10 Tax Deductions to Squeeze In Before 2012

The end of the 2011 is just around the corner, but there's still time to save on your taxes. Here is a compiled list of payments you can make this December to increase your 2011 tax refund or reduce your 2011 federal, and perhaps state, income tax liability.

A few things to keep in mind: You can use a bank credit card to buy deductible items in December and be able to deduct them on Schedule A. Also, the first seven items apply only if you will be itemizing deductions for 2011, so make sure you will be able to itemize before making any payments.


Cram in medical appointments
Time to cram in those trips to the doctor. The Internal Revenue Service lets you deduct your yearly medical costs as long as they exceed 7.5% of your 2011 adjustable gross income - a high percentage, but one you can meet by refilling your prescriptions, scheduling check-ups, eye exams and doctor visits, stocking up on deductible medical supplies and paying any outstanding medical bills this December. Also, don't forget to keep track of your round-trip mileage when driving to medical appointments.

Do you make direct monthly payments of health insurance premiums, or is your long-term care insurance up for renewal next month? A good tip is to make the January payment in December.


Make a state/local income tax payment
Are you making quarterly state estimated tax payments, deducting state and local income tax and not state and local sales tax? If so, make the fourth-quarter payment that is due Jan. 16 in December.

If you expect to have a balance due on your 2011 state income tax return, you can ask your employer to increase your state income tax withholding.

Buy a car now (and save the receipt)
If you make the decision to deduct state and local sales tax instead of state and local income tax, or if your state does not have an income tax and you were planning to buy a new car, truck or motorcycle in early 2012, make the purchase in December. In fact, you may actually save money on a year-end deal.

Many taxpayers do as I recommend and save all of their sales tax receipts during the year to see if it would be worthwhile to deduct actual state and local sales tax instead of using the Optional State and Local Sales Tax Table. If you will be deducting state and local sales tax, and the total tax from your accumulated bills will exceed the amount allowed in the table (you can use the Sales Tax Calculator tool on the IRS Web site), buy big-ticket items that are scheduled for purchase in early 2012 before the end of December.


Pay real estate taxes
In some states, real estate taxes are billed once a year, with perhaps separate billings for municipal, county and school taxes. In others, including my home state of New Jersey, the taxes are combined but you are billed quarterly. Make payments due early in 2012 before the end of December. In New Jersey, the first-quarter payment for the year is due Feb. 1, so I tell clients to send their check before Christmas.


Pay mortgage interest early
In most cases your monthly mortgage and/or home equity loan payments are due during the first week of the month. Make the January payment(s) before the end of the month and make sure the bank or mortgage company gets the payment in December so the additional interest payment will be reflected on your 2011 Form 1098.


Make some charitable donations
Doing well can be good for your wallet, too, since you can write off your charitable contributions. Add your favorite church and charities to your Christmas gift list and donate used clothes, books and household items to the Salvation Army, Goodwill or a similar organization. Just be sure you make a list of the items you are donating and get a receipt from each organization you give to.

Don't have the cash available to make the contribution? You can donate stock or mutual fund shares that have appreciated in value to a church and charity and claim a deduction for the fair market value of the investment on the date of the contribution. Keep in mind that you don't have to report the capital gain as income on your tax return, and be sure not to contribute an investment that is worth less than when you paid for it.


Buy some work essentials
Business owners aren't the only ones who can deduct work-related expenses - employees can, too, if the expenses exceed more than 2% of their adjusted gross income.
Buy uniforms (or have your existing uniforms dry-cleaned) and deductible work clothes, small tools and supplies now; attend a work-related conference, seminar or workshop; and renew subscriptions to job-related and investment publications that will expire early next year. If your annual safe-deposit box fee is due in January, pay it in December. Also, if you use tax software to prepare your returns (not that I recommend doing this), buy the updated package before year-end.


Prepay 2012 college tuition and fees
If you're paying for college tuition for yourself, your spouse or your dependent child, you may be eligible for a tax credit or deduction. Such expenses qualify in the year actually paid, and you can use payments made in 2011 for education that will begin during the first three months of 2012 to determine the amount of the deduction or credit.


If you have not made enough qualified payments in 2011 to claim the maximum deduction or credit allowed for your level of income, you can send the college a check for the first semester of 2012 in December.


Make your home more efficient
Have you taken steps to make your home green? If so, this credit is for you. The IRS considers qualified energy-efficiency improvements to be insulation, energy-efficient exterior windows and doors and certain roofs, though the cost of installing these items does not count and the deduction for windows is limited to $200. The credit also applies to the cost, including installation, of residential energy property such as high-efficiency heating and air conditioning systems.

If you haven't already claimed at least $500 in energy tax credits on prior years' tax returns, you can claim a credit of 10% of the cost of qualified energy-efficient purchases and improvements to your principal personal residence. The maximum credit is $500.

Also important: When buying, be sure to get a "Manufacturer's Certification" from the seller.


Make needed repairs to income properties
If you own rental real estate, such as a two-family home or vacation property, make needed repairs, buy supplies and make payments for the property this month and fill up the oil tank before year-end. You can also prepay real estate taxes, utility bills, insurance premiums and any January 2012 mortgage payment.

What Is A Mortgage Annual Percentage Rate (APR)?

More commonly called APR, Annual Percentage Rate is a government-mandated mortgage comparison tool. It measures the total cost of borrowing over the life of a loan into dollars-and-cents.

A loan’s APR is printed in the top-left corner of the Federal Truth-In-Lending Disclosure, as shown above. When quoting an interest rate, loan officers are required by law to disclose a loan’s APR. The APR is not your interest rate in calculating your mortgage payments.

APR is meant to simplify the process of choosing between two or more loans. The theory is that the loan with the lowest APR is the “best deal” for the applicant because the loan’s long-term costs are lowest. However, the loan with the lowest APR isn’t always best.

APR makes assumptions in its formula that can render it moot.

First, APR assumes you’ll pay your mortgage off at term, and never sooner. So, if your loan is a 15-year fixed rate, its APR is based on a full 15 year term. If you sell or refinance prior to Year 15, the math used to make your loan’s APR becomes instantly flawed and “wrong”.

Example: Let’s compare two identical loans in WA — one with discount points and a lower interest rate; and one without discount points and a higher mortgage rate. The loan with discount points will have a lower APR in most cases. However, if the homeowner sells or refinances within the first few years, the loan with the higher APR would have been the better option, in hindsight.

Second, APR can be “doctored” early in the loan process.

Because the APR formula accounts for third-party costs in a mortgage transaction and third-party costs aren’t always known at the start of a loan, a bank can inadvertently understate them. This would make the APR appear lower than what it really is, and may mislead a consumer.

And, lastly, APR is unhelpful for adjustable-rate loans. Because the APR calculation makes assumptions about how a loan will adjust during its 30-year term, if two lenders use a different set of assumptions, their APRs will differ — even if the loans are identical in every other way. The lender whose adjustments are most aggressively-low will present the lowest APR.

Note: Loans with mortgage insurance will always have a much higher APR, such as FHA loans due to the mortgage insurance premiums included in your loan payments.

Summarized, APR is not the metric for comparing mortgages — it’s a metric. For relevant comparison points and the best way to approach the mortgage process, is to determine “rate vs. fee” and how long you plan to keep the home or mortgage. This way you can calculate the Return on Investment (ROI) just because a lender quotes you a low rate does not mean you’re getting the best deal on your mortgage.

Uncertainty in Real Estate, Job Market and Investments “What to Do”

We live in some pretty interesting times these days, it seems everywhere you turn it’s “Gloom & Doom” from the medias perspective. Remember the media thrives on reporting negative not the positive stuff!
Wanted to share my prospective on “what would be good financial decisions” for better positioning for the future based on the current landscape of the economy and how to best position yourself and your family for the future. No one knows what the future holds, but based on an overview of the financial markets and a bit of history, we can make decisions that give us a better footing for the future no matter what happens.

I will touch on a few things that you can do and will serve to put you in a much better position for your future financial well being.

1) With the current state of our economy and the unprecedented amount for money the Federal Reserve has pumped into the global market, it’s pretty safe to say we are seeing inflation on almost everything we consume. Now I will not spend the time reviewing how inflation works, but it’s pretty simple, as inflation goes up it diminishes our buying power of the dollars we have and therefore we can not buy as much. So you ask how I can hedge myself against this. A few things you can do, I posted a good article on a previous blog post (read post here) on the ability for you to take advantage of the historically low interest rates to keep your future housing expenses low, especially if you currently rent, which puts you at the greatest risk since future rents will continue to escalate as inflation goes up. Remember you will live somewhere, so why not own your own home instead of paying your landlord’s mortgage!

2) If I already have a home / mortgage and do not have an interest rate in at least the low 4s, it is important to refinance into a lower interest rate. Now a large percentage of homeowners do not have the equity to just refinance into a low rate, but the good news for you if your in that situation, new modifications to the “Making Home Affordable Program” or HARP as it’s known, will allow you to possibly streamline refinance into the low interest rates of today and lower your fixed housing expenses. You can read a past post (read post here) that provides a detailed questions and answers on this revised program.

3) Investments come in many shapes and sizes and if you are a person who has investments, you need to make sure your investments are at least growing at a faster pace than inflation or you are going backwards (true inflation is higher than the government’s published index) Owning real estate is and always has been a great long term investment, but like any investment buying or selling at the wrong time will be a bad investment. With the value corrections in the real estate market and the current record low interest rates, coupled with some unique opportunities in buying foreclosure properties (read post here) you can accelerate the growth of your investment portfolio or even allow you to buy your first home way below current market value, so you have built in equity from day one.

So with the tremendous turmoil in the world around us, another important thing you can do is build a surplus of non perishable foods and staples along with extra items you use every day in case of a natural disaster or a situation that cuts off the retail supply chain. Our whole national retailer supply chain, especially grocery stores is built on replenishing every 3 days, so if that supply chain is cut off for what ever reason, you want to make sure you and your family have what you need to eat and survive for at least 10 days or longer (in my opinion) Here is a good website that will give you ideas on what items to start stocking up on.

Affordability Hits Record High on Low Rates & Price Drops

Original post By The Tim on November 11, 2011 / Seattle Bubble

Here’s a headline from the Seattle Times that’s sure to get some attention: King County housing-affordability index best in 17 years

Thanks to declining prices and record-low interest rates, houses in King County are more affordable now than they’ve been in at least 17 years, a new score card says.

The county’s “housing affordability index” score, a measure devised by the Washington Center for Real Estate Research at Washington State University, hit a record high of 127 in the third quarter.

The median price for the third quarter this year was $350,000, the center’s latest score card says, down 10.3 percent from the same quarter last year.

Interest rates also hit new lows, said Glenn Crellin, the center’s director, and the county’s median family income — despite persistent high unemployment — remained relatively stable.

“You put those three together and you get greater affordability,” he said.

Sure enough, as far back as you can get median price info from the NWMLS, the affordability index for King County has never been higher. In the chart below I have plotted affordability by month rather than quarterly like the WCRER, which means I have also included October, when rates and home prices both went even lower, driving the affordability index higher still:

It’s important to note what the Affordability Index is, and what it is not. In short, it’s simply a measure of the monthly expense of buying a median-priced home, relative to the median household income. A high affordability index doesn’t mean that every home is priced fairly; it just means that the monthly payment on homes are highly affordable relative to incomes. If you want the long version, hit this post: What the Heck is the Affordability Index, Anyway?

To get an idea of why the affordability index is at a record high, take a look at this view of two of the three components that go into the calculation:

Interest rates are at an all-time low, while home prices are at early 2004 levels. When homes were cheaper pre-2004, interest rates were fifty to one hundred percent higher than they are today.

For those that are interested, I also calculate the affordability index for Snohomish and Pierce Counties, where I only have price data back through 2000:

While homes are still quite expensive compared to most of the ’90s, today’s artificially-low interest rates make the payment on those homes more affordable than ever, which is why in the Seattle Times article linked above, I am quoted as saying that “It’s a great time to buy if you want to keep your monthly payments low.”

The qualification “if you want to keep your monthly payments low” is key. If you’re a monthly payment buyer, it is indisputably a better time to buy than it has been since at least 1993. The data doesn’t lie.

Does that mean it’s a great time for everyone to buy a home? Nope. As I pointed out later in the article, the moment you sign the closing documents on a home, you effectively lose ten percent of its value, since that’s about how much it will cost you to sell the home. Since home prices are likely to continue slipping for the next few years or at best remain flat, if you’re not planning on staying put for a good long time, it’s still a better idea to rent, regardless of high affordability.

Bottom Line: Myself and Sound Mortgage , Inc provide complementary pre-approvals for our clients and sound advice on mortgage products to best meet your goals and objectives. So take the time to get pre-approved so you have a pre-approval letter ready to go when you find that great deal, since they tend to go very fast in this market. Give me a call today 253-686-6690

Buying a foreclosed home "Things You Should Know"

A tide of foreclosed properties has been sweeping into the beleaguered housing market, bringing down property values, dislocating families, and sending municipal governments scrambling to manage the crisis. But some buyers see a once-in-a-lifetime opportunity in the gloomy headlines; they are buying up foreclosed properties at ultra-low prices.

Sound Mortgage, Inc. and Fairplay have teamed up to provide turnkey solutions for our clients to succeed in buying foreclosures. Contact me for more information. Below is information should you decide to “go it alone”

Land Mines
"You have to know how to do a title search," or you could end up thinking you've just bought a home by paying off a $100,000 mortgage only to find out that was just the second mortgage and you had to pay another $200,000 to take ownership.

"Suddenly that great buy isn't such a good deal. You also have to be aware of [any] liens on the property because you're going to be responsible for those as well."

On top of that foreclosure homes are sold "as is" which means that the 25 – 40 percent you just saved on the purchase price can easily be eaten up by unforeseen expenses such as repairs not immediately apparent in an exterior inspection. That's because when you buy a home in foreclosure, you may not be able to look inside let alone have an inspector detect structural problems that you'll need to fix before moving in.

Something else to think about -- people who lost their home in foreclosure very likely couldn't afford to maintain their property.

So be prepared to pay for any problems such as electrical or plumbing repairs, leaky roofs, or even vandalism by angry homeowners who break things or punch holes in walls and doors, an unacceptable but not that uncommon way that some homeowners deal with the angst of losing their home to foreclosure.

Just remember that they're losing a home and you're benefiting from their loss so they may want to take out some of that rage on the new buyer the only way they can, by trashing the home that they've lost.

Three Ways to Buy
There are three ways you can buy foreclosures and each one has its own distinct discipline.
They are:

• Pre-foreclosures, where you buy directly from a homeowner before the bank forecloses;
•At auction, where you place a bid, possibly in competition with others;
•From a real estate company. This is called an REO.

Pre-foreclosures "Pre-foreclosures are appealing because they require the least amount of capital, and almost all the information you need is available.

"You can inspect the house and conduct a title search so you won't have any surprises. With a pre-foreclosure, the owner signs a deed and gives you the property.

In return, you acquire the mortgage that comes with it. Plus you have to make the mortgage current by giving the bank any back payments.

The key with pre-foreclosures is to make the sale 'subject to mortgage.' On average you might make ten to 20 percent."

At Auction The exact mechanism varies from one state to another. Auctions can be held on courthouse steps, in the county clerk's office, or in front of the foreclosed house.

"Auctions also carry the most risk, at the same time; they can also offer the greatest reward. Sometimes you can make as much as 40% on an auction foreclosure. But you have to know what you're doing."

In an auction, buyers can't inspect the home in advance of the auction, they have to pay in cash, usually with a cashier's check, and sometimes the current homeowner simply refuses to move out. It then becomes the buyer's responsibility to evict the old owner.

Auctions also tend to attract real estate investors seeking a great bargain that they intend to flip (resell) for a quick profit.
If you're looking for a home to live in, an auction may offer way to go over paying retail prices.

REO Real Estate Owned properties or (REOs) represent the third way to buy foreclosures.

"Reo is least risky in terms of what you're buying, you get to fully inspect the property, demand a clear title, and the sale can be subject to getting a mortgage.

Most banks sell foreclosure properties through a broker. They are considered the safest and also the least financially rewarding of all foreclosure buying options. But properties sold this way also tend to be in better shape.

The downside is that you probably won't get as good a deal as you would with an auction or dealing directly with homeowners who are in a pre-foreclosure category.

Financial Considerations
When considering buying a home that's gone into foreclosure there are a number of financial considerations that have nothing to do with the property that could put you between a rock and a hard place.

For example, when you go to an auction, “Winning bidder must pay cash via cashier’s check at the auction”

Another possible complication is something mentioned earlier, a "lien." A lien is a legal claim against a home.

There's a fairly good possibility that someone who can't make mortgage payments may owe money elsewhere. Therefore, you have to conduct what's called a "title search" that should uncover any liens.

Common liens stem from unpaid taxes -- either property taxes or income taxes -- in which case the federal, state or local government could have a claim against the foreclosed property.

Other liens may include unpaid contractors or HOA dues etc. Some liens are wiped off the property at foreclosure and some are not. Those not removed at the foreclosure sale will remain intact until the money is paid which means that you will have to pay off the liens on the foreclosed property you are buying, and even though you're not the one who didn't pay the property taxes the last few years. “You need to know what you’re doing”

Be forewarned -- you won't be able to get title insurance that provides protection against anyone challenging you for ownership of the property.

Default Letter
The foreclosure process starts when the lender sends the homeowner a letter regarding the default, usually after the first missed mortgage payment. Thirty days must be given for a person to pay the past-due amount, and lenders must give the homeowner a date by which the money is due.

If the homeowner doesn't respond or "cure" the default, the lender can post a notice of sale at the courthouse. Foreclosure auctions in Pierce & King County Washington are usually held on Friday mornings. The auction happens outside, rain or shine.

What's Required
If you are thinking about becoming a professional real estate investor, or just looking to buy a great deal, we can educate and assist you to succeed since all the due diligence, title search information and fix up costs are provided to our investors.

We even have conventional long term financing options available for our investors who want to buy and hold investment properties. Should you decide to go it alone then?

"You need to be able to do your own title searches” You need to be able to price or appraise property to determine any equity. You need to know how to fix up a property and then how to market it. And finally, if you're buying at auction, you need to have enough cash."

To put it simply, buying a foreclosure is not just risky business, it's one gamble where the house doesn't always win.

Every Thursday evening, Fairplay provides “Investor Workshop Training” and immediately following they have “Investor Cafe” where they review all the targeted good deals for the auction Friday morning. Contact me for information if interested in attending one of these meetings.

Crazy home deals await the creditworthy

The article below really gets to the heart of just what a great time it is to buy a home. In earlier posts on my blog (find them on the right "blog Archive") I mention the inflation hedge alone is powerful vs. renting. We may never see record low rates combined with these low prices available in the market today.

By Kathleen M. Howley
Bloomberg
Businessweek

Bargains abound and rates are at record lows — for those who qualify

When Cynthia and Gerald Matthews relocated from Ottawa to Bloomington, Ind., house hunting had some pleasant surprises. “It was much cheaper than we thought it would be,” says Cynthia Matthews, who bought a three-bedroom, brick neocolonial-style house for 5 percent less than the $196,999 asking price and got a mortgage rate close to 4 percent. “To say it’s a buyer’s market would be an understatement.”

People like the Matthewses who survive the scrutiny of mortgage lenders are getting the best deals of the five-year U.S. housing bust — and perhaps the best deals of a generation — after a 31 percent decline in home prices since 2006. It’s the bright side of an otherwise bleak real estate market: Good houses at cheap prices are plentiful, and mortgage rates are at record lows — an average of 3.94 percent for 30-year loans during the first week of October.

“It’s hard to see the possibility of losing on a home purchase right now, with these mortgage rates,” says Dean Baker, an economist who in 2005 predicted that house prices would tumble. “Prices may go lower, but not by much.” .

Buying a $300,000 home with a 4 percent mortgage means a monthly payment of $1,145, assuming a 20 percent down payment. The Mortgage Bankers Assn. predicts that prices may decline an additional 3.5 percent by mid-2012, while mortgage rates will increase by a half-point. If that proves accurate, that home would sell for $289,000, while the monthly mortgage bill would be $1,171. “Even if there is another recession, people who can qualify for a mortgage won’t gain anything by playing the waiting game,” says Nariman Behravesh, chief economist at IHS in Englewood, Colorado. .

Getting those low rates can be a grueling process. Fannie Mae and Freddie Mac, which securitize about two-thirds of new U.S. mortgages, have enacted the strictest qualification standards in more than a decade as they try to improve the credit quality of their portfolios. .

Christine Trendell bought a house two months ago in Canton, Mass., a suburb of Boston, where real estate prices fell 25 percent through early this year before gaining 10 percent in the recent quarter, according to the National Association of Realtors. The wood-shingled house, built in 1920, has a screened-in front porch. Trendell and her husband had to submit a pile of bank statements, retirement-fund tallies and years of tax returns that stacked almost two inches high, she says. The lender required them to fax their pay stubs repeatedly near the end, she says, to make sure they still had their jobs. They were able to get the mortgage because they have pristine credit records, she says. “The low rates made it affordable to buy the house, but we didn’t know if we were going to be able to get a loan,” says Trendell. “Rates don’t matter if you can’t get a mortgage.”

Buyers are still cautious about taking advantage of deals. Sales of previously owned homes were down 31 percent in August from their 2005 peak, according to the NAR. Neither economist Baker nor Karl Case, co-founder of the Case-Shiller home price index, expect property bargains to be a cure-all for the worst housing collapse on record. Says Case: “Houses are cheap right now, but a lot of people are too scared to buy, no matter what kind of deal they get.” .

The bottom line: Home prices down 31 percent since 2006 and mortgage rates averaging 3.94 percent mean bargains for buyers with good credit ratings. .

By Kathleen M. Howley updated 10/24/2011 5:24:49 PM ET

Revamped Making Home Affordable Eligibility “HARP” Requirements

Update November 17th: On the 16th we received notification that the full implementation of the new changes will not be ready for funding in the secondary markets until March 2012. The reason for the delay is to get the DU automated underwriting systems programmed to except the new guidelines of no maximum LTV ( loan to value)and other changes. As I receive updates, I will post those items on this blog.

The government announced changes to its HARP (Home Affordable Refinance Program) October 24, 2011 and we are expecting the full program written guidelines by November 15th and the ability to fund these loans by December 1st. Based on what we know already, here is information and answers to your questions. “Guidelines are subject to change once the official written requirements become available”

If you're underwater on your conforming, conventional mortgage, you may be eligible to refinance without paying down principal and without having to pay mortgage insurance provided you are not currently paying mortgage insurance on your existing loan.

What Is HARP?
HARP was started in April 2009. It goes by several names. The government calls it HARP, as in Home Affordable Refinance Program.
The program is also known as the Making Home Affordable plan, the Obama Refinance plan, and Relief Refinance.
In order to be eligible for the HARP refinance program:
1. Your loan must be backed by Fannie Mae or Freddie Mac.
2. Your current mortgage must have a securitization date (closed) prior to June 1, 2009
If you meet these two criteria, you may be HARP-eligible. If your mortgage is FHA, USDA or a jumbo mortgage, you are not HARP-eligible.

HARP: Questions and Answers

Do these question-and-answers account for the "new" HARP program?
Yes, everything you are reading is accurate as of today, October 31, 2011. This post includes the latest changes rolled out by the Federal Home Finance Agency on October 24, 2011.

How do I know if Fannie Mae or Freddie Mac has my mortgage?
Fannie Mae and Freddie Mac have "lookup" forms on their respective websites. Check Fannie Mae's first because Fannie Mae's market share is larger. If no match is found, then check Freddie Mac. Your loan must appear on one of these two sites to be eligible for HARP.

If my mortgage is held by Fannie Mae or Freddie Mac, am I instantly-eligible for the Home Affordable Refinance Program?
No. There is a series of criteria. Having your mortgage held by Fannie or Freddie is just a pre-qualifier. Let us assist you in working through the details to verify your eligibility.

Is "HARP" the same thing as the governments "Making Home Affordable" program?
Yes, the names HARP and Making Home Affordable are interchangeable.

My mortgage is held by Fannie/Freddie. Now what do I do?
Find a recent mortgage statement and write "Fannie Mae" or "Freddie Mac" on it -- whichever group backs your home loan -- so you don't forget. Give that information to your lender when you apply for your HARP refinance.

What if neither Fannie Mae nor Freddie Mac has a record of my mortgage?
If neither Fannie nor Freddie has record of your mortgage, your loan is HARP-ineligible. However, you may still be eligible for a "regular" refinance to lower rates. Or, if your mortgage is insured by the FHA, you can possible use the FHA streamline refinance program.

Am I eligible for this revised Home Affordable Refinance Program if I'm behind on my mortgage?
No. You must be current on your mortgage to refinance via HARP. There are other parts to the HARP program that may provide assistance to homeowners who are behind on payments to avoid foreclosure. You can access the HARP website (click here)

Will the Home Affordable Refinance Program help me avoid foreclosure?
No. The Home Affordable Refinance Program is not designed to delay, or stop, foreclosures. It's meant to give homeowners who are current on their mortgages, and who have lost home equity, a chance to refinance at today's low mortgage rates.

What are the minimum requirements to be HARP-eligible?
First, your home loan must be paid on-time for the prior 6 months, and at least 11 of the most recent 12 months. Second, your mortgage must have been sold to Fannie or Freddie prior to June 1, 2009. And, third, you may not have used the HARP program before -- only one HARP refinance per mortgage is allowed.

Is there a 125% loan-to-value restriction for HARP?
No, there is no 125% loan-to-value restriction. All homes,regardless of equity are eligible for the HARP program.

I am really far underwater on my mortgage. Can I use HARP?
Yes, you can. There is no loan-to-value restriction under the HARP program.

Maybe I wasn't clear. I am really, really far underwater on my mortgage. Are you sure I can use HARP?
Yes, I am sure. The new HARP program specifically has no loan-to-value restriction so that homeowners in Florida, California, Arizona and Nevada can take advantage of it. You can 300% loan-to-value, and still be HARP-eligible. HARP is now unlimited LTV.

Will my home require an appraisal with the HARP program?
Sort of. Although your home's value doesn't matter for the HARP program, lenders will run what's called an "automated valuation model" (AVM) on your home. If the value meets reliability standards, no physical appraisal will be required. However, your lender may choose to commission a physical appraisal anyway -- just to make sure your home is "standing".

Is HARP the same thing as an FHA Streamline Refinance?
No, the HARP program is administered through Fannie Mae and Freddie Mac. FHA Streamline Refinances are performed through the FHA (HUD). The programs have similarities, however.

Do I have to HARP refinance with my current mortgage lender?
No, you can do a HARP refinance with any participating mortgage lender. Sound mortgage, Inc. and I can assist you in refinancing at today's low mortgage rates.

So, I can use any mortgage lender for my HARP Refinance?
Yes. With the Home Affordable Refinance Program, you can refinance with any participating HARP lender. Sound Mortgage Inc. and I can assist you with this program.

I put down 20% when I bought my home. My home is now underwater. If I refinance with HARP, will I have to pay mortgage insurance now?
No, you won't need to pay mortgage insurance. If your current loan doesn't require PMI, your new loan won't require it, either.

I pay PMI now. Will my PMI payments go up with a new HARP refinance?
No, your private mortgage insurance payments will not increase. However, the "transfer" of your mortgage insurance policy may require an extra step. Remind your lender that you're paying PMI to help the refinance process move more smoothly.

What's the biggest mortgage I can get with a HARP refinance?
HARP refinances are limited to your area's conforming loan limits. In most cities, the conforming loan limit is $417,000. However, there are some cities in which conforming loan limits are as high at $625,500. You can contact me for this information.

Can I do a cash-out refinances with HARP?
No, the HARP program doesn't allow cash out refinance. Only rate-and-term refinances are allowable.

Can I refinance an investment/rental property with HARP?
Yes, you can refinance an investment/rental property with HARP, even if the home was once your primary residence. You can refinance a home on which you're an "accidental landlord" via HARP. The loan must meet typical program eligibility standards.

Can I refinance a second/vacation home with HARP?
Yes, you can refinance an second/vacation property with HARP, even if the home was once your primary residence. The loan must meet typical program eligibility standards.

Are condominiums eligible for HARP refinancing?
Yes, condominiums can be financed on the HARP refinance program. Warrant-ability standards still apply.

Can I consolidate mortgages with a HARP refinance?
No, you cannot consolidate multiple mortgages with the HARP refinance program. It's for first liens only. All subordinate/junior liens must be re-subordinated to the new first mortgage.

Can I "roll up" my closing costs with a HARP refinance?
Yes, mortgage balances can be increased to cover closing costs in addition to other monies due at closing such as escrow reserves, accrued daily interest, and a small amount of cash. In no cases may loan sizes exceed the local conforming loan limits, however.

I am unemployed and without income. Am I HARP-eligible?
No. Income verification is required for the HARP refinance program.

My original mortgage was a stated income loan. Will my income be verified with a HARP refinance?
Yes, with HARP, applicant income is verified in the same manner as with a traditional refinance -- via a combination of W-2s, paystubs, tax returns and other, underwriter-requested documentation.

What are the HARP program's mortgage rates?
Mortgage rates for the HARP program are the same as for a "traditional" refinance. There is no "premium" for using the HARP program.

Do HARP refinances use Loan-Level Pricing Adjustments?
Technically, loan-level pricing adjustments do not apply to HARP refinances, but borrowers may be subject to LLPAs based on their respective credit scores or home-types (e.g.; 2-unit, 3-unit, 4-unit). Loan-to-Value LLPAs are reduced and/or waived.

Is there a minimum credit score to use the HARP program?
No, there is no minimum credit score requirement with the HARP refinance program, per se. However, you must qualify for the mortgage based on traditional underwriting standards.

What does the term "DU Refi Plus" mean?
"DU Refi Plus" is the brand name Fannie Mae assigned to its particular flavor of the HARP program. "DU" stands for Desktop Underwriter. It's a software program that simulates mortgage underwriting. "Refi Plus" is a gimmicky-sounding term that could have been anything. The name has been trademarked, however. As an aside, Freddie Mac is using the branded name "Relief Refinance".

Can I remove my spouse or a co-signer with a HARP refinance?
Maybe. HARP guidelines specifically prohibit removing a co-signer from the note, but there are circumstances in which you can remove a co-signer from the mortgage and from the deed so that the former co-signer has no ownership interest in the home.

For how long should I lock my mortgage rate via the HARP Program?
Lock for 30 days, at minimum. This is because the HARP program, while streamlined for simplicity, still has some grey areas that can lead to delay. It's better to have a rate lock that lasts too long than not long enough.

When does the HARP program end?
If you are HARP-eligible, you must close on your mortgage prior to January 1, 2014

How do I apply for the HARP program?
You can apply on-line by accessing my website (click here) or contact me for other options.

There is no fee or obligation to apply For the Home Affordable Refinance Program
Please feel free to contact me with questions or to get a “No Cost or Obligation” analysis if you and your home will qualify for the HARP refinance program, Access my webpage (click here)

Lastly, don't forget! The Home Affordable Refinance Program is not meant to save a home from foreclosure. It's meant to give underwater homeowners a chance to refinance to lower their monthly payments or reduce their term with close to the same payment which will increase equity faster. If you need foreclosure help, call your current loan servicer immediately.

Is Buying - Owning a Home Still a Good Investment?

The ongoing housing crisis and precipitous fall of home values has financial experts questioning the long-term value of buying/owning a home. This firmly held belief of both financial planners and ordinary citizens has been backed by a century’s worth of economic data, but new numbers have challenged the pedestal on which home ownership has been placed. Indeed, with the new economic realities that have appeared in the past year, from exploding deficits to unprecedented government intervention, the question should be asked: Is buying/owning a home still a good investment?

The Wall Street Journal, Jim Cramer, and Home Values

At the forefront of this new, opposing view is the Wall Street Journal, which recently calculated that the return on owning a home was only 1.15% a year above inflation since 1987 (recent housing boom) and 2.2% a year above inflation since 1994 (recent housing bust). These numbers represent the change in the Case-Shiller Index of 10 major cities. Yet, even if the appreciation of the home doesn’t offset the interest of the mortgage, the imputed value (living rent-free) still makes for a solid investment for owners who live in the home. Often, this imputed value alone can equal 4-8% of the value of the home (although not the total amount of the mortgage) each year. The WSJ article mentions this point, but doesn’t emphasize it, and seems to speak more to people who would buy a home as investment property.

At the opposite end of this spectrum is Jim Cramer, who recently declared that it was “patently obvious” the housing bottom had arrived. Of course, Cramer’s bent is distinctly more short-term than the analysis from the WSJ, but if the housing market has hit bottom (a historic bottom, perhaps), it takes some of the teeth out of the WSJ’s analysis.

Here are links to these sources in their original context:
Wall Street Journal Article
Huffington Post

Homeownership vs. Renting/Stock Market

The investment value of owning a home can be seen through two common—and very different—scenarios. First, in terms of getting a return on capital, should someone invest in real estate, the stock market, or some other investment opportunity? Second, in terms of planning for retirement, should someone rent or own a home? Unsurprisingly, many investments show poor returns right now, even when looked at over a period of 10 to 15 years. Moreover, most financial advisers would probably tell you that, while both the housing and stock market have large upsides right now, the housing market is probably the safer of the two options right now. After all, while Cramer is unequivocally declaring the bottom of the housing market, many Wall Street analysts are still calling the recent surge a bear-market rally. Moreover, a real estate investor has the entire country to scour, looking for deals and upside. Thus, anyone wishing to invest capital in the real estate market will probably find a better return than the national average, comprised mainly by owner-occupied homes.

What’s interesting about the debate between owning and renting a home is the narrowing gap between the monthly costs. In 2003, the average monthly rent payment was $651, while the average monthly mortgage payment (including home maintenance costs) was only $758, according to the Census Bureau’s American Housing Survey. By 2007, at the tail end of the housing bubble, this gap had ballooned to a $755 average rent payment and a $972 average mortgage payment. The housing bust has undoubtedly narrowed this gap again. In fact, in some areas where home prices have been hit hardest and while interest rates remain reasonable, monthly mortgage payments are now lower than monthly rent payments. Thus, with nearly equivalent costs to renting, owning a home becomes a no-brainer and any equity you build over the years is simply icing on the cake.

Why It’s Important to Ask the Question

Although the Wall Street Journal‘s analysis isn’t convincing to most people, it does at least make people aware that their specific home purchase is no guarantee of a financial windfall. Indeed, the unquestioned value of buying a home likely contributed to the haphazard, no-worry stance of home-buyers who ignored or shrugged-off the unfavorable terms of sub-prime mortgages.

Likewise, Jim Cramer’s pontifications don’t mention the fundamentals of wise home-buying and ownership that can make the difference in real estate investment, even during the peaks of buyer’s and seller’s markets. Passing on the most expensive home on the block, avoiding a bidding war, finding a home in good condition, seeking out multiple lending institutions and loan terms, and, in general, looking for value in your real estate purchase are all pivotal for the long-term return on your property, not to mention staying above water in terms of equity.

Federal Reserve to Backstop Bank of America’s & JP Morgan's European Derivatives

Bank of America (BofA) is shifting derivatives in its Merrill investment-banking unit to its depository arm, which has access to the Fed discount window and is protected by the FDIC, reports the Daily Bail.

What does this mean?
It means that the BofA’s European derivatives are now going to be “backstopped” (i.e. supported) by U.S. taxpayers. What is even more shocking is that, according to the same Daily report, Bank of America did not even seek or receive regulatory approval for this; they “just did it at the request of frightened counter-parties.”

Given the dismal financial situation in the euro-zone, the Fed and the FDIC are now bickering back and forth as to whether or not this is a good idea. The FDIC (“which would have to pay off depositors in the event of a bank failure”) disagrees with the transfers while the Federal Reserve “has signaled that it favors moving the derivatives to give relief to the bank holding company,” reports Bloomberg.

Daily Bail reports:

This is a direct transfer of risk to the taxpayer done by the bank without approval by regulators and without public input . . . JP Morgan is apparently doing the same thing with $79 trillion of notional derivatives guaranteed by the FDIC and Federal Reserve.

What this means for you is that when Europe finally implodes and banks fail, U.S. taxpayers will hold the bag for trillions in CDS insurance contracts sold by Bank of America and JP Morgan.

A CDS is a credit default swap. It’s a lot like an insurance policy in that it requires the seller of the CDS to compensate the buyer in the event of loan default. Bank of America and JP Morgan have been selling these at an almost breakneck pace.

Get that? The FDIC is now insuring trillions in CDS contracts sold by Bank of America and J.P. Morgan. Where do you think the FDIC gets the money to compensate the buyers of said CDS contracts?

The Daily report continues:

Even worse, the total exposure is unknown because Wall Street successfully lobbied during Dodd-Frank passage so that no central exchange would exist keeping track of net derivative exposure.

This is a recipe for Armageddon. Bernanke is absolutely insane. No wonder Geithner has been hopping all over Europe begging and cajoling leaders to put together a massive bailout of troubled banks.

His worst nightmare is Eurozone bank defaults leading to the collapse of the large U.S. banks who have been happily selling default insurance on European banks since the crisis began.

Some regulators are not terribly happy with the move and are currently discussing how best to protect FDIC banking operations.

“The concern is that there is always an enormous temptation to dump the losers on the insured institution,” said William Black, professor of economics and law at the University of Missouri-Kansas City and a former bank regulator, in a recent Bloomberg article.

“We should have fairly tight restrictions on that,” he added.

Not surprisingly, those involved in this latest move by the Feds and Bank of America are remaining quiet about the whole deal.

Jerry Dubrowski, a spokesman Bank of America, declined to give Bloomberg a comment but only said (via email) that Bank of America “continues to accommodate the needs of our clients through each of our multiple trading entities, including Bank of America NA [referring to the company’s deposit-taking unit].”

Barbara Hagenbaugh, a Fed spokeswoman, told Bloomberg that she couldn’t discuss supervision of specific institutions.

Greg Hernandez, an FDIC spokesman, declined to comment.

Read the full story here
author/Becket Adams

The 4% mortgage - good luck getting one

"read my comments below this article"
NEW YORK (CNNMoney)By Les Christie -- A 4% mortgage sounds too good to be true -- and for more than 90% of borrowers, it is.

The average rate for a 30-year mortgage dropped below 4% earlier this month for the first time, hitting 3.94%, Freddie Mac reported.

But at the same time, LendingTree reported that the average rate offered to borrowers by its network of lenders was about 4.32%.

Only about 9% of LendingTree borrowers got loans below 4%. About a third got loans between 4.5% and 5%.

Those rates are still low, but a half point rate difference adds about $700 a year to the payments on a $200,000 mortgage.

There are a couple of reasons why so few borrowers get the best deals. One is that Freddie Mac surveys lenders, and the rates they quote apply to borrowers with flawless credit, ones with high credit scores and who put down 20% or more. The LendingTree numbers reflect actual loans that borrowers got.

There's another factor in play, too. The low rates draw in a flood of current homeowners looking to refi. Nearly 80% of all mortgage applications lately have been to refinance existing loans. The rush of applicants can drive up rates.

"Lenders quickly become flooded with volume and can adjust rates to slow their pipelines," said Doug Lebda, CEO of LendingTree.

The industry can handle less volume than in the past. After the housing bust, many lenders closed their doors and large numbers of loan officers and other workers left the industry. Many lenders are understaffed and can be easily overwhelmed with applicants.

When that happens, according to David Adamo, CEO of Luxury Mortgage, the banks discourage borrowers."They expand their margins and that sends rates up," he said.

The above article is a great example why working with myself and Sound Mortgage, Inc. is better than trying to get a mortgage from a company like Lending tree, which by the way did you know that Lending Tree's business model is just to capture your interest in getting a loan and then selling the lead to three lenders, yes that's right they do not loan you any money at all!
Getting you the best possible rate in the market is and always has been very important. Many factors effect risk based pricing that Fannie Mae & Freddie Mac provide. Examples; credit scores, debt to income ratios (DTI), loan to value (LTV) etc. Other loan programs i.e. FHA, VA and USDA do not have the same risk based pricing adjusters as Fannie & Freddie and recently have been lower mortgage rates than conventional loans.
Please feel free to contact me to discuss all of your options and loan programs. No two borrowers are alike so the "one loan fits all" approach is never a good thing.

Read My Lips: A Refi Plan Is Coming

Treasury Secretary Timothy Geithner said Thursday he expects a U.S. housing

regulator in the coming weeks to detail mortgage refinance programs that could help the battered housing market.

“My sense is, based on what I’ve seen…it’s going to be meaningful enough to make a difference,” Mr. Geithner said at a Senate Banking Committee hearing.

The Federal Housing Finance Agency, which oversees government-controlled mortgage companies Fannie Mae and Freddie Mac, is evaluating ways to help more troubled homeowners refinance their mortgages at the lowest rates in a half-century.

“They are looking at a range of things and you’ll see more details in a couple of weeks,” Mr. Geithner said.

More: Six Steps That Could Boost Refinancing

To fix the economy, first fix the housing market

The article below is one of many ideas to correct the housing market and in turn help fix our economy. One thing is for sure, he is correct that you can not fix the economy without fixing the housing market. This graph tells it all!

As the housing market goes up or down, so goes our economy (see GDP in graph) Think of all the jobs that are directly effected by a strong or weak housing market, from the people who build them, supply the materials and all the items we buy that goes into the home and so on! Housing is and has been the bedrock of our great nation from the beginning. Please feel free at the bottom of this blog to tell us what your ideas are for fixing the housing market?


By John Cassidy, contributor
FORTUNE -- Is this a great country or what? At the start of last year, a friend of mine, the proprietor of a small business that has suffered badly in the recession, entered a trial mortgage-modification program. A few months later the bank told him that his application for a government-assisted refinancing rate had been turned down -- his house was too far underwater. He had bought it during the boom for $220,000, putting down $30,000, and then spent another $45,000 doing it up. Now it's worth about $100,000. Once his monthly payments were set to go back up (his mortgage rate is 6.5%), my friend stopped paying them and waited for the foreclosure and eviction notices to arrive. A year and a half later he is still inhabiting his own home and watching the mail.

Whenever I hear somebody saying that growth is about to pick up, I think about my friend and the roughly 11 million homeowners whose mortgages are worth more than their homes. Some of them are still making their monthly payments. Some, like my pal, are living for nothing. The drip-drip foreclosure crisis shows how, six years after the bursting of the real estate bubble, the U.S. residential real estate market is still a mess. And without a genuine revival in housing, it is hard to think we will ever get a self- sustaining recovery.

Sure, the news that President Obama and the Republicans are talking about enlarging this year's payroll tax cut and extending unemployment benefits through 2012 is good news. The last thing the economy needs is a $250 billion hit to spending, which is what doing nothing would amount to. But where are the serious proposals to revive the housing market? It's as if both parties have agreed to drop the issue.

Housing isn't just another industry: It's a driving force for the entire economy. Residential investment accounts for up to a quarter of overall capital investment. House prices have a big influence on consumer spending -- for every $1,000 the value of his house falls, a homeowner tends to cut his outlays by about $50 or $60. And falling property tax revenues are decimating many towns and cities. How bad is it out there? New-home construction is running at less than a third of its pre-recession level; in August it fell again. Existing-home sales picked up a bit, but that was largely because of bottom-fishing investors who are betting prices can't go any lower. Let's hope they are right. Nationwide, according to the S&P/Case-Shiller index, prices are down 6% over the past year and down 32% since the first quarter of 2006.

I'm not saying that fixing the housing market is easy. If it were, somebody would have done it. But to begin with, we could make the much-maligned Home Affordable Refinancing Program (HAMP) work better. Generally, anybody who is current on payments and whose home is worth at least 80% of the outstanding loan is eligible to participate. But many homeowners have been put off by the red tape and by additional charges that Fannie Mae and Freddie Mac, which ultimately own or insure many of the mortgages, have imposed on applicants.

Then there are folks whose mortgages are way underwater. One option: Force the banks to foreclose on them and get the whole nightmare over with. But that would dump yet more properties on the market. A better solution, which has never seriously been tried, would be to expand the mortgage-modification program, offering interest rate reductions and principal write-offs in return for options on the upside value of the property. For example, the government and the bank could reduce my friend's mortgage to $150,000 -- 150% of the property's current value -- but demand half of any profit he makes when he eventually sells the property.

The details would need working on -- there's a tradeoff between maximizing uptake and minimizing rewards to irresponsible borrowers -- but surely it is worth trying. Three years of fiddling with the housing problem haven't gotten us very far.

--John Cassidy is a Fortune contributor and a New Yorker staff writer.
This article is from the October 17, 2011 issue of Fortune.

Home Prices vs. Mortgage Rates

Let’s take a look at the impact of both home prices and mortgage rates on your decision to buy a home.

Obviously, both are very important not only in terms of whether you should buy (from an investment standpoint), but also how much house you can afford.

At the moment, mortgage rates are very close to historic lows, with the popular 30-year fixed-rate mortgage averaging 4.09 percent last week, according to data from Freddie Mac.

But while rates are low, home sales are still pretty flat, thanks in part to high unemployment, a lack of consumer confidence, and perhaps inflated home prices.

home prices are well off their housing bubble peaks, many feel they’re still inflated (but housing prices are different depending on the regional markets around the country).

Home values have lost appreciation from the peak of the market, and are currently coupled with near-record low mortgage rates.

Home prices are predicted to be pretty flat over the next several years, but mortgage rates are expected to rise.

So should you buy now while rates are low and prices have foreseeable downward pressure, thanks to all that distressed/shadow inventory and lack of confidence?
Or should you wait it out and let home prices hit bottom first?

Well, first things first, it’s nearly impossible to buy at the bottom. Anyone will tell you this, whether it’s a home or a stock or anything else. Predicating the absolute bottom, or even close to it, can be a tall order.

Home prices are also regional and local, so it’s not like home prices have fallen by the same amount throughout the country.

And not all home prices in the nation can be designated as cheap, average, or expensive – they vary greatly.

At the same time, it’s hard to argue that mortgage rates nationwide are not very low and only expected to rise.

That said, let’s look at a scenario where mortgage rates rise and home prices slump.

Example on Conventional Purchase with 20% down:

Sales price: $400,000
Loan amount: $320,000 (20% down = $80,000)
Mortgage rate: 4.09%
Mortgage payment P&I: $1,544.38
Total paid: $555,976.46

Now if home prices fall 10 percent over the next year or two, while mortgage rates rise from 4.09 percent to 6.00 percent, which isn’t necessarily unlikely.

Sales price: $360,000
Loan amount: $288,000 (20% down = $72,000)
Mortgage rate: 6.00%
Mortgage payment P&I: $1,726.71
Total paid: $621,615.60

(FHA or VA loans require min. 3-1/2% or 0 down)

Buying the home at the current higher price with the lower mortgage rate results in both a lower monthly mortgage payment and significantly less interest paid throughout the loan.

That could also make qualifying easier with regard to the debt-to-income ratio requirement. However, the down payment is $8,000 higher on the more expensive house, which could prove a barrier to home ownership if assets are low.

But we’re still looking at savings of roughly $57,600 with the larger / lower-rate mortgage.

This illustrates the importance of low mortgage rates. Of course, there are many variables that can come into play.

And who knows, maybe rates will stay relatively low and home prices will fall even more than expected over the next few years.

A Huge Housing Bargain -- but Not for You

NEW YORK (RealMoney) -- The largest transfer of wealth from the public to private sector is about to begin. The federal government will be bulk-selling the massive portfolio of foreclosed homes now owned by HUD, Fannie Mae and Freddie Mac to private investors -- vulture funds.

These homes, which are now the property of the U.S. government, the U.S. taxpayer, U.S. citizens collectively, are going to be sold to private investor conglomerates at extraordinarily large discounts to real value.

You and I will not be allowed to participate. These investors will come from the private-equity and hedge-fund community, Goldman Sachs(GS_) and its derivatives, as well as foreign sovereign wealth funds that can bring a billion dollars or more to each transaction.

in the process, these investors will instantaneously become the largest improved real estate owners and landlords in the world. The U.S. taxpayer will get pennies on the dollar for these homes and then be allowed to rent them back at market rates.

On Wednesday, the Federal Housing Finance Agency (FHFA), the Department of Housing and Urban Development (HUD) and the U.S. Treasury Department issued a Request for Information (RFI) concerning the disposition of the inventory of foreclosed homes owned by the federal government.

An RFI is ostensibly a way for the federal government to get input from the private sector on how to accomplish the goals laid out in the request. But that's really just a facade, as the RFI was structured by the investors to begin with.

In reality, the RFI is a way for the members of Congress to find out if they can get away with bulk-selling these homes to private companies without incurring the wrath of their constituents, taxpayers and former owners of the properties.

Assuming taxpayers don't push back, the next step will be to issue a Request for Proposals (RFP). The RFP will be the bid and plan for these homes by investors.

The way to keep taxpayers from pushing back is to structure the RFI so that the real intention, the bulk sales, is masked by feel-good goals, such as stabilizing neighborhoods and increasing the supply of rental properties.

As intended, the mass media are playing their part in classic style. Every major newspaper in the U.S. has run articles discussing the plan as a rental conversion, allowing readers to assume that Fannie, Freddie and HUD will be renting the properties directly to families who need housing. And although there is an allowance for these kinds of rentals, it is a minor political facade to the obvious true goal of bulk-sale privatization of these homes.

The investors in this program have been waiting for this opportunity since the portfolio of homes owned by HUD began to spike in 2007, when foreclosures surged first in the "Rust Belt," principally Ohio and Michigan.

Since then, of course, the systemic collapse of housing has engulfed all of the major urban coastal regions of the U.S., as well as Phoenix and Las Vegas, and caused the homes owned by Fannie Mae and Freddie Mac, which are now under the direct control of the U.S. Treasury Department, to spike as well.

Even before this crisis occurred, HUD, i.e. the U.S. government, was the largest improved real estate owner in the world, because of its portfolio of foreclosed homes, which is classified as "real estate owned" (REO). The entire massive HUD REO Portfolio is quietly managed by a handful of private firms already, a group listed as Management and Marketing Contractors.

These M&M companies are principally owned by and employ former high-ranking government officials from the various germane agencies -- the Treasury, HUD, FHA and others. And they will provide the necessary access to the current government employees who are tasked with bringing this program to fruition. Once the privatization is complete, those government employees will move from their positions, and many will take up new employment at one of the M&Ms or the new vulture funds.

I am not currently aware of any way for retail investors to participate in this process.

It is probable, however, that once the privatization has occurred and the properties are generating rental income for the investors, the initial investors will cash out by forming real estate investment trusts (REITs), real estate operating companies (REOCs) or limited partnerships (LPs) that will be made available to retail investors.

This column by Roger Arnold originally appeared on RealMoney on Aug. 11.

Residential Real Estate Industry Cringes As Dodd-Frank Era Begins "as a consumer why should I care"

The financial regulatory bill known as Dodd-Frank, named for it’s two main congressional proponents, Chris Dodd and Barney Frank, has begun to kick in. The bill is more than 1,000 pages in length, and will address virtually every corner of the residential real estate industry.

Virtually no one in the industry will avoid the impact of this new and sweeping attempt at financial regulation and “consumer protection”. While it’s intent was to address the housing crisis, and protect consumers from unscrupulous lenders, the real estate industry is cringing as the bill begins to become active.

Nobody is quite sure which way the Dodd-Frank bill will go for real estate © RTimages - Fotolia.com

But there are so many pieces to this bill, that actual implementation of all of the sections will take several months, if not years. No one knows what the ultimate effect will be, but the real estate industry is cringing as it waits to see how this bill will impact the residential real estate markets in the U.S.

First, this bill gives new powers to the Federal Reserve to regulate the housing industry. This is new territory, and already some of the new rules proposed by the Fed have been the target of major concern amongst housing industry professionals. Most prominent among these is a rule that defines a “Qualified Residential Mortgage”. If implemented as written, this rule would require 20% down payments, and strict underwriting guidelines that even private home sellers who want to finance the sale of their home would have to follow. Obviously a rule that even affects private home sellers in addition to licensed professionals means that these rules will have an impact on every single home sold in the U.S.

The National Association Of Realtors has come out strongly against the rule as written, saying that the proposal will threaten the housing market by making it harder for buyers to meet the stringent requirements for qualifying. Any reduction in potential home buyers could deal another blow to an already weak housing market.

Mortgage Bankers, Home Builders and virtually any other group associated with the housing industry is concerned that these new rules will have a negative impact on the housing market.

Even private real estate investors and note buyers are concerned that the new rules will eliminate seller financing as an option for those buyers who have damaged credit or other financial problems. Under the new rules, private real estate investors who sell more than three properties per year would have to meet the same guidelines as any bank or lender, and would even have to become a licensed Mortgage Loan Originator just to sell their own properties with seller financing.

Sellers would still have to qualify the buyer under the “Qualified Residential Mortgage” rules, which do not allow for credit issues such as payments being 60 days late on a credit report. Since seller financing is commonly used to help a buyer who cannot presently qualify for a traditional mortgage, these new requirements would effectively keep sellers from helping buyers with credit problems.

The whole idea makes no sense. Restricting buyer qualifying at a time when home sales are at record lows does not seem like a good way to get the housing market and the over all economy back on track. Some even imply that this is not an attempt to protect consumers as much as it is an attempt to take over more control of the entire U.S. housing industry. So the industry watches and waits as these new regulations begin to take effect. Only time will tell how much they will help or how much they will hurt the housing industry.

Written by Donna Robinson - 04 September 2011

THE GOOD THE BAD AND THE UGLY

Below is a chart of weekly mortgage rates dating back to 1971.  This shows just how low mortgage rates are historically speaking.

THE GOOD: Since mortgage rates are at record lows, it enables home buyers to increase their buying power significantly since a home buyer does not buy a home so much on price, but more on payment and the lower the mortgage rates, the lower the payments on a home purchase.



THE BAD:  The reason mortgage rates have hit these record lows is due to investors fleeing for safety in the wake of the Wall Street sell off over the past few weeks and the demand for mortgages is down.  As the 10 year treasury prices increase the yield decreases,  fixed rate mortgage backed securities are closely tied to the 10 year yield.  For the yield to hit these record lows shows just how bad the economy is for investors to except such a small yield on their investments vs. possible big losses in the stock market. http://money.cnn.com/2011/08/19/news/economy/thebuzz/index.htm

THE UGLY: Since the government does not factor food prices and energy prices into its core inflation figures (how convenient) and we all know these prices have increased significantly over the past year  (see real inflation- click here) The cost of almost everything will continue going up for all of us.  So inflation is a serious issue as it erodes buying power.  The best way to hedge your expenses against inflation, get your biggest expense lower i.e. "your housing costs" so if you already own a home try and refinance to lower your payment. If you rent, now is the time to buy a home as rents are already increasing and will continue increasing as the CPI (consumer price index) continues increasing.  Over time your low monthly payments will give you more and more hedge against the increasing inflation.  Not to mention real-estate runs in cycles and historically home values double every 10 -12 years mainly due to inflation!

So buying a home today and holding for the longer term will only provide you greater net worth.  Historically homeowners outpace non-homeowners in creating wealth over their lifetimes.

To discuss your options,  please give me a call 253-686-6690

Tacoma, Seattle Lead List of Strong Housing Markets

What’s the top place in the U.S. to buy a home over the next two years? That would be Tacoma, Wash., according to financial-data firm Fiserv.
Despite the gloomy picture for the national economy and housing market, residents of that city, on Washington’s Puget Sound, are in for a 25% increase in home prices by spring 2013.  Read full article here: http://blogs.wsj.com/developments/2011/08/09/tacoma-seattle-lead-list-of-strong-housing-markets/ 


What a great buying opportunity for anyone who wants to take advantage of low home prices, low mortgage rates and the opportunity to create net worth in real estate.  We can also assist investors in buying homes at auction for even greater deals.  Give me a call today 253-686-6690