C21AGVoices

Monday afternoon, the U.S. House of Representatives defeated the $700 billion “Bailout Bill”, surprising Wall Street and the world. 

The Dow Jones Industrial Average responded by falling 777.68 points — its largest one-day loss in history and, this morning, every newspaper in America is covering the story as front page news. 

Lost in the coverage, however, is how the “No” vote created a terrific opportunity for home buyers and mortgage rate shoppers. 

Yesterday, as money fled the tanking stock market, most of it ended up getting parked in the relative safety of government-backed bonds which includes, of course, the mortgage bonds.  This rising demand for mortgage bonds caused rates to fall, improving home affordability.

To investors, stock markets represent risk and bond markets represent safety.  So, when market sentiment changes, as it did yesterday, Wall Street players often shift their dollars from one forum to the other.  This is why yesterday’s stock sell-off was good news for mortgage rate shoppers — the added demand for “safe” securities drove down rates.

Conforming mortgage rates were lower by about an eighth-percent Monday.

Now, today, mortgage rates are opening flat, suggesting that markets are in a Wait-and-See Mode.  Wall Streets knows that the defeated bill will re-emerge later this week and, when it does, expect traders to respond accordingly.

If the new-look bill is viewed as favorable to U.S. businesses without harming taxpayers, expect stock markets to improve and mortgage rates to rise.  If the bill fails to accomplish that goal, however, expect mortgage rates to improve.

When functioning properly, gutters can extend the life of a home. By directing water away from the physical structure, gutters protect a home’s foundation, its siding, and its landscaping.

The key to reliable gutter performance is simple — keep them clean.  Twice annually, experts recommend a thorough gutter cleaning and the project can be a do-it-yourselfer,  if you’re so inclined.

The basic toolset is likely already on hand:

• A ladder
• A scoop
• A trash bag
• A garden hose
• Protective gear

Watch the video above for a quick tutorial, or if DIY is not your thing, reach out to me anytime. I’d be happy to refer you to a reliable professional in the neighborhood.

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Earlier this year — and for the first time in its history — the FHA changed its funding fees and mortgage insurance structure.

Effective October 1, 2008, it’s repealing those changes.

Partly to keep FHA home loans affordable, and partly to comply with new laws, the FHA is rolling back its up-front fees and ongoing mortgage insurance requirements and replacing them with new ones.

The new up-front FHA fees are as follows:

• 1.750% : All purchase and “standard” refinances
• 1.500% : All “streamline” refinances
• 3.000% : All FHASecure programs for delinquent mortgagors

These fees are paid as a one-time cost at closing, and are calculated by multiplying the loan size by the fee.  A $200,000 FHA purchase, for example, now carries a $3,500 one-time charge.

Ongoing mortgage insurance requirements have changed, too.  These changes are based on the loan type and the amount of equity in the home.

• 15-year fixed with 90% borrowed or less: 0.000% annually
• 15-year fixed with more than 90% borrowed: 0.250% annually
• 30-year fixed with 95% borrowed or less: 0.500% annually
• 30-year fixed with more than 95% borrowed: 0.550% annually

Mortgage insurance premiums are calculated by multiplying the initial loan size by the annual premium.  The same $200,000 FHA purchase outlined above, using a 95% 30-year fixed mortgage, would require a monthly mortgage payment add-on of $83.33 until the loan is paid in full.

FHA-insured mortgages have grown in popularity this year because, while the guidelines of other mortgage products have tightened, FHA guidelines have remained relatively loose.  FHA allows 3.500 percent downpayments on purchases, for example, and allows “cash out” refinances to 95 percent.

Fannie Mae and Freddie Mac do not.

Thursday, federal regulators seized mortgage lender Washington Mutual.   The Seattle-based thrift became the third “big name” lender to close its doors since July, joining IndyMac and Lehman Brothers.

In 2007, these 3 lenders represented about 10 percent of the mortgage market and their subsequent failures are confusing American homeowners.

The most prevalent question:

If my mortgage lender fails, are my payments still due?

And the answer is an unequivocal “yes”. If a mortgage lender is seized, goes bankrupt, or is otherwise closed, it doesn’t change the terms of the bank’s mortgages whatsoever — just maybe the mailing address.

This is because a mortgage (and its corresponding note) is a legal contract between the lender and the lendee, signed on the date of closing. It is binding and cannot be altered by either party.  The only way to “end” the contract is to pay the loan in full. 

This can happen in one of 3 ways:

1. The home is sold and the mortgage is repaid
2. The home is refinanced and the mortgage is repaid
3. The home loan is paid down to $0 balance by the homeowners

So, if a mortgage company fails, its doesn’t cause the loan to be paid-off and, therefore, the mortgage contracts is still valid.  Payments are still due. 

However, because its mortgages are an asset, the failed lender will usually transfer them to a new lender’s servicing department.  This means that homeowners will write the same check for the same mortgage but to a different company.

To reduce confusion around transactions like this, the government puts two safeguards in place.  First, it requires the former lender to send a 15-day advance notice of the change to the homeowner.  And second, it requires the new lender to do the same.

In situations like this, the onus is ultimately on the homeowner to open and read his mail, and make changes accordingly.  It’s especially important for people who pay their bills online as opposed by paying them manually; you likely won’t get notified if you’re sending payments to the wrong place.

I attended the Phillies game last night and had the misfortune of sitting next to a Red Sox fan named Phil for 9 innings. I was there confident that this will be the season to cure our 100+ season Championship drought (since the Sixers 1983 Championship, the four major professional sports teams have played over 100 seasons). Phil was visiting friends in Philly and wanted to check out our ballpark.

Now, I appreciate his coming to town and supporting our local economy and I am even willing to give him a hearty handshake. However, I was not going to listen to Phil complain about the plight of scorn Red Sox fans .Who the heck does Phil think he is? I respect Red Sox fans as some of the most passionate in baseball, however, may I remind PHIL that he and the rest of Red Sox Nation had the Celtics, Bruins and Patriots dominating decades in their respective sports. Poor little Red Sox fans had to play second fiddle to the Yankees. Here’s a news flash…ALL BASEBALL FRANCHISES play second fiddle to the Yankees! Get over it! And while you are at it, get over Babe Ruth and Bill Buckner too!

Here is a Top 10 List for fans outside of Philadelphia to consider before coming to the City of Brotherly Love and complaining about their team’s ineptitude…

10.The Philadelphia Eagles draft with their first pick, wide receiver Freddie Mitchell. Freddie has more fur coats than professional football touchdowns!

9.Most teams draft one player with their draft pick, yet somehow we drafted Eric, Carl and worst of all Bonnie Lindros! Have there ever been parents that have hampered the growth of their kid more than the Lindros family?

8.TOoooh…TOoooh…TOoooh…TOoooh….TOoooh…TOooh! Yeah, I was singing the stupid TO song in 2004 too. Just when I thought nothing would ever top the Lindros family saga, there it was unfolding on my TV like a bad infomercial. Every channel featured TO doing sit ups and playing basketball in his driveway instead of catching touchdown passes!

7.The Philadelphia Phillies have lost more games than any other professional sports franchise in history.

6.Oh yeah, while I am on the Phillies…we had two baseball teams in town at one time…the last place Phillies and the Championship winning A’s…which team would you have kept?

5.Is it just me or do concussions seem to hamper the Flyers STARS more than any other hockey team?

4.Best second baseman of ALL TIME…Ryne Sandberg…a throw in???

3.The Sixers 1971 season is often the benchmark of ineptitude in sports.

2.The year after winning the World Championship, the Sixers played the Boston Celtics in the Semi-Finals and lost the game at home without Wilt Chamberlain taking a shot in the 2nd half. I’m no basketball coach but I would have designed a play for Wilt!

1.How does a baseball team loose a 6 1/2 game lead with 12 games left? I wasn’t alive in 1964, but I still feel the pain.

These are the first 10 things that came to my mind without doing any real soul searching. I’m sure there are hundreds of others that would challenge for a spot as well. Keep your chin up Philly Fans…this is our year!

In August, home builders broke ground on the fewest number of homes since January 1991. 

It was the 16th straight month in which Housing Starts declined.

But, although the press labels these statistics indicative of a recession, home sellers nationwide quietly applaud them.

With fewer new homes coming on the market, home sellers are finding that there’s less competition for buyers, helping them to command higher prices for their homes.

It’s Supply and Demand in its most basic form. 

But that’s not all that home buyers have to worry about.  The most recent Existing Home Sales report showed an increase in sales nationwide, plus a reduction in the number of single-family homes for sale.

Again, Supply and Demand.  Good for sellers, bad for buyers.

However, we should keep in mind that real estate is local.  What we see in national and regional trends are not as important as what’s happening in your town, your neighborhood, and your street.  But, if we learn one thing from the chart above, it’s this: builders are rational. 

If homes won’t sell, builders will stop building them.  And, sooner or later, the market — and home prices — will catch up.

(Image courtesy: The Wall Street Journal)

I’m thinking about this now, because I am considering whether to make a move from Glenside to Mt. Airy.  Even though Glenside is a nice town, and I love the Glenside Farmer’s Market, there is not much else holding me here.  Mt. Airy, on the other hand, has the Weaver’s Way Co-op, multiple farmer’s markets, the Wissahickon Park, and a really vibrant community.  It’s closer to the city and has a nice collection of venues in its own right.  So, I’m really thinking about moving there.  The problem is that I am a homeowner already; and unless you have a lot of extra cash, that creates a complicated dilemma.

The first issue is, I don’t have enough cash for a down-payment on my next house until I sell the house I own now.  The simple way to solve this problem is to get an equity line of credit, and voila, enough cash.  But that points to the second problem.  I can’t afford to make two mortgage payments simultaneously.  So, I need to sell my current house and buy my next house simultaneously.  That is a lot of pressure.  It almost is enough to make you stay put, except I don’t want to stay put.

So, in what order should I do this?  Find a house I like, put an offer in on it, and then put my house on the market?  Well, the seller of the house I want might not have a lot of confidence in my offer, being contingent on the sale of my home in this market.  Especially if I haven’t listed it for sale yet.  And if the seller is not confident in my offer, they probably will not want to accept it – so I don’t get the house.

I could list my house for sale, find a buyer, and then look for a house to buy myself.  But what if I don’t find something in time and end up with nowhere to live?

Either way, I am putting myself into a position where I will probably lose money; either because I am desperate to sell or desperate to buy.  So what is a homeowner to do?  (Those lucky first-time buyers don’t have to worry about this!)

Well, I think the answer to this question lies in the market.

When it’s a seller’s market, and homes are being sold as soon as they’re listed, the most important thing is to get my next house.  In that kind of market, I won’t have to worry much about my house not selling, because just about every house is selling in no time.  I just have to worry about getting my offer accepted.

But that is not the market we are in right now.  Right now, houses are sitting on the market a little longer.   Chances are, with inventory levels as high as they are, I’ll be able to find my next house fairly easily.  I might even be the only buyer making an offer on the property.  But, I don’t want to be the distressed seller that lets my house go for a song so that I don’t lose the house I want to buy.  In this market, the best thing to do is to list first, and then while I’m waiting, start looking for my next home.

I do want to mention an option C, which I have done before.  Don’t sell your home but instead keep it and rent it out when you buy your next property (and get the equity line if you need it for the down payment).  I only use this option if the rent is going to cover the mortgage, the expenses, and a decent positive cash flow on top of that.  But if it does, welcome to real estate investment!

Fall Glory by Nachiket Kapre’s

With the school zone signs now flashing on a street near you, that can
mean only one thing, Fall is quickly approaching and with the season
of changing leaves comes some quick tips for getting your garden and
patio ready for the colder months to come…

Clean Garden Pots: Wash grime & rings away with a 50/50 water and
vinegar solution. This works well on both plastic and clay containers.

Clean out the gutters, but wait until all the leaves have dropped. The
last thing you want is to have to repeat this job every few days for
the next two months… Check for leaks and any wear and tear and fix
now before it snows or freezes over. This will help ensure your
gutters are up to the task when Spring rains hit.

Check tree branches and lightly trim any that are close to the house.
Too much trimming at this time of year can damage a tree, so just do
enough to keep the branches out of reach over winter (keeping in mind
heavy winds and snow).

Before storing the patio umbrella away for the winter, take a pair of
pantyhose and use one leg to cover the closed umbrella and the other
leg to wrap around the bottom (to keep it closed). This will help
protect the umbrella yet still give it air to breathe.

Spray down all patio furniture and if not brought inside (garage) to
winter, tarp them. This will help the furniture last a lot longer,
especially wood furniture.

Remove or cover all open containers and pots. Helps protect them when
it freezes plus you don’t want to provide pools of water for a
mosquito breeding ground in the spring.

If you have bags of birdseed to feed the birds in the fall and over
winter, make sure the bags are in covered containers. The mice would
love to have you leave them in the open for their holiday feasts.

Fill a pail with sand and used motor oil. Dig your garden tools in the
mixture to sharpen them up and clean them.

Just a few quick tricks now will save you time and money when spring arrives.

On all principal + interest home loans, the first few years of payments include a lot more money going to interest than to principal. 

This is because mortgage repayment schedules are front-loaded with interest, meaning large-volume principal reduction won’t occur until late in the mortgage’s lifecycle.

Comparing products at a 6% mortgage rate, did you know that after 15 years:

• A 15-year mortgage will be paid in full
• A 20-year mortgage will have 41.21% of its loan balance remaining
• A 30-year mortgage will have 73.19% of its loan balance remaining

Of course, this doesn’t mean that 15-year mortgages are better than their 20-year or 30-year brethren.  It just means that 15-year mortgages pay off faster. 

Yet, there are reasons for homeowners to avoid 15-year mortgages. 

For example, versus 20-year or 30-year products, 15-year mortgages require the highest monthly payment because the payback period is compressed to a shorter time.  In addition, mortgage interest tax deductions to which most homeowners are entitled are reduced.

So, just because the 15-year pays off quickly doesn’t mean that it’s best for everyone.

What a great idea for Philadelphia! With the continued growth and development of our downtown area, the City would see a positive impact immediately. Philly Car Share has been a hit…could Philly Bike Share be far off? I will have my annual fee ready for its debut.