C.A.R Market Matters, August 28th

Thursday, August 28th, 2008

Welcome to the Market Matters Advisory, your weekly guide to responding to the market. 

Barron's

The Endgame Nears for Fannie and Freddie

Shares of Fannie Mae and Freddie Mac have declined by approximately 90% from the previous year and both companies are reporting quarter-over-quarter losses, leading some to believe that a government takeover or complete privatization is imminent.

MAKING SENSE OF THE STORY FOR CONSUMERS

According to the Barron's article, which states "should the agencies fail to raise fresh capital, the administration is likely to mount its own recapitalization, with Treasury infusing taxpayer money into the enterprises," consumers would be led to believe that a government bail out is the only option. Although a cash infusion may be needed, it is not likely that the Treasury would purchase an equity stake in either Fannie or Freddie. Additionally, the Treasury Dept. must negotiate an agreement with the GSEs. Fannie and Freddie continue to raise capital own their own and some reports show that the GSEs are looking for private-equity firms or outside investors to provide the financing, which would help raise capital and reassure Wall Street.

The article also states, "In the early 1980s Fannie was effectively insolvent, but the government allowed it to continue operating." Many consumers are not aware of how the GSEs serve the market or what their roles are. Unlike banks, which lend directly to consumers, Fannie Mae and Freddie Mac operate in what is known as the "secondary mortgage market." They purchase or guarantee loans from direct lenders in the "primary mortgage market" and either hold onto them until they mature, or sell the loans in the form of mortgage backed securities. By the GSEs guaranteeing or purchasing the loans from banks, Fannie and Freddie are able to fulfill their congressional mission and supply an affordable and stable source of capital to lenders, allowing them to offer more home loans.

Due to tighter lending standards, it is becoming increasingly more difficult for borrowers to secure home loans. If Fannie Mae and Freddie Mac did not guarantee or purchase primary lenders' loans, the cost of homeownership would dramatically increase as lenders would experience an even greater capital shortage.

Many financial institutions in the mortgage business are experiencing losses, and while the GSEs are no exception, their portfolios continue to outperform the majority of lenders in the market. Additionally, unlike private investors which seem to have abandoned the mortgage market, Fannie Mae and Freddie Mac are fulfilling their congressional mission to provide an affordable and stable flow of capital to home-loan lenders.

FULL STORY

Yahoo News

Consumer Outlook Up, Worst May Be Over for Housing

Primarily as a result of lower gas prices, consumer confidence increased in August, with The Conference Board's consumer conference index rising to 56.9, up from the revised 51.9 reading in July. Following a six month decline, August was the second consecutive month that the index increased. A reading of 100 is considered the highest rating possible. In a separate report, new home sales posted an unexpected increase in July, while the Standard & Poor's/Case-Shiller U.S National Home Price Index showed prices declined at a slower rate in the second quarter, indicating that some areas may have reached the trough in home price declines.

MAKING SENSE OF THE STORY FOR CONSUMERS

The conference Board's consumer conference index measures how consumers perceive the current conditions and future expectations of the US economy. The index is based on a survey of 5,000 U.S households.

The monthly survey details consumer attitudes and buying intentions. Increased consumer confidence generally indicates that consumers are more willing to make purchases. Decreased confidence indicates that consumers are likely to slow their spending.

Although the Conference Board's Present Situation Index declined to 63.2 in August, compared with 65.8 in July, consumers expect the economy to improve over the next six months, as indicated by The Conference Board's Expectations Index. The Expectations Index increased by 10 points, the largest increase since November 2005.

FULL STORY

USA Today

Home Prices in Record Tumble, but some find Hints of Recovery

Although home prices decreased 15.4% during the second quarter compared with the same period a year ago, in month-over-month comparisons, home sales are increasing, according to the Standard & Poor's/Case Shiller U.S National Home Price Index. According to the Office of Federal Housing Enterprise Oversight's home price index, states with the largest annual declines include CA at 16%, FL at 12%, AZ at 9%, and RI at 5%. Existing home sales increased in July and exceeded many economist's expectations, while new home sales also increased 2.4% for the same time period.

MAKING SENSE OF THE STORY FOR CONSUMERS

Although home prices are decreasing, existing home sales are increasing nationwide and in CA. In CA, single-family, existing home sales increased 43.4% in July compared with the same period a year ago. Sales in July remained above the 400,000 level for the third consecutive month, with deeply discounted, distressed sales continuing to drive volume in many regions of the state.

The state's unsold inventory index (UII) for existing, single-family detached homes decreased to 6.7 months in July 2008, compared with 10 months (revised) for the same period a year ago. The UII indicates the number of months needed to deplete the supply of homes on the market at the current sales rate.

FULL STORY

In Other News...

San Jose Mercury News

Lenders Remain Wary of Real Estate Investors 

Reuters

More Owners Say Their Homes Depreciated: Survey

Home Buyers Hold Fate of U.S Economy

Forbes

America's Most Distressed Housing Markets

CNN Money

Paulson's Fannie Freddie Fix

San Francisco Chronicle 

Home Sales in State Soar as Prices Plunge

TALKING POINTS

What to tell consumers--

Despite the high inventory of homes on the market, sales of deeply discounted, distressed properties are increasing and the Unsold Inventory Index (UII))--which indicates the number of months needed to deplete the supply of homes on the market at the current sales rate--is declining. With sellers often in competition with banks when selling their home, it is important for sellers to be aware of some best practices to help them sell their home. With guidance from their REALTOR, consumers need to carefully consider the importance of realistically pricing a home, properly staging their house prior to putting it on the market, and playing up the home's strengths.

While it may be common knowledge to REALTORS that the first offer is often the best, some sellers may not feel the same way. Many believe that if the first potential buyer makes an offer close to the asking price, future offers may exceed it. In many instances, this is not the case, and subsequent offers often are for less, especially in a declining market.

Brought to you by the CALIFORNIA ASSOCIATION OF REALTORS

Is that House Really Worth That Much?

Even though new federal rules prohibit appraisers, realtors, and individual home sellers from tweaking home values higher, an article by Kenneth Harney in last Sunday's Chronicle implies that inflated appraisals are still the norm. 

The housing boom came into being in large part because of a faulty appraisal system--one in which the people selling or providing capital (those who stood to make the most profit) had the most control over price tags. This system resulted in skewed home values that influenced prices everywhere. The most pressure on appraisers comes from lenders, who want to make sure home values will be set at a price that limits their losses. New laws threaten severe punishments for appraisers who buckle---in some states they can lose their licenses, and the secretary of housing can even impose financial penalties on appraisers found guilty of inflating values.  

Kenneth Harney San Francisco Chronicle Article: Appraisers Still Getting Pressure on Prices

Steve Papapietro's Weekly Mortgage Bulletin: Safety Clearing Tough Hurdles

Mortgage Market Guide, for the week of Aug 25, 2008. Vol. 6, Issue 35

Last Week in Review 

"The first thing a hurdler learns... is how to fall." Tonie Campbell, 1988 Olympic Bronze Medalist, 110m Hurdles. And that's a lesson Bonds and home loan rates have now learned, too. After finally leaping over a big technical hurdle called the 50-day Moving Average (a moving average is the average closing prices of a financial instrument over a given time period) for the first time in weeks, Bonds and home loan rates then quickly plunged to some of their worst levels of the week.

So what happened? Bonds and home loan rates began the week facing a tough inflation hurdle, when the Producer Price Index (PPI) came in at the biggest year over year increase in 27 years. The Core PPI, which excludes volatile food and energy prices, also came in at the biggest year over year increase since 1991. However, the recent drop in oil Bonds and home loan rates kept the topic of inflation from being too high a hurdle for Bonds and home loan rates, and they managed to leap above the 50-Day Moving Average to some of their best levels in weeks on Wednesday.

However, the quick rise in Bond prices pushed them into "overbought" territory, which pulled the reins back on their momentum. Combining this with Friday's news that the Korea Development Bank may be interested in acquiring Lehman Brothers- which added confidence to the financial sector, causing traders to move money from Bonds into Stocks- caused Bonds and home loan rates to stumble and end the week only slightly improved than where they began. 

WONDERING IF YOUR BANK DEPOSITS ARE FULLY PROTECTED? CHECK OUT THIS WEEK'S MORTGAGE MARKET VIEW TO MAKE SURE YOU AREN'T FACING ANY UNEXPECTED HURDLES!

Forecast for the Week

And if any improvement is in store, Bonds and home loan rates will again have several big obstacles to face this week. Right off the bat, we will get a read on the housing market as the Existing Home Sales report will be released on Monday followed by the New Home Sales Report on Tuesday. Also on Tuesday, the minutes of the Fed's latest meeting will be released, and it will be important to see if any comments about inflation will cause Bonds and home loan rates to trip up.

And more hurdles still will follow in the last half of the week. On Thursday, the Gross Domestic Product (GDP) Report will be released and on Friday we will get the details on the Fed's favorite gauge of inflation, the Core PCE (Personal Consumption Expenditure) data, from the Personal income report. If either of these reports show inflation as a big barrier looming ahead, Bonds and home loan rates may not be able to regain any headway before the markets close early on Friday at 2:00 PM in advance of the Labor Day holiday weekend.

Remember when Bonds move higher, home loan rates move lower... and vice versa. As you can see in the chart at the TOP of this post, Bonds and home loan rates managed to stay above the 50-Day moving average line despite the losses they incurred. I will be watching to see if Bonds and home loan rates can surpass additional hurdles and regain some ground this week.

The Mortgage Market View

The Low Down on FDIC Insurance--

After last month's failure of California-based IndyMac Bank, many people have wondered how safe their accounts really are. While the Federal Deposit Insurance Corp (FDIC) guarantees most bank deposits, here are some important details to remember.

What types of accounts are covered?

The FDIC protects checking and savings accounts, certificates of deposits (CDs), Christmas club accounts, and money-market savings accounts. However, Stocks, Bonds and mutual fund shares... even those purchased through an FDIC bank... are not protected.

What are the limits of FDIC insurance?

Bank accounts that have less than $100,000 in them and certain retirement accounts (IRAs held in CDs and money market accounts) that have less than $250,000 are fully protected by the FDIC even if the bank fails. If you want to exceed these account limits, you can keep your deposits fully protected by 

1. Dividing your money among several different bank companies. Note that dividing your money among several different branches of the same bank does not guarantee full protection.

2. If you prefer to keep your money in the same bank company, you can still be fully protected if you divide your money among various "ownership categories". Ownership categories include a personal account in your name, a personal account in your spouse's name, a joint account co-owned by you and someone else, and a trust account that names someone other than you as a beneficiary.

What are some common ways customers end up with uncovered deposits?

If you purchase a CD through an investment broker, this CD will often be placed with a bank at which you already have an account. If the CD and your other accounts exceed the $100,000 limit, you may not be fully protected. Before purchasing CD's through a broker, ask where they will be placed.

In addition, keep track of the interest your accounts earn you so you don't exceed the limits in any way.

What will happen if your bank fails?

In most cases, depositors can fully access their funds by the next business day. Typically, failed banks are closed on Fridays, and the funds are available by the following Monday. People can usually close their ATM cards and write checks over that weekend as well. And for customers whose accounts exceeded the FDIC limit, all hope is not lost. Though this amount has varied, they can generally expect to recover 70 cents on the dollar of their uncovered funds after the bank's assets are sold.

The good news is that the vast majority of US banks are secure, but the above information will help you stay full protected. 

FOR MORE INFO, visit www.fdic.gov

Steve Papapietro

C.A.R Market Matters, August 21st

Welcome to the Market Matters Advisory, your weekly guide to responding to the market. 

San Francisco Chronicle

Real estate chaos hits appraisal industry

As a result of the current market and a return to proper underwriting guidelines, appraisers are finding it increasingly difficult to get lenders to accept appraisals. Some lenders are even declining low appraisals and scrutinizing loan applications more carefully than in previous real estate cycles. whereas most lenders used to evaluate a home appraisal's credibility based on comparisons generated from their desk, now some banks are requesting that appraisals be verified by on-site visits to the property, as well as the nearby homes listed as comparables.

MAKING SENSE OF THE STORY FOR CONSUMERS

Since real estate markets are local and prices can greatly fluctuate from one area to the next, experts recommend that sellers and REALTORS work with local appraisers that have knowledge of that region.

Similar to utilizing a REALTOR versus a sales agent, it is recommended that sellers work with an appraiser that is a member of the Appraisal Institute or the American Society of Appraisers, the appraisal industry's two largest trade groups. Appraisers that are members of these organizations are required to complete more coursework than those just licensed by the state.

Because some lenders are declining appraisals, some mortgage brokers recommend that buyers leave their financing contingencies in place until the lender has signed off on the appraisal.

FULL STORY

US News and World Report

How the Housing Law Affects Reverse Mortgages

The recently signed federal housing bill has many provisions, including changes to reverse mortgages, which are loans against a house that the borrower is not required to pay back as long as they live in the home. Some of the amendments include raising the amount that seniors, age 62 and older, can borrow using a federally backed reverse mortgage; and lowering the cost of receiving the home's equity. Some aging experts advise consumers to be cautious before refinancing into a reverse mortgage.

MAKING SENSE OF THE STORY FOR CONSUMERS

Although seniors can access their home equity by refinancing into a reverse mortgage, many of these loans come with a variety of fees. Once the fees are paid, borrowers may choose to receive a lump sum payment, monthly payments, a credit line, or a combination based on the home's value. A provision in the housing bill reduces the maximum fee to 2% on the initial $200,00 of a home's value and 1% on the remaining balance, with a maximum set at $6,000. Some lenders charge less fees, so similar to finding a traditional mortgage, consumers should shop around and negotiate with their lender on these fees. In some cases, closing costs, service fees, mortgage insurance premiums, and interest rates can also be negotiated.

Most reverse mortgages are Home Equity Conversion Mortgages (HECM), which are backed by the Federal Housing Administration. In order for a borrower to qualify for a HECM, they must discuss the loan with a loan counselor employed by a non profit or public agency approved by the U.S Dept of Housing and Urban Development. This ensures borrowers understand all of their options and make the right decision. 

Some borrowers may not understand that although the loan does not have to be repaid, as long as they remain in the home, they are still responsible for property taxes, insurances, utilities, fuel, and maintenance, and other homeowner expenses. If some of these items are not kept up to date, the borrower risks the lender calling the loan due. It is important to note that reverse loans must be paid back with the proceeds, along with any remaining equity, if the home is sold.

FULL STORY

Los Angeles Times

Good news for California Housing

Home sales in Southern California increased in July compared with a year ago, while foreclosures decreased in month-over-month comparisons, according to a recent report. The California Legislature also is working with consumer and lending groups on a bill that would protect consumers from predatory lending and establish guidelines and restrictions on brokers and lenders.

MAKING SENSE OF THE STORY FOR CONSUMERS

Although the foreclosure rate is approximately double what it was a year ago, in month-over-month comparisons, it is 8% lower, indicating that foreclosures could be reaching a plateau. In a report released by RealtyTrac, default notices, which are the first phase in foreclosure proceedings, declined 4% from June. 

If signed, the bill will prohibit lenders from offering a pick-a-payment loans to subprime borrowers; establish limits and timeframes on prepayment penalties to subprime borrowers; amd prohibit brokers from leading subprime borrowers into loans with higher interest rates if they can qualify for one with a lower interest rate.  The bill also would prohibit lenders from paying a financial incentive to brokers for steering borrowers into loans with prepayment penalties or higher interest rates. Additionally, mortgage brokers would be required to place the consumer's financial interests above their own.

FULL STORY

In Other News...

Reuters

Home Builders Stay Grim in August

Housing Starts and Permits Tumble in July

Press Enterprise

Foreclosures push Inland Home Sales Up, Median Prices Down

SF Chronicle

Home Values Hold in Few Places in Bay Area

Talking Points

Here's what to tell consumers

Many mortgage brokers are finding that consumers do not fully understand the home loan process and as a result, make mortgage mistakes. Some common mistakes that borrowers make are: not cleaning up their credit; failing to search out first-time home buyer programs; paying junk fees; and not planning for closing costs.

Borrowers can increase their chances of being approved for a home loan by requesting their credit report and FICO score at least six months prior to applying for a loan. This allows the consumer to dispute errors and pay any outstanding debt.

Borrowers should also seek out a first-time buyer program because they often offer better interest rates and terms, and some even are tailored to people with poor credit or can assist those that do not have enough saved for a down payment. 

To avoid paying junk fees, such as those charged for "document preparation," for example, a borrower can use a mortgage broker or call a variety of lenders to compare loans, interest rates, and fees.

Some borrowers are shocked when they realize that they must bring cash to the closing table, typically anywhere from 2 to 7% of the home's selling price. To avoid this "sticker shock" experts recommend that borrowers get a good-faith estimate from their lender early in the loan process. 

C.A.R e-blasts are published by the CALIFORNIA ASSOCIATION OF REALTORS, a trade association representing nearly 200,000 REALTORS statewide. 

Bottoming Out: How discounted distressed sales are saving the day

With widespread foreclosures and falling prices comes some of the best news of the summer--across CA home sales are rising for the third month in a row. After thirty months of declines, the first realistic signs that the CA housing bottom's been hit are starting to make themselves known. Most of the recent transactions are discount foreclosure sales, a clear indication of how much slimmer CA bank accounts are now compared to three years ago.

According to an exclusive article on Bloomberg.com titled California's Discount Foreclosure Sales Point to Housing Bottom, written by Dan Levy and Daniel Taub, the $1.3 trillion in homeowner equity CA residents lost since housing prices peaked in 2005 (makes me cringe too) means prices have fallen roughly 50%. These new, lower numbers are making previously unaffordable homes realistic for some families, and are helping clear out the massive ranks of foreclosed homes lining CA streets.

 A stable market won't be able to gain footing until the inventory of empty homes gets cleared out. Droves of high foreclosure rates across the state pushed down prices and led to  "discounted distressed sales" on many properties, which were suddenly valued at under $500,000 for the first time in years. With sales picking up speed, progress toward a stable market is underway. 

Make sure you check out the full article (just click the title) for a clear and helpful map to the foreclosure crisis and the stages CA real estate has undergone throughout the past five years or so (it even predicts its future). It covers the subprime crisis, the impact of loan defaulting, and the potentially good repercussions of Bush's new housing bill. It's a must-read for any CA resident looking to buy, sell, or simply understand the story behind their property values. 

Finding a Home for You and Your Pet

Sometimes, the perfect home for you isn't perfect for your pet. If you're looking for a town home or condo that allows cats and dogs, I can help you.

Animal rules and regulations are set by homeowner associations (HOA's) and vary from one complex to another. If you are planning on purchasing in a complex, you should do some due diligence to make sure that your pets are as welcome as you are. Sometimes the stipulations are a little hard to spot. 

The first place to look is in the CC&R's (covenants, conditions, and restrictions) that are recorded for all complexes. Some of these documents will say that the board of directors is responsible for making rules governing the number and size of animals allowed in the complex, and others will report the rules directly in the CC&R's. 

Even if you find specifications in the CC&R's, it's still important to take a look at the Rules documents, which often cover things like pets, pool rules, and parking rules. Sometimes, complexes will post changes to animal policies in Rules documents, so looking there is a good way to make sure you're up to date. 

Finally, you should speak directly to the management company (or president of the board if the complex is self-managed) to really ensure that your pets will be happy, comfortable, and welcome in your new home.

As a pet lover, I have helped many people and their pets find places to live over the years. If you have a question about where to look for a pet-friendly place to live in the Silicon Valley area and beyond, please feel free to email me directly and I will help you in whatever way I can. 

marcy@marcymoyer.com

Steve Papapietro's Weekly Mortgage Bulletin

For the week of Aug 18, 2008---Vol. 6. Issue 34

Last Week in Review

"You can't put a limit on anything." Michael Phelps. And while swimmer Michael Phelps has had a record-setting week at the Beijing Olympics, Bonds and home loan rates have been battling some tough opponents at home. 

Bonds began the week trading lower due to inflation fears after crude shipments from Georgia were halted amid the Russian bombardment of the country. However, some poor economic reports (remember bad economic news is bad for Stocks and typically causes money to flow from Stocks into Bonds)... including poor earnings reports from Macy's and farm equipment maker Deere & Co... helped Bonds and home loan rates regain some of the early ground they had lost.

Bonds continued to rally in the latter part of the week despite the hotter than expected read on consumer inflation in the July Consumer Price Index (CPI) report. According to the index, consumer prices increased 5.6% over the last year, which is the biggest year-over-year increase since January 1991. However, Bonds shrugged off the bad inflation news and traded higher because this hot reading came during the time that oil prices spiked to $147 a barrel in the month of July. Since then, oil prices have dropped significantly and are now $113 a barrel, which left traders thinking that next month's CPI reading may be tamer. And Bonds and home loan rates continued their rally on Friday in response to some tame inflation news within the Empire State Index Report.

While inflation has been a tough opponent for Bonds and home loan rates, the technical factor known as the 25-day Moving Average (a moving average is the average closing price of a financial instrument over a given time) has been an even tougher opponent of late. Bonds and home loan rates have attempted to improve past this level several times over the last few weeks, finally succeeding on Friday to end the week nearly unchanged from where they began. 

PUTTING A LIMIT ON OVER-CONSUMPTION IS AN IMPORTANT THING TO DO! CHECK OUT THIS WEEK'S MORTGAGE MARKET VIEW TO LEARN HOW GOING GREEN CAN MAKE A DIFFERENCE NOT JUST FOR THE WORLD, BUT FOR YOUR MORTGAGE, TOO!

Forecast for the Week

Tuesday is an especially important day to stay tuned to the markets as two reports...the wholesale inflation measuring Producer Price Index and the state of the housing market measuring Housing Starts and Building Permits Report... could impact the direction of Bonds and home loan rates.

Thursday is another important day to note as the Philadelphia Fed Report will be released. This monthly survey of manufacturing purchasing managers conducting business around the tri-state area of Pennsylvania, New Jersey, and Delaware is one of the most-watched manufacturing reports. If manufacturing is stronger than expected in this area, Stocks could move higher at the expense of Bonds and Home Loan Rates.

Remember when Bond prices move higher, home loan rates move lower... and vice versa. As you can see in the chart below, Bonds and home loan rates were able to battle back and end the week near where they started. However, a new level of resistance at the 50-day Moving Average (seen as the solid black line) may have an affect on the direction of home loan rates. 

FOR CHART SEE IMAGE AT TOP OF BLOG POST

The Mortgage Market View...

Green Mortgages Equal Larger Loans Efficient Homes

Tired of heat and energy prices skyrocketing out of your budged? Now you can do something about it... and your mortgage can help!

Energy-efficient improvements, such as installing double-paned windows and additional ceiling insulation, can save you money every month, not to mention pay for themselves in the long run. But how do you come up with the cash to pay for those projects up front or to buy a slightly more expensive house that already has them? One way is with a "green mortgage."

What is a Green Mortgage?

Green mortgages actually come in a couple of different formats. Officially these loans are classified as either Energy Efficient Mortgages (EEMs) or Energy Improvement Mortgages (EIMs).

An EEM essentially allows you to purchase a home that is already energy efficient--even if the prices of that home is larger than you would normally qualify for under your debt-to-income ratio. EIM, on the other hands, allow you to take out a larger loan to make energy efficient repairs and improvements to a house that is not currently rated as energy efficient.

The main benefit of both of these mortgages is that they help you qualify for a larger loan amount and help make it possible for you to live in a better, more energy-efficient home. the basic principle behind this type of financing is that the money you save from the more efficient home will offset the larger mortgage payments.

Qualifying for a Green Mortgage

To qualify for a green mortgage, you typically need to have a Home Energy Rating conducted. This rating provides the lender with an Energy Savings Value, which is estimated monthly energy savings and the value of the energy efficiency measures.

Depending on your unique circumstances, you may qualify for a conventional, FHA, or even a VA green mortgage. Each type of loan is designed to fit a specific situations and, therefore, each loan has specific loan requirements that must be met.

You can learn more about the differences between conventional, FHA, and VA green mortgages at the Energy Star Website. And for more details about green mortgages in general, visit the HUD website.

Steve Papapietro

Senior Financial Assistant

First Horizon Home Loans

Jobs in San Jose Keep Prices on the Up and Up

Sue McAllister wrote a piece published in the Mercury News published a few days ago that talks about what those price reduced signs really mean in San Jose and the surrounding areas.

Certainly not that prices are getting cheap around here. Nope--rest assured folks, even though home prices HAVE fallen nearly 13% in the San Jose area over the last year, the median price ($775,000) is still higher than in any metropolitan area in the United States. 

San Jose has been spared some of the damage that racked Sacramento and parts of Southern California because of job growth. I've talked about this before in previous blog posts, but it can't be stressed enough when trying to understand the market in this area and how to predict its future. As long as the tech sector continues to produce jobs, the real estate market in San Jose has a steady foundation. 

But even in those areas where prices have fallen significantly and potential sellers are trying to readjust to their new property values, there's still hope. Buyers are attracted to lower prices in previously unaffordable neighborhoods--there were 26% more sales in CA in the second quarter. The jump in sales and the renewed action in the market might hint at another sign of promise for the real estate market--that we've either already hit the bottom, or we're going to soon. 

Taxes, Taxes, Taxes--What the New Housing Bill Means

Until the new housing bill came along, couples selling their first homes weren't taxed on the initial $500,000 (singles escaped taxation on $250,000) of their profit as long as the property was their primary residence for at least two of the five years before the sale. 

A lot of people took advantage of this by selling their first home and moving into an investment or vacation house for two years and then repeating the process. In places where the housing bubble sent home values through the roof, savvy sellers pocketed the first half a million of their profit completely tax-free. 

Tax reformers spotted the loophole and have designed the new housing bill to tighten taxes, with the intention of bringing in over 1.4 billion dollars in tax revenue throughout the coming years. 

Here are the new rules, as outlined by Kenneth Harney of the Washington Post in an article (I found it in The San Jose Mercury News) called Exclusion on sale of 2nd Homes Reduced--

"If you buy a second home or investment property on or after Jan. 1, convert it later into your principle residence and then sell, you'll need to allocate any gain from the sale between periods of qualified and non-qualified usage.

The minimum period for qualified principal residence use will remain as under the current law-- two years out of the five preceding the sale.

Sellers in future years will need to create a fraction against which to multiply their total gain. The numerator will be the time period the house was used as something other than a principal residence. The denominator will be the total period of ownership."

Harney gives a good example that'll be clearer than anything I can sum up--

"Say you're a single taxpayer and you buy a house Jan 1st for $400,000. You rent it out for two years and write off $20,000 in depreciation deductions. Then on Jan. 1 2011 you decide to convert the rental house into your principal residence. You live there for two years. On Jan 1 2013 you move out and put the place up for sale. On Jan 1 2014 you complete the sale of the house for $700,000. 

As under current law, the $20,000 of depreciation write-offs is treated as gross income. The two years of use as a principal residence qualifies you for some amount of tax-free exclusion on the $300,000. But how much?

To figure it out, you dived your aggregate period of non-qualifed use (the two rental years) by your total period of ownership (five years) and multiply that fraction ( 2/4 or 40%) against your total gain of $300,000. The resulting number is the amount that's subject to capital gains taxation--$120,000 in this case. But the remaining $180,000 is tax free."

The Call Heard Round the World

An article by Jeffrey Cane on Portfolio.com pins the birthdate of the credit crunch on last August 9th, when a call from a French bank pulled the rug out from under the U.S market. According the Cane, the credit market's issues had already begun last February, after the disintegration of the subprime mortgage market. The gravity of those issues wasn't revealed until French bank BNP Paribas stopped investors from withdrawing money from funds, claiming the market was too unstable for them to determine their holdings.

In a statement, the bank said--

"The complete evaporation of liquidity in certain market segments of the U.S securitization market has made it impossible to value certain assets fairly regardless of their quality or credit rating."

This call sparked a landslide of rumors about problems at other banks and with hedge funds. People began to get worried, and the stock market illustrated their fear. This lack of confidence in the market caused banks to distrust other banks and investors to rely only in the safe zone. Getting a loan got a lot harder.

The aftermath of the credit crunch has been huge. Bear Sterns and Countrywide are gone, and the future of Wall Street is hazy. The re-vamping of Fannie Mae and Freddie Mac is just the start of a necessary total over-haul of this country's financial system. 

Cane ends his article with a mention of how much financial pain the new President (Obama!) will have to deal with. President Bush has been downplaying the problem all along--constantly repeating that the economy is fundamentally strong, etc. That is, until the problem became too big to ignore. So how much of this is his fault?

Palo Alto Home Values Still Going Strong

Even Bay Area homes have been tainted by the recent real estate market woes--but only some of them. There are still few areas in the nine-county zone where home values are appreciating, according to a recent article in the San Francisco Chronicle by Caroyln Said.

Home values hold in few places in Bay Area

Prices are still going up in beautiful areas like Sausalito, and in places where technology reinforces the economy. That means good news for Cupertino and Palo Alto home owners and potential buyers, and bad news for "exurbs" like eastern Centra Costa County (where a glut of new homes were built in the last few years). It's the same old problem--too many houses on the market and not enough buyers drive prices down. But places that still have something to offer, like jobs for instance, usually retain property values because those properties are (and will be) in demand.

Steve Papapietro's Weekly Mortgage Bulletin: Bonds Persevere and Go for Gold Next Week

Last Week in Review

"PERSEVERANCE IS A GREAT ELEMENT OF SUCCESS." Henry Wadsworth Longfellow. Despite strong opposing forces in the early part of the week, Bond and home loan rates persevered like the greatest Olympian athletes, and were able to end the week in a similar position to where they began.

Remembering that inflation is the arch-enemy of Bonds and home loan rates, bad news on the inflation front caused Bonds and home loan rates to worsen Monday as the Personal Consumption Expenditure Index indicated that inflation climbed .8% in June, the highest monthly jump in 27 years. Not a huge surprise, given how energy and commodity prices soared in June.

Despite these inflationary pressures, the Fed announced on Tuesday that they have decided to keep the Fed Funds Rate at 2% and released a statement that hinted they may not raise the Fed Funds Rate in the near future. Why did the Fed do this? The Fed is trying to balance a slowing economy and the threat of inflation, and while raising rates could help fight inflation, it could also slow the economy even more than it is now. The Fed is hoping that keeping the Fed Funds Rate unchanged will help boost the economy, without fanning the fires of inflation. Since this decision kept the fears of inflation strong, Bonds and home loan rates worsened as a result.

However, Bonds and home loan rates persevered and managed to rally like champions later in the week on the heels of several reports. Causing money to flow from Stocks over to Bonds were a far worse than expected Initial Jobless Claims report and Wal-Mart's announcement that sales are expected to slow in August. Since inflation remains one of the strongest opponents for Bonds and home loan rates, I will continue to monitor this closely.

The loss of a loved one is one of the most challenging experiences of life. Check out this week's mortgage market view for important information that can help you persevere and make good decisions during a very challenging time.

Forecast for the Week

This week, several reports will show us whether or not inflation is getting hotter. Thursdays Consumer Price Index (CPI) report will show us inflation at the consumer level-- that is, how much more expensive goods and services are for consumers this month over last month. If CPI shows that inflation is growing, Bonds and home loan rates may reverse course and worsen quickly.

But before the inflation news hit the wires, another market mover will likely be Wednesday's Retail Sales Report, which will show us the total receipts of retail stores. Changes in these numbers are closely followed as a timely indicator of broad consumer spending patterns. This month's report may show us if spending that had been aided by the Economic Stimulus Package has started to wane. Remember: A strong Retail Sales Report would be good for the Stock Market-- which stands to reason, as it would indicate continued consumer confidence and dollars being poured into the economy. But a strong Retail Sales Report would be bad news for Bonds and home loan rates, as money that pours over into an improving Stock market would be coming out of Bonds, and would in turn cause home loan rates to worsen.

Remember when Bond prices move higher, home loan rates move lower... and vice versa. As you can see in the chart, Bonds ended the week on a positive note, but are now facing a "ceiling of resistance" overhead that might shut down any further improvement. Like an Olympian faced with a barrier, Bonds will need a boost to break through a tough ceiling that has halted advances on five occasions in the past few weeks. The nature of reports will determine whether Bonds and home loan rates can make more improvements, or reverse from overhead ceiling and worsen.

CLICK HERE FOR CHART

The Mortgage Market View...

Avoiding Scams During the Loss of a Loved One

The loss of a loved one is never an easy experience for a family, and people are often understandably distracted and overwhelmed with things to take care of. Unfortunately, scam artists often use the obituaries in the newspaper as a way to target potential victims.

Here are some tips to help you or your loved ones avoid scams during times of loss: 

Protect Your Home: If funeral service dates and locations are listed in the newspaper obituary, scam artists will be able to tell when you will be away from home. And with friends and relatives visiting to pay their respects, neighbors may assume someone entering your house has permission to do so.  To be safe, either ask a friend or neighbor to house sit while you're away, or let your neighbors know your plans so they can look out for suspicious visitors.

Know Who's Calling: If you have caller ID on your home phone, make good use of it and don't answer calls from unknown numbers. this will help you avoid calls from companies or individuals who are running cons. Remember--any companies or people who pressure you during difficult times probably aren't looking out for your best interests.

Be Mindful of What You Pay: As you are going through papers, pay all bills that you know are legitimate like the mortgage, utilities, credit cards, and car payments. Do not pay anything from unknown parties or companies, including invoices, investment opportunities, calls for orders placed, or calls for money owed.

Get a Second Opinion: Sorting through paperwork can be overwhelming during times of loss. Consider asking a friend, family member, or even a trusted professional like an accountant or attorney to review any invoices or claims before you send a payment.

If you ever have any mortgage or financial questions regarding an estate, please let me know how I can help you.

Steve Papapietro

Senior Financial Associate 

First Horizon Home Loans

FOR THE WEBSITE, CLICK HERE

Silicon Valley Land Surveying

Silicon Valley Land Surveying is the company I go to when I need engineers for subdivisions. These guys are great at what they do, and offer a variety of land surveying services for clients, including ALTA surveys, boundary surveys, topographic surveys, and legal descriptions for utility easements, temporary construction easements, lot line adjustments, and land/title transfers/exchanges.

For a complete list of services, CLICK HERE

I also added their link to my blog list. While their site isn't exactly a blog, it's still helpful enough to warrant a quick link. 

They're one of the most respected surveying companies in CA. Be sure to check them out! 

CAR Market Matters Advisory, Thursday, August 7th

Welcome to the Market Matters Advisory, your weekly guide to responding to the market.

CNN MONEY

Time to lock in your mortgage rate

Although still historically low, mortgage rates are rising slightly. Some analysts predict that mortgage rates will continue to increase over the next six weeks, while some forecasters expect rates to reach 7% by the year's end. Experts recommend that consumers work with their mortgage servicer to lock in a low interest rate. A "locked" or fixed rate will provide consumers long-term savings and allow home buyers to determine their monthly homeowner expenses several weeks before closing. 

MAKING SENSE OF THE STORY FOR CONSUMERS

With inflation rising and some investors in mortgage-backed securities demanding higher rates to purchase bonds, home buyers should work with their broker to lock in a low interest rate. For every half point interest rate increase, the monthly payment on a typical $294,000 mortgage increases by approximately $100. That adds up to a savings of roughly $1,200 annually and $36,000 over the life of a 30-year loan. The calculations are based on the median price of a single-family existing home in CA in June of $368,250 and the borrower providing a 20% down payment.

To lock in an interest rate, consumers should contact their broker and request the rate in writing. As long as the home buyer has a contract or a binder on the home, this should be a simple request. Rates can e locked in for up to 60 days, by only adding an extra eighth of a point to the rate. If a consumer would like the interest rate to be guaranteed for longer than 60 days, most lenders will request some paying up front.

Locking in interest rates is not without risk. If prevailing interest rates decrease, consumers with a locked rate may have to pay the higher interest rate. Some lenders may offer consumers the lower rate plus an eighth of a point, if the rates drop substantially. That scenario does not seem likely though, based on current economic conditions. 

FULL STORY

BLOOMBERG

California's Discount Foreclosure Sales Point to Housing Boom

Recent economic developments indicate that California may be the first state to find the bottom, based on the increase in sales volume in the previous three months. In June, home sales rose for the third consecutive month, following a 30-month decline. Although approximately 40% of the transactions were foreclosure sales, the increase is allowing the market to stabilize by depleting some of the excess inventory. Some experts believe that once a neighborhood's median home price declines to 50% from the peak value that the homes in that neighborhood will no longer depreciate.

MAKING SENSE OF THE STORY FOR CONSUMERS

Although California leads the nation in foreclosures, the state's foreclosure process is more efficient than in other states, which likely will lead to a quicker rebound. Foreclosed properties are receiving multiple bids and financial institutions are selling these homes quicker than the market would typically allow.

The Unsold Inventory Index in June decreased to 7.7 months from 10.2 months a year earlier, demonstrating that the market is improving.

FULL STORY 

LA TIMES

Should you buy a home now?

With home prices in California declining by 37.7% in June compared with a year ago, some consumers are wondering if now is the right time to purchase a home, or if they should wait for prices to stabilize. Some real estate experts believe that home prices will continue to decline and buyers should wait, while other recommend that home buyers take factors other than price into consideration, such as the benefits of owning versus renting. 

MAKING SENSE OF THE STORY FOR CONSUMERS

Consumers who are hesitant about purchasing a home today because they fear price depreciation, need to understand that real estate is cyclical and that prices will increase again. home buyers should view a house as a long-term investment and not be fixated on short-term prices. Some economists believe that consumers should purchase a house if they plan to live in or hold the property for at least seven years. This will allow the market to stabilize and homeowners to possibly profit from their investment if they decide to sell.

Although a typical monthly mortgage is higher than a rent payment, home buyers who qualify for a fixed-rate mortgage, such as those backed by the Federal Housing Administration, will have consistent monthly payments, while renters are generally subjected to annual rent increases. Mortgages also can be paid off and the house can be owned free and clear, while renters will consistently have a monthly payment.

To help home buyers lower the financial risk of homeownership, experts recommend that consumers purchase a home within their means and have enough in savings or other assets to cover the mortgage payment for at least six months if they lose their job.

FULL STORY

IN OTHER NEWS....

LA TIMES

Homeowners rent out property as they wait for a better market

June construction spending declines as steep decline in housing offsets strength elsewhere

WALL STREET JOURNAL

Builders Feel Pinch of Key Omission

CNN MONEY

Mortgage Applications hit 2008 low

Mortgage rates drop as oil eases

181,000 troubled homeowners get help

NY TIMES

Housing Lenders Fear Bigger Wave of Loan Defaults

SF CHRONICLE

Housing plan signed, but concerns linger

TALKING POINTS--What to tell consumers

As a result of some first-time home buyers' subprime or adjustable-rate loan payments resetting and become unaffordable, many condominium units have entered foreclosure, allowing bargain hunters to purchase these properties at very reasonable prices. Nationwide, 1,254 condo units were sold, in June, a 115% increase from May, and the largest number of condo units sold in one month since July 2007.

Homeowners with a Freddie Mac-owned loan, and who are at risk of foreclosure, now have 10 months from the due date of the last payment before the house will be sold at foreclosure sale. Freddie Mac also has doubled the financial incentives it provides to mortgage servicers that help its borrowers avoid foreclosure. The mortgage servicers will receive increased compensation for assisting homeowners with repayment plans, loan modifications, and pre-foreclosure sales.

Governor Schwarzenegger recently launched a $200-million program to assist first-time home buyers who purchase homes in communities hardest hit by foreclosures. This is in addition to the $7,500 tax credit offered to first-time buyers through the recently signed federal housing bill. Under the new loan program, prospective buyers will be eligible for below-market interest rate loans to purchase a foreclosed home in an area identified as having a high rate of foreclosures. For more info, CLICK HERE. 

Brought to you by California Association of Realtors

Relay For Life, Palo Alto High School, August 16th

Dear Friends and Family,

The American Cancer Society is having a Relay For Life event at Palo Alto High School on Sat. Aug. 16th. These yearly events take place at schools all over the country. My Keller Williams Office has a team participating again this year. One of the most moving parts of the day is the lighting of the candles that commemorate cancer patients, both surviving and those who have passed. If you would like to have a candle lit for someone in your life who has been a cancer patient please go to my Relay web page and click on the Luminaria link. If you want to be part of the team, let me know. If you would like to donate without a candle just click on the Donate link. If you are just curious, go ahead and explore. WEBSITE

I will be walking from 6-9 PM that evening and lighting candles for the people in my life who have battled, or are battling cancer.

Be grateful for your health when you have it.

Marcy

Mantra Restaurant--California/Indian Fusion

Mantra is a relatively new restaurant in downtown Palo Alto right across the street from Beppo's. I stumbled across it on kind of a whim--my friend and I had something to celebrate, and decided to do so by checking out this Indian place. I love eating out in Palo Alto--there's a surplus of really high quality restaurants here. Usually, it's pretty hard to get me to stray from my favorites (Evia, Beppo's, Three Seasons, Amber), but Mantra came highly reccommended, and the online menu looked inspired and full of twists.

Mantra is touted by reviewers and on a number of competitive, "best-of" lists, and its design certainly reflects this status. The restaurant has a lounge feel, with plush chairs, warm lighting, and a long swanky bar that paves the way to the bathroom. It's white tablecloth, and the tables at the banquettes are comfortably aligned---you're not sitting on top of your neighbors, but you're still close enough to eavesdrop, if you strain. You're also close enough to get a good look at what everyone else is eating. Trust me, you'll take advantage of this. 

My friend and I made reservations for an early dinner, and when we arrived at 5PM the place was nearly empty except for waitstaff milling about, killing time by polishing forks before the dinner rush. We ordered two appetizers. The first was a watermelon and tomato salad with hunks of feta cheese marinated in chili oil and fresh basil leaves. The second was the loveboat scallops, a trio of plump sea scallops marinated in pink peppercorns, fennel, and spring peas, each topped with a cherry of lobster nagu (or caviar, essentially). Let me just preface the following review--every dish we tasted was a home run, with the exception of the chili-garlic naan (only mediocre, especially lined up against all the other dishes).  

The salad seemed like a wild card before it arrived, but once tasted watermelon, tomato, and feta became the most natural trio in the world. The watermelon isn't that sweet, and pairing it with tomato really brought out tomato's fruitiness. It was like a funkier variation of a caprese salad, a summer version or something. Definitely try it. The scallops were perfection--unfortunately there were only three, and they went fast. They were covered in a pinkish sauce, presumably from the marinade, that was like a spicy scallop curry with peas. The plate was clean when the waiter got it back.  

Seabass is one of the few fish I'm hardly ever dazzled by. Previously I've always found it kind of bland, and I often get it confused with cod, as it shares the same blank canvas taste. But our knowledgeable waiter's face lit up as he described the seabass special, and I was sold--when waiters gets a dreamy look on their face while describing a dish, I usually know what to order. After dinner at Mantra, I think I understand that the key to seabass is simply how it's cooked. That's it. My piece of bass had about a milimeter of golden crisp on the top and bottom made out of cooking oil, the fish skin itself, and little flecks of garlic. Inside, the fish was buttery and fell into flakes under a slight prod with my fork. The flakes were creamy and rich. The seabass laid over a cauliflower saffron and pea mash--I'm not quite sure how to describe it. The plate was laced with a tangy plum sauce (not sweet) that brought it all together. There were two sizable endives below the mash. They added a bitter and smoky element to the dish (pretty sure they were grilled). 

My friend ordered the cumin and and pomegranate braised short ribs with saffron-thyme butter beans and garlic bok choy. The short ribs were cooked as perfectly as the seabass, and were at that melty state where you hardly need to chew. The sauce was flavorful---my only criticism of the night was that the warm, belly-filling dish seemed more suited for cold weather than the end of July. 

For dessert we ordered the chocolate pyramid, which was basically a chocolate mousse carved into a cute little triangle with a few berries for garnish. It was good, but a little anti-climatic after such an explosive meal. Also, we were stuffed out of our minds. The texture of the chocolate was slightly dry.

One of the most widespread criticisms of Mantra is that the service is poor. We did not have an issue with this at all. Our water glasses were always full (but not annoyingly so) and when we told the host we were under time constraints he made every effort to ensure our meal moved quickly. The server knew the menu inside and out, and eagerly guided us through the dining experience, pointing out what the chef was known for and what was most popular on the menu.

I can't wait to go back. 

Recent Home Sales

Here's a link to a posting of recent home sales in the Palo Alto Weekly.

Recent Home Sales

Everywhere But Here

All across the country home values have been free-falling. It's a matter highly covered by the media, and something many people have experienced first hand. But an article in the San Francisco Chronicle written by James Temple says that most homeowners believe the value of their property has either stayed the same or risen during the year. 

ARTICLE--Homeowners delusional on value of property

62% of homeowners, in fact. According to Zillow (a real estate web site) the market price on 77% of properties has fallen while only about 24% have gone up or at least held tight. 

How can so many people think the crisis hasn't touched them? When you consider how large a part a home plays in a family's assets, it's easier to see why people can delude themselves. No one wants to admit their biggest investment has lost 25% of its value. 

If you're planning on staying in your house for the next five years or longer, all this really shouldn't affect you that much. If you are trying to sell, however, it's important to educate yourself on the current market in your area and take stock of changes. Think about how you might need to readjust your idea of what the house is worth, and try to be realistic. 

A reassuring quote from the article for us Silicon Valley dwellers---

"The Zillow survey of 1,361 homeowners, conducted by Harris Interactive, didn't break out figures for California or the Bay Area specifically. Malcom Kaufman, a Realtor with McGuire Real Estate who focuses on San Francisco, said local sellers are generally more informed and realistic about the condition of the market."

Buy Now. Or at Least Before June 30th 2009

Buying a house is always a big decision. Especially if you've never owned one before, and especially when the housing market is unstable. Anyone who's been trying to wait out the storm should check out the new home purchase tax credit created by the massive housing bill Congress just approved--for some buyers, it may make the decision seem a whole lot easier.  

According to Kenneth Harney in a recent San Francisco Chronicle article called How Home Purchase Federal Tax Works, first-time buyers and buyers who haven't owned a house within three years may be eligible for up to a $7500 credit against their federal taxes for 2008 or 2009. They are only eligible for the credit if they go into closing on their home before the end of June, 2009. 

High expectations surround this new home purchase tax credit. In theory, it seems like it could work wonders. Congress has set no limit on the number of people who can qualify, and the credit should work to kick housing sales back up while finally clearing out unsold real estate inventories across the country. There are no regulations on the kind of house. It can be any price, in any location, old, new, with five bathrooms or one and a half.  As long as the buyers fit the profile and it's in closing before June, 30, viola! Your tax bill will be up to $7500 lighter. 

If you owe the IRS any money from income taxes, the credit could wipe out what you owe and grant you a hefty refund. Harney writes, "The new home purchase tax credit is what the government calls refundable: If your tax bill is less than the credit amount, you get the difference back from the Treasury."

Current home owners are not eligible for the credit. It applies only to first time buyers, or people who sold their homes more than three years ago and now rent. High earning buyers (with adjusted gross incomes over $150,000) will see their credit maximum scaled down in increments. 

There is a payback, however. Beneficiaries of the tax credit are required to pay the credit back over a number of years, even as many as 15. If you sell the house before your repayment period is up, you won't have to pay the credit from the proceeds. Harney writes, "In other words, the federal government is taking on all or much of the risk that the value of your new house won't increase over time." 

Think of it as a loan, albeit an interest free one. And you can only take out $7500. 

As if we needed more proof that San Jose is expensive...

Forbes decided to give it to us, in the form of an informative little article detailing some of this country's most highbrow neighborhoods, where residents pay astronomical amounts for the privilege of owning their properties instead of renting them. 

These are the few pockets where homeowners are still willing to take a chance on the future appreciation of their homes. First place mentioned? 

Ladies and Gentlemen, your very own San Jose, CA. 

Particularly the neighborhood of Willow Glen, where residents pay the city's highest prices relative to what they could pay to rent similar properties in the same area. Chances are, the people paying crazy mortgages in Willow Glen won't lose out. San Jose, like most of the Silicon Valley area, has weathered the foreclosure crisis very well and has insurance in the form of tech jobs that should bolster prices in the years to come. 

Still, seeing how much money owners are willing to pay to hold onto their properties in Willow Glen is an eye opener. In America's Most Overpriced Zip Codes, Matt Woolsey writes-- 

"When you compare mortgage payments to the value of a similar home on the rental market, the price to buy is 26.1 times higher, one of the biggest differences in the country."

But it could be worse. It could be TriBeCa, or Boston's Chinatown. Other similar neighborhoods include downtown Seattle, Mission Hills San Diego, and Coronado, Phoenix. 

CAR Market Matters Advisory, Thursday July 31st

Welcome to the Market Matters Advisory, your weekly guide to responding to the market. 

YAHOO! NEWS

Bush signs housing bill to provide mortgage relief

Approximately 400,000 Americans are expected to benefit from the "Housing and Economic Recovery Act of 2008," which President Bush yesterday signed into law. One of the most significant provisions of the bill is that it allows homeowners facing foreclosure to refinance their current mortgages with a Federal Housing Administration (FHA) backed loan. The bill also will permanently increase FHA, Fannie Mae, and Freddie Mac loan limits in high-cost areas. Additionally, the legislation requires lenders to show how high a borrower's payment could get under terms of a new mortgage and provides $180 million in pre-foreclosure counseling for struggling homeowners. A low-income housing tax credit is also expanded and first time home buyers will receive a tax credit of up to $7,500 for homes purchased between April 9, 2008 and July 1, 2009. The credit serves as an interest-free loan and the homeowner is required to repay it in equal installments over 15 years.

MAKING SENSE OF THE STORY FOR CONSUMERS

The new loan limits for Fannie Mae and Freddie Mac are the greater of either $417,000 or 115 percent of an area's median home price, up to $625,500. The new FHA loan limit will be the greater of $271,050 or 115% of an area's median home price, up to $625,500. Both new loan limits will be effective at the expiration of the economic stimulus limits on December 31, 2008.

The legislation creates a nationwide loan originator licensing and registration system to protect consumers from predatory lending practices. The requirements do not apply to those only performing real estate brokerage activities unless they are compensated by a lender, mortgage broker, or other loan originator. States will have the ability to implement more stringent laws.

Although initially the main reason for President Bush's veto threat, the bill also includes $3.9 billion in neighborhood grants. It is believed that this allotment will assist with stabilizing home values by allowing communities to purchase and refurbish foreclosed homes leading to reduced neighborhood blight.

Previously precluded from the economic stimulus loan limits passed in February, the recently signed housing legislation temporarily raises the loan limit for the Veterans Affairs home loan guarantee program to $729,750 from $417,000 until December 31, 2008. 

FULL STORY 

CNN MONEY

New home sales stronger than expected

Nationwide, the median sales price of new houses sold in June rose slightly by 1.4%, compared with May. The median sales price of a new home in June was $230,000, a slight increase from May's median sales price of $227,000.

New home sales decreased by less than 1% between May and June, but economists and investors reacted favorably to the seasonally adjusted annual rate, which was stronger than most predicted. Prior to June's monthly sales decrease, new home sales were increasing month over month, which some economists view as a positive indicator that the market will reach bottom by the end of this year and soon begin its rebound. 

MAKING SENSE OF THE STORY FOR CONSUMERS

Rising grocery and energy prices, combined with unadjusted incomes, have led some consumers to think twice about purchasing a home. Although median sales prices nationwide are 2% lower than the median price from a year ago, the monthly rate of decline is slowing. Despite overall sales price declines, prices in some areas of California, such as San Francisco, are still more than 60% above where they stood in January 2000.

Consumers should consider purchasing an existing single-family home, which posted its third consecutive year-to-year gain in June in California. Existing single-family home sales rose 17.5% in California, compared with the same period a year ago. Statewide home sales also remained above the 400,000 level for the second month in a row. 

FULL STORY

SAN FRANCISCO CHRONICLE

Proposed tax deduction could benefit many homeowners

With so much of the emphasis placed on the benefits to homeowners at risk of foreclosure, many consumers are unaware that the recently signed federal housing bill also benefits consumers who do not itemize their federal tax filings. Millions of homeowners are now allowed to claim a deduction for at least a portion of their local and state property taxes.  Although intended as a one-year economic relief measure, tax experts believe that the new deduction will become a permanent feature in the tax code. 

MAKING SENSE OF THE STORY FOR CONSUMERS

It is estimated that 50% of homeowners itemize their returns, but 1/3 of them do not have any mortgage debt on their property and therefore do not claim mortgage interest as a deduction.  This provides greater tax fairness and also pay local and state property taxes. The majority of this group includes seniors and lower-to-moderate-income households.

Opponents of the tax plan argue that it allows the government to continue pushing the financial benefits of homeownership versus renting. However, it is important to understand that homeowners outnumber renters roughly 2-1.

FULL STORY 

In Other News....

NY TIMES

A New Way to Generate Mortgages

LA TIMES

Rates on 30-yr mortgages jump to highest level in nearly a year, reflecting market worries

Home buyers should check for hidden and buried toxins

Home builders battle to survive

CNN MONEY

Housing market weakens again

Home prices continue sharp descent

TALKING POINTS: WHAT TO TELL CONSUMERS

Because the FHA-backed refinancing program is voluntary, some loan servicers may be reluctant to participate. Homeowners wishing to refinance their current mortgage should continue making their regularly scheduled mortgage payments, if possible. If a homeowner's financial situation deteriorates enough, the bank or loan servicer will not want to work with them. To prepare for this transition, experts recommend that consumers talk to a local credit counselor and track their expenses and incomes closely to better forecast their cash flow for the next six months.  This will allow loan servicers to make a better decision on whether or not to refinance the existing mortgage. 

Although foreclosures are increasing, defaults, which are the first phase in the foreclosure process, rose by only 6.8% in California between the first and second quarter. This could indicate that foreclosures are nearing a plateau and that defaults on subprime mortgage are nearing a peak. Some experts believe it could also mean that lenders are overburdened and do not have time to process the paperwork required to start foreclosure proceeding. 

For a summary of key provisions of H.R 3221--The Housing Stimulus Bill, consumers should visit the NATIONAL ASSOCIATION OF REALTORS WEB SITE