Borrow Smart, Retire Rich®

Join us at the Employee Benefit Adviser Summit in Atlanta, GA

I will be speaking on a panel with Nick Walter about financial education in the workplace, and how it could be the "ultimate" employee benefit.  Keynotes include Dave Ramsey and Governor Michael Leavitt (former Secretary of Health & Human Services).

Case-Shiller predictions on housing bottom

HARP - Housing Affordability Refinance now at 125%

Download 125_LTV_release_and_fact_sheet_7_01_09 as a PDF File.

As of July 1st, the HARP program is now allowing consumers who are upside down on their equity (about 13 million according to Moody's Consumer Research) to go up to 125% of their home value to take advantage of lower rates...  Stopping the foreclosure rates is key to stabilizing housing and finding a 'bottom' to the market.

What does this mean for you?  If you own a home that is worth $200,000, and you owe $250,000, you can still refinance to much lower interest rates.  One key difference to this new initiative, is the goal of having home owners reduce their term from 30 years to a lower 25 or 20 year term.  The shorter term might keep the house payment about the same, BUT provide a home owner a break even recovery in 4 to 5 years, versus the 10 plus years that is forcing many homeowners to throw in the towel.

Want to watch a video on the new program, become a student at NIFE and watch a short video on all the ins-and-outs of the new HARP program.  It's FREE, and you can refer the video to friends after you watch it.

New 2009 Housing Affordability Study - Harvard Release

Download HousingStudy2009 - download my highlighted copy as speakers notes.

Posted by Todd Ballenger: Each year Harvard does it's thing with a new study on Housing.  A wonderful report that can be used throughout the year.  We really like to get our students out using this as a 'speaking' item, and we recommend you do as well.  I've taken some of the highlights and put together a video you can watch to get a feel for what they're saying... check it out here:

Watch Video

Snooze, and you WILL lose.

The Federal Reserve recently said that it plans to continue purchasing large quantities of Mortgage Backed Securities to provide support to the mortgage and housing markets, and "it stands ready to expand the quantity of such purchases and the duration of the purchase program as conditions warrant".

The concern as always is that the media will spin these comments - telling consumers their own version of reality - something along the lines of this: "Good news, the Fed's words on continuing their purchasing program mean that rates will continue to drop lower, and remain low into the Summer"...thereby creating another round of folks hitting the "snooze bar" on moving forward with a refinance or purchase, which looks to be a very costly strategy for borrowers.

First, many of you have been hearing the objection from borrowers that they are waiting for 4.5%...but here's a reason we shouldn't look to the Fed to help make that happen with their purchasing program. Yes, the Fed has been buying Mortgage Bonds. But, those Fed purchases, are a lot of FNMA 30-yr, 5.5% and 5.0% coupons, which will not have much of a positive effect on present rates.

Note - there is a difference between the "coupon rate" and the interest rate the borrower actually pays. When we are talking coupon rate, this is the rate that the end investor purchasing these Bonds receives. For example, a net 5.50% to the investor - or their coupon rate - has to start off as a significantly higher rate to the borrower. Why? Because the originating firm, the wholesaler, the agencies like Fannie or Freddie, and the securitizing firm on Wall Street all take a little piece. A mortgage rate of 6.25% to the borrower nets down to around a 5.50% coupon.

Why is the Fed buying these Bonds? Well if you think about it, it's very smart of the Fed...and maybe even a little sneaky...because 5.5% Bonds actually represent outstanding mortgages with rates of 6 - 6.50%, which are precisely the loans being refinanced today.

So with rates at present levels, many of the mortgages in these FNMA 5.5% pools being bought up by the Fed will be refinanced and paid, thus giving the Fed a quick recoup on some of their investment. This is likely a big reason why the Fed said they could continue this purchasing program beyond June if necessary. Bottom line, the Fed's buying higher rate coupons will not necessarily get rates to 4.5%, but it should put a ceiling on how high rates can go during the near term.

Second, let's address plain old fashioned customer greed. Even though it may make sense for one of your clients to refinance right now, and save $250 per month for example, the greed factor kicks in as clients fall in love with the dream of a 4% handle on their refinance rate...so they wait, and risk the savings of $250 per month in the hopes of gaining another $30 of savings per month.

Clearly, rates could turn higher, and this window of opportunity could pass them by entirely. But here's the most important part: even if they are correct and are able to eventually grab that lower rate and save another $30 per month - think of what they have lost by waiting. While they delayed, they lost the savings they could have gained by taking action sooner - or in the example used, $250 - for every single month they waited. So even if they get the rate they are looking for, it could take years to make up what they lost by waiting.

Obama Unveils Homeowner Affordability

President Obama unveiled his plan to help stabilize the housing market and keep millions of borrowers in their homes.

The Homeowner Affordability and Stability Plan includes two initiatives to help struggling homeowners. One is a refinancing program for homeowners with less than 20% equity in their homes, or who owe more than their home is worth. The second program attempts to lower monthly payments for homeowners at risk of losing their home. In addition, the plan includes a third initiative to support low mortgage rates by strengthening confidence in Fannie Mae and Freddie Mac.

Many of the plan’s details are still being worked out and will not be announced until March 4, here is an overview of the plan’s main components.

Refinancing Initiative

Under current rules, those families who own less than 20% equity in their homes have a difficult time refinancing and taking advantage of the historically low interest rates. Therefore, the refinancing initiative in the new plan provides refinancing help for homeowners with less than 20% equity in their homes or who owe more than their home is worth. This initiative is open to homeowners who have conforming loans which are guaranteed by Fannie Mae and Freddie Mac, and who owe up to 5% more than their home is worth.

According to the plan, “credit-worthy” or “responsible” homeowners can refinance their mortgage into a 30- or 15-year, fixed-rate loan based on current market rates. The refinanced loan, however, cannot include prepayment penalties or balloon payments. For many families, this low-cost refinancing may help reduce their mortgage payments by up to thousands of dollars per year.

As with the rest of the plan, details about this initiative will be released at a future date—including what, if any, credit score requirements will be included.

Stability Initiative

This initiative aims at providing help to individual families as well as entire neighborhoods by helping reduce foreclosures and stabilize home prices. It is intended to help homeowners who are struggling to afford their mortgage payments, but cannot sell their homes because prices have fallen significantly.

The goal of this initiative is simple: “reduce the amount homeowners owe per month to sustainable levels.” To accomplish this, lenders are encouraged to lower homeowners' payments to 31 percent of their income by lowering their interest rate to as low as 2% or by extending the terms of the loan. In addition, lenders can also lower the principal owed by the borrower, with Treasury sharing in the costs.

Homeowners who are current on their mortgages but are struggling can still apply for this program. As such, this is one of the few programs designed to help homeowners who may face delinquency soon, but are current at the moment.

Since the focus of this initiative is on helping families and neighborhoods, investment properties do not qualify. This initiative also includes a number of additional elements and incentives that benefit homeowners and lenders alike, including:

• Incentives to Help Borrowers Stay Current: To provide an extra incentive for borrowers to keep paying on time, the initiative will provide a monthly balance reduction payment that goes straight towards reducing the principal balance of the mortgage loan. As long as a borrower stays current on his or her loan, he or she can get up to $1,000 each year for five years.
  
• Reaching Borrowers Early: To keep lenders focused on reaching borrowers who are trying their best to stay current on their mortgages, an incentive payment of $500 will be paid to servicers, and an incentive payment of $1,500 will be paid to mortgage holders, if they modify at-risk loans before the borrower falls behind.

 

Supporting Low Mortgage Rates
As part of the Homeowner Affordability and Stability Plan, the Treasury Department is increasing its funding commitment to Fannie Mae and Freddie Mac to ensure the strength and security of the mortgage market and to help maintain mortgage affordability. This portion of the plan will use using funds already authorized in 2008 by Congress for this purpose.

The increased funding will enable Fannie Mae and Freddie Mac to carry out ambitious efforts to ensure mortgage affordability for responsible homeowners, and provide forward-looking confidence in the mortgage market.

Again, the government plans to unveil the final details of the plan on March 4, 2009. For now, you can download a sheet of common Questions and Answers produced by the government at: www.treas.gov/initiatives/eesa/homeowner-affordability-plan/ConsumerQA.pdf

I will continue monitoring the plan as new information becomes available. If you have any questions or would like to discuss how this may specifically impact you, I’d be happy to sit down with you. Just call or email me to set up an appointment.