Mortgage rates nearing record lows Loan

The average rate on 30-year fixed-rate mortgages this week continued to fall to near the 5 percent mark, close to the record low seen a month ago, Freddie Mac said.

In a separate report, the Mortgage Bankers Association said mortgage applications jumped 45.7 percent for the week ending Feb. 13 compared to the week before. The increase was largely driven by a 64.3 percent surge in applications for refinancings, but applications for purchase loans were also up a seasonally adjusted 9.1 percent.

Freddie Mac's weekly Primary Mortgage Market Survey showed the 30-year fixed-rate mortgage falling to 5.04 percent with an average of 0.7 point for the week ending Feb. 19, down from 5.16 percent the previous week and 6 percent a year ago.

Since Freddie Mac began conducting the survey in 1971, the 30-year fixed-rate mortgage has never dipped below the 4.96 percent rate seen in mid-January.

Mortgage rates followed bond yields lower this week as recent economic reports suggest the economy is still slowing, which reduces the future threat of inflation, said Frank Nothaft, Freddie Mac vice president and chief economist.

The sinking feeling in home values

By Inman News, Monday, December 15, 2008.

Research conducted by Zillow, a company that provides online real estate values and other information, found that U.S. home values will plunge a total of $2 trillion this year.

Home values dropped 8.4 percent year-over-year in the first three quarters of 2008 compared to the same period last year, Zillow reported today, for a total nationwide home-value loss of $1.9 trillion.

One in seven (14.3 percent) of all homeowners were underwater by the end of the third quarter, owing more on their mortgage than their homes are worth.

Out of 163 metro areas tracked in Zillow's market report, 30 had gains during the first three quarters of the year compared to the same three quarters in 2007.

The values are based on the company's estimated values of individual homes, which are calculated with a proprietary formula. The company's value index calculates the median value of all single-family homes, condos and cooperatives in a given area using this formula, regardless of whether the properties are for sale.

All of the top-five worst-performing markets for home-value changes during the first three quarters (compared to the same period last year) are in California, while three of the five best-performing markets are in North Carolina.

The Stockton, Calif., metro area was the worst-performing housing market in the country during the study period, with values diving 32.3 percent in the first three quarters of 2008 compared to the same period last year. Next on the list was Merced, Calif. (down 31.2 percent); followed by Modesto, Calif. (down 30.4 percent); Salinas, Calif. (down 30 percent); and Vallejo-Fairfield, Calif. (down 27.8 percent).

And the best-performing housing markets during the same period were Jacksonville, N.C. (up 4.9 percent); Winston-Salem, N.C. (up 4.1 percent); Anderson, S.C. (up 3.5 percent); State College, Pa. (up 3.4 percent); and Burlington, N.C., up 3.1 percent.

The latest quarterly University of California, Los Angeles, Anderson Forecast noted that declines in U.S. home prices since a record peak in 2006 amount to an estimated $4.5 trillion loss in wealth. And that is coupled with a stock-price slide valued at about $7.4 trillion since December 2007 (see Inman News).

And the Federal Reserve reported this month that the combination of falling prices and stock-market declines amounted to a U.S. household loss in wealth of about $2.8 trillion during the third quarter alone (see Inman News).

Realogy works to avert default on loans Company announces debt exchange offering By Inman News, Friday, November 14, 2008. Inman News

Global real estate brokerage and franchise company Realogy Corp. cited "credit and stock market turmoil" and a worsening economic climate in offering a debt exchange to lessen the risk of default on bank loans, according to financial filings and a Bloomberg news report.

In a Thursday filing with the U.S. Securities and Exchange Commission, Realogy noted that its franchise group reported a 9 percent year-over-year decline in home-sale transaction sides in October, with sale prices tumbling 7 percent year-over-year for transactions handled by franchisees.

And Realogy's NRT subsidiary, which oversees company-owned brokerage operations, reported a rise in its home-sale cancellation rate to 20 percent in October "from its historical rate in the low- to mid-teens."

Realogy's company-owned and franchise brands include Coldwell Banker, Century 21, ERA, Sotheby's International Realty, and Better Homes and Gardens Real Estate.

The company noted that the decline in sales volume and prices for transactions will negatively impact the company's debt-to-assets ratio and "there can be no assurance that we will not violate this or other covenants under our senior secured credit facility or that this will not result in a default under our indentures."

The company also reported in the filing, "We cannot predict how long the current volatility in the financial marketplace, decline in consumer confidence and current recessionary conditions will continue to affect home sales and prices."

Bloomberg reported that Realogy "is at risk of violating the terms of its bank loans" and is "trying to reduce debt by almost $600 million and stave off default."

According to the filing, the offering could cut debt by about $592 million and lower interest expenses by about $19 million when calculated for the first three quarters of the year. The company reported $6.5 billion in total long-term debt as of Sept. 30, 2008.

Surviving the crisis: 6 rules to live by

by Ilyce Glink Wed, Oct 15, 2008

It has been a year since the stock market hit a high in October 2007. Since then, the financial picture has changed drastically.

Hundred-year-old investment banks have disappeared. Trillions of dollars of wealth has evaporated. Residential real estate has dropped in value by more than a third in some places as foreclosures have skyrocketed. Some of those who had counted on a lifetime of savings to provide an extra measure of comfort and security in retirement are rethinking their plans.

And the cost of food and fuel has risen sharply. Consumer confidence is down and it would take around 11 months to sell out the housing inventory that is currently on the market.

As each week in the financial crisis unfolds, I've been inundated with questions from readers wondering where it's safe to put their cash, whether they should wait to buy a home, and what will happen if the government buys all of the bad real estate loans and financial markets don't get better.

It's tough to have confidence in a financial crisis. A home typically represents more than half of a family's financial net worth. When we're told that its value has evaporated by a third, it's bad enough. As third-quarter financial statements begin to arrive, you'll look at the bottom line on your 401(k), Roth IRA, IRA or brokerage accounts, and you may get nervous all over again.

It's difficult to muster confidence in tough financial times. While it's painful to watch the federal government fumble the ball, it's worse to experience a broken market first-hand -- either by not being able to borrow what you need to grow your business or by calculating your new net worth -- and realize that early retirement won't be quite as early as you hoped.

What can you do to shore up your confidence while strengthening your personal balance sheet?

Assess your cash flow. How much income is coming in? How much is going out? If you're not in the "black" (spending less money than you earn), you'll need to reprioritize some expenses and/or find a way to bring in extra income each month. Pull a copy of your credit history. In a world that revolves around credit, you have to make sure yours is as good as it can get. Pull a copy of your credit history from AnnualCreditReport.com. Check for errors and, if any, dispute them. Keep in mind that some of your past mistakes may still show up on your credit report. The key is to make sure that those black marks on your credit are reported correctly. If you failed to pay a debt but ended up paying it off later, your report should indicate that the debt was paid in full. Keep your debt as low as possible. Pay all of your bills on time, and in full, and strive to pay down your credit-card debts as quickly as possible. Usually, you'll want to pay off the card with the highest interest rate first, then the other lower-interest debts. Aim to have a balance of less than 25 percent of your maximum available credit limit. Make sure you have an emergency reserve. Some families don't have any cash on hand, but are relying on a home equity line of credit (HELOC) if times get tough. The only problem with that strategy is that some banks and lenders are cutting back on credit lines or closing HELOCs altogether. These days, cash is king. Try to have three to six months of cash on hand in a savings account you can access easily. With recent financial news, some people may decide to keep cash on hand (the proverbial "under a mattress") rather than in a bank. Since most savings and checking accounts at banks and savings-and-loans are now insured for $250,000, you should keep the money in an institution rather than risk losing it at home. Put off any unnecessary big purchases. You may have been planning to buy a new flat-screen television or even a new car before the end of the year. If you can make do for another six months, you might be better off not making a large purchase or taking on another significant debt. With lousy holiday sales expected, the after-New Year's sales should be really good this year. However, if you have to buy now, you may find great deals on cars and some other large purchases, but you need to make sure you understand where your finances will stand once you have completed that purchase. Make yourself indispensible at work. If your company goes out of business, you'll likely be out of a job. But if your company is downsizing or laying off some members of the team, you want a fighting chance to keep your job. Becoming indispensible is one way of building in job security.

The hardest thing is to keep your worries in check. By focusing on creating a solid financial footing for yourself and your family, you'll build confidence and lasting security in tough financial times.

OCC Consumer Tips for Avoiding Foreclosure Rescue Scams

Comptroller of the Currency Administrator of National Banks

Washington, DC 20219

May 16, 2008

Foreclosures are increasing nationwide, and so are scams that promise to “rescue” homeowners from foreclosure. What these scams do is take your money, ruin your credit record, and wipe out any equity you have in your home. Foreclosure con artists take advantage of people who have fallen behind on their mortgages and face foreclosure. Con artists know that people in these situations are vulnerable and likely to be desperate. Potential victims are easy to find: mortgage lenders publish notices before foreclosing on homes. After reading such notices, con artists approach their targets in person, by mail, over the telephone, or by e-mail. They advertise their services on Web sites or publications. They often refer to themselves with titles that sound official, such as “foreclosure consultant” or “mortgage consultant,” and market themselves as a “foreclosure service” or “foreclosure rescue agency.” Your mortgage lender – or any legitimate financial counselor – can help you find real options to avoid foreclosure. If someone offers to negotiate with your lender and offers to arrange to stop or delay foreclosure for a fee, carefully check his or her credentials, reputation, and experience. To protect yourself, follow the recommendations contained in this Consumer Advisory. WATCH OUT FOR FORECLOSURE RESCUE SCAMS Lease-Back or Repurchase Scams – Be very suspicious if someone offers to pay your mortgage and rent your home back to you. This scheme often involves signing the deed to your home over to the con artist. The con artist may promise to sell your home back to you, but this may be very difficult, if not impossible, under the terms of the contract. Signing over the deed gives the con artist the power to evict you, raise your rent, sell the house, or steal the equity you have in your home. You will still be responsible for your mortgage, so if the con artist stops paying it, your lender would have the right to foreclose on your home, and the foreclosure and any other problems would go on your credit record. Refinance Fraud – Look out for people posing as mortgage brokers or lenders and offering to refinance your loan so you can afford the payments. Con artists may trick you into signing over the ownership of your home by saying that you are signing documents for a new loan. Signing over the deed to your home exposes you to the dangers described above. Even if you are a victim of fraud, you could still lose your home. Bankruptcy Schemes – Several scams attempt to abuse the bankruptcy laws. For example, a con artist may ask you to give a partial interest in your home to one or more persons. Each holder of a partial interest can then file bankruptcy, one after another. The bankruptcy court will issue a “stay” order each time to stop foreclosure temporarily. However, the stay does not excuse you from making payments or from repaying the full amount of your loan. In another kind of scam, a con artist may offer to obtain refinancing or negotiate a payment plan with your lender. If you may make payments to the con artist, he or she may keep the money rather than pay the lender on your behalf. The con artist may even file a bankruptcy case in your name, without your knowledge, as a part of the scam. Bankruptcy laws provide important protections to consumers. Scams can only temporarily delay foreclosure, and they may keep you from using bankruptcy laws legitimately to address your financial problems. Signing over ownership of your home, or even partial ownership, can result in serious financial harm. HOW TO PROTECT YOURSELF FROM SCAMS Know what you are signing. Read and understand every document you sign. If a document is too complex, seek advice from a lawyer or an approved, trusted financial counselor. Never sign documents with blank spaces that can be filled in later. Never sign a document that contains errors or false statements, even if someone promises to correct them later. Get promises in writing. Oral promises and agreements relating to your home are usually not legally binding. Protect your rights with a written document or contract signed by the person making the promise. Keep copies of all contracts you sign. Make your mortgage payments directly to your lender or the mortgage servicer. Do not trust anyone else to make mortgage payments for you. Be very careful about signing over your deed. Foreclosure scams often require you to sign over ownership of your home to a con artist or another third party. Never sign over your deed without getting the advice of your own lawyer, financial advisor, or other independent person that you know you can trust. Understand the terms of the deal you are making. By signing over your deed, you lose your rights to your home and any equity built up in the home. Report suspicious activity to the Federal Trade Commission and to your state and local consumer protection agencies. Reporting con artists and suspicious schemes helps prevent others from becoming victims. HOW TO FIND LEGITIMATE HELP FOR YOUR FINANCIAL PROBLEMS Contact your mortgage lender or mortgage servicer as soon as you think you are unable to make your mortgage payment. Lenders are often in the best position to help, especially if you are current on your loan or not seriously late on your payments. Your mortgage lender or mortgage servicer may be able to identify options to help you bring the loan current or to modify your loan. Contact a legitimate housing or financial counselor to help you work through your financial problems. To find one: □ Call (800) 569-4287, or visit www.hud.gov/offices/hsg/sfh/hcc/hccprof14.cfm to find counselors approved by the U.S. Department of Housing and Urban Development (HUD). □ Call the Homeownership Preservation Foundation at (888) 995-HOPE, or visit www.995hope.org, to reach a nonprofit, HUD-approved counselor through HOPE NOW, a cooperative effort of mortgage counselors and lenders to assist homeowners. Visit the following Web sites for information: □ NeighborWorks America, www.nw.org/network/home.asp. □ Federal Trade Commission, www.ftc.gov/bcp/edu/pubs/consumer/homes/rea04.shtm. Finally, if you have a complaint or question involving a national bank and cannot resolve it directly with the bank, contact the OCC’s Customer Assistance Group by calling (800) 613-6743, by e-mailing customer.assistance@occ.treas.gov, or by visiting www.HelpWithMyBank.gov.

Do Mortgage Borrowers Have Bargaining Power? by Jack M. Guttentag

What exactly should mortgage borrowers use their bargaining power for?

A consumer negotiating the terms of a mortgage with a lender or mortgage broker (henceforth "loan provider") is in what economists term a bilateral bargaining process. Only two parties are involved, and the terms arrived at depend in part on their respective bargaining power.

Bargaining power is the power to influence the terms of the transaction by threatening not to do it. The bargaining power of borrowers is inseparable from the knowledge that they have it and their willingness to use it. Borrowers entering transactions with the mindset of petitioners seeking favors are not aware of having bargaining power, and as a result do not have any. They have potential bargaining power, which does them no good.

The potential bargaining power of borrowers is greatest on a refinance, because typically the borrower has no time limit on when the money is needed. This usually means that they can break off negotiations with one loan provider and begin with another without being seriously inconvenienced.

The Right of Rescission

In practice, many refinancing borrowers are solicited by loan providers and are unaware of their options. Abuses in connection with refinance solicitations were once so common that Congress decided to protect refinancing borrowers by allowing them, within three days of closing, to rescind a deal with any lender other than the one holding their current mortgage. Borrowers who rescind have the right to recover all monies they have paid out in connection with the transactions.

The right of rescission is an extremely powerful tool that strengthens the potential bargaining power of refinancing borrowers. Unfortunately, most refinancing borrowers are not aware of what it does for them, and very few exercise it.

Home purchasers, at the early stages of loan shopping in which they select their loan provider, have much the same bargaining power as those involved in a refinance. However, as the period to closing shortens, purchasers lose their bargaining power. They need the loan proceeds on a specific day -- the day on which the contract of sale says the transaction will be consummated -- and if there no longer is sufficient time to start the process again with a new loan provider, they are stuck.

When Mortgage Terms Change on You

Once past this point, the loan provider is in the driver's seat. Both parties know that failure to close means loss of the house along with any deposit the purchaser has pledged. My file is stuffed with cases of home purchasers who had the mortgage terms changed on them when they were past the point of no return. Purchasers should finalize their negotiations, which means getting them down on paper, well before they reach this point.

What exactly should mortgage borrowers use their bargaining power for? In dealing with a lender, it can be anything the borrower is concerned with, but most borrowers would do well to focus on shutting down the two principal games that lenders play to improve their profit margins. One is to escalate their fixed-dollar fees, which existing rules allow them to do with impunity right up to closing. Borrowers can eliminate this game by requiring the lender to guarantee total fixed-dollar fees in writing. The total is all that matters; no fee-by-fee breakdown is necessary.

The second game is price low-balling, where lenders quote a rate and points below what they are prepared to deliver. (Points include all fees expressed as a percent of the loan amount). Since the market changes frequently, lenders cannot be held to a price until the borrower is ready to lock, which usually requires approval of the borrower's application. When the time comes to lock, the lender raises the price to a more profitable level, explaining that that is the current market price.

Beating the Game

To beat this game, the borrower needs to know exactly how his price will be set at the time it is locked. "We will price you at the market on that day" is a common but not adequate answer because it doesn't tell you anything you can check for yourself. "You can check the price we lock for you on our Web site," is a good answer, since they are not going to mess up their Web pricing program just to fool you.

In general, it is easier for borrowers to use their bargaining power to eliminate mortgage broker games than lender games. You need only to establish the broker's total fee, including any fee paid to the broker by the lender, in writing. This protects the borrower against low-balling by broker or lender, and prevents fee escalation by the broker. The borrower should also require the broker to guarantee the lender fee as soon as the lender has been identified.

Federal plan: paper, not property?

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The multibillion-dollar federal plan to buy up financial firms' bad assets in an effort to kick-start the credit markets has more to do with "paper" than property, say experts.

And while the details on the form and function of the plan have not been finalized, they also say there is the possibility that the government will end up owning homes as a result of the bailout plan's implementation, if history is any indication.