Bailing Out Sub-prime Borrowers

The Congressional Budget Office estimates that 400,000 borrowers with $68 billion in loans may benefit from a rescue bill. This bill is to help homeowners avoid foreclosure by offering at-risk borrowers the chance to refinance their old mortgages into new low-cost fixed-rate loans.

To qualify borrowers must live in their homes and have loans that were accuired between January 2005 and June 2007. Also, they must be spending a minimum 40% of their gross monthly income on all household debt to be eligible for the program. They do not necessarily have to be in default but they do have to prove that they will not be able to continue to make the payments. This is to avoid people defaulting purposely to get a lower payment.

There are more contingencies to this refinance offer. All other home debts like equity loans or lines of credit have to be closed. In fact, they will not be allow another home equity loan for 5 years unless it is an absolutely necessary home improvement.

The original lenders do have to agree to rework a given loan before things can get started. The bill requires lenders to make major concessions, writing down the value of the loan to 90% of the home's current value. In some hard hit areas that will mean a substantial loss for the lender. So the lender is going to have to believe that they would loose more money if they let it go into forclosure in order to go along with the refinance.

Each of these new loans will be underwritten by an FHA lender so banks will do all new appraisals. The income statements, bank accounts, job hisoties and credit scores will all have to be revisited also.

As part of the deal, the old lender writes off any fees and penalties on the original mortgage, including prepayment penalties, and accepts the proceeds from the new loan on a paid-in-full basis. Additionally, it pays the FHA an up-front premium equal to 3% of the mortgage principal.

There will be some fees to consider, including a portion of any profits from future home-price appreciation. They aren't going to just bail everyone out. The FHA will get a 3% exit fee of the mortgage principal when the borrowers resell or refinance. If someone decides to sell or refinance within a year they will be giving 100% of the profits to the FHA. Each year after it will drop 10% till it reaches a minimum of 50%.

Even after all fees considered, it would be a blessing to many people. Not only do they get to stay in their home but they'll finally have a reasonable, fixed interest rate and no forclosure.

http://biz.yahoo.com/cnnm/080723/072308_housing_rescue_guide.html?.&.pf=loans

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Helping the Mortgage Market

The next big plan for helping out the mortgage industry is to full inform investors of the types of mortgages they are buying into. The idea is to promote confidence in the investment they are making so that mortgage-backed securities will be bought once again.

A group representing the buyers and sellers of mortgage backed securities unveiled a plan on Wednesday to recharge the moribund mortgage market.

In order for lenders to raise enough money to offer as many loans as they do, they have to bundle their mortgages and sell them to investors as mortgage backed securities. Lenders such as Countrywide, Wells Fargo and Wachovia will package a random assortment of these loans together and sell them to investors with very little information offered to the purchaser.

But then the losses began to add up and naturally people and institutions stopped buying these pools of residential mortgages. Therefore these lenders didn't have the extra cash for home buyers to get loans.

The American Securitization Forum has a plan, Project RESTART. The idea is to increase the supply of mortgage loans available to borrowers and also make them cheaper. Because of course if you jumpstart the mortgage market you jumpstart the housing market.

Part of the plan includes making these packaged loans more transparent. Clearly there is going to be more confidence in your investment if you are presented with all the facts and amount of risk ahead of time. This should also allow for more accurate pricing.

Previously the loans were packaged with a mixture of high and low risk. This makes it more difficult to understand what you're really getting into and makes pricing more vague. Obviously it's not feasable to provide all the information on each individual mortgage borrower but there is certainly more information that can be offered.

Also these loans would be bundled together by type. So that an investor can choose a group of mortgages that all are from prime borrowers with documented income, 720 credit score and a 20% downpayment. If a particular investor is into higher risk and higer payoff they could buy loans with subprime borrowers and low credit scores. The big idea here is that the investor would know which they are getting, and pay accordingly.

I think this sounds like a great idea. My only issue with this is, why is this just happening now?

http://money.cnn.com/2008/07/17/real_estate/jumpstarting_mortgage_markets/index.htm?postversion=2008071716

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June Market Report

June Residential Highlights

June sales activity was mixed when compared to that of May 2008. On the other hand, activity continues to follow a downward trend compared with 2007. From May to June, there was a 0.8% increase in closed sales (1,877 v. 1,863) - the second straight month of increasing sales. New listings also grew a slight 0.6% (5,213 v. 5,182). Pending sales, however, dropped 6% (1,996 v. 2,124). On the other hand, comparing June 2008 with June 2007, closed sales dropped 31.3% and pending sales decreased 30%. New listings were also down 16.3%. See table below. At the month’s rate of sales, the 17,788 active residential listings would last approximately 9.5 months, up slightly from 9.2 months in May.

Second Quarter

A look at the second quarter of 2008 compared with the same period in 2007 shows a 34.7% decrease in closed sales (5,461 v. 8,361) and 31% drop in pending sales (5,972 v. 8,652). New listings also fell 8.1% (15,973 v. 17,386).

Sale Prices

The average sale price for June 2008 was down 1% compared to June 2007, while the median sale price dropped 2%. See table below. Month-to-month, the average sale price and median sale price are both up over May 2008 levels; the average sale price rose 4.1% ($348,800 v. $335,000) and the median sale price was up 0.5% ($289,000 v. $287,500).

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Crawfish of the Caribbean

That is the theme for the 58th annual Crawfish Festival in Tualatin on Friday and Saturday August 8th & 9th. This year there is a Crawfish of the Caribbean Treasure Hunt. Clues will lead participants to various locations with a grand prize of a 42-inch flat-screen TV donated by West Coast Bank.

Also new this year will be the “Teen Scene” activities. Events such as a skate demonstration by members of the official Exit Real World team, an urban dance performance by Hip Hop Handbook and a free basketball clinic for pre-high school students by the Trail Blazer organization.

And just when you thought it wasn't exciting enough, the festival will be incorporating the TualaFest Battle of the Bands on Friday night at the Tualatin Community Park where local teenage bands compete for the TualaFest title.

Then the next night local blues musician Curtis Salgado will perform on the main stage from 6 p.m. to 8 p.m.

One thing that will never change, the Crawfish Cook-off on Friday night, and Saturday’s food court will feature more crawfish recipes than ever. Not to mention the crawfish eating contest and the parade.

Anyone wanting additional information about the Tualatin Crawfish Festival can visit www.tualatincrawfishfestival.com or call the Tualatin Chamber of Commerce at 503-692-0780. For advertising and further press inquiries contact Amanda Dalton at 503-639-8043.

http://tigardtimes.com/news/story.php?story_id=121565166839828000

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The Year of the Investment Buyer

The crazy-low home prices have finally begun to lure real estate investors into the market.

Sharon Restrepo, a broker in South Florida, where home prices have dropped nearly 27% over the past 12 months, recently bought a three-family home from a very motivated seller for a mere $65,000. It listed for $195,000. She can rent the three apartments out for about $1,500 and turn a profit, while she holds on to the property until the market recovers.

If you fancy yourself an investor, the down times are when you truly make your move.

Some places can be rented out while waiting for the market to swing the other way. Others can be bought distressed and then renovated. Either way, you have to wait for the market.

Some of these deals are not obvious. People are not necessarily listing their lowest price and your negotiating skills could come into play. No one wants to sit on inventory that is worth less than they owe. That loan is still outstanding regardless of value.

There are some companies out there flipping homes. They are getting a deal because they buy in bulk and then turn around and sell but sometimes without any improvements at all. The flipper is also buying any liens on the property but still manages to come out ahead.

Some have complained about the lack of renovation but this is how money is made. Not to mention a community full of neighbors is better than an area full of squatters and drug dealers. Home owners simply care more and take care of their community.

Some are still waiting to hit the very bottom. It is thought that there is still some falling to do. This is because there is still a discrepancy between what people are willing to pay and what banks are willing to sell for.

The lenders are holding their prices up as long as they can hoping someone will come along. Eventually they'll have to admit to themselves that buyer's will not pay it, not anymore.

But the end of the year will come, and they will still be sitting on a pile of inventory. Those properties simply cannot stay on the books through to next year. Then, game on.

http://money.cnn.com/2008/06/30/real_estate/vulture_investors_take_flight/index.htm?postversion=2008070212

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