Saturday, February 28, 2009

Saving the Housing Market, One Household at a Time

Oakland County kicks off its Homebuyer Program with a standing room only seminar.

February 28, 2009 -- Pontiac, MI: Some of former President Bush’s stimulus funds are finally making it to main street. Oakland County announced it’s spending five million dollars from HUD’s Neighborhood Stabilization Program to subsidize the purchase of foreclosed homes in the county.

The county’s goal is to turn potential foreclosed, vacant eyesores into affordable housing, thereby strengthening neighborhoods.

For the purchase of vacant, foreclosed homes ONLY, the county will fund up to 49% of the purchase price, repair costs and closing costs with a zero percent, deferred payment loan. The home buyer MUST get a mortgage for the other 51%. The county’s loan is not due & payable until the home is sold or transferred.

The program is targeting first-time homebuyers, so if you already own a home, don’t bother applying. Homes must also be purchased in one of 43 targeted municipalities in Oakland County.

There are also income limitations to be eligible. Examples - $58,700 for a single person, $83,900 for a household of 4. As required by HUD, three million of the five million total, will be reserved for low income households. Examples - $24,450 for a single person, $34,950 for a household of 4.

An Oakland County Home Improvement technician must be included in the transaction to estimate and approve repairs. All work must be done by county approved contractors. The county will also control and pay for the appraisal, to confirm the “as-is” and after repaired values.

This is a great opportunity for first-time homebuyers. The county has designed the program to assist those that need the most help and also to make sure those approved stay in their homes and become anchors for neighborhoods.

It’s only expected that about 100 homebuyers will be able to take advantage of the program before funds run out, but the county is hoping President Obama’s initiatives lead to further funding. Approvals will be granted on a first-come basis, but you must turn in a complete package or you’ll go back to the end of the line.

There are many other requirements and details for the program tat aren’t covered here, so please go to Applications are also available there.

Thursday, February 26, 2009

Whitehouse Needs to get this Housing Crisis in Order

Conflicting messages from different parts of the government are not what we need during these challenging times.

BLOOMFIELD, MI – Anyone trying to follow all the latest updates from the government on what our leaders are doing to solve the housing crisis, is probably scratching their head wondering who’s in charge.

It’s looking more and more like no one at the top is in control and coordinating a cohesive plan.

Example #1:
On February 4th of this year, FNMA announced that they were bringing back appraisal waivers to assist more homeowners in taking advantage of historically low interest rates.

On February 17th the President Obama announced in his Homeowner Affordability and Stability Plan that FNMA would allow homeowners upside down up to 105%, to refinance.

Contradiction: How far was FNMA planning to ignore appraised values? We’ll never know now that the limit is 105%.

Example #2:
HUD is pressuring lenders for more conservative underwriting, resulting in lenders raising minimum credit score requirements for FHA loans to 620.

Obama’s plan turns $7,500 tax credit loan into $8,000 true tax credit to increase home sales.

Contradiction: Obama wants to increase home sales, but HUD’s shrinking the pool of eligible borrowers?

Example #3:
FNMA & FHLMC are raising there credit score and loan-to-value pricing adjustments. A borrower with a 739 credit score will now have to put down 25% to qualify for the best interest rate. Those with scores under 680 will have to put 40% down or pay a hogher interest rate.

On November 25th of 2008, the Federal Reserve announced a program to reduce the cost and increase the availability of credit for the purchase of houses. Over several quarters, the Federal Reserve will buy up to $100 billion of direct obligations of FNMA, FHLMC & GNMA, and purchase up to $500 billion in mortgage-backed securities (MBS) that the entities sell on Wall Street.

Contradiction: FNMA/FHLMC are effectively raising mortgage rates while the Federal Reserve is accruing debt obligations to lower rates?

None of this makes any sense unless someone at the top is a chess grandmaster and many moves ahead of the rest of us!

Sunday, February 22, 2009

The Obama Housing-O-Rama, get Your Tickets Now!

What’s in the latest stimulus plan for homeowners and the housing industry?

President Obama signed the largest economic stimulus package of tax cuts and government spending programs since WWII on Tuesday, February 17, 2009.

There are so many parts to the plan that reading it is like trying to see all the exhibits at an auto show or ride all the rides at a carnival. You just don’t know where to begin.

For the housing industry there’s really two parts to the plan: the homebuyer tax credit and the stabilization plan.

An $8,000 Home Buyer Tax Credit
One way to lower housing inventory and put a floor under housing prices is to increase demand. The administration is attempting to do that with this homebuyer tax credit plan. The hi-lites:
- Homes purchased between January 1 & December 1, 2009 are eligible
- For first-time homebuyers only (no home owned in the past 3 years)
- The credit does not have to be repaid
- The credit is limited to 10% of a home’s purchase price, up to a maximum of $8,000
- The amount of credit phases out for incomes of singles over $75,000 & couples over $150,000. - The credit is zero for incomes of singles over $95,000 & couples over $170,000.
- Use IRS Form 5405 to take advantage of the credit
- Eligible homebuyers have the option of claiming the tax credit in 2009 OR 2008. This may be important if their income in either year will reduce the amount of the credit. If a 2008 return has already been submitted, an amended return can be filed. One can also refer to IRS Publication 919 to check how they MAY adjust their W-4 withholding to realize the tax credit on each pay period, instead of waiting to file their 2009 returns next year.

The other part of the plan is listed below, exactly as released by the Whitehouse. My comments are dispersed where appropriate in blue.

Homeowner Affordability and Stability Plan Executive Summary

February 18, 2009

The deep contraction in the economy and in the housing market has created devastating consequences for homeowners and communities throughout the country.

Millions of responsible families who make their monthly payments and fulfill their obligations have seen their property values fall, and are now unable to refinance at lower mortgage rates.
Millions of workers have lost their jobs or had their hours cut back, are now struggling to stay current on their mortgage payments – with nearly 6 million households facing possible foreclosure.

Neighborhoods are struggling, as each foreclosed home reduces nearby property values by as much as 9 percent.

The Homeowner Affordability and Stability Plan is part of the President’s broad, comprehensive strategy to get the economy back on track. The plan will help up to 7 to 9 million families restructure or refinance their mortgages to avoid foreclosure. In doing so, the plan not only helps responsible homeowners on the verge of defaulting, but prevents neighborhoods and communities from being pulled over the edge too, as defaults and foreclosures contribute to falling home values, failing local businesses, and lost jobs. The key components of the Homeowner Affordability and Stability Plan are:

Refinancing for Up to 4 to 5 Million Responsible Homeowners to Make Their Mortgages More Affordable
A $75 Billion Homeowner Stability Initiative to Reach Up to 3 to 4 Million At-Risk Homeowners
Supporting Low Mortgage Rates By Strengthening Confidence in Fannie Mae and Freddie Mac

1. Affordability: Provide Access to Low-Cost Refinancing for Responsible Homeowners Suffering From Falling Home Prices
· Enabling Up to 4 to 5 Million Responsible Homeowners to Refinance: Mortgage rates are currently at historically low levels, providing homeowners with the opportunity to reduce their monthly payments by refinancing. But under current rules, most families who owe more than 80 percent of the value of their homes have a difficult time refinancing. Yet millions of responsible homeowners who put money down and made their mortgage payments on time have – through no fault of their own – seen the value of their homes drop low enough to make them unable to access these lower rates. As a result, the Obama Administration is announcing a new program that will help as many as 4 to 5 million responsible homeowners who took out conforming loans owned or guaranteed by Fannie Mae or Freddie Mac to refinance through those two institutions.
· Reducing Monthly Payments: For many families, a low-cost refinancing could reduce mortgage payments by thousands of dollars per year:

Consider a family that took out a 30-year fixed rate mortgage of $207,000 with an interest rate of 6.50% on a house worth $260,000 at the time. Today, that family has about $200,000 remaining on their mortgage, but the value of that home has fallen 15 percent to $221,000 – making them ineligible for today’s low interest rates that now generally require the borrower to have 20 percent home equity. Under this refinancing plan, that family could refinance to a rate near 5.16% – reducing their annual payments by over $2,300.

The plan will allow homeowners to refinance as long as their mortgage amount doesn’t exceed the current value of their home by more than 105%. IT DOESN”T GO FAR ENOUGH! As I’ve been writing since October of last year, they need to just do away with appraisals altogether on no cashout refinances. HELP homeowners lower their payments and they’ll be more likely to stay as they have to live somewhere. If they can rent a comparable home cheaper than they’re paying to own, it makes more sense for them to walk-away and many more will. The homeowners with stated income and/or asset loans that FNMA/FHLMC have “orphaned” by terminating those programs also deserve a chance to refinance if they’re making their payments on time.

2. Stability: Create A $75 Billion Homeowner Stability Initiative to Reach Up to 3 to 4 Million At-Risk Homeowners

· Helping Hard-Pressed Homeowners Stay in their Homes: This initiative is intended to reach millions of responsible homeowners who are struggling to afford their mortgage payments because of the current recession, yet cannot sell their homes because prices have fallen so significantly. Millions of hard-working families have seen their mortgage payments rise to 40 or even 50 percent of their monthly income – particularly those who received subprime and exotic loans with exploding terms and hidden fees. The Homeowner Stability Initiative helps those who commit to make reasonable monthly mortgage payments to stay in their homes – providing families with security and neighborhoods with stability.
As I’ve said before, people have to PAY to live somewhere. Make owning as affordable as renting and most will stay despite being upside down – they actually have the potential for their ownership investment to payoff someday, not so with renting.
· No Aid for Speculators: This initiative will go solely to helping homeowners who commit to make payments to stay in their home – it will not aid speculators or house flippers.
Not sure if I agree with this stance. On one hand investors are more likely to default if their properties aren’t cashflowing. On the other hand, displacing the tenants who paid on time and letting the properties get vandalized after foreclosure isn’t good for neighborhoods or housing values. For the right investors, Increase the length of their loans so they can cashflow, but not get out of paying what they owe.
· Protecting Neighborhoods: This plan will also help to stabilize home prices for all homeowners in a neighborhood. When a home goes into foreclosure, the entire neighborhood is hurt. The average homeowner could see his or her home value stabilized against declines in price by as much as $6,000 relative to what it would otherwise be absent the Homeowner Stability Initiative.
· Providing Support for Responsible Homeowners: Because loan modifications are more likely to succeed if they are made before a borrower misses a payment, the plan will include households at risk of imminent default despite being current on their mortgage payments.
This is a 180 degree ABOUTFACE for the government and makes so much sense. Under the previous FHFA modification program, which required homeowners to be 90 days delinquent to be eligible for assistance, it was difficult for lenders to create an affordable modification plan once all the missed payments were added back in. For this reason, many modified loans end up defaulting again.

· Providing Loan Modifications to Bring Monthly Payments to Sustainable Levels: The Homeowner Stability Initiative has a simple goal: reduce the amount homeowners owe per month to sustainable levels. Using money allocated under the Financial Stability Plan and the full strength of Fannie Mae and Freddie Mac, this program has several key components:

§ A Shared Effort to Reduce Monthly Payments: For a sample household with payments adding up to 43 percent of his monthly income, the lender would first be responsible for bringing down interest rates so that the borrower’s monthly mortgage payment is no more than 38 percent of his or her income. Next, the initiative would match further reductions in interest payments dollar-for-dollar with the lender to bring that ratio down to 31 percent. If that borrower had a $220,000 mortgage, that could mean a reduction in monthly payments by over $400. That lower interest rate must be kept in place for five years, after which it could gradually be stepped up to the conforming loan rate in place at the time of the modification. Lenders will also be able to bring down monthly payments by reducing the principal owed on the mortgage, with Treasury sharing in the costs.

§ “Pay for Success” Incentives to Servicers: Servicers will receive an up-front fee of $1,000 for each eligible modification meeting guidelines established under this initiative. They will also receive “pay for success” fees – awarded monthly as long as the borrower stays current on the loan – of up to $1,000 each year for three years.

§ Incentives to Help Borrowers Stay Current: To provide an extra incentive for borrowers to keep paying on time, the initiative will provide a monthly balance reduction payment that goes straight towards reducing the principal balance of the mortgage loan. As long as a borrower stays current on his or her loan, he or she can get up to $1,000 each year for five years.
§ Reaching Borrowers Early: To keep lenders focused on reaching borrowers who are trying their best to stay current on their mortgages, an incentive payment of $500 will be paid to servicers, and an incentive payment of $1,500 will be paid to mortgage holders, if they modify at-risk loans before the borrower falls behind.

§ Home Price Decline Reserve Payments: To encourage lenders to modify more mortgages and enable more families to keep their homes, the Administration -- together with the FDIC -- has developed an innovative partial guarantee initiative. The insurance fund – to be created by the Treasury Department at a size of up to $10 billion – will be designed to discourage lenders from opting to foreclose on mortgages that could be viable now out of fear that home prices will fall even further later on. Holders of mortgages modified under the program would be provided with an additional insurance payment on each modified loan, linked to declines in the home price index.

Will this part of the plan help every homeowner stay in their home? No, and it shouldn’t. Unfortunately, those without jobs or consistent income can’t make a high enough payment to stay and can’t be allowed to live for free.

Will the cash incentives be enough to persuade lenders to be more aggressive about loan modifications and hire more employees to do so? We’ll have to wait and see.

I’m not sure what the administration is hoping the homeowner incentive to do. Being able to stay in one’s home seems to be a pretty big incentive.

· Institute Clear and Consistent Guidelines for Loan Modifications: Treasury will develop uniform guidance for loan modifications across the mortgage industry, working closely with the bank agencies and building on the FDIC’s pioneering work. The Guidelines will be used for the Administration’s new foreclosure prevention plan. Moreover, all financial institutions receiving Financial Stability Plan financial assistance going forward will be required to implement loan modification plans consistent with Treasury Guidance. Fannie Mae and Freddie Mac will use these guidelines for loans that they own or guarantee, and the Administration will work with regulators and other federal and state agencies to implement these guidelines across the entire mortgage market. The agencies will seek to apply these guidelines when permissible and appropriate to all loans owned or guaranteed by the federal government, including those owned or guaranteed by Ginnie Mae, the Federal Housing Administration, Treasury, the Federal Reserve, the FDIC, Veterans’ Affairs and the Department of Agriculture.
This is way past due, I just hope they bring in experts from the lenders they expect to implement these guidelines. Several previous initiatives were created solely by politicians and as such were not embraced by the lending community. NOTE: lenders receiving the $1,000 incentives mentioned earlier will have to follow these guidelines, NOT banks receiving bailout funds. I’d like to know why the administration won’t mandate bailout funds being tied to these guidelines. Maybe it has something to do with the rumors about the banking system being nationalized?

· Other Comprehensive Measures to Reduce Foreclosure and Strengthen Communities
§ Require Strong Oversight, Reporting and Quarterly Meetings with Treasury, the FDIC, the Federal Reserve and HUD to Monitor Performance
§ Allow Judicial Modifications of Home Mortgages During Bankruptcy for Borrowers Who Have Run Out of Options
Wow, look how they subtly slipped this in! Lenders have been pulling out all the stops to keep this from happening. This will create a big mess unless strict guidelines are issued.
§ Provide $1.5 Billion in Relocation and Other Forms of Assistance to Renters Displaced by Foreclosure and $2 Billion in Neighborhood Stabilization Funds
§ Improve the Flexibility of Hope for Homeowners and Other FHA Programs to Modify and Refinance At-Risk Borrowers
The H4H program was created in a vacuum without lender input and bombed miserably with only 25 homeowners helped. Former President Bush had predicted 400,000. Let’s hope this administration does a better job.

3. Supporting Low Mortgage Rates By Strengthening Confidence in Fannie Mae and Freddie Mac:
· Ensuring Strength and Security of the Mortgage Market: Today, using funds already authorized in 2008 by Congress for this purpose, the Treasury Department is increasing its funding commitment to Fannie Mae and Freddie Mac to ensure the strength and security of the mortgage market and to help maintain mortgage affordability.
§ Provide Forward-Looking Confidence: The increased funding will enable Fannie Mae and Freddie Mac to carry out ambitious efforts to ensure mortgage affordability for responsible homeowners, and provide forward-looking confidence in the mortgage market.
§ Treasury is increasing its Preferred Stock Purchase Agreements to $200 billion each from their original level of $100 billion each.
Ouch, this shows just how hard the housing industry has been hit by foreclosures and the anticipated pain still to come.
· Promoting Stability and Liquidity: In addition, the Treasury Department will continue to purchase Fannie Mae and Freddie Mac mortgage-backed securities to promote stability and liquidity in the marketplace.
They’re actually buying to keep a lid on rates instead of forcing them down to the 4.5% initially publicized.
· Increasing The Size of Mortgage Portfolios: To ensure that Fannie Mae and Freddie Mac can continue to provide assistance in addressing problems in the housing market, Treasury will also be increasing the size of the GSEs’ retained mortgage portfolios allowed under the agreements – by $50 billion to $900 billion – along with corresponding increases in the allowable debt outstanding.
· Support State Housing Finance Agencies: The Administration will work with Fannie Mae and Freddie Mac to support state housing finance agencies in serving homebuyers.
· No EESA or Financial Stability Plan Money: The $200 billion in funding commitments are being made under the Housing and Economic Recovery Act and do not use any money from the Financial Stability Plan or Emergency Economic Stabilization Act/TARP.


The plan is pretty comprehensive, but there are so many unclear issues that still need to be addressed to execute the plan.

This plan really should have been introduced last year before the housing industry collapsed as it has.

Saturday, February 14, 2009

FNMA Wears Flip-Flops! Recants Two Earlier Guideline Changes

Lending is loosening at the top as FNMA tries to put a floor under the housing market

BLOOMFIELD, MI – Happy Valentines Day to Hallmark. Retail sales should have a tiny spike as many Americans will be buying cards, candy and dinners today.

Last week, FNMA announced two changes to their guidelines – they announced appraisal waivers are back and the raising of their limit on the number of mortgages from 4 back to 10.

What’s interesting is that FNMA is just recanting earlier changes they made meant to reduce risk on the mortgages it buys.

Both of these changes are designed to put a bottom under the housing market, but in two different ways.

Appraisal Waivers
The announcement about bringing back appraisal waivers, is meant to allow homeowners a better chance of refinancing to lower their interest rate & payment. Lower payments it is hoped, will lead to fewer foreclosures. Fewer foreclosures will mean a smaller supply of houses on the market, which should eventually stabilize housing values.

As part of the Automated Underwriting System (AUS) process, an Automated Valuation Model (AVM), similar to Zillow, will be accesses to determine a value. No cashout will be allowed, but borrowers will be allowed to roll in closing costs and prepaid escrow amounts.

The only question is how much variance will FNMA allow, between the AVM value and the stated value input in the system? It makes no sense to worry about the AVM value at all. FNMA already holds the mortgage and if the homeowner’s payment is being lowered, it just increases the likelihood of on-time mortgage payments.

I think we’ll see some more changes on this in the near future.

Limitation on Number of Mortgages held by a Borrower
Previously, FNMA had lowered the number of mortgages it would allow a borrower to have from 10 to 4.

With this announcement raising the limit back to 10, FNMA has acknowledged that real estate investors will be needed to absorb some of the supply of houses on the market.

All the families being foreclosed on can’t get another mortgage for at least three years due to credit damage. Real estate investors are now being encouraged to buy more houses to rent to these families. Many of these investors will eventually sell many of these houses to the families renting them.

The requirements are tougher than they used to be, but this is great news for those with a desire to move some of their money out of the anemic stock market and diversify into real estate. Also, anything that lowers the supply of houses will stop the fall in housing values.

The best news about all this is that lending is starting to loosen. Not due to bailout funds, but due to common sense. Let’s hope that trend continues.