7 Simple Steps to a Dirt-Cheap Mortgage
by Luke Mullins, USNews.com
How to get today's lowest financing costs for home buying or mortgage refinancing
With the national housing bust still rippling through the economy, the battered real estate market is offering up tempting incentives for consumers to jump in. Home prices at the national level have plummeted more than 32 percent since 2006, presenting real estate shoppers with some outstanding bargains. What's more, President Barack Obama's stimulus package included a tax credit worth up to $8,000 for qualified first-time home buyers. Then there's the mortgage market. After the Fed announced plans beginning last fall to buy up Fannie Mae and Freddie Mac mortgage-backed securities and long-term treasury bonds, mortgage rates dropped to all-time lows. But consumers looking to take advantage of these attractive rates-through refinancing a mortgage or buying a home-are often left with puzzling questions: What direction are mortgage rates headed from here? Is now the best time to refinance? To answer those and other burning questions, U.S. News surveyed a handful of experts and compiled a list of seven simple steps to snag a dirt-cheap mortgage.
1. Know the trends: While 30-year fixed mortgage rates averaged a very attractive 5 percent for the week ending May 22, they spiked to 5.29 percent May 27, according to HSH.com. Keith Gumbinger, a vice president with the mortgage information publisher, expects rates to remain a little over 5 percent for the rest of the year. "The Fed has plenty of balance sheet space to go out and buy enough mortgages to keep rates at these levels," Gumbinger says. Could mortgage rates end up higher? Sure. The massive amount of government debt needed to finance the Obama administration's huge bailout and stimulus programs has already pushed yields on 10-year treasury notes-which fixed mortgage rates typically track-sharply higher. That, in turn, has triggered a surge in mortgage rates in recent days. Mike Larson, a real estate analyst for Weiss Research, believes this pressure will push mortgage rates even higher in the coming months. "I'm not expecting a huge move," he says. "A move to [about 5.5 percent] is very likely in the cards for the coming couple of months." But even rates of 5.5 percent are extremely low by historical standards.
At the same time, mortgage rates on "jumbo loans" have fallen sharply, from an average of 7.90 percent in the week ending Oct. 31, 2008, to 6.34 percent during the week of May 22. Jumbo mortgages-those that are too large to be purchased by Fannie and Freddie-have loan amounts greater than $417,000, although this limit can be higher in certain parts of the country. Gumbinger says rates on jumbo loans could get even more attractive by the end of the year.
2. Pull the trigger: Mortgage rates, of course, are not the only factor to consider when deciding whether or not to buy a home. For consumers who are confident about their employment prospects and plan to live in the property for at least three to five years, the current mortgage rates make home buying all the more attractive. "If near 50-year-low interest rates are not the proper inducement, what is?" Gumbinger says. And since calling the bottom of any market is nearly impossible, those looking to refinance are better off locking in today's rates, rather than hoping they head even lower. Larson calls pulling the trigger on current rates a "no brainer" for prospective mortgage refinancers. "Locking in makes sense," he says. Still, anyone looking to refinance should ensure that the new rate would be at least a full percentage point below the current rate. That should provide enough of a monthly payment differential for the borrower to recoup the fees associated with the transaction over a reasonable time.
3. Understand the criteria: In the face of higher delinquencies, bankers have tightened lending standards for borrowers of all sorts. So while current mortgage rates are certainly attractive, only those borrowers who fit today's tighter credit profile will be able to access the cheapest financing. For a home purchase, those standards include a FICO score of around 720, a down payment of at least 3.5 percent, manageable levels of debt, and documented income verification. People looking to refinance, meanwhile, will need to document their income and must typically have an equity position of at least 10 percent in their home, Gumbinger says.
4. Clean and polish: Don't panic if you don't meet these requirements; there are steps you can take to improve your credit profile. Reduce your debt load by paying down credit cards or student loans. Consider putting off your home purchase for a couple of months as you save up for a down payment. To boost your credit score, obtain your credit reports from each of the three main credit reporting bureaus: TransUnion, Equifax, and Experian. By law, consumers are entitled to one free credit report from each of these bureaus during any 12-month period, which can be obtained through annualcreditreport.com. Examine each report thoroughly to ensure that everything is accurate. "If you are a junior and your father is a senior who's got rotten credit habits, make sure that your report is distinguished from his," says Gail Cunningham of the National Foundation for Credit Counseling. If you discover any inaccurate material, contact the appropriate credit bureau about filing a dispute. Next, take care of any unpaid obligations and, in the future, make sure to pay all of your bills on time.
5. Shop around: Since rates and fees vary widely among lenders in today's market, consumers intent on getting the best mortgage deal will have to do some digging, says Rick Allen, director of strategic initiatives for Mortgage Marvel. "It comes down to shopping around," Allen says. "The market is pretty efficient, but different lenders are looking for different levels of profitability." Allen suggests consumers check out from three to 20 different mortgage providers and compare their mortgage rates, fees, and closing costs. "Those three factors together ... really go to determine whether or not you are getting the best deal," he says.
6. Be patient: Because the Fed-engineered drop in mortgage rates was so unexpected-and occurred just as the industry was slashing jobs-many lenders have been inundated with applications. "In the beginning of the year, it was hard to find a lender who would even answer the phone and take an application," says Guy Cecala, publisher of the trade publication Inside Mortgage Finance. And although lenders have recently been beefing up their staffs, an average mortgage refinancing can still take about six weeks to close, Cecala says. That means borrowers should be persistent but patient. There are, after all, only so many phone calls that a lender can return in a day.
7. Be prepared: One way consumers can help improve the efficiency of the mortgage application process is to have all of their paperwork in order before speaking with a lender. "There is no excuse for not being prepared," Gumbinger says. "Go ahead and get your paperwork, get your documentation in order, go through your credit reports, do all of your prep work [beforehand]."
Showing page 1 of 1
Wednesday, June 3, 2009
Friday, May 22, 2009
2 Students at Local High School Have Confirmed Cases of Swine Flu
LUSBY - 5/21/2009
The Calvert County Health Department today (May 21) notified Calvert County Public Schools that two students at Patuxent High School had confirmed cases of H1N1 influenza.
Both students have recovered but will not attend school for the remainder of the school year.
School officials are not closing Patuxent High School. This is in line with the current recommendation from the Centers for Disease Control and the Department of Health and Mental Hygiene.
"We are asking parents to remain alert to possible signs of the flu in their children," said Jack Smith, Superintendent. If students are sick, school officials ask that parents keep them home until they are cleared to return to school by a healthcare provider.
"Please be assured that we are doing everything possible to keep your child/children safe at school," Smith said.
Smith sent a letter to staff and parents today informing them of the situation.
Dear Parents,
Calvert County Public Schools received notification today from the Calvert County Health Department of two confirmed cases of H1N1 influenza involving students from Patuxent High School. While both students have recovered, they will not be in attendance at school for the remainder of this year.
We will continue to follow the recommendations from the U.S. Centers for Disease Control and Prevention, the Maryland Department of Health and Mental Hygiene and the Calvert County Health Department.
Specifically, CDC has recommended - and DHMH agrees - that it is no longer necessary to close schools because of H1N1 influenza.
This new recommendation does not mean the end of H1N1 influenza. DHMH continues to monitor cases of H1N1 flu and parents should remain alert to possible signs of the flu in their children. These signs include:
* Fever (a temperature more than 100° F or 37.8° C) AND cough, sore throat, runny nose, or nasal stuffiness
* Other symptoms can include body aches, headache, chills and fatigue, or, occasionally, vomiting and diarrhea
If your child has these symptoms, contact your doctor and the school. Parents are urged to keep sick children at home, unless your healthcare provider has requested to see the child. Make sure you call ahead to the doctor, so that your doctor can protect your child and others. Please do not send your child to school or daycare. If someone in your home is sick, keep him or her away from those who are not sick.
Children who may have the flu should be kept home for 7 days, even if they are feeling better. If they are not better by Day 7, they should be kept home until they have been well and fever-free for at least 24 hours.
The following are things you can do to reduce the chances of getting the H1N1 (swine) flu:
* Teach your children to wash their hands with soap and water for 20 seconds. Be sure to set a good example by doing this yourself.
* Teach your children to cough and sneeze into a tissue or into the inside of their elbow.
* Tissues should be discarded after a single use and hands washed.
* Children who are sick should stay home from school or daycare and stay away from other people until they are better.
* Check your children, and school faculty and staff should also self-monitor every morning for symptoms of influenza-like illness.
If your child is absent from school for any reason, please report the absence to your child's school. It is very important, while monitoring conditions such as these, for the school to have accurate information about absences.
Please be assured that we are doing everything possible to keep your child/children safe at school. If you have questions or concerns, please contact your school.
Sincerely,
Jack R. Smith, Ph.D.
Superintendent of Schools
The Calvert County Health Department today (May 21) notified Calvert County Public Schools that two students at Patuxent High School had confirmed cases of H1N1 influenza.
Both students have recovered but will not attend school for the remainder of the school year.
School officials are not closing Patuxent High School. This is in line with the current recommendation from the Centers for Disease Control and the Department of Health and Mental Hygiene.
"We are asking parents to remain alert to possible signs of the flu in their children," said Jack Smith, Superintendent. If students are sick, school officials ask that parents keep them home until they are cleared to return to school by a healthcare provider.
"Please be assured that we are doing everything possible to keep your child/children safe at school," Smith said.
Smith sent a letter to staff and parents today informing them of the situation.
Dear Parents,
Calvert County Public Schools received notification today from the Calvert County Health Department of two confirmed cases of H1N1 influenza involving students from Patuxent High School. While both students have recovered, they will not be in attendance at school for the remainder of this year.
We will continue to follow the recommendations from the U.S. Centers for Disease Control and Prevention, the Maryland Department of Health and Mental Hygiene and the Calvert County Health Department.
Specifically, CDC has recommended - and DHMH agrees - that it is no longer necessary to close schools because of H1N1 influenza.
This new recommendation does not mean the end of H1N1 influenza. DHMH continues to monitor cases of H1N1 flu and parents should remain alert to possible signs of the flu in their children. These signs include:
* Fever (a temperature more than 100° F or 37.8° C) AND cough, sore throat, runny nose, or nasal stuffiness
* Other symptoms can include body aches, headache, chills and fatigue, or, occasionally, vomiting and diarrhea
If your child has these symptoms, contact your doctor and the school. Parents are urged to keep sick children at home, unless your healthcare provider has requested to see the child. Make sure you call ahead to the doctor, so that your doctor can protect your child and others. Please do not send your child to school or daycare. If someone in your home is sick, keep him or her away from those who are not sick.
Children who may have the flu should be kept home for 7 days, even if they are feeling better. If they are not better by Day 7, they should be kept home until they have been well and fever-free for at least 24 hours.
The following are things you can do to reduce the chances of getting the H1N1 (swine) flu:
* Teach your children to wash their hands with soap and water for 20 seconds. Be sure to set a good example by doing this yourself.
* Teach your children to cough and sneeze into a tissue or into the inside of their elbow.
* Tissues should be discarded after a single use and hands washed.
* Children who are sick should stay home from school or daycare and stay away from other people until they are better.
* Check your children, and school faculty and staff should also self-monitor every morning for symptoms of influenza-like illness.
If your child is absent from school for any reason, please report the absence to your child's school. It is very important, while monitoring conditions such as these, for the school to have accurate information about absences.
Please be assured that we are doing everything possible to keep your child/children safe at school. If you have questions or concerns, please contact your school.
Sincerely,
Jack R. Smith, Ph.D.
Superintendent of Schools
Tuesday, May 19, 2009
Refinance, If You Can
Rates may be tantalizing, but be prepared to jump through many hoops.
Refinance your mortgage now and you may capture the lowest interest rate of your lifetime. But unlike a couple of years ago, when it seemed all you needed was a pay stub (if that) and an eager mortgage broker, today's process can be tedious. That's because the demand for refinancing is high, standards are stricter, and the number of people processing mortgages is down. Here's what you should know before you refinance.
What's the outlook for rates?
Expect the 30-year fixed rate to hover near 5% for the balance of this year or, if the economy improves a tad, to creep up to 5.25%, says Keith Gumbinger, of financial publisher HSH Associates. HSH's survey of lenders pegged the national average 30-year fixed rate at 4.97% the week ending May 1. The average 15-year fixed rate was 4.68% and the average 5/1 adjustable-rate mortgage (which has a rate that's fixed for five years, then changes every year after) was 4.91%.
Given that the spread is so narrow between a 30-year fixed-rate loan and a 5/1 ARM, and that rates are at historically low levels, it makes no sense to take out an ARM now.
Rates will rise when inflation heats up, but that's not an immediate risk. Kiplinger forecasts that the rate of inflation will stay steady for at least the next couple of months.
Who qualifies for the best rates?
You'll generally get the lowest rate on loans backed by Fannie Mae or Freddie Mac -- together they back about two-thirds of all mortgage loans -- if you're taking out a conforming loan, and if you have a credit score of at least 720 and equity of 20% or more. Other factors that will help: if the property you're refinancing is the single-family home you live in, if you don't take out some of your equity in cash when you refinance, and if you don't take out a home-equity loan or line of credit. Of course, you can reduce your rate by paying points at closing. A discount point is equivalent to 1% of your loan amount. Paying one point usually lowers your interest rate by 0.25 percentage point.
What documents will I need?
To get the most accurate estimate of the rate for which you'll qualify, provide a prospective lender with your FICO score ($8 with the Equifax report when you order free credit reports from www.annualcreditreport.com) and an estimate of your home's market value. You can get this from a real estate agent or from sources such as Zillow.com and Trulia.com, which will show you recent comparable sales in your area.
When you apply to refinance your mortgage, you must provide pay stubs from a recent month, two months of bank and other financial statements, two years of W-2s and, if you're self-employed, two years of tax returns showing self-sustaining income. The requirement for all these documents contrasts with the "no-doc" or "liar" loans available during the real estate boom that allowed borrowers merely to state their income without providing proof.
You can take additional measures to speed up the process. Phoenix mortgage broker Tracy Tolleson urges his clients to fill out an application and pay for an appraisal (about $350) ahead of time. That can be particularly helpful if you're delaying your application in order to lock in a lower rate. There is a brief lag in applications to lenders between the time rates drop and the point that lenders become swamped with new customers. With all your paperwork in order, you can beat the rush.
If you have a home-equity loan or line of credit, your current lender will have to document its willingness to "resubordinate" to your new first mortgage -- that is, stand behind the first lender for compensation if you default.
Where should I apply?
Guy Cecala, publisher of Inside Mortgage Finance, recommends calling at least several lenders, including credit unions in addition to the local branch offices of national, regional and local banks. Cecala says some banks' divisions that typically serve only a bank's more affluent customers (say, with $100,000 or more in deposits) now offer good deals to non-depositors.
Also, check with mortgage brokers. They may prove especially helpful if your needs or qualifications aren't straightforward, says Cecala. If your application is declined, good brokers, who represent multiple lenders, will appeal the decision or take the application to another lender that may approve it.
Should I lock in the offered rate?
Locking in a rate is a good idea for a couple of reasons. First, if the mortgage pushes the limits of what you can afford, you want ensure that rising rates won't torpedo the deal. Second, the risk that rates will change before the deal closes is higher these days because loans are taking so long to process. Because mergers and layoffs have decimated many lenders' staffs, refis are taking an average of 60 days to close. Locking in a rate will cost you, of course -- lenders usually add a quarter of a percentage point to your interest rate for every 30 days you lock in a rate, up to 90 days. Be sure to get it in writing.
Of course, rates may decline further. To take advantage of that, ask about a "float down" option. For example, if rates drop a minimum of 0.25%, you can capture the lower rate before you close on the loan. Lenders will usually charge you a $200 to $300 nonrefundable fee for the option, but it can save you thousands of dollars over the life of the loan if rates go down.
How much equity must I have?
Fannie and Freddie require just 5% equity in your home (more for a second home, investment property or a mortgage with secondary financing). However, you must get private mortgage insurance (PMI protects the lender if you default) if you have less than 20% equity.
In markets where home prices are declining, the mortgage insurers won't cover conventional loans with less than 10% equity or jumbo loans with less than 15%. But PMI can be expensive -- the less equity you have, the more costly it is -- and the added cost could disqualify you from refinancing.
During the boom years, homeowners avoided PMI by taking piggyback mortgages -- for example, a first mortgage for 80% of the home's price and a second mortgage for the balance. That tactic has almost disappeared.
The PMI problem is one reason the Federal Housing Administration, long a haven for the credit challenged, is doing land-office business these days. The week ending May 1, the average 30-year fixed rate on an FHA loan was 4.97%.
With FHA, you can refinance with only 2.25% equity. FHA provides its own mortgage insurance, for which you'll pay both an upfront and a monthly premium. FHA itself doesn't impose a credit-score threshold, but some FHA-approved lenders require a minimum credit score, from about 580 to 620.
You should know that Fannie and Freddie generally set the limit for mortgage-loan payments at 36% of your monthly pretax income, unless you can prove you can handle more.
I'm underwater on my mortgage and my payment is killing me. What can I do?
Small consolation, but you have a lot of company: One in five homeowners now owes more than their home is worth, according to First American Core Logic. The goal here isn't necessarily to lock in the lowest interest rate, but simply to qualify to refinance with a mortgage you can afford. You may have two options, presuming that you have a job and meet other qualifications.
The first is the Home Affordable program. Announced in March by the Obama administration, this helps homeowners who owe more than their home is worth and need a more affordable payment. The Home Affordable refi will feature a market rate of interest that's fixed for at least five years.
It's no panacea. You'll qualify only if Fannie Mae or Freddie Mac owns your current loan (to find out more, visit www.makinghomeaffordable.gov). The balance of your first mortgage can't exceed your home's value by more than 5%. That limit disqualifies plenty of homeowners in distressed markets in California, Arizona, Nevada and Florida, where home values have plummeted. The program ends in June 2010.
The second is the Hope for Homeowners program. This may help if you're at risk of default or already in foreclosure or bankruptcy. So far, these FHA-insured loans have had relatively few takers (recently only 51 of the loans had closed). That's because the cost is high for both lenders and borrowers -- although hopefully less onerous to both than the cost of foreclosure.
The Obama administration has proposed fixes to the program to make it more effective, including easing eligibility requirements for borrowers and reducing their costs. For more information about eligibility and where to apply, visit www.hud.gov/hopeforhomeowners.
What about jumbo loans?
As long as you can jump the hurdles to qualify and the loan you need falls within the limit for your metro area, conforming jumbos are readily available. The week ending May 1, the average 30-year fixed rate on a conforming jumbo was 5.28%, and the average 5/1 adjustable rate was 5.0%. The loan limit for conforming jumbos backed by Fannie, Freddie and the Federal Housing Administration is 125% of the median home price in your metro area -- up to a maximum of $729,750 in high-cost areas.
Refinance your mortgage now and you may capture the lowest interest rate of your lifetime. But unlike a couple of years ago, when it seemed all you needed was a pay stub (if that) and an eager mortgage broker, today's process can be tedious. That's because the demand for refinancing is high, standards are stricter, and the number of people processing mortgages is down. Here's what you should know before you refinance.
What's the outlook for rates?
Expect the 30-year fixed rate to hover near 5% for the balance of this year or, if the economy improves a tad, to creep up to 5.25%, says Keith Gumbinger, of financial publisher HSH Associates. HSH's survey of lenders pegged the national average 30-year fixed rate at 4.97% the week ending May 1. The average 15-year fixed rate was 4.68% and the average 5/1 adjustable-rate mortgage (which has a rate that's fixed for five years, then changes every year after) was 4.91%.
Given that the spread is so narrow between a 30-year fixed-rate loan and a 5/1 ARM, and that rates are at historically low levels, it makes no sense to take out an ARM now.
Rates will rise when inflation heats up, but that's not an immediate risk. Kiplinger forecasts that the rate of inflation will stay steady for at least the next couple of months.
Who qualifies for the best rates?
You'll generally get the lowest rate on loans backed by Fannie Mae or Freddie Mac -- together they back about two-thirds of all mortgage loans -- if you're taking out a conforming loan, and if you have a credit score of at least 720 and equity of 20% or more. Other factors that will help: if the property you're refinancing is the single-family home you live in, if you don't take out some of your equity in cash when you refinance, and if you don't take out a home-equity loan or line of credit. Of course, you can reduce your rate by paying points at closing. A discount point is equivalent to 1% of your loan amount. Paying one point usually lowers your interest rate by 0.25 percentage point.
What documents will I need?
To get the most accurate estimate of the rate for which you'll qualify, provide a prospective lender with your FICO score ($8 with the Equifax report when you order free credit reports from www.annualcreditreport.com) and an estimate of your home's market value. You can get this from a real estate agent or from sources such as Zillow.com and Trulia.com, which will show you recent comparable sales in your area.
When you apply to refinance your mortgage, you must provide pay stubs from a recent month, two months of bank and other financial statements, two years of W-2s and, if you're self-employed, two years of tax returns showing self-sustaining income. The requirement for all these documents contrasts with the "no-doc" or "liar" loans available during the real estate boom that allowed borrowers merely to state their income without providing proof.
You can take additional measures to speed up the process. Phoenix mortgage broker Tracy Tolleson urges his clients to fill out an application and pay for an appraisal (about $350) ahead of time. That can be particularly helpful if you're delaying your application in order to lock in a lower rate. There is a brief lag in applications to lenders between the time rates drop and the point that lenders become swamped with new customers. With all your paperwork in order, you can beat the rush.
If you have a home-equity loan or line of credit, your current lender will have to document its willingness to "resubordinate" to your new first mortgage -- that is, stand behind the first lender for compensation if you default.
Where should I apply?
Guy Cecala, publisher of Inside Mortgage Finance, recommends calling at least several lenders, including credit unions in addition to the local branch offices of national, regional and local banks. Cecala says some banks' divisions that typically serve only a bank's more affluent customers (say, with $100,000 or more in deposits) now offer good deals to non-depositors.
Also, check with mortgage brokers. They may prove especially helpful if your needs or qualifications aren't straightforward, says Cecala. If your application is declined, good brokers, who represent multiple lenders, will appeal the decision or take the application to another lender that may approve it.
Should I lock in the offered rate?
Locking in a rate is a good idea for a couple of reasons. First, if the mortgage pushes the limits of what you can afford, you want ensure that rising rates won't torpedo the deal. Second, the risk that rates will change before the deal closes is higher these days because loans are taking so long to process. Because mergers and layoffs have decimated many lenders' staffs, refis are taking an average of 60 days to close. Locking in a rate will cost you, of course -- lenders usually add a quarter of a percentage point to your interest rate for every 30 days you lock in a rate, up to 90 days. Be sure to get it in writing.
Of course, rates may decline further. To take advantage of that, ask about a "float down" option. For example, if rates drop a minimum of 0.25%, you can capture the lower rate before you close on the loan. Lenders will usually charge you a $200 to $300 nonrefundable fee for the option, but it can save you thousands of dollars over the life of the loan if rates go down.
How much equity must I have?
Fannie and Freddie require just 5% equity in your home (more for a second home, investment property or a mortgage with secondary financing). However, you must get private mortgage insurance (PMI protects the lender if you default) if you have less than 20% equity.
In markets where home prices are declining, the mortgage insurers won't cover conventional loans with less than 10% equity or jumbo loans with less than 15%. But PMI can be expensive -- the less equity you have, the more costly it is -- and the added cost could disqualify you from refinancing.
During the boom years, homeowners avoided PMI by taking piggyback mortgages -- for example, a first mortgage for 80% of the home's price and a second mortgage for the balance. That tactic has almost disappeared.
The PMI problem is one reason the Federal Housing Administration, long a haven for the credit challenged, is doing land-office business these days. The week ending May 1, the average 30-year fixed rate on an FHA loan was 4.97%.
With FHA, you can refinance with only 2.25% equity. FHA provides its own mortgage insurance, for which you'll pay both an upfront and a monthly premium. FHA itself doesn't impose a credit-score threshold, but some FHA-approved lenders require a minimum credit score, from about 580 to 620.
You should know that Fannie and Freddie generally set the limit for mortgage-loan payments at 36% of your monthly pretax income, unless you can prove you can handle more.
I'm underwater on my mortgage and my payment is killing me. What can I do?
Small consolation, but you have a lot of company: One in five homeowners now owes more than their home is worth, according to First American Core Logic. The goal here isn't necessarily to lock in the lowest interest rate, but simply to qualify to refinance with a mortgage you can afford. You may have two options, presuming that you have a job and meet other qualifications.
The first is the Home Affordable program. Announced in March by the Obama administration, this helps homeowners who owe more than their home is worth and need a more affordable payment. The Home Affordable refi will feature a market rate of interest that's fixed for at least five years.
It's no panacea. You'll qualify only if Fannie Mae or Freddie Mac owns your current loan (to find out more, visit www.makinghomeaffordable.gov). The balance of your first mortgage can't exceed your home's value by more than 5%. That limit disqualifies plenty of homeowners in distressed markets in California, Arizona, Nevada and Florida, where home values have plummeted. The program ends in June 2010.
The second is the Hope for Homeowners program. This may help if you're at risk of default or already in foreclosure or bankruptcy. So far, these FHA-insured loans have had relatively few takers (recently only 51 of the loans had closed). That's because the cost is high for both lenders and borrowers -- although hopefully less onerous to both than the cost of foreclosure.
The Obama administration has proposed fixes to the program to make it more effective, including easing eligibility requirements for borrowers and reducing their costs. For more information about eligibility and where to apply, visit www.hud.gov/hopeforhomeowners.
What about jumbo loans?
As long as you can jump the hurdles to qualify and the loan you need falls within the limit for your metro area, conforming jumbos are readily available. The week ending May 1, the average 30-year fixed rate on a conforming jumbo was 5.28%, and the average 5/1 adjustable rate was 5.0%. The loan limit for conforming jumbos backed by Fannie, Freddie and the Federal Housing Administration is 125% of the median home price in your metro area -- up to a maximum of $729,750 in high-cost areas.
Friday, May 15, 2009
America's Best Bargain Cities
Try these places if you want to get the most for your money
by Zack O'Malley Greenburg
Nearly a decade ago, after making a donation to a volunteer-run radio station in Austin, Texas, local librarian Red Wassenich was asked why he chose to support a broadcaster with a penchant for playing strange crooner music. "Because it keeps Austin weird," he said.
Since then, the phrase "Keep Austin Weird" has become the city's official rallying cry against the establishment of large chain stores near mom-and-pop shops--and, more generally, for maintaining the city's eccentric feel. The city may be weird, but perhaps more redeeming is that it's also a bargain to live there: Austin is the place where people pay the least to get the most.
"Austin has always been really different from the rest of Texas," says Wassenich, 59.
He's talking about the city's weirdness, but he might as well be talking about its affordability and profusion of job opportunities. Four other Texas cities make the list of America's Best Bargain Cities, but none come close to Austin, whose 5.5% unemployment is the best in the country and about half the national average.
Behind the Numbers
To determine which U.S. cities are the best bargains, Forbes looked at the country's 50 largest U.S. metropolitan statistical areas and metropolitan divisions--geographic entities defined by the U.S. Office of Management and Budget used by federal agencies in collecting, tabulating and publishing federal statistics.
We assigned points to metro regions across four data sets: Average salary for workers with a bachelor's degree or higher, from PayScale.com; annual unemployment statistics, from the Bureau of Labor Statistics; cost of living, from Moody's Economy.com; and the Housing Opportunity Index, from the National Association of Home Builders/Wells Fargo, which measures the amount of homes sold in a given area that would be affordable to a family earning the local median income based on standard mortgage underwriting criteria.
Austin earned high marks across the board.
"They have the triple-whammy of being a university town, a state capital and a technology center," says Al Lee, director of quantitative analysis at PayScale.com, a salary data aggregator based in Seattle. "It makes for a very robust economy and a great place for people to work."
Second on our list is Phoenix, Ariz., but what makes this city affordable isn't quite the same formula as in Austin. The real estate bust left the desert oasis as one of America's emptiest cities, which has also driven down home prices. As a result, Phoenix is one of the most affordable big cities in the nation.
Washington, D.C., rounds out the top three, thanks to an employment rate rivaled only by Austin. That comes as no surprise to Lee.
"Between defense spending under Bush and stimulus spending under Obama, it's been an incredibly strong time," he says.
Further on, the list includes a few places that may raise an eyebrow or two. Ritzy Cambridge, Mass., clocked in at No. 11 because of extremely high salary scores, while Detroit's rock-bottom housing costs earned the city a No. 15 rank--despite an astronomical 13% unemployment rate. That's roughly twice Austin's rate.
Lone Star Constellation
While the capital of Texas graced the top of our list, the rest of the state's large cities performed admirably too. All five of Texas' biggest burgs--Houston, San Antonio, Dallas and Ft. Worth--were among the top 10 best bargains. Not a single city in Texas ended up on our list of most overpriced places.
Part of the reason is that Texas offers some of the best incentives for entrepreneurs looking to start or move a business, according to Eduardo Martinez, a senior economist at Moody's Economy.com. Like Phoenix, Texan metros "have picked up a lot of California companies that have left because of high operating costs," he says.
Still, the state's future is far cloudier than its big blue skies. Martinez warns that Texas is vulnerable because of its exposure to America's foundering auto industry via manufacturing. The Lone Star State may also be aversely affected by the expected decrease in defense spending as contracts won in the Bush years begin to expire.
Back in Austin, though, residents are facing a different sort of challenge: To keep the city weird--and to themselves.
"Tell people not to move here!" says Wassenich.
In Depth: America's Best Bargain Cities
1. Austin, Texas
(Austin-Round Rock, Texas)
Cost of Living: 3 of 50
Housing Opportunity: 24 of 50
Unemployment Rate: 1 of 50
Average Salary: 20 of 50
2. Phoenix, Ariz.
(Phoenix-Mesa-Scottsdale, Ariz.)
Cost of Living: 13 of 50
Housing Opportunity: 14 of 50
Unemployment Rate: 6 of 50
Average Salary: 21 of 50
3. Washington, D.C.
(Washington-Arlington-Alexandria, D.C.-Va.-Md.-W.Va.)
Cost of Living: 38 of 50
Housing Opportunity: 21 of 50
Unemployment Rate: 2 of 50
Average Salary: 4 of 50
4. Fort Worth, Texas
(Fort Worth-Arlington, Texas)
Cost of Living: 16 of 50
Housing Opportunity: 10 of 50
Unemployment Rate: 8 of 50
Average Salary: 34 of 50
5. Cincinnati, Ohio (tie)
(Cincinnati-Middletown, Ohio-Ky.-Ind.)
Cost of Living: 9 of 50
Housing Opportunity: 7 of 50
Unemployment Rate: 23 of 50
Average Salary: 33 of 50
5. Indianapolis, Ind. (tie)
(Indianapolis-Carmel, Ind.)
Cost of Living: 13 of 50
Housing Opportunity: 1 of 50
Unemployment Rate: 17 of 50
Average Salary: 41 of 50
To determine which U.S. cities are the best bargain, Forbes looked at the country's 50 largest U.S. metropolitan statistical areas and metropolitan divisions--geographic entities defined by the U.S. Office of Management and Budget for use by federal agencies in collecting, tabulating and publishing federal statistics. We assigned points to metro regions across four data sets: Average salary for workers with a bachelor's degree or higher, from PayScale.com; annual unemployment statistics, from the Bureau of Labor Statistics; cost of living, from Moody's Economy.com; and the Housing Opportunity Index, from the National Association of Home Builders/Wells Fargo, which measures the amount of homes sold in a given area that would be affordable to a family earning the local median income based on standard mortgage underwriting crit
by Zack O'Malley Greenburg
Nearly a decade ago, after making a donation to a volunteer-run radio station in Austin, Texas, local librarian Red Wassenich was asked why he chose to support a broadcaster with a penchant for playing strange crooner music. "Because it keeps Austin weird," he said.
Since then, the phrase "Keep Austin Weird" has become the city's official rallying cry against the establishment of large chain stores near mom-and-pop shops--and, more generally, for maintaining the city's eccentric feel. The city may be weird, but perhaps more redeeming is that it's also a bargain to live there: Austin is the place where people pay the least to get the most.
"Austin has always been really different from the rest of Texas," says Wassenich, 59.
He's talking about the city's weirdness, but he might as well be talking about its affordability and profusion of job opportunities. Four other Texas cities make the list of America's Best Bargain Cities, but none come close to Austin, whose 5.5% unemployment is the best in the country and about half the national average.
Behind the Numbers
To determine which U.S. cities are the best bargains, Forbes looked at the country's 50 largest U.S. metropolitan statistical areas and metropolitan divisions--geographic entities defined by the U.S. Office of Management and Budget used by federal agencies in collecting, tabulating and publishing federal statistics.
We assigned points to metro regions across four data sets: Average salary for workers with a bachelor's degree or higher, from PayScale.com; annual unemployment statistics, from the Bureau of Labor Statistics; cost of living, from Moody's Economy.com; and the Housing Opportunity Index, from the National Association of Home Builders/Wells Fargo, which measures the amount of homes sold in a given area that would be affordable to a family earning the local median income based on standard mortgage underwriting criteria.
Austin earned high marks across the board.
"They have the triple-whammy of being a university town, a state capital and a technology center," says Al Lee, director of quantitative analysis at PayScale.com, a salary data aggregator based in Seattle. "It makes for a very robust economy and a great place for people to work."
Second on our list is Phoenix, Ariz., but what makes this city affordable isn't quite the same formula as in Austin. The real estate bust left the desert oasis as one of America's emptiest cities, which has also driven down home prices. As a result, Phoenix is one of the most affordable big cities in the nation.
Washington, D.C., rounds out the top three, thanks to an employment rate rivaled only by Austin. That comes as no surprise to Lee.
"Between defense spending under Bush and stimulus spending under Obama, it's been an incredibly strong time," he says.
Further on, the list includes a few places that may raise an eyebrow or two. Ritzy Cambridge, Mass., clocked in at No. 11 because of extremely high salary scores, while Detroit's rock-bottom housing costs earned the city a No. 15 rank--despite an astronomical 13% unemployment rate. That's roughly twice Austin's rate.
Lone Star Constellation
While the capital of Texas graced the top of our list, the rest of the state's large cities performed admirably too. All five of Texas' biggest burgs--Houston, San Antonio, Dallas and Ft. Worth--were among the top 10 best bargains. Not a single city in Texas ended up on our list of most overpriced places.
Part of the reason is that Texas offers some of the best incentives for entrepreneurs looking to start or move a business, according to Eduardo Martinez, a senior economist at Moody's Economy.com. Like Phoenix, Texan metros "have picked up a lot of California companies that have left because of high operating costs," he says.
Still, the state's future is far cloudier than its big blue skies. Martinez warns that Texas is vulnerable because of its exposure to America's foundering auto industry via manufacturing. The Lone Star State may also be aversely affected by the expected decrease in defense spending as contracts won in the Bush years begin to expire.
Back in Austin, though, residents are facing a different sort of challenge: To keep the city weird--and to themselves.
"Tell people not to move here!" says Wassenich.
In Depth: America's Best Bargain Cities
1. Austin, Texas
(Austin-Round Rock, Texas)
Cost of Living: 3 of 50
Housing Opportunity: 24 of 50
Unemployment Rate: 1 of 50
Average Salary: 20 of 50
2. Phoenix, Ariz.
(Phoenix-Mesa-Scottsdale, Ariz.)
Cost of Living: 13 of 50
Housing Opportunity: 14 of 50
Unemployment Rate: 6 of 50
Average Salary: 21 of 50
3. Washington, D.C.
(Washington-Arlington-Alexandria, D.C.-Va.-Md.-W.Va.)
Cost of Living: 38 of 50
Housing Opportunity: 21 of 50
Unemployment Rate: 2 of 50
Average Salary: 4 of 50
4. Fort Worth, Texas
(Fort Worth-Arlington, Texas)
Cost of Living: 16 of 50
Housing Opportunity: 10 of 50
Unemployment Rate: 8 of 50
Average Salary: 34 of 50
5. Cincinnati, Ohio (tie)
(Cincinnati-Middletown, Ohio-Ky.-Ind.)
Cost of Living: 9 of 50
Housing Opportunity: 7 of 50
Unemployment Rate: 23 of 50
Average Salary: 33 of 50
5. Indianapolis, Ind. (tie)
(Indianapolis-Carmel, Ind.)
Cost of Living: 13 of 50
Housing Opportunity: 1 of 50
Unemployment Rate: 17 of 50
Average Salary: 41 of 50
To determine which U.S. cities are the best bargain, Forbes looked at the country's 50 largest U.S. metropolitan statistical areas and metropolitan divisions--geographic entities defined by the U.S. Office of Management and Budget for use by federal agencies in collecting, tabulating and publishing federal statistics. We assigned points to metro regions across four data sets: Average salary for workers with a bachelor's degree or higher, from PayScale.com; annual unemployment statistics, from the Bureau of Labor Statistics; cost of living, from Moody's Economy.com; and the Housing Opportunity Index, from the National Association of Home Builders/Wells Fargo, which measures the amount of homes sold in a given area that would be affordable to a family earning the local median income based on standard mortgage underwriting crit
Thursday, May 14, 2009
Snag a great deal on a short sale
Short sales - where a lender agrees to take less than it's owed on a mortgage - are rising sharply. Here's how you can profit.
By Joe Light, Money Magazine staff reporter
(Money Magazine) -- When Brian Gavitt, a physician, and his wife Gayleen, a stay-at-home mom, started to eye homes in Sacramento last winter, they knew they were looking in the hardest-hit areas of the housing bust. So the couple, who were relocating from Lansing, figured they could land a fantastic bargain in no time at all.
The part about the bargain turned out to be true. The Gavitts bought a five-bedroom house in the upscale Natomas Park neighborhood ("Even now, you don't see FOR SALE signs up anywhere," says Gayleen.) And it was a steal at $300,000, a full $200,000 less than they would have paid just two years ago.
The amount of time it took to land the deal was another story. It was more than six months from when the Gavitts first saw their dream home to the moment they held the keys in their hands. The reason: The home they bought was a short sale.
Not along ago, few people had even heard of a short sale, which occurs when the bank agrees to discount the loan balance for a seller who owes more on his mortgage than the home is currently worth.
If you're in the market for a home today, you're almost guaranteed to be looking at some short sales. Nationwide, 14% of homeowners are currently underwater on their mortgages, calculates real estate website Zillow.com. And in many areas, it's far more: In the Gavitts' zip code, for example, over half of homeowners would owe more than their home is worth if they sold today, calculates Dee Schwindt, the Gavitts' realtor.
The good news is that short sellers are likely to still be living in the home and some may even be current on their payments. That means these aren't the run-down, distressed properties that you often find among foreclosures; in fact, there's a good chance that some of the most deluxe homes for sale in your market are underwater.
Before you get too excited about buying a short sale, know that they generally aren't, well, short. For the sale to go through, the seller's lender must approve the price and agree to take the shortfall as a loss. That extra step can cause the process to drag on three times as long as a normal home sale.
But as the Gavitts discovered, the hassles can be well worth it. Some buyers and realtors don't want to deal with short sales, leaving many choice homes with very few bidders. So if you're willing to brave the intricacies of the process, you'll be far more likely to land the home you always wanted. The key to snagging a good deal is knowing how to avoid the land mines.
Know what you're getting into. In a short sale, you are dealing with several parties: the sellers, their agent and the sellers' lender. That's why a short sale can take anywhere between two and six months to execute, compared with about 30 days for a typical sale. Though many banks are willing to take a loss on a mortgage in a short sale if it means avoiding an even bigger loss in a foreclosure, with so many owners trying to unload properties, the lender's negotiators are flooded with short-sale offers. So if you're moving or selling another property, keep in mind that you'll likely need to budget for a few months' worth of rental payments so you have somewhere to live in the interim.
Find the right pro. Lenders often make realtors who work on short sales take a hit on their commission, so some brokers may be loath to show you the listings. But don't even think about going solo. These deals take a lot of work and persistence, says Loni Parmelly, author of Success in Short Sales. Before you sign up with an agent, ask him how many short sales he's closed. If he hasn't done at least two, find someone more experienced.
Weed out candidates. In most cities, home listings will indicate in the description whether the property is a short sale. Ideally, you want to knock off ones that come with extra complexities. If possible, pass on any home that has more than one lien against it; having to negotiate loans with two lenders can greatly increase the amount of time it takes to complete the deal. Also avoid homes where the seller has other offers. That's because if another offer is pending, the seller's agent isn't likely to even submit yours for approval until the first one is rejected, meaning you'll have to wait for another negotiation to play out before you even get a chance.
Set the right price. The first step is to have your agent submit your offer to the seller. Don't just rely on the current list price to come up with your initial bid, says Bill Richardson, a district sales manager for the Keyes Co. Realtors in Boca Raton, Fla. The seller's agent may have far underpriced it in hopes of attracting buyers, but the bank likely won't accept a lowball offer. Ask your agent to determine the home's fair market value by searching comparable sales in the area, with an emphasis on other short sales and foreclosures (or get a rough estimate yourself at zillow.com). If the fair market value is lower than the list price, set your offer 10% lower than that.
At this point, you'll also want to get pre-approval for a mortgage; many banks won't even consider your offer if you don't have one, says Schwindt.
Protect yourself. Next, the seller's agent will submit your offer to the seller's lender. At this point, you'll be asked to sign a sales contract. See if the lender will agree to pick up all closing costs as part of the contract, says author Parmelly. Also ask your realtor to specify that you won't do an appraisal or inspection of the property until the offer is approved. That way you won't have to shell out hundreds of dollars until you know you realistically have a good chance of getting the home.
Finally, though most lenders will require you to make some kind of deposit along with the contract, don't put down more than $3,000 before your bid is accepted. That will give you room to put offers on other homes or even to pull out of the sale if it drags on for too long.
Be a pain in the neck. After your offer is submitted to the lender, you're likely to hear nothing for weeks, if not months. This is no time to relax. Call your agent at least once a week, and make sure the seller's agent is contacting the bank's negotiator nearly every day.
"These negotiators may have 400 files on their desk. They'll want to get rid of the squeaky wheels," says Parmelly, who worked as a loan negotiator for lenders for 16 years. To help the seller's realtor in her negotiations with the lender, it's a good idea to have your agent show her which comparable homes you used to arrive at your number.
If the clock keeps ticking and you're reaching the end of your rope, try playing hardball. After months, the lender the Gavitts negotiated with was still dragging its feet and their pre-approved loan rate was about to expire. "We said, 'We need an answer by Friday or we walk,' " Gayleen says. The bank responded by week's end.
Keep your eye on the market. When the bank finally sends its counter-offer, use it as a guideline rather than an ultimatum. Most of the time, the lender's number is based on its own research, that of a local realtor it hires and the outstanding loan balance. Usually its goal is to sell for at least 90% of the home's value, says Amy Bohutinsky, a spokes-person for Zillow.com.
The lender's offer may not be what you'd hoped for, but don't despair: You have a chance to counter. If the market has been flat since your initial bid, try for 5% to 10% less than the bank's number. If the market has been sinking rapidly, however, you may be able to prove that the home's value has shrunk further and offer even less. Once you have the lender's ear, the new offer should take less time to process.
Despite all the legwork and wait, the Gavitts are thrilled with their new home. "I'm glad people are turned off by short sales," says Brian. "It just means more choices for the rest of us."
By Joe Light, Money Magazine staff reporter
(Money Magazine) -- When Brian Gavitt, a physician, and his wife Gayleen, a stay-at-home mom, started to eye homes in Sacramento last winter, they knew they were looking in the hardest-hit areas of the housing bust. So the couple, who were relocating from Lansing, figured they could land a fantastic bargain in no time at all.
The part about the bargain turned out to be true. The Gavitts bought a five-bedroom house in the upscale Natomas Park neighborhood ("Even now, you don't see FOR SALE signs up anywhere," says Gayleen.) And it was a steal at $300,000, a full $200,000 less than they would have paid just two years ago.
The amount of time it took to land the deal was another story. It was more than six months from when the Gavitts first saw their dream home to the moment they held the keys in their hands. The reason: The home they bought was a short sale.
Not along ago, few people had even heard of a short sale, which occurs when the bank agrees to discount the loan balance for a seller who owes more on his mortgage than the home is currently worth.
If you're in the market for a home today, you're almost guaranteed to be looking at some short sales. Nationwide, 14% of homeowners are currently underwater on their mortgages, calculates real estate website Zillow.com. And in many areas, it's far more: In the Gavitts' zip code, for example, over half of homeowners would owe more than their home is worth if they sold today, calculates Dee Schwindt, the Gavitts' realtor.
The good news is that short sellers are likely to still be living in the home and some may even be current on their payments. That means these aren't the run-down, distressed properties that you often find among foreclosures; in fact, there's a good chance that some of the most deluxe homes for sale in your market are underwater.
Before you get too excited about buying a short sale, know that they generally aren't, well, short. For the sale to go through, the seller's lender must approve the price and agree to take the shortfall as a loss. That extra step can cause the process to drag on three times as long as a normal home sale.
But as the Gavitts discovered, the hassles can be well worth it. Some buyers and realtors don't want to deal with short sales, leaving many choice homes with very few bidders. So if you're willing to brave the intricacies of the process, you'll be far more likely to land the home you always wanted. The key to snagging a good deal is knowing how to avoid the land mines.
Know what you're getting into. In a short sale, you are dealing with several parties: the sellers, their agent and the sellers' lender. That's why a short sale can take anywhere between two and six months to execute, compared with about 30 days for a typical sale. Though many banks are willing to take a loss on a mortgage in a short sale if it means avoiding an even bigger loss in a foreclosure, with so many owners trying to unload properties, the lender's negotiators are flooded with short-sale offers. So if you're moving or selling another property, keep in mind that you'll likely need to budget for a few months' worth of rental payments so you have somewhere to live in the interim.
Find the right pro. Lenders often make realtors who work on short sales take a hit on their commission, so some brokers may be loath to show you the listings. But don't even think about going solo. These deals take a lot of work and persistence, says Loni Parmelly, author of Success in Short Sales. Before you sign up with an agent, ask him how many short sales he's closed. If he hasn't done at least two, find someone more experienced.
Weed out candidates. In most cities, home listings will indicate in the description whether the property is a short sale. Ideally, you want to knock off ones that come with extra complexities. If possible, pass on any home that has more than one lien against it; having to negotiate loans with two lenders can greatly increase the amount of time it takes to complete the deal. Also avoid homes where the seller has other offers. That's because if another offer is pending, the seller's agent isn't likely to even submit yours for approval until the first one is rejected, meaning you'll have to wait for another negotiation to play out before you even get a chance.
Set the right price. The first step is to have your agent submit your offer to the seller. Don't just rely on the current list price to come up with your initial bid, says Bill Richardson, a district sales manager for the Keyes Co. Realtors in Boca Raton, Fla. The seller's agent may have far underpriced it in hopes of attracting buyers, but the bank likely won't accept a lowball offer. Ask your agent to determine the home's fair market value by searching comparable sales in the area, with an emphasis on other short sales and foreclosures (or get a rough estimate yourself at zillow.com). If the fair market value is lower than the list price, set your offer 10% lower than that.
At this point, you'll also want to get pre-approval for a mortgage; many banks won't even consider your offer if you don't have one, says Schwindt.
Protect yourself. Next, the seller's agent will submit your offer to the seller's lender. At this point, you'll be asked to sign a sales contract. See if the lender will agree to pick up all closing costs as part of the contract, says author Parmelly. Also ask your realtor to specify that you won't do an appraisal or inspection of the property until the offer is approved. That way you won't have to shell out hundreds of dollars until you know you realistically have a good chance of getting the home.
Finally, though most lenders will require you to make some kind of deposit along with the contract, don't put down more than $3,000 before your bid is accepted. That will give you room to put offers on other homes or even to pull out of the sale if it drags on for too long.
Be a pain in the neck. After your offer is submitted to the lender, you're likely to hear nothing for weeks, if not months. This is no time to relax. Call your agent at least once a week, and make sure the seller's agent is contacting the bank's negotiator nearly every day.
"These negotiators may have 400 files on their desk. They'll want to get rid of the squeaky wheels," says Parmelly, who worked as a loan negotiator for lenders for 16 years. To help the seller's realtor in her negotiations with the lender, it's a good idea to have your agent show her which comparable homes you used to arrive at your number.
If the clock keeps ticking and you're reaching the end of your rope, try playing hardball. After months, the lender the Gavitts negotiated with was still dragging its feet and their pre-approved loan rate was about to expire. "We said, 'We need an answer by Friday or we walk,' " Gayleen says. The bank responded by week's end.
Keep your eye on the market. When the bank finally sends its counter-offer, use it as a guideline rather than an ultimatum. Most of the time, the lender's number is based on its own research, that of a local realtor it hires and the outstanding loan balance. Usually its goal is to sell for at least 90% of the home's value, says Amy Bohutinsky, a spokes-person for Zillow.com.
The lender's offer may not be what you'd hoped for, but don't despair: You have a chance to counter. If the market has been flat since your initial bid, try for 5% to 10% less than the bank's number. If the market has been sinking rapidly, however, you may be able to prove that the home's value has shrunk further and offer even less. Once you have the lender's ear, the new offer should take less time to process.
Despite all the legwork and wait, the Gavitts are thrilled with their new home. "I'm glad people are turned off by short sales," says Brian. "It just means more choices for the rest of us."
Wednesday, May 6, 2009
8 Signs of Hope for the Economy
by Beth Kowitt
provided byCNNMoney.com
Are we on the brink of a rebound, or is it a false spring? Fortune looks at the evidence for an imminent recovery.
Is the economy looking up, or at least bottoming out? Lately there has been much talk about "glimmers of hope," in President Obama's words, and "green shoots," a phrase du jour used by the likes of Fed Chairman Ben Bernanke.
Meanwhile, many economists have warned about a false spring, pointing to numbers that are still getting worse, like the unemployment rate. Fortune takes a closer look at the upbeat news to assess whether how strong a case they make for an imminent recovery.
1. Housing Starts
The government reported that the overall number of housing starts fell in March, but those for single-family homes during the month came in unchanged from the February figure of 358,000.
IHS Global Insight noted that this suggests single-family home construction may be stabilizing and is "testing the bottom."
2. The Stock Market
The S&P 500 was up 9.4% in April, its biggest monthly rally since March 2000. The Wilshire 5000 Total Market Index ended the month at 8,962.96, up 849.85, or 10.48%. This is the best monthly return since December 1991, when the index was up 10.72%.
"The initiatives of the federal government and some of the improvements in the credit markets are making investors more confident," said Thomas Cowhey, chief investment strategist at Hirtle Callaghan.
3. Consumer Confidence
Preliminary figures for the Conference Board's Consumer Confidence Index showed a jump of more than 12 points during April, to 39.2. The reading, which measures consumer views on the economy, beat analyst expectations and was the highest so far in 2009.
Lynn Franco, director of the organization's research center, attributed the rise in confidence to "significant improvement in the short-term outlook."
4. Single-Family Home Prices
The S&P/Case-Shiller Home Price Indices showed that while 20-city and 10-city Composite Home Price figures declined through February 2009 (down 18.6% and 18.8%, respectively, from a year ago), for the first time in 16 months the annual decline did not set a new record.
While it signals that the market may be showing some stabilization, or at least what Chairman of the Index Committee David Blitzer called "deceleration in the rate of decline," Blitzer warned that we "need a few more months of data before we can determine if home prices are finally turning around."
Meanwhile, the Pending Home Sales Index rose for the second straight month in March and was up more than 1% over the year-ago figure. The index from the National Association of Realtors (NAR) increased 3.2% during the month, to 84.6%.
"This increase could be the leading edge of first-time buyers responding to very favorable affordability conditions and an $8,000 tax credit," wrote Lawrence Yun, the NAR chief economist.
5. Earnings
The collapse in profits may be nearly played out. As of the last day in April, the 341 S&P 500 companies that had reported earnings for the first quarter were on average about 2% below estimates, according to Howard Silverblatt, senior index analyst at Standard & Poor's. Silverblatt says the results are overall "not good but definitely not bad" and show that "deterioration has slowed down."
Financial companies reported surprisingly strong numbers. But we can't count on an earnings turnaround for many months, says Silverblatt, who won't consider the numbers to show definitive proof of improvement until fourth-quarter results are in.
6. Jobless Benefit Claims
While unemployment figures are expected to rise still further, there was a signs of hope in the Unemployment Insurance Weekly Claims Report for the week ending April 25. The Department of Labor reported that seasonally adjusted initial claims for unemployment aid fell by 14,000 to 631,000.
"The past few weeks' claims data are beginning to look increasingly like a peak," wrote Ian Shepherdson of High Frequency Economics.
7. New Orders and Exports
Orders are starting to pick up. While reports from the Institute for Supply Management showed that the manufacturing sector failed to grow for the 15th straight month in April, its New Orders Index increased six percentage points to 47.2%, the highest level since August. The New Exports Orders Index increased 5 percentage points, to 44%.
"While this is a big step forward, there is still a large gap that must be closed before manufacturing begins to grow once again," said Norbert Ore, chair of the institute's survey committee, in a statement. "This is definitely a good start for the second quarter."
8. Credit Markets
Banks are starting to trust one another again. In May, the three-month London interbank offered rate (Libor), a benchmark for interbank loans, fell below 1% for the first time on record. That was down from 1.16% a month ago and 2.51% six months prior.
John Ewan, director of the British Bankers' Association, which sets the rate, told Fortune in an email that "the continued easing of the rates demonstrates that liquidity and confidence are returning to the wholesale markets."
provided byCNNMoney.com
Are we on the brink of a rebound, or is it a false spring? Fortune looks at the evidence for an imminent recovery.
Is the economy looking up, or at least bottoming out? Lately there has been much talk about "glimmers of hope," in President Obama's words, and "green shoots," a phrase du jour used by the likes of Fed Chairman Ben Bernanke.
Meanwhile, many economists have warned about a false spring, pointing to numbers that are still getting worse, like the unemployment rate. Fortune takes a closer look at the upbeat news to assess whether how strong a case they make for an imminent recovery.
1. Housing Starts
The government reported that the overall number of housing starts fell in March, but those for single-family homes during the month came in unchanged from the February figure of 358,000.
IHS Global Insight noted that this suggests single-family home construction may be stabilizing and is "testing the bottom."
2. The Stock Market
The S&P 500 was up 9.4% in April, its biggest monthly rally since March 2000. The Wilshire 5000 Total Market Index ended the month at 8,962.96, up 849.85, or 10.48%. This is the best monthly return since December 1991, when the index was up 10.72%.
"The initiatives of the federal government and some of the improvements in the credit markets are making investors more confident," said Thomas Cowhey, chief investment strategist at Hirtle Callaghan.
3. Consumer Confidence
Preliminary figures for the Conference Board's Consumer Confidence Index showed a jump of more than 12 points during April, to 39.2. The reading, which measures consumer views on the economy, beat analyst expectations and was the highest so far in 2009.
Lynn Franco, director of the organization's research center, attributed the rise in confidence to "significant improvement in the short-term outlook."
4. Single-Family Home Prices
The S&P/Case-Shiller Home Price Indices showed that while 20-city and 10-city Composite Home Price figures declined through February 2009 (down 18.6% and 18.8%, respectively, from a year ago), for the first time in 16 months the annual decline did not set a new record.
While it signals that the market may be showing some stabilization, or at least what Chairman of the Index Committee David Blitzer called "deceleration in the rate of decline," Blitzer warned that we "need a few more months of data before we can determine if home prices are finally turning around."
Meanwhile, the Pending Home Sales Index rose for the second straight month in March and was up more than 1% over the year-ago figure. The index from the National Association of Realtors (NAR) increased 3.2% during the month, to 84.6%.
"This increase could be the leading edge of first-time buyers responding to very favorable affordability conditions and an $8,000 tax credit," wrote Lawrence Yun, the NAR chief economist.
5. Earnings
The collapse in profits may be nearly played out. As of the last day in April, the 341 S&P 500 companies that had reported earnings for the first quarter were on average about 2% below estimates, according to Howard Silverblatt, senior index analyst at Standard & Poor's. Silverblatt says the results are overall "not good but definitely not bad" and show that "deterioration has slowed down."
Financial companies reported surprisingly strong numbers. But we can't count on an earnings turnaround for many months, says Silverblatt, who won't consider the numbers to show definitive proof of improvement until fourth-quarter results are in.
6. Jobless Benefit Claims
While unemployment figures are expected to rise still further, there was a signs of hope in the Unemployment Insurance Weekly Claims Report for the week ending April 25. The Department of Labor reported that seasonally adjusted initial claims for unemployment aid fell by 14,000 to 631,000.
"The past few weeks' claims data are beginning to look increasingly like a peak," wrote Ian Shepherdson of High Frequency Economics.
7. New Orders and Exports
Orders are starting to pick up. While reports from the Institute for Supply Management showed that the manufacturing sector failed to grow for the 15th straight month in April, its New Orders Index increased six percentage points to 47.2%, the highest level since August. The New Exports Orders Index increased 5 percentage points, to 44%.
"While this is a big step forward, there is still a large gap that must be closed before manufacturing begins to grow once again," said Norbert Ore, chair of the institute's survey committee, in a statement. "This is definitely a good start for the second quarter."
8. Credit Markets
Banks are starting to trust one another again. In May, the three-month London interbank offered rate (Libor), a benchmark for interbank loans, fell below 1% for the first time on record. That was down from 1.16% a month ago and 2.51% six months prior.
John Ewan, director of the British Bankers' Association, which sets the rate, told Fortune in an email that "the continued easing of the rates demonstrates that liquidity and confidence are returning to the wholesale markets."
Obama Outlines Spending Plans
Obama Outlines Spending Plans
AFFORDABLE HOUSING FINANCE
BY BARRY G. JACOBS
President Barack Obama holds a prime-time news conference March 24 to increase popular support for his $3.6 trillion budget and economic recovery plan. (Photo by Getty Images)
President Barack Obama has outlined a fiscal 2010 budget that provides more funding for federal housing programs, including $1 billion for the national Affordable Housing Trust Fund. Overall discretionary Department of Housing and Urban Development (HUD) funding would be up about $6 billion, to $47.5 billion.
The proposed appropriation for the trust fund would help fill the gap resulting from the suspension of assessments on Fannie Mae and Freddie Mac, which were supposed to be its primary funding source.
The budget outline also calls for increased funding for Sec. 8 tenant-based and project-based assistance, though it doesn’t specify amounts.
In addition, the administration plans to introduce legislative reforms to the voucher program to help fully utilize available funding and ease the administrative burdens on public housing authorities.
The administration will also request $4.5 billion to fully fund the Community Development Block Grant (CDBG) program in fiscal 2010, with legislation to revise the funding formula to better target assistance to distressed areas and promote sustainable and economically viable communities.
According to the outline, the budget will also provide funds to HUD to combat mortgage fraud and predatory lending and strengthen fair housing enforcement. In addition, a joint HUDEnergy Department innovation fund would support the creation of an energy- efficient housing market, including the retrofitting of older buildings.
Congress completes work on ’09 funding, approves stimulus bill
While preparing to deal with funding for the federal government in 2010, Congress also completed work on fiscal 2009 appropriations and approved a mammoth economic stimulus bill that includes billions of dollars for housing.
The omnibus 2009 appropriations measure (H.R. 1105) includes $41.5 billion in discretionary budget authority for HUD. The department had been operating on a continuing resolution.
The bill provides $16.8 billion for Sec. 8 tenant-based assistance, including $15 billion for renewals, and $7.1 billion for Sec. 8 project-based aid, with $6.9 billion for renewals.
For public housing, the bill includes $2.4 billion for the capital fund, $4.5 billion for the operating fund, and $120 million for the HOPE VI program for the revitalization of severely distressed housing. Other major HUD funding provisions include $3.9 billion for community development, with $3.6 billion allocated to formula CDBGs; $1.8 billion for HOME; $1.7 billion for homeless assistance; $765 million for Sec. 202 housing for the elderly; $250 million for Sec. 811 housing for the disabled; $645 million for Indian housing block grants; and $310 million for housing opportunities for persons with AIDS.
The bill sets commitment limits of $315 billion for the Federal Housing Administration Mutual Mortgage Insurance Fund; $45 billion for the General and Special Risk account, which insures multifamily mortgages; and $300 billion for Ginnie Mae mortgagebacked securities.
For rural housing, the funding bill provides $69.5 million for Sec. 515 rural rental housing loans, $129.1 million for Sec. 538 guaranteed multifamily loans, $902.5 million for rural rental assistance, $1.1 billion for Sec. 502 direct home loans, and $6.2 billion for Sec. 502 guaranteed loans.
The $787 billion economic stimulus bill (H.R. 1), the American Recovery and Reinvestment Act, includes two measures to address the sagging low-income housing tax credit equity market.
One provision allows state housing finance agencies to exchange a portion of their tax credit authority—up to 40 percent of their 2009 credits and 100 percent of their unused 2008 credits and returned credits—for Treasury Department grants equal to 85 percent of the 10-year credit amount. In effect, the swap would allow state agencies to provide the equivalent of an equity investment at a price of $0.85 per tax credit dollar. The grants can be used for projects with or without tax credits, but tax credit program rules will apply in either case.
The second provision gives HUD $2.25 billion in tax credit assistance funds to be allocated to state agencies through the HOME funding formula for aid to projects receiving tax credit allocations in 2007, 2008, and 2009. The stimulus bill also includes $2 billion for Sec. 8 project- based assistance to support 12-month contract renewals; $1.5 billion for homelessness prevention and re-housing efforts; $4 billion in public housing capital funds; $2 billion to be allocated through the Neighborhood Stabilization Program to redevelop foreclosed and abandoned homes; $1 billion for CDBGs; $510 million for Indian housing block grants; and $250 million for green investments and energy retrofitting of HUD-assisted housing.
Foreclosure crisis efforts continue
Outside of the budget and appropriations process, the home mortgage foreclosure crisis continues to dominate housing-related activity in Washington, with both the administration and Congress pushing relief measures.
The administration’s program includes the refinancing of mortgages held by Fannie and Freddie that don’t exceed 105 percent of the current property value and the modification of other loans where borrowers are facing potential foreclosure. The Treasury Department announced standardized guidelines for modifications, with eligibility limited to loans originated on or before Jan. 1, 2009, with principal balances up to the high-cost conforming loan limit, which is $729,750 for a one-family dwelling.
AFFORDABLE HOUSING FINANCE
BY BARRY G. JACOBS
President Barack Obama holds a prime-time news conference March 24 to increase popular support for his $3.6 trillion budget and economic recovery plan. (Photo by Getty Images)
President Barack Obama has outlined a fiscal 2010 budget that provides more funding for federal housing programs, including $1 billion for the national Affordable Housing Trust Fund. Overall discretionary Department of Housing and Urban Development (HUD) funding would be up about $6 billion, to $47.5 billion.
The proposed appropriation for the trust fund would help fill the gap resulting from the suspension of assessments on Fannie Mae and Freddie Mac, which were supposed to be its primary funding source.
The budget outline also calls for increased funding for Sec. 8 tenant-based and project-based assistance, though it doesn’t specify amounts.
In addition, the administration plans to introduce legislative reforms to the voucher program to help fully utilize available funding and ease the administrative burdens on public housing authorities.
The administration will also request $4.5 billion to fully fund the Community Development Block Grant (CDBG) program in fiscal 2010, with legislation to revise the funding formula to better target assistance to distressed areas and promote sustainable and economically viable communities.
According to the outline, the budget will also provide funds to HUD to combat mortgage fraud and predatory lending and strengthen fair housing enforcement. In addition, a joint HUDEnergy Department innovation fund would support the creation of an energy- efficient housing market, including the retrofitting of older buildings.
Congress completes work on ’09 funding, approves stimulus bill
While preparing to deal with funding for the federal government in 2010, Congress also completed work on fiscal 2009 appropriations and approved a mammoth economic stimulus bill that includes billions of dollars for housing.
The omnibus 2009 appropriations measure (H.R. 1105) includes $41.5 billion in discretionary budget authority for HUD. The department had been operating on a continuing resolution.
The bill provides $16.8 billion for Sec. 8 tenant-based assistance, including $15 billion for renewals, and $7.1 billion for Sec. 8 project-based aid, with $6.9 billion for renewals.
For public housing, the bill includes $2.4 billion for the capital fund, $4.5 billion for the operating fund, and $120 million for the HOPE VI program for the revitalization of severely distressed housing. Other major HUD funding provisions include $3.9 billion for community development, with $3.6 billion allocated to formula CDBGs; $1.8 billion for HOME; $1.7 billion for homeless assistance; $765 million for Sec. 202 housing for the elderly; $250 million for Sec. 811 housing for the disabled; $645 million for Indian housing block grants; and $310 million for housing opportunities for persons with AIDS.
The bill sets commitment limits of $315 billion for the Federal Housing Administration Mutual Mortgage Insurance Fund; $45 billion for the General and Special Risk account, which insures multifamily mortgages; and $300 billion for Ginnie Mae mortgagebacked securities.
For rural housing, the funding bill provides $69.5 million for Sec. 515 rural rental housing loans, $129.1 million for Sec. 538 guaranteed multifamily loans, $902.5 million for rural rental assistance, $1.1 billion for Sec. 502 direct home loans, and $6.2 billion for Sec. 502 guaranteed loans.
The $787 billion economic stimulus bill (H.R. 1), the American Recovery and Reinvestment Act, includes two measures to address the sagging low-income housing tax credit equity market.
One provision allows state housing finance agencies to exchange a portion of their tax credit authority—up to 40 percent of their 2009 credits and 100 percent of their unused 2008 credits and returned credits—for Treasury Department grants equal to 85 percent of the 10-year credit amount. In effect, the swap would allow state agencies to provide the equivalent of an equity investment at a price of $0.85 per tax credit dollar. The grants can be used for projects with or without tax credits, but tax credit program rules will apply in either case.
The second provision gives HUD $2.25 billion in tax credit assistance funds to be allocated to state agencies through the HOME funding formula for aid to projects receiving tax credit allocations in 2007, 2008, and 2009. The stimulus bill also includes $2 billion for Sec. 8 project- based assistance to support 12-month contract renewals; $1.5 billion for homelessness prevention and re-housing efforts; $4 billion in public housing capital funds; $2 billion to be allocated through the Neighborhood Stabilization Program to redevelop foreclosed and abandoned homes; $1 billion for CDBGs; $510 million for Indian housing block grants; and $250 million for green investments and energy retrofitting of HUD-assisted housing.
Foreclosure crisis efforts continue
Outside of the budget and appropriations process, the home mortgage foreclosure crisis continues to dominate housing-related activity in Washington, with both the administration and Congress pushing relief measures.
The administration’s program includes the refinancing of mortgages held by Fannie and Freddie that don’t exceed 105 percent of the current property value and the modification of other loans where borrowers are facing potential foreclosure. The Treasury Department announced standardized guidelines for modifications, with eligibility limited to loans originated on or before Jan. 1, 2009, with principal balances up to the high-cost conforming loan limit, which is $729,750 for a one-family dwelling.
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