Home sales increased 7.4 percent in August from a month earlier, and were up 8.8 percent compared to August 2007.

National Association of Realtors (NAR) senior economist Lawrence Yun attributed the gain to improved affordability and a loosening of credit after the government takeover of Fannie and Freddie, though distressed sales are probably playing a key role.

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The Federal Reserve, acting in coordination with other global central banking authorities, cut the Federal Funds rate, a key interest rate by (1/2%) half percentage point Wednesday in order to help stabilize the current lending crisis threatening the US economy.

The Bank of England cut its rate by half a point while the European Central Bank reduced their's as well.  Other central banks also taking part include the banks of Canada, Sweden, and Switzerland.

China also cut its key interest rates Wednesday for a second time in less than one month to stimulate slowing economic growth amid the global credit crisis.

The fact that the Fed didn't wait until its regularly scheduled meeting on Oct. 28-29, underscored the urgency of the situation.  In response, the prime lending rate for millions of borrowers will drop by a corresponding amount. The prime rate applies to certain credit cards, home equity lines of credit and other loans.

Although inflation has been high, the Fed believes that the recent drop in energy prices and the weaker prospects for economic activity have reduced this threat to the economy.

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What's likely to happen to mortgage rates with the passing of EESA/HR1424?

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The new law makes it easier and less expensive for seniors to access the cash value of their homes on a tax-free basis through a Reverse Mortgage. And it expands the amount that can be borrowed.

Now there will be a higher borrowing level on FHA reverse mortgages - with $625,000 of home value as a cap and a $417,000 borrowing limit. And fees will be capped at 2 percent of the first $200,000 borrowed, and 1 percent on the balance - with an absolute maximum of $6,000 in fees.

These rules apply to FHA mortgages, which insure the lender against the possibility that the homeowners will stick around far longer than anticipated! Other lenders provide "jumbo" reverse mortgages for higher amounts, taking larger fees to offset their risk. But there is no risk to the homeowner, who gets the money - and the house - for as long as they choose to live there.

A reverse mortgage may be the perfect answer for seniors who want to stay in their homes but have a cash flow problem. They can get a monthly stream of tax-free income, or a lump sum, and it's tax-free. Their ability to access the equity in their home does not depend on their ability to repay, as in the case of a home equity loan. In fact, the Reverse Mortgage is not repaid until they move and sell the home, or until they die and their heirs either sell or refinance the home.

The most important aspect of a Reverse Mortgage is that the homeowner retains title to the home, and can never be forced to move out - no matter how long he or she lives, or how much equity he or she pulls out of the home over the years through monthly checks from a Reverse Mortgage! And they - or their heirs - can never end up owing more than the house is worth, no matter how much money is withdrawn over the years!

The amount the homeowner can withdraw depends on several factors: the value of the home, the amount of any remaining mortgage, the age of the homeowner(s), and the current level of interest rates.

 www.SeniorMortgageLender.com & www.GregZaccagni.com

Quite the opposite of what many consumer might think there is a good likelihood that the passing of this law "designed to help consumers stay in their homes" could infact cause mortgage interest rates to rise!

When the stock market drops investors seek the lower yielding but greater security of the bond market.  Most mortgage debt is sold as mortgage backed securities/bonds.  As the stock market rebounds the bond market will have to offer investors higher yields to attract investor dollars which may cause mortgage rates to rise.

I have been counseling my clients to refinace or buy when things are down before the turn around begins.  Has your mortgage advisor done the same?

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Chicago Tribune's Mary Unberger says Buy/Refinance NOW!

Predicting Mortgage Rates

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The plan calls for the Treasury Department to buy deeply distressed mortgage-backed securities and other bad debts held by banks and other investors. The money should help troubled lenders make new loans and keep credit lines open. The government would later try to sell the discounted loan packages at the best possible price.

Some of the program's $700 billion would be devoted to a program that would encourage holders of distressed mortgage-backed securities to keep them and buy government insurance to cover defaults.

The proposed legislation also calls for the financial sector to help make up the difference if the government does not recoup its investment in five years.

The government would receive stock warrants in return for the bailout relief, giving taxpayers a chance to share in financial companies' future profits.

Money for the rescue plan will be phased in. The first $350 billion would be available as soon as the president requested it. Congress could try to block later amounts if it believed the program was not working. The president could veto such a move, however, requiring extra large margins in the House and Senate to override.

The plan would require the government to try renegotiating the bad mortgages it acquires with the aim of lowering borrowers' monthly payments so they can keep their homes.

Despite the changes made during an intense week of negotiations, the heart of the program remains Bush's original idea: To have the government spend billions of dollars to buy mortgage-backed securities whose value has plummeted as hundreds of thousands of Americans have defaulted on their home loans.

The legislation would place "reasonable" limits on severance packages for executives of companies that benefit from the rescue plan, said a senior administration official.

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What would the Presidential Candidate do?

1. Any one to four unit properties which have been completed (with a certificate of occupancy) for at least one year are acceptable according to the provisions of local zoning requirements.

2. Homes that have been demolished or razed as a part of the rehabilitation process can be rehabbed as long as the existing foundation system is not effected and remains in tact. (as long as there is a portion of the original foundation)

3. A home can be moved onto a foundation on the mortgaged property, provided the proceeds from the sale of the previous location are not released until the foundation is properly inspected and the home is satisfactorily attached to the new foundation.

4. Any property the buyer wishes to convert either from single family into a two to four family or from a two to four family dwelling into a single family unit. Let's take this one a little farther - You can take a 5-8 plex and turn it into a 1-4 unit. i.e... make an 8 plex into a fourplex and use this program.

5. A manufactured home that was built AFTER June 15,1976, and has been on a permanent foundation for over one year is eligible, provided the unit must have been delivered to the site when it was new, prior to being occupied.

6. A 203(k) can be used on a "mixed use residential property provided it meets the following requirements:

The floor space used for commercial purposes does not exceed...

                    25% for a one story building

                    33% for a three story building

                    49% for a two-story building

• The commercial use must not affect the health and safety of the residential occupants.
• The rehabilitation funds will only be used for the residential functions of the dwelling and areas used to access the residential part of the property.

7. Condominiums are eligible.

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There is a minimum requirement of $5,000 in eligible (necessary) improvements on the subject property. Improvements to a detached garage, a new detached garage, or the addition of an attached unit (if allowed by local zoning ordinances) can also be included in this first $5,000.

The mortgage must include one or more of the items listed below:

• Structural repairs and alterations.
• Items such as additions to the structure; repairing any and all structural damage.
• Improvement in the functionality or modernization.
• Such items as remodeled kitchens and bathrooms.
• Changes for aesthetic appeal, and the elimination of obsolescence.
• New exterior siding and new doors.
• Repair of replacement of plumbing, heating, air conditioning or electrical system. Installation of new plumbing fixtures are acceptable, including interior whirlpool bathtubs.
• Installation of Well and/or Septic System.
• Must be installed or repaired prior to beginning any other repairs to the property. Properties less than one acre in size can be limited on this item.
• Replacement of flooring, carpeting or tiling.
• Energy conservation improvement.
• New dual pane windows and doors, storm windows, insulation, and solar domestic hot water systems.
• Major landscape work and site improvement.
• Patios and terraces that improve the value of the property equal to the cost, or that are needed to preserve the property from erosion.
• Improvements for easier accessibility to the handicapped.
• Handicapped retrofitting can be included in the cost of rehab. This is particularly good to get this information into the hands of vocational rehab companies and companies that deal with disabilities. They may have a list of clients for you.
• The following items can be included in addition to the minimum $5,000 requirements:
• New cooking ranges, refrigerators and other stand alone appliances.
• Painting and other cosmetic repairs.
• Fencing, new walks and driveways, and general landscape work trees, shrubs or seeding).
• Repair of an existing swimming pool, up to $1,500.
• Any costs exceeding $1,500 must be paid into the Contingency Reserve by the borrower.

Items that will not become a permanent part of the property are not eligible. Luxury items such as new swimming pools, exterior hot tubs, saunas, spas, tennis courts, & barbecue pits are not eligable.

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The 203(k) loan is a fully disbursed loan which allows a borrower to purchase or refinance a property and finance the cost of rehabilitation with one loan. Because it is fully disbursed at closing, the 203(k) loan can be insured by HUD as soon as the loan closes. The mortgage amount for these loans is based on the projected value of the property with the work completed, taking into account the cost of the work. HUD has taken a strong position to encourage this program and the loan is now easier to originate and close than ever before.

203(k) Advantates:

•·         No up-front MIP

•·         Non-profit organizations are eligible with only 5% down payment and can buy multiple properties

•·         Finance up to 6 months mortgage payments

•·         Special HUD down payment programs

•·         Most closing costs can be financed

And all FHA Mortgage loans are assumable!

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Due to FHA's concern that some homebuyers in these transactions may attempt to provide misleading information regarding the rental income of the property being vacated to qualify for the new mortgage, FHA is instituting underwriting guidance designed to assure that the homebuyer can make payments on the full debt service of both mortgages.

until further notice, the underwriting analysis may not consider any rental income from the property being vacated except under circumstances described herein.

Rental income on the property being vacated, reduced by the appropriate vacancy factor as determined by the jurisdictional FHA Homeownership Center (see http://www.hud.gov/offices/hsg/sfh/ref/sfh2-21u.cfm) may be considered in the underwriting analysis under the following circumstances:

•·        Relocations: The homebuyer is relocating with a new employer, or being transferred by the current employer to an area not within reasonable and locally recognized commuting distance.  A properly executed lease agreement (i.e., a lease signed by the homebuyer and the lessee) of at least one year's duration after the loan is closed is required.  FHA recommends that underwriters also obtain evidence of the security deposit and/or evidence the first month's rent was paid to the homeowner. 

•·        Sufficient Equity in Vacated Property:  The homebuyer has a loan-to-value ratio of 75 percent or less, as determined by either a current (no more than six months old) residential appraisal or by comparing the unpaid principal balance to the original sales price of the property.  The appraisal, in addition to using forms Fannie Mae1004/Freddie Mac 70, may be an exterior-only appraisal using form Fannie Mae/Freddie Mac 2055, and for condominium units, form Fannie Mae1075/Freddie Mac 466.

            The guidance in this Mortgagee Letter applies solely to a principal residence being vacated in favor of another principal residence.  This Mortgagee Letter is not applicable to existing rental properties disclosed on the loan application and confirmed by tax returns (Schedule E of form IRS 1040).

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Dow Jones industrials went up 400 points today following a report that the federal government may create an entity to absorb banks' bad debt.

It's reported that Treasury Secretary Henry Paulson is considering the formation of a vehicle like the Resolution Trust Corp. that was set up during the savings and loan crisis of the late 1980s and early 1990s.

"It's going to take a lot of the bad debt off the balance sheets of these companies," said Scott Fullman, director of derivatives investment strategy for WJB Capital Group in New York, commenting on the possibilities of an entity akin to the RTC. "It could alleviate many of the pressures causing the credit crisis, he said, and reopen credit markets." But Fullman noted, "the devil's in the details."

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