Tuesday, August 26, 2008
Monday, August 25, 2008
Fed Chief Forecasts Moderating Inflation
This is part of an email I received from one of my lenders. Hope you find it informative.....
Mortgage Time
Fed Chief Forecasts Moderating Inflation
Mortgage markets showed little reaction to another extremely high inflation reading this week, and mortgage rates ended the week essentially unchanged. The July Producer Price Index (PPI) rose at a 9.8% annual rate, which was the highest level since 1981. The core rate, excluding food and energy, also far exceeded expectations, rising at a 3.5% annual rate. Similar to last week's Consumer Price Index report, investors gave little weight to the data, since oil prices have fallen about 20% in recent weeks. In a speech on Friday, Fed Chief Bernanke reinforced this outlook, suggesting that a stronger dollar and lower oil prices should help bring down inflation.
Fannie Mae and Freddie Mac dominated the headlines this week, and expectations increased that the two firms will receive a government bailout. Together, they own or guarantee roughly half of the $12 trillion in outstanding US mortgages, so they are vital to the mortgage market. Government officials have repeatedly stated that an infusion of capital, if necessary, would be accompanied by reforms. At this point, there is only speculation as to what those reforms would be and what effect they would have on the operations of the two companies. While the stock prices of Fannie and Freddie were extremely volatile during the week, the news had little impact on mortgage rates.
In the housing market, July Housing Starts showed the expected declines. Building Permits, a leading indicator, also fell moderately. With record levels of homes on the market, a reduction in the number of new homes being added to the market is a key for housing prices to begin to move higher.
Mortgage Time
Fed Chief Forecasts Moderating Inflation
Mortgage markets showed little reaction to another extremely high inflation reading this week, and mortgage rates ended the week essentially unchanged. The July Producer Price Index (PPI) rose at a 9.8% annual rate, which was the highest level since 1981. The core rate, excluding food and energy, also far exceeded expectations, rising at a 3.5% annual rate. Similar to last week's Consumer Price Index report, investors gave little weight to the data, since oil prices have fallen about 20% in recent weeks. In a speech on Friday, Fed Chief Bernanke reinforced this outlook, suggesting that a stronger dollar and lower oil prices should help bring down inflation.
Fannie Mae and Freddie Mac dominated the headlines this week, and expectations increased that the two firms will receive a government bailout. Together, they own or guarantee roughly half of the $12 trillion in outstanding US mortgages, so they are vital to the mortgage market. Government officials have repeatedly stated that an infusion of capital, if necessary, would be accompanied by reforms. At this point, there is only speculation as to what those reforms would be and what effect they would have on the operations of the two companies. While the stock prices of Fannie and Freddie were extremely volatile during the week, the news had little impact on mortgage rates.
In the housing market, July Housing Starts showed the expected declines. Building Permits, a leading indicator, also fell moderately. With record levels of homes on the market, a reduction in the number of new homes being added to the market is a key for housing prices to begin to move higher.
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Sunday, August 24, 2008
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Wednesday, August 20, 2008
Tuesday, August 19, 2008
First Time Home Buyer Tax Credit Chart
Take Advantage of the First-Time Homebuyer Tax Credit!
As of July 30, new laws are in effect that can dramatically help more people get into homes. The new Homebuyer Tax Credit of $7,500 for qualified purchases between April 9, 2008 and June 30, 2009 has drawn particular attention since the credit is repayable over 15 years (making it, in effect, an interest free loan). NAR has further details.
Click Here To View Great Chart
Monday, August 18, 2008
Great Quote
85 percent of homeowners who took part in the recent Coldwell Banker Previews International's Luxury Home Survey said they are "very bullish about the value of their property going up in the next five years."
"We're looking at a pretty good future for real estate after the downturn that we've had."
--Jim Gillespie, president and CEO, Coldwell Banker, CNBC "Squawk Box," July 24, 2008
"We're looking at a pretty good future for real estate after the downturn that we've had."
--Jim Gillespie, president and CEO, Coldwell Banker, CNBC "Squawk Box," July 24, 2008
New Minnesota Law Requires Carbon Monoxide Alarms
Click Here For Full Article
New Minnesota Law Requires Carbon Monoxide Alarms
in All Homes
A new Minnesota law—Statute 299F.50—requires
an approved and fully operational carbon monoxide
(CO) alarm in all single-family homes and
multi-family units.
The effective dates by type of home are as follows:
• Aug. 1, 2008—All new construction singlefamily
homes and multi-family dwellings
in which building permits were issued on
or after Jan. 1, 2007.
• Aug. 1, 2008—All existing single-family
homes.
• Aug. 1, 2009—All existing multi-family
units.
According to the new law, all carbon monoxide
alarms must be certified by a nationally recognized
testing laboratory that conforms to the
latest Underwriters Laboratories (UL) Standards
known as UL-2034. The alarms must be installed
according to the manufacturer’s installation instructions,
including at the height specified in
the instructions.
Under the law, every single-family and multifamily
dwelling should have an approved and fully
operational CO alarm installed within 10 feet
of each room that is used for sleeping. In
lieu of installing multiple CO alarms in a
hallway, a separate CO alarm could be
installed inside each sleeping room.
For multi-family developments, the
owner is responsible for providing
and installing one CO alarm within
10 feet of each room that is used for
sleeping. As an alternative, owners may install a
CO alarm between 15 and 25 feet of carbon monoxide-
producing central fixtures and equipment
provided there is a centralized alarm system that
all occupants can hear at all times. Owners of
multi-family developments can be exempted
from the statute requirements if they certify to
the Minnesota Commissioner of Public Safety that
the dwelling contains minimal or no sources of
carbon monoxide and that it poses no risk to the
health and safety of the occupants.
The Minnesota State Department of Public Safety,
State Fire Marshal Division, notes that there
are differences between CO alarms and smoke
alarms, and that they should not be used interchangeably.
Some manufacturers, however, offer
a combination smoke alarm/carbon monoxide
alarm, which is acceptable under the law. When
a smoke alarm sounds, all occupants should immediately
leave the premises and call 911. However,
if a CO alarm sounds, it should be verified
that the occupants are not showing signs of CO
poisoning, which includes headache, nausea,
vomiting, and disorientation. If no one has symptoms
of CO poisoning, the occupants should open
windows and doors and immediately contact a
utility company or appliance repair company to
investigate possible sources of CO accumulation.
To learn more about the carbon monoxide
legislation, visit the State Fire
Marshal Division Web site at www.fire.
state.mn.us or call 651-201-7200. If
you have questions, e-mail them to
firecode@state.mn.us
Wednesday, August 13, 2008
Q2 Foreclosure Update
Here is the second quarter foreclosure statistics from the Minneapolis Area Association Of Realtors.
Click Here To See Full Report
It's Now The Law - Carbon Monoxide Detectors
It is now the law that all Minnesota homes must have a carbon monoxide detector within 10 feet of every bedroom. Here is that actual statute which went into effect the first of this month.
2007 Minnesota Statutes
299F.51 REQUIREMENTS FOR CARBON MONOXIDE ALARMS.
Subdivision 1. Generally. Every single family dwelling and every dwelling unit in a
multifamily dwelling must have an approved and operational carbon monoxide alarm installed
within ten feet of each room lawfully used for sleeping purposes.
Subd. 2. Owner's duties. The owner of a multifamily dwelling unit which is required to be
equipped with one or more approved carbon monoxide alarms must:
(1) provide and install one approved and operational carbon monoxide alarm within ten feet
of each room lawfully used for sleeping; and
(2) replace any required carbon monoxide alarm that has been stolen, removed, found
missing, or rendered inoperable during a prior occupancy of the dwelling unit and which has
not been replaced by the prior occupant prior to the commencement of a new occupancy of
a dwelling unit.
Subd. 3. Occupant's duties. The occupant of each dwelling unit in a multifamily dwelling
in which an approved and operational carbon monoxide alarm has been provided and installed
by the owner must:
(1) keep and maintain the device in good repair; and
(2) replace any device that is stolen, removed, missing, or rendered inoperable during the
occupancy of the dwelling unit.
Subd. 4. Battery removal prohibited. No person shall remove batteries from, or in any way
render inoperable, a required carbon monoxide alarm.
Subd. 5. Exceptions; certain multifamily dwellings and state-operated facilities. (a) In
lieu of requirements of subdivision 1, multifamily dwellings may have approved and operational
carbon monoxide alarms installed between 15 and 25 feet of carbon monoxide-producing central
fixtures and equipment, provided there is a centralized alarm system or other mechanism for
responsible parties to hear the alarm at all times.
(b) An owner of a multifamily dwelling that contains minimal or no sources of carbon
monoxide may be exempted from the requirements of subdivision 1, provided that such owner
certifies to the commissioner of public safety that such multifamily dwelling poses no foreseeable
carbon monoxide risk to the health and safety of the dwelling units.
(c) The requirements of this section do not apply to facilities owned or operated by the
state of Minnesota.
History: 2006 c 260 art 3 s 21
NOTE: This section, as added by Laws 2006, chapter 260, article 3, section 21, is effective
January 1, 2007, for all newly constructed single family and multifamily dwelling units for which
building permits were issued on or after January 1, 2007; August 1, 2008, for all existing single
family dwelling units; and August 1, 2009, for all multifamily dwelling units. Laws 2006, chapter
260, article 3, section 21, the effective date.
2007 Minnesota Statutes
299F.51 REQUIREMENTS FOR CARBON MONOXIDE ALARMS.
Subdivision 1. Generally. Every single family dwelling and every dwelling unit in a
multifamily dwelling must have an approved and operational carbon monoxide alarm installed
within ten feet of each room lawfully used for sleeping purposes.
Subd. 2. Owner's duties. The owner of a multifamily dwelling unit which is required to be
equipped with one or more approved carbon monoxide alarms must:
(1) provide and install one approved and operational carbon monoxide alarm within ten feet
of each room lawfully used for sleeping; and
(2) replace any required carbon monoxide alarm that has been stolen, removed, found
missing, or rendered inoperable during a prior occupancy of the dwelling unit and which has
not been replaced by the prior occupant prior to the commencement of a new occupancy of
a dwelling unit.
Subd. 3. Occupant's duties. The occupant of each dwelling unit in a multifamily dwelling
in which an approved and operational carbon monoxide alarm has been provided and installed
by the owner must:
(1) keep and maintain the device in good repair; and
(2) replace any device that is stolen, removed, missing, or rendered inoperable during the
occupancy of the dwelling unit.
Subd. 4. Battery removal prohibited. No person shall remove batteries from, or in any way
render inoperable, a required carbon monoxide alarm.
Subd. 5. Exceptions; certain multifamily dwellings and state-operated facilities. (a) In
lieu of requirements of subdivision 1, multifamily dwellings may have approved and operational
carbon monoxide alarms installed between 15 and 25 feet of carbon monoxide-producing central
fixtures and equipment, provided there is a centralized alarm system or other mechanism for
responsible parties to hear the alarm at all times.
(b) An owner of a multifamily dwelling that contains minimal or no sources of carbon
monoxide may be exempted from the requirements of subdivision 1, provided that such owner
certifies to the commissioner of public safety that such multifamily dwelling poses no foreseeable
carbon monoxide risk to the health and safety of the dwelling units.
(c) The requirements of this section do not apply to facilities owned or operated by the
state of Minnesota.
History: 2006 c 260 art 3 s 21
NOTE: This section, as added by Laws 2006, chapter 260, article 3, section 21, is effective
January 1, 2007, for all newly constructed single family and multifamily dwelling units for which
building permits were issued on or after January 1, 2007; August 1, 2008, for all existing single
family dwelling units; and August 1, 2009, for all multifamily dwelling units. Laws 2006, chapter
260, article 3, section 21, the effective date.
Monday, August 11, 2008
WHEN IS THE BEST TIME TO CLOSE?
Here is a good Press Release from the
Minnesota Association of REALTORS®
WHEN IS THE BEST TIME TO CLOSE?
The settlement of a home sale often is scheduled at the end of the month. Many buyers insist on this target, because they feel they are saving money by cutting back the number of ownership days for which they must make interest payments on their mortgage financing.
But, the Minnesota Association of REALTORS® reminds buyers that whether a closing occurs at the first, middle or end of the month has no bearing on the amount of interest owed. Generally, a lender collects interest, starting with closing, for as long as the buyer has a mortgage on the home.
“As the month draws to a close, the workload builds for real estate professionals and mortgage lenders as all parties under pressure by home buyers trying to close on time,” Duane Sauke, president of the Minnesota Association of REALTORS® says.
“The money saved by closing at the end of the month are funds included in the prepaids, part of the expenses paid up front by the buyer at settlement. Except in states where regulations prohibit the practice, prepaids include interest that accrues on the mortgage from the closing day to the first day of the next month,” he adds.
Mortgage interest is always collected in arrears to cover the previous month’s ownership. The first monthly mortgage payment made after closing applies to the first full month of ownership that comes between the settlement date and the date the first payment is due.
For example, if a closing occurs on January 31, the borrower pays prepaid interest for one day’s ownership in that month. If loan payments are collected once a month, the first mortgage payment likely will be due March 1. However, if the borrower’s closing is on February 1, he will pay prepaid interest for 29 days of ownership for that month. But, the first mortgage payment is not due until April 1. During virtually the same amount of time - from Jan. 1-April 1, or Feb. 1-April 1 - the borrower pays close to the same amount of money.
Minnesota Association of REALTORS®
WHEN IS THE BEST TIME TO CLOSE?
The settlement of a home sale often is scheduled at the end of the month. Many buyers insist on this target, because they feel they are saving money by cutting back the number of ownership days for which they must make interest payments on their mortgage financing.
But, the Minnesota Association of REALTORS® reminds buyers that whether a closing occurs at the first, middle or end of the month has no bearing on the amount of interest owed. Generally, a lender collects interest, starting with closing, for as long as the buyer has a mortgage on the home.
“As the month draws to a close, the workload builds for real estate professionals and mortgage lenders as all parties under pressure by home buyers trying to close on time,” Duane Sauke, president of the Minnesota Association of REALTORS® says.
“The money saved by closing at the end of the month are funds included in the prepaids, part of the expenses paid up front by the buyer at settlement. Except in states where regulations prohibit the practice, prepaids include interest that accrues on the mortgage from the closing day to the first day of the next month,” he adds.
Mortgage interest is always collected in arrears to cover the previous month’s ownership. The first monthly mortgage payment made after closing applies to the first full month of ownership that comes between the settlement date and the date the first payment is due.
For example, if a closing occurs on January 31, the borrower pays prepaid interest for one day’s ownership in that month. If loan payments are collected once a month, the first mortgage payment likely will be due March 1. However, if the borrower’s closing is on February 1, he will pay prepaid interest for 29 days of ownership for that month. But, the first mortgage payment is not due until April 1. During virtually the same amount of time - from Jan. 1-April 1, or Feb. 1-April 1 - the borrower pays close to the same amount of money.
Coldwell Banker Burnet Launching HomeBase
Great article from our news letter.
Coldwell Banker Burnet Launching HomeBase Online
Transaction Management System
Coldwell Banker Burnet is launching HomeBase,
an online transaction management system, in all
of the company’s offices. Managers and office
administrators have completed HomeBase training,
and the company is now rolling out extensive
training for sales associates and others involved
with managing real estate transactions.
Why Is Transaction Management Important?
Transaction management is being widely used in
a variety of industries and is the fastest growing
technology in the real estate industry. In a recent
survey, 26 percent of respondents said they use
a transaction management system, a 100 percent
increase over the previous year. Of those not using
a transaction management system, 72 percent
said they are “very interested” or “interested” in
doing so. Many of the respondents said the most
important reason for implementing a transaction
management system is to improve communication
with customers.
What Is HomeBase?
HomeBase is a Web-based organizational and
time management tool that archives all critical
real estate documents in a centralized location
for the benefit of the users involved in a transaction.
Sales associates and their teams, home
buyers, home sellers, office administrators, and
vendors including title and mortgage professionals
all can access the system from anywhere at
any time 24/7 to view the transaction documents
and communicate and interact with each other.
Users within the company log into the system
through the NRT extranet the same way they do
for LeadRouter and Do Not Call. Consumers and
outside vendors can access the transaction documents
via a secure Internet connection.
HomeBase enables sales associates and their
teams to manage all details of a transaction,
including adding documents; adding, tracking,
and clearing lists of tasks with dates; adding and
managing property listings, contacts, and service
providers; creating announcements; placing
and tracking service orders; viewing alerts
of pending and incomplete items; and much
more. Consumers can view and upload all of
their transaction documents from their sales associate
and vendors; view announcements and
a calendar with upcoming tasks and dates; and
post messages to their sales associate.
What are the Benefits of HomeBase?
HomeBase will provide a number of benefits, including:
• Simplify transaction management, tracking,
and closing procedures.
• Improve efficiency.
• Increase accuracy and accountability.
• Reduce liability for errors and omissions.
• And lower transaction costs.
In addition, HomeBase, which is free and exclusive
to NRT and Realogy companies, provides
sales associates with a point of differentiation in
the marketplace. Associates can feature Home-
Base in listing presentations and in meetings with
buyer prospects and emphasize how this system
provides the most up-to-date technology and an
enhanced level of full service.
Most important, HomeBase streamlines and enhances
communications with all parties involved
in a transaction, increases customers satisfaction
and loyalty, and helps ensure that sales associates’
clients are “customers for life.”
Two-hour HomeBase training sessions taught
by Coldwell Banker University Director Chris
Prescott are being held in all of the company’s
realty offices. For a complete schedule of classes,
visit the Coldwell Banker University section on
Toolbox, click on “Technology Classes” and then
click on “HomeBase Office Training Schedule.”
Coldwell Banker Burnet Launching HomeBase Online
Transaction Management System
Coldwell Banker Burnet is launching HomeBase,
an online transaction management system, in all
of the company’s offices. Managers and office
administrators have completed HomeBase training,
and the company is now rolling out extensive
training for sales associates and others involved
with managing real estate transactions.
Why Is Transaction Management Important?
Transaction management is being widely used in
a variety of industries and is the fastest growing
technology in the real estate industry. In a recent
survey, 26 percent of respondents said they use
a transaction management system, a 100 percent
increase over the previous year. Of those not using
a transaction management system, 72 percent
said they are “very interested” or “interested” in
doing so. Many of the respondents said the most
important reason for implementing a transaction
management system is to improve communication
with customers.
What Is HomeBase?
HomeBase is a Web-based organizational and
time management tool that archives all critical
real estate documents in a centralized location
for the benefit of the users involved in a transaction.
Sales associates and their teams, home
buyers, home sellers, office administrators, and
vendors including title and mortgage professionals
all can access the system from anywhere at
any time 24/7 to view the transaction documents
and communicate and interact with each other.
Users within the company log into the system
through the NRT extranet the same way they do
for LeadRouter and Do Not Call. Consumers and
outside vendors can access the transaction documents
via a secure Internet connection.
HomeBase enables sales associates and their
teams to manage all details of a transaction,
including adding documents; adding, tracking,
and clearing lists of tasks with dates; adding and
managing property listings, contacts, and service
providers; creating announcements; placing
and tracking service orders; viewing alerts
of pending and incomplete items; and much
more. Consumers can view and upload all of
their transaction documents from their sales associate
and vendors; view announcements and
a calendar with upcoming tasks and dates; and
post messages to their sales associate.
What are the Benefits of HomeBase?
HomeBase will provide a number of benefits, including:
• Simplify transaction management, tracking,
and closing procedures.
• Improve efficiency.
• Increase accuracy and accountability.
• Reduce liability for errors and omissions.
• And lower transaction costs.
In addition, HomeBase, which is free and exclusive
to NRT and Realogy companies, provides
sales associates with a point of differentiation in
the marketplace. Associates can feature Home-
Base in listing presentations and in meetings with
buyer prospects and emphasize how this system
provides the most up-to-date technology and an
enhanced level of full service.
Most important, HomeBase streamlines and enhances
communications with all parties involved
in a transaction, increases customers satisfaction
and loyalty, and helps ensure that sales associates’
clients are “customers for life.”
Two-hour HomeBase training sessions taught
by Coldwell Banker University Director Chris
Prescott are being held in all of the company’s
realty offices. For a complete schedule of classes,
visit the Coldwell Banker University section on
Toolbox, click on “Technology Classes” and then
click on “HomeBase Office Training Schedule.”
Friday, August 8, 2008
The Foreclosure Process In Minnesota
Here is a flowchart that doses a great job of explaining the foreclosure process in Minnesota.
Click Here To See Chart
Click Here To See Chart
Wednesday, August 6, 2008
Tuesday, August 5, 2008
How Ginnie Mae differs from Fannie, Freddie
Thought this was a great little piece written by Kathleen Pender in The San Francisco Chronicle.
How Ginnie Mae differs from Fannie, Freddie
Kathleen Pender
Tuesday, August 5, 2008
With all the turmoil surrounding Fannie Mae and Freddie Mac, some investors are wondering whether they should be worried about their Ginnie Mae funds.
One reader from Lafayette writes, "As part of our 401(k) retirement assets, we are receiving monthly income from a Ginnie Mae fund. Although there has been a great deal of press as to the vulnerability of Freddie and Fannie, I have not seen a mention of Ginnie. Perhaps some of your readers would appreciate a better understanding of the differences."
Glad to oblige.
Ginnie Mae is a government-owned corporation that guarantees bonds backed by home mortgages that have been guaranteed by a government agency, mainly the Federal Housing Administration and the Veterans Administration.
Ginnie Mae-insured bonds have always had the explicit backing of the federal government.
Fannie and Freddie guarantee bonds backed by mortgages that have no government guarantee. Although Fannie and Freddie were set up by the government, they are not owned or explicitly backed by the government. They are publicly traded companies owned by their shareholders.
However, Fannie and Freddie have become so big and important that everyone assumed that if they ran into trouble, the government would back them up. The housing bill signed by President Bush last week appears to do just that.
Here's a look at what Ginnie Mae does:
What Ginnie does
A borrower goes to a bank and asks for a loan. If he qualifies, he might be offered a loan guaranteed by the FHA. (The FHA was created, long before subprime loans became widely available, to help borrowers who couldn't get conventional home loans because they had low credit scores or limited resources.)
A bank or other institution bundles a group of FHA mortgages and sells a bond backed by mortgages in the pool to investors.
Ginnie Mae insures the bond, for a fee. But it doesn't own any bonds itself.
As time goes on, "the bank collects mortgage payments from borrowers and passes payments to Ginnie Mae, which passes them through to investors," says Ginnie Mae spokeswoman Terry Carr.
If a borrower defaults, the bank can foreclose and collect from FHA or VA. But the bank is responsible for making the pass-through payments whether or not the borrower pays.
"If the bank can't make all or part of the pass-through payment, Ginnie Mae makes sure that bondholders continue to get their promised payments," Carr adds,
If loans default and FHA or VA insurance doesn't cover the full amount, Ginnie Mae makes up the difference.
These bonds are sold mainly to institutions including mutual funds. Funds that have Ginnie Mae in their names must invest at least 80 percent of their assets in Ginnie Mae-backed securities.
Ginnie Maes account for about 10 percent of the mortgage-backed securities market, says Dan Newhall, a principal with Vanguard Group.
Fannie and Freddie are much bigger and more diversified.
They buy mortgages from lenders that are not government insured but meet certain standards. Fannie and Freddie package loans into mortgage-backed bonds and sell them to investors. Fannie and Freddie also guarantee bonds that are packaged and sold by others, as long as the mortgages meet their standards.
Unlike Ginnie, Fannie and Freddie keep some bonds on their own books. They also buy and hold some mortgage securities packaged by others.
Fannie and Freddie securities are found in a wide variety of bond funds including government-income funds, which are allowed to buy them even though they had no explicit government backing, at least until now.
Its bonds are safer
Historically, Ginnie Mae bonds have been considered safer than Fannie and Freddie securities.
"You don't have to worry about credit risk with Ginnie Maes," says Morningstar analyst Paul Herbert. "They are backed by the full faith and credit of the U.S. government, just like a Treasury bond. That's not the case with Fannie and Freddie, although recent steps suggest that if they don't have the full faith and credit, they're pretty close."
You can still lose money in a Ginnie Mae fund, Herbert adds. If interest rates rise, the price of Ginnie Mae bonds and bond funds will fall. (Conversely, if interest rates fall, bond prices will rise.)
Like all mortgage securities, they are also susceptible to prepayment risk. If interest rates fall, many homeowners will refinance their mortgages and investors will get back their principal sooner than expected.
"You don't want that," Herbert says, because it forces investors or bond-fund managers to reinvest principal at lower interest rates.
Despite all the drama, Fannie and Freddie bonds haven't done much worse than Ginnie Maes. In the past three months, a medium-term fixed-rate Ginnie Mae bond is down 0.63 percentage point, compared with a loss of 0.61 and 0.68 percentage points, respectively, for comparable Fannie and Freddie bonds. Over the past 12 months, all three are up roughly 8 percent, Newhall says.
Fannie and Freddie stockholders have fared far worse. Their shares are down 79 and 86 percent, respectively, the past year.
Net Worth runs Tuesdays, Thursdays and Sundays. E-mail Kathleen Pender at kpender@sfchronicle.com.
This article appeared on page D - 1 of the San Francisco Chronicle
How Ginnie Mae differs from Fannie, Freddie
Kathleen Pender
Tuesday, August 5, 2008
With all the turmoil surrounding Fannie Mae and Freddie Mac, some investors are wondering whether they should be worried about their Ginnie Mae funds.
One reader from Lafayette writes, "As part of our 401(k) retirement assets, we are receiving monthly income from a Ginnie Mae fund. Although there has been a great deal of press as to the vulnerability of Freddie and Fannie, I have not seen a mention of Ginnie. Perhaps some of your readers would appreciate a better understanding of the differences."
Glad to oblige.
Ginnie Mae is a government-owned corporation that guarantees bonds backed by home mortgages that have been guaranteed by a government agency, mainly the Federal Housing Administration and the Veterans Administration.
Ginnie Mae-insured bonds have always had the explicit backing of the federal government.
Fannie and Freddie guarantee bonds backed by mortgages that have no government guarantee. Although Fannie and Freddie were set up by the government, they are not owned or explicitly backed by the government. They are publicly traded companies owned by their shareholders.
However, Fannie and Freddie have become so big and important that everyone assumed that if they ran into trouble, the government would back them up. The housing bill signed by President Bush last week appears to do just that.
Here's a look at what Ginnie Mae does:
What Ginnie does
A borrower goes to a bank and asks for a loan. If he qualifies, he might be offered a loan guaranteed by the FHA. (The FHA was created, long before subprime loans became widely available, to help borrowers who couldn't get conventional home loans because they had low credit scores or limited resources.)
A bank or other institution bundles a group of FHA mortgages and sells a bond backed by mortgages in the pool to investors.
Ginnie Mae insures the bond, for a fee. But it doesn't own any bonds itself.
As time goes on, "the bank collects mortgage payments from borrowers and passes payments to Ginnie Mae, which passes them through to investors," says Ginnie Mae spokeswoman Terry Carr.
If a borrower defaults, the bank can foreclose and collect from FHA or VA. But the bank is responsible for making the pass-through payments whether or not the borrower pays.
"If the bank can't make all or part of the pass-through payment, Ginnie Mae makes sure that bondholders continue to get their promised payments," Carr adds,
If loans default and FHA or VA insurance doesn't cover the full amount, Ginnie Mae makes up the difference.
These bonds are sold mainly to institutions including mutual funds. Funds that have Ginnie Mae in their names must invest at least 80 percent of their assets in Ginnie Mae-backed securities.
Ginnie Maes account for about 10 percent of the mortgage-backed securities market, says Dan Newhall, a principal with Vanguard Group.
Fannie and Freddie are much bigger and more diversified.
They buy mortgages from lenders that are not government insured but meet certain standards. Fannie and Freddie package loans into mortgage-backed bonds and sell them to investors. Fannie and Freddie also guarantee bonds that are packaged and sold by others, as long as the mortgages meet their standards.
Unlike Ginnie, Fannie and Freddie keep some bonds on their own books. They also buy and hold some mortgage securities packaged by others.
Fannie and Freddie securities are found in a wide variety of bond funds including government-income funds, which are allowed to buy them even though they had no explicit government backing, at least until now.
Its bonds are safer
Historically, Ginnie Mae bonds have been considered safer than Fannie and Freddie securities.
"You don't have to worry about credit risk with Ginnie Maes," says Morningstar analyst Paul Herbert. "They are backed by the full faith and credit of the U.S. government, just like a Treasury bond. That's not the case with Fannie and Freddie, although recent steps suggest that if they don't have the full faith and credit, they're pretty close."
You can still lose money in a Ginnie Mae fund, Herbert adds. If interest rates rise, the price of Ginnie Mae bonds and bond funds will fall. (Conversely, if interest rates fall, bond prices will rise.)
Like all mortgage securities, they are also susceptible to prepayment risk. If interest rates fall, many homeowners will refinance their mortgages and investors will get back their principal sooner than expected.
"You don't want that," Herbert says, because it forces investors or bond-fund managers to reinvest principal at lower interest rates.
Despite all the drama, Fannie and Freddie bonds haven't done much worse than Ginnie Maes. In the past three months, a medium-term fixed-rate Ginnie Mae bond is down 0.63 percentage point, compared with a loss of 0.61 and 0.68 percentage points, respectively, for comparable Fannie and Freddie bonds. Over the past 12 months, all three are up roughly 8 percent, Newhall says.
Fannie and Freddie stockholders have fared far worse. Their shares are down 79 and 86 percent, respectively, the past year.
Net Worth runs Tuesdays, Thursdays and Sundays. E-mail Kathleen Pender at kpender@sfchronicle.com.
This article appeared on page D - 1 of the San Francisco Chronicle
Monday, August 4, 2008
Help is on its way?
Here is a great article from MAAR/The Skinny by Mark Allen. It reiterates many of the points about the Housing Bill I have been Making. Well said Mark.....
Help is on its way?
The good news: help is on its way with the recently passed Housing and Economic Recovery Act of 2008! However, not all is good—at least for the near-term.
One section of this new legislation accomplishes the longtime HUD goal to sunset seller-funded down payment assistance, which used third-party intermediaries to create what were essentially zero down payment FHA mortgages (e.g. Nehemiah type programs).
This part of the Act will serve to suppress the housing market, as according to the Washington Post, “More than half a million people -- including many first-time home buyers, minorities and single mothers -- have bought homes this way in the past decade…”
With many of these buyers essentially removed from the market, home sales in all price ranges will experience a domino effect and hinder other aspects of the legislation that are intended to spur on buyer activity.
HUD’s goal to eliminate these types of programs is grounded in solvency concerns. According to NAR, “A recent GAO study found that loans with seller-funded downpayment assistance experienced more than double the risk of delinquency than loans with other types of downpayment assistance, and almost three-times the risk of loans with no downpayment assistance.”
In regards to the real estate market, it’s a long-term gain requiring short-term pain equation. The solvency of FHA is critical to a healthy real estate market; even more so now, following the meltdown of the alternative and subprime markets. FHA has resurfaced as the best option for buyers who are skinny on down payment and income qualifying criteria.
The FHA prohibition on Seller-funded down payment assistance programs goes into effect on October 1, 2008.
With this change in policy, it is essential that Realtors promote the development of alternative financing options, including new possibilities for zero down mortgages. This cannot be done with the devil-may-care lending standards of our recent past! New alternatives of this type could require stricter qualifying guidelines to better ensure the buyer’s ability to pay.
MHFA is working on new programs that might help fill some of the void, according to Chris Galler, MNAR COO, “a Memorandum of Understanding…has been signed between FHA & MHFA to offer a number of new financing programs. One is a zero down, another is a streamlined 203K. There is even talk of providing financing to consumers with less than 600 credit scores.”
Help is on its way?
The good news: help is on its way with the recently passed Housing and Economic Recovery Act of 2008! However, not all is good—at least for the near-term.
One section of this new legislation accomplishes the longtime HUD goal to sunset seller-funded down payment assistance, which used third-party intermediaries to create what were essentially zero down payment FHA mortgages (e.g. Nehemiah type programs).
This part of the Act will serve to suppress the housing market, as according to the Washington Post, “More than half a million people -- including many first-time home buyers, minorities and single mothers -- have bought homes this way in the past decade…”
With many of these buyers essentially removed from the market, home sales in all price ranges will experience a domino effect and hinder other aspects of the legislation that are intended to spur on buyer activity.
HUD’s goal to eliminate these types of programs is grounded in solvency concerns. According to NAR, “A recent GAO study found that loans with seller-funded downpayment assistance experienced more than double the risk of delinquency than loans with other types of downpayment assistance, and almost three-times the risk of loans with no downpayment assistance.”
In regards to the real estate market, it’s a long-term gain requiring short-term pain equation. The solvency of FHA is critical to a healthy real estate market; even more so now, following the meltdown of the alternative and subprime markets. FHA has resurfaced as the best option for buyers who are skinny on down payment and income qualifying criteria.
The FHA prohibition on Seller-funded down payment assistance programs goes into effect on October 1, 2008.
With this change in policy, it is essential that Realtors promote the development of alternative financing options, including new possibilities for zero down mortgages. This cannot be done with the devil-may-care lending standards of our recent past! New alternatives of this type could require stricter qualifying guidelines to better ensure the buyer’s ability to pay.
MHFA is working on new programs that might help fill some of the void, according to Chris Galler, MNAR COO, “a Memorandum of Understanding…has been signed between FHA & MHFA to offer a number of new financing programs. One is a zero down, another is a streamlined 203K. There is even talk of providing financing to consumers with less than 600 credit scores.”
Carbon Monoxide Now Required In All MN Homes
From Kare 11 Website:
On August 1st, all Minnesota single family homes are required to have a device designed to alert you to a problem you cannot sense until it's too late. Carbon Monoxide detectors are similar to smoke detectors and must be installed outside every bedroom by August 1, 2008.
The law passed a couple years ago in large part because of the Griggs family. Their daughter's life ended abruptly at the age of three when carbon monoxide sickened the entire family, but the gas was too much for Hannah Griggs to recover from. The family had a handful of smoke detectors in the house, but did not have a carbon monoxide alarm. Now years later, it's in Hannah's name St. Paul firefighters, first responders and state representatives all come together to make others aware of how simple it is to prevent carbon monoxide poisoning.
Officials want to remind everybody about a new law that goes into effect Friday. It requires carbon monoxide detectors in every single-family home. St. Paul firefighters teamed up with First Alert to provide 500 carbon monoxide detectors to families who cannot afford one. The story could have ended with Hannah Griggs' death, now it's in the memory of her life that other deaths from carbon monoxide are prevented. The Carbon Monoxide Detector Law is going into effect in three phases. As of January 1st 2007, Carbon Monoxide detectors have been required in all newly constructed homes. Beginning Friday they'll be required in every single family home. Owners of apartment buildings and multi-family homes have a little more time to comply, the detectors will be mandatory in those households by this time next year.
On August 1st, all Minnesota single family homes are required to have a device designed to alert you to a problem you cannot sense until it's too late. Carbon Monoxide detectors are similar to smoke detectors and must be installed outside every bedroom by August 1, 2008.
The law passed a couple years ago in large part because of the Griggs family. Their daughter's life ended abruptly at the age of three when carbon monoxide sickened the entire family, but the gas was too much for Hannah Griggs to recover from. The family had a handful of smoke detectors in the house, but did not have a carbon monoxide alarm. Now years later, it's in Hannah's name St. Paul firefighters, first responders and state representatives all come together to make others aware of how simple it is to prevent carbon monoxide poisoning.
Officials want to remind everybody about a new law that goes into effect Friday. It requires carbon monoxide detectors in every single-family home. St. Paul firefighters teamed up with First Alert to provide 500 carbon monoxide detectors to families who cannot afford one. The story could have ended with Hannah Griggs' death, now it's in the memory of her life that other deaths from carbon monoxide are prevented. The Carbon Monoxide Detector Law is going into effect in three phases. As of January 1st 2007, Carbon Monoxide detectors have been required in all newly constructed homes. Beginning Friday they'll be required in every single family home. Owners of apartment buildings and multi-family homes have a little more time to comply, the detectors will be mandatory in those households by this time next year.
Sunday, August 3, 2008
The New York Times Article
This is an article that was in The New York Times. It's a little older, but I think it does a good job of explaining some of the features of the housing bill signed last week by President Bush. Please pay particular attention to the "first time home buyer benefits". These are no real benefits at all. This is a shame considering that first time buyers are what spur the real estate market forward. There is a chain reaction which starts with them and allows the seller to move up into a bigger and better home.
This can not happen with a generation of new buyers who have never been told they need a down payment. With no programs like Nehemiah or Genesis, a drastic lag will be created while they save for their new home.
Enjoy the article and let me know what you think.
"July 25, 2008
Your Money
Housing Bill Has Something for Nearly Everyone
By RON LIEBER
If you are ignoring the housing bailout bill because you think it benefits only troubled homeowners, you may miss out on a windfall.
The bill, expected to be passed by the Senate in the next few days and then signed by President Bush, does offer incentives to certain overextended borrowers and their mortgage lenders.
But it also includes many handouts to first-time homebuyers, longtime homeowners, returning veterans and senior citizens seeking to tap their home equity without getting hit with big fees. Millions of people have the potential to benefit in some way.
Huge numbers of people buying homes for the first time, for instance, will be eligible for what amounts to an interest-free loan from the government. Meanwhile, older Americans will now be able to borrow more and possibly pay less for reverse mortgages that allow them tap the equity in their homes.
Whether larding up the bill with all these benefits is good for taxpayers is a debate for another part of the newspaper. But there is no shame in taking advantage of what is offered. In fact, you would be foolish not to.
Here are some of the new benefits:
RENEGOTIATING MORTGAGES Part of the bill is devoted to the creation of a program that may allow some people to cancel their old mortgage loans and replace them with new fixed-rate loans lasting at least 30 years. The amount of the new loans would be no more than 90 percent of what their property is actually worth now.
So who is eligible? You need to have originated your troubled loan or loans on or before Jan. 1, 2008. The loans in question must be on your primary residence. Vacation homes and investment properties are ineligible. You will also need to verify your income, which many borrowers did not have to do in recent years.
Also, as of March 1, 2008, your monthly housing payment (including the principal on all your various mortgage payments, interest, taxes and insurance) has to have been at least 31 percent of your monthly household income. So if you were earning $5,000 a month and had housing payments of $3,000, you are eligible. But if you had payments of just $1,400, you would not be, presumably because that loan is affordable given the size of your income.
Lenders, however, are not required to give you a better deal under the new law, even if you do meet the qualifications. They may not be willing to negotiate unless they think you are truly on the cusp of foreclosure.
If you manage to get a new loan, you cannot take out a home equity loan for at least five years after you get the new mortgage. You will also have to pay a 1.5 percent fee each year on the remaining balance. Finally, you have to hand over no less than 50 percent of any appreciation on the home to the government once you sell. Sell the house in less than five years, and you will have to turn over as much as all of the gain.
This program ends on Sept. 30, 2011. While it does not officially take effect until Oct. 1, lenders may be willing to start their negotiations with borrowers now.
BREAK FOR FIRST-TIME BUYERS If you are buying a home for the first time, and it is your primary residence, you are eligible for a federal tax credit of $7,500 or 10 percent of the purchase price, whichever is smaller. With a tax credit, you subtract the credit amount from the total you would otherwise pay to the Internal Revenue Service. So if you owe $1,500 and you qualify for the credit, you would end up getting a $6,000 refund.
There are two big catches, though. If you earn a modified adjusted gross income of more than $75,000, or $150,000 if you are married and filing your tax return jointly, the credit starts to phase out. For single people, it phases out completely at $95,000 of annual income, while for married people filing jointly, it phases out at $170,000.
But you have to pay back the credit over the next 15 years, in equal amounts each year when you pay your federal taxes. That makes this more like an interest-free loan than a true credit. According to the National Association of Realtors, there were about 2.5 million first-time home buyers in 2007. A large proportion of them would have qualified for this credit, but whether it is enough to push would-be buyers over the edge this year remains to be seen.
The tax credit is retroactive to home purchases on April 9, 2008, and expires on July 1, 2009. If you purchase a home from Jan. 1, 2009 to June 30, 2009, you can claim the tax credit on your 2008 tax return.
ADDITIONAL DEDUCTION If you are a homeowner who takes the standard deduction on your federal income taxes and does not itemize, this one is for you. You can now take an additional federal tax deduction of $500, or $1,000 if you are married and filing your tax returns jointly. Again, this one is gravy; you get it in addition to the standard deduction.
Since itemizers are often people who pay a lot of mortgage interest, this deduction will generally benefit people who pay little or none, like those who have paid off their mortgages entirely or close to it. There is one hitch here: you will need to report the property taxes you paid on your tax form. If they are less than $500 (or $1,000 if you are married and filing a joint return), your deduction will be limited to the amount of the property tax you paid.
REVERSE MORTGAGE CHANGES Reverse mortgages allow older Americans, generally 62 and older, to get a lump sum or a monthly check that comes out of their home equity. They do not have to pay the money back until they stop living there permanently or their heirs sell the house.
The problem with these loans, however, is that they often come with high fees. Moreover, some salespeople pressure borrowers who are applying for the loan to purchase annuities, long-term care insurance or other financial products that are not necessarily in the borrower’s best interest.
The bill tries to address both issues. First, it limits origination fees on reverse mortgages at 2 percent of any loan up to $200,000 and 1 percent beyond that, up to a maximum of $6,000.
The bill also states explicitly that borrowers cannot be forced to purchase an annuity or other financial or insurance product as a condition of qualifying for a reverse mortgage.
Finally, the bill raises the maximum amount that people can borrow. Before, the limits were set on a county by county basis, according to AARP’s legislative policy director, David Certner. The biggest allowable mortgage available anywhere was just over $400,000. Now, there is a nationwide cap of $625,500.
REDEFINITION OF JUMBO LOANS Often, if you want the mortgage loan with the lowest possible interest rate, it has to be small enough to be purchased by Fannie Mae or Freddie Mac from whatever bank or other institution originated it.
Under the new bill, Fannie and Freddie have permanent authority to buy bigger loans in areas with high housing costs. (Temporary measures allow them to buy bigger loans, but those expire on Dec. 31.) They can buy loans up to 115 percent of the local median home price, though they cannot buy any loans larger than $625,500. Any larger loan will generally be a jumbo loan, which will cost more in interest.
A BREAK FOR VETERANS Lenders will have to wait nine months, instead of 90 days, before beginning foreclosure proceedings on homes owned by someone returning from the military. Lenders must also wait a year before raising interest rates on a mortgage held by someone returning from military service.
These provisions expire on Dec. 31, 2010."
This can not happen with a generation of new buyers who have never been told they need a down payment. With no programs like Nehemiah or Genesis, a drastic lag will be created while they save for their new home.
Enjoy the article and let me know what you think.
"July 25, 2008
Your Money
Housing Bill Has Something for Nearly Everyone
By RON LIEBER
If you are ignoring the housing bailout bill because you think it benefits only troubled homeowners, you may miss out on a windfall.
The bill, expected to be passed by the Senate in the next few days and then signed by President Bush, does offer incentives to certain overextended borrowers and their mortgage lenders.
But it also includes many handouts to first-time homebuyers, longtime homeowners, returning veterans and senior citizens seeking to tap their home equity without getting hit with big fees. Millions of people have the potential to benefit in some way.
Huge numbers of people buying homes for the first time, for instance, will be eligible for what amounts to an interest-free loan from the government. Meanwhile, older Americans will now be able to borrow more and possibly pay less for reverse mortgages that allow them tap the equity in their homes.
Whether larding up the bill with all these benefits is good for taxpayers is a debate for another part of the newspaper. But there is no shame in taking advantage of what is offered. In fact, you would be foolish not to.
Here are some of the new benefits:
RENEGOTIATING MORTGAGES Part of the bill is devoted to the creation of a program that may allow some people to cancel their old mortgage loans and replace them with new fixed-rate loans lasting at least 30 years. The amount of the new loans would be no more than 90 percent of what their property is actually worth now.
So who is eligible? You need to have originated your troubled loan or loans on or before Jan. 1, 2008. The loans in question must be on your primary residence. Vacation homes and investment properties are ineligible. You will also need to verify your income, which many borrowers did not have to do in recent years.
Also, as of March 1, 2008, your monthly housing payment (including the principal on all your various mortgage payments, interest, taxes and insurance) has to have been at least 31 percent of your monthly household income. So if you were earning $5,000 a month and had housing payments of $3,000, you are eligible. But if you had payments of just $1,400, you would not be, presumably because that loan is affordable given the size of your income.
Lenders, however, are not required to give you a better deal under the new law, even if you do meet the qualifications. They may not be willing to negotiate unless they think you are truly on the cusp of foreclosure.
If you manage to get a new loan, you cannot take out a home equity loan for at least five years after you get the new mortgage. You will also have to pay a 1.5 percent fee each year on the remaining balance. Finally, you have to hand over no less than 50 percent of any appreciation on the home to the government once you sell. Sell the house in less than five years, and you will have to turn over as much as all of the gain.
This program ends on Sept. 30, 2011. While it does not officially take effect until Oct. 1, lenders may be willing to start their negotiations with borrowers now.
BREAK FOR FIRST-TIME BUYERS If you are buying a home for the first time, and it is your primary residence, you are eligible for a federal tax credit of $7,500 or 10 percent of the purchase price, whichever is smaller. With a tax credit, you subtract the credit amount from the total you would otherwise pay to the Internal Revenue Service. So if you owe $1,500 and you qualify for the credit, you would end up getting a $6,000 refund.
There are two big catches, though. If you earn a modified adjusted gross income of more than $75,000, or $150,000 if you are married and filing your tax return jointly, the credit starts to phase out. For single people, it phases out completely at $95,000 of annual income, while for married people filing jointly, it phases out at $170,000.
But you have to pay back the credit over the next 15 years, in equal amounts each year when you pay your federal taxes. That makes this more like an interest-free loan than a true credit. According to the National Association of Realtors, there were about 2.5 million first-time home buyers in 2007. A large proportion of them would have qualified for this credit, but whether it is enough to push would-be buyers over the edge this year remains to be seen.
The tax credit is retroactive to home purchases on April 9, 2008, and expires on July 1, 2009. If you purchase a home from Jan. 1, 2009 to June 30, 2009, you can claim the tax credit on your 2008 tax return.
ADDITIONAL DEDUCTION If you are a homeowner who takes the standard deduction on your federal income taxes and does not itemize, this one is for you. You can now take an additional federal tax deduction of $500, or $1,000 if you are married and filing your tax returns jointly. Again, this one is gravy; you get it in addition to the standard deduction.
Since itemizers are often people who pay a lot of mortgage interest, this deduction will generally benefit people who pay little or none, like those who have paid off their mortgages entirely or close to it. There is one hitch here: you will need to report the property taxes you paid on your tax form. If they are less than $500 (or $1,000 if you are married and filing a joint return), your deduction will be limited to the amount of the property tax you paid.
REVERSE MORTGAGE CHANGES Reverse mortgages allow older Americans, generally 62 and older, to get a lump sum or a monthly check that comes out of their home equity. They do not have to pay the money back until they stop living there permanently or their heirs sell the house.
The problem with these loans, however, is that they often come with high fees. Moreover, some salespeople pressure borrowers who are applying for the loan to purchase annuities, long-term care insurance or other financial products that are not necessarily in the borrower’s best interest.
The bill tries to address both issues. First, it limits origination fees on reverse mortgages at 2 percent of any loan up to $200,000 and 1 percent beyond that, up to a maximum of $6,000.
The bill also states explicitly that borrowers cannot be forced to purchase an annuity or other financial or insurance product as a condition of qualifying for a reverse mortgage.
Finally, the bill raises the maximum amount that people can borrow. Before, the limits were set on a county by county basis, according to AARP’s legislative policy director, David Certner. The biggest allowable mortgage available anywhere was just over $400,000. Now, there is a nationwide cap of $625,500.
REDEFINITION OF JUMBO LOANS Often, if you want the mortgage loan with the lowest possible interest rate, it has to be small enough to be purchased by Fannie Mae or Freddie Mac from whatever bank or other institution originated it.
Under the new bill, Fannie and Freddie have permanent authority to buy bigger loans in areas with high housing costs. (Temporary measures allow them to buy bigger loans, but those expire on Dec. 31.) They can buy loans up to 115 percent of the local median home price, though they cannot buy any loans larger than $625,500. Any larger loan will generally be a jumbo loan, which will cost more in interest.
A BREAK FOR VETERANS Lenders will have to wait nine months, instead of 90 days, before beginning foreclosure proceedings on homes owned by someone returning from the military. Lenders must also wait a year before raising interest rates on a mortgage held by someone returning from military service.
These provisions expire on Dec. 31, 2010."
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