2008 may be remembered as a difficult year in the mortgage industry,  but it did give us three great opportunities to lock into low interest rates.  Do you know when they occurred??

You fit into three categories at this point:

1. You are confidently nodding your head up and down with a big smile on your face because you locked during one of those opportunities.
2. You knew about it, but required more time to make a decision so you missed it.
3. You do not know when they happened.

Our first opportunity was January 23rd with 30 year fixed rates dropping to 5.125%.  How long did it last? 4 hours.

The next opportunity was September 8th after the Federal government took over Fannie Mae and Freddie Mac.  How long did it last? 5 hours.

The third opportunity was on the morning of December 17th.  How long did it last? 3 hours. 

If you missed the most recent drop you missed out on 30 year fixed rates as low as 4.625%.  Why did the person that is in category one capture that window of opportunity and the other two categories missed out??  They were prepared. 

How can you be ready to take advantage of the next opportunity?

1. Take a few minutes to discuss your situation with me.  We will determine what you qualify for and what rate makes sense for you.
2. Discuss this with your spouse or significant other that night so we can address any questions immediately.  In all of the situations above, clients that called back the next morning after I notified them of the opportunity did miss out.
3. Make a decision.

I follow rates everyday and if you have a plan in place with me I will call you when we get to your target rate.  Then you will be the person with a big smile on their face next time the opportunity arises!

According to the Monmouth County MLS and the Ocean County MLS, there were approximately 950 homes sold in Ocean County, NJ from August through October and 629 of those homes sold for $373,000 or less.

This data indicates that a majority of the transactions may have been eligible for a standard NJ FHA Home Loan.  A buyer could have purchased these properties with only a three percent downpayment and a FIrst Time Buyer may have even been eligible for a $7,500 tax credit.

Home prices are slightly higher in Monmouth County, NJ, however, 420 out of 1,100 transactions were still in range of a standard FHA Home Mortgage.  Both counties still benefit from the increased FHA loan limits of $729,750 until the end of 2008.

The combination of low interest rates, a large inventory of homes to choose from and a First Time Buyer Tax Credit make it a great time to buy your first home in New Jersey.

You can also view this article along with other FHA Loan information at:

http://www.myfhamortgageblog.com/2008/11/majority-of-ocean-county-nj-home-prices-are-eligible-for-fha-financing/

Whatever the political posturing regarding the rescue plan, a plan needed to be passed. This is not totally because of "toxic" mortgages. This has a lot to do with FASB 157, also known as "mark to market".

Each day, lenders must mark their assets to the marketplace. It's like you having to appraise your home everyday and, if your neighbor was under duress because she got very ill, divorced, lost her job and was forced to sell her home quickly, she may have sold it super cheap. Now, does that mean your house is worth that super cheap price, too? Clearly not. Why? Because you are not under duress. You have the time to sell your home and get a more normal price, which more accurately reflects true market conditions. But "mark to market" does not allow for this, which creates a vicious cycle.

Why is this so bad? Because, as lenders mark down their assets the amount that they have previously loaned becomes much riskier in relation to their assets. For example, say a bank has $1 million in assets and say they have $15 million in loans outstanding. Their ratio is an acceptable 15 to 1. But should they take a paper write down of $500 thousand due to "mark to market" requirements, their ratio suddenly changes to 30 to 1. This is because their assets are now only $500 thousand after taking the paper loss, while their loans outstanding are still $15 million. And at 30 to 1 this bank is viewed as a risky investment. So the stock price starts to get hit, it becomes harder to borrow, and most importantly harder to make money. The bank is then forced to sell some of its loans to reduce its ratio...at cheap prices. And this makes the vicious cycle continue.

And a quick look at the holdings of these loans show that 95% are problem free. Additionally, the Credit Default Swaps (CDS) that are used with the pools of mortgages are relatively safe. But this requires a bit of understanding. You see, when a pool of mortgage loans is put together it isn't just A paper or B paper etc. it's everything. It's got some A paper, B paper, C paper...and even what looks like toilet paper. An "A" investor buys the whole pool but because they are an "A" investor their safety is greater because they can avoid the first 20% (an example) of defaults. So they own the whole pool but are sheltered from the first batch of defaults, and for this they get the lowest rate of return. As you can figure from here the more risk investors want to take, the higher the return. So the investments are relatively safe, but the accounting rules currently place undue pressure on the banking institutions.

Now add to all this, the opportunistic "shorting" done on the financial stocks, much of it illegal because those shorts did not legitimately borrow shares (called naked shorting), and you exacerbate this whole problem. Thank goodness for the recent temporary ban on shorting in the financial sector. As for the plan, the government is the only one who can step in to do this. And they have to do this. And they will do this. The nauseating political posturing from both sides is just part of the process.

This is not easy to understand for the general public. In fact most politicians don't get this either. That's why it is a difficult yet critical bill for them to vote on.

Once this is done, it will take some time but the markets will stabilize. As for the real estate and mortgage industries, it will take a bit of time but we will make it through this. Rates will remain attractive and the influx of credit availability will help the housing market gradually improve. This ultimately will be the medicine needed to improve the situation overall.

As always – please keep in touch during these volatile times. I am here to help you in any way that I can.

The University of Michigan’s monthly survey of consumer sentiment asks households to rate buying conditions for homes.

The proportion giving a “good” rating started to give way in 2004, as house prices were climbing to unaffordable levels in many areas, and bottomed out in the summer of 2006 as house prices finally topped out at the national level. But the “good” proportion has been on the rise for about two years now, getting up to 71% in August — back to the mid-2005 level.

Consumers’ ratings of home buying conditions have been driven largely by house price movements. In August, 65% of consumers cited “low prices” as the key reason for viewing home buying conditions as “good,” compared with only 10% at the end of 2005.

Interest rates also can have a major impact on home buying conditions, of course, but rate shifts have had a relatively minor influence on consumers’ ratings during the past two years.

Improving consumer views of home buying conditions obviously do not quickly translate into stronger home sales. But the systematic improvements in recent times are laying the groundwork for better sales volume a bit further down the line.

The President signed a Housing Bill into law on July 30th 2008 that includes a Tax Credit up to $7,500 for eligible First Time Home Buyers. 

The definition of a First Time Home Buyer is a person that has not owned a home during the past three years.  So this opens up the credit to buyers who may have sold during the peak of the market and have been renting for several years.

The credit is up to $7,500 and is refundable.  What this means is that if you owe $1,000 in taxes when you file your return you will receive $6,500 back as a refund.  There are income restrictions and the credit begins to phase out for single filers with income above $75,000 and joint filers with income greater than $150,000.

The credit is basically an interest free loan that is paid back starting two years after you claim the refund.  If you receive the full $7,500 credit you will pay $500 per year for 15 years and if you sell the home for a profit at any point during that time the remaining balance would be due.

Please give me a call with any questions and good luck with your home shopping!

This credit is applicable to purchases made between April 9th 2008 and is set to expire July 1st 2009.