WOW! Fed slashes rates second time in just over a week! How this affects YOU!

There is some great news out there for homeowners and soon to be purchasers. The Federal Reserve lowered short term interest rates again by half a percentage point on Wednesday. While this directly affects the rate of your ARM (adjustable rate mortgage) and Equity Lines of Credit on your home, it will most likely take a few weeks for this to be felt in the mortgage rates offered to potential buyers. This translates to “all good news” on the housing front, which can use a “shot in the arm”. In my opinion, we are headed back to the “good old days”, at least for a short while, where there are low interest rates and ample supply of properties to select from. Investors are coming back into the real estate market as investments in the stock market remain suspect and there are plenty of deals to be had in real estate. Yesterday’s article on www.BankRate.com does a good job of explaining the rate change and how it affects mortgages. Both the full story and link are provided below.


Fed cuts rate by half-point to 3 percent
By Holden Lewis • Bankrate.com

For the second time in just over a week, the Federal Reserve has lowered short-term interest rates. This time, the move was widely expected.
The central bank's Federal Open Market Committee reduced the target federal funds rate half a percentage point, to 3 percent. This affects consumers because the prime rate will fall half a point, too, to 6 percent. Variable-rate credit cards and home equity lines of credit are linked to the prime rate, so they will fall another half-point over the next couple of billing cycles. The Fed's rate cut is designed to get consumers borrowing and spending again.
"Financial markets remain under considerable stress, and credit has tightened further for some businesses and households. Moreover, recent information indicates a deepening of the housing contraction as well as some softening in labor markets," the Fed explained, adding that the rate-setting committee expects inflation to settle down in the next few quarters.
The Fed went on to say that the combined rate cuts -- totaling 2.25 percent since September -- should promote moderate growth. "However, downside risks to growth remain."
The vote wasn't unanimous. Richard W. Fisher, of the Federal Reserve Bank of Dallas, voted against a rate cut. The central bank also reduced the discount rate by a half-point. The Fed charges the discount rate on direct loans to member banks.
The rate-setting committee has eight scheduled meetings a year. On Jan. 22, the committee took the unusual step of cutting short-term rates between scheduled meetings. That day, the Fed reduced the federal funds rate by three-quarters of a point, to 3.5 percent. It explained that it took the move "in view of a weakening of the economic outlook and increasing downside risks to growth." That was a clear statement that the Fed is in recession-fighting mode. Today's rate cut confirms that.
Recession versus inflationEveryone recognizes that the Fed risks starting or exacerbating a recession if it keeps rates too high. But the central bank risks igniting inflation if it sends rates too low. The rate-setting committee has chosen which misstep it would rather make: inviting inflation.
Fed chops rate 3%
The Federal Reserve slashed 50 basis points off a key interest rate.
"The main concern they've got right now is the economy, period, and they don't want to take a recession," says John Burford, vice president and investment portfolio manager for The International Bank of Miami. "In order to avoid that, they're willing to take some inflation risk."
That isn't to say that he agrees with the rate cut. "Sad to say," Burford said before the rate cut was announced, "they've built up a pretty good expectation in the markets that they're going to do something." Leaving rates alone would have been a sell-off in the stock and bond markets, and that's not what the Fed wanted.
Richard DeKaser, chief economist for National City Corp., says the Fed's recent actions are difficult to interpret. "For the longest time, we had a very reluctant Fed that was gradualist in its approach and really moving only in reaction to very persuasive evidence that rate cuts were necessary," DeKaser says.
Last week's big, unscheduled rate cut was not gradualist, and there are still arguments to be made that more rate cuts aren't necessary. The Fed has slashed the federal funds rate from 5.25 percent to 3 percent since September, and it usually takes six to 12 months for the effects of rate reductions to show up in the economy, DeKaser says: "The pipeline of monetary stimulus is still pretty full."
Mortgage rates don't respond right awayLong-term rates, such as those for mortgages, don't respond directly to the Fed's short-term rate moves. Sometimes, mortgage rates move in the opposite direction when the Fed reduces the federal funds rate. But more often than not, mortgage rates eventually follow the Fed's lead. That might be one of the motivations of the central bank, DeKaser says -- "to help the housing market by lowering the refinance rate on many resetting mortgages. That makes it easier for people confronting resets, which we know are rampant right now, to achieve more affordable rates."
The federal funds rate is the target interest rate for banks borrowing reserves among themselves. The discount rate is the interest rate that the Fed charges banks to borrow reserves from the Federal Reserve. The Fed wants to be the lender of last resort: It wants banks to borrow from one another at the federal funds rate before borrowing from the Federal Reserve at the higher discount rate.
Posted January 30th, 2008

You can read this story on Bankrate.com at http://www.bankrate.com/brm/news/fed/main-Jan302008.asp

Troubled Borrowers; Help from President Bush's initiative

We read and hear about it in the news almost daily; foreclosures on the rise across the USA. DC has been relatively untouched by this compared to many metropolitan areas. However, due to the nature of the problem, we are going to see it happen here in DC; hopefully on a very small scale. I met with a wonderful lady yesterday who was experiencing "mortgage problems" and in my research to see where I could direct her I found this helpful article in the February 2008 Realtor Magazine. It has lots of helpful advise and contact numbers so I have provided the full article and link below.


Help Troubled Borrowers

Troubled borrowers all around the country are wondering how—or whether—they’re eligible for any relief under the initiative President George W. Bush announced in mid-December to stem the tide of defaulted subprime mortgages. Here’s what you need to know to help your past customers or anyone who comes to you concerned about problems paying their mortgage loan.

Bush’s Hope Now initiative is a voluntary accord entered into by lenders, loan servicers, and mortgage investors to help borrowers who face default when their subprime adjustable-rate mortgage resets at a higher rate. The most prominent part of the initiative is an interest-rate freeze that would give borrowers facing an unmanageable interest-rate hike the time to work out a solution.
When people ask you for advice, tell them:

1. Call the national counseling hotline President Bush publicized.
The number, 888-995-4673 (888-995-HOPE), is available on a 24/7 basis.

Calling the number puts them in contact with a HUD-approved counselor affiliated with the nonprofit Homeownership Preservation Foundation.

As of mid-December, there were about 180 counselors, and their ranks were supposed to grow to about 400 early this year, according to Tracy Morgan, vice president of the foundation.

Since the president’s announcement, counselors have seen the volume of hotline calls skyrocket from about 1,500 a day to 22,000 a day as of late December, says Morgan. She expects calls to stabilize at about 2,500 a day in 2008.

2. Expect to be on the phone about 45 minutes.
A counselor will gather information about the caller’s financial situation and make a number of determinations, including eligibility to participate in the initiative.

Home owners are eligible for the initiative if they’re current and expect to stay current after the rate resets but are looking to refinance into a more appropriate loan; they’re current but face possible default after their rate resets, so they need to modify their existing loan or refinance into more affordable financing; or they’re in default before their rate resets.

The initiative applies only to purchase-money mortgages, not home equity loans, and only to borrowers who secured financing during the height of the housing boom — Jan. 1, 2005, to July 31, 2007 — and whose rate resets between Jan. 1, 2008, and July 31, 2010. Lenders estimate some 1.2 million borrowers are eligible.

Of course, the counselors can help borrowers who don’t meet eligibility for the initiative, too. “Most of the calls we receive today continue to be for more traditional types of payment problems,” says Roy Nash, executive director of NeighborWorks Waco, a Texas credit counseling and financial education organization. “Income problems as a result of a job loss and unexpected expenses like a medical emergency continue to be the main reason people call.”

3. Expect a counselor to recommend a course of action.
Typically, two or three hotline calls transpire before the counselor has enough information to make a recommendation, though it might take just one call if the borrower is prepared with paperwork verifying income and monthly expenses.

“The more prepared they are, the more quickly we can help them,” says Daniel Garcia, a counselor with NeighborWorks Waco.

The counselor’s main job is to explain what options are available based on a borrower’s situation and to have the borrower call the mortgage servicer to initiate a workout plan.

In some cases, the counselor will recommend the borrower call another counselor, one in the borrower’s area, and get counseling in person. In other cases, the counselor will contact the servicer directly. To do that, counselors must get the borrowers’ written authorization to act on their behalf.

4. Servicers are increasingly amenable to be flexible.
Garcia says servicers are more willing to take calls and be flexible than before the subprime crisis.

“A lot of these lenders [who also do servicing] are overflowing with REOs and can’t take any more, so they have to do something,” says Garcia. “They’re ramping up their staff to deal with this, hiring and training more people, and giving them more authority.”

Countrywide Home Mortgage, the country’s largest mortgage lender and the servicer for an estimated 82,000 loans whose borrowers fall under Hope Now’s eligibility criteria, has a team of 3,000 handling workout plans, though not only for Hope Now cases.

Wells Fargo has established a dedicated counselor phone line. “If customers go to a counseling agency because they need to get help, and they give the authorization to the counseling agency, we will talk to that third party,” says Patrick Carey, executive vice president of default and retention operations for Wells Fargo.

5. Borrowers are receiving fast-track workout plans based on their eligibility.
Servicers have the most flexibility in working with borrowers who are current on their mortgage and expect to stay current after rates reset. Servicers determine these borrowers’ eligibility for refinancing based on information the servicer already has on file, such as the current loan amount and loan-to-value ratio and the borrowers’ FICO score and credit history.

Refinancing is the typical solution for these borrowers, and the servicer is supposed to recommend the best available replacement product for the borrower, even if that product isn’t one offered by a lender affiliated with the servicer’s company.

Carey of Wells Fargo says his company is prepared to do that. “Whatever works best for customers’ financial circumstance, we will work with them to accomplish,” he says.

The servicers are also supposed to help borrowers avoid prepayment penalties in a refinancing, though that might be easier said than done because many subprime loans come with stiff prepayment penalties. The initiative recommends—rather than requires—that servicers modify the original loan to eliminate a penalty. At the same time, investor rules for securities backed by these mortgages govern what servicers can and can’t do, so any attempt to modify a provision such as a prepayment penalty without investors’ OK can invite a lawsuit.

“Any servicers who service loans for others, as most of us do, are governed by the constraints or the guidelines of the investors who own the loans,” says Carey. “Unless you’re delegated to do something, you have to get approval to do it.”

Industry executives and government officials who designed the initiative think they’ve worked out a solution, though, because these kinds of problems were discussed before all parties, including investor representatives, signed off on the agreement.

“With the investor community on board and as a clear beneficiary of this approach, the risk of litigation should be manageable,” said U.S. Treasury Secretary Henry Paulson Jr., who spoke about the initiative in early December.

6. A rate freeze applies to some, not all, borrowers.
The interest-rate freeze that attracted the bulk of media attention when the president announced the initiative applies only to a specific subset of borrowers: those who are current on their mortgage but don’t have the financial wherewithal to stay current once their interest rate bumps up and can’t qualify to refinance.

The freeze is intended to buy these borrowers time to fix their situation. “There are some responsible home owners who can avoid foreclosure with some assistance,” President Bush said when he announced the initiative. “We don’t want to bail out those who recklessly took out a mortgage they couldn’t afford.”

Thus, home owners who’ve suffered a job loss or a costly medical situation may not be eligible for the freeze; to qualify, borrowers also have to have secured their financing during the eligibility window and be current before their rate’s reset.

The recourse for ineligible borrowers is traditional financial counseling, says Morgan.

7. Traditional remedies are open to the most troubled borrowers.
The last group of borrowers the initiative is designed to address includes home owners who are unable to make their payments even before the rate resets. For these borrowers, servicers have few options other than to find the least painful loss mitigation strategy.

“This is when we shift the discussion to deed in lieu of foreclosure or short sale, because these approaches give customers the opportunity to leave that property without going through the foreclosure process,” says Carey.

If borrowers in this situation first call a servicer rather than a counselor, it’s not uncommon for the servicer to refer them to a counselor before any action is taken. The borrowers might be good candidates for various assistance programs available through counselors.

“A lot of times now, the lender is directly referring the client to the Hope Now hotline, and in turn it gets referred to us,” says Garcia of NeighborWorks. “That’s a good thing.”

Counselors often bring a broader view of possible solutions than the servicer can offer. “We can direct them to organizations that can help them gain more income or help them temporarily with utility assistance. And we can also credit counsel them—help them budget better,” says Garcia.

The most important advice you can give is to encourage borrowers to call the hotline and start the process of seeking a solution to their financing woes.

Carey of Wells Fargo emphasized that servicers can do nothing until borrowers call.

“One of the biggest challenges we have in the industry is being able to even have these discussions that can help them,” says Carey. “That’s why it’s so important that they pick up the phone.”


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Different Help for Different Borrowers

Troubled borrowers who call the Hope Now hotline, 888-995-4673 (888-995-HOPE), will find that their solution will depend on their situation.

Owners who are able to stay current even with a rate reset:

Solution: Counseling and refinancing. Lenders may be able to take these borrowers through a fast-track process into a more affordable loan.

Potential pitfall: Prepayment penalty. Borrowers are encouraged to time their refinancing to after the rate reset, since penalties often apply only during the initial rate period.

Owners who face default after a rate reset:

Solution: Counseling and rate freeze of up to five years. To qualify, they must be ineligible for refinancing (e.g., have a loan-to-value ratio of greater than 97 percent), occupy the property as a primary residence, and have a credit score of less than 660 that hasn’t improved more than 10 percent since the loan was originated.

Potential pitfall: The rate freeze is temporary; borrowers still need to work out a long-term solution

Owners already in default:

Solution: Counseling and a loss-mitigation strategy, such as a short sale or deed in lieu of foreclosure. Under the mortgage debt foregiveness law signed by President Bush Dec. 20, borrowers who receive debt foregiveness as part of a loan workout over the next three years won’t have to pay federal tax on the forgiven amount.

Potential pitfall: Those who don’t call in time may not be able to avoid foreclosure.

http://www.realtor.org/rmomag.NSF/pages/featurefeb08?OpenDocument

How big did you say it was????

The square foot dilemma faces me almost every time I visit with a Seller and Buyer. The Seller is always looking for ways to maximize their sale and one easy way is to provide the highest square footage measurement available (“did your sight-impaired uncle measure this???”). The Buyer is always asking, “What is the square footage?” and “what does that come out to per square foot?” to try to justify their purchase in this expensive metro area. Unfortunately, there is no standardized way to measure properties (“what happened to tape measurers?”). I know of many local developers that measure fifty percent of the area INTO any adjacent walls of the neighboring condo owner or common area. If five people go in and measure a condo or loft, I always assume that we will have five different measurements. The tax records provided by DC are infamously incorrect. So what is a condo seller or buyer to do? The best way to establish the square footage is to measure it yourself. (Or hire an engineer or architect to do so, but of course that is costly.) A recent article in the New York Magazine by Jhoanna Robledo, “The Floor-Space Fallacy” quotes Stacey Max a Real Estate Agent in NYC, “People are DESPARATE to quantify their decisions, and (square footage) is one of the few things in real estate with numbers attached to it. How do you quantify view? Or light?” I agree that the BEST thing for a Buyer to do is forget the feet and focus on whether the space actually meets their criteria. “In the end, says Max, the numbers may not be all that useful.” I have found that it is the layout and floor plan that is just as important. As an example, there are some GREAT 1200 square foot 2BR units that feature thoughtful floor plans that feel wonderful. Across the street in a similar product you might have a 1500 square foot 2BR condo that is awkward, uncomfortable and has a dreadfully lay out, little light and no view.
Some helpful hints for Buyers: (1) Make sure to spend plenty of time looking around and getting a feel for what your money can buy and how much space your money will buy (2) compare amenities, quality of product, finishes, light, views, design, etc. in each building as this can trump square footage (3) compare neighborhoods (4) hire a knowledgeable Realtor®, as they can save you lots of time and can educate you on the best buildings (5) make sure to read the Condo or Coop docs when making an offer to see if the building has any financial, legal or other issues (6) try to buy the best quality in the best location you can afford as these properties tend to appreciate more and are more stable when there are downturns in the market, and (7) buy a place you love!

Ready for today?

When I spoke with friends and clients on Tuesday (January 22nd) many were asking me if I was "ready for today?" I am generally "ready for anyday" as I wake up at 4:30am, hit the gym for a hard workout, have a hearty breakfast, you know...get ready for the day. Oh, I got it as they grabbed their wallets and held on to them dearly...the stock market! Financial markets around the world fell substantially overnight; what was in store for Wall Street? Well, I learned some wisdom back in 1987 as I was living in NYC when "Black Monday" occured back in October 1987. Markets (financial and real estate) are cyclical. The longer the investment period the better your chances are of a large return. Day trading in the financial market is very risky and few are successful. The same goes for residential real estate; a.k.a. a home. A home is first for shelter. We all need a form of shelter, so I decided years ago that I would prefer to pay for my own mortgage rather than someone elses. But, buying real estate and then selling withing a year or two can be just as risky; I call it "real estate day trading" or as it is more commonly referred to as "flipping". Real estate can be a great investment as a home but in many other forms as well. Having rental property is a great way to create long-term wealth. I have been trained to diversify my financial holdings in both the financial market and the real estate market. I have a professional advisor who handles my portfolio and having such an advisor gives me great comfort; especially in turbulant times. Professionals at the top of their game know how to perform in any market. We can not control the financial or real estate markets, but we can control our decisions. Making sound, long-term investments will help prevent you from worrying and you will be "ready for today".

Washington DC condo/coop statistics for 2007

Well the numbers are in!!! Although I track inventory all year long to assist my many Buyers and Sellers, it seems that everyone is interested in "the official" year end statistics. Well for your viewing pleasure, here they are:

WASHINGTON DC CONDO/COOP HOUSING REPORT

DATA SOURCE: Metropolitan Regional Information Systems, Inc. (MRIS)

The AVERAGE PRICE for condos/coops in Washington DC for 2007 was $405,271....relatively unchanged from the 2006 average price of $406,501.

The MEDIUM PRICE for condos/coops in 2007 was also relatively flat;
with the price changing from $354,100 to $350,000; or about 1%.

Inventory was at the second lowest level in December 2007 at just below 1200 available units; only with February coming in with a slighly lower number. This should translate into a good spring market; especially as interest rates are trending lower.

So things continue to look good here in the Capital real estate market!

What does 2008 have in store for the DC area loft/condo real estate market?

Well the good news is the developer-stork has slowed down deliveries of all those lofts and condos in downtown. Basic economics is always in play in real estate; a Seller's market reflects a lack of supply (and generally higher demand) and a Buyer's market reflects over supply (and thus lower demand) for homes. The press is loving all the bad news and statistics out there right now as bad news sells stories; not good news. Well there is definitely some bad news out there, but as I have written in my Quarterly Newsletter for the past year, there are many stories and statistics out there that show a favorable real estate market here in DC. When I work with Buyers, the "location, location, location" discussion is followed by the importance of "quality" and "uniqueness". When I decided back in 2003 to specialize in lofts, most Agents laughed at such a limiting strategy. I have lived in lofts and love the "loft life". It really is a phenomenal feeling to have soaring ceiling heights of 12 or 20 feet. There are not lots of lofts here in DC like exist where I lived in my first loft, New York City. But, I knew that lofts offered a unique space that would always be limited in downtown DC. Not a demand for lofts in DC? After my first year in Real Estate I was in the top 1% of all Agents in North America!!! Sure, many builders jumped on board and have built loft-like condos (some great and others horrible) but it costs them much more to do so and we will see builders think twice before building more. All this plays into the demand issue and thus has translated into stable investments; especially in the better condos and lofts. 2008 will be another year of appreciation for properties that have the best location, best quality and are unique. Unlike the deliveries from the "real" stork, in real estate you can have 100% control over your purchase and the consequences can be enjoyable and rewarding.