The Fed Chairman Bernanke is speaking to Congress this morning, and so far the outstanding highlights are, paraphrasing:

Fed continues to expect conditions to warrant exceptionally low rates for extended period will continue to evaluate purchases of securities in light of evolving outlook as expansion matures, Fed will at some point need to begin to tighten monetary conditions.

A lot of speculation has swirled around:

A.  What will mortgage rates do when (or if) the Fed does stop buying Mortgage Backed Securities (MBS) at the end of March, 2010?  Will other buyers step in to buy the MBS and rates find stability, or, as many more industry insiders expect, will rates necessarily rise precipitously in order to attract new buyers?

and

B.  Will the Fed suddenly announce that they will continue their MBS buying program, in order to aid the housing market and not let all the money ($1.25 Trillion) that they have thrown at the housing market via MBS purchases to date go to waste, letting the housing market deteriorate further.

Based on the comment above from Chairman Bernanke, I feel more and more like the Fed will suddenly announce, toward the end of March, that they will continue to purchase MBS into the foreseeable future.

Nothing is certain, so if you are ready to lock a rate, the sure thing is to lock and be certain.

And, if the Fed does buy MBS into the foreseeable future, with who knows how much more taxpayer money, then that begs the question: Is that the best use of taxpayer funds for the good of our country?

There, I am divided.  First, buying right, meaning buying newly originated MBS under the current strict underwriting guidelines, will eventually make a profit for the country.  We will get a positive return, over time, on that investment. (A lot of evidence suggests that we are NOT buying just the clean, newly originated mortgages, but rather the ‘toxic’, non-performing loans.)

On the other hand, even if we do buy just the good mortgage loans that have the highest probability of performing – there is a lot to be said for simply letting the market take its own course, and let the pain of failure be sharp, direct and deep – but short-lived.

Are we just kicking the problem down the road, to be exacerbated in a worse way some months or short years later?

Greg McBride of Bankrate.com is now commenting on the prospect of higher mortgage rates in the near term, once the Fed stops buying Mortgage Backed Securities at the end of March.  He thinks rates will jump just .50%, others think it will go even higher.  Watch what he says:

Either way, one thing is right. If you are considering refinancing your Atlanta area home, the time is definitely running out. As for Atlanta home buyers, well, what you can afford will decrease in proportion to the increase in mortgage rates. So, if you are ready to pull the trigger and put in an offer, do so.

The housing meltdown seems to be stabilizing, and nowhere more so than in the metro Atlanta area.  Atlanta mortgage rates are down, and the average days on the market before a home sells is declining.  And prices nationally are up 3% from their May, 2009 lows.

So, all is rosey…right?

Wrong.   There are two things that could rock the housing market again.  So let’s take a look at each of the two, and see if we can divine what the housing market may look like at the end of 2010.

1.  As I have relayed here on this blog several times of late, the Fed is saying they are going to stop buying Mortgage Backed Securities – those bonds that determine long-term mortgage rates – after March 31, 2010.   Of course, as the minutes of the Fed meeting stated a couple weeks ago -

“The Committee will continue to evaluate its purchases of securities in light of the evolving economic outlook and conditions in the social markets”

Which means that, despite current plans, they may yet continue to buy the MBS to keep mortgage rates low.  If rates do quickly rise, it will likely be a short-term lull in home buying, as buyers adjust to the ‘new normal’.  Long term, home prices may fall more to make homes affordable, but buyers will still buy…if they are able.

2.  Jobs and Credit. People need a job, an income, to buy a home.  And with unemployment still looming large, that means fewer people who can qualify for a mortgage loan.  And the longer individuals remain unemployed, the more likely it is that they may fall behind on current mortgage or other payments.  And their credit will not then allow them to buy a new place with a loan.

Here in Georgia home buyers may be in a fairly good position in this regard, as new unemployment claims have dropped nearly 21% over the past year, and nearly 10% in metro Atlanta.  So, jobs and credit wise, we are looking better than most.  And we could continue to improve the economy – the main factor there being what the Federal and State governments do with taxes.  If taxes rise too much, then unemployment will likely rise again.

And, Atlanta homes did not have the massive run-up in home prices that other pockets around the country did in the bubble years.

So, metro Atlanta home values are set to remain stable, even in the face of rising mortgage rates, so long as taxes remain fairly stable, thus aiding the jobs recovery, and therefore helping prospective home buyers protect their credit.

That’s my view.  A very possible housing stabilization – with lots of uncertainty.

Two bits of news are out this morning that just give a ‘mortgage guy’ indigestion.  (Oh, and if you’re in the market for a home, it should you, too.)

First, if you have been following the news at all recently you are aware that Greece is in a world of hurt.  It’s debt as a percentage of GDP is way, way off the charts of what is allowable under European Union guidelines, and under sane money management.  There was talk that Germany and France would bail them out, then clean up the mess in whatever way they could dream up.

In the meantime, nearly all public sector workers are on strike (which is somewhat of a national pastime anyway in Europe).  But it seems extreme right now.

And, this morning the news came out that Angela Merkel put the brakes on any financial bailout for Greece.  That leaves just two options for the Greeks – either reign in spending in a big way and cause major social unrest, or look at defaulting on their debt.  The first is very bad for the Greek citizens, as it would put Greece into a depression.  The latter would be bad for all of us, since so many countries hold bond from the country, which would become worthless.  Banks would fail, and bond markets around the world would shudder.

Second, Mortgage Backed Securities – those bonds that determine long-term mortgage interest rates for Atlanta and the country – are trading at just more than half a point above the 10 year treasury bond.

So what?, you may flippantly say.

So MBS traditionally trade at 1.5-2% above the 10-Year.  And nature likes an equilibrium.  Couple that with the fact that the Fed is easing out of being the principle buyer of Mortgage Backs, and it looks and feels like a tightly wound spring, ready to spring higher.

Sure, the government just handed Fannie and Freddie some $70 billion to buy delinquent mortgages – and that smells of buying MBS, which could help keep rates low a bit longer.  But, that is small change compared to the $1.25 trillion already nearly spent to keep rates low.

What to do? Simple.

If you are in the market for a metro Atlanta refinance, lock now.  And if you are close to buying a home around Atlanta, lock now.

You probably did not like that Jack-in-the-box when you were a kid as it popped out with the clown head bouncing.  And they don’t get any better with age – especially when it costs you real money every month…for 30 years!

Fannie Mae announced that all of it’s foreclosed homes that are being put on the market are only available to owner occupant buyers for the first 15 days that they are on the market, in what it is calling the ‘First Look Initiative‘.

The idea behind this is to help stabilize hard-hit areas with more owner occupied buyers moving into the neighborhoods, as opposed to investors who will then rent the properties to tenants.

And, buyers who use public funds to cover the down payment, such as Georgia Dream funds, will be given priority in making an offer on the property, and will be given 45 days to close on the property.

This is very similar to the way HUD has for years treated their foreclosed homes.  Owner Occupant buyers are given the first opportunity to put an offer on the home, and later if no offers come in, then the bidding is opened to investors.  This could be some good news for some metro Atlanta neighborhoods; but will slow investors down even more.

Note the previous post about the precipitous drop in New home sales and housing starts.  Well, just the opposite happened with the existing home sales – resales are on the rise.

And, existing home sales are rising quite well:

As you can see, there has been a very nice pick up in home sales compared to this point last year.  Now, a lot of that has to do with the $8000 tax credit for first time home buyers; but anecdotally there is a nice pick up of move-up buyer home sales as well.  And, with the recent introduction of the $6500 tax credit for move-up buyers, that trend should continue as well.

While more homes are moving, prices are dropping in general.  Or, perhaps the opposite is true, that because home prices are so far down, buyers are beginning to come out and explore their options.

Does all of this point to a housing rebound?  Too early to tell if Atlanta will move from a buyer’s market back to a seller’s market in the near future.  A LOT of that will depend on the movement of mortgage interest rates.  And rates are pointing upward, although probably not until late Spring.

So, if you are in the market for a home, my best guess currently is that you should act on that and lock in a rate prior to April, 2010.

Part of the new, expanded first time home buyer tax credit, is not for first time buyers at all.  If you have lived in your home for 5+ years out of the past 8 years, and are now moving, then you will qualify for a $6500 tax credit when you purchase your new home.

The details:

1. Must be a primary residence
2. Max income limits to qualify of $125K single, and $225K for a couple filing jointly (with pro-rated tax credit for $20K above those limits)
3. The home purchased must be under an $800K purchase price to qualify
4. Be under contract by April 30, 2010, and close on that home within 60 days of April 30.

I saw a story about some 30 loan modification companies being shut down in Nevada.  And, it does not surprise me.  I have looked into several loan modification companies, hoping to find one that I could refer my clients to, the ones who need the service.  And, I could not find one that I would refer anyone to – even though they all offered to pay me a referral fee.

The problem is not (always) the intent of the folks offering to handle your loan modification.  In many cases, they are good people with good intentions.  No.  The problem is that banks are constantly changing their own criteria for allowing a loan mod, and the political structure is adding things constantly as well.  It is hard to master and hit a moving target.

And loan modification companies nearly always charge a fee, and a fairly substantial fee, paid up front.  That makes sense from their point of view, because once they successfully complete the mod, the client is just not going to be real motivated to hand over the $3500 fee.  Hey, their loan has been modified and the rep at the mod company cannot change that if he is not paid, right?  And, the loan mod rep knows that he is aiming at a moving target, so may not be successful.  So, better to get some funds up front, or he could be out of business real soon.

As you can gather, I do not recommend paying a service to help you modify your mortgage.

So what do you do if you cannot refinance because your home is under water?  Plan on taking some time out for this purpose, and go through the process yourself with your mortgage company.  It is sort of like applying for a mortgage, in reverse.

Or, you can check to see if you loan is owned by Fannie Mae or Freddie Mac – I can check for you, if you like.  If it is, then you can now refinance your mortgage even though your are underwater.  And, the qualifications for that refinance are fairly easy, and very similar to qualifying for a refinance normally, when your home is not under water.

Oh, and don’t confuse the ownership of your mortgage with the place you send your monthly mortgage payment.  That is the ’servicing’ company, and often they are servicing the loan for Fannie or Freddie, the owner of your mortgage.

Explore that option first.  You may be happy, and save a lot of money.

This morning Bloomberg ran a story saying that the $8000 tax credit for first time home buyers will be extended through April 1, then phased out over the next three quarters.

Baucus and Reid made a proposal last week to Senate Republicans that would extend the homebuyer credit through 2010, Lachapelle said. First-time homebuyers who close before April 1 would get the full $8,000, and the credit’s value would be reduced by $2,000 in each successive quarter until expiring at the end of the year.

It is still being debated, so anything could happen.  But it does appear to be some good news for Atlanta first time home buyers.  Stay tuned.

The typical way to present a mortgage to a borrower buying a home around Atlanta is to quote the “par” rate of the day, with one origination fee (i.e. 1% of the loan amount as profit for the mortgage company), and the normal closing costs, but with no points, which are a percentage of the loan amount paid up front to permanently buy down the interest rate.

However, there are other ways to quote and therefore to get a mortgage loan.  This video will explain the differences.