The Market is Waking Up In Ventura County For Home Buyers

I spoke with Bob Curtiss the Regional Sales Director for Property I.D. today. This company provides natural hazard property disclosures to home buyers. Without getting too deep, this company researches a home to see if it is in a flood hazard, fire hazard, or earthquake hazard area and discloses this and much more information to buyers and sellers so they can be aware of what environment the home is in. They are the best at what they do in my experience. They are always in demand by realtors for their excellent service to our home buying clients.

Bob gets around, and I enjoy speaking with him because he is the harbinger of news in real estate for a large area in Southern California. He had just returned from a business trip to Lompoc, Santa Maria and the Solvang, Santa Ynez area. The word from Bob is that business in home sales is booming in those areas. That has not always been the case, but especially in Lompoc this is a big change.

Yesterday I was helping some folks who were in the process of finishing up their escrow and were signing their loan documents at one of our local Title and Escrow companies. As you may already know, these folks represent a neutral third party provider of escrow services. They manage the money and paperwork flowing between the home buyer and the home seller. When nobody is buying a home, they aren't working. When the industry is busy, they put in some very long hours.

In this case I was discussing our local market with Margaret Kelly of LandAmerica Lawyers Title. Margaret is a beautiful lady and an awesome talent with a 20 year track record of success in our local market. By the time Margaret becomes involved in a transaction, it means that a realtor has been working with prospective home buyers to determine their needs, locate their dream home and negotiate a purchase agreement with the home sellers. This process can last a few weeks or it can last upwards of a year or more. My point is, by the time Margaret sits down with my clients, the market shift has already matured a month or so.

Margaret says the last 3 or 4 weeks - most of the month of February - have been markedly busier than previous months. She is busy once again. People are making up their minds to get off the fence and make their home choice now. The conditions are wonderful for some awesome home opportunities and buyers have seen it, made their decision and are now a month into the process with Margaret.

I wrote of this market change several weeks ago. Now many service providing professionals like Bob and Margaret are confirming these observations. I can't wait to see what all the newspapers say about our market when next month's reports on this month's sales show the increase. All the rhetoric about our market continuing to wither for another 2 years we hear from "economic experts" will be difficult to reconcile with the facts.

Is our market healed now? I don't think so, but I think it is beginning to heal. I think we must define our market first. Let's say our market is made up of home buyers and home sellers.

The home buyers are now beginning to come out in force. They are taking advantage of current high inventories, low prices and falling interest rates. They are dialing in the new changes to FHA, Fannie Mae and Freddie Mac programs and seeing huge opportunity for themselves and their families.

Home sellers continue to suffer. They are seeing more buyers at open houses, but the buyers are fussy. As prices continue to fall and foreclosures continue to scue neighborhood prices, sellers continue to suffer long listing periods and declining equity. Much of this is driven by the continued foreclosure problem, but some of this is also due to more restrictive lender requirements as well as generally negative news coverage of our market.

I think all of these negative market forces are slowly beginning to correct themselves.

Mortgage programs requirements are more restrictive than a year ago, but there are new, higher lending limits from all the federal lenders. Combining these programs with CAL-HFA programs from the state, gives some well qualified first time home buyers real hope again for finding affordable housing. I think lender programs will continue to improve and become more user friendly in coming months. Don't look for stated income loans to make a strong come back any time soon though!

As home sales continue to increase and lending practices standardize over the coming months, I think we will begin to see a gradual shrinking of our home inventories. Developers are slow to build when prices are soft, so our inventory of homes will tend to build very slowly. As demand continues to build, the relatively fixed number of homes available will slowly drive prices back to stable market values.

I think this process will accelerate once the foreclosure problem eases.

Unfortunately, we don't appear to have a good solution on how best to ease the foreclosure crisis. Foreclosures will have a continued dampening effect on our market until that problem can be effectively addressed or has time to work it's way out. Sort of like trying to fight a large forest fire. Eventually it will burn itself out, but we all would like to minimize it's damage and find a good way to fight it.

News media coverage will begin to shift back closer to reality as sales numbers increase once again. No thanks to them.

The article I have included in this blog comes from the Ventura County Star and illustrates my point. I expect we'll see more of these articles in the coming months as newspapers and other media finally pull their heads out of the sand and look around at the real world again.

Mark Thorngren
http://www.markthorngren.com/




Good news on the real estate, mortgage front
Jim Woodard, ColumnistSunday, November 11, 2007

Despite discouraging news on the financial front, the sluggish home sales market should bottom out by the end of the first quarter of this coming year, it was noted in a recent study and report from the National Association of Home Builders.

The housing market will start to turn around next year for a number of reasons: the overall economy and job growth will continue to move ahead at a decent pace, core inflation is under control, the credit crunch in mortgage markets is showing signs of easing, the supply-demand equation will be better balanced as builders begin to whittle down their excess inventories, and another Federal Reserve interest rate reduction of a quarter-point on Oct. 31 will help keep mortgage rates low.

That's the prediction of David Seiders, chief economist for the NAHB.

"With the housing sector facing a large backlog of unsold inventory, new construction starts and permits won't begin to move forward until sales firm up. Home sales should bottom out by the end of the first quarter of next year, and housing starts will be up in the third quarter, assuming the inventory overhang stabilizes," he said.

The tightening standards for home mortgages will not derail a national recovery in the housing market, according to the NAHB. However, it will complicate the system for a while.
The negative impact of the new standards on housing markets comes in two forms. First, tightening lending standards have reduced the availability of some loans and raised the price to riskier borrowers. Second, it creates the potential for a cycle of defaults and price declines, depending on the local home price environment and strength of the local economy, the NAHB study report noted.

NAHB's short-term forecast is based on several assumptions: skillful management of monetary policy by the Federal Reserve, maintenance of solid growth in personal income and employment, a manageable wave of home mortgage foreclosures and better performance of mortgage markets going forward.

The report observed that the long-term potential for housing activity is very good. "By the end of 2009, we may be at a pace of 1.5 million units of new housing production (including manufactured homes). Once we are out of the woods, we should see good growth in front of us — maybe 2 million units per year," it stated.

While there is much press coverage about today's troubled real estate markets, there are many markets throughout the country that have minimal subprime mortgage exposure and are now experiencing a stable market.

These markets experienced modest and sustainable home price appreciation during the boom years and have relatively strong local economies. The markets are positioned to outperform the national trends with earlier and stronger recoveries than the more troubled markets, according to NAHB's chief economist.

These little-publicized markets are primarily located in the Pacific Northwest, mountain states and in the Southeast. The areas are now recording single-family home construction permits at or above pre-boom levels.

"The contrast between the strongest and weakest markets across the country points out substantial regional variation and suggests that steep nationwide home price declines and mortgage defaults are unlikely," Seiders said.

There's more good news on the mortgage front. More people are managing to keep up with payments on mortgage loans made in recent months, according to data from First American Loan Performance, a research firm.

The trend reflects more conservative lending policies adopted by mortgage companies this year in the wake of a surge in defaults and foreclosures, said Mark Carrington with First American. "Even so, defaults continue to rise in proportion to the overall number of home loans outstanding nationwide, mostly those made between 2003 and 2006 when lending standards were growing more lax," he said.

An increasing number of parents of college-bound offspring are purchasing a condo or small house in the area of the college for their student's residence while attending the college or university. In some cases, it appears to be more cost-effective than paying for a room in a dorm.
The student will often rent out a portion of the purchased unit to another student to minimize the investment. When the student's attendance at the college is completed, the unit will be sold, hopefully at a profit.

There are now about 3 million campus houses and condos that have been purchased by students or their parents, according to a report from the National Association of Realtors. That represents about 8 percent of the nation's 37.4 million investment properties, but excludes 6.8 million vacation homes.

In addition to the possible financial advantage, owning such a residence gives the student more freedom, and a choice of roommates. For parents, it offers a chance to recoup some of the rising costs of higher education, assuming it turns out to be a good investment.

Many parents are spooked by the unknowns in such an arrangement. Can the extra space be rented at the projected rental amount? Will the student handle his extra freedom responsibly? Will the property later sell at a profit? These and other concerns tend to keep the dorms fully occupied.

(Jim Woodard, a Ventura resident, writes a nationally syndicated column and freelance features in addition to his Star columns. He also is a storyteller with a Web site at: www.jimwoodard.net. E-mail: Storyjim@aol.com.)

FHA Changes To Shake-Up Home Mortgage Industry

This article was sent to me today by one of our local government loan program experts - Wendy Mueller - an awesome Mortgage Broker with Platinum Home Mortgage (Formerly Pinnacle Financial). She is probably the most knowledgeable person I've met concerning government home loan programs. The fact that she is still busy helping people while 1/3 of her competitors have gone out of business this last year says something about her abilities also. By the way, Wendy is one of my company's competitors - I still listen to her.

Mark Thorngren
http://www.markthorngren.com


Hello, please read below, with all the great changes that are coming we need to be prepared as this is not only going to help buyers become home owners it will also ease up some of the jumbo market. Don’t forget that FHA can be combined with CALHFA for an extra down payment assistance benefit.

I. Stimulus Bill: FHA and GSE Mortgage Limit Increases

We are increasingly confident that the Senate will pass the stimulus package this week. The timing of the President’s signing of the bill will depend on whether the Senate passes any amendments to the stimulus bill. There are no amendments expected on the mortgage limits. If the Senate passes amendments to the tax incentive portion of the bill, it will require the House and Senate to have a conference before the final bill can then be passed by Houses of Congress and be sent to the President for signature.

A. Timing of the legislation

We expect the stimulus bill to be passed by the Presidents’ Day recess on February 15th. It could happen sooner if the Senate passes the stimulus bill without any amendments this week. We would expect the President to sign the bill almost immediately after passage (within a couple of days after passage by the Congress if not sooner).

B. Content of the legislation

The mortgage limit provisions should remain intact. An amendment might be proposed to lower the FHA maximum amount but we would be very surprised if it passed. See our email from last week for additional details about the provisions.

As we have discussed, the legislation proposes four temporary changes for FHA:

· Raises the base loan limit (“floor”) to 65% of the current GSE limit ($417,000) = $271,050

· Raises the maximum FHA loan limit from $362,750 to $729,750 (175% of the GSE base limit - $417,000

· Increases the calculation factor from 95% to 125% of area median sales price for determining “high cost” areas

Attached is a chart demonstrating the impact of this change in a portion of the metro areas around the country. As a reminder for any area w/ a current FHA limit above $206,000, the area will benefit from this change.

Calculation Process

Take the current mortgage limit and 1) divide the limit by .95 to determine the median sales price and then multiply the median sales price by 1.25 to determine the new FHA limit.

· Implements Fannie Mae/Freddie Mac ratios for calculating maximum loan amounts for two-, three- and four-family units in all of the above categories

Fannie Mae and Freddie Mac two-,three- and four family unit properties increase the same percentage that the single family limit increases. In 2006. the GSE single family limit increased 15.95% and the mortgage limits for multiple units increased 15.95%.

This change should result in a significant increase in FHA limits for multi-unit properties. In the past, FHA used fixed percentages of the single family limit (i.e. 107% of single family for two family unit, 130% for three-family unit and 150% for four-family units). For example, under the new provision, if the single family limit increases slightly over 100% in a “high cost area” (from $362,790 to $729,750), we would assume the multiple unit amounts would increase the same percentage (slightly over 100%).

C. Implementation schedule

The bill requires HUD to publish the new mortgage limits and data on area median sales prices in 30 days from enactment. However, since Mortgagee Letter 2008-2 was published on January 18, 2008, FHA should be ready to publish limits the day the President signs the bill. Regardless, the new “floor” and areas w/ mortgage limits below the current FHA maximum limit ($362,750) can be determined from available data as we did in the attached document.

We believe it is appropriate to start preparing for the mortgage limit increases as we have outlined above (i.e. training, materials, etc.)

Fannie Mae & Freddie Mac

The bill states that the GSE limits should follow the HUD process. Accordingly, the major difference is Fannie Mae and Freddie Mac will have a higher “floor” ($417,000). While the statute appears clear and unambiguous that the GSEs should use HUD data for this process, it is important to remember that the GSEs have a regulator (OFHEO) that could play a role in the implementation process that could delay usage. However, because of the significance of the issue, we expect implementation will occur expeditiously barring some unforeseen issue.

II. FHA Modernization Bill

We now expect the FHA bill will be enacted in February and possibly by February 15th. We understand that negotiations are underway on the contested items. We are uncertain as to how the issues will be resolved. It is expected that the Senate requirement for minimum cash investment of 1.5% will be adopted.
Thank You

You’re First Time Home Buyer Expert

Wendy Mueller
Platinum Home Mortgage
(Formerly Pinnacle Financial)
(805) 907-3136 Cell



Platinum Home Mortgage Corporation and its affiliates do not represent, warrant or guarantee that the integrity of this communication has been maintained or that the communication is free of errors, viruses or interference. Platinum Home Mortgage Corporation. C 2007 All rights reserved. Equal Housing Lender.Platinum Home Mortgage Corporation 2200 Hicks Rd, Suite 101 Rolling Meadows IL 60008

NAR Chief Economist Laurence Yun Discusses 2008

This was forwarded to me from Deanna Leslie at Old Republic Title (805) 508-6695. Nice to hear positive news for a change. Enjoy!

Mark Thorngren
Movewest Realty, Inc.
www.markthorngren.com



Positive news for Realtors in '08
NAR economist underlines real estate's silver lining
www.inman.com

In all the years I've been writing this column, I have never received such an outpouring of response as I did from the two November articles on how media coverage of negative housing news is hurting our industry.
In spite of gloom and doom of recent news reports on the state of the nation's housing, there is plenty of good news, the most recent of which comes from the National Association of Realtors.
Laurence Yun, the chief economist for NAR, had plenty of positive news for Realtors at last month's conference. Yun attributed much of today's subprime mortgage problem to greed. Wall Street wanted the 10-12 percent return that subprime mortgages yielded as opposed to the smaller returns from more traditional mortgage products. His take on the Wall Street types: "They gambled. They lost."
Yun's outlook for 2008 sees a shift from greedy speculators to serious homeowners. 2008 will be a year of opportunity where there will be serious, healthy business. Furthermore, Yun predicted that the market returns to normal by 2009.
According to Yun, one of the biggest mistakes that reporters make is talking about national trends. Nationally, 2007 was the fifth best year ever on record. Home prices declined about 1.5 percent after a 50 percent run up in prices.
The challenge is that national numbers are pretty much irrelevant. Yun argues that talking about national averages is about as effective as having a national weather forecast. Like the weather, all real estate markets are local. In fact, you may have a buyer's market and a seller's market operating within a single market area based exclusively upon price point. Here are the other key pieces of positive news from Yun's economic report:
1. New housing starts: Even though these are dropping, there was too much building in recent years. The market is simply adjusting to normal supply-and-demand pressures. The inventory is "being controlled which makes stabilization occur more quickly."
2. Foreclosures: According to Yun, the 41 percent increase in foreclosures has resulted primarily from investor-heavy real estate purchases in Arizona, California, Florida and Nevada. The majority of these individuals are flippers whose investments did not payoff. More importantly, the number of foreclosures in Utah, New Mexico, North Carolina and South Carolina is actually declining.
3. Under-priced markets and superstar cities: Although the coastal markets are still overpriced, Middle America is under priced. Nevertheless, Yun cites a new trend termed, "superstar" cities. These cities will command premium prices, regardless of what the market does. There is so much wealth concentrated in these areas, that measurements are simply not predictive. In addition to London, Paris, Tokyo and New York, Yun also identified San Francisco, Miami and Seattle as potential new superstar cities.
4. The recovery has started: Other than the three states hit heavily by job losses in the automotive industry (Indiana, Michigan and Ohio), the states that first experienced a downturn in the Northeast, are now in recovery. Specifically, Connecticut, Massachusetts, New York and Rhode Island were the first to feel the slump and are now well into a recovery. Furthermore, there appears to be a pent-up demand for first-time buyer properties due to a large number of Gen Ys (born 1977 to 1994) that are now buying their first homes. Falling interest rates will motivate many of these buyers to step into the market now.
5. New jobs and corporate profits are still strong: Corporate profits are still strong with companies as diverse as Microsoft and Jack Daniels reporting close to record profits. Furthermore, the economy has generated 4 million net new jobs and wages are rising.
6. A weak dollar may harbinger more foreign investment in U.S. real estateAlthough the decline of the U.S. dollar will end up costing us more when we go

overseas or purchase imports, it has resulted in more manufacturing jobs returning to the U.S. It also may mean more foreign investment in U.S. properties as well. Just a few years ago, the Canadian dollar was only worth 70 cents in U.S. currency. Today, the Canadian dollar has been hovering at about $1.05 to $1.10 U.S. What this means is that we can expect more Canadians and Europeans to be purchasing U.S. property, because our prices are approximately 50 percent cheaper than they were just three years ago.
7. Real estate: Still the best shelter: For those agents who represent reluctant first-time buyers, Yun points to some interesting research from the Federal Reserve. Between 1995 and 2004, the average renter accumulated $4,000 in wealth. In contrast, the average homeowner accumulated $184,400. Furthermore, the typical homeowner holds their property for six years. Within this period of time, NAR's research shows that approximately 97 percent of the homeowners will have a positive equity position after that period of time.
Bottom line: 2008 represents the best window that buyers will have to find excellent deals with excellent financing. Get the word out there. If they wait, prices and interest rates will be higher and the reluctant buyer may be forced out of the market.

New Clues to Market Change in Ventura County

The market in Ventura County is showing signs of waking up again. In the last 3 weeks I have had numerous clients begin to search for homes. This is a very different feel from a month or two ago. I'm not sure I can put my finger on any one thing, but I think some of the change is coming from more strong buyers, and also from a developing change in the way banks are doing business. Buyers are adjusting to the changing mortgage market and see the foreclosures and short sales as a wonderful opportunity for themselves. Prices and interest rates are still falling. Banks are carrying an ever expanding inventory of homes they need to get rid of.

Little help is coming from the new government programs aimed at helping out unfortunate home owners who are behind in their payments. These programs are helping only a very small group of people. The Bush Plan is expected to bail out many less borrowers than the 240,000 subprime loans claimed - very ineffective. Meanwhile, in Stockton California - roughly one out of three homes is in foreclosure. However, this is an extreme example. In most towns, REOs are still a small percentage of the total real estate market.

Are any Federal Programs working? Maybe the new mortgage limits for FHA insured loans will help a bit at 417K, but there are not going to be a great many folks affected in this market. We need something more like a 650K loan limit to really jump start this county's market again. Still, the market offers many underpriced homes for people who are ready to buy right now.

A few days ago in Ventura County, there were 4970 active listings, only 351 of which were REOs. (Bank owned sales). Of 468 properties in a pending status, only 72 were REOs. That means less than 10% of our market is being offered by the banks. Are there a lot of REO's? Yes! Are they driving the market? It depends.

In neighborhoods with many foreclosed homes and short sales, the normal market has been gutted. Some of the newer Oxnard neighborhoods have seen 25% to 30% reductions in home prices over the last year. Some homes listed close to 800K a year ago are now below 600K. However, in neighborhoods where there are few foreclosures, the market prices are much less affected and tend to indicate about a 10% reduction over last years prices. Both of these conditions can exist in locations within miles of each other. That is one of the wonders of this market. Most neighborhoods fall somewhere in between.

I spoke yesterday with another Realtor in Thousand Oaks who had offered a 1462 sq ft home several months ago at 650K. It is a short sale (they owe more than the asking price). Within two months they dropped the home to 450K. The realtor told me they had to repost the price at 617K to slow down all the many offers that they received and had to forward to the foreclosing banks Asset Manager!

What I am intrigued by - is how the mortgage bankers are coping with the deluge of short sales and foreclosures. Even though the percentage of foreclosures is small, the bank asset managers are literally drowning in foreclosed properties. Nationwide, it is predicted there will be 2 million subprime foreclosures by 2009. In September of 2007 there were 72,571 California NOD's (notice of Default) filed. Ventura County NOD's are up 138% in 2007 with 1,377 filed as of October.

What does all this really mean?

I think we are beginning to see banks more willing to consider low offers for homes they own or are about to own. They must move these homes more expeditiously or face even more extended business losses. The trick for realtors will be to identify those banks which are most buyer friendly. Those banks which can adjust to the new times and are willing to do what it takes, will accept lower offers from the lucky home buyers that are fully capable of meeting the new lending requirements.

I have clients now in a transaction for a townhome which is in a neighborhood market of around 550K. The listed price for one of these homes is now less than 400K on a short sale. The bank is considering our offer, even though that is a huge drop from the mortgage owed on that home. Six months ago no bank would have looked at such an offer.

The willingness of some banks to consider offers for less than the mortgage owed (on REO and Short Sale properties) is the biggest change I see in our market today.

I believe that there is a developing realization among banks, of the hole they have dug for themselves. Their outmoded REO policies are preventing them from quickly selling these homes and it is hurting the banks financially. We may be seeing the beginnings of a new banking paradign and willingness to accept a bit of a loss up front, rather than a protracted draining of bank coffers as these homes sit and sit and sit on the market. Bank auctions are also becoming more frequent as another indication of willingness to settle at a loss.

It will be fascinating to see how this new trend develops over the next few months as we enter the traditional home buying season.

Mark Thorngren
Movewest Realty, Inc.
http://www.markthorngren.com/

The Senate and the House Debate FHA Reform

The article below is from the National Association of Realtors eNewsletter. The initial commentary is mine. Now the House and Senate are finally coming up with some substantive ideas. Raising the FHA loan limits is an action that could have a huge impact on the industry, allowing more first time home buyers into the market. It would also allow for more single loan home mortgages and the recalibration of what a jumbo loan is for the entire industry. Senate wants to raise the limit to $417,000 while the House could go as high as $729,950. I'm pulling for the House version!
Mark Thorngren

Happy Holidays from the Housing Opportunity Program!

Senate passes FHA Reform
After some touch and go moments, last week the full Senate passed FHA reform legislation. The bill was delayed for nearly a month in the Senate as a couple of Senators issued a legislative holds on the bill. Late last week Senators Coburn (R-OK) and DeMint (R-SC) lifted their holds which paved the way for the measure to pass the Senate by a vote of 93-1. Much credit is due to the grassroots effort of REALTORS® in Oklahoma and South Carolina as well as the effort of many REALTOR® volunteer leaders who flew to Washington in early December to specifically lobby for this bill. The bill, S. 2338, differs from the house version, H.R. 1852, in a couple of key areas and the conference committee meetings that will be held to resolve these differences are expected to be contentious. One of the key differences expected to illicit the most debate is the discrepancy in FHA loan limits. The Senate bill increases these limits to $417,000 while the House bill increases these limits to as much as $729,750 in high cost areas. The House bill also gives the Secretary of HUD the discretion to raise this limit by as much as $100,000 in specific markets for a limited time period. NAR has urged Congress to conference the bill as soon as possible, as a reformed FHA program will help homebuyers better afford a home and it will also help homeowners refinance into a safe mortgage product. Read the NAR press release.
For more of Mark Thorngren's Real Estate Blogs visit www.markthorngren.com.

Fed Weighs in on Mortgage Reform

This report was emailed to me today from Lorie Schweitzer at Flagstar Bank - LorieSchweitzer@FlagstarBank.com

I think most of us would consider these "reforms" to be pretty much common sense considerations that might have kept most lenders and home buyers out of trouble. The point I find especially interesting, is that the Fed may be trying to mandate tax impounds now. Previously, home sellers could choose between having a monthly tax impound included in their mortgage or elect to have their taxes paid in two installments on 1 Nov and 1 Feb each year. The statement says that creditors would have to establish "escrow accounts for taxes and insurance", we'll see what that means as this legislation works it's way through. What follows is the actual article from Business Week.
Mark Thorngren

Today the Federal Reserve Board, under the authority of the Truth in Lending Act, unanimously voted to propose important changes to the mortgage industry. According to Business Week, the following proposed changes would affect subprime loans or those loans the Fed defines as "higher-priced mortgage loans" (loans with rates at least 3 percentage points above a comparable Treasury security for first mortgages and 5 percentage points for second loans, or home-equity loans):
Creditors would be prohibited from engaging in a pattern or practice of extending credit without considering borrowers' ability to repay the loan.
Creditors would be required to verify the income and assets they rely upon in making a loan.
Prepayment penalties would only be permitted if certain conditions are met, including the condition that no penalty will apply for at least sixty days before any possible payment increase.
Creditors would have to establish escrow accounts for taxes and insurance.The Fed also proposed another set of rules for all mortgages, including what the Los Angeles Times called "stricter disclosures on 'yield spread premiums.'" These rules include:
Curb or better disclose broker incentives..
Prohibit coercion of appraisers.
Prohibit loan servicers from engaging in unfair practices.
Require better disclosure overall.The proposal has been submitted for a 90-day period of public comment. After this timeframe, revisions could be made and the proposal must be voted on again. According to the Christian Science Monitor, "the Fed has indicated it would start to implement [the new policies] next year."Proposal highlights from Business WeekStatement by Chairman Ben S. BernankeHow Fed proposal affects legislation

For more Real Estate Information visit Mark Thorngren's blogs at www.markthorngren.com

Treasury Secretary Henry Paulson Presents Mortgage Bailout Plan

What the Mortgage Bailout Means for You
Thursday, December 6, 2007 - Provided by BusinessWeek Online

On Dec. 6, Treasury Secretary Henry Paulson, with the support of President George W. Bush, unveiled a plan to aid certain homeowners who face the prospect of higher mortgage rates in the next few years. Paulson worked with banks and other mortgage companies to develop the initiative, and thanked them for their involvement. "We have worked through an evolving process to help minimize the impact of the housing downturn on homeowners, neighborhoods and the U.S. economy," he said. While the plan is ambitious and is designed to bring stability to the shaken economy, it will affect only a narrow slice of homeowners in the U.S. "This is not a silver bullet," said Paulson. Here are some answers to questions you may have.
Can you get your mortgage payments lowered because of the bailout?
It depends. If you've got an adjustable-rate mortgage, you may qualify under certain conditions. If you've got a standard mortgage with a fixed interest rate, you're not affected.
Which adjustable-rate mortgage holders are affected?
Only a small group. To qualify, you need to have received your loan sometime between Jan. 1, 2005 and July 31, 2007, and you need to be facing a reset of your interest rate sometime between Jan. 1, 2008 and July 31, 2010. If you're within this range, you may be eligible to have your interest rate frozen, so you can keep your current, lower rate for five years.
Who qualifies within that range?
The bailout is really designed for homeowners who could run into trouble if their mortgage payments are raised sharply and face the prospect of losing their homes. If you're well enough off that you can afford the higher mortgage payments after a reset, you won't qualify. And if you're in bad enough shape that you can't handle the current low interest rate, you won't qualify. For example, if you've already fallen behind on your mortgage payments, you're not eligible for the rate freeze.
Do you need to live in your home to qualify?
Yes. The plan excludes people who don't live in the homes for which they have mortgages so that speculators can't benefit.
Why is there going to be a bailout?
Bush, Paulson, and the Administration are concerned about the fallout from the housing slump. If many people fall behind on their mortgages and have to give up their houses, there will be a series of negative repercussions. First, tens of thousands of Americans could be forced to leave their homes. They would lose whatever equity they had. Consumer spending more broadly would likely slow, hurting the economy overall. In addition, home prices could fall even more quickly than they are now. That could hurt consumer confidence well beyond those people directly affected.
Is the bailout going to be enough?
It depends on your definition of enough. The deal will add some stability to the housing market, but it won't stop all the problems in the troubled sector. The same day Bush unveiled his plan, the Mortgage Bankers Assn. said that foreclosures had reached a record high in the third quarter. The share of mortgages that have entered foreclosure hit 0.78% in the quarter, up from the previous high of 0.65% set in the previous quarter. At the same time, delinquencies for all mortgages rose to 5.59%, from 5.12%, in the second quarter. None of the people who are delinquent or facing foreclosure will be helped by the plan.
The deal almost certainly won't stop the decline in housing prices. Investors are betting that there will be double-digit declines in home prices in nine of 10 major markets over the next year. The only exception is Chicago, and there the estimate is for a 5.6% drop in home prices.
So why not go further?
Some Democrats are criticizing the Bush Administration on that exact point. Senator Hillary Clinton (D.-N.Y.), among others, is arguing for a more ambitious approach, including at least a seven-year freeze on interest rates.
Who stands in the way of such an effort?
Investors in mortgages and mortgage-backed securities. If homeowners are going to pay less on their mortgages than originally planned, then somebody is going to lose money. These aren't just fat cats on Wall Street—although many such firms have invested in these securities—they're also pension funds for teachers, firemen, and police, as well as mutual funds whose clients include all sorts of individual investors. They probably even include homeowners who are facing the prospect of higher payments on their adjustable-rate mortgages.