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Art Best of Best Realty
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Tucker, Ga 30084
Direct (404)597.4098
Office (678)225.5977
Fax (678)225.5977
http://www.bestrealtyatl.com
2007 has been a roller coaster ride for the Real Estate industry but there is still hope for home ownership in 2008. It is very important for homebuyers to educate themselves on the market and take advantage of what experts are calling..... a buyers market.
Understanding that regardless of the mortgage meltdown...at the end of the day, homeownership will still be one of the smartest investments you will ever make.
Some of the reasons why is because interest in homeownership among Americans has always been justified by claims that it confers benefits both to individuals and to the society as a whole, including good citizens, stable neighborhoods and strong communities.
Strong and consistent evidence indicates that homeowners are more likely to: a) be satisfied with their homes and neighborhoods; b) participate in voluntary and political activities; and c) stay in their homes longer, contributing to neighborhood stability.
Homeownership is often thought to be an essential ingredient of the "American Dream." Living in a single-family, owner-occupied dwelling unit is central to the American conception of a secure and successful life. Study after study has found that a large proportion of Americans would rather own than rent a home.
In a recent national survey, for example, 86 percent of all respondents felt that people are better off owning than renting a home, and 74 percent believe that people should purchase a home as soon as they can afford it, regardless of their marital status or whether they had children in the household. Of the renters surveyed, 67 percent said they rent because they are unable to afford to own, while 26 percent said it was a matter of choice.
Moreover, a full 68 percent of renters said that buying a home is a very important priority in their lives.
In my experience I've seen how homeownership is key to strengthening families and good citizenship.
Homeownership also enables people to have greater control and exercise more responsibility over their living environment.
Homeownership helps stabilize neighborhoods and strengthen communities. It creates important local and individual incentives for maintaining and improving private property and public spaces.
Start the process today to securing your future for 2008 & beyond!
Just a few short years ago, many people were amazed by the prospect of a 40 year mortgage. While 30 year mortgages have dominated the market for decades, the idea of being able to spread out your mortgage payments over forty years was just too much to comprehend. Now, there is the new 50 year mortgage and if the 40 year mortgage took the finance world by storm the 50 year mortgage is leaving many people speechless.
Now, I'll be the devils advocate and ask, is a fifty year mortgage really a good idea? Well, there are certain advantages to a 50 year mortgage. The most obvious advantage is that it allows a homeowner to spread out the cost of a home purchase and lower monthly mortgage payments. In housing markets where prices have skyrocketed this can be a major pro because it may make it available for individuals to purchase homes who might not have been able to do so otherwise. Of course, there are also major disadvantages to consider as well.
When considering a 50 year mortgage it is extremely important to consider your age at the time of the purchase. For example, lets say you're 30 at the time you purchase the home. With a 50 year mortgage, your home would not be paid off until youre 80. If you think you'll still be able to meet those monthly mortgage payments long after the age by which most people have retired, this might not be a bad option. On the other hand, if you are looking to be debt free by the time you retire, its best to consider another option.
It is also important to remember that the longer you draw out the payments on your home purchase, the more you're paying in interest. This is why many skeptics of the 50 year mortgage are referring to them as interest-only loans. When you stop and actually look at the numbers, you'll see that with this type of mortgage you're paying a lot more in interest for your home than you would with any other type of home loan, even a 40 year mortgage. That's money you might be able to put toward something else, especially if youre looking ahead toward retirement.
On a $350,000 home purchase at the going interest rate the monthly payments would be in the neighborhood of $2,100 per month with a 30 year mortgage. With a 50 year mortgage at the same interest rate you could drive down the price of the monthly mortgage payment by about $300 per month. Since you'll be paying for the home 20 years longer with the 50 year mortgage than you would with the 30 year mortgage. You will actually end up paying more than $350,000 for the home over the course of the 50 year mortgage than with the 30 year mortgage. If you went with the 30 year mortgage and the monthly payment that is $300 a month more, youll spend $72,000 over the course of the next 30 years but then your home will be paid for in full. With the 50 year mortgage youll still be responsible for that $1,900 a month house payment for the next 20 years.
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Why should I buy, instead of rent?
Can I become a homebuyer even if I have I've had bad credit, and don't have much for a down-payment?
Are there special homeownership grants or programs for single parents?
Should I use a real estate broker? How do I find one?
YES!
Some say the large-scale government intervention to remedy the bad investment decisions made by individuals is a bad idea, but the prospect of a million-mortgage meltdown with far-reaching effects on the U.S. and world economies makes others feel these actions are justifiable.
The deal worked out between the Bush administration and leading mortgage lenders appears to be appropriately limited in scope and duration.
Banking regulators, the mortgage industry and consumer advocates agreed that something had to be done. Foreclosures already are at a record high, and as many as 2 million subprime mortgages are scheduled to reset from the low introductory interest rates at which they were marketed to higher rates that would put house payments beyond the reach of many foolish or duped borrowers.
The plan doesn’t put taxpayers on the hook with a bailout that the nation can’t afford. By limiting the freeze to those mortgages that are not delinquent, it avoids rewarding borrowers and lenders who struck deals that were unsustainable from the start.
The holidays may not seem like a good time to buy a home, but year end is actually a buyer's market in many areas. This blog offers home buying tips especially for buyers shopping at the holidays - to help you find the perfect house, keep your sanity, and still celebrate in style!
Realize that Winter Can Be a Great Time to BuyDuring winter, you're apt to find fewer homes on the market, but there are also fewer buyers, meaning there are probably more homes listed than there are qualified buyers. Sellers tend to be more motivated, so your offer will be seriously considered and you're less likely to encounter a bidding war for the house you want.Take Advantage of Holiday Home Buying PerksReal estate agents, lenders, home inspectors, appraisers, and title companies are generally less busy this time of year so they are able to spend more time with their clients. That gives you more time for a second look or to have the home thoroughly checked over without rushing through the process. You may even find holiday specials on financing, new appliances, and furnishings.Use Vacation Time to House HuntWhile the holiday season can be a hectic time to get out and shop for houses, it can also be an ideal time. You may be able to use a few days of your vacation time to house hunt, which can be particularly helpful if you're considering a long-distance move. Settle in for the Holidays - in Style!If you're going to be moving into your new home before the holidays, this is your chance to go all out! Leave your everyday accessories packed away and dress up your house with your holiday favorites. This is also a great time to invite family and friends over for a house warming.
A lack of adequate cash for a down payment and/or closing costs doesn't mean that you absolutely can't buy a home of your own. Even if you don't qualify for a no-down-payment guaranteed loan, you might qualify for a grant program that provides money for a down payment. This blog provides information about nine current grant programs.
The Nehemiah Program-Provides a gift of 1% to 6% of the contract sales price to be used toward a down payment and closing costs.
Family Home Providers-Gives a gift of 3% or more of the contract sales price to be used toward a down payment and closing costs.
The Hart Program-Homebuyers can receive up to $15,000.00. The amount of the gift is based on need and is not a set percentage of the sales price. Homebuyers do not need to be first-time homebuyers to qualify for HART gift funds.
The New Life Family Housing Group, Inc.-Helps the buyer receive up to 9% of the sales price in the form of a Home Grant through the Homeownership Foundation of America to apply toward closing costs and down payment requirements.
The AmeriDream Charity, Inc.-Eligible buyers can receive up to five percent of the purchase price of a home. This gift, which does not have to be repaid, can be used for a down payment or closing costs.
Homestead Trust- The Harford Food Bank, administered through the Homestead Trust, will allow gifts up to 10% of the contract sales price of the home for a down payment and closing costs.
National Home Down Payment Gift Program- Buyers can buy a home without having a lot of their own money as down payment, buy any home anywhere, use any real estate agent they want to help them find a home, use any mortgage lender that has an eligible loan program (which is just about all lenders), and use a portion of the money to help pay for some, if not all, of the closing costs.
Neighborhood Gold- Works with The Buyers Fund, Inc., a non-profit organization, to provide grants for prospective homeowners. This money can be used for a down payment or closing costs according to FHA guidelines. Because the money is a gift, it does not have to be repaid.
The OWN Program - Provides a gift, which will be wired directly to the closing office/closing attorney in the homebuyer's name, to be used for a down payment and/or closing costs. The gift can vary from 2% to 5% of the contract sales price, depending on circumstances.
The Nehemiah Program
The Nehemiah Program, established by the Nehemiah Corporation of California, gives qualified buyers a gift, equal to between one and six percent of the cost of the home, to be used for the down payment and closing costs.
The gift does not have to be repaid, and both first-time and repeat buyers can be eligible. The gift can be used for both new and older homes. There are no income or asset limits and no geographical restrictions. The seller's contribution is equal to the buyer's gift amount plus a small processing fee.
This program was established by Don Harris, who started the program at a time when government funds for housing and affordable housing programs were decreasing nationwide. The program is now the largest privately-funded downpayment assistance program in the US. It has assisted more than 120,000 homebuyers.
The Nehemiah Program Web site, http://www.nehemiahprogram.org/, gives information about the program and even provides a mortgage calculator and an online "Homeownership Education Course". You can also get information by contacting the program offices at the following telephone numbers:
For more information, contact:
1-877-NEHEMIAH (1-877-634-3642)
Fax 1-916-923-2457
dap@nehemiahprogram.org
Family Home Providers, Inc.
Family Home Providers, Inc., gives gifts of 3% or more of the contract sales price of a home to the buyer as a down payment and wires the funds to the closing agent 24 hours before the closing. The buyer or the lender may then fund the homeowner's insurance policy and set up the escrow account. The seller or lender may fund the closing costs. This means that a family can move into a new home, resale home, condo, or town home, usually for less than $1000.00. There are no reserve requirements other than the regular FHA guidelines. The seller/builder must pay Family Home Providers a processing fee.
Family Home Providers, Inc. (FHP) was founded in 1994 and has helped thousands of deserving families buy a home of their own.
Family Home Providers, Inc., is a non-profit, 50(c)3 affordable-housing company. It is allowed, under the guidelines of the Federal Housing Administration (FHA), to gift the down payment funds to anyone qualifying for an FHA loan. The gift does not have to be repaid.
The Family Home Providers Web site, http://www.familyhomeproviders.org/, provides information about the program and provides mortgage calculator, homebuying tips, a list of common terms, and a list of approved lenders.
You can also get information by contacting the organization at the following address and telephone numbers:
Address:
Family Home Providers, Inc
6030 Bethelview Road
Suite #202
Cumming, Georgia 30040
Phone: 770.887.4578
FAX: 770.887.7503
Toll Free: 800.704.3664
E-Mail: info@familyhomeproviders.org
The Hart (Housing Action Resource Trust) Program
Housing Action Resource Trust (HART) is a 501(3) non-profit housingdevelopment organization that provides affordable housing and homeownership opportunities throughout the United States. HART is actively rehabilitating homes in revitalization areas and is developing affordable housing in many communities across the country.
Established in 1995, HART supports and creates programs such as an Equity Savings Plan, Delinquency and Foreclosure Prevention, Homeownership Education, and Pre-purchase Counseling to help consumers re-establish credit.
The HART Down Payment Assistance Program has been recognized as a successful down payment program. The HART Program provides assistance to individuals and families who lack the necessary funds for down payment and other related costs. It has helped thousands of renters across the country realize their dream of becoming a homeowners.
Homebuyers do not need to be first-time homebuyers to qualify for HART gift funds and can receive up to $15,000.00. The amount of the gift is based on the homebuyers need and is not a set percentage of the sales price. The HART gift funds can be used for a down payment, closing costs, pre-paids, and rate buydowns. There is no requirement to repay the HART gift.
The fee to use the HART program is a flat dollar amount and is not based on a percentage of the sales price like other down payment assistance programs. As of April 1, 2002, the fees were $500.00 for new homes and $650.00 for resale homes.
The loan officer submits the application to HART. After receiving the borrower's application, the HART processing department reviews and responds within 12 hours. The buyer must qualify for a primary mortgage loan that allows gift funds from a non-profit. HART gift funds are available to all prospective homebuyers seeking to purchase a home, not just first-time homebuyers. There are no income limits and no asset restrictions. HART gifts are available with any loan program- such as FHA, VA, conventional, and BCD loans- that accepts non-profit gift funds. The program is available to homebuyers nationwide.
For general information about HART contact:
Housing Action Resource Trust (HART)
8711 Monroe Court, Suite A
Rancho Cucamonga, CA 91730
Phone: (888) 820-HART or (909) 945-1574
Fax: (909) 941-4012
If you would like more information regarding the HART program, please contact the Homeownership Education Department or e-mail HART at mself@hartprogram.com.
New Life Family Housing Group
The New Life Family Housing Group, Inc., helps homebuyers receive up to 9% in the form of a Home Grant through the Homeownership Foundation of America toward a down payment and closing costs. Eligible buyers must purchase a certified home with a qualified loan program. The funds are a gift and doesn't have to be repaid.
In order for buyers to receive a home grant from the Homeownership Foundation of America, they must be eligible for a qualified loan program. A qualified loan program is a single-family mortgage loan that allows a charitable organization to provide gift funds for a buyer's closing costs and down payment requirements.
A certified home is one in which a seller has entered into a CERTIFIED HOME REGISTRATION AGREEMENT. In this contract, the seller has agreed to provide a Home Warranty Policy and two-year roof certification.
Additional warranties may occasionally be necessary.
That is determined on a case-bycase basis.
In order to receive the New Life Family Certification, a processing fee of $850 (for houses under $100,000) or $975 (for houses over $100,000) is charged to the seller. The seller also agrees to make a contribution to the Homeownership Foundation of America in an amount equivalent to the amount of gift funds that have been given to the buyer.
To be eligible, the homebuyer must purchase a certified home, be approved for an eligible loan program, complete an approved Home Ownership Counseling Course.
New Life Housing Group
2111-F Laurel Bush Rd.
Bel Air, MD 21015
Telephone: (888) 860-3679
ax: (410) 515-6940
E-Mail: info@newlifefamily.com
The AmeriDream Charity, Inc.
The AmeriDream Downpayment Gift Program is available to qualifying low- and moderate-income homebuyers who want to purchase either a single-family home of up to $300,700 or a multi-unit property of up to $578,150. The program provides funds- which do not have to be repaid- to be used toward a down payment and closing costs. The program is not restricted to first-time buyers. Also, homebuyers can purchase a home with 0% down and no cash out-ofpocket for closing costs; in other words, they do not need to make a cash contribution toward the home purchase. The homebuyer agrees to return any gift funds not used toward the down payment or allowable closing costs. If for some reason the purchase doesn't go through, the homebuyer must return the entire gift.
To apply for AmeriDream funds, the homebuyer must contact a lender and qualify for a loan that allows gift funds, and the homebuyer must purchase a home from a builder or seller who has enrolled his or her home in the program. The lender submits the application for the buyer to AmeriDream at least 24 hours before settlement/closing. AmeriDream then wires the funds to the settlement/closing agent on the day of settlement/closing.
There are three AmeriDream programs available: AmeriDream's Gold, Silver, and Bronze Programs. The Gold Program gives homebuyers five percent of the home's purchase price, the Silver Program gives three percent, and the Bronze Program provides two percent.
18310 Montgomery Village Ave.
Suite 300
Gaithersburg, MD 20879
Toll Free Phone Number: 866-263-7437 (1-866-AMERIDREAM)
Local Phone Number: 301-977-9133
Fax Number: 301-977-9713
E-mail: info@ameridream.org
Homestead Trust
The Harford Food Bank Down Payment Assistance Program, which is administered by the Homestead Trust, is designed to help low- and moderateincome home buyers who need money for down payment or closing costs to purchase a home. Homestead Trust has offices in Maryland, Texas and North Carolina and can efficiently process the gift request and wire transfer the "gift" to the settlement officer within 24 hours of receipt of the initial application.
Cash gifts are available to FHA homebuyers in need, regardless of prior ownership, and are targeted to low- and moderate-income families. Down payment assistance is also available to home buyers applying for a conventional loan if the loan program allows gifts from charities and also meets the Fannie Mae and Freddie Mac agency requirements.
The qualified homebuyer must purchase a home that has been enrolled by the seller in the Harford Food Bank "down payment assistance program". Generally the real estate agency or mortgage lender enrolls the seller into the program by having the seller complete a "seller enrollment form". The buyer must sign a "gift letter" from Harford Food Bank agreeing to accept the gift monies. The mortgage lender must complete a "buyer gift application" which details the information about the participants and property involved in the transaction. Once these three documents are completed, this "packet" of information is forwarded to Homestead Trust, the administrative arm of Harford Food Bank, for processing.
Homestead Trust then reviews and verifies that the information is in order before sending a wire transfer of the down payment "gift" monies to the settlement officer.
Harford Food Bank will allow gifts up to 10% of the contract sales price of the home for down payment and closing costs. Cash gifts are available to FHA home buyers in need, regardless of prior home ownership, and are targeted to low- and moderate-income families. The gift may be used for down payment, closing costs, and/or pre-paids. Applications may be submitted up to 24 hours prior to settlement and approval takes less than 2 hours. Harford Food Bank requires that the seller replenish the "gift fund" by making a contribution in an amount equal to the charitable gift plus a service fee.
All forms are available through Homestead Trust. Their toll-free number is (877) 550-7005, or the forms can be downloaded from their Web site at http://www.homesteadtrust.org under Applications and Forms.
If you have any questions or need more information, you can e-mail the Homestead Trust at info@homesteadtrust.org or contact them at the following address and telephone numbers:
HOMESTEAD TRUST
3450 Ellicott Center Drive
Ellicott City, MD 21043
Phone: (410) 480-1967 Fax: (410) 480-4375
Toll Free: (877) 550-7005
National Home Down Payment Gift Program
The National Home Down Payment Gift Program provides financial assistance to individuals and families who want to buy a home but just can't seem to save for the down payment. The financial assistance is a gift and, therefore, does not have to be repaid.
The buyer applies for the funds through a National Home Gift Reservation Certificate and gives it to the lender or real estate agent.
With the Gift Funds Reservation Certificate, buyers can buy a home without using any of their own money as down payment, buy any home anywhere, use any Real Estate Agent they want to help them find a home, use any mortgage lender that has an eligible loan program (which is just about all lenders), and use a portion of the money to help pay for some, if not all, of the closing costs.
To receive gift-funds, homebuyers must be able to qualify for a mortgage loan that allows alternate sources of down payment and purchase a property where the sellers agree to enroll their home with National Home.
The homebuyers do not have to be first-time buyers, but the property must be purchased as their primary residence.
For more information, go to the National Home Web site, http://www.nationalhome.org, or contact them at the following address and telephone numbers:
National Home
6720 Fair Oaks Blvd.
Suite 205
Carmichael, CA 95608
Phone: (916) 485-4235
Toll-Free: (888) 487-4663
Fax: (916) 485-4672
E-mail Sales and Marketing: sales@nationalhome.org
E-mail Administration: admin@nationalhome.org
Neighborhood Gold
The Neighborhood Gold Down Payment Assistance Program has helped thousands of families all over the country move into a home with no money down. Neighborhood Gold works with The Buyers Fund, Inc., a non-profit organization, to provide grants for prospective homeowners. This money comes from an existing pool of funds and can be used for a down payment or closing costs per FHA guidelines. Because the money is a gift, it does not have to be repaid. The Neighborhood Gold Down payment Assistance Program is compatible with conventional and sub-prime loans. Plus, the homebuyer can get exclusive Mortgage Payment Protection at no cost. This insurance covers the first 12 months of the loan and can pay up to six, full, monthly mortgage payments.
There are no income limits for the potential homebuyer. If a buyer is approved for a loan, he or she can receive the grant funds, regardless of income level. There is also no maximum grant amount allowed. The only limit is the appraised value of the home. If buyers are trying to obtain a larger grant, they may need to find a distressed home in order to give the seller sufficient room to pay the service fee. If the grant amount is above $10,000, the fee is 10 percent of the grant amount plus the grant. For example, in the case of a $15,000 grant, the service fee is $1,500 + $15,000 = $16,500.
The funds from the Neighborhood Gold program can be used to purchase any property, including condos, apartments, duplexes, and single-family homes.
Neighborhood Gold has provided down payment grants in 39 states. They can work with lenders, Realtors, sellers, and home buyers in all locations in the United States. The loan officer completes the application and submits it to The Buyer's Fund, Inc., for approval. Once approved, a gift letter confirming approval of the funds is sent from The Buyer's Fund, Inc., to the lender. The only fee involved is a service fee paid by the seller. This fee is the grant amount (which can be anywhere from 3-10 percent of the sales price), plus 1 percent or $1,000, whichever is reached first.
Neighborhood Gold has a list of lenders across the country that accept their program on FHA, Conventional, and Sub-Prime financing. You can call (888) 627-3023 to speak with their Investor Relations Manager to confirm that your lender is on that list. If you are already working with an investor that is not on that list, they can often work with your investor to secure approval for you to participate in the program.
You can also contact Neighborhood Gold by telephone at (888) 627-3023, by fax at (888) 627-3025, or by regular mail at the following address:
313 East University Parkway Orem, UT 84058
Or you can visit their Web site at http://www.thebuyersfund.com The Own Program
If the program requirements have been met, the OWN Program will provide a gift, which will be wired directly to the closing office/closing attorney in the homebuyer's name. The homebuyer may select the gift amount that most suits his or her needs:
2% of the contract sales price
3% of the contract sales price
5% of the contract sales price (optional in designated high closing costs states)
The gift will then be applied to the required investment (down payment/closing costs). The OWN Program is not restricted to first time buyers and there are no income limits, geographic restrictions, or asset restrictions. The OWN Program has a different approach to down payment assistance. Their program is designed to cover only the cost of administration and marketing. Therefore, they are able to offer the lowest possible service fee. The service fee for any transaction is the amount of the gift plus $300 (New or Resale) regardless of the contract sales price.
Any unused gift funds must be used to reduce the principal balance of the loan and MAY NOT be given to the homebuyer(s). The OWN Program does not place any restrictions on the return of the homebuyer's cash investment (earnest money deposit, pre-paids, etc.).
To qualify for a gift, the homebuyer must purchase a home from a builder/seller who has agreed to participate in The OWN Program. The homebuyer must have 1% of the contract sales price either invested in the transaction or in cash reserves. Acceptable sources of these funds are set forth in the HUD Handbook 4155.1. The homebuyer must also complete The OWN Program Home Ownership Education Course or any lender-approved Homebuyer Education and must qualify for a loan program that accepts gift funds for down payment.
You can visit The OWN Program Web site at http://www.ownprogram.com.
For additional information on The Own Program,
you can call their Help Line at (866) OWN-PRGM (696-7746) or (727) 392-6676, or you can e-mail them at help@ownprogram.org.
Details of the plan announced Thursday by the Bush administration for a five-year freeze on mortgage rates for borrowers facing the threat of default on subprime mortgages.
• Who qualifies: People with subprime mortgages who live in the residence covered by the mortgage. That feature is designed to exclude investors who bought properties and hoped to benefit from the surge in home prices. The borrowers must be current with payments on the mortgages at the lower rates.
• What time frame: The loans had to be taken out between Jan. 1, 2005, and July 31, 2007, and have interest rates that will reset between Jan. 1, 2008, and July 31, 2010.
• What happens: The subprime mortgages, many taken out with rates of 7 percent to 8 percent, are scheduled to reset at much higher rates of up to 11 percent. That increase could add $350 to the typical monthly payment of $1,200. Under the freeze, the rates will remain at the lower introductory rate for five years.
• Economic impact: The administration hopes the plan will buy time for homeowners about to be forced out of their homes. As the housing market stabilizes and sales and prices rebound, homeowners with the frozen mortgage rates will have time to refinance into more affordable fixed-rate loans.
If you feel you fall under these basic guidelines call the hotline
1-888-995-HOPE
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If you don't have a TV, a radio, or a newspaper, you may have missed all of the negative press surrounding the mortgage and housing markets. The severity of the situation has created a sort of panic that has paralyzed the consumer. Rather than deal with any aspect of the problem, we wait for someone to yell: "it's OK to come out now!" If you are waiting for a "bottom" to the overall crisis, and for all the news to turn positive, don't hold your breath. But where there's tragedy, there's opportunity. Let me show you why it is, in fact, "OK to come out now," and why you might be sorry if you wait too long.
The Pendulum Effect.
Depending on the data you are looking at, national average home prices are down significantly. On average, this trend will continue, but consider three things. First, the hardest-hit markets drag down the average depreciation. Second, mid to high priced homes were more inflated than entry level housing. When those homes depreciate, they have farther to fall than a lower priced home. This also brings down the average. Finally, because panic can create a knee-jerk reaction among sellers, and market perception can create a hesitance among buyers, prices can be lower on the way down than they will be at the bottom.
What does this all mean? It's a GREAT time to shop for a moderately priced home. When the market has found a solid bottom and the demand returns, there will be a lot less ambiguity about what a home in your area is really worth. Sellers will be less willing to entertain offers, and selection will decrease.Mortgage Meltdown?
The news might have you thinking that no one can get a loan these days. This is far from true. Hindsight has given us a clear picture of the kinds of loans that shouldn't be offered again. But the loans that have performed more consistently are still abundantly available, and you might be surprised what you can qualify for.
Banks like to see to see strength in at least 2 of the 4 areas:
The items that will make your loan more difficult to obtain:
Bottom Line: If you can legitimately afford to make a regular house payment, there's a very high chance that this can be proven to a lender, who will in turn be happy to give you an excellent loan.
To make things better, interest rates are historically low. At the very lowest point in mortgage rate history, a 30 year fixed conforming loan danced around the 5.0% range. In the last several weeks, it has dropped to 5.625%.
There's even further impetus to act on this information. Even if prices decline another 10%, due to the market panic, there are sellers out there right now selling for 20% under current appraised value. So you might find a house for $160,000 today that will end up being worth $180,000 when the market bottoms out. A paradox, but true. This also means that your value is likely to be at it's highest as far as refinancing is concerned, and remember that EQUITY is one of the positive factors banks consider.
If you think you might be in your current home for more than a few years, have an adjustable rate mortgage, or have an interest rate that's over 6%. Or if you are a potential home-buyer, it is "OK to come out now," and doing so could save you lots of money.
What a fascinating and tumultuous time is upon us! Both the housing and the mortgage market are convulsing wildly! There are so many facets to the "big picture" that I would never presume have all the answers, so the following disclaimer is in order: I am mortgage broker and the following is my opinion based on my experience and my knowledge. You might agree with me, you might not. But I urge you not to jump to any conclusions based on what I or anyone else has to say about the current state of affairs. No one can predict accurately how this is all going to turn out. My point of view is incredibly cynical in some ways, yet leaves room for optimism with the famous caveat of "it depends." In other words, my cynical prognostications can all be erased if certain entities take certain actions. Last thing is that this article is written for the masses, laypersons included. If you are an industry insider, I apologize, but I will be stopping to explain some things you definitely already know. Away we go...
The Beginning
In this case, the beginning is not an exact date or marked by an exact event, but rather the confluence of two important factors: the incredible loosening of lending standards and the overly-exuberant boom in the housing market. Yes, there are other important factors, and yes, I will discuss them, but these two are the big two in my mind.
Let's start with the loosening of lending standards. People with large amounts of money (banks, etc...) put systems into place to evaluate the potential risk associated with a loan. They've been evaluating the risk on loans since well before I was born. In the mortgage industry, this is called underwriting. There are underwriters (human beings), and underwriting systems (computers) that render decisions. Be they human or machine, the underwriting systems are employed and acting on the instruction of the money source.
"Money source" is a purposely ambiguous term so I can make the following point. Where does the money for mortgage loans really come from? If Wells Fargo gives you a mortgage loan, you might guess the money for that mortgage came from Wells Fargo, and you'd partly be right. Wells did indeed have the money to fund that transaction, and they may actually hold on to your loan forever, but there is a deeper layer to the money source than that. Even big banks need LIQUIDITY in order to continue doing business. When Wells needs liquidity, they obtain their money at a certain rate based on the appetites of the bond market. Sometimes this means "selling" your mortgage. Ultimately, the actual market metric is what's known as the "mortgage-backed security."
Mortgage-backed-securities (MBS's) are bought and sold just like stocks and bonds. By the time someone buys a MBS, its underlying risk and obligation have passed hands many times. It's gone from the consumer's intention to finance a house, to a mortgage broker, to a mortgage lender's underwriting staff, to the corporate structure of that lender, to be packaged in a "pool." Then it's either sold or held. When it's sold, it can be sold multiple times. The point is that those that are buying and selling them cannot simply call up the consumer that got the loan and ask them if they are a good credit risk. They are many times removed.
So this creates the necessary and crucial task of "judging" how sound of an investment the MBS is. After all, if a bank was selling a pool of loans with an average interest rate of 8%, the effective interest rate would only be 8% if none of the loans defaulted. Just based on historical statistics, a certain percentage of loans go into default. This risk of default is factored into the value of an MBS. In determining risk of default, investors look at several aspects of the mortgages that comprise MBS's: loan amount, credit score, whether income was documented or not, liquid assets, amount borrower compared to appraised value, whether cash was taken out, and many more.
Over time, default rates on certain "standard issue" mortgages have become very predictable. While there are many different types of mortgages, in recent history, but still before the period of so-called "meltdown," a certain type of mortgage was by far the most common. This is a 30 year fixed mortgage, with documented income and assets, with a down payment of some sort (or compensating factors to offset it), and with a reasonably strong credit history. In general, these are the components of a "Conforming" loan. A conforming loan is any loan that "conforms" to the guidelines set forth by Fannie Mae or Freddie Mac, huge Government-Sponsored-Enterprises put in place to help the American public realize the dream of home-ownership while protecting investors. So life is good right? Fannie and Freddie have their conforming loan guidelines in place. Investors can anticipate a predictable default rate and people can buy houses.
Enter the Problem #1
Unfortunately, not every family's scenario fits the conforming guidelines. In the not too distant past, there were little or no financing options for these families. To make a long story very short, investors saw great potential for this untapped market demographic. Alternative loans started to emerge with different standards than conforming loans. Interest rates were raised to account for increased risk of default and investors "guessed" at what would be the best indicators of likelihood of default. They knew it would be higher, but unlike the years and years of historical data behind conforming-type loans, there was no track record for these alternative loans.
What followed was a cataclysmic downward spiral of overly-exuberant underwriting standards. To keep up with competition, lenders got more and more aggressive, all the while operating in a market segment with a non-existent track record. Default rates were being guessed at, and were becoming evident in real time. Also evident was the fact that "experts" underestimated the actual default rate of these new alternative loans. Ratings Agencies (wall street analyst companies), were listing these new MBS's as much better than they were (because no one really knew how they would turn out). This goes back to the point of the investor being so far removed from the consumer. Wall Street analysts were saying that MBS's from these new alternative loans were a hot buy, so investors bought more. And more demand among investors drove an increase in the aggressiveness of loan programs and underwriting standards. It was a downward spiral in which anyone with a pulse could finance a house.
If this existed in a vacuum, it might not be so devastating, but it does not. This fire happened to be ignited at the same time that a large amount of gasoline, in the form of a real estate boom was occurring. There can be numerous "chicken versus the egg" arguments about the housing boom and the loosening of the mortgage market. The fact is they occurred at relatively the same time and they fed off each other.
Problem #2
People talk about the real estate boom that began around 2001 and ended about mid 2006. People and "experts" talk about the boom as if it's something that's happened before. "There have been up times and down times" they say. "This is just another boom." Those "experts" are wrong. There has never been a period like this. We have just experienced the largest housing boom in history. Might there be another one that supersedes it in the future? Possibly, but I would argue that the current time period will serve as a sobering lesson for us in the future. I would argue, this is as big as it gets. And it's not because I have the experience to have lived through previous ups and downs. It's not because I have decades of experience tracking these issues (because I don't). It's not because I have the foresight to predict the future of the markets. It is due to a simple truth: this "boom" is so much more inflated than any previous booms that it will stand as an obvious outlier in historical home price data. That is to say, compared to other upturns and downturns, the current boom is a much much larger digression from the mean than we have ever seen.
Here is an absolutely brilliant graph by the Yale economist Robert Shiller:
As you can see, there have been ups and downs. All have been within a certain standard deviation of the mean. The highest highs and the lowest lows have not deviated more 35% from the mean. Now take a look at the last 5 years. Adjusting for inflation a house today costs twice as much as the average value of a home for the last 100 years! We're over 100% away from the mean. I don't remember a lot from my statistics class in business school, but I do remember the concept of regression, or a return to the mean. It will happen. But remember this doesn't mean a house will eventually return to the same price it was in 1940, it means it will return to the same inflation-adjusted price. Even so, we are in the middle of a housing price correction right now that will likely continue. The severity of the correction and the length of the correction are two things that no one can accurately predict. That is where opinion comes in. You will hear a lot of opinions on the news, especially the economic focused news outlets. They vary, but I don't really think the "experts" realize just how bad things are. This is where my opinion comes in. but first, we need to talk about the interconnectedness of the mortgage market and the housing market.
There are a couple of caveats to the negativity. First, the mean housing data does not necessarily take into consideration that houses are much bigger and nicer (in general) than they were in the past. This may ease some of the regression to the mean. Furthermore, it's very important to note that different real estate markets around the country have behaved very differently. Although the media is national and national home data seems to spell doom for the entire nation, there are pockets around the country where the real estate market should be staying more steady. Some have already hit past the bottom, some have leveled out, and some will actually continue to grow. It just depends where you are and what market forces at play in your local market.
Mortgages and Home Prices: How They Are Connected
In the late 90's, the demand for housing began to rise steadily. Builders rushed to meet that demand by building more homes, yet the demand continued. The mortgage market had to do it's part by making sure more people could qualify to buy homes, so lending guidelines loosened. This also coincided with a period of decreasing interest rates. All the ingredients for the meltdown were in place. The lower interest rates drove an already high demand for homes higher. The easy lending guidelines made sure everyone could get the loan they wanted. Existing homeowners tapped their home equity to finance their lifestyles. Home equity was apparently an infinite well of money. Everyone, including industry professionals, made future plans on the assumption that values would continue to increase and money would continue to be easy to obtain.
There is an obvious downward spiral here. It is now culminating with one of the most dangerous gambles the mortgage market took. Before you read the following sentence, let me say that there is nothing wrong with adjustable rate mortgages (ARMS) if used for the appropriate purpose in the appropriate market. That said, ARMS are one of the main contributors to the meltdown. Short term ARMS were created that allowed someone to have a fixed payment for 1, 2, or 3 years. The introductory rates on these were low enough to allow first time homebuyers to buy homes well beyond their means. Brokers and banks assured these borrowers not to worry because their home would increase in value and they could refinance in 2 to 3 years to a more favorable loan. It seemed like a workable plan as long as everything stayed steady.
It Didn't Stay Steady
The new alternative loans (remember the ones with no track record to judge risk), started to show their track record, and it was worse than expected. When a loan-type has a worse than expected track record, it leads to investors not wanting to buy it any more. As a result, the money to fund these alternative loans began drying up and lenders began to go out of business. This led to a gut-check among all alternative loans and investors preemptively pulled the plug on other less-aggressive products as well. So starting in 2007, it has become much more difficult to obtain any sort of alternative financing. For instance, in 2005, a homebuyer could finance 100% of their home's value, without proving their income, with a 620 credit score. Now, lenders don't even do stated income loans to 100% with ANY credit score! That's a major change that's happened in just a short 3-4 month period.
At the same time, builders had become so exuberant that they had (and still have) immensely over-built for current housing demand. There is far more inventory on the market in terms of new homes than demand can meet. Even if there was demand for these homes, people can't get financing any more. Also, let's not forget about the scores of families that bought homes with short term fixed loans with the hopes of their values increasing, their credit improving, and refinancing into a better loan. In general their credit has not improved. In general, their house has not appreciated, and consequently they cannot refinance into a better loan. BUT they also cannot afford their payment.
Gloom and Doom
Now we have existing homeowners forced into default or short sale scenarios. This has a direct effect on banks and investors. Guidelines are further tightened to prevent future woes and this prevents even more people from getting financed right now. So their foreclosed or short-sold homes are coming onto the market and bringing prices down. Also, let's not forget about the huge inventory of new homes on the market. Builders are languishing and they are forced to drop prices as well. About the only thing that has stayed positive are interest rates. Historically speaking they are near an all time low, but it doesn't matter because they are only low on the Conforming programs. The lending standards are returning to the mean. Home prices are returning to the mean as well.
All that is to be expected, but here is why it's so bad. The volume of adjustable rate mortgages that are "coming due," or in other words, hitting their adjustable period where the payment goes up above what the homeowner can afford, will be even higher in 2008 than it is in 2007. At the same time, loans are harder to obtain than ever. Many of these people will be forced into foreclosure or short sales. These sales hitting the market at incredibly low prices lower the comparable sales data. The builders with too much inventory on their hands also lower the comparable sales data average.
And That's Why It's Worse Than Most People Think
We have hundreds of thousands of families across the nation in homes that are worth less than what they owe. They need to refinance to get out of their ARMS, but cannot due to both lending guidelines and home values. These families default or short sell which causes the lenders to take serious damage, which in turn causes lending guidelines to be further restricted. We are only just on the way down now. The crash landing has not yet occurred. As I said, there are more ARMS coming due in 2008 than there were in 2007, coupled with a tougher financing environment. When these come due and default or short sell, it further drives down the already decreasing value of real estate. This in turn harms builders who now have to take much less profit than expected and in some cases, losses. D.R. Horton's CEO said "2007 is going to suck," and he was right.
I argue that the aspects that make 2007 "suck" are the in greater supply in 2008. "Experts" and analysts incessantly like to state that housing only comprises a small percent of the entire American economy. This may be true in terms of jobs, but these "experts," all with much more education than me and much more air time are failing to see the biggest one of several critical factors in all of this: HOME EQUITY HAS FINANCED CONSUMER SPENDING. When we talk about the housing market being a small portion of the economy, that may be true inasmuch as construction jobs, but what about all of the ancillary effects?
Where do these experts think consumers are getting the money to buy the plasma TV? Maybe it's on a credit card, but eventually consumers want to consolidate that credit card with home equity. In the past they have done this, used home equity to increase their lifestyle, run up the credit cards again, and get bailed out again by home equity. BUT this will not be available in 2008! The simple fact that housing is a small part of the economy does not take into effect the interconnectedness it has with the rest of the economy. Builders losing money hurts the economy on it's scale, but what about lenders going out of business? Less people can get financed, so more people default, so more investors lose money, and less people can pump money into our economy, both on the end consumer level and the investor level.
It's a bad, bad situation. Intervention can come from many places. There are several congressional bills that have passed or that are proposed that would re-work Fannie Mae and Freddie Macs guidelines to allow some aid to the troubled areas of the mortgage market. It's not a panacea, but it will help. One thing is for sure: home prices MUST eventually return to their mean on the inflation adjusted index. Also, lending guidelines MUST return to a sustainable and predictable level of risk assessment. These two things are in the process of happening now, but they have definitely not already happened. It will be well in to 2008 and probably into 2009 before they do.
Should you worry? If you are one of the Conforming borrowers that is strong in 2 of at least the 4 following areas, you will be fine:
These 4 aspects are compensating factors for conforming loans and you will be able to get a decent 30 year fixed loan. That means that even someone with a 600 credit score and no down payment can get a loan right now if they have a good debt to income ratio and have several thousand dollars in liquid assets. But don't expect your home value to be going up like it used to (of course there are different markets all throughout the country, this assertion is general in nature). So buckle in for a bit of a bumpy ride. It's not the end of the world, and it will pass, but it certainly will be the most violent correction of home prices and lending standards this country has seen to date, and it's not over.
MSNBC, Reuters, and The Wall Street Journal were reporting early Friday that the United States Treasury is about to announce a plan to help some subprime borrowers save their homes from foreclosure.
The plan apparently involves an agreement between the Treasury and leaders of the mortgage industry to hold rates steady on many adjustable rate mortgages that are facing rate resets that might shoot payments up hundreds of dollars a month.
According to the Journal, Wells Fargo, Citigroup, Washington Mutual, and Countrywide Financial may be participating in the plan. These large lenders and mortgage servicers are part of a coalition announced earlier called the Hope Now Alliance. Members of the Alliance represent 84 percent of the subprime servicers and mortgage counselors.
Details are still being worked out but an announcement of the program may come as early as next week. It is expected, however, that some troubled borrowers may be temporarily allowed to retain the low introductory or “teaser” interest rates that allowed them to get into the loans
The major stumbling block to implementing such a plan will be that many of the loans are in packages that were purchased by investors who may be unwilling to go along with lenders, servicers, and the government in what will have to be a voluntary program.
The stock market reacted strongly to the news with Freddie Mac stock up $3.90 and Countrywide up $1.60 in mid-morning trading.
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