Mortgage Lending Made Simple

In today’s real estate market, it can save you money to check your home’s value before you list it or apply for a mortgage. Areas that are in a declining market are seeing up to 75% of the mortgage applications declined based on the appraised value of the home.

This is an expensive lesson as appraisals can cost upwards of $400 depending on your location and home value. The following is a list of resources for checking your homes value before you apply for a mortgage or try to refinance.

Yahoo Real Estate Home Values Yahoo actually gives you both the Zillow value and a value from eppraisal.com. This is a totally free service and gives you a map of what houses have sold in your area and the price. It will also give you a graph of your home’s value over the last year or 5 years.

Zillow.com Zillow gives you a little bit different view of the value. This is still a free service and there are no strings attached.

Eppraisal.com Once again, gives a slightly different view and apparently, slightly different statistics. You can sign up on eppraisal and look at market insights for the area.

If you are thinking of selling, the best advice is to check all of these tools and get a comparative market analysis from several realtors before you make any decisions.

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Here is a tip for all my readers who currently have a VA Loan that is more than 12 months old. You can refinance to lower your rate and payment . The program has much lower Closing Costs, NO NEW APPRAISAL is required, No Credit Report ( your must have made the last 12 payments on time) and your Funding Fee is only 0.5% which can be rolled into your loan. If you would like to know more about this program please contact me and I will be happy to provide you information on how to take advantage of this process. You can contact me through the contact form or by emailing me at ned@nedhilldrup.com

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After months of rumors of financial troubles Bear Stearns is bought out in a last minute “bargain basement” buy by JPMorgan Chase.   The Fed and the US government approved the purchase over the weekend with an eye towards preventing more market chaos as one of the largest investment banks collapses.

“This is going to go down in very historic terms,” said Peter Dunay, chief investment strategist for New York-based Meridian Equity Partners. “This is about credit being overextended, and how bad it is for major financial institutions and for individuals. This is why we’re probably heading into a recession.”

JPMorgan purchased Bear Stearns for $236.2 million dollars or approximately $2 per share.  This discounted purchase was made possible by the Fed guaranteeing up to $30 billion of Bear Stearns more risky assets.

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In an effort to stabilize the market, the Fed announced additional measures to help hard pressed banks and financial institutions.  The Central Bank slashed rates to 3.25 percent from 3.5 percent.  It also announced a new lending facility to offer short term loans to large investment firms which will accept investment grade mortgage securities as collateral.

Federal Reserve Chairman Ben Bernanke said, “These steps will provide financial institutions with greater assurance of access to funds.” According to the Fed, these steps should “bolster market liquidity and promote orderly market functioning.”

This discount rate cut only effects short term loans that financial institutions get from the Federal Reserve.

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Great News! FHA Limits for the Washington MSA which includes Fred, Spotsylvania and Stafford have been increased to $729,000.   So in effect we now have 97% financing available again rather than a Max of 90% under the conventional  loans programs which have also been increased to $729,000 in the same areas.

FHA Limits have also been increased in other VA localities including :

We would expect to have Pricing and computers updated by early April to be able to facilitate these new limits.   The attached Excel file has the complete listing for changes nationwide.    PLEASE remember that under current legislation, this increase is temporary  and will revert back to the prior limits as of 12/31/2008 unless Congress extends the program.  This gives us a window of opportunity to provide financing for more homes with better terms.

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I think the following information is very note worthy to all of us in the housing market.  The goal of providing Liquidity should help improve the availability of loan programs in the near future.

Federal Reserve Announces Highly Innovative Move (TSLF)

The Federal Reserve announced today that it will for the first time lend Treasuries in exchange for debt that includes mortgage-backed securities.  In a statement this morning the central bank plans to make up to $200 billion available through weekly auctions.  This represents a creative angle for the Fed to forge remedy in a non-traditional manner and was choreographed in conjunction w/injections of $45 billion from ECB, BOE, BOC and BOJ into their systems.

The Fed’s monumental, innovative move is designed to reliquify the mortgage market where in recent months it was becoming almost impossible to buy even AAA mortgage paper (i.e. Thornburg Mortgage) as no one had been willing to step up and take the risk.  From a clearing standpoint, the Fed’s newly created Term Securities Lending Facility (TSLF) looks like a futures exchange which, in effect, offers collateral cleansing for mortgage paper.  It’s important to note that the Fed is not monetizing “bad mortgages” or any mortgages for that matter, it is simply willing to take the paper in question and lend Treasuries against it.

I realize most of the attention today is on the equity markets but I want to share with you some “other” takeaways:

• The Federal Reserve’s move should prove to relieve balance sheet pressure on US banks and adds sorely needed liquidity to the mortgage markets.
• With this action the Fed is indicating it wants out of the rate cutting business which has exacerbated dollar currency woes that has led to excessive moves in commodity markets, fanned inflation, while depleting foreign capital out of US markets.  Please note the ECB Chairman Trichet has been talking down the Euro over the last several days, signaling central bank coordination.  The dollar no doubt is the fulcrum for much of our current market conditions.
• The Fed announcement almost assures there will be no interim rate cut prior to March 18 FOMC meeting which had been rumored (Goldman Sachs) over the last couple of days.
• In this non-traditional move the Fed will most likely enable investment banks to make more productive use of capital and will indirectly help hedge funds that have been seized up with illiquidity as they will now be able to “sanitize” their assets.  By taking the troubled mortgage paper and depositing it into Fed vault for 28 days in exchange for T-Bills will allow for the “shoring up” of balance sheets.
• 2yr Treasuries sold off heavily on the announcement producing a 25bp swing up in yield.
• The Fed may be nearing the end of its rate cutting campaign and likelihood of an addl 75bp cut appears to have diminished altogether with this announcement.   A rate cut of 25 to 50bps in Fed Funds may be more realistic for March 18 and may turn out to be the “final round” before the wait begins for signs of economic/market recovery.
• This may turn out to be a noteworthy event over the longer term and may one day be noted as a turning point in the current US economic and market contraction.  Although in the immediate it spelled a sharp sell-off in near term Treasuries (no longer looking for 75bp Fed Funds cut) the longer term benefits may prove to be a freeing up of liquidity/investment capital that could slowly begin to re-energize among others, the real estate market.  Low rates will accompany us for remainder of the year and the yield curve is in banks’ favor.  This appears to be a good move, highly innovative and coordinated with other central banks.  Apart from a 417 point rally in the Dow, there were other reasons to celebrate…

Michael J Haddad
Wachovia Wealth Management

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Several Reports have been issued recently suggest that sharply lower home prices are driving faster increase in credit losses and causing lenders to increase reserves for residential real estate secured loans. However, the increase in losses on residential mortgages, we have seen will be compounded by very large increases in Home Equity credit losses.

Home Equity Credit Lines are Second Liens/Mortgages that only get paid after the 1st Mortgage is satisfied during a Foreclosure. Borrowers will in many cases pay their 1st Mortgage and try to negotiate with the Home Equity Lenders in hope of convincing them to take partial payment and forgive the bulk of the 2nd Mortgage, rather than risk loosing the entire loan at Foreclosure to the 1st Mortgage Lender. Credit losses are also likely to rise further in auto loans.

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I would encourage anyone who is having a problem making their mortgage payments or who anticipates they may in the future, for what ever reason, to contact their Lender today.   Don’t wait until you are several months behind.  The best way to save your credit and your home is to be pro-active.    In more than 60% of the foreclosures that have occurred in the last year, the Borrower did nothing until it was too late.   The Banks, The Homeowners,  all of us have to work together to slow down, then end this Foreclosure Crisis.   If you are worried about the value of your home, nothing we can do will help improve that Market Value like ending the Foreclosure and Short Sales.

Banks are willing to work with borrowers as you can see from this recent article in The Charlotte Observer:

Faced with rising foreclosures among their customers, Charlotte’s big banks have been ramping up efforts to work with borrowers struggling to make their mortgage payments.  

Bank of America and  Wachovia are adding staff to work with homeowners and have restructured thousands of loans.  Bank of America is part of a national initiative that is offering to pause the foreclosure process for some borrowers.  

The moves come as banks face increasing pressure to help homeowners squeezed by the nation’s housing crisis. This week, more than 90 California community groups asked  Bank of America to halt foreclosures on troubled borrowers assumed in its planned purchase of  Countrywide Financial.

The percentage of U.S. mortgage loans in the foreclosure process hit 1.69 percent in the third quarter of 2007, the highest level ever, according to the latest data from the Mortgage Bankers Association. That’s about 767,550 loans. The housing malaise that started with subprime mortgages now threatens to stall the broader economy.  

Banks have a business interest in assisting homeowners. In recent quarters,  Bank of America and  Wachovia have had to set aside more money to cover bad loans, crimping profits. They make money collecting interest on loans, not owning foreclosed properties. And they don’t want to lose customers, who also use their checking accounts and credit cards.  

Read the entire article here.

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Inflation at the wholesale level soared in January, pushed higher by rising costs for food, energy and medicine. Prices rose at the fastest pace in 16 years, according to the Labor Department. Wholesale prices rose 1 percent last month, more than double the 0.4 percent increase that economists’ expectations. The 1 percent jump in wholesale prices followed a 0.3 percent decline in December and was the biggest one-month increase since a 2.6 percent increase in November. With the January jump, wholesale prices have risen over the past 12 months by 7.5 percent, the fastest increase since the fall of 1981, when the country was in a deep recession.

Foreclosure filings rose 8 percent in January from December and increased nearly 57 percent from January 2007, showing that foreclosure activity continues its upward trend. But the 8 percent monthly increase was not as high as the 19 percent monthly hike in January 2007, and several key states experienced decreasing foreclosure activity from the previous month, according to data from RealtyTrac.

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CNN reports that the Foreclosure prevention plans that are before congress right now are under attack for a couple of reasons.  Lenders are claiming that as it increases risk and lowers profit for investors it could ultimately drive interest rates up across the board.  One analyst is predicting as much as a percent and a half increase.  The other criticism is that it will only help a relatively small percentage of those in trouble.   You can read more about it in CNN’s Article on Foreclosure Prevention Plan Under Attack.

While interest rate resets are looming on the horizon for many homeowners, it seems that subprime mortgages are going into default at an alarming rate BEFORE they reset.  CNN reports that 11.2 percent of subprime loans issued in 2007 are in default.  If you watched the flash presentation on A Subprime Primer you may have noticed that they mentioned Liars Loans and CNN’s article on Subprime Loans Defaulting takes a look at why these loans are defaulting. 

If you are considering buying a house, Liz Pulliam Weston at MSN Money has some great advice in her post on 8 Big Mortgage Mistakes And How To Avoid Them.  In particular, her advice on fixing your credit BEFORE you apply for a loan is spot on.  If you have not pulled your credit report, it’s a good idea to do so 3 to 6 months in advance of a major purchase.  This gives you time to resolve any issues and time for your FICO to reflect any changes.  Her advice on shopping for rates and terms is exactly the reason why you will want to work with an experienced loan officer whom you can trust to give you different options and an explanation of why each might be better for you. 

If you are in trouble and think you might lose your home, Save Invest and Retire has some excellent resources to help avoid foreclosure in his post on Walk Away From Your Home Part II Resources.  While many are making a choice to walk away, the consequences that foreclosure will have may be more far reaching than you believe.

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