We have pointed out here that inflationary pressures seem to be in check. This is a great article that lays out the case that we may not be out of the woods yet when it comes to inflation.

“… But we will point out something that’s vitally important right now: There has not been a recession in history that wasn’t followed by inflationary pressure. And that, in turn, suggests that investors would be wise to shore up their defenses now while everybody is looking the other way … at deflation.

Why?

The U.S. Federal Reserve is expanding our monetary base by more than $11 billion a day since September to nearly $1.5 trillion, which represents an increase of 79.02% since October 2007.

What they are doing is unprecedented in recorded history. …”

(Read the full article…)

Home-Buddies

In case you haven’t heard, Congress is starting to prepare to pump billions of dollars into the mortgage industry. So what should you do as a mortgage professional or Realtor? Understand the economic impact and adapt so you can utilize it to your advantage in helping your current clients. As an economist, here are my thoughts on how it will affect mortgage markets and ultimately affect the mortgage and real estate industries.

The major fiscal stimulus plan that is under way is H.R. 5830. This will allow the Federal Housing Administration (FHA) to insure $300 billion in new loans.

What does all this mean?

When looking at government intervention (i.e. pumping money into any market(s)) you have to look out at least six months to a year in the future. It takes markets that long to respond to economic stimulus, and no matter what you think about H.R. 5830 its affect will be an economic stimulus to the economy.

What does this mean to mortgage professionals?

This means that over the next year you need to focus on your potential refinance clients. So the same people who cashed out refi’s will be back in season again!  People who refinanced during the 2005-2006 lending boom will be excellent prospects for this new FHA program. So today you will want to start letting them know that once this bill passes they will be able to refinance into a mortgage that is 90% of the appraised value of their home.

What does this mean for real estate professionals?

Well the bill has not made its way through the senate, but one of the big likely additions to the bill is a tax benefit to investors who buy foreclosed properties. The sophisticated investors have been holding back but now are quietly coming off the sidelines and eyeing the foreclosure market to satisfy their appetite for good deals. If a tax incentive is added to this bill, it will spark investors to buy deals in this market, so keep your ears open for these individuals. In addition, we all know that there are more foreclosures hitting the market than we’ve all seen within the last twenty years, so now is your time to become a foreclosure specialist.

Simply put, the worst is behind us and the government is about to step in to really give markets a boost. We all need to start planning today for the economic future so that we can maximize our income.

Side note on politics: no worries even if this bill does not pass, some type of bill similar to it will. The political pressure is up and constituents are insisting on their representatives to pass some type of bill to counteract the terrible mess we’re in.

Cliff Pape
Home-Buddies

Holly Hooper does an excellent job in her article decoding the often misused term ’short sale’. Many people mistakenly call purchasing a home below market value as a short sale. However, it is a negotiation process with the mortgage company where an investor arranges to buy the property for less than the remaining mortgage balance.

“…Short sale is basically selling a house for any amount less than is actually owed on the property and then asking the bank to write off the remainder of the loan as a loss.   An example:  A home purchased for $140,000 has dropped in value by $40,000, but the owner still owes $120,000 to the lender.  A short-sale specialist would pre-negotiate with the bank to accept a short-sale of the property for $100,000 and write off $20,000.   If the bank accepts and the agent finds a buyer at $100,000, then the bank doesn’t have to go through foreclosure and the owner has only a short-sale on their credit report (which is much better than a foreclosure).   A short-sale isn’t easy, but it can save the bank and the home owner significant damage if done well.  In the example above, the bank may be saving between 20 and 40 thousand dollars by not having to sell the property as a bank owned property. …”

When you ask us to do a short sale we are doing so in your best interest. This is why we say our short sale process takes three to six months. Since there is no mortgage payment during that three to six months, the longer you can stay in the home without payments the better off you will be when the house is sold.

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I came across a great post by Susan Kishner over at PersonalFinanceBlogArticles.com. It talks about something I come across all the time when helping people with their mortgage foreclosure. Her article talks about one example of how you can end up in foreclosure when you think you are timely making your mortgage payments.

“…Do you know where your payments are going? Do you send in extra principle payments without verifying how they are applied? How many foreclosures could have been averted had borrowers been aware their mortgage was oversubscribed or their payments were not recorded accurately. Do you know if your assign report is untidy with errors? Remember, reports indicate that 79% are….”

One point is especially true. I like to encourage people to make extra principle payments to their mortgage (if possible), but it is extremely important to make sure it is immediately applied to your principle balance. In fact, many times if you do not attach a letter stating you want it applied immediately, they will hold it and apply it at the end of the year. And no, you will not earn interest on that money either.

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Home-Buddies
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