Mortgage Giants get more funds to help home owners to refinance!

U.S. to ease capital limits on Fannie, Freddie

WASHINGTON - The government on Wednesday relaxed capital requirements at Fannie Mae and Freddie Mac as part of a plan to quickly inject an additional $200 billion of financing for home loans.

The initiative, which will require Fannie and Freddie to raise substantial funds, is part of a broader government strategy to ease a credit crisis that has made it difficult for consumers and businesses to borrow, and spread fear throughout global financial markets.

The Office of Federal Housing Enterprise Oversight, which oversees the government-sponsored companies, said the mandatory cash cushion for Fannie and Freddie — now nearly $20 billion for the two — will be reduced by a third under the new plan. The goal is to free-up money to help new home buyers take out loans and to help existing home owners refinance into more affordable mortgages.

The capital requirement for each company will be reduced from the current 30 percent to 20 percent, and further reductions will be considered by the regulator in the future. Fannie and Freddie will likely raise billions of dollars through special sales of stock.

“Fannie Mae and Freddie Mac have played a very important and beneficial role in the mortgage markets over the last year,” OFHEO Director James B. Lockhart said at a news conference. “We believe they can play an even more positive role in providing the stability and liquidity the markets need right now.”

The companies’ shares were buoyed by news of the agreement. Fannie stock jumped $2.64, or 9.4 percent, to $30.86 in late morning trading, while Freddie shares advanced $2.98, or 11.4 percent, to $29. The companies’ shares have plummeted to fresh 52-week lows in recent weeks amid concern over their ability to find buyers for their mortgage-linked securities amid plunging home prices and rising foreclosures.

The new agreement was the third step the government has taken in recent weeks to allow Washington-based Fannie and McLean, Va.-based Freddie to shoulder larger burdens in the mortgage market despite their multibillion-dollar fourth-quarter losses and expectations of further red ink this year.

The $168 billion economic stimulus package enacted last month included a temporary increase in the cap on mortgages that the companies can purchase or guarantee, from $417,000 to $729,750 in high-cost markets. And, as a reward for filing timely financial statements following multibillion-dollar accounting scandals, Fannie and Freddie were freed on March 1 of a combined $1.5 trillion cap on their mortgage-investment holdings.

OFHEO estimated that the combination of these efforts should allow Fannie and Freddie to purchase or guarantee roughly $2 trillion in mortgages this year.

The two companies together hold or guarantee around $4.9 trillion in home-loan debt. As the mortgage crisis and ensuing credit crunch have worsened in recent months, policy makers have increasingly looked to them to step up their participation in the hobbled market for securities backed by mortgages.

“This is what (Fannie and Freddie) were put in place for. … And we will deliver,” Freddie Mac Chairman and CEO Richard Syron said.

Influential Democratic lawmakers have been pushing for a reduction in the companies’ capital-holding requirements. Bush administration officials and numerous Republican lawmakers, on the other hand, have long opposed allowing Fannie and Freddie to take on more debt, contending that doing so could threaten the global financial system.

URL: http://www.msnbc.msn.com/id/23704630/

Green Homes are still hot despite falling real estate market

FHA Raises Mortgage Limits in HIgh-Cost California Counties (after article I have rates)

FHA Raises Mortgage Limits
In High-Cost California Counties

The Federal Housing Administration raised the mortgage limits to a maximum of $729,750 for 14 high-cost counties in California, as the government began providing aid to homeowners required by the recently enacted economic-stimulus package.

The upper mortgage limits also will apply to loans purchased or guaranteed by government-sponsored mortgage companies Fannie Mae and Freddie Mac, FHA officials said.

Details for the rest of the country are due to be announced this week. California counties such as Los Angeles and Orange will be eligible for the maximum limit, which was raised from $362,790. Lower- priced regions, such as Trinity and Lassen counties, will qualify for a loan cap of $271,050, up from $200,160.

FHA officials predicted the increases in California would aid about 33,000 individuals. The new loan limits will be in effect through the end of this year. The goal is to invigorate the market for larger mortgages, which should help push down interest rates.

The FHA said there would be an appeal process through which the new loan limits could be raised higher for counties that aren’t now eligible for the $729,750 maximum, but none of the limits will be lowered, said Bill Glavin, special assistant for public affairs in the FHA’s Commissioner’s Office. That appeals process could be announced, along with new loan limits for the rest of the country, as early as Thursday.

“From what we understand there are not going to be a lot of areas in the country except for California that are going to be at the maximum,” Mr. Glavin said.

Those who have applied for an FHA loan but haven’t yet closed on it will be able to take advantage of the new limits. The new ceilings also will apply to people seeking to refinance into an FHA loan.

By SARA MURRAY
March 5, 2008 6:38 p.m.

FHA Mortgage Limits in California by County

The FHA Loan limits for 1 to 4 family homes in Los Angeles County are as follows.

1 unit            $729,750

2 unit            $934,200

3 unit            $1,129,250

4 unit            $1,403,400     

We expect more information on conforming loan limits and their impact within the next week. Please call or email me if you have any questions. I will be sending out information as we receive it.

Reviving the Real Estate Market

Is this the Time to BUY?

HOUSING SCENE

Is this the time to buy or stay safely on the sidelines?

By Lew Sichelman
United Feature Syndicate

February 24, 2008

WASHINGTON — With humble apologies to Shakespeare, the question in today’s housing market is “To buy or not to buy?”

Right now, there are several compelling reasons for anyone who needs a house or wants to upgrade his or her family’s current living arrangements to venture forth. At the same time, there also are perhaps even more compelling reasons to remain on the sidelines at least a little while longer.

Of course, buying a home at any time, good or bad, is an intensely personal decision based on any number of factors. So, to help you sort through the process and determine what’s right for you, here’s a list of yeas and nays.

First, why now is, indeed, a great time to buy:

* Selection: A few years ago, when houses were flying off the shelves, would-be buyers had to move at warp speed to get what they wanted. Now there are a record number of new and existing homes on the market — in just about every price range and style, in just about every neighborhood. The options are plentiful.

* Interest rates: Loan costs are extremely attractive. You can find fixed-rate, 30-year conforming mortgages at less than 6%. Jumbo loans are a little more expensive, but not by much.

* Competition: There simply aren’t nearly as many buyers as there used to be. Professional investors who knew what they were doing have all but vanished, and those who thought they knew what they were doing are home licking their wounds.

* No bidding: Unlike the halcyon days, when buyers were falling all over themselves in an effort to outbid one another for that prized house, today’s purchasers are not likely to go up against anyone else.

* Patience: The gold rush is over. Now you can take your time, look at all the houses you want, go home and mull over the choices.

* Due diligence: Similarly, once you find a house worthy of your consideration, you can hire an independent home inspector to examine the place for warts. Sellers fully expect you to exercise this right. Some builders are now welcoming home inspectors, whereas they have been persona non grata in the past.

* Fixes: With an inspector’s report in hand, you can go back to the seller and tell him or her to repair whatever defects may have been uncovered. You shouldn’t use the findings as a laundry list of demands, especially when it comes to inexpensive cosmetic fixes. But sellers now are more willing to mend serious problems.

* Bargaining: Everything today is up for grabs. Certainly, you can make an offer that is somewhat below the asking price. Realtors report that the list versus price ratio is about 95%. But other things are on the table too. Apart from repairs, you might want to ask for help with closing costs.

Now, here’s why, even if all of the factors above line up in your favor, you may not want to buy at the moment:

* Falling prices: This is far and away the key issue for most buyers. Above all else, there is an overriding concern that housing values haven’t yet reached bottom. Even folks who plan to live in their new digs long after the nose dive ends are afraid to pull the trigger for fear that prices still have further to fall.

* Doubt: Uncertainty about the economy is another troubling issue. If you are concerned that your livelihood is in jeopardy, you certainly don’t want to take on a major financial obligation.

* Financing: Interest rates may be great, but financing for people who have more than a few dings on their credit records has all but disappeared. And if it is available, it is expensive.

* Sellers: Some sellers still don’t get it. They have yet to grasp the fact that prices have fallen and that they are going to have to be a little more amiable to the bargaining process. Even some builders, who should know better, are holding out.

In that case, you might have to move on to your second choice.

Lew Sichelman, who has been covering real estate for more than 30 years, can be reached at lsichelman@aol.com

Seniors are Turning to Reverse Mortgages

Reverse mortgages provide more seniors with a safety net

Amid the loan market crisis, more seniors are turning to reverse mortgages.

By Patrick S. Duffy
Special to The Times

February 24, 2008

IMAGINE a scenario in which, instead of struggling to come up with the money for a mortgage payment that’s resetting to a higher level, you could tap the unused equity in your home not only to pay off that loan but also to have money for living expenses, remodeling, traveling or even investing in a vacation home. For seniors, there is such an option: the reverse mortgage.

And that’s exactly what 73-year-old Betty Jenkins chose after being laid off from her job with a health maintenance organization. Unable to afford the $1,500 monthly payment on the Chatsworth home she bought in 1988 after a divorce, Jenkins signed up for a reverse mortgage through Financial Freedom, a unit of IndyMac Bank and the nation’s largest provider of such loans. Not only did she keep her home and retire her existing mortgage, but she also was able to remodel her kitchen, pay her property taxes and insurance, maintain her car and keep her two dogs enjoying the lifestyle to which they’d become accustomed.

“It seemed too good to be true,” said Jenkins, who shares her home with companion Eddie Applegate, 72. But after talking with the Federal Housing Administration and the Department of Housing and Urban Development, the couple found out it was for real. “We would not have to pay loan payments ever again.” That’s because this type of loan truly does work in reverse: Instead of the homeowner paying the lender each month, the lender gives the owner money upfront and takes the existing home equity as collateral.

Fortunately for the couple, with less than a $200,000 balance on the existing mortgage and a home worth close to $500,000, the remaining equity was more than enough to also provide for a modest $25,000 credit line, which can, depending on home values and interest rates, be reduced or increased throughout the life of the loan.

Such flexibility is one big reason why reverse mortgages have grown extremely popular. Of the 345,762 reverse loans insured to date by the FHA, nearly one-third were made in 2007, according to the AARP Public Policy Institute and HUD, and 27% of those were in California.

With traditional home equity credit lines increasingly difficult to get in a time of declining home values and tight underwriting standards, eligible seniors older than 62 are finding that one benefit of reverse mortgages — other than no pre-payment penalties and no credit or income qualifications — is the ability to get rid of the sub-prime and other adjustable loans facing payment increases.

Reverse mortgages are also gaining popularity in upscale areas such as Newport Beach, where $2-million homes are commonplace, said Wells Fargo loan agent Alyson Lloyd. Unable to qualify for traditional home equity loans because of low credit scores but wanting to remain in place for a long time, some house-rich but cash-poor borrowers are now able to tap equity gains to avoid foreclosure and even to leverage these funds as investments in second homes.

“It has become an investment tool, allowing people to leverage their money,” Lloyd said. For example, homeowners over age 62 could take the net proceeds from downsizing to a smaller home and then pay off the new purchase loan with a reverse mortgage. Or, assuming the homeowners live in their primary residence at least 50% of the time, they could obtain a reverse mortgage and use the proceeds as a down payment on a second home.

Although the loans have been available in various forms since 1961, it wasn’t until the late 1980s that Congress allowed the FHA to insure what become known as home equity conversion mortgages and safeguards were put into place to protect both borrowers and lenders, starting with mandatory consumer counseling for all applicants.

Homes that may qualify

In general, eligible properties for the FHA program must be a principal residence and can include single-family homes, condominiums, manufactured homes built after 1976 or even two- to four-unit multifamily properties. Besides borrowers retaining ownership of the home for the duration of the loan, cash advances can be used for any purpose and don’t count as income against Social Security or Medicare benefits — although it can affect Medicaid and other state or federal assistance, so it’s definitely best to check details with an attorney or local expert.

As reverse mortgages have become more commonplace, both the demographics of borrowers and their cash needs have changed.

“When they first started, the typical borrower was a 77-year-old widow who needed it for medical bills and upkeep of lifestyle, but today we’re seeing fewer people with the property debt-free,” said Richard Pittman, director of housing and counseling for ByDesign Financial Solutions, a HUD-approved credit counseling agency. “I just went through 15 files, and the average client was 74, had an income of $1,618 per month and owed $106,000 on their mortgage. Not a single one had any savings, half had credit card debts, 25% needed major home repairs and 25% needed money for cars, vacations and helping families.”

As promising as they sound, however, reverse mortgages do have limitations. Since borrowers need to be at least 62, it can get complicated when one spouse is younger than that. Although some borrowers have solved this problem by transferring the ineligible spouse’s interest in the home into a trust, such a plan can backfire when the eligible spouse dies, which would require the original loan amount, all interest charges and fees to be repaid.

Homeowners who are currently in bankruptcy do not qualify, neither do owners of most mobile homes, co-ops or homes on leased land. And even for those owning eligible property types, there has to be sufficient equity remaining in the home after other mortgages and home-equity lines are paid off to close the deal, in which case a traditional home-equity line may suffice. Consequently, experts often counsel applicants to discuss options with their extended families before moving forward.

“It’s a fabulous program for some, the worst thing for others,” said ByDesign’s Pittman. Fees can amount to 5% of the loan amount. “With $14,000 to $18,000 in upfront costs, you’ll hopefully take a pause and consider what you’re using the money for.”

He suggests that before signing up for a reverse mortgage, owners also consider alternatives such as downsizing to something more affordable, splitting up the house into shared housing with lockable areas or even selling the home to adult children and then renting it back from them on a long-term lease.

Other experts suggest first looking into grants and no-interest loans from local governments or nonprofits if, for example, applicants are simply looking to repair homes or defer property taxes.

Yet for borrowers facing immediate cash shortages, a reverse mortgage can be a financial lifesaver. For Myrna Reese, the cash proceeds and timing of the reverse mortgage on her home in San Diego County’s Rancho Bernardo were perfect. She and her husband, Lou, had shared the home since 1980. When health problems prevented the couple from running their advertising and public-relations agency full time, a mortgage-broker friend suggested a reverse mortgage that ended up closing one month before her husband died.

“I was so glad we were able to do it because I wanted to stay in the house, and this way, the mortgage would be paid off,” she explained. “I would never do this without the government behind it.”

Today, however, government-insured mortgages are no longer the only option for those hoping to live on untapped home equity. Given strict HUD lending formulas, which cap the amounts that can be borrowed, and high costs added to the loan balance — such as 2% of the loan amount and another 2% for mortgage insurance — lenders such as Financial Freedom and Countrywide recently introduced “jumbo” reverse mortgages offering higher loan limits and lower upfront costs. Fannie Mae has offered its own HomeKeeper program since 1996.

But since the FHA still insures nine out of 10 reverse mortgages, industry experts anticipate the agency will protect its turf by making its home equity conversion mortgages more cost-competitive. And for many seniors, the FHA-insured program is the only one they’d choose.

Many more eligible

“We still have only tapped 1% of eligible households, and this has been around since about 1990,” said Jeff Taylor, vice president of the Senior Products Group with lending giant Wells Fargo. Taylor defends the high fees of the FHA-insured program, which are sometimes cited as a hurdle to participation. “People want to jump on the costs, whereas it’s the ability to provide an annuity without the obligation for repayment, should the market go south.”

For Jenkins and Reese, such upfront costs are worth the peace of mind that their reverse mortgages are providing. Both have children who agreed that a smaller potential inheritance was a small price to pay for happy, independent parents. Added Reese: “It helps when kids don’t have to think about what’s going to happen to their parents.”

Still, due to the rapid growth of reverse mortgage programs that are not insured by the federal government, some experts urge caution and advise applicants and their families to choose brokers who specialize in these types of loans.

Liliane Choney, who was the founder of the nonprofit ReVisions Resources nearly 20 years ago to provide services and information to older adults and their families and now runs the group’s Reverse Mortgage Experts program, said consumers should look for loan experts willing to spend time addressing family members’ questions and concerns.

“One of the myths is that these loans are for the indigent, frail homeowner with no family and no other resources,” she said. “But it’s becoming a mainstream financial solution to make retirement possible — almost like today’s version of ‘burn the mortgage.’ ”

If a borrower falls ill and needs to stay in a hospital or a nursing home, most reverse mortgages don’t come due until 12 months after the property is no longer a principal residence. That gives families time to plan for other options such as selling the home or refinancing with a traditional mortgage to repay the loan in full. And, since reverse mortgages are “non recourse” — meaning the borrower and any heirs will never owe more than the market value of the home at the time it is sold — the estate is protected if the homeowner outlives the projected life of the loan or the market value of the property plummets.

If you ask Rancho Bernardo’s Myrna Reese, it’s that kind of financial security that also provides some psychological benefits.

“What’s the point of paying off a mortgage when you’re older?” she asked. “This is a way for people to grow older and it’s not a hardship on anyone. Don’t use the money to invest or try to make money — it’s much better for just maintaining a lifestyle.”

pduffy@metrointel.com