Obama Unveils Homeowner Affordability and Stability Plan

President Obama unveiled his plan to help stabilize the housing market and keep millions of borrowers in their homes.

The Homeowner Affordability and Stability Plan includes two initiatives to help struggling homeowners. One is a refinancing program for homeowners with less than 20% equity in their homes, or who owe more than their home is worth. The second program attempts to lower monthly payments for homeowners at risk of losing their home. In addition, the plan includes a third initiative to support low mortgage rates by strengthening confidence in Fannie Mae and Freddie Mac.

Many of the plan’s details are still being worked out and will not be announced until March 4, here is an overview of the plan’s main components.

Refinancing Initiative
Under current rules, those families who own less than 20% equity in their homes have a difficult time refinancing and taking advantage of the historically low interest rates. Therefore, the refinancing initiative in the new plan provides refinancing help for homeowners with less than 20% equity in their homes or who owe more than their home is worth. This initiative is open to homeowners who have conforming loans which are guaranteed by Fannie Mae and Freddie Mac, and who owe up to 5% more than their home is worth. According to the plan, “credit-worthy” or “responsible” homeowners can refinance their mortgage into a 30- or 15-year, fixed-rate loan based on current market rates. The refinanced loan, however, cannot include prepayment penalties or balloon payments. For many families, this low-cost refinancing may help reduce their mortgage payments by up to thousands of dollars per year.

As with the rest of the plan, details about this initiative will be released at a future date—including what, if any, credit score requirements will be included.

Stability Initiative
This initiative aims at providing help to individual families as well as entire neighborhoods by helping reduce foreclosures and stabilize home prices. It is intended to help homeowners who are struggling to afford their mortgage payments, but cannot sell their homes because prices have fallen significantly. The goal of this initiative is simple: “reduce the amount homeowners owe per month to sustainable levels.” To accomplish this, lenders are encouraged to lower homeowners' payments to 31 percent of their income by lowering their interest rate to as low as 2% or by extending the terms of the loan. In addition, lenders can also lower the principal owed by the borrower, with Treasury sharing in the costs.

Homeowners who are current on their mortgages but are struggling can still apply for this program. As such, this is one of the few programs designed to help homeowners who may face delinquency soon, but are current at the moment.

Since the focus of this initiative is on helping families and neighborhoods, investment properties do not qualify.

This initiative also includes a number of additional elements and incentives that benefit homeowners and lenders alike, including:
Incentives to Help Borrowers Stay Current: To provide an extra incentive for borrowers to keep paying on time, the initiative will provide a monthly balance reduction payment that goes straight towards reducing the principal balance of the mortgage loan. As long as a borrower stays current on his or her loan, he or she can get up to $1,000 each year for five years.

Reaching Borrowers Early: To keep lenders focused on reaching borrowers who are trying their best to stay current on their mortgages, an incentive payment of $500 will be paid to servicers, and an incentive payment of $1,500 will be paid to mortgage holders, if they modify at-risk loans before the borrower falls behind.

Supporting Low Mortgage Rates
As part of the Homeowner Affordability and Stability Plan, the Treasury Department is increasing its funding commitment to Fannie Mae and Freddie Mac to ensure the strength and security of the mortgage market and to help maintain mortgage affordability. This portion of the plan will use using funds already authorized in 2008 by Congress for this purpose.

The increased funding will enable Fannie Mae and Freddie Mac to carry out ambitious efforts to ensure mortgage affordability for responsible homeowners, and provide forward-looking confidence in the mortgage market.

Again, the government plans to unveil the final details of the plan on March 4, 2009.

For now, you can download a sheet of common Questions and Answers produced by the government at: www.treas.gov/initiatives/eesa/homeowner-affordability-plan/ConsumerQA.pdf

I will continue monitoring the plan as new information becomes available. If you have any questions or would like to discuss how this may specifically impact you, I’d be happy to sit down with you. Just call or email me to set up an appointment.

By Ronny Loew - Ronny is the Next Home Specialist with MN Home Loan Partners. Whether you are moving up, downsizing, relocating, keeping your home as an investment to buy a new primary residence or refinancing, Ronny has specific strategies to make it easy and a financial win. He can be reached at 952-808-2815 or rloew@houseloan.com

A Day for Action - A Thanksgiving Gift

The markets are reacting very favorably to recent announcements by Barack Obama and The Federal Reserve. As a result we are going to see very good mortgage rates today! This could be great news for those planning to purchase or hoping to refinance into a lower rate in order to hunker down during this economic crisis.

Yesterday's announcement of President Elect Obama's economic team and this morning's announcement of a new plan by the Federal Reserve to purchase securities backed by mortgages and other assets. The plan is designed to improve the flow of credit, which is like the oil that helps the gears of our economy to turn.

This news has given Mortgage Backed Securities a big bump in value. Most mortgage rates are derived from the value of MBS so this is very good news!

We mentioned last week on our radio show that the value of MBS was being squeezed between two powerful factors. One was the 200-day moving average which was keeping the value from dropping too far. The other was a "falling trend line" which was keeping the value from going too high. The two lines were converging toward the end of last week and we knew there was going to be a break out to one direction or the other.

Rates were either going to get much better or much worse very soon. Of course, we were hoping for good news but the volatility of late has made it tough to predict much of anything. We are very happy to see it go this way. Having said that, we never know how long a rally like this will last so we are most likely going to encourage our clients to lock in to these rates while we know they are here.

We take our clients mortgages under management. Then, we watch and wait ready to pounce on opportunities like these. We are currently querying our database for those who will benefit.

Please do not hesitate to contact us so we can see if we can improve your payment and/or get you into a stable, more favorable loan.

By Ronny Loew - Ronny is the Next Home Specialist with MN Home Loan Partners. Whether you are moving up, downsizing, relocating or keeping your home as an investment and buying a new primary residence, Ronny has specific strategies to make it easy and a financial win. He can be reached at 952-808-2815 or rloew@houseloan.com

Amazing Values in Home Buying

I mentioned it last week. In a buyer's market like this, the deals are steals! I am seeing purchase agreements coming across my desk for very nice homes that are being sold at 2002 and 2003 prices.

In my report, "An Important Decision to Make," I wrote about the huge wealth transfer that takes place during recessions. If you are in decent financial shape and would like to move into a different home for any number of reasons (moving up, downsizing, relocating, etc.) this is the time to do it!

Yesterdays comments from Ben Bernanke and PIMCO inspired a rally in both the stock and bond markets. We saw the price of Mortgage Backed Securities close above the 200 day moving average. This is an important line. Above it, we are in for a trend of improving rates. The opposite is also true. If we remain in positive territory today, things will look good for great rates for buying and refinancing.

In fact, towards the end of the day yesterday, I helped a client lock in below 6% with a 1% buy down on his dream home purchase. The buy down cost the borrower 1% of his loan amount to lower his rate by .25%. When we looked at the return on investment, it was going to give him a 19% rate of return the first year. It will pay for itself in 5 years and from then on it will be money in the bank. This made sense for him because he has young kids and they plan to stay in the home until retirement or later.

If you are one of those who would love to move but is afraid to take action in this market, the math will prove that there is no better time to act. Take a look at my report, "An Important Decision to Make." In the report, I compare the difference between Family A's conservative, wait-it-out approach versus Family B's jump on the opportunity approach. Then I project out their results over 15 years. The numbers are impressive and powerful.

By Ronny Loew - Ronny is the Next Home Specialist with MN Home Loan Partners. Whether you are moving up, downsizing, relocating or keeping your home as an investment and buying a new primary residence, Ronny has specific strategies to make it easy and a financial win. He can be reached at 952-808-2815 or rloew@houseloan.com

Volatile Starting to Feel Normal?

My first version of this blog around mid-day said it was a quiet day. By the end of the day, the Dow had been all over the place and ended 400 points higher. Mortgage rates had also traded in a range that would normally be considered a roller coaster day. But compared to the kind of days we've had lately, this was relatively calm. Funny how we become conditioned to things. Overall, rates continued their slow but determined improvement. 30 year fixed returned to the mid 6 range and I'm hoping for continued improvement for the next few days.

One of my clients did something interesting today. He has an accepted agreement for a purchase and wanted to have his finger on the pulse of the market while we put his loan together. He actually signed up for a free, 14 day trial of Mortgage Market Guide. This is the same service I use to watch the minute by minute activity of the market to make sure we are giving our clients the best advice. It will be interesting to have him looking at the same information I am while I advise him on when to lock.

We continue to see a number of purchase agreements being written this week. People are recognizing that there is no better time to buy. Since home prices in many areas have reset to levels we saw in 2002, the DEALS ARE STEALS!! It is unreal. I review all my appraisals as they come in. Today I saw one where, from the photos alone, I would have sworn the value would be close to $500,000. In reality, the home had sold for only $335,000. This is an amazing buyers market!

If you are one of the many who is considering waiting versus buying now, let me put some numbers together for you and show you what kind of amenities, space and future appreciation you could be getting for your money right now. To say the very least, you will be pleasantly surprised!

By Ronny Loew - Ronny is the Next Home Specialist with MN Home Loan Partners. Whether you are moving up, downsizing, relocating or keeping your home as an investment and buying a new primary residence, Ronny has specific strategies to make it easy and a financial win. He can be reached at 952-808-2815 or rloew@houseloan.com

Another Wild Ride

Today there were significant concerns that the efforts to turn the markets around and help the credit crisis are going to take a while. Fed Chair Ben Bernanke spoke on the economy and said that even if confidence returns, we will still need quite a while to recover from this crisis. This lead to another huge sell off on Wall Street and the Dow dropped 733 points. Those who were excited about the previous few days and the prospect of having hit bottom have renewed fears.

On a positive note, mortgage rates improved slightly. Out investors are offering 30 year fixed rates from 6.625% to 7% at the moment. A far cry from the 6% we had only a week ago. We are going to sit tight and hope the improvement continues before locking in. We have to be careful though, because there was some bad news about rising inflation today as well. Mortgage rates are based on a type of bond called Mortgage Backed Securities. Since inflation is bad for the long term performance of bonds, mortgage rates rise with inflation.

The election is getting closer and closer. Tonight is the 3rd and final presidential debate. I'm looking forward to seeing what the candidates have in store. The outcome of the election is obviously weighing heavily on everyone's minds since the policies of the winner will have a huge impact on the economy as well.

By Ronny Loew - Ronny is the Next Home Specialist with MN Home Loan Partners. Whether you are moving up, downsizing, relocating or keeping your home as an investment and buying a new primary residence, Ronny has specific strategies to make it easy and a financial win. He can be reached at 952-808-2815 or rloew@houseloan.com

Ugly Day for Mortgage Rates

As we expected, the day after the Dow had an 11% Columbus Day Rally while banks were closed and mortgage backed securities were not being traded, we saw mortgage rates continue the steep climb they had begun at the end of last week. Right after the lunch hour, Mortgage Backed Securities have lost 50 basis points in value and the 30 year fixed is hovering around 6.75%.

The LIBOR index, which is an index that most adjustable rate ARMS are based on, also improved slightly as well to 4.635%. If you add the usual margin of 2.25%, a loan adjusting today would reset to 6.875% when rounded to the nearest eighth of a point. That isn't good news for someone who has been in the 4% or 5% range for the last 3 to 5 years. But with 30 year fixed rates where they are right now, it doesn't make sense to refinance out of the ARM at the moment.

I am advising my clients in that situation to let the ARM reset and get a file ready in my system so I can be ready to pull the trigger and pounce on a good rate for them to refinance when the right moment comes and rates drop again.

As I said yesterday, the 11% gain on the Dow was a huge potential sign that we may have hit bottom. Markets around the world are also having good days. Interestingly enough, yesterday was 6 years and one day after the market hit bottom on October 9th, 2002. The cycles in the market are amazing, albeit painful, to watch. I got an email from a dear friend last July that accurately predicted EVERYTHING that we have seen happen since then. The email said we would peak in October, correct at least 20% but probably more, banks would fail, Fannie and Freddie would become insolvent and need government help and that instead of the word recession, we would be discussing a depression. I prayed they were alarmists and that they were wrong. But it all happened. Now I listen very carefully when that friend speaks.

Today began with speeches from President Bush, Secretary of the Treasury Paulson, Fed Chair Ben Bernanke and FDIC Chairman Sheila Bair. They were discussing the weekend talks with the G7 members and their plans to use the first $250 Billion of the $700 Billion Rescue package to guarantee commercial paper and non interest bearing business accounts as well as buy shares in major banks and financial institutions. The Dow started out the day up over 300 points but spent the rest of the day hovering right around even. The good news is we were able to hold on to the previous day's gains. There seem to be positive feelings about what was presented. For the sake of everyone, let's hope that momentum continues.

As for mortgage rates, I think we have seen a quick run up in rates that I don't think will remain constant. I am also not advising my clients to lock today because I am expecting them to calm down a bit in the coming days.

By Ronny Loew - Ronny is the Next Home Specialist with MN Home Loan Partners. Whether you are moving up, downsizing, relocating or keeping your home as an investment and buying a new primary residence, Ronny has specific strategies to make it easy and a financial win. He can be reached at 952-808-2815 or rloew@houseloan.com