Subprime Bailouts

Congress is starting to rumble about devising a program to bailout subprime borrowers. Now that adjustable rates have started to rise, potentially 1.1 million homeowners could be forced into foreclosure in the next 6 months. The government isn’t suggesting it will pay off loans, but that a program focused on counseling and loan restructuring could help the problem.

No offense, but I don’t want my tax dollars to pay for this program. Why isn’t accountability being pushed back on the agents, lenders, and underwriters that started this fiasco? Granted, many of these companies are defunct now, but shouldn’t individuals still be held accountable?

As a real estate professional, it is my duty to help clients find housing they can afford and explain how their decisions now will affect their home value in the short term and long term. “Choose to pay a little less now and live on a busy street? When it’s time to sell, your days on market will be longer and most likely you will not enjoy as much price appreciation as similiar homes on a quieter street.”

Lenders should do the same. “An adjustable rate mortgage will do just that, adjust. While the rate today may result in a payment of $X, if rates were to rise, you may expect your payment to increase to $Y. Is that something you will be able to afford and feel comfortable with?” Just because a client doesn’t ask the question, it doesn’t mean that you shouldn’t explain a potential situation to them. It is actually more imperative that you do explain possible “worst case scenarios” to them because they are probably unaware that the scenario exists and what it would mean to them.

Really, nothing makes my blood boil more than when industry professionals don’t look out for their clients’ best interests. If your lender or agent takes a short term view of “I just need to close this transaction,” consider using someone else or at least getting a second opinion. A significant portion of your financial future is riding on the advice they give you. Make sure their short term goals won’t result in a long term financial problem for you.

Government Loans

I attended a government loan seminar yesterday and picked up some interesting information I thought I would share…

Advantages of an FHA Mortgage
– No reserves are required to qualify
– Lower monthly mortgage insurance
– Lower closing costs and no “junk” fees allowed
– Gift money is allowed for your entire downpayment
– Generous debt to income ratios are allowed (sometimes up to 49%)
– Lower credit scores considered (a FICO score as low as 605 was accepted by this broker)
– No first time buyer requirement
– No income limits
– No purchase price limits
– Non-occupant co-borrowers are allowed
– Sellers can contribute up to 6% of the closing costs

Disadvantages of an FHA Mortgage
– Upfront mortgage insurance premium
– No restriction on points charged

Advantages of a VA Mortgage
– Lower credit scores considered (a FICO score as low as 605 was accepted by this broker)
– No reserves are required to qualify
– Gift money is allowed for your entire downpayment
– No montly mortgage insurance premium
– No first time buyer requirement
– 100% financing available, typically up to $240,000 (however, the broker had seen 100% financing accepted up to $417,000)
– No income limits

Disadvantages of a VA Mortgage
– There is a funding fee which varies based on the downpayment
– Cannot have unmarried co-borrowers

Advantages of a CHFA Mortgage
– Lower interest rates than conventional mortgages (rates are set weekly)
– Lower closing costs (1% of the mortgage amount)
– 100% financing available

Disadvantages of a CHFA Mortgage
– Only available to first time buyers, unless you have not owned in 3 years, or are buying in a targeted area
– More paperwork
– Purchase price limits
– No non-occupant co-signers allowed
– Potential for a recapture tax
The recapture tax would be either 50% of your home sale profit or 6% of the sale price, whichever is lower. All 3 of these things must happen in order for the recapture tax to be invoked- you sell your house within 9 years, and your income increases dramatically, and you make a profit on the sale of your house.

With each of these mortgages, the property you are purchasing must be owner occupied. These government loans cannot be used for investment properties.

West Hartford Electronics Recycling Day- May 5

From the Hartford Courant on April 12, 2007…

West Hartford town officials announced an electronics recycling day on Saturday, May 5. Residents who have old household electronic equipment they want to dispose of can recycle the items at no charge.

Recycling will take place at the town’s public works facility at 25 Brixton St. from 9:00am to noon.

Residents can recycle the following items: computers, monitors, printers, cell phones, televisions, video-cassette recorders, copiers, fax machines, radios, stereos, and rechargeable nickel-cadium batteries.

No commercial electronics will be accepted. Proof of residency will be required.

If you would like more information, visit the vendor’s website at We Recycle.

Chicken Little…

No Chicken Little, the sky is NOT falling…

Home Prices Fall

Nationwide, home prices are expected to drop 0.7% and the national media is all riled up. That’s what happens to asset values. They go up, then they go down, then they go up again. Just like stocks. Just like mutual funds. Over the long term any asset will appreciate if it is valuable (and well maintained in the case of a house). Prices don’t matter if you are not looking to sell (unless you really need to pull some equity out of your home). Overall, people should think about homeownership over the long-term, not the quarterly fluctuations that may or may not be happening in your local market.

If you are planning on selling your current home in order to buy a new house, this still should not be a huge issue. Getting less on your sale means that you are probably going to pay less on your buy. So again, the long-term view should win out.