they have your interests in mind. Second, most mortgage professionals who don’t ask this question will tell you that you can really afford whatever payment they can get you pre-approved for. A larger commissions check for them is riding on this.

Be aware that even if with underwriting standards being more conservative we often can get you approved for more mortgage than you can really afford. For example, your budget may tell you that you can afford a mortgage payment of $1,800 a month; but I might be able to get you pre-approved for a payment of $2,600 a month. Just because I can get you approved for a payment this high, does not mean you can afford it. Remember you are the one who will be making the payment, not your mortgage professional.

This is why I ask all my clients “what is your monthly budget for your house payment?” Make sure whoever your mortgage professional is that they ask you this question too. If they don’t, run away from them and find another mortgage professional.

My Favorite Clients to Help

In my 10+ years in the mortgage business, my favorite clients to help and serve have been first time home buyers. Why? There are three reasons. First, is the excitment of helping someone or a couple fulfill the dream of owning a home. It is very rewarding! At a recent closing a young lady broke out in tears of joy when the closing was complete.

Second, I have found first time home buyers are "hungry" for information and very willing to learn. I adore this trait in first time home buyers as I love to educate and inform people. This spring I was helping a young couple less than one year out of college and their parents were concerned that they were "biting off more than they could chew" as they were buying a $230k home in south Aurora. They were both from Kansas where home prices are much cheaper. I reassured them that they were not as their total debt to income ratio was only 32% which is below the 36% standard that many financial advisors recommend.

Third, first time home buyers are very appreciative of my services. I must admit I enjoy their compliments. I use my 10+ years of experience to make the process as easy and smooth as possible. I have had many first time home buyers comment at or near closing, "this wasn't so tough" after the horror stories they have heard from friends and family. Next, I strongly encourage my clients to ask any and all questions as there is no such thing as a stupid question with me. This summer one lady finally asked me about a week from closing, "Lonnie, are you sick and tired of all my questions yet?" I told her, "No, and keep asking".