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U.S. Seizes Control of Freddie & Fannie

The federal bailout of Fannie Mae and Freddie Mac involves putting the companies under conservatorship and placing the Federal Housing Finance Agency in charge of their operations and appointment of senior managers. The government has dismissed Fannie Mae and Freddie Mac’s CEOs — who will, however, assist in the transition — and will provide capital, if necessary.
The plan also calls for a cut in the stake of current shareholders to 20 percent from 100 percent. It additionally will require an increase in mortgage funding by Fannie Mae and Freddie Mac through the end of next year to stabilize the housing market; however, mortgage volume will be reduced 10 percent annually for a decade beginning in 2010 to reduce risks to the overall financial system. The companies — which will no longer be allowed to lobby or engage in other political activities — will be restructured by Congress before 2010.
For the short term, this move will hopefully bring some stability to the housing outlook. Long-term implications of this move and the ultimate impact on the market will not, however, be fully known for some time.

[SOURCES: Information, Inc.; Washington Post]

After 152 years, Mid-South Fair tears its last ticket in Memphis

By Lindsay Melvin, Memphis Commercial Appeal
Monday, September 29, 2008

What is a short sale? 

A "Short Sale" or "negotiated settlement" or "short pay" occurs when a Lender agrees to accept less than the amount owed to payoff a loan as an alternative to foreclosure.  If the property is worth less than the amount owed on the loan, then even if the Lender forecloses and takes back the property, they know they are going to take a loss.  We can often convince a Lender that they will "do better" if they take less than what is owed now rather than taking the property back by foreclosure and trying to sell it later.

How long will it take?  The Short Sale negotiation process is a lengthy one.  It may take several weeks or more likely several months to get an approval.  Many Lenders have several layers of bureaucracy, insurers, and investors that we will have to maneuver through in order to get the Short Sale approved.  So it is important to be patient during this long process.

But my house is going to foreclosure, will I have enough time?  Maybe, maybe not.  Just starting a Short Sale does not automatically stop a foreclosure.  However, many times we can convince a Lender to stop the foreclosure to let us attempt to negotiate the Short Sale.  So, while there are no guarantees, it is in your best interest to try the Short Sale.

Can I stay in the house?  The key word in "Short Sale" is sale.  The purpose of a Short Sale is to get the property sold.  This is not a program that can stop foreclosure and allow you to keep the house indefinitely.  It will be easier to sell the house if it is vacant, so you should make plans to move as soon as possible.

How do I know this will work?  You don't.  We cannot, have not, and will not make any promises to you that the Lender will accept a Short Sale.  Once you missed a payment, the Lender is in charge and can proceed to foreclosure if they want to.  But we know they do not want to and we are very good at presenting alternatives to the Lender that they often prefer to accept rather than foreclose.  We are very good at what we do, but NO PROMISES or GUARANTEES are being made as to whether or not the Lender will accept a Short Sale – they may or may not.

Will I get any money from the sale?  NO.  A universal requirement of Lenders granting a Short Sale is that the borrower will not get any proceeds from the sale of the property.  The Lender is going to take a loss on your loan – they are not going to let you get any money.

What happens if this doesn't work?  Your house will likely go to foreclosure.  A Short Sale is something we try after you have exhausted your other options.

What is the difference between a "RELEASE" and a SATISFACTION?  A Release is where the Lender may offer to "release" its security interest against the property in exchange for less than the amount of the note.  However, the remaining debt on the property is still not satisfied.  A Satisfaction is where the Lender agrees to accept less than you owe on the balance of your mortgage as a complete and final "satisfaction" of the debt and the mortgage lien on your property.

Advantages of a Satisfaction:  Your note obligation and mortgage encumbering the property are both satisfied for less than what you owe.  When your property is sold, the debt is paid off completely.

Disadvantages of a Release:  Since the remaining debt on the property (sometimes called a "deficiency") still exists, you may have tax consequences and receive a 1099-S form from the Lender reflecting the amount of debt forgiven.  You may then have to pay taxes on this amount and although there are exceptions, you are urged to consult with a tax advisor regarding your options.  Also know that the Lender is not obligated to provide you with a 1099-S for the debt forgiveness income and won't be penalized for failing to do so.  It is at the sole discretion of the Lender whether they choose to give this to you or not.

If the Short Sale is successful, it is a win-win situation for all of us.  You win because you save your credit from a tremendous hit since a foreclosure will remain on your credit for ten years.  This makes buying another house impossible for a long time.  And yes, you will have late payments showing on your credit report, but as long as foreclosure does not occur, after twelve months of good rental history, you will be able to get a new mortgage and buy a house once again.  We win because once the short sale is approved, and we buy the property or find a buyer for the property and make our profit that way.  Bottom line is, if you don't win, neither do we!  The Lender wins because they can dispose of the property quickly instead of holding onto a non-performing asset which in the long run hurts them financially.  Besides the Lender is in the business of lending money not selling real estate.

Seven Selling Mistakes You Don't Want to Make!

Mistake #1 -- Pricing Your Property Too High
Every seller obviously wants to get the most money for his or her product. Ironically, the best way to do this is NOT to list your product at an excessively high price! A high listing price will cause some prospective buyers to lose interest before even seeing your property. Also, it may lead other buyers to expect more than what you have to offer. As a result, overpriced properties tend to take an unusually long time to sell, and they end up being sold at a lower price.

Mistake #2 -- Mistaking Re-finance Appraisals for the Market Value
Unfortunately, a re-finance appraisal may have been stated at an untruthfully high price. Often, lenders estimate the value of your property to be higher than it actually is in order to encourage re-financing. The market value of your home could actually be lower. Your best bet is to ask your Realtor for the most recent information regarding property sales in your community. This will give you an up-to-date and factually accurate estimate of your property value.

Mistake #3 -- Forgetting to "Showcase Your Home"
In spite of how frequently this mistake is addressed and how simple it is to avoid, its prevalence is still widespread. When attempting to sell your home to prospective buyers, do not forget to make your home look as pleasant as possible. Make necessary repairs. Clean. Make sure everything functions and looks presentable. A poorly kept home in need of repairs will surely lower the selling price of your property and will even turn away some buyers.

Mistake #4 -- Trying to "Hard Sell" While Showing
Buying a house is always an emotional and difficult decision. As a result, you should try to allow prospective buyers to comfortably examine your property. Don't try haggling or forcefully selling. Instead, be friendly and hospitable. A good idea would be to point out any subtle amenities and be receptive to questions.

Mistake #5 -- Trying to Sell to "Looky-Loos"
A prospective buyer who shows interest because of a "for sale" sign he saw may not really be interested in your property. Often buyers who do not come through a Realtor are a good 6-9 months away from buying, and they are more interested in seeing what is out there than in actually making a purchase. They may still have to sell their house, or may not be able to afford a house yet. They may still even be unsure as to whether or not they want to relocate.
Your Realtor should be able to distinguish realistic potential buyers from mere lookers. Realtors should usually find out a prospective buyer's savings, credit rating, and purchasing power in general. If your Realtor fails to find out this pertinent information, you should do some investigating and questioning on your own. This will help you avoid wasting valuable time marketing towards the wrong people. If you have to do this work yourself, consider finding a new Realtor.

Mistake #6 -- Not Knowing Your Rights & Responsibilities
It is extremely important that you are well-informed of the details in your real estate contract. Real estate contracts are legally binding documents, and they can often be complex and confusing. Not being aware of the terms in your contract could cost you thousands for repairs and inspections. Know what you are responsible for before signing the contract. Can the property be sold "as is"? How will deed restrictions and local zoning laws will affect your transaction? Not knowing the answers to these kind of questions could end up costing you a considerable amount of money.

Mistake #7 -- Limiting the Marketing and Advertising of the Property
Your Realtor should employ a wide variety of marketing techniques. Your Realtor should also be committed to selling your property; he or she should be available for every phone call from a prospective buyer. Most calls are received, and open houses are scheduled, during business hours, so make sure that your Realtor is working on selling your home during these hours. Chances are that you have a job, too, so you may not be able to get in touch with many potential buyers.

September 16, 2008 -

The Memphis Area Association of REALTORS® (MAAR) reports that homes sales for August 2008, as recorded by Memphis-area REALTORS® in the Multiple Listing Service (MLS), totaled 1,174, down 19.8 percent from August 2007. Year-over-year median sales price declined 11.1 percent and average sales price declined 17.2 percent in August, while average days on market showed a decline from recent months. July 2008 home sales contributed $169 million to the Memphis-area economy.    
   

August Comparison
   
                                         2008                   2007             % Change
Total Home Sales            1,174                    1,463           -19.8%
Median Sales Price        $120,000            $135,000       -11.1%
Average Sales Price      $144,000           $174,000        -17.2%
Monthly Sales Volume  $169 million    $254.6 million  -33.6%
 
"While overall sales and pricing remain lower when compared to year-ago levels, August was the first time we've seen average days on market decline significantly in recent months, down from 105 days in July to 99 days in August," said MAAR President John Snyder. "Recent drops in mortgage rates on top of the first-time buyer $7,500 tax credit should provide some additional incentive to hesitant buyers who have been waiting on the sidelines."

Tuesday's bond market has opened in positive territory again as yesterday's frantic buying has carried into this morning's trading. The stock markets are showing modest gains compared to yesterday's massive sell-off that had the Dow closing down over 500 points. The Dow is currently up 35 points while the Nasdaq has gained 6 points. The bond market is currently up 9/32, which will likely improve this morning's mortgage rates by another .250 of a discount point.

Today's only relevant economic data was August's Consumer Price Index (CPI). It showed a decline in the overall reading of 0.1% and an increase of 0.2% in the core data reading. Both of these readings matched forecasts, therefore, they have had little impact on the bond market or mortgage rates.

The biggest influence on this morning's trading is still the financial sector woes and the stock markets. There is still talk of more bank and financial company collapses that could still create widespread panic in the markets. The spotlight is currently on insurance giant AIG and its ability to continue to remain solvent. Whether or not that will be accomplished remains to be seen. However, the markets often overreact to a crisis and then correct. The stock volatility that came as a result of news from the past few days has certainly benefited bonds as investors seek safe-haven. But, I suspect that this may end in the immediate future, hence the extended lock recommendation yesterday. I am going to hold the lock recommendations for the time being as any type of correction in stocks could drive bond prices sharply lower and create a significant spike in mortgage rates.

The FOMC meeting will adjourn at 2:15 PM today. The recent financial and bank news has some analysts now thinking that the Fed may lower key short-term interest rates at this meeting. I don't believe that to be the case and that the Fed will leave rates unchanged. However, I would no t be surprised to see the post-meeting statement address the recent events. Depending on what is said or addressed in the statement, we may see another round of volatility in stocks and bonds during afternoon trading today.

Look for an update to this report shortly after the markets have an opportunity to react to the FOMC meeting's results.

If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Lock if my closing was taking place between 8 and 20 days... Lock if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.

©Mortgage Commentary 2008

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 they have 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.

In practice, many refinancing borrowers are solicited by loan providers and are unaware of their options. Abuses in connection with refinance solicitations were 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 where 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.

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 to bargain 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 lowballing, 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). Because 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.

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 an 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, as they are not going to mess up their Web pricing program just to fool you.

The seven lenders I have certified as Upfront Mortgage Lenders can provide this answer, which is one of the reasons I certify them, but not many others can. If they shrug their shoulders and ask why you don't trust them, it may be time to go to a mortgage broker.

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 lowballing 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.

The writer is professor of finance emeritus at the Wharton School of the University of Pennsylvania. Comments and questions can be left at www.mtgprofessor.com.

Mortgage Rates Move Lower

The 30-year fixed mortgage rate declined for the third consecutive week to 6.35 percent during the week ended Sept. 4 from 6.40 percent the prior week, according to Freddie Mac. The 15-year fixed mortgage rate slipped to 5.90 percent from 5.93 percent over the same period. Meanwhile, the five-year adjustable mortgage rate dropped to 5.97 percent from 6.03 percent; and the one-year ARM fell to 5.15 percent from 5.33 percent.

[SOURCES: Information, Inc.; Freddie Mac]