bentleyWIRE | blogged

Good or bad for the housing recovery?

They did the right thing to remove "uncertainty" about Fannie/Freddie from the markets.  At this point, it's crucial for the Treas Sec to be both assertive and proactive.  Investor Psychology 101.  In the long run, it will lower mortgage costs and improve housing affordability further leading to a reduction in home inventories.  Home values will stabilize and that's a great start.  Even so, it will get worse before better.  Foreclosures will continue to be a runaway freight train pressuring home values downward in a protracted downcycle.  It would have been considerably worse w/out the bailout.  Certainly not a cure-all, but an integral piece of a broad strategy to catalyze the housing recovery.  BTW, it is taxpayer money.  However, I'm on board w/ Paulson in that it could and will prove profitable.  Uncle Sam will be senior preferred equity stakeholders.  When all stabilizes and returns to profitability, we'll make out just fine.  I'd say it's a better use of taxpayer money than throwing it down all the other sinkholes that our gov't has created (I'm sure we can all think of a few).  At least this plan has the possibility of gain.

    The main goal of our blog is to inform, educate and provide real world knowledge that can ultimately improve our clients' standards of living.  So, without further ado, I have some great info paired w/ some exciting news that will save you money.

    This morning, I contacted Citibank at 1-866-583-2358 re: my HELOC and the many news stories about lenders freezing access to funds. The call agent (Sarah), reluctantly confirmed that Citi is indeed freezing HELOCs based on a computer algorithm which she's not privy to. You can assume it takes into account homes in declining markets, AVMs (Automated Valuation Models) and total credit extended vs current market value. In addition to Citi, there are reports that Countrywide, Chase, IndyMac, BofA and others are all doing similar freezes. So be sure to plan accordingly if you know you'll need these funds within 1 or 2 yrs!

    On a separate note, I always try to make all phone calls as productive as possible, so I asked if they would reduce my existing interest rate on my HELOC. I was asked to hold while she checked to see if something could be done for me. In a minute and to my utter surprise, she returned stating that "as a good customer w/ excellent payment history" she was able to approve a 0.50% reduction to my rate. She went on to state that I'm eligible for a rate reduction/modification up to 0.50% each year until I get to Prime minus 0.50%.

    Moral of the story? It never hurts to ask for something even if it seems outlandish. It seems rate modifications are no longer reserved only for those in dire need of assistance.  Instead, lenders may currently be willing to provide these even to those current on their payments in an effort to be proactive in keeping defaults at bay.

    As some of you may be aware, many lenders are actually freezing access to HELOCs.  A bankrate.com article written by Leslie Geary explains it well.  In essence, lenders have had a brutally rough time managing their balance sheets and this is one strategy to shore them up. In addition, with homes depreciating in many areas, they are being proactive in preventing homeowners from getting underwater on their home equity.  Our sources state that all the major lenders are either considering this or are already rolling out the freezes.  You should be especially concerned if your home lies within an area of declining home values and/or your Combined Loan-To-Value equals 90% or more based on current market value.

    If you know that you will need access to these funds within the next 1 or 2 yrs, then and only then is Bentley advising our clients to pull cash out now to ensure access to funds.  We're suggesting funds be placed in a high-yield savings acct offering an APY > 3.00%.  As of this writing, WAMU, Countrywide and E*Trade were all offering rates above 3.00%.  In my opinion, the wisest thing to do would be to payoff higher cost debt such as credit card balances.  Just be sure that you're able to access these funds via convenience check if need be w/out massive fees AND that you have the discipline to NOT max out your credit cards.  Doing so would negate the whole purpose of funds accessability.

    The US Senate passed an expanded version of HR 5140 – an economic stimulus package that includes a temporary increase in the conforming loan limits from $417,000 to as high as $730,000 in high cost areas. Unfortunately, the higher loan limits will be limited to high cost areas and the $417,000 limit will remain in effect for most of the country.

    You may ask "how does that benefit me"?  By increasing the conforming limit, lenders would have a reliable source to unload jumbo loans in Fannie Mae and Freddie Mac. This would ultimately lead to a reduction in interest rate that a lender would be willing to accept for this type of loan.  In theory, this should stimulate loan activity by increasing affordability in high cost areas.

    Over the next few days, the Bentley team will be analyzing the details of this bill and we will keep you posted as we have more information.

Sources and helpful links:

• Bloomberg News
• HR 5140

So, what the heck is a subprime credit crunch you might ask? ...and why are these terms being thrown around like a bad party joke?

There have been concerns for at least the past year that mortgage defaults were on the rise. Well, you could say the shizzy hit the fan a few months ago when irrational fear led to a virtual shutdown of the credit markets. PERCEPTION leads the markets in the short-term.  FEAR exacerbates reality. Mix it all up w/ some sensationalized media coverage...and voila!  Mayhem du jour!! In this case, a mass exodus to the door. The credit markets evaporated into thin air virtually overnight! When investors get scared, they simply stop investing for starters. Credit markets? What are those? ...and why do they affect mortgages?

In as much of a nutshell as possible, lenders typically bulk package mortgages and sell them off in a "secondary mortgage market" shortly after origination. This is called securitization which has, in essence, been a very good thing for American homeownership. It's important that even the big national lenders such as Citibank, Chase, WAMU & Countrywide are able to unload the mortgages they've originated. In being able to do so, they can quickly access cash to originate additional mortgages. Two of the biggest buyers of these mortgages are Fannie Mae and Freddie Mac, but they only buy certain kinds of mortgages which "conform" to their more conservative standards. They then bulk package these mortgages into Mortgage Backed Securities for resale to large institutional investors. A lot of the loans we saw being originated in the past 5-7 years such as your Stated Income, Zero Down deals fell outside of this realm and could be broadly categorized as "non-conforming". Subprime loans fall into this category and are typically offered to lower credit quality borrowers with rates that adjust considerably higher after the first 2 yrs. Since these are the riskiest loans, common sense would dictate that the default rates on these types of loans would be higher especially after the rate adjustment higher. Therefore, the subprime loan was used as the whipping post for the credit meltdown. Aside from subprime loans, there are other types of non-conforming loans that undeservedly got shelved as well.

As mortgage defaults began to increase, the instinct was to favor conservative guidelines and shun all others for the sake of asset preservation. Without any investors willing to purchase any loans other than "conforming" loans, a whole slew of lenders were forced to shut their doors and do away with most "non-conforming" loans or risk having to keep them on their own books.

Today, we are starting to see some common sense trickle back into the market with investors who have appetites for non-conforming loans albeit with much more conservative underwriting guidelines. What happens next? Only time will tell.

What a fun and interesting game!  Questions or comments?

If you feel your home has decreased in market value over the past year or so, be certain to claim your benefit.

We're advising all of our clients to take a close look at their property's assessed value as calculated by your county assessor.  If you feel the market value is less than this figure, then it's your right to appeal the assessed value with the county assessor's office. I personally completed an appeals form a month ago and mailed it in indicating 4 or 5 comparable homes within a 1/2 mile radius which sold for considerably less than my assessed value within the past 1 year.  I'll be certain to let everyone know the results of the appeals review. However, I'm highly confident that it will be reduced amounting to a savings of at least $500 in property taxes per year.

I'd say that was well worth the 15 mins to print, complete and mail the form. Most county assessor's offices will have their own webpage you can Google. Come back and let us know how you fared on your request for review.

Here's a recent article from the San Jose Mercury News:

http://www.mercurynews.com/search/ci_6290554?IADID=Search-www.mercurynews.com-www.mercurynews.com&nclick_check=1

We all know what I'm about to explain. However, it needs to be placed at the forefront of your financial mindset at all times...and I can assure you that I've run across many a bozo who has lost it somewhere along the way. Most rules are very simple and this one is no exception.

3 Things - To improve your financial situation, you have 3 options. Increase your income, reduce your expenses or a combination of the 2. The easiest and most effective thing you can do is to cut expenses. Why? You might ask. I'm certain you'd agree that it's typically a heck of a lot easier to cut expenses vs increasing your income. In addition, when you do cut expenses, the savings drops straight to your bottom line dollar for dollar whereas Uncle Sam takes a hefty bite out of any income before the remainder of it finds its way to you.

CUT EXPENSES FIRST. THEN WORK ON BOOSTING INCOME.

So we're ecstatic to set sail on our new blogging adventures. Our purpose for doing so is to provide a two-way medium where we can all learn and educate sans any BS.

We're all hell-bent on delivering exceptional value throughout the home loan process and beyond. This is one of our tools to do so. We always have and always will "tell it like it is" for the sake of "The Golden Rule" and to bring integrity back to an industry that has been plagued with a stigma similar to that of the "used car salesman".

Our hope is that your feedback and reply posts will serve to only increase the value of our blog to everyone.

In the end, we're confident that each and every one of our blog posts will serve to increase your standard of living (e.g. save you money, make you money, provide entertainment value, etc.)

Primarily, we'll focus on topics related to real estate and finance for starters.

So step on in and hang on tight...here we go!!!

BTW...if you find our blog to be of value, be sure to share it with others =)!

We'll be up and running in no time to keep you plugged into the world of real estate finance!

Stay tuned!!