Best Time to Buy or Refinance?
The Business Cycle Dating Committee of the National Bureau of Economic Research determined the end of the recession occurred in June 2009 based on the real GDP, real income,
employment, industrial production, and wholesale-retail sales. Thus, it had a turning point toward the expansion even though it will take some time to visibly see the results. Interest rates and the housing prices will surely rise when the expansion really
starts to work into the neighborhood, whenever it happens. Thus, all these indicators are pointing to one direction, it is the best time to buy the home of your dreams, that is until the interest rates and housing prices starting to creep up. (Please see below
for the market news in details.)
Historically low interest rates
Same period in 2009, 30-year fixed rate was at 5.04%. This means more buying power for the buyers and more sales for the sellers in turn.
Then, what is the actual ‘buying power’? For example, the monthly payment of basic principal and interest only for the house worth $300,000 is $1,197.58 at 4.37% compared to $1,294.25 at 5.04%, based on $240,000 loan amount after 20% down payment. That
is the savings of $96.67. When this saving is put back to work toward the buying power, you could borrow $259,373.73 with same payment of $1,294.25 at 4.37%, meaning you could buy the house worth $324,217.16. That is whopping $19,373.73 increase of buying
power. Just 0.67% drop in the rate over one year period gave you almost $20,000 more home, maybe extra bedroom you really needed.
Another way to look at this buying power is that since $20,000 represents almost 7% of the house price, even if it went down 7% over one year period, you are breaking even. 0.67% lower rate means 7% of total house worth in this case, not bad.
Comparing to the higher loan amount with the 6 or 7 percent interest rate most of the home owner’s have now will surely increase the buying power way more than $20,000, like $100,000 savings when compared to $500,000 loan amount with 6% using same method
above. Now then, let’s look at the ever falling housing prices.
Housing Price Nearing the Bottom
It is generally agreed among the real estate professionals that the housing price drop is currently nearing or at the bottom. In fact, the average sales price have been declining three years in a row since 2007 (2008 and 2009) but the 2010
report period (not seasonally adjusted yet) shows 2.9% increase compared to last year in U.S. It showed 5.0% increase from last year in the Northeast region according to the National Association of Realtor’s Existing Home Sales Overview report.
Unemployment Rate & Foreclosure Rate
The unemployment rate in Maryland is 7.3% compared to National high of 14.4% in Nevada for the August 2010 per National Bureau of Economic Research. The national average was 9.6%, thus Maryland is about 2% better than average. By the way, Maryland’s
unemployment rate was always been about that much below the national average since 1990.
Overall foreclosure filings rose 4.18 percent in August from the previous month, and were down 5.48 percent from a year ago according to Realty Trac. The inventory for the potentially distressed sale is going to be with us for a while, at least 2 to
3 years more.
National Bureau of Economic Research announced that the current recession ended in June 2009. This recession, started in December 2007 and lasted 18 months, longest since World War II, is officially over. It is hard to believe and surely does not feel
like it. However, June 2009 marks the end of the declining phase and the start of the rising phase of the business cycle, it stated. Economic activity is typically below normal in the early stages of an expansion, and it sometimes remains so well into the
expansion. Anyway, it is over and we are in the expansion stage.
- One billion people worldwide live on one dollar a day, in extreme poverty. Helping them helps you. -
The Homeowner Affordability and Stability Plan
A part of American Recovery and Reinvestment Act of 2009
The Homeowner Affordability and Stability plan is officially ON now and more details were publicized by the U.S. Department of the Treasury today, on March 04, 2009. Amongst all the rapid changes and all the big news
in the financial sector including H4H, Citicorp and AIG etc., we need to focus on what this really means to me and you.
The HASP has two parts, Refinance and Modification. The Home Affordable Refinance part is for the homeowners with solid payment history. The other part is the Home Affordable Modification for at-risk homeowners.
Unfortunately for the appraisers, it is stated that "an appraisal will not be necessary on some cases",... may be on all cases. This is to speed up the process and sounded like as if the appraisal process was the
reason for the delay, not the other lengthy process of the servicer. Anyway, it surely does not "create jobs" for appraisers, instead, create risks.
Beware of Rescue Scams
As I have mentioned in the previous post, the lender is required to service all eligible loans and to use a NPV(Net Present Value) test on at-risk loans and notify the homeowner. However, it is best to check with your lender
in few weeks and ask about this program. I have gathered some useful links for contacts and more information about this program.
Homeowner Affordability and Stability Plan
"The deep contraction in the economy and in the housing market has created devastating consequences for homeowners and communities throughout the country." (Executive Summery)
Fallen property value due to foreclosed and distressed sales nearby and income reduction due to the job loss has made this plan to come about.
Starting Date : March 04, 2009
Homeowner Affordability and Stability Plan is to slow the rapid decline in the housing market by helping homeowners to lower the mortgage payment so they can afford the payment. The plan would spend $75 billion to help
about 4 million families from foreclosures. And about 5 million would have a chance to refinance their current mortgage at lower rates, regardless of their current situation but must be eligible.
Under this plan, Fed backed Freddie and Fannie will refinance up to 105% of the value. Good news for the homeowners and appraisers. The keyword here is the eligibility. The complete details about the eligibility will
be announced on March 4th, the starting date of the program. Also, this 105% of the value applies to the first mortgage amount only, and the second mortgage will be pending on agreement by the lender who has the second mortgage.
So, this plan will help the homeowners with higher fixed interest rate with decreased house value to a certain point. Then, what about the homeowners with introductory teaser rates or the interest only mortgages? Well,
this is the chance to get the lowest rate possible for the long run. Either you can just keep the low payment for now and have it ballooned few years later or change it into lower fixed rate for 15 or 30 years at this time with possible and most likely higher
monthly payment. The choices are yours and get the 'Good faith estimate' from the bank to compare.
Homeowners facing foreclosures can benefit from this plan and here's how. The HUD is estimating 3 to 4 million can benefit from this.
Now, only the first mortgage is eligible for this loan modification. The principle reduction for so called 'underwater homes (home's value less than owed)' are entirely at the lender's discretion and the Treasury will
share the cost. Also, this plan gives the lender some incentives to encourage the loan modification. This includes up front fee of $1,000 for "Pay for Success" up to $3,000 and up to $5,000 applied directly to the debt if the borrower has made timely payment
for 5 years, plus the Insurance payment against the further decline of the value.
Ok, that being said, what can one do to get the benefit of this plan? More than likely the lenders will be evaluating loans and send out letters after March 4th. It is suggested that the homeowners who think they qualify
for a modification and do not receive a letter from the lender, they should contact the lender or HUD-approved housing counselor at
What should the borrowers gather in preparation meanwhile?
My calculator does not have all those digits to accommodate $75,000,000,000, thus I dropped 6 '0's at the end and divided it by 8 or 9, representing 8 to 9 million homeowners. It is roughly $8,000 to $9,000 savings per
eligible homeowner. Then again, it's only the average, be ready.
Data sources for this information
HUD website (www.hud.gov), Q&A posted on Whitehouse blog (http://www.whitehouse.gov/blog/09/02/18/Help-for-homeowners/)
‘1004D’ and ‘Declining Market’
We all know that we are going through a ‘Declining Market’ where the Value of the house is falling like there’s no bottom. And what are the Fannie Form 1004D and what effect it has on the loan
process in the ‘Declining Market’?
Definition - Appraisal Update and/or Completion Report (Fannie Mae Form 1004D)
“This report form is intended to provide the lender/client with an accurate UPDATE of a prior appraisal and/or to report a certification of completion. The appraiser must identify the service(s) provided by selecting the appropriate
This is the Fannie Mae definition of the form 1004D. If I may apply this into the real life, it means that 1004D can be used for two separate situations.
First part is the UPDATE. Oh, those updates. It was printed on the form as ‘SUMMARY APPRAISAL UPDATE REPORT’ and the appraiser supposed to put a check mark on this if the lender wants an update. The lender will ask this 1004D
if the original appraisal was written over 4 months ago or close to that. This update is completely different from a simple condition saying ‘provide one additional comparable to support the value’. One additional comparable is just supporting addendum that
can be done on the desk. But, please remember that once the word ‘Update’ or ‘1004D’ is mentioned, this is NOT just an addendum, rather it is like almost re-appraisal, at least, like drive-by.
There are number of things the appraiser has to do in order to complete 1004D; 1) concur with the original appraisal, 2) perform an exterior inspection of the subject property from at least the street, and 3) research, verify,
and analyze CURRENT market data….. This is the killer in this market condition since the appraiser needs to certify that the value has not declined, by using CURRENT SALES DATA. The question on the form is ‘Has the market value of the subject property declined
since the effective date of the original appraisal?’ What answer can the appraiser possibly put down for this question, especially on the current market condition? You guessed it….. ’Yes’ it has declined… (I personally do not like this situation but that is
what’s happening, no exceptions for our neighborhoods). Thus, it will make the loan process come to a screeching halt, not to mention the 5% off the evaluation on the declining market. If it has not declined, I do not have to do anything more other than marking
it ‘No’. But if it was ‘Yes’, declined, then another question follows, how much? I almost feel like to say ‘you do not want to know’ in many cases. Can I? Unfortunately, No…… So, avoid running into an Update situation if do not want to lose that loan. Someday
soon, if the market turns its head toward the sky again, then we should not have any problem with update. Till then, be aware of 1004D.
Second part is what we used to call ‘Final Inspection’ on a new construction. We used to use a form 442(with photos) and some lenders are still asking for form 442/Final Inspection.
The Freddie Mac still calls it 442. Now, we use form 1004D’s second section called ‘Certification of Completion’ for it and that is so called ‘Final Inspection’. Since it is a ‘Certification of Completion’, we can use it for Repair condition also. If the original
appraisal report was marked as ‘Subject to repair…’, and the repair was done, then 1004D’s ‘Certification of Completion’ section needs to be completed, with photos as usual.
That being said, we all hope that the value of the homes hit the rock bottom soon so it can bounce up. Be happy for ..... something...whatever.