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The town lit up yesterday with the “news” that the government was lowering the 30 year fixed rates to 4.5%.   But later in the day it was discovered that it was a rumor from Hank Paulson’s Treasury department.   The 4.5% rate was discussed as a possibility for future home buyers only.  The government would agree to absorb part of the risk for the low interest rate loans, or help with closing costs, or make Christmas presents for small children. They are tinkering with the idea.   While they tinker, how about the homeowners that would like to keep their homes?   The “voluntary” programs the government did suggest have been a dismal failure. Because of the complicated agreements with their investors, the banks are still playing hardball and are modifying loans to their specifications only: no principal reduction and interest rates fixed for only a few years.   These same agreements allow banks to wipe the foreclosures off their books.   So many excuses, so little time.  And, Virginia, it is not about the subprime mortgages anymore.   Most of those have already gone into foreclosure.  Now, homeowners with vanilla loans have lost their jobs or are taking a lesser salary.  They may have to sell, but can’t because their homes aren’t worth anywhere near what they owe.  If principal reduction, along with eliminating income ratios and credit restrictions are not incorporated into the  modification process: stabilizing the housing market and our economy will be an ongoing drama. The Fed and the Treasury need to mandate directives, not suggestions.  Viable options need to be opened up to all homeowners, not just new borrowers.  Santa needs to get off of his jet powered sleigh and come down to the workshop to get the true picture of what the economy needs for the holidays.

FYI:   The next demographic for home purchases:  Newly weds? Empty nesters? Trust fund babies?   Nope, it is the Chinese.   SouFun the largest real estate web site in China is organizing a trip to the States to scope out houses on the West Coast with buyers ready to invest.  

BY DIANE GERDES

The decorations are up and the colored lights are sparkling.  The frosted champagne glasses are ready for a toast.   Finally, a party!    Bah Humbug, no one is coming.   The Fed, channeling Chevy Chase in Christmas Vacation tried to jump start the economy this week dropping the Fed rate to somewhere above zero but with little response.   The Federal Fund Rate is the cost of borrowing available funds, between banks, primarily for just one day.  The banks are a bunch of Scrooges huddled together in their vaults counting their TARP – bail out money- and are utilizing very selective lending practices.  Last summer OPEC refused to respond to our cries for cost relief when oil prices were hitting $140.00 a barrel. OPEC may have shot themselves in the eye with Ralphie’s Red Ryder B.B. gun, since the price of oil is now a smidgen over $41.00 per barrel.  That’s right, a $100.00 per barrel drop.  That’s gotta hurt with all of them  sticking their tongues on their icy, cold oil rigs.   Bernard Madoff was left Home Alone for too many years with the Securities Exchange Commission looking the other way. They are just beginning their Nightmare Before Christmas trying to find the 50 billion dollars that has evaporated into his yacht and summer home in Monaco.   Investors are on a shopping spree buying up the 10 year treasury bonds for a yield of ….zero percent.  That’s right; they would rather put their money somewhere safe and not make any jingle.    The banks are acting like Bad Santa by not adjusting the 30 year mortgage rates accordingly.  They are keeping the spread for themselves.  We are grateful for the awesome rates, but they should be much lower.   We have remarkable interest rates and money is available, so why is no one participating?  It’s A Wonderful Life but we may need A Miracle on 34^th Street to show all of us some Holiday Spirit.

FYI:    President Bush stuffed the stockings of Detroit by allocating over $9 billion to General Motors and $4 billion to Chrysler.  Ford is getting a lump of coal because they have over $19 billion in reserves.   GM and Chrysler have until March 31^st to utilize the money and show they are on the way to stability or they have to give the money back.   Let’s make sure we understand this: We lend our kids some money to buy a car and they wreck it.  And we expect to get our money back?

Diane Gerdes

The American public is an unwilling participant in a reality-sitcom , starring The Fed, The Treasury and now the FDIC. These awful performers cannot make a decision on the distribution of earmarked funds to save our economy. The big three automakers are calling their bankruptcy attorneys this morning after the Senate smack down. Fed Chair, Ben Bernanke must be fishing with Opie and Andy since he has remained silent over the past couple of weeks. Secretary of Treasury Hank Paulson, eerily reminds of us of George on Seinfeld, a know it all that talks a lot but does nothing, except squander billions in taxpayers money. He probably still lives with his mother. And lastly, FDIC Chairwoman Sheila Bair, the smart, but clueless gal similar to Phoebe on Friends, determined to execute a bail out plan that would reduce the interest rate for 5 years to as little as 3% for qualified buyers only. Talk about living in la-la land. The needs of the squeezed homeowners are being ignored and that includes implementing major principal reductions in our depreciating markets. Someone please call Charles in Charge and get some direction and better writers because no one is laughing.

FYI: Rarely, in our history have we had the opportunity to purchase houses at these prices with interest rates close to historic lows. In 2005 interest rates were in the 6’s and families were paying twice to three times as much for their homes. The media would have you believe every home is going into foreclosure and that is not the case. At some point the foreclosures will be absorbed and home prices will start to increase. Interest rates will climb back up and there will be a lot of “If only”.

Thought: The Governor of Illinois got caught trying to sell President-Elect Obama’s senate seat to the highest bidder for a measly $500,000. Times must be really hard in Illinois to get such a low amount. But maybe he is on to something. Our governor, Janet Napolitano has been appointed to head the Department of Homeland Security. Our state and counties are in need of a cash infusion. Instead of due process and following the law: we could post the position on e-bay or Craigslist and let individuals from all over the world submit their offers. What would the Governor’s position be worth?

Diane Gerdes

4.5% Just Kidding!

The media played a cruel joke on the housing industry last week with an unsubstantiated rumor that the 30 year fixed rates would drop and stay at 4.5%. This piece of juicy gossip with no details has evaporated into never, never happened land. Think about it! How would the government regulate the 30 year interest rate? Minimum credit score? Down Payment Requirements? Would it include government loans? If the Fed allows the zero down, VA loans at 4.5%, but not FHA’s or limited down conventional loans, that will cause an outcry of discrimination to the down payment challenged buyers. What about refinances? If I buy my home today at $100,000 at 4.5%, will my neighbor down the street get to refinance his home at 4.5% with principal forgiveness thrown in (after all he paid $300,000 for his home in 2005). So much talk. No facts. And absolutely no action.

by DIANE GERDES

Loan Modifications: Don’t Get Bitten!

If you need to modify your current mortgage, please be careful! There are no regulations in most states, including Arizona, for loan modification companies. These snake oil providers are slithering all over the country. They take your money, (usually between $1,500 to $5,000) and crawl back into the hole they came from. They are ripping off desperate homeowners that want to keep their homes. Try these tips if you are considering a loan modification:

1. Decide exactly the new payment you can afford

2. Determine if you also need a “principal reduction” along with a reduced rate

3. Contact your current lender’s modification department first and try to negotiate, (nicely)

4. If the lender tells you they will not talk to you until you miss a payment, tell them to put in writing

5. Be sure and read and understand all the terms of your successful negotiation before signing

6. If you are going nowhere with the lender then contact the many “not- for- profit” companies such as Homeowner’s Help Hotline (1-888-995-HOPE) or go online to www. LoanSafe.org for more information.

Reputable companies WILL NOT ASK FOR MONEY UPFRONT!!!!

DIANE GERDES