I saw this article this morning, and found it interesting that Atlanta was named one of the Top 10 Places to live on Yahoo Real Estate.  And, it is!

This article appealed more to the singles crowd, and that is very attractive now for all the reasons listed:

1. Atlanta has a reasonable cost of living
2. Affordable homes, ripe for low down-payment FHA financing
3. Relatively high income, with a lot of young professionals
4. Pleasant climate
5. four pro sports teams, great restaurants, and a diverse arts scene

How the $700B Bailout Turned Into $7.7 Trillion

Bloomberg reported that the Federal Government has now committed to throwing even more money at the economic crisis, to try to unfreeze the credit markets.  And that’s equal to half the GDP from last year.  It’s a big number.

You know from previous posts that I was a fan of the original bailout bill.  The simple explanation was that investors bought into pools of loans through Mortgage Backed Securities (MBS) and other instruments that have always had a built-in default rate of 1%.  When defaults of some of those loan pools spiked to 4%, those investors freaked, and the market began to melt-down; or freeze up, depending on the metaphor that your prefer.

On the street, people said, “You mean 96% of mortgages are still performing well?  What is the big deal?  Why all this talk about a crisis?”

But, look at it from the investors point of view, and you will see why I was in favor of the bailout.  The default rate increased by 400%, thus diluting their returns on what should have been a safe, secure and predictable investment.  That becomes intolerable.

Send in the Cavalry

So, Bernanke, Paulson and Co., with the backing of Congress, rode in to save the day.  They would buy these troubled asset pools – supposedly for a steep discount.  And banks and others get rid of those troubled assets, tighten their lending guidelines for new loans (which has already happened), ensuring that the same ’subprime’ problem does not repeat, and everyone is happy again.  Even the taxpayer, assuming the government bought the troubled asset pools that are performing at 94-96%, for, say, $.40 on the dollar.  An easy solution where everybody wins.

And if that had happened, I would have given Paulson a ‘High Five’.

Alas, it did not.

As the Bloomberg article linked above states, the Fed is not really disclosing where the money is going, who it is being lent to, and what the government is getting in return.

What Do You Do Now

One thing is for certain – Inflation is just around the corner.  And it won’t be comfortable.  So, trim outgoing expenses now.  You can make a list of the outgoing expenses to trim as a household.  From a macro perspective, look at your mortgage and other debt:

• If you have an Adjustable Rate Mortgage (ARM) that is going to adjust in the next year, switch to a fixed rate or another long term ARM now.  As inflation hits, the only effective weapon against inflation that the Fed has is to raise interest rates.  And they raise the Fed Funds rate, which has an indirect effect on the Indices that adjustable rate mortgages are tied to.  So, LIBOR and the others will rise along with the Fed’s actions.  Refinance now; you will be glad you did.
• If you have credit card debt and car loans and you have equity in your home, you will want to strongly consider consolidating all of that into a new home loan.  You get the tax benefits, a lower interest rate on that debt – and most importantly you get increased cash flow.  And, as of January 1, FHA loans will do a cash-out refinance to 100% of your home’s value.

I posted this first on a national blog that I have been asked to participate in.  I thought you would enjoy it as well.

Can anybody remember when the times were not hard, and money not scarce? - Ralph Waldo Emerson

I am nowhere near old enough to have lived through the Great Depression. In fact, even the gas lines of the late ‘70’s are a foggy memory from my childhood. I did just turn 40, however, and I did stay at a Holiday Inn Express once.

So with all that experience, I can state that I have never seen a time when so many good, conscientious and hard working people have struggled so much financially. A lot of people around metro Atlanta are losing their homes, and a lot more are declaring bankruptcy. I know, it is all over the news and it’s all over the country. But I mean a lot of people that I know and meet and have lunch with and our kids play together right in Alpharetta and around Atlanta. That makes it real.

And when tough times strike, the moment can seem hopeless.

It’s not. And FHA financing is one of those vehicles to get back on your feet quickly and gracefully.

Bankruptcy

The mere thought of a bankruptcy causes people to hide in shame and fear of their neighbors, and – God forbid – their families, finding out. Yet, bankruptcies are up 33% in October, compared with October, 2007.

And while I would not wish that on anyone, thankfully the laws in this great country allow us to seek that fresh start when times are dire and there is no other way out. And FHA is there for you.

• Chapter 13 bankruptcy: FHA allows for a borrower to take out a new loan just one year into the Ch. 13 bankruptcy, so long as all the obligations are being paid on time and the court gives it’s permission.

• Chapter 7 bankruptcy: FHA allows for the borrower to obtain a new FHA insured mortgage just 2 years after the discharge date, so long as the credit history since the bankruptcy is clean. And, if there were extenuating circumstances that caused the bankruptcy, such as an extended illness, then the borrower can obtain new financing after just 1 year from discharge.

  And in the case of a foreclosure, many people think that they have to wait practically forever, or that they simply cannot buy another home – ever. Well, that is also not true.Under normal circumstances, a borrower can take out an FHA mortgage three years after the foreclosure date, assuming good payment histories since then; and two years after if there were extenuating circumstances. And divorce, by the way, is not considered extenuating circumstances by HUD for obtaining FHA financing. That is fodder for another post.

Freddie Mac and Fannie Mae announced today that they would stop foreclosures altogether from November 26 – January 9.  That is the day before Thanksgiving through the end of the week of Epiphany.

So, a little present to be thankful for.  The reason that Fannie and Freddie are stopping foreclosures of occupied single-family homes is to give servicers of Fannie and Freddie loans time to modify the loans under the streamlined modification program that goes into effect on December 15.

That is the governments program that goes along with the bailout bill to adjust the term or the interest rate of the loan, and in some cases to extend the repayment of some principle balance to the end of the loan, as a balloon note.  To qualify the homeowner has to be 90 days or greater delinquent on his mortgage, and not have filed for bankruptcy.

I would suspect that other servicers will begin to follow suit, and will get even more aggressive in modifying loans that they own and service.

This means that around metro Atlanta, the courthouse steps will be a lot more empty on the first Tuesday of December and January.  And, a lot of folks who were sweating the holidays coming, will have a Christmas cheer, and plenty to be thankful for, after all.

We have a lot of military bases scattered across Georgia.  Fort Benning down in Columbus and Fort McPherson here near Atlanta come to mind immediately; but there are more.  Even more than several bases is the great tradition of young Georgians volunteering to serve in the military and defend our country.  Most especially now, as world events are unstable and threats to our security are growing in scope and number.

So, right now, with all that happening and while we sit in the middle of a credit crisis in the country, one good thing has happened for Veterans all over with recent changes to the VA loan guidelines.

Now, if funds are tight and a veteran’s household needs to tap into their equity for debt consolidation, to remodel or repair the home, or for any other reason, they can now to a loan for up to 100% of the home’s value, minus the funding fee that every VA loan has.  In reality, you are looking at about 97% of the home’s value as cash out.

That’s big news considering the continually tightening criteria for conventional loans.  And, it will help a lot of past and present military personnel and their families around Georgia, during these tough economic times.

If I can help you with a refinance that will help your family, give me a call.  I would be honored.

The paragraph below is from RateLink, the service I subscribe to that feeds real-time Mortgage Backed Securities (MBS) trading, so that I can keep an eye on interest rate movement.  Interesting.

Just like mortgage-backed securities, financial firms bundle car and student loans and credit card receivables into bonds for sale in the open market. The market for such product has declined from 50.7B in October 2007 to just 500M last month, a 99% drop. The vast majority of cars sold and educations purchased are done on credit. It is this type of data that has the Treasury retooling the use of the TARP program.

You already have an FHA loan on your home, and maybe you are in a fixed rate at 6.5%, or 7% or even a bit higher interest rate.  The good news for you is that you can refinance your loan into a lower rate, and help your household cash flow during these uncertain economic times.

But there is good news and bad news about refinancing FHA loans. 

First, the bad news.  Mortgage interest rates have been the most volatile that I have seen in years.  They are moving just as wildly as the stock market.  You see, the trading of bonds moves interest rates.  Specifically, Ginnie Mae Mortgage Backed Securities (MBS).  And, just like stock traders react to news and sentiment and rumors surrounding the market, trading accordingly, so do bond investors.  And there has been a lot of news and sentiment and rumors moving bonds.  Think the Mortgage Bailout Bill and the ways that has morphed, and the lower consumer sentiment, and all the hushed talk of recession and possibly worse.  You get the picture.

What that means for you is that rates are up and down in very rapid moves, sometimes in a matter of hours, not days.  The anecdote to the wild market gyrations?  Be firm.  Set a target rate that would be realistic (we may well see rates drop to that point), and have all your documentation in and ready with your lender to lock that rate the moment it becomes available, be it this week or two months from now.  Take control by taking the emotion out of it.  You will prosper if you do.

Now for the good news.  Refinancing an FHA loan is one of the easiest things you will ever do in your life.  You set a target interest rate that makes sense, where you will save some money every month.  Then, sign a set of loan disclosures that your lender provides, and give him three things:  a copy of your drivers’ license, a copy of your current mortgage statement, and the name and phone number of your homeowner’s insurance agent.  Then, sit back and wait for your lender to call and tell you a closing date is ready.  Qualification for approval is little more than having made your mortgage payments on time for the past  12 months.

Simple.  No tax returns, pay stubs, bank statements, no letters of explanation about that late payment you had back in college when you were backpacking across Europe.  Nothing.  And the really good news:  in most cases you will not even need an appraisal.  If your loan is quite new, you may.  But if you have had your FHA loan for about 3 years and have made your payments on time, then that is all you will need.

Want some icing to put on that refinance cake?  Well, if you are refinancing within 5 years of your original loan, you will also get a pro-rated refund of that Mortgage Insurance Premium that you rolled into the loan amount.  And, you will likely skip a month’s mortgage payment.  Remember, mortgage interest is paid in arrears, so your refinance in November will have a payment due January 1, and that pays December’s interest.  Still, not having a payment due over Christmas is, well, a little gift.

So, call today about your FHA loan on your home anywhere around metro Atlanta, or anywhere in Georgia for that matter, and let’s set it up.  And, raise your arms high in the air and be ready to lock when the roller coaster of rates takes a wild ride down.  And let out a little scream for joy.  What a ride!

Dow drops 400 on Paulson Turnabout

The TARP (Troubled Asset Relief Program) was part of the bailout bill.  You may remember the one, that paultry $700B taxpayer dollars set aside to purchase troubled bank assets, or loan portfolios.  All that changed today.

A lot of people were up in arms over the bailout; yet I have stood firm saying that if it works out as they laid out the plan to buy troubled loan portfolios, then the government will actually make money on those over time.  In fact, simply changing the Mark-to-market laws would possibly have been sufficient to not require a bailout program at all.  But, the bailout was passed, and the way it was presented the bailout still made sense.  It would have been a profit for the Federal Government – over time – not a drain like it was portrayed.

All that changed this morning, when Treasury Secretary Paulson announced that the funds would not go to buy distressed mortgage assets after all.  Rather, they would go to purchase stock in banks.   It makes it very difficult to judge the effectiveness of a moving target.  Some part of this experiment must be the control; otherwise it is tough to judge what is and is not effective.  That’s one problem that I see.

At the same time, Fannie and Freddie are going to aggressively modify mortgages that are at least 90 days in default.  And they will modify to make the debt-to-income ratio no greater than 38% of gross household income.  And Paulson will encourage other banks to do the same or similar aggressive loan modification programs for borrowers in default.

No telling how this will play out for homeowners in need of some relief, and I am sure there will be other changes along the way.  For now, it appears that Paulson has come up with a way to leverage the $700B to use many more taxpayer dollars for Fannie and Freddie to modify loans.

And tomorrow, it could all be different…

A lot of talk is swirling around the difficulty of getting a loan today.  Most of that information is actually dis-information.  Let me give you an example or two.

Yesterday I spoke with someone who emphatically told me that to buy a foreclosed home, he would need to put at least 20% down payment.  I said that the circumstance may present itself where that may be the case – for example if he were buying an investment property and all the stars were aligned against him.  Since in his case the propterty was going to be his primary residence, I told him that he would only need 3% down payment.  He was sure I was wrong.

I told him that I just closed on one two weeks ago that was a foreclosed home, being purchased as a primary residence in South Forsyth county, and we did a 30 year fixed rate FHA loan at 6.0% interest with just 3% down.  In that case, the bank paid the closing costs.  He said, “Oh…okay, can we do the same?”

That is not his fault.  Just a lot of mis-information is flying around out there.

The rule of thumb is that if you have a steady income, and can document that income, and have a little money saved (or gifted from a family member) for a down payment, then you can buy a home today with excellent financing.

Try me, I’ll prove it.

The Federal Reserve approved American Express to become a bank holding company tonight.  With their new status, they now have access to the low cost loans that banks around the country have gained access to for months now.

And that’s a twist I did not see coming.  I have been saying for weeks now that the next two shoes to drop were Hedge Funds that will begin to collapse in large numbers, and then banks and other institutions that are loaded with credit card loans.  American Express and Discover were obviously high on the list, since they hold debt directly.  Visa and MC do not.

American Express obviously felt the same way about things, and took some preemptive action to change their status to a bank holding company and gain access to those highly desirable, low interest funds.

But look on the bright side.  If you make a deposit with American Express Bank, they may pay YOU 18-24% on that CD you take out.

Or, then again…