New Rule Affects Homeowners in Foreclosure Avoidance

New Rule Affects Homeowners in Foreclosure Avoidance

Greater Financial Transparency Under New Loan Modification Program

According to the latest information from the Obama Adminstration, Those seeking to ease their mortgage terms must now document their finances before a trial modification will be granted.   The deadline for those institutions servicing loans under the program, the deadline for adopting the policy is June 1.

As noted in a recent article in the Los Angeles Times:

Taking borrowers at their word for how much they earn was a major cause of the mortgage meltdown. That practice may also be why an Obama administration program has struggled to convert temporary loan modifications into permanent ones.

The government said Thursday that it would overhaul the program by requiring homeowners to document their incomes before trial modifications are granted. Borrowers previously could have their interest rates lowered and the terms of their loans extended on a trial basis without providing pay stubs or other financial documents.

The loan service providers will now demand three primary documents for any loan modifications to proceed.  They will ask for:

  1. A formal application including a description of the hardship created by the mortgage.
  2. Proof of income, which would mean at least two pay stubs or the most recent profit and loss statement for self-employed borrowers.
  3. A form authorizing the Internal Revenue Service to release tax data to the servicer.

Under the newly modified plan, if a borrower makes three payments at the modified rate, the modification will automatically be made permanent.

This can only be one more positive turn in the real estate market – especially here on the Westside of Los Angeles.

 

Mortgage Rates Influenced by China & Obama

Mortgage Rates Influenced by China Economy Slowing, Obama Administration Restrictions

In the last week, China’s announced that it will endeavor to slow its economic growth; at the same time the Obama Administration’s proposed new restrictions on the activities of financial institutions, as originally proposed by economic adviser and former Federal Reserve Chairman under the Reagan Administration, Paul Volker.  Both measures are expected to lead to slower economic growth in the US.  While these actions may hurt the stock market, they do benefit fixed income markets. As a result, mortgage rates ended a little lower.

As to China, it released a report showing that its GDP grew at an 8.7% pace in 2009. In a move to avoid inflation that normally accompanies such growth, China announced that it is going to curb bank lending. Any intentional slowdown by China will be felt around the world, including here in the US.

The Obama Administration proposed limiting the size and activities of large banks in order to reduce the risks to the financial system as a whole, namely re-instituting some variance of the Glass Steagall Act, and referred to as the ‘Obama-Volcker’ Proposal. If passed by Congress, this too would lead to slower growth for the financial sector. The potential for slower economic growth and the resulting reduction in inflationary pressures was ultimately favorable for mortgage rates.  Hence, the adjustment in rates.

The benefit for home buyers from the continued lower interest rates will obviously have a positive influence on the housing market.
Mortgage

 

Update on Real Estate Interest Rates

Fixed mortgage rates followed bond yields lower

For the third consecutive week, pushing 30-year mortgages below 5 percent once more. Similarly, ARM rates eased along with shorter-term rates, as the federal funds futures market indicates no increase in the Federal Reserve’s target rate following its upcoming committee meetings on January 26th and 27th.

Because of reduced sample sizes and work disruptions that occur with severe weather, housing starts tend to be more volatile during winter months. And, indeed, housing starts declined 4.0 percent in December, falling short of the market consensus of no change. Building permits, which are less vulnerable to weather interruptions, unexpectedly jumped 10.9 percent.

Conforming Loan Limits ($417,000 and Under)

Loan Program Interest Rate Points
30 Year Fixed 4.750% 1.000
10/1 ARM 4.250% 1.000
5/1 ARM 3.625% 1.000

Jumbo Loan Limits ($729,751 and Over)

Loan Program Interest Rate Points
10/1 ARM 5.375% 1.000
7/1 ARM 5.125% 1.000
5/1 ARM 4.750% 1.000

Agency Jumbo Limits ($417,001 – $729,750)

Loan Program Interest Rate Points
30 Year Fixed 5.000% 1.000

Money Rates

M11  M21
10 Yr Bond  3.61
Prime  3.25
6 Month Libor  0.42969

Any home buyers are looking at very good numbers right now.

 

Advice For First Time Home Buyers

Five Tips for First Time Home Buyers

If you are a new buyer and want to position yourself for homeownership:

1. Establish good credit habits and a favorable credit history

Get a credit card and use it responsibly. Apply for an automobile loan and make your payments on time every month. If you’re renting an apartment, put your own name on the lease and the utility bills and make sure the rent and the bills are paid every month. If you’re already struggling with credit card debt or have large student loans, take a free workshop from Apprisen, formerly the Consumer Credit Counseling Service.

Call (800) 355-2227 for information.

2. Start saving for a down payment and closing costs

It’s possible to purchase a first home in many parts of the country without much in the way of savings. But in high-cost housing areas, starting to save early can be enormously beneficial because you’ll get the advantage of compounding interest and have a longer period of time to grow your investments. Open a savings account or a stock brokerage investment account and make regular deposits.

3. Make a financial plan

Use your local library and bookstore probably have at least a few shelves of books about financial management and buying a home. Take notes. Make a financial plan for yourself. You can learn a lot about real estate, budgeting and credit on REALTOR.com® too.

4. Research neighborhoods and towns

Many young people assume they’ll continue living in their own home town when they get older, but people are more mobile than ever and chances are good you’ll one day live in another city or even another state. Again, the library, bookstore and Web can be excellent resources for information about housing costs and home ownership opportunities around the country and in various neighborhoods.

5. Tap your relatives for advice

Parents, grandparents, aunts, uncles or older cousins with experience buying real estate can give you good information about the cost of housing in the area where you want to live and what it takes to buy a home. Questions to ask: Is housing affordable in this area? How much money would I need to save in order to buy a home? What advice would you give me about planning my financial future? Would you recommend some books that I might like to read about buying a home? Don’t be shy. If you have a question, ask someone in a position to know the answer.

All of these steps can easily be applied to the local Santa Monica & Los Angeles housing market.