To help the first-time home buyer, the California Housing Finance Agency — known as CalHFA — has developed a list of "Top Ten Tips" prospective home buyers need to know before buying a home
1. Before starting to look for a home, get pre-qualified for a loan. Lenders will take an application, process the loan documents, and see the loan through to the funding stage.
2. Marginal or Bad credit — consult your lender. Buyers may still be able to qualify for a loan depending on how long ago and why the buyer’s credit was affected.
3. Buyers may need a down payment. CalHFA loans are all 100% financed Requirements do vary depending on the type of loan; however CalHFA offers many down-payment assistance programs which could include loans or grants depending on the down payment required. Talk with a lender about programs available.
4. Funds for closing costs. Closing costs are fees charged for services related to the closing of a real estate transaction. These fees could include, but are not limited to: escrow fees, title policy insurance fees charged by the title insurance company, mortgage insurance, fire, flood and homeowners insurance, county recorder fees, loan origination fees. Speak with a lender for an estimate of these costs.
5. Some loans have points and some do not. Points are fees charged by a lender equivalent to 1 percent of the loan amount. Some lenders may charge points in exchange for a lower interest rate. A CalHFA loan does not have points and limits the fees a lender can charge you.
6. Mortgage rates can be fixed or adjustable. This choice can be made based on whether mortgage rates are high or low, and how long the buyer plans on living in the home.
7. There are two main types of loan categories: Conventional mortgage loans are available with fixed or adjustable rate loans; Government loans include Federal Housing Administration, fixed- and adjustable-rate mortgage loans and Veterans Administration fixed-rate mortgage loans.
8. Low and moderate income home buyer. There are special programs designed to help. These loans are available through private lenders, as well as local and state housing agencies.
9. Mortgage insurance. Mortgage insurance protects the lender from loss if the buyer should default on the payment. Conventional loans usually require larger down payments and do not require this insurance. Mortgage insurance is required on FHA mortgage loans.
10. First-time home buyer counseling. There are multiple organizations that provide classes for the first-time home buyer. These classes will cover home selection, Realtor services, lenders, loan programs, home ownership responsibility, saving for a down payment and other important information.
Wednesday, May 28, 2008
Thursday, May 22, 2008
Countrywide CEO Mozilo's "Disgusting" Email Reply: OOPS!
Wednesday, 21 May 2008
Countrywide CEO Mozilo's "Disgusting" Email Reply: OOPS!
Posted By:Diana Olick
cnbc.com
The very idea of blogging this story makes my stomach churn, but there are some things I am simply morally required to do. So here goes.
You’ve done it, and I’ve done it, and now Countrywide Countrywide Financial CEO Angelo Mozilo has done it. He hit “reply” instead of “forward” on the computer. For most of us, the mistake usually results in a “DOH!” and perhaps and explanation and/or apology, but Mozilo’s is now resulting in an online slam-fest.
Why? Because Mozilo proved what so many were thinking, that he doesn’t have a whole lot of compassion for a whole lot of his customers, especially the ones in trouble.
According to the L.A. Times, one of those customers, Daniel Bailey Jr., wrote an email to Countrywide asking that the terms of his loan be modified. Like so many others, his adjustable rate loan reset, and now he can’t make the payments.
Countrywide has been publicly begging for troubled borrowers to contact them. In fact, I’ve sat through several press conferences at the Treasury Department (touting the Hope Now alliance), where some Countrywide rep says the biggest problem they have is that they can’t reach all the troubled borrowers in order to help them.
Okay, so Mr. Bailey sends the email, but he uses a form letter that you can get from a website called LoanSafe.org. He says he needed help with the wording. Anyway, the email goes out to about 20 Countrywide addresses, including Mozilo’s.
Mozilo, who has gotten tons and tons of these, writes, “This is unbelievable. Most of these letters now have the same wording. Obviously they are being counseled by some other person or by the Internet. Disgusting.”
He meant to send it to someone else, but oops, that darned “reply” button. Mr. Bailey, of course outraged at the reply, then posts it on LoanSafe.org.
Scandal! Now the web is awash with all kinds of criticisms being hurled here and there (and not all of it against Mozilo). Countrywide ends up issuing a statement: “Countrywide and Mr. Mozilo regret any misunderstanding caused by his inadvertent response to an e-mail by Mr. Bailey. Countrywide is actively working to help borrowers, like Mr. Bailey, keep their homes.”
Now I get all kinds of news releases from Countrywide spammed at me ad nauseum. I didn’t get that one.
Countrywide CEO Mozilo's "Disgusting" Email Reply: OOPS!
Posted By:Diana Olick
cnbc.com
The very idea of blogging this story makes my stomach churn, but there are some things I am simply morally required to do. So here goes.
You’ve done it, and I’ve done it, and now Countrywide Countrywide Financial CEO Angelo Mozilo has done it. He hit “reply” instead of “forward” on the computer. For most of us, the mistake usually results in a “DOH!” and perhaps and explanation and/or apology, but Mozilo’s is now resulting in an online slam-fest.
Why? Because Mozilo proved what so many were thinking, that he doesn’t have a whole lot of compassion for a whole lot of his customers, especially the ones in trouble.
According to the L.A. Times, one of those customers, Daniel Bailey Jr., wrote an email to Countrywide asking that the terms of his loan be modified. Like so many others, his adjustable rate loan reset, and now he can’t make the payments.
Countrywide has been publicly begging for troubled borrowers to contact them. In fact, I’ve sat through several press conferences at the Treasury Department (touting the Hope Now alliance), where some Countrywide rep says the biggest problem they have is that they can’t reach all the troubled borrowers in order to help them.
Okay, so Mr. Bailey sends the email, but he uses a form letter that you can get from a website called LoanSafe.org. He says he needed help with the wording. Anyway, the email goes out to about 20 Countrywide addresses, including Mozilo’s.
Mozilo, who has gotten tons and tons of these, writes, “This is unbelievable. Most of these letters now have the same wording. Obviously they are being counseled by some other person or by the Internet. Disgusting.”
He meant to send it to someone else, but oops, that darned “reply” button. Mr. Bailey, of course outraged at the reply, then posts it on LoanSafe.org.
Scandal! Now the web is awash with all kinds of criticisms being hurled here and there (and not all of it against Mozilo). Countrywide ends up issuing a statement: “Countrywide and Mr. Mozilo regret any misunderstanding caused by his inadvertent response to an e-mail by Mr. Bailey. Countrywide is actively working to help borrowers, like Mr. Bailey, keep their homes.”
Now I get all kinds of news releases from Countrywide spammed at me ad nauseum. I didn’t get that one.
Tuesday, May 06, 2008
Is the Housing Crisis Over?
[The following article is making waves on CNBC this morning. It follows my own announcement at the Friday MLS meeting in early April that 'the housing market has reached a bottom'. I got a lot of comments after that, but I can take it. That is not to say that prices will now rise (I don't think they will0, or that individual homes, neighborhoods, and cities may continue to have price declines that will show up. But I do think that we have reached an inflection point in market activity that is a real change from the 'free fall' in prices that we have been experiencing. What do you think?]
The Housing Crisis Is Over
By CYRIL MOULLE-BERTEAUX
Wall Street Journal Opinion Article
May 6, 2008; Page A23
The dire headlines coming fast and furious in the financial and popular press suggest that the housing crisis is intensifying. Yet it is very likely that April 2008 will mark the bottom of the U.S. housing market. Yes, the housing market is bottoming right now.
How can this be? For starters, a bottom does not mean that prices are about to return to the heady days of 2005. That probably won't happen for another 15 years. It just means that the trend is no longer getting worse, which is the critical factor.
Most people forget that the current housing bust is nearly three years old. Home sales peaked in July 2005. New home sales are down a staggering 63% from peak levels of 1.4 million. Housing starts have fallen more than 50% and, adjusted for population growth, are back to the trough levels of 1982.
Furthermore, residential construction is close to 15-year lows at 3.8% of GDP; by the fourth quarter of this year, it will probably hit the lowest level ever. So what's going to stop the housing decline? Very simply, the same thing that caused the bust: affordability.
The boom made housing unaffordable for many American families, especially first-time home buyers. During the 1990s and early 2000s, it took 19% of average monthly income to service a conforming mortgage on the average home purchased. By 2005 and 2006, it was absorbing 25% of monthly income. For first time buyers, it went from 29% of income to 37%. That just proved to be too much.
Prices got so high that people who intended to actually live in the houses they purchased (as opposed to speculators) stopped buying. This caused the bubble to burst.
Since then, house prices have fallen 10%-15%, while incomes have kept growing (albeit more slowly recently) and mortgage rates have come down 70 basis points from their highs. As a result, it now takes 19% of monthly income for the average home buyer, and 31% of monthly income for the first-time home buyer, to purchase a house. In other words, homes on average are back to being as affordable as during the best of times in the 1990s. Numerous households that had been priced out of the market can now afford to get in.
The next question is: Even if home sales pick up, how can home prices stop falling with so many houses vacant and unsold? The flip but true answer: because they always do.
In the past five major housing market corrections (and there were some big ones, such as in the early 1980s when home sales also fell by 50%-60% and prices fell 12%-15% in real terms), every time home sales bottomed, the pace of house-price declines halved within one or two months.
The explanation is that by the time home sales stop declining, inventories of unsold homes have usually already started falling in absolute terms and begin to peak out in "months of supply" terms. That's the case right now: New home inventories peaked at 598,000 homes in July 2006, and stand at 482,000 homes as of the end of March. This inventory is equivalent to 11 months of supply, a 25-year high – but it is similar to 1974, 1982 and 1991 levels, which saw a subsequent slowing in home-price declines within the next six months.
Inventories are declining because construction activity has been falling for such a long time that home completions are now just about undershooting new home sales. In a few months, completions of new homes for sale could be undershooting new home sales by 50,000-100,000 annually.
Inventories will drop even faster to 400,000 – or seven months of supply – by the end of 2008. This shift in inventories will have a significant impact on prices, although house prices won't stop falling entirely until inventories reach five months of supply sometime in 2009. A five-month supply has historically signaled tightness in the housing market.
Many pundits claim that house prices need to fall another 30% to bring them back in line with where they've been historically. This is usually based on an analysis of house prices adjusted for inflation: Real house prices are 30% above their 40-year, inflation-adjusted average, so they must fall 30%. This simplistic analysis is appealing on the surface, but is flawed for a variety of reasons.
Most importantly, it neglects the fact that a great majority of Americans buy their houses with mortgages. And if one buys a house with a mortgage, the most important factor in deciding what to pay for the house is how much of one's income is required to be able to make the mortgage payments on the house. Today the rate on a 30-year, fixed-rate mortgage is 5.7%. Back in 1981, the rate hit 18.5%. Comparing today's house prices to the 1970s or 1980s, when mortgage rates were stratospheric, is misguided and misleading.
This is all good news for the broader economy. The housing bust has been subtracting a full percentage point from GDP for almost two years now, which is very large for a sector that represents less than 5% of economic activity.
When the rate of house-price declines halves, there will be a wholesale shift in markets' perceptions. All of a sudden, the expected value of the collateral (i.e. houses) for much of the lending that went on for the past decade will change. Right now, when valuing the collateral, market participants including banks are extrapolating the current pace of house price declines for another two to three years; this has a significant impact on the amount of delinquencies, foreclosures and credit losses that lenders are expected to face.
More home sales and smaller price declines means fewer homeowners will be underwater on their mortgages. They will thus have less incentive to walk away and opt for foreclosure.
A milder house-price decline scenario could lead to increases in the market value of a lot of the securitized mortgages that have been responsible for $300 billion of write-downs in the past year. Even if write-backs do not occur, stabilizing collateral values will have a huge impact on the markets' perception of risk related to housing, the financial system, and the economy.
We are of course experiencing a serious housing bust, with serious economic consequences that are still unfolding. The odds are that the reverberations will lead to subtrend growth for a couple of years. Nonetheless, housing led us into this credit crisis and this recession. It is likely to lead us out. And that process is underway, right now.
Mr. Moulle-Berteaux is managing partner of Traxis Partners LP, a hedge fund firm based in New York.
The Housing Crisis Is Over
By CYRIL MOULLE-BERTEAUX
Wall Street Journal Opinion Article
May 6, 2008; Page A23
The dire headlines coming fast and furious in the financial and popular press suggest that the housing crisis is intensifying. Yet it is very likely that April 2008 will mark the bottom of the U.S. housing market. Yes, the housing market is bottoming right now.
How can this be? For starters, a bottom does not mean that prices are about to return to the heady days of 2005. That probably won't happen for another 15 years. It just means that the trend is no longer getting worse, which is the critical factor.
Most people forget that the current housing bust is nearly three years old. Home sales peaked in July 2005. New home sales are down a staggering 63% from peak levels of 1.4 million. Housing starts have fallen more than 50% and, adjusted for population growth, are back to the trough levels of 1982.
Furthermore, residential construction is close to 15-year lows at 3.8% of GDP; by the fourth quarter of this year, it will probably hit the lowest level ever. So what's going to stop the housing decline? Very simply, the same thing that caused the bust: affordability.
The boom made housing unaffordable for many American families, especially first-time home buyers. During the 1990s and early 2000s, it took 19% of average monthly income to service a conforming mortgage on the average home purchased. By 2005 and 2006, it was absorbing 25% of monthly income. For first time buyers, it went from 29% of income to 37%. That just proved to be too much.
Prices got so high that people who intended to actually live in the houses they purchased (as opposed to speculators) stopped buying. This caused the bubble to burst.
Since then, house prices have fallen 10%-15%, while incomes have kept growing (albeit more slowly recently) and mortgage rates have come down 70 basis points from their highs. As a result, it now takes 19% of monthly income for the average home buyer, and 31% of monthly income for the first-time home buyer, to purchase a house. In other words, homes on average are back to being as affordable as during the best of times in the 1990s. Numerous households that had been priced out of the market can now afford to get in.
The next question is: Even if home sales pick up, how can home prices stop falling with so many houses vacant and unsold? The flip but true answer: because they always do.
In the past five major housing market corrections (and there were some big ones, such as in the early 1980s when home sales also fell by 50%-60% and prices fell 12%-15% in real terms), every time home sales bottomed, the pace of house-price declines halved within one or two months.
The explanation is that by the time home sales stop declining, inventories of unsold homes have usually already started falling in absolute terms and begin to peak out in "months of supply" terms. That's the case right now: New home inventories peaked at 598,000 homes in July 2006, and stand at 482,000 homes as of the end of March. This inventory is equivalent to 11 months of supply, a 25-year high – but it is similar to 1974, 1982 and 1991 levels, which saw a subsequent slowing in home-price declines within the next six months.
Inventories are declining because construction activity has been falling for such a long time that home completions are now just about undershooting new home sales. In a few months, completions of new homes for sale could be undershooting new home sales by 50,000-100,000 annually.
Inventories will drop even faster to 400,000 – or seven months of supply – by the end of 2008. This shift in inventories will have a significant impact on prices, although house prices won't stop falling entirely until inventories reach five months of supply sometime in 2009. A five-month supply has historically signaled tightness in the housing market.
Many pundits claim that house prices need to fall another 30% to bring them back in line with where they've been historically. This is usually based on an analysis of house prices adjusted for inflation: Real house prices are 30% above their 40-year, inflation-adjusted average, so they must fall 30%. This simplistic analysis is appealing on the surface, but is flawed for a variety of reasons.
Most importantly, it neglects the fact that a great majority of Americans buy their houses with mortgages. And if one buys a house with a mortgage, the most important factor in deciding what to pay for the house is how much of one's income is required to be able to make the mortgage payments on the house. Today the rate on a 30-year, fixed-rate mortgage is 5.7%. Back in 1981, the rate hit 18.5%. Comparing today's house prices to the 1970s or 1980s, when mortgage rates were stratospheric, is misguided and misleading.
This is all good news for the broader economy. The housing bust has been subtracting a full percentage point from GDP for almost two years now, which is very large for a sector that represents less than 5% of economic activity.
When the rate of house-price declines halves, there will be a wholesale shift in markets' perceptions. All of a sudden, the expected value of the collateral (i.e. houses) for much of the lending that went on for the past decade will change. Right now, when valuing the collateral, market participants including banks are extrapolating the current pace of house price declines for another two to three years; this has a significant impact on the amount of delinquencies, foreclosures and credit losses that lenders are expected to face.
More home sales and smaller price declines means fewer homeowners will be underwater on their mortgages. They will thus have less incentive to walk away and opt for foreclosure.
A milder house-price decline scenario could lead to increases in the market value of a lot of the securitized mortgages that have been responsible for $300 billion of write-downs in the past year. Even if write-backs do not occur, stabilizing collateral values will have a huge impact on the markets' perception of risk related to housing, the financial system, and the economy.
We are of course experiencing a serious housing bust, with serious economic consequences that are still unfolding. The odds are that the reverberations will lead to subtrend growth for a couple of years. Nonetheless, housing led us into this credit crisis and this recession. It is likely to lead us out. And that process is underway, right now.
Mr. Moulle-Berteaux is managing partner of Traxis Partners LP, a hedge fund firm based in New York.
Not Many Positives Coming Out of Jumbo Mortgage Changes
With the House and Senate working to hammer out differences in their respective approaches to solving the housing/credit crisis, problems are already emerging with other solutions proposed or enacted tackle pieces of the problem.
The New York Times reported on Wednesday that there are real problems with the jumbo mortgage aspect of housing rescue.
Several months ago Congress, in an attempt to loosen up credit in costly markets, raised the loan limit on loans which could be backed by government-sponsored housing finance agencies such as the Federal Housing Administration from $417,000 to amounts up to $730,000, depending on location. The change was intended to reduce rates for more borrowers (jumbo loans have always carried a higher rate than conventional loans, i.e., those below the loan ceiling) and to stimulate lending. The goal was not aimed at helping subprime borrowers but was aimed at credit-worthy borrowers with acceptable down payments who wanted to refinance or purchase a home in expensive housing markets like San Francisco or New York. It was thought that helping thousands of borrowers access billions in new loans would stimulate the housing market, spur consumer spending and possibly avoid or at least reduce the effects of a recession.
Instead, Matt Richtel, reporting in the Times says the effort to make it easier to get jumbo mortgages has yielded frustration and disillusionment. Since the rules took effect April 1, many borrowers and their mortgage brokers say the new loans are either not available or the rates are far higher than they expected.
Richtel quotes the president of one mortgage corporation as saying that the program "is so much of a failure that it's really unbelievable. Like coming up with a vaccine to a terrible disease, and then not giving it to people, or making it too expensive."
But, Richtel said, rates have not dropped, at least not to the degree that many borrowers and mortgage brokers had expected. In some cases, "conforming" loans, so designated because they conform to the old government-sponsored rules, are a full percentage point below the newly conforming jumbo loans intended to be covered by the new law.
One reason that the loans are not competitive has to do with that now familiar word, securitization. Lenders can package and sell conforming loans as mortgage-backed securities either on the open market or to Fannie Mae or Freddie Mac. The private sector is open to these securities because they know that they can resell them later to housing finance agencies. Thus the conforming loans can offer a lower interest rate to borrowers.
Freddie Mac recently announced it would buy up to $15 billion of the newly defined loans. That could lead to more loans and lowered interest rates, but there is not a lot of time. At the end of the year the system is supposed to revert to the old loan limits and lenders as well as secondary investors are hesitant about changing rules and operations for a short time.
Two other major initiatives, a program run by the Federal Housing Administration and proposed Federal Reserve rules on lending which are about to emerge from the comment period, are also under attack. We will take a look at these as well as attempt to catch up on the status of the very different housing bills passed by the House and Senate which are being worked out in compromise committee.
[I can attest to the continued sluggish activity with those properties priced for sale and needing financing above the conventional $417,900 loan limit. We expected a boost and more normalization in sales in our local area as a result of the increase in the 'super conforming' limit, but it just has not happened so far. ~~ Ray]
The New York Times reported on Wednesday that there are real problems with the jumbo mortgage aspect of housing rescue.
Several months ago Congress, in an attempt to loosen up credit in costly markets, raised the loan limit on loans which could be backed by government-sponsored housing finance agencies such as the Federal Housing Administration from $417,000 to amounts up to $730,000, depending on location. The change was intended to reduce rates for more borrowers (jumbo loans have always carried a higher rate than conventional loans, i.e., those below the loan ceiling) and to stimulate lending. The goal was not aimed at helping subprime borrowers but was aimed at credit-worthy borrowers with acceptable down payments who wanted to refinance or purchase a home in expensive housing markets like San Francisco or New York. It was thought that helping thousands of borrowers access billions in new loans would stimulate the housing market, spur consumer spending and possibly avoid or at least reduce the effects of a recession.
Instead, Matt Richtel, reporting in the Times says the effort to make it easier to get jumbo mortgages has yielded frustration and disillusionment. Since the rules took effect April 1, many borrowers and their mortgage brokers say the new loans are either not available or the rates are far higher than they expected.
Richtel quotes the president of one mortgage corporation as saying that the program "is so much of a failure that it's really unbelievable. Like coming up with a vaccine to a terrible disease, and then not giving it to people, or making it too expensive."
But, Richtel said, rates have not dropped, at least not to the degree that many borrowers and mortgage brokers had expected. In some cases, "conforming" loans, so designated because they conform to the old government-sponsored rules, are a full percentage point below the newly conforming jumbo loans intended to be covered by the new law.
One reason that the loans are not competitive has to do with that now familiar word, securitization. Lenders can package and sell conforming loans as mortgage-backed securities either on the open market or to Fannie Mae or Freddie Mac. The private sector is open to these securities because they know that they can resell them later to housing finance agencies. Thus the conforming loans can offer a lower interest rate to borrowers.
Freddie Mac recently announced it would buy up to $15 billion of the newly defined loans. That could lead to more loans and lowered interest rates, but there is not a lot of time. At the end of the year the system is supposed to revert to the old loan limits and lenders as well as secondary investors are hesitant about changing rules and operations for a short time.
Two other major initiatives, a program run by the Federal Housing Administration and proposed Federal Reserve rules on lending which are about to emerge from the comment period, are also under attack. We will take a look at these as well as attempt to catch up on the status of the very different housing bills passed by the House and Senate which are being worked out in compromise committee.
[I can attest to the continued sluggish activity with those properties priced for sale and needing financing above the conventional $417,900 loan limit. We expected a boost and more normalization in sales in our local area as a result of the increase in the 'super conforming' limit, but it just has not happened so far. ~~ Ray]
Foreclosures Must Be Averted for Sake of the Economy
Fed Chairman Ben Bernanke said accelerating rates of foreclosures and delinquencies can have a significant impact on the economy and called for more to be done in order to prevent them.
Speaking Monday night at the Columbia Business School's 32nd annual dinner, Bernanke said the rate of foreclosures will likely increase in 2008 and that traditional anti-foreclosure steps may not be working to prevent them. He also said sharp declines in home prices can have a negative impact on the overall economy.
"High rates of delinquency and foreclosure can have substantial spillover effects on the housing market, the financial markets, and the broader economy," he said. "Therefore, doing what we can to avoid preventable foreclosures is not just in the interest of lenders and borrowers. It's in everybody's interest."
He said government-sponsored enterprises Fannie Mae and Freddie Mac should raise more capital and "could do more" to help ease the crisis. He also called for clear disclosures of home-loan modifications.
"Additional government policies can help address problems in the mortgage markets," he said. "The Congress can take an important step by moving quickly to reconcile and enact legislation permitting the Federal Housing Administration (FHA) to increase its scale and improve its management of risks."
Bernanke also said the best solution is sometimes a mortgage writedown.
Bernanke did not comment on the outlook for interest rates.
By Stephen Huebl and edited by Nancy Girgis
[No kidding, Ben.]
Speaking Monday night at the Columbia Business School's 32nd annual dinner, Bernanke said the rate of foreclosures will likely increase in 2008 and that traditional anti-foreclosure steps may not be working to prevent them. He also said sharp declines in home prices can have a negative impact on the overall economy.
"High rates of delinquency and foreclosure can have substantial spillover effects on the housing market, the financial markets, and the broader economy," he said. "Therefore, doing what we can to avoid preventable foreclosures is not just in the interest of lenders and borrowers. It's in everybody's interest."
He said government-sponsored enterprises Fannie Mae and Freddie Mac should raise more capital and "could do more" to help ease the crisis. He also called for clear disclosures of home-loan modifications.
"Additional government policies can help address problems in the mortgage markets," he said. "The Congress can take an important step by moving quickly to reconcile and enact legislation permitting the Federal Housing Administration (FHA) to increase its scale and improve its management of risks."
Bernanke also said the best solution is sometimes a mortgage writedown.
Bernanke did not comment on the outlook for interest rates.
By Stephen Huebl and edited by Nancy Girgis
[No kidding, Ben.]
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