Isakson Pitches $15,000 Tax Credit
Sen. Johnny Isakson (R-Ga.) has introduced a proposal in Congress to give home buyers a tax credit of $15,000, to be distributed over a three-year period.
Property purchases by owner-occupiers that close between March 2008 and February 2009 would qualify for the incentive, which Isakson said will stimulate new demand for homes.
“I don’t know a lot about a lot of things, but I made my living in this business for 32 years,” noted the former realty executive during a Capitol Hill press conference. “You gotta put back into the equation the missing man who’s just not there, and that’s the buyer.”
Isakson believes the legislation would additionally massage the residential property market by propping up the construction market, helping home builders shrink the oversupply of dwellings on the market, and helping troubled borrowers and distressed lenders that are dealing with bad loans. Critics say the focus needs to be on rescuing existing home owners from the threat of foreclosure.
Source: Macon (Ga.) Telegraph, (01/31/08)
Commercial Banks Respond to Fed Cut
The Federal Reserve lowered its key interest rate another one-half point to 3 percent Wednesday to keep the slow-growing economy and sagging stock market moving in the right direction.
Commercial banks followed the Fed action by lowering their prime-lending rate by the same half percentage point to 6 percent.
The Fed, which voted 9-1 to make the cut, released a statement that said among other things that “a deepening of the housing contraction as well as some softening in labor markets” triggered the move
More rate cuts are expected at the Fed’s next scheduled meeting in March and beyond. Some economists, who applauded the action, predict the key rate could drop as low as 2 percent this year, which would be the lowest in four years.
Bernanke is not expected to cut rates as deeply as did his predecessor, Alan Greenspan, who in the wake of the Sept. 11 attacks cut rates until they reached 1 percent, a 45-year low in the summer of 2003.
Source: The Associated Press, Jeannine Aversa (01/30/08)
30-Year Mortgage Rates Fall to 4-Year Low
Housing industry observers are hopeful that the recent decline in mortgage rates will lead to a recovery in the market.
Freddie Mac reports that interest on 30-year, fixed loans fell for the fourth straight week, landing at their lowest level in nearly four years.
Economists say mortgage rates averaged 5.48 percent for the week ended Jan. 24 — down from 5.69 percent a week ago — because of the latest reports about the economy and because the Federal Reserve made its biggest cut in 20 years to a key interest rate.
Freddie Mac also reports that rates on 15-year mortgages declined to 4.95 percent from 5.21 percent, rates on five-year adjustable-rate mortgages dropped to 5.13 percent from 5.4 percent, and rates on one-year ARMs slipped to 4.99 percent from 5.26 percent.
Source: Baltimore Sun (01/25/08)
Falling Loan Rates Keep Lenders Busy
Mortgage lenders’ phones are ringing off the hook.
The frenzy was triggered by the Federal Reserve’s rate cut, which doesn’t directly affect mortgage rates, but did cause them to fall significantly.
Lenders, who have been battered by the housing slump, are enjoying the mini boom.
The volume of incoming calls jumped 50 percent Tuesday compared to the previous week “and all indications are that [Wednesday] we are even busier,” says Dave Doyle, the head of Countrywide Financial’s call centers.
Doyle says the only time he could recall that happening was in June 2003, when interest rates bottomed out after a series of rate cuts following the Sept. 11 terrorist attacks.
Countrywide staffers also were busy making sales calls to customers, trying to persuade them to refinance billions of dollars in tricky nontraditional loans into plain mortgages the company could sell.
One big sticking point for those hoping to refinance is the possibility that they won’t have 20 percent equity in their property after the refinance because the property has declined in value.
Source: Los Angeles Times, E. Scott Reckard and Kathy M. Kristof (01/24/08)
2007 Existing-home Sales Fifth Highest
Existing-home sales declined in December following several months of stable activity, with total sales in 2007 still at the fifth highest on record, according to the NATIONAL ASSOCIATION OF REALTORS®.
Existing-home sales – including single-family, townhomes, condominiums and co-ops – slipped 2.2 percent to a seasonally adjusted annual rate of 4.89 million units in December from a pace of 5 million in November, and are 22 percent below the 6.27 million-unit level in December 2006.
For all of 2007 there were 5,652,000 existing-home sales, the fifth highest year on record. However, the total was 12.8 percent below the 6,478,000 transactions recorded in 2006.
Lawrence Yun, NAR chief economist, says the market is experiencing uncharacteristic weakness.
“Home sales remain weak despite improved affordability conditions in many parts of the country, but we could get a quick boost to the market if loan limits are raised in combination with the bold cut in the Fed funds rate,” he says. “Home prices are lower, mortgage interest rates continue to decline and incomes are higher, but many potential buyers are delaying a purchase.”
According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to 6.10 percent in December from 6.21 percent in November; the rate was 6.14 percent in December 2006. Last week, Freddie Mac reported the 30-year fixed rate dropped to 5.69 percent.
“Although interest rates on jumbo loans have fallen somewhat, they remain well above conventional mortgage rates,” Yun says. “It isn’t surprising that the share of single-family homes selling for more than $500,000 fell to 12.4 percent of transactions in December from 14.2 percent a year ago.”
A Closer Look
NAR research also revealed the following:
Inventory: total housing inventory fell 7.4 percent at the end of December to 3.91 million existing homes available for sale, which represents a 9.6-month supply at the current sales pace, down from a 10.1-month supply in November. “The fall in inventory in December is encouraging, but inventories remain elevated and buyers have a clear edge over sellers in many markets,” Yun says.
Prices: the national median existing-home price for all housing types was $208,400 in December, down 6 percent from a year earlier when the median was $221,600. Because home sales have slowed the most in higher cost markets, there is a downward distortion to the national median as the mix of closed sales has changed over the past year. For all of 2007, the median price was $218,900, down 1.4 percent from a median of $221,900 in 2006.
Single family homes: sales declined 2.0 percent to a seasonally adjusted annual rate of 4.31 million in December from 4.40 million in November, and are 21.6 percent below 5.50 million-unit level in December 2006. In all of 2007, single-family sales fell 13.0 percent to 4.94 million. The median existing single-family home price was $206,500 in December, down 6.5 percent from a year earlier. For all of 2007, the single-family median was $217,800, down 1.8 percent from 2006.
Condo and co-op sales: existing condominium and co-op sales fell 3.3 percent to a seasonally adjusted annual rate of 580,000 units in December from 600,000 in November, and are 24.5 percent below the 768,000-unit pace a year ago. Condo sales for all of 2007 fell 11.0 percent to 713,000 units. The median existing condo price was $222,200 last month, which is 2.5 percent below December 2006. In all of 2007, the median condo price was $226,400, up 2.0 percent from 2006.
NAR: Loan Limits Need Raised
NAR President Richard Gaylord says that raising the loan limit on conventional financing is the most effective way to stimulate housing and minimize the potential for a recession. He calls for lawmakers to raise the limit on conforming mortgages to $625,000, which would open safe and affordable financing to buyers in high-cost areas.
“It is grossly unfair that some Americans do not have access to low-interest rate loans,” Gaylord says. “This would help people as they move away from risky subprime mortgages and high-interest rate jumbo loans.”
NAR projects the higher loan limit would increase annual home sales by nearly 350,000, reduce foreclosures by 140,000 to 210,000, and increase economic activity by $44 billion. “What’s more, this would come at no cost to taxpayers – it’s a policy change that could really boost the economy,” Gaylord says.
Other projections of NAR’s analysis show raising the loan limit would reduce the supply of homes on the market by 1 to 1.5 months, and strengthen home prices by 2 to 3 percentage points. In addition, as many as 500,000 jumbo loans would be refinanced to lower interest rates.
Gaylord says current housing conditions vary widely.
“Many local areas continue to have healthy or improving local housing markets,” he says. “For example, we saw higher home sales last month in diverse areas such as San Antonio; Syracuse; Springfield, Ill.; and Sarasota, Fla. If you’re thinking about getting into the market as a buyer or a seller, consult a Realtor® to learn about conditions in your area – they may be considerably different from the composite national picture.”
Advice for Home Owners Looking to Downsize
Deciding to downsize from a family home into a retirement community home is a big decision. People who choose to move while they’re still fairly young and healthy will find the transition much easier, says Lynn Falwell, co-owner of a move management company, It’s Your Move.
Falwell offers this checklist for retirees contemplating a move to a retirement community or to a smaller home anywhere.
She urges them to get help from an organization such as hers or from friends and family members who are willing to work hard because moves like these are both physically and mentally taxing.
If the house will be sold, she suggests first using a staging company to help ensure that the home sells for as much as possible.
Then, here are key steps to leaving the old home behind:
Systematically sort through the home, getting rid of clutter and making decisions about what to keep and what to get rid of.
Give yourself plenty of time because the job can be exhausting.
Figure out which furniture and belongings will work best in the new living space and move them to the new location or temporary storage.
Organize and catalog collections.
Distribute items to friends and family members.
Get an appraisal of items that will be donated to charity then arrange for the donation.
Arrange for an estate sale of remaining items.
Schedule trash removal for what remains in the attic, basement, garage and other storage areas.
Schedule a housecleaning service.
Source: It’s Your Move Inc. (01/23/08)
FICO Scoring System Gets Redesign
Fair Isaac Corp., the company that devised the ubiquitous FICO credit scores, announced this week that it plans to roll out a suite of tools designed to predict future default risk.
Fair Isaac says the new products will predict how lenders can offer even more debt to consumers without taking on undue risk.
The update revamps the old credit-scoring formula so that it penalizes consumers with a high debt load more than the earlier version. FICO 08 should increase predictive strength by 5 to 15 percent, according to Fair Isaac’s vice president of scoring, Tom Quinn.
FICO 08 is also expected to do a better job of determining which consumers with past defaults are “more on the road to recovery and should have more of a higher score,” Quinn says.
The new index can look at three consumers with a 700 FICO score and determine which of the three could take on additional debt without defaulting, according to the company.
Source: Star-Tribune, Kara McGuire (01/22/08)
Fed Issues Emergency Rate-Cut
The Federal Reserve, in an emergency meeting on Tuesday, slashed the key rate to 3.5 percent, citing a weakening economic outlook. The move marks the Fed’s biggest rate cut — three quarters of a point — in more than 20 years.
As fears of a recession looms, the Fed said the rate-cut was to help restore confidence in the U.S. economy.
“While strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households,” the Fed said in a public statement. “Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets.”
NATIONAL ASSOCIATION OF REALTORS® Chief Economist Lawrence Yun says the 75-basis-point cut in the Fed funds was a good step in giving the economy the boost and sending a clear message to both the market and to consumers.
“This strong rate cut will help lower mortgage interest rates and lessen the burden of adjustable-rate loans that are resetting in the current environment,” Yun says. “It also could help stimulate business investment in the wake of market uncertainties. We commend the Federal Reserve Board on its bold action, but at the same time we urge it to keep a close watch to see if additional action is needed.”
The Fed also approved a decrease in the discount rate — which, among other things, impacts how consumers pay home equity lines of credit — to 4 percent.
The Fed’s next scheduled meeting is on Jan. 30, where analysts say another rate-cut may be likely.
Source: REALTOR® magazine online and Dow Jones Newswire (1/22/08)
Mortgage Info
Mortgage Info and Programs
There are four major factors that impact what type of loan program a buyer can qualify for:
Credit History:
A prospective homebuyer’s credit has a major impact on how mortgage loans are structured and priced (rate). As a point of reference, many lenders base loan programs according to minimum FICO scores. There are three credit bureaus that companies report information about you to. A credit report containing information about you from all three of these bureaus is called a tri-merged credit report. A tri-merged credit report typically costs $15 and features a score from each bureau. Many lenders disregard the highest and lowest of these three and base their assessment of your credit by your middle FICO score. These scores range between 300 and 850. The higher the score, theoretically the less risk there is for lenders. Therefore, the best rates and best programs are generally more readily available to homebuyers with higher scores. Below you will find a general reference for FICO scores.
Above 720 Exceptional
680-720 Above Average
620-680 Average
580-620 Below Average
Below 580 Below 580
Throughout this information packet, you will find references to minimum FICO scores. If you do not know what your scores may be, I will be happy to look at your single bureau credit report for FREE.
Bottom Line: The higher your score, the better it is for you!
Job History and Income:
Many lenders look for at least a 2-year history of employment with the same company or at least in the same field of work. The more stable your employment history is, the more stable your ability to make your payments should be. Therefore, there is less risk for the lender. In addition to job history, lenders want to be able to verify your income. Income is verified by providing W-2 statements and/or tax returns for the past 2 years. The thought here is that if you really make how much money you say, then the lender should be able to verify it with your employer and/or the IRS.
Bottom Line: If your employment history is stable and your income is verifiable, the better it is for you!
Down Payment:
This one is very easy. The more you put down, the less risk there is for the lender. The most important thing to know about a down payment is this: in most cases, it needs to be seasoned. Seasoned means that the money has been in an account with your name on it for at least three months and/or you can demonstrate that you were able to save this money through some verifiable means. What lenders are looking for here is this: lenders do not want you borrowing money for your down payment. Your down payment also impacts if you pay mortgage insurance (PMI/MIP). Mortgage insurance is very simple to explain. If you buy a $100,000 house and put 3% down, your loan will be for $97,000. Let’s pretend for a moment. You stop making payments, and the lender forecloses on your house. When the lender takes the house back, it is in poor condition. Now the lender sells your old house for $80,000. The lender lost $17,000 plus costs from your foreclosure. Mortgage insurance pays the lender what they lost. The advent of mortgage insurance has allowed lenders to now feature many loan programs with little or no down payment. The amount of mortgage insurance varies from program to program and depends on the percentage of your down payment.
Bottom Line: The more you can put down, the better it is for you!
Assets and Reserves:
Lenders take into account how much money you have. This money could be in a bank account, 401k, brokerage account, IRA, net worth of a business, equity in other real estate, or any other asset. The more money that a prospective homebuyer has, the less likely they will be to fall behind in payments (in theory). The term reserves means this: if you have $8000 in total liquid assets (money in the bank, 401k, IRAÂ…) and you need $5000 to close on your new house, you will have $3000 left over for reserves. If your new payment is $1000 per month and you have $3000 in reserves, lenders say that you have 3 months of liquid reserves.
Bottom Line: The more months of liquid reserves you have, the better it is for you!
Now, let’s note a few things. If all four of these factors were written in stone and each were required to get a home loan, new subdivisions would be much smaller. These factors are presented to you to give you an idea of how lenders look at you to determine how risky you are. Look at the bottom line. If all of those bottom lines are in your favor, you can get the best deal! If none of those bottom lines are in your favor, you most likely cannot get a home loan immediately. If some of them are in your favor, then you are like most of us, and there are always programs for most of us. Regardless of your standing with these four factors, with the help of a knowledgeable professional, anyone can be put on the path to HOMEOWNERSHIP!
Fixed Rate Mortgages
Fixed rate mortgages are just that. The rate is fixed for the entire period of the loan. Common version of this are a 15 year fixed or 30 year fixed. These days I hear of few people doing 15 year mortgages because of the higher payment. The advantage is that you loan is paid off in 15 years instead of 30 and the total of your payments is much lower. Might be a better strategy for some. Someday your home needs to be paid off and I see a lot of cases where people are forgetting they will retire and need a place to live while not collecting the same paycheck as they did while working.
Example:A $300,000 loan at 6% APR should cost you roughly $1800 a month. This would be the Principal and the Interest. As time goes on your payment is divided more to principal and less to interest. Year one you might get $100 credit in each payment towards the Principal, or balance, while in year 29 almost all will be going towards Principal.
When budgeting don’t forget about taxes and insurance. I recommend including these in your total payment and letting the bank disburse the funds. This total payment is called PITI. Principal, Interest, Taxes, and Insurance.
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