Market Commentary - Fri, Aug 07 - 9:46 AM ET Employment headlines lead the news this morning, as the official Jobs Report revealed the US lost fewer jobs than expected in July. The markets had been expecting a loss of 328,000 but instead were greeted this morning with a loss of only 247,000, which is the lowest number of jobs lost in almost a year. Making matters even better, the numbers for May and June were revised to indicate that 43,000 fewer jobs were lost than originally reported. All of this news added up to a slight drop in the unemployment rate--which decreased from 9.5% the previous month to 9.4%. This marks the first time the jobless rate has fallen in 15 months. The better-than-expected Jobs Report gave stocks a boost in early trading this morning. In addition, the US Dollar rose against the Euro, as the positive economic news fueled speculation that demand for US equities would increase. Rounding out the positive headlines this morning was news that AIG posted its first quarterly profit in nearly two years. After receiving $180 Billion in Federal aide at one time, the company reported second-quarter net earnings of $1.8 Billion. That's a huge improvement over the $5.4 Billion net loss that AIG reported this time last year.

Our recommendation remains the same.

If you are interested in investing in real estate long-term, now is the time to be actively searching for properties to buy:  There is little competition, so bargaining is easier.

If you plan to trade up there is not much risk, if you stay in the new property for a while: Selling your current property for less will be offset by the lower price on the new, bigger property.

If you have always planned on finding a second home, for vacations or for future retirement options, prices in desirable locations are returning to reasonable levels. We do not recommend trading up or buying a second home if that is going to stretch you financially.

If you have been preparing to do so, starting the property search now makes a lot of sense. I can help with that, especially in getting you pre-approved in a tough lending environment (planning ahead is critical today), and connecting you with other real estate advisors.

Further Questons? Feel free to ask here, or call!

When Will We Return To a Normal Market? First, we all have to recognize that a normal market is not what we have been in for a number of years. Widespread stated income loans, 100% and/or piggyback loans and many of the interest-only programs were not “normal” as few as five years ago. So, seeing these programs disappear can be viewed as “returning to normal”. What needs to return to normal is the ability of lenders to package and sell their loans on to secondary markets, giving them the liquidity they need to lend again. Second, therefore, we have to get through the credit industry crisis. Financial assets must be re-priced so that “unrealized losses” stop hanging over every financial business’ head. Third, demand must begin to return to the housing market, so that a floor can be put under home prices. “We believe that revived buyer confidence is paramount to getting the market moving again,” said luxury home builder Toll Brothers in its most recent quarterly financial statement. “Only when customers believe we are done with housing deflation will the excess supply clear and the market return to equilibrium.” That may be starting to happen. On March 25, the Wall Street Journal reported that efforts of lenders to clear foreclosed houses, among other factors, “are starting to drive prices low enough to attract some buyers back into the market.” The paper also cited data from the National Association of Realtors that found sales of previously occupied homes jumped 2.9% last February over the previous month. Buyers waiting for ‘the bottom of the market’ may want to start looking around.

Has government action helped? Yes it has, by averting a complete shutdown of US financial markets. But no it hasn’t solved the basic problem: Financial institutions are saddled with immeasurable declines in the value of their assets, which prevent lenders from assessing the true solvency of those who wish to borrow. So lenders don’t lend, and borrowers who need funds cannot get their hands on it. In the housing business, this translates to a severe contraction in the type of loans that can be funded. Borrowers who can document their income, have credit scores of 640 or higher, and who seek “conforming loans” (loans that Fannie Mae and Freddie Mac can purchase) can get a loan. People who need larger loans (jumbo loans) or have poorer credit have trouble finding loans, and people who need to find stated income programs (most small businesspeople) are largely out of luck.

Are We Near the Bottom of the Housing Slump? A lot has happened since the beginning of the year in the housing and lending industries. Credit markets remain choked, limiting lending and keeping the housing marketing depressed. Big financial institutions like Bear Stearns and a number of hedge funds have failed to meet financial margin calls and have closed or been absorbed by healthier companies. Companies still struggle to measure the value of their financial assets as the exotic risk-sharing strategies of the early 21st Century failed to dissipate the risk. On the other hand, the Federal Government has taken significant action to keep financial markets liquid, with the Federal Reserve cutting its interest rates and providing a reliable source of funds to financial institutions who can no longer find funds through traditional channels. Congress has expanded the mandates of Fannie Mae and Freddie Mae, the two big providers of liquidity to the mortgage market, and has passed a tax rebate to help consumers.

How Many Affected by The Market? Whether or not each of us has been affected by the housing slump, it is affecting our financial markets and causing gloom among consumers, who feel less wealthy. The first quarter of this year saw a lot of ‘shoes dropping’ (Bear Stearns’ closure being just the biggest) balanced by a great deal of government activity to keep the dropped shoes from falling too hard on the economy. There is evidence that the Federal Reserves liquidity injections and rate cuts have helped, though the repercussions of all this activity will take years to measure. There is also some evidence that buyers are starting to respond to the significant drop in housing prices brought on by the need for homeowners, homebuilders and banks to clear out the inventory of homes they own. The housing market crisis doesn’t affect all of us directly, however, so in this issue we also take a look at other issues that may be of interest to homeowners: Green living, find a mover, and why none of us would ever be able to replicate the speed and success of “reality home renovations” seen on TV.

  

  

Raising conforming loan limit not a simple task

Fannie, Freddie may have to tiptoe into 'jumbo light' market

Monday, February 11, 2008

While Fannie Mae, Freddie Mac and the Federal Housing Administration will soon be allowed to dive into what until now has been the jumbo loan market, it remains to be seen how many borrowers will benefit.
Congress and the Bush administration have agreed to raise the $417,000 conforming loan limit until the end of the year, under a provision of the $150 billion economic stimulus package approved by Congress last week.

But the devil, as they say, will be in the details. The new formula for determining the conforming loan limit will allow Fannie, Freddie and FHA to guarantee loans of up to 125 percent of the median home price of an area. While housing markets where the median home price exceeds $216,840 will benefit from higher limits for FHA loan guarantee programs, one analysis suggests Fannie and Freddie will be able to tiptoe into the jumbo loan business in only 19 metropolitan statistical areas (MSAs).

The first step to be taken to implement the changes will be determining median home prices. The Department of Housing and Urban Development has been given 30 days to publish median-home-price data once President Bush signs the stimulus package into law.

But where will HUD get the data? And with prices falling rapidly in many markets, will the data be updated monthly, quarterly or annually? HUD spokesman Lemar Wooley said FHA will use a combination of existing government data sets and available commercial information to determine the median sales price. He said FHA loan limits are based on the county a property is located in, except when the county is part of a larger MSA, in which case the county with the highest loan limit determines the limit for the entire MSA. Not only does HUD have to come up with median-home-price numbers for every housing market in America, but Fannie Mae and Freddie Mac will have to come up with credit guidelines for a class of loans that, until now, has mostly been off-limits. The government-chartered mortgage financiers will have to decide what their standards will be for the loans they will purchase, or securitize and guarantee.

As they venture into the jumbo loan market, Fannie and Freddie will have to decide if they need to be more cautious about the minimum down payments they will accept, borrower's credit histories, and the fees they charge for taking on more risk. The task will be complicated by the fact that the maximum loan size will vary from market to market, instead of the uniform $417,000 limit in place today in 48 states other than Alaska and Hawaii. In high-cost markets, the $417,000 conforming loan limit for loans eligible for purchase or guarantee by Fannie and Freddie will be raised to 125 percent of the median home price, with an upper cap of $729,750. That formula means that the $417,000 conforming loan limit will remain in place in markets where the median home price is $333,600 or less.

While there's no time limit for Fannie and Freddie to publish guidelines for the new class of loans, the companies have promised to work with regulators to expedite the process. James Lockhart, director of the Office of Federal Housing Enterprise Oversight, told members of the Senate Banking Committee Thursday that the process could take months. The temporary increase in the conforming loan limit is likely to have a bigger impact on FHA loan guarantee programs, because the current limits for FHA are lower. In high-cost markets, the current ceiling for FHA loan programs is $372,790, and $200,160 in other markets. The new ceiling for FHA loan programs in normal markets will be $271,050 -- meaning that even borrowers in housing markets where the median home price is below $216,840 may be eligible for FHA-backed purchase or refinance loans up to that amount. In areas where the median home price is above $216,840, the limit for FHA loan programs will be 125 percent of the median home price, all the way up to $729,750.

Fannie and Freddie will be allowed to buy and securitize jumbo loans originated any time between July 1, 2007 and Dec. 31, 2008. That means jumbo lenders may be able to sell some of the loans they've made in the last seven months to Fannie and Freddie, freeing them up to make more loans.

One reason Congress and the Bush administration agreed to raise the conforming limit, at least for now, is that Wall Street investors will no longer buy most mortgage-backed securities that don't carry the backing of Fannie, Freddie or FHA. That means borrowers are paying about 1 percent more for jumbo loans that exceed the $417,000 conforming loan limit. But there's no guarantee investors will accept the jumbo loans backed by Fannie and Freddie -- which are private, publicly traded companies that face potentially billions of losses in the current mortgage morass -- as safe investments. They may also need some time to familiarize themselves with how FHA is handling the larger loans, said Jaret Seiberg, an analyst with Stanford Group Co. who follows the secondary mortgage market.

"Investors understand the risk characteristics of conforming mortgages that are securitized by Fannie and Freddie, and they understand FHA-backed loans securitized through Ginnie Mae," Seiberg said. "But they don't have experience with jumbo loans coming out of those channels. In a market with so much uncertainty, it's a real question whether investors are going to have an appetite for a new product." If Wall Street investors don't snatch up the larger loans backed by Fannie, Freddie and FHA after they are securitized, that would limit the benefits to the secondary mortgage market and do less to ease the credit crunch than backers of the move have hoped.

As Fannie's and Freddie's losses mount and they bump up against minimum capital requirements, their capacity to purchase and guarantee loans is not unlimited. And as Lockhart noted, it takes three times as much capital to guarantee one $600,000 loan as it does one $200,000 loan. While Seiberg is confident that HUD can implement higher loan limits for FHA programs, he said Fannie and Freddie have technological and capital issues to overcome before they become "meaningful players" in the "jumbo light" market.

As to which housing markets might benefit from higher conforming loan limits, Seiberg said Stanford Group used median-home-price data from the National Association of Realtors to analyze where Fannie and Freddie might be able to purchase or guarantee loans above the current $417,000 limit. Stanford Group identified 19 markets -- more than a third of them in California -- where Fannie and Freddie could enter the jumbo light market.

Good Friday Evening ! 30 year fixed conforming pricing was better by as much as 40bps this morning!  Here is an interesting article from this mornings news!

Stimulus Plan Helps Some Homeowners

 WASHINGTON (AP) - The biggest winners in the economic rescue plan now awaiting President Bush's signature are likely to be Americans with more expensive homes who will be able to refinance their home loans at cheaper rates.   For those who can take advantage of them, the bill's mortgage market provisions are likely to give more of a long-term financial boost than the tax rebates of $600 directed to individuals and $1,200 to couples, economists said.

The stimulus package temporarily raises the maximum size of mortgages that government-sponsored mortgage companies Fannie Mae and Freddie Mac can purchase and market as securities from $417,000 to as high as $729,750 in expensive parts of the country such as New York and California.  It makes a similar change for loans backed by the Federal Housing Administration, a government agency that insures loans to borrowers with poor credit.  As defaults have surged, investors have been extremely skittish about the U.S. mortgage market. With less money available to loan, banks are charging higher rates for riskier loans that can't be sold to Fannie and Freddie.

Right now, borrowers in expensive areas are "really stuck between a rock and a hard place," said Mark Vitner, senior economist with Wachovia Corp. Raising the caps, he said, will result in a refinancing boom for those properties.   "We're more likely to see an immediate improvement at the upper end than we are at the lower end" of the housing market, he said.

The interest-rate gap between "jumbo" loans above the $417,000 limit and "conforming" loans below it has been stubbornly high for months. Last week it was close to a full percentage point, compared with 0.2 percentage point in July, according to financial publisher HSH Associates.  While some critics say Fannie and Freddie should stick with financing loans on more affordable homes, Fannie Mae CEO Daniel Mudd said last week that over the past few years home prices rose so high in parts of the Northeast and West Coast, hiking the loan limits became necessary.

"The notion that we're talking about vacation homes in Colorado is not correct," Mudd said at an investor conference in New York. "We're talking about working-class homes."

Still, borrowers with little equity in their homes whose property value has plummeted could still could face foreclosure if they can't make their mortgage payments. And the new limits are due to expire by year-end unless Congress makes the changes permanent.

The law also prevents Fannie and Freddie from buying loans over the $417,000 limit made before July 1, 2007. But that provision would still let borrowers with older loans refinance into new loans that would be sold to Fannie and Freddie, because those loans would be considered new loans.

Groups representing Realtors, bankers and home builders, which have been hit hard by the mortgage market downturn, have been lobbying hard for increases in the Fannie and Freddie limits.

Still, the impact of the changes is likely to take several months to be felt in the mortgage market, said Doug Duncan, chief economist at the Mortgage Bankers Association. Investors are still working out whether loans above $417,000 will be packaged together as securities with loans below that level, or treated separately.

Also, Duncan said, investors will want to study default levels on loans above $417,000, and prices could reflect a higher level of risk until that is known. "Investors will have to see how those securities perform relative to others," he said.

The impact of the Federal Housing Administration change is likely to be smaller. The Congressional Budget Office estimated the agency could back $10 billion in additional loan guarantees through 2008 with higher limits - a tiny fraction of the more than $2 trillion in new mortgage loans made last year.

While economists call these changes positive, they aren't a quick fix for the housing industry's problems. Home prices are still falling, lenders have become more cautious about extending credit and investors worldwide are still leery of the U.S. mortgage market amid soaring losses on mortgage-linked investments.

"Congress and the President want to show that they're doing something about housing," said Nariman Behravesh, chief economist at forecasting firm Global Insight. However, especially in the short-term, he said, "the overall effect of this, we think, is going to be fairly small."

 

 

In the time it takes to count to ten, five new people will become victims of identity theft. In fact, according to the U.S. Department of Justice Statistics, identity theft is now passing drug trafficking as the number one crime in the nation--with more than 15 million victims every year.

Rather than lay awake at night worrying and wondering if your identity has been stolen, you can actually take a simple step to protect yourself... it's called a credit freeze (or, sometimes, a security freeze). Essentially, a credit freeze gives you the ability to "freeze" or lock access to your credit file--which helps prevent someone from opening a new account in your name.

Here's How It Works

When someone tries to open an account in your name, they'll be stopped in their tracks. That's because one of the first things a creditor will do before opening the account is pull a credit report.

By having a credit freeze in place, creditors aren't able to pull your credit report. And, since very few lenders will issue credit without first seeing a credit report, identity thieves can't open fraudulent accounts using your name. However, when you want to apply for credit, you can temporarily lift the freeze using a PIN... thus, allowing your legitimate application to be processed

The Flip Side

First, it's important to remember that a credit freeze only stops someone from opening a fraudulent account. It can't stop them from using a stolen credit

 

you still need to keep the phone numbers of your credit cards handy, in case your cards are lost or stolen.

In addition, some critics argue that credit freezes have more of a downside than most people realize. That's because you won't be able to purchase a car, get a new credit card, or refinance a mortgage at a moment's notice. Instead, you'll have to plan ahead by lifting the freeze, which usually takes about three days.

For most major purchases, this won't be much of an issue--after all, how many of us buy a car or house on a whim? Typically, we make the decision to start looking and, at that point, can easily lift the credit freeze in anticipation of the purchase. However, a credit freeze can be problematic if you're at a department store and the cashier offers you 10% off your purchases if you open an instant credit card with the store.

Other Options

Opponents of credit freezes also argue that consumers can just as easily fight identity theft with fraud alerts, which require lenders to verify identity before issuing loans or credit. If you have reason to believe you've been a victim of identity theft, you can obtain a 90-day fraud alert. And if you provide reliable evidence that you are in fact a victim--using such documents as a police report--you can extend that fraud alert for up to seven years.

The problem is... fraud alerts only come into play AFTER you've been victimized. So for many consumers, credit freezes offer more protection and more peace of mind.

Here's the Shocker... You May Not Have a Choice!

Believe it or not, credit freezes aren't available in every state. Some states have yet to pass credit freeze laws. Why? Well... it all comes down to a battle between the big business of instant credit and the growing need for more secure personal information.

And, don't kid yourself, billions of dollars are at stake in this battle! Credit-reporting agencies sell credit reports to lenders, landlords, employers and other businesses. Department stores and retailers generate huge revenues by offering instant store credit cards that boost profits through interest and increased shopping. And, finally, we as consumers have simply grown accustom to receiving on-the-spot credit for our purchases.

To learn more about these issues and to find out if your state allows credit freezes, visit www.ConsumersUnion.org/finance/creditfreezeinfo.htm

 

As a Trusted Advisor, I always want to make sure you are clear on all details of the home financing process. If you or someone you know are interested in purchasing or refinancing a home,  give me a call today! 800-720-5596

It's that time again...time to start gathering all of that dreaded documentation to send to good old Uncle Sam! Recent stats say the IRS audited 1 out of every 97 returns last year, so it pays to be careful. And even though this may seem like a very painful process, taking just a few simple steps right now will make your tax filing far easier and more accurate.

Keep it together. Make a quick list of all the documents or statements that were needed to complete your return last year--or call your tax planning professional for a checklist. Use this as a checklist to make sure you have a good start on the documents you may need this year. As you receive tax documents in the mail, grab your checklist, and mark the item as received. Then, keep all of the tax documents together in a large file or envelope marked "2007 TAXES."

Do the math. According to the IRS, the most common mistake on tax returns is bad math--from transposed numbers to downright incorrect data. And with one document leading to the other, those errors can make a huge impact. And even if you use tax software, you're not off the hook--since they only add the info YOU put in. Double-check entries carefully.

Every last cent. The IRS receives copies of your Form 1099 earnings each tax season. So, they know how much you make in interest and dividend income, and they will use that info to double-check your filing information. Make sure you all your earnings statements and document them on your return.

Sign on the line. It sounds almost silly, but forgetting to sign a return is actually a fairly common oversight. And the IRS won't process a return that doesn't have a signature. So, make sure you sign to avoid resubmitting your paperwork and possibly paying late-filing fees.

Remember, there isn't a lot of room for error when you're dealing with the IRS. A slight miscalculation could mean the difference between getting a return and writing a check--or worse, paying a penalty. It pays to work with a tax professional. If you need a referral, contact me--I'm happy to help!

 

 So pass it along! And call or email me with any questions:  800-720-5596 or visit:  www.SFBayArealoans .Com