January 2010

Navigating the Turbulent
Mortgage Marketplace

What are the options if I owe more on my mortgage than the value
of my home?

Option 1

Continue making your payments on time and ride out the storm
Your lender cannot take your home away as long as you make your payments on time. Therefore, if
you want to keep your home and you can afford your payments, you should do whatever it takes to
continue making your payments on time. Although it is a hard pill to swallow, this is likely to be your
best option because it is the most responsible thing to do and it protects your credit rating.
Even if you are experiencing other financial difficulties and you are faced with declaring bankruptcy,
you are not required to include your home in the bankruptcy. For more information, check with an
attorney who is familiar with the laws of your state.

Option 2

Stop making your payments and go into foreclosure
This is probably the worst decision you could make, but depending on your circumstances, you may
have no other choice. Foreclosure laws vary from state to state, but here are a few things to keep in
Foreclosures reflect very negatively on your credit rating and could preclude you from
borrowing money through credit cards and car loans. In fact, if you become delinquent on your
mortgage, this will likely have an immediate negative impact on the interest rates and terms of
all your credit cards. Credit card companies typically have the right to increase your interest
rates, close your accounts and/or reduce your credit limit as soon as you default on any other
debt (including your mortgage).
Fannie Mae, which is very influential in setting the mortgage guidelines, has recently updated
their lending rules to state that individuals who have gone through foreclosure need to wait
anywhere from 3-5 years before qualifying for a new mortgage. This means that it will be very
difficult, if not impossible, for you to buy a home and qualify for a new mortgage for at least 3-5

Option 3

Try to modify the terms of your mortgage
Nearly everything in life is negotiable — this includes the current status of your mortgage. You could
either hire an attorney or try to call your lender yourself and renegotiate the terms of your loan. Keep in
mind that your chances of success are always better if you get an attorney involved. In that case,
make sure to get references from the law firm of clients they worked with resulting in successful
modifications. Remember, lenders would rather not have you go all the way through foreclosure if it
can be avoided. In fact, after regulators took over the failed IndyMac Bank, Sheila Bair who is the
Chairman of the Federal Deposit Insurance Corporation (FDIC) said, “We will very aggressively
pursue loan-modification strategies for unaffordable loans to make them affordable on a long-term,
sustainable basis.”

What exactly is the problem
today with banks, financial
institutions and the financial

How long will the turmoil last,
and is this still a good time to
buy a home?

Option 4

Try to sell the home on the open market as part of a “Short Sale”
A short sale is where a property owner sells property for less than what is owed on the mortgage. The mortgage lender is asked to approve the sale
and forgive the difference between the sales price of the property and the remaining balance of the mortgage. Consider this example:
$200,000 sales price
$250,000 mortgage balance
$50,000 difference that is forgiven by the mortgage lender
Understand the impact on your credit rating — a short sale has virtually the same negative impact on your credit rating as a foreclosure. Both short
sales and foreclosures are treated as “settled accounts.” In other words, the lender is settling with you and agreeing to be paid less than what they
are legally entitled to receive. Therefore, you are developing a reputation for paying back to your lenders less than what you originally agreed to pay
them, and this reflects negatively on your credit rating.
Understand the new Fannie Mae rules — depending on how your short sale is structured, beginning August 1, 2008, an individual who has sold a
home as part of a short sale may not be able to qualify for a new mortgage for another 2 years!
Understand the tax impact — depending on the type of mortgage and property you have, you may be subject to income taxes on the portion of the
mortgage that is being forgiven by the mortgage lender! If the forgiven mortgage debt is attached to your primary home and the mortgage balance
itself was originally used to buy, build or improve your home, income taxes would not apply. However, unless you are deemed to be “insolvent,”
forgiven mortgage debt on second homes and investment property is taxed, as well as all forgiven debt on your primary home where cash-out loan
proceeds were not used for home improvement.

Option 5

Consider a sale-leaseback or rent-to-own strategy
A sale-leaseback is where you sell your property to an investor (as part of either a short sale or traditional sale), and then you lease it back from the
investor. This allows you to remain in your home without the trauma of having to move away and find new housing. The thing to be cautious of is that
some variations of the sale-leaseback strategy are centerpieces in some of the so-called “foreclosure rescue” scams that prey on unsuspecting
home owners. Before engaging in sale-leasebacks, consider the laws of your state, and make sure the transaction is properly and ethically
structured to protect the interests of all the parties involved.
A rent-to-own strategy allows you to find a new home now and rent it from an investor with the option of buying the home at a pre-determined price at
some point over the next two to three years. You would do the house shopping and find a home where you would like to live. The investor then buys
the home, preferably getting a good deal by buying a home that is being sold short or through a foreclosure. You then sign two agreements with the
Lease agreement that spells out the terms of the rent payments
Option agreement that spells out the predetermined price and terms under which you can buy the home from the investor at some point within
two to three years

It is always advisable to consult with a Certified Mortgage Planning Specialist TM (CMPS®) when navigating today’s turbulent mortgage and real estate

As a CMPS® professional, I am committed, qualified and equipped to help you evaluate your options

Mortgage interest for the week held fairly close to the previous week’s rates, reports Freddie Mac.

Average interest on 30-year fixed loans slipped a notch to 4.98 percent from 4.99 percent and was down from 5.10 percent a year ago.

Here’s how other rates fared for the week:

  • 15-year fixed loans dropped down to 4.39 percent from 4.40 percent.
  • Five-year adjustable-rate mortgages dipped to 4.25 percent from 4.27 percent.
  • One-year ARMs came down to 4.29 percent from 4.32 percent.

While still higher than the historic lower of 4.71 percent established in early December, long-term mortgage rates have hovered around a very favorable 5 percent thanks to the Federal Reserve’s mortgage-backed securities program meant to keep rates low and make home buying more affordable.

The central bank’s policymaking committee confirmed on Jan. 27 that it will keep rates near those record lows in order to prop up the economy; but it still plans to terminate the program at the end of March.

Low rates also trigger more refinancing activity, according to Freddie Mac. In the 2009 fourth quarter, it said, about a third of borrowers who refinanced a home loan — the highest share since at least 1985 — opted to slash their principal balance rather than tap into their equity.

As a result, only around $11 billion in home equity — the smallest quarterly volume in about nine years — was tapped by consumers who refinanced a conventional, prime mortgage.

More Borrowers Lower Mortgages With Refis

In the fourth quarter of 2009, 33 percent of borrowers refinanced their loans and in the process, lowered the principal balance, Freddie Mac reported in its quarterly Refinance Report.

That’s the highest cash-in refinance share since Freddie Mac began tracking refinance transactions in 1985.

The share of borrowers who increased their loan balances by 5 percent or more during the fourth quarter was at a record low of 27 percent. From September of 2008 to November 2009, consumers cut $100 billion in revolving debt from their obligations, according to the Federal Reserve Board.

A new report from the Urban Land Institute predicts two major changes in the U.S. housing market as we began a new decade.

  • Home appreciation will slow considerably to about 1 percent to 2 percent annually.
  • The current U.S. homeownership rate, now at 67 percent (which is down from a record high of 69 percent), will fall further to about 62 percent.

4 Major Demographic Trends

The report also cites four major U.S. demographic trends that will have a major impact on housing.

1. Aging baby boomers (ages 55 to 64 years old): They will keep working, and many will be forced to stay in their suburban homes until values recover. Those who are able to move will choose mixed-age living environments that cater to active lifestyles. Walkable suburban town centers also will appeal to this group.

2. Younger baby boomers (46 to 54 years old): They are now entering their prime earning years but they will lack home equity and unlike the older members of their generation, they won’t be able to purchase second homes. This will likely curb the prospects for the second-home market.

3. Generation Y: They are larger than the baby boom generation (with a population of about 86 million). As they enter the housing market, they are less interested in homeownership than their parents were when they were young adults. “They will be renters by necessity or choice for years ahead,” says John K. McIlwain, author of the report.

4. Immigrants – both legal and illegal: They are nearly 40 million strong. They often prefer multi-generational households and if they can afford them, larger homes in neighborhoods with a strong sense of community.

Source: The Urban Land Institute (01/27/2010)

Markets don’t like uncertainty, and a little of that was removed yesterday as Federal Reserve Chairman Ben Bernanke was approved by the Senate for a second four-year term by a 70-30 vote. Supporters admitted that that the Federal Reserve under Bernanke had missed signs leading up to the recent economic crisis, but argued that under Bernanke’s leadership the Fed had helped steer the U.S. economy away from utter catastrophe. But no one wants to switch horses in midstream, even if there could be found a “new horse” that was qualified.

Overall, how have the programs designed to stop mass foreclosures been working? Not so well, and for a variety of reasons. Servicers often don’t have the ability to do renegotiations in bulk, and sometimes make more money by dragging their feet. Loans being placed into securities, which are then sliced and diced, make things more complicated, and borrowers usually are not even sure if they’re eligible. We should all keep in mind, according to a recent paper by the Boston Fed, that foreclosing is often more profitable than renegotiating. Almost a third of delinquent borrowers “self cure”. And of those who have their mortgages modified, more than a third end up defaulting eventually anyway.  So in both cases, modifications make the servicer worse off. The housing bubble was very expensive – it will be surprising if we can deal with its consequences on the cheap.

At least there is no ambiguity about what the Fed is doing in their mortgage purchase program. Last week the Fed purchased a net $12 billion in agency MBS, bringing its total net purchase to $1.161 trillion. But everyone has a pretty good sense of how this movie is going to end, right? Well, perhaps not. The odds are highly in favor of the Fed keeping overnight rates where they are through June. In fact, an article in the Wall Street Journal yesterday points out that there is a growing belief among investors that when the Fed’s mortgage security purchase program ends at the end of March, mortgage rates won’t soar. “They argue that investors, searching for higher-yielding securities, will find government-backed mortgage-backed securities a bargain relative to other investments, like corporate debt, that have rallied for much of the past year.”

I don’t think that anyone believes that the US government will suddenly leave the entire housing and mortgage market on its own. Those markets have had either implicit or explicit government backing for decades, which makes investors much more likely to buy mortgage-related securities. Lately production has dropped, as has the weekly amount of Fed purchases from $21 billion to $12 billion, yet mortgage rates are still relatively low. Yes, mortgage rates may move higher, and in fact rates in general may move higher, but at some point the yields look more attractive to investors, and as they buy these securities, the price goes up and rates move back down. Thus goes the argument against lenders saying, with regard to mortgage rates, “The end is near!” Now, if we could only get underwriting guidelines to loosen up!

Yesterday, only one day after the FOMC meeting (which had its first dissenter in over a year), the market started off slightly worse, but then came back later in the day. A weak stock market helped, as did a very good $32 billion 7-yr Note auction. Today we saw Gross Domestic Product for the 4th quarter, estimated to be 4.6% versus the 2.2% annual rate in the prior quarter. The 5.7% pace was certainly stronger than expected, and the highest pace in more than six years.

Growth was boosted a sharp slowdown in the pace of inventory liquidation, but even stripping out inventories the economy expanded at an annual rate of 2.2 percent. Later we’ll have the Chicago Purchasing Manager’s Survey and the University of Michigan Consumer Sentiment Survey. But the GDP number has pushed rates higher, and mortgage prices are worse by about .250 and the yield on the 10-yr is up to 3.68% again.

450,000 at risk in foreclosure-prevention program

NEW YORK (CNNMoney.com) — Hundreds of thousands of troubled homeowners who are making lower mortgage payments on a trial basis are at risk of being kicked out of President Obama’s foreclosure-prevention program.

Companies that service the mortgages have until Jan. 31 to review all trial modifications that have been underway for several months under the Home Affordable Modification Program (HAMP), according to a Treasury Department guideline issued late last month. The Treasury Dept. said it would issue new guidelines next week, but wouldn’t give details.

During the review period, servicers  must determine whether borrowers have made all their payments and have handed in all the necessary paperwork. Those who haven’t will get letters giving them 30 days to comply.

The goal is to clear up the backlog of borrowers stuck in trial modifications, in which a homeowner’s monthly payments are lowered to no more than 31% of pre-tax income.

Some homeowners have spent seven or eight months waiting to hear if they qualify for a permanent adjustment to their mortgages.

This directive, however, has some bank regulators concerned.

“About 450,000 homeowners currently have HAMP trial modifications and have demonstrated a willingness and ability to make timely payments for at least three months,” said Richard Neiman, superintendent of the New York State Banking Department.

“Now, unfortunately and very alarmingly, these same homeowners face the prospect of foreclosure strictly on account of documentation issues,” he said.

Paperwork has proved a major stumbling block for the president’s foreclosure-prevention program. Homeowners complain that their servicers continuously lose the documents they send in, while financial institutions argue that borrowers have not been sending in their paperwork.

Aware of the problem, Treasury officials said they plan to issue new guidance to servicers next week that will help expedite the conversion of borrowers in the trial period to permanent modification. It may also lighten the documentation requirements.

Converting to permanent modifications

Under fire for the low number of people receiving long-term help, the Treasury Department in late November ramped up pressure on servicers to convert borrowers to permanent modifications.

Some 66,500 people have received permanent adjustments, with another 787,200 homeowners in trial modifications.

Under the president’s plan, delinquent borrowers are put into trial modifications for several months to make sure they can handle the new payments and to give them time to submit their financial paperwork.

Once the modification becomes permanent, servicers, investors and homeowners are eligible to receive thousands of dollars in incentive payments.

Overall, about three-quarters of people are making their payments on time, according to the Treasury Department.

Treasury officials already lightened the documentation requirements in the fall in hopes of speeding up the conversion process. But more needs to be done, Neiman said.

For instance, Treasury should accelerate its implementation of a standardized documentation form and the creation of a Web portal that will allow homeowners to track the receipt of the paperwork, he said. Also, it should allow servicers more flexibility in accepting alternative documents.

If this isn’t done, a lot of homeowners could soon face foreclosure, he said.

“This is a real concern to borrowers, particularly borrowers who’ve continued to make payments for three, four, five, even seven months,” Neiman said. To top of page

Housing: Best recovery bets

The average home price is forecast to plummet over the next two years. But these 7 cities are predicted to post gains.

1 of 7


San Francisco

Median home price: $675,000
Value lost since 2006: 25.7%
Forecast gain by 2011*: 4.8%

The San Francisco metro area has seen its home values drop by a quarter, and the city still has some pain to work through. The city’s median home price is expected fall another 8.3% by June 2010.

After that, however, the market there may come roaring back: Fiserv predicts a 14.3% gain between June 2010 and June 2011. Averaged out, that means a 4.8% gain over the next two years.

One reason for the sharp comeback is that much of the area’s excess inventory will have been sold. It’s already dropped by nearly in half over the past year.

The recovery will be delayed, though, as the area — particularly Oakland and the East Bay — works through its foreclosure problems. During the first six months of 2009, one of every 52 homes had at least one foreclosure filing.

The good news, according to Mark Fleming, chief economist for First American CoreLogic, is that core city neighborhoods don’t have nearly as many foreclosures as those out on the fringe. The steady demand in those communities will serve as a base as other neighborhoods rebuild.

By Les Christie, CNNMoney.com staff writer
Ten Inexpensive Ways to Wow Buyers 
 Now is the time for home owners  contemplating a spring sale to spruce up their properties in
 anticipation of what Mike Larson of Weiss Research calls a potentially  vibrant home-selling season. 
"If you have been beating your head against a wall, this is going to feel a lot better,” he jokes.
 Here are 10 cheap ways to make a property more attractive to shoppers.

  1. Improve first impressions. Touch up the paint on the front door and other areas that buyers see first.
  2. Clean up the landscaping. Trim the hedges and trees and plant some annuals in the flowerbeds.
  3. Paint the interior. A coat of light yellow or cream with contrasting white woodwork looks fresh and clean.
  4. Refurbish the floors. Buff the hardwoods. Install new carpets – or at least get them professionally cleaned.
  5. Take care of the big problems. If the house needs a roof or the front stoop is crumbling, get them fixed.
  6. Buy warranties. Putting appliances under warranty gives homebuyers a secure feeling.
  7. Improve energy efficiency. New windows or improved insulation tell a potential buyer the seller is on top of things plus they come with tax benefits.
  8. Replace light fixtures. Updated fixtures, especially at the entrance way and in the foyer, create a good first impression.
  9. Buy a stove. Home owners whose kitchen isn’t top of the line can jazz it up for a few hundred dollars by buying a new stove, which gives the room a fresh feel.
  10. Tidy up the bathrooms. Get rid of mildew, replace caulking and replace stained sinks.

From the International Builders’Show:

Reach Out to the ‘Green Goddess’

REALTOR® Magazine
green_goddess_home_buyer About twice as many single women purchase homes than single men, accounting for 20 percent of all home buyers. So, if you’re serious about selling homes – especially homes with green features – single women are the ones to watch. To address this very statistic, Sara Lamia, president of Building Coach Inc.,was one of three panelists presenting her take on selling green to women during day one of the International Builders’ Show in Las Vegas Tuesday. Fittingly, the session was entitled, “Evolution of the Green Goddess: Green Technologies Women Want and How to Capture Her Buying Power.” Here are a few of her trends and tips to connect women with green: Think First Date: On a first date, people are conscious of how they look, about how they act, and what they say. They want to put their best foot forward, to be impressive without being overwhelming. The same goes for selling to women, Lamia says. “In order to get more sales, you need to have more first dates.” Green Chic Appeal: What is green chic? Lamia describes it as fashionable, affluent and intelligent – without sacrifice. Take recycled glass, for example. It’s inexpensive, versatile in appearance, and lends well to storytelling. When a friend comes over and asks what the countertops are made of, a buyer can feel good explaining that it’s recycled glass products. A Healthier Environment: The impact of air quality gets across loud and clear to female buyers, Lamia says. But also think slightly off the beaten path, such as central vacuum systems that pull dust and particles out of the air. Custom “Sexy” Green: You know those old laundry shoots that were once commonplace in homes? Now think about custom recycling shoots! No more paper grocery bags under the sink. Get to Know Sales Associates: The people who work in green product stores are the ones who have daily contact with potential buyers who truly care about going green. Get to know those sales associates and learn the needs of their client base… which can turn into a great way to generate referrals. Tell Your Green Story: Green issues are hot in the press today and reporters are often looking for human interest pieces. What’s happening with green in your business? Do you have an interesting innovation to share or a unique client you worked with? Pitch your green story, Lamia suggests, and help your green specialty build credibility in the community.

 Existing-home sales fell as expected in  December after first-time buyers rushed to complete deals during the  months leading up to the original 
November deadline for the tax credit.  However, prices rose from December 2008 and annual sales improved in  2009, according
 to the National Association of REALTORS®. 

Existing-home sales—including single-family, townhomes, condominiums  and co-ops—fell 16.7 percent to a seasonally adjusted annual rate of  5.45 million units 
in December from 6.54 million in November, but remain  15 percent above the 4.74 million-unit level in December 2008.

 There were approximately 5,156,000  existing-home sales in 2009, which was 4.9 percent higher than the  4,913,000
 transactions recorded in 2008. It was the first annual sales  gain since 2005.

 Tax Credit Creates Swing in Market

 Lawrence Yun, NAR chief economist, says there were no surprises in the  data. 

 “It’s significant that home sales remain  above year-ago levels, but the market is going through a period of  swings driven by the tax credit,” he said.
 “We’ll likely have another  surge in the spring as home buyers take advantage of the extended and  expanded tax credit. By early summer the 
overall market should benefit  from more balanced inventory, and sales are on track to rise again in  2010." 

 However, Yun says, the job market remains a  concern and could dampen the housing recovery. "Job creation is key to a  continued
 recovery in the second half of the year,” he says.

 An NAR practitioner survey shows first-time  buyers purchased 43 percent of homes in December, down from 51 percent  in November.
 Repeat buyers rose to 42 percent of transactions in  December from 37 percent in November; the remaining sales were to  investors.

 The national median existing-home price for  all housing types was $178,300 in December, which is 1.5 percent higher
 than December 2008. 

 “The median price rose because of an  increased number of mid- to upper-priced homes in the sales mix,” Yun  says. It was the first year-over-year gain in median price since August  2007.

 Falling Inventories

 NAR President Vicki Cox Golder said market conditions are challenging in some areas. 

 “There’s a shortage of lower-priced homes  for sale in much of the country, resulting in multiple bids in some  areas,” she says. 
“Raw unsold inventory has been trending down. As the  market heats up again this spring, buyers may need to be prepared to
 move quickly on a particular home."

 Total housing inventory at the end of  December fell 6.6 percent to 3.29 million existing homes available for  sale, which represents
 a 7.2-month supply at the current sales pace.  That is an increase from a 6.5-month supply in November. 

 Raw unsold inventory is 11.1 percent below a  year ago, is at the lowest level since March 2006, and is 28.2 percent  below
 the record of 4.58 million in July 2008.

 Distressed homes, which accounted for 32  percent of sales last month, continue to downwardly distort the median  price because
 they generally sell at a discount relative to traditional  homes in the same area. 

 For all of 2009, the median price was  $173,500, down 12.4 percent from $198,100 in 2008. Distressed homes  accounted
 for 36 percent of total sales last year.

 According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage  rose
 to 4.93 percent in December from 4.88 percent in November; the rate  was 5.29 percent in December 2008.

 Single-Family Home, Condo Sales Dip

 Single-family home sales fell 16.8 percent to a seasonally adjusted annual  rate of 4.79 million in December from a pace 
of 5.76 million in  November. Sales are 12.7 percent above the 4.25 million level in  December 2008. For all of 2009, 
single-family sales rose 5 percent to  4,566,000.

 The median existing single-family home price  was $177,500 in December, which is 1.4 percent above a year ago.
 For  all last year, the median price for a single-family home was $173,200,  down 11.9 percent from 2008.

 Meanwhile, existing condominium and co-op  sales fell 15.4 percent to a seasonally adjusted annual rate of 660,000
 in December from 780,000 in November. Sales are 34.7 percent higher than  the 490,000-unit pace a year ago. 
For all of 2009, condo sales rose 4.8  percent to 590,000 units.

 The median existing condo price was $183,700  in December, up 1 percent from December 2008. For all of last year, 
the  median condo price was $176,100, which is 16.1 percent below 2008.

 Regional Breakdown

 Here are existing-home sales figures by  region:
  • Northeast: sales dropped 19.5 percent to an annual level of 910,000 in December but
  • are 21.3 percent above a year ago. Median price: $241,700, up 3.2 percent from December 2008.
  • Midwest: sales fell 25.8 percent in December to a level of 1.15 million but are 8.5 percent higher
  •  than December 2008. Median price: $143,200, which is 1.8 percent above a year ago.
  • South: sales dropped 16.3 percent to an annual pace of 2.01 million in December but are 15.5 percent
  •  above December 2008. Median price: $152,000, down 1 percent from a year ago.
  • West: sales declined 4.8 percent to an annual rate of 1.38 million in December but are 15 percent
  • higher than a year ago. Median price: $236,000, up 2.7 percent from December 2008.

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