Since 2007, foreclosures have dominated real estate news. You can't turn on the news or open a paper without some foreclosure-related story.
But for all of the discussion, foreclosures continue to be geographically concentrated.
Adding up the latest stats from RealtyTrac.com, more than half of the country's foreclosure actions from March occurred in just 3 states -- California, Florida and Nevada.
Those 3 states represent just 19 percent of the nation's population.
Despite the local concentration of foreclosures, however, they remain a national problem. This is because mortgage lenders lend in all 50 states -- not just 3 of them -- so the impact of mortgage defaults in one region can quickly spread to others.
In part because of foreclosures are higher, the following has happened:
Mortgage guidelines have tightened
Downpayment requirements have increased
Private mortgage insurance has become more expensive
That's an important set of changes for a would-be borrower. In some cases, it can keep a person from qualifying.
Shopping for low mortgage rates is a game of luck.
Some days, mortgage rates are favorable. Other days, they're not. And while you can sometimes make an educated guess about where rates might be headed, you're not always going to guess right.
Even the experts get it wrong more often than they'd like.
But some parts of the rate shopping process can be predicted and one of them is the future of mortgage guidelines.
In general, the more often homeowners default on their respective mortgages, the harder it is for future mortgage applicants to be approved.
This is why "now" may be the best time to apply for a FHA mortgage. Defaults are climbing, suggesting that FHA underwriting guidelines are about to tighten.
Indeed, the FHA has implemented two major changes since last summer:
These changes create barriers to entry for potential FHA borrowers, improving the overall quality of the FHA loan pool.
For a taxpayer-funded agency like FHA, loan performance is an important goal. Therefore, as the number of defaults grows, expect FHA guideline to get tighter.
The problem is, though, we can't predict just where the FHA will tighten. Maybe the FHA raises its minimum FICO score requirement, or maybe it gets tough on seller-paid closing costs. A hike in loan fees isn't out of the question, either -- that's the path Fannie Mae took, after all.
Whatever the FHA does, fewer people will qualify for FHA mortgages once it's done. So, if you're planning to buy a home and your downpayment is limited, or your credit scores are suspect, or there's some other "red flag" in your profile, consider moving up your timeframe to act.
Mortgage rates may rise or mortgage rates may fall, but neither is going to matter if you can't get qualified for a home loan. And, for FHA mortgage applicants, tougher mortgage guidelines are only a matter of time.
It's Tax Day today and who among us doesn't love a legitimate tax deduction?
The IRS expects to process 138 million tax returns this year and accompanying those returns will be a melange of tax deduction requests.
Most will be run-of-the-mill including such staples as mortgage interest, vehicle mileage, and child care deductions. Others, however, will be less ordinary.
On its website, TurboTax pays homage to some of the most off-the-wall, offbeat tax deductions through the years permitted by the IRS.
This is a new tool we are providing for Real Estate agents. Increase your web presence with just a few clicks. Each property will have it's own website. Click below to learn more about it. Get more calls, make more money! FREE.
As a founding Faculty Member of the National Institute of Financial Education, I am proud to be able to offer our clients, partners, associates and others a comprehensive overview of the tools the goverment is making available to address the current housing crisis for America's families. Please pass this information along!
This site has video training on a lot that is going on in todays world...
Close your Home Loan with Integrity Home Finance,.. if you lose your job...Your payment is covered for 6 Months! At NO ADDITIONAL COST*
We are proud to offer you our Homeowner Education and Loan Protection service (HELP).
There are many homeowners who during their first few years of home ownership encounter short-term financial difficulties. These challenges often lead to missed mortgage payments and maybe foreclosure. Suddenly the dream of homeownership is not as fulfilling as once thought.
This is where our HELP program comes in to play. This service is provided our Charitable Foundation and is a safety net for homeowners who need protection from the unexpected.
Mortgage Protection Program - (Job Loss Insurance) Program covers up to 6 months of mortgage payments; should the homeowner become involuntarily unemployed during the first 12 or 24 months of homeownership. (length of policy varies on eligibility of program)
Emergency Assistance Program - During the first year or so of homeownership, you may have available an emergency pool of funds to assist homebuyers in keeping current or making them current on their mortgage payments.
Post-closing Communication and Education - The program also includes 24 months of financial and educational resources in an effort to assist in maintaining timely mortgage payments and tools to maintain financial wellness.
Just signed and sealed...a $787 Billion Stimulus Plan made up of tax cuts and spending programs aims at reviving the US economy. Although the package was scaled down from nearly $1 Trillion, it still stands as the largest anti-recession effort since World War II.
Home owners and potential homebuyers stand to gain from key provisions in this stimulus plan. Here is what we know as of today...
Tax Credit for Homebuyers
First-time homebuyers who purchase homes from the start of the year until the end of November 2009 may be eligible for the lower of an $8,000 or 10% of the value of the home tax credit. Remember a tax credit is very different than a tax deduction - a tax credit is equivalent to money in your hand, as opposed to a tax deduction which only reduces your taxable income.
The tax credit starts phasing out for couples with incomes above $150,000 and single filers with incomes above $75,000. Buyers will have to repay the credit if they sell their homes within three years.
Additional Housing-Related Provisions
Tax Incentives to Spur Energy Savings and Green Jobs - This provision is designed to help promote energy-efficient investments in homes by extending and expanding tax credits through 2010 for purchases such as new furnaces, energy-efficient windows and doors, or insulation.
Landmark Energy Savings - This provision provides $5 Billion for energy efficient improvements for more than one million modest-income homes through weatherization. According to some estimates, this can help modest-income families save an average of $350 a year on heating and air conditioning bills.
Repairing Public Housing and Making Key Energy Efficiency Retrofits To HUD-Assisted Housing-This provision provides a total of $6.3 Billion for increasing energy efficiency in federally supported housing programs.Specifically, it establishes a new program to upgrade HUD-sponsored low-income housing (for elderly, disabled, and Section 8) to increase energy efficiency, including new insulation, windows, and frames.
Expanding Housing Assistance-This provision increases support for several critical housing programs. It includes $2 Billion for the Neighborhood Stabilization Program to help communities purchase and rehabilitate foreclosed, vacant properties.
More Help for Homeowners in the Future
Another thing to keep an eye on in the coming weeks is President Obama's plan to help struggling borrowers before they are faced with a default on their mortgage.
According to reports, the Obama administration is discussing plans to help borrowers who are struggling to stay afloat, but who have not yet fallen behind on their payments. At this point, details are scarce; however, reports indicate that President Obama is looking to spend approximately $50 Billion to directly help homeowners before they face foreclosure and financial disaster.
While this is good news for individual homeowners, it will likely be good for the housing industry as a whole. That's because, assisting struggling borrowers before they default should help stop the wave of foreclosures, which are estimated to top two million this year. That, in turn, will help stabilize home prices.
Fannie Mae to Loosen Refinancing Rules- We will wait to see what announcements our investors make in regards to this announcement from Fannie Mae.
Fannie Mae will loosen rules for homeowners seeking to lower their mortgage payments by refinancing. The District company, which accounts for more than 40 percent of the $12 trillion in U.S. residential mortgage debt, is seeking to break a "logjam" in refinancing and allow more homeowners to take advantage of near-record low interest rates, according to Brian Faith, a spokesman for Fannie Mae, which like its rival, Freddie Mac, is under government control. The increased flexibility for borrowers isn't enough to significantly harm mortgage-bond investors and mortgage insurers, analysts said.
"This is not yet the no-appraisal refi wave that many have feared," Matt Jozoff and Brian Ye, mortgage-bond analysts at J.P. Morgan Chase, wrote in note to clients yesterday. Fannie Mae will drop some credit-score requirements, reduce income-documentation standards and waive the need for appraisals in some cases, according to a notice to lenders it distributed this week. The changes apply to loans that the company owns or guarantees. Fannie Mae will probably use automated models to check home values listed on applications before offering to waive appraisals, analysts said. The changes will also include allowing borrowers seeking to take out a loan that is 80 percent of the value of the home or less to qualify for refinancing with credit scores below its 580 minimum.
FICO credit scores as measured by Fair Isaac Corp. range from 300 to 850. The program also will lower income-documentation requirements to one current pay stub. The program, DU Refi Plus, will start April 4.
The 'Mark to Market' Accounting Rule: What it is and why it is important to you now!
The financial crisis we are in today was not caused by mortgages or housing, although they were both catalysts. The real reason was an accounting rule called "Mark to Market" (also known as FASB 157).
Few people have a strong grasp of this rule, and even those who do have a tough time explaining it on air due to time restrictions. So let's take a few minutes to break it down, so you can have the inside track on this very important concept and understand why it represents some great opportunities.
Why does 'Mark to Market' exist?
Let's go back to the stock market crash, which occurred between 2000 and 2002. With the S&P down 49% and the NASDAQ down 71%, many people lost much of their life savings and they were very angry.
Companies like Enron and Arthur Andersen were able to find ways to make their books look more attractive, which was reflected in an artificially inflated stock price.
Both the public and Congress had a call for more transparency in business and hastened the passage of "Mark to Market" accounting.
This is the notion that all assets should be valued as if they were sold on a daily basis. Under the letter of the law, failure to do this conservatively can now result in jail time.
So what's the problem?
Before we get into what this means for banks, let me make a quick analogy using a scenario that should make perfect sense to you and your clients.
Let's imagine that you own a house in a neighborhood where all of the houses are priced at around $300,000. Unfortunately, your neighbor, who owns his home free and clear, falls ill and needs emergency cash quickly. Because he is under duress, he must sell the home for $200,000 in order to get the cash he needs right away, even though the home is worth considerably more.
Now would this mean that your home is now worth the same $200,000 that your neighbor sold his for? Of course not, because you are not forced to sell under duress. It just means that your new neighbor got a great deal.
However, if you were a publicly traded company and had to abide by Mark to Market account rules, you and the rest of your neighbors would now have to say, by law, that your home was worth only $200,000 - not the $300,000 you would get for it if you actually sold. So what's the big deal? Read on.
So how does this principle apply to banks?
Let's say we decide to start a bank . . . call it XYZ Bank. We raise $2 Million to open our doors. Remember that our capital account is $2 Million. Banks make money by taking in deposits and paying low rates of interest to those depositors (maybe throw in a toaster too). We then take that money and make loans with it at higher rates. We keep the difference.
So, we turn the $2 Million worth of deposits into $30 Million worth of loans. This puts our ratio of loans to capital (our Capital Ratio) at 15:1 ($15 Million in Loans to $1 Million in Capital). This level is acceptable, as long as we can shoulder some losses and recover.
Because we are very conservative here at XYZ Bank, the loans we make require a minimum down payment of 30%, a credit score of 800 or better (that's nearly an 850 which is perfect), proof of income and assets, a reserve of at least two years of mortgage payments (normal is two months) and income requirements that only allow 10% of monthly income to cover all expenses (normal is 40%).
We do this and our loans perform perfectly. We make lots of money. Nobody is paying late and our clients are sending us holiday cards. They love us . . . it's a party. You and I are celebrating as we see our stock price soar.
But real estate values decline and, even though all of our loans are paying perfectly, we must re-assess the loan portfolio to account for the decline in real estate values, which leaves us with less of an equity cushion. We had a minimum 30% down payment, which means the loans were 70% of the value of our assets - until we account for the decline in the market. Now, our position goes from 70% to 90%. That's riskier and, therefore, worth less than when our loans had a 70% safety position.
Our accountants tell us that we must "Mark to Market" or risk jail. They say our value is now reduced by $1 Million. Whoa!
We must take or write down this loss against our capital account. It is a paper loss - we don't write a check, we have no late payers, no defaults, no bad business decisions. Still, we must reflect this $1 Million paper loss in our Capital Account, which drops from a $2 Million to $1 Million in value.
Here's where things get problematic.
At this level, with $30 Million in loans outstanding, we now have a capital ratio of 30:1. At this level of leverage, alarms begin to sound.
Our ratios are out of the safe zone; we could go under with just a few losses, deposits are in jeopardy. Hello FDIC examiner, we are on the watch list, the Securities and Exchange Commission (SEC) is asking questions and our stock starts to tumble. The business networks are showing negative coverage of our now troubled bank. We are in big trouble.
The problem, we are "over leveraged". The solution? We have to "de-lever" . . . and do so quickly. But there are only two ways to do that, and one of them isn't really an option.
The first way is to raise capital, but that's not going to happen when our ratios are out of whack and we are in serious trouble as well as on the FDIC watch list. It is unlikely that anyone will be willing to invest cash in XYZ Bank.
The other option is that we can sell assets, like the outstanding loans, which are increasing our capital ratio. Like your neighbor, who owned his home outright but needed cash for medical bills, we are now under duress. The paper we are holding has a lot of value, but we have to sell it quickly and, because of that, cheaply. So, we offload the loans at a loss, which exacerbates the problem because those losses further reduce our capital account.
Very quickly, like a flushing toilet, things start to spiral - we are going down.
The problem multiplies
The problem doesn't stop there. The fire sale we just had on our loans makes things worse - even for the banks that bought them up and thought they were getting a great deal.
Under Mark to Market, the loans we just sold must be included in the comparables that other financial institutions use to value their assets. This is how the problem spread and got so bad so fast. Other good institutions, with good loans, have to mark down. Just like us, they become over-leveraged. It's a chain reaction, all triggered by a well intentioned, but over-reaching accounting rule.
Financial institutions fold, sell, or freeze. Credit - the life blood of our economy - is cut off at the source. Because of a lack of available credit, home sales and refinances crawl, auto sales drop and jobs are lost. Additionally, the economy enters a recession.
During the last recession in 2001, the economy recovered relatively quickly thanks to $3 Trillion worth of home equity withdrawals. But, more restrictive programs, a lack of available credit, and lower home values will make it difficult for us to use home equity to help pull us out of a recession this time around.
Fixing the Problem
The Federal Reserve has passed a rescue plan, which, over time, will provide some level of help. Some banks will get money to infuse into their capital accounts. Others can sell some assets to the government in an effort to "de-lever".
But, the big thing that is not talked about, not well understood, is the part of the rescue plan that traces this financial crisis back to the source.
The US Congress has given the SEC its blessing to modify "Mark to Market" accounting. And by January 2, SEC Chairman, Chris Cox has to get back to Congress with ideas, if any, on how to fix Mark to Market accounting.
It won't be eliminated, as we will not want to go back to the Enron days. But he is likely to adjust the Mark to Market provisions.
Here's one potential solution - even rental or commercial real estate properties can be valued two ways:
The comparable sales method, which determines the value based on what other assets have sold for, which is the way Mark to Market work currently.
A cash flow method, which values the property based upon cash coming in.
If we see Mark to Market modified to use cash flow to value assets, without requiring a large percentage discounting mechanism - wow! What a shot in the arm that would be. We'd likely see the stock market rally, with financial stocks leading the uphill charge.
Consider that, in today's market, fund managers are holding 27% of their assets in cash, compared with just 3% they held in cash when the stock market peaked in October of 2007. That means there is a lot of money on the sidelines that can push stock prices higher. Additionally, think about the redemptions from hedge funds that eventually need to be put back to work. That's another reason to be optimistic about stocks in the first quarter of 2009 - provided that Chairman Cox modifies Mark to Market accounting in a meaningful way. And a good stock market helps individuals feel better about purchasing homes. Additionally, stronger balance sheets for financial institutions will allow them to lend more money.
The bottom line
With some potentially very good news around the corner, there might be reason for optimism as we head into 2009.
The Fed's been at it again, offering words that sound encouraging at first blush, confirming that their buying program of Mortgage Backed Securities is in full swing and will continue as needed. Of course, the media will pick this up and offer their own interpretation, saying "Good news, the Fed's words on continuing their purchasing program mean that rates will continue to drop lower, and remain low into the summer..." But is this really what that means? Not so.
So why is the Fed buying these Bonds? Well if you think about it, it's very smart of the Fed...and maybe even a little sneaky...because 5.5% Bonds actually represent outstanding mortgages with rates of 6 - 6.50%, which are precisely the loans being refinanced at today's great interest rates.
Stay with me here...
With rates at present low levels, many of the mortgages in these FNMA 5.5% pools being bought up by the Fed will be refinanced and paid, thus giving the Fed a quick recoup on some of their investment. And this is likely a big reason why the Fed said they could continue this purchasing program beyond June, if necessary. Bottom line, the Fed buying these higher rate coupons will not necessarily help rates to move lower, as their actions do not impact the loans being originated at today's low rates.
Here's the most important part.
Sometimes I talk to clients who are in a situation where it makes sense to refinance right now, and save $250 per month for example. But when they hear the media throwing around teases of lower rates ahead, they decide to hold off on making the decision to save the $250 per month right now, in the hopes of gaining another $30 per month in additional savings with a lower rate than where we stand presently. Now clearly, rates could turn higher, and this window of opportunity could pass them by entirely.
The clincher is this:
Even if those clients ultimately are correct in timing the market, and eventually grab that lower rate and save another $30 per month - think of what they have lost by waiting. While they delayed, they lost the savings they could have gained by taking action sooner - or in the example used, $250 - for every single month they waited. So even if they got lucky and obtained the rate they were looking for, it could take years to make up what they lost by waiting.
I don't want anyone to miss an opportunity by either waiting, or not understanding what is at stake. Let's talk further on this - call or email me and let's discuss what this might mean for you.
Disclaimer: ActiveRain Corp. does not necessarily endorse the real estate agents, loan officers and brokers listed on this site. These real estate profiles, blogs and blog entries are provided here as a courtesy to our visitors to help them make an informed decision when buying or selling a house. ActiveRain Corp. takes no responsibility for the content in these profiles, that are written by the members of this community.
Since 2007, foreclosures have dominated real estate news. You can't turn on the news or open a paper without some foreclosure-related story. 
Shopping for low mortgage rates is a game of luck. 
It's Tax Day today and who among us doesn't love a legitimate tax deduction?
our capital account is $2 Million. Banks
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