Bernanke speaks on U.S. Recession

This morning I had the opportunity to listen to Fed Chairmen Ben Bernanke speak on the Bear Stearns "bail out", the current Housing condition, and the potential for U.S. Recession. First, let me say, Mr. Bernanke does appear as though he genuinely is looking out for the best interests of the U.S. Economy and consumer. With that said, I have been reading stories on the CNN Money website from Americans who are struggling to make ends meet. This may seem every bit the norm, as there have always been classes of people (upper, middle, and lower), but I do believe that the struggles of so many Americans goes far beyond a normal level. My question is what can be done about these troubles.

There are two sets of thoughts:

1) Those struggling made bad decisions (their own uneducated decisions) that brought them to their current situation.

2) Those struggling are victims of circumstance and unfortunate misgivings that have landed them in a situation of which they are no longer in control.

Both sets of thoughts put the blame in two places, either on the person or on external factors. The housing turn down, for most, was likely an external factor. Many people, and I have heard countless stories from my work as a Mortgage Loan Originator, believed they have/had equity in the house that, on paper, is no longer there. The problems with this arise when they chose a Mortgage that may not have been explained properly or chose cheaper payments now in leiu of sound financial decision making. The other side of the housing turn down occurred when people wanted what they couldn't afford to actually pay off, and in the meantime were given a loan that allowed them to make payments while continuing to lose in the process. ARM's, Interest Only, Negative-Amortization loans, etc. All programs that if not used properly can have a profound impact on one's financial future.

I subscribe to a great Real Estate blog by Steve Belt at Realty Executives in Scottsdale, Arizona. His blog is http://www.realphoenixliving.com/. Yesterday, he wrote an article about the mindset of the public and their ideas about housing. I believe he said it best when he said, "...a home is: a place the average person lives in for 5 years, making memories." You see, we all look for great deals and hope to someday have enough financial security to retire comfortably. However, we are viewing homes, not as places to live and dream, but as a place to invest and make money. Sure, there are people who are very successful at buying and selling homes for profit, but it is their job. They wouldn't understand the inner workings of Apple, or Tax Accounting, or our legal system. And, if they stepped into those arenas they may find themselves to be unsuccessful in those ventures, unless they devoted their time and resources to being great at those specific occupations.

So here is the bottom line, be in control of your finances. Don't go based off of what you can't control but what you can. A home, for sure, is an investment, but not at a price you can't afford or aren't willing to sacrifice for in order to keep. Be educated and intelligent about your decision to buy the house and when you found your home and can afford it, then make the purchase and live in your home to enjoy it.

With that said, let me go back to the start of the article and Mr. Bernanke. He stated that the housing crisis is in the center of the current economic situation and a big part of the problem. Unfortunately, he offered little as to what the Fed may do to help struggling Americans.

• Should stuggling Americans be helped in this crises, should tax-payer money be used to bail out those who can't make payments and face foreclosure, should those who are more fortunate or were responsible be made to foot the bill to fix this situation?
• Can blame be placed on the purchasers of mortgage backed securities, the broker shops who supplied bad loans to people in rough spots, or the investors who were looking to make a quick buck?
• Lastly, can we find a way to fix or regulate the industry in a fashion that will prevent the same problems from occurring again?

I am not sure there is a definitive answer and the debate is ongoing as to what should be done. I do believe it starts with educating the average American about the mortgage process and finding ways to give guidance to those who are seeking it. It starts with education and continues from there. I would be thrilled to know your thoughts on this issue and how you believe we can begin to mend the issues and prevent them from happening again.

Make it a great day

PMI Guideline Changes

Changes just keep coming. These changes are coming in "alignment with the Economic Stimulus Act of 2008." Though the opening letter paints a bright picture of these changes, they are actually making adjustments and tightening their standards. These changes are going into place on April 15, 2008.

Here is the link to read the full letter and information regarding these changes:

• PMI Guideline Changes

Here is a summary of the changes...

• LTV and FICO "requirements are effective regardless of any AUS decisions or recommendations."


• ARIZONA IS A DISTRESSED MARKET...


• --Cash out Refinance loans are no longer eligible


• --Investment properties are no longer eligible


• --Limited Documentation loans are no longer eligible


• --Interest Only loans are no longer eligible on Investment Properties


• --Owner Occupied/Primary Residence I/O, then borrowers must qualify using full PITI (Principal, Interest, Taxes, Insurance)

Besides the above major points, PMI also developed a matrix to better explain its requirements. A couple of examples:

• One unit SFD (basic single family detached home) - Max LTV 90% with min fico score of 680.


• Jumbo Loans on Full Doc PMI up to 85% LTV with min fico score of 700.

Other than the above, finding PMI for certain types of loans and borrowers is going to become increasingly difficult. The best new option is FHA loans as long as they remain under the $346,250 limit threshold.

There is no telling how far and fast the guidelines can change from these most recent changes. The goal is to stay encouraging to our borrowers and buyers of homes and consult them from the beginning of the process on how to improve their credit and save money in order to buy their first or second home. In addition, a mindset change must take place regarding the largest purchase the average American will ever make, a home. It has seemed as though it was a fleeting decision made by buyers who were not educated properly. This has left a path of destruction in its wake and made it difficult for those who would be qualified and responsible buyers to even secure a loan. A process where we work for the things in life we want and desire to have must begin to unfold. This will keep us away from the past few years when Americans over-extended themselves hoping to "cash-in" on values and have found themselves without a strong and secure financial background to rely on.

Let's make a decision as realtors and loan officers to educate our buyers and take care of them in their dream of home ownership, not using it as a way to cash in on their lack of understanding of the industry we enjoy so much.

I hope your week is going well and it finishes off as strong as it began.

Fannie Mae Changes

Changes occur everyday in the mortgage lending industry. In order to be the most efficient Loan Originator, it is important to stay on top of these changes and be aware of programs that become obsolete and new programs that may become available. As I discussed a couple of weeks ago, FHA loan limits have increased, which may ease a borrower's necessity to put down more than 5% toward their new home purchase. It may also allow for a refinance to someone who's current loan falls within the new limit of $346,250. This change doesn't affect everybody or ease the difficulties within the housing market and lending sector's of the financial industry. It may lend for new opportunites for an LO to prove their worth to Real Estate Agents and Title Companies.

Fannie Mae Guideline Changes Effective June 1, 2008

Market deterioration has led to the implementation of "revised standard pricing requirements for certain risk attributes" (See Announcment 08-04 from Fannie Mae). Which means, the higher the risk then the higher the price in originating a loan with Fannie Mae (Conventional, Conforming Loan Limit's <417k).>

LTV & Credit Score

Cash-Out Refi's & LTV & Credit Score

2-4 Unit Properties.

On June 1, 2008, any loans will have the adjustments. Basically, they (Fannie Mae) developed a matrix that the lower your credit score and the higher the LTV the more expensive the pricing for the loan. This translates into higher rates for borrowers with lower credit scores and less money into the transaction.

For example:

• 95% LTV with 650 Credit Score = 1.75% adjustment to rate
• 60% LTV with 700 Credit Score = .50% adjustment to rate

The same type of mindset has been applied to cash-out refinances with Fannie Mae, after June 1, 2008, not providing cash-out refinances over 90.00%.

These changes will significantly affect the rate environment that we are in and may make it more difficult to qualify borrowers and convince them of the rate structure. It is imperative that the word gets out to those buyers who may be on the fence and to those people who may be holding out for a better rate. Sure as day, unless they have a low LTV and impeccable credit their rate will be affected.

It isn't likely that this change will solve the problems that arose over the last 6-12 months within the market or keep them from occuring again. However, now is the time to make sure that lenders and investors have done their due diligence to ensure they will insure the financial industry weathers the storm that blew in last Spring. Stay tuned tomorrow for more changes regarding PMI (Private Mortgage Insurance).

Hope you have a wonderful final week in March.