July 20, 2010
July 2010 Summit County Real Estate.Net Notices
The SEC is alleging fraud on the part of Goldman Sachs, in relation to their actions surrounding subprime mortgages and Collateralized Debt Obligations. Here's an analogy of how the SEC sees Goldman's actions: Imagine that you asked a builder to construct a house with materials that you know will eventually cause the house to light on fire and burn to the ground. In the meantime, you place a bet that the house will burn down, and also take out fire insurance on the house for when it does burn down. The house is built - which you then sell to an unsuspecting buyer. Sooner or later, sure enough, the house burns down. You make multiple profits...but it's just not right.
The SEC is saying that Goldman acted similarly with subprime mortgages and other risky debts, profiting enormously from the failure of financial instruments that they knew were designed and destined to fail. How the story will play out remains to be seen - but the stunning allegations caused Stocks in the US and abroad to plunge lower. Stocks had been on a nice run higher based on a reasonably good kick off to earnings season, but as money flowed out of Stocks on the news, it was parked in Bonds - helping home loan rates improve.
In other news, the National Bureau of Economic Research (NBER) said that it would be "premature" to give an end date to the recession based on the economic data seen so far. And while some of the statistics may show that the economy has improved in many areas - the labor market continues to be very weak. It also remains to be seen how housing will fare without stimulus, and additionally, while corporate earnings seem to be on the rise, it is not yet known whether that is from improving business and higher revenues, or rather due to cost-cutting measures.
There was some good news last week on the housing front, as you can see in the chart below. Housing Starts for March came in higher than estimated and at the highest level since November 2008. Building Permits - an indication of future construction - also came in higher.
In one of the bright spots of news last week, the Senate approved an extension of the Homebuyer Tax Credit's closing deadline...but it's not law just yet. The original deadline to take advantage of the Tax Credit called for buyers to be under contract by April 30th and to close by June 30th. If voted into law, the extension would give those buyers until September 30th to close. However, this Tax Credit provision is part of a jobs and tax package that both chambers must still vote on before it becomes law. And remember, the extension would only apply to buyers who were under contract by April 30th.
Even if you don't qualify for the Tax Credit, there are still some great opportunities available today, since rates are still at unbelievable lows right now. But heed Greenspan's words...these opportunities may not last long, so contact me today to see how you can benefit from them before it's too late.
SPEAKING OF GREENSPAN'S COMMENT ABOUT THE GOVERNMENT ACCUMULATING DEBT, THEY AREN'T THE ONLY ONE IN THAT POSITION. ACCORDING TO A RECENT STUDY, THE AVERAGE BALANCE OF COLLEGE STUDENT CREDIT CARDS CLIMBED TO $3,173.
This week, we'll see a bit lighter load of economic reports, but with some heavy news items coming down the wire. We'll start off with a dose of housing news, with reports on Existing Home Sales on Tuesday and New Home Sales on Wednesday. These reports come after last week's worse-than-expected reports on Housing Starts and Building Permits in May. Those disappointing reports may be good for the housing industry in the long run, however, since reduced inventory may help sales of the homes that are already on the market.
Although the official reports will not be released until July 23rd, French Finance Minister Christine Lagarde indicated last week that the final results will show that European banks are "solid and healthy." When stress tests were conducted on the US banks, the positive results helped boost financial Stocks nearly 40% over the following several months. It is possible that favorable results from the European stress tests could bolster confidence in the Eurozone, which would unwind some of the trading activity that has taken place during the past two months - that being the flood of money out of Europe into the US and purchasing our debt securities and Bond instruments, including Mortgage Bonds. If this starts to reverse, home loan rates will worsen... and this can happen very quickly. I’ll be watching this closely - but if you have been waiting to get in touch regarding taking advantage of still-historic low home loan rates... don’t wait!
Last week's economic calendar was very light; but this week, we’ll see the exact opposite as reports flood the headlines near the end of the week. Along with more news coming from overseas... the week's action could cause home loan rates to change trend. Bond prices have been rocketing higher with home loan rates moving lower... but history tells us that a reversal is in store - it's just a matter of when.
Despite conventional wisdom to the contrary, banks are lending to qualified borrowers. The banks want borrowers who can afford their home for the long term.
Documentation is king. What do you need? “Everything”!! Some are calling the process a Colonoscopy with no anesthesia." A bit of an over statement. However, if you have everything in order and ready to go, you should experience a relatively smooth transaction. That means good credit scores (above 700), proof of income, bank statements, tax statements, equity in your home. Borrowers who bought their homes during the housing boom and have little equity or are upside-down on their mortgage (meaning they owe more than the house is worth) are mostly shut out of refinancing although there are a few programs available if this is your situation.
If you are going to refinance, be sure to move fast. Given today’s rates, if you snooze you very well may lose.
False Illusions and What You Need to Know
Understanding Rate Alerts …
The lowest rates of 2009 were driven down to their attractive levels because of the Fed’s Mortgage Backed Securities (MBS) purchase program. Home loan rates have an inverse relationship with the value of MBS. When these securities trade higher on the market, rates move lower and vice-versa. So when the Fed originally agreed to be a big buyer, it helped provide a market for MBS, which helped keep prices high and, as a result, helped push home loan rates low.
And while the Fed continued that program through the end of March 2010, the reality is that the Fed‘s “extension” was really more of a rationing intended to prevent home loan rates from spiking as the program is phased out. It’s sort of like weaning the market off of its life-saving treatment instead of forcing it to go cold turkey.
Already, some in the media have mistakenly reported the extension of the program through March as good news, telling consumers that rates will continue to decline, and remain low into the spring. This gives a false sense of security that homebuyers and refinancers simply cannot afford. The Lesson: Be careful of what you hear from the media. They are often very off base. Imagine That!!
The problem is…
Those reports do not accurately report what’s going on or where rates are really headed. That can have a very costly impact on consumers who may miss out on historically low rates if they listen to these media outlets.
Hardly anyone predicted this last year. Many financial experts believed that loan rates would be much higher by now. With the April 30th expiration of federal tax credits for homebuyers, as well as the stabilization of home prices and concerns about inflation, rates were indeed heading that way. But then the European debt crisis reared its head and investors "did an about-face on the weak dollar”. The interest-rate drop happened unexpectedly and fast. But you can’t expect a world debt crisis to keep giving you a second chance. Now that rates are scraping the bottom again, it's a good time to call us to get the paperwork going.
What type of mortgage makes sense? Experts say many homeowners are good candidates for refinancing, although they caution that new loans mean new fees, and new mortgages typically mean it will take longer to pay off the loan.
One way around that is refinancing with a shorter-term loan. Owners currently 10 years into a 30-year fixed-rate loan at about 6% interest, for example, might consider a 10- or 15-year fully amortized loan. The fees can typically be rolled into the loan.
A 15-year loan obligates you to pay the loan off faster, but at a lower rate. It may well be worth the reduction. Be prepared for the heftier monthly payments. Also, if you're far into your 30-year mortgage, it's not worth it. You probably won't save money.
Borrowers who don't want the steeper monthly payments of 15-year loans and prefer their old friend the 30-year-fixed might consider this: If the balance on your mortgage is $400,000, with 20 years of payments left at 6.25% interest, your monthly payment is $2,923. Twenty years of payments with interest come to $700,000. If you refinance that $400,000 loan at 4.75%, the payment is $2,086, saving you $837 monthly. “Sweet”. But keep in mind that you will end up paying $750,000 over 30 years.
To make the refinancing worth it over the long haul, take that $837 each month and pay off college or car loans, pay down credit-card debt, or pay off any loan at an interest rate higher than your mortgage. Once those loans are paid off, use the monthly savings to pay down the principal on your loan. In doing so, you can decrease the number of years on the mortgage, saving $122,000 over the life of the loan. If times get tough and you can't voluntarily pay that extra money each month, you have the safety net of the lower monthly payment.
Homeowners with hybrid loans---mortgages that are fixed at lower rates, then convert to adjustable-rate mortgages after three, five or seven years—whose rates are about to reset are also good candidates for refinancing. Right now, you may want to move to a 30-year fixed-rate loan, especially if you're staying in the house a long time.
We are the REALTOR® Party:
An energized movement of real estate professionals fighting to keep the dream of homeownership alive for this country.
Now more than ever, it is critical for REALTORS® across America to come together and speak with one voice about the stability a sound and dynamic real estate market brings to this country of ours. From city hall to the state house to the U.S. Capitol, our elected officials are making decisions that have a huge impact on the bottom line of REALTORS® and their customers. Through the support of people like you, the REALTOR® Party will continue to be there representing your interests.
SAR To Host Hidden Gems Discussion at Membership Meeting July 19th
On Monday, July 19th, SAR will host a forum on the Hidden Gems Wilderness proposal, which would increase wilderness areas in Summit, Eagle, Pitkin and parts of Gunnison County. Proponents of the proposal are advocating that more wilderness areas are need to protect eco-systems and sustainability of wildlife at lower elevations. Opponents, such as snowmobilers and ATV'ers, and some bikers are concerned that the proposal would limit their ability to use the back country. Kurt Kunkle of the Colorado Environmental Coalition will speak to the SAR membership on the need for additional wilderness areas, and Rich Holcroft, President of the Summit Snowmobilers Club, will speak in opposition to the proposal. SAR is planning to provide members with plenty of opportunity to ask questions and learn more about the proposal. Congressman Jared Polis is planning to introduce federal legislation once he has completed gathering information from all of the stakeholders. The meeting is from 8:30-10 am at the Senior Center in Frisco. Call the SAR office to RSVP for the event!
While the economy has suffered, the mortgage bonds have benefited. For the last 9-12 months, we have seen pretty darn low rates with a few roller coaster bumps along the way. The Federal Reserve’s purchasing of mortgage backed securities was certainly a catalyst for this (along with other economic news) and we all thought when the buying was over (3/31/10), the rates would find a new equilibrium. And they did move up for a while. But in the last few weeks, we have experienced some of the best rates in history. Even jumbo rates are significantly better than a year ago.
LAST WEEK IN REVIEW (posted 06/14/10)
There has been growing debate among Fed members about when to begin raising the Fed Funds Rate. What is the Fed Funds Rate? It's the lending rate banks charge each other for the use of overnight funds, and it is used as a base rate that many other lending rates are based on, for consumer and business loans. A higher Fed Funds Rate tends to slow economic activity, as it means the cost of borrowing to finance a purchase will be higher, while a lower rate helps to stimulate activity, a ripple effect that expands into all sectors of the economy. The Fed Funds Rate is currently at a range of 0.0-0.25%, and it has been this low for over a year to help stimulate our economy and move us from recession to recovery.
If the Fed raises the Fed Funds Rate too soon, it could slow economic activity and cause a "double dip" recession. However, if the Fed waits too long to raise the Fed Funds Rate, inflation could result...and inflation concerns were a big reason for all the Fed chatter last week. Remember, inflation is the arch enemy of Bonds and home loan rates.
With mounting debt in the US and concerns that US debt will overtake GDP by 2012 - as well as the problems in Europe - there are many factors the Fed needs to consider before taking action. For instance, last week Fed Chairman Ben Bernanke said that the Unemployment Rate is likely to remain high for a while and he noted that the Fed "can't wait until unemployment is where we'd like it to be" before tightening credit, or inflation could too easily get out of control. That said, recent reports like May's Jobs Report and Retail Sales Report - which showed the first monthly decline since September 2009 - indicate that our economic recovery is still fragile at the moment. This means the Fed won't want to act too quickly, either.
The next Fed Meeting is June 22-23rd, and while the Fed will most likely not raise the Fed Funds Rate at this time, more and more Fed members are expressing concerns about the current very accommodative monetary policy in place. Although home loan rates are not tied to the Fed Funds Rate, I'll be watching this situation very carefully as it continues to unfold.
In addition, Bonds and home loan rates have benefitted lately from the situation in Europe, as global investors have sought the safe haven of our US Bonds. However, as the Euro's freefall is finally showing some signs of stabilization, traders and investors can be very fickle in unwinding or reversing these trades pretty quickly. This could reverse the improvement we've seen in home loan rates, and we saw a sign of that last week. Bonds and home loan rates ended the week a bit off their best levels of the week...but are still incredibly low overall.
If you or anyone you know would like to take advantage of the exceptional opportunity that exists in the home loan marketplace at this point in history, please don't hesitate to call or email. Or forward this newsletter on to anyone you think may benefit as well!
In Freddie Mac Primary Mortgage Mkt Survey (for the week ending June 11th) in which the 30-yr fixed-rate mortgage (FRM) avg. 4.72. Last year at this time, the 30-yr FRM avg 5.59%.
The 15-year FRM this week avg 4.17%. A year ago at this time, the 15-year FRM avg 5.06%. The 15-year FRM has not been lower since Freddie Mac started tracking the 15-year FRM in August of 1991 and sets another record low for the fourth straight week.
The five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) avg 3.92%. A year ago, the 5-year ARM avg 5.17%.
The one-year Treasury-indexed ARM avg 3.91%. At this time last year, the 1-year ARM avg 5.04%. The 1-year ARM has not been lower since the week ending May 27, 2004 when it averaged 3.87%.
Senator Bennet(D-CO) Introduces Rural Housing Bill in Senate; Bill Passes House (from NAR)
On Tuesday, April 27, the House passed HR 5017, a bill to restore the USDA rural housing 502 single family mortgage insurance program. The legislation will increase the upfront guarantee for the program, which will allow the loan program to be self-sustaining. Borrowers will continue to be able to finance the upfront fee. The legislation passed by a vote of 352-62. To see how your Representative voted, please visit Thomas: http://clerk.house.gov/evs/2010/roll225.xml .
Also on April 27, Sen. Michael Bennet (D-CO) introduced S. 3266, a companion to the recently passed House bill. It now awaits action in the Senate Banking Committee. If legislation is not signed into law by May 7, 2010, the fund will go bust.
NAR Working To Expand Seller Financing Exemptions In SAFE Act; Language in Financial Regulatory Reform Bill
The future of whether property owners who want to provide seller financing, but not obtain a loan origination license, is still up in the air in Washington. HUD asked for comments in February on its proposed rule to implement the SAFE Act, the Secure and Fair Enforcement Licensing Act of 2008. As it currently stands, the bill provides exemptions for seller financing, but NAR argued the that the exemptions do not go far enough. The proposed rule does except from loan originator registration requirements individuals who offer or negotiate the terms of a loan secured by their own residence. NAR welcomed HUD’s interpretation that Congress did not intend for such sellers to obtain loan originator licenses. However, NAR has argued that the exception should be expanded to include sellers who occasionally provide seller financing, but who do not make it a primary business. NAR gave examples such as property owners who choose to subdivide a property into several smaller lots, convert a small apartment building into condos, or if the children of a deceased parent want to sell the parents home. HUD has been elusive as to when they will make their final rule making on the SAFE Act. In addition, NAR is aware that there are some seller financing issues being discussed in the Senate's version of the financial regulatory reform legislation being hotly debated this week. NAR is working to limit the impact on seller financing.
What happens in Washington doesn't stay in Washington!
And there was a lot happening in Washington this past week, between the Fed’s two-day meeting and actions in Congress. So how will all of these happenings impact you…and home loan rates, which are near all-time lows? Read on for details.
Last week, the Fed decided to keep the Fed Funds Rate at 0.25%, and also reiterated in its Policy Statement that economic conditions warrant keeping the Fed Funds Rate low for an “extended period”. First, what is the Fed Funds Rate? It is the lending rate banks charge each other for the use of overnight funds, and it is used as a base rate that many other lending rates are based on, for consumer and business loans.
And second, why is the “extended period” language significant? The Fed has to time very carefully any action – or even hints of action – on raising the Fed Funds Rate, which they have held at the lowest levels in history for the last year and a half. If the Fed raises the Fed Funds Rate too soon, it could slow economic activity and cause a "double dip" recession. However, if the Fed waits too long to raise the Fed Funds Rate, inflation could result. Remember, inflation is the arch enemy of Bonds and home loan rates...and signs of inflation could definitely cause home loan rates to worsen from their current low levels.
Even though there have been more concerns expressed by various Fed members about inflation and the long term effects of keeping the Fed Funds Rate too low for too long, the economic data recently reported (such as the weak Jobs Report and other reports showing inflation is tame at present) as well as the ongoing issues in Europe helped the “extended period” language to survive through another Fed meeting. This is an important issue to keep watch on.
New regulations Affecting Issuance of O&Es and TBDs from Title Companies (from CAR)
The Colorado Division of Insurance has recently finalized rules under Regulation 3-5-1 that will affect the issuance of O&E reports and TBD commitments from title companies. Effective May 1, title companies will no longer be able to provide these documents for free.
Title companies will be required to file their charges for O&Es and TBDs with the Division to ensure that the charges accurately reflect the cost of production. Additionally, the Division will allow the fees to be applied to the final costs of the transaction when they result in title work and a closing with the title company issuing the reports.
When the new changes were proposed, CAR reiterated the value the documents have in providing a public service which help consumers understand and avoid title problems at the outset and enables the proper structuring of transactions. CAR also submitted multiple comments and participated in a public rulemaking hearing to express concern over the requirement to charge for the documents; however, we are pleased that the Division has taken steps to ensure that the charges reflect only the cost of production and will allow them to be applied to the final cost of the transaction.
There are also new rules regarding classes that title companies may provide and when they must charge for those classes.
New regulations Affecting Issuance of O&Es and TBDs from Title Companies
After a full load of economic reports last week, we'll see a little breathing room this week. In fact, we won't see the first major economic report until the Beige Book is released on Wednesday. The Fed's Beige Book - officially known as the Survey on Current Economic Conditions - contains anecdotal information on the current economic and business conditions. Although some people consider the Beige Book to be a lagging report, it can serve as a helpful indicator of the Fed's policy decisions. It reflects data from bank reports, as well as interviews with key business contacts, economists, market experts, and other sources.
We'll also see the Balance of Trade report on Thursday. Remember, a negative balance of trade - or a deficit - occurs when imports surpass exports. The US merchandise trade balance has been in a deficit since the mid-1970s.
Initial Jobless Claims will also be reported on Thursday. It does appear that over the past few weeks Jobless Claims have shown some stabilization...and while it isn't getting much better; at least it isn't getting much worse. The markets will be watching to see if that trend continues this week.
The week wraps up on Friday with the Consumer Sentiment Index and Retail Sales for May. Retail Sales will be the big economic report of the week. In last month's report, Retail Sales doubled expectations and marked the seventh consecutive monthly increase. The report can be volatile from month to month, but the recent string of improving reports does signal that the consumer is starting to spend more money.
In addition to those reports, the Treasury Department will auction off $70 Billion in 3- and 10-Year Notes and 30-Year Bonds. It will be interesting to see how these auctions perform with yields at very low levels.
Mortgage Bonds have been extremely volatile since May 6, when the "Flash Crash" occurred.
Overall, Bonds and home loan rates ended the week slightly better than when they began. But the Bond market's good fortune may not last very long - so be sure to give us a call if we can help explain the current rate situation and how it might benefit you.
Government Affairs Update:
SAR & WMRA URGE NAR TO TAKE ACTION ON CONDO FINANCING
SAR has undertaken an initiative with the Western Mountain Resort Alliance (WMRA) to urge NAR to address condo financing issues. SAR created a position paper, with input from the Sawtooth Board of REALTORS® and WMRA, that urges NAR to take legislative or regulatory action to address the current Fannie and Freddie Guidelines which makes condo financing almost impossible to obtain. The nine page document outlines current resort market characteristics, defines problems with the current regulations, and provides quotes from REALTORS® and lenders in mountain resort areas on the problems. The paper will be presented to the NAR Resort Committee next week by Kathy Cole, a Vail REALTOR, who serves on the resort committee.
SAR, along with the Vail Board of REALTORS® is also working on federal legislation with Congressman Polis to address the condo financing issues. Polis released draft legislation, but it did not go far enough to adress the difficulties in condo financing. SAR is working on a letter to Polis that is critical of the current draft.
Last month CAR issued a statewide Call for Action (CFA) urging the Senate to oppose the bill, which seeks to overturn a statutory requirement that a tenant must provide written notice to a landlord in the case of a breach, expand the definition of a violation of the Warranty of Habitability, and add new treble damages language. The legislation was introduced to the surprise of the real estate community, who participated in a taxpayer-funded task force resulting in reform legislation adopted just two years ago.
We would like to extend a thank you to the over 1600 REALTORS® who responded to the CFA. We would urge you to continue contacting your Senator and ask they vote no on SB 185 when it is finally heard on 3rd Reading. Senator Dan Gibbs can be reached at (303) 866-4873. Talking Points
Retainage Construction Contracts Dies on the House Floor As amended, HB 1162 by Rep. John Soper (D-Thornton) and Sen. Bob Bacon (D-Fort Collins) sought to set payment standards for construction contracts between contractors and public entities with contracts exceeding $150,000, or private property owners. More specifically, it would have reduced the amount that may be withheld (retainage) from a contractor prior to the work being completed.
Refinancing: Run, Don't Walk
Homeowners waiting for the right time to refinance shouldn’t sit on the fence too long: Rates are at an all-time low and, thanks to Europe’s financial mess, they probably won't go much lower, many mortgage experts say.
Unnerved by the debt crises in Portugal, Italy, Greece and Spain, investors recently took a "flight to quality" by dumping shaky European debt securities and buying 10-year U.S. Treasury bonds instead. That demand has helped push interest rates in the U.S. down to recent lows. The average rate for a 30-year fixed-rate conventional home loan has had moments below 4.625%. These rates are below the record low of 4.7%, set in late 2009. The average rate for a 15-year fixed mortgage has been below 4.25%. The 15-year fixed rate mortgage has not been lower since Freddie Mac started tracking the 15-year fixed rate mortgage in August of 1991 and sets another record low for the fourth straight week. Without a doubt, this is a good time to refinance.
Homeowners rushing to refinance
U.S. homeowners apparently have caught on. They are applying for refinanced mortgages at the fastest pace in more than seven months, according to the Mortgage Bankers Association. In May, refinancing made up 72% of all mortgage activity.
This rush to refinance is reminiscent of the refinancing surge early last year after the Federal Reserve lowered its benchmark interest rates to near zero in December 2008. Even with some rate volatility, Mark Shenkman, president of Calabasas, Calif.-based Priority Financial Network states; “The yo-yoing is at the low end. We're at as good a rate as you're going to get."
Routt County Commissioners Table TDR Discussion
With lots of concern from the public, last week the Routt County Commissioners tabled plans for potential new Transfer of Development Rights (TDR’s) regulations. The proposal would have allowed five-acre development in specified, unincorporated county areas through an exchange program in which some rural landowners could transfer their land’s development rights to designated sites closer to urban areas where greater density is allowed. With the public very concerned about “sprawl” and growth around Steamboat, some had argued the proposed plan would have encouraged low density sprawl, such as what has happened in Aspen. Others argued they would like to see in-fill in Steamboat first. The Commissioners ultimately decided to table the proposed regulations to study the issue further, arguing that the proposal may be a good idea, but as currently drafted, the plan goes against the county’s rural development guidelines. Other commissioners felt because of the current economy, there is no urgency in pushing this plan forward.
Senior Homestead Bill Introduced Again This Year
For the second straight year, a bill to suspend the senior property tax exemption has been introduced. The bill would suspend the exemption for another year, for the 2010-2011 fiscal years. This property tax exemption has been a prime target to help the state balance the budget over the past couple of years. Even State Senator Al White had to vote for the bill last year, recognizing that the budget balancing was going to hurt everyone. CAR is opposing the bill but recognize that their opposition is a symbolic gesture because the bill will be approved.