Fed's interest-rate cuts will benefit ARM, HELOC borrowers

Effect on long-term rates remains to be seen
By: Matt Carter: Inman News
The unscheduled and dramatic cut in short-term interest rates announced today by the Federal Reserve will provide immediate relief for borrowers with home-equity loans or facing interest-rate resets, mortgage market experts say.

But long-term rates - which were at 2 1/2-year lows before today's 75-basis-point reduction in the discount rate and the target for the federal funds overnight rate - could move in the other direction if bond market investors get nervous about inflation.

For now, the Fed seems to have decided that the threat of a recession far outweighs the risk of inflation, making in a single day cuts in short-term rates some observers had expected would be stretched out over months.

"Just a few weeks ago, the consensus was that the Fed would cut no more than 75 basis points, and 3.25 percent would be trough," said Freddie Mac's chief economist Frank Nothaft. "We're there already. So are we at the low point? It's really hard to say."

Nothaft said the Federal Reserve's Open Market Committee could cut rates again when it holds its scheduled meeting Jan. 29-30. Or its members may want to wait and see how to today's dramatic move affects economic indicators.

The rate cuts are "certainly good news for people who have mortgages, or are shopping for a mortgage," Nothaft said. For those with adjustable-rate mortgages (ARMs) indexed to the prime rate or home-equity lines of credit (HELOC) loans, "this shows up right away in terms of lower interest rates," as banks follow suit and lower the prime rate to 6.5 percent. For ARM borrowers facing interest-rate resets, Nothaft said, that translates into a smaller increase in payments, and "maybe even a decline."

According to Freddie Mac's most recent weekly survey of mortgage rates (see Inman News story), the 5.69 percent rate on a 30-year fixed-rate loan was the best in 2 1/2 years. While it remains to be seen what effect the cut in short-term rates will have in the long run, rates on 10-year Treasurys fell today as stocks bounced back from earlier losses, Nothaft said.

Although rates on 10-year Treasurys are not linked directly to mortgage rates, they tend to move in the same direction, as they play a similar role in investor's portfolios.

"It helps more than it hurts," said Doug Duncan, the chief economist for the Mortgage Bankers Association. "It's probably not going to bring long rates down much further, but it certainly brings short rates down, and has some positives for the whole economy and housing."

Duncan said what happens with long-term rates depends largely on whether market participants think the Fed has gone far enough with short-term cuts.

If today's cuts are seen as adequate, "that increases expectations of future economic growth, and may establish a sort of bottom where the 10-year Treasury yield is going to go," Duncan said. "I don't expect the 10-year Treasury yield to go much (lower), unless there were a whole bunch more difficult financial announcements made in the next couple of months."

What the rate cuts probably won't do is restore investor confidence in the secondary market for mortgage loans not guaranteed by Freddie Mac and Fannie Mae. That means borrowers seeking subprime and so-called jumbo loans will continue to pay much higher rates than offered during the housing boom.

Although the secondary market for loans within the $417,000 conforming loan limit "is working just fine," Nothaft said, rates on jumbo loans are about a full percentage point higher than those for conforming loans.

The National Association of Realtors and some Democrats in Congress are pushing for a 50 percent increase in the conforming loan limit to allow Fannie and Freddie to buy or guarantee loans that are now considered "jumbo."

The Bush administration wants stricter oversight of Fannie and Freddie in place before it will go along with an increase in the conforming loan limit, saying the bigger loans may involve more risk, and reduce the number of smaller loans the government-sponsored enterprises can back.
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What the Fed Cut Means For Your Mortgage

Learn what the Federal Reserve's rate cut means to your mortgage and your home’s financial future.
CNBC
On days like this, I think it’s important to go back to the ol’ mortgage primer and figure out exactly what all this news means to you, to your mortgage, to your home equity line and to your home’s financial future. I’ve said it before, and I’ll say it again: the 30-year fixed is not tied to short-term treasuries.

Fixed mortgage rates are tied to long-term bond yields that move based on the outlook for the economy and inflation. And guess what? The long-term outlook for the economy isn’t exactly rosy right now.

Today’s rate cut does affect short-term adjustable rate mortgages, but not really as much as you might think. Why? Because this rate cut was already priced into the market, maybe not three quarter's point, but definitely a half-point. So if you are facing a reset on your ARM, you’re in much better shape today than you were just six months ago.

For example, if your rate adjusts Feb. 1st, and your ARM is pegged to the 1-year treasury, than your reset is going to be to 5.25 percent as opposed to the 7.5 percent that it would have been in August. That’s going to make the payment much more manageable.

So does this cut stem the foreclosure crisis? Maybe a bit on the margins, but not really, and here’s why: the bulk of the folks facing foreclosure because they can't make their monthly payments have no equity in their homes and no money to put down on a refinance.

While rates might be lower, this is a market where lenders and investors are much more aware of risk and will gravitate toward borrowers that represent less risk. So many folks will still find themselves in trouble. For people who are having trouble paying the initial rate on the loan, forget it. No help there.

As for those looking to buy a home, that is, get a new mortgage, while ARM rates may be lower, the mortgage landscape is still a far far different tundra than it was just a year ago. You can’t do a stated income loan anymore, and you can’t do 100 percent financing. Tighter standards don’t change with a rate cut.

And I want to add my two cents here about a home equity line of credit. Yes, the rates are lower now, but I really don’t think that means we should all start using our homes as ATM’s again, which is what got us all in trouble in the first place. This is a time to pay off debt, not to gather more. The housing market is still in trouble.

The statement from the Federal Reserve this morning: “incoming information indicates a deepening of the housing contraction as well as some softening in labor markets.” We all know the price correction in housing is still underway with home prices across the nation (yes, I know, some markets worse than others) expected to fall further, so this is no time to put your home in more hoc. Just my two cents, which I’m putting in the bank as we speak.
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Mortgage Markets Get a Hand from BoFA

The giants are taking hold of the mortgage industry. Bank of America's purchase of Countrywide is a vote of confidence in the revival of the housing industry.
By: James R. Hagerty: The Wall Street Journal Online
The giants are taking control of the home-mortgage market.

Friday's agreement for Bank of America Corp. to buy Countrywide Financial Corp. for $4 billion shows how size and financial solidity are trumping everything else in mortgage lending. With the heft to withstand rising defaults and falling home prices, these big companies are helping prevent a total shutdown of mortgage lending.

"Bank of America stepping in right now is a very good thing for the market" because it signals confidence in an eventual revival of the housing and mortgage markets from what appears to be the worst slump since the Great Depression, said Susan M. Wachter, a finance and real-estate professor at the University of Pennsylvania's Wharton School.

There is a price to pay: Their greater role means less competition and higher costs for consumers, at least in the short run.

But giant banks like Bank of America have the ability to finance their lending relatively cheaply through deposits and to keep on their books loans that are hard to sell to investors. That insulates them from the market fears that, in the past year, have knocked thousands of small and midsized lenders and brokers out of business because they could no longer find takers for loans they generate or borrow money at reasonable rates.

Those fears may drive other big mortgage lenders into deals. Washington Mutual Inc., which had 5.9% of the mortgage market in the first nine months of 2007, has been struggling with heavy loan losses and is considered a potential takeover candidate, as is IndyMac Bancorp Inc., whose share was 3.3%. Both Washington Mutual and IndyMac operate thrifts and are heavily focused on home mortgages.

One potential buyer for Washington Mutual is J.P. Morgan Chase & Co., which has expressed interest in expanding its retail-banking franchise in places like California and the Southeast. Executives at J.P. Morgan also have expressed interest in other regional banks.

The Bank of America purchase is "the first step on a new way of life" for the mortgage industry, said Paul J. Miller Jr., an analyst at Friedman, Billings, Ramsey & Co. To survive, major lenders will have to hold more capital and charge higher interest rates, in relation to their cost of funds, to compensate for the risks of home loans. Those risks have increased because house prices are falling, lowering the value of collateral, and it is no longer easy to sell loans other than those that match the criteria for sale to government-sponsored mortgage investors Freddie Mac and Fannie Mae.

Having a well-known name like Bank of America or J.P. Morgan Chase also is important in this period of turmoil because home buyers, and the real-estate agents who advise them, don't want to risk finding out at the closing table that their lender has just shut down. "Right now people are afraid, and they're looking for certainty," said Tom LaMalfa, a managing director of Wholesale Access, a mortgage-research firm in Columbia, Md. He said many are willing to pay a bit more in fees or interest rate to get a loan from a lender they view as solid.

The shakeout follows an unprecedented boom. During the first half of the decade, when falling interest rates encouraged millions of Americans to refinance, big lenders couldn't keep up with demand. That left plenty of room for small lenders and mortgage brokers, which originate loans for sale to bigger lenders.

Now, defaults are forcing lenders to tighten their standards, and mortgage volume has been plunging, along with home sales. The Mortgage Bankers Association has projected home mortgage originations of about $1.86 trillion this year, down from a peak of $3.95 trillion in 2003.

With much less business, big lenders are much less inclined to accept loans generated by brokers, especially as those loans in the past often have been more prone to default. The number of mortgage-brokerage firms - mostly tiny operations with a handful of employees - has dropped to 40,000 from 53,000 a year ago, estimates Mr. LaMalfa of Wholesale Access. He thinks the number is likely to fall to 30,000 by the end of this year.

Mr. LaMalfa thinks brokers will remain a significant part of the mortgage business because they tend to have low costs, a willingness to work in the evenings or on weekends and an ability to reach borrowers in neighborhoods with few or no bank branches.

For now, lenders are being forced to concentrate on loans that either can be sold to Fannie or Freddie or those considered safe enough to retain as long-term investments.

For Bank of America, buying Countrywide will gain it a commanding position in mortgages. Bank of America and Countrywide had a combined market share of about 25% in the first nine months of 2007, according to Inside Mortgage Finance, a trade publication. That puts them far ahead of the No. 2 mortgage lender, Wells Fargo & Co., with a market share of about 11%. The other top contenders in terms of loan volume are Citigroup Inc. and J.P. Morgan Chase, which both had about 8% of the market in last year's first nine months.
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Housing Scams More Than Double

The FBI expects even more this year, particularly with foreclosure scams that prey on home owners desperate to save their homes.
By: Donna Leinwand: REALTOR® Magazine
According to the FBI, the agency took on 1,210 new cases of mortgage fraud during the last fiscal year — nearly three times the caseload for 2003.

The agency saw its conviction rate more than double to 260 in 2007, from 123 in fiscal 2006. Financial crimes section chief Sharon Ormsby predicts the number will likely rise even further this year.

That is, in part, because the FBI expects more foreclosure scams to emerge as an increasing number of home owners caught up in the subprime loan fiasco resort to desperate measures to try and save their homes.

Ormsby also says more new fraud cases may be tied to reverse mortgages, which allow senior home owners to borrow against their equity.
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Pending Sales Activity Expected to Rise Later this Year

Over the next few months, existing-home sales are expected to hold fairly steady as indicated by pending sales activity, then rise later in the year and continue to improve in 2009, according to the latest forecast by the National Association of Realtors®.
RISMEDIA
Lawrence Yun, NAR chief economist, said there is a pull and tug exerting itself on the market. “On the one hand, we have a pent-up demand from the four million jobs added to our economy over the past two years of sales decline,” he said. “On the other, consumers continue to wait for additional signs of market stabilization. There are more people with financial capacity now than in 2005, but many are trying to market-time their purchase. As a result, the exact timing and the strength of a home sales recovery is a bit uncertain. A meaningful recovery in existing-home sales could occur as early as this spring, or it may be further delayed toward late 2008.”

According to NAR, the Pending Home Sales Index, a forward-looking indicator based on contracts signed in November, fell 2.6% to a reading of 87.6 from a strong upward revision of 89.9 in October, but remains above the August and September readings and indicates a broad stabilization. The index was 19.2% below the November 2006 level of 108.4.

“Although there could be some minor slippage in the first quarter, existing-home sales should hold in a narrow range before trending up,” Yun said.

The PHSI in the South rose 2.3% in November to 100.7 but is 19.8% below a year ago. In the West, the index slipped 2.1% to 86.6 but is 18.5% lower than November 2006. The index in the Midwest fell 4.1% in November to 82.1 and is 18.6% below a year ago. In the Northeast, the index dropped 13.0% in November to 70.1 from a spike in October, and is 19.1% below November 2006.

Existing-home sales for 2007 will probably total 5.66 million, the fifth highest on record, then edge up to 5.70 million this year and 5.91 million in 2009, compared with 6.48 million in 2006. Existing-home prices for 2007 are likely to be down 1.9% to a median of $217,600, hold even this year and then rise 3.1% in 2009 to $224,400.

“Rising home prices in the affordable midsection of the country are likely to offset declines in some of the previously hot markets,” Yun said.

There are wide variations in housing market conditions around the country, with nearly two-thirds of the metropolitan areas showing price gains. Healthy increases in metro prices are occurring in places such as Pittsburgh; Beaumont-Port Arthur, Texas; San Jose, Calif.; and Bismarck, N.D.

“Our consumer survey shows buyers today are in it for the long-haul, planning to stay in their home for a median of 10 years. This is a wise approach to housing because the data shows the longer you own, the better your investment,” Yun said.

New-home sales are projected at 773,000 for 2007, and declining to 669,000 this year before rising to 730,000 in 2009, but well below the 1.05 million 2006. With an appropriate slowdown in production, housing starts, including multifamily units, are forecast at 1.36 million for 2007 and 1.09 million this year before edging up to 1.10 million in 2009; starts totaled 1.80 million in 2006. The median new-home price should drop 2.1% to $241,400 for 2007, and then rise 0.4% to $242,200 this year and gain another 5.9% in 2009.

“Some policy changes, such as raising the loan limit on conventional mortgages, would provide a significant boost to home sales, increase liquidity, strengthen home prices and lessen foreclosures, but it is unclear as to if and when the measure will be implemented,” Yun said. NAR strongly supports raising the Government-Sponsored Enterprise loan limit to at least $625,000 from the current $417,000 so that more consumers will have access to lower interest rates on safe conforming mortgages. “NAR estimates that raising the GSE loan limit will result in interest rates savings for an additional 330,000 homeowners,” he said.

NAR also encourages the Fed to make a single lump-sum cut in the Fed funds rate to 3.5% at the January Federal Open Market Committee meeting, rather than a series of modest cuts throughout the year. “Consumers are also looking to market-time interest rates, and the expectations of further rate cuts are pushing some home buyers to delay. Monetary policy will be much more effective with a one-time large cut, rather than a series of small cuts,” Yun added.

The 30-year fixed-rate mortgage is expected to rise slowly to the 6.3% range by the end of this year, but an additional cut in the Fed funds rate would lower short-term interest rates.

Growth in the U.S. gross domestic product (GDP) is seen at 2.1% in 2007, below the 2.9% growth rate in 2006; GDP growth will probably be 2.0% this year.

After averaging 4.6% for both 2006 and 2007, the unemployment rate is estimated to rise to 5.3% in the second half of 2008. Inflation, as measured by the Consumer Price Index, is projected at 2.9% for 2007 and 3.1% this year; it was 3.2% in 2006. Inflation-adjusted disposable personal income is forecast to grow 3.1% for 2007, the same as in 2006, and then grow 1.6% this year.
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Spotting Market Bottoms in 2008, Strategies for Home Sellers

In this week's survey of news from across the Web, Open House looks at why you may want to buy in 2008, smart strategies for home sellers and buyers, a plan to put seniors to work to pay off property taxes and a real-estate niche that's benefiting from foreclosures.
By: Lauren Baier Kim: RealEstateJournal.com
Here's a look at what's new in real-estate markets across the U.S. from around the Web.

Resolve to buy in 2008

Demand for U.S. residential real estate isn't dead, it's just stalled, writes Thomas Kostigen of Marketwatch. He notes that sales of luxury homes have been strong and that "with the value of the U.S. dollar low and real estate prices dropping, it isn't hard to imagine foreigners taking bigger positions in properties here as part of their overall portfolios." Prices and sale volumes are already down 25% in some areas of South Florida, and when overseas buyers see values dropping 50%, they are likely to buy, he says.

"At the first blush of renewed energy, the real estate market will bounce back," he says.

Real-estate strategies for the new year

Steve McLinden of Bankrate.com agrees that home values will "stabilize again," but it will be a rocky ride until they do - especially for home sellers, he says. He advises that they stay put and "ride this out," he suggests. For sellers whose circumstances demand that they sell in today's soft market, he offers several tips, including:

• Realize that your house is worth only "what someone is willing to pay" and price accordingly. Throw in incentives like a free flat-screen TV, or offer financial assistance like helping the buyer secure financing or covering closing costs.
• Spruce up your house - don't try to sell "as-is" unless you're willing to sell for a bargain-basement price.
• Look for a seasoned real-estate agent with a high percentage of sold homes.
• Know your local market well.
• Get your listing online.
• Try renting out your house instead of selling or offering a lease-to-own option to renters.

For buyers, he recommends not waiting to pounce on good deals, as the housing market may be "at or near bottom," and using the glut of homes on the market and sellers' anxiousness to sell to bargain more effectively. Make your purchase contract contingent on the home passing inspection, obtaining buyer financing, etc., he says. Do your research on the local market, noting asking and selling prices, and don't overlook "diamonds in the rough" - residences that aren't cosmetically attractive, but have good bones, he says. He also suggests factoring in a house's potential resale value before making a purchase.

Seniors sent to work to pay taxes

Greenburgh, N.Y., located in the state's Westchester County, is considering a program that will allow seniors to literally work off their property taxes, according to an Associated Press article published in the New York state government's Legislative Gazette. Through the program, the town would employ 25 seniors for $7 an hour in a variety of jobs, and allow them to work off about $500 a year from any outstanding property-tax debt.

The plan has its supporters, but the relief may not go far enough - Greenburgh has the third-highest property taxes in the U.S., the AP says. For instance, one senior interviewed in the article who has already taken out a reverse mortgage to help cover her expenses, says that she pays $12,000 in property taxes a year.

Similar programs are already in place in areas like Colorado, Massachusetts and South Carolina, the article says, with seniors in Boulder County, Colo., doing landscaping work and staffing the courthouse's information booth to help pay their bills.

New real-estate niche heats up

In the midst of the housing slump, one segment of residential real estate is hot - "real estate owned" homes, known as "REOs," says the Washington Post. These are foreclosed homes that banks failed to auction off at the courthouse.

Real-estate agents, title lawyers, cleaning specialists and information technology firms looking to profit from the surge in foreclosures are all getting into the field, the Post says. While some REO agents - who earn a commission for each home they sell - are having luck, the niche isn't for everyone. The Post notes that such agents have high operating costs, having to pay for homes' heating, electrical, cleaning and maintenance costs. For instance, one husband and wife team in Maryland who specialize in REOs typically pays $5,500 a month for homes' gas and electric bills, the Post says.


Ms. Kim is a senior editor at RealEstateJournal.com.
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Fed minutes: credit woes may force more rate cuts

Members of the Federal Reserve's interest rate setting committee worried last month that a credit crunch could sharply brake economic growth and require big interest rate cuts, minutes of the U.S. central bank's December meeting released on Wednesday show.
By: Mark Felsenthal: Reuters
"Some members noted the risk of an unfavorable feedback loop in which credit market conditions restrained economic growth further, leading to additional tightening of credit; such an adverse development could require a substantial further easing of policy," the minutes said.

At the same time, members of the Fed's rate-setting Federal Open Market Committee realized that financial market conditions might improve more rapidly than they expected, which would make it appropriate to raise borrowing costs, reversing earlier cuts.

The Fed cut rates by a quarter-percentage point to 4.25 percent at the meeting.

Risks to growth had risen since their last meeting in large part due to deteriorating credit markets, the Fed said.

Even so, the policy-makers weighed the lagged impact of cumulative interest rate cuts, and a strong labor market, which suggested the economy retained some forward momentum. Overnight, interbank borrowing costs stood at 5.25 percent when the Fed began trimming borrowing costs in September.

"Members also recognized that financial market conditions might improve more rapidly than members expected, in which case a reversal of some of the rate cuts might become appropriate," the minutes said.

(With additional reporting by David Lawder; Editing by Neil Stempleman)
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City Planning Gets Feminine Touch

What do women want? Urban planners are starting to take gender-specific needs into account when revising building codes, zoning rules, and growth plans.
By: Haya El Nasser: REALTOR® Magazine
Urban planners increasingly are taking gender into consideration when they revise building codes, zoning rules, and growth plans, considering that women account for more than 50 percent of the urban population nationwide. Additionally, women account for 60 percent of seniors living in urban locales; and many of them live alone.

The University of Pennsylvania recently held a forum where planners, health officials, researchers, and lawmakers to discuss gender-specific needs in growth planning.

For example, women who want to leave their homes to exercise sometimes find sidewalks that are in disrepair and high crime rates that pose a challenge. Many women also report difficulty in navigating stairs with groceries and, if they have small children, strollers.

In response, planners are considering sidewalk repairs, longer pedestrian crosswalk signals, and homes without stairs. Safe walking and biking trails, as well as enhanced security near public transportation, also have been deemed important.
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How Green Remodeling Pays Off

Find out six ways home owners can make their homes more green-friendly to lower utility bills and attract buyers.
By: Susan Thurston: REALTOR® Magazine
Green remodeling can pay off — not only in lowered utility bills, but also in buyer appeal when the property is sold.

Here are some green things to consider.

    • Site selection. Prefer infill development instead of a new subdivision in a
      far-flung new suburb that gobbles wetlands and displaces animals.
    • Energy-efficient products. Choose Energy Star appliances, double-paned
      windows, low-flush toilets, and compact fluorescent light bulbs.
    • Spray foam insulation. Seal the home with insulation that doesn’t let the heat
      or cooled air leak out.
    • Sustainable wood flooring. Select flooring certified by Forest Stewardship
      Council, which protects forests by managing the amount of wood harvested
      annually.
    • Locally made products. Buy products made less than 250 miles away to reduce
      transportation costs. Granite, for instance, is generally imported from afar.
    • Nontoxic paint. Use paint that is low in volatile organic compounds (VOCs) —
      chemicals that evaporate into the atmosphere. Look for Green Seal certified
      brands.

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Why Buying Now Can Be a Smart Move

Although much of the housing market is in a slump, this is still a good time for most to buy a home.
RISMEDIA
Even though many economists are predicting further drops in home values in most areas, today is still an excellent time for most of us to buy a home. The direction of area home values won’t make much difference to homeowners who will both buy and sell in the same area, and other important factors very much favor buying a home now.

Most move up buyers buy their next home in the same area. Whether overall home values in that area are going down, up, or holding their own, other homes in the area will be similarly impacted. Current local home values and any future changes in those home values, whether negative or positive, will therefore have the same effect on a home they might buy as they will have on their current home when they sell it. For that reason the direction of housing values in any given area is of small consequence relative to other factors for those homeowners, who should not let declining values get in the way of buying their next home.

If you are a prospective first time buyer in one of the few appreciating markets, buying sooner rather than later certainly makes sense. Similarly, if you live in an area where home values are falling and plan to relocate to another area where prices are rising, that is a good reason to buy and sell (or sell and buy) as soon as you can, before the gap widens further.

Holding off on a home purchase due to current market conditions may make sense in some cases only for a much smaller group - prospective first time buyers who live in an area where further home price declines are likely. The same is true for those living in the relatively few areas where homes are appreciating and who plan to relocate to other parts of the country where home prices are still falling. Unfortunately some homeowners now owe more money on their mortgage than their home is worth because of dropping home values. They may be unable to afford to sell at this time regardless of local market conditions unless they have sufficient savings to make up the difference.

There are several reasons that today is a particularly good time to buy a home for most of us. The selection is as great as it will ever be, mortgage rates are still relatively low by historical standards, and costs of any desired remodeling/upgrades are a lot less because of the downturn in new home construction and the resulting glut of building supplies.

With inventories of homes for sale at all time highs in many places, there’s a much greater chance that you’ll be able to find a home that’s ideally suited for your needs. That’s a very big plus because homeowners spend an average of nearly a decade in their home before they sell it. The shortage of inventory and high home prices that existed up until 2005 forced many buyers to make many compromises on home features at that time. No doubt many of them wish that some of the nicer homes for sale in their neighborhood today had been available at that time. Today’s home buyers will have to make far fewer, if any compromises, and many will be able to pay less for a home that’s much better suited to their needs.

If today’s home buyers decide to make some upgrades and improvements to their next home they can usually do it for substantially less than it would have cost several years ago. The rate of new home construction has dropped precipitously, and prices of many building materials have dropped substantially as a result. Prices for oriented strand board, which is used for exterior wall sheathing, roof sheathing and subfloors, is down 40% from late 2005, according to the National Association of Home Builders. Lumber used for framing floor and roof joints retreated 24%, in cost according to NAHB. Drywall prices are down 35% from late last year, according to United States Gypsum Company.

Construction labor costs are down as well, as many home builders have decided to become remodeling contractors until the market for new homes improves. The remodeling market has also slowed down somewhat. With many home builders recently reinventing themselves as remodeling contractors, price competition in that market is very intense today. Only a few years ago you were lucky if half the contractors returned your call, and a few actually showed up and subsequently gave you a proposal. That has changed dramatically.

“When we remodeled our kitchen and bathrooms several months ago every contractor we called showed up, and their bids were very competitive,” said American Homeowners Foundation President Bruce Hahn. “Many of them were ready to start immediately, and none of them balked when we told them we wanted them to sign a comprehensive contract specifying all of the details of the project,” he added. (Note: Judging from the continuing number of complaints regarding remodeling contractors, the competition has yet to drive incompetent and/or dishonest contractors out of the business.

Lastly, mortgage rates are still competitive by historical standards. Although lenders have become more particular about who they will lend to, and the gap between mortgage interest rates for those with excellent credit and those with marginal credit histories has widened, mortgages with 30 year fixed rates are still affordable for a majority of home buyers. If you are looking down the reset barrel of an adjustable rate mortgage on your current home, you will also be able to resolve that problem and avoid the higher mortgage reset interest rate with a fixed rate loan on your next home.

The bottom line: Trying to employ market timing in real estate entails many of the same risks as attempting market timing in the stock market, as many real estate flippers who flocked to the market in the middle of this decade learned the hard way. Despite all the current doom and gloom in the housing market, it’s still a great time for most of us to buy a home!

Courtesy of the American Homeowners Foundation and the American Homeowners Grassroots Alliance, www.AmericanHomeowners.org “
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Four Reasons the Holidays are a Prime Time to Sell a Home

Serious home buyers are always ready to make a purchase when they find the right home at a good price.
RISMEDIA
That’s why the holiday season is just as a good a time as any to sell a home-in fact, it can be a great time.

“Timing is everything when it comes to selling a home,” said Diane Turton, broker of record at Diane Turton, Realtors. “We explain to our customers that the process is simple - the right home buyer comes along, sees your house, says ‘I love the home’ and makes an immediate offer.”

Home sellers need to seize the opportunity by preparing their home, so that it is ready to show a buyer at anytime. Here are four good reasons to either put a home on the market right now during the holiday or keep it on the market if it already is listed with a real estate firm.

1. Homes look their best during the holidays - Right now, many homes look more inviting than at any other time of the year. Holiday decorations and the clean look of homes, without clutter, make properties look more inviting inside and out. Live evergreens and scents of the season remind buyers of the warmth they are looking for in their new home.

2. Less competition - Most home sellers believe the holidays are too distracting to sell or buy or home so they take their house off the market. Less competition, in fact, makes it a good idea to do just the opposite because your home is more likely to be seen.

3. More serious buyers - Buyers shopping for a new home at this time of year are ready to act, and these are the kinds of buyers a seller truly wants to attract. Like everyone else, homebuyers have a long list of things to do during the holidays. If they are making time to visit homes in December and early January, it is quite clear they are ready to make an offer.

4. Strong connection between home and holidays - There’s no better time for buyers to see themselves in a new home. It’s the holidays and for many homebuyers the season inspires images of friends, family and home. According to Turton, the reality is that people buy homes in December and even during the week between Christmas and New Year’s Day.
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Fed to Unveil Mortgage Protection Plan

The Fed is expected today to propose new subprime mortgage lending rules, including one that could prevent lenders from penalizing borrowers who pay their loans off early.
By: Jeannine Aversa: REALTOR® Magazine Online
The Federal Reserve is introducing its new mortgage protection plan today to help bailout struggling borrowers.

The rules it’s proposing are particularly aimed at protecting those who might find subprime loans their only alternative because of low income or poor credit.

The Fed proposes these regulations:

    • Barring or restricting lenders from penalizing subprime borrowers who pay
      their loans off early.

    • Forcing lenders to make sure that borrowers, especially subprime ones, set
      aside money to pay for taxes and insurance.

    • Barring or limiting loans that do not require proof of a borrower's income.

    • Setting new standards for how lenders determine a borrower's ability to repay
      a home loan.

The plan, if ultimately adopted, offers Federal Reserve Chairman Ben Bernanke, who took over the helm in February 2006, an important opportunity to put his imprint on the Fed's regulatory powers.
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Senate Passes FHA Reform Bill

The U.S. Senate voted Friday to approve a bill that would give borrowers a safer alternative to riskier mortgage products and provide some relief to home owners facing foreclosure.
REALTOR® Magazine Online
The FHA Modernization Act of 2007, passed Friday by the U.S. Senate, would give borrowers a safer alternative to riskier mortgage products while also helping many home owners who may be facing foreclosure, according to the NATIONAL ASSOCIATION OF REALTORS®.

“A reformed FHA is positioned to help home owners who face unaffordable mortgage payments as a result of resetting adjustable subprime loans and help bring stability to local markets and economies,” says NAR President Richard (Dick) Gaylord.

NAR has long supported FHA modernization legislation that would increase loan limits, reduce or eliminate the statutory 3 percent minimum cash down payment, and give FHA increased flexibility and the ability to streamline certain programs, in addition to strengthening the loss mitigation program.

In addition, the increase in FHA mortgage loan limits would help first-time home buyers, minority buyers, and people who do not qualify for conventional mortgages, according to NAR. Increased loan limits would also help people living in high-cost areas; current FHA limits make the program unusable in these areas, Gaylord says.

Gaylord says that FHA has made mortgage insurance widely available to individuals regardless of race, ethnicity or social status during periods of prosperity and economic depression. The FHA program makes it possible for higher risk yet creditworthy borrowers to obtain prime financing.

The House had passed its own FHA bill Sept. 18. House leaders now will have to decide whether to clear the more limited Senate legislation or insist on a conference to reconcile the competing versions.
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Agents want a little loyalty

Some agents say the free rides are over. They're embracing the idea of a buyer's pledge of allegiance.
By: Ann Brenoff: Los Angeles Times
VETERAN home sellers usually don't flinch when a realty agent pushes a sheath of papers in front of them to sign when they list their houses. The agent, after all, will be bearing the upfront expense of advertising, printing up mailers, holding open houses and arranging showings - and who would do all that without a signed listing contract guaranteeing a commission if they sell the house?

But what about buyers? They get a free ride.

Buyers can drop in unannounced to virtually any realty office, and an agent working that day will drive them around, showing them what's for sale. There's nothing to stop those buyers from turning around and making an offer on one of those houses through, say, their sister-in-law who just got her real estate license. The agent who spent half a day with them likely won't get so much as a thank-you note.

That, gradually, is changing.

Twenty-one years ago, John Rygiol, owner of Seal Beach-based John J. Rygiol & Associates, turned the tables: He stopped representing sellers altogether and began asking would-be buyers to sign loyalty agreements, documents stating that in exchange for his time and services in finding them a home, they will make all offers through him or pay him a commission anyway. Today, 10% of California Assn. of Realtors members use buyer loyalty contracts.

The effect on buyers is twofold: They are represented by an agent who won't try to steer them toward his or her listings, and they've signed a contract wedding them to one agent for a fixed period of time.

Agents with listings have a financial incentive to push those listings, Rygiol says. If the client buys a home the agent has listed, the agent would pocket the full commission.

"I have no listings. I'll show you everything that is out there and I will only be working with you," Rygiol said. His business now has six offices and eight agents in Southern California. Statewide, there are 17 exclusive buyer brokerages and 54 exclusive buyer's agents.

California has a strong dual-agency disclosure policy, which requires agents to tell their buyer clients if they or another agent in the same firm represent the seller. The problem is, it is often disclosed only at the point when a buyer is making a written offer.

Rygiol client Ed Novitsky, a first-time home buyer, likes knowing that "John just works for me." Novitsky, his wife and daughter, 2, are renting in Torrance while looking for a home to buy in the South Bay. He is shopping in the mid-$600,000s range.

Novitsky, who calls himself a skeptic, may seem an unlikely type to sign a loyalty agreement. He said he is someone who needed to understand the home-buying and financing process himself and was unwilling to blindly trust someone else to protect his interests in what he called "the biggest purchase" of his life.

He personally called about 15 mortgage lenders directly and got pre-qualified. He then interviewed about a dozen realty agents and, frankly, he recalled, wasn't always impressed.

But when he came upon Rygiol, the idea of having an exclusive buyer's agent "just made sense." "When I called John, right away I liked what he said to me: 'Let's meet and see if we think we can work together.' "

He wasn't bothered by Rygiol's request that he sign an exclusive six-month contract. "It's fair," Novitsky said. "If he puts in the time and does his job, why wouldn't he be entitled to compensation?"

Novitsky is part of a small but growing minority in this regard. For many California buyers, the idea of being asked to sign a loyalty agreement before an agent opens his car door is a novel concept.

Buyer loyalty contracts are commonplace in other states - and are most prevalent along the East Coast and in the Midwest - but Colleen Badagliacco, president of the California Assn. of Realtors, acknowledges they haven't caught on as widely in the Golden State. CAR offers its members sample contracts, and Badagliacco encourages their use. The contract that Rygiol uses states that if the buyer winds up making an offer within six months on a house that he showed them (not just drove by but toured the interior), he is entitled to the commission.

Most contracts are for a fixed period of time - a weekend if an out-of-state buyer is coming in to look or two weeks if it's someone local. But the obligation to pay the agent a commission extends for six months if the home being bought is one seen during the initial showing period.

In other states, exclusive buyer agents may take it one step further: Before they agree to spend their weekends driving buyers around, they not only want it in writing that the buyers will make their offer through them, but they also charge a retainer of $250 to $500. In almost all cases, the retainer is deducted from an eventual commission when and if a deal is finalized, but even if it isn't, the agent keeps the fee.

Buyer's agents in California don't charge a retainer (or advance fee, as the state Department of Real Estate calls it) because of the stringent and cumbersome rules governing how this money must be handled. CAR guidelines also discourage it. Many agents mistakenly believe the practice is illegal; although it isn't, failure to comply with the state regulations can carry criminal penalties.

To some extent, said Paul L. Campbell of Dream Drafters Real Estate in Everett, Wash., the retainer is proof of sincerity and a measure of a buyer's seriousness. He charges a $250 retainer, refundable at closing.

And there appears to be wiggle room. In some cases, repeat clients aren't charged a retainer nor are the buyers whom those clients recommend. If a buyer is unhappy, some agents say they just cut him or her loose.

But, for Rygiol anyway, "it's never come to that."
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