Friday, February 29, 2008

Why Buy a Home or Property Now?

Interest rates on long-term, fixed, and adjustable mortgages are at historically low levels. The Fed started cutting interest rates to bolster the economy in September, and recently has turned more aggressive. During eight days in January, the Fed slashed rates by 1.25 percentage points, the biggest single-month reduction in a 25 years. Since September, the Fed has cut its federal funds rate - what banks charge each other on overnight loans - by 2.25 percentage points to 3 percent. It also cut its discount rate on direct loans it makes to banks by 1.75 points to 3.5 percent. Rates are expected to move lower at the Fed's next meeting on March 18. Despite this, mortgage rates are starting to creep up. Consumers should lock in low rates now, before they go higher. With more homes on the market for longer periods of time, buyers have more choices when it comes to selection. The foreclosure crisis has motivated the government to create more consumer protections against predatory lenders than previously existed. A temporary increase in the conforming loan limit means consumers should soon be able to borrow at lower interest rates for higher-priced homes. Prior to the increase, the conforming loan limit was $417,000. The spread on interest rates between jumbo, or non-conforming mortgage loans and conforming is about 1.2 percentage points.
Posted by Harrison K. Long, Explore Properties Group, Feb. 29, 2008
[source: California Association of Realtors]


Thursday, February 28, 2008

Save On Your California Property Taxes Using Proposition 60 & 90

If you sell your home in California's Orange County and buy a replacement home in the OC (or other reciprocal county), you can maintain your current property tax rate for this replacement home. That's a possible big property tax savings year after year, according to California Proposition 60 passed by voters in 1986.
Check with the Orange County Assesssor. There are conditions and restrictions to qualify: You must be 55 years or older. This only applies to the sale of your principal home. Vacation homes or rental property do not apply. The replacement home you buy must be at the same or lower value of the home your selling. However, the replacement home can be as high as 5% more if purchase within one year after sale of prior home. Proposition 13 passed in 1978 in California, setting property taxes to a rate of one percent of assessed value, also determined by purchase price.
If you qualify for Proposition 60, your property taxes would remain at what they were when you bought your prior home. Proposition 90 was adopted in 1988 and extends Proposition 60 benefits to a homeowner who sells and buys in two different California counties, only if the other county outside of Orange County has adopted this county ordinance permitting this transfer to occur. There are 7 ‘reciprocal’ counties that have adopted the Prop 90 ordinance making Prop 60 benefits available to local replacement dwellings. These counties are Alameda, Los Angeles, Orange, San Diego, San Mateo, Santa Clara, and Ventura
This is complicated. We recommend you contact us at Explore Group or your real estate lawyer or certified public accountant to determine whether you qualify.

Posted by Harrison K. Long, Explore Properties Group, Feb. 28, 2008


New Math on Foreclosure Filings?

What is believable on reported information about home foreclosures?
Nationwide during 2007, RealtyTrac counted 2.2 million foreclosure filings of any stripe (notice of default, warning of auction, bank repossession, etc.) that were made on 1.3 million properties.
California? 481,000 filings in 2007 on 249,500 homes.
And in the O.C.? 23,002 filings during 2007 on 12,501 places.
In fact, only 405,000 U.S. homes were repossessed in 2007 (RealtyTrac). That's a small number relative to number of owned homes in the United States.

Posted by Harrison K. Long, Explore Properties Group, Feb. 28, 2008
[source:; Orange County Register]

Home Mortgage Rates Were Down in January 2008 from One Year Ago

Thirty-year fixed-mortgage interest rates averaged 5.76 percent during January 2008, compared with 6.22 percent in January 2007 (Freddie Mac). Adjustable-mortgage interest rates averaged 5.23 percent in January 2008, compared with 5.47 percent in January 2007.
Post by Harrison K. Long, Feb. 28, 2008
[Source: California Association of Realtors]

Tuesday, February 26, 2008

Long Term Bond Yields Moving Opposite Direction to FED Funds Rate

Why is Ben S. Bernanke, U.S. Federal Reserve chairman, failing to bring down the cost of credit for American homeowners? The average fixed rate for a 30-year home loan rose during February 2008 (Freddie Mac, the world's second-largest mortgage buyer after Fannie Mae). The increase occurred after the Fed lowered its short term rate benchmark rate by 0.75 percent on Jan. 22 and cut the rate by another half-point eight days later. When Bernanke faces Congress on Feb. 27 and 28, he will be questioned about why long-term bond yields are moving in the opposite direction to the Fed funds rate. Lower fixed mortgage rates would avert foreclosures and give consumers more money to spend. Bernanke is caught in a tug-of-war between growth and inflation, which is a threat and influencing mortgage-bond investors who set the fixed rates. More than two-thirds of Americans own their own home, with total mortgage debt of $11 trillion (according to the FED). About a third of the loans are adjustable-rate mortgages (Federal Housing Finance Board). Nine out of 10 people with ARMs who refinanced in the fourth quarter 2007 moved to a fixed-rate loan (Freddie Mac).
Posted by Harrison K. Long, Explore Properties Group, Feb. 26, 2008

Saturday, February 23, 2008

Who Owns the Mortgages After Bundling?

More than $2.1 trillion, or 19 percent, of outstanding mortgages have been bundled into securities by private banks, according to Inside Mortgage Finance, a Maryland-based industry newsletter. Those loans may be sold several times before they land in a security. Mortgage servicers, who collect monthly payments and distribute them to securities investors, can buy and sell the home loans many times. Each time the mortgages change hands, the sellers are required to sign over the mortgage notes to the buyers. In the rush to originate more loans during the U.S. mortgage boom from 2003 to 2006, assignment of ownership wasn't always properly completed [Alan White, assistant professor at Valparaiso University School of Law]. Loans were mass produced and short cuts were taken. Some paperwork is done in the name of the original lender. Some original lenders aren't around anymore. More than 100 mortgage companies stopped making loans, closed or were sold last year [Bloomberg data].
Posted by Harrison K. Long, Explore Properties Group, Feb. 22-2008

Thursday, February 21, 2008

Are we better off using supply side economy theory?

Because of our recent U.S. economy doldrums, perhaps the FED and policy makers should take another look at using supply-side economics, a school of macroeconomic thought that economic growth can be most effectively created using incentives for people to produce (supply) goods and services, such as adjusting income tax and capital gains tax rates. This is in contrast with classic Keynesian economics (or "demand side economics"), which argues that growth can be most effectively managed by controlling total demand for goods and services, typically by adjusting the level of government spending. The typical policy recommendation of supply-side economics is the reduction of marginal tax rates, beneficial because of increased private investment generally brings higher productivity, which increases economic growth, and lowers costs for consumers.
Posted by Harrison K. Long, Explore Properties Group, Feb. 21, 2008


Sunday, February 17, 2008

What Causes Mortgage Rates to Rise?

If Retail Sales in January were better than expected, that's good news for Stocks. But if money flows into stocks, this causes money to be pulled out of Bonds. That in turn causes long term Bond prices to move lower. If US Fed Reserve Board cuts the short term rate on funds, that worries bond traders about the risk of more inflation. Some folks believe that cuts to the Fed Funds Rate generally cause home loan rates to rise, not decline. Why? Because Fed Rate Cuts can spur on more inflation, and it becomes less expensive to finance business and personal purchases. As a result, inflation erodes the value of the fixed return provided by a Bond. In the face of inflation, long term bond prices fall, and home loan rates rise.
Posted by Harrison K. Long, Explore Properties Group, Feb. 17, 2008


Friday, February 15, 2008

Mortgage Market Mess Inspires Lawsuits

Who is to blame for the losses paining Wall Street and homeowners?
Lawsuits are being filed over the troubled mortgage market and the rest of the financial world. Homeowners are suing mortgage lenders. Mortgage lenders are suing Wall Street banks. Wall Street banks are suing loan specialists. Investors are suing whomever they can blame.
The legal and regulatory complications could limit the ones that followed the technology-stock bust and the Enron and WorldCom debacles. The size and complexity of the modern mortgage market will make untangling the latest mess very tricky.
Homeowners and subprime mortgage lenders are squaring off in cases that claim that some lenders engaged in predatory lending practices and other wrongdoing.
Two questions lie at the heart of some of the cases. The first is whether lenders and investment banks alerted borrowers and investors to the risks posed by subprime loans or securities backed by them. The second is how much they were legally obliged to disclose.
As defaults and foreclosures rise, the players in the housing market are pointing fingers at each other.

Everybody blames everybody else.
Wall Street banks that sold mortgage investments around the world face legal complaints from as far away as Australia and Norway. In most cases, the lenders are fighting the allegations.
Securities lawyers say cases involving mortgage-backed securities, which generally were sold privately to sophisticated institutional investors, are far more complicated than those involving stocks, which were sold publicly to everyday investors.

Posted by Harrison K. Long, Explore Properties Group, Feb. 15, 2008.
[Source New York Times, Feb 8, 2008]

Thursday, February 14, 2008

$168 Billion Economic Stimulus Package Signed Into Law

Important for the real estate business and our economy, President Bush on Feb. 13, 2008, signed the $168 billion Economic Stimulus package into law.
Congress previously gave overwhelming final approval to the Economic Stimulus Package supported by NAR and REALTORS® across the country.

The U.S. government will be sending payments to most American households and grant tax incentives for business investment.

This legislation includes the requested GSE and FHA limit increases to $729,000. The increased GSE loan limits means borrowers will see immediate relief with new liquidity in the mortgage market. The nation will see an additional 300,000 home sales. The increased FHA loan limits means an additional 138,000 Americans will purchase homes, and with the needed FHA reforms means 200,000 families can refinance their homes safely and affordably.

Sales financed by jumbo loans of more than $417,000 made up only 19% of Southern California sales in January 2008. A year ago in 2007, jumbo loans in SC made up 38% of sales.

Posted by Harrison K. Long, Explore Properties Group, Feb. 13, 2008
[Source: Orange County Register, 2-13-2008]