Your Property Path Real Estate News Brief

July 30, 2008

Bush Signs the Housing Bill

The Small Print: Will it Help You

Much analysis that will take place, but this is a quick first look. The size of the program is 300 billion, helping as many as 400,000 homes. The program will last five years and then phase out. Given that we expect 3 million homes to foreclose this year its only a partial.

No bail Out

Lenders: This is not a bail out for lenders or investors. Investors and/or lenders will have to take significant losses in order to benefit from the proceeds of the loans refinanced with government insurance. However, these losses would be less than the losses associated with foreclosure.

Borrowers will share their new equity and future appreciation equally with FHA. Borrowers will pay for the FHA insurance. If you sell during the next five years, you must agree to share 50 percent of any profits from the resale with the government. What's more, homeowners can only retain equity gains based on a sliding scale.

Voluntary Participation

No lenders or investors will be compelled to participate. The only way to find out if your lender will join the program is to call.

Fannie and Freddie Raise the Limits

Areas with median house prices that are higher than the regular conforming limit will now be able to borrow at 150% of the conforming loan limit, or $625,000.

Eligible Borrowers.

Only owner-occupants who are unable to afford their mortgage payments are eligible for the program.
No investors or investor properties will qualify.
Mortgage debt to income ratio: Must greater than 31 percent as of March 1, 2008
Loans must be 30-year, fixed rate loans.

New Loan Amount.
The size of the new FHA-insured loan will be lesser of the amount the borrower can afford to repay, as determined by the current affordability requirements of FHA; or, 90% of the current value of the home.

Equity & Appreciation Sharing:
The borrower must share the newly-created equity and future appreciation equally with FHA. The homeowner would have zero equity from a sale in the first year, with the amount rising 10 percent in each succeeding year and capping at 50 percent from a sale in year five and thereafter.

Thanks for Reading

Howard Bell
www.yourpropertypath.com
A web site of over 450 articles related to real estate focused primarily on property management.

Your Property PathSF
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July 29, 2008

Some of the big hedge funds are beginning to look at these battered mortgages. Merrill Lynch has just sold off a huge amount of mortgage backed debt. The most important take away is that at least, there are some people who want to buy these CDO's.

A short list of some of the big hedge funds that are setting up subsidiaries

Lone Star Funds: bought 30.6 billion of CDO's from Merrli at 22 cents on the dollar putting aside money to buy of bad debt.

The Blackstone Group: Puts aside 1.25 billion
PennyMac: Has a $2 billion war chest as is shopping

BlackRock: bought $15 billion in mortgages from Swiss bank UBS AG

This is going to be a bumpy , but I do believe we are putting in a bottom. Real estate cannot recover until these institutions finish purging...there will be little money or interest in funding new housing

July 27, 2008

Freddie Mac: Is there a Pulse

Yes....so far. Reuters reports that Freddies ability to support the housing market as of June was intact, buying billions of dollars worth of mortgages. Concern exists as to whether they can continue to keep up this pace as many more foreclosures and poorly structured mortgages out there. Almost 3 million homes are expected to foreclose this year alone and that number continues to rise.

As everyone knows by now, Congress has just passed a bill basically giving Fannie and Freddie an unlimited line of credit.

But Freddie Mac has decided that the best approach to capital infusion is the stock market. This week they formally registered with the SEC. This is the beginning of a process to issue 5.5 billion in new shares. If investors are willing to take a long view, its possible that we may not have to deficit spend our way out of this crises. Perhaps Freddie realizes that the government doesn’t really have the money anyway. Perhaps they have faith in the long term viability of the system and think many others do too.

Freddie Freddie Mac Update: Spike in Mortgage Rates This Week.

30-year fixed-rate mortgage: Averaged 6.63 percent with an average 0.6 point for the week ending July 24, 2008, up from last week when it averaged 6.26 percent. Last year at this time, the 30-year FRM averaged 6.69 percent.
15-year fixed-rate mortgage: Averaged 6.18 percent with an average 0.6 point, up from last week when it averaged 5.78 percent. A year ago at this time, the 15-year FRM averaged 6.37 percent.
Five-year Treasury-indexed hybrid ARMs: Averaged 6.16 percent this week, with an average 0.7 point, up from last week when it averaged 5.80 percent. A year ago, the 5-year ARM averaged 6.30 percent.
One-year Treasury-indexed ARMs: Averaged 5.49 percent this week with an average 0.5 point, up from last week when it averaged 5.10 percent. At this time last year, the 1-year ARM averaged 5.69 percent.

The spike in rates is attributed to rising inflation. Consumer prices increased year over year 5%. The Fed's priority conclusion is that inflation is far more dangerous than the housing crises. It would love to manage both, but given the choice they will live with foreclosure rather than the long term across the board wealth destruction of high inflation.

July 26, 2008

Origins of Fannie & Freddie

The early Origins of the Mortgage Mess

It is interesting how a government agency evolved into some curious form of hybrid, unlike any other. In 1938, to help restart the housing market after the great depression Fannie Mae was created and funded to help provide liquidity to home buyers.

In 1968, Fannie was privatized and Freddie came into existence. The financial page of the New Yorker makes some interesting observations.

The claim is that the hybrid nature of these two agencies of the government came into being as an accounting trick. By recreating Fannie as semi private and Freddie as a private corp., they were able to take the mortgage debt off the books. Considering that they now have a combined mortgage ownership equal to the national debt, this helped the US look much more solvent as it was deficit spending to finance its Vietnam war effort.

The special relationship of these two companies to the government enabled them to borrow at better rates. This allowed them to buy or guarantee more mortgages, providing the liquidity to fund the idea that everyone could be a homeowner.

The real problem is when companies become so big that they can tip the boat when they mismanage. No doubt better oversight is on the way. Hopefully, they will be broken up into manageable pieces, so that if this ever happens again, they will not be so large as to tip the whole boat.

July 24, 2008

The New Housing Bill Highlights

Although many Republicans were against Bush signing off on a tax payer bail out, Bush did sign. This is one of those things that has critics on both sides. Those who are for it feel it doesnt go far enough in helping the tsunami of foreclosures we will see through 2010. Those against it feel the tax payer gets to pay for the excesses of the industry and thats not the American way. We pay to play and when we lose we lose....

The Housing Bill Highlights:

Relaxed lending standards will allow many owners to refi with lower cost Government owned mortgages. or renegotiate mortgages
FHA gets 300 billion in new money
Fannie Mae and Freddie Mac will get the financial supprot they need through a line of credit and maybe the US Govt will become an investor and by stock.
Stricter controls over Freddie and Fannie. They own or guarantee more than 50% of all mortgages and when you get that big, mismanagement can sink the boat.
Housing Tax Breaks: 15 billion for low income housing and mor
Tax Credit: Up to $7500 for first time buyers who purchase between April 19, 2008 and July 1, 2009
Foreclosure Counseling: $150 million to help owners headed for forcloesure. This money will provide for leagl services and for counseling.

The U.S. Senate is due to vote finally on Saturday to approve a major housing market rescue bill, including federal financial assistance for Fannie Mae and Freddie Mac. As of this writing, it has passed in committee paving the way for the final bill to become law. Well folks, its clear now that we will all own the problem. The Government is now the lender of last resort.

July 20, 2008

The Credit Crunch Could Continue Through 2010

Banks Will Lead the Recovery

The lenders will have to regain their footing before the housing markets can really recover. If the lender wont or cant lend money to a willing buyer, then regardless of demand or favorable price there will be fewer deals. I think the big banks and Fannie Mae/Freddie Mac must be recapitalize before we can see a meaningful housing recovery.

Using Citigroup as a Leading Indicator for the Housing Markets

Citigroup was one of the hardest hit of the large banks because they held so much subprime debt. Chairman Win Bischoff warns that house prices in Britain and the United States are likely to keep falling for another two years in an interview with the BBC.

For the quarter Citigroup lost 54 cents a share or 2.5 billion dollars. The stock jumped on the news and is prompting people to say that this is the early beginnings of a recovery, considering Citigroup lost 5.1 billion dollar last quarter. Confirming Citigroups indication that we will see losses through 2010, JP Morgan reports that their holdings report 30 day delinquencies have risen from about .75% to just under 4% today year over year.

The second wave

The ARMs that funded this boom will be re-setting and monthly payments will increase between 3 to 8 times. This will cause another wave of defaults unless banks are willing to renegotiate or Federal programs help people stay in their homes in a massive way, we will continue to see prices drop for two more years. The bill currently in the house, if passed as is, would likely help only about 400,000 of the estimated 3 million homeowners who may lose their homes in the next year. Add to this mix the fact that Federal Reserve can't wait for the end of the crisis to raise rates and you can see that the housing markets will be at risk for quite a while.