For its last move in an action-filled year, the Federal Reserve announced it will begin buying its pledged $500 billion in mortgage-backed securities next month.

For home buyers, the timing couldn't be better.

Because December 31 is one of Wall Street's most thinly-traded days of the year, low volume is exaggerating the announcement's impact on mortgage markets.

Mortgage rates are lower this morning.

However, you may not have much time to act.  Few mortgage lenders permit after-hours rate locking and bond markets close at 2:00 PM ET for the holiday.  If you miss today's Fed-fueled low rates, markets re-open Friday for your second chance.

Mortgage markets are like any other market -- in order for goods to change hands, a buyer and a seller must first reach an agreement to "trade" at a specific price point. 

In general, the more buyers and sellers there are for a particular item, the easier it is to find that "fair value" and make the deal. 

An abundant number of buyers and sellers often creates a liquid market in which assets -- in this case, mortgage bonds -- can be sold rapidly with minimal loss.

This week, though -- with so many traders on vacation -- the "liquid market" has gone illiquid.  The treasury market posted just 41 percent of its normal, daily volume Monday, leading to erratic pricing in the mortgage bond market which, in turn, caused mortgage rates to follow.

For example, mortgage rates started the day lower yesterday before sprinting higher over a 30-minute, early-afternoon span.  Markets were largely unprovoked by economic data, geopolitical developments, or technical factors.  It just, kind of, "happened" and the move left mortgage rate shoppers in the dust.

That could happen a lot this week.  So, if you're in the market for a mortgage, be ready to lock quickly.  With low liquidity, rates rarely sit still for long.

(Image courtesy: Purdue BCM)

It's well-known, but worth repeating.

Grease should never be poured down a kitchen drain.  The moment that liquid fat touches cold water or cold pipes, it can harden and block pipes.

Traditionally, disposing of grease required:

1. Pouring the grease into a glass jar
2. Placing the jar in the refrigerator
3. Throwing out the jar once the grease had hardened

However, a new, biodegradable product called Absorb-Ease lets you go from Grill to Garbage in one easy step -- with no spilled grease and no collecting of glass jars.

Just put an FDA-approved Absorb-Ease pad in a hot, greasy skillet and watch it absorb liquid like a paper towel absorbs a spill.  The analogy is fitting, in fact, because Absorb-Ease is made from food-grade, fibrous tree pulp -- much like paper towel. 

Grease-soaked Absorb-Ease pads can be thrown out with the rest of the garbage and can be bought online in packs of 64.  They cost roughly $0.27 each.

Hello again, and Happy New Year!

Here is the end of 2008, or start of the year 2009 real estate market report for Orange County, in Southern California, as compiled by the president of my real estate firm.  In it he gives a synopsis of what we have experienced for the past few years, as well as a statistically backed prognosis for the next year.

Here is the link: http://www.ouragentspot.com/sthomas/MarketTime-Dec-26-08.pdf 

Frankly, things are looking good for the beginning of a recovery for our fair county, and for the next couple of years.  For a detailed conversation, please drop me an email, agent.BobPhillips@cox.net  or give me a jingle, at (949) 643-2100

Thanks for you time - have a Happy - and Safe - New Year's celebration, and a prosperous new year!

Bob Phillips

With home prices falling across most parts of the country, investors in real estate are finding good value in certain rental properties.  Unfortunately, they're also finding it harder to get approved for a home loan.

After getting stung by defaults, conforming mortgage standards for non-owner occupied home loans tightened dramatically last quarter.

One major change was the reduction in the total number of homes Fannie Mae or Freddie Mac will finance for any one borrower. 

Prior to the change, the number of financed properties could be as high as 10.  Today, that number is 4, stinging investors with large real estate portfolios.  Going forward, buying properties isn't the problem; financing them with conforming mortgage money is. 

Another guideline change mandates larger downpayments.

Versus early-2008, when a real estate investor could buy a home with 10 percent down, today's investor is required to pay 15.  But, as an added wrinkle, few private mortgage insurers write policies against rental homes anymore, rendering the 15 percent downpayment insufficient.  The de facto requirement, therefore, is now 20 percent down.

And then came the fees.

As part of its "pay-for-risk" pricing model, Fannie Mae added mandatory fees to all of its investor property mortgages this year.  Based on loan-to-value, the fees are:

• 75% LTV or less: 1.750 percent of the borrowed amount
• 75.01 - 80.00% LTV : 3.000 percent of the borrowed amount
• Greater than 80% LTV : 3.750 percent of the borrowed amount

So, if your personal plan includes the purchase of investment properties in 2009, consider the impact that tighter conforming guidelines, larger downpayments and higher fees will have on your bottom line.

All things considered, now may be a good time to make that rental property bid.  Sure, prices may fall going forward, but increased acquisition costs may wipe out the long-term gains.

For the first time in over a year, the sales of "used homes" fell below the 5-million unit trendline, helping to push the total home inventory higher by 0.1 percent nationwide.

Based on the rate at which homes are selling nationwide, it would take 11.2 months for the existing housing supply to be exhausted.

For home buyers, this is an opportune time for negative news on housing. 

First, sellers know that between now and the Super Bowl, housing activity will be light.  The general scarcity of buyers may force a seller to accept a bid he wouldn't have accepted otherwise.

Second, the economy is showing weakness and that, too, can concern a home seller.  Buyers are less likely to extend themselves during times of economic uncertainty, further reducing the buyer pool and, again, putting pressure on the seller to "make a deal".

And lastly, because the government has been trying to force mortgage rates down as a way to stimulate the economy, the weak housing data is actually making it cheaper to finance a home.  This means that a well-qualified home buyer can better stay within budget.

Each 0.500 percent rate reduction saves $33 per $100,000 borrowed.

It is important to remember, though,  that the U.S. housing market is not national -- it's highly localized.  This is one reason why national real estate reports can be misleading.  Just as figures from Phoenix have little to do with statistics from St. Paul, even data from neighboring ZIP codes can vary.

The universal truth, however, is that a home that is priced fairly will sell more quickly than a home that is not.  And, until the Super Bowl passes in 45 days, expect fewer buyers to be out there competing for them.

(Image courtesy: The Wall Street Journal Online)

In late-November, the Federal Reserve pledged $600 billion to buy mortgage-backed securities.  The announcement drove down mortgage rates and started the Refi Boom.

Then, the Federal Reserve made a second series of statements after its scheduled meeting last Tuesday, causing mortgage rates to plunge again.  This started the Refi Boom's second wave.

Because of the surge in refinance activity, mortgage lenders are "backed up"; initial file reviews are taking up to 12 business days in some cases. 

Typically, this process takes 2 days.

Underwriting delays are problem for refinancing Americans because when a mortgage rate is locked, it's most often locked for 30 calendar days -- the standard Rate Lock Agreement contract length.  If the mortgage doesn't close within those 30 days, the applicant must either pay an "extension fee" to preserve the lock, or risk losing the rate altogether.

30 days may seem like a long time, but let's consider a few external variables:

• December 24, 25, and 26 plus January 1 and 2 are lost to holiday
• December 27, 28 plus January 3, 4, 10, 11, 17, and 18 are lost to weekends
• January 19 is lost to federal holiday
• 3 days are lost to the Right To Cancel clause

This leaves 13 days to get from Application to Closing, and of those 13 days, 12 of them are being spent on the initial review.  30-day rate locks, therefore, may be inadequate with some mortgage lenders.  A 45-day agreement may be required instead.

Typically, 45-day rate locks carry higher rates or higher fees, versus their 30-day counterparts.  This amounts to a "tax" on borrowers, a result of the nation's rush to refinance en masse.  It also may preclude a homebuyer's ability to close in 30 days.

As always, the best way to preserve a rate lock is to be as responsive as possible to the process.  Return paperwork when asked, schedule appraisals immediately, and arrange to signing closing paperwork on the first available day.

With mortgage rates low, application volume -- and underwriting turntimes -- should remain high into early-2009.

During the holiday season, retailers bombard shoppers with at-the-register offers to "open a charge card and save 15%". 

It's an immediate money-saver, but for Americans in the market for a new home loan, taking advantage of the in-store savings could be a long-term loser.

This is because new credit card applications are damaging to credit scores.  According to myFICO.com, "new credit" accounts for 10 percent of a credit score; recent applications may signal weakness in a borrower's profile.

Meanwhile, conforming mortgage lenders make rate adjustments for low credit scoring applicants.  As an example, a home buyer with a 20 downpayment and a 715 credit score would face an interest rate adjustment of 0.125%. 

Below 700, the adjustments are even worse.

It's okay to take advantage of the in-store savings during the holiday season, but just be aware of how it may impact your credit score going forward.  If you're not applying for a new home loan in the next six months, chances are that you'll be alright. 

But, if you will need a new home loan, consider whether saving 15 percent on a $200 purchase is worth it if the long-term cost is paying an extra 0.125 percent on your new mortgage.

(Image courtesy: myFICO.com)

When it comes to mortgage rates, sometimes it's better to "act now".

On Tuesday, mortgage rates fell to their lowest levels in 4 years. It happened because the Fed said it would "employ all available tools" to resuscitate the economy.

On Wednesday, however, the markets had second thoughts.

After considering the long-term implications of a near-zero percent Fed Funds Rate and the cumulative cost of government intervention to-date, suddenly, traders grew fearful that U.S. government action would devalue the dollar and lead to inflation -- the enemy of low mortgage rates.

As a result, mortgage markets unwound.

At first, the exit was a slow and orderly. Then, without warning, investors began a full-on sprint for the exits. By the end of the day, mortgage rates were higher by as much as a half-percent. Nearly all of Tuesday's big gains were erased.

In hindsight, the reversal Wednesday wasn't all that surprising -- it's the same trading pattern we've seen twice already this year. The first time was after the Fed's "surprise" rate cut in January, and the second time was after the federal takeover of Fannie Mae and Freddie Mac in September.

Sharp rate drops tend to be followed by immediate bounce-backs, it seems.

But, unfortunately, not every would-be refinancing homeowner saw the increase coming. While those that locked at the first opportunity to save money are sitting pretty today, the rest that "waited for rates to go lower" are likely kicking themselves about it.

Going forward, mortgage rates may fall, or they may not. We can't possibly know. But we've now seen the pattern 3 times now -- when mortgage rates plunge like they did Tuesday, they rarely stay that low for long. When you find a rate you like, get in and get locked as soon as possible.

Sleeping on it for even one night may end up costing you dearly.

(Image courtesy: The New York Times)

The Federal Open Market Committee adjourns from its 2-day meeting at 2:15 P.M. ET today. 

It's widely expected that the Ben Bernanke-led FOMC will reduce the Fed Funds Rate by a half-percent to 0.500 percent.

Fed Funds Rate cuts are meant to stimulate the economy by lowering borrowing costs for businesses and consumers; interest rates on business credit lines and consumer credit cards are directly tied to the benchmark rate.

However, it won't be what the Fed does today that will be as important as what the Fed says.  And the markets are listening closely. 

See, this FOMC meeting was originally scheduled to last 1 day but on November 20, it was extended to 2.  Presumably, the extra day was meant to give the FOMC a chance to review its options, but now it has the markets expecting "something big".

Wall Street wants Bernanke to outline credit-extenstion plan for banks, businesses and consumers.  It wants the Fed to bolster markets to prevent the recession from become a depression.  It wants action.  Anything short of an explicit plan should push traders into ultra-safe U.S. Treasury bonds and that should lead mortgage rates higher.

If you are floating a mortgage rate today, it may make sense to lock prior to the Federal Open Market Committee's press release.  Expect volatility beginning around 2:00 P.M. ET today. 

(Image courtesy: The Wall Street Journal)

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Hello again, and Happy Holidays! 

Steven Thomas, the president of my company, having earned his degree in Quantitative Economics and Decision Sciences, is well qualified to issue opinions on our local real estate market.  His reports have been cited in most local newspapers ( The Orange County Register and the Los Angeles Times, to name a couple.) on a regular basis for well over a year.

With those facts in mind I offer his latest report - emailed to me last night.

http://www.OurAgentSpot.com/sthomas/MarketTime-Dec-11-08.pdf 

Here is a synopsis of his report.   The number of available listings is down substantially – more than 30% - from a year ago.  The number of properties currently in escrow is up substantially – more than 134%! - from a year ago.  Interest rates have fallen - this past couple of weeks - to their lowest level of this past year.

After reading the complete report, here is an easy conclusion to come to.  This next few months may be an ideal time to purchase a home in Orange County.  Actually, I stated pretty much the same factors - minus the comprehensive facts and statistics - in my Nov. 20th blog post, titled: "This may be the best time of the year to buy local real estate." Of course I have been reading his reports for over a year now, plus watching the activity in our area, so I'm reasonably up to speed. 

If you are even remotely thinking of buying a house over the next year, I humbly suggest ( with over 32 years of local experience.)  that this next couple of months will be a great time to get serious.   Why not drop me an email ( agent.BobPhillips@cox.net ) or give me a call (949) 643-2100, and let's discuss the possibilities?  Bob Phillips,  Altera Real Estate, in South Orange County, California.

Lock manufacturer Kwikset recently introduced its SmartCode series, a keyless entry system to replace existing door hardware.

As an alternative to keyed-entry systems, the SmartCode series allows you to create two personalized access codes -- one for you, and one for a guest, contractor, or anyone else in need of temporary entry to your home. 

Locks can be rekeyed at any time for new guests.

A popular feature of the SmartCode series is its motorized, 1-inch deadbolt.  The deadbolt opens upon unlocking, eliminating the need to "turn a handle" to open -- just push the door.

The SmartCode operates on 4 AA batteries and can be purchased from Amazon.com for $86.27 plus free shipping.

A mortgage is a contract between a lender and borrower, defining the terms by which a home loan must be repaid. 

The paperwork, signed by both parties, includes provisions for things like:

• The interest rate
• The length of the loan
• The amount of money to be borrowed

But, like all loans, a mortgage loan can be paid off at any time.  So, when market interest rates fall, homeowners will often exercise their right to an "early payoff" by securing a new loan that pays off the old one.

This process is most commonly known as a refinance.

A refinance is the changing of the loan terms against a property, often for a better interest rate or a lower monthly payment.  When the refinance process is complete, the original lender's loan is paid in full using the money from the new lender's loan and the former's relationship is officially terminated.

There's no rule against how many times a person can refinance, nor is there an easy way to determine whether or not a refinance makes sense.  In general, if you can reduce your monthly payment while limiting your closing costs, to refinance is a smart decision. 

However, there are other reasons to refinance, too, including:

1. To convert from an ARM into a fixed rate mortgage (or vice versa)
2. To extract equity for paying off third-party debts or for cash
3. To extend a loan from 15 years to 30 year for payment relief

Because there are fewer third-parties involved with a refinance, it's often simpler and less expensive than a comparable purchase transaction.  The paperwork stack is often smaller, too.

For most Americans, mortgage interest paid on a home loan is tax-deductible in the year in which it was paid. 

With advance planning, therefore, homeowners can increase their 2008 tax deductions and limit their tax liability on April 15.

The key is to make the January 2009 mortgage payment before the New Year begins.

In making the payment in 2008, the payment's mortgage interest is applied against this year's tax deductions instead of next year's.  And lest you think you're paying "in advance", remember that mortgage interest is paid in arrears; a payment due January 1 accounts for interest that accumulated in December 2008 anyway. 

Tax planning is a complicated issue and not all homeowners will qualify for mortgage interest tax deductions. Check with your tax professional before making tax planning decisions.

Earlier this year and under pressure from the government, mortgage lenders made more than 200,000 loan modifications to delinquent homeowners.

The modifications came in one of three forms, or a combination:

1. Interest rate reduction
2. Loan term extension
3. Principal forgiveness

But despite the modifications, as of October 1, more than half of the homeowners that received assistance were already two months behind on their modified monthly payments. 

This late-pay statistic was a focal point on Capitol Hill yesterday as the government admitted delinquencies "were larger than [they] thought they'd be".  Loan modifications are proving inadequate at slowing foreclosures and yesterday's session opened the door to more effective foreclosure prevention measures.

However, of all of the statistics published, there was one of particular interest.   

Based on its loan modifications to-date, the FDIC has found that modified borrowers default far less when new monthly payments are less than 38 percent of monthly household income.  This is important because Freddie Mac guidelines for ordinary mortgage applicants currently cap that rate at 45 percent.

If the 38 percent figure holds up long-term, it may lead mortgage lenders to permenantly reduce maximum debt-to-income allowances.  Already, mortgage insurers have taken this step so it's not out of the question for lenders.  Tighter guidelines mean fewer mortgage approvals.

If you're unsure of whether now is a good time to buy a home, consider that mortgage rates are low, mortgage guidelines are tightening, and foreclosure prevention efforts reduce the supply of available homes.

Prices may not have bottomed, but the market is giving everyone a lot of reasons to consider buying now.

(Image courtesy: The Wall Street Journal)

According to the government, American businesses are cutting staff at an accelerated pace, most recently paring 533,000 jobs this past November.

It's the largest one-month decline since December 1974 and raises the year-to-date job losses to 1.9 million workers.

However, there is a silver lining in the data for all Americans -- both employed and unemployed. 

With each piece of negative news about the economy, Washington is more likely to pass new stimulus packages to the benefit of household budgets.

On one front, Federal Reserve Chairman Ben Bernanke has already alluded to further Fed Funds Rate cuts at the Fed's two-day meeting starting December 15.  Because the Fed Funds Rate is directly tied to Prime Rate, any cut in the benchmark lending rate would lead "floating" interest rates lower on home equity credit lines and other revolving debt.

And this talk from the Fed also comes on the heels of its $500 billion pledge to buy mortgage-backed bonds.  That demand-shifting move was announced last week and drove mortgage rates lower.  It also marked the official start of the refinancing boom.

And, lastly, Capitol Hill is already responding to the jobs data with calls for "urgent" action.  It's a vague term, to be sure, but history has shown that Congress could pass any number of measures, each meant to put more money into household budgets nationwide. 

The U.S. is in a verified recession and Washington is throwing the kitchen sink at it.

The end result is that today's job data is a non-event of sorts for active home buyers.  Mortgage markets expected a poor reading and they got it.  Normally, data like this would cause mortgage rates to spike but this is not a normal market.

Now, with markets expecting additional stimulus, mortgage rates are edging lower today with hopes of an economic rebound.

Source
Employers cut 533,000 jobs in Nov., most since 1974
Barbara Hagenbaugh
December 5, 2008, USA Today

Business television is abuzz this morning with talk of "four-point-five percent mortgage rates".  The news stems from a leaked story that the U.S. Treasury will intervene in the mortgage market, lowering rates a full percentage point below their current levels.

As cited by every journalist in every publication, however, the story is 100% speculation.  Naturally, that doesn't stop the press from covering it.  When hope for homeowners gets spread in this manner, it's important to remember some facts:

1. The Treasury doesn't set mortgage rates -- Wall Street traders do.  Historically, rates are based on the Supply and Demand for mortgage-backed bonds.
2. Treasury intervention doesn't guarantee low rates.  That mortgage rates are up by a half-percent since last week proves it.
3. Zero details about the plan have been confirmed, quoting CNBC.  Everything you've heard about 4.5 percent rates is a guess at this point.

But, perhaps most importantly, nearly every analyst interviewed has expressed a belief that a Treasury-sponsored stimulus would apply to home buyers only.  Homeowners wanting a refinance, in other words, would be ineligible.

Mortgage rates are very low today compared to where they've been in 2006, 2007 and 2008.  If you think your mortgage rate is too high for this market, reach out to your loan officer to review all of your options.  If rates really do reach 4.500 percent, you can always refinance again later.

For the 78th consecutive day, gas prices fell nationwide yesterday.  At $1.81 per gallon, the average price at the pump is less than half what it was at its peak in July.

And although gas prices vary by locale, the cost of a fill-up is worthy of national news.

The main reason why national gas prices matter is because of something called the Wealth Effect -- people's tendency to spend more money when they have a perceived feeling of being worth more.

Low gas prices can amplify the Wealth Effect, leading to higher levels of consumer spending nationwide -- the primary driver of the U.S. economy.

But more important than the Wealth Effect is the reverse Wealth Effect.  That's when consumers have a perceived feeling of being worth less and their spending reflects it.  This past summer is a terrific example of it. 

Soaring gas prices, Wall Street troubles, and negative campaigning constantly reminded Americans of what was wrong with the economy.  It follows, therefore, that retail sales figures plunged in September and October.  Once the election passed, however, and gas prices fell, a gentle optimism returned.

Not surprisingly, consumer confidence rose in November.

All of this matters to real estate because as Americans regain their confidence and feel more "wealthy", they will be more likely to make "move up" purchase, buy new home appliances, and take other actions that propel the economy forward. 

Oh, and mortgage rates trolling at 3-year lows certainly helps, too.

(Image courtesy: GasBuddy.com)

Each Wednesday, the Mortgage Bankers Association releases its Weekly Applications Survey, a detailed look at new mortgage applications submitted over the previous 7 days.

This week's report will reveal what most of us already know -- plunging mortgage rates created a flood of mortgage activity.

If you're among the many Americans taking advantage of today's low rates, don't forget that when your rate was "locked", it was locked with an expiration date.  

Most likely, that rate lock is for 30 days. 

And, while 30 days may seem like a long time, it's not.  Especially because rate locks made prior to Thanksgiving lose a combined 14 days to weekends and holidays, plus another 4 days to the Right To Cancel clause.

A 30-day rate lock, therefore, yields just 12 "working" days in which to underwrite and approve the mortgage and that's not a lot of time at all.

Making matters more difficult, many lenders are ill-equipped for boom.

Not only has staff been pared down in expectation of a slowing economy, but December a prime vacationing month, too.  Lenders are short-staffed at a very inopportune time.

So, for active refinancing homeowners, the best way to preserve a 30-day rate lock is to be as responsive as possible to the process:

• If paystubs are requested, return them on the same day
• If a home appraisal is needed, schedule the appraisal immediately
• If a closing date is scheduled, don't postpone it by a day

As mortgage rates hang near 3-year lows, the number of refinancing homeowners nationwide will grow, further taxing lenders and their staff.  If you already have a loan in process, be pro-active about it to prevent your 30-day rate lock from expiring.

Hello again. 

The president of my company, having earned his degree in Quantitative Economics and Decision Sciences, is well qualified to issue opinions on our local real estate market.  His reports have been cited in most local newspapers ( The Orange County Register and the Los Angeles Times, to name a couple.) on a regular basis for well over a year.  With those facts in mind, I offer his latest report - just emailed to me.

http://www.OurAgentSpot.com/sthomas/MarketTime-Nov-26-08.pdf

Here is a synopsis of his report.   The number of available listings is down substantially from a year ago, and two years ago.  The number of properties currently in escrow is up substantially from a year ago, and two years ago.  Interest rates fell - this week - to their lowest level of this past year.

After reading the complete report, here is an easy conclusion to come to.  This next few months may be an ideal time to purchase a home in Orange County.  Actually, I stated pretty much the same factors - minus the comprehensive facts and statistics - in my Nov. 20th post, titled: "This may be the best time of the year to buy local real estate." Of course I have been reading his reports for over a year now, plus watching the activity in our area, so I'm reasonably up to speed. 

If you are even remotely thinking of buying a house over the next year, I humbly suggest ( with over 32 years of local experience.)  that this next couple of months will be a great time to get serious.   Why not drop me an email ( agent.BobPhillips@cox.net ) or give me a call (949) 643-2100, and let's discuss the possibilities?