The sad fact of real estate is that you can never “time” the market. Everyone always asks, “Where’s the top?” or “Where’s the bottom?” Of course, you never know until you pass it and home sale prices and mortgage interest rates move in the opposite direction.

That is what is happening to mortgage rates now. The government, through the Federal Reserve, has been trying to drive down interest rates in order to make home buying more attractive and more affordable. They have provided the $8,000 First Time Home Buyer Tax Credit to put a little extra cash in to home buyer pockets. The government has even allowed home buyers to use that $8,000 tax credit toward closing costs which can include paying loan discount points which, in turn, will lower the mortgage interest rate a home buyer would obtain. Can you imagine having a 30 year fixed mortgage with an interest rate in the low 4% or high 3% range? It’s possible if you structure the loan properly with the $8,000 first time home buyer tax credit.

However, since consumer confidence is rising, the stock market is also rising. When the stock market rises, the bong market decreases and mortgage interest rates increase. Sound complicated? It is. I only wish that when the Chairman of the Federal Reserve, Ben Bernanke, spoke interest rates would go down. They don’t.  Mortgage interest rates are tied to the bond market.

What this really means for home buyers is that the time may be past to grab the absolute lowest mortgage interest rate in the history of mankind. It still means that interest rates below 6% are still readily available to qualified home buyers with good credit. verifiable employment and income and some money in the bank for a down payment (3.5% for an FHA mortgage).

The moral to the story is that you can never really predict the absolute best time to buy a home.  Some people manage to do it by luck.  They see a good time to buy a home, they find a great home and a nice neighborhood and they make the home purchase. Others look at charts and trends, ask around and then decide that this time or that is the right time to buy a home.

Speaking of trends… you can get real time real estate market trends for 10 zip codes in the MD Suburbs just by filling in the form to the right under Real-Time Market Trends.  You can also click on the link that says “Market Trends” at the top of the page.  The report will be e-mailed to you and it is absolutely FREE. Sign up today to stay completely up-to-date on current real estate market trends in the MD Suburbs.

At the National Association of Home Builders Spring Board of Directors meeting on May 29, 2009 HUD Secretary Shaun Donovan announced the rules for using the $8,000 tax credit. They are not what was hoped for. The tax credit cannot be used for the initial 3.5 percent down payment required for FHA loans. The tax credit can be applied to a down payment in excess of the required 3.5 percent, points to buy down the interest rate and/or closing costs.

“We believe this is a real win for everyone,” said Donovan. “Today, the Obama Administration is taking another important step toward accelerating the recovery of the nation’s housing market. Families will now be able to apply their anticipated tax credit toward their home purchase right away. At the same tim e we are putting safeguards in place to ensure that consumers will be protected from unscrupulous lenders. What we’re doing today will not only help these families to purchase their first home but will present an enormous benefit for communities struggling to deal with an oversupply of housing.”

What Does The New HUD Announcement Say?

Currently, borrowers applying for an FHA-insured mortgage are required to make a minimum 3.5 % down payment on the purchase of their home. Current law does not permit approved lenders to monetize the tax credit to meet the required 3.5 % minimum down payment, but, under the terms of today’s announcement, lenders can now monetize the tax credit for use as additional down payment, or for other closing costs, which can help achieve a lower interest rate. Buyers financing through state Housing Finance Agencies (HFA) and certain non-profits will be able to use the tax credit for their down payments via secondary financing provided by the HFA or non-profit. In addition to the borrower’s own cash investment, FHA allows parents, employers and other governmental entities to contribute towards the down payment. Today’s action permits the first-time home buyer’s anticipated tax credit under the Recovery Act to be applied toward the family’s home purchase right away. Unlike seller-funded down payment assistance, which was a vehicle for abuse, this program will allow home buyers to shop for the best home price and services using their anticipated tax credit.

• View a full the complete HUD News Release No 09-072
• View HUD Mortgagee Letter 2009-15 “Using First -Time Homebuyer Tax Credits”

The $8,000 tax credit is available to first-time home buyers who purchase and settle on a home prior to December 1, 2009.

With home prices down and interest rates hovering at near record lows, 2009 will go down in history as one of the best home buying opportunities for both first-time home buyers.

Many thanks to Alan Gross of National City Mortgage for passing this information along

A guest post by Alan Gross of National City Mortgage.  Thanks, Alan, for providing the straight dope!

Effective May 1, 2009 all home mortgages being sold to Fannie Mae and Freddie Mac must follow the new Home Valuation Code of Conduct (HVCC). HVCC sets new guidelines on how appraisals must be ordered and who can have contact with the appraisers. This regulation does not apply to FHA or VA loans. Even though it only applies to loans sold to Fannie Mae and Freddie Mac it will affect all conventional home loans.

Why were the HVCC regulations written? The HVCC regulations were written to deal with some felt were shady and unethical practices of pressuring appraisers to “come in at the value needed.” They evolved from a potential lawsuit by the Attorney General of New York (Andrew Coumo) against Fannie Mae and Freddie Mac. On March 3, 2009 the Attorney General, Fannie Mae, Freddie Mac and the OFHEO reached a settlem ent agreement regarding the issues of appraisal coercion and independence in exchange for the Attorney General dropping the investigation.

HVCC forbids parties involved in the origination of mortgage loans including loan originators from communicating directly with home appraisers on loans to be sold to Fannie Mae and Freddie Mac. Instead of selecting the appraiser and contacting them as was done in the past, lenders must now go through an appraisal management company (AMC) to order the appraisal. This means that the lender has no input in selecting the appraiser. One can now only hope that a competent appraiser is selected to complete the appraisal. It’s been reported that some AMC’s have been choosing appraisers based on the fee they will accept over the quality of the service provided. If the loan is being “brokered” to another lender the appraisal is ordered not by your mortgage broker but by the lender approving and funding the loan. This means that you may need to pay for multiple appraisals if the loan is moved from one lender to another.

With another party involved in the transaction expect the cost of an appraisal to rise slightly. The HVCC regulations can also cause some delays in getting appraisals completed. Recently I had a borrower buying a second home in Wintergreen, VA. The appraiser needed a copy of the contract. The appraiser couldn’t call me directly. He had to make the request through the AMC.

It will take time to determine if the new regulation will benefit or hurt the consumers it was designed to protect.

In an interesting article in today’s Business section of the Washington Post, financial reporter Dina Elboghdady explains that the FHA will no longer back refinancing that allows the borrower to bring “cash out” of the transaction.

The “cash out” is a way for many folks to get that little bit of extra cash out of their house for things like their childrens’ college education, home improvement and, yes, big flat-screen TVs and nice vacations. The problem seems to be that many people are not even getting past their first payment before going into default on these types of refinances. In fact, recent analysis shows that many people who have sought loan modifications to make their monthly payments more affordable either through a reduced interest rate or reduced principal of their mortgage balance go into default anyway.  This really means that many, many people bought homes they could not afford and regardless of the help that is offered to them, they just can’t keep up with the mortgage payments.

Refinanced loans now make up two-fifths of all the agency’s instant defaults, according to the Post analysis, and some lenders have singled out cash-out refinances as especially risky. With conventional loans, many lenders now offer cash-out deals only to people with top-notch credit and significant equity in their homes. The fear is that borrowers might otherwise take the cash and walk away from the loan.

—from FHA to Tighten Standards for Cash-Out Refinancing

As a result, FHA is cracking down and tightening up it’s credit standards to prohibit people from digging themselves too deep into the hole.  There is a way to get some cash out.  You must have at least 15% equity in your home. Of course, this is hard to do for folks who purchased their home in the last 10 years.  A lot of people took out 100% financing or “interest only” financing and they have not reduced their mortgage principal enough.  Even people who took out conventional mortgages with 10% or more of a down payment have seen their home values erode.  Thus, even responsible home owners may not have the equity in their homes that FHA requires for cash out refinancing.

In many ways, this is all too the good.  Since many people are continuing to default on their mortgages even after they’ve been modified or they’ve gone into default within a payment or two of a refinance of their home it makes sense to put the brakes on.  It is time, in my view, to end the free flow of money and credit to people who, flat out, cannot afford a mortgage.  That is why the rental market exists.

There are two ways for us to get out of this crazy housing slump:

1. Banks must sell (in the case of bank-owned properties) or approve for sale (in the case of “short sales”) the houses that are causing this huge inventory of unsold homes and,
2. Responsible lending practices must prevail.

There are plenty of home buyers in the world with decent credit, low debt-to-income ratios and family income levels that support owning a home.  Many of these home buyers would buy homes at current price levels and in their current dilapidated condition…if banks would only approve their sale!

Home equity lenders are throwing roadblocks in front of clients who want to refinance their primary mortgages. In some cases, they delay refinances for a month or more, and in other cases, they block the refinance altogether.

The issue is “resubordination”, which comes into play when a homeowner wants to refinance a primary mortgage and keep the second mortgage in place, either a home equity loan or line of credit.  Before the refinancing can happen, the home equity lender has to agree to let the second mortgage remain where it is, in second position.  That agreement is a resubordination.

You would think there would be no problem for a home equity lender to agree to a situation that improves their current position by allowing the borrower to get a lower payment on the primary mortgage.  Nothing personal, but many equity lenders want borrowers to close their accounts, so they can improve their balance sheets.

How Much Is Your House Worth?

Another issue is the new combined loan to value (CLTV). Let’s say you bought your house for  $300,000 in 2006 and got a primary mortgage of $240,000 and second of $60,000 (a typical 80/20 loan product to avoid private mortgage insurance).  The current value is $270,000 (just a 10% drop in value), so your combined financing is almost 100% of value. Most lenders will run like hell.  They want at least 25% to 30% equity in your house.

Even when a resubordination is probable, it is not unusual to wait for more than a month for a decision.  With this delay and added fees, the refinance process is jeopardized.

A Personal Example

When I first bought my home in late 2003, I took out an Adjustable Rate Mortgage (ARM) just like I was telling all my clients to do. I added in a Home Equity Line of Credit (HELOC) in order to avoid the dreaded private mortgage insurance.  I had a good rate and a low payment.  I thought, for sure, the value of my home would increase and I would easily refinance into a fixed rate mortgage when the time came . I figured I would keep the Home Equity Line of Credit open “just in case”.

Over time, the value of my house did, in fact, increase.  However, when it came time to refinance or face an adjustment in my interest rate because of the Adjustable Rate Mortgage,  the company that had the Equity Line of Credit wanted me to jump through all kinds of hoops.  Meanwhile the primary mortgage company wasn’t going to complete my refinancing without the resubordination agreement.

Luckily, I was able to combine the two into one and close out the Home Equity Line of Credit completely.  Boy, was I irritated.  I almost lost the window of opportnity I had to capture a low, fixed rate all because of the Equity Line.

Thanks to Rob Mercer of First Home Mortgage for providing the backgournd for this blog post.

In my travels through the blogosphere, I came across a very interesting post about how one woman was able to put a halt to the foreclosure proceeding against her. It has beauty and elegance in its simplicity.

I, personally, advocate doing anything you can to stay current with your mortgage payments. I think that keeping your payments up is probably the easiest way to keep your house and keep your credit intact. Foreclosure should never be the first option. However, when push come to shove, this post on Sellsius, entitled How to Stop Your Foreclosure: Ask for the Note, is interesting reading.

Consult an attorney before you try this route.

In this video by Jonathan Jarvis, entitled The Crisis of Credit, Visualized, there is a clear, consice and easy to understand primer of how we got to where we are today.  It’s a little over eleven minutes long.  It’s well worth the time!

The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.

I just had a chance to look at the speech President Obama made in Arizona outlining his plan to help stem the tide of foreclosures and stabilize home prices.  It sounds good.  I hope it works.

Remember Private Mortgage Insurance (PMI)?

It was insurance required by mortgage lenders on conventional loans when the borrower had a loan-to-value (LTV) greater than 80%. PMI was established to help borrowers with little cash buy or refinance houses. Then along came 2nd mortgages and home equity lines of credit. With these loans borrowers could borrow up to a combined loan-to-value (CLTV) of 100%.

Terms such as:

• 80/10/10 (80% 1st Trust, 10% Second Trust, 10% cash),
• 80/15/5 (80% 1st Trust, 15% 2nd Trust, 5% cash) and
• 80/20 (80% 1st Trust, 20% 2nd Trust) became common.

PMI became an afterthought.

It was thought during the boom years of secondary financing that PMI cost to much and the companies that issued PMI were making to much money for to little risk. Now PMI companies are losing billions of dollars and 2nd mortgages and home equity lines are a thing of the past because of the perceived risk of the investors that used to buy these loans.

Recently one private mortgage insurance company aptly named PMI announced that it would no longer insure loans originated by third parties (brokers).  If one mortgage insurance company has done it, expect the rest to follow. According to the announcement these changes become effective February 20, 2009. PMI, the company, also announced other changes effective February 20, 2009. See PMI Eligibility and Guideline Changes.

What does this mean for home buyers and homeowners wanting to get a loan with less than 20% equity in the property?  Be sure you are working with a lender that is not brokering your loan.

Another guest post by one of the area’s premier mortgage professionals - Alan Gross of National City Mortgage

Another guest post by one of the area’s premier mortgage professionals — Alan Gross (no relation to Bill Gross) of National City Mortgage.

The questions I get asked the most concerns where interest rates are today and what direction are they headed. It been a tough couple of months to provide answers to these questions. Back in November the Federal Reserve (FED) announced that it would be buying Mortgage-Backed Securities (MBS). The effect was to move mortgage interest rates down. Rates moved on a downward path through early January, when despite the efforts of the FED they began to move up again. Despite predictions of lower rates this trend has continued into February. As of today the FED has purchased about $91 billion of the $500 billion allocated to buy MBS’s.

So where are we headed? Some experts expect interest rates to move back down. William (Bill) Gross is a co-founder of The Pacific Investment Management Company, LLC (PIMCO), one of the worlds largest bond funds. PIMCO is one of the companies contracted to assist the FED’s purchase of MBS’s.

Bill Gross appeared today Monday February 9th on CNBC’s Squawk Box. When asked about mortgage interest rates he said he felt they were going to head down again.

Let’s all hope Bill is right. Getting the housing industry moving in a positive direction is one of the first steps needed in turning the economy around.  It’s going to be a very interesting couple of weeks. As the old saying goes “Hold on to your hats.”

See the full interview with Bill Gross here.