Archive for October, 2008

The Indians to the Rescue!! 100% Finanacing; How will the $7500 Tax Credit help first time buyers…

Wow, Who’d have thought that a Sioux Indian tribe of South Dakota could ever help our Sacramento Housing Market?

That’s exactly the case with a new program designed to resurrect down payment assistance programs that were eliminated by Congress after Oct. 1st 2008…

Indian Tribe Mortgage Program is a second mortgage program offered by the Lower Brule Sioux Indian tribe and is sure to keep out first-time buyer market active here in Sacramento by resurrecting 100% Financing.

What’s great is that this program requires no monthly or amortized payments!!

Read more here…

If you add the 7500 tax credit that was part of the massive housing rescue package that President Bush signed in August, and the affordability of our under $250k market here in the Sacramento area; It makes absolutely no sense to rent!

It is actually not a credit at an interest free loan for first time buyers.  It must be paid back.

I found a a special web site with a great overview of the program. There is also another source of here at active rain: $7500 tax credit frequently asked questions.

This is absolutely fantastic stuff for our local market– as I have written frequently, the lower price ranges, where first time buyers and investors are competing for homes, has seen some real stability in the Sacramento area and these programs will help to continue the demand for those homes.  Without the stability and predictability for those lower price ranges, our market may have seen even more deep price drops in those price ranges where, right now, buying makes a lot more economical sense than renting.





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Sacramento’s Affordability: The amazing resiliency of our under 200k market…

Sacramento has now become the state’s most affordable housing market with about 55.7 percent of all homes for sale in the four-county metro area were priced so that a family making the median income in the region could afford them!

I’ve been so excited to watch as our local real estate market sales have held. Despite all the bad news; global recession, stock market fears, job losses, high energy costs etc.

Every time my team and I have an open house, we find four or five buyers who absolutely need, want and can afford to buy in the next few months!

We are running into first time buyers, investors, move-up buyers, relocation buyers, empty nesters who want to downsize, just about every reason imaginable for moving; and these people are ignoring the news, knowing that this may be the best time to buy…  Low mortgage rates, a great supply of homes to choose from, and an overall belief in an economic recovery and an underlying long term strength of California’s real estate market always seem to be the reasons people point to when we ask “why are you buying?”.

I just ran some preliminary numbers for the first ten days of October in Sacramento county.

It is obvious that the homes that are priced under 200k are still in a sellers market, with the median cumulative days on the market for those homes at an amazing 15 DOM!!

The reason is easy; if you quickly run numbers, a mortgage on a 200k home, even with only a 3% down is going to be around $1400 per month, and in a 30% tax bracket, with the tax savings that the interest deduction will give you, you can actually own a 3 bed 2 bath home in a great neighborhood for just about what it would cost to rent, plus you will see the appreciation, when our market comes back!

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More Clarification as to what is really going on… and why…

I got another interesting email the other day; this one from one of our finest and most financially educated mortgage lenders from Summit Funding; thought I’d blog it and include it in todays post; it may help put into everyday language some of the stuff that has been going on with the wall st bail out; what has caused it and why it is so critically important…

“Hello All! 

I have been getting a lot of questions from past clients, current clients and business associates of what is really going on in the market so I thought everyone may want to know…

The Chinese have a proverb:  “May you live in interesting times.”  And we are living through interesting times indeed. 

Whatever the political posturing regarding the current rescue plan, a plan needs to be passed. Credit markets are frozen and banks are going bust every day. This is not totally because of “toxic” mortgages. This has a lot to do with FAST 157, also known as “mark to market“.

Each day lenders must mark their assets to the marketplace. It’s like you having to appraise your home everyday and if your neighbor was under duress because they got very ill, divorced, lost their job and was forced to sell their home quickly they may have sold it super cheap. Now, does that mean your house is worth that super cheap price? Clearly not. Why? Because you are not under duress. You have the time to sell your home and get a more normal price, which more accurately reflects true market conditions. But “mark to market” does not allow for this, which creates a vicious cycle.

Why is this so bad? Because as lenders mark down their assets, the amount that they have loaned previously becomes much riskier in relation to their assets. For example, say a bank has $1 million in assets and say they have $15 million in loans outstanding. Their ratio is an acceptable 15 to 1. But should they take a paper write down of $500 thousand due to “mark to market” requirements, their ratio suddenly changes to 30 to 1. This is because their assets are now only $500 thousand after taking the paper loss, while their loans outstanding are $15 million. And at 30 to 1 this bank is viewed as a risky investment. So the stock price starts to get hit, it becomes harder to borrow, and most importantly harder to make money. The bank is then forced to sell some of its loans to reduce its ratio…at cheap prices. And this makes the vicious cycle continue.

And a quick look at the holdings of these loans show that 95% are problem free. Additionally, the Credit Default Swaps (CDS) that are used with the pools of mortgages are relatively safe. But this requires a bit of understanding. You see, when a pool of mortgage loans is put together, it isn’t just A paper or B paper etc….it’s everything. It’s got some A paper, B paper, C paper…and even what looks like toilet paper. An “A” investor buys the whole pool but because they are an “A” investor their safety is greater because they can avoid the first 20% (an example) of defaults. So they own the whole pool but are sheltered from the first batch of defaults, and for this they get the lowest rate of return. As you can figure from here the more risk investors want to take, the higher the return. So the investments are relatively safe, but the accounting rules currently place undue pressure on the banking institutions.

Now add to all this, the opportunistic “shorting” done on the financial stocks, much of it illegal because those shorts did not legitimately borrow shares (called naked shorting), and you exacerbate this whole problem. Thank goodness for the recent temporary ban on shorting in the financial sector. As for the plan the government is the only one who can step in to do this. And they have to do this. And they will do this. The nauseating political posturing from both sides is just part of the process.

This is not easy to understand for the general public. In fact most politicians don’t get this either. That’s why it is a difficult yet critical bill for them to vote on.

Once this is done it will take some time but the markets will stabilize. As for the real estate and mortgage industries, it will take a bit of time but we will make it through this.  Rates will remain attractive and the influx of credit availability will help the housing market gradually improve. This ultimately will be the medicine needed to improve the situation overall.

As always – please keep in touch, especially during these volatile times. I am here to help you in any way that I can.

Make it a fabulous day, life is too short not to!”


Evangeline Scott, CMPS

Certified Mortgage Planner

Summit Funding, Inc


…A great message that helps to really understand some of the complicated problems that wall street and congress are having to deal with.

I think we are all about to learn a lot more than we ever wanted to know about the secondary mortgage markets…

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The subrime mess: Did it really start eight years ago:

One of my partners found an interesting article recently. Like many of us I have been doing a lot of asking around, reading and trying to learn more about the beginnings of this mess we’re experiencing with the credit sector…  My buddy sent an email with an article from the New York Times from almost exactly eight years ago…

What happened was the greed of the secondary market and wall street fed a hunger for more product…

Who was supposed to be regulating this? 

This may be interesting to read:

September 30, 1999

Fannie Mae Eases Credit

To Aid Mortgage Lending


In a move that could help increase home ownership, the Fannie

Mae Corporation is easing the credit requirements on

 loans that it will purchase from banks and other lenders.
The action, which will begin as a pilot program involving

24 banks in 15 markets — including the New York

 metropolitan region — will encourage those banks to

extend home mortgages to individuals whose credit is

generally not good enough to qualify for conventional

 loans. Fannie Mae officials say they hope to make it a

 nationwide program by next spring.
Fannie Mae, the nation’s biggest underwriter of home

mortgages, has been under increasing pressure from the

 Clinton Administration to expand mortgage  loans among 

low and moderate income people and felt pressure from

stock holders to maintain its phenomenal growth in profits.
In addition, banks, thrift institutions and mortgage

companies have been pressing Fannie Mae to help them

make more loans to so-called subprime borrowers. These

 borrowers whose incomes, credit ratings and savings are

 not good enough to qualify for conventional loans, can

only get loans from finance companies that charge much

higher interest rates — anywhere from three to four

percentage points higher than conventional loans.
‘Fannie Mae has expanded home ownership for millions

of families in the 1990’s by reducing down payment

requirements,’ said Franklin D. Raines, Fannie Mae’s

chairman and chief ex ecutive officer. ‘Yet there remain

too many borrowers whose credit is just a notch below

what our underwriting has required who have been relegate

 to paying significantly higher mortgage rates in the so-called

subprime market.’ Demographic information on these borrowers

is sketchy.

But at least one study indicates that 18 percent of the loans

 in the subprime market went to black borrowers, compared

to 5 per cent of loans in the conventional loan market. In

moving, even tentatively, into this new area of lending,

Fannie Mae is taking on significantly more risk, which may

 not pose any difficulties during flush economic times.

 But the government-subsidized corporation may run into

 trouble in an economic downturn, prompting a

government rescue similar to that of the savings and loan

 industry in the 1980’s. 


From the perspective of many people,

including me, this is another thrift industry growing up around us,’

said Peter Wallison a resident fellow at the American Enterprise Institute.

‘If they fail, the government will have to step up and bail them out

 the way  it stepped up and bailed out the thrift industry.’
Under Fannie Mae’s pilot program, consumers who qualify can secure a

mortgage with an interest rate one percentage point above that of a

conventional, 30-year fixed rate mortgage of less than $240,000 — a

rate that currently averages about 7.76 per cent. If the borrower

makes his or her monthly payments on time for two years, the one

percentage point premium is dropped.
Fannie Mae, the nation’s biggest underwriter of home mortgages,

does not lend money directly to consumers. Instead, it purchases

loans that banks make on what is called the secondary market. By

expanding the type of loans that it will buy, Fannie Mae is hoping to

spur banks to make more loans to people with less-than-stellar credit





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