Over the last several weeks HUD, along with FHA, have been back and forth as to the legality of whether or not they would allow the use of the $8000 First time home buyers Tax Credit to be used as part of the down payment and closing costs of a qualified purchase. 

Well now we have an answer.  Yes! You can cash in your $8000 instant rebate at the register!

There are some rules that need to be followed, so if you want this credit instantly applied to your purchase transaction, you need to make sure that your lender follows the specific steps that are outlined in HUD letter to Mortgagee's dated May 29.   I have posted a copy of this letter here for you to review.  

The letter outlines 2 ways that you can apply the credit.  You can either get secondary financing from an FHA eligible agency such as a non-profit organization or State Govt Agency or you can sell your tax credit and get a cash advance from an approved FHA non-profit organization or Govt Agency.  

So while HUD has made provisions to instantly cash in on this money, you still have to take several steps to qualify with an approved agency that can provide you with the $8000 before your close of escrow date.  

I realize that many borrowers want to cash in on this immediately, but it raises some interesting questions. Look at it this way, If a seller knows that the buyer is going to instantly cash in on $8000 will this affect the barganing table?  Think about it?  Will a seller really be willing to pay more in buyers closing costs if they know that the buyer is receivng $8000 to assist in the transaction?  

While I think that HUD's announcement is a good thing for some borrowers, it is certainly not something for everyone and needs to be carefully evaluated by your Realtor and Mortgage lender.  If you want to know how to tilt the tables for your advantage, call me at SCV Loan Solutions, we'll be happy to help you assess your situation.

Today is Wednesday May 27, 2009  and it marks the single biggest drop in the price of mortgage backed securities in over 10 years.  Today we lost 206 basis points in the price of mortgage backed securities, however the bleeding actually began last Thursday when the markets began to slide, and since then we've lost over 360 basis points.   

Ok, Ok let me not get too technical..

I realize you don't watch the bond market everyday like I do, so you may be wondering what is a basis point and what does it mean to me?  Basically it refers to the price of mortgage backed securities as they are sold to investors on the free market.  If the bond price drops, interest rates go up.  Typically we'll see movement in the price of bonds within a 50 basis points window, so a 300 point slide in a few days is huge and it correlates to about a 1% interest rate increase.  The movement in today's market was so rapid that lenders couldn't keep their rate sheets current. One of my lenders issued 9 different rate sheets today, while others just closed their lock desk. 

• So what caused this madness? 
  
• Didn't the Fed just announce in March that they were buying mortgage backed securities so as to keep rates low and help the housing markets?
  
• So why this sudden about face with interest rates and more importantly what will rates do as we go into the summer months?

Todays bond market collapse began last Thursday when Bill Gross of PIMCO (one of the biggest buyers of mortgage securities) questioned the AAA credit rating of the US.  The Fed then announced that it would slow its program for purchasing mortgage backed securities so they can extend the money (1.25 Trillion) allotted  well into 2010.   These items along with the better than expected Consumer Confidence report that came out yesterday and a slightly better Existing Home Sales Report today, and the notion that inflation could be a problem if the economy turns north, sent investors to an extreme selling panic today.

Again let me simplify.  If the US bond rating gets down-graded it means that the cost of raising funds for the US will go up.   With a 1 Trillion dollar budget deficit and the inability to raise funds it calls our solvency into question.  And when they keep printing money (as the Fed has been doing) they're staging a foundation for high inflation.  No matter how you look at it this, it's bad news for mortgages and the only solution (according to the Fed) is to keep doing more of the same.   So what do you say Ben?  Do you want to double down? 

I don't know where rates will be later this summer.  I do believe that we'll see a retreat from today's bond market lows, but I also know that we will not see rates below 5% again.  (at least not in the short run) 

So if you were planning to refinance at the proverbial 4.5% that was announced earlier this year, I'm afraid you may have just missed the boat.  You may have one more chance at getting a rate in the low 5's but its only a matter of time before rates move back up into a more normal range of 6-6.5%.   Buying down your rate with points might be a good option to lock a lower rate, but that advice needs to be handled on a case by case basis. 

If you're buying real estate or if you're planning to refinance you need to take action while you still can.

President, SCV Loan Solutions

I've had several discussions with Jeff Turner about managing one's online presence and creating meaningful relationships.  It's easy to get caught up with the numbers game and satisfy the ego by having thousands of followers, but what does it all mean? 

Lets face it if you have a thousand followers that dont give a rip what you have to say, then why bother.  The key to effective blogging or twittering is to have a community or network of followers who actually do care what you have to say and that have influence on your posts.  

Facebook is a good example of how people can have meaningless online relationships, yet its cool to call everyone a "friend" although you may not even know the person.  Yet, you're friends on facebook.

Managing a large network of true followers can be difficult, but Jeff's post on managing YEO and what it takes to manage meangingful online relationships is spot on..

Thanks for another great post, JT

Martin

Lies Lies Lies... We see them everywhere.. Everything from asking Johnny if he had a cookie before dinner; only to see him wipe crumbs from his face and say "no mom", to the Bernie Madoff's of the world that schemed millions with a carefully crafted series of deceit and forgery. 

We all condenm lies, and generally speaking no one wants to be a liar.  Yet we all occasionally fall into the trap ourselves and justify this ocassional mistep by saying it's ok as long as it's a white lie.  Meaning a white lie is acceptable provided that no one is hurt by it or if the lie was unintentional.   

Let me clarify. A lie is a lie! 

It's a misrepresentation of the truth and intent doesn't matter, it either IS or it ISNT. 

For century's we've been seeking ways to determine if a person is lying or not.  People have been persecuted and convicted for lying, and in many cases also persecuted when they were innocenct and it was believed that they lied.

To this day however, there is still no full proof way to determine if a person is lying or not, sure law enforcement has lie detector polygraph tests and psychologists have done extensive testing on human behaviors that are exhiibted when one lies, but the truth can only be confirmed by facts.  If you have the facts, you can usually prove it one way or the other, but in the absence of facts there is no way to confirm what is true. 

So how do lies factor into business?

How does a consumer know if they are being lied to by an individual or a corporation? 

The mortgage industry for years was issuing stated income loans that where referred to as a "liars loan".  This was an accepted practice that was embraced by many, so long as no one was being hurt by it (and everyone got what they wanted).  Well fast forward to 2009 and we see that the bubble didn't just burst,  it exploded! And it took the real estate industry and the American economy with it.  Now we are in the midst of a recession trying to assess blame and figure out what went wrong.

Im not going to get into all the dynamics of how we got into this mess, thats a whole topic of discussion on its own, but its clear there were a series of lies and a lot of people got hurt by it. 

So what can you do to protect yourself?

One answer is to create checks and balances where you can.  Work with proven individuals that have a track record and compare them to others.  Educate yourself on important matters and investigate anything that doesnt seem right to you. 

Recently, I was at a restaurant with a friend and he asked me a casual question.  When I gave him my answer, he said "you're lying!  I saw you look down and to the right."  I was surprised by his remark because I didn't think I had lied about anything, but his police training taught him to watch for certain mannerisms that could indicate a lie.  Well I don't know how credible this technique really is, but my point is that if you have a hunch that something isn't right.  Look into it. Don't assume and don't accept things for face value.  And if you find yourself taking part in a lie, even a white lie, correct it immediately.  Sometimes lies may appear to have no repercussions, but lies left uncorrected can often re-surface years later to cause irrepairable damage.

Honesty really is the only policy, not just the best policy. 

Real estate isn't so much about property as it is about people.

As an investor you need to know and understand the sellers circumstances.  You need to be respectful of the fine line where one mans financial misfortunes become another mans exploitation for his own fortune. 

I oftern hear Realtors talk about what a great time it is to invest because there are so many foreclosures and great deals to be had right now.  True, but lets put this into perspective.  Foreclosures are bad!  Its a terrible thing for society, terrible for our economy, and it causes a deep psychological impact and stress on the family being foreclosed upon. 

As an investor/buyer you might consider buying a foreclosure becuase it really is a good deal. However, your responsibilites should go well beyond the finances.  You have a resonsibility to ensure that your actions are not predatory in nature and that once you complete the purchase transaction, you will use your investment as a place to provide housing at fair prices.  Your tenants should have a safe home, that is well kept and maintained by you.  Your investment doesn't have to be the nicest house on the block, but it should be something that is appropriate for the community and something that you are proud of.

Understanding people is at the cornerstone of SCV Loan Solutions.  We work with buyers and sellers everyday to ensure that our investment solutions are optimal for all parties and done so with respect.  We want you to make it BIG as an investor, but do this with respect and integrity first.

As President of SCV Loan Solutions, I'm always networking with buyers and sellers and I look for ways to put parties together that can complement one another, so as to create win/win solutions.  You can take advantage of this and make it work for you by letting me know what types of investments you are interested in. 

Contact me to discuss your goals, your vision, and how we can partner to make your next transaction something that gives back to the community.

Most people's retirement plans today are typically invested in some form of securities or commodities plan that is managed by a third party plan administrator.  The administrator decides how the retirement fund is invested, controls the make up and structure of the fund, and is responsible for the day to day decisions on how that retirement fund is managed.  In other words, if you have a 401(K) your employer withholds money from your paycheck, and a third party decides how to invest it for your future retirement.  While this might be an acceptable form of retirement planning for some, many people are realizing that declining stock values and increased inflation are leaving their retirement plans vulnerable and insufficiently diversified to counter economic fluctuations.  

A Self Directed IRA allows you to take control of your IRA and manage it yourself, provided you follow the IRS rules for IRA's.  Using a self directed IRA you can direct your IRA to buy real estate (or other investments) and the rental income along with the appreciation of the real estate will become part or your retirement plan.   Income generated from the property will grow in your retirement account and receive the same tax treatment as your traditional IRA, consequently it is also subject to the same penalties for early withdrawal. 

A Self Directed IRA is not for everyone and like any investment or tax decision, you should consult your CPA or Financial Adviser.  However, do not be surprised if your CPA or Financial Planner is not familiar with the details and regulations of a Self Directed IRA.  Self Directed IRA's have been in existence since the IRS first established the retirement planning code in the 1950's however many CPA's, financial planners and broker dealers, lack experience with this type of investment because the IRA assets must be held by a government appointed custodian and there is no compensation structured for them to benefit from setting up a self directed IRA. While this may be the case, it should not hinder you from pursuing this form of retirement planning. Remember, the business model for self directed IRA's does not lend itself for your CPA or Financial planner to profit from these types of transactions, therefore you may be required to pay a fee for their advisory services, however the up-side of a Self Directed IRA will give you greater control, diversity and growth from your IRA assets.  Deciding whether this is the right choice for you or not, should be determined after reviewing the overall assets and strategies of your existing plan with a qualified advisor and comparing that to the investment benefits of the real estate you plan to buy through your retirement fund. 

Your goal in establishing a self directed IRA should be to strike a balance with all of the investments held within your retirement plan and to spread your risk through diversification.  Adding real estate to an existing portfolio of mutual funds, bonds and other securities can offset risks associated to volatility in the bond and stock markets.

As a real estate investment consultant I work together with CPA's, Attorney's and Financial Planners that can help you explore if a self directed IRA is the right thing for you.  In my next publication, I will discuss the do's and don'ts of a self directed IRA and I will share examples of how a self directed IRA can help you grow your retirement.

This weekend we witnessed the biggest Govt expansion into the private sector ever.  I'm a free enterprise guy and personally, I don't like Govt involvement in the private sector.  Fannie and Freddie where designed as a publicly chartered agencies designed to operate in the private sector, and when things are going well you can make this work, but during down times you cant.  They have an internal conflict of interest because they're trying to serve the general public and also be profitable for investors and shareholders.   It's like having a non-profit company with shareholders.  You can't have it both ways.  Earlier this year the US Treasury bailed out Bear Stearns and now Fannie/Freddie.   Who's next GM or Ford?  My favorite French word is Laissez-faire, and we need to re-introduce this term to Washington.   

Having said that, I think the govt had to do this and they had no other choice but risk the entire US economy.  The catalyst for this surprise move was PIMCO's announcement that they won't buy anymore mortgage backed securities, (PIMCO is the largest buyer of mortgage securities from Fannie) followed by foreign investors also saying that they are pulling back.  Those statements left unattended would have ignited a wild fire in our economy that would have gone out of control.  Fannie and Freddie hold too much of our economy within 1 company.   A failure of either will crush the markets.  You may as well put a big for sale sign on the White house lawn. 

Can you say S&L Crisis?  This is almost a complete repeat.  Our Govt was criticized at the time for getting involved, but in hind sight it proved to be the right thing to do and the cost of the S&L bail out was recuperated through the R.T.C. in the years that followed.  By comparison, the Japanese didn't do anything to fix their banking industry and they continued into a 10 year recession.  

The Govt actions this weekend established a preferred bond of $200 billion to keep the 2 firms from becoming insolvent and thus renewing investor confidence.  The liquidity and investor confidence will keep money flowing and it will bring down interest rates (in the short term).  It won't fix the mortgage crisis, but it will make it cheaper to borrow money.  The cost to tax payers is yet to be determined, but taking a preferred bond position helps to ensure that the US will get its money paid back over time. 

The long term picture is very uncertain and the new administration will have to tackle this issue next year.  Secretary Paulson is pushing for down sizing of Fannie and Freddie to be no more than $250B in guaranteed mortgage securities. 

Time will tell.

What's you're take on this?

Many homeowners are unaware that some home equity lines have a feature that allows you to convert an equity line into a fixed rate equity loan.  The process does not require a refinance and is usually accomplished by placing a phone call to the lender and paying a small processing fee.  If your home equity line has this feature you should consider locking it now, while rates are at their lowest.

Here's why I'm recommending an equity lock right now.

Today, 4/30/2008 the FED lowered the FED funds rate by another .25% which means prime rate is at the lowest point it has been in several years.  Additionally, the FED explained that further reductions in FED funds rate are unlikely as we risk further devaluation of the US dollar and higher inflation.  Basically what this means is that Prime rate is at the bottom right now and not likely to go any lower.  -- It's Time to lock

If you are unsure whether or not your home equity line can be converted into an equity loan, you can call SCV Loan Solutions for a free consultation and review of your equity line documents.

Martin Rodriguez
President
SCV Loan Solutions
661-254-6839

Banks are sending notices to homeowners advising them that their home equity lines have been frozen or reduced to a lesser amount.

If you have an unused equity line, it may be at risk.

Recently, I have received several phone calls from clients who have already received such notices.  As a mortgage consultant, I felt very strongly that I share this important information with my clients immediately.

Banks are taking huge write downs and losses as a result of poor lending practices and high foreclosure rates throughout America.  As their stock values continue to plummet, banks are being forced to change their credit policy and lending guidelines faster than they can communicate.    While it's easy to understand their defensive repositioning, many homeowners are being caught off guard when their bank refuses to honor an equity check or a request for funds to be drawn. 

• If you believe that you may need to access available funds on your equity line then I would strongly urge you to look at your loan agreement to see if it contains any language that would permit the bank to freeze or reduce your line of credit. 

• If so, you may want to consider whether or not it makes sense to draw down any of the remaining funds on your equity line.  While I would not normally make such a recommendation, this may be the only option available for some people that have a need for liquidity.  However this action would have to be carefully evaluated against the cost of the payments and the overall impact on your equity position in your home versus declining property values.   

Please consult your CPA, Financial planner or my office at SCV Loan Solutions if you need guidance with this decision.