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.

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

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.

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.

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.

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

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.