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Cities all over the U. S. will be feeling the heat when the new wave of foreclosures hit our housing markets in the next 60 days. Countrywide, Wells Fargo and Chase have been hording homes to wait to see if the foreclosure moratorium and loan modification programs would cool the defaults. Statistics released yesterday indicated that a whopping 70% of all loan mods eventually end up in foreclosure. The Mortgage Banking Association also reported that 9.1% of all mortgages were delinquent as of March 31st, indicating that President Obama’s policies are not stabilizing the housing market. To appease the big boys at the banks, his administration has snubbed suggestions to help homeowners that have substantial negative equity; opting to focus on lowering payments. Lopping off equity would play havoc with the creative accounting procedures implemented by the banks, evaporating the make believe profits that allow fairy dust for writing off the foreclosures. Good borrowers have started to walk away, (or should I say run) from their mortgages even if the payment is doable. To recoup hundreds of thousands of dollars in equity may take a lifetime. If a borrower keeps their credit healthy after a foreclosure, they can purchase a house again in 3 years, for FHA or VA, and 5 years for a conventional loan.

How about those sizzling rates? Lenders experienced whiplash when the 10 year bond market spiked up. Soothsayers were spouting words like recovery, rebound, the market had been artificially low, it’s about time, blah, blah, blah. I am not a Harvard grad (don’t hate me because I attended public schools and majored in making fun of my math teachers) but if the mortgage interest rates are not kept “artificially low” it will severely burn today’s housing market. No amount of sunscreen will keep us protected.

FYI: Shaun Donovan, HUD Secretary, announced today that the $8,000 first time home buyer tax credit can now be used for down payment assistance for FHA Loans. Details are a little sketchy but it looks like this time it is real. Details coming next week.

BY DIANE GERDES...

Uncle Sam needs to take a vacation. The poor guy, with all of that money he is manufacturing his brain is just wore out. President Obama’s administration is shocked! shocked! that the Foreclosure Prevention act is failing. With all of the legislation that he and his crew have been passing since the first of the year, he is tired and not thinking clearly. The model was based on the subprime mortgages to help homeowners modify their loans. As part of the White House’s belt tightening, calendars must be in short supply or they would have known that a majority of the subprime loans adjusted in 2007 and 2008 and those homes have already foreclosed. The homeowners that are now trying to modify their loans have either lost their jobs or are working with less pay and do not qualify for a loan modification due to the strict ratio guidelines. The Obama administration may not be able to read the statistics on unemployment since they are so busy trying to pass the new regulations to monitor the housing industry. Why else would they mandate the HVCC ? The HVCC was directed by a bunch of morons that clearly have no idea what they are doing. The new appraisal system is expensive, stupid and prevents our buyers from having choices. (I apologize to the morons of the world but I am just talking about the mean the ones that decided we needed this law) For instance if a borrower decides that he is unhappy with his lender and wants to change he will have to purchase another appraisal. The appraisals do not transfer. If you disagree with the appraisal, say they appraised the wrong property in the wrong state, it takes Devine intervention to get it corrected. The same legislators have decided that the American homebuyer will need to sign more paperwork including a new three page truth-in-lending to insure full disclosure. If Uncle Sam thinks that mandating more forms is the answer he really needs to get to a beach and slam back a few margaritas. Let’s hope his cloudy brain is not the beginning of government senility.

FYI: CNN reported that California housing prices are on the upswing. Can Arizona be far behind?

BY DIANE GERDES

ECONOMY CUPCAKE

With fixed mortgage interest rates soaring up towards the 5.75 range, buyers are panicking. It is unthinkable that they would have to accept such an outrageous rate. After all, rates were around 6.5% this time last summer, and there are rumors that the rates in the past have actually been higher. Some ancient bankers tell stories that in 1984 the rates were 13.50% and between 1994 and 2002 the average rate was above 8%. But that was when housing prices were lower. Oops, that is not true anymore. Anyway, there is no way that the buyers should have to settle for an awful rate in the mid to upper 5’s. So what is a buyer to do? Introducing….the Adjustable Rate Mortgage. Put away your silver bullets and wooden crosses boys and girls. These A.R.M.’s are not the sub-prime or option A.R.M variety that had unreasonable margins and adjusted way up and were thought to be the catalyst of the mortgage meltdown. The Fannie Mae, Freddie Mac, and FHA adjustable rates are structured differently. And if you were lucky enough to have financed with a conforming or government A.R.M. a few years ago, it is likely that your rate is in the 4’s or less. Historically, with the exception of 2007, these programs have always performed lower than the 30 year fixed. In 2007 they were the same. Adjustable rate mortgages work like this (please don’t cross your eyes, I will explain it quick) the index, either a Treasury or LIBOR, plus the margin, equals the rate. Subprime margins were typically over 6 points and when they adjusted, holy moly. Compare that to an FHA margin of 2 points. So if your fixed for 3 year A.R.M (3/1) with FHA start rate was 4% in the fourth year it can adjust up or down one percent. Today’s treasury rate is .550. FHA’s margin is 2 points. So if today was the 4^th year the actual rate would be 2.550. Since your rate can go down one point it could adjust to 3%. The bank keeps the spread to give to the needy of the world or buy their new Villa in France.

There is a downside. If inflation takes hold, the Fed will raise the rate and then the indexes, the CMT, Treasury bills, LIBOR’s, will all start to go up. The Treasury’s and LIBOR’s are near historic lows but it will take awhile for them to adjust up. Also FHA refinances from an A.R.M to a fixed rate requires no appraisal or income documentation.

FYI: Sad news. The Department of Public Safety is reviewing their contract with speed camera operators to cancel the photo enforcement program. That means I can start answering my front door again.

BY DIANE GERDES

China, home of cute panda bears, rice bowls and feng shui has quietly entrenched themselves into our economy by buying several trillion dollars of our T-bills over the past 10 years. (Remember when a billion was a lot of money?) Since the collapse of Lehman Brothers last fall, China has purchased over 171 billion dollars in our treasury bonds (the 10 year guides our 30 year fixed rates) and in March alone they added 14.8 billion dollars worth to their portfolio. Their economy is emerging as one of the strongest in the world, with little debt and a surplus of savings. Timothy Geithner, Secretary of Treasury, visited the country that invented spaghetti, paper, gunpowder and printing and returned with an agreement from a Chinese manufacturer to purchase Hummer, saving about 3,000 U. S. jobs. They also sent him home with a little spending money to the tune of a few billion dollars. This week economists from China offered to help us out of our recession with their own structured plan. And they will throw in the egg rolls for free.

FYI: President Obama’s stimulus program allocated millions of dollars to cities so they could award first time home buyers funds for down payment and closing costs; and if needed, repairs, to purchase foreclosed homes. There is one, tiny stipulation. The bank that owns the property has to agree to sell it for 15% less than appraised value. Is this a great country or what! Just what we needed, another hit to our declining property values.

BY DIANE GERDES