Sue the Germans to Save our Economy! Well..maybe not.

I know we all want a villan in this financial meltdown we have experienced the last 5 years.  We would love that villan to be an entity we can dispise and can easily never do business again. 
Hey, I know, lets blame the Germans…our old enemies from the last two world wars!  That’ll be an easy one for everyone to jump on the bandwagon to hate!  I hope this sounds as rediculous to you as it does to me…but that appears to be just what our federal government is doing us right now as they proceed to begin a lawsuit against Deutschebank. 
The lawsuit claims that Deutschebank made a $5 Billion worth of bad loans that they sold into government backing (FHA) and then didn’t continue to track those loan’s default rates after they initiated them.  In short…Deutschebank is accused of making the same loans that every American bank was making (which, by the way, conformed to the overly loose underwriting guidlines that were established by the federal government during that time to encourage home ownership for “all” and economic growth) and then after it was too late to revoke those loans they weren’t “doing enough” to track them and stop them from defaulting further after they sold the loans to investors (again like every other bank was doing at the time). 

When this exact same scenario happened with Bank of America, Wells Fargo, Chase, Citi, and hundreds of other American banks showed similar losses and have caused mortgage giants Fannie Mae and Freddie Mac to hemorrage money like a politician with a hankering for pork, we decided to give the banks $700 Billion in bailouts to help them get back on their feet (and off the books the Federal Reserve has pumped Billions more into keeping Fannie Mae and Freddie Mac afloat).  The American banks made the same Billions in bad loans, stuck taxpayers with the bill, sold them to investors in toxic packages that were destined to fail (but somehow were still rated as safe investments by the rating bureaus…those same rating bureaus who have yet to face any repercussions or regulation changes in this meltdown) and once they started failing were extremely slow to start doing anything to try to save or track any of the loans defaults to prevent more of them.  Hmmm…sound familiar to anyone?

The only real difference in this entire scenario that I can see is that the American banks, if they fail, have to have the FDIC pay back all of their account holders up to $250,000 of lost money.  The FDIC almost went broke over the last few years handling those payouts for banks like IndyMac and the hundreds of others that closed their doors over the last 5 years.  The FDIC could hardly have afforded to protect the money of account holders for banks like Citi, Wells, Chase, or BoA  without going bankrupt…they are too big (which is why they are “too big to fail.” If FDIC failed to back the accounts on one collapsing bank it could cause a real great-depression-like meltdown of our ENTIRE financial system).  So these banks we bailed out.  Since Deutchebank is a foreign bank, only their American divisions receive FDIC protection (Deutschebank has two American Trust divisions that are set up to be covered under FDIC but their international operations beyond our borders would not be).  While Duetschebank is one of the world’s largest banking institutions if we sue them into oblivion our goverment would only have to cover a small portion of their account holders losses.  The rest of the losses would have to be dealt with by people in other parts of the world.  I know we want to blame someone for this mess, but I just don’t see how Deutschebank is really the one to shoulder the blame for all of this while the rest of the banks (and the rating agencies) get off scott free…but then again I didn’t feel blaming the loan officer and cutting his/her pay for helping people getting loans that followed every rule of the day was really the right way to go either (but that’s just what we did 4/1/11 with the Frank-Dodd Bill). 

I could be off base with this analysis, but I don’t think so.  If you have a different opinion, voice it in the comments. 

I look forward to the debate, and Keep Dreaming!

The End (of Lower FHA MIP Rates) is Near!!!

While I have written about the upcoming change in the FHA MIP rates from .9% to 1.15% per month previously, I thought a reminder for anyone thinking about buying a home right now would be in order. 

If you do not have an FHA case number assigned to your loan before 4/18/11 you will pay the increased monthly MIP.  Considering that is coming up on Monday, that really means that you need to have an executed contract delivered to your lender by TOMORROW at the latest to safely ensure your case number is assigned on time. 

If you or a client of yours are dragging your feet on a negotiation, stop dawdling and get it done!  If you are only a couple thousand dollars apart on a deal as an FHA buyer, get off your high horse and sign the thing already.  You’ll lose more money per month with the higher MIP rate than you would with a few thousand dollars more on a mortgage (and in the end, isn’t the monthly payment truly what you are negotiating when you are asking the seller to reduce the price for you?  Unless you are paying cash or trying to flip a home for profit you should be more worried by how much you pay per month than how much is left on the mortgage…its paid off in 30 years either way!)  You can’t get a case number assigned until you get a contract signed, so either make your move or accept that you will be paying more starting Monday.

If you can avoid these increased fees to FHA (in truth, a tax on lower income home owners) than you really should try to do so.  Good luck, make it happen, save some money, and Keep Dreaming!

Regulators Gone Wild!

I wanted to share today an article I read in Inman News which brings up the fact that some of the rules being enforced upon our real estate industry go far beyond the scope of the laws that were passed to create them.  This is mainly due to federal regulators going way too far with their interperetations of “congressional intent” when passing the bills.  In some cases the regulators blatently ignored the intent of the laws that were passed and used their ability to interperet and regulate as an open invitation to create public policy that is the direct opposite of the original congressional bill. 

Read the article to find out more about these regulators going “wild” with their power and responsibilities…and Keep Dreaming!

http://lowes.inman.com/inmaninf/lowes/news/141101

Frank-Dodd Bill and Regulators Create a Downpayment Nightmare for Consumers

Regulators today defined “safe” loans for homes as ones that have at least 20% downpayment.  What is a safe loan you ask?  Why should you care about safe loans? 

According to the Frank-Dodd bill passed last year, these “Safe Loans” are now the only loans which banks will be able to sell as a mortgage backed security to investors without having to hold 5% of the loan in their “portfolio” (taking away from what they can lend in the future).  Smaller banks and lenders, who don’t have the capital to repeatedly hold this 5% on each loan, will eventually have to stop offering products like FHA and VA financing, as it will become too expensive for them to make loans that are less than 20% downpayment required.   This bill, which masquerades itself as protecting consumers and investors from the “evil” banks that caused the problem, is really just directing MORE of the loans to the nation’s big banks, like BofA, Wells Fargo, Chase, and Citi (yeah…the ones we had to bail out when they caused the problems) as they will be the only banks with enough cash reserves to continually afford to make affordable loans to consumers.  If you believe that these 4 banks would continue to make these loans that they now have to keep part of on their books without charging the consumer additional fees once their competition is gone…well then you just haven’t been paying attention to the actions of these banks over the last 5 years like I have.  They’ve added fees on accounts, credit cards,  ATM’s and everything else without having added costs put on their books.  With a real cost added to their business, they are likely to charge the consumer even more. 

Will this help the Real Estate Market in its recovery or hurt it?  Since your average American right now is earning a salary of around $30,000 (putting a family income around $60,000) and the average home price in America is in the ball park range of $250,000, an average American family would need to save almost all of one year’s salary (before taxes and without spending any of it) to be able to afford a “safe loan’s” downpayment.  This means most people will either have to spend 5-10 years to reasonably save up to buy a home (with rent prices currently increasing rapidly already-probably taking them longer) or they will have to go to one of the “big 4” and spend more money on fees than they would right now.  

How does Frank-Dodd help the consumer get a better loan or help with the recovery of the housing market?  Well, to me it doesn’t at all (especially since it is the same bill that causes the change in Loan Officer Compensation that will limit consumer’s loan options starting in two days).  It will just make it take longer for most buyers to be able to afford to buy (lowering demand for housing), increase the costs of buying, and force the consumer to lenders with worse service and pricing.  All of this will inevitably hurt housing prices as fewer people are able to or want to buy under the new rules. 

The good news…well the small banks haven’t stopped giving “un-safe” loans yet, as this is just announced and starting to take effect, so we should be able to at least continue at the current level of market activity for a while yet before the brunt of the damage this law could do really hits our market.  Lets just hope it doesn’t turn out as bad as I foresee it being for the consumer.

Keep Dreaming!

Is Rising Rents a Sign of Recovery?

I was reading an article in Yahoo News today which postulated that the rising cost of renting a home/apartment is a sign that the housing market may pick up soon (and if you haven’t tried to rent a home in the last year…the cost is REALLY rising.  Locally, I have watched rental prices go up from between 10-20 percent on units over the last 6 months.  One apartment complex has gone from $1100 for a one bedroom apartment to $1375 for a one bedroom apartment just in the last two months!)

Why would rising rent prices be a good thing for the housing market?  Well, when the monthly cost of renting a home starts to exceed the monthly cost of buying a home, more people will want to get out of renting.  In a number of parts of our local market, this threshhold has already been crossed.  In the Treover Condos in Columbia, MD, for example, a 2 bedroom condo currently rents for around $1200-1250 per month, but at an average purchase price of around $120,000, that same two bedroom unit would cost a person around $1100 a month, even with the high condo fees in this development. 

Not only would you pay less per month now, but rental prices have been on the rise for the last couple of years as well, while that mortgage price would be locked in after you purchased it for the next 30 years (or until you sold it or paid it off early).

It is my opinion that the only reason that more people aren’t taking advantage of this already is that so many people’s credit ratings have been decimated by un-employment/under-employment preventing them from paying their bills over the recession.  I see it all the time while assisting rental clients whose income and debts are fine now, but lost a job in the last 3-5 years and accumulated a laundry list of delinquencies while searching for new employment.  While they have settled those debts and late fees and since recovered from that diffcult periods in their lives, their credit scores have yet to recover from it.

Another reason I think that this increase in rental prices is good for housing in the near future…Investors will start to spend on Real Estate again if the money is there.  If I had the money to buy a few of the condos I described earlier I would absolutely do so right now.  I could make a couple hundred dollars a month renting each of these units, in addition to gaining valuable tax writeoffs on the interest and property taxers.  Its only a matter of time before saavy investors start to get back into buying homes with their excess money.

Between new buyers leaving rentals and investors getting back into the real estate market I believe we will see the excess supply of real estate start to diminish over the next year which will in turn cause prices to begin to increase as there are fewer homes available and more people looking to buy them again.

Now if only we could get the government to leave the cost of buying a home alone for the next year (by not increasing FHA/VA/Fannie/Freddie fees again like is happening this month) so that the market can see a benefit from this imbalance!

Read the original source article at http://news.yahoo.com/s/usnews/20110328/ts_usnews/onesignthehousingbustcouldendsoon, comment, share, and of course Keep Dreaming!

Will the New Loan Officer Compensation Laws Truly Help the Consumer?

On April 1, 2011 the Dodd/Frank bill adjusting loan officer compensation goes into effect.  This bill states, in a very shortened version, that loan officers and mortgage originators can only offer loans to the consumer in which they get paid exactly the same amount of money as a market priced fixed rate loan.  In theory, this bill is designed to prevent loan officers from steering consumers to loans which pay them more but maybe aren’t in the best interest of the consumer.  In short, this is supposed to make the loan officer always offer the best loan available to the consumer from the start.

Great theory, right?  Laudible goal, sure!  In practice does it do what it is supposed to do…I guess but not really. What really happens from the way this bill is written…

CDA Loans: The Lower Cost Way to Own Today!

If you live in MD, where I do, and would like to buy a home before interest rates rise (currently 4.75 for 30 year FHA fixed) and FHA raises their mortgage insurance rates (4/18/11), but just can’t quite save up the required cash for the 3.5% downpayment, there may be a way for you to still make it work.  Its called CDA, and its a government backed program that will provide up to a $4500 interest free loan to first time home buyers who qualify for their program. 

In order to qualify you do need to have decent to good credit (620-640+), just like you would need to get any other loan in today’s mortgage market.  CDA also requires that you take a class on homeownership and credit prior to signing a contract to buy a home (though this class can be taken online in about 15 minutes unless you are looking to buy in Anne Arundel County, Baltimore County, Hartford County, or Baltimore City, which require in person classes at a certified housing agency).  

What this downpayment help does for you as a buyer is it allows you to buy a home with much less of your own money needed up front, and without increasing your payment over the life of the loan.  If you were looking to buy a home that was $200,000 you would normally need $7000 for downpayment.  With a CDA loan, $4500 would be paid for you, leaving you with only $2500 of your own funds to come up with for downpayment.  Since CDA is still an FHA product, you can ask the seller for up to 6% closing cost help to allow you to complete the entire transaction for just that remaining $2500 downpayment.

The $4500 becomes a second mortgage after your home purchase, but it is not required to be paid on in any form, nor does it accrue interest while you wait.  When you go to sell the home, the loan must be paid back in full out of your proceeds from the sale, but until that point it is almost like you never have to deal with it!

If you do not live in Maryland, there are probably other programs like this one that may be able to help you as well.  Ask a local Realtor or lender for more information.

I hope this helps you to make your home ownership dreams a reality, so Keep Dreaming!

FHA Raises Monthly MI Fees Effective 4/18/11

So, apparently my prediction yesterday that you will see fees and costs increase in buying a home in the near future was more accurate and prophetic than I would have liked it to be.  Several of my trusted loan officer’s emailed me this morning to let me know that FHA announced late yesterday afternoon that they would be increasing the monthly mortgage insurance (MI) charged to buyers who make less than a 20% downpayment. 
The current rate of monthly MI is .9% per year (or appoximately $145 per month for a $200,000 mortgage).  The rate, after 4/18/11, will go up by .25% more, to a total of 1.15%.  This will equate to a MI payment of approximately $185 on the same $200,000 mortgage.  The consumer gets socked with $40 more in cost per month, from which they see no additional benefit.

In order to avoid paying the increased premium you must have an FHA case number assigned to your loan prior to the 4/18/11 change.  This does not mean that you have to settle on your new home or refinance by then, only that you have initiated the process (have been approved for a re-fi or have a contract on your home for purchase). 

To go back to yesterday’s article again, where I talked about how waiting for the bottom can hurt you more than it helps, you would have to see prices drop by approximately $6000-7000 (on this same $200,000 house…it would need to drop more on a more expensive home) just to break even on the increase in monthly payment that the new FHA MI rate will cause.  With a currently steady to increasing local market here in MD, I would bet money on the market NOT declining by that much in the next 2 months. 
If you need a good agent in your area to help you, or someone you care about avoid paying more for the same house, or if you live in MD and would like my help, let me know in the comments or contact me at toddrmoyer@yahoo.com.  Can you afford to keep waiting? Only if you intend to keep your dream home in your dreams.  Keep Dreaming, but take action this time too!

The Real Estate Waiting Game

Talking with potential buyers I have heard a lot of people tell me they are “waiting for the market to bottom out” before they decide to buy.  Sounds like common sense, or maybe even wisdom, but is that line of thinking really going to save you money in the long run if you are renting right now or looking to move up to a bigger home?  If the recent rise in interest rates is any indication, probably not!

Lets look at this from a purely financial point of view.  Lets pretend for a moment that the market is truly still declining all over the country (though in my local region there were over half the counties showing price INCREASES last month).  For every $1,000 that prices go down, you save approximately $6-7 a month in your monthly payment.  For every 1/8% that an interest rate changes, you gain about $12-15 a month in payment.  Since the end of last year we have seen rates go from 3.75% at their lowest to around 5% on average right now.  That is a change of 10/8%, or $120-150  a month added to your monthly payment.  Did housing prices drop by $20,000 in that same time period?  Not even close, and that is how much they would have had to come down for someone to have the same payment on the same house today that they would have a few months ago. 

Don’t stick your head in the sand and pretend rates will be going back down either!  Despite many of us on “Main Street” certainly not seeing this grand “Recovery” yet, the government and Wall Street have been claiming the worst is behind us for months.  Expext to watch the Federal Reserve stop artificially lowering interest rates with programs like Quantitative Easing I and II, for them to increase the key interest rates for trading between banks, and for government programs like FHA to increase fees and rates even more than they already have the last 2 years as they have greater “needs” for revenue and think they can do it without harming a “fragile market.”    All of these things will lead to higher costs in the future for you to buy a home, not lower. 

Do you like paying more money for the same things you can buy now for less?  I didn’t think so…then stop playing the waiting game and make your move now.  How can you afford not to?

Keep Dreaming!

The Forgotten Victims in Foreclosures: Tenants

With banks fraudulently foreclosing on homeowners, and other homeowners strategically foreclosing on homes to get out of their underwater obligations to the banks there are both banks and homeowners that are victims of parts of this foreclosure mess that we are in the middle of.  There is a ton of coverage of both sides of this issue in the media, and on this site too.  What you don’t often hear about is what happens to the tenants of the people who get foreclosed on. 

Not every homeowner who gets foreclosed upon is living in that home at the time the property is taken from them.  What happens if you are paying that homeowner for the right to stay in their home, but they aren’t paying that money to the bank so they have the right to keep it?  Read further find out.