Fed Decision Will Shake Things Up

"BE WILLING TO MAKE DECISIONS." General George Patton. And that's exactly what the Fed did last week at their regularly scheduled Federal Open Market Committee meeting. But just what did they decide...and what do their decisions mean for home loan rates?

The Fed said they are going to ration out the remaining commitment of Mortgage Backed Security purchases through the first quarter of 2010. There will be no additional buying, but instead, a longer weaning off of the program. There was some speculation about the Fed increasing the amount of buying above the $1.25T committed to, and last week's statement is the Fed's nice way of saying "no." They will not be buying more in quantity, but what they will do is attempt to provide a smoother transition to normal market conditions.

It is a given that once the Fed ceases its purchases, that interest rates will climb significantly higher...most likely back above the 6% area. So instead of a hard transition with a large bump in rates, the Fed is attempting to allow rates to gradually rise. This means that waiting to purchase or refinance will very likely mean a higher interest rate.

Their decision also means that the Fed's remaining purchases will all be lower in quantity, as the remaining allotment for purchases will be spread over a longer period of time - and additionally, will not necessarily be spread out as evenly as their past purchases - which could lead to more volatility for rates in the near term.

In other news, the inventory of unsold existing homes fell to its lowest inventory level since April 2007, while the inventory of unsold new homes dropped to its lowest level since January 2007. While some of the decline in new home inventory may be due to builders constructing fewer homes - these reports indicate that the housing market is indeed showing signs of life.

Remember, with home loan rates still low - but slated to increase with the Fed's recent decision - it might make sense to get off the fence if you've been considering a purchase or refinance. Or do you have a family member, neighbor, friend or coworker who might benefit from getting some good real estate advice? I'll always take good care of your referrals!

Crazy Advice That Works

If you’re tired of bashing your head against the wall trying to buy a bank owned property or a short sale, consider a different approach. My clients have had success in buying homes from the bank by making offers on multiple properties without seeing them first.

Notice I didn’t say buy the house without seeing it, I said make an offer without seeing it. There are two good reasons for this. First, you can get your offers in faster without trying to coordinate your schedule with your spouse and the Realtor. Sometimes by the time you see the house it’s already tied up. Second, you save the emotional wear and tear of seeing homes you like and not being able to buy them.

The fact is you won’t be able to buy many of the homes you see on the computer. Why not? Because they are short sales that won’t work out, or they are bank-owned properties that will sell for all cash, or they are condos that are not FHA approved, or dozens of other reasons I could fill this blog posting with. So why run yourself ragged and fall in love with homes you can’t buy? Why not figure out which ones you can buy and then do your homework on only those?

How do you find out which ones you can buy? By making offers on them. If the bank likes your offer, you will be sent an addendum to sign. All banks do this, since they don’t want to use the Realtor forms that are different in each state. They make their own forms that their own attorneys have approved and you will need to sign that before the bank proceeds. Getting the addendum means this is a house you can actually buy! Now that’s the time to go see the property and decide if you actually want to buy it! If you don’t like it, you don’t sign the addendum and we walk away. Meanwhile we keep making offers on new bank properties and short sales as they come on the market.

Will the market always be this crazy? No it won’t. But it is now, you can’t change it, all you can do is figure out how to succeed in spite of it. By thinking outside of the box you can achieve your goal while others are giving up in frustration. If you’d like to learn more about this crazy idea that works, call me at 800-469-6391.

Fannie and Freddie Say Borrow More!

Get this - Rather then bringing in a down payment of at least 20 percent, you might find that a smaller down payment gets you a better interest rate!

According to the New York Times:
"Rules put in place in late 2008 by Fannie Mae and similar rules adopted by Freddie Mac are less favorable to borrowers who put down 20 percent to 25 percent--partially because they consider these borrowers to be more of a credit risk since they are not required to purchase private mortgage insurance. (!)

According to Fannie Mae, borrowers benefit from this industry practice because they are able to leave themselves a financial cushion by not issuing larger down payments, and can instead save the extra money for emergencies.

It is important to note though that smaller down payments mean higher monthly payments because the loan itself will be larger." (italics mine)

So let me get this straight - taking on more debt, making a higher payment to the bank, and paying money to an insurance company is for my benefit! I guess that's true since I always believe what the government, banks, and insurance companies tell me - don't you?

Appraisal Review Blues

As credit lines dry up, we’re seeing more and more appraisal reviews. What’s that you say? This little goodie is the thing that can blow up your transaction at the last minute and there isn’t a darn thing you can to stop it.

Say you’re a buyer and your offer is accepted. Yay, you bought a house! And you’re pre-approved, so it’s smooth sailing! You pay $450 for your appraisal, and it comes in at the price you paid, so life is good! So you start making moving plans, you give your notice, have a garage sale. Your lender needed a few last minute pieces of paper, but you sent those in and now you have loan approval with all conditions met. Ready to fund the loan and close, and in just a few days you’ll be moving in! Maybe.

The lender now sends your appraisal, which came in fine, to a third party company for an “appraisal review”. Basically this is a second appraisal to double-check the first one. Only this one is done by some pencil-pusher in L.A. who has never seen the house and has never even been to San Diego County! And his appraisal comes in for $50K less and just like that your transaction is dead. You need that loan; you don’t have $50K more to bring into escrow, so it’s over. Kiss your $450 for the appraisal and the $350 for the inspection you did goodbye. How many times can you do this before your down payment is wiped out?

Say you’re the seller. You did all the repairs that the buyer wanted so you could keep the deal together. You’ve taken down all the pictures, made plans to move, stopped all your magazine subscriptions, ordered the utilities to be turned off, maybe bought another place. Then the appraisal review bomb hits. The buyer can’t buy, so all those repairs you did just for him are for nothing. Now you get to put the house back on the market and start all over. Of course there’s no guarantee that this won’t happen with the next buyer either. You just get to eat it.

Why is this happening? Why does the lender wait until the very last minute to do the review appraisal? What can I do to make sure this doesn't happen to me? Good questions, and if you give me a call I’ll be happy to answer them for you. The take home message is that this is not the real estate market of two years ago and if you’re planning to buy or sell real estate in 2009, you’d better hire an agent who knows what he’s doing. Now is definitely not the time to think that all agents are equal and that your transaction will turn out fine no matter which agent you hire. Get someone knowledgeable and experienced who can protect you!

Home Is Not A House

This weekend I visited my folks in Orange County, quite a drive from where I now live. After a day of socializing, mom offered for Crystal and me to spend the night there rather than make the long drive home. Wanting to get back to our own bed and our own space, we made the drive.

What struck me is that this was the first time that I considered my “interim” place to be “home”. Some of you know that we sold our house of 8 years recently and are currently living in a temporary location, in a place I thought I would never consider as “home”. But after only two months, I’m forgetting the old place and the place I live now is the place I long to get back to, my home.

You see, what makes a place “home” is not the house. It’s your family, your decorations, your favorite chair, your TV where you know how to work the remote, your fridge with your favorite foods in it, your comfy bed with the pillow that’s just right. When you sell your house and move to a different one, the new one soon becomes “home” instead of the old one.

I bring this up because there are some of you who should move for financial, employment or strategic reasons, but you don’t want to give up your “home”. My point is this: you won’t. Moving is just taking your “home” and setting it up in another place. Perhaps a place that doesn’t cost you so much each month, or is closer to the grandkids, or a place you rent so that you can be mobile if your job changes.

Your new home might serve you better than your present one, and it’s only inertia that’s keeping you there. I’ve learned from personal experience that moving is stressful, but achieving your goals is well worth it. When we moved we thought we were giving up our “home”, but we found out that we still have our home, and we gained a lot more besides.

Here's what you get when the government owns the banks

IRS to mine payment data on mortgages

The Internal Revenue Service (IRS) will study whether it should make greater use of data on mortgage-interest payments provided to it by banks. The program, which searches for inconsistencies between mortgage payments and income, is currently used to send notices to non-filers who it believes should have filed a return. It could be used to target for audits individuals who report less income than they paid in mortgage interest.

The move will expand a regional research project on mortgage interest to a nationwide level by December 2011. Initiatives such as these typically involve examination of a small number of tax returns to evaluate new enforcement strategies.

According to the Treasury inspector general, tens of thousands of homeowners who paid more than $20,000 in mortgage interest in 2005, the latest tax data available when the Treasury inspector general’s office began its audit last year, either didn’t file a tax return or reported income that appears insufficient to cover their mortgage interest and basic living expenses.

Source - Martin Vaughan at martin.vaughan@dowjones.com