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Fed announced its plan to purchase Mortgage Backed Securities last week, and began buying them Monday. The Fed will announce the results each Thursday (This should be an interesting rate day).  The Fed is estimating 500b will be purchased. This process will continue gradually through June and should aid in pushing rates down until then. (Read between the lines, make sure your refinance or purchase before the end of July 2009, in order to take part in History) Market Forecast Week of January 5, 2009

As you can see from the chart it has not been pretty in the MBS Market. If my Technical Analysis serves me right; if we don’t fill Friday’s gap we are in trouble!

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•    Pursuant to 12 U.S.C. 1709(b)(9), the homebuyer’s downpayment required for eligibility for FHA insurance may not consist of any funds (including funds derived from a sale of the homebuyer tax credit) provided by the mortgagee, the seller, or any other person or entity that financially benefits from the transaction (or by any third party or entity that is reimbursed, directly or indirectly, by the financially benefiting person or entity).  Accordingly, the proceeds of the sale of the tax credit to FHA approved mortgagees, the seller, or any other person or entity that financially benefits from the transaction (or any third party or entity that is reimbursed, directly or indirectly, by the financing benefiting person or entity), may not be used to meet the 3.5% minimum downpayment, but may be used as additional downpayment, buying down of interest rate, or other closing costs.  – U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

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For active home buyers who have yet to find the “right home”, long-term flatness like this is terrific.  While interest rates stay even, buyer purchasing power holds flat and pre-approval letters stay valid.

For buyers under contract or homeowners looking to refinance, though, the market’s pattern is a little more rough.  Although rates are holding steady week-to-week, the day-to-day action is quite different.  Bond markets are volatile and rate swings of a quarter-percent in a day have been common.

How good of a rate you get depends on day on which you shop. This complicates the process of “locking a rate” and makes it very hard for people trying to time a market bottom.

This week, though, the market may finally make a run and break its range.

Aside from it being an unusually data-heavy week, the Federal Reserve meets Tuesday and Wednesday to discuss monetary policy.  The data combined with the Fedspeak may push the markets one way or the other towards economic optimism or pessimism for the latter half of 2009.

Lately, it’s been a combination of the two — a “cautious optimism” — and that’s a big reason why mortgage rates have held in a tight range for so long.

Understand, though, that when mortgage rates finally do move, they’re going to move in a big way.  So, if you’re among the crowd looking for lower rates, the best possible outcomes you can hope for this week are:

• Weak consumer confidence data (Tuesday, Friday)
• Weak consumer spending data (Thursday)
• Falling “cost of living” calculations (Thursday)
• Fed concerns about deflation and/or recession (Wednesday)

Any of these four events would likely temper hope for a quick economic revival, sending mortgage rates lower.  On the other hand, if confidence or spending is strong, or the Fed has no regard for deflation or recession, expect mortgage rates to rise.

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How does a Reverse Mortgage Work

Reverse mortgages are probably best understood when compared side-by-side with traditional home mortgages, otherwise known as “forward” mortgages. The following table shows the differences between the two:

Both loans incur debt against your home, and both affect equity, but they do so in different ways. Traditional home mortgages require making monthly payments to a lender. With a Reverse Mortgage, payments are made to you.

What a Reverse Mortgage Involves
Here are some important points to know when considering a reverse mortgage:

Eligibility: To qualify for a reverse mortgage, you must be at least 62 years of age. All owners who are on the title deed must meet this age requirement. You must also have paid off all, or most, of your home mortgage. Lastly, the home you reside in must remain your principal place of residence.

Mandatory Counsel: In order to ensure that homeowners are fully aware of the financial ramifications of obtaining a reverse mortgage, you must undergo counseling with an unbiased third party before completing a loan.  Once approved,  HUD and AARP oversee a network of counselors who can provide this service, and it should be offered for either a nominal fee or at no charge.

Tax-Free Income: One of the advantages of a reverse mortgage is that the money you receive will not be taxed. The amount you’ll obtain depends on several factors including the plan you select, the type of cash advances you choose, your age, and the value of your home. Typically, the older you are the larger the loan, as you will have more equity in the house.

Cost: The cost of a reverse mortgage varies considerably from one type to the next. However, you can typically use the money you receive to offset the loan fees. The costs will be added to the loan balance and must be repaid with interest once the loan terminates.

Repayment: Reverse mortgages do not require any payment as long as the borrower(s) remain in the home. Should the borrower(s) pass away, sell the home, or permanently relocate, then the loan would be due in full, along with interest and additional costs. If two borrowers are on the loan and one dies, the loan would not be due since one of them still occupies the home.

Home Equity Conversion Mortgage – The Federally Insured Loan
The most common type of reverse mortgage is the Home Equity Conversion Mortgage, otherwise known as a HECM mortgage. This is the only reverse mortgage program that’s federally insured and backed by the U. S. Department of Housing and Urban Development (HUD). This type of reverse mortgage is popular for a few reasons:

•    Ability to choose your own interest rate.
You can select one that changes annually or one that changes every month.

•    You have several payment options.
You may receive monthly loan advances for a fixed term or for as long as you live in the home. You may also choose to receive a line of credit or combine monthly loan advances with a line of credit.

•    The loan can be used for any purpose.
With a HECM, you don’t have to designate the loan to a specific use; you can apply the funds to anything you choose.

•    Protection.
This is one of the most attractive features of a HECM. This plan protects you by guaranteeing continued loan advances even if your lender defaults.

Sell or Stay?
The main reason people choose a reverse mortgage is to gain financial independence and maintain an adequate standard of living without leaving their current home. The best way to decide if a reverse mortgage is right for you is to compare it to the other option of selling your house. To do this, ask yourself these three questions:

1.    How much cash can I get by selling my home?
2.    How much will it cost to buy or rent a new place?
3.    Is it worth my moving now, or do I prefer to do something else with the money?

Perhaps you’ll confirm what you knew all along, where you now live is the best place to be.

If you feel that a Reverse Mortgage would benefit you or a family member, Feel FREE to contact me to discuss your options!

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Refinance Your Mortgage for Rate and Payment Reductions

Homeowners refinance for different reasons, but the process of refinancing a mortgage should result in some benefit to the homeowner.  A borrower may choose to refinance to obtain a lower interest rate and a lower monthly payment, or change the type of loan that they have. Borrowers who started with a high-interest sub-prime loan can often reap the rewards of an improved credit standing by refinancing. Some homeowners refinance to ‘cash out’ and take advantage of the equity they have earned, while others may choose to refinance to shorten their loan term and build equity more quickly.

One of the biggest reasons homeowners refinance their mortgage is to obtain a lower interest rate and lower monthly payments. By refinancing, the borrower pays off their existing mortgage and replaces it with a new one. This can often be accomplished with a no-points no-fees loan program, which essentially means at “no cost” to the borrower.

In the no-points no-fees scenario, the mortgage consultant uses rebate monies paid by the lender to pay off non-recurring closing costs for the borrower. These are “one time” fees such as escrow or attorney fees, title insurance, document preparation, tax service, flood certification, processing and underwriting fees, etc. The borrower is still responsible for recurring fees such as interim insurance, property taxes or insurance policy payments.

Refinancing typically occurs when mortgage interest rates drop significantly, but borrowers with recently improved credit scores (from paying off credit card debt, making mortgage payments on time, etc.) are often candidates for better interest rates as well. If you haven’t checked your credit score in a while, it’s a good time to call a mortgage consultant.

The question most asked is, “But why should I go back into a 30-year loan?”

There are two schools of thought on this subject, and the mortgage consultant should work hand-in-hand with the borrower’s financial planner to determine what works best for their mutual client.

One option is to take the route of the “same payment” refinance, and actually pay off the loan faster and save money on interest fees in the long-run. If refinancing results in a lower monthly payment, the borrower can still continue making the same payment they made in the original loan, and the extra money will be applied to the principal balance.

For example: Let’s say you have 25 years remaining in your current loan, and you refinance back to a 30-year loan with a slightly lower interest rate, resulting in a payment reduction of $200 per month. (Note: This is just an example. The actual amount could vary.) You could then take that extra $200 per month and apply it toward the principal on the new loan. At this rate, the loan will be paid off in 22 years and 4 months, which is 2 years and 8 months less than the original loan.

Regardless of the reason for the refinance, the mortgage consultant will need to know what the existing loan scenario entails, review the homeowner’s long-term goals, and provide a comprehensive analysis that compares and contrasts the various loan programs available.

Bear in mind, refinancing to obtain a lower interest payment could also result in a lower deduction at tax time. The homeowner’s mortgage consultant and financial planner should work hand-in-hand with their mutual client’s best interest in mind.
[where: 98109] [where: 85012]

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Both Building Permits and Housing Starts were released today.  Building Permits were down over 61k from last month and Housing Starts down 62k..All though they are down this is a positive sign in the sense the supply is not increasing; it will take a tighter supply in order to clear the current inventory on the market.  Given the Foreclosure Moratoriums have come to an end, the housing number are welcomed, as we will start to witness an increases in foreclosures given the temporary delay in now gone.

I have one REO Agent friend who informed me that just last week he received 48 BPO request from banks, if only half hit the market that is HUGE.

The finger has been removed from the dike!

In a recent post by my idol; Tyler Durden he points out that we can’t hide from the massive wave of California Foreclosures that is ominously approaching.  While pointing out the fact he does not point to the reasoning.

Many borrowers in CA decided to take advantage of what we in the biz called the POA (Option ARM). Now that these ARM are set to adjust, the borrowers will need to refinance into a fixed.  Given the deterioration in housing values they will not have the luxury.  One item that is aiding in taming the massive amount of defaults is the fact that although the ARMS have adjusted the Index to which they are tied to has come down to the point they are paying less on their IO (interest only) payment then they would in a current fixed.  This temporary lull will only be brief. Once inflation kicks in and rates shoot up, the defaults will recommence as the homeowners walk!

[where: 98109] [where: 85012]

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That’s why I offer the Strategy Session!

Every month, I am probably involved in more real estate transactions than even the top Realtors in town. I know this real estate market, and my experience can help you understand what the conditions of the market are now, and how that affects your negotiating position. Understanding your position (strengths & weaknesses) is the first rule of negotiating.

If you decide to buy a home or refinance, and if I can help you save time and money, and give you the tools & information to help make you a more confident and effective negotiator, I think you will remember me.
•    The average American family moves every 6 years, so
•    You’ll probably buy several homes and refinance several times in your lifetime. I hope to earn your business for life.
•    When someone really does an exceptional job for you, you probably tell your friends about it. I want to be someone you would tell your friends about.

First, I’ll need to understand your situation, what you’re trying to accomplish. Then we’ll identify any missing information you would need in order to be able to formulate a strategic plan. We’ll figure out how to get any information we might need.

If you can be prepared for what’s ahead, if you know the facts about the market, what homes are appraising and selling for, if you know how to improve your bargaining position, and if you know ahead of time exactly how high (or low, depending on whether you’re buying or selling or refinancing) you’re willing to go – you’re going to feel a lot more in control of the whole process. You’ll end up saving a lot of time – whether you’re on a one-month time frame or a one-year time frame. You will be able to avoid paying too much for a home mortgage, and our negotiating advice could very well save you thousands of dollars, and thousands more when you factor in the interest you would have paid on the difference.

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It was Tax Day today and who among us doesn’t love a legitimate tax deduction?

The IRS expects to process 138 million tax returns this year and accompanying those returns will be a melange of tax deduction requests.

Most will be run-of-the-mill including such staples as mortgage interest, vehicle mileage, and child care deductions. Others, however, will be less ordinary.

On its website, TurboTax pays homage to some of the most off-the-wall, offbeat tax deductions through the years permitted by the IRS.

Among the “weirdest deductions allowed“:

• A bodybuilder’s body oil so his muscles would glisten in competition
• A private airplane for owners of investment properties
• Landscaping for a sole proprietor that meets clients at home
• A swimming pool for a man with emphysema

Tax deductions are prized by U.S. taxpayers. Hopefully, your 2008 tax returns included some good ones, too.

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The very first created was www.Prosper.com, which has been shut down by the SEC, allowed individuals to borrow and lend small amounts of money, for any variety of purposes. Posts include families wanting to start a small business and a father seeking to pay off his son’s medical bills. You can see their pictures and read their stories.

The maximum loan amount was $25,000, and lenders could loan as little as $50 towards someone’s total desired loan amount, and determine what rate they are willing to lend at based on the individual’s credit standing and risk profile. Prosper encouraged lenders to fund small amounts towards many individuals’ loans, to help minimize risk of default.

Another similar site is www.Zopa.com, also a social lending site but with a few key differences. If a borrower’s request is approved, Zopa funds it directly, raising funds by offering Certificates of Deposit (CD) to be purchased with attractive rates of return. If you purchase a CD, you are required to choose at least one borrower request to sponsor. By sponsoring a borrower you marginally reduce the interest rate earned on your CD, which in turn is used to reduce the rate that the borrower is paying. Best of all, your money and your rate of return are guaranteed and insured.

Perhaps the most intriguing of the social lending sites, www.Kiva.org is a blend of charitable giving and online lending. This site specializes in very small loans made to individuals in third-world countries. The loan requests and photos are fascinating. Who knew that a cow could be purchased for only $500, or that you could literally purchase tons of coffee and cocoa for $1,000? The downside to Kiva is that the loan is not repaid with interest, and because it is a loan and not a charitable contribution, it is not tax deductible. But the upside – helping those in developing countries create and expand their businesses, provide for their families and improve their countries’ economies as a whole – well, this offers a substantial rate of return, just of a different type.

And consider getting your kids involved. Parents can use sites like these to help instill a sense of giving back, as well as a broader view of the economic world. Start with a small amount of money, and let them decide who to lend it to and why. When the loan is repaid, turn around and lend it again. It’s never too early to get kids involved in the process of understanding money, lending, and the world around them as a whole.

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