Real Estate Finance Alerts

I am featured in the recent article in The Wall Street Journal -How to Start (and Survive) as a Mortgage Broker - click the title to go to the article.

"For the broker who can crank up the customer service and personalized attention, it's a time of opportunity, even at a time of rising regulation, he says."

"He stands apart from competitors, Mr. Huettner says, by specializing in mortgages for customers with complex financial situations, such as self-employed individuals, second-home buyers and anyone dealing with tricky life matters."

Please let me know what you think of the article.

Regards,

Todd

P.S. Rates are at their all time lows so now is the time to refinance or buy the house you have been looking at for the last year.

Good Careers with Bad Reputations

Melissa Ezarik Yahoo! HotJobs - Print Version PDF

Todd Huettner resisted becoming a mortgage broker for more than a year. "It is the used-car salesman of my generation," says Denver-based Huettner, 35, who holds an MBA degree.

If the industry had as many incapable people as Huettner suspected, then his honesty and competency would surely make him successful, a friend suggested. People he knew were already having him "run the numbers" on home loans anyhow. So, putting his reservations aside, he launched Huettner Capital.

Business at mortgage brokerage Huettner Capital doubled between its first and second year, grew by 50 percent the next year, and remained flat for the next three years as many in the industry went out of business.

A former recruiter, executive job coach Rita Ashley has also shined brightly in a field with reputation cracks. "Media being what it is and human beings loving to gossip as they do, it's always easier to learn the bad about a career."

But nearly every field has "excellent practitioners, ordinary practitioners, and bad practitioners," says Ashley, author of the e-book "Job Search Debugged," now in its second edition.

Consider the merits of five professions with a bad rep:

Mortgage Broker

Brokers match home lenders and buyers. Many have given the profession a bad name in recent years by convincing people to take on loans they couldn't afford.

What sets Huettner apart, he says, is his professionalism and knowledge of finance. Unlike other mortgage brokers, Huettner may suggest that his clients look elsewhere or not refinance at all if it doesn't make sense for them. "People are surprised by my approach." Their trust wins many referrals.

According to the Bureau of Labor Statistics' 2008-2009 Occupational Outlook Handbook (OOH), loan officers (including mortgage brokers) can expect an 11% increase in employment between 2006 and 2016, and median annual earnings for loan officers was $51,760 in May 2006. A bachelor's degree in finance, economics, or a related field is generally required for staff positions, although training and licensing requirements vary by state.

Executive Recruiter

"How much worse can the 'headhunter' name be?" asks Carolyn Dougherty, a Philadelphia region executive search consultant who has found that good reputations in this field are built on quality results. Recruiters screen and interview applicants and typically work in fields like human resources, training, and labor relations. Those in the field should experience a 17% (faster than average) growth between 2006 and 2016, notes the OOH.

About one-third of high-level placements are made by recruiters, Ashley notes, so good ones are "extremely highly regarded." A degree in personnel, human resources, or labor relations is ideal, with courses in the social sciences, business, and behavioral sciences an added plus.

Publicist

When Andi Enns, who owns a Kansas City, Mo.-based public relations/marketing firm, tells others about her profession, she'll often get looks suggesting she had just morphed into a "hideous bug," she says. "PR isn't just covering up the bad stuff ... It's about telling stories about awesome companies and people!" PR rep Termeh Mazhari, who works in New York City, says people assume she's "incapable of making genuine, no-B.S. statements."

In the next seven years, PR specialists are expected to grow by 18%, reports the OOH. For those planning to pursue a career in PR, a bachelor's degree in public relations, journalism, advertising, or communication is best.

Insurance Sales Agent

Many agents sell life, health, and property insurance as well as products such annuities. A growing number also offer financial planning. Commission-only structures make consumers leery.

"If I don't want to talk to someone, all I need to do is tell them what I do," says Illinois-based insurance agent Robert Slayton. But he loves helping people. Slayton has gotten insurance for people declined by other carriers and even spent 10 hours seeking the best Medicare plan for someone and recommending one sold elsewhere.

Thirteen percent growth in overall employment, reports the OOH, is expected between 2006 and 2016. Health and long-term care insurance opportunities are also anticipated. College grads have the best chances at employment, particularly those with degrees in business or economics.

Tax Collector

These professionals deal with delinquent accounts and work with taxpayers to settle debt. "Someone has to do the job," says Lynne A. Sarikas, director of Northeastern University's MBA Career Center. And jobs there will be, thanks to the large number of retirements expected during the next 10 years, according to the OOH. For federal workers, a bachelor's degree is required, although state and local government workers often assume the position with some college-level business classes under their belts.

Whatever your profession choice, don't apologize for it, advises Sarikas. "You can have a successful, rewarding career in these fields regardless of what others think."

Copyright © 2009 Yahoo! Inc. All rights reserved.

 Originally published June 2, 2009

Real Estate: Real Money And Real Problems

By: Sara Clemence - Print Version PDF

The last property Giovanni Isaksen bought to fix up and resell was a “nice house in a nice neighborhood.” An independent real estate investor in the Seattle area, Isaksen and his partner figured they could sell the house for about $850,000, so they budgeted for renovation accordingly.

But the market was strong, and soon it seemed they could sell the house for $899,000, so they decided on more improvements. “By the time we got to market, people were going crazy,” he says. “Some said we could get $1.2 million.”

In the summer of 2006, the house sold for $920,000—more than they initially expected, but at little or no profit. “If we had stuck to the original plan, the thing would have sold in a week and we would have ended up in the same or a better financial position,” Isaksen says. “After we backed out the carrying costs, it was within dollars of where we originally planned to be.” The lesson, he says: “Plan your work and work your plan.”

Real estate is a common means of diversifying a portfolio and hedging against inflation. “As inflation occurs the value of your property will go up,” says Todd Huettner, president of Huettner Capital, a Denver-based real estate financing brokerage.

“Then there’s the financing. You’re borrowing dollars when they’re cheap today and paying them back when they’re worth less.” But depending on how you get into real estate, it can be a time consuming, complex and (as the recent bust proves) risky proposition.

There are many ways to invest—in properties or funds; in commercial, residential or industrial; in single-family homes or condos. Each strategy has advantages and disadvantages, but experts say there are a few principles that hold true across the board.

First, do your homework. “Don't feel obligated to do the deal if you don't have all the information you need,” advises Gregor Watson, managing partner at McKinley Capital Partners, a $30-million dollar real estate fund in California. “Just because it's free doesn't mean it's a good deal.”

That means examining market dynamics for the segment you’re considering, knowing how financing works, understanding all the aspects of the deal. “If it's outside your area of expertise, hire professionals,” Watson says.

Be skeptical of deals that seem too good to be true. “Be careful of the real estate agents—they're out to make a sale,” says Marty Sumichrast, an entrepreneur, venture capitalist and real estate investor.

And finally, expect things to go wrong. “What if you had a vacancy and needed a new roof and a water heater, all in 30 days?” Huettner asks. “If you see all the things that could go wrong, you’ll usually end up being okay.”

With those principles in mind, you need to figure out how you want to invest. That choice will depend on your personal and financial goals and predilections.

REITS And ETFS

George Van Dyke, an independent financial consultant in Towson, Maryland, advises his clients to use real estate investment trusts, EITS, and exchange-traded funds, ETFs, to diversify into real estate. The vehicles are fast and easy ways to get into different properties, geographical areas and real estate classes.

“With publicly traded securities you can remain liquid,” he says. “If you can't tolerate the risk, you’re not forced to go and sell a physical piece of real estate, which could take months.” It’s also relatively simple to limit risk by using a trailing stop loss order, which automatically sells an asset if it drops below a certain predetermined price.

“If the real estate investments we utilize go up for an extended period of time, it is possible to lock in years of gains,” Van Dyke says.

With REITs and ETFs, you don’t have any of the hassles or liabilities that come with being a landlord or a property owner. But some investors are looking to be more hands-on. And, Van Dyke notes, you may be missing out on some money. “The returns that you would get on a physical piece of real estate would exceed what you would get on a publicly traded security,” he says.

Residential: Single Family

For many, the next step up is investing directly in a property.

“Residential is the easiest and lowest risk,” Huettner says. “You don’t have to have a few million bucks to get involved, and you can get a 30-year fixed-rate loan at a really low rate, putting down 20 or 25 percent.”

The simplest approach is to buy a house or apartment unit to rent, especially since most of us are familiar with home ownership.

“If you're starting in single family, buy in the neighborhood you're working in,” Isaksen suggests. “You’ll know about the area. You’ll be able to get there easily.”

When looking for properties, consider how the home fits into the neighborhood and the current housing market. If a property is dirt cheap, ask yourself why.

“Is it because it's a three-story townhome in suburbia?” Watson says. “Don't just look at price. Make sure the product matches the market.”

Isaksen advises making sure you’re in the middle tier of the neighborhood in terms of size and price. “You don't want to be the highest end home on the block,” he says. “You don’t want to have to lead the market.” Keep in mind that single-family homes require hands-on management, and so are difficult to run from afar.

Also, make sure you’re okay with being a landlord. “Some people aren’t cut out for it,” Huettner says. “They don’t feel comfortable telling someone they’re behind on their rent.” Another potential downside: cash flow is all or nothing. If you lose your tenant, it drops to zero.

Residential: Multifamily

On the other hand, if you have 20 tenants and one moves out, you still have 19 others paying the rent, Isaksen says. Other pluses of investing in this category: your rentals are all in one location, so there is one lawn to mow and one roof to repair; if the property is large enough—over 80 or so units—you can hire a professional manager. “Then you're not in the landlording business—you're in the property ownership business,” Isaksen says. “You're not getting called at two in the morning to fix that toilet.”

On the downside multifamily properties are often more expensive than single family homes, and the financing is different. For one, loans are based on debt service ratios—an assessment of the cash flow rather than an appraisal of the resale value.

There are more financing options for loans over $1 million, Huettner says. Local bank loans will typically be portfolio loans, and be 10- to 15-year fixed rate loans, which means high payments, or 20-year loans with balloon payments.

Commercial

“A lot of the residential investments on the market are foreclosures,” says Tim Grizzle, author of Creating Wealth in a Turbulent Economy, a CPA and a commercial real estate broker, registered investment advisor. “I just don't want that karma.” Another reason he invests in moderate-sized commercial properties is that the rents are generally higher than with residential properties.

Lending for commercial properties is based on the income the properties produce.

“Generally the income the property produces needs to be 1 1/4 times the debt service,” Grizzle says. Financing can be difficult to obtain these days, but private investor groups are a common option. “Basically you call everybody you know and ask if they know anyone who has money to invest.”

When seeking out potential properties, research local market dynamics—the commercial real estate saw is, “Retail follows rooftops.” Shari B. Olefson, author of "Foreclosure Nation" and an attorney with Florida-based law firm Fowler White Boggs, suggests strip shopping centers as an investment. Though retailers are not doing well currently, grocery stores, discount stories and drugstores are.

“Look for a local strip venture that you’re familiar with and has local businesses that people use and need,” she says. Also be aware that they need to be renovated every five to ten years.

But no matter what you’re considering, don’t be afraid to walk—for any reason.

“The best investment decisions are usually the properties that you turn away,” Huettner says. “There will always be other great deals.”

URL: http://www.cnbc.com/id/32329465/

© 2009 CNBC.com

How To Avoid The Pain of Inflation With Real Estate

By Todd Huettner

Print Version PDF

Inflation or generally rising prices reduces the value of money over time. Simply stated, you can buy less with each paycheck. Assets like real estate, gold, oil, and other commodities are classic inflation hedges because their values increase with general price levels. However, real estate offers many other ways than just buying commodities to protect and diversify your assets.

Use Fixed Rate Loans – You should refinance all adjustable rate and balloon loans to long-term fixed rate loans. Another option, assuming you can make the payment even if your financial situation should worsen, is a cash-out refinance for investment or debt consolidation.

Residential real estate financing may be the best inflation hedge. You can borrow at very low rates, for long loan terms, and the interest is usually tax deductible. Fixed rate loans eliminate the risk of balloon payments and adjustable rates. Therefore, you only refinance to lower your rate.

When you borrow, you pay back the loan with money that is worth less than what you borrowed. You can also invest money conservatively, even in bonds, at rates that are higher than what you pay on your loan. Higher inflation creates a greater difference and an even larger benefit to borrowers.

Buy Now – If you plan to buy a new, upgrade, second, or retirement home in the next 2-5 years, buy now! Don’t wait until rates and home prices are higher. Small changes will cost you more in the long run…

Consider a $200,000 home today with 20% down on a 30 year fixed loan at 5.0% compared to the same house in 2 years for $210,000 with the same loan at 6.5%. Only 5% more in price and 1.5% higher rate results in a payment that is 23.6% higher ($858.91- $1061.87). In 12 years, you will have paid $15,993 more interest, even though you waited 2 years to buy. You would also owe $20,252 more on your home. Buying now saves you $36,245, which is far more than the taxes, insurance, etc for the first two years.

Own Investment Property – Residential rental property combines appreciation and rising rent rates with the benefits of fixed rate loans to create an inflation resistant long-term investment. Just make sure the rent covers the monthly expenses. You should also save 12 months worth of payments for any vacancies.

If you don’t want to be a landlord, buy raw land. However, land financing is very different from home loans. Expect a much shorter loan term and have savings to pay off any balloon payment, or just pay cash.

Inflation is the biggest threat to your financial future because it robs you blind without ever taking a single dollar. Real estate provides flexibility that you can use to protect your wealth and diversify away from volatile commodities. The most surprising is how buying now can save you so much later.

How To Avoid Shady Lenders
8 Questions to Ask Before Choosing Your Lender

Real estate most likely represents your largest assets and debts. It also likely presents your largest financial risks. Amazingly, most people spend more time picking a movie on any weekend than they spend selecting their mortgage lender.

You usually don’t pick the cheapest doctor or attorney you can find. Instead, you evaluate them based on criteria including education , experience, reputation, and cost. Similarly, you should not pick the cheapest lender. To determine if a lender is qualified to complete your financing, answer these 8 questions:

Is your lender…?

Objective - Does your lender have a proven record of providing objective advice that is in the best interest of their clients even when that means losing business? Can you count on your lender to tell you when a refinance does not make sense or when another lender is better suited to provide financing?

Flexible - Can your lender submit your loan to the bank with the best option for you or are they required to use the banks that are the best for them? Do they have access to all major and niche banks? 

Experienced - Does your lender have the experience to guide you through the lending changes and get your loan closed? Most lenders have less than 5 years of specific experience; you want a lender with 10+.

Knowledgeable - Having been in business for several years is simply not enough to develop the expertise you need. Does your lender have specific experience and knowledge of finance and loan underwriting.

Proactive – Does your lender monitor your loan for interest rate improvements alerting you in advance?  Does your lender solve problems before they arise and make plans in case you need to change your loan?

An Expert - Is your lender a recognized authority based on their experience, knowledge, expertise, and leadership roles? Do industry and financial publications request articles, interviews, and opinions from your lender? Or are they a relative unknown in their industry lacking professional recognition?

Stable – Is your lender an industry professional with consistent referral and repeat business? Are they someone you can count on or are they dusting off their resume to make another career change?

Accessible - Do you have complete access to your lender including their direct phone, fax, and e-mail? Do they answer your calls and emails promptly or does someone or voicemail screen them? 

Selecting a qualified lender will save you far more time and money than you can imagine. If you have ever had the unfortunate experience of working with an unqualified lender, you don’t have to imagine.

What's My House Worth 

by Alyson McNutt English

With housing prices so volatile, it can be difficult to determine how to price your home in this market. Here are some expert tips to help you figure out what your home is worth to buyers today.
 
Housing used to be a fairly safe investment—you put your money in and, in a few years when it was time to sell, your house would be worth more than you paid for it. Unfortunately, many sellers are discovering that those gains in home equity they thought they had gained during the boom years are nothing more than wistful memories.

That’s not entirely true for everyone, however: Even in this brutal real estate market, there are still areas where housing prices are holding steady or even increasing.

How can you know where you (and your home) fit in? It’s not an easy answer. Here are six tips for pricing your home correctly in a volatile housing market.

Prepare for a Reality Check
If you bought your home at the height of the market (or if you cashed out home equity when times were flush), you may be in for the seller’s version of sticker shock. Real estate experts say that even when homeowners recognize that the value of houses all around them has fallen, they often still hold on to outdated ideas about what their own property is worth. If you’re getting ready to sell, it’s time for a serious reality check, says Cincinnati, Ohio-based real estate appraiser Lou Freeman.

“There is a saying in real estate that you can’t be objective about your own home,” Freeman says. “It’s true. When a Realtor tells you that the home you bought six years ago for $303,500 will now only fetch $285,000, you may find it hard to believe.”

Sometimes sellers ignore expert advice because they have a number in mind that they can’t get away from, says commercial and residential real estate financing broker Todd Huettner. If you can’t get past that number and you don’t have to sell, it’s probably time to just sit on your investment and wait out the current storm. But sellers who have to divest themselves of their property are going to have to face some harsh realities. “What you paid for your house has nothing to do with its current value,” he says. “What you ‘need to get out of the house’ has no bearing on current value, either.” This fact can be a harsh reality check when you consider you need to receive a certain dollar amount on the sale of your home in order to pay off your current mortgage.

Talk to More than One Realtor
When prices are going down and the volume of sales has slowed to a trickle, it may be time to talk to real estate professionals who work with buyers, at least for the purpose of determining the right price for your home. Working with a Realtor® who has a great record as a seller is usually the best first step.

“It’s so important to hear what buyers are thinking in today’s market,” says Katie Wethman, MBA, a certified public accountant and Realtor based in McLean, Va. “Too many agents—especially the ones with the most experience in the business—work primarily with sellers, and they never hear the most common objections of buyers.” Wethman says in this market, sellers might even consider working with someone who is primarily a “buyer’s agent,” or someone who specializes in helping buyers find homes. She says having them help you stage your home and market it may actually help you sell more quickly since they know precisely what feedback they’re getting from people currently looking.

Another reason to shop around for a Realtor is to make sure that you’re working with someone who not only knows the area and the market but is realistic about the current state of sales. “Many Realtors are too optimistic or they think providing a high number will get them a listing,” Huettner says.

Use Your Comps Correctly
Any real estate expert will tell you one of the most powerful pricing tools anyone has are what’s called “comps,” or comparative listings. These are statistics for recently sold homes similar to yours, usually in location, size and/or amenities. But while any licensed Realtor or appraiser will have access to comps, it’s not always easy to choose the right ones or to read them appropriately.
 
First, make sure you’re looking at what has actually sold rather than what people with comparable properties are listing them for. “Too many owners focus on what other people are asking for their homes rather than what they’re actually getting for them,” Wethman says. And when you’re looking selling prices of comparative properties, pay close attention to the date the deal closed. “Even if a comp is just a few months old, you must apply regional trend data: If the market has dropped five percent in the last three months, you need to take that comp from three months ago and apply a greater than five percent drop to that price. Too many people price at the last sale without that extrapolation and they end up chasing the market down.”

To add to the complication of reading comps correctly, Wethman says your Realtor needs to know and understand your unique situation. “Not every market is declining,” she says. “Even in declining markets, there are neighborhoods that are doing just fine,” she says.

Consider an Appraisal
If you’re still not feeling confident in your analysis of your home’s value, it’s worthwhile getting an appraisal, say the experts.

“Most homeowners depend on their Realtor to help price their properties, and Realtors usually have a great deal of knowledge about what is and what isn’t selling in any particular neighborhood or at a particular price point,” Freeman says. “But the cost of an estimate by a state licensed or certified appraiser who is familiar with your neighborhood could save you months of extended marketing time and thousands of dollars in carrying costs by helping you price your home correctly from the start.”

Make sure you choose someone who understands not only your area but your purpose in getting the appraisal. You want to choose someone who is willing to talk to you and explain things, says Huettner. “Call three appraisers and tell them what you are doing, and choose the one who is most willing to explain things to you and help you,” he says. “If you are selling your home, $300 to $500 is worth it to have your own independent expert opinion of what your home is worth, and it’s invaluable for educating yourself.”

Be a Nosy Neighbor
Finally, don’t be afraid to be what Realtors like to call “the nosy neighbor.” “Start going to every open house in your neighborhood to get a feel for pricing vis à vis square footage, level of updating and so on,” Freeman says. “Realtors expect nosy neighbors. Don’t disappoint them.” An added benefit of being nosy: If/when the home sells, you will know more about it when you look at the comps.

While it’s important to realize the only number that really matters is the closing price, comparing the list to closing prices of the homes in your area will give you a good barometer for what direction prices are heading and how long you can expect to wait to find a buyer. “Drive around your neighborhood or go online to Zillow.com or other similar sites and view recently sold homes and listed homes,” Huettner says. “Just remember: Only closed sale prices matter.”

It can be tough to come to accept your home’s value in a declining or volatile market, Huettner says, but it’s better to deal with it when putting your house on the market than letting it languish for months if the price is too high. “You will eventually find out the market value of your home,” he says. “Don’t wait for the market to show you when you finally sell. It costs so much more that way.”

Published May 15, 2009

http://www.bobvila.com/HowTo_Library/What_s_My_House_Worth_-Home_Selling-A3895.html

© 2009 BobVila.com

7 Closing Mistakes That Can Cost You BIG Money

Borrowers regularly make costly mistakes when closing their loans. A higher rate or an extra point on your loan can cost thousands. An error on a prepayment penalty, balloon payment, or adjustable rate can cost you tens of thousands more. It is ultimately your responsibility to protect yourself from any mistakes.

Real estate is very likely your single largest asset and debt. It can also be your largest financial risk. Invest a little time and effort with the tips below to avoid these potentially costly mistakes.

Not Being Prepared - When you prepare for your closing, you get answers to all of your questions in advance and you know exactly what to expect when you arrive. Should any problems arise, you are prepared to act decisively and confidently to fix the problem.

Failing To Monitor Rates and Fees – A good lender will notify you of any significant rate changes, but always check yourself. Ask for an updated Final Good Faith Estimate from your lender to confirm and compare to current rates. If the change is significant, re-price your loan or switch loans if time permits.

Failing To Review Documents Before Closing – Avoid the trap of only reviewing the bottom line numbers. Ask the title company and your lender to send you your loan closing documents a day in advance for your review. In  the event the documents are not available in advance, don’t worry. Simply review your initial application and disclosures since they make up the majority of what you will sign. At closing, you will quickly check the application and disclosures for any errors and then take as much time as you need to review the remaining items you have not seen.

Assuming Everything is Correct – Don’t assume everything is correct or that it will match what you received in advance. Review every page prior to signing. Specifically, verify your fees, loan amount, interest rate, and other loan terms like any prepayment penalty, balloon payment, or adjustable rate.
 
Not Hiring An Attorney When You Need One – If you need or want an attorney, get one. A few hundred dollars for an attorney is nothing compared to the cost of a mistake. It is worth the peace of mind.

Asking the Closer/Notary for Advice – The title agents can only provide a description of each document and answer basic questions. While they want to help, they cannot provide legal advice. The answers to some of your questions will effectively be legal advice. Only an attorney can give legal advice.

Closing Because “You Have To” – You never have to close. There is a lot of pressure to do so, but you have the legal right not to close. While it may cost money to wait, closing with a mistake can cost far more. Get answers, make things right and only close your loan once you are satisfied.

4 Economic Stats That Matter -- To You
 

Are you lost in a sea of conflicting, hard-to-interpret data? You can gauge the effect on your day-to-day life and your future finances by tracking these indicators.

By Gina Roberts-Grey

MSN Money

The numbers are dizzying and mostly depressing.

Every day the information floodgates open, releasing waves of economic numbers and stats we're told affect everything from the price of a loaf of bread to the number of for-sale signs in our neighborhoods.

The steady stream of information, experts say, is missing one key component: "Consumers aren't being told which economic indicators they need to pay the most attention to, and why," says Alan Schlottmann, the executive director of the Theodore Roosevelt Institute, a research and consulting think tank, and a professor of economics at the University of Nevada, Las Vegas.

Until now. Here are four indicators that not only affect your everyday life but are also useful in gauging the security of your job, your negotiating power, the car to buy and even when to sell your house.

Blue collar? Here's your indicator

The indicator to watch: the Purchasing Managers Index, or PMI.

When to look for it: the first business day of each month.

What it means: The PMI is a composite of five subindicators -- production levels, new orders from customers, supplier deliveries, inventories and employment levels -- that are extracted through surveys produced by the Institute of Supply Management. The surveys are sent to more than 400 purchasing managers around the country.

The PMI represents only manufacturing, not services, even though services "account for a very large portion of employment and output in the U.S.," says Frank D. Tinari, a past president of the National Association of Forensic Economics.

Tinari adds that manufacturing is considered a leading indicator and a good predictor of changes in gross domestic product (GDP) and even possibly the economy as a whole. An index value above 50 signals expansion in the economy; anything less than 50 signals contraction.

In the past 12 months, the index has ranged from 49.5 in June and July to a low of 32.9 in December. Economists were cautiously optimistic about March's value, 36.3, up 0.5 from February. That slight tick upward, Tinari says, means the economy is still contracting "but at a slower rate than before."

How it affects you: An unexpected, significant dip or a slumping trend is usually followed by a loss of manufacturing jobs in the coming three to six months. Tinari says it also shows up in lower prices on U.S.-made products. Conversely, a rising number, even one that's slowly inching up, can indicate that prices and manufacturing jobs are holding steady or increasing.

What you should do: Sudden changes are warning signs. And Tinari says any three- to six-month trend (up or down) should be watched. "Always keep in mind changes in excess of 5 points suggest shifts in the overall economy."

Ebb and flow is nothing new in the history of the PMI. Here's a look at what it's done during U.S. recessions since World War II:

Recession		Average	High	Low
2007-09		44.4	50.8	32.9
2001		43.4	46.3	40.8
1990-91		48.6	54.9	39.2
1980-82		43.1	58.2	28.4
1973-75		54.1	72.1	30.7
1970		46.2	51.5	39.7
1960		47.1	61.5	42.6
1957		45	53.6	36.8
1949		41.3	57.3	31.3
All-time low		29.4 (May 1980)
All time high		77.5 (July 1950)

Have a house to sell?

The indicator to watch: housing inventory.

When to look for it: monthly. The National Association of Realtors releases its report on existing-home sales for the previous month at 10 a.m. ET on or around the 25th of each month.

What it means: Affecting anyone looking to buy, sell or refinance a home, housing inventory represents the number of months' worth of existing houses there are on the market. The current rate of 9.7 months' worth of inventory means that instead of buying an existing home, many are seeking roommates or bunking with family members. "That leaves a lot of homes without buyers," mortgage broker Todd Huettner says.

Luckily, the number is slowly creeping down; in November 2008, it was 11 months. "When the HI (housing inventory) hits five or six months, the number of homes for sale will not meet demand. Home values will improve, and new home construction will be needed," Huettner says.

How it affects you: The higher the number, Huettner says, the longer it will take to sell your home. "A high number creates a buyer's market because of the excess inventory. And a buyer's market tends to see home values fall, which affects sales prices and refi (refinancing) appraisals." Conversely, the smaller the number, the less time it should take to sell a home. "Normal (housing inventory) is about six months," Huettner says.

What you should do: "If possible, hold off selling or refinancing until the number edges downward," Huettner recommends. But if you are selling when the housing inventory is high, Huettner suggests negotiating a lower commission rate with your real-estate agent to offset the lower asking price the inventory will dictate. "They're more apt to wiggle on their rate when they have several listings," he says.

Would-be sellers and refinancers, take heart. As the number comes down, your home value should go up based on your region's home values. And we're currently trending down, something Huettner calls "a good sign." Here's a snapshot of how the Housing Inventory has been moving:

Period	Supply of homes on market
Average in 2006	6.5 months
Average in 2007	8.9 months
Average in 2008	10.5 months (highest since 1985)
March 2009	9.7 months

Want to dicker over big-ticket items?

The indicator to watch: consumer confidence.

When to look for it: Consumer confidence is measured monthly and reported at 10 a.m. ET on the last Tuesday of the month, reflecting the data for the current month.

What it means: Formally known as the Consumer Confidence Index, consumer confidence is measured by The Conference Board, an independent economic research organization, and based on a survey of 5,000 households.

"Consumer confidence measures the degree of optimism on the state of the economy consumers are expressing via their spending and savings activities," says Vinnie Aggarwal, the chief economist at Frost & Sullivan and the director of the Berkeley Asia Pacific Economic Cooperation Study Center at the University of California, Berkeley. The index indicates consumer attitudes about the current climate and their expectations about the future.

Several factors drive the index up or down. When everyone was spending freely a few years ago, consumer confidence soared, even if the buyers were spending money they didn't have. "People felt secure in their jobs and in their retirement strategies. And their spending reflected such," Aggarwal says.

However, the index's current sharp downhill slide (and current all-time low) represents our mounting fears about losing our homes and jobs. Aggarwal says fear has consumers spending considerably less on dinners out, new appliances and vacations than in years past. "That mix of fear and subsequent reduction in spending conspires to undermine consumer confidence. And creates a gloomy near-term outlook," Aggarwal says.

Stability is key. A number around 75 or 80 indicates we're spending just enough to keep the economy going at a current pace but that it probably won't grow very much.

Changes of less than 5%, Aggarwal says, are usually dismissed as "noise." "As such, retailers, manufacturers and banks usually do not adjust pricing," he adds. A move of 5% or more indicates a change in the economy, prompting businesses to shift pricing.

How it affects you: There are plenty of bargains to be had now because a prolonged low in consumer confidence has retailers lowering prices to attract buyers, Aggarwal says. "Those lower prices and subsequent spending will drive up consumer confidence."

What you should do: When you see a decline of 5% or greater, haggle. Aggarwal says that if you can afford to buy the new appliance or sneakers you've been eyeing, do so -- "just don't pay the sticker price." Most retailers are hungry for sales and will knock as much as 15% off the price if you ask.

Consumer confidence, 2007-09:
Period	Confidence index	Present	Future	Period	Confidence index	Present	Future
March 2009	26.0	21.5	28.9	March 2008	65.9	90.6	49.4
Feb. 2009	25.3	22.3	27.3	February 2008	76.4	104.0	58.0
Jan. 2009	37.4	29.7	42.5	January 2008	87.3	114.3	69.3
Dec. 2008	38.6	30.2	44.2	December 2007	90.6	112.9	75.8
Nov. 2008	44.7	42.3	46.2	November 2007	87.8	115.7	69.1
Oct. 2008	38.8	43.5	35.7	October 2007	95.2	118.0	80.0
Sept. 2008	61.4	61.1	61.5	September 2007	99.5	121.2	85.0
Aug. 2008	58.5	65.0	54.1	August 2007	105.6	130.1	89.2
July 2008	51.9	65.8	42.7	July 2007	111.9	138.3	94.4
June 2008	51.0	65.4	41.4	June 2007	105.3	129.9	88.8
May 2008	58.1	74.2	47.3	May 2007	108.5	136.1	90.1
April 2008	62.8	81.9	50.0	April 2007	106.3	133.5	88.2

Choosing between a Honda and a Hummer?

The indicator to watch: Brent crude futures, or BCF.

When to look for it: daily. The New York Mercantile Exchange provides a daily update.

What it means: Ralph Glass, the vice president of operations at AJM Petroleum Consultants, says Brent crude futures are an international benchmark that set the price for exports of European, African and Middle Eastern oil. "It's the price of a barrel of Brent crude oil, which gives a sense of where energy costs will go based on the source product," he says.

Many factors can play a role in the price of a barrel, including geopolitical issues, weather and natural disasters, trade agreements and wars.

Gasoline and jet fuel are the main products produced from Brent crude, but other refined crude oil products include lubrication oil, paraffin wax, asphalt, industrial fuel oil, heating oil, diesel and kerosene. So you could see those prices fluctuating based on BCF data, too.

How it affects you: Increases in oil prices have preceded every recession since the early 1970s. In the early 1990s recession, oil prices nearly doubled, jumping from $18 a barrel to about $36. Such increases drain some consumer spending (because of higher prices at the pump and for utilities), which can result in an overall slowdown in the economy.

And Glass says because oil is purchased in advance, the price you're paying at the pump isn't for the actual gallon your tank is guzzling. "Depending on the point of the month that a barrel is bought, it could be purchased up to six weeks in advance of when it will be delivered." That means the price you pay today is actually for gas that won't show up at your local station for four to six weeks.

What you should do: It's simple. Keep your eye on the price. To determine just how much you'll feel BCF at the pump in four to six weeks, take the price of a barrel of oil and divide by 25. You'll get very close to the retail price of a gallon of gasoline.

Brent crude futures:
Date	Price per barrel
April 1, 2008	$48.52
Oct. 2008	$72.94
March 2008	$103.28
March 2007	$62.14
March 2004	$33.80

Published April 7, 2009

http://articles.moneycentral.msn.com/CollegeAndFamily/RaiseKids/4-economic-numbers-that-matter.aspx

© 2009 Microsoft

Good credit score not good enough anymore

By Melissa Ezarik • Bankrate.com

How To Save the Most Money On Your Refinance

Seven steps that will save you money and simplify the refinance process

While it is a great time to refinance, you still need to make the most of your savings. By using these seven steps, you will know exactly when refinancing makes sense for you. You will be ready to act quickly, but will not need to make hasty decisions. The result is an easy, low stress process that will save you time and money compared to a bad refinance or trying to time the rate bottom and missing out completely.

Determine Your Target Rate – Know the rate at which it makes sense to refinance so you do not miss the opportunity. An interest rate any lower is icing on the cake. Simply estimate the number of years you plan to be in your home or have the loan. Then divide the closing costs by the annual savings to calculate the breakeven in years for a given rate. You should refinance if you are likely to be in the home beyond the breakeven date.

Chose A Qualified Lender - The best rate means nothing if you cannot close the loan. Many loan officers are simply sales people without the specific underwriting experience or knowledge required to close your loan. Before you waste time and money as rates go higher, make sure your lender is qualified.

Pre-Underwrite Your Loan – Again, it does not matter how low rates go if you cannot close your loan. New underwriting guidelines make this the most important step of the loan process. While many lenders still try to use the five-minute credit pre-qualification, the reality is much different. You must complete a full application and provide documentation to your lender for a complete review of your credit, income, and assets. Your lender should manually underwrite your loan as well as get a computer approval.

Be Ready – Delays submitting your loan documentation can require costly rate-lock extensions. You must be prepared to submit your loan at all times. Know exactly what documentation will be required for your loan and gather it immediately. Remember to update current copies each month.

Monitor Interest Rates – Take advantage of market volatility to lock your loan. Rates may hit your target rate for only a few hours and go right back up again. When rates are close to your target, contact your lender regularly so you are both waiting to lock.

Lock Your Loan Immediately – Lock as soon as your target rate is available. Do not risk your refinance waiting for rates to go lower. You can always re-lock if they do. You already know refinancing at your target rate makes sense. Waiting for lower rates is the biggest mistake people make when refinancing.

Continue To Check Rates – Keep an eye on rates in case they go lower. Be sure to ask your lender about their re-lock policy because every lender is different. If rates go lower, look to improve your interest rate.

5 Rate Lock Secrets That Will Save You Money

Before closing, every loan must be “locked” where the lender commits to a borrower for a specific loan, rate, and fee. A few secrets can reduce your risk and save you money. Yet, many lenders don’t provide this information. Make sure you know them before locking your next loan.

Rate Lock Secret # 1: Lock Immediately. If rates get better, you can improve your rate. As soon as you have a purchase contract or as soon as you hit your target rate on a refinance, lock your loan. Even if you think rates will go down tomorrow or next week, lock your loan right away. You don’t need to gamble or be right about rates if you lock right away.

Rate Lock Secret # 2: Know the Lock Extension Policy. You probably won’t need an extension, but you must know the costs in case you do. Lock extension fees and terms vary greatly and some lenders do not allow them. Delays can easily occur when buyers and sellers negotiate and fix inspection items. Errors or credit surprises can delay refinances. Before you lock, know the following: Can you extend? When? How many times? What are the costs?

Rate Lock Secret # 3: Look At Different Lock Periods. A longer rate lock can save you money. The cost of a 45-day lock is usually less expensive than a 30-day lock with a 5-day extension. So, a 45-day lock would save money if you need an extension. Before you lock your rate, compare different lock periods with different lenders since their pricing can vary greatly.

Rate Lock Secret # 4: Know the Rate Re-Lock Policy. Know how to relock your loan if rates go down. This is very important because some lenders do not allow rate re-locks. Most lenders require that your rate improve by 0.375% or more and charge a large fee, but some only require a 0.125% improvement and smaller fee. With current market volatility, you can often lower your rate by choosing the right lender and knowing the rules in advance.

Rate Lock Secret # 5: Determine if Another Lender Offers Your Loan. Use a longer lock period when no other lender offers your loan. If loan requirements change, you are usually exempt until your initial lock expires. The changes can cost a lot and even eliminate your loan.

Make Sure Your Loan Officer Passes the Test. A good broker will automatically discuss these issues with you. A broker who doesn’t will cost you money and is someone you should avoid.

RATES DROP!

The FED announced today it will buy $300 Billion of Treasuries, double its purchase of Agency (Fannie Mae and Freddie Mac) debt from $100 billion to $200 billion, and more than double its purchases of Agency Mortgage Backed Securities from $500 billion to $1.25 trillion. 

The yield on the 10 Year Treasury dropped as much as 0.5% on the news.  Yields on Mortgage Backed Securities also improved. 

30 year mortgage rates are down 0.125% - 0.250% and should move lower tomorrow morning if today's gains hold.

The FED also said it will keep the FED Funds Rate between 0%-0.25% for the long-term. 
 

Housing Data Improves

Housing Affordability Index

The National Association of Realtors' Housing Affordability Index hit an all time high again in January rising to 166.8.  The index represents a relative measure of housing affordability based on home prices, mortgage rates, and, income.  The current reading means a family earning the median income has 166.8% of the required income to purchase a median-priced home.

Existing Home Supply

The Existing Home Supply, the number of months it will take for current sales to work through the current inventory, continues to improve. The current supply is 9.6 months and trending down. Last year’s numbers over 11 months were the highest since 1985 and consistent with a significant housing recession.

The higher the number, the longer it will take to sell your home because it is a buyer’s market. The smaller the number the less time it should take to sell a home and it signifies a seller’s market.

Existing Home Inventories are normally about 2.5 million and the Existing Home Supply is usually about 6 months. Averages for supply the last three years are: 2006 – 6.5 months,  2007 – 8.9 months, 2008 – 10.5 months

While we are still well above normal we have seen improvement and the numbers will continue to trend down now that new home starts are below household formation of about 1.2 million per year. People can put off buying a home for only so long even in a recession. They have to live somewhere and they will eventually buy or rent a home.

Considering the root cause of the current recession is depreciating home values, this is an important leading indicator. As the supply comes down, banking and the economy as a whole will improve having a significant impact on stocks, bonds, and real estate values.

With respect to using this indicator to buying a home, all real estate is local. You have to know your market. There are strong and weak areas in every town, city, state, and region.

Todd Huettner’s 2009 Real Estate Financing Predictions

In no particular order:

The housing market will bottom in the second quarter of 2009 stabilizing the financial markets and the economy.

Mortgage interest rates will not go as low as many predict causing many homeowners to wait too long to realize huge savings from refinancing.

Mortgage rates will be volatile yet remain in a 0.5% trading range with national averages between 4.875% and 5.375%. Rates for highly qualified borrowers are 0.125% - 0.250% lower.

Borrowers will intentionally not take tax deductions to increase their income, and even amend prior returns, to qualify for loans due to the elimination of stated income programs.

Tighter credit will prevent many borrowers from obtaining loans leading to an increase in owner financing and rent to own transactions.

Rent rates will continue to rise as vacancy rates fall. Having been through a foreclosure/short sale or unable to qualify for loans with higher lending standards, a large group of people will have to rent homes for several years.

While rates will remain relatively low for much of the year, tighter underwriting guidelines and regulations will increase the total cost of lending.

Call or email me to quickly look at your refinance or purchase.

HAPPY NEW YEAR!

Todd Huettner

Mortgage Broker

Huettner Capital

303-758-7402 

How Much Lower Will Rates Go?

I think we are close to a rate bottom for the following reasons.

1. The FED cannot cut below 0.0%.

2. Mortgage Backed Security risk spreads are almost back to normal.

3. The 10 Year Treasury Bond is at record lows.

The current FED Funds Target Rate is 1.000% and the market expects a 0.5% cut today based on futures. While it has other tools at its disposal, it has used most of them already and can only cut the Target Rate to 0.00%.  Remember, the market expects this cut.  Rates will not move lower from this cut alone. Rates will move tomorrow based on the FED announcement regarding future actions. It is the change in expectations of future rates that changes the market today.

Most of the recent rate drop came from the narrowing of the risk spread between the 10 Year Treasury Bond and Fannie/Freddie Mortgage Backed Securities (MBS) when the government announced it would buy $600 Billion in MBS. While not an explicit backing of Freddie and Fannie, investors feel confident Freddie and Fannie will not be allowed to fail if the U.S. government is putting that much money on the line. The spread is down from just over 1.90% to about 0.60%. The spread is normally about 45 basis points. So, even if the risk spread returns to normal, rates would only go down another 0.125%.

If the FED cannot cut much more and risk spreads are close to normal, that leaves any rate improvements up to the 10 Year Treasury going lower. The 10 Year is already at record lows and in uncharted territory. More importantly, government spending will require the Treasury to issue more debt, which will cause rates to rise. Obama Administration programs and additional bailouts will be a lot of spending. I don't know how much lower rates will go, but I would not gamble on them going much lower than where they are today.

What Should You Do Today?

If you can lock an interest rate that works for you, lock it. We can always improve your position if rates go lower. Clients who try to time the bottom usually end up with a higher rate in the end or missing out altogether. Be smart, not greedy.

Please email or call me for a FR*EE no-hassle quote.

1. FED Rate Cut
2. 2009 Conforming Loan Limits
3. New Mortgage Modifications
4. Commercial Loans
5. Energy Tax Cut

FED Rate Cut – The FED cut rates to 1.00% and futures indicate the FED will keep rates low well into 2009 with another 0.25% rate cut priced in coming meetings. See the FED probabilities charts here.

2009 Conforming Loan Limits – The 2009 Conforming loan limits are now available. The maximum conforming loan amount outside high cost areas is still $417,000. To see the 2009 maximum conforming loan amounts for high cost areas go to the OFHEO web site.

New Mortgage Modifications – Fannie Mae/Freddie Mac and Citigroup

Fannie Mae and Freddie Mac announced a new mortgage modification program. Initial information indicate loans over 90 days late, over 90% loan to value, and still owned by Fannie or Freddie are eligible. The borrower will have to qualify for a new loan at a lower rate or longer amortization period and will not receive any principal reduction. The restrictions make this an option for some homeowners, but it is still not a silver bullet.

Citigroup joined Chase and Bank of America/Countrywide to announce they are working on modifications directly with borrowers who are in default and at risk or going into default.

The real help to the market will come from modification programs from the lenders themselves rather than the government programs. They will be much more inclusive, more effective, and much better for borrowers in the end than anything the government is trying to do. The lack of participation in the government programs shows those are not viable solutions for most delinquent homeowners.

Keep in mind that less than 6.5% of all mortgages are in default and only about half of all homes even have a mortgage.

Commercial Loans – Several major lenders currently offer commercial real estate loans with fees that are a fraction of traditional commercial loan fees and rates that are better than traditional commercial loan rates. More importantly, their loan processes are simple and they still have options for stated income and streamline documentation. You should review your commercial loans to see if a refinance makes sense to lower your rate, re-amortize your loan to lower your payments, or refinance with lower rates prior to your next balloon payment.

Energy Tax Cut – Energy prices continue to plummet and will act as a huge stimulus to the economy. Oil and natural gas are down over 50% from the peaks, which will lower the cost of nearly all products, services, and foods. Most notably, gas to drive your car, gas to heat your home, and gas to generate electricity, will act as its own several hundred billion dollar stimulus. It sure fells good to fill up for less than $100.

Todd Huettner
303-758-7402
todd@toddhuettner.com
www.toddhuettner.com 

Freddie Mac Cancels Stated Loans

Freddie Mac announced it will cease accepting loans for the Stated Income Verified Asset loan program.  While a few lenders still offered the Freddie Mac program, with this announcement, there will no longer be any conforming stated loan programs available.

If You Need a Stated Loan...

Good News - Rates for 30 year fixed rate loans just dropped about 0.5% and you can still submit your loan this week.

Refinance ARM - If you need to refinance an adjustable rate mortgage (ARM) to a fixed rate loan, you must calculate your payments at the maximum rate.  If you cannot make that monthly payment, you should refinance now.  You simply cannot accept the risk that your rate could get that high and cause you to lose your home. 

Refinance Fixed - If you are looking to refinance a fixed loan and waiting for a specific rate, consider the break-even at current rates. 

Purchase - If you are planning to buy a home, you need to determine if you can obtain financing with a full doc loan.  If you need a stated loan, try to find a house that fits your needs this weekend. If you cannot, don't buy the wrong house, just let me know and we can create a plan to put you in a position to go with a full doc loan.

Please do not wait until the last minute.  Contact me right away.  We need time to get the information you need and time to make your decision.  Also, you are not alone so be first in line.

Todd Huettner
303-758-7402
todd@toddhuettner.com
www.toddhuettner.com 

Search Foreclosure Listings

You can now search nationwide for foreclosures, pre-foreclosures, For Sale By Owner, and tax lien listings all from my web site.  Search Foreclosure Listings or go to www.toddhuettner.com/ForeclosureListings

FED Rate CUT Odds

Futures indicate 100% odds the FED will CUT the FED Funds Target Rate at the October 29th FOMC meeting; likely by 0.25 or 0.50 point.  See the FED probabilities charts here.  

What Happened This Week  

Interest Rates - The FED cuts rates last week and mortgage interest rates moved sharply higher last week.  Rates for 30 year fixed rates are currently about 0.5% higher than before the FED cut.  However, rates slowly moved lower this week and will likely continue lower as we get closer to the next FED meeting October 28th - 29th. 

Market Volatility - Volatility was the theme this week in the stock markets.  While market volatility is part of the bottoming process of a Bear Market, these swings are much larger and quicker than usual due to hedge fund liquidations and margin selling.  Each time the market moves more than a few hundred points in either direction, the liquidations and margins boost the market a few extra hundred points in that direction.

What is the Value of Your Home?

If you have not used it before, try out the Home Price Index Tool.  www.toddhuettner.com/HomePriceIndex

Have a great weekend!

Todd Huettner
303-758-7402
todd@toddhuettner.com
www.toddhuettner.com

The FED Cuts Rates

The FED cut rates a half point to 1.5% this morning in a coordinated worldwide move and signaled additional rate cuts may be needed.  The futures markets priced in this move over the last few days as financial markets worsened.  I will send my usual updates on the futures markets as we move forward.

We will have to wait to see the immediate impact mortgage rates because most lenders don't post their rates until 10:00 am ET or later.  Keep in mind that rates can move higher initially and then lower over time.  

UPDATE 12:30 am ET - Rates began the day relatively flat with most lenders, but moved over the last hour with many lenders repricing slightly higher.  Again, this is not uncommon after a FED cut.  I think there is a good chance rates move lower over the next days/weeks.  However, there are a lot of factors at play and moves will remain quick up and down.

The Prime rate will move lower which will lower the rate on Home Equity Loans and other Main Street interest rates.  It will also allow banks to make more money because they can borrow for less.  While not a silver bullet, the rate cuts definitely help.

I expect markets and interest rates to remain quite volatile.  Many of you are close to your Target Rates... so keep in touch.

Other Positive Changes

While stock markets worldwide continued to move lower over the last week.  I want to point out additional positive changes since the last Alert.

1. The Paulson Plan passed, at least a fattened version.
2. Wells Fargo and Citi got in a bidding war for Wachovia showing banks are worth something rather than just the deposits in an FDIC bailout.
3. The Dollar remained strong against most currencies which is important in the face of possible FED rate cuts.
4. The FED announced it will buy Commercial Paper, the every day short term loans business use to fund their operations, which had dried up and dropped over 25% in the last few weeks.
5. The FED also announced it will deal directly with companies and bypass banks that have been unwilling to lend.
6. Australia cut their bank rates yesterday.
7. Other countries are enacting or talking about Paulson type plans for their banking systems.

While credit spreads and lending remain extremely tight, the above changes are positive factors and should help ease the strains on the financial markets.

Todd Huettner

Huettner Capital

303-758-7402

todd@toddhuettner.com

www.huettnercapital.com

What is the Crisis?

Should Taxpayers Bailout Wall Street?

The Main Street Guide to the Wall Street Bailout is an explanation in plain English designed for the person on Main Street America. It is brief, but not short. Use it as a reference and feel free to contact me directly with additional questions. Be sure to Look for links to additional informaiton.

What is The Credit Crisis?

Simply put, due to a number of factors, banks are hoarding cash and afraid to lend money due to a lack of confidence. It matters to you because, if the problem persists, companies and consumers will not be able to borrow money resulting in an economic contraction and job losses.

Wall Street Gets the Attention of Main Street.

The government bailed out Fannie, Freddie, and AIG because the problems resulting from the failure of companies that guarantee and insure mortgages would be severe. They let Lehman fail because they thought it would not cause collateral damage.

Main Street decided it wasn’t going to “bailout” Wall Street and the politicians who caused these problems and let the politicians know with phone calls and emails.

Treasury Secretary Paulson did a horrendous job gaining support for his plan. Paulson was not a salesman. He was an investment banker who solved problems and told people how to fix them. From his perspective, “How could anyone not understand this problem and want act immediately?  Well, politicians in an election year!

How Do We Know There Is A Problem?

The financial markets are suffering from significant fear and strain. The strains appear in multiple areas:

Credit Spreads

The difference, or spread, between the interest rates of two investments over time is a relative measure of fear in the market. The higher the spreads, the higher the fear, indicating lenders/investors are demanding a much higher interest rate to lend/invest.

One example is U.S. Treasuries Vs. the LIBOR, the London Inter-Bank Offered Rate – the rate at which banks in London lend to each other. The spread between Treasuries and LIBOR is at an all time high indicating banks do not want to lend money to each other out of fear. The rates banks are charging each other for short-term loans are equivalent to a 30 year fixed mortgage going from 6% to 20% overnight.

Treasury Bond Yields

Investors consider U.S. Treasury notes and bonds zero risk investments because they consider the U.S. Treasury the most secure investment in the world. When investors are fearful and seek security they sell other assets like stocks and buy Treasury Bonds. As more people buy these bonds, the price goes up reducing the interest or yield the holder receives. The lower the yield, the greater the fear, indicating investors are willing to accept a lower return on their money.

In the last few days and weeks, both the one month and three month Treasury Bonds traded down to records lows near 0% from normal ranges of 1% to 3%. Investors are not worried about the rate of return ON their investment… they are worried about the return OF their investment from banks that might be gone tomorrow.

Credit Default Swap (CDS) Pricing

Simply put, Credit Default Swaps are insurance for investments. An investor who holds bonds, corporate debt, or mortgage-backed securities will buy insurance to transfer some or all of the risk of their investment to the seller of the insurance. The parties “swap” their risk of default. The higher the price, the higher the fear, indicating increased risk of default the assets in question.

What Is Causing the Problem?

The problem is the result of the combination of several factors that all reduce the assets of banks and financial institutions and require them to increase their cash reserves. The result is the drop in lending.

Money Market Withdrawals

Money Markets are liquid, low risk, short term investments used for cash management by large investors. You probably have had money in a money market as an individual through a money market fund where you owned shares.

Because Money Markets were not FDIC insured, companies and investors began withdrawing their assets. The withdrawals reached a panic when a few Money Markets could not meet withdrawals. The withdrawals reduced the reserves at these financial institutions. The FDIC now insures Money Markets similarly to regular bank accounts, but does not cover large clients that are removing their funds.

Prime Brokerage Withdrawals

Large brokers provide premium services including cash management to large clients, primarily hedge funds. When Lehman failed several weeks ago many clients could not withdraw their assets from their Lehman accounts. In fear of losing their assets, Prime Brokerage clients then pulled their money out of other brokerages and banks with other high balance clients following their lead. The withdrawals reduced the reserves at each of these banks.

Mark-To-Market Accounting

The accounting rule that requires financial institutions value assets at the current market value each quarter. The rule prevents financial institutions from inflating the value of their assets, which is a good thing. The problem is that there is no market for many mortgage-backed securities and the only pricing data available is from distressed sales of assets from failing financial institutions. Based on this data, the value of a bank’s assets drop requiring them to increase their cash reserves. It would be similar to the value of your house falling and your mortgage company requiring you to put $100,000 in a CD or sell your house even if you don’t plan to sell the house in the next 10 years. The resulting selling

Short Sellers Gone Wild!

When you short a stock, you sell a stock you do not own with the intention of buying it back later at a lower price. Sell high and buy low - the same as regular investing but in reverse. The significance for financial stocks is that they lose their credit ratings if their stock prices fall requiring them to raise cash reserves. Short Sellers knew this and could use the fear of bank failures and their rapid short-selling to cause credit ratings drops possibly setting into motion actual bank failures before the banks had time to increase their reserves.

How Do We Solve the Problem?

The U.S. Government Buys the Loans

Similar to the Resolution Trust Corp. in the 1980s that resolved the S&L Crisis, this is the basis of the Paulson Plan “bailout”. The government would essentially buy the mortgage assets at fair market value and keep them to maturity or sell them to investors when the markets stabilize. The benefit is that this move would immediately free up the financial markets. However, it is totally un-free market, puts the entire risk on the taxpayers, and is seen as a bailout by Main Street.

Mortgage Insurance

The U.S. Government could offer insurance on the mortgage-backed securities to the banks and institutions that hold them. The benefit to the banks is that they can limit their risk. The problem is that it would cost them a lot of money at a time when they are hoarding cash and it would shift the risk to the taxpayers.

Short Selling Ban

The SEC temporarily banned shorting financial stocks in an attempt to reduce the pressure on these stocks. It does not mean that stocks won’t go down, but it prevents short sellers from piling on and forcing stocks down. While I think the benefits are very limited adn that short selling provides a valuable market function, look for the SEC to extend this ban.

Reinstate the Uptick Rule

The Uptick Rule, established in 1934 and eliminated last year, required people shorting stocks to find a buyer willing to pay more than the last trade. It slowed the pace of a stock’s decline when multiple sellers were trying to short the stock and allowed the banks time to increase their cash reserves.

Increase FDIC Insurance Limits

Currently, the FDIC insures accounts with member banks up to $100,000. Increasing this amount will reduce the runs on banks and decrease the need for banks to raise cash. Additionally, the FDIC could offer bank paid insurance over the FDCI covered limit. Look for this to increase to $250,000.

FED Rate Cuts  

THE FED can cut the FED Funds Rate, which reduces the cost of borrowing, increases lending, and increases the profitability of banks. Obviously, it is not a solution by itself as the FED reduced the Fed Funds Rate 3% in the last year, but it is an additional tool. With inflation waning, look for a rate cut in the next few months. Current futures indicate 100% chance of a quarter point cut and 38% chances of a 50 basis point cut at the October 29^th FED meeting.

Bank of England and European Central Bank Rate Cuts

Similar to the FED Funds Rate, the BoA and ECB adjust their funds rate. The European economies are slowing and inflation is easing so look for the BoA and ECB to cut rates. The benefit to the US is that it should strengthen the dollar and cause international investors to buy more U.S. bonds, which will reduce interest rates and mortgages in the U.S. The downside is that a stronger dollar will hurt exports that have helped buoy the economy.

Other Options

There are many other efforts ongoing such as allowing banks to borrow from the FED using different assets as collateral and easing mark to market rules. Suffice to say the FED has been trying different options for the last year without much success.

My Opinion In A Nutshell

I am disgusted that we are at this point, but know the basis of the Paulson Plan is the best option at this point and something that we need before the problem gets worse. The piecemeal solutions address the symptoms and not the cause of the problem. They are not working and the problem is only getting worse.

I do not think the plan is a “bailout” because the taxpayer would be buying real assets. If a house in California with 100% financing worth $300,000 two years ago is now worth $150,000, but the taxpayers only pay 30 cents on the dollar, then they paid $90,000 for a house now worth $150,000. The taxpayers have risk and could lose money, but the money is not evaporating.

If you do not agree, then call it a Main Street bailout of a bunch of rich guys on Wall Street.  However, the cost to taxpayers of doing nothing will be much higher in the future.

I think you will see a version of the Paulson Plan very soon, possibly the one they are voting on tonight.  It will not immediastely solve all of the problems, but will remove the single biggest problem and allow the housing and financial markets to continue to improve.

Todd Huettner

303-758-7402 

todd@toddhuettner.com

www.huettnercapital.com

When will the housing market bottom? The bottom is happening now.

U.S. housing starts in August dropped to their lowest level in over 17 years. Annual 2008 U.S. housing starts will likely fall below one million for the first time in over 50 years. Home sale are jumping as home prices fall.

The ugly data is a beautiful thing!  They all show that the housing market is bottoming.  Even in some of the hardest hit areas in California. Wall Street and the FEDs are working out the problems in the financial markets, yet another sign of the bottoming process.

I wrote about the beginning of these trends in previous posts Why You Should Buy Investment Property Now and 5 Reasons You Should STILL Buy Investment Property Now.

The drop in housing starts will hasten the inventory reduction of homes for sale. Look for the inventory of unsold homes dropping to a five-month supply to signal the bottom is in and housing will be on the way up again.

Remember, all real estate is local so all areas will bottom at different times.

Todd Huettner
 303-758-7402 
todd@toddhuettner.com
www.toddhuettner.com

Futures indicate a 50/50 chance the FED will CUT the FED Funds Target Rate by a quarter point at the September 16th FOMC meeting.  See the FED probabilities charts here.  

Interest rates moved lower on Monday as investors looked for safety amid the sell off taking them back to where they were Monday after the Fannie and Freddie bailout.  Rates could trend lower so review your Target Rate and contact me with any changes or to calculate your Target Rate.

Make sure you know the reprice policy of any lender before you lock your loan to protect yourself from higher rates AND still keep the ability to take advantage of any rate drops. 

Todd Huettner
 303-758-7402 
todd@toddhuettner.com
www.toddhuettner.com

30 Year Conforming Rates Down 0.5% Monday

The market liked the FED decision to takeover Fannie Mae and Freddie Mac.

Depending on your loan and credit, a 30 year fixed is now down to 5.250% paying a point.

We are now very close to many of your refinance Target Rates. I will watch these for you and contact you if rates continue to improve. If you do not know your Target Rate, call or email me and we can quickly determine your Target Rate so you are ready if rates continue to move lower.

Why Did Rates Go Down?

The FED takeover of Fannie Mae and Freddie Mac reduced the risk to investors who buy their mortgages.

Will Rates Go Down Further?

Probably. The difference between the yield on U.S. Treasuries and any other security is a measure of risk; the more risk, the more investors want in return on their investment and the greater the difference.

In March, the spread between U.S. Treasuries and Fannie and Freddie securities was as high as 1%. Just a few weeks ago, it was as high as 0.86%. Today it is down to 0.50%. The change reflects the reduced risk now that the U.S. Government is backing these companies and their debt. Mortgage rates immediately dropped 0.25% this morning compared to Friday.

Through the day, the rates on U.S. Treasuries dropped 0.25%. Mortgage rates tend to follow those. The result is that rates are now lower by 0.5% from where they were Friday.

How Much Further Will Rates Go Down?

In the coming weeks as the final takeover plan takes shape reducing risk further, the spread should shrink further and reducing loan rates compared to the U.S. Treasuries.

The strengthening dollar and the reduced risk for Fannie and Freddie securities should cause foreign investment to flow into the U.S. markets and lower interest rates further. The combination of these two factors could gets rates down close to their 5 year low from 1/19/08 where they touched 5.25% for an hour.

Todd Huettner
303-758-7402
todd@toddhuettner.com
www.toddhuettner.com

FEDS Take Over Fannie and Freddie – So What?

The FEDS took over Fannie Mae and Freddie Mac and put them in a conservatorship where the Federal Housing Finance Agency will run them for the time being. Both Fannie and Freddie needed money and could not get it from investors due to questions about their survival. The result of this uncertainty caused rates for most loans to rise above normal and was a dark cloud over any housing recovery.

The FED intervention is a significant element of the housing recovery. It removes the possibility of the worst-case scenario where both Freddie and Fannie fail resulting in complete failure of the market for loans and possible risk to the entire banking system. It is not a perfect solution, but given our current position, I do not see a better solution.

The GOOD - The FED intervention should stabilize loan markets and improve rates by:

• Giving Fannie and Freddie money to continue buying loans.
• Easing mortgage investors concerns and should increase the buyers for their loans .
• Allowing the FEDs to buy loans from Fannie and Freddie.

The BAD – The FED intervention is problematic because:

• Both Fannie and Freddie stocks have lost most of their value and they are not likely to recover.
• The future of loan standardization is in question, will the FEDs do this too?
• I don’t like government involvement in the private sector, but these are not really private companies.

Taxpayers will probably not pay too much in the end, if any. However, if the worst-case scenario of housing and banking failure were to occur, the taxpayer would end up paying far more and the consequences would be far worse.

Cheat Sheet - Fannie Mae and Freddie Mac

Who are they? - They are publicly traded companies that have an implied backing of the U.S. Government.

What do they do? – They create loan guidelines, lending standards, and a market for the majority of loans in the country.

Why do I care? – They save homeowners money and increases the availability of loans. Without them, the housing market would not exist as we know it.

 - Futures indicate the FED will not change the FED Funds Target Rate at the September 16th FOMC meeting.  See the FED probabilities charts here.  The market also indicates the FED will keep rates steady until the end of 2008.  

- Remember, you still want to makes sure you lock your loan right away. 

- Just make sure you know the reprice policy of your lender before you lock your loan to protect yourself from higher rates AND still keep the ability to take advantage of any rate drops. 

As traditional lending options continue to be more restrictive, both buyers and sellers are seeking alternative solutions to complete transactions.

I received more questions about owner financing in the last two months than in the last three years combined.  Unfortunately, most agents and lenders do not have the knowledge and experience to answer these questions accurately.

After identifying this problem, I wrote an article for an industry magazine, Scotsman Guide, detailing why lenders need to become more informed about the seller financing.  While the article addresses lenders, it is a good introduction to seller financing for buyer, sellers, and agents.  In fact, so many people have requested a copy, I decided to post it here.  Click the link below to read the article and save a PDF copy.

Reaping Seller Financing's Rewards - When your client's deals can't close otherwise, exploring alternative arrangements can help

Scotsman asked me to write a "How To" for seller financing in the October issue.  However, I am unable to post that article until they release it in about a month.

If you need more information sooner or would like to discuss your specific situation, please contact me directly at 303-758-7402 or todd@toddhuettner.com.

Can You Qualify For A Loan With These New Changes?

Anyone buying a second home or an investment property could be impacted by these changes. Additionally, anyone buying a new primary residence and planning to turn their existing home into a rental property needs to understand the following conforming loan changes and keep an eye on additional changes. While, I identify which GSE, Fannnie and Freddie, established the requirement, several lenders implemented both requirements for every loan while other lenders use only one GSE.

Multiple Property Limitations

If you are buying a second home or an investment property, the following financed property limits apply.

Freddie Mac – you may not own more than FOUR 1- to- 4-unit properties that are financed, including your primary residence and the subject property.  So, if you own three financed rental properties and a primary residence, you cannot buy a second home with a Freddie Mac loan.

Fannie Mae – you may not own more than TEN 1- to- 4-unit properties that are financed, including your primary residence and the subject property.

Converting a Primary Residence to an Investment Property

Many people want to convert an existing primary residence into an investment property for rental income. Others want to convert a primary residence into a rental property so they do not have to sell their home to qualify for a new loan and can rent it until it sells. More recently, many people are looking to buy a larger home now in a buyer’s market and rent the property until the market improves when they will sell.

Freddie Mac – You can use 75% of gross rental income as stated on an executed lease as evidence to offset the existing home payment.  You must also have 12 months payment reserves. 

Fannie Mae – You must qualify with both the current payment and your new home payment with 6 months of payment reserves for both properties unless you can document at least 30 percent equity in your home. Additionally, you must document the rental income with a copy of the fully executed lease agreement and a receipt showing that you deposited the security deposit from the tenant into your account.

You need a lender who understands these requirements and has access to lenders who use both Freddie Mac and Fannie Mae in addition to lenders without these requirements. Contact me at  303-758-7402  or todd@toddhuettner.com to discuss your situation.

The FED adjourn the August meeting and issue their statement tomorrow at 2:15 EDT. 

 - Remember, the focus will be on changes to the statement setting expectations for future rate actions. 

 - Futures indicate less than 10% odds the FED will HIKE rates by 25 basis points at the August 5th FOMC meeting; see the probabilities chart here.   The market indicates the FED will hike rates only 25 basis points by the end of 2008.  

- The bias is still for rates hikes and markets are very volatile.  Make sure you know the re-price policy of any lender before you lock your loan to protect yourself from higher rates BUT still have the ability to take advantage of any rate drops.

 - Despite reduced rate hike odds compared to several weeks ago, current mortgage rates are still higher than in June when the market expected the FED to raise rates by nearly 1 point by the end of the year. 

The New Housing Bill - Hope For Homeowners Program - In Simple Terms

President Bush said he plans to sign the housing rescue bill, referred to by some as the housing bailout bill. The bill, as passed by the Senate and House of Representatives, creates a voluntary FHA loan insurance program for homeowners facing foreclosure to refinance their primary residence mortgage. The goal is to provide additional options for homeowners and lenders to avoid foreclosure on delinquent mortgages.

Essentially, the lender agrees to reduce the remaining principle balance and forgive all prepayment penalties and default/delinquency fees in exchange for the FHA insurance to guarantee the loan. For the opportunity to keep their home, homeowners must agree to share future appreciation in the home and must refinance their loan to a fixed rate loan of 30+ years without any second loans for the next 5 years. The result is that the borrower can keep their home and the lender does not have the expense of the foreclosure.

To be eligible, homeowners must:

• Be unable to make the payments of the existing loan
• Not intentionally default on the existing mortgage
• Not knowingly committed fraud to obtaining the existing mortgage
• Have a debt to income ratio greater than 31 percent
• Have never been convicted of fraud
• Have no ownership interest in any other residence
• Have a maximum Loan To Value Ratio 90% based on the current value

Homeowners share any future appreciation in the home upon sale or refinance. The appreciation split changes based on the length of time since the refinance to any sale or refinance. The following table details the percentage for the FHA and the percentage for the Owner.

Time of Sale or Refinance – FHA/Owner Percentage

1 year or less – 100/0

1 to 2 years – 90/10

2 to 3 years – 80/20

3 to 4 years – 70/30

4 to 5 years – 60/40

5 years or more – 50/50

The bill does not offer loans for the purchase of new property and does not apply to second homes or rental property. In addition, it does not help those who are struggling, but current on their mortgage. If you are struggling with your mortgage, you should look at all other options because this is not a good option for most people. It is a last resort if you can qualify for the new loan.

If you have questions, please don't hesitate to contact me at 303.758.7402 or todd@toddhuettner.com. There's no cost for advice and, if you decide to move forward with a loan, you won't be charged any up-front fees.

About the Author

Todd Huettner is President of Huettner Capital, a residential and commercial real estate financing broker. He specializes in complex transactions, multiple properties, wealth management, and divorce related issues. In addition to an M.B.A, Todd has over fifteen years experience in the finance, mortgage, and real estate industries.

You can reach Todd at 303-758-7402 or todd@toddhuettner.com.

In my Blog Article on February 12 titled “Why You Should Buy Investment Property Now¹,” I identified what I referred to as a perfect storm for rental property that would provide a tailwind for residential investors for years to come. In summary, I argued that the rising cost of home ownership would increase the demand for rental property. As more buyers and owners became renters, rent rates and profits for investors would increase. Now, five months later, I verify my predictions and evaluate the continuation of these trends. Finally, I identify the significance of these changes for both investors looking to purchase rental properties and homeowners looking to upgrade to a new home.

Reason 1: The Cost of Ownership Continues to Increase. The cost of home ownership increased much more than I thought possible. Recent loan changes eliminated most stated loan programs, increased down payment requirements, and raised minimum credit score requirements. Most flexible loan programs including Subprime loans are no longer available or significantly more restrictive. Additionally, interest rates for flexible loans increased several percent compared to regular loans because fewer lenders offer these loans and those that do are charging a lot to offer them. As the cost of ownership continues to increase, more buyers are becoming renters. With more renters, the rental market continues to improve.

Reason 2: There is Less Competition in a Buyer’s Market. The loan program changes affected two groups of borrowers differently. Investors, as I define them, have strong credit, income, and assets, and purchase homes with down payments of 20% or more. Investors buy properties that have positive cash flow and keep realistic expectations of property appreciation based on historical trends. Contrast this with Speculators who, as I define them, typically buy houses based solely on price appreciation with little down payment and no consideration for rental income and cash flow. Most speculators exited the market because of falling/flat home values and the increasing cost of ownership. With fewer homeowners and speculators in the market, there is less demand resulting in a buyers’ market. Investors can be selective and wait for the right deal at the right price on a property that with the right monthly rent.

Reason 3: Rising Rent Rates. While the strength of real estate markets across the country varies greatly², many rental markets are stabilizing and strengthening. A recent article³ in the Denver Business Journal reported vacancy rates for single-family homes at multi-years lows while rent rates increased 5% year over year for every. Another article⁴ reported the same trends for apartments in Colorado further supporting the rental market. Higher rent rates and lower prices are causing homeowners to take homes off the market and investors to buy homes as rental properties. In fact, recent sales data indicate this is already occurring.

Reason 4: Rising Home Values. Nationwide existing home sales stabilized over the last 6 months⁵. Both median and average⁶ home prices actually rose each of the last 3 months⁷. Even though inventory of unsold homes remains a concern, new home starts continue to fall and are now below the level of household creation. Builders are building fewer homes⁸ than are needed each month by new households. New households will purchase existing homes, which will gradually decrease the inventory of unsold homes. The inventory of existing homes fell below 11 months and will continue to fall in the coming months further improving real estate markets. Rising home values not only increase the return for investors, but they also raise the cost of home ownership which further support rent rates and investor profits. Investors know that they do not need to time the market bottom to be profitable.

Reason 5: A Market Bottom. The impact of a housing bottom is significant for investors because the resulting positive impact to the entire U.S. economy should further improve rent rates and home values. The buyer’s market also benefits homeowners looking to buy a new home. Owners can upgrade to a new home when prices are lower and rent out their existing home until prices increase further and then sell into a stronger market or keep the home as a long-term rental property. However, the improving real estate market also signals that best time to buy is nearing an end. If you try to time the bottom of the market, you will likely miss the bottom and end up paying more as buyers waiting for the bottom reenter the market and the market shifts to a sellers’ market. Additionally, even if you are a very qualified buyer with strong credit and down payment, interest rates are rising as expectations of FED rate hikes increase with the improving economy. Therefore, if you are interested in investment property, you should immediately complete a financial and market analysis to determine if investment property is appropriate for you.

So, is it a Perfect Storm? The market conditions I expected exist and even exceed my initial expectations. The rising cost of ownership, reduced competition, rising rent rates and home values, and an impending real estate bottom all contribute to the strength of the rental market and are reasons to buy rental property now. If you are an investor looking for a residential rental property or a homeowner looking to upgrade to a new home and rent your existing home, the perfect storm for rental property should provide a strong tailwind for your investment for years to come.