WASHINGTON – Buying a home is about to get cheaper for a whole new crop of homebuyers — $6,500 cheaper.
First-time homebuyers have been getting tax credits of up to $8,000 since January as part of the economic stimulus package enacted earlier this year. But with the program scheduled to expire at the end of November, the Senate voted Wednesday to extend and expand the tax credit to include many buyers who already own homes. The House is scheduled to vote on the bill Thursday.
Buyers who have owned their current homes at least five years would be eligible for tax credits of up to $6,500. First-time homebuyers — or anyone who hasn't owned a home in the last three years — would still get up to $8,000. To qualify, buyers in both groups have to sign a purchase agreement by April 30, 2010, and close by June 30.
"This is probably the last extension," said Sen. Johnny Isakson, R-Ga., a former real estate executive who championed the credits.
The homebuyers tax credit is one of two tax breaks totaling more than $21 billion that the Senate included in a bill extending unemployment benefits for those without a job for more than a year. The other would let companies now losing money recoup taxes they paid on profits earned in the previous five years.
"We are still in a world of economic hurt, and Congress must continue to act boldly and creatively," said Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee. "With the right mix of tax breaks and investments we will get through this recession and get folks working again."
The real estate industry has been pushing to extend and expand the housing tax credit. About 1.4 million first-time homebuyers have qualified for the credit through August. The National Association of Realtors estimates that 350,000 of them would not have purchased their homes without the credit.
Extending and expanding the tax credit for homebuyers is projected to cost the government about $10.8 billion in lost taxes. While the measure passed the Senate by a 98-0 vote, Sen. Kit Bond, R-Mo., questioned its efficiency in stimulating home sales.
"For the vast majority of cases, the homebuyer tax credit amounted to a free gift since it did not affect their decision to purchase a home," Bond said. "And for the small minority of buyers whose decision was directly caused by the credit, this raises the question of whether we are subsidizing buyers who may not have been able to afford buying a home in the first place."
The credit is available for the purchase of principal homes costing $800,000 or less, meaning vacation homes are ineligible. The credit would be phased out for individuals with annual incomes above $125,000 and for joint filers with incomes above $225,000.
The credit would be extended an additional year, until June 30, 2011, for members of the military serving outside the United States for at least 90 days.
Expanding the tax credit for money-losing companies is projected to cost $10.4 billion.
The business tax break would allow money-losing companies to use current losses to offset taxable profits earned in the previous five years, giving them refunds of taxes paid in those years. Under current law, businesses with annual gross receipts of more than $15 million can claim losses back only two years.
The tax break would help industries suffering losses in 2008 or 2009, including retailers, homebuilders and newspapers. Congress included a scaled-back version of the tax break — for companies with revenues of $15 million or less — in the economic recovery package enacted in February. The new tax break would be available to companies of any size, providing a quick source of cash.
The U.S Chamber of Commerce has been a big backer of the tax break for money-losing companies.
"It frees up capital that they can use to maintain jobs and potentially even hire new people as the economy returns," said Caroline Harris, senior tax counsel for the U.S. Chamber of Commerce.
The tax breaks would be paid for largely by delaying a tax break for multinational companies that pay foreign taxes. It was passed in 2004 and originally was to have taken effect this year, but would now be delayed until 2018.
"There have been a huge number of changes over the past few years in mortgage borrowing," said Gibran Nicholas, founder of the CMPS Institute, which trains and certifies mortgage advisors.
Of course, many of the subprime loans that helped fuel the housing boom - those that didn't require borrowers to show any proof of income, or that let homeowners make minimum payments - are are simply no longer available.
But even buyers looking for a traditional mortgage are now faced with different factors to consider.
Here is what you need to know:
Paying up-front points. Borrowers can pay points - one-time, up-front fees - in order to reduce their mortgage's interest rate over the life of the loan. One point represents 1% of the mortgage value.
But they often assume that they should never pay points, according to Alan Rosenbaum, founder of mortgage broker Guardhill Financial. That's a mistake, in his opinion.
When interest rates were high, paying points didn't make sense because borrowers were very likely to refinance after rates dropped. They wouldn't hold their original loans long enough to recoup their up-front costs.
But now borrowers can get a lot more bang for their buck. The old rule of thumb was that paying one point at closing could lower their mortgage's interest rate by a quarter percentage point or so.
"Today the spread is worth a half point to a full point on the rate," said Rosenbaum.
It means paying $2,000 on a $200,000 mortgage at closing can shave as much as a whole percentage point off the loan's interest rate, changing a 6% loan to 5%.
That would save $126 a month, and pay for itself in 16 months. Even if the rate were only lowered to 5.5%, that would still save $64 a month, paying for itself in 32 months.
Still, not everyone is convinced. Rosenbaum recently had a client who chose a 15-year fixed rate loan at 5.875% with zero up-front points on a $800,000 loan, instead of paying a point to get a 5.375% loan.
Had the borrower chosen to pay that point, he would have recouped that cost in about three years, and then gone on to save more than $200 a month for the remaining 12 years of the loan.
Of course, there are caveats. Buyers who are planning to refinance or sell within a few years shouldn't pay points, since the strategy simply doesn't pay in the short term.
Making more than the minimum down payment. If you can afford to put 25%, 30% or more down, should you do it?
Most lenders require a minimum down payment of 20%; anything less and borrowers will need to obtain private mortgage insurance.
And if a buyer could afford to put more than 20% down, it was generally assumed that they should.
The traditional thinking was, "If you have the capital to commit, why not?" said Keith Gumbinger of mortgage research firm HSH Associates. "It will give you a smaller balance to pay off. But now, in light of declining home markets, not everyone would agree with that."
High down payments can be wiped out in severely declining markets.
Nicholas said he knows of a couple in Arizona who put a whopping $400,000 down on a million dollar house a couple of years ago. That gave them, they thought, a nice home equity cushion should they run into financial trouble.
"But prices are down so much, the couple still fell underwater," he said. "It would have been better to conserve that cash in case home prices continue to decline."
Locking in the mortgage rate. Many borrowers choose not to lock in when rates are falling, as they have been, since they assume that the deals will only get better.
But that's often a mistake.
"We almost always recommend that if you have the numbers that make your deal work, then lock it in," said Gumbinger.
His reason: Interest rates tend to jump up much faster than they inch down, meaning that buyers are much more likely to get stuck with a higher mortgage rate than they are to get lower one because they waited.
Besides, locking in at the currently very affordable rates can give borrowers peace of mind, which is no small matter when you're trying to buy a house.
"You'll sleep better at night," said Gumbinger.
WASHINGTON - Sales of existing homes posted an unexpected increase last month, closing out the worst year for the U.S. real estate market in more than a decade.
The National Association of Realtors said Monday that sales of existing homes rose 6.5 percent to an annual rate of 4.74 million in December, from a downwardly revised pace of 4.45 million in November.
The results were better than expected. December's sales had been forecasted to fall to a pace of 4.4 million units, according to Thomson Reuters.Buyers were taking advantage of dramatically lower prices, especially in distressed markets like California, Florida and Nevada, where foreclosures have swamped the market.
The nationwide median sales price plunged to $175,400, down 15.3 percent from $207,000 a year ago. That was the lowest price since May 2003 and the biggest year-over-year drop on records going back to 1968.
"The economy just simply cannot recover as long as home prices continue to decline," said Lawrence Yun, the trade group's chief economist, who called on lawmakers to include tax credits for home buyers in the economic recovery package being considered by Congress.
For all of 2008, there were 4.9 million existing home sales, down more than 13 percent from a year earlier, and the lowest total since 1997.
And another encouraging sign - the number of unsold homes on the market in last month fell nearly 12 percent to 3.7 million. At the current sales pace, it would take 9.3 months to sell all the properties, down from 11.2 months in
Cheap rates and foreclosure sales lure house hunters.
Falling housing prices spelled opportunity to A. J. Harpold. The Los Angeles-based entertainment assistant, 29, had been looking for a year to buy her first home when she joined 2,300 other potential buyers at a foreclosure auction recently at the L.A. Convention Center. Her target: Lot 14, a 4 BR, 2 BA San Fernando Valley bungalow she'd inspected with her real-estate agent and contractor. As the auctioneer cried the prices and the tuxedo-clad bidders' assistant roamed the aisles, Harpold jumped in at $330,000. Another bidder topped her. She came back at $350,000, then $370,000 before she won at $385,000 ($404,000 counting a 5 percent auction fee). "The price was just right," she says, noting that she'd be paying 35 percent less than the home's 2006 sale price of $665,000.
The housing market is still in the tank, but bargain hunters like Harpold are starting to jump back in. How is that possible? Relatively cheap foreclosure properties and falling interest rates are attracting buyers. Nationally, foreclosures rose 81 percent, according to RealtyTrac, with nearly half of the total coming in just four hard-hit states: Florida, Arizona, Nevada and California. In California, foreclosed properties made up 46 percent of all existing home sales last year, according to MDA DataQuick, and foreclosures were up 181 percent statewide. "The market is being driven by foreclosures and foreclosure products," says James Liptak, president of the California Association of Realtors. Last month in the suburban Inland Empire counties east of L.A., nearly 70 percent of existing home and condo sales were foreclosures.
Despite mortgage rates that hovered at about 5.25 percent, housing prices continued to fall, according to new data released this week. Nationally, the S&P/Case-Schiller home price index showed a drop—a record 18.2 percent—in the year that ended in November 2008, the latest data available. All 20 cities in the index dropped, but hardest-hit markets led the way down: Las Vegas plunged 31.6 percent; San Francisco 30.8 percent and Los Angeles 26.9 percent for the year. Meanwhile data released Monday by the National Association of Realtors showed a small glimmer of hope: while prices continued to fall, more people bought existing homes in December than the month before as sales of existing homes rose 6.5 percent, led by an impressive 13.6 percent jump in the West.
In California, the new shoppers are bargain hunters with good credit. "You are seeing an entirely new set of buyers," says Jeffrey Frieden, CEO of Real EstateDisposition Corp., the California auction firm that put on the Los Angeles auction. "Some of them are younger families and other first-time buyers, and a lot of them are people who were priced out of the market before." REDC sold 32,000 homes in about 35 states last year, and business is booming. He says the bulk of customers these days are buyers looking to move in. Frieden says that the well-preserved homes go to move-in buyers; investors looking for rentals or teardowns to build apartments are buying what he calls the "rougher assets."
Getting a loan remains problematic, but buyers with good credit are able to get approvals. Harpold, who makes about $60,000 yearly by splitting time as an assistant to Marty Kudelka, Justin Timberlake's choreographer, as well as to dancer and actress Mayte Garcia, Prince's ex-wife, says banks have told her she has "exceptional credit" with a FICO score of more than 800, which she earned by having plenty of savings and little credit-card debt. She is still working out the details of her loan, but she says she's considering a 30-year mortgage, with no points, at 5.3 percent. She's hoping to keep her down payment low, around 5 percent, "so I can have more liquid cash to fix up the house." (FHA-insured loans still call for as little as 3 percent down payment.)
California needs more motivated and qualified buyers like Harpold. The housing crisis has exacerbated the state's fiscal mess. Falling house prices mean lower property-tax receipts to run local governments and schools, leading to layoffs and cutbacks. Meanwhile state unemployment jumped to 9.3 percent, and the state is collecting less in sales and income taxes. The little money the state has left is being fought over by legislators and Gov. Arnold Schwarzenegger who are dealing with a budget shortfall of $42 billion through 2010. Without an agreement, the state could run out of money by late February.
State controller John Chiang recently warned he might have to delay $3.7 billion in tax refunds and disability payments in February unless state lawmakers reached a viable budget deal by the end of the week—a delay that would hurt many, including families on the brink of foreclosure. Help from Washington may be on the way, though. The House version of the stimulus package, passed Wednesday, contained $11 billion the feds could rush to Sacramento—and cut the budget shortfall by 25 percent.
Plenty of hurdles remain. Credit is hard to come by for "jumbo" loans above $417,000 that dominate the more expensive, coastal markets. Rising unemployment may replace fears over falling home prices as a psychological hurdle. "A year ago, the public put off buying out of fears that prices were going to go lower," says the California Realtors' Liptak. "Now they are worried, 'Am I going to have my job six months or a year from now?'"
Back at the REDC auction, buyers were a mix of caution and exuberance. Los Angeles banker Richard Teng had his eye on a downtown condo for his wife, Masako, and their baby daughter. With a household income of about $200,000, Teng set limits in the mid-300s for his bids on a pair of two-bedroom condos. But when the bidding zoomed past his target price, he bailed. "I'll keep looking," he said. But Walter Tillman, 64, a retired city worker, bought a $250,000 home in South Los Angeles—sight unseen. The auction firm sent him the wrong catalog, so he didn't see even a picture until he got to the auction. Still, he's aiming to put 20 percent down and get a loan at around 5.7 percent. "That was my first bid at any kind of auction," Tillman says. "We kind of took a chance." The housing market won't stabilize until a lot more buyers think it's smart to take chances, too.
by Catherine Reagor - Oct. 28, 2008 10:52 AMThe Arizona Republic
Metropolitan Phoenix now leads the nation for home price declines, according to the S&P/Case-Shiller Home Price index released this morning. The Valley’s existing home price fell 30.7 percent between August 2007 and August 2008.
The Valley just beat out Las Vegas for the top spot for the biggest drop in home prices. The Nevada city’s resale home price has fallen 30.6 percent based on the index.
Miami, Los Angeles, San Francisco and San Diego were all right behind with home price declines of more than 25 percent.
Most of the country’s big metro areas posted home price declines. An index of the 20 largest U.S. cities fell almost 17 percent.
“The downturn in residential real estate prices continued, with very few bright spots in the data,” said David Blitzer, chairman of the Index Committee at Standard & Poor’s.
Cleveland and Boston were the only two major cities, tracked by the index, to post gains in home prices.
Metro Phoenix trailed Las Vegas and Miami for home price declines until August. The index lags about two months so researchers can gather all the necessary home data.
The S&P/Case-Shiller Home Price Index uses resale data to track home prices. It is considered one of the most accurate housing indexes in the country.
For the first time in nearly eight months, mortgage brokers and lenders have good news for their clients. That’s because the federal bailout of mortgage giants Fannie Mae and Freddie Mac has resulted in a sharp and sudden drop in mortgage rates.
Sunday's announcement that the government would intervene in the troubled lending giants sent long-term mortgage rates plunging.
The average rate on a 30-year, fixed-rate mortgage had fallen to 5.88 percent, down from 6.26 percent last week, according to Bankrate. The average rate on a 15-year fixed-rate loan fell to 5.49 percent, down from 5.77 percent during the week prior. For the mortgage market, that represents a huge drop, virtually overnight.
He said the Detroit-based company logged its busiest day of the year Monday in terms of combined new loan and refinancing applications.
While interest rates on fixed-rate mortgages dipped below 6 percent in January, that drop only lasted one day. This time, lenders say, the newly lowered interest rates should last much longer. The news, they say, is good for consumers as well as for the real estate industry.
For mortgage lenders and brokers, the needle’s shift south means that phones are ringing and Blackberries are quivering with eager calls from consumers.
“When you see rates go down nearly half a point in one day, people notice,” said Joey Hansen, a mortgage broker in the Apex, N.C. “I think we’ve entered a new world. The confidence restored in world markets will last for awhile.”
For her part, Hansen believes fixed-rate mortgages will remain below 6 percent for several quarters.
Ditto for Peter Thompson, senior loan officer at Professional Mortgage Partners in Downers Grove, Ill.: He believes rates could stay below 6 percent for the rest of 2008.
“A lot of people missed out on these rates the first time,” he says, referring to brief rate drops in January. “People are just finding out about the new rates.”
But other brokers note that, while the newly lowered rates could last for a few months, they won’t stay below 6 percent forever and may climb back up to about 6.5 over the next year.
Joe Metzler, a senior mortgage broker at the Metzler Mortgage Group at St. Paul, Minn.-based Mortgages Unlimited, says that he’s seen only a slight uptick in customer contact since the news of the federal intervention broke, and what calls he’s gotten are coming mostly from clients already shopping for a mortgage but who hadn’t yet locked in rates.
Metzler said he was burned in January when rates dropped to around 5.8 percent: He hastily organized a postcard mailing to 15,000 former and potential clients and mailed it out the day of the rate drop, but as the week wore on rates ticked back up to about 6.3 percent. By the time clients called about the low rates marketed in his mailing, he couldn’t offer them, he says.
Yesterday I was reluctant to do that again,” he says.
He thinks they are mostly at the level they are now as a "knee-jerk" response to the federal intervention, and will kick-start a market recovery before going up again.
“Rates can’t live there forever,” Metzler says. “I’d tell anyone who thinks rates below 6.5 percent are a good deal to lock them in now.
39 commentsAug. 25, 2008 08:44 AMAssociated Press
WASHINGTON - Sales of existing homes rose 3.1 percent in July, easily beating Wall Street's expectations, as buyers snapped up deeply discounted properties in parts of the country hit hardest by the housing bust.
However, the number of unsold properties hit an all-time high, the latest indication that the worst housing market slump in decades is far from over.
The National Association of Realtors reported Monday that sales rose to a seasonally adjusted annual rate of 5 million units. Sales had been expected to rise by only 1.6 percent, according to economists surveyed by Thomson/IFR. Home sales were 13.2 percent lower than a year ago and prices were down dramatically. The median price for a home sold in July dropped to $212,000, down by 7.1 percent a year ago.
Despite the third monthly sales jump this year, the number of unsold single-family homes and condominiums rose to 4.67 million, the highest number since 1968, when the Realtors group started tracking the data.
That represented a 11.2 month supply at the July sales pace, matching the all-time high set in April.
Sales were up in all regions of the country except the South, which posted a 0.5 percent decline. Sales rose by 5.9 percent in the Northeast, 0.9 percent in the Midwest and 9.7 percent in the West.
Analysts say that until the inventory level is reduced to more normal levels, the housing slump is likely to persist. The inventory level is being driven higher by a massive wave of mortgage foreclosures.
Despite the rise in sales, Lawrence Yun, the Realtors' chief economist, was reluctant to conclude that the U.S. housing market has hit bottom.
While buyers are pouncing on lower prices - especially in places like California, Florida and Nevada - sales are sluggish in formerly stable states like Texas.
"People are responding to lower prices," Yun said, but there is "too much uncertainty" about the housing market's future to mark a definite bottom.
One key unknown is the ability of mortgage finance companies Fannie Mae and Freddie Mac to supply money for loans. The two government-sponsored companies have cut back the availability of mortgages significantly as they cope with mounting losses from foreclosures and officials ponder whether to shore up the two struggling companies.
President Bush last month signed sweeping housing legislation that aims to prevent foreclosures by allowing an estimated 400,000 homeowners to swap their mortgages for more affordable loans, but only if their lender agrees to take a loss on the initial loan.
Even with government help, nearly 2.8 million U.S. households will either face foreclosure, turn over their homes to their lender or sell the properties for less than their mortgage's value by the end of next year, predicts Moody's Economy.com.
4 commentsby J. Craig Anderson - Aug. 18, 2008 12:00 AMThe Arizona Republic
The Housing and Economic Recovery Act of 2008, signed into law by President Bush on July 30, has sparked numerous debates over its mechanisms to assist struggling homeowners, future homebuyers and lending institutions. However, some of the complex law's nuances are poorly understood, and certain provisions have received only a passing mention in news reports. In an effort to better explain the law, here are five key questions and answers:
Question: Why does the housing act offer unlimited credit to Fannie Mae and Freddie Mac?
Answer: The law's most far-reaching provision gives financial assistance to the government-sponsored Federal National Mortgage Association and Federal Home Loan Mortgage Association, which own or insure nearly half of the roughly $12 trillion in U.S. mortgage debt. Fannie Mae and its younger brother Freddie Mac have suffered losses totaling about $11 billion in recent months, due in large part to their investments in financially risky sub-prime loans. Both associations purchase loans from lenders and sell them as mortgage-backed securities to the global investment market. The housing act allows the U.S. Treasury to offer Fannie Mae and Freddie Mac an unlimited line of credit until the end of 2009, and it can also buy their stock. The hope is that a federal guarantee will bring gun-shy investors back to the secondary market, which provides the funding for lenders to make future loans.
Q: Which homeowners are eligible for Federal Housing Administration refinancing of their existing mortgage loans?
A: To qualify, a borrower must live in the home, cannot own any other property and must have a high mortgage debt-to-income ratio - most likely 31 percent or more, though there may be exceptions. Applicants also must agree to forfeit no less than 50 percent of the home's future appreciation. They lose even more - up to 100 percent - if they sell within one to five years. FHA must consider the applicant's debt-to-equity ratio, which means borrowers who are significantly upside-down would not likely qualify. The borrower must provide tax returns for the past two years to prove adequate income and must not have any fraud convictions in the past 10 years. Possibly the most significant hurdle is that lenders are not obligated to accept the refinancing plan. Also, there is a $300 billion limit on the cost of insuring all refinanced loans.
Q: What are the terms and conditions of the new $7,500 homebuyer tax credit created under the law?
A: Most importantly, the tax credit is in the form of an interest-free loan and is not a gift or grant. The borrower must repay it within 15 years of purchasing the home. Only first-time homebuyers are eligible, and the tax break only applies to homes purchased between April 9, 2008, and July 1, 2009. The tax credit's full amount is only available to individual borrowers whose annual income is below $75,000 and couples with a combined income below $150,000.
Q: How does the new law affect reverse mortgages?
A: The housing act will have a significant effect on the issuance of home equity conversion mortgages, also known as reverse mortgages. Proponents of reverse mortgages, which allow homeowners age 62 or older liquidate their home's equity over time by deeding the home to a bank upon their death, say the law makes them safer and more accessible than in the past. The law requires reverse-mortgage borrowers to receive "adequate counseling" from a third party not associated with the lender, and it allows the government to create a new counseling program funded by mortgage insurance premiums. It also reduces possible conflicts of interest by forbidding reverse-mortgage loan originators from selling insurance, annuities or other financial products. They may not give or receive incentives from others to sell such products to reverse mortgage borrowers. The law also places a $6,000 cap on origination fees, which will be adjusted periodically for inflation.
Q: What other provisions are included in the bill?
A: One provision that has received some attention is the elimination of seller-funded down payment assistance programs for FHA borrowers, which takes effect Oct. 1. The ban will virtually eliminate no-down-payment offers on new homes. FHA officials have long requested the ban, saying loans issued with down payment assistance carry a default rate three times higher than that of traditional FHA loans. The housing act also places a one-year moratorium on "risk-based" FHA loan insurance premiums, a program initiated in July to charge borrowers based on the likelihood of loan repayment. It streamlines the process for issuing FHA-insured loans on condominiums, and reforms the FHA loan process for manufactured homes. In addition, it authorizes a pilot program to generate alternative credit rating information for loan applicants with insufficient credit history.
If the bill is then passed by the Senate and signed by President Bush, who today withdrew his threat to veto the legislation, thousands of at-risk borrowers will be able to refinance their unaffordable old mortgages into new low-cost fixed-rate loans insured by the Federal Housing Administration (FHA).
The Congressional Budget Office estimates that 400,000 borrowers with $68 billion in loans may benefit from the program - but the bill allows for as many as 1 million or 2 million borrowers to participate in the program.
Here's what homeowners need to know.
Qualified borrowers must live in their homes and have loans that were issued between January 2005 and June 2007. Additionally, they must be spending at least 40% of their gross monthly income on all household debt to be eligible for the program.
They can be up to date on their existing mortgage or in default, but either way borrowers must prove that they will not be able to keep paying their existing mortgage - and attest that they are not deliberately defaulting just to obtain lower payments.
Before homeowners can get FHA-backed mortgages, they must first retire any other debt on the home, such as a home equity loan or line of credit. Borrowers are not permitted to take out another home equity loan for at least five years, unless it's to pay for necessary upkeep on the home.
To get a new home equity loan, borrowers will need approval from the FHA, and total debt cannot exceed 95% of the home's appraised value at the time.
Borrowers can contact their current mortgage servicer or go directly to an FHA-approved lender for help. These lenders can be found on the Web site of the Department of Housing and Urban Development.
This is a voluntary program, so lenders holding the original mortgage have to agree to rework a given loan before things can get started. The bill requires lenders to make major concessions, writing down the value of the loan to 90% of the home's current value. In areas where prices have plummented by as much as 20%, that will mean a substantial loss for the lender.
But lenders won't sign off on a workout unless they think that they'll lose less money on that than they would by allowing a home to go through the costly foreclosure process.
Each loan will have to be underwritten by an FHA lender on a case-by-case basis. That means the banks will do a new appraisal to determine the home's current value, as well as examine and verify income statements, bank accounts, job histories and credit scores.
Based on that new appraised home value, the FHA lender must determine how much the original lender has to reduce the original mortgage, so that it will reflect 90% of the home's market value.
If the original lender agrees to the writedown, the new lender buys the old loan and takes over the reworked mortgage.
As part of the deal, the old lender writes off any fees and penalties on the original mortgage, including prepayment penalties, and accepts the proceeds from the new loan on a paid-in-full basis. Additionally, it pays the FHA an up-front premium equal to 3% of the mortgage principal.
There should be little up-front costs for borrowers to bear. Loan origination fees will vary by lender, but these can usually be paid by the borrower over the life of the loan in the form of a slightly higher interest rate.
However, the refinanced loans do come with many strings. For one thing, borrowers are responsible for paying an insurance premium to the FHA guaranteeing the loan, which will be 1.5% of the principal annually.
Borrowers also agree to share any profits from future home-price appreciation with the FHA. To do that, they'll pay a "3% exit fee" of the mortgage principal to the FHA when they resell or refinance.
Plus, they'll agree to pay the FHA 100% of any profits they realize from higher home prices if they sell or refinance within a year. So if the original loan principal is $200,000 and the home sells for $250,000, the borrower will owe the FHA $50,000, minus costs.
After a year, borrowers will share 90% of the profits with the FHA. The percentage keeps dropping in 10% increments to 50% after the fifth year, where it stays.
Savings depend on what borrowers are paying for their present loan and where they live, but for most people it will be substantial, even after factoring in the FHA fees.
In areas that have sustained huge price drops, such as Sacramento, Calif., where prices have fallen by about 30% over the past year, some loans might be reduced by more than 40%.
Additionally, the FHA loans carry reasonable interest rates, which are fixed for the life of the loan, as opposed to a subprime adjustable-rate mortgage that can jump higher every six months
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You can find out yours at myfico.com. According to Experian National Score Index, one of the major credit bureau companies, the average credit score in America is currently 692.
But even if you pay your bills on time religiously, your credit score may be endangered. Here are ways charge card sins could cost you some precious credit score points.1. Not asking for what you wantDon’t accept everything your credit card company offers as written in stone. If you don’t want that credit line increase, ask them to reduce it back to your old one. Had one late payment? If your record is squeaky clean, ask them nicely to remove the blemish from your credit history (which, remember, could cost you up to 100 points on your credit score). They could say no, but they could very well say yes because they value you as a customer. Ask anyway. Your credit score will thank you.2. Accepting credit line increasesBeing the responsible, on-time bill-payer that you are, your credit card company rewards you by upping your credit line. This isn’t necessarily a bad thing, but remember how much you can afford to reasonably charge. Resist the urge to spend more or risk being unable to meet your new minimum payments.3. Consolidating your accountsSo you’re considering transferring all your credit card balances to one card so you’re only dealing with one bill every month. It sounds sensible, right? A big no-no, according to the keepers of the credit score. Think of it this way: One big balance looks a whole lot worse than multiple low balances. Appearances are everything.
4. Canceling a Credit Card
We are often led to believe that taking a pair of scissors and snipping that charge monster to shreds is a good thing. But don’t cut up those old cards so quickly. Your credit score takes into account credit history. Get rid of an old standby in your wallet and you could erase all those years you were an excellent bill payer.
By Matt Woolsey, Forbes.com
Jun 18th, 2008
With 700,000 bank-owned homes on the market, and another one million in some state of foreclosure, according to RealtyTrac, an Encino, Calif., provider of foreclosure listings, you might be tempted to add a distressed property to your portfolio.
Beware. Buying a home in foreclosure is not for the meek. Those with an appetite for risk, however, will find the tumultuous market stocked with plenty of investment opportunities.
These may include the sale of brand new luxury homes in an upscale Nashville community for half their marked value or a bank giving away a foreclosed property in a poor Detroit neighborhood for back maintenance.
But this complex arena is teeming with professionals. Private equity juggernaut Blackstone Group alone this year raised an $11 billion war chest to chase distressed properties, and large homebuilders looking to recapitalize, like Centex and Lennar, unloaded over $1.5 billion in homes to vulture funds between December 2007 and April 2008, for between 30 and 40 cents on the dollar.
Whether you're looking to flip a home, buy into a neighborhood you couldn't otherwise afford or planning to rent the home, you, like these big companies, must have heaps of cash on hand.
There are properties that can be turned within a few months, but the overall market is still slow. Even if you have a renter lined up or have enough money for a 10% to 20% down payment, you should be ready to weather a depressed market for another two or three years.
Go to the county assessor's office and study recent sales for price-per-square foot and time spent on market to determine what sort of price you can expect at resale. Be conservative. If you are renting, calculate a capitalization rate, and subtract 10% or more of the annual yield for maintenance and depreciation. Make sure that your endeavor is still profitable if you incur two to three years of carrying costs and depreciation.
It's also crucial to remember that bad loans that plagued speculators and unprepared borrowers don't simply disappear when distressed owners sell their properties. Unless the property goes through foreclosure auction and becomes bank-owned, outstanding liens and fees are simply transferred to the new owner. If you plan to buy out of pre-foreclosure, make sure the property has a clean title; otherwise you'll just be trading places with the distressed homeowner.
In such situations, outstanding fees, second liens and the like aren't automatically washed away. It isn't always the case that pre-foreclosure homes lack clear title, but once a home goes into the auction on the courthouse steps and is bought back by the bank, it is clear of all the bad loans that got the original owner into trouble. Making sure a home has clean title is a critical first step to a sound investment.
It's also important to note that you make money on a foreclosure the moment you buy the home. You can make a good return if you're selling in a sinking market, for example, by unloading a home at 70 cents on the dollar, if you bought it for 50 cents on the dollar. In heavily hit foreclosure areas, banks are juggling so many properties that offers on distressed homes, out-of-business homebuilders' developments and excess inventory are being entertained at under-listing prices.
Just don't get attached. As in any market, falling in love with a home--and overpaying--is a surefire way to lose money in a highly risky one.
When you've located an appealing property, order a new appraisal and study foreclosure patterns in the neighborhood. You'll also want to explore creative financing options to defer costs.
However you do the math, the most important thing to keep in mind is that the investment has to be worthwhile--even if you can't sell the home at your desired price for two or three years and the current housing market deteriorates a further 10% to 20%.
If that's a model you can live with, it might be time for a subscription to a foreclosure listing service.
Associated PressJun. 6, 2008 02:41 PM
Associated PressJun. 9, 2008 08:27 AM
The Wall Street JournalJun. 11, 2008 09:36 AM
By Amanda Gengler, Money Magazine
May 27th, 2008
(Money Magazine) -- There's no telling how long the housing crisis will drag on. Here's what you need to know before you start shopping in a rocky market.
Face it: The house you buy today will more than likely be worth less next year. That could get you thinking about trying to time the bottom. Resist. It's harder to do than you think, and this is the best buyers have had it in two decades, with inventories up and mortgage rates low.
Pace yourself, find the perfect place and drive a hard bargain: Ignore the seller's asking price and bid 10% below what comparable homes are selling for. If the seller balks, move on. Remember that if you're trading up, your home could sit. So sell before you buy.
Homes are plentiful and will remain so, but financing will be getting more expensive. True, the Federal Reserve has slashed interest rates, but fixed mortgages don't directly follow the Fed. They reflect the bond market's expectations about inflation, which remains a concern. The 30-year, now at 6.1%, will likely reach mid-6% by December and 7% in 2009, says Celia Chen of Moody's Economy.com.
That means there could be a penalty for waiting to buy even if prices fall more. Today a $250,000 loan would set you back $1,500 a month. At 7%, a $1,500 payment gets you only a $225,000 mortgage. As for variable-rate loans, the spread between conforming ARMs and fixed loans is too narrow to do you much good.
Mortgages in amounts greater than $417,000 - the limit for buying by federally sponsored mortgage agencies - usually run a fifth of a percentage point above conventional products. But investors are shunning jumbos, which now average 7.2% and are unlikely to drop much this year, according to HSH Associates.
Certain jumbo borrowers could get relief, however. A new law allows Freddie Mac and Fannie Mae to buy loans as large as $729,750 in 71 high-priced areas. So far "jumbo conforming" loans average 6.6%. The program has gotten off to a slow start; you'll need to shop around. And unless Congress acts, this bargain will disappear at year-end.
By now you've heard from somebody who knows somebody who got a great deal on a foreclosed property. But when you buy a house, you're also buying into a neighborhood. And foreclosures tend to be bunched in areas where residents and speculators alike took out exotic mortgages to get into homes they subsequently found they couldn't afford. That's not a recipe for stability. Prices and quality of life could both decline further.
Similarly, avoid developments that popped up in the past few years. They too likely have a lot of owners with risky loans and little equity, says Mike Larson of Weiss Research. Instead, go for areas with highly rated schools. They generally fare better during downturns, and that pattern is holding today, according to a recent study by real estate site Trulia.com.
The real estate game has a built-in conflict of interest, since the listing agent and your agent both get paid by the seller. And these days more sellers are offering extra cash to buyer's agents.
So make sure you're not being steered to a house that's better for your agent than for you. Agree up front on his commission (typically 3%) and that any extra payments will go to you, says Jon Boyd, past president of a buyer's agent trade group.
By Les Christie, CNNMoney.com
May 28th, 2008 NEW YORK (CNNMoney.com) -- With prices crashing around the nation, home price affordability has improved dramatically in many U.S. cities.
As a result, 53.8% of all new and existing homes sold nationwide during the first three months of 2008 were affordable to families earning the median household income of $61,500, according to the latest Housing Opportunity Index released Tuesday by Wells Fargo and the National Association of Home Builders (NAHB).
That's up from 44% during the first three months of 2007 with home prices the most affordable they've been since the three month period that ended June 30, 2004.
"Three factors combined to substantially increase housing affordability," said NAHB president, Sandy Dunn, in a press release accompanying the report. "Mortgage rates returning to near the record low levels of a few years ago, a $2,500 rise in family income nationwide (from 2007 to 2008) and lower house prices."
Home prices dropped about 8% compared with a year ago, according to NAHB, but that doesn't mean that buyers are flocking back to the market.
"This measure can only take you so far in implications for the market," said Dave Seiders, NAHB's chief economist. "There're several factors that the index does not capture."
These include buyer expectations. Many are reluctant to act in falling markets. That sentiment can contribute to market overshoot, according to Seiders, in which prices fall lower than would be their logical bottom.
Richard DeKaser, who, as chief economist for national City Corp., runs his own affordability studies, pointed out that three main factors influence housing market trends: demographics, like more families moving into an area attracted by jobs; sentiment, the perception that the housing market is a good investment at any point in time; and affordability.
"While affordability is an important factor that will contribute to recovery of housing markets eventually," he said, "improved affordability is unlikely to lift markets out on its own."
The index also fails to capture the tightening of lending standards, which has been quite dramatic during the past 12 months. The index presupposes constant lending standards.
But today, lenders are requiring much higher down payments, better financial documentation and higher credit scores than they did during the boom, cutting back on the number of potential buyers.
California has been particularly hard hit by a liquidity squeeze in jumbo loan markets. These mortgages of greater than the $417,000 cap limit that Freddie Mac and Fannie Mae imposed (now temporarily raised to $729,250) are especially important to high-priced markets.
"Jumbo markets had essentially shut down, " said Seiders, "and many California markets depend on jumbo loans." These are getting a little easier to find but they still cost a full 1 to 1.5 percentage points higher than other loans.
That has helped make Los Angeles, the least affordable metro area in the United States, more affordable than last year. But still, despite much lower home prices, to a median $412,000 from $525,000, only a little more than 10% of homes sold during the first quarter of 2008 were priced low enough so that households earning the median income of $59,800 in the area could buy.
That, however, is a change from a year ago when only 3% of Los Angeles area homes sold were affordable to the average Joe.
The affordability improvement was even greater for Santa Ana in Orange County, Calif. Helped by a median price drop to $470,000 from $610,000 a year ago there, 17.4% of homes sold were affordable, up from 4.4% during the first three months of 2007.
In San Diego, home affordability rose to 25.2% from 9.4% as prices dropped to $368,000 from $460,000; in Riverside, Calif. affordability went to 26.9% from 9.7% as prices fell to $288,000 from $380,000; and in Stockton, Calif., it soared to 35.5% from 9.7% as prices cratered to $262,000 from 390,000.
The least affordable big city outside California was the New York metro area. There, nearly flat prices - $490,000 this year compared with $500,000 last, led to an increase in affordability to 12.5% this year. Still, that's better than a year ago, when only 6% of homes sold were affordable. New York is the second least affordable area according to this survey.
As has held true for several years, most of the affordable big cities were in the Midwest with Indianapolis leading the way. Homes sold there during the first three months cost about $106,000, down from $116,000 last year and 90.1% of all households living there earned enough to buy a median priced home, up from 89% last year.
Other affordable big cities include Youngstown, Ohio, where a median home price of $75,000 (down from $78,000) makes 89.5% of homes sold affordable; Grand Rapids, Mich,. where 88.7% of homes sold were affordable (up from 84.5%) and Detroit, where 86.9% of homes were affordable, a statistic that actually fell from a year ago when 87.4% of homes sold were affordable.
Although home affordability improved to its best level since mid-2004, Seiders is not predicting a market turnaround anytime soon.
According to him, with job growth slowing, negative consumer sentiment and tight mortgage lending standards, it could be a while before real estate markets start climbing again.
He's predicting that housing starts won't turn upward until early 2009, that home sales will be flat through mid-2009 and that home prices will fall another 10% or so beginning to recover in late '09.
U.S.News & World ReportWhat Fed Moves Mean for Mortgage RatesWednesday April 30, 3:02 pm ET By Luke Mullins
ow have fixed mortgage rates been moving recently? They've climbed. The average 30-year, fixed-rate conforming mortgage increased from 5.91 percent for the week ending March 21 to 6.11 percent for the week ending April 25, according to HSH Associates, but it's still on the low side by historic standards.
How will the rates change over the next several months? With several factors pushing interest rates higher--and not much pulling them lower--fixed mortgage rates are likely to increase modestly in the coming months. "They are right around 6 percent now, [and] they are probably going to stay there the first half of this year," says Gus Faucher, the director of macroeconomics at Moody's Economy.com. "Then they are going to gradually move higher in the second half of this year."
Is that because of what the Fed is doing? No. This upward trend has little to do with monetary policy. The federal funds target rate--the Fed-controlled interest rate that banks charge one another for overnight loans--plays only an indirect role in setting mortgage rates. Instead, the rates are being driven higher by recent developments affecting the yield on 10-year treasury notes, which influences mortgage rates more directly.
What's happening with the 10-year treasury yield? It has been on an upswing. With fear reaching teeth-chattering levels in the days after the Bear Stearns investment bank came close to collapse in mid-March, the yield on the 10-year treasury--where investors head for safety during times of turmoil--fell to near-historic lows. But after the Fed cut interest rates and created innovative new ways to get cash to banks, the market staged a turnaround. Yields climbed nearly 17 percent, to 3.87 percent, from March 17 to April 25.
So, what's driving the yield higher? There are two key reasons behind this about-face:
--Risk looks better. Some market participants think they see an end to the credit crisis. "The worst is behind us," Lehman Brothers CEO Richard Fuld recently told shareholders, according to Bloomberg. With credit markets on the mend, those safe but low-yielding treasuries suddenly don't look so appealing. Investors are "pulling money out of the safest places in order to put them back to work in perhaps somewhat more risky assets," says Keith Gumbinger, vice president of HSH Associates. Less demand for treasuries means lower prices and higher yields.
--Angst about inflation. Rising concerns over inflation are also pushing 10-year treasury yields higher. For example, in early April, the government reported that the cost of imported goods jumped nearly 15 percent in March from the same month last year. "The data only goes back to 1983, [but] we've never see inflation this high," says T. J. Marta, a fixed-income strategist at RBC Capital Markets. With inflation worries increasing, bond investors are demanding a higher return on their money at risk. "You see the yields start to rise fairly sharply because now people are focused on inflation," Marta says.
Is there anything that might help moderate this increase? There is. Not all of this increase will be passed on to consumers in the form of higher mortgage rates. Typically, rates on a 30-year fixed mortgage are about 1½ percentage points higher than the yield on the 10-year treasury. But after the housing crisis hammered their portfolios, lenders and investors have grown wary of mortgages and are demanding higher returns. As a result, the difference between the 30-year fixed-rate mortgage and the 10-year treasury yield--known as the risk premium--has ballooned about 50 percent, to 2.32 percentage points, over the past year, according to HSH Associates.
But with lenders having tightened underwriting standards--making mortgages safer investments?--these risk premiums could narrow, Gumbinger says. "If underlying interest rates do rise, my suspicion is that there won't necessarily be a corresponding increase in mortgage rates," he says. "They will probably be influenced to some degree, but there is an awful lot of spread which could be compressed." So while higher 10-year treasury yields will put upward pressure on fixed mortgage rates, some of that increase will be absorbed by narrowing risk premiums--helping moderate the rise.
What's the outlook for adjustable-rate mortgages? Adjustable mortgage rates will face similar upward pressure from rising treasury yields. The conforming 5/1 adjustable-rate mortgage--which offers a fixed interest rate for the first five years and then adjusts annually for the remaining 25--stood at an average of 5.89 percent for the week ending April 25, down from 6.08 percent a year earlier, according to HSH Associates. "By the end of the year, we might be working toward around 6.25 percent," says Mike Larson, a real estate analyst at Weiss Research.
Has the Fed's rate-cutting campaign helped struggling adjustable-rate-mortgage holders who may be facing foreclosure? Yes, but you might not see it. Although adjustable-rate mortgages are more closely linked to the federal funds rate than fixed-rate home loans are, they have fallen only about half a percentage point since September, despite the Fed's aggressive series of rate cuts. That's because exotic mortgage products have played a key role in the foreclosure crisis, making them radioactive to investors. When investors aren't eager to buy these loans, rates must increase to attract buyers. As a result, adjustable-rate mortgage holders have not seen their monthly payments decrease a great deal.
But that doesn't mean the Fed's actions have not helped borrowers who have ARMs, says Faucher of Moody's Economy.com. "The truth is that if [the Fed] hadn't cut [the federal funds rate], adjustable rates would be even higher...and the problems would be much more severe," Faucher says. "So you can't just say, 'Well, the Fed hasn't done anything.'"
APPaulson Proposes Financial OverhaulMonday March 31, 3:12 pm ET By Martin Crutsinger, AP Economics Writer
The plan would change how the government regulates thousands of businesses from the nation's biggest banks and investment houses down to the local insurance agent and mortgage broker.
Treasury Secretary Henry Paulson unveiled the 218-page plan in a speech in Treasury's ornate Cash Room, declaring, "A strong financial system is vitally important -- not for Wall Street, not for bankers, but for working Americans."
The administration's plan drew criticism, however, from Democrats who said it did not go far enough to deal with abuses in mortgage lending and securities trading that were exposed by the current credit crisis. Some state officials criticized what they saw as unwanted federal intrusion on their turf.
Massachusetts Secretary of the Commonwealth William F. Galvin blasted Paulson's approach as "a disastrous backward step that would put the investor in jeopardy" because it would pre-empt state regulation of securities and insurance.
The administration said that it planned to work with Congress to have constructive conversations, but officials would not predict when any aspects of the proposal could be enacted into law.
Asked if Bush's goal was to get the overhaul approved before he leaves office, presidential press secretary Dana Perino told reporters aboard Air Force One, "We'll have to see. It is a big attempt."
The plan, which would require congressional approval for its biggest changes, seeks to trim a hodge-podge collection of overlapping jurisdictions that date back to the Civil War.
It would give the Federal Reserve more power to protect the stability of the entire financial system while merging day-to-day bank supervision into one agency, down from five at present.
It also would create one super agency in charge of business conduct and consumer protection, performing many of the functions of the current Securities and Exchange Commission.
It would propose eliminating the Office of Thrift Supervision and the Commodity Futures Trading Commission, merging their functions into other agencies.
The head of the commodity trading commission raised concerns about the plan. CFTC Acting Chairman Walt Lukken said merging the Securities and Exchange Commission and his agency could end up making "the U.S. futures industry less competitive globally" unless differences in the laws governing the sales of securities and futures contracts were resolved.
The Paulson plan It would ask Congress to establish a federal Mortgage Origination Commission to set recommended minimum licensing standards for mortgage brokers, many of whom now operate outside of federal regulation, and it would also take a first step toward federal regulation of the insurance industry by asking Congress to establish an Office of Insurance Oversight inside the Treasury Department.
Paulson acknowledged in his remarks that most of the changes will not occur until after a lengthy debate in Congress, leaving it to the next administration to deal with the biggest changes proposed by the report. He also said the Bush administration's focus would remain on getting through the current severe credit crisis, which has roiled financial markets since last August.
Paulson rejected Democratic charges that it was lax regulation of mortgage brokers and the financial industry that had led to the current problems.
"I do not believe it is fair or accurate to blame our regulatory structure for the current market turmoil," he said. "I am not suggesting that more regulation is the answer or even that more effective regulation can prevent the periods of financial market stress that seem to occur every five to 10 years."
Sen. Charles Schumer, D-N.Y., said he strongly disagreed with Paulson. "The unregulated corners of our economy did much to contribute to the meltdown in our housing market and the accompanying spillover to our financial markets," Schumer said in a statement. "The administration's 'deregulation-above-all-else' attitude helped cause the problems we now face."
Banking groups raised strong objections to the plan while other groups expressed approval.
"Dismantling the thrift charter and crippling state banking charters will weaken banking in America," said Edward Yingling, president of the American Bankers Association.
Tim Ryan, head of the Securities Industry and Financial Markets Association, which represents more than 650 securities firms, banks and asset managers, praised the overhaul proposal and said there was widespread agreement on the need for modernization in an era "where billions of dollars race across the globe with the click of a mouse."
Frank Keating, president of the American Council of Life Insururers, praised the insurance proposals but Dan Mica, president of the Credit Union National Association, said his organization was "astonished and angered" by the plan to abolish a separate federal regulator for credit unions. He said this move would "essentially turn credit unions into banks."
In Congress, House Financial Services Committee Chairman Barney Frank, who is working on his own regulatory revamp, called Paulson's proposal a "constructive step forward" but said it wouldn't give the Federal Reserve enough authority to carry out its expanded job to police the stability of the entire financial system.
Many Democrats said that Congress' first priority should be to deal with the current mortgage crisis that is threatening millions of Americans with the loss of their homes and that an extensive debate on a regulatory overhaul should not occur until a new president is in office next year.
Senate Banking Committee Chairman Christopher Dodd, D-Conn., told reporters that he viewed the administration's plan as a "wild pitch -- it's not even close to the strike zone" of what is needed to help the country get through the current mortgage crisis. He said the real problem was not the need for new regulations but "the failure of this administration to utilize the tools they've been given over the years to deal with the very practices that caused this problem."
The proposed overhaul would be the most extensive since the current regulatory system was created in response to the 1929 stock market crash and the Great Depression.
It comes at a time when the financial system faces its most severe credit crisis in two decades, one that has resulted in billions of dollars of losses for big banks and investment houses and the near-collapse of Bear Stearns, the country's fifth-largest investment bank.
The rising tide of bad debt has made it harder for consumers and businesses to get credit, further weighing on an economy struggling with a prolonged housing slump and soaring energy prices. Many economists believe the country is already in a recession.
By Mark Trumbull Mon Mar 31, 4:00 AM ET
The federal government is increasingly focused on how to resolve the US mortgage mess, but the effort means grappling with controversial issues of who should receive help and who will pay for it.
Questions of fairness are sure to figure in the policy debate – and are already surfacing on the presidential campaign trail, on talk radio, and in congressional committee rooms. The people who might get bailed out, after all, include the same reckless lenders and often-speculative borrowers who helped cause the mess.
Should mortgage companies be forced to knuckle under so borrowers can keep their homes and avoid foreclosure? Should taxpayer money be used to help troubled banks?
To a large number of Americans, such interventions in the marketplace are wrongheaded. Still, signs of economic weakness in the past month have made a hands-off approach less likely, analysts say.
"[One] choice is to be very puritanical and say that those who have sinned must suffer. The problem is that so many have sinned that all of us must suffer," says Ed Yardeni, an economist who heads an investment research firm in Great Neck, N.Y. "The mortgage market is really way too big to [let it] fail."
As he sees it, the whole economy is beginning to suffer through a recession, caused in large measure by the decline in home values and credit availability. Policy efforts may cost taxpayers some money but could also prevent a deeper slump.
"We like to believe that we're a free-market capitalist society where everybody is responsible for their own business and financial activities," Mr. Yardeni says. "But when things start to go wrong, we ... turn to the federal government."
At the very least, some argue, help should come only with strings attached.
The Bush administration, for example, is set to unveil on Monday new proposals to improve regulatory oversight of Wall Street, alongside federal efforts to nurse the financial system back to health.
In a presidential-campaign speech on the housing crunch last week, John McCain spoke for many Americans when he emphasized personal accountability. "I have always been committed to the principle that it is not the duty of government to bail out and reward those who act irresponsibly, whether they are big banks or small borrowers," Senator McCain said.
Any assistance, he said, should be temporary relief to responsible homeowners.
Where does the public stand on this?
Many voters have mixed feelings, an ambivalence highlighted in one of the few polls so far that has tried to explore the question of mortgage bailouts.
In the survey, by CNN/Opinion Research in December, a slim majority of Americans said that borrowers who are defaulting on mortgages "have no one to blame but themselves." Yet in that same poll, a slim majority also supported the idea of "special treatment" to help those very homeowners avoid default.
The survey found less sympathy for banks. Nearly 3 in 4 Americans did not want to see special treatment to keep financial institutions from losing money on loans that go bad.
Many of the rescue proposals under review, however, would provide some support for lenders even as they try to keep homeowners out of foreclosure.
In one sense, taxpayer-backed help is already being provided by some federal authorities – aimed especially at averting a possible meltdown in the financial industry.
"It isn't a question of whether there's going to be a bailout," says Scott Lilly, a senior fellow at the Center for American Progress, a left-leaning Washington think tank. "It's a question of what kind of a bailout."
Among the steps taken so far:
•The Federal Reserve intervened to prevent the sudden collapse of Bear Stearns, an investment bank. But the Fed took on $29 billion worth of risk from JPMorgan Chase (which plans to buy Bear). That could expose the Fed – and by extension taxpayers – to a loss. The Fed is making other low-interest loans to Wall Street firms.
•Government-sponsored housing agencies are taking on more risk to keep home loans flowing. The cost to taxpayers may be small or large, depending on how those loans go.
•The Fed has been cutting interest rates. That helps many borrowers – whose ranks include financial companies as well as homeowners. But the move could push up inflation for all Americans, and many retirees face lower income on their savings as a result.
Where McCain voiced caution about making taxpayers pay for more housing help, Democratic presidential candidates have said the government should do more.
In a speech last week, Hillary Rodham Clinton argued that the housing crisis affects most Americans, not just those at risk of losing their homes.
"In today's economy, trouble that starts on Wall Street often ends up on Main Street," she said. She added that the decline in housing prices has meant lost wealth even for homeowners who have no mortgage to pay off.
The troubles on Wall Street also mean that many consumers and businesses who never took out a subprime loan now face tougher terms on credit cards and other borrowing.
The great risk to the economy is a downward spiral, in which losses for banks tighten credit further.
If foreclosures erode household wealth and consumer confidence, home prices could overshoot on the downside just as they soared through the roof during the boom. "It's no telling how far down you go before you find the bottom in that kind of scenario," Mr. Lilly says.
That's one reason that efforts are ramping up in Congress for additional measures designed to slow the pace of foreclosures. The leading approach, for now, seems to be one backed by Rep. Barney Frank (D) of Massachusetts and Sen. Christopher Dodd (D) of Connecticut that could start moving this week.
It would have the Federal Housing Administration guarantee refinanced mortgages that make it more affordable for at-risk homeowners to avoid foreclosure.
Lilly supports this concept, but he says another approach could also spur faster restructuring of troubled loans: a tax credit to induce lenders to adjust mortgage rates downward.
In most of the plans under review, the goal is not to keep home prices from falling to a new equilibrium, but simply to avoid greater financial chaos than is already under way.
The survey presented 1,000 people with a hypothetical scenario about credit card debt and asked them to compute how long it would take to pay it off. Only 35.9% of the 1,000 respondents could figure out how many years it would take for the amount they owe on their credit cards to double. A full 18.2% did not know how to respond and 31.9% of those surveyed over-estimated the timeframe.
The survey by Harvard Business School and Dartmouth College professors and TNS asked respondents to assess their debt levels. Those who said they felt they were carrying too much debt were found to be "wildly wrong" when it came to using compound interest to calculate how long it would take to pay off that debt.
Of those polled, 26% said they consider the debt they are carrying to be unmanageable, while 61% said their debt level was "just right."
Americans don't realize they're unaware of some of the complexities of personal finance - like compound interest - said Bob Neuhaus, the executive vice president and the head of the financial services sector in the U.S. for TNS. "If financial literacy was higher, you would see more caution in the use of consumer debt. It would not eliminate the problem, but it would mitigate [it]."
However, there are smaller, more manageable steps that can make a difference. Harvard Business School Professor Peter Tufano, a self-proclaimed believer in financial education, does not see credit as inherently bad, but he said that debt services are much more complicated now than they were a generation ago. He said credit card companies could help by creating more consumer friendly credit contracts that plainly spell out the terms, and bills that itemize outstanding debt so consumers can grasp the reality of how they spend money and how long it will take to pay.
A lack of savings could be compounding the consumer debt problem. Another nationwide survey of 1,000 Americans released Monday by the American Savings Educational Council (ASEC) and America Saves found that a mere 53% of Americans have adequate savings with only 28% saving the recommended 10% of their annual income.
Three-quarters of Americans surveyed said that they spend less than their income and save the difference, which may provide enough for an emergency unexpected expense, but only a little over 50% have enough savings to provide for a comfortable standard of living in retirement.
However, those who make more money are able to sock away more for a rainy day, according to the savings survey. Ninety-percent of the high-income group (those earning at least $75,000 annually) say they have adequate savings, but only 48% of the low-income group (those earning below $35,000 annually) can say the same. And 81% of the high-income group report saving at least 5% of their income, compared with 34% of the low-income group.
Regardless of income or level of financial literacy, there is one unifying lesson: have a plan. "Having a financial plan increases savings and financial stability," said Stephen Brobeck, executive director of Consumer Federation of America.
By Jen HaleyCNNNEW YORK (CNN) -- From mortgages to refinancing and home equity lines of credit -- it's getting harder for people to qualify for a loan. And that makes your credit score even more vital.
Paying bills on time and setting up automated payments online can help improve your credit score.
Today, you'll need a higher score to get good loan terms.
"You really have to have good credit," said Bob Moulton, president of the Americana Mortgage Group.
Your credit score may have to be as high as 720 he says. "You can get credit in some places for 680. But that number gets higher every month," according to Moulton. Read excerpts from Gerri Willis' book
The first step to improving your credit is -- knowing where you stand. You can get a free copy of your report once a year from each of the three credit bureaus at https://www.annualcreditreport.com/cra/index.jsp. This is especially important if you think you will apply for a loan in six months.
Your credit report includes specific account information, like your balance, the date the account was opened and your payment pattern.
If you do find an error, make sure to put your complaint in writing, include any supporting documents and send it to the credit bureau. The credit bureau must investigate your claim and update your report if necessary. Keep in mind that your credit report is free, but you'll have to pay for your FICO score -- which will cost you about $15.
When it comes to calculating your credit score, your payment history is one of the biggest factors. So, keep making payments on time. Automate your bills online if it will help you avoid late fees. Even if you've made a few late payments, you can still re-establish a good credit score. The older the negative information, the less it counts against you.
"It may be tempting, but don't close old credit card accounts if you want to improve your credit score," says John Ulzheimer of Credit.com.
Your score also takes into account the difference between what credit is available to you and the amount you're using. If you shut down credit card accounts, the total amount of your available credit is lowered and your balances look much larger in comparison. This ratio then hurts your score.
Ideally your purchases should be within 10% of your credit limit, said Ulzheimer.
For example, if your credit limit is $6,000, don't charge more than $600.
Your FICO score also looks at how long you've been managing credit. So, the longer history you have, the better. If you have a card that you haven't used in a while, it's a good idea to use that credit card once every six months to keep it active, according to Craig Watts of Fair Isaac. This will ensure that your account is included in the calculation of that credit utilization ratio.
Applying for new lines of credit is even more damaging if you've only been handling credit for a little while. The credit score of a 20-year-old with one or two credit cards will drop substantially more than someone who's been managing their credit over 20 years.
Credit limits on retail cards are always very low, so even a few purchases, can max out the card and that can really damage your score.
Finally, be wary of credit repair companies. Complaints filed against these types of credit-repair companies are up almost 40 percent since 2004, according to the Better Business Bureau.
You may have heard about these companies on television and radio commercials or Internet advertisements. In some cases, consumers pay large upfront fees.
In return, these companies promise to erase any blemishes on credit records, get new Social Security numbers for clients, or allow consumers to piggyback on someone else's good credit record.
Don't fall for these scams. Whatever a credit repair company can do legally, is something you can do by yourself for free.
The government-sponsored loan buyer said the rate on a 30-year fixed-rate loan averaged 5.48 percent for the week ending Thursday, down from 5.69 percent last week.
At this time last year, the 30-year fixed-rate mortgage averaged 6.25 percent. The 30-year rate has not been lower since the week ending March 25, 2004, when it averaged 5.40 percent.
"Economic news released last week confirmed the weak condition of the housing market," Freddie Mac (FRE, Fortune 500) vice president and chief economist Frank Nothaft said in a statement.
"When the Federal Reserve cut the target federal funds rate by three quarters of a percentage point, the action was extraordinary in both the magnitude and the timing of the rate cut," he said.
Freddie Mac said 15-year fixed-rate loans averaged 4.95 percent, down from 5.21 percent last week. A year ago, the 15-year rate averaged 5.98 percent. The 15-year rate has not been lower since the week ending April 1, 2004, when it averaged 4.84 percent.
Rates on five-year adjustable-rate mortgages (ARMs) averaged 5.13 percent, down from 5.40 percent last week. The 5-year rate averaged 6 percent at this time last year.
One-year Treasury-indexed ARMs averaged 4.99 percent, down from 5.26 percent last week. At this time a year ago, the 1-year ARM averaged 5.49 percent.
She may soon have a lot of company. Property taxes have risen at more than twice the rate of inflation this decade. When home prices were going up at least that much, it was hard to complain. Besides, since many locales re-assess properties to their "true market value" only every few years (in some cases even less frequently), an owner in a particularly hot neighborhood made out. The value of his property rose faster than one across town, but the tax burden didn't shift.
Oh, how times change. Now every major national index has recorded a drop in home prices, and plenty of once sizzling markets have gone stone cold. That doesn't mean homeowners in suburbs around Boston, New York City, Miami and Washington, D.C. can expect a friendly note from the tax man lowering their assessment. As Harvey Levinson, chairman of the Nassau County, N.Y. board of assessors, notes, "If we reduced everyone's assessed value, the tax rate would just have to go up."
Nevertheless, the pullback in prices could give you an opportunity to ease your property tax squeeze. Fewer than one in 50 homeowners try to appeal assessments even though up to 60% of properties are overvalued by assessors, according to figures cited by the National Taxpayers Union. So if you file an appeal that's based on more than your indignation, you've got a good chance of success as long as most of your town doesn't do the same.
"The bottom line is that if homeowners aren't focused on what has happened in their marketplace, they are paying too much in property tax," says John Brusniak, a Dallas property tax lawyer.
Depending on how far you're forced to take an appeal, expect to spend from five to 20 hours on it. Most of the time you won't need a lawyer. And with potential payoffs in the thousands over many years, why let it slide? If your assessment has you banging your head against the desk, follow these steps to bring down your bill as painlessly as possible.
Taxing authorities use different methods to calculate home values. Some look at recent sales of similar homes. In rural areas where sales are few, they might estimate the cost to rebuild. Others use some combination of methods. Call your assessor's office and ask how it pegs values. In some locales your tax liability is based on a percentage of your property's estimated value. You'll want to know what that percentage is so you can figure out whether the actual value the assessor is assigning to your home is fair.
The assessor didn't pull his estimate out of a hat, even if it seems that way to you. Visit the tax man's office and ask for the evidence used to value your home. Get your home's property card, which lists basic details like lot size, square footage and number of bathrooms.
When municipalities or counties re-assess property values, they typically hire an outside contractor who looks at hundreds or thousands of homes in a tight time period. The appraiser has to come up with shortcuts. Three vent stacks on the roof? That must mean three full baths. Never mind that an upstairs laundry room could be the culprit.
The assessor's file should contain a worksheet that the appraiser filled out during inspection with addresses of homes he compared with yours. That was a key to Crane's success. The appraisal that was done on her 1960s house (still with vinyl siding and pink bathroom fixtures) valued it as though it were comparable to one of the area's new brick-and-stone McMansions. In the end her assessment was lowered by $20,000, saving her around $200 a year.
You won't have much time to file an appeal, generally 60 days or less from the time your annual tax assessment was mailed. (That typically occurs between late spring and late summer.) And you can't just march into an appeals board with a newspaper article showing price declines and expect to win.
If the issue isn't a simple error on your property card, you'll need to arm yourself with recent comparable sales or assessments that show your house has been valued too high. You can look up your neighbors' home valuations at the assessor's office. The easiest way to come up with comparable sales is to ask a real estate agent for help.
If you're in a new community, she might find homes with an identical floor plan that sold for thousands under your appraised value. Your ideal comparable homes will be of the same square footage and age as yours and sit on almost the same size lot. To make your case you'll need at least five sales - 10 is better - from around the time of your assessment. Your agent might charge you a $50 to $100 fee, but the expertise is worth it.
Take a critical eye to the homes and make sure there aren't circumstances that an assessor could use to explain a huge difference. Is one of your comps next to the railroad tracks? Did you just replace the roof on your 25-year-old home?
Put together a spreadsheet listing the addresses of the comparables, the sales prices and dates, the price per square foot and a description of what makes the homes similar to or different from yours. Finally, to complete your homework, drive out to the properties and take photographs of the exteriors.
If you can't find comparable homes that sold for at least 10% less than your property's assessed value, throw in the towel. Some areas require the valuation to be off by even more than that to win an appeal.
Go over the evidence you found in support of a lower value. This meeting might be hard to arrange in larger towns, but it's worth trying. If the assessor more or less agrees with you, the rest of the process will be a lot faster and smoother.
Attitude is important. You're showing the assessor how his appraiser messed up. Don't add to his defensiveness by tossing verbal grenades like "I pay your salary." If the assessor won't budge, make him explain why. Take notes: He's handing you his battle plan for the formal appeal.
Usually this is with a county board. Hand deliver it and get a receipt or use certified mail. Within a couple of weeks you should get a notice acknowledging receipt, but depending on your county's size, you could have a long wait for a hearing. David Jantzen, an IT consultant in Atlanta, filed an appeal last summer, but he still doesn't have a date. "The wait time is crazy," he says.
Most appeals are heard over the course of a couple of weeks. Before your day arrives, attend a hearing to get accustomed to the proceedings. Certain board members might raise the same objections all the time. So make sure you're ready to answer those questions.
Prepare visuals with photos of your home and the comparable homes, then write out and rehearse your presentation. Keep it to eight minutes or less. Brevity will score you points and leave time for the board to ask questions.
First, you'll likely appeal to a state agency. If that fails, you'll probably have to go to court. At this stage of the game you'll need help from a lawyer and probably an appraiser, says Cathy Steele, a property tax attorney in St. Louis. That needn't cost a fortune. You can retain a lawyer for a contingency fee that varies based on your potential tax relief. An independent appraisal will cost $400 or so.
The state, which will be handling hundreds of such appeals, wants to end the dispute as quickly as you do. "Before trial, these offices knock out as many settlements as they can. They're going to voluntarily give at least some relief in 95% of cases," says Melinda Blackwell, chairwoman of the American Bar Association's property tax committee.
Jantzen, who hopes that his appeal won't have to go that far, suspects that he'll be able to knock thousands a year off the tax bill on his Atlanta property, recently assessed at $1.5 million. "Homes on my street have been assessed at less than $1 million, and others have been on the market for years," he says. "It would be irresponsible not to appeal."
While economists debate whether the country is in a recession, consumers are being buffeted by skyrocketing prices, growing debt, layoffs, the subprime lending squeeze and a stock market roller coaster.
While you may not be able to control the price of oil or the prime rate, there are some simple things you can do to shore up your finances, safeguard your future and ride out whatever the economy throws at you.
Here's a list of ideas that hopefully will help you get through any hard times, plus tips if the hard times have already hit your household.
Dealing with hard times 1. Eliminate the nonessentials 2. Start a go-to fund for emergencies 3. Consider cutting back (rather than cutting out) for some expenses 4. Safeguard your current job 5. Be on the lookout for your next job 6. Keep your debt load light 7. Barring a complete personal financial meltdown, continue funding your retirement 8. Swap extraneous spending for smart long-term moves 9. Investigate refinancing 10. Re-examine your insurance 11. Adjust your withholding allowance 12. Reward yourself 13. Ask for an extension on your car loan 14. Get an extension on the mortgage 15. Talk to a mortgage counselor
1. Eliminate the nonessentials. One way to avoid putting spending on automatic pilot: Write down everything you buy and the price. Then go through the list and "be brutal," says Nancy Register, associate director for the Consumer Federation of America.
Ric Edelman, Certified Financial Planner and author of "The Truth About Money," agrees.
"You need to make sure you're not spending any money that doesn't absolutely, positively need to be spent," he says. "A lot of people are spending money frivolously on wants they consider needs."
If you have kids, "It's a great time to explain wants versus needs," says Linda Sherry, director of national priorities for Consumer Action.
2. Start a go-to fund for emergencies. The average family will face up to $2,000 a year in unexpected bills, says Register. For families already stretching to pay the bills, those surprises can trigger long-term financial problems. While you can't plan what or when, you can have money set aside just in case.
"You need to really boost your cash reserves," says Edelman.
His recommendation? Aim for one year's living expenses in an assortment of liquid vehicles, like a bank account, money market account and short-term CDs.
One way to kick-start that fund: Shave off 10 percent of your take-home pay every time you get a check, says Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling.
Keep it liquid and make saving automatic. Look for a money market account that pays the highest rate you can find, says Register. Want to make sure you're consistent? Arrange to have the money deposited electronically.
Deposit any "extra" money you receive, like that birthday check, bonus, tax refund or raise.
3. Consider cutting back (rather than cutting out) some expenses. Depending on your current situation and concerns, it might make more sense to just scale back.
"It's much more effective if people cut back rather than cut out," says Cunningham, "because it's the change in behavior that's so tough."
Examine services you're paying for and not fully using, like the cell phone plan with unlimited texting or the premium cable package. Are there less expensive options that would make you just as happy? Would bundling (buying several services from the same provider) save money?
Make it a family discussion, says Cunningham. "That way, everyone is pulling in the same direction."
4. Safeguard your current job. Remain engaged and enthusiastic, keep a high profile and network, network, network.
Make yourself visible "as someone who wants to be part of the team," says Martin Yate, executive employment coach and author of "Knock 'Em Dead 2008: The Ultimate Job Search Guide."
Three keys to making yourself invaluable: First, analyze how much you save or produce for the company. And don't be afraid to let higher-ups know what a key role you're playing in company success.
Second, stay current with the latest developments, continuing education and technology in your field.
Third, participate in at least one local professional organization. Not only will the connections help you in your current job, they can also make securing the next one much easier.
"It immediately gives you a relative, professional network for your search," says Yate.
5. Be on the lookout for your next job. Just like a corporation, you have to ensure your own financial survival, says Yate. If you believe that your company or job is in jeopardy, update that resume, reach out to your network, hit the job boards (anonymously) and ignite your job search.
6. Keep your debt load light. Use credit only if you are paying off balances in full every month. Otherwise, switch to cash, checks or debit cards, says Cunningham. "That way when the money's gone, the spending stops."
7. Barring a complete personal financial meltdown, continue funding your retirement. "Retirement is going to come," says Edelman. "You need to be ready for it."
8. Swap extraneous spending for smart long-term moves. You can live another month without a new DVD player, but servicing your car or home heating system could net you a nice savings through fuel efficiency and keep you from having to shell out for expensive repairs later.
9. Investigate refinancing. If your credit is good and you're planning to stay in your house for a few more years, refinancing could be a smart move.
Prime rate loans are the lowest they've been in two years, so investigate if a refinance could save you money every month, says Edelman.
Do the math and analyze what it could save you.
10. Re-examine your insurance. You don't want to be underinsured or overinsured. The key is to have enough to cover you at the best rate you can find. Shop your policies, set your deductibles at the highest amount that you can comfortably pay out of pocket and make sure you're getting credit for everything appropriate, like having car alarms, air bags and a good driving record, says Cunningham.
11. Adjust your withholding allowance. "The average refund is well over $2,000," says Cunningham. And most people "could use an extra $200 every month," she says.
The goal: Pay exactly what you owe. You can use the withholdings calculator at IRS.gov to determine what your withholding amounts should be. Then make the correction with your employer.
"You can do that at any time of year," says Cunningham.
12. Reward yourself. Hold out a little discretionary money that you can use for fun.
If you have an unexpected windfall, like a raise, bonus or tax refund, "Treat yourself with some small part and save the rest," says Cunningham.
Another trick for monthly family treats: At the end of the day everyone in the household puts their pocket change in a big jar. Says Cunningham, "At the end of the month, you'll have $20 or $30, and you'll never miss the money."
And if things get really bad ...
13. Ask for an extension on your car loan. "Typically, they will do this once or twice a year," says Cunningham.
How it works: Instead of making your regular payment this month, the lender would tack an extra month onto the end of your loan period. But you won't get off with a zero payment this month, warns Cunningham. You still have to cover the interest.
14. Get an extension on the mortgage. Some home lenders will let you do something similar for your mortgage, says Cunningham. The downside is, while it will help you if you're trying to make up for a short-term problem, (like a large, unexpected bill), it's not effective if you've got a long-running situation, like regular medical bills, a resetting interest rate you can't handle or a long stretch of unemployment.
To work out such a deal, contact the loss mitigation unit in the mortgage department of the company servicing your loan, says Allen Fishbein, director of housing and credit policy for the Consumer Federation of America. Other typical department tags: home preservation or foreclosure avoidance.
15. Talk to a mortgage counselor. Just as you can get debt counseling help, you also can get mortgage counseling. What to look for: a nonprofit service with counselors who are HUD-certified.
They can examine your situation and offer some options like renegotiating your mortgage or getting a rate freeze on your loan that will help you keep your home. They can also negotiate with your lender on your behalf. You can search for counselors on the HUD Web site or call the Department of Housing and Urban Development at (800) 569-4287.
However, not all counselors can be trusted. "Beware of foreclosure rescue companies or organizations that bill themselves as counseling organizations" but are for-profit, says Fishbein.
There is actually some good news for homeowners as a result of the lending crisis, says Fishbein. If you're willing to be pretty candid about your situation, "there may be more options" available than you realize, he says. "Lenders are doing things they traditionally haven't done to keep people in their homes."
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