Mortgage Relief Arrives for Borrowers on Brink IndyMac Offers Loan Relief Program, Lowering Interest Rates

Across this country, borrowers on the brink are finally getting some help from an unlikely source: mortgage lenders.

Nearly one in six homeowners owes more on their mortgages than their home is worth, according to new numbers released by the Wall Street Journal on Wednesday.

Diane Smith, a Los Angeles mother of two adopted children with special needs, spent months in fear when she was told by her lender that her home would be auctioned.

“I’ve been terrified for six months,” Smith said.

Two years ago, Smith re-financed her mortgage, hoping to use the extra money to fix the roof and the kitchen. Then her adjustable interest rate spiked just as the value of her home plummeted.

Smith couldn’t afford the payments and, in this housing market, was unable to sell. And then this week, she received a phone call from an unlikely source: her bank, Indymac.

Indymac, which was taken over by the Federal Depositors’ Insurance Corporation in July, decided to reduce the interest rate on her mortgage, from 7 percent to 4.8 percent, generating a savings of $1,749 a month.

“I thought, I could buy running shoes for my kids again,” Smith said with pride. “And I could afford to buy milk for my kids again, because for the last five or six months I’ve had to borrow money to buy milk for my kids.”

In August, FDIC officials began to deal with the 60,000 mortgages passed due that were held by Indymac. The lender launched a loan modification program, offering new terms and lower rates to more than 3,000 borrowers that have signed on to the program.

Amid intensifying political pressure that lenders are not doing enough to prevent foreclosure, a growing number of mortgage services are easing interest rates — six times more often than just a year ago, according to Credit Suisse.

The $700 billion federal rescue plan encourages banks to adopt plans like IndyMac’s, offering new terms for loan payments on those facing foreclosure.

For those banks and lenders, the loss incurred on the interest they’re collecting is, for now, less costly than the effort it might take to sell a foreclosed home at a reduced price.

“In some cases, the length of the loan will increase, it depends on the circumstance,” said John Bovenzi, CEO at Indymac. “This idea is to make the loan more affordable for the borrower so they can sustain payments and stay in their home.”

The rate of foreclosures doubled from June of last year, according to RealtyTrac, an online market of foreclosure prosperities. The increase in foreclosure signals the growing number of homeowners who are struggling to make payments on their homes.

Those who have been making payments on their mortgages — if only barely — will not get a break on their interest rates.

It may seem unfair to reward those who failed to make payments, while leaving those who are paying out in the cold, but Bovenzi defended Indymac’s program.

“If you live in a house and foreclosure signs are going up around you, it is hurting your property value,” Bovenzi said.

On Monday, Bank of America agreed to reduce interest rates on up to 400,000 mortgages nationwide.

While there is no clear-cut solution to solving the mortgage crisis, the loan modifications offered by IndyMac and others have been a step in the right direction to make loans affordable and more manageable for borrowers.

Since Monday’s announcement, Bank of America will have more than 5,000 employees assigned to re-work mortgage loans, making the kind of calls that Diane Smith desperately waited for.

Article written by:

DAVID MUIR

http://abcnews.go.com/Business/story?id=5985151&page=1

Coldwell Banker’s having a sale!

Macy’s does it. So do the airlines. So why not real estate companies?

Hoping to jump-start sales in a comatose market, Coldwell Banker Residential Brokerage is running a 10-day “national sales event” from Friday through Oct. 19.

The participating sellers, who already have been selected, will reduce their listing prices by about 8% to 10%. In the Greater L.A. region — Santa Barbara, Ventura, the South Bay, the Westside of L.A., Hancock Park and the San Fernando Valley — where about 200 sellers are involved, reductions may be greater, a Coldwell Banker spokeswoman said.

To find these reduced listings, buyers can visit two websites that will go live beginning Friday:

www.coldwellbanker.com/event
www.camoves.com, then click on the “10-Day Sales” link.

Now, if buyers can just get mortgages.

Article Written by:

Diane Wedner  LA Times

Photo: Geraldine Wilkins / Los Angeles Times

http://latimesblogs.latimes.com/laland/2008/10/coldwell-banker.html

Like Diane reference’s above, If buyers could only get Financing. That is where I come in. I can get Financing for a wide range of clients with credit score as low as 500. I even have loan programs for people that do not have credit scores! Even in todays challenging times.

Like Warren Buffets says, you buy when others are selling out of fear! It is time to buy Real Estate!

Email me your contact information if you would like to talk about what loan programs are currently available for you in todays market.

Steven@Stevenlending.com

McCain: I’ll buy your mortgage

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Interesting curveball from Sen. John McCain in the presidential debate: an economic proposal he’s either just come up with, or has been waiting to unveil. From the Los Angeles Times:

McCain offered one of his most significant proposals of the campaign, saying he would order the Treasury secretary to immediately “buy up the bad home loan mortgages in America and renegotiate … at the diminished value of those homes, and let people be able to make those … payments and stay in their homes.”

McCain’s $300-billion plan, a turnabout from an earlier position, would require a radical shift in the government’s approach. It raised several questions the McCain campaign could not immediately answer, including what its potential impact would be on efforts to remedy the global credit crisis.

From a separate Times’ article on the proposal:

McCain’s campaign issued a 1½-page fact sheet to explain his call for the massive federal intervention, which it called the American Homeownership Resurgence Plan. The campaign noted that the $700-billion financial rescue package approved by Congress last week gives the Treasury Department authority to directly buy mortgages, but added, “It may be necessary for Congress to raise the overall borrowing limit.”

The Obama campaign, evidently wanting a piece of the idea, said Sen. Barack Obama had already suggested the Treasury use its new powers to buy individual mortgages.

From the New York Times:

Mr. McCain sought to break through by highlighting a proposal under which the Treasury Department would buy up mortgages that had gone bad, and in effect refinance them at prices homeowners could afford.

Article written by:

Peter Viles  LA Times

Photo credit: Associated Press

http://latimesblogs.latimes.com/laland/2008/10/mccain-ill-buy.html

For Non-U.S. Citizens, Consider Buying U.S. Real Estate In 2008 Instead Of 2012

When foreign national buyers consider investing in U.S. real estate, they often focus on projects set to deliver 2-4 years out as opposed to projects that are ready to deliver today.

Considering the path of the world’s economy , this long-term investment strategy may be a bit short-sighted.  For non-U.S. citizens wanting to buying investment property in the United States, there are 3 excellent reasons to consider buying property now instead of at some vaguely-defined point in the future.

By themselves, each point holds it own merit.  Combined, however, the rationale is even more logical.

Reason #1: Home prices in the United States are relatively low

Actually, I should qualify that statement.

Versus their 2007 levels, home prices aren’t low everywhere, but for condos, condotels, and other units built specifically for real estate investors, there’s a combination of excess supply and eager sellers that may be too good to pass up.

And when I say “condos”, I’m not referring to new construction set to deliver in 2012 — like the Chicago Spire, for example.

Instead, I’m talking about finished condo projects in places like Florida, Las Vegas, Chicago, and Manhattan that are online now, lingering unsold and dragging on developer balance sheets.

Sure, you can get a good deal at Lincoln Park 2520, but you could get an amazing deal on a ready-to-deliver condo instead.  The year-end is looming and developers are itching to get finished inventory off the books.  And that may be the biggest understatement of the year.

Capitalizing on the down-trodden U.S. real estate market is a popular reason for international investors to buy condos in the United States.  Because the year is winding down and excess supply is clogging developer pipelines, this is a terrific time to make a deal.

Reason #2: The U.S. Dollar is running wild over the Euro, Pound, and others

For international buyers of U.S. real estate, there are two ways to make a profit.

The first is to profit from the property appreciation on the investment unit itself.  This is the form of profit that most investors talk about with respect to “buying in a down market”.

The lesser-known method is via currency appreciation.

Currency appreciation happens when the dollars applied to a downpayment on a home gain value from changes in foreign exchange markets and currency conversion rates.

As the U.S. Dollar has strengthened since July, for example, foreign national investors have profited handsomely.

As an example, here’s what a hypothetical 100,000 downpayment made on July 1, 2008 would be worth today in 4 popular currencies:

• Euros: €100,000 downpayment is now worth €114,201, a 14.2% gain
• Pounds: A £100,000 downpayment made now worth £112,343, a 12.3% gain
• Canadian Dollars: $100,000 downpayment is now worth $105,821, a 5.8% gain
• Australian Dollars: $100,000 downpayment is now worth $123,021, a 23.0% gain

These are monstrous amounts of currency appreciation over just a 90-day period and the U.S. dollar is expected to extend these gains through 2009 as the global economy and world currencies sputter.

Currency appreciation can be more profitable that equity appreciation and that’s the second reason why international investors may want to buy U.S. real estate before the end of the year.  For every amount that the U.S. dollar appreciates prior to a real estate closing, not only does the cost of a dollar-denominated downpayments increases but currency appreciation is held to a minimum, too.

Reason #3: Foreign national mortgages are still available, despite what you hear

When I talk with international real estate buyers, they’re often genuinely surprised that mortgage money is still available for foreign nationals.  And then, when we talk about new construction condos in Florida, the surprise turns to shock.  After all, everyone else is telling them financing a new construction condo in Miami is impossible — including their real estate developer.

And this bring us to an important point about the foreign national mortgage market.

For years, foreign national lending had been heavily concentrated with just a few lenders, most of whom were well-known banks.  To drive sales, they embarked on “road shows” across Europe, Asia, and South America, talking about their products and the virtues of buying real estate in the U.S.

Today, those lenders have all left the space, creating a giant information void that most people — mortgage brokers included — have wrongfully assumed to mean that foreign national mortgage lending is dead.

I’m happy to report that it’s not.

Sometimes, the hardest part about borrowing money as a foreign national is getting access to quality, timely information.  Presumably, that’s how you found this Web site to begin with (and why you’re still reading).

So, if you’re want some foreign national mortgage information on which you can rely, here are a few bullet points:

1. Foreign national mortgages are still available in the United States
2. Downpayment requirements are low — 10 or 20 percent, depending
3. Interest rates are reasonable and are not “monthly adjusting”
4. There’s no forbidden property types — condo, condotels, and multi-units are all okay

And it’s when I give these sort of details that my international clients wonder why every other stateside mortgage guy said foreign national mortgages couldn’t be done.

See, after JP Morgan Chase and Wachovia stopped lending to foreign nationals this summer, most people assumed that the market dried up entirely.  Chase and Wachovia were the last Big Banks standing in the foreign national space and a bevy of small- and medium-sized banks followed their lead.  Only, it didn’t dry up.

To take advantage of the growing foreign national demand, new mortgage lenders entered the fray and are now making common sense decisions on what most people generally believe are a strong set of borrowers.

However, there’s a caveat.  New funding sources are available today, but the lenders reserve the right to change their terms or policies at any time.  And historically, they do.  And, of course, they can always choose to discontinue the product at any time.

And, this is the third reason why foreign nationals should buy before the New Year.

Home prices may rise next year, or they may fall — we can’t predict that.  But, we can predict with near 100% certainty that mortgages will be less available tomorrow than they are today.  And that includes foreign national mortgages.

This is a variation on a common theme I cover with the press.

As a brief summary of the points above, international buyers may want to buy property sooner rather than later because:

1. Developers are willing to negotiate because of the current market climate
2. The U.S. Dollar is poised for gains, rendering down payments “more expensive”
3. The U.S. mortgage market will not exist in its current form in 2012

We know what the market looks like today and we don’t know what it will look like tomorrow.  Therefore, if buying U.S. real estate is part of your overall investment plan, consider moving up your timeframe to some point soon.

And remember, in the U.S., real estate agents are paid by the seller — not the buyer.  If you don’t have local representation, you’re welcome to call or email me for a referral to somebody I trust in any given market.  My contact information is all over this Web site.

(Images courtesy: The Chicago Spire, The Wall Street Journal Online)

Written by Dan Green (The Mortgage Reports)

http://www.themortgagereports.com/2008/10/for-non-us-citi.html

Real Story On Financial Crisis (Real Blame!)

Last post, titled What You Should Know About Today’s Economy, I shared an email conversation with my daughter, Andrea (this was originally written in March 2008).  In it I referred to some of the problems in today’s economy, and posed the question if we are in 1977 all over again.  Every one of you for whom we have prepared a written Retirement, Tax, and Estate Plan during the past four years have read a section discussing our current “socio-economic environment.”  Within that section we made some generic observations about interest rates, the deficit, the falling dollar, international trade, each of the investment markets including real estate, and many other topics. But, throughout those four years we have included in every engagement the following observation:

“Corporate and Personal borrowing is at an all-time high. This is the major chink in the armor of the economy. Rising interest rates may force defaults, causing a domino effect on defaults – on corporate debt and home mortgages….The severity of massive debt keeps the economy in a more precarious condition that it otherwise would be; more critically, it keeps families with debt more precarious, while families with minimal debt will be cushioned against economic volatility…” Do you remember reading this in your plan? It’s been there for four years.

We may not be able to change the economic problems of our nation, but we can do things to insulate ourselves against them.  I will say it again: the last time we saw these economic indicators was 1977-1979.  Do you remember 1979-1981?  Let me remind you: falling dollar (this is the one to watch), 13% inflation rate, 13% unemployment rate, 21% Prime, 18% money market funds, 17% mortgages, $850 gold, $50 silver (remember the Hunt brothers trying to corner the silver market?), skyrocketing deficits, skyrocketing oil and food prices, money supply growing far faster than the economy, plummeting stock market, plummeting real estate, zero building, “stagflation,” and on and on.

We ask ourselves why?  The discussion of indicators is too exhaustive to make meaningful mention here, except to say that the world has changed since then.  Some of the similar signs are the falling dollar, which has fallen almost 50% against the Euro during the past few years. That suggests a terrible 10-15% inflation rate; after all, inflation is ultimately defined as “the value of the dollar.”

Some might ask, “Why has America been able to spend and spend and run such large deficits without inflation?  Without a day of reckoning?”  I’ll just mention two reasons we’ve been spared: (1) Free trade has allowed us to buy goods and services while keeping our costs down and enjoy a higher standard of living (incidentally, free-trade is also the #1 foreign policy to prevent war—people don’t go to war with people with whom they trade), and (2) Foreigners have been willing to finance our government deficit, allowing us to spend and spend without a day of reckoning.  More on this in a moment.

Who can veto Congress?  Who can veto the President?  The Fed?  No. Who can veto the Fed?  Hint: Many are not even U.S. citizens. Those that are buying U.S. Government Bonds—China, Saudi Arabia, and Japan, in that order, because they are the one’s financing our budget deficit.  They are why we have not had a day of reckoning. People can hate them all they want, but they pay for our Medicare, entitlement programs, and wars.

Now, what’s the problem with all this?  The problem is that, with the falling dollar, U.S. interest rate must, I repeat must, rise!  Those nations will not continue to finance our deficits if they can’t get their money returned to them, adjusted for the currency exchange rate!  They’d rather go finance the deficits of Western Europe!  Are our friends in Western Europe financing our deficits? No! They’ve got their own deficits.  And will the U.S. Government pay the higher rates, even if it breaks the economy as it did in 1981? Or worse?  Of course, because who would finance America’s deficit if it defaulted on its debt?

The Fed can lower short-term rates, but it has no control over long-term rates. That’s determined by the free market.  Inflation is, and interest rates will, rise dramatically!  What does this do to a debt-ridden nation?  See 1979-1981. BUT, perhaps worse this time.  Far worse.

A very wise and astute businessman made some quiet but urgent observations about our economy.  Members of the predominate faith here in Utah refer to him as “the Prophet.” Whether you are of the faith or not, he was a mature adult at the time of the Great Depression, and he has managed the business of a large multinational organization. He passed away a couple months ago.  He commented, “the economy is a fragile thing…there is a portent of stormy weather ahead.” (Gordon B. Hinckley, CR, 10/1998)  Later he again stressed the importance of getting out of debt and the shocks our economy could see (CR, 10/2001). And again recently (CR, 4/2007). Why don’t we listen to those that have been down the path before?

Why far worse?  In 1991 then Governor Bangerter appointed me along with two others to serve as three members of the Utah Thrift Panel to arbitrate claims brought by depositors against five failed thrift institutions.  Do you remember the S&L debacle of the late 1980s? And how it broke the FSLIC, needing a congressional bail-out? And caused a real estate collapse of 50% in CA, AZ, and elsewhere?  Now the banks are into mortgages, and the FDIC is no stronger, and the problem is many, many times larger. Unlike then, today the consuming public have been cannibalizing their net worth under the stupidity of home equity loans, living high, going to Tahiti, on equity that sometimes took generations to grow. The growth of the 1990’s was phony growth, spurred by spending that we did not have, and which is exhausted now.

Why far worse?  Maybe this is the clincher: Derivatives. Ever heard of them? Originally Fed Chairman Greenspan was against regulating them because they were a means to “reduce risk.” Derivatives are basically “bets” that some risk will or will not happen. Derivatives do not “reduce risk,” they “transfer risk,” in a zero-sum manner. What’s the problem?  Greedy bankers figured they could get rich off trading derivatives.  And they could do this without regulation, without reporting it to their shareholders on their financial statements, and by being highly leveraged, based on the bank’s credit rating.  Maybe they only had to put-up $1 for every $20 dollar bet, thus leveraging themselves 20 to 1, and as much as 100 to 1.

Get this.  Every major financial collapse in the past 20 years has been the result of derivatives, starting with Black Monday in 1987. Then the S&Ls. Remember the 223-year-old British Barings Bank brought down by a reckless hotshot 27-year-old trader?  Remember Orange County going bankrupt due to $1.5B loss in derivatives? Remember the collapse of the Asian markets in 1997?  Remember Enron getting caught in the squeeze, too leveraged to hide any longer? The collapse of Argentina? Remember the LTCM hedge fund collapse when the Fed organized a $3.5B bailout? And now the collapse of Bear-Stearns.  Why?  Derivatives on their mortgage portfolio multiplying the impact of the basic problem (sub-prime loans) many-fold.  It isn’t the sub-prime loans—it’s the derivatives.

How does all this happen?  And how does it affect you?  This happens when the bet is made, and a financially strong institution only has to put up, say, 2¢ on the dollar as collateral. But, if their financial rating gets downgraded, as happened to Ford & GM a while back, those holding the contract have to increase their collateral to double or triple. What assets do they sell to cover their bet?  Their bad assets? The derivatives?  No. They have to sell their good assets, their stocks. This puts selling pressure on the market, things worsen, and downward spiral begins. So, this isn’t just about derivatives.  It is about the banking industry, the stock market, and real estate. (Bonds would likely increase in value, which is the major asset backing the insurance industry.)

Two weeks ago, for the first time in history, the Fed pumped money into the ailing securities markets to save the investment bankers and brokerage houses from collapse, to the tune of $200 billion.  Now the Fed says they want to regulate not only banking, but also the securities industry, and virtually replace the SEC.  Will it happen?  Of course it will. “Them that’s got the money make the rules.”  The Fed’s got to “protect their investment.” And the Fed can buy/dictate anything because it’s got the printing press (at the cost of our inflation).

How big is this phantom economy where no real goods or services are produced?  The U.S. economy is almost $14 Trillion in total output.  The world economy is about $50 Trillion in total output. Current derivative “bets” out there total $516 Trillion dollars—that’s 10 times the size of the entire global economy!  And 37 times the size of the entire U.S. economy!  And one-third of it is held by three banks: JP Morgan Chase, Bank of America, and Citigroup ($158T as of 3Q07, John Pugsley, Sovereign Individual, 3/08).  “J.P. Morgan Chase’s dabbling in derivatives makes it too big for even the Federal Reserve to bail out.” (John Crudele, New York Post.)

“Derivatives the new ‘ticking bomb’ … Buffett and Gross warn: $516 trillion bubble is a disaster waiting to happen.” (Market Watch, 3/10/08)  As Warren Buffett said at his last Berkshire Hathaway annual meeting: “A world where huge amounts of leverage have been brought into the system is a dangerous world.”

Banks and securities/brokerage firms are into derivatives, hence the $100 billion and $200 billion bail-outs, respectively, two weeks ago. This isn’t pocket change. We will all pay for it in a higher inflation-tax.  Same with the mortgage industry.  The only financial industry that has stayed away from derivatives is the insurance industry, which primarily holds 90%+ in bonds to back its obligations.

I am not a doomsayer.  I simply say that we live in a precarious economy with unknown risks. I suggest we go conservative by staying/getting out of debt, and putting our dollars into safe vehicles that will weather most any financial storm.  I suggest that if we prepare right, we have nothing to fear. I believe the prices of wheat and other commodities will continue to rise, so get your year-supply of food.  And there is a whole list of other actions someone can take to protect their families against days of increasing commotion and volatility ahead.  I am not saying anyone needs to panic and run out and live off nature, or sell everything and buy gold.  I am suggesting that we be forewarned, forearmed, prepared, and informed about what’s going on in the world about us.

If you are already a client, we invite you to call for a periodic review. If you are not already a client, we invite you to talk with us. You can start by attending one of our public workshops.  If not us, then talk with somebody that understands more than just a few annuity products, but also a little bit about tax strategies, and the world economy.   My sincerest best wishes to you.

Hank Brock is president of Brock and Associates, LLC, a financial planning firm specializing in retirement, estate, and tax planning.  Hank Brock can be reached at 435-673-9599.

http://www.brockfc.com/lets-understand-this-economy.html

Motivated first-time homebuyer: the city of Los Angeles

In the rush to a bailout deal, this piece of news fell through the cracks last week, but is worth revisiting:

California and many of its communities hardest hit by the foreclosure crisis stand to receive more than $500 million in federal aid over the next 18 months to buy and fix up distressed homes, the Department of Housing and Urban Development announced Friday.

More, from the Los Angeles Times:

The city of Los Angeles is to receive about $33 million directly from the federal government. In the next few months, the city could also get money from the state, which has a pool of $145 million to allocate to communities. With more than 13,000 foreclosed homes in the city, Los Angeles Councilman Ed Reyes warned that the federal funds would go quickly. Los Angeles County is to receive $17 million, and other cities in the county, such as Long Beach and Lancaster, also would get awards.

In Los Angeles, it’s not clear whether this gift from the federal government — from taxpayers, really — will be worth the trouble. Foreclosed houses are already selling to private buyers, and they are selling quickly — roughly 100 foreclosed houses are sold every business day in Los Angeles County. Foreclosures account for 1 of every 3 homes sold in L.A. County.

At prevailing prices — roughly $200,000 to $300,000 for foreclosed homes — the $33 million in federal funds would buy roughly 130 houses — the same number of homes that private buyers snap up in a day or two across the county. But the city will have to go to some lengths to buy the homes, or at least it should. It will need to establish a procedure that safeguards against favoritism in picking which houses to buy, and guarantees the city pays no more — or less — than market price. The city will also have to come up with a plan to seek bids, hire contractors and renovate and those homes, then maintain them while it lists them for sale and sells them. It will be selling into a market dominated by falling prices, which means the city could well lose money on homes the private sector would have happily bought.

What’s the point, then, of the city buying the foreclosed houses? Great question.

– Peter Viles