Approved Advisor

Part of the published series entitled: “A Closer Look at Residential Real Estate Appraisals” by Shmuel Shayowitz

Residential Real Estate Appraisals in the current housing environment

Another common appraisal issue is where a borrower comes with their own appraisal in-hand from another broker or even an appraiser they hired directly. That appraiser may have come up with an appraised value, however when submitted to the bank for review, the underwriter may determine that the valuation is unjustifiable. As indicated above, during the different valuation methods an appraiser can use his/her own good judgment to make certain assumptions or adjustments as they attempt to support a specific value. A bank underwriter will always carefully evaluate the accuracy and discretion of an appraiser to be certain that the value is supported and within their comfort level thresholds.

This matter will be further exasperated as recent appraisal regulations have caused significant changes to the appraisal “request” process. Regulators have determined that certain brokers and loan officers were using force or influence to push appraisers to inflate home values. These new regulations will now restrict brokers and independent agents from being involved in the appraisal process and create a separation to ensure proper valuation methods are being utilized.

Unfortunately, this current marketplace is also seeing an increase in the number of homes that are being appraised for a lower value than what they are being purchased for. This is as a result of several factors. First and foremost home prices have dropped in the last few months and many sellers have not yet adjusted to the market accordingly. Furthermore, there just may not be the documentable sales to support the price, even if everyone agrees that the value is justified and warranted. Finally, many borrowers are now using national banks that may not have a local understanding of the marketplace. These national companies hire large appraisal firms that may not have the best hands-on information of the local area.

This is especially true in certain neighborhoods where because of a strong desire to live within a desired area, or the need to buy in close proximity to a certain Synagogue, Church, other type of religious, social, or educational need that homes are worth considerably more. In many cases it becomes a real matter of supply and demand where homes on one block may be worth significantly more than comparable homes that are literally one block away. It is imperative to work with local bank or mortgage bank that is cognizant of these unique distinctions, and is willing to include that in the overall consideration of the loan review.

What’s in the Financial Reform Bill?

The broadest overhaul of U.S. financial rules since the Great Depression won final approval in the Senate on Thursday. Yet over 70 percent of Americans know nothing about the legislation.

By a vote of 60 to 39, the Senate gave final approval to a sweeping measure that tightens regulations across the financial industry.

In comments to CNBC Thursday, Democratic Senator Chris Dodd, a co-sponsor of the bill, noted that the sweeping measures passed by Congress won’t necessarily prevent a future financial crisis, but instead will “minimize the possibility” of another “near-meltdown.”

“The suggestion that any bill can stop future crises is ridiculous,” Dodd said. “The issue is whether we’ve got now the oversight council to keep an eye on what’s occurring.”

Also Thursday, President Barack Obama hailed congressional passage the regulation, saying it will provide greater financial security to Americans and would foster accountability.

“All told, this reform puts in place the strongest consumer financial protections in history and it creates a new consumer watchdog to enforce those protections,” Obama said in a press conference.

“Because of this reform, the American people will never again be asked to foot the bill for Wall Street’s mistakes and there will be no more tax payer funded bailouts,” he continued. “If a large financial institution should ever fail, this reform gives us the ability to wind it down without endangering the broader economy.”

Obama will likely sign the bill into law next week, the White House said.

The legislation, which had been opposed by banks, leaves few corners of the financial industry untouched. It establishes new consumer protections, gives regulators greater power to dismantle troubled firms, and limits a range of risky trading activities by banks in a way that would curb their profits.

The Senate vote caps more than a year of legislative effort after Obama proposed reforms in June 2009. The House of approved it last month.

Despite the landmark overhaul, 38 percent of Americans have never heard of the legislation and 33 percent have heard of it but know almost nothing about it, according to an Ipsos Public Affairs online poll. Another 18 percent said they know “a little bit” about the measure.

The Ipsos poll found 3 percent are very familiar with the legislation, and 8 percent are somewhat familiar.

Now that the bill is set to become law, here’s a rundown of the key elements:

TITLE I. Systemic Risk

A council of regulators chaired by the secretary of the Treasury would be created to monitor big-picture risks in the financial system. The Financial Stability Oversight Council could identify firms that threaten stability and subject them to tighter oversight by the Federal Reserve. The Fed and the council could break up firms that have not responded to earlier measures and pose an urgent threat.

TITLE II. Ending Bailouts

The bill would set up an “orderly liquidation” process that the government could use in emergencies, instead of bankruptcy or bailouts, to dismantle firms on the verge of collapse.

The goal is to end the idea that some firms are “too big to fail” and avoid a repeat of 2008, when the Bush administration bailed out AIG and other firms but not Lehman Brothers. Lehman’s subsequent bankruptcy froze capital markets.

Under the new rule, firms would have to have “funeral plans” that describe how they could be shut down quickly.

The Federal Deposit Insurance costs for running liquidations would be covered in the short term by a Treasury credit line, then recouped by sales of the liquidated firms’ assets. In case of shortfalls, costs could be further covered by claw-backs of any payments to creditors that exceeded liquidation value, and fees charged to other large firms.

The FDIC could guarantee the debts of solvent insured banks to prevent bank runs. But this could only happen if the boards of the FDIC and the Fed decided financial stability was threatened, Treasury approved the terms, and the president activated a rapid process for congressional approval.

TITLE III. Supervising Banks

The U.S. Office of Thrift Supervision, which was widely criticized in the run-up to the 2007-2009 credit crisis, would be closed and most of its duties shifted to the Comptroller of the Currency.

Banks would be barred from converting their charters to escape regulatory enforcement actions.

The FDIC’s deposit insurance coverage would be permanently raised to $250,000 per individual from $100,000.

TITLE IV. Hedge Funds

Private equity and hedge funds with assets of $150 million or more would have to register with the Securities and Exchange Commission, exposing them to more scrutiny. Venture capital funds would be exempted from full registration.

Investment advisers would have to manage assets of $100 million or more to be federally regulated, an increase from the present $30 million level. The change would shift some of the oversight for small firms from the SEC to the states.

TITLE V. Insurance

A new federal office would be created to monitor, but not regulate, the insurance industry, which is now policed only at the state level. The move would appease opponents of centralized regulation by keeping real power out of Washington’s hands, while giving big insurers that want a single regulator a foothold they might be able to expand from in the future.

TITLE VI. Volcker Rule And Bank Standards

Under a rule proposed by White House economic adviser Paul Volcker, the bill would bar proprietary trading unrelated to customers’ needs at banks that enjoy government backing, with some of the details of implementation left up to regulators.

Banks could continue to invest up to 3 percent of their Tier 1 capital in private equity and hedge funds, not to exceed 3 percent of any single fund’s total ownership interest.

Private equity and hedge fund interests above the new caps would have to be divested over time, under the Volcker rule.

In addition, the largest banks’ ability to expand would be limited by a new cap on share of industry-wide liabilities.

Non-bank financial firms supervised by the Fed would face limits on proprietary trading and fund investing as well.

Bank holding companies within five years would have to stop counting trust-preferred securities and other hybrids as Tier 1 capital, a key measure of a bank’s balance sheet strength.

Firms with assets under $15 billion could count current holdings of hybrids as Tier 1 capital, but not any new ones.

The bill would also require credit exposure from derivative transactions to be added to banks’ lending limits.

In addition, bank capital standards could not sink below those already on the books, and a 15-to-1 leverage standard could be imposed on firms that threaten financial stability.

The bill would also make bank holding companies follow higher capital standards observed by bank subsidiaries.

Analysts expect the Volcker rule and related changes to cut profit at firms such as Bank of America, Goldman Sachs, Morgan Stanley and JPMorgan Chase.

TITLE VII. Over-The-Counter Derivatives

The bill would impose regulation for the first time on the $615 trillion over-the-counter derivatives market, including credit default swaps like those that dragged down AIG.

Much OTC derivatives traffic would be rerouted through more accountable and transparent channels such as exchanges, electronic trading platforms and central clearinghouses.

Banks would also have to spin off the riskiest of their swap-clearing desk operations, but could keep many swaps in-house, including derivatives to hedge their own risks.

Some end-users of OTC derivatives would be exempted from central clearing requirements. Swap-dealers’ ownership interests in clearinghouses would be limited.

JPMorgan, Bank of America and other commercial banks could face structural changes from the bill, while it could boost business for clearing and trading venues such as CME and Intercontinental Exchange, analysts said.

TITLE VIII. Payment, Clearing And Settlement

Supervision of firms that settle payments among financial institutions would be broadened.

TITLE IX. Protecting Investors

On brokers and how they interact with investors, the SEC, after a study, could order brokers who give investing advice to follow a higher standard of client care.

On credit rating agencies, a new SEC office to regulate the agencies would be created. The SEC would have two years to study the widely criticized industry. Afterward, unless it comes up with a better idea, the agency would have to implement a plan to form a government panel to assign agencies to debt issuers for initial ratings of new structured securities.

Rating agencies would also be exposed to more legal risk.

On debt securitization, lenders that make loans and then sell them off as securities would have to retain at least 5 percent of the loans’ risk on their books, unless the loans meet certain standards for reducing risk.

The SEC’s enforcement powers would be beefed up and its funding levels raised.

On executive pay, shareholders periodically could cast non-binding votes on top managers’ compensation packages, while their role in electing directors would also be enhanced.

Corporations would have to allow claw-backs of executive pay if it was based on inaccurate financial information.

TITLE X. Protecting Consumers

A new government watchdog would be established to regulate mortgages, credit cards and other consumer financial products.

The Consumer Financial Protection Bureau would be a separate unit within the Fed and funded by the central bank. It would consolidate consumer programs now dispersed across several agencies. Its director would be nominated by the president and confirmed by the Senate.

The CFPB would answer, in some instances, to the Financial Stability Oversight Council. Car dealers, who fought for and won an exemption, would be beyond the watchdog’s reach. Fees charged on debit-card transactions would be limited.

TITLE XI. Federal Reserve

The Fed’s emergency lending would be exposed to congressional scrutiny, but not its decisions on interest rates. New limits would be placed on the Fed’s so-called 13(3) emergency lending authority

TITLE XII. Financial Access

Programs would be supported to help people without bank accounts to open them and to improve access to small loans and enhance financial literacy.

TITLE XIII. Funding

The costs of the reform bill would be met by funds raised from shutting down the $700 billion Troubled Asset Relief Program, and increasing the amounts of money that banks must pay to insure their deposits.

An earlier funding plan that targeted a new tax at large Wall Street banks and financial firms was dropped after some Senate Republicans complained about it.

TITLE XIV. Mortgage Reform

Mortgage lenders would have to assess borrowers’ ability to repay before making a loan. Pre-payment penalties against borrowers and bonuses to lenders known as “yield spread premiums” would be barred, with violators facing penalties.

Other new protections would be set up for borrowers aimed at ending predatory and abusive mortgage lending practices.

Source: Reuters via CNBC

Biggest Defaulters on Mortgages Are Now the Very Rich

LOS ALTOS, Calif.—No need for tears, but the well-off are losing their master suites and saying goodbye to their wine cellars.

The housing bust that began among the working class in remote subdivisions and quickly progressed to the suburban middle class is striking the upper class in privileged enclaves like this one in Silicon Valley.

Whether it is their residence, a second home or a house bought as an investment, the rich have stopped paying the mortgage at a rate that greatly exceeds the rest of the population.

More than one in seven homeowners with loans in excess of a million dollars are seriously delinquent, according to data compiled for The New York Times by the real estate analytics firm CoreLogic.

By contrast, homeowners with less lavish housing are much more likely to keep writing checks to their lender. About one in 12 mortgages below the million-dollar mark is delinquent.

Though it is hard to prove, the CoreLogic data suggest that many of the well-to-do are purposely dumping their financially draining properties, just as they would any sour investment.

“The rich are different: they are more ruthless,” said Sam Khater, CoreLogic’s senior economist.

Five properties here in Los Altos were scheduled for foreclosure auctions in a recent issue of The Los Altos Town Crier, the weekly newspaper where local legal notices are posted. Four have unpaid mortgage debt of more than $1 million, with the highest amount $2.8 million.

Not so long ago, said Chris Redden, the paper’s advertising services director, “it was a surprise if we had one foreclosure a month.”

The sheriff in Cook County, Ill., is increasingly in demand to evict foreclosed owners in the upscale suburbs to the north and west of Chicago—like Wilmette, La Grange and Glencoe. The occupants are always gone by the time a deputy gets there, a spokesman said, but just barely.

In Las Vegas, Ken Lowman, a longtime agent for luxury properties, said four of the 11 sales he brokered in June were distressed properties.

“I’ve never seen the wealthy hit like this before,” Mr. Lowman said. “They made their plans based on the best of all possible scenarios—that their incomes would continue to grow, that real estate would never drop. Not many had a plan B.”

The defaulting owners, he said, often remain as long as they can. “They’re in denial,” he said.

Here in Los Altos, where the median home price of $1.5 million makes it one of the most exclusive towns in the country, several houses scheduled for auction were still occupied this week. The people who answered the door were reluctant to explain their circumstances in any detail.

At one house, where the lender was owed $1.3 million, there was a couch out front wrapped in plastic. A woman said she and her husband had lost their jobs and were moving in with relatives. At another house, the family said they were renters. A third family, whose mortgage is $1.6 million, said they would be moving this weekend.

At a vacant house with a pool, where the lender was seeking $1.27 million, a raft and a water gun lay abandoned on the entryway floor.

Lenders are fearful that many of the 11 million or so homeowners who owe more than their house is worth will walk away from them, especially if the real estate market begins to weaken again. The so-called strategic defaults have become a matter of intense debate in recent months.

Fannie Mae and Freddie Mac , the two quasi-governmental mortgage finance companies that own most of the mortgages in America with a value of less than $500,000, are alternately pleading with distressed homeowners not to be bad citizens and brandishing a stick at them.

In a recent column on Freddie Mac’s Web site, the company’s executive vice president, Don Bisenius, acknowledged that walking away “might well be a good decision for certain borrowers” but argues that those who do it are trashing their communities.

The CoreLogic data suggest that the rich do not seem to have concerns about the civic good uppermost in their mind, especially when it comes to investment and second homes. Nor do they appear to be particularly worried about being sued by their lender or frozen out of future loans by Fannie Mae, possible consequences of default.

The delinquency rate on investment homes where the original mortgage was more than $1 million is now 23 percent. For cheaper investment homes, it is about 10 percent.

With second homes, the delinquency rate for both types of owners was rising in concert until the stock market crashed in September 2008. That sent the percentage of troubled million-dollar loans spiraling up much faster than the smaller loans.

“Those with high net worth have other resources to lean on if they get in trouble,” said Mr. Khater, the analyst. “If they’re going delinquent faster than anyone else, that tells me they are doing so willingly.”

Willingly, but not necessarily publicly. The rapper Chamillionaire is a plain-talking exception. He recently walked away from a $2 million house he bought in Houston in 2006.

“I just decided to let it go, give it back to the bank,” he told the celebrity gossip TV show “TMZ.” “I just didn’t feel like it was a good investment.”

The rich and successful often come naturally to this sort of attitude, said Brent T. White, a law professor at the University of Arizona who has studied strategic defaults.

“They may be less susceptible to the shame and fear-mongering used by the government and the mortgage banking industry to keep underwater homeowners from acting in their financial best interest,” Mr. White said.

The CoreLogic data measures serious delinquencies, which means the borrower has missed at least three payments in a row. At that point, lenders traditionally file a notice of default and the house enters the official foreclosure process.

In the current environment, however, notices of default are down for all types of loans as lenders work with owners in various modification programs. Even so, owners in some of the more expensive neighborhoods in and around San Francisco are beginning to head for the exit, according to data compiled by MDA DataQuick.

In Los Altos, Los Altos Hills and the most expensive neighborhood in adjoining Mountain View, defaults in the first five months of this year edged up to 16, from 15 in the same period in 2009 and four in 2008.

The East Bay suburb of Orinda had eight notices of default for million-dollar properties, up from five in the same period last year. On Nob Hill in San Francisco, there were four, up from one. The Marina neighborhood had four, up from two.

The vast majority of owners in these upscale communities are still paying the mortgage, of course. But they appear to be cutting back in other ways. The once-thriving Los Altos downtown is pocked with more than a dozen empty storefronts in a six-block stretch.

But this is still Silicon Valley, where failure can always be considered a prelude to success.

In the middle of a workday, one troubled homeowner here leaned over his laptop at the kitchen table, trying to maneuver his way out from under his debt and figure out the next big thing.

His five-bedroom house, drained of hundreds of thousands of dollars of equity over the last 13 years, is scheduled for auction July 20. Nine months ago, after his latest business (he has had several) failed in what he called “the global meltdown,” the man, a technology entrepreneur, said he quit making his $9,000 monthly payments.

“I’m going to be downsizing,” he said.

The man spoke on the condition of anonymity because, he said, he did not want his current problems to interfere with his coming reinvention. “I’m a businessman,” he explained. “I have to be upbeat.”

This story originally appeared in the The New York Times

URL: http://www.cnbc.com/id/38163917/

The report below by CNBC is an important identification about how the Unemployment numbers are now a very important contributing factor to economic indicators and market movement. We have been saying this for over 18months now, and it’s finally nice to see the media catch up J – Posted by: Shmuel Shayowitz

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CNBC Report: Unemployment Is No Longer A Lagging Indicator

Unemployment has shifted from a lagging indicator to a leading one and is warning government policymakers to confront problems in an economy mired in slow growth, Pimco co-CEO Mohamed El-Erian told CNBC. The consideration of unemployment as a lagging indicator is a favorite mantra among economists who believe the rate primarily looks at the past rather than what is to come.

But the internal details of current trends paint a different picture: More than half the labor force out of work for more than 26 weeks, the average length of unemployment at greater than 35 weeks, and the unemployment rate of 25.7 percent for 16- to 19-year olds.

“These are structural aspects which cannot be solved overnight, cannot be solved with a cyclical mindset,” El-Erian said. “And they are worrisome because they make the unemployment rate not only a lagging indicator but also a leading indicator.”

The US has been “an outlier” among nations who have been confronting the challenges posed by what Pimco, the world’s largest bond fund with more than $1 trillion in assets under management, calls the “new normal” of prolonged slow growth.

“Somehow in the US we are caught in this active inertia that results in just a cyclical response,” said El-Erian, the firm’s co-CEO. “We need more than that. We need cyclical and structural.”

He cited China, Brazil and Russia specifically as countries that have taken more proactive approaches to their problems. While other nations have looked at austerity and structural reform, the US is saying, ‘Hey, what we need is growth.’ What you need is harmonization that is about growth, is about austerity and critically is about structural reform.”

As for investors, El-Erian said stock prices are “getting toward fair value. We’re not quite there yet because I don’t think analysts quite understand what the new normal looks like in terms of lower growth and lower top-line revenue growth, but we’re getting there.”

He said the bond market, with the yield on the benchmark 10-year Treasury note yield below 3 percent, is close to fair value.

A double-dip recession, which has gathered more talk about economists, is a “risk scenario” but not what Pimco considers the most likely event, he said.

“We find it striking that consensus, which used to romance a ‘V’ (recovery) is now moving toward what we’ve been calling the new normal, and some people are going right through the new normal and romancing a double-dip and a depression,” El-Erian said. “What you’re seeing is a move in consensus that has repriced the bond market and is repricing the equity and credit markets.” CNBC.com Staff Writer By: Jeff Cox – Unemployment No Longer a Lagging Indicator: El-Erian

Borrowers face new set of credit checkups

Initiative targets last-minute changes in finances

Mortgage giant Fannie Mae rolled out its Loan Quality Initiative (LQI) June 1, thereby forcing homebuyers to obtain mortgages based on “refreshed” credit reports or risk their closing being canceled and, in some states, their deposits forfeited.

In other words, the buyer is not officially approved for the mortgage until the results of second credit report are approved. There may be other last-minute verifications of undisclosed liabilities, such as job status, that may be “refreshed” as well.

Example:

Buyer A listed his three credit cards on his loan application. The lender approved Buyer A’s credit and approves the mortgage loan request, partially based on this information. Buyer A goes to Home Depot, applies for yet a fourth credit card.

The day before the closing, while Buyer A’s excitement is peaking, the lender refreshes his credit to make sure his credit score is still as good as it was when it was pulled the first time.

The lender discovers that Buyer A’s credit score has been lowered because Buyer A applied for a fourth credit card. It’s called finding an “undisclosed liability,” and it is not going to end well for the buyer.

Under the LQI, the lender could delay the closing, increase the interest rate, ask for a larger downpayment, or cancel the closing. In some states, Buyer A could lose his deposit.

“The impact on closings is too early to measure,” according to Gail Stanley, an Orlando mortgage lender, “but my guess is that homebuyers will be well coached.

“What lender, mortgage broker or real estate broker isn’t going to use every communications tool available to make sure the buyer does not even think about using available credit, much less apply for more during the ‘refreshing’ period?” Stanley asked.

“The mortgage lending business as we have known it is over,” according to Boston’s MetLife Home Loans’ senior mortgage consultant, Brian Cavanaugh. “Quality loan service and counseling will replace rate shopping because mortgage pricing is so competitive.

“Homebuyers need to work with loan officers who clearly understand the new guidelines and can help the buyer understand the importance of complying with them. Mortgage financing is incredibly important in personal financing now and it needs to be understood and protected,” Cavanaugh said. Stanley said that pulling the second credit report is not new, and that the LQI will be a welcome new tool for lenders who practice responsible lending.

“We all realize that buyer qualifications need to be tightened and that the lender needs to be protected. Consumer education is the challenge,” Stanley said. “Realtors need to encourage their buyers to be as complete as possible in the original application and to be careful not to do anything that will negatively impact their credit score before the escrow closes.”

Depending on the state and the standard purchase and sale agreement used, borrowers could lose their deposits, according to Boston attorney Richard D. Vetstein. He recommends that real estate attorneys review standard purchase agreements.

Vetstein posted some advice about Fannie Mae’s LQI on his Massachusetts Law Blog. “If you’ve taken out new loans that are sizable enough to affect the debt-to-income-ratio calculations used in your original mortgage approval, the deal could fall through. The added debt load could render you ineligible for the mortgage because you suddenly appear unable to handle the payments without a strain on your household budget,” he notes.

Also, “Many lenders already pull second credit reports right before the closing, but the Fannie Mae mandate will likely result in a markedly increased number of lenders pulling second credit reports and performing other last-minute verifications.” And Vetstein states that a surge in new use of existing credit sources could also impact consumers’ ability to secure a home loan.

But holding the buyer accountable pales in comparison to the stringent accountability now in place to prevent lenders from submitting contract products for sale to Fannie Mae with “undisclosed” liabilities. (See www.efanniemae.com, keyword: Loan Quality.)

Just as lenders are calling for refreshed truth from buyers, Fannie Mae is not asking — it is forcing lenders to upgrade the quality of their underwriting and to get used to the new system and embedded, stringent accountability tools for meeting clear, detailed and tougher underwriting standards.

Fannie Mae’s ultimate goal is not to punish the lender or homebuyer. It is to be repaid. Not only will profits start flowing again, but investors will return. And when that happens, loans will become easier to obtain.

There will no doubt be faults found with Fannie Mae’s Loan Quality Initiative, but “lack of accountability” will not be one of them. It is a welcomed and refreshing thought.

http://www.inman.com/news/2010/06/23/borrowers-face-new-set-credit-checkups

By Dave Fletcher/Inman News, Wednesday, June 23, 2010

Update: The Home Buyer Tax Credit Has NOT Been Extended… as of yet

The June 30 closing deadline has not been extended…but it was accepted as an amendment to the Tax Extenders Bill. Under the amendment, borrowers who signed purchase contracts by April 30 would be given three extra months to close their loan and still qualify for the homebuyer tax credit. The new deadline would be September 30, 2010.

Tax Credit Revisited – November 2009

When the tax credit was last modified in November 2009, Congress modified its language to read that, in order to be eligible, a homeowner must be under mutual contract for a home on or before April 30, 2010, and must be closed on said home on or before June 30, 2010. At that point in time they assumed 60 days between contract and close would be ample time to execute docs.

At this point in time it seems as though the 60 days is not adequate and Lenders, Realtors, Attorneys, Sellers and HomeBuyers are scrambling to do what they can to Close prior to the current deadline.

Fortunately, or unfortunately for some, a surge in April purchase activity created back-office back logs at the nation’s biggest banks and an estimated 180,000 home buyers are finding out the hard way that lenders don’t always clear conditions as quickly as you’d like.  The National Association of Realtors estimated that 1/3 (and maybe even half) of those contracts will not close in a timely manner.

Reminder: How A Tax Credit Extension Bill Becomes The Law

First things first — the tax credit date change is not its own bill. The extension proposal is tagged onto a broader bill of tax policy extensions and federal program renewals.  This means that the fate of the home buyer credit won’t be on the merit of the credit alone.

It also means that the bill may not become law in time for June 30, 2010.  The extension has passed the Senate but there’s still two steps to go (and loads of debate).

It takes more than a Senate passage to extend the home buyer tax credit.  It takes a vote in the House of Representatives plus a signature from the White House, too.  So far, we’re not there.

What If You Miss The June 30, 2010 Tax Credit Deadline?

Unfortunately, Some people will miss the deadline.  Technically, Congress could pass the law prior to June 30 and everyone will be fine, or it could pass the law after June 30 and make the credit retroactive for everyone that missed it.  Our expectation is that the law will pass in a timely manner, but if not, it will be retroactive thus protecting anyone who closes after the initial deadline, but before the extension. 

For those of you stuck in the middle of a contract, that are not getting  a timely response from your lender or broker, feel free to contact us if/when the Tax Credit is extended and we will expedite your loan for you so you are sure not to miss the final deadline.

As always – feel free to check out our site and sign up for the latest news and updates: http://approvedfunding.com/freereports.

The new 2010 Good Faith Estimate. This brief video does a great job highlighting the issues and frustrations new borrowers are seeing with the new “GFE”.

 Mortgage Turmoil Video

Say goodbye to fixed-rate credit cards, for now

Card issuers embrace variable-rate cards, but it’s not entirely bad news

SAN FRANCISCO (Jul 14, 2009) — Credit-card issuers increasingly are moving consumers into variable-rate cards rather than fixed-rate ones, due in part to the new credit-card law slated to go into effect in phases starting in August.

Two major card issuers — J.P. Morgan Chase & Co. and Bank of America Corp. — recently switched some existing customers to variable-rate cards.

More than 90% of the offer letters card issuers mailed to consumers in recent months were for variable-rate cards, up from 60% in early 2008, while less than 10% were pitching fixed-rate cards, according to data from Mintel Comperemedia, a market-research firm based in Chicago.

Fixed-Rate Cards May Disappear

Got a fixed-rate credit card? Enjoy it while you can. Card issuers increasingly are switching customers from fixed-rate to variable-rate cards, in part because the new credit card law will limit lenders’ ability to raise rates.

“The fixed-rate-type cards are a dying breed,” said Curtis Arnold, founder of CardRatings.com, a consumer-information site.

Currently, about 66% of credit cards offered by the 50 major card issuers are variable-rate cards, according to Bankrate.com.

Card companies’ moves are partly because of the low interest-rate environment. When rates in general are expected to move higher, card issuers switch to variable-rate cards so they can catch the upside, passing those higher rates to their customers. Similarly, when rates are falling, card issuers are likelier to embrace fixed-rate cards that hold payments steady.

But the impending credit-card law is another reason behind the recent embrace of variable cards. The new law limits creditors’ ability to raise interest rates, but it can’t control changes in the prime rate — the index that’s the basis for most variable-rate cards. So even after the new law starts to limit rate hikes, variable-rate cards will still change if and when the index they’re based on changes.

With the prime rate now at a low of 3.25%, it’s got just about nowhere to go but up.

With the prime rate now at a low of 3.25%, it’s got just about nowhere to go but up. The prime rate is tied to the federal funds rate (the interest rate banks charge each other for loans), which is currently about 0.25%.

Given the new law and the fact that interest rates are likely to rise in the future, “you’re taking a gamble, as an issuer, to have a fixed rate,” said Bill Hardekopf, chief executive of LowCards.com, a consumer-information site. For companies with variable-rate cards, even after the new law goes into effect, “you would be able to ride those increases, yet still maintain your margins.”

Still, some creditors have not made the move to switch existing customers. Hardekopf and others said there probably always will be at least some fixed-rate cards out there.

“Even though there is a tremendous move now to variable-rate cards, I think there will still be a maverick credit-card issuer that offers a fixed-rate card to try and stand out and gain a competitive advantage,” Hardekopf added.

Not all that fixed

The question is, how much does the shift to variable-rate cards really matter to consumers? In some ways, it might be good news, helping to steer people clear from the mistaken notion that “fixed rate” actually means fixed. The term as it relates to credit cards has always been something of a misnomer.

The rate is fixed “only until the issuer decides to change it,” said Greg McBride, senior financial analyst with Bankrate.com. Sure, the creditor must give consumers some notice to change the rate, but still, the rates could change. Of course, the new law, known as the Credit CARD Act, makes fixed-rate cards more appealing to consumers — and a lot less appealing to credit-card issuers.

Among other provisions, the new law will require 45 days’ notice, up from 15 now, to change a card’s interest rate, and it restricts hikes on existing balances unless the customer pays 60 days late. (Again, the rate on a variable-rate card can change to the degree that the index upon which it is based moves higher or lower.)

Card issuers’ reaction to the law will bring major changes for consumers, McBride commented. “Consumers are going to have to get accustomed to lower credit limits and higher interest rates for years to come.”

Also, the new law states that “fixed rate” may only be used “to refer to an annual percentage rate or interest rate that will not change or vary for any reason over the period specified clearly and conspicuously in the terms of the account.”

For creditors, “they’re feeling this regulatory pressure,” said CardRatings’ Arnold. That’s causing more hesitation when it comes to advertising fixed rates.

Variable-rate cards have long outnumbered their fixed-rate brethren, McBride said. But fixed-rate cards could return if and when the prime rate hits new highs. “When interest rates are at a peak, the pendulum swings back the other way a little bit,” he noted.

Consumers have other things to worry about, according to McBride. “I don’t think people need to get hung up on fixed vs. variable as much as what are the rates you’re paying. … The takeaway for consumers is pay down your balance as aggressively as you can, because credit card rates are only going to go higher over the course of the next couple of years.”

Source: MarketWatch

Special to Wall Street Journal by STAN LIEBOWITZ

What is really behind the mushrooming rate of mortgage foreclosures since 2007? The evidence from a huge national database containing millions of individual loans strongly suggests that the single most important factor is whether the homeowner has negative equity in a house — that is, the balance of the mortgage is greater than the value of the house. This means that most government policies being discussed to remedy woes in the housing market are misdirected.

Many policy makers and ordinary people blame the rise of foreclosures squarely on subprime mortgage lenders who presumably misled borrowers into taking out complex loans at low initial interest rates. Those hapless individuals were then supposedly unable to make the higher monthly payments when their mortgage rates reset upwards.

But the focus on subprimes ignores the widely available industry facts (reported by the Mortgage Bankers Association) that 51% of all foreclosed homes had prime loans, not subprime, and that the foreclosure rate for prime loans grew by 488% compared to a growth rate of 200% for subprime foreclosures. (These percentages are based on the period since the steep ascent in foreclosures began — the third quarter of 2006 — during which more than 4.3 million homes went into foreclosure.)

Sharing the blame in the popular imagination are other loans where lenders were largely at fault — such as “liar loans,” where lenders never attempted to validate a borrower’s income or assets.

This common narrative also appears to be wrong, a conclusion that is based on my analysis of loan-level data from McDash Analytics, a component of Lender Processing Services Inc. It is the largest loan-level data source available, covering more than 30 million mortgages.

The McDash data allowed me to construct a housing price index at the zip code level and then calculate the current equity position of each homeowner. I was thus able to compare the importance of negative equity to other variables related to foreclosures.

The analysis indicates that, by far, the most important factor related to foreclosures is the extent to which the homeowner now has or ever had positive equity in a home. The accompanying figure shows how important negative equity or a low Loan-To-Value ratio is in explaining foreclosures (homes in foreclosure during December of 2008 generally entered foreclosure in the second half of 2008). A simple statistic can help make the point: although only 12% of homes had negative equity, they comprised 47% of all foreclosures.

Further, because it is difficult to account for second mortgages in this data, my measurement of negative equity and its impact on foreclosures is probably too low, making my estimates conservative.

What about upward resets in mortgage interest rates? I found that interest rate resets did not measurably increase foreclosures until the reset was greater than four percentage points. Only 8% of foreclosures had an interest rate increase of that much. Thus the overall impact of upward interest rate resets is much smaller than the impact from equity.

To be sure, many other variables — such as FICO scores (a measure of creditworthiness), income levels, unemployment rates and whether the house was purchased for speculation — are related to foreclosures. But liar loans and loans with initial teaser rates had virtually no impact on foreclosures, in spite of the dubious nature of these financial instruments.

Instead, the important factor is whether or not the homeowner currently has or ever had an important financial stake in the house. Yet merely because an individual has a home with negative equity does not imply that he or she cannot make mortgage payments so much as it implies that the borrower is more willing to walk away from the loan.

The difference in policy implications is enormous: A significant reduction in foreclosures will happen when and only when housing prices stop falling and unemployment stops rising (see chart nearby).

Although the government is throwing money — almost $2 trillion and counting — at the mortgage markets with the intent of stabilizing house prices, its methods are poorly targeted. While Federal Reserve actions have succeeded in reducing mortgage interest rates, low interest rates induce refinancings more than they do home purchases.

To be sure, refinancings may put money in peoples’ pockets, but it is home purchases that directly impact house prices. Nevertheless, housing prices are likely to stop falling fairly soon with or without government policies. That’s because current prices are approaching their long-term, inflation-adjusted pre-bubble level. These pre-bubble prices appeared to be a long-term equilibrium, meaning that prices would be expected to return to those levels once the government’s efforts to artificially increase homeownership receded. Unfortunately, recent attempts by politicians such as Barney Frank (D., Mass.) to again artificially increase homeownership levels might delay this return to sustainable equilibrium prices.

Other government policies are likely to be even less effective in reducing foreclosures. The Obama administration’s “Making Homes Affordable” plan focuses on having the government help lower obligation ratios (the share of income devoted to house payments) down to 31% from levels somewhat above 38%. But my analysis finds that mortgages having such obligation ratios at closing did not later experience high foreclosure rates. This suggests that reducing these ratios is not likely to significantly improve the foreclosure problem.

Understanding the causes of the foreclosure explosion is required if we wish to avoid a replay of recent painful events. The suggestions being put forward by the administration and most media outlets — more stringent regulation of subprime lenders — would not have prevented the mortgage meltdown regardless of their merit otherwise.

Rather, stronger underwriting standards are needed — especially a requirement for relatively high down payments. If substantial down payments had been required, the housing price bubble would certainly have been smaller, if it occurred at all, and the incidence of negative equity would have been much smaller even as home prices fell. A further beneficial regulation would be a strengthening, or at least clarifying at a national level, of the recourse that mortgage lenders have if a borrower defaults. Many defaults could be mitigated if homeowners with financial resources know they can’t just walk away.

We are at a crossroads where we can undo the damage to the housing market by strengthening underwriting standards in a reasonable way. But to do so political leaders must face up to the actual causes of the mortgage crisis, not fictitious causes that fit political agendas and election strategies.

Mr. Liebowitz is professor of economics and director of the Center for the Analysis of Property Rights and Innovation in the management school at the University of Texas, Dallas.