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How Big Is Benicia-Vallejo’s Shadow Inventory?

Rod Herman — Fri, 08 Apr 2011 01:02:09 +0000

About a week ago, I listened to Rick Sharga, Sr. V.P. of Realty Trac, share his firm’s current foreclosure numbers. In his talk, one statistic really stood out: right now, there are 1 million foreclosures in the U.S., yet only 300,000 of them have come on the market.

In other words, 7 out of every 10 U.S. homes that the banks already own haven’t even hit the market yet. That’s the “shadow inventory” that you may have heard people talk about.

It prompted me to look at our local market a little closer and see how big our own shadow inventory is right now. The numbers were pretty startling. Not quite as large as the nationwide figures that Mr. Sharga talked about, but still pretty shocking nonetheless.

I looked at all five cities in our primary market area (Benicia, Vallejo, Fairfield, Suisun City & Vacaville) and found that about 3 of every 5 foreclosed homes have not yet come on the market.

Overall, 1,830 homes show up as bank-owned (REOs) in my foreclosure database right now, yet the banks have kept 59% of them (1,079) off the market.

Individually, here’s how the cities shape up:

Vallejo has 804 REOs, but 64% (515) haven’t come on the market.

Fairfield has 449 REOs, with 59% (263) yet to hit the market.

Vacaville has 332 REOs and 173 (52%) haven’t come on the market.

Benicia has the fewest REOs (83), yet 45 of them (54%) haven’t come on the market.

Suisun has 162 REOs, with a shadow inventory of 83 (51%).

But that’s only half the story.

In addition to those 1,800+ REOs, twice that number of homes are currently in the midst of the foreclosure process in those same five cities. And out of 3,500+ such homeowners, less than 1,400 have put their homes on the market.

In other words, another 2,100 homes are headed directly to foreclosure right now.

And to take it one step further, that doesn’t include those who’ve stopped paying their mortgage (or are about to do so), but who haven’t yet received an official Notice of Default, which formally starts the foreclosure clock.

So if you add it all up, right now more than 5,300 homes in Benicia, Vallejo, Fairfield, Suisun and Vacaville have either already been foreclosed upon or are heading that way. And only about 2,100 of those — or 40% — have come onto the housing market so far.

All of which means that we still have a ways to go before the local housing market turns itself around.

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BofA Proves Its Short Sale Mantra Isn’t All Talk

Rod Herman — Tue, 08 Mar 2011 19:27:03 +0000

A year ago, if you’d asked me who were the worst banks to negotiate a short sale with, I would have quickly put Bank of America near the top of that list.

Back then, BofA was notorious for dragging out short sales for months on end, for asking for the same documentation over and over again, and for switching negotiators in mid-stream and starting from scratch. Each time you called, you got a different story. It all depended on who answered the phone.

There was no consistency and certainly no commitment to expediting the short sale process. It was as if the powers that be at BofA just wanted to make the homeowner’s life a little more miserable by dangling the possibility of doing a short sale in front of them before ultimately making a settlement demand so unreasonable that the owner would finally just walk away out of frustration.

A year ago, I wondered whether the acronoym BofA really stood for “Bank of Anxiety,” for that’s the state of mind most short sellers found themselves in for months and month on end.

Fast forward to the present

Well, as they say, that was then and this is now.

Last Spring, Matt Vernon, one of the top execs at BofA and the man charged with overseeing its short sale department at the time, presented a webinar to real estate agents. He acknowledged that BofA had done a very poor job with virtually every aspect of its short sale process.

He pledged to fix the process, upgrade the response times and create an avenue for “good” deals that were about to go south to be escalated to a senior level manager who could intervene and make sensible financial decision.

It all sounded great in theory.

But those of us who had worked on enough short sales with BofA borrowers took Mr. Vernon’s words with a big grain of salt.

We’d believe it when we saw it.

Well, over the last 12 months, BofA has made one of the quickest and most impressive turnarounds I’ve ever seen. Just like the Amazing Mets of 1969, who went from last to first, almost overnight, BofA has gone from one of the worst short sale banks to one of the best.

In my opinion, BofA and Wells Fargo are probably the top two banks to process a short sale through right now. Both banks give you a fairly quick response — usually within 30-45 days, which is about half as long as it takes with most other banks’ short sale departments right now.

But the most impressive part of BofA’s turnaround is that now there really are people in high places where a savvy real estate can go when a deal that shouldn’t be turned down is about to self-destruct.

Earlier this year, Kimberly Dawson, another high-level BofA short sale executive appeared on an industry webinar and echoed many of the same comments Matt Vernon had made a year ago. She reiterated BofA’s commitment to preventing foreclosures and said that they consider short sales the “top of the waterfall.” Preventing a future foreclosure by completing a short sale benefits everyone, she said.

Well, last week, I put that mantra to the test. Without going into too many specifics, let me say that BofA had been presented with a top-of-the-market offer on a home here in Solano County that would net the bank’s investor at least $40,000 more than if the property went to foreclosure.

Yet, BofA’s assigned negotiator had stalled the deal over $3,000. I couldn’t get the negotiator to budge. His parting comment was “if the seller wants to walk and let the home foreclose, that’s their decision.”

This was exactly the type of deal that Mr. Vernon and Ms. Dawson had talked about when they said they didn’t want to create a future foreclosure when a far better short sale alternative was out there.

So I climbed the BofA corporate ladder and within a matter of hours got several people in really, really high places to intervene. An absolutely terrific senior negotiator stepped in and in about 5-10 minutes was able to override the original negotiator and approve the sale. She saved BofA’s investor a good $40,000-plus.

AND, she prevented an unnecessary foreclosure from further gumming up our sputtering economic recovery.

A year ago, there’s no way that would’ve happened. The file would have been declined, the home would’ve sat vacant for 3-4 months (and probably fallen into disrepair) and this home ultimately would have driven home values in this neighborhood even lower.

So kudos to Bank of America. For a year now, they’ve talked the talk. But they’re one bank that also walks the walk.

At least they did this time around.

Now, if only other banks (names like US Bank, PNC, Chase quickly come to mind…) would follow BofA’s lead, we might just be able to turn the tide and work through these upside-down properties faster and with less chance of neighborhood values dropping any further.

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Big Vote Thursday: The End Of Loan Mods?

Rod Herman — Tue, 01 Mar 2011 06:23:39 +0000

If you own a home in Solano County and are thinking of applying for a loan modification under the government’s widely publicized Home Affordable Modification Program (HAMP), come Thursday you may find yourself out of luck.

For that’s when the House Finance Services Committee plans to vote on a bill that, if passed, would signal the end the White House’s failed loan mod program.

When the HAMP program was announced by President Obama almost two years ago, there were high expectations and hopes that it would help millions of underwater borrowers restructure their loans so that they could stay in their homes with newly affordable monthly payments.

Well here we are two years later, and only about 3% of the $29 billion (yes, billion) that was allocated has been spent. Less than 15% of the 4 million households that HAMP was supposed to help have gotten permanent modifications. For the other HAMP applicants, HAMP has brought nothing but frustration and dissatisfaction.

If the House bill goes through, it will be the end of the road for HAMP and the unused $29 billion will go back to the Treasury, presumably to be allocated to some other program.

When the House Finance Services Committee votes on the bill, it is also likely to include three other programs that, like HAMP, have fallen flat on their faces: the Emergency Mortgage Relief Program, the Neighborhood Stabilization Program, and FHA’s mortgage refinancing program.

The FHA refinancing program has been a colossal failure. Over $8 billion was set aside to help underwater FHA borrowers refinance their loans into a payment they could afford.

But the guidelines made the program so unattractive to lenders that as recently as last December only 35 (yes, just 35) Americans took advantage of a program that was originally expected to help up to 1.5 million existing FHA borrowers. So far, just $50 million of that $8 billion has been used.

So if you’re thinking of doing a loan mod and planning on using the government’s HAMP program, sorry, but it looks like that ship is about to sink.

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Obama’s Mortgage Reform Plan: A Bitter Pill

Rod Herman — Sat, 19 Feb 2011 16:25:42 +0000

Many years ago, another agent in my office shared a great little saying with me.

It was one that really cut to the chase with a seller who wanted to hold out for a better offer when the one they had in front of them was clearly the best they were ever going to get.

She would say: I know it’s a bitter pill to swallow…but do you want that pill now or do you want it later?

And that little saying of hers resonated with me the moment I heard about the White House’s proposed mortgage reform plan, which was announced just over a week ago.

I wrote about that plan a few days ago. In a nutshell, the Obama administration has proposed sweeping mortgage policy changes that would:

Require higher down payments
Drop the maximum loan amounts for conventional loans in many areas
Raise loan fees to borrowers
Do away with mortgage giants Freddie Mac & Fannie Mae

Making all these changes would definitely be a very bitter pill for the mortgage and housing markets to swallow right now. But if we really want to make sure we don’t have a repeat of the recent mortgage meltdown, there’s no doubt some changes have to take place.

Mortgage Reform Is Needed…But Now or Later?

We have to make sure the riskiest borrowers really have the means to own a home before letting them slip through the cracks and buy something they clearly can’t afford. And we need to get back to where the private sector is fueling the money supply machine rather than government.

Maybe not exactly as Obama’s plan proposes, but some changes definitely are in order to make sure we prevent careless live-only-for-today lenders and home buyers from again bringing the rest of us into their Den of Doom.

Whether we do it the way the White House plan suggests or another way, no one can quarrel that mortgage reform is just what the doctor ordered. And it will be a bitter pill. The big question, though, is Do We Swallow It Now Or Later?

The housing market and our overall economy are both still VERY fragile. So if we implement too much too soon, we run the risk of undoing all the progress we’ve made over the past 2 years.

The Patient Is Still Healing

The housing market is kind of like the patient who just had major surgery. It’s starting to heal, but if we take out the stitches too soon, we could undue everything and be right back in surgery tomorrow.

So while the premise of Obama’s plan makes sense — reducing the housing market’s dependency on the government and safeguarding the mortgage industry from a repeat of the recent mortgage market meltdown — introducing major mortgage changes like these could take a lot of the steam out of a still fragile housing market and cause yet another downward spiral.

I think we need to make sure the patient’s incision is fully healed before we making big sweeping changes like these. And lord knows, the economy still has plenty of healing to do.

Too Much Too Soon?

Premature policy changes will likely cause the housing market to sputter, which likely would curtail our economic recovery and renew cries for more government assistance — the very thing Obama’s plan is trying to curtail.

In my mind, the sensible approach is to wait until the housing market and overall economy is convincingly in a robust recovery mode before making sweeping changes. Over the past few years, underwriting and appraisal rules have tightened, which already has helped prevent the riskiest borrowers and shady investors from buying.

I’m not saying the job is finished. We need reform, but not in one big gulp and certainly not while the economy and housing market are both still so weak and fragile.

The right dose of medicine can can work wonders, but as we all know, an overdose can be lethal.

So let’s not swallow that bitter pill just yet.

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What Obama’s Plan Means For Solano Home Buyers & Sellers

What Obama’s Mortgage Reform Plan Means For Solano County Home Buyers & Sellers

Rod Herman — Thu, 17 Feb 2011 16:38:22 +0000

You may have heard that President Obama unveiled his plans to reform the mortgage industry last Friday. Since then, his proposal has taken a lot of heat in real estate circles, especially since one of his recommendations is to reduce the maximum loan limits on conventional mortgages in high-cost areas by more than $100,000 as early as this fall.

Among some of the proposals in Obama’s plan:

Drop the maximum loan amount in high cost areas (which includes much of the Bay Area) from $729,750 to $625,500.

Phase out both Fannie Mae and Freddie Mac by reducing their loan portfolios by 10% a year

Raise fees for borrowers

Increase minimum down payments borrowers

What This Means To Solano Home Buyers & Sellers

It’s still unclear whether the White House’s proposal to lower the maximum loan limit would really impact Solano County. Currently, for most of the U.S., the limit is $417,000. The majority of the Bay Area, though is at $729,750 — which is the amount that Obama’s plan wants reduced by about $105,000.

In Solano County, however, our limit is $557,500, which is higher than the rest of the U.S., but lower than most other Bay Area counties.

So if the White House plan reduces the loan limit for all high cost areas on a proportionate basis, then Solano County buyers and sellers could definitely feel a pinch, since buyers of homes priced above the new loan limit would be forced into higher-rate “jumbo” loans, which would no doubt kick some buyers out of the market or force some sellers to lower prices to attract conventional loan buyers.

But if the White House plan keeps our limit at $557,500, since it’s already below the proposed $625,500 ceiling, then Solano County would be spared any impact from the proposed change. I haven’t seen county-by-county specifics yet. But when I do, I’ll post them.

A Definite Impact In Contra Costa

Contra Costa County, meanwhile, will definitely feel the pinch if Obama’s plan is enacted, since it is one of the Bay Area Counties where the $729,750 loan limit is presently in place. If the maximum loan drops to $625,500, then sellers in the $700,000-$900,000 price range, could soon find it much tougher to find qualified buyers for their homes.

Obama is pushing for a change in the loan limit by this fall. And you can bet there will be a lots of lobbying and grass-roots efforts to either stop, delay or modify his proposal in the coming months.

While the jury’s still out on whether the White House plan will affect Solano’s loan limits, those other three proposals in Obama’s plan definitely would impact buyers and sellers here in Solano County as well as throughout the entire U.S.

Less Fannie & Freddie Means Higher Rates & Fees

According to estimates I’ve seen, almost three-quarters of all U.S. loans are sold to Freddie Mac and Fannie Mae. In Solano County, that percentage is probably a bit lower, since FHA loans have become increasingly popular over the past few years due to lower home prices.

But for borrowers opting for a conventional loan, Freddie or Fannie are what makes the whole money supply machine work. So if you reduce the amount of loans that those two organizations can purchase, that will definitely impact the availability and cost of that financing.

According to the National Assn. of Realtors, Credit Suisse Bank has estimated that interest rates could easily rise 2 full percentage points (to the 7%-plus range) if the government withdraws its backing of Freddie and Fannie, which would easily price many of today’s buyers out of the housing market.

Goodbye To Low Down Payment Loans?

The same would happen if the government pushed lenders to increase minimum down payment amounts. With conventional financing, buyers have to put at least 10% down. With an FHA loan, the minimum is 3.5% down — which is huge for first-time buyers, since many have the income to qualify but not 10% plus closing costs (about $35,000+ on a $250,000 home).

The White House’s premise — more skin in the game by the homeowner means less risk for the lender — makes sense. Before creative financing entered the marketplace back in the 1980s, buyers using a conventional loan traditionally had to come up with 20% down. Of course, back then, most Bay Area home prices were below $100,000.

There’s been quite a bit of talk about FHA increasing the minimum down payment on all of its loans. If that happens and if the same occurs with conventional financing, many buyers would find themselves unable to buy. And that would certainly cause activity to wane, inventory to climb and prices to fall.

I understand the need for mortgage reform. Nobody wants a repeat of 2007-2008. But if the sweeping changes outlined in Obama’s proposal are enacted, Solano County home buyers and sellers will definitely feel it — and not in a good way.

Haven’t We Learned Anything?

Rod Herman — Wed, 21 Apr 2010 03:30:00 +0000

I just got the following email in my spam folder, from a mortgage lender out of Southern California:

Even though we’re not even close to getting out of our nation’s worst financial mess since the Great Depression, we’re already beginning to see a smattering of snake oil salesman peddling loans that look and feel just like their subprime cousins that started this whole economic tailspin.

I guess I was naive to think that those flim-flam men and women who pushed people into homes they clearly couldn’t afford had left our industry for good.

No, it looks like they’ve just been laying low for the last few years.

Yet here they come, even as traditional, institutional lenders are still tightening guidelines to ensure that the only ones who get a loan are those who truly qualify. And as the government government continues to unveil programs to help borrowers caught in the cross-fire of the recent subprime meltdown.

It didn’t take long for these sharks to start peddling their smelly wares again, did it?

Call me naive, but shouldn’t a lender or investor know a little bit about the borrower’s financial ability to repay before giving them hundreds of thousands of dollars?

Yet, according to this email, all this lender wants is a verification of employment (VOE). That’s right, as long as your boss says “yep, Charlie works here” you’ve got yourself a loan.

So as long as I put 20% down, I don’t need to show any paystubs, W-2’s nor tax returns. And with a score of 720, I can borrow almost three-quarters of a million dollars. Plus, I can close escrow in 10 days?

Do the words “too good to be true” come to mind? And you know what they say: if it smells like a rat, it MUST be a rat.

Now let me ask you — isn’t this exactly the type of lending that got us into the economic cesspool we’re in right now?

I wondered how long it would take before the predators would reappear. I was pretty optimistic, I guess, for I figured it might take another 3-4 years before we started to see a rebirth of these smell-like-a-rat loan programs.

Yet, in the last 4-6 weeks, I’ve started to notice a few emails like the one above hitting my spam folder.

Hopefully most of my fellow real estate agents will do just what I did and trash the email right away. And hopefully any borrower who comes in contact with someone peddling one of these loans will run like the wind.

I really thought we’d learned from what’s happened over the past 3-4 years.

Obviously not!

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Will California’s First-Time Buyer Tax Credit Money Run Out Almost Before It Begins?

Rod Herman — Fri, 16 Apr 2010 05:08:33 +0000

$100 Million Could Be All Gone By Mother’s Day

California’s first-time buyer tax credit, which is slated to begin May 1, the day after the federal tax credit goes away, may be very short-lived, according to a just-release analysis by our state trade association, the California Assn. of Realtors (CAR).

According to CAR, the entire $100 million that the state legislature allocated for first-time buyer tax credits could be entirely used up in the first 10-20 days after the credit takes effect.

That means the money could be all spoken for shortly after Mother’s Day, if CAR’s prediction is accurate.

An email I received from CAR earlier today said that its economic team had looked at projected May sales and figured that all $100 million will likely be gone in the first few weeks of May.

Will Some April Buyers Wait To Close In May

It also predicted that some transactions that otherwise would have closed in late April could be pushed back until early May so the buyers can take advantage of both the federal and state tax credits.

The federal credit requires buyers to be in contract by April 30 and close by June 30. The state credit is for either first-time buyers or new home buyers who close on or after May 1.

While CAR’s prediction could be on the money (no pun intended), it’s projection may be based on the assumption that every buyer who’s eligible for the credit will submit their paperwork promptly after escrow closes.

And that’s a big “if.”

For, the way the state tax credit is set up, the Franchise Tax Board MUST receive the completed application and supporting paperwork within 2 weeks of the close of escrow. That doesn’t mean postmarked, it means received by the FTB.

There’s no appeal allowed, either. If the FTB says it didn’t get it, then it’s pretty much “end of story, case-closed.”

Just Because You Close, Doesn’t Mean You Get The Credit

So it’s not hard to imagine a fair number of buyers closing escrow and getting caught up in moving activities only to realize after it’s too late that they missed the 2-week deadline.

Accordingly, if some of those who CAR estimates will use up the tax credit allocation quickly accidentally miss out on the deadline, then perhaps the money will last a bit longer than CAR predicts.

In any event, even though the state legislature provided for buyers to apply for the credit as long as they’re in contract by the end of the year, since they only allocated $100 million to the program, it’s a pretty sure bet that it’ll be gone well before then.

For more information on the tax credit, be sure to contact your tax adviser. Additional details are also available on the Franchise Tax Board’s web site.

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Tax Relief For Distressed Solano County Sellers Finally Goes Into Law

Rod Herman — Tue, 13 Apr 2010 23:34:59 +0000

Not only did the rain clouds disappear yesterday, but so too did the dark black clouds that had been hanging over many penniless distress-sale sellers from last year, who were about to incur huge state income tax bills.

But just about the same time the skies parted over Solano County yesterday afternoon, a new tax relief law went into effect, which will save distressed sellers who sold their homes in 2009 thousands of dollars.

The Long Wait Is Over

Prior to the passage of SB 401, most California sellers who received debt relief through a short sale, foreclosure or loan modification would have been required to report the forgiven debt as ordinary income and pay taxes on it.

As I posted last week, state legislators were hoping to enact a new debt relief law before April 15. Alas, they made it with a few days to spare.

Up To $500k In Relief Tax-Free

Now, according to the Franchise Tax Board, those with a “qualified” principal residence will be exempt for up to $500,000 of forgiven debt on loan balances of up to $800,000.

According to the FTB, only the amount you used to buy, build or improve your principal residence will qualify for the exemption. So if you refinanced your home and pulled out cash to use for other purposes, you still may find yourself subject to some tax.

The federal law allows exemptions for loan balances up to $2 million, so at $800,000, California’s law is definitely more restrictive.

Tax Relief Thru 2012

The new exemption applies to distress sellers whose debts are/were discharged between 2009 and 2012. Those who’ve already filed can amend their taxes, says the FTB.

Not every seller who received debt relief through a short sale, foreclosure or loan modification will be able to take advantage of the exemption. Along with the aforementioned borrowers who used home equity for non-real estate purposes, those who sold or lost investment property or a second home could have a tax event, unless the sellers are eligible for one of the exceptions.

The FTB updated its website earlier today with an information page on the new Mortgage Debt Relief Law.

Now, since I’m not a tax expert nor licensed to give tax advice, here’s the big disclaimer: Don’t make any decisions or construe the content in this post as tax advice. It is based solely on information I have received from others. Accordingly, before making any tax decisions, be sure to consult with your personal tax adviser.

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6 Big Real Estate Changes For Benicia-Vallejo Home Buyers & Sellers This Month

Rod Herman — Tue, 06 Apr 2010 01:31:12 +0000

If you’re planning to buy or sell a home in Benicia, Vallejo or even anywhere else in Solano County, you may need a scorecard to keep track of all the changes that either already have occurred or will take place by the end of April.

I’ve been a real estate agent since 1995. And before that I worked in the title and new homes sectors of our business — dating all the way back to 1978. And in all the years I’ve been in the real estate business, I can’t remember another time when this many changes occurred in one single month.

So if you’ve got your scorecard ready, here’s a quick overview of some of the changes that are taking place in April:

1. Government’s MBS Buy-Back Program Ends

April 1 was the first day in over 14 months that the government wasn’t buying mortgage-backed securities, which it had been doing since Jan. ‘09 to keep mortgage money flowing and interest rates affordable.

Without Uncle Sam there to prop up the mortgage market, it’s now up to the free market to to decide just how high mortgage rates should really be.

Some experts have said that rates would skyrocket without the government’s help, while others expect the change to be very subtle.

For more details, see the post I wrote on the final day of the U.S. government’s MBS Buy-Back program.

2. Faster Short Sales Starting Today?

Today is the day the federal government’s Housing Affordable Foreclosure Alternatives (HAFA) program goes into effect.

The Obama administration announced the program last fall but wanted to allow plenty of time for mortgage lenders to prepare for participation in the program.

Among other things, the HAFA program enacts strict deadlines, requires banks to determine the minimum net proceeds they’ll accept up front and provides cash incentives for banks, sellers and even 2nd mortgage holders who participate in a short sale.

Sellers must meet eligibility requirements for the Home Affordable Modification Program (HAMP) in order to participate in HAFA. Lenders who are already participating in HAMP must agree to also participate in HAFA.

On paper, the program looks like it will expedite the process and take away much of the frustration and uncertainty that buyers, sellers and real estate professionals have endured over the past few years.

However, from what I’ve heard, many of the people working in the loss mitigation departments for many of the banks who are supposed to participate claim they’re not yet familiar with HAFA.

So implementation and compliance by the banks may not necessarily be an immediate thing.

3. Higher FHA Mortgage Insurance Costs As Of Today

Borrowers who are using an FHA loan to finance their purchase (which probably includes at least 90% of the first-time buyers in Solano County) will be subject to a costlier up-front mortgage insurance premium (up from 1.75% of the cost of the home to 2.25%). On a $200,000 home that works out to about a $1,000 increase.

However, since most buyers finance the up-front MIP, on a $200,000 home, increasing the loan amount by $1,000 really only adds about $6/mo. to the payment.

So in the big scheme of things, it’s not a big enough change to severely impact most FHA buyers.

4. Smaller FHA Seller’s Credits Starting Today, Too

This change could have a significant impact on many FHA borrowers. For starting today, the most a seller can credit the buyer in an FHA transaction is 3% of the purchase price, which is half of what it was yesterday.

Here in Benicia, Vallejo and vicinity, where so many homes continue to get multiple offers, those FHA buyers who were asking for large closing cost credits haven’t had a lot of success getting their offers accepted in recent times. So from a practical standpoint, the change may not be felt too much for right now.

But if the inventory continues to climb and gets to a point where multiple offers are no longer the order of the day, we could find some otherwise qualified FHA buyers exiting the market due to limited funds beyond their down payment.

5. Federal Tax Credit Going Bye-Bye

Barring a sudden change of heart by Congress, the federal home buyer tax credit will expire at the end of this month. The credit provides up to $8,000 for first-time buyers and $6,500 for move-up buyers.

In order to qualify, you must have entered into a purchase agreement by Apr. 30. You’re allowed an additional 60 days to close escrow. So the clock is definitely ticking.

If you’re not able to get into contract in time to get the federal credit, all may not be lost. For the day after the federal credit expires, California’s recently announced first-time buyer and tax credit goes into effect.

6. New Purchase Contract Coming

And finally, a new standard purchase contract is slated to come out at the end of April, which will change the way some parts of a real estate transaction are conducted.

The form is produced by our California Assn. of Realtors (CAR) and is used for most local real estate sales here in Solano County. It’s the first major change for this form in about 8 years.

One of the changes is that buyers will no longer have to write a deposit check up front. They’ll be able to wait to do so until after the seller has accepted the offer.

Another change: sellers will no longer be automatically on the hook to cover the cost of any lender-required repairs on FHA loans.

The new contract also does a good job of specifying what happens if a closing date or other contractual event falls on a weekend or a holiday. Up until now, that’s always been subject to interpretation.

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Is The Party Over For Low Mortgage Rates?

Rod Herman — Wed, 31 Mar 2010 23:28:43 +0000

Will Rates Skyrocket As Some Previously Predicted?

Today marks the end of an unprecedented era for the mortgage market.

That’s because this is the final day of the Federal Reserve’s 14-month program to buy up mortgage-backed securities (MBS) — a practice that has kept mortgage rates down in the 5-percent-and-below range.

The Fed’s MBS purchase program was initiated by the government in order to keep mortgage money flowing at the time our economy was suffering through its darkest hours.

Buoyed by a consensus that the economy was on the mend, last fall, the government proclaimed that it would end its MBS buy-back program by the end of the first quarter of 2010.

In other words: today.

A New Era Starts Tomorrow

So starting tomorrow, MBS purchases will fall on the shoulders of regular investors, which means that mortgage rates will again be determined by the free marketplace, without any governmental support.

Before I lose you with too much high-finance talk, let me explain what this really means to the average home buyer or mortgage consumer.

In a nutshell, if the people who purchase these mortgage backed securities don’t buy them at the same pace that the federal government has been purchasing them, then mortgage rates will climb.

For weeks now, many “mortgage scholars” have been predicting that we’ll see a spike in mortgage rates as soon as the government exits the MBS arena.

6% Mortgage Rates Overnight?

Some have said that rates, which have been hovering in the high-4% to low-5% range for months now, could rise to the mid-5’s or even 6% within a matter of days or weeks after the Fed’s program goes away.

In recent weeks, some of these experts have scaled back their doom-and-gloom predictions and said that rates will probably go up a bit, but not perhaps as high or as quickly as they previously envisioned.

Before the government started buying MBS’s in Jan. ‘09, the flow of mortgage money had reached a serious bottleneck, as back then, very few investors were excited about putting their money into an investment that was backed by the ability of American homeowners to make their mortgage payments.

And without anyone to invest in those MBS’s, the supply of mortgage financing would have dried up almost instantly, which would have devastated an already punch-weary housing market.

Uncle Sam’s $1.25 Trillion Life Preserver

So in an effort to keep mortgage financing flowing and prop up a weakened housing market, Uncle Sam announced in Nov. ‘08 that it would allocate $1.25 trillion to purchase mortgage-backed securities starting in Jan. ‘09.

The theory was that by the time that money was gone, the investment community would again have enough confidence in these securities to keep mortgage money flowing.

The big unknown at this point, of course, is just how much confidence investors really have in these MBS’s.

Or, more importantly, whether they’ll buy them at the same pace or at the same cost as the government has been doing for the past 14 months.

In anticipation of this day, the government started scaling back its MBS purchases last fall in order to hopefully create a gradual transition from governmental support to free-market investors.

Since rates have stayed in the same general range since the government’s phase-out began, that’s considered a good sign — and one which has convinced some of the doomsayers to reconsider their original predictions of interest rates climbing a full percentage point in a matter of weeks once the government buy-back program ended.

Tomorrow Is Day One

So now we’re at ground-zero. Tomorrow is Day One of a new era. Or should I say a return to the way things were done before the mortgage meltdown.

That means we’re about to find out just how much our economy has recovered.

Most experts seem to think that rates will probably go up at least a little bit — perhaps somewhere between 1/4 to 1/2 percent in the coming weeks.

If such an increase occurs over a 5-6 week period, I wouldn’t expect it to impact the housing market too much.

But if rates were to rise quickly or by more than 1/2 percent, then the real estate market could take a hit — especially since it would coincide with the end of the federal tax credit and the introduction of FHA’s tighter new policies.

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