Utah Real Estate & Mortgage Blog

“Twist and shout.” The Fed inserted a “twist” into the market last week, but only time will tell if their decision will be cause for shouting. Read on to learn what the Fed did, and what this could mean for home loan rates.

The week began with speculation that the Fed would announce “Operation Twist” after its two-day meeting of the Federal Open Market Committee. What is Operation Twist? Essentially, Operation Twist is where the Fed sells its holdings of short-term securities and Notes and then purchases longer-term Notes and Bonds in order to try and lower longer term rates even further.

And Operation Twist is exactly what the Fed announced, but their announcement came with some key surprises:

• First, the Fed’s statement was more strongly worded than expected, as the Fed said that there remains “significant” risks to the downside for the US economy.
• Second, the funding for Operation Twist was larger than expected, coming in at $400 Billion.
• Third, the Fed said they will reinvest principal payments on their current holdings of agency debt back into Mortgage Backed Securities…which led to a huge rally in the Bond Market Wednesday, while Stocks took a nose dive.

So what does all of this mean for home loan rates? The Fed’s statement has heightened pessimism, fear, and concern…and normally those sentiments help Bonds (including Mortgage Bonds, to which home loan rates are tied) improve as investors seek a safe haven for their money. But it’s important to understand that even if Bonds improve, home loan rates may not improve much further.

Why? It is basic supply and demand: lenders’ pipelines have been overflowing with people wanting to refinance or purchase a home and take advantage of the historically low rates we’ve seen. This level of volume flowing into the system has already created a backlog of work for lenders, which means they may not pass along all the gains we are seeing in the Bond Market onto their rate sheets.

The bottom line is that home loan rates remain near historic lows, and now is a great time to purchase or refinance a home. Let me know if I can answer any questions at all for you or your clients.
Forecast for the Week

Economic data will impact trading throughout the week by giving investors a broad look at the economy:

• Housing will be first up with New Home Sales on Monday. Last week’s housing data was mixed with lower than expected Housing Starts but Existing Home Sales came in on the positive side. Pending Sales will also be reported on Thursday.
• The week will also give us a read on how consumers are feeling in this weakening economy. Consumer Confidence will be released on Tuesday and Consumer Sentiment will be delivered on Friday.
• Weekly Initial Jobless claims will also be closely watched on Thursday. The job markets continue to be a drag on the economy as each week over 400,000 people are claiming unemployment benefits.
• The big news this week will be the government’s report on Gross Domestic Product (GDP), which will be released Thursday. With the economy slowing, GDP will be on the radar screen for signs of recessionary numbers. Also important will be Wednesday’s Durable Goods Orders, which gives us an update on consumer and business buying behavior on big-ticket items.
• Investors will also be closely watching the inflation figures within the Core Personal Consumption Expenditure, which is the Fed’s favorite gauge of inflation and will be reported on Friday.

In addition to those reports, investors will be closely watching the movements in the Stock Market after last week’s plunge. The big questions will be: How low can Stocks go? And, are we in a bear market or just a correction phase?

Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result.

Hello Zoom Members,

I have been scouring the proposals in the Legislature, trying to get guidance on what will transpire with the Tax Credit.  The Tax Credit must be the most influential measure in our housing crisis that has helped lift the market to at least water level, if not slightly peeking into the sky.  All Real Estate Professionals have been concerned about the eventual stimulus spigot abruptly being turned off.  It could have sent our housing market back under water and our home values with it.

This morning news of a plan emerged.  Surprisingly, there’s not a lot of print and direction from the Press.  Allow me to give you the facts and some suppositions that Legislators are mulling around.  Senators agreed to extend the tax credit for first time home buyers and to offer a reduced credit to some repeat buyers. $8K for 1st time buyers and up to $6500 to repeat buyers that have owned their home at least 5 years. Those are the facts.  The Legislature is considering, for 1st time buyers, to extend the $8K tax credit through March, 2010.  After March, the $8K will go down $2000 for each month until the end of June, when it will be over.

This is great news.  Our housing market in Utah was one of the last markets to feel the pinch on value depreciation, and it will likely be one of the last to recover fully.  Don’t get me wrong…we have bottomed out, in my opinion, we just need more time to emerge into a vibrant market which is able to support our Builders in erecting new homes, and eat up existing inventories to levels that promote growth.

If you are reading my Mortgage Market Update in our monthly newsletter, you are well informed about the fact that the Feds are now scaling back their purchase of Mortgage Backed Securities (MBS).  You have read that the impact of this will be a smoother transition to higher mortgage rates.  My recommendation to our Members is not to sit on the sidelines.  If you are considering a purchase in the next 1-5 years, I suggest you begin your purchase NOW.  We could very well be at 6% on a 30 year fixed mortgage by March and, I believe, we will go up from there.  Your interest rate is the single most influential factor on your monthly cash flow.

Please contact me if you want to hear strategies that I have been implementing for my clients.  These strategies are intended to minimize your interest rate and improve your cash flow for long term success in home ownership.  There are many factors that go in to my ultimate recommendation.

Success to you my friends,

Joel Ellowitz

(801) 949-4872

What is really going on in the Utah Real Estate market?

We’re inviting you to a special workshop, co-sponsored by the Utah Chapter of the Financial Planning Association, and of course, zoomUTAH.com.

You’ll get valuable tips from various experts on such topics:

• Utah’s Economic & Real Estate Outlook
• Home Grants, Tax Credits and 100% Financing Options
• Improving Your Credit Scores
• Cash Flow Management & Cutting Your Debt Strategies
• Recovering your Stock Market Losses – Based on Last 9 Recessions

Be prepared to take a lot of notes! Whether you’re a first time home buyer or a seasoned real estate investor, you do not want to miss this free seminar.

To Register Visit http://www.zoomutah.com/events/

The Treasury Department has called it the “Making Home Affordable Program”. There are two options that you can choose from, depending on your personal situation. Most people who are not late on their payments, who owe up to 5% more than the current value of their home (not including a 2nd mortgage), and can prove their income will probably go for the refinance program. People who are (or are not) behind on their mortgage payment, have a mortgage payment that’s no longer affordable, perhaps because of a significant change in income or expenses, will probably go with the modification program.

Below, you will find a summary of each program along with questions that most people can relate to. If you want to look at a much more detailed breakdown of the two programs, please click on the links at the bottom of the segment. Keep in mind, this just got signed into law. The Servicers that collect your payments, Fannie Mae and Freddie Mac, other Banks and lending institutions that hold your mortgages are all going to adopt these guidelines at different times throughout the year. Matter of fact, they have until the end of the year to even report that they would like to participate in this program. I suggest you look on your 1st mortgage statement and call the number listed to see if they are prepared to deal with your issue now or later. If your 1st mortgage is held by either Fannie or Freddie, you’re in luck. You will be the first to be able to get something done on your behalf. Please read below and get the fine points of this new law.

Refinance Opportunities Now Available to Those Who Lack Sufficient Equity

The Obama Administration unveiled the final details of its “Making Home Affordable Program,” which is designed to help up to 9 million American families refinance or modify their loans to a payment that is affordable now and into the future. One of the initiatives in this program is aimed at helping responsible homeowners “refinance” their loans to take advantage of historically low interest rates. Here are some common Questions and Answers about the Refinancing Initiative in the program.

Who is eligible?
You may be eligible if:

• You own and currently occupy a one- to four-unit home.
• Your mortgage is owned or controlled by Fannie Mae or Freddie Mac.
• You are current on your mortgage payments.
• The amount you owe on your first mortgage is about the same or slightly less than the current value of your house.
• And, you have a stable income sufficient to support the new mortgage payments.

How do I know if my loan is owned or controlled by Fannie Mae or Freddie Mac?
Visit Fannie Mae or Freddie Mac to determine who your mortgage is backed by.

I owe more than my property is worth. Do I still qualify to refinance under the Making Home Affordable Program?
Eligible loans will include those where the first mortgage will not exceed 105% of the current market value of the property. For example, if your property is worth $200,000 but you owe $210,000 or less, you may qualify. The current value of your property will be determined after you apply to refinance.

If I am delinquent on my mortgage, do I still qualify for the Refinance Initiative?
No. But the good news is, you may qualify for the Modification Initiative. Contact me to discuss your situation and review your options.

I have both a first and a second mortgage. Do I still qualify to refinance under Making Home Affordable?
As long as the amount due on the first mortgage is less than 105% of the value of the property, borrowers with more than one mortgage may be eligible for the Refinance Initiative.

Will refinancing lower my payments?
That depends. If your interest rate is much higher than the current market rate, you would likely see an immediate reduction in your payment amount. However, if you are paying interest only on your mortgage, you may not see your payment go down. BUT… you will be able to avoid future mortgage payment increases and may save a great deal over the life of the loan.

What are the terms of the refinance and what will the interest rate be?
All loans refinanced under the plan will have a 30 or 15 year term with a fixed interest rate. The interest rate will be based on market rates at the time of the refinance. Currently, interest rates are at historical lows, which makes this a good time to examine your refinancing options.

Will refinancing reduce the amount that I owe on my loan?
No. Refinancing will not reduce the principal amount you owe. However, refinancing should save you money by reducing the amount of interest that you repay over the life of the loan.

Can I get cash out to pay other debts?
No. Only transaction costs, such as the cost of an appraisal or title report may be included in the refinanced amount.

How do I apply for the Refinance Initiative?
Call or email me today to discuss your specific situation and to examine your options. If this plan is right for you, we can begin working on your refinance immediately. As part of the discussion, we may need to look at the following information:

• Recent pay stubs to help determine your gross (before tax) household income.
• Your most recent income tax return.
• Information about any second mortgage on your house.
• Account balances and minimum monthly payments due on all of your credit cards.
• Account balances and monthly payments on all other debts, such as student loans and car loans.

Click here to read more about this Law.

As always, if you have any questions or would like to discuss how this may specifically impact you, I’d be happy to sit down with you. Just call me at 801-949-4872 or email me to set up an appointment.

Modification Opportunities for Those At Risk of Foreclosure

The Obama Administration unveiled the final details of its “Making Home Affordable Program,” which is designed to help up to 9 million American families refinance or modify their loans to a payment that is affordable now and into the future. One of the initiatives in this program is aimed at helping struggling homeowners “modify” their loans to avoid foreclosure. Here are some common Questions and Answers about the Modification Initiative in the program.

Who is eligible?
To apply for a Home Affordable Modification, you must:

• Own and currently occupy a one- to four-unit home.
• Have an unpaid principal balance that is equal to or less than $729,750 (for one unit properties).
• Have a loan that was originated before January 1, 2009.
• Have a mortgage payment (including taxes, insurance, and home owners association dues) that is more than 31% of your gross (pre-tax) monthly income.
• And, have a mortgage payment that is no longer affordable, perhaps because of a significant change in income or expenses.

If you answered YES to all of these questions, you may be eligible for the Modification Initiative.

Am I eligible if I missed some mortgage payments?

Yes. If you missed two or more mortgage payments and answered “yes” to the Modification Initiative requirements above, you may be eligible for a loan modification.

Do I need to be behind on my mortgage payments to be eligible for a Home Affordable Modification?

No. Responsible borrowers who are struggling to remain current on their mortgage payments are eligible if they are at risk of imminent default. Examples of being “at risk” include facing a significant increase in your mortgage payment or a reduction in your income. Contact me to discuss your specific situation.

I have a second mortgage. Am I still eligible?

Yes, but only the first mortgage is eligible for a modification.

I have an FHA loan. Can it be modified under this program? Are all loans eligible?

Most conventional loans including prime, subprime, and adjustable loans; loans owned by Fannie Mae and Freddie Mac as well as private lenders; and loans in mortgage backed securities are eligible for a modification. Contact me to discuss your specific situation.

I have a mortgage on a duplex. I live in one unit and rent the other. Will I still be eligible?

Yes. Mortgages on two, three and four unit properties are eligible as long as you live in one unit as your primary residence.

What does the Modification Initiative do?

If you are eligible for this plan and are approved, you will be put on a trial modification for three months at a new interest rate and payment. If you successfully make the payments and are current at the end of the three-month trial period, your servicer will execute a permanent modification agreement that will lower your interest rate to a fixed rate for five years.

What happens after five years?

Beginning in year six, the rate may increase no more than one percentage point per year until it reaches the “rate cap” in your modification agreement, which is basically the
market interest rate on the date the modification is finalized. That means your rate can never be higher than the market rate on the day your loan is modified. This is great news because rates are currently at historic lows… and you can lock in now.

How low can my interest rate go?

Treasury is providing incentives to your investor to write the interest down as low as 2%, if necessary to get to a payment that you can afford based on your income.

What happens if that is not enough to get to an affordable payment?

If a 2% interest rate is not enough to bring your payment down to 31% of your gross monthly income, your servicer can extend your payment term–for example, give you a 40-year loan rather than a 30-year. If that is still not sufficient your servicer will defer repayment on a portion of the amount you owe until a later time. This is called a principal forbearance. A portion of the debt could also be forgiven. This is optional on the part of the investor. There is no requirement for principal forgiveness.

Are there any other benefits to this program?

Yes. For every month you make a payment on time, Treasury will pay an incentive that reduces the principal balance on your loan. Over five years the total principal reduction
could add up to $5,000.

How much will a modification cost me?

There is no cost to borrowers for a Home Affordable Modification. You will not be asked for any money. If there are costs associated with the modification–such as payment of back taxes–your servicer will add those costs on to the amount you owe. Your servicer will also forgive any late fees.

Is housing counseling required under this program?

Borrowers are strongly encouraged to contact a HUD-approved housing counselor to help them understand all of their financial options and to create a workable budget plan. However, housing counseling is only required for borrowers whose total monthly debts are very high in relation to their incomes (55% of your gross monthly income). If you would like to speak to a housing counselor, call 1-888-995-HOPE (4673).

How do I apply for the Modification Initiative?

If you meet the general eligibility criteria for the program, you should gather the following information:

• Recent pay stubs to help determine your gross (before tax) household income.
• Your most recent income tax return.
• Information about your assets.
• Information about any second mortgage on your house.
• Account balances and minimum monthly payments due on all of your credit cards.
• Account balances and monthly payments on all other debts, such as student loans and car loans.
• A letter describing the circumstances that caused your income to be reduced or expenses to be increased (for example: job loss, divorce, illness, etc.).

Once you have this information, call your mortgage servicer and ask to be considered for a Home Affordable Modification. The number is on your monthly mortgage bill or coupon book.

My loan is scheduled for foreclosure soon. What should I do?

If your mortgage has been scheduled for foreclosure or if you have missed one or more mortgage payments, should contact your servicer immediately. You may also want contact a HUD-approved housing counselor by calling 1-888-995-HOPE (4673).

Click here to read more about this Law.

As always, if you have any questions or would like to discuss how this may specifically impact you, I’d be happy to sit down with you. Just call me at 801-949-4872 or email me to set up an appointment.

I hope I am wrong on this. After several weeks of declining gas prices (and many car owners celebrating), I’ve heard rumors that gas prices may actually be on the rise again.

Members of OPEC will be meeting soon to discuss cutting production on oil to increase the prices. It’s a natural supply and demand scenario. This is difficult to hear considering just Wednesday crude oil was at the lowest price since June 2007.

Because of the recession-like indicators we are seeing from our economy, some members are concerned that these sudden price reductions will severely impact the people that are less dependent on higher oil prices.

Hopefully OPEC can meet somewhere in the middle so the price doesn’t go down too low to impact other parts of the worlds economy, yet not cut the production so much that it creates prices far above $100/barrel, like they were a few months ago.

An Australian ad company developed this “mock ad” as a test. They are trying to change the negative public perception of immigrants in Australia. It was initially designed to appear tasteless so that anyone who has an opinion on immigration (either way) would start talking. After playing it, I feel it was designed to show a realization of the consequences both to the Economy and social impact on Australia if the immigrants were not there.

It would be interesting to see one of these created for America. Tell me what you think…

http://www.kickamigrant.com/game.html