Anna's Real Estate Blog

For Sale: 5BR/3+1BA Single Family House in Suwanee, GA, $451,900

2010-07-23T17:50:00.000-07:00

For Sale: 5BR/3+1BA Single Family House in Suwanee, GA, $451,900

4430 Wimberly Way, Cumming, GA | Powered by Postlets

2010-06-21T08:04:00.000-07:00

4430 Wimberly Way, Cumming, GA Powered by Postlets
Click above to view my latest listing!

June 16th Update!

2010-06-21T06:11:00.001-07:00

Today, the Senate passed an extension to the tax credit. However, the credit provision is part of a larger jobs and tax package that both chambers must still vote on before it becomes law. This extension, if passed, would allow only those individuals who already have signed contracts to complete the transaction after June 30th. More information will be passed along as Congress works on this extension.

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WASHINGTON — The Senate on Wednesday approved a plan to give home buyers an extra three months to finish qualifying for federal tax incentives that boosted home sales this spring. The move by Senate Majority Leader Harry Reid would give buyers until Sept. 30 to complete their purchases and qualify for tax credits of up to $8,000. Under the current terms, buyers had until April 30 to get a signed sales contract and until June 30 to complete the sale. The proposal, approved by a 60-37 vote, would only allow people who already have signed contracts to finish at the later date. About 180,000 homebuyers who already signed purchase agreements would otherwise miss the deadline.

Reid, D-Nev., added the proposal to a bill extending jobless benefits through the end of November. Nevada has the nation's highest foreclosure rate, and Reid is facing a tough re-election campaign. The Realtors group has been pushing hard in Congress for the extension. Mortgage lenders, the trade group says, have been swamped with borrowers trying to get approved by the end of the month. Many potential borrowers are unlikely to make the deadline. "If Congress fails to act promptly, then prospective homebuyers might not get the benefit of the homebuyer tax credit, even though they have completed contracts," the Realtors said in a letter to lawmakers.

First-time buyers were eligible for a tax credit of up to $8,000. Current owners who bought and moved into another home could qualify for a credit of up to $6,500. The $140 million cost of the measure would be financed by denying businesses the ability to deduct from their taxes punitive damages paid when losing lawsuits or judgments.

The information above was provided by James A Williamson of Fairfield Mortgage.

May 26th Update!

2010-06-21T06:10:00.000-07:00

Mortgage Rates Plummet

Just when everyone seems to be predicting that mortgage rates will rise, out of the blue they have dropped to the low point of the year! This remarkable development has occurred for the following three reasons:

1. Global economic concerns. The trouble in Europe continues to brew and threatens to spread as European countries are forced to reduce government spending. In addition, Chinese officials are now focused on tightening monetary policy to reduce inflation. Also, tensions between North Korea and South Korea continue to build. Investors have reacted to these crises by shifting money to relatively safer assets such as bonds and U.S. mortgage-backed securities (MBS) and this has had the effect of pushing mortgage rates lower.

2. Domestic economic uncertainty. In the U.S., it's not clear to what degree a newly proposed financial regulation bill will cause banks to reduce lending and lead to slower economic growth. In response to periods of uncertainty such as this, investors seek to reduce risk by moving to safer assets which, again, has led to lower rates.

3. Tame inflation. April Core CPI inflation fell to the lowest level in 44 years!! Low inflation always equates to low rates.

Mostly Positive Economic Data

On the housing front, recent news has been mostly positive. March Pending Home Sales increased 5.3% from February and were 21% higher than one year ago at this time. April Housing Starts increased above the consensus forecast to the highest level since October 2008. In addition, the May NAHB Homebuilder confidence index rose to the highest level since August 2007. Although the number of builder permits declined moderately, builders surveyed remained optimistic about sales over the next six months even as the home buyer tax credit expired.

More good news to report as retail sales rose for 7th straight month and oil prices fell to $65 per barrel reaching the lowest level since July 2009. The correlation between oil prices and mortgage rates is staggering!

On the jobs front, the weekly jobless claims unexpectedly jumped well above the consensus forecast and this figure will be closely watched over the next few weeks.

Flood Insurance Program Set to Expire

The National Flood Insurance Program is set to expire on May 31st. By law, a lender has to check to see if a property is in a flood zone before a mortgage can close. If the flood cert comes back negative (as most in Atlanta area do), there isn't an issue. However, if it comes back positive, the appropriate flood insurance coverage must be obtained prior to closing. If Congress does not address this issue and extend the program this week (they are not in session next week), the program will expire for the third time this year! This means that any loan closings scheduled that do not have the required flood insurance arranged by Friday will have to be delayed. Just what we need in this market! Congress has allowed this issue to linger for months and one existing proposal only would extend the program through Dec 31. Our elected officials need to figure this one out and quick or there are going to be some serious repercussions to anyone wanting to buy a house who needs flood insurance.

Rate Update

Mortgage rates have reached the lowest point since early December of 2009!

Looking Ahead

The last half of this week will be busy with New Home Sales and Durable Orders figures being released today. Also, a revised figure for first quarter Gross Domestic Product (GDP) will be released tomorrow and the Chicago PMI Manufacturing Index and Personal Income on Friday. Consumer Sentiment and Consumer Confidence round out the busy week.

All information above was provied by James A Williamson of Fairfield Mortgage

Real Estate Update, May 16th 2010

2010-05-16T16:19:00.001-07:00

Greek Troubles Overshadow Strong Data

Last week, the global financial markets remained focused on the economic troubles of Greece. Greek workers responded to proposed austerity measures with strikes and riots, and investors grew increasingly concerned that other smaller European countries will face similar problems cutting their budget deficits. As a result, US mortgage markets were helped in two primary ways:

1. Investors sought a flight to quality and shifted funds to safer investments, including US Treasuries and mortgage-backed securities (MBS).

2. Continued economic turmoil in Europe will reduce US exports to the region, which will slow US economic growth and reduce inflationary pressures.

Increased demand for MBS and lower future inflation are both positive for mortgage markets and contributed to keeping mortgage rates low over the last week.

Strong April Employment Report

Last week's April Employment report exceeded expectations in nearly every area. Against a consensus forecast of 190K, the economy added 290K jobs in April, the most since March 2006! In addition, the data from prior months was revised higher by an additional 121K. The manufacturing sector also added the most jobs since 1998! The Unemployment Rate rose to 9.9% from 9.7%, but that was due to unexpectedly large growth in the labor force as more people began to seek jobs.

The Fed Stays the Course

The recent Federal Open Market Committee ended without any major changes. The Fed kept the Fed Funds Rate the same and made no change to their Policy Statement, stating that rates will remain low for an "extended period" of time. Although the Fed does not directly control residential mortgage rates, there are presently three major threats to low rates lurking out there that do relate to the Fed:

1. The Fed made no mention in their latest Policy Statement about selling any of their Mortgage Backed Security (MBS) holdings. However, minutes from the meeting will be released at a future date and if the Fed discussed this topic at the meeting, it could cause rates to rise.

2. There is growing concern that if the Fed doesn't begin selling some of their MBS holdings by 2011, additional asset bubbles may arise. It's likely that the Fed will look to sell a meaningful chunk before year-end and, when this does happen, there stands to be some upward pressure on rates at that time.

3. Despite a stronger Stock market, higher consumer confidence, and an improved housing market, St. Louis Fed President Thomas Hoenig remains the lone dissenter to the verbiage in the Policy Statement regarding keeping rates low for an "extended period." He feels that there is a strong risk of inflation ahead and that the Fed needs to prepare the markets for the eventual hikes that will be coming to the Fed Funds Rate. When other Fed members agree with Hoenig (and the day will come), this verbiage will change and this will be a signal that the Fed now considers inflation to be a real threat. Since inflation is the archenemy of mortgage rates, the change in verbiage will cause rates to move higher.

Foreclosures and REO's

2010-01-31T06:07:00.000-08:00

Are you interested in pursuing a Foreclosures or REO home?
Here are some facts to review:

What is Foreclosure?
Foreclosure is a process that allows a lender to recover the amount owed on a defaulted loan by selling or taking ownership (repossession) of the property securing the loan. The foreclosure process begins when a borrower/owner defaults on loan payments (usually mortgage payments) and the lender files a public default notice, called a Notice of Default or Lis Pendens. The foreclosure process can end one of four ways:
The borrower/owner reinstates the loan by paying off the default amount during a grace period determined by state law. This grace period is also known as pre-foreclosure.
The borrower/owner sells the property to a third party during the pre-foreclosure period. The sale allows the borrower/owner to pay off the loan and avoid having a foreclosure on his or her credit history.
A third party buys the property at a public auction at the end of the pre-foreclosure period.
The lender takes ownership of the property, usually with the intent to re-sell it on the open market. The lender can take ownership either through an agreement with the borrower/owner during pre-foreclosure, via a short sale foreclosure or by buying back the property at the public auction. Properties repossessed by the lender are also known as bank-owned or REO properties (Real Estate Owned by the lender).

January 19th Update

2010-01-31T06:05:00.000-08:00

RESPA Changes / The New Good Faith EstimateThe new Good Faith Estimate (GFE) became effective on January 1 and is the centerpiece of the RESPA changes. The form is now standardized and the same from lender to lender and this consistency is a good thing. However, the form has gone from 1 to 3 pages and is now flat out too long. Here is everything you need to know about page 1 of the new form:

The form begins innocently enough with "Borrower / Lender info” and “Purpose” sections at the top. However, the next “Shopping for your loan” section encourages the borrower right off the bat to do a lot of shopping with the insinuation that it is all about price and not service. In fact, this is one of the main themes of the new form. With this said, the realtor’s job will be more important than ever to emphasize that it really is about service first, and then price.
The next section is entitled “Important dates” and there are four dates or timeframes listed. This is a very cumbersome section and just too much info. The most important thing shown in this section is that the GFE must be valid for at least 10 business days. If the GFE is not accepted within 10 days, then the Loan Officer is no longer bound by the GFE. Once the borrower accepts the GFE, however, the fees become binding and are subject to increase only if the borrower requests a change or there is a “change in circumstance.” If there is a valid change in circumstance (such as a change in the contract), then a new GFE has to be disclosed within 3 days of the change and at least 1 day prior to closing. Thus, it will be critical that the realtor notify the Loan Officer immediately if there are any changes that will cause fees to increase (Sales price, Seller paid costs, Closing date, etc.). Decreases are OK and do not necessitate a new GFE.

Also, it is important to be aware that lenders can no longer collect fees up-front from the borrower until the GFE has been accepted. The only exception to this rule is that a small fee can be collected for the Credit Report. A fee for the appraisal can’t be collected until after the GFE has not only been generated and given to the borrower, but also officially "accepted" by them. I understand that a lot of people have been taken advantage of in the past and that there is a lot of good in this rule; however, this is not good news for the Loan Officer who is trying to meet a contract deadline, collect the appraisal fee, and get the appraisal ordered. Because of this new system, it is going to take longer to get appraisals and approvals done, thus, the realtor needs to leave longer time frames for the appraisal and approval contingencies to be completed. I am suggesting 2 weeks for the Appraisal Contingency and 3 weeks for the Approval Contingency. It is also critical that the realtor get the final contract to the Loan Officer asap.
The next “Summary of your loan” section is good basic loan info that has not been on the form before. There are five "Yes / No" answers to key questions such as if the rate or payment can rise, if the loan has negative amortization, and if there is a prepayment penalty or balloon. This section is a good addition but the payment listed is very confusing. Note that it is the sum of the P&I and PMI. No one looks at the sum of P&I + PMI! The payment listed should be just the P&I or the total PITI.

The “Escrow account information” section indicates whether escrows are required. This is good to know but, again, only two inches down the form the P&I + PMI payment is listed a second time. What is the purpose of showing this sum a second time? Why would the total PITI not be shown here or, for that matter, anywhere on the form? Yes, believe it or not, the total PITI payment is not shown anywhere on the new GFE.

The last section is the “Summary of your settlement charges" and is a tally of just that. These exact same figures are tallied again on page 2, so I am not sure the reason for the redundancy. This calculation is completely out of place at the bottom of page 1. The biggest shortcoming of the new GFE is that it does not show the down payment, the earnest money deposit, the total funds to close, or the PITI anywhere on the form. How can you call it a GFE without these things? How is the borrower supposed to know how much money he needs to bring to the closing? Obviously, no one with any direct lending experience was consulted in the creation of this form!

Next week, we'll continue to look at the rest of the new GFE form.
Low Inflation and Strong Auctions Influence Rates Downward
After climbing .5% in December, mortgage rates have eased back down .25% during the first two weeks of January. This drop can primarily be attributed to low inflation and strong demand at recent Treasury auctions.

Although inflation continues to be a huge long-term concern due to the enormous level of government spending, it has not been a factor in the short-term as virtually all of the data in recent months has shown it to be low and not an issue. Last week, the Consumer Price Index (CPI), the most widely watched inflation indicator, showed that core inflation rose only 1.8% from one year ago. This is square in the Fed's 1 - 2% comfort zone and the Fed is forecasting continued low core inflation throughout 2010.

Another long-term concern for mortgage investors is that the vast increase in the supply of government debt will exceed the demand. However, this has not been an issue yet in 2010 as both foreign and domestic demand has remained strong for long-term US Treasuries. The risk that important buyers (like China) will exit still exists, but so far so good!

Learning to Repeat Key Disciplines

To be a successful sales person, one of the most important concepts you can learn is that of repeating a few key disciplines each day. Prospecting, database management, and good communication with clients in your current pipeline are all examples of key disciplines. To be successful in this area, the following three things must be in place:

1. Attitude. You must first have a proper mindset. If you are negative all of the time, then expect negative things to happen to you. If you hang around with naysayers all of the time, then expect that to rub off on you. A positive, optimistic, "can do anything" attitude is critical to long-term success.

2. Plan. Research and think through exactly what needs to get done to be successful in your job. Ask others who are successful in your field what they do. Do some soul searching and ask lots of questions. Then write down your plan of action and keep it somewhere where you will see it regularly.

3. Execute. Take action and follow the plan. Ask someone you know and trust to hold you accountable.

Here's a great question to ask yourself today: What is one new discipline that I need to do every day to increase my volume? Think it through and then make it happen!

How to Permanently Change an Incorrect Credit Score
The credit reporting industry continues to be a fairly sloppy business. It is very common for someone to have inaccuracies on their credit report. Sometimes the mistakes are so severe that it prevents them from obtaining a mortgage. What should someone do to permanently correct inaccuracies that show up on their credit report? The answer is that they need to make sure that they fix the mistake at the bureau level. A little more insight is needed to explain exactly what this means.

Mortgage lenders use credit reporting agencies to pull credit reports. These agencies are middle-man companies that organize the credit data into easy to read reports, and have customer service departments to help lenders ensure their client's credit in satisfactory for the purpose of obtaining a mortgage. These credit reporting agencies should not be confused with the three national credit bureaus where all of the consumer data is stored. The bureaus are like warehouses that store the data and the credit reporting agencies are like trucking companies that come and get the data and then deliver it to consumers via lenders.

When a consumer finds that they have incorrect information on their credit report, it is critical that they get this fixed at the bureau level. If they provide something to their lender that clears an item up for a particular loan, they most likely have cleared the item up at the credit reporting agency only. This is a one-time fix. The key to a permanent credit score change is to submit the correction to all three of the credit bureaus which can be contacted as follows:

• Equifax: (800) 685-1111 / www.equifax.com• Experian: (888) 397-3742 / www.experian.com• TransUnion: (800) 916-8800 / www.transunion.com
Rate Update Rates have had a good January and are about .25% lower than the beginning of the year.

Real Estate Update 1/11/2010

2010-01-11T12:20:00.000-08:00

Market Update:
Unemployment Static at 10%Today's Employment Report indicated that the economy lost -85K jobs in December (significantly more than the -5K forecasted) and that the Unemployment Rate remained at 10.0%. A small revision to the November data showed a gain of 4K jobs, the first monthly increase since December 2007. The details of the report suggest that small businesses may be creating jobs more slowly than larger companies and that the manufacturing and constructions sectors continued to perform poorly.

Housing Update:
In the housing sector, November Pending Home Sales fell 16% from October, but the decline followed nine straight months of increases and November Pending Home Sales were 15% higher than one year ago. Pending home sales are a leading indicator of future housing market activity. Recent data has been heavily influenced by the timing of the home buyer tax credit, which was originally set to expire at the end of November. A surge of buyers attempting to purchase before the original deadline pulled demand forward. When the home buyer tax credit was expanded and extended to April 30, 2010, the time pressure was removed. Hopefully, we will have a surge in purchase business between now and the end of April which will generate some momentum that will carry us through the end of the year!

Mortgage Rate Update:
Mortgage Rates on the RiseIn case you checked out for the holidays and are just now checking back in, the final few weeks of December were not kind at all to mortgage rates. Heading into December, mortgage rates were close to record low levels, but a combination of the following factors has caused rates to push about .5% higher from early Dec to the present:
An improving economic outlook: aside from today's Employment and Pending Home Sales reports, most of the recent economic news has been good. Although this is good news for the economy, stronger than expected economic data and a stock market rally are negative for mortgage markets because it generally leads to higher inflation.
Government spending: the government already will need to issue an enormous amount of debt to pay for its spending, and it now looks more than likely that additional expenditures are on the way for job creation and health care bills. Higher yields are required to attract investors to purchase the extra debt, pushing up yields for competing investments such as mortgage-backed securities (MBS).

Fed uncertainty: the Fed is winding down its $1.25 trillion MBS purchase program which is causing great uncertainty as to the future demand for mortgage investments.
Rates spent much of 2009 below 5%. My crystal ball indicates that it is more realistic that rates will stay in the 5-6% range throughout most of 2010.

Identify Your Key Result Areas:
A key result area is something that is under your control that you must achieve to succeed at your job. It is a healthy exercise to identify your key result areas. Prospecting, closing a sale, and effective transaction management are good examples. Your weakest key result area sets the height at which you can use all your other skills and abilities. You can be exceptional in 6 of 7 key result areas, but your poor performance in the 7th area will hold you back and determine how much you achieve with all your other skills. This weakness will act as a drag on your effectiveness and be a constant source of friction and frustration.
It is common to avoid jobs and activities in the areas where you have performed poorly in the past. Instead of setting a goal and making a plan to improve in a particular area, most simply avoid that area altogether, which just makes the situation worse. Likewise, the better you become in a particular area, the more motivated you will be to perform that function, the less you will procrastinate, and the more determined you will be to get the job finished.
We all have weaknesses. The key is to identify what yours are, and then set a goal and make a plan to improve in your weak areas. It is reassuring to know that all business skills are learnable. As you get started in 2010, resolve to master all of your key result areas and then, truly, nothing can hold you back!

Excerpts from "Eat That Frog!" by Brian Tracy
New Technology that Tells You How to Increase Your Credit Score
So, your latest and greatest client, Joe Buyer, has just had his credit report pulled and his credit score is a 605 and 15 points below the 620 minimum score needed. In the past, it would have been complete guesswork to determine what Joe would need to do to bump up his score by 15+ points. However, a tool now exists that analyzes Joe's credit report and lets him know how much his credit score will increase if specific actions are taken. The process is as simple as the Loan Officer running Joe's credit report through some special software. Then, amazingly, the report indicates specific actions that can be taken to improve his score such as:
• a 15 point increase for moving a credit card balance from one credit card to another• a 20 point increase for simply paying a credit card balance down by $2000• a 25 point increase for paying off and closing a particular account

The coolest part of this technology is the "What-If Simulator" which allows the Loan Officer to run countless "what-if" scenarios through the software to see how much the score will change if specific actions are taken. Talk about invaluable information that can help you get a buyer to closing! It is important that you are aware of this technology and that you can recommend it when needed. It is also important that you work with a Loan Officer who understands this technology and knows how to use it. At Fairfield Mortgage, we understand and use this technology regularly. Let us know when we can help your client figure out what they need to do to increase their credit score and qualify for a mortgage.

Rate Update
Rates have been flat over the last few weeks but are up .5% over the last month.

Thank you to James Williamson with Fairfield Mortgage for providing these updates each month!

Mortgage Update for November 17th, 2009

2009-11-17T05:47:00.000-08:00

Stock Market Up, Mortgage Rates Down

Several Fed officials spoke up last week indicating that a solid majority of Fed officials feel that the economy is still too fragile and the labor market is too weak to begin to raise rates. Fed Chief Bernanke joined the band wagon yesterday by assuring investors in a speech that the Fed intends to keep rates at low levels. Confirmation that rate hikes are a long way off has encouraged investors to purchase stocks and mortgage-backed securities (MBS), and both the stock and bond markets have had a great week as a result. In fact, since the first Fed official comments last Wednesday, mortgage rates have improved a little each day. The stock and bond markets normally move in opposite directions, so to have a week where they both have healthy gains is great news!

Also, worth noting, October Retail Sales rose 1.4%, above the consensus forecast of 0.9%. Retail Sales minus autos, however, increased by only 0.2%, which was well below expectations. Investors will be closely watching the level of spending by consumers during the holiday season to help determine the strength of the economy.

Two Important HUD Announcements

On January 1, 2010, HUD will require that mortgage lenders provide consumers with a new standard Good Faith Estimate (GFE) that clearly discloses key loan terms and closing costs. Closing agents will also be required to provide borrowers with a new HUD-1 Settlement Statement that clearly compares consumers' final and estimated costs. This much has been known for some time, but HUD announced last week that for the first four months of 2010, they have instructed regulators to exercise restraint in enforcing the new RESPA GFE and HUD-1 regulatory requirements for those lenders who have made a good faith effort to comply with RESPA's new requirements. As long as the lender is moving forward with an investment and commitment in technology, training, and quality control designed to comply with the new rule, then they now have until May 2010 to proceed with the new law.
In a second HUD announcement last week, we learned that FHA capital reserves have fallen well below the required minimum level of 2% of loans. Just two years ago, FHA accounted for less than 2% of all loans originated. However, over the last year FHA has become the star of the show and now accounts for over 25% of all new mortgage loans. This low capital ratio is due to FHA having a lot of bad loans on its books. FHA has already taken significant action to improve the quality of its portfolio by increasing the down payment to 3.5%, increasing mortgage insurance to 1.75% up-front and .55% per month, implementing new condo rules, implementing new appraisal rules similar to HVCC set to take effect in January, and requiring higher net worth requirements for lenders. With this said, there is going to be more political pressure on FHA to increase its capital reserves and we should all expect more FHA changes in the days ahead. Possible changes are a higher minimum credit score, an increased down payment to 5%, or higher mortgage insurance premiums.

Sales Tip

You will never be able to do everything you have to do. You will never be caught up. You will always be behind in some of your tasks and responsibilities. With so much to do, you have to pick and choose what you do each day. Your key to reaching high levels of performance and productivity is to develop the habit of tackling your biggest, most important task first each day. Prioritize your tasks and then identify the most important one. Learn to begin the task immediately without delay or procrastination. Be determined, focused, thorough, and finish the task completely before moving on to the next task. Knocking out your biggest task of the day first is a key to great success and happiness in life!

Credit Report Tips
Credit cards play a huge role in the calculation of one's credit score. Here are a few tips that you may not know:
• Carrying too many credit cards with balances can hurt a score as it indicates higher risk and over-extension. Action Point: Actively use only a few credit cards.
• The ratio of a credit card's balance to the credit limit is critical and, ideally, all balances would be at 30% of the limit or less. Thus, the higher the credit limit the better, and the lower the balance the better. Action Point: Increase your credit card limits and pay down the balances to 30% or less of the limit.
• Carrying a small balance and paying timely will lead to a higher score than carrying no balance at all, but closing an unused account with a zero balance usually does not increase a score. Action Point: Maintain a small balance on credit cards and never let the payment be more than 30 days late.

TAX CREDIT EXTENSION PASSED

2009-11-06T05:37:00.000-08:00

Congress has approved an extension today of the home buyers tax credit, sending the bill to the White House for the President's signature.

The House voted 403-12 to pass the bill after the Senate unanimously approved the measure Wednesday night. The legislation continues a home buyers' tax credit and a measure allowing businesses to write off some of their losses incurred over the past two years.

House lawmakers voted to approve the measure more than a month after initially agreeing to a more modest extension of unemployment benefits. The home buyers' tax credit and business-tax measure were added in the Senate.

The bill extends an $8,000 first-time home buyers' tax credit that was set to expire at the end of this month. The credit will apply to all house contracts entered into before April 30, 2010, and closed by June 30. It creates a new $6,500 credit for existing property owners looking to sell their home and buy another during the same period of time. Both credits have income restrictions limiting their availability.

Mortgage Update- Monday, June 29, 2009

2009-06-29T10:54:00.000-07:00

Mortgage Rates Drop

With major economic data, a Fed meeting, and large Treasury auctions on the schedule, last week was a busy week for mortgage markets. In the end, it was the Treasury auctions which had the greatest impact on rates. Much of the rise in interest rates we have seen over the last month was due to concern about the enormous supply of debt the government needs to issue to pay for all the stimulus programs. The question has been whether investors would require significantly higher yields to continue purchasing bonds. Strong demand from both domestic and foreign investors at these auctions eased those concerns for now and helped pushed mortgage rates lower last week.

As expected, on Wednesday the Fed made no change to the Fed Funds rate. Although investor expectations varied widely regarding the Fed's statement, the good news is that the statement revealed no significant shifts in policy. In particular, there was no change in the timing or the quantity of future MBS and Treasury purchases. In addition, the statement contained no discussion about exit strategies to eventually unwind Fed stimulus programs. Overall, the Fed simply held the course, and mortgage rates were nearly unchanged after the news.
In the housing sector, May Existing Home Sales rose 2.4%. It was the first time since September 2005 that Existing Home Sales increased for two months in a row. The inventory of unsold homes declined to a 9.6-month supply from a 10.1-month supply in April. A NAR survey revealed that 29% of sales were to first-time home buyers, helped by the $8,000 tax credit, low mortgage rates, and favorable affordability levels.
Federal Tax Credit Growing from $8000 to $15,000?
There has been a lot of talk about the proposed $15,000 federal tax credit but since we have not been able to confirm any details, we decided to call Johnny Isakson's office directly. One of our loan officers called and spoke to one of his aides and was told that the proposal was on hold until it could be attached to another bill as an amendment. The aide said that support was strong from both sides of the aisle and they expected it to pass easily. Hopefully, they'll find another bill to attach it to soon! This may come together in the end but it sure doesn't seem like its going to be anytime soon. In the meantime, the $8000 federal tax credit seems to be working! As we talk with people in the industry, it is clear that purchase business has certainly picked up and much of that is first-time home buyer business.

A Quick Lending Tip for Each Major Type of Loan
Conforming: The minimum down payment in metro-Atlanta area is 10%. If a borrower is putting between 10-20% down, they will need to pay PMI and their debt ratio will be limited to 41%. FHA: The minimum down payment is 3.5% but there is more flexibility with debt ratios as they are often allowed into the mid 40's. VA: The original 100% loan program is again THE best 100% loan program. If your buyer is a veteran and doesn't want to put much money down, VA is the way to go. There is no PMI at all. Instead a 2.15% "VA Funding Fee" is added to the sales price and, thus, financed into the loan. Jumbo: The gap on Jumbo rates has closed to only about 1% more than Conforming resulting in Jumbo programs once again being a viable alternative. But if sales price is in the low $600k's or less, the best way to structure the financing is by maxing out the first at the $417k Conforming limit and then tacking on a 2nd mortgage for the difference. 2nd mortgages are much more difficult to get these days but there are still some out there and available! This technique is called a Jumbo Blend and although there are many hurdles to make it over with this approach, it usually is the best way to go when you compare payments. Rate UpdateIt was a good week for rates:

Looking Ahead This week, the ever important Employment Report will come out on Friday. As usual, this data on the number of jobs, the Unemployment Rate, and wage inflation will be the most highly anticipated economic data of the month. Early estimates are for a loss of about 370K jobs in June. Before the Employment data, the Chicago PMI and ISM National Manufacturing Indexes will come out on Tuesday and Wednesday. Pending Home Sales, a leading indicator for the housing market, will be released on Wednesday. Consumer Confidence, Construction Spending, and Factory Orders will round out the schedule. Mortgage markets will be closed on Friday ahead of the July 4th holiday.

The information contained herein is believed to be accurate, however no representation or warranties are written or implied. All Rights Reserved.

June 8th, 2009 Update

2009-06-08T10:44:00.001-07:00

RATES CONTINUE TO SOAR

Investors have been concerned for quite a while about the coming supply of new debt needed to pay for all the government stimulus programs. On top of that, the economic outlook has been improving sooner than expected. The combination of these two potentially inflationary developments pushed mortgage rates higher during the week.

The economic surprise last week came from the Employment report. Although the economy lost -345K jobs in May, it was far fewer than the consensus estimate for a loss of -525K jobs. The Unemployment Rate jumped to 9.4% from 8.9% in April. A surge in people entering the labor force was responsible for the unexpected increase in the Unemployment Rate. The labor market is typically one of the last areas to show improvement during an economic rebound, so signs of a turnaround are particularly significant.

Fed Chief Bernanke supported the notion that the recession would end this year. In testimony before Congress last week, Bernanke stated that he still expects the economy to move higher later this year, although it may take a while for growth to return to average levels. He looked ahead to measures needed once the economic crisis has passed, such as containing the budget deficit and reducing government control of markets. At this point, most investors believe that the Fed is not inclined to expand the mortgage-backed security (MBS) purchase program beyond its current level of $1.25 trillion, unless economic growth falls short of the Fed's outlook.

More evidence that the economy may be rebounding came from last week's housing data. April Pending Home Sales rose for the third consecutive month, increasing 7% from March. Pending Home Sales are a leading indicator, meaning that future New and Existing Home Sales reports may show increases.

Looking Ahead

This week, the most significant economic data will be the Retail Sales report on Thursday. Retail Sales account for about 70% of economic activity. In addition, the Trade Balance and the Fed's Beige Book will be released on Wednesday. Import Prices and Consumer Sentiment will come out on Friday. There will be large Treasury auctions on Tuesday, Wednesday, and Thursday as well.

Have a great week and when you think of financing, please think of Fairfield!

To unsubscribe, please notify me at r.crozier@fairfieldmortgage.com. The information contained herein is believed to be accurate, however no representation or warranties are written or implied. All Rights Reserved.

May 4th, 2009- Mortgage Update

2009-05-04T05:30:00.000-07:00

News From Last Week

It was a busy week last week in financial markets and mortgage rates rose following Wednesday's Fed announcement and ended the week higher for the first time in a few weeks. Demand for the $101 billion in last week's Treasury auctions was average, and foreign investors purchased a healthy 29% to 33% of each auction. The stock market ended the week with little change. Nearly all of the movement in mortgage rates during the week was related to the Fed meeting.

In anticipation of the announcement of favorable new Fed actions, mortgage rates actually moved lower early in the week. Some investors were looking for the Fed to expand its purchases of Treasury securities, which would be positive for mortgage rates. Those investors were disappointed, however, as the Fed announced no new initiatives. The Fed made no change in rates, holding the fed funds rate close to zero. According to the Fed, the economic outlook has "improved modestly" since the March 18 meeting. A lack of new Fed programs and confirmation of improved economic prospects pushed mortgage rates higher.

Overshadowed by the Fed meeting, an important report on first quarter Gross Domestic Product (GDP) presented data which supports the Fed's economic outlook. GDP fell -6.1%, which was significantly weaker than the consensus forecast. However, a breakdown of the GDP report reveals that the weak headline number for the first quarter may not be reflective of the current condition of the economy. GDP fell more than expected mainly due to declines in inventories and business investment. Consumer spending actually far exceeded expectations. If this trend continues, then businesses will have to begin to rebuild depleted inventories, lifting future economic activity.

Looking Ahead

The important Employment report will come out on Friday. As usual, this data on the number of jobs, the Unemployment Rate, and wage inflation will be the most highly anticipated economic data of the month. Early estimates are for a loss of about 620K jobs in April. Before the Employment Data, Pending Home Sales and Construction Spending will come out on Monday. Pending Home Sales is a leading indicator for the housing market. The ISM Services index will be released on Tuesday, while Productivity is scheduled for Thursday. There will be large Treasury auctions on Tuesday, Wednesday, and Thursday. The results of the government's stress tests for 19 large financial institutions will be released on Thursday.
Have a great week and when you think of financing, please think of Fairfield!

This Week's News

2009-03-10T04:45:00.000-07:00

Last week, concerns about prolonged weakness in the economy caused investors to sell stocks and buy relatively safer investments, including mortgage-backed securities (MBS). This, plus the fact that the Fed purchased more MBS than in any prior week, resulted in mortgage rates falling a little during the week.

For months, leading economists have been predicting that the economy will perform poorly during the first half of this year, and Friday's Employment report was right in line with those forecasts. The economy lost 651K jobs in February, and the December and January figures were revised lower by a total of -161K. The Unemployment Rate jumped to 8.1% from 7.6% in January, which was the highest level since December 1983.

Borrowers interested in refinancing their loans under the Financial Stability Plan received some additional guidance last week. The program is designed to assist homeowners whose loans are owned or guaranteed by Fannie Mae or Freddie Mac, who are current on their payments, and where the loan amount is no more than 105% of the value of the home. A website (www.financialstability.gov) provides guidance on how to determine if a particular loan is owned or guaranteed by Fannie or Freddie and whether the borrower may qualify under this program. Additional details of the program are expected over coming months.

Looking Ahead

The Economic Calendar has a light schedule this week. Thursday's Retail Sales report will be the primary economic data. Retail Sales account for about 70% of economic activity. Import Prices, Consumer Sentiment, and the Trade Balance will be released on Friday. Fed Chief Bernanke is scheduled to speak on Tuesday. Treasury auctions and new information on government programs also may have an impact next week.

Have a great week and when you think of financing, please think of Fairfield!

Market Update

2009-01-24T12:36:00.000-08:00

Mortgage Rates Rise Sharply

Although nothing has fundamentally happened over the last week to push mortgage rates higher, rates have indeed soared greatly over the last seven days. But why? I offer you three main reasons:

1. Supply and Demand. With rates falling as low as 4.5%, mortgage lenders have locked in more loans than they can handle over the last month. It is natural to see rates bump up a bit after they have been so low. Don't forget that there are 50% less loan officers out there today than there were two years ago. The mortgage industry is clogged right now and it's going to take a few weeks or longer for things to resume to normal. Higher rates will enable everyone to catch up a bit.

2. Investor Fees. With mortgages paying off more quickly due to the super low rates, investors are not paying as much in the secondary market for these loans. Mortgage lenders are in turn charging a little bit more to offset this loss of income. This has contributed to the recent rise in rates.

3. The Silly Government. Fannie Mae and Freddie Mac, now run by the government, implemented higher fees beginning last week that make it more expensive for many to take out a Conforming loan. These fees will impact those making smaller down payments, those with credit scores under 740, and even those buying condo's. Yes, this is very counterproductive to the aims of the Federal Reserve to lower mortgage interest rates but they are doing it because they feel that this risk based pricing policy will make their Mortgage Backed Securities more valuable on the secondary market. The bottom line is that mortgage rates have pushed up a good .5% over the last week and are now over 5%. I believe the surge is temporary and that we will see rates drop below 5% again in the days / weeks ahead.

Hello to Down Payment Assistance?

Last week, there was a bill introduced in Congress that would reinstate seller-funded downpayment assistance (DPA). With the minimum FHA down payment rising to 3.5% effective Jan 1st, it would be great news to see the 100% option come back again.

Good-Bye to Interest-Only Loans!

Fannie Mae announced this past week that they will no longer purchase "interest-only" loans. About five years ago, interest-only loans came out of the blue and all of a sudden were available on most any program at little or no premium. They were the rage with it seems like every other borrower obtaining this feature. During 2008, the cost of obtaining an interest-only loan jumped to about 1 discount point which more or less eliminated this as a good option. And, now, the feature is being buried with many of the other programs and features that rose to prevalence over the last decade.

News from Last Week

Good news last week with inflation. The December Consumer Price Index (CPI) declined -0.7% from November, mostly due to lower energy prices. The core CPI rate, which excludes food and energy, rose a scant 1.8% from one year ago. The December Producer Price Index (PPI) report contained similar results, and inflation concerns are nonexistent right now. All of the other economic reports showed continued weakness in the economy. It is worth reporting that oil prices fell last week to $35 per barrel, down from $145 in July!

A Great Idea Our own Senator from GA, Johnny Isakson, has just introduced legislation to jump-start housing demand and to boost the economy by expanding the home buyer tax credit passed by Congress last year. The final version of the legislation that was signed into law last year only included a tax credit for first-time home buyers that must be repaid over a 15-year period. The legislation introduced by Isakson today would expand that tax credit to include all purchasers and would eliminate the current requirement that it be repaid. Repayment of the tax credit would only be required if the home is sold within three years. Hopefully, this bill gets passed because it sure seems like it would offer a pretty big incentive for many to buy! Rate Update Mortgage rates are sharply higher this week but still at super low levels not seen since the 1950's!

Have a great week and when you think of financing, please think of Fairfield! To unsubscribe, please notify me at jaw@fairfieldmortgage.com. The information contained herein is believed to be accurate, however no representation or warranties are written or implied. All Rights Reserved.

LOW rates!

2008-12-21T11:47:00.000-08:00

Rates Hit the Lowest Point of My Lifetime

Friday, mortgage rates dropped to the low point of our generation with the 30 year fixed hitting 4.25% in the morning before rising by day's end back up to 4.625% where it stands today. Rates rose Friday afternoon out of sheer reaction to how many people locked in to rates in the morning. These dramatically low rates are the reaction of the following series of events that occurred earlier in the week:

1. Tuesday's very favorable CPI inflation report showed prices dropping sharply and, for now, inflation is not a concern for investors.

2. Tuesday's Housing Starts report showed a 19% decline to a record low of 625K annual units, far below the consensus forecast of 730K. Building Permits, a leading indicator, showed a similar decline. To give you a contrast, Housing Starts were running at a 2.2 million unit annual pace in early 2006. On a favorable note, the slowdown in the building of new homes will help reduce the inventory of unsold homes on the market.

3. Friday, the Fed cut the Fed Fund rate from 1.0% to nearly 0.0% and suggested that they might purchase large quantities of Mortgage Backed Securities and Treasuries (over and above the previously announced $500 billion plan) to help keep mortgage rates low. The Fed's statement confirmed that economic conditions have worsened recently and suggested that rates will remain at extremely low levels for an extended period of time.

Article Courtesy of James Williamson, Fairfield Mortgage

Possible Rate Drop to 4.5%!!!

2008-12-04T05:37:00.000-08:00

From the WSJ today:
WASHINGTON -- Financial industry lobbyists are urging the Treasury Department to take steps to lower mortgage rates and help stabilize the battered U.S. housing market.
Under one proposal, Treasury would seek to lower the rate on a 30-year mortgage to 4.5 percent by purchasing mortgage-backed securities from Fannie Mae and Freddie Mac, Scott Talbott, chief lobbyist at the Financial Services Roundtable, said Wednesday.
If enacted, such a plan would be an unprecedented opportunity for anyone with good credit and a solid income who could qualify for a mortgage at the lowest rates on records dating to the early 1960s, said Keith Gumbinger, senior vice president at financial publisher HSH Associates.
"You would have the mother of all re-fi booms," said mortgage industry consultant Howard Glaser.
The goal of the industry's proposal would be to take advantage of the unusually large difference, or spread, between mortgage rates and yields on government debt. On Wednesday, the yield on the 10-year Treasury note yield sank as low as 2.65 percent, while the national average rate on a 30-year fixed rate mortgages was 5.75 percent, according to HSH Associates.
In recent years, there has been about a 1.8 percentage point difference between the yield on a 10-year Treasury note and a 30-year mortgage rate, but that spread currently hovers around 3 percentage points.
Analysts said that the government could use its ability to borrow money at low rates to in essence flood the market for mortgage-backed securities. This increased demand would tend to push down the yield on mortgage securities sold by Fannie and Freddie, which now average about 5.5 percent because of investor concerns about default risks. Once those yields fall, the theory goes, lower mortgage rates should follow.
That would have two benefits for the economy: Immediately adding money to the pocketbooks of homeowners who can refinance their mortgages and reduce their monthly payments, and eventually help arrest the slide in home prices since much lower mortgage rates would allow more potential buyers to qualify for loans.
"The goal is drive mortgage rates so low that home prices not only stop falling but begin to rebound," said Greg McBride, senior financial analyst at Bankrate.com.
If the government does buy up mortgage securities, it would be similar to the effort announced last week by the Federal Reserve to purchase up to $500 billion of mortgage-backed securities from Fannie and Freddie. The two mortgage giants, which were seized by federal regulators in September, own or guarantee about half of the $11.5 trillion in U.S. outstanding home loan debt.
The Fed, however, did not announce a specific target for mortgage rates, which plunged about a half percentage point after the announcement.
That caused new mortgage applications to more than double last week, according to the Mortgage Bankers Association's weekly survey released Wednesday. Refinance volume more than tripled, and made up for nearly 70 percent of all applications.
Still, the industry plan is not likely to help borrowers whose credit is so damaged that banks don't want to lend to them.
"It doesn't do anything to help all the borrowers facing foreclosures," said Guy Cecala, publisher of Inside Mortgage Finance, a trade publication. "It's going to benefit the people who have equity in their home, who have decent credit and can refinance."
Treasury is considering several options, and could announce a decision as early as next week, industry sources said.
Treasury spokeswoman Brookly McLaughlin said she would not comment on speculation about actions the department may take in the future.
The proposal was reported Wednesday afternoon on The Wall Street Journal's Web site.Treasury could make such a proposal as part of a request for the second $350 billion of the $700 billion financial rescue fund, industry sources said.
Treasury Secretary Henry Paulson has been criticized by members of Congress for using the bailout money to shore up Wall Street banks, while not doing enough to help homeowners facing foreclosure.
In recent weeks, a diverse set of industry groups from real estate agents to carpet makers have called on lawmakers and the incoming administration of President-elect Barack Obama to subsidize lower mortgage rates and beef up tax credits to help stimulate housing demand.
The National Association of Realtors has been pushing a plan under which the federal government would spend $50 billion to lower mortgage rates. It says doing so would yield about 500,000 more home sales.
Meanwhile, the National Association of Home Builders is leading a new "Fix Housing First" coalition to push for aid to the ailing housing sector, including a tax credit of up to $22,000 for anyone who buys a home before the end of 2009.

World Markets Soar After Last Week's Plunge

2008-10-13T06:59:00.000-07:00

HONG KONG — Global stock markets rebounded strongly on Monday after last week's historic sell-off as governments from Europe to Australia and the U.S. intensified efforts to ease a financial crisis that threatened to the throw the world into recession.
Hong Kong's Hang Seng Index, which tumbled more than 7 percent Friday, soared 1,434.33 points, or 9.69 percent, to finish at 16,231.20.
Australian and Singapore indices jumped more than 5 percent, while South Korean and Chinese benchmarks added around 3.7 percent.
As markets opened in Europe, Britain's FTSE-100 shot up 5.6 percent, Germany's DAX climbed 6.4 percent and France's CAC-40 advanced 7 percent.
In Japan, where the Nikkei 225 tanked nearly 10 percent Friday to close out its worst week in history, trading was closed for a public holiday.
Markets around the world sprung to life as nations expanded their efforts to save a financial system, reeling from seizing credit markets and risky debt, that threatened to throw the global economy into recession.
On Monday five central banks — including the U.S. Federal Reserve and the European Central Bank — unveiled new measures to thaw frozen credit markets and bolster funding to banks. The Bank of England, the European Central Bank and the Swiss National Bank said they would provide unlimited U.S. dollar funds to financial institutions. The Bank of Japan said it was considering similar measures.
/**/

In Britain, three of the country's largest banks — Royal Bank of Scotland Group PLC, Lloyds TSB Group PLC and HBOS PLC — announced plans to take up to 37 billion pounds (US$63 billion) of government money to boost their balance sheets.
Earlier in the day, Australia said it would guarantee bank and other lender deposits for three years.
The moves came after leaders of the 15 euro-zone countries said Sunday they would guarantee new bank debt until the end of 2009, allow governments to help banks by buying preferred shares, and vowed to rescue important failing banks through emergency recapitalizion.
The global effort brought a measure of relief after investor panic sent world equities markets spiraling last week in one of the steepest declines in decades.
"The government measures genuinely do help market confidence," said Daniel McCormack, a strategist for Macquarie Securities in Hong Kong. "We are reaching a point where policy could soon start to have an impact on the credit markets and once it does that will help the equity markets."
In the U.S., investors were waiting to see if the Treasury Department's newly announced plan buy equity in troubled banks would help stabilize the volatility on Wall Street. Lawmakers have urged quick action by President George W. Bush on the effort, to be funded by the US$700 billion bailout he signed Oct. 3.
Wall Street stock futures showed a rebound was in store for the major indexes ahead of the opening bell on Monday. Dow Jones industrials futures rose 331 points, or 3.9 percent, to 8,701. Nasdaq 100 futures rose 51.7, or 4 percent, to 1,334; and Standard & Poor's 500 futures added 43, or 4.8 percent, to 934.04.
In a volatile session Friday in New York, the Dow Jones industrial average fell 128, or 1.49 percent, to 8,451.49, gyrating within a 1,000 point range. The average had its worst week on record in both point and percentage terms.
Financials helped lead Monday's advance in Asia, with leading Chinese lender Industrial & Commercial Bank of China, or ICBC, soaring 13.6 percent. Leading Australian banks such as Commonwealth Bank of Australia and ANZ Banking Group Ltd were also up sharply. Commodity issues gained as well.
Elsewhere in the region, Indonesia's key index, down sharply in early trade, gained 0.9 percent after the lifting of a trading suspension, imposed last Wednesday amid a freefall in share prices. The upswing followed government measures to free up liquidity, including easing regulations for share buybacks and corporate financial reserve limits.
Taiwan's benchmark index closed down 2.15 percent after the market was shut Friday for a national holiday.
Oil prices recovered, with light, sweet crude for November delivery up US$3.33 at US$81.03. The contract fell Friday US$8.89 to US$77.70, the lowest price since Sept. 10, 2007.
In currencies, the greenback gained against the yen to 100.57. The 15-nation euro bought US$1.3532.
** Article posted on www.FoxNews.com

Senate Passes "Bail Out Bill"

2008-10-02T11:19:00.000-07:00

The Senate passed the $700 billion economic-rescue package by a 74-25 margin on Wednesday night, just two days after the House had rejected a similar bill.
Legislators had spent a feverish two days putting together this revised package, hoping to appease both liberal Democrats and conservative Republicans, who had expressed major reservations about the legislation.
Congressional leaders, as well as President George W. Bush, Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke, had pressed over the past week for this package, which they said was necessary to stop a financial meltdown.
Paulson released a statement on Wednesday night saying, “I commend the Senate for tonight’s strong, bipartisan vote. This sends a positive signal that we stand ready to protect the U.S. economy by making sure that Americans have access to the credit that is needed to create jobs and keep businesses going. I urge the House to act promptly to pass this bill.”
Both major presidential candidates, Republican John McCain and Democrat Barack Obama, voted in favor of the bill.
Click here to see how your state legislators voted
While the legislation is fairly complex, in basic form it offers a way for financial institutions to get some of their most-toxic securities off their books, with the federal government taking them over. This bill authorizes the Treasury Secretary to have up to $700 billion of securities “outstanding at any one time,” though the approval for the full $700 billion would come in stages.
The bill passed in the Senate differed from the rejected House legislation in a number of ways. Federal Deposit Insurance Corp. insurance will be raised temporarily to $250,000 from $100,000. In addition, there were changes to the Alternative Minimum Tax and incentives for small business, among other things.

Click Here to Read
Because the bill had to be one that was already under consideration, it was basically substituted in for a mental-health parity bill, a measure the Senate voted on before considering the legislation itself, and approved by a vote of 74-25. However, some mental-health parity provisions were included in the measure.
Sen. Bernie Sanders (I-Vt.) had proposed an amendment that would create a surtax on those making over $500,000 a year, but it was defeated.
The bill will now journey to the House. A vote there is expected sometime on Friday, Rep. Barney Frank (D-Mass.) told FOX Business. It’s still expected to have a much tougher run there. Every House seat is contested in the early-November election, which means the Representatives are more mindful than their Senate counterparts of the opposition from constituents.
That opposition is still strong. The Web site survey on FOXBusiness.com, which is not a scientific poll, indicates that only 12% of respondents support passage of the rescue package, while 15% want a better explanation of what’s in it. A full 73% say they understand what’s in it and just don’t want it.
Part of the challenge for those in favor of the bill is that it’s meant to help the credit markets, which are less visible. The stock market, which suffered one of its worst days in history on the day the House rejected the bill, is suffering but still liquid.
Activity in the credit markets is extremely low, with banks hesitant to lend to each other, or to customers. The fear of market and economic experts is that such a lack of money flow will devastate an already weak economy.

Market Drop

2008-09-30T02:59:00.000-07:00

Congress Debates Rescue Plan What a day it has been, again! On a historic day, the House unexpectedly failed to pass the $700 billion rescue plan, and investors embarked on a flight to safety. Money flowed out of the stock market in tidal wave fashion with the Dow losing over 750 points! The lack of a systemic action to help credit markets leaves a lot of questions. Until a solution is agreed upon, financial institutions will be even more reluctant to make loans. At the same time, confidence in the ability of lawmakers to fix the problem is dropping. Needless to say, investors will be waiting and watching closely to see if lawmakers come up with an alternative rescue plan in the days ahead. In the meantime today, as money flowed out of the stock market, a good bit of it flowed into the bond market, which helped drive mortgage rates lower. Oil prices also fell $11 to $96 per barrel. If we can get some gas into Atlanta, then maybe we'll see gas prices take a significant drop. And almost as a footnote with everything else going on today, Wachovia finally went under and was bought by Citigroup. Just two and a half years ago, Wachovia was an extremely healthy bank, that is until they got wrapped up in the sub-prime business through their $25 Billion acquisition of Golden West Financial. Talk about the kiss of death. And the Wachovia bank failure comes just two business days after the largest US bank failure ever as Washington Mutual collapsed, was seized by the FDIC, and then sold to JP Morgan Chase to prevent the FDIC from depleting its insurance fund. Citigroup and JP Morgan Chase now join Bank of America as the three largest banks in America. To Bail Out or Not to Bail Out? So, what’s the $700 Billion Bailout all about anyway? Make no mistake about it, the credit markets are dragging down the economy, and the basic problem is clear. Many financial institutions hold large quantities of complex mortgage securities which have declined in value. The precise value of these securities is difficult to determine, since there are few buyers and the market is not functioning efficiently. Amid the uncertainty, it's very difficult and costly to raise additional capital, so financial institutions are conserving their remaining capital. These institutions are very reluctant to make new loans of any kind. If businesses have no capital to grow and consumers have trouble purchasing homes and cars, the economy suffers and jobs are lost.

Fed Chief Bernanke and Treasury Secretary Paulson spent two long days last week presenting a $700 billion rescue plan to Congress. Much of the testimony noted that the rescue plan would be an acquisition of assets. Mortgages and mortgage backed securities will be purchased at a significant discount to the face amount of the underlying mortgages. Many of the mortgages will be performing, while some will not, and they will have houses as collateral. Ultimately, the orderly liquidation of the acquired assets could recover most, if not all, of the purchase price. The plan would provide much needed capital to institutions, which is expected to be used to make more loans. Hopefully, Congress can work out the details and pass something soon so we can begin moving in the right direction! In other news last week:
Bernanke called this the most significant financial crisis in the postwar period
Continuing Jobless Claims rose to the highest level since 2001

August Existing Home Sales fell a little from July, while inventories declined FHA Limits 'Buy and Bail' PurchasesFHA announced last week that home buyers who want to rent out their current home and use the rental income to offset their mortgage payment to enable them to qualify for a new home are going to be able to do so only if they have 25% equity in their current home or if they provide proof of a job relocation. Unless one of these conditions is met, buyers are going to be forced to sell their current home first or qualify for both mortgages at the same time. FHA hopes this new rule, which was implemented effective Sept 19, will prevent buyers from purchasing a less expensive home and then walking away from their current mortgage. This has become a major trend in certain parts of the country. Whatever the reason, there is no doubt that this is going to push even more people out of the home purchase market.

Update from James Williamson-

2008-09-23T03:43:00.000-07:00

Relief Program Boosts Confidence
This has been quite the historic week in the financial markets. One major investment bank declared bankruptcy, another sold itself, and the world's largest insurance company needed a government bailout. Central banks around the world had to inject hundreds of billions of dollars into the banking system to calm the markets.
The government's primary response to the market turmoil was a broad relief program. The program includes major elements intended to stabilize credit markets and restore confidence. Directly affecting the mortgage market, a government entity will be established to acquire underperforming mortgage assets, manage the assets, and sell them in an orderly fashion. This will remove troubled assets from financial institutions and replace them with fresh capital, which will then be available for future lending opportunities. In addition, the Treasury doubled the amount of mortgage securities that it will buy in the open market for its own holdings. Fannie Mae and Freddie Mac will be allowed to increase their mortgage portfolios, as well. One result of these actions should be increased liquidity for future investment in mortgage assets.
A Fed meeting is usually the most significant event in a week, but last week it took a back seat to the other news. While many investors expected a rate cut on Tuesday to relieve credit markets, the Fed held the fed funds rate unchanged at 2.0% in a unanimous vote. According to its statement, the Fed expects inflation to moderate later this year, but they are concerned about the upside risks. The Fed also noted slower economic growth, partly due to tight credit, weakness in the housing market, and a slowdown in exports.
In other news last week:
Some good news as the August Consumer Price Index (CPI) showed a small decline from July
The government also announced that it will provide guarantees for the $2 trillion in assets in money market mutual funds
And, oil prices fell as low as $90 per barrel, down 40% from the high, before ending at $100 per barrel. Unfortunately, the prices are rising this week.
Update on Down Payment Assistance
Last week the House Financial Services Committee adopted H.R. 6694, which is designed to reauthorize and reform down payment assistance programs that the Housing Bill banned in July. A last-ditch effort to head off the Oct. 1 ban on the use of seller-funded down-payment assistance with FHA-backed loans is picking up steam as a compromise bill that would mend rather than end the practice of down payment assistance. HR 6694 would allow qualified borrowers with credit scores of 680 or above to use seller-funded down-payment assistance on FHA-backed loans. Borrowers with scores between 620-680 will be subject to risk-based pricing and higher insurance premium fees. We should find out this week if Congress and the President will also approve of this legislation. Rate Update With all of the volatility in the financial markets last week, mortgage rates remain very low but are as much as .5% higher than last Monday. Needless to say, expect more volatility in the days ahead.

Freddie and Fannie Taken Over

2008-09-07T09:38:00.001-07:00

Government takes control of Fannie, Freddie
Move is intended to prevent major financial turmoil

BREAKING NEWS
MSNBC News Services
updated 54 minutes ago

WASHINGTON - The U.S. government announced on Sunday that it was taking control of troubled mortgage finance giants Fannie Mae and Freddie Mac, effectively wiping out shareholders' interest in the publicly traded companies.
The regulator of the two companies, the Federal Housing Finance Agency (FHFA) will manage the two companies on a temporary basis.
The takeover is the second rescue bid engineered by the U.S. Treasury Department in little more than six weeks. It came as confidence in the firms' ability to keep operating amid a deepening housing crisis continued to erode.
Treasury Secretary Henry Paulson and Federal Housing Finance Agency Director James Lockhart, regulator for the so-called GSEs or government-sponsored enterprises, called a Sunday-morning news conference to spell out the latest rescue effort.
Officials said the executives of both institutions had been replaced. Herb Allison, a former vice chairman of Merrill Lynch, was selected to head Fannie Mae, and David Moffett, a former vice chairman of US Bancorp, was picked to head Freddie Mac.
Paulson said the actions were being taken because "Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe."
"A failure would affect the ability of Americans to get home loans, auto loans and other consumer credit and business finance," Paulson said.
Both companies were placed into a government conservatorship that will be run by the Federal Housing Finance Agency, the new agency created by Congress this summer to regulate Fannie and Freddie.
The Federal Reserve and other federal banking regulators said in a joint statement Sunday that "a limited number of smaller institutions" have significant holdings of common or preferred stock shares in Fannie and Freddie, and that regulators were "prepared to work with these institutions to develop capital-restoration plans."
The two companies had nearly $36 billion in preferred shares outstanding as of June 30, according to filings with the Securities and Exchange Commission.
The announcement followed an intense round of meetings on Friday and Saturday with directors and top leaders of the GSEs, who are expected to be dismissed after having come under stiff criticism for their high pay and management shortcomings.
The two mortgage companies are a vital cog in the United States housing industry because they own or guarantee almost half the nation's $12 trillion in outstanding home mortgage debt. The housing sector would have difficulty recovering from its deepest slump since the Great Depression unless Fannie or Freddie are stabilized and able to continue their role in buying mortgage loans and packaging them into securities sold around the world.

Thanks to Real Estate ABC.com for the following information:

2008-09-01T06:54:00.001-07:00

Existing Home Sales - August ReportLast Updated: 8/29/2008
Home Sales Report Summary
Sales of existing homes in the USA went down by 2.04% last month, to 4.86 million homes. That's well below last May (2007), by -15.48%.
Sales Pace by Region - Month to Month and Year to Year
For month-to-month comparisons, sales were down everywhere except in the West, which was up by .98%. The sales pace for resale homes was down by -3.14% in the South, -3.45% in the Midwest, and -6.50% in the Northeast.
That is month-to-month. Year-to-year presents a different picture. Nationwide, we have already talked about the sales pace (it was down -15.48%). In the South, sales were slower by -18.14%, -17.65% in the Midwest, -15.84% in the Northeast, and only down -6.36% in the West.
July sales pace figures released at the very end of August.
This measure tracks units - condominiums, co-ops, and single family home. What "sales pace" means is that the National Association of Realtors calculates how many homes were sold, makes adjustments for seasonal factors like weather, school, vacations, then calculates how many homes would sell in a year at that given pace. When we use raw data, we try to state that clearly.
Price Appreciation
Nationally, the median average sales price fell compared to last year, down by -6.07%, with the new median average sales price of a home was $215,000. The Midwest showed an actual increase of value, by 2.82%, followed by declines in all other regions: South by -2.37%, Northeast by -12.63% and the West by -17.22%.
Median Average
The median average is the "midpoint" sales price. Half the homes sold above that price and half below.
Inventory Rises
It would take 11.1 months to sell all the existing homes currently available on the market at the current sales pace, and there are more homes on the market than last month. There are 4.490 million homes listed for sale. We're selling less than five million a year.
We measure inventory in two ways. "How many homes are available for sale?" and "How many months would it take to sell the total number of homes available for sale right now, at the current sales pace?" When the sales pace declines, inventory measured in months will increase, even if the same number of homes is for sale.
Next Report
All figures in this report are for June 2008 closings. July 2008 data released at the very end of August.
Month-to-Month Appreciation Graphs, regional and nationwide - click here.

Changing Market?

2008-07-06T04:38:00.000-07:00

When people realize I am a Realtor, I often get asked a lot of questions. In the past, those questions centered around how many homes were on the market at any given time, where the majority of my listings were located, and how quickly homes were moving. More recently, those questions have ranged from "How is your business right now?" to "When is this marketing going to correct?" Of course, I have no crystal ball, but I have been in real estate and lending long enough to offer some forecasts to the curious.
If you are currently considering selling your home, think price first. Homes that are within the range of "jumbo loans" are moving quite slowly right now. In Georgia, conforming limits are $417,000. This means that if you price your home under $417,000, the buyer will be able to apply for a conforming loan. However, if you list your home at $600,000 (or anything over $417,000), the buyer will have to apply for a jumbo loan, unless they plan to pay any amount over $417,000 in cash.
Jumbo loans are hard to obtain right now. Guidelines have tightened, and debt ratios have dropped. The buyer must have more "free money" now than in the last few years. If debt ratios are at 25%, then this means that the total of the buyer's mortgage, car payments, and any other monthly debt payments must only be equal to 25% of his monthly income. For many, this is not a possibility right now. Jumbo rates are also higher, and in recent weeks have ranged from 7.5% to high 8's! That makes for a large monthly note on an expensive home!
This being said, however, conforming loans and rates are still looking favorable. With decent credit, you can obtain a conforming loan in the mid-6% range. If you look at the trend of interest rates over the past 10 years, you will see that these rates are still historically low.

Historical Mortgage Rates

This being said, there are still some certainties in an ever changing market. I know, for instance, that as an American public, we are not a patient sort! I have heard people say, "I was going to wait until the market corrected itself before I moved, but I don't know when that will be, so I am going to go ahead and start looking." I have seen business pick up rapidly in the last couple of months, and for the most part, restlessness is to thank for that. As the feds work out interest rate kinks, we as Americans will continue to do our part for the economy... spend, spend, spend! And before we know it, the housing market will be right back where it was before.

Today in a Snapshot

2008-05-27T06:10:00.001-07:00

Rates Increase Last Week: Mortgage investors focused on the Fed, inflation, and oil prices. The week started off on a positive note, and mortgage rates fell on Monday and Tuesday. Even higher than expected levels of core inflation in Tuesday's Producer Price Index had little impact. The atmosphere changed quickly on Wednesday, though, after the release of the FOMC minutes from the April 30 Fed meeting. In the minutes, the Fed lowered its forecast for economic growth in 2008, while raising the expected level of inflation. Also notable, Fed officials ruled out further rate cuts unless the outlook for the economy turns significantly worse. The Fed's heightened inflation projections were bad news for mortgage markets, and rates ended the week a little higher.
This Week: After yesterday's Memorial Day holiday, it will be a busy week. New Home Sales and Consumer Confidence will come out on Tuesday. Durable Orders, an important indicator of economic activity, will be released on Wednesday. Thursday will see the first revisions to first quarter Gross Domestic Product (GDP), the broadest measure of economic activity. A 5-year Treasury auction will also take place that day. The week will end with a big day on Friday. Core PCE, the Fed's preferred inflation indicator, will be released, along with Personal Income, Chicago PMI, and Consumer Sentiment.
Analysis: This week could result in market swings that are favorable or negative in nature. Considering the heightened possibility for mortgage interest rate volatility, a cautious approach to interest rate exposure is prudent.
-Provided by James A Williamson and Robbie Croier of Fairfield Mortgage

Yahoo Finance Article

2008-05-18T12:50:00.001-07:00

APFannie Mae scraps higher down-payment requirementsFriday May 16, 6:03 pm ET By Alan Zibel, AP Business Writer
Fannie Mae scraps increased minimum down-payment requirement for homes in flagging markets
WASHINGTON (AP) -- By relaxing down-payment requirements for borrowers in markets where home prices are falling, Fannie Mae aims to both resuscitate the flagging housing market and respond to pressure from industry groups, consumer advocates and lawmakers.

It's a balancing act that critics and investors worry exposes the company to more risk, as foreclosure rates spike and home prices keep falling.
Washington-based Fannie Mae said Friday it will require minimum down payments of 3 percent for loans made through its computerized underwriting system.
The new policy, effective June 1, replaces a December one that required a 5 percent down payment for home loans in areas with declining real estate prices. Fannie Mae predicts U.S. home prices will drop 7 percent to 9 percent on average this year.
A Freddie Mac spokesman said the McLean, Va.-based company earlier this month adjusted its policies to make 5 percent down payments available in declining markets.
The reversal on down payments come as fears heighten, especially among Republicans on Capitol Hill, that the government will end up bailing out Fannie and its government-sponsored sibling, Freddie Mac, whose share prices have been cut in half over the past year.
While the government is relying on the two mortgage finance titans to stabilize the battered mortgage market, the companies "need to be very careful to manage their risk...that's a a tight rope for them to walk," said mortgage industry consultant Howard Glaser.
Bert Ely, a banking industry consultant in Alexandria, Va. and a longtime critic of Fannie and Freddie, said they were likely under pressure from lawmakers to change their policy in areas with falling home prices. "They caught a lot of flack on this," he said.
Fannie's announcement that it was easing financial requirements for some homebuyers comes just as lawmakers are considering tougher ones for both it and Freddie. The Bush administration has long pushed for stricter regulation.
As senators try to put together a bipartisan housing package, they've proposed tapping a fund drawn from Fannie and Freddie's profits to pay for a new foreclosure-prevention program. Community groups want that money directed to a low-income housing fund.
Congress created Fannie and Freddie to pump money into the home-mortgage market by buying home loans from banks and other lenders and bundling them into securities for sale on Wall Street. Together they hold or guarantee about $5.3 trillion in home-mortgage debt.
Their formidable size helps them support the mortgage market in times of trouble. But critics fear that these troubled times are too much for the companies to handle the losses, making a federal bailout inevitable.
"These guys are real close to being part of the problem, rather than part of the solution," said Thomas Stanton, a fellow at Johns Hopkins University's Center for the Study of American Government.
While the Treasury Department isn't obligated to assist Fannie or Freddie in a financial emergency, there is a perception notion on Wall Street that the government would bail them out if there is a collapse. Critics say the government's implicit backing allows the companies to take on far more debt than a bank.
James Lockhart, director of the federal Office of Housing Enterprise Oversight, said in a speech Friday the companies' high level of debt relative to assets "could pose significant risk to taxpayers ... financial institutions and other investors."
More evidence of their increased vulnerability, Lockhart said, are three straight quarters of losses for both, totaling nearly $11 billion.
Fannie had been under intense pressure from real estate agents, homebuilders and consumer advocates to relax what they saw as rigid policies that shut out borrowers with good credit.
"From the time it was announced, we've been asking them to reconsider," said Jerry Howard, president of the National Association of Home Builders, said in an interview.
Mortgage brokers welcomed the news. Alan Rosenbaum, chief executive of mortgage banker and broker GuardHill Financial Corp. in New York, said the change "is probably the first step in turning things around" as the mortgage industry has tightened its lending practices too much, leaving many borrowers out in the cold.
While the change is positive, Karen Cooper, a mortgage broker and owner of Quality Home Loans in Ashland, Ore., said borrowers face numerous other obstacles,
For example, mortgage insurers, whose backing is required for borrowers who can't afford the traditional 20 percent down payment on a home, have already flagged ZIP codes around the country where they refuse to insure some home loans.
In working with first-time homebuyers, she said, "we just keep sorting through guidelines until we find what works,"
Fannie Mae shares fell 34 cents to close at $28.89, while shares of Freddie Mac fell 30 cents to close at $26.97.

Market Update

2008-05-18T12:38:00.000-07:00

The Following Mortgage Update is Courtesy of James A. Williamson of Fairfield Mortgage
Sent 2/11/2008

More Good News / Bad News This Week For The Mortgage IndustryAs expected, Congress passed the economic stimulus bill, H.R. 5140 last week. Part of the bill allows for taxpayers to receive a "tax rebate" from the U.S. Treasury. Another part of the bill calls for an increase in the maximum loan amounts that Fannie Mae and Freddie Mac can purchase from the current maximum level of $417,000. The good news is that this bill may help to jump-start the economy. The bad news is that Georgia is not one of the markets that will benefit from the higher loan limits. So far, it looks like most of the areas affected by the change are in the Northeast or on the West coast. I have cut and pasted an article at very bottom of this e-mail entitled "Raising conforming loan limit not a simple task" which is the best overview I have read yet of this subject. Check it out if you have a few extra minutes. Last week was a weird week for mortgage rates. Only two major reports came out and both showed the economy as weaker. This would normally lead to an improvement in rates, however, comments by several members of the Federal Reserve worked against mortgage rates. Philadelphia Fed President Plosser stated that "core inflation would remain elevated despite slower economic growth." And Dallas Fed President Richard Fisher, who was the only Fed member to vote against decreasing rates at the last Fed meeting, said in a speech in Mexico City that he thought that what the Fed had done so far in lowering rates should be given some time to work before lowering rates anymore, especially before inflation doesn't give more signs of letting up. So, the markets took this to mean that the Fed might be done lowering rates. These comments and market concerns about inflation offset the weak economic data, and the result was rates overall staying about the same with fixed-rates flat and the ARM's slightly lower. Despite the comments of Plosser and Fisher, the consensus estimate is that the Fed will lower rates again when they meet in March. This coming week, Ben Bernanke, the Chairman of the Fed, will be speaking before Congress. The markets will be listening closely for any signs from him that the Fed is or isn't done lowering rates. Expect market volatility. In addition, the mortgage rate market may take it's cue from the stock market - a huge jump in stock prices usually means an increase in mortgage rates as investors pull their money out of mortgage back bonds and go into the stock market. On the other hand, a large dip in the stock market usually signals lower mortgage rates, as investors pull their money out of stocks and put it into the safe haven of U.S. Treasury and mortgage backed bonds. It is unusual for the stock market to move more than 2% in any direction on any given day. In the previous three years, it has happened only once. So far this year, it has happened six times! When this does happen, it sometimes signals a "bottoming" out of stock prices. That could bode well for stock investments and 401(k)'s, but maybe not so much for mortgage rates. Finally, I have attached a great short article that I recently read that is worth the read. What is your "little red dot" in 2008? Below are rates as of this morning and when you think of financing, please think of Fairfield!
Conforming Non-Conforming FHA VA Loan Amount < $417,000 > $417,000 < $252,980 < $417,000 30 Year Fixed 5.625% 6.750% 6.000% 6.000% 15 Year Fixed 4.999% 5.875% 5.500% 5.500% 7 Year ARM 5.125% 6.000%5 Year ARM 5.000% 5.875% 3 Year ARM 4.750% 4.875% 4.875% The above rates are intended to give you an overall idea of how rates are changing from week to week. Other factors such as credit score, down payment, and number of days of rate lock all contribute to the exact rate which is subject to change at any time. The Conforming rates above apply to loan sizes $200,000 - $417,000 and carry zero discount points. Rates for lower loan amounts are slightly higher. Lower rates are also available for all programs with discount points. The interest-only feature is available on most of the Conforming and Non-Conforming programs as well but with a premium.
Market CommentThe retail sales data Wednesday will be the most important event this week. Trade data, industrial production, capacity use, and consumer sentiment data also have the real potential to cause mortgage interest rate volatility.
LOOKING AHEAD
EconomicIndicator
ReleaseDate & Time
ConsensusEstimate
Analysis
Retail Sales
Wednesday, Feb. 13,8:30 am, et
Unchanged
Important. A measure of consumer demand. Weakness may lead to lower mortgage rates.
Business Inventories
Wednesday, Feb. 13,10:00 am, et
Up 0.4%
Low importance. An indication of stored-up capacity. A significantly larger increase may lead to lower rates.
Trade Data
Thursday, Feb. 14,8:30 am, et
$61 billion deficit
Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.
Industrial Production
Friday, Feb. 15,9:15 am, et
Up 0.1%
Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.
Capacity Utilization
Friday, Feb. 15,9:15 am, et
81.4%
Important. A figure above 85% is viewed as inflationary. Weakness may lead to lower rates.
U of Michigan Consumer Sentiment
Friday, Feb. 15,10:00 am, et
76.5
Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.
Retail Sales
Retail sales data is the first indication of weakness or strength in consumer spending released each month. The Bureau of the Census of the US Department of Commerce provides information on how much the consumer spends on the purchase of goods. This data provides the consumption part of the gross domestic product. Retail sales data represents merchandise sold for cash or credit by retailers. Durable goods, such as autos, make up 35% of the figure. The balance consists of non-durables such as gasoline, restaurants, and general merchandise.
There are several drawbacks to the report. The data covers purchases of goods only, not services. It is also not adjusted for inflation and is extremely volatile.
Economists are concerned that the current economic uncertainty will continue to curtail consumer spending habits. Consumers have generally been given credit for sustaining the economy despite rising energy prices and home price declines.
While Philadelphia Fed President Plosser cautioned last week about predicting the future of the economy based on one piece of data, the retail sales report is still likely to cause mortgage interest rate volatility. The data will be a vital component in determining future Fed actions. Plosser was clear that the Fed remains concerned about inflation despite the recent rate decreases. He warned that the Fed needs to be "particularly alert" about rising inflation expectations. Inflation, real or perceived, is bad for bonds. If the fear of inflation increases, mortgage interest rates could trend higher. Be cautious. Mortgage interest rates remain favorable but lower future rates are not a given.
Raising conforming loan limit not a simple task Fannie, Freddie may have to tiptoe into 'jumbo light' market Monday, February 11, 2008By Matt Carter Inman News

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 (see Inman News story).
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.