WASHINGTON, DC - Last week, the Fed’s Federal Open Market Committee announced that they were leaving rates unchanged.  However, what wasn’t reported by main stream news organizations is the real story.

According to the statement released by the Fed, in an effort to “provide support to mortgage lending and housing markets” they will “purchase a total of $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt.”  Additionally, “they expect to gradually slow the pace of these purchases in order to promote a smooth transition.”

So just what does this mean for rates?  “In short - They are going to go up.  It’s simple supply and demand,” says Scott Messina, publisher of Mortgage Market Live.  “Just how fast remains to be seen, it really all depends on how fast the Fed turns off the spigot.”

This year in an effort to stimulate housing and the economy at large, the Fed began purchasing the oversupply of debt.  Without this “help” from the Fed, rates would have been forced higher to attract more investors.  Instead the Fed has been quietly buying this oversupply to keep rates artificially low.

“The problem of course, is once this helping hand is pulled back, rates have no where to go but up.” added Messina.  “The saving grace is that rates will likely be very volatile for the next several months. Originators should always remember that volatility can equal opportunity.”

“If you’ve watched rates over the last several weeks, there has been at least one day each week that was preferable for rates. Originators that knew which day to lock in their customers loans have saved their customers, on average over a quarter of a percent in rate.”

So how can an originator take advantage of the volatility?

Simple, just keep your eye on the Mortgage Backed Securities (MBS) Market.  After all it is the MBS market that directly effects mortgage rates, not Treasury securities.  But obtaining MBS data can get expensive.  In fact, some services charge upwards of $100 a month for access to this important information.

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By waiting for a foreclosure sale to come and go, the issue of ownership is resolved.  Once the owner’s redemption period ends, the bank will secure and take possession of the home.  Any worries about secondary liens, squatting owners, and potential legal actions are or will be eliminated now that the bank has control of the home.  Shortly after taking possession, the bank’s “asset manger” will typically arrange for an inspection and valuation of the home.  The BPO (Broker Price Opinion) is a relatively quick and inexpensive method for the banks to get an idea of what kind of “asset” they now own  and its current marketable value given the condition of the home.

The BPO will also drive the bank’s initial listing price.  These “asset managers” are dealing with hundreds of homes and hundreds of BPOs.  And most of the asset managers are in other states from where the actual property is located.  So, it’s probably safe to assume that a great deal of weight is placed upon this BPO, this quick and cheap form of valuing the “bank asset”.

The opportunity for buyers (aside from buying in this already depressed real estate market) is finding a home who’s BPO came in well below current market value creating a really good bargain of a deal.  Sometimes the BPOs are fine, but the asset manager literally has to quickly move a block of homes off their books.  So, they price them to “sell”.  Obviously, the asset manager’s job is to balance getting the best price with moving the homes quickly, a challenging task especially since there’s so much foreclosure inventory.

Of course, buying a bank-owned home isn’t all just bargains and deals.  It’s also quite different than buying a home from a traditional seller.   For example, the price is usually based on an “as is” condition and very few banks will make significant repairs, if any, prior to closing.  While you can make the purchase agreement contingent on an inspection, sometimes it’s difficult to know for sure the total extent of potential repair and maintenance issues.  In addition, getting mortgage financing is more difficult if the home needs repairs.  Very few loan programs allow for “renovation funds” and most lenders want health and safety related items completed before they’ll approve the loan to close.  The question then becomes “who’s gonna make the repairs and who’s gonna pay for them?”  There are solutions, some more creative than others.  If you find yourself in need of some guidance here, feel free to give me call.

The time to buy is now.  So get out there and find yourself a deal!  If you need a good bank-owned property real estate agent, I’m sure I can round up a couple names there as well.

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1. Bank Owned Property Basics
2. When To Buy A Foreclosed Home: Part One
3. How To Make Low Home Prices Work For You

If you’re looking into buying a foreclosed home, there are several points along the process where you will have the opportunity to jump in. At each point, however, there are a number of different factors that you need to consider. In many cases, trying to buy a foreclosed home too early can leave you with a home that has unexpected problems, while waiting too long can mean that the home is no longer available.

The first point at which you can try to buy a foreclosed home is when the home goes into foreclosure. The lender is required to place a public notice that this is the case. You’ll have to act fast at this point, and probably have some contact with a potentially disgruntled homeowner. Until the actual foreclosure sale, the home belongs to that person, and approaching them about a sale may be challenging at best. The fact is that the homeowner probably is still hoping to keep their home, rather than sell.

The most realistic time to begin the process of buying a foreclosed home is at the foreclosure auction. The foreclosure auction will typically be held on the steps of the local courthouse. The lender will start the bidding on the foreclosed home typically at the amount of the current mortgage. The obvious downside to buying a foreclosed home at this stage is that you are really buying the home without a chance to inspect it or to see what kinds of repairs it may need.

There also may be statutory redemption periods where the owner still retains possession and control even after the sale and purchase.  In Michigan the typical redemption period is 6 to 12 months.  Meanwhile you likely had to pay cash for the home at the action, haven’t been able to inspect it, don’t have the right to access it until after the redemption period, and you may still have to legally evict the previous owner after the required period because he/she just didn’t move out.

If all that’s not enough to deal with, what if the owner being foreclosed upon files a law suit claiming that the foreclosure process wasn’t properly executed?  What if a junior lien holder does the same?  You could find yourself tied up in court, spending thousands more, and possibly having to take the home all the way back through the foreclosure process again, and yes, wait out yet another redemption period.  This is an extreme example, but it has indeed happened so you should be aware of the risks of buying at auction.

I’ll cover a more attractive method of buying a foreclosed home in my next post, Part Two.  Until then, make it a great day!

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1. When To Buy A Foreclosed Home: Part Two
2. Bank Owned Property Basics
3. How To Make Low Home Prices Work For You

Bank owned properties offer several potential benefits to buyers. First and most important is, of course, the price. A bank owned property will usually be priced lower, and sometimes a great deal lower, than a property sold by a traditional seller. In addition, buying a bank-owned property creates a situation with less risk than, let’s say, buying a home at auction.

Still, there are some things you need to watch out for when it comes to bank owned properties. For example, you can’t negotiate the price based on the condition of the home. In some cases, the former tenants or owners may have been destructive with the property before they left, or vandalism may have occurred in the interim.

You can choose to make your offer for a bank owned property contingent on things like an inspection, sale of your current home, financing, and an appraisal. Understand, however, that if there are several offers the ones that have the fewest of these kinds of contingencies will probably rise to the top of the consideration. You need to balance the risks against the necessary contingencies.

If you’re in the market for a new home, bank owned properties may be a good option for you to consider.  A convenient service for Michigan homebuyers can be found at AccessHomeListings.com.  Potential homebuyers can get FREE 24/7 “mobile” access to real-time MLS property information. Check it out!

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1. When To Buy A Foreclosed Home: Part Two
2. How To Make Low Home Prices Work For You
3. When To Buy A Foreclosed Home: Part One

Homes are selling in places that foreclosures are rampant, such as states like Arizona, California, Florida and Nevada. In the last quarter of 2008, almost half of all home sales fell into the “distressed” category, meaning that they were either foreclosures or short sales. As more and more foreclosures hit the market, traditional sellers have had to cut their prices in order to keep up.

This is, in many ways, a buyer’s market. You can make low home prices work for you, if you know where to look. Finding the right bank owned home or finding a home where the seller is asking for less than they owe on their mortgage may get you a very good deal on a home.

There’s another way you can make low home prices work for you, however. You can use the low home prices from short sales and from foreclosures to add pressure when making an offer on a home. Traditional sellers know that they have to compete with these homes, and may be willing to give a lot more in their negotiations than they would have just a couple of years ago.

By studying your local market and exploring all of the available options, you can make these low home prices work for you. You may be able to find the ideal home for your family, and to find it at a much lower price than you’d have hoped for.

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1. When To Buy A Foreclosed Home: Part Two
2. Bank Owned Property Basics
3. First Time Home Buyers: Things to Consider

If you’re thinking about becoming a first time home buyer, you might be anxious to try to take advantage of the deflating real estate bubble that’s being talked about so much these days. While it’s true that there are many opportunities for first time home buyers right now, there are some important factors that you really need to consider before you take the plunge into home ownership.

Here are some things for potential first time home buyers to think about:

You’ll probably need a more sizable down payment. The days of “Zero Down” and “No Cash to Close” are virtually gone.  The are still a few loan programs that allow Zero Down, like a Veteran’s VA loan or Rurual Development.  However, special qualifications are required for these programs.  In most cases you can expect to put at least 3.5% down with FHA financing or 10% with Conventional financing.  To further minimize needed cash to close, the purchase offer should be structured properly to help offset additional monies needed for closing costs, prepaid taxes and insurance, as well as escrows.

Mortgage Underwriters are also far more picky. This “credit crunch” everyone has been talking about is a reality. Lenders are looking closer than ever at things like employment history, proof of income, source of funds, credit history, and of course, the condition and value of the home itself.

Even though home prices may continue to slide, no one is sure when prices are going to stop falling.  The bottom is best seen once your well past it.  It’s possible you may find that the ten percent you put down on a new home may be eroded (in the short term) by a continued drop in home values, perhaps even leaving you owing more than what the home is worth.

Eventually, home prices will come back up, but you should still make sure that you’re interested in this home for the long haul.  Historically, first time home buyers tend to move on to another home rather quickly.  Just make sure the home you buy can support your family’s growth for at least a few years to come.

If you’re considering the purchase of a home, I encourage you to connect with my team and I do a brief pre-approval to help make sure your goals, timing, and financial affairs are all aligned.  Proper preperation and guidance early on in the home buying process can ultimately save you time, money and frustration.

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While it doesn’t happen to everyone, it’s not entirely uncommon for a consumer to find that they have an error on their credit report. One recent survey suggests that around one in four consumers have an error on their credit report that is serious enough to impact whether they can get credit or not. In some cases, errors on your credit report are easily resolved. In other cases, you may have an uphill battle.

Here are some things to do in order to fix errors on your credit report:

• To start with, you need to prepare for the fact that you might wind up in court. Don’t start with a lawsuit, but be ready to gather information that could impress a judge or jury if it gets that far.
• You should also keep detailed and meticulous records in the process of trying to fix your credit report. Record keeping is your best weapon, especially if your case winds up in court. This means detailing phone calls, letters, etc.
• Professionalism is key, as well. Resist the urge to do anything unseemly when dealing with a credit reporting agency. Be courteous, and keep your emotions in check.
• Remember that a paper trail is easier to prove than a series of phone conversations. Whenever possible, use certified mail to communicate with the credit bureaus and creditors.
• Finally, there are some other things you can try in order to fix the problem. You can hire a credit repair company. You can contact the news media. You can try to contact executives or additional personnel at the credit bureau. If there’s wrongdoing by the credit reporting agency, you can also contact the Federal Trade Commission.

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When you file Chapter 7 bankruptcy, almost all debts are discharged. This includes just about everything except for back taxes, child support and student loans. To qualify for Chapter 7, you need to earn less than the median income for a family of your size in your state.

The question of whether you should file bankruptcy or not is a highly individualized one. The process of filing bankruptcy is complicated, and you’ll come out on the other end with severely damaged credit. If you can avoid bankruptcy, you can make life easier in the long run. On the other hand if you’re drowning in debt that you’re not able to pay, then bankruptcy may be the best option for you.

Before you are allowed to file for bankruptcy, you’re required by law to consult with a consumer credit counseling service. In fact, working with a service like this is integral to determining whether or not you should file bankruptcy. The credit counseling service will help you to examine your income and your bills, and set a budget than allows you to repay your debt. The agency will also be able to negotiate with your creditors in order to reduce or avoid late fees, interest penalties, and lower your monthly payments in the process.  In many cases, this consumer credit counseling process can help avoid having to file for bankruptcy altogether.

After you file for bankruptcy, you have to complete a debtor-education course, which will help to teach you how to budget your money and how to carefully use your credit. The course must be approved by the Justice department. The same holds true for the credit counseling service that you must see before filing bankruptcy.

If you’re looking into bankruptcy, you need to talk to an attorney. Filing bankruptcy is a complex process, and you should choose an attorney who specializes in bankruptcy.  If you’d like a confidential recommendation or two, please don’t hesistate to ask.

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If you’re in debt and having trouble paying your bills, you may find help and support through consumer credit counseling. Credit counseling is a way for people to get needed financial education and guidance during tough, financial periods. A professional counselor can help you develop a plan to get you back on your feet and through these often stressful periods. With consumer debt levels at record highs, it’s not surprising that many consumers are turning to credit counseling and educational services.

A consumer credit counseling service can do several things for their clients. An initial step is to help to set up a budget and determine how much you can devote each month to paying your bills. They can help to facilitate lower interest rates and monthly payments with lenders and credit card companies as well as make the payments directly to the creditors on behalf of their clients. In addition, credit counseling services may be able to get creditors to forgive or reduce fees and penalties.

Fees for various credit counseling services vary. I found a good, reputable firm that provides a great deal of its counseling and educational services for FREE. GreenPath Debt Solutions is a non-profit organization that has been helping millions of families since 1961. Although there’s no charge for many of their services, they do charge some nominal fees when providing bankruptcy counseling or debt management services. In my interview with Jennie, in Business Development, GreenPath does receive government subsidies. And, instead of the consumer having to pay higher fees for debt management services, the creditors often compensate GreenPath a portion of the payments they receive for their counseling and assistance. It’s important to recognize the difference between a true credit counseling service and someone who is trying to take advantage of people who are going through a rough time.

Bankruptcy law requires you to use consumer credit counseling services before you can actually file. GreenPath is approved by the Federal government to provide this type of prerequisite credit counseling whereas many credit counseling agencies are not. Consumer credit counseling services can be effective at helping you get caught up. Statistics from the National Foundation for Credit Counseling suggest that around half of people in credit counseling debt repayment plans are able to successfully complete the plan. Of those that aren’t, a good portion file for bankruptcy.

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There are several ways you can get a copy of your credit report. The three major credit monitoring services, Equifax, Experian and TransUnion, are required to offer you a copy of your credit report for free once a year. If you have received a copy of your credit report already in the last 12 months, you can get another copy at a cost.

One simple way to get your credit report is to visit the site AnnualCreditReport.com. This is the authorized site that allows consumers to get their credit report from all three services for free. This site will require you to verify your identity, and then provide you with access to your credit report.

Alternatively, you can call the Annual Credit Report phone line at 877-322-8228 and receive a copy of your credit reports via mail.

A key item not included with your free annual credit report is a credit score, which is a must for mortgage underwriting.  You can get a credit score, as well as other services related to your credit report directly from the major bureaus, or from a third party site that provides paid access to these services.  However, scoring algorithms between lender requested mortgage reports and consumer requested reports have seemed to differ in the past.  Meaning, the scores you pay to get may actually differ from the scores a lender gets when requesting a 3 bureau credit report for a mortgage loan.

During the mortgage pre-approval process for clients contemplating a new home purchase or refinance, I often obtian a 3 bureau credit report, review it with my clients, and provide them with their credit scores free of charge.

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In today’s beaten-down real estate market, I’m seeing great investment opportunities on a regular basis.  Perhaps it makes sense to diversify your total asset portfolio into asset classes other than stocks and bonds.  Sometimes we’re seeing “quick-flip” opportunities as well as “buy-and-hold” rental homes.

I’ll be posting more explicit information in the coming weeks.  Meanwhile, if you’re someone who might be interested in learning more, please just send me an email to Richard@TeamWitter.com or give me a call.

Richard Witter
Real Estate & Mortgage Consultant

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1. When To Buy A Foreclosed Home: Part Two

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