Economic and Mortgage Market Summary (Feb)

FannieMae came out with the economic summary for February 2008 and the key points are listed below.

FannieMae (February 2008) Economic and Mortgage Market Developments

• Inflation. The core rate of inflation increased further in December and remains above the top of the Federal
Reserve’s implicit target range. The slowdown in GDP growth and resulting slack in the labor market should
help alleviate some pressure on core inflation (especially as monetary policy has become accommodative).
However, there is continued pressure on core inflation from the pass-through of recent energy price increases.

• Interest rates. The Federal Reserve lowered the federal funds rate by 125 basis points in January, and continued
credit tightness and softening economic conditions should allow them to lower it more this year. We expect the
Fed to cut rates by 50 bps in March, and by an additional 50 bps over the next several meetings, bringing the
federal funds rate down to 2.00 percent. Nevertheless, long-term rates should edge up from current levels over
the year.

• Housing market. We project that the combination of below-trend economic growth and continued dislocations in
the mortgage market will continue to slow housing starts and sales this year. We expect total home sales to
decline by 22 percent in 2008 and single-family housing starts to fall by 30 percent in 2008. We expect housing
starts and sales to stabilize in the middle of this year, with sustained gains beginning in 2009. However, the large
number of unsold homes on the market is putting downward pressure on house prices. This price weakness is
likely to extend at least through 2009.

Molly R. Boesel and David Kogut
Economics and Mortgage Market Analysis
February 15, 2008

In other words…

~Inflation is increasing and the fed is working to slow it. They still don’t have control over it and the way things look; the market will be unstable until the housing market volatility slows down.

~As for interest rates, the Fed continues to cut rates but long term rates (30yr and 40yr) will continue to climb through the course of the rest of the year.

~The housing market will continue to decline throughout 2008, is expected to stabilize in mid 09’ and the increase in inventory is only increasing the the weakness in the housing market.

Regardless of the news, the bottom line is that everyone is waiting to see what the rest of everyone else is going to do. People are paralyzied by the market and don’t want make a bad move. Make no mistake, now is the best time to buy a home in the last 10+ years. Money is incredibly cheap with rates being so low, and the inventory and standard concessions that sellers are making across the market, make this the epitome of a buyers market.

Those that buy or refi at this point are wise and will reap the benefits of this favorable market. Those who chase the rainbow and keep searching for the “Bottom” of the market, or for the rates to go down- will find that it doesn’t exist because they will always feel that there is always something better and when the market actually begins to flourish the inventory will be compromised and according to the fed and the inflation issues, rates will have gone up. Another thing to keep in mind is that on a $250,000 investment, an increse in rates of .5% will decrease their buying power by about $30K


Final Thought…

There are risks and costs to a program of action. But they are far less than the long-range risks and costs of comfortable inaction.

-John Fitzgerald Kennedy

Don't Get Burned by the HELOC Freeze

There’s a growing trend among lenders that I feel compelled to tell you about.

Several major lenders are freezing withdrawals from Home Equity Lines of Credit (HELOC's) – and I don’t want you to be caught off guard by this development.

Don’t Get Burned by the HELOC Freeze

HELOC's, though secured by your real estate, are treated by lenders as consumer credit. And just as a lender can revise the terms of your credit cards, or even cancel them, the same can be done with your HELOC.

Previously, HELOC withdrawals were usually only frozen for reasons such as bankruptcy, declining credit and payment problems.

While these events can still cause a freeze, there’s another factor that lenders are considering more often today: the value of your property. You should be aware that the lender retains the right to suspend or reduce the line of credit available if your property value falls below the appraised value used to originate the loan. Lenders are actively assessing properties and then suspending access for account holders who have seen a downward slide in their home value.
If you’re in a market that has seen real estate values decline, then access to your HELOC may be at risk.

*One thing to keep in mind is that lenders have labeled all of California a declining state, which means that those who live in California and have HELOC's are at risk to the HELOC Freeze and this risk should be assumed and recognized.

Your financial security and success are my highest priority. Feel free to contact me to discuss your options and any other questions you may have so I can make sure that you are protected in this volatile market.

Food For Thought...

Deep within man dwell those slumbering powers; powers that would astonish him, that he never dreamed of possessing; forces that would revolutionize his life if aroused and put into action.

~ Orison Swett Marden

A 100% Financing Message to First Time Home Buyers

Seller Concessions, FHA & CalHFA:
A 100% Financing Message to First Time Home Buyers

A couple of years ago you could get declined for a discover card but you could qualify for a home loan. Think for a moment about the logic because I am not exaggerating. There were hundreds of thousands of people that got into loans that they were not qualified to handle, thus developing the onslaught of foreclosures and Short Sales that have come to pass. The rules of the game have changed and the difference now is that people will have to qualify and in some cases over qualify for financing. Lenders and consumers both have taken massive losses and new policy and laws have been set into motion to make sure that we never end up in a similar situation

There are numerous reasons to learn more about 100% financing besides that fact that about 90% of it completely disappeared. For instance, you could be a first time home buyer or know someone who is looking, that could benefit from this knowledge. You could be a realtor who needs to be kept up to date with the few remaining 100% programs so you can let your clientele know about them or, you could be a mortgage lender who wants to learn more about available products so you can serve your clients in a more effective manner.

What ever your situation, I want to share some extremely valuable information that could keep you and the people you know, from wasting a ton of time and loosing a large amount of money.

100% financing in California is available through government sponsored programs. The two most common programs are called CalHFA and FHA. This article will dominantly focus on the CalHFA and FHA because they apply to the largest demographic. There are also other programs for educators and employees who work for a school district and receive salaries and if you are a U.S. Vet then the VA is a great option as well.
(For information about VA or PERS please go to the Mortgage News Network at http://mortgagenewsnetwork.blogspot.com/ )

For First Time Home Buyers, CalHFA offers down payment assistance programs which provide a helping hand of 3% of the sales price. This has to be paid back when you sell or refinance your home and is extremely beneficial because if there is a lack of funds to close, the 3% helps to absorb the closing costs and you don’t have to pay those absorbed out of pocket expenses. There are different down payment assistance programs and the parameters differ upon which of them you qualify for.

Seller concessions are also important because they will absorb other closing costs as well. Seller concessions are common (especially in a buyers market) and CalHFA allows seller concessions designed as follows:

- 3% of you are borrowing 90% of the property value or more.

- 6% if you are borrowing 90% of the property value or less

Add the Seller Concession to the Down Payment Assistance and you are looking at some major help to get into your home.

FHA allows 6% Seller Concession and there are similar down payment assistance programs available (similar to that of CalHFA).

Neither CalHFA nor FHA loans are subject to the California declining market decrease of 5% because CalHFA is its own entity (separate from mainstream housing lending) and FHA loans are federally insured.

I highly suggest that if you are a First Time Home Buyer then you look at these opportunities and get a professional to pre-approve you, NOT pre-qualify you. The difference is a pre-qualification is a verbal go ahead and means nothing to a lender. A pre-Approval is a green light to go and get a house because under the approved information that you have submitted, you will be able to proceed into negotiations. A pre-approval is also a green light for an appraiser, a realtor, as well as buyers and sellers.

Experienced real estate agents who know that they are doing will have you get
pre-approved before they take you out to look at homes. This gives you a clear picture of how much money you can spend and it gives your realtor a chance to do some research on the available inventory of homes so they can show you exactly what fits your needs.

For future information, there are many discussion boards, blogs, news sites, magazines and other sources of information. My intent is to educate you so that you know that there are still opportunities out there and they are available to those who are willing to qualify for them.

For future and archived articles go to: Mortgage News Network http://mortgagenewsnetwork.blogspot.com/


~Joe Littell

Congress Extends MI Tax Deductibility Law!!!

Congress extends MI tax deductibility law!

Congress has just extended the MI tax deductibility law. Once the President signs the bill, borrower-paid MI premiums will be tax-deductible through the year 2010. Because it’s still new, the law has raised many questions.

Below are answers to commonly asked questions regarding the new law. We will continue to post updated information as regulators sort out the details. Borrowers should consult their tax advisors regarding MI tax deductibility. See disclaimer note below.

FAQs

Does the bill apply to MGIC mortgage insurance?
Yes, borrower-paid MI provided by MGIC qualifies for the deduction. This includes our Monthly, One-Time MI and Split Premium plans. There are varied opinions on the deductibility of lender-paid MI as the IRS has not yet clarified the deductibility. It is recommended that borrowers consult their tax advisors regarding the amount that is deductible.

What types of mortgage loans qualify for the MI tax deduction?
Loans used for “acquisition indebtedness” — that is, money borrowed to buy, build or substantially improve a residence — are eligible, as long as the debt is secured by the same residence.

This includes purchase loans and refinance loans, up to the original acquisition indebtedness. (Money borrowed against the equity in a home or when refinancing a home for any reason other than to buy, build or substantially improve a residence is called “equity indebtedness.”)

When refinancing a piggyback loan originally used to acquire a property, is the original loan amount considered the sum of the two mortgages or only the primary mortgage amount without the second lien included?
The original acquisition indebtedness is considered to be sum of the two mortgages.

Is deductibility applicable for all loan types?
There is no differentiation among loan types.


What types of properties are eligible for tax deductibility?
The deduction applies to “qualified residences,” as defined in the Internal Revenue Code. Generally, that includes the borrower’s primary residence and up to one other residence selected by the borrower for purposes of the deduction for qualified residence interest. As with mortgage interest, borrowers can deduct mortgage insurance premiums paid on both their primary residence and one other qualified residence each year. Investor loans are not eligible.

Who qualifies for this itemized deduction?
Households with adjusted gross incomes of $100,000 or less will be able to deduct 100% of their MI premiums. The deduction is reduced by 10% for each additional $1,000 of adjusted gross household income, phasing out after $109,000. (Details below.)
Married individuals filing separate returns who have adjusted gross incomes of $50,000 or less will be able to deduct 50% of their MI premiums. The deduction is reduced by 5% for each additional $500 of adjusted gross income, phasing out after $54,500. (Details below.)
The deduction is not restricted to first-time homebuyers.

Is adjusted gross income calculated before or after deductions?
Adjusted gross income is calculated before itemized deductions, including the MI deduction.

How does the MI tax deduction work?
Borrowers who itemize deductions are able to reduce their overall taxable income in the same manner as mortgage interest.

Are borrower-paid, single premiums, which are paid up front in a lump sum, eligible for the deduction?
Yes, borrower-paid, single-premiums are eligible for the deduction under the new law. Borrowers should consult with a professional tax advisor to determine the amount of the MI premium eligible for the tax deduction.

If the single premium is financed, are both the mortgage insurance premium and the interest tax-deductible?
We believe that if the loan is for acquisition indebtedness, both the interest attributable to the entire loan balance as well as the allocated portion of the mortgage insurance premium are tax-deductible.

How would a premium refund issued during the tax year affect eligibility and the amount of the MI deduction?
Borrowers are only permitted to deduct that portion of their MI premium attributable to a tax year. If the MI is dropped, and a refund is paid, the amount refunded would reduce the amount of MI premium that could be attributable to that tax year and be deducted.
Note: MGIC cannot provide tax advice. Taxpayers should consult their tax advisor to ascertain if they are eligible to take this deduction. The answers to these questions are based on an interpretation of the language of the statute, the Joint Committee on Taxation’s Technical Explanation of the statutory language, and present law. The Internal Revenue Service (“IRS”) will issue guidance interpreting the new provision, and could reach different conclusions for some of the issues raised.