Indy Mortgage Blog

Buy foreclosures now - before it's too late

2009-08-05T15:22:00.002-04:00

In many markets, if you want to buy a repossessed property, you better come with your best offer first -- and fast.

By Les Christie, CNNMoney.com staff writer

Last Updated: August 5, 2009: 12:37 PM ET

NEW YORK (CNNMoney.com) -- You've heard of speed dating? It's got nothin' on foreclosure buying these days. In many places, anyone who wants to buy a foreclosure better act fast, or they're going to come away with bupkus.

REOs, the industry term for homes repossessed by lenders and put back on the market, are often selling in a day -- sometimes in less.

"We're seeing REOs go very quickly. Offers come in immediately after the listing comes on the market, within 24 hours," said Brad Geisen, founder of Foreclosure.com. Some homes have been put into contract in less than 90 minutes.

In Stockton, Calif., foreclosure ground zero, the market has changed radically. Last summer, Cesar Dias became famous for founding the "foreclosure tour," in which he packed potential buyers on a bus and ferried them around to some of the thousands of distressed properties.

Today, the foreclosure tour in Stockton is history. There are too few REOs.

"For every listing that comes out, we have 10 buyers," said Dias, an agent with Approved Real Estate Group. "We had a lot of inventory last summer. Now we're down to 1,500 listings -- from more than 5,000."

San Diego buyers face the same trend. "Agents have one or two REO listings now, compared with 15 or 20 a year ago," said realtor Adrianna Delgado of the Delgado Group.

And there's almost no negotiating, no back-and-forth, after the initial bid. "We don't get a counteroffer," said Delgado. "The sellers just ask for your highest and best bid. If you're not prepared to send in your best bid the first day, you may as well stop looking."

In Florida there are so many buyers for foreclosure listings that real-estate investment companies, which had been snapping up properties, are now facing stiff competition, said Vanessa Grout, VP for acquisitions at New Valley, a real estate investment fund.

Even in distressed Detroit, REOs are still in high demand. "For a good house that's not too beat up, in a good neighborhood, there's no lack of buyers in this market," said Andy Sakmar, founder of Century 21 Sakmar in the Motor City suburb of Rochester. "There are a lot fewer of these properties than a year ago, and the super buys get multiple offers."

Priced for speed
The biggest factor in the feeding frenzy is, of course, rock-bottom prices. Banks are pricing homes to move.

Sakmar tells of an REO that recently went on sale in a community of mostly $300,000 homes. It was in good shape and should have sold for $200,000, in Sakmar's opinion. Instead, the bank listed it for $129,000.

"It drew thirteen offers in two days," he said.

That kind of cut-rate pricing is very common, according to Foreclosure.com's Geisen. Instead of holding onto REOs for the best prices -- and paying the property taxes and maintenance and heating costs -- banks are selling the homes as quickly as possible.

"In this market, if they can liquidate them fast, it makes more sense to get them off the books," he said.

The trend is causing intense agita for buyers. "People feel like they're getting left out," said Dias, the agent in Stockton. "We show a house on the weekend and it's gone by Monday."

"There are plenty of buyers ready to move," added Mark Brandemuehl, a spokesman for Movoto, a California real estate broker that specializes in foreclosures. "They tell their agents to make bids right away, as soon as they see something suitable come on the market."

Bubble markets
The hot spots for this fast-paced foreclosure activity are former bubble markets where foreclosures soared -- places like California cities Sacramento, Riverside and San Bernardino.

In Sacramento, for example, the inventory is down to less than 30 days, making it a cut-throat market. The agents specializing in REOs "have nothing to sell," said Brandemuehl.

On average, inventories of California homes under $300,000, the most popular price point for foreclosure buyers, have shrunk drastically, from a nearly 10-month supply a year ago to less than three and a half-month supply today, according to the California Association of Realtors.

Nationally, the number of bank-owned properties diminished by 26% from June 2008 to June 2009.

The industry attributes the drop in inventories to foreclosure prevention efforts by President Obama and various state governments. In particular, they cite moratorium programs that, at the very least, postponed foreclosures.

The bad news is that as the moratoriums lapse, more REOs will likely hit the market.That's because these efforts tend to delay foreclosure rather than stop it.

"Every lender I talk to has been telling me there's every indication that a tsunami of new properties coming to the market later this fall," Sakmar said.

Geisen sees the same flood, but he attributes it to consumers failing out of Obama's foreclosure-prevention program, Making Home Affordable. He believes that many of the modified loans will fall back into foreclosure -- especially if the economy doesn't perk up soon.

In fact, last year the U.S. Comptroller of the Currency found that 53% of loans that were modified in the first half of 2008 fell back into arrears. Although, that was before Making Home Affordable standardized the terms and qualification process.

Still, Geisen said, "There'll be another wave of foreclosures. The wave that Obama stopped -- temporarily."

First Published: August 5, 2009: 12:28 PM ET
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The New Rules of Mortgage Lending

2009-02-05T09:55:00.000-05:00

Shopping for a home loan? Things have changed - here's what you need to consider.
By Les Christie, CNNMoney.com staff writer
February 4, 2009: 1:35 PM ET
NEW YORK (CNNMoney.com) -- If you're shopping for a mortgage these days, it's a whole new world out there.

"There have been a huge number of changes over the past few years in mortgage borrowing," said Gibran Nicholas, founder of the CMPS Institute, which trains and certifies mortgage advisors.

Of course, many of the subprime loans that helped fuel the housing boom - those that didn't require borrowers to show any proof of income, or that let homeowners make minimum payments - are are simply no longer available.

But even buyers looking for a traditional mortgage are now faced with different factors to consider.

Here is what you need to know:

Paying up-front points. Borrowers can pay points - one-time, up-front fees - in order to reduce their mortgage's interest rate over the life of the loan. One point represents 1% of the mortgage value.

But they often assume that they should never pay points, according to Alan Rosenbaum, founder of mortgage broker Guardhill Financial. That's a mistake, in his opinion.

When interest rates were high, paying points didn't make sense because borrowers were very likely to refinance after rates dropped. They wouldn't hold their original loans long enough to recoup their up-front costs.

But now borrowers can get a lot more bang for their buck. The old rule of thumb was that paying one point at closing could lower their mortgage's interest rate by a quarter percentage point or so.

"Today the spread is worth a half point to a full point on the rate," said Rosenbaum.

It means paying $2,000 on a $200,000 mortgage at closing can shave as much as a whole percentage point off the loan's interest rate, changing a 6% loan to 5%.

That would save $126 a month, and pay for itself in 16 months. Even if the rate were only lowered to 5.5%, that would still save $64 a month, paying for itself in 32 months.

Still, not everyone is convinced. Rosenbaum recently had a client who chose a 15-year fixed rate loan at 5.875% with zero up-front points on a $800,000 loan, instead of paying a point to get a 5.375% loan.

Had the borrower chosen to pay that point, he would have recouped that cost in about three years, and then gone on to save more than $200 a month for the remaining 12 years of the loan.

Of course, there are caveats. Buyers who are planning to refinance or sell within a few years shouldn't pay points, since the strategy simply doesn't pay in the short term.

Making more than the minimum down payment. If you can afford to put 25%, 30% or more down, should you do it?

Most lenders require a minimum down payment of 20%; anything less and borrowers will need to obtain private mortgage insurance.

And if a buyer could afford to put more than 20% down, it was generally assumed that they should.

The traditional thinking was, "If you have the capital to commit, why not?" said Keith Gumbinger of mortgage research firm HSH Associates. "It will give you a smaller balance to pay off. But now, in light of declining home markets, not everyone would agree with that."

High down payments can be wiped out in severely declining markets.

Nicholas said he knows of a couple in Arizona who put a whopping $400,000 down on a million dollar house a couple of years ago. That gave them, they thought, a nice home equity cushion should they run into financial trouble.

"But prices are down so much, the couple still fell underwater," he said. "It would have been better to conserve that cash in case home prices continue to decline."

Locking in the mortgage rate. Many borrowers choose not to lock in when rates are falling, as they have been, since they assume that the deals will only get better.

But that's often a mistake.

"We almost always recommend that if you have the numbers that make your deal work, then lock it in," said Gumbinger.

His reason: Interest rates tend to jump up much faster than they inch down, meaning that buyers are much more likely to get stuck with a higher mortgage rate than they are to get lower one because they waited.

Besides, locking in at the currently very affordable rates can give borrowers peace of mind, which is no small matter when you're trying to buy a house.

"You'll sleep better at night," said Gumbinger.

Foreclosures dominate home sales

2009-02-03T10:38:00.000-05:00

Repossessed homes and short sales make up a large percentage of sales in many real estate markets.
By Les Christie, CNNMoney.com staff writer
Last Updated: February 3, 2009: 7:48 AM ET
NEW YORK (CNNMoney.com) -- Real estate values around the nation have collapsed, and sales of foreclosed and "underwater" homes now dominate many housing markets, according to a report released Tuesday.

The report, from Zillow.com, a real estate Web site, revealed that with foreclosures soaring, nearly 20% of the nation's home sales in 2008 were of bank-repossessed properties. Another 11% were short sales, in which homeowners owed more in mortgage debt than their homes were worth.

Madera, Calif., had the highest percentage of these distressed sales: 54.6% of all transactions there were foreclosed homes, and another 3.4% were short sales.

In Merced, Calif., 53.4% of sales were foreclosures and 4.8% were short sales. In nearby Stockton, 51.1% were foreclosures and 5.4% were short sales.

"As more markets turn down and markets that were already down go deeper, the pace at which value is being erased from the U.S. housing stock is rapidly increasing," said Stan Humphries, Zillow's vice president in charge of data and analytics.

"More value [was] wiped out in the fourth quarter of 2008 than was eliminated in all of 2007," Humphries said.

About $3.3 trillion in home equity was erased in 2008, with $1.4 trillion of that wipeout coming in the fourth quarter alone, according to Humphries. More than $6 trillion in value has been lost since the market peaked in 2005.

Those equity losses have put many homeowners underwater, where they're extremely vulnerable to foreclosure. These owners can't tap home equity for the cash they need to pay bills when they run into rough financial patches, and they often find it impossible to refinance - lenders will not loan more than the property is worth.

In the United States, 17.6% of all homes are now underwater, according to Zillow, as are 41.2% of all mortgages for homes bought in the past five years.

The worst-hit cities are in the once-booming Sun Belt. In Las Vegas, 61.4% of all homes are underwater.

Because so many homes are worth less than their mortgage balances, an increasing number have to be sold short. But short sale transactions can take a long time to complete, because lenders have been having trouble keeping up with the flood of requests.

"The speed of short sales is a function of the resources being allocated to them by lenders, and those resources are being stretched to the limit," Humphries said.

That means lenders may not act on approving short sales for months. The deals cannot go forward without their approval, because the banks must agree to forgive the difference between what they're owed and what the sale brings in.

As the time it takes to arrange short sales lengthens, they become harder to complete.

Time and money wasted
One example of how price declines can doom a short sale occurred recently in Phoenix. Curtis Johnson, a real estate broker there, worked with a health care worker whose hours were being cut and who could no longer afford her mortgage. She fell behind and decided to sell.

Johnson was able to find a buyer willing to pay $183,000, and got an approval form the lender. The owner confidently moved out, got a new place and started a new life. But the lender folded and the mortgage went to a new servicer, who took six weeks to approve the deal.

"Unfortunately, the buyers who were approved were no longer interested because the real estate market had dropped significantly," Johnson said. "They wrote a new offer, considerably lower then the first, and it was time to start over."

Two more offers eventually fell through before a new buyer was found and the owner's bank approved the price, this time at $163,000. On the day of that closing, however, the parties discovered that the buyer's lender had run out of funds and dropped out of the deal. The home went to foreclosure auction before another sale could be arranged.

The house is now on the market for $139,900.

"[The house is] listed for less than what would have been received had the bank been willing to work with us, and still has not yet sold," Johnson said.

Distressed sales like that depress the market for all homeowners. Regular sellers in cities dominated by foreclosures have to adjust their prices downward to compete.

The percentage of homes sold for less than what their owners originally paid has leaped up in the past couple of years. In the United States as a whole, 34.6% of the sales made in 2008 were done at a loss. In Merced, 71.6% of all sales last year were for less than the seller paid. Stockton, Modesto and Las Vegas all had in excess of 68% of all homes being sold at a loss.

Foreclosures beget more foreclosures by adding inventory to the market, which depresses prices, which increases foreclosures, according to Humphries.

"The vicious cycle continues," he said.

First Published: February 3, 2009: 3:28 AM ET

203 (H) Disaster Victims

2009-01-29T11:41:00.003-05:00

The Section 203(h) program allows the Federal Housing Administration (FHA) to insure mortgages made by qualified lenders to victims of a major disaster who have lost their homes and are in the process of rebuilding or buying another home.

Purpose:
Through Section 203(h), the Federal Government helps victims in Presidentially designated disaster areas recover by making it easier for them to get mortgages and become homeowners or re-establish themselves as homeowners.

Type of Assistance:
This program provides mortgage insurance to protect lenders against the risk of default on mortgages to qualified disaster victims. Individuals are eligible for this program if their homes are located in an area that was designated by the President as a disaster area and if their homes were destroyed or damaged to such an extent that reconstruction or replacement is necessary. Insured mortgages may be used to finance the purchase or reconstruction of a one-family home that will be the principal residence of the homeowner. Like the basic FHA mortgage insurance program it resembles (Section 203(b) Mortgage Insurance for One- to Four-Family Homes), Section 203(h) offers features that make homeownership easier:

-- No downpayment is required. The borrower is eligible for 100 percent financing. Closing costs and prepaid expenses must be paid by the borrower in cash or paid through premium pricing or by the seller, subject to a 6 percent limitation on seller concessions.

-- FHA mortgage insurance is not free. Mortgagees collect from the borrowers an up-front insurance premium (which may be financed) at the time of purchase, as well as monthly premiums that are not financed, but instead are added to the regular mortgage payment.

-- Some fees are limited. FHA rules impose limits on some of the fees that lenders may charge in making a mortgage. For example, the lender’s mortgage origination charge for the administrative cost of processing the mortgage may not exceed one "point"—that is, one percent of the amount of the mortgage excluding any financed upfront mortgage insurance premium. In addition, property appraisal and inspection fees are set by FHA.

--HUD sets limits on the amount that may be insured. To make sure that its programs serve low- and moderate-income people, FHA sets limits on the dollar value of the mortgage. The current FHA mortgage limit ranges from $200,160 to $362,790. These figures vary over time and by place, depending on the cost of living and other factors (higher limits also exist for two- to four-family properties).

Eligible Participants:
FHA-approved lending institutions, such as banks, mortgage companies, and savings and loan associations, are eligible for Section 203(h) insurance.

Eligible Customers:
Anyone whose home has been destroyed or severely damaged in a Presidentially declared disaster area is eligible to apply for mortgage insurance under this program.

Refi madness

2008-12-25T08:40:00.001-05:00

Falling interest rates are leading to a rush to get cheaper mortgages. Should you join in?
By Les Christie, CNNMoney.com staff writer
Last Updated: December 24, 2008: 2:31 PM ET
NEW YORK (CNNMoney.com) -- Falling interest rates are fueling a mortgage refinance frenzy as homeowners rush to reduce their housing payments.

The average rate for a 30-year, fixed mortgage dropped to 5.08% last week, according to the Mortgage Bankers Association, more than a full point lower than just a month ago.

Mortgage applications were up a whopping 48% last week, according to the MBA and more than 80% were from homeowners looking to lower housing costs.

"It's snowing loans," said Steve Habetz, a Connecticut mortgage broker, "and they're all refis."

Among those were Elizabeth Mayer and Michael Keohane, who bought their Manhattan condo just a little over a year ago, financing $220,000 of the purchase price with a 30-year, fixed rate loan of 6.5%. That was affordable, with monthly payments of less than $1,400. But their new 5.25% loan will lower their payment to about $1,215, saving about $175 a month.

"It was a nice holiday gift," said Mayer.

With savings like that, it's no wonder that homeowners are coming out of the woodwork. And mortgage brokers are beating the drums too, advising their clients to let the good times roll.

Mayer said her mortgage broker had kept her informed of interest rate declines ever since she originally purchased her home. "He's been encouraging whenever opportunities arose," she said. "We missed one opportunity last spring when we just weren't able to act on it."

The broker made sure they didn't miss this chance. "He e-mailed me [about it] from South Africa and called when he got back," said Mayer.

Who should refi...
Anyone with high adjustable-rate loans. Folks in this group should try to get into a low fixed rate if they can. Not only will they lower their payments immediately but it would also eliminate the possibility of future increases.

Those who would lower their rate by a percentage point or more. Borrowers who already have a reasonable fixed rate shouldn't jump into a new loan every time rates inch down, according to Orawin Velz, an economist for the Mortgage Bankers Association.

"You should have at least a percentage point difference before you even think about it," Velz said. "If you have a 6.5% loan right now, it would be a great time to refi."

Waiting for a substantial rate decrease makes sense because getting a new mortgage incurs some expenses. There are the costs of a new appraisal and origination and application fees. Plus, a title search and title insurance are usually required.

All those costs, which can add up to $2,000 or $3,000 or more for a typical $200,000 loan, are often rolled back into the mortgage, increasing the principal upon which the interest rates are applied. If that goes up so much that it offsets the interest rate drop, it doesn't make sense to refi.

Those who are planning to stay in their homes for a while. The increased balances usually take a year or two to be wiped out by lower monthly payments, so anyone planning to sell the home during the next few years probably should not refinance, unless the difference in interest rates is very substantial.

The actual rate borrowers get depends, just as with purchase mortgages, on credit scores, income and assets and the value of the home.

"If you have a high credit score and your equity is good, it's like a vanilla cream puff," said Velz. "You're going to get a great rate."

Borrowers with significant equity in their homes. Many homeowners have had much of their home values erased in the post-bubble bust, eliminating much or all of their home equity - the difference between the value of the home and the amount owed on the mortgage.

If a refi borrower's home equity has fallen below 20% of the total appraised home value, the borrower will likely have to purchase private mortgage insurance. The insurance adds a point or two to the monthly mortgage costs, which turns a 5% loan into a 6% or 7% loan, erasing any advantage of refinancing.

"That's the biggest hurdle for refinancing right now," said Velz.

Borrowers who don't think rates will decline much further. Everyone considering refis has to decide whether to wait for interest rates to go even lower, which the Mortgage Bankers Association has been forecasting.

That's only a prediction, though, not a certainty. Rates could turn higher instead.

Borrowers must weigh the advantages of gambling on rates turning around or locking in savings at the present very low rates.

First Published: December 24, 2008: 1:42 PM ET

Fed slashes key rate to near zero

2008-12-16T14:53:00.000-05:00

Ben Bernanke & Co. cite weakness in economy and reduced inflation threat as justification for cutting rates to a range of 0% to 0.25%
By Chris Isidore, CNNMoney.com senior writer
Last Updated: December 16, 2008: 2:47 PM ET
NEW YORK (CNNMoney.com) -- In its latest effort to try and stimulate the U.S. economy, the Federal Reserve cut its key interest rate to a range of between zero percent and 0.25%, and said it expects to keep rates near that unprecedented low level for some time to come.

The central bank typically sets a specific target for its federal funds rate instead of a range. The rate had previously been at 1% and this marks the first time the Fed has cut rates below 1%. Most investors were expecting the Fed to cut rates to either 0.25% or 0.5%.

Taking the rate so close to zero leaves the Fed with little room for additional moves if the economy does not start to show signs of improvement soon.

But the Fed said in a statement that it is looking at different steps it can take to stimulate the economy and keep market rates low, including the purchases of long-term U.S. Treasury notes. The Fed also said it will consider other, yet to be disclosed moves as well.

"The Federal Reserve will continue to consider ways of using its balance sheet to further support credit markets and economic activity," the Fed said.

In explaining the reason behind the rate cut, the Fed said the U.S. economy, which has officially been in a recession for a year, was in danger of getting weaker, and that the risk of inflation had decreased "appreciably."

Earlier Tuesday, the Labor Department reported that the Consumer Price Index, its key inflation measure, fell by a record 1.7% in November.

The central bank's federal funds rate is an overnight lending rate used as a benchmark to set rates for a variety of loans, including adjustable rate mortgages, credit cards, home equity lines of credit and business loans. This marks the tenth time it has cut rates in the last 15 months.

This rate is the key tool the Fed uses to spur or slow the economy as it tries to balance its dual goals of economic growth and price stability. Lower rates are designed to encourage spending by making borrowing more affordable. Higher rates can keep prices in check by slowing the economy.

Other central banks, notably the Bank of Japan, have taken rates down to near the 0% level in the past. Last week, the Swiss central bank cut its key rate to 0.5%.

First Published: December 16, 2008: 2:29 PM ET

FHA Upcoming Downpayment Changes Effective January 1

2008-12-15T07:25:00.000-05:00

Written By: Stacey Sprain,
Certified Ambassador Loan Processor (CALP)

HUD sure makes things confusing sometimes don’t they? With so many changes already in place and coming up with the New Year, I thought it might be a good time to run down a list so that everyone can prepare for January 1st. I’ve run across a few folks who are confused as to guideline changes and effective dates so this will serve as a helpful reminder. Effective for FHA purchases in which cases are assigned on and after January 1st, the minimum downpayment requirements change from the current structure which is a mass of varying requirements based on purchase price and location. Those calculations, which often prove to be very confusing, are being replaced by a simple 3.5% downpayment requirement/96.5% loan-to-value max limit across the board. This calculation will make things much simpler industry-wide when it comes to calculating the purchase maximum mortgage amounts.

However, with the new calculations come a few drawbacks. To date, borrowers have been able to roll in allowable closing costs up to their maximum loan-to-value but effective January 1st, closing costs are no longer allowed to be rolled into max mortgage. Closing costs no longer may be used to meet the minimum investment requirement on FHA purchase transactions. The borrower is responsible for covering the amounts of closing costs, prepaids and 3.5% downpayment required for settlement.

Now the seller-funded downpayment assistance options have been eliminated, this causes some concern for borrowers who have little monies saved for downpayment who wouldn’t qualify for any 100% conventional financing program options due to credit restrictions. So what are borrower options for covering the closing cost, prepaid and downpayment requirements on and after January 1st?

Interested-party contribution limits are not changing so sales agreements may still be written with the seller, realtor, builder and/or lender crediting up to 6% of the purchase price toward borrower closing costs and prepaids. As for the 3.5% downpayment, borrowers may still receive gift funds from relatives, may still receive government homebuyer grant funding in eligible areas, and may use secured funds in the form of a loan against a 401-k plan or other secured asset, or sale of personal property.

In regards to FHA up-front MIP and annual mortgage insurance premiums, these are already in place effective for cases assigned on and after October 1st and will NOT be changing with the downpayment requirement changes. For more info on the MI premiums, refer to Mortgagee Letter 2008-22.

Maximum LTV limits for refinances are explained in Mortgagee Letter 2008-13 and the attachment that was provided.

An important reminder regarding the upcoming downpayment requirement change- Don’t forget to update your loan origination software system as needed. Your existing Good Faith Estimate template(s) may need to be updated to remove the financing of allowable closing costs and may need to incorporate the new simplified downpayment requirement for 96.5% of the lower of purchase price or appraised value. If you utilize software with a major provider like Calyx Point, Contour Loan Handler or Ellie Mae Encompass, you may wish to contact your account representative for an update on what they are planning and when software updates may be expected.

About the Writer. As one of NAMP's volunteer writers, Stacey Sprain is currently a NAMP member in good standing and is a NAMP Certified Ambassador Loan Processor (CALP). If you would like to become a volunteer writer for NAMP, please email us at: blog@mortgageprocessor.org.

Home Renovations On Sale

2008-12-05T08:44:00.000-05:00

Materials costs are plunging, and contractors are begging for work. Suddenly that long-postponed remodel is looking like a smart idea.
By Donna Rosato, Money Magazine senior writer
December 3, 2008: 9:33 AM ET
(Money Magazine) -- If you're struggling to see a silver lining in the beaten-down real estate market, consider this one: It may be a rotten moment to sell your house, but if you've postponed a much needed renovation project on your home - replacing a rotting deck, repairing a leaky roof or updating an antiquated bathroom - now just might be the best time in years to tackle that task.

The reason: Costs are starting to drop - in some cases, sharply - on everything from building materials to contractors' fees as the economy weakens and housing prices tumble.

In fact, consumer spending on home improvements is off by 12% since peaking last year, according to Harvard's Joint Center for Housing Studies - and that works to the advantage of anyone willing and able to remodel now.

"It's hard for homeowners to think about spending on their houses when real estate values are falling," says Kermit Baker, a senior research fellow at Harvard who tracks remodeling trends. "But with contractors hungrier for business, you'll be able to negotiate better prices, win other concessions and hire better-quality contractors than you could a year or two ago."

Overall, experts say, you can expect to save at least 10% on the cost of a renovation and possibly a lot more, depending on where you live and the project you choose. And if prices on many remodeling materials continue to decline as projected over the next few months, the cost of home improvements should fall even further.

Yet another benefit: Putting money into needed repairs and updates now should help your home maintain its value even as other house prices keep falling.

Of course, not all renovations are created equal. Adding a home office or a swimming pool might be on your wish list, but these days neither is likely to give you much of a return on your investment.

With home prices still in a free fall, it's more critical than ever to understand which projects will return the most on your investment and how to negotiate the best deal with the pros you hire to do the job. The following strategies should help.

Cherry-pick your project
Understand this from the outset: No matter what kind of repair or renovation you undertake, you can't count on the payback you'd have gotten a few years ago when home prices were rising steadily.

According to a new study by Remodeling magazine, these days you can expect to recoup about two-thirds of your costs on a typical home improvement if you sell your home within a year after completing the job, compared with 87% in 2005, when home values were at their peak.

That means you have to be especially careful in choosing which jobs to do, considering the urgency of the need (if that roof is leaking, you really have to fix it now) as well as what you'll pay in material costs, how much of the total bill you may recover and any extra benefits you may get.

To the extent you have a choice, focus on projects with better-than-average returns that may yield additional savings in other ways. For example, installing new windows will cost $10,000 to $20,000 on average but return 75% to 80% of your investment (see "Payback time" above and to the right for the six projects with the best return).

And those improvements have the added benefit of making your home more energy-efficient, so you'll also save on your electricity and heating bills. Plus, you may qualify for tax credits that will further offset the cost of making the changes. A host of home improvement tax credits for windows, doors, insulation and roofing were added or extended in the recent bailout bill; for the complete list, go to energystar.gov.

Some exterior improvements also make a lot of sense right now thanks to sharply lower oil prices. That's because many petroleum-based products, such as asphalt and vinyl, are the core material in these renovations.

The costs of these products had soared recently along with the price of oil but have started to drop, making this the best time in a while to replace your aging roof, repave your driveway or redo your vinyl siding. (See "Building blocks at a discount" above and to the right for a look at recent price changes in key remodeling materials.)

Also think about limiting the scope of the project, since minor upgrades rather than major additions give you more bang for your buck today. For instance, if you modernize your bathroom, you can expect to recover about 75% of what you spent, but adding an entirely new bathroom will pay back only 64% of the cost of the job.

Press for a price break...
These days you'll find a glut of construction professionals vying for your business - a far cry from the situation a few years ago when it was impossible to get a reputable contractor to return your call and a six-month wait to start a kitchen remodel was the norm.

How low can you ask remodeling pros to go? According to a new survey by the contractor referral site Angie's List, 70% of home builders and remodelers are willing to drop prices at least 10%, and 30% say they'll give even steeper discounts.

"There's a larger pool of professionals fighting for these jobs, so a little negotiation may go a long way to get the best possible price for your project," says Angie Hicks, founder of Angie's List, which charges a monthly fee of $6 for access to customer reviews and references.

You'll have the most leverage in the areas that have been hit hardest by the housing slump. But no matter where you live, you should be able to strike a bargain (for tips, see "Hiring a Contractor" above and to the right).

Get bids from at least three remodelers, and insist that their quotes spell out all costs, including labor as well as materials (brand-name products where possible).

Let each pro know up front that you are comparison shopping and that price, in addition to quality craftsmanship, will play a key role in deciding whom you will work with. With the bids in hand, you can then compare prices and start negotiating.

Shopping around really paid off for Nancy Boris, who saved $2,800 on the cost of replacing the back patio of her 2,400-square-foot, three-bedroom home in Roseville, Calif.

Boris, a nurse case manager, got bids ranging from $2,400 (from a contractor who didn't have insurance or references) to $5,800. The highest bidder eventually came down $2,000 in price to $3,800, but Boris ended up going with a pro who had better references for $3,000.

...but be wary of super-low bids
As Boris discovered, it doesn't always pay to just reflexively choose the contractor who comes in with the lowest quote.

In their eagerness (or perhaps desperation) to win business in these tight economic times, some less than scrupulous remodelers may cut corners to come up with that low bid or else leave off charges that they may tack on later, making the actual cost of the project higher than it seemed initially.

Carefully scrutinize any bid that comes in significantly lower than the rest. Ask the contractor, politely but point-blank, how he manages to undercut his competition.

Does he have a general liability policy and workers' compensation? If not, should one of the crew get injured on your property, you'll be liable. Is he using low-quality materials? Is everything you need to get the job done included in the bid?

Then follow up by asking for references from previous clients and checking out his reputation and work history. To do so, go to contractorcheck.com, where for a fee of $13 you can get information about licensing and insurance as well as any legal actions taken. Sites like ContractorsFromHell.com and AngiesList.com can also provide valuable insights.

Wring out extra concessions
In addition to price breaks, ask for other perks while you're negotiating, like a faster completion or a more convenient schedule for work to be done, advises Sal Alfano, editorial director of Remodeling.

Remember, homeowners nowadays are in the driver's seat. "With contractors working on fewer projects, you can expect better service," he says. "Even if in the end you don't get a significantly better price on your project, you should at least get better work done."

Dead or Alive?

2008-09-24T07:19:00.000-04:00

Is it dead? Is it alive? They tried to kill it and it didn't die. They tried again and killed it; but wait...is it breathing again?

What I am referring to is Down Payment Assistance, also known as DPA. DPA is a program that allows a third party charitable organization such as Ameridream or Nehemiah to pay a borrower's down payment required by FHA, (usually 3% of the purchase price).

In 2007 HUD tried to eliminate the use of DPA. Organizations
such as Ameridream and Nehemiah with some congressional and grassroots help managed to stop HUD then. However
President Bush signed into law legislation (H.R. 3321) that contained a provision to eliminate charitable down payment assistance which becomes effective October 1, 2008.
One day later, following the President's signing H.R. 3321, Congress introduced bipartisan legislation H.R.6694 which would reauthorize and reform charitable DPA. H.R. 6694 has until September 30th, 2008 to be signed or the ban on DPA becomes permanent.

According to an Inman News article published September 9th, 2008, Chairman Barney Frank is quoted as saying "The FHA loved the ban on down-payment assistance (but) hated the ban on risk-based pricing," Frank said at Saturday's hearing. "That seemed to me to offer an opportunity. So (HR 6694) will replace both bans with middle ground -- and it will pass the House, I can guarantee you. What you want to do now obviously is talk to your senators. We think it will go through there -- it has the approval now of the Secretary of HUD."

What difference does DPA make? Approximately 40% of all FHA purchases use DPA. Since the 2007 court victory against HUD, 40,000 homebuyers became homeowners. That's 40,000 more homes that sold since the end of 2007. In other words 40,000 fewer homes are sitting on the market waiting to be sold. According to Nehemiah Corporation of America, As a result of DPA being eliminated on October 1st 2008, "50,000 hard-working, credit-worthy families will be denied the American dream of homeownership in that month alone."

By: Tina Spradlin

Beware the $7,500 'tax credit'

2008-08-18T13:39:00.002-04:00

The housing rescue credit may prod some new homebuyers. But the money must be repaid, and the program probably won't be enough to jump start housing market.

By Les Christie, CNNMoney.com staff writer
Last Updated: August 18, 2008: 1:27 PM EDT

NEW YORK (CNNMoney.com) -- Washington policy makers and housing industry insiders hope a new tax credit for first-time home buyers will get the moribund housing market moving again.

But most analysts agree that the program is more of a band-aid than a cure-all for the battered real estate market. What's more, others are quick to point out that the credit must be repaid, which means it's actually an interest-free loan that could get some homeowners in trouble.

"It's one of those things that are more complicated than it seems at first blush, said Allen Fishbein, director of housing and credit policy for the Consumer Federation of America. "Consumers have to make sure they understand the credit thoroughly.

The $7,500 credit is for people buying their first homes, and was passed as part of the Housing and Economic Recovery Act of 2008 and signed into law in July. To qualify for the full $7,500, individuals must earn less than $75,000 annually, while couples may earn up to $150,000. Buyers with income of between $95,000 and $170,000 are eligible for a partial credit.

The Senate Finance Committee estimates that about 1.6 million people will use the credit.

The housing industry pushed for the program. "Breaking the log jam of unsold homes is something we are very much behind," said Richard Dugas, president of builder Pulte Homes, at a news conference to discuss the program. First time home buyers represented about 20% of the market for new homes in 2007.

Realtors are also behind the credit. "[It] will help chip away at inventory levels, stabilize prices and spur [sales] activity," said Richard A. Smith, CEO of Realogy, the parent company of both Coldwell Banker and Century 21.

The industry has had success with tax credits in the past. In 1975, Congress passed a $2,000 credit for home buyers (about $8,200 in today's dollars).

"Buyers flocked to market and cleared out a then-record inventory of homes," said NAHB president Sandy Dunn. But that credit did not have to be repaid.

And the impact should extend beyond first time home buyers, according to Lawrence Yun, chief economist for the National Association of Realtors. A boost in demand for starter homes means that those sellers will be able to trade up to bigger, more expensive places, and so on up the chain.

How it works
Buyers who have not owned a home in the past three years can take a tax credit worth 10% of a home's sale price, up to $7,500, whichever is smaller.

The credit is good for homes closed on after April 9, 2008 and before July 1, 2009, and can be taken on taxes filed during 2008 or 2009. Even buyers who bought a home before the bill passed, but after April 9, can claim the credit.

Unlike tax deductions, which only offset taxes by lowering taxable income, the tax credit is a straight dollar-for-dollar deduction of your tax bill. So a buyer who would ordinarily pay $8,000 in taxes would pay just $500.

It's also "refundable," which means if a buyer's taxes are less than $7,500, the government will send them a check for the difference. For example, if a couple's income generates a tax bill of $5,000, the government will refund all of that plus $2,500.

Buyers must to start paying back the loan within two years, at a rate of no more than $500 a year for 15 years. When the the home is sold, any outstanding balance will be repaid from the profit; if it's sold at a loss and the difference will be forgiven.

And some argue that mortgage lenders will take the credit into consideration, making it easier for buyers to get a loan.

"[The $7,500 reserve] will make borrowers less likely to fall into default," said Ken Goldstein, an economist with the Conference Board, since it gives them a nest egg should they run into trouble. Still, that assumes that buyers will sock the $7,500 away rather than spend it.

No cure
Indeed, the credit comes with plenty of caveats from economists and industry analysts.

"It's not going to provide first-time home buyers with cash up front," said the Consumer Federation of America's Allen Fishbein. "You have to apply to get the credit after the fact. There's a delay before you get the financial advantage."

And there are concerns that borrowers may treat the credit as a windfall, spending it as if it doesn't have to be repaid.

"It may appear to be free money," said Fishbein. "Consumers have to have their eyes open about how this works."

Other economists caution that while the credit may be helpful, it's hardly a solution to the crisis.

"It will not turn things around," said Jared Bernstein, an economist with the Economic Policy Institute. "Given the economy, it will only push a precious few first-time home buyers over the edge right now."

Plummeting home prices will blunt any impact that the credit may have, according to Nicholas Retsinas, director of the Harvard University's Joint Center for Housing Studies. As far as he's concerned, the market is simply too soft right now for a modest measure like this to make a big difference.

"The challenge right now is as much willingness to buy as affordability," he said. "The market still has this psychological barrier because people think prices will be lower tomorrow. I don't think this can overcome that barrier."

First Published: August 18, 2008: 11:08 AM EDT
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25% of home sales result in loss

2008-08-13T17:06:00.000-04:00

Values have fallen so far in many cities that sale prices don't cover what sellers originally paid. That means more hard times before markets recover.
By Les Christie, CNNMoney.com staff writer
Last Updated: August 13, 2008: 1:38 PM EDT
NEW YORK (CNNMoney.com) -- More homeowners than ever are selling at a loss, propelling the real estate market deeper into crisis.

In the 12 months that ended June 30, nearly 25% of all homes sold nationwide fetched less than sellers originally paid, according to real estate Web site Zillow.com.

While the nation's double-digit decline in home prices has been well documented, the new report underscores the economic force of those price declines. Homeowners are walking away with much less in their pocket when they sell. And that affects more than the real estate market.

"It's stunning what's happening out there," said Stan Humphries, Zillow's vice president of data and analytics, who looked at statistics that date back to 1996. "The numbers are the worst we've seen and it's not just the magnitude of the problem but the scope - so many markets are affected."

In Merced, Calif., 63% of homes sold during the past 12 months brought in less than what the owner paid. Prices there have fallen 40% over the past 12 months and 56% from their 2006 peak.

About 63% of sellers in Stockton, Calif., lost money during the same period, 60% in Modesto, Calif., 55% in Las Vegas and 38% in Phoenix.

And the trend has worsened in recent months. In Merced, 74.9% of sellers took a loss when they sold during the three months ended June 30 compared with just 28.7% during the same period in 2007.

The experience of one would-be seller in Cape Coral, Fla., illustrates the kinds of losses sellers are suffering. The homeowner, who asked not to be named, paid $147,000 in 2003 for a three-bed, two-bath ranch. Prices have dropped there more than 22% in the past 12 months.

He said he made a 10% downpayment spent big on upgrades, including two renovated baths. The house was appraised at $279,000 two years ago. Two months ago: $140,000. He has been trying to sell it for more than a year and has dropped the price to $129,900.

"It's terrible," he said. "I'm taking a major loss. I'll probably have to bring a check to the closing."

The short-sale solution
Many sellers are so underwater that their only solution is a short sale. Elsa Bell, a claims adjuster, bought her Riverside, Calif., house in 2006 for $330,000, using a no-down-payment loan. In April she put the house on the market for $275,000, but it hasn't sold.

"The bank is willing to do a short sale, and we have an offer of $170,000 on the house, but we believe the bank will turn that down," Bell said.

A short sale is when a lender agrees to take less than the amount it is owed on a mortgage and forgives the remaining debt.

For Bell, whatever the sale brings, it's going to be a lot less than what she paid.

The good news is that she should get out of the deal fairly clean. Since she has little invested, she has little to lose. The bad news is that a short sale may mean a hit to her credit score.

Nationwide, nearly a third of all homeowners who bought since 2003 owe more on their homes than the homes are worth. And those that, like Bell, put little or none of their own money into the home purchases, are more likely to try to sell short or simply abandon their homes.

"They hand over their keys and walk away from the homes," says Danielle Babb, a real estate investor, instructor at the University of California Irvine and author of "Finding Foreclosures."

That adds to foreclosure rates. Zillow reported that nearly 15% of U.S. existing home sales during the last 12 months involved foreclosed homes.

That trend will almost surely continue.

In Stockton, Calif., 2006 buyers now owe a median of nearly $171,000 more than their homes are worth. In Salinas, Calif., 2006 buyers now have median negative equity of $161,000, and in Merced, the figure is nearly $160,000.

Broader impact
A plethora of sellers taking losses can have a chilling effect on people's lives, says Dean Baker, co-director of the Center for Economic and Policy Research in Washington.

People don't want to sell at a loss, so they put off their plans, whether it's a move for a better job opportunity elsewhere or trading up to a larger home.

"That will delay the [market correction]," said Baker. "It takes time for people to recognize that [these losses] are real."

A quick turnaround is not likely. More than $200 billion in adjustable rate mortgages are scheduled to reset during the second half of 2008, according to the National Association of Realtors, and loans of all types defaulting at high rates. There is also about 11 months of inventory at the current rate of sales.

"With $3.9 million unsold homes on the market, prices will have to come down even more before the market stabilizes," said Zillow's Humphries.

First Published: August 13, 2008: 1:00 PM EDT

The next wave of mortgage defaults

2008-08-12T08:24:00.000-04:00

More borrowers with good credit are defaulting on their home loans, and that's going to make it even harder for the staggering housing market to recover.
By Les Christie, CNNMoney.com staff writer
Last Updated: August 12, 2008: 8:06 AM EDT
NEW YORK (CNNMoney.com ) -- Prime mortgages are starting to default at disturbingly high rates - a development that threatens to slow any potential housing recovery.

The delinquency rate for prime mortgages worth less than $417,000 was 2.44% in May, compared with 1.38% a year earlier, according to LoanPerformance, a unit of First American (FAF, Fortune 500) CoreLogicthat compiles and analyzes residential mortgage statistics.

Delinquencies jumped even more for prime loans of more than $417,000, so-called jumbo loans. They rose to 4.03% of outstanding loans in May, compared with 1.11% a year earlier.

And prime loans issued in early 2007 are performing the worst of all, failing at a rate nearly triple that of prime loans issued in 2006, according to LoanPerformance.

"The extent of how bad these loans are doing is very troubling," said Pat Newport, real estate economist with Global Insight, a forecasting firm.

Washington Mutual (WM, Fortune 500) CEO Kerry Killinger said last month that the bank's prime loan delinquencies are on the rise. As of June 30, 2.19% of the prime loans issued by WaMu in 2007 were already delinquent, compared with 1.40% of prime loans issued in 2005.

Also last month, JP Morgan Chase (JPM, Fortune 500) CEO Jaime Dimon called prime mortgage performance "terrible" and suggested that losses connected to prime may triple. For the second quarter, the bank reported net charges of $104 million for prime rate delinquencies, more than double the $50 million recorded three months earlier.

The latest shoe
Prime loans are just the latest class of mortgages to suffer a spike in failure rates. The first lot to go bad was, of course, subprime mortgages, whose problems set the housing meltdown in motion. Next were the Alt-A loans, a class between prime and subprime loans that doesn't require strict documentation of a borrower's assets or income.

Now, as prime loans are added to the mix, the resulting foreclosures could haunt the housing market for a long time, according to Global Insight's Patrick Newport.

"Home prices will drop for quite a while - maybe several years," he said.

Prices are already off nearly 20% from their 2006 highs, according to the S&P/Case-Shiller Home Price index.

And there's a strong inverse correlation between home prices and defaults, according to Lawrence Yun, chief economist for the National Association of Realtors.

"It's a feedback loop," he said. "Price declines lead to more defaults, which leads to more price declines."

More foreclosures will add to an already massive oversupply of homes on the market. Inventories are up to about 11 month's worth of sales at the current rate.

Indeed, about 2.8% of all homes for sale were vacant as of June 30, according to Census Bureau statistics. That's up about 50% from three years ago, and near historic highs.

More foreclosures, fewer loans
The failure of prime mortgages will also make it more difficult for new borrowers to find affordable loans - and that will slow sales even more. Lending standards have been tightening for months, but if prime loans start to look risky, lenders will be even more conservative about who gets a mortgage.

About 60% of the loan officers surveyed reported that they tightened lending standards for prime mortgages during the first three months of 2008, according to the April 2008 Senior Loan Officer Opinion Survey on Bank Lending Practices from the Federal Reserve, which is released quarterly.

That number will likely be even higher for the second quarter, according to Mike Larson, a real estate analyst for Weiss Research. "It's already harder and more expensive to get loans," he said. "Lenders pull in their horns when things go south."

While easy credit fueled the housing boom, restricted credit is certainly contributing to the bust.

"Eventually," said Newport, "time will break the cycle. Pricing will drop enough to attract more buyers, and inventories will decline."

But there will probably more hard times ahead before markets come back into balance and recovery begins.

First Published: August 12, 2008: 4:08 AM EDT

Homes in foreclosure top 1 million

2008-06-05T11:55:00.000-04:00

Mortgage bankers report hits grim a benchmark in first quarter, showing a record number of homes in jeopardy.

By Chris Isidore, CNNMoney.com senior writer
Last Updated: June 5, 2008: 11:27 AM EDT
NEW YORK (CNNMoney.com) -- More than one million homes are now in foreclosure, the highest rate ever recorded, according to a trade group which warned Thursday that the crisis will continue to worsen.

The Mortgage Bankers Association's first quarter report showed that a record 2.5% of all home loans being serviced by its members are now in foreclosure, which works out to about 1.1 million homes. That's up from the 2% of loans, or about 938,000 homes, that were in foreclosure at the end of 2007.

The report also showed that 448,000 homes, or about 1% of loans being serviced, began the foreclosure process during the first quarter. That's up from about 382,000 homes, or 0.83%, that entered foreclosure in the last three months of 2007.

The number of homeowners behind on their mortgage payments also hit a record high. Nearly 3 million home loans are now at least one payment past due, while about 737,000 are at least three months past due but not yet in foreclosure.

This marks the sixth straight quarter in which a record percentage of loans went into foreclosure. The trend has led to a widespread decline in home prices, as well as huge losses for banks and other financial firms that issued or invested in the loans.

Nearly half of the homes in foreclosure are concentrated in six states. But those states are undergoing two very different types of housing meltdowns.

California, Florida, Arizona and Nevada have been hit by a hangover after a home building boom in the middle of the decade, which was fueled by rising home prices and investors snatching up real estate using risky mortgages. Those four states have about 368,000 homes in foreclosure, or a third of the nationwide total. Roughly 3.7% of all of the loans in these states are now in foreclosure.

"Clearly things in California and Florida are going to get worse before they get better," said Jay Brinkman, MBA's vide president for research and economics.

The other two states that are ground zero for the crisis - Michigan and Ohio - have been hit by the more traditional economic woes stemming from rising job losses, particularly in the automotive sector.

Ohio has about 61,000 homes in foreclosure, while Michigan has about 54,000. The foreclosure rate in those two states is 3.9%.

First Published: June 5, 2008: 10:17 AM EDT

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http://money.cnn.com/2008/06/05/news/economy/foreclosure/index.htm?postversion=2008060511

2008-03-13T10:04:00.000-04:00

The next shoe to drop in housing

Rising foreclosures and big losses at Fannie Mae and Freddie Mac are making it harder for people with good credit backgrounds to get a traditional mortgage.
By Tami Luhby, CNNMoney.com staff writer
Last Updated: March 13, 2008: 8:48 AM EDT

NEW YORK (CNNMoney.com) -- The credit crunch has finally hit the traditional mortgage market.
Investors are now shunning mortgage-backed securities issued by government sponsored enterprises Fannie Mae and Freddie Mac, which have been critical in keeping the real estate market from completely falling apart.
Some fear this development will make it harder for people, even those with strong credit histories, to get a home loan.
"Even if you have good credit, you don't know if they are going to give you a loan or not," said Joseph Mason, a senior fellow at the Wharton School of the University of Pennsylvania.
And for those who can still get a loan, the tremors in the mortgage-backed securities market has made loans more expensive for borrowers. As the prices of mortgage-backed securities have fallen, their yields have risen, leading to higher mortgage rates.
The national average rate on a 30-year fixed-rate mortgage was 5.96% Thursday, after jumping to 6.08% earlier this week, according to Bankrate.com. Rates on a 30-year fixed mortgage were about 5.90% a week ago. A borrower looking for a 5-year adjustable-rate mortgage would pay 5.71% today, up from around 5.03% a week ago.
"The cost of mortgage financing has increased dramatically and it couldn't come at a worse time," said Tom LaMalfa, managing director of Wholesale Access, a mortgage research firm. "We're going to see a further diminishment of available mortgage money."
Not just a subprime problem anymore
Rising defaults and delinquencies effectively shut down the subprime and jumbo mortgage markets last summer, but borrowers with good credit could still get conventional loans that met the agencies' criteria. That's because investors continued to buy securities - backed by Fannie (FNM) and Freddie (FRE, Fortune 500) - seen as safe since they carry an implicit federal government guarantee.
But the landscape changed in late February. Investors were spooked after Fannie and Freddie reported a combined $6 billion in losses for the fourth quarter as defaults rose.
A new round of fear washed over Wall Street last week when financial fund Carlyle Capital announced its lenders wanted more money to make up for the depressed value of the agency mortgage-backed securities Carlyle had put up as collateral for loans. An announcement by the Mortgage Bankers Association last Thursday that defaults had reached record levels didn't help soothe concerns.
This bad news comes as Congress, in an effort to stimulate lending in higher-cost areas, temporarily raised the size of the mortgages Fannie and Freddie can guarantee to as much as $729,750.
The situation has grown so worrisome that the Federal Reserve took several steps this week to inject liquidity into the agency mortgage-backed security market by allowing banks to trade these securities in as collateral for loans.
On top of that, to shore up their finances and regain investors' trust, Fannie and Freddie have been instituting new fees and stricter underwriting guidelines, making it costlier and harder to qualify for traditional mortgages.
In an investor conference Wednesday, Freddie officials sought to calm jitters by saying the agency has "significantly" increased prices, introducing new fees based on risk levels.
Prepare to pay more for a mortgage
Wholesale Access has estimated that all these changes mean 30% to 40% of borrowers who could have qualified for a conventional mortgage a year ago can no longer do so.
Fannie and Freddie are demanding higher credit scores and charging higher rates for those who don't have them. Until recently, a borrower with a 620 score might pay the same as one with a 680 score, said Victoria Bingham, chief executive with Pacific Rim Mortgage in Tigard, Ore.
But now that person might have to pay a half percentage point more. With today's rates, that translates into 6.75% for a 30-year fixed-rate mortgage instead of 6.25%, or $74 more a month on a $225,000 loan, typical for her client base.
Borrowers must also put more money down, especially if they don't have stellar credit. For instance, those with down payments of less than 5% need a credit score of at least 680, said Steven Plaisance, executive vice president of Arvest Mortgage Co. in Tulsa, Ok. Previously, he could make loans to people without big down payments if they had other strong points, such as stable employment.
Experts said they don't think traditional mortgages will disappear. But if they are harder to get, it will take longer for the housing market to recover as a glut of unsold houses could lead to even more declines in real estate values.
"Fewer buyers who can come into the market mean more homes on the market," LaMalfa said. "The absence of an increase in demand will put further pressure on prices."
Have you lost your job, your business or your home? Are you raiding retirement accounts to pay the bills? We want to hear from you. Tell us how you're being affected by the weakening economy and you could be profiled in an upcoming story. Send emails to realstories@cnnmoney.com.
First Published: March 13, 2008: 3:45 AM EDT

Refinancing: Only for the privileged few

2008-02-08T08:28:00.000-05:00

Sure, now is a great time to refinance - that is, if you can still qualify. Here is what lenders are looking for.
By Les Christie, CNNMoney.com staff writer
February 8 2008: 8:03 AM EST

NEW YORK (CNNMoney.com) -- The good news: mortgage rates are down and applications for refinancings are up. The bad news: it's much harder to qualify for a refinanced loan these days.
What's more, the borrowers who need to refinance the most - because their adjustable rate mortgages (ARMs) are resetting to higher interest rates - are among those having the most trouble winning approvals.
"I'm turning away about 60% to 75% of the clients who come to me for a refi," said Bob Moulton, president of Americana Mortgage Group on Long Island, N.Y. "Some don't have enough equity and others have bad credit scores."
During the boom years, lenders approved most anyone with a pulse. Not so today. Mortgage brokers recognize this and are now being very selective about the clients whose applications they choose to submit to the likes of Wells Fargo or Bank of America.
If an applicant has poor credit, or a home whose value is rapidly deteriorating, they're just not going to bother.
"If the person is Sweet Polly Purebread -- good income, good assets, high credit score -- there's money out there," said Moulton. "But if not, then it's harder."
Interest rates are way down - 5.67% is the going rate for a a 30-year fixed loan this week, according to Freddie Mac - which in turn has generated a spike in refinancing applications.
Total mortgage applications were up 73% last week compared with the same period 12 months ago, according to the Mortgage Bankers Association (MBA), and 69%of those applications were from borrowers seeking to refinance. Last February, when interest rates were about 6.3%, about 46% of applications were for refis.
The make-or-break metric for anyone looking to refinance right now is home equity - the difference between what is owed on a house and what the house is worth. But with home prices down, many homeowners have little of that precious commodity left.
"If you have an 80% loan, with a 10% home equity loan, you may not be able to refinance," said Peter Grabel, a mortgage broker in Connecticut - especially in down markets.
Consider a homeowner who bought in Miami a year ago with 20% down. Home prices have fallen 15% there in the past year, wiping out three-quarters of the equity. Lenders, want collateral that's worth more than the value of the loan, are wary about having so little cushion. If they have to repossess and resell the house, they're on the hook for a big loss.
If there's no home equity, borrowers may have to come up with substantial cash and pay down the mortgage to make refinancing possible. Otherwise they're out of luck.
"No lender would take that deal," said Marc Savitt, president of the National Association of Mortgage Brokers. "It's a lot different from two years ago."
The bar has also been raised for credit scores when it comes to refinancing, according to Grabel. And sometimes, it's not a matter of whether someone can get refinancing but at what price.
"Those with high credit scores are getting very good rates, but the lenders have heightened the requirements to qualify," said Grabel. Instead of a score of 680 for the best rate, a borrower might need 700 now.
For example, he has a client who wants a cash-out deal. The client has lots of equity in his house but a dismal credit score - 552.
"I used to have 20 lenders I could send him to; now there's maybe one," said Grabel. "The rate, though, will be high, higher than what he's paying now. Lenders may do a loan, but it may not make financial sense for the borrower."
The only reason that this client will take the deal is because he's going through a divorce and needs to buy out his wife. He doesn't have time to rebuild his credit rating, but he's lucky that at least his house appraises well.
Indeed, appraisals are another tool that lenders are using to eliminate unqualified applicants..
"It used to be a formality," said Grabel. "Now it's, 'Lets do the appraisal first and see what value comes in." Lenders are scrutinizing them to a degree unheard of during the boom. They don't want to lend $160,000 on an appraised value of $200,000 unless they're sure the house is truly worth that.
Ted Grose, a past president of the California Association of Mortgage Brokers, said lenders now often conduct what he called "bench reviews" of appraisals. "They have an experienced, independent third-party go over the appraisal to make sure the numbers are accurate," he said.
Grose called many of the applicants he sees "very challenging, mostly because of high loan-to-value ratios."
Many of these people took exotic loans to get into high-priced properties. They used hybrid ARMs that are resetting to higher rates, or interest only loans.
Particularly deadly are option ARMs, which act as negative amortization loans; the payments don't even cover the interest and the balance grows over time. Combine that with falling home prices, and the loan balance may be more than the home's market value.
Under those circumstances, said Grose, few borrowers can be helped.

2008-02-01T08:24:00.000-05:00

Foreclosure:

What It Means, How It Works Foreclosure is the process through which a lender can sell or repossess (take ownership of) a property in order to recover the amount owed on a defaulted loan secured by the property. Anyone worried about missing their home payments--or those thinking about purchasing a foreclosure property--should understand how foreclosures work.State laws govern the foreclosure process, and they vary from state to state. You'll want to check with your own state to learn the details, including whether a judicial procedure is required (see box below).Following is a broad-brush summary of the three stages of foreclosure, assuming the homeowner fails to satisfy the repayment obligation along the way.
Pre-foreclosure. This stage begins when the homeowner falls behind on home-loan payments (or sometimes other terms of the loan). Lenders may wait for a second, third or even fourth missed payment before sending the homeowner a "default" notice--which becomes public record. The homeowner then has a given period of time to respond to the notice and/or come up with the outstanding payments and fees--often by selling the home. (If a judicial procedure is required, it occurs after the default notice is given.)
Foreclosure. At this stage, the former homeowner may or may not have been evicted (depending on state law) when the lender puts the home up for public auction (after a judgment of foreclosure in those states requiring judicial procedure). If the home sells at auction, money from the sale is used to pay off the costs of the foreclosure, tax and other prior liens, service charges and advances, interest and principal on the mortgage, late charges or fees, and liens recorded after the first mortgage. Any amount left over is paid to the borrower (former homeowner). Often, however, proceeds of the sale are less than the various amounts owed, in which case the lender may be able to hold the borrower responsible for the difference.
"Real Estate Owned." A foreclosed property that does not sell at auction--either because no one bid on it or bids were too low to cover the outstanding loan--becomes the property of the lender (or government agency that guaranteed the loan--HUD, VA, etc.). Most lenders prefer to list their "real estate owned (REO)" homes for sale through real estate brokers, rather than keeping them or managing the sale of REOs themselves.

HOMEOWNER BEWARE

Avoid Getting Hooked By A Foreclosure-Related ScamThere are lots of people out there willing to victimize people in financial difficulty--especially when their troubles become part of public record. Beware of offers involving signing over your deed to someone else who promises to sell your home for you--whether they do or not, you'll still be responsible for the mortgage.Also, investigate people who offer to buy your property so you can avoid foreclosure. They may be legitimate but, to be on the safe side, check them out by contacting your state Attorney General, the state Real Estate Commission, or the local District Attorney's consumer fraud unit.Finally, consider carefully any "counseling agencies" that offer foreclosure-mitigation services for a fee. In many cases, they offer services you can perform yourself, such as negotiating a workout plan with your lender.If you decide to conduct a pre-foreclosure sale, give us a call. We'll work with you to make sure your interests are protected in the transaction.Keep in mind that if you have a loan ensured by the Federal Housing Administration (FHA), the Department of Housing and Urban Development (HUD) offers a toll-free number you can call to find a HUD-approved housing counseling agency: (800) 569-4287. For more information about foreclosures provided by HUD, go online to: www.HUD.gov/offices/hsg/sfh/econ/econ.cfm.Foreclosure FactThe type of foreclosure procedure followed in a state depends on whether real property is purchased there using mortgages or deeds of trust. (Some states use both.) In general, states that use mortgages require a judicial procedure through which the lender must get court approval to initiate foreclosure. Where a deed of trust containing a "power of sale" clause is used to purchase property, the lender can initiate a foreclosure sale without going to court.

2008-01-23T08:01:00.001-05:00

An Article of Interest
6 Money Dilemmas (Part 1 of 3)

As you invest your money, shop for a home or tackle any one of the many financial decisions you have to make over your lifetime, do you sometimes wish you'd paid more attention in math class? Do you find yourself having to "run the numbers" and wondering how? To help, we've taken six common financial quandaries and done the math for you. As you'll see, the solution isn't always black and white, and the "right" answer may depend on things that you can never know for sure, like your tax bracket in 2020 or how your investments will grow.
Emotional considerations may tip the balance. Even if the math favors buying stocks over prepaying your mortgage, say, you may simply sleep better being out of debt. So this guide will walk you through the caveats as well as the calculations. Come up with your best call.
Pay off a credit card or fund your 401(k)? You should do both. If you can't, pay off the plastic first. In an ideal world, you'd wipe out your costly debts and save for retirement. But in the real world, you may not have enough cash to do both at the same time. Of course, you must pay at least the minimum on your credit card every month. So the question is: Do you put the rest of your available cash in your 401(k) or devote it all to your credit card?
By paying off credit-card debt, you get a guaranteed rate of return equal to your interest rate (the average is 14 percent today). But if your employer matches your 401(k) contributions, that's a 50 percent return (assuming the typical 50¢-to-the-dollar match on the first 6 percent of your salary). Hard to beat. Or is it? The 50 percent match is a one-time gift; the 14 percent interest will compound every year. At some point the cost of that interest will overtake 50 percent. So if you have a big credit-card balance, attack that first.
Let’s say you're deciding what to do with $250 a month. With a $5,000 credit-card balance at a 14 percent rate, your minimum payment is $125 a month. Suppose you put the rest in your 401(k). Because you don't pay taxes on that contribution, you can actually invest $174 a month (assuming a 28 percent tax rate). Keep paying $125 a month on your credit-card balance, and you'll need 55 months to wipe it out. But, if you earn 8 percent annual returns and get the standard 50 percent match, you'll amass $17,271 in your 401(k).
If you plow your entire $250 toward the credit card, you'll pay it off in just 23 months. Then you could devote all your spare cash to your 401(k). By the end of the original 55 months, you'd have $18,515 in your plan. The one-at-a-time approach beats splitting your money because 55 months of paying 14 percent interest outweighs the 50 percent match.
If your credit-card debt isn't that big, and you can pay it off in just a couple of years even if you split your cash, go ahead and fund both goals. You'll get the benefit of the 50 percent match. The bottom line: If you have a big credit-card balance, wipe it out before you open a 401(k).
Save in a Roth 401(k) or a regular 401(k)? Wish you could shelter your retirement savings from taxes, but you make too much to contribute to a Roth IRA? With the recent arrival of the Roth 401(k), you may have, or may soon be getting, a second chance at tax-free income. Grab it. With a traditional 401(k) you invest pretax dollars and pay taxes when you withdraw money; with the Roth you pay taxes on what you put in but nothing on your withdrawals. About a quarter of employers have rolled out this option, and a majority of plans will likely offer it by 2009. Unlike a Roth IRA, a Roth 401(k) has no income caps.
Let's say that you contribute the maximum of $15,500 to your 401(k) and you're in the 28 percent tax bracket. Assuming an 8 percent annual return, you'll end up with $72,245 tax-free in 20 years with a Roth. If you go with the traditional 401(k) instead, you'll also end up with $72,245 in 20 years, but you'll pay taxes on the withdrawals. At the same 28 percent tax rate, you'd be left with $52,016 you could actually spend. When you fund the traditional 401(k), however, you shelter $15,500 from taxes. But even if you invest that $4,340 tax savings outside your plan, you'd have to earn well in excess of 8 percent a year to equal your Roth total after taxes.

By: Janice Revell, www.money.cnn.com

2008-01-04T12:31:00.000-05:00

Pressure Mounting for Big Rate Cut
An uptick in the unemployment rate has Wall Street calling for the Fed to lower rates by a half-point.
By Paul R. La Monica, CNNMoney.com editor at large
January 4 2008: 12:27 PM EST
NEW YORK (CNNMoney.com) -- With unemployment rising to 5 percent in December and jobs growth coming in well below forecasts, economists said the Federal Reserve may be forced to slash interest rates when it meets later this month in order to stave off a recession.
In another step to combat the slowing economy, the Fed also announced Friday that it was going to lend up to $60 billion more to banks in two auctions later this month and that it would decide by February 1 if it will conduct more auctions. The auctions are part of a plan the Fed announced in December to to try and restore order to the distressed financial markets.
The government reported December employment figures on Friday. Only 18,000 jobs were added to the nation's payrolls while economists were predicting job growth of 70,000. What's more, the unemployment rate was expected to come in at 4.8 percent, up from 4.7 percent in November.
As a result of these gloomy numbers, expectations for a half-point rate cut grew Friday morning. According to futures listed on the Chicago Board of Trade, investors are pricing in a 78 percent chance that the Fed will lower the federal funds rates by 50 basis points, to 3.75 percent, at the conclusion of its two-day meeting on January 30. There are 100 basis points in a full percentage point.
"The jobs numbers make a half point cut plausible," said Keith Hembre, chief economist with First American Funds in Minneapolis. "The unemployment rate has moved up to 5 percent from 4.4 percent last March and we've usually not had an upward movement of that magnitude outside of a recession."
Prior to the jobs report, investors were pricing in a 67 percent chance of a half-point cut as recession fears have grown in recent days. A report released Wednesday indicated that manufacturing activity is softening while oil prices, which hit $100 this week, have raised concerns that consumers may pull back on spending as a result of higher energy prices.
The Fed last cut the federal funds rate, a key overnight bank lending rate that affects rates for credit card debt, home equity lines of credit and auto loans, by a quarter-point to 4.25 percent on Dec. 11.
In the minutes from that meeting, released on Wednesday, the Fed hinted that more "substantial" rate cuts might be needed if the economy continued to show signs of weakness in the face of the credit crunch caused by last year's subprime mortgage meltdown.
John Lynch, chief market analyst for Evergreen Investments in Charlotte said that he thinks the Fed will now lower rates to at least 3.5 percent by mid-year. He said that despite the spike in oil and other commodities such as gold, the Fed would probably be more comfortable with inflation picking up a bit if it meant that the economy did not go into recession.
With the economy showing so many signs of sluggishness, it's going to be tough for the Fed to argue that inflation is the bigger bugaboo.
"There is no debate with the latest round of numbers. Everything points to a significantly slower economy," said Joe Balestrino, fixed income market strategist with Federated Investors in Pittsburgh.
Still, more rate cuts have the potential to lift oil and other commodity prices further since lower rates likely would further weaken the dollar. With that in mind, there are concerns that the Fed may not be as aggressive as Wall Street wants it to be.
"$100 oil is an unusual factor," Hembre said. "While it doesn't completely change inflation expectations it does complicate things a bit."
Nonetheless, investors are also worried that more rate cuts from the Fed may be too late to save the economy from dipping into a recession.
"A 50 point cut might not make that much difference in stopping a free fall if that is happening," said Oscar Gonzalez, economist with John Hancock Financial Services in Boston.
Gonzalez cautions that he thinks it's still too soon to say that the "sky is falling." But he would be worried if the jobs numbers for January are as bad as they were for December.
"If employment continues to weaken, we could be in for a very rough patch of economic news for at least the next few quarters," Gonzalez said.
Despite the weak numbers, economists said they did not think the Fed would hold an emergency meeting before Jan. 30 to talk about cutting rates.
Hembre said that it would take a "calamity" such as much weaker than expected retail sales figures for December or a lot more volatility in the stock and bond markets to justify an intermeeting move.
Stocks did not react well to the jobs news, with the Dow falling more than 140 points, or 1.1 percent in early afternoon trading and the S&P 500 off by about 1.4 percent .The Nasdaq plunged more than 2.3 percent.
Bonds continued to rally, sending the yield on the benchmark 10-Year U.S. Treasury down to 3.85 percent. Bond prices and yields move in opposite directions and lower yields are typical during a sluggish economic environment.
But Gonzalez suggested that a rate cut before Jan. 30 might actually cause stocks and bond yields to fall further since it could be construed as a sign of desperation by the Fed.
"An intermeeting move would be a cause for alarm," he said.
Instead, Gonzalez thinks the Fed is more likely to use creative ways to try to restore confidence in the markets and economy, such as the Term Auction Facility it announced last month in conjunction with central banks in Canada and Europe.
The Fed devised this proposal in order to encourage banks that need cash to ask for money without having to borrow directly from the Fed at the discount rate, which is higher than the federal funds rate.
The central bank has already loaned a combined $40 billion to financial institutions during two auctions last month. There was strong demand for these auctions and in both cases, the rates for the loans were below the discount rate of 4.75 percent.
The Fed said Friday it would hold its next auction, of up to $30 billion, on January 14 and that another auction of up to $30 billion would take place on January 28.
Balestrino is cautiously optimistic that a half-point cut, combined with the Fed's three rate cuts in 2007, could keep the economy from heading into a recession.
He adds that if the economy continues to slow in the next few months, the Fed could lower rates by a half-point at its March 18 meeting, or even at an unscheduled meeting in February.
Fed lends $20 billion to banks in first auction Bernanke's tightrope act Fed cuts rates by quarter-point

2007-12-20T10:59:00.001-05:00

Did you know that since the loan market clamped down lastsummer, 74% of the people who once qualified to buy a home,no longer qualify?

2007-12-18T08:33:00.000-05:00

Fed to tighten up lending rules

The central bank is expected to propose regulations that would offer greater protections for home buyers and curtail abusive lending.
By Jeanne Sahadi, CNNMoney.com senior writer
December 17 2007: 2:51 PM EST
NEW YORK (CNNMoney.com) -- The Federal Reserve on Tuesday will propose a much stricter set of rules for mortgage lenders as part of the central bank's effort to avert abusive lending.
The proposed rules are expected to crack down on lax practices in a number of ways. Among them, the rules are likely to:
Prohibit giving people unaffordable loans. One reason for the spike in foreclosures among those with subprime adjustable-rate mortgages (ARMs) was that lenders measured borrowers' ability to repay the loan based on the low introductory loan rate, but not on the higher rate that the loan would reset to. The Fed may propose that lenders base affordability on a borrowers' ability to repay a loan at the reset rate.
Restrict use of 'liar' loans. The Fed is also expected to restrict the use of so-called "liar loans" or "stated income loans." When lenders make such a loan, they don't verify the income of the potential borrower. The end result: home buyers end up with homes they never could afford in the first place, let alone when their rate resets.
Prohibit or limit prepayment penalties. Homeowners who want to refinance into a more affordable loan are often prevented from doing so because of a punitive prepayment penalty - which can amount to the equivalent of six months of mortgage payments.
If the Fed doesn't ban them outright, it may at least require that lenders waive any prepayment penalties for 60 days prior to a loan rate resetting.
Curb or better disclose broker incentives. To encourage brokers to bring in more business, lenders can pay a broker to lock-in customers at higher rates than they'd otherwise qualify for.
For example, a lender might pay brokers 1 percent of the loan amount for every half point of interest added to what's known as the "par rate" - the rate the borrower would qualify for based on their credit score and other standards. This incentive is known as the "yield spread premium."
And lenders would impose prepayment penalties on the borrower as one way to ensure the lender made back the yield spread premium they paid. (How yield-spread premiums can bite you)
The Fed on Tuesday is expected to address this issue, although it is not clear how restrictive they may make the practice or if they'll just insist on clearer disclosure to the borrower of the incentives being paid.
Require or encourage escrowing of taxes and insurance. Subprime lenders often did not disclose the true cost of a home. They might have excluded home insurance and property taxes, for example. Nor did they collect taxes and insurance along with the mortgage payment and hold them in escrow for the borrower until they came due.
The Fed is likely at the very least to require all lenders to disclose the cost of insurance and taxes, if not also the collection of them with each mortgage payment for certain types of loans, according to reports in "American Banker."
Require better disclosure overall. In a letter last week to Rep. Brad Miller (D-NC), Bernanke indicated that the Fed would propose rules to address incomplete or misleading mortgage ads and to require earlier and clearer disclosures by mortgage lenders so that "consumers avoid loans that are not in their interest."
Congress has been considering its own crackdown on mortgage lenders with two bills the cover some of the same territory that the Fed is expected to cover but also go further.
While consumer advocates and lawmakers are eager to hear what the Fed is proposing and welcome the central bank taking action, they have been critical that the Fed didn't act sooner to avert the present-day mortgage mess. The Fed was given the power to issue rules to clamp down on abusive mortgage lending in 1994 under the Home Ownership and Equity Protection Act (HOEPA).
"HOEPA authorized and directed the Fed to issue rules to address unfair mortgage practices. For 13 years, that authority sat on the shelf unused," said Miller (D-NC), who co-wrote the mortgage lending abuse bill that passed in the House in November.
Still, Miller said, "it would be a huge help if the Fed proposed rules that got at the real abuses."
Where the provisions in the Senate and House bills overlap with what the Fed calls for, Miller said, it's possible they would be removed from the bills under consideration. "The number of fronts would be reduced dramatically. ... maybe we wouldn't fight the same battle where we've had substantial victory."
The rules the Fed proposes on Tuesday will not be made final until the Fed receives public comments on the proposals for some period of time, after which the Fed could make amendments before issuing its final rules.

2007-12-11T14:55:00.000-05:00

Fed cuts rates by a quarter point

Ben Bernanke & Co. lower a key interest rate for the third consecutive time, and signal that more cuts could be ahead to help stave off a recession.
December 11 2007: 2:24 PM EST
NEW YORK (CNNMoney.com) -- The Federal Reserve lowered an important short-term rate by a quarter of a percentage point Tuesday, the latest in a series of rate cuts that the central bank hopes will stimulate an economy some fear is on the brink of a recession.
This was the third straight time that Fed Chairman Ben Bernanke and fellow policy makers decided to cut its federal funds rate, an overnight bank lending rate that affects how much interest consumers pay on credit cards, home equity lines of credit and auto loans.
The federal funds rate now stands at 4.25 percent. The central bank also cut its discount rate, which is what banks pay to borrow directly from the Fed, by a quarter-point to 4.75 percent.
Leading up to Tuesday's meeting, several economists indicated that the Fed may need to lower rates several more times in early 2008 in order to keep the economy from slipping into a prolonged slump.
And some investors had been holding out hope that the Fed would lower rates by a half of a percentage point as it did in September since several banks have been forced in the past few months to take massive writedowns due to exposure to bad mortgage loans.
Concerns about the subprime mortgage crisis spreading sparked President Bush and Treasury Secretary Henry Paulson to unveil a plan last week that would freeze interest rates for some subprime borrowers whose adjustable-rate mortgages are scheduled to reset in 2008.

2007-12-11T13:54:00.000-05:00

What a rate cut means to homeowners

How to keep ahead of rates and lower them when your card issuer hikes them up.
By Gerri Willis, CNN
December 10 2007: 4:09 PM EST
NEW YORK (CNNMoney.com) -- Most analysts see the Fed cutting rates for the third consecutive time tomorrow. What investors don't know is just how deep the Fed will cut. What will this mean for your mortgage? Here's what you need to know.
1: Long-term mortgages won't move much
Right now investors are split on whether the Fed will lower the funds rate by another quarter point to 4.25% or cut it by a half-point, to 4%. But the fact is, there's not much doubt that the Fed will cut rates. And because of that, the market has already priced that in, says Mike Larson with moneyandmarkets.com. 30-year fixed rates have been falling for some time.
In July, the average rate on a 30-year fixed mortgage was 6.66%. Last week, it was 5.82%. So, a rate cut won't really do very much to lower long-term rates. They're already low. So if you want to refinance, it's a good time to start shopping.
2: ARM resets not as severe
The Fed move tomorrow may be more significant to borrowers with adjustable-rate mortgages than what the government is doing in freezing subprime interest rates. That's according to Greg McBride at bankrate.com. Most resets on adjustable rate mortgages will reset in the middle of next year. And the fact that the Fed is cutting rates, will make these resets more manageable for prime borrowers, which aren't covered by the foreclosure-prevention plan announced last week.
So, if you had an adjustable rate mortgage that started at 4.5% and your rate was going to reset at 7.5%, you may only face a rate reset of 5.7%.
3: HELOCS will be cheaper
Home equity lines of credit will be cheaper if the Fed does cut rates. It may take up to three billing cycles to see the actual decrease in your bill. If you need to consolidate debts or you need money for medical bills or college expenses, you may consider shopping around for a HELOC since lenders are likely to price in the Fed's cut immediately.
4: Keep it in perspective
The take away here is that the Fed is on your side. This rate cut won't be the silver bullet that fixes the housing market. But it's apparent that Fed is in a rate cutting mode, and the cumulative effect on that will help consumers. There are a number of things the Federal Reserve can't control, like the impact of the credit crunch.
You need to look at inflation, job growth and the overall health of the economy as indicators of when this housing crisis may subside. When we get down to it, there are two issues here, according to McBride. That's inventory of houses on the market and the affordability of houses. Interest rate cuts won't do much to make that go away. Sometimes, it's just a matter of time.

2007-12-10T09:03:00.000-05:00

Here is what the FED is looking to do...............

Some think Ben Bernanke & Co. will cut one key interest rate by a quarter point and another one by a half point on Tuesday.
By Paul R. La Monica, CNNMoney.com editor at large
December 10 2007: 7:35 AM EST
NEW YORK (CNNMoney.com) -- Investors are anticipating that the Federal Reserve will cut interest rates for the third consecutive time at its next meeting on Tuesday, as Wall Street continues to grapple with concerns about the housing market and fears of a recession.
An employment report issued Friday, which showed that job growth in November slowed yet exceeded forecasts, did little to change the perception that a cut is in the works. So the issue remains whether Fed chair Ben Bernanke & Co. will lower rates by a quarter of a percentage point or half of a percentage point.
Well, how about both?
When the central bank's Open Market Committee meets to discuss monetary policy, members actually have two decisions to make - one about the federal funds rate and one about the discount rate. Some suggest that the Fed may cut the fed funds rate by a quarter point and lower the discount rate by a half point.
The fed funds rate gets most of the attention from Wall Street since it is the overnight bank lending rate that has a direct impact on how much interest consumers pay on credit card borrowings, home equity lines of credit and car loans. The Fed lowered this rate by a quarter-point on Oct. 31, to 4.5 percent.
The central bank also lowered its discount rate, which is what banks pay to borrow directly from the Fed, by a quarter-point at its last meeting. Changes in the discount rate have been viewed as symbolic, but the rate has taken on increased importance in the wake of the subprime mortgage crisis wreaking havoc on financial services companies and Wall Street.
According to federal funds futures on the Chicago Board of Trade, investors are evenly split on whether the Fed will lower the funds rateby another quarter point to 4.25 percent or reduce it by a half-point, to 4 percent.
But some argue the Fed does not need to lower the fed funds rate by a half point, as it did on Sept. 18.
Despite fears that Wall Street's credit crunch is spreading and possibly leading to a recession, little evidence exists to suggest that the economy will actually stop growing in 2008.
The Fed has predicted a slowdown in growth, to be sure, but not declines in gross domestic product. Many economists share this view. And the November jobs report, which showed that unemployment remained steady at 4.7 percent and that employers added 94,000 jobs, supports the notion that the economy is still in relatively healthy shape.
"The jobs numbers were not shabby. It seems a safe bet that the economy is not going to fall apart rapidly," said Oscar Gonzalez, economist with John Hancock Financial Services in Boston. "The numbers were very important. It should allow the Fed to cut rates by 25 points and not 50," he said.
The big worry about a lower fed funds rate is that it could spark more consumer borrowing. And if consumers have easier access to so-called cheap money, that could exacerbate the problems that got borrowers and banks in this mess in the first place - that too many people got loans they couldn't afford.
That said, the Fed is not likely to ignore the massive number of writedowns that big banks and mortgage lenders have been taking in the past few months because of exposure to loans made to subprime borrowers.
"If you look at what's been the driver for the Fed the past couple of meetings, it hasn't been as much as the economy as it has been what's going on in the financial markets," said Brian Stine, senior portfolio manager with Allegiant Asset Management Co. in Cleveland.
"You could see the Fed drop the fed funds rates by 25 points and cut the discount rate by 50. That would enable banks to borrow at lower rates without affecting the rest of the economy," Stine added.
After all, the Fed lowered the discount rate by a half point on Aug. 17 following an unplanned meeting and followed suit with another half point cut on Sept. 18.
Richard Yamarone, chief economist with Argus Research Corp., also thinks the Fed needs to consider the fact that Wall Street's woes aren't necessarily having a big impact on Main Street.
"The consumer is not crying out for lower interest rates and stimulus - it's the financial sector and the markets," Yamarone said. "Cutting the discount rate by a half point could work. That's justified. But it would be a big stretch to slash the fed funds rate."
Yamarone pointed to the fact that consumer spending during the holidays has not taken the bighit so far that many feared.
"Everyone, the Fed included, is underestimating the resilience of the consumer. That would be a big mistake," he said.
But Jim Glassman, senior economist with J.P. Morgan Chase, argued that the Fed risks falling behind the curve if it doesn't cut both the fed funds rate and discount rate by a half point.
"It's not about the economic news now. It's all about the danger that lies ahead of us with a credit system that's far tighter," Glassman said. "The message the Fed needs to send is that it will do what it takes. If the economy slows down as most economists think, the Fed will want to get ahead of that."
Still, even if the Fed decides to be less aggressive and cut the fed funds rate by only a quarter of a point, that might not necessarily mean that the central bank will be done reducing rates.
For what it's worth, Wall Street is banking on more rate cuts at the central bank's first three meetings in 2008, which will take place in January, March and April. The fed funds futures are pricing in a fed funds rate of 3.75 percent by May, three-quarters of a percentage point lower than current levels.
Stine said he believes the Fed probably doesn't want to lower rates further but that might not be possible if mortgage delinquencies and defaults keep rising and housing prices fall.
"I think the Fed is hoping this is the last rate cut, that once we get past this financial crisis, they'll be back on inflation watch. But it depends on how the housing market plays out," he said.
Hope grows for a half-point cut Bernanke: Fed 'alert' and 'flexible'

Find this article at: http://money.cnn.com/2007/12/07/news/economy/fed_preview/index.htm?postversion=2007121007

2007-12-07T08:19:00.000-05:00

What you need to know about the Freeze that the President came up with:

*The agreement will allow distressed borrowers who are current on their sub-prime loan payments to keep their low introductory rates

*The rate freeze will apply to loans taken out between January 1, 2005, and July 30, 2007, and scheduled to rise in 2008 and 2009

*The rate freeze will exclude the following groups:
Borrowers who are delinquent on payments
Borrowers whose introductory rates expire before January 1, 2008
Borrowers who mortgage companies determine have sufficient income to pay the higher rates

2007-12-06T14:13:00.000-05:00

Here it is........

Bush subprime plan offers help to 1.2M
Mortgage interest rates will be frozen only for ARM borrowers who are not yet in foreclosure.
By Les Christie, CNNMoney.com staff writer
December 6 2007: 2:02 PM EST
NEW YORK (CNNMoney.com) -- President Bush's unveiled a foreclosure relief plan Thursday that he said could help 1.2 million distressed homeowners.
The program allows a five-year freeze in interest rates only for borrowers current with their monthly payments.
It will streamline the mortgage modification process for many distressed borrowers, according to Bush. It will offer "more relief to more homeowners, more quickly," he said.
But the plan is limited. It excludes anyone more than 30 days late at the time the mortgage would be modified or anyone who has been more than 60 days late at any time within the previous 12 months.
It also only covers borrowers with adjustable rate mortgages (ARMs) resetting beginning in 2008 and leaves out any who are judged capable of continuing to make mortgage payments at the higher reset rates. And borrowers who can't afford the loan even at low introductory rates also will be ineligible, according to Anne Canfield, executive director of the Consumer Mortgage Coalition, which represents lenders and mortgage servicers.
The president said 1.2 million borrowers could benefit. But of the 2.2 million subprime ARMS that are expected to reset through the end of 2008, only 240,000 of those would be covered according to an analysis made by investment banker Barclays Capital as reported in The New York Times.
"I think the plan is good in theory," said Mark Zandi, chief economist for Moody's Economy.com, "but, in practice, it's going to come up short. There are too many impediments to its widespread adoption by investors and servicers."
Obstacles include contractual obligations between servicers and investors as well as logistical difficulties. When loans have been sliced up and resold through the securitization process, it's hard to determine who ultimately decides what modifications are possible and still in the best interests of the investors.
Furthermore, said Zandi, "There's no stick in the plan; it depends on moral suasion."
But just because every homeowner won't benefit under the Bush plan, help will be available, according to Canfield.
"The industry will still work to modify these loans," she said. "We have every incentive to do that."
Delinquent loans increase financial pressure on servicers because they still have to make payments to investors, as well as tax payments to local governments, according to Canfield.
The principle aim of the Bush plan is to streamline the modification process, at least for that limited number of borrowers, allowing them to get fast help. Lenders will examine readily available loan criteria, such as loan-to-value ratios, loan amount, credit scores and payment history, to make a quick determination of qualifications.
That makes it a "start in the right direction," said Darla Keegan, speaking for Novadebt, a national nonprofit housing and credit counseling agency, because it will move some borrowers through the system quickly.Mortgage counseling services are currently stretched.
For the rest, she said, "We can still see if lenders will work out agreements with lenders for these borrowers."
"Qualified borrowers will get their modifications much more quickly," said Kurt Pfotenhauer, senior vice president for government affairs with the Mortgage Bankers Association. "A whole cohort will be done on an accelerated basis."
Still, said Bruce Marks, chief executive of the Neighborhood Assistance Corporation of America, a community advocacy group, "The number of borrowers affected by the plan is very small, but it sets the precedent and standard so that more borrowers can be helped down the road."
He expects more of that help to come. "An important point is why they're doing it. They're seeing the numbers of delinquencies. They can't say publicly that it will have a huge impact on the economy, but this action says that."
If the impact of subprime foreclosures increases, pressure will build for the government to do more.
The agreement does leap one of the thorniest hurdles to making wholesale mortgage modifications work: resistance from the investment community, who were sold a bill of goods, according to John Taylor, CEO of the National Community Reinvestment Coalition.
"They were promised a product that looked very safe and had attractive rates," he said. "Now they're getting little or nothing in return and are being asked to take bigger losses."
As the foreclosure crisis deepened it became apparent that many sensible modifications were being shot down because investors would not agree. An analysis by Moody's earlier this autumn revealed only about 1 percent of resetting ARMs had been modified this year.
The administration had to use its powers of persuasion to get investors aboard at all, according to Don Lampe, a real estate attorney who has testified before Congress on subprime mortgage issues. "Investor push-back probably weakened the plan," he said.
Despite all the criticism, the initiative was welcomed by nearly all the players, including consumer groups. Many wish it were stronger but were happy to see some response from the administration.
As Lampe put it, "Perfection is the enemy of progress."
The president also used the announcement as an opportunity to call on Congress to act quicker on passing mortgage relief legislation, including the FHA Modernization bill, the change in tax code and a bill enabling local and state governments to issue bonds to finance mortgage refinancings. All have been bottled up in the Senate for weeks or months.

2007-12-06T12:27:00.000-05:00

Here is the latest from our President on freezing rates in the subprime fallout.....Guess who will end up paying for all the mess????????

Bush to unveil plan to help homeowners
The plan will freeze certain subprime mortgages for 5 years, a compromise hammered out with mortgage lenders and banking regulators.
December 6 2007: 10:32 AM EST
WASHINGTON (AP) -- The Bush administration has come up with a plan to help strapped homeowners facing a daunting jump in their monthly mortgage payments.
The proposal, reached in negotiations led by Treasury Secretary Henry Paulson with the mortgage industry, would freeze introductory "teaser" rates on subprime mortgages, preventing them from resetting to higher rates for five years.
President Bush, who is scheduled to announce the agreement after a meeting with industry leaders at the White House on Thursday, has stressed that the deal is not a bailout because no government money is involved.
The effort is aimed at stemming a threatened wave of foreclosures in coming years as 2 million subprime mortgages - home loans provided to borrowers with spotty credit histories - reset from their introductory rates of around 7 to 8 percent to levels as high as 11 percent, adding hundreds of dollars to the typical monthly payment.
The mortgage companies will offer to freeze the loans at the lower introductory rates as long as the borrowers did not miss any payments at the lower rate.
The program is the biggest effort yet to deal with a tidal wave of mortgage defaults, which have piled up billions of dollars in losses for big banks, hedge funds and other investors as well as roiled financial markets around the globe. The defaults are the latest economic blow from the worst housing slump in more than two decades. Some economists believe the housing bust could become severe enough to push the country into a recession.
Two Democratic presidential contenders, Hillary Rodham Clinton and John Edwards, said Wednesday that Bush's proposal did not go far enough. They put forward their own plans that would not only freeze mortgage payments but also declare moratoriums on further foreclosures for a period of time as a way of adding pressure on lenders to reach at-risk homeowners.
The financial services industry applauded the administration for negotiating a plan that will allow free-market forces to operate. The hope is that the five-year freeze will buy time for the housing industry to work down record levels of unsold homes and for sales and prices to start rising again.
A housing rebound would allow homeowners to refinance their current adjustable rate mortgages into fixed-rate loans with more affordable monthly payments.
The big sticking point in the lengthy negotiations was getting investors who have purchased the mortgages after they have been bundled into mortgage-backed securities to agree to accept lower interest payments. Critics have said even with a deal, there are likely to be lawsuits.
"The $64,000 question remains: will investors who might balk at going along with this be able to maintain legal roadblocks and prevent the plan from going into effect?" said Sen. Charles Schumer, D-N.Y.
But officials representing major players in the mortgage industry said they believed the plan would withstand any legal challenges and would help at-risk homeowners avoid defaulting on their mortgages.
Steve Bartlett, president of the Financial Services Roundtable, a trade group representing the country's largest financial service firms, said the deal would benefit banks, investors and homeowners since there is a significant cost when a mortgage is foreclosed.
Under the administration plan, the rate freeze will apply to loans made at the start of 2005 through July 30 of this year and will cover loans that had been scheduled to rise to higher rates between Jan. 1, 2008, and July 31, 2010.
The plan represents an about-face for Paulson, who until recently had insisted the mortgage crisis could be handled on a case-by-case basis. However, he and other administration officials became convinced the tide of foreclosures threatened by the mortgage resets represented such a severe threat that a more sweeping approach was needed.
A subprime bailout plan that works Roadblock to a subprime solution October foreclosure filings surge Find mortgage rates in your area.

Find this article at: http://money.cnn.com/2007/12/05/real_estate/bush_freeze.ap/index.htm?postversion=2007120610

Record Rate of New Foreclosures

2007-12-06T10:53:00.000-05:00

Record rate of new foreclosures
Mortgage bankers say meltdown causes highest level of homeowners late in payments since 1986.
December 6 2007: 10:24 AM EST
NEW YORK (CNNMoney.com) -- The rate of home owners going into foreclosure hit a record high in the third quarter, while those late with their payments were at the highest level since 1986 - the latest signs of the meltdown in the mortgage and real estate markets shaking the U.S. economy.
The Mortgage Bankers Association reported that 0.78 percent of mortgages entered the foreclosure process in the three months ended Sept. 30, up from the 0.65 percent foreclosure rate in the second quarter that had been the previous record high, and more than double the 0.32 percent rate seen a year earlier.
The report also showed that 5.59 percent of borrowers are now at least 30 days late making their mortgage payment.
Mortgage deliquencies and foreclosures became a serious problem during the quarter, as investor demand dried up for securities backed by mortgages, particularly subprime loans made to borrowers without top credit scores.
That meltdown in the mortgage market made many major lenders pull back from making subprime mortgage loans, which in turn helped send home sales, prices and new construction sharply lower, raising the risk of a recession. Countrywide Financial (Charts, Fortune 500), the nation's largest mortgage lender, was one of the banks to pull back from making subprime loans.
Many of those subprime loans had low introductory teaser rates which reset to payments that the homeowner can no longer afford.
President Bush is due to unveil a proposal Thursday that would freeze rates for some of those at-risk homeowners, and some lenders.
In addition to the effect on home owners and mortgage lenders, many of the top firms on Wall Street, including No. 1 bank Citigroup (Charts, Fortune 500), No. 1 brokerage firm and Merrill Lynch (Charts, Fortune 500), have been hit by the mortgage meltdown. Both took billions in writedowns from subprime losses as their chief executives were forced to resign.
The two government-sponsored mortgage finance firms, Fannie Mae (Charts) and Freddie Mac (Charts, Fortune 500), have also both been hit with losses from problems in the mortgage market that have left them scrambling to raise cash.
And home builders have been badly hurt by the problems, with No. 1 builder Lennar (Charts, Fortune 500) announcing late last week it was selling 11,000 properties for only 40 percent of their previously-stated value. On Thursday, leading luxury home builder Toll Brothers (Charts, Fortune 500) reported its first loss as a public company. Find mortgage rates in your area.

Find this article at: http://money.cnn.com/2007/12/06/real_estate/foreclosure_delinquencies/index.htm?postversion=2007120610

2007-11-03T09:29:00.000-04:00

Indy Mortgage has recently moved locations. We are now located at 5519 E 82nd St, Suite G, Indianapolis, IN 46250. Our phone number is still the same 317-570-6300. We are located behind Chuck E. Cheese and Chalkies Bar in Allison Run Office Park just West of I-465 on the Southside of 82nd Street in Castleton.