The Shakespeare Festival is still going strong in Ashland Oregon, but I often wonder what “The Bard” would write about the comedy of errors going on in Washington DC. Ben Bernanke made his second appearance today to talk to the “Apple Dumpling Gang” about the state of our economy.  In one day, Ben’s vision of the economy has gone from “doom and gloom” to “hey, things aren’t all that bad”.   Maybe he needs some Prozac ?  If not Big Ben, then the markets do for sure.  Yesterday was a “down day”, and today…..well the Dow is up over 200 points.

Think about it this way, the intrinsic value of the companies that make up the Dow can’t have changed that much in a 24 hour period.  If a company is worth a billion dollars, it doesn’t all of a sudden lose 5% or $50,000,000 in value in 24 hours.  Did their products lose that much in value?  Did their real estate holdings drop that much in one day?  Of course not.  But watching the markets, you would think that they did.  So, what’s my point?  The market is scared and is just as likely to believe that the sky is falling (from Big Ben’s testimony yesterday) as it is to believe that everything is all rainbows and prancing unicorns (based on Ben’s testimony today).

We talked about it yesterday, but the impact of the new FinReg (Financial Regulations) placed on the Ratings Agencies has already begun to show up. If you recall, now that Ratings Agencies can be held liable for inaccurate or misleading information, newly issued debt will no longer include their “official” ratings. In short, the three major ratings agencies no longer feel comfortable rating issuances if they can be sued if they “miss” on a bond rating.  Another way to look at this is to compare it to car shopping.  It’s sort of (in a very simplistic way) like saying that if I take advice from Consumer Reports on a particular car, and if that car turns out to be a lemon, then I can sue Consumer Reports?  Well, that’s silly.  Shouldn’t I test drive the car first? Shouldn’t I look under the hood? Shouldn’t I have my mechanic look at the car?  Well, large investment banks that buy these bonds have skyscrapers full of analysts, attorneys, and traders that review these transactions………but now the ratings agencies are liable.  Don’t get me wrong, I think that (in many cases) the ratings agencies missed the mark on quite a few bond issues over the last few years, but that doesn’t mean that we don’t want them doing their jobs……………and the new FinReg is causing them to step out of the market to protect themselves.

Case in point, last night Ford Motor Company pulled back a financing deal because they could not get a printed rating on the debt offering. Rumor has it, that there are a number of other bond offerings that are being scuttled because of this.  We will continue to follow the fallout from this part of the new FinReg.  We will also begin to see how this impacts mortgage financing.  No matter what happens, it will be interesting to say the least.

Since “they” say that a picture is worth a thousand words, I recommend that you check out this article (especially the graphs) from The Big Picture – it speaks volumes. Now, remember, recoveries and recessions never happen in straight lines, so trend-lines could tell the whole story or be completely useless.  In this case, I think the trend lines tell a very cautionary tale.  Many of the traders that I know have “gone to cash” as they are very concerned that we are not done with an overall decline.

Which brings us to the biggest surprise of the day – we are going to agree with Bernanke. He said yesterday that the economy is “Unusually Uncertain”. At this point, hindsight needs glasses to see well and foresight is running into walls left and right. With government intervention doing a number on our financial reports, we can barely see our proverbial hands in front of our faces. Next up to bat is the Unemployment Extension bill which, politics aside, will make it even harder to see the trend, since at this point a jobless recovery is about as likely as BP making a good public relations move.

The next few months will see a slight decline in housing numbers, but I personally believe that we will see a slight upturn in the fall and then another drop during the December-February months.  Also, keep an eye on consumer savings rates.  A big increase will signal a scared consumer and project less movement of housing inventory.  A drop will indicate a more comfortable consumer and a possible increase in housing activity.

As always, thanks for checking us out and please pass us on to anyone that could use some insight from us.

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Geoff Boyd – PrimeLending – Clackamas, OR

Yesterday was a fairly quiet day financially, the market did not show much enthusiasm or optimism, and stocks / bonds / rates seemed to have hit a lull.  The major report for this week is the Consumer Pricing Index, due out Thursday; but we all know that even minor reports can have a big impact if they show an unexpected number.

Today was a bit like a surprise birthday party that you planned for yourself; you can really see this stuff coming from a mile away.

Early this morning, the Empire State Index came out and was right in line with expectations – no surprises there, the Home Builder Sentiment came out later in the day and, surprise, home builders aren’t doing very well.  The Home Builder Sentiment came in low, at 17%, with all 3 categories over all 4 sections of the country reporting depressed home builders.

The day continues to offer eye-roll-worthy news; Greece’s sovereign debt has been downgraded to Junk Status (see The Big Picture’s Article on the subject; I couldn’t agree more) – the other housing data set to come out this week will not inspire optimism; industry expectation is that housing starts are going to fall 7% and New Home Sales will drop 11%.  Existing home sales will be up, but that number reflects all the houses that are closing on their New Homebuyer Tax Credit – this number has the potential to actually shake up the market, but we already know most of the information that will drive this number up or down, so it should fall in line with expectations.

A group of executives from the major oil companies are set to show up on Capitol Hill today to talk about offshore drilling.  I’m predicting that they are in favor of it.

Oil and tech jumped today and, with lowered euro zone concerns, the markets jumped.  Mortgage Bonds are down, so watch for negative re-pricing through the afternoon.

The biggest issue facing our economy right now is the massive unemployment and underemployment – the majority of Americans have tightened their belts several times over at this point, so even a gain in consumer confidence or employment doesn’t necessarily do much for an economy that is upside down.  Watch for foreclosure rates to continue to climb, especially as banks attempt to keep up with the number of delinquent homeowners. Some people are predicting a “jobless recovery” – but I dont see it happening.

Follow us on twitter for current news, advice and market status updates.

Have a question or something to add? Leave a comment or send us an email

Geoff Boyd – PrimeLending – Clackamas, OR

Here’s the biggest problem with VA Loans: most Active Military Personnel and Veterans are not aware that they have access to this EXCELLENT program.  The military does not do a great job of educating them about their benefits, so they just don’t know about them. One of the best programs available for Veterans (besides 10% off everything at Home Depot) is the VA Mortgage Loan program, which provides low-cost Home loans for Active Military Personnel and Veterans. So, it often falls to loan officers and agents (REALTORS too!) to educate the consumer. If you haven’t done so yet; check out Part 1 of this series: 10 Common Myths about VA Loans, for a quick list of the 10 most common misconceptions that people have about their VA benefits.

The main purpose of the VA home loan program is to help veterans finance the purchase of homes with favorable loan terms and at a rate of interest which is usually lower than the rate charged on other types of mortgage loans. For VA housing loan purposes, the term “veteran” includes certain members of the Selected Reserve, active duty service personnel and certain categories of spouses.
- Veterans Affairs Pamphlet on VA Home Loans¹

Phew! In plain English, here are the selling points of the VA Loan program.

Cheat Sheet
Top 5 Selling Points for VA Loans

- 0% Down-payment
- Market-Competitive Rates
- No Income Restrictions
- More Flexibility on Credit and DTI
- Home Energy Efficiency Upgrades in the Loan

The Veterans Administration (VA) Mortgage can be accessed by all veterans and active military (including military reservists), and never expires. It is not the same as other government sponsored programs, which can take a long time to close or require Mortgage insurance. This benefit is reusable, and can be used to purchase or refinance a home. In fact, this benefit can be used to purchase up at a 4-unit dwelling, as long as the borrower will make their primary residence in one of the units.

The application process is not more difficult than a normal mortgage application, as long as the lender is well-acquainted with arranging VA Mortgages. Your lender makes a difference; lenders who are VA Approved are the only ones allowed to directly access the VA Loan Program. Once you apply, you need to have an appraisal. These appraisals are not substantially different than a conventional or FHA appraisal, except that they are performed by a VA assigned appraiser. In fact, if the appraiser decides that the property qualifies for energy efficiency upgrade, these upgrades can be financed as part of the loan. VA Loans have no downpayment, no mortgage insurance, and reduced closing costs; rates are comparable to similar conventional or FHA rates. VA Loans are more flexible on credit and DTI and there are no income restrictions on this program.

If you have any other questions or want to get yourself or someone else prequalified, Send us an Email, Leave a Comment, Tweet us or Call Us – no sales pitches, we want you to still like us at the end of the day!

1. http://www.homeloans.va.gov/pdf/vap_26-4_online_version.pdf [↩]

… and how can you avoid them altogether?

Personal Bankruptcy in America is a major issue and a concern for many.  Recent numbers show that close to 14% of homes are past due on their mortgage, with almost 2% of those homes currently in some level of foreclosure. How do you know when your debt is so toxic and overwhelming that bankruptcy is the right answer?   What alternatives do you have for avoiding foreclosure?

Capitalism without bankruptcy is like Christianity without hell.
- Frank Borman

If we don’t change, millions of American families are just one medical emergency, or one layoff, away from financial disaster and bankruptcy.
- Jim Cooper

Personal Bankruptcy

The number of personal bankruptcies peaked in 2005, when over 2 Million families filed for bankruptcy.  The law changed after that to require debt counseling prior to declaring bankruptcy, but the number is climbing once again, now back nearly to 2001-2004 levels.  There are two main types of personal bankruptcy, Chapter 7 and Chapter 13.

Chapter 7 bankruptcy is the most common choice, at 65% of bankruptcies.  In Chapter 7 bankruptcy, most debts are discharged (except some debts like student loans, spousal/child support) but much of the debtor’s property is forfeited to a trustee, who then sells the property to pay down the debts.  In Chapter 13 bankruptcy, less common at 35% of personal bankruptcies, the debtor keeps all of their property, but they are required to make payments over 3-5 years to a trustee in order to pay down a portion of their debt.  You can file for Chapter 7 every 8 years, and there is no set limit on frequency for Chapter 13 Bankruptcy.

California and Florida have the most Bankruptcies by sheer numbers, but Nevada beats both by a high margin in per-capita bankruptcies.  Entire city and state governments are considering bankruptcy as a solution to the mounting debt.

Foreclosure

If you stop paying on your mortgage, the bank will eventually kick you out of the house and take possession of it.  You will forfeit any equity that you have built up, and this foreclosure will show up on your credit report and public record for at least 7 years.  The number of people who are seriously delinquent on their mortgages has climbed drastically over the last few years.  Many factors play into this steadily climbing rate, but the main culprits are the recession and pre-recession loan practices, which often leave families with payments that they could not afford even if their incomes were at a normal or stable level.

What can you do?

The first thing to think about is prevention.  Many bankruptcies and foreclosures are the result of some lack of foresight.  What can you do to make sure that, barring a catastrophic financial event, you will be able to avoid foreclosure and/or bankruptcy?

1) Get educated

Consumer education on credit, home ownership and financial responsibility is the #1 way to avoid dealing with a bankruptcy or foreclosure in the future.  If you don’t know where to start, we recommend checking out http://www.mymoney.gov/, where you can find basic worksheets, calculators and advice.  Don’t assume that you are making the best financial decisions just because you are following the examples of others; as Dave Ramsey likes to say… “Normal is BROKE, I want to be WEIRD”.  Don’t take anyone’s word for it, find out what your options are, what you can actually afford, and plan for your long-term goals.

2) Get Insured

Health Insurance, Life Insurance, Auto Insurance – make sure that you have the right coverage and the right plans.  Your insurance should cover you for major events that you cannot afford; like replacing your or someone else’s car, paying for surgery or losing a parent or spouse.  These policies are not investments, they are costs; avoid policies with investments built into them, like whole-life or universal life insurance.  Proper insurance coverage can help you altogether avoid bankruptcy or foreclosure due to a major medical event or another large out-of-pocket expense that will “never happen to you”.

3) Start Saving

Without this component, the other two are almost worthless.  If you are spending every penny that you bring in, you need to change something.  Career, spending habits, or housing situation – whatever it is, it is going to leave you in a position with no room for anything to go wrong.  Ideally; you will be in a position where you can live off of 75% of your Net Income, putting at least 10% in savings and throwing 15% into paying off debt.  This is a big step to take, and a budget will be helpful to accomplish this goal.

What if it’s too late?

If you have a recent bankruptcy, or you are currently behind on your Mortgage payment, there is hope.  First of all, Bankruptcy or Foreclosure is not a death sentence for your credit.  You will not qualify for very good rates, and you will definitely need to make changes to work around the negative impact of Bankruptcy or Foreclosure, but with diligence and planning, you can bounce back.  With Chapter 13 bankruptcy, you can be considered for a Home Loan after only 12 months of good payment to the trustee, and their permission.  With Chapter 7, you can typically be considered for a new Mortgage after 2 years, or less if you can prove that the bankruptcy was medically-related.

For some Americans, Foreclosure seems to be the only option; they are miles upside down on their mortgage and/or they cannot afford the payments.  Many Americans are in this same position – and banks are having a difficult time keeping up.  At this point, the average time it takes a bank to foreclose on a property is 14 months of delinquent payments.

What are my options?

For Bankruptcy, you are now required to complete debt counseling before you file; this is really the worst of both worlds because this debt counseling will usually trash your credit further by making underpayments on all of your already delinquent accounts (these payments are usually not reported to the credit bureau because the company you are paying is not getting the total payment due to them).  One better option?  Negotiation.  In many cases, companies are willing to work with you to avoid the paperwork and lower payoff of a bankruptcy situation or a collections agency.  If you are faced with an aggressive or abusive lender, you may try to contact the company through a different department to find someone who is willing to negotiate your debt.  If push comes to shove though, remember that in bankruptcy you are not allowed to discharge certain debts like taxes, student loans and support payments; prioritize those debts so that you are not left with large bills after a Bankruptcy.

In Foreclosure, there are new government mandated programs where banks are incentivized and in some cases required to restructure your loan, or forgive it altogether.  Many banks are resistant to this process though, so it helps to have an expert on your side to guide you through the process.  Many lawyers have made a LOT of money by being that expert, but there are many non-profit organizations that have entire departments dedicated to helping people navigate the Loan Modification, Restructuring or Loan Forgiveness options available.  Many of these non-profits are also able to help you clean up your credit after a foreclosure or a bankruptcy.

Whether you are just starting to feel the recession, looking at Bankruptcy or Foreclosure as an option, or trying to recover from one or both; there are options and alternatives for you to consider so that you can make the best of a bad situation. Get educated about your options, get insured so that you don’t lose everything overnight and start saving for a rainy day, even if it’s already pouring.

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As always, you can leave a comment or question below, or send us an email at blogger@mortgageproblog.com

- Mortgage Pro Blog; Geoffrey Boyd; PrimeLending, Clackamas OR

As many of you know – one of the best programs available for rural areas is the USDA-insured home loan. These loans feature little-to-no down payment, low interest rates and fairly loose income restrictions. The only catch is that these loans are only available for rural properties, and that the program ran out of money several weeks ago.

The USDA Mortgage program, funded by the government, ran out of money on May 12th; putting many buyers in limbo until more funds become available. This type of misfortune makes for a great human interest story, but many people are in the same frustrating situation – in rural areas a large percentages of would-be homebuyers are stuck sitting on their hands

Our best information says that the bill to fund the USDA Mortgages could go to a vote as soon as tomorrow, or possibly next week. Many buyers, who took advantage of the new homeowners tax credit with a USDA Mortgage, are required to close on the homes before June 30th to qualify for the tax credit; and the longer we wait to get a vote on the bill to fund this program, the more likely it is that those homebuyers will be unable to meet their deadline.

Of course, nothing comes out of the senate without a bit of pork stuffed in, so you will be happy to know that the USDA funding bill also comes with a summer jobs program and some funding for the military.

Do you know anyone waiting to hear more about funding for this program?

- Mortgage Pro Blog; Geoffrey Boyd; PrimeLending Clackamas OR