Government Takeover of Fannie & Freddie

What is happening to Fannie and Freddie?

Major Points

• Fannie and Freddie have been placed in conservatorship. (Federal government has taken 79.9 percent of common stock and all dividends in return for buying $1 billion of preferred shares.)
• Treasury Department says both are open for business with no major changes in operations.
• Top Fannie/Freddie executives have been replaced.
• Fannie/Freddie can grow their guaranteed mortgage book with no limits and grow their retained portfolios with limits. Ultimately, the government plans to shrink their portfolios (10% per year starting in 2010).
• The federal government will provide capital to keep Fannie/Freddie’s net worth positive (up to $100 billion). In return, the Treasury will receive new senior preferred stock and warrants on the GSEs’ common stock.
• The federal government will begin buying Fannie/Freddie mortgage-backed securities (MBS) on the open market.
• Treasury Department will create a Secured Lending Credit Facility, a liquidity backstop for GSEs.
  

Initial Reactions

• Rates drop half a point!
• World markets respond positively to news: stocks up on Monday, September 8, 2008.
• Federal Reserve Chairman Ben Bernanke: “These necessary steps will help to strengthen the U.S. housing market and promote stability in our financial markets.”
• Investor Warren Buffett: “Secretary Paulson has made exactly the right decision for the country. He is minimizing the problem of moral hazard and maximizing the benefits for the housing market and for the smooth functioning of financial markets.”
  

Anticipated Results

• Increased confidence in financial markets.
• Rates to possibly stabilize, due to reassurance given by government intervention.
• Loan term changes possible (FICO, LTV).
• More loan workouts possible due to increased government pressure on lenders to create solutions that prevent foreclosures.

Where Are Lenders Getting Credit Scores?

Consumers often mistakenly believe that mortgage lenders use only credit scores from Equifax, Experian, TransUnion, and Fair Isaac's myfico.com to gauge creditworthiness.

However, Consumer Reports recently found that lenders also use NextGen FICO scores, FICO Expansion Scores, and Industry Option FICO scores — which take car loans into consideration — as well as custom formulas.

Given that these credit scores or scoring models are not available to consumers, experts say that consumers should not rely solely on available credit scores to determine their likelihood of getting a loan. They would be wise to make timely bill payments, make more than the minimum payment, hold down credit card balances, and retain old accounts.

Additionally, experts say it might be worth keeping tabls on other credit scores, such as Experian's PLUS scores, which are not yet sold to lenders but could be in the future.

Source: Allentown Morning Call (PA) (09/02/08)

Is the Worst Over? Analysts Have Mixed Views

Some analysts reacting to the news that home sales rose a healthy 3.1 percent in July compared to June say the increase predicts further improvement. Others are more pessimistic.

"We are not yet ready to call the current levels a bottom but clearly most of the declines are behind us," says Adam York, a Wachovia Corp. economist.

"The good news is the trough is behind us," says Harm Bandholz, a New York-based economist with UniCredit, but Bandholz warns that tighter lending standards and rising foreclosures will continue to put pressure on housing prices.

Real estate consultant John Burns, who advises large builders and investment firms, says he thinks supply and demand will remain out of whack until there is a 46 percent decline in the inventory of homes on the resale market.

Burns, who is president of John Burns Real Estate Consulting, estimates that by 2010 the most stable markets will reach equilibrium and by 2011, the national market will move into better balance. Overall, he believes that it will take until 2014 for it to be business as usual.

Sources: The Wall Street Journal, Kelly Evans (08/26/2008) and Business Week, Amy Feldman (08/18/2008)

How the New First-Time Buyer Tax Credit Works

Under the new housing bill, home buyers who have not owned a home in the last three years will be eligible for a tax credit equal to 10 percent of the property up to a maximum of $7,500.

Here’s how it works:

* The credit is $3,750 for married couples filing separately. Unmarried people who jointly purchase a home will be able to divide the $7,500 credit.

* This program is actually a loan, which home buyers must repay over 15 years at zero percent interest beginning in the second year after they purchase the home. A home buyer who qualified for the whole credit would pay $500 for 15 years or about $41.67 per month.

* The credit applies only to homes purchased on or after April 9, 2008, and before July 1, 2009.

* High-income home buyers don’t qualify: Eligibility begins phasing out for single filers with adjusted income of more than $75,000 and $150,000 for joint filers. It completely phases out at $95,000 for singles and $170,000 for married couples filing jointly.

Source: The Washington Post, Michelle Singletary (07/03/08)

President Signs Housing Rescue Bill

President George W. Bush signed into law a bipartisan housing stimulus bill Wednesday that is expected to bring greater stability to housing markets nationwide.

The bill, strongly supported by the NATIONAL ASSOCIATION OF REALTORS®, will help some 400,000 home owners refinance into affordable, government backed loans and offer a temporary first-time home buyer tax credit, which is expected to serve as an attractive incentive to buyers and help reduce high inventories of unsold homes.

The temporary first-time home buyer tax credit would offer $7,500 for the purchase of any home and can be used for purchases between April 9, 2008, and July 1, 2009.

The bill — H.R. 3221, the Housing and Economic Recovery Act of 2008 — also includes reform of Fannie Mae and Freddie Mac, FHA modernization, and permanent increases in conforming and FHA loan limits.

"These are all designed to help the housing and mortgage industries and boost the U.S. economy," NAR President Dick Gaylord said in a statement. “NAR has been a leading advocate for many of these changes long before the current housing and economic downturn. We are pleased that the president and Congress worked together to enact meaningful legislation that protects and enables families in this country to continue to strive for and enjoy the dream of homeownership.”

Source: NAR, Associated Press (7/30/08)

8 Quick Fixes to Increase Value

With buyers scarcer, sellers must up the ante to convince them that their property offers what many want most — top value for dollar expended. Here are eight fast fixes:

1. Buff up curb appeal. You’ve heard it before, but it’s critical to get buyers to want to look on the inside. Be objective. View listings from the street. Check the condition of the landscaping, paint, roof, shutters, front door, knocker, windows, house number, and even how window treatments look from the outside. Add something special—such as big flower pots or an antique bench — to help viewers remember house A from B.

2. Enrich with color. Paint’s cheap, but forget the adage that it must be white or neutral. Just don’t get too avant-garde with jarring pinks, oranges, and purples. Recommend soft colors that say “welcome,” lead the eye from room to room, and flatter skin tones. Think soft yellows and pale greens. Tint ceilings a lighter shade.

3. Upgrade the kitchen and bathroom. These make-or-break rooms can spur a sale. But besides making each squeaky clean and clutter-free, update the pulls, sinks, and faucets. In a kitchen, add one cool appliance, such as an espresso maker. In the bathroom, hang a flat-screen TV to mimic a hotel. Room service, anyone?

4. Add old-world patina. Make Andrea Palladio proud. Install crown molding at least six to nine inches in depth, proportional to the room’s size, and architecturally compatible. For ceilings nine feet high or higher, add dentil detailing, small tooth-shaped blocks used as a repeating ornament. It’s all in the details, after all.

5. Screen hardwood floors. Buyers favor wood over carpet, but refinishing is costly and time-consuming. Screening cuts dust, time, and expense. What it entails: a light sanding, not a full stripping of color or polyurethane, then a coat of finish.

6. Clean out, organize closets. Get sorting—organize your piles into “don’t need,” “haven’t worn,” and “keep.” Closets must be only half-full so buyers can visualize fitting their stuff in.

7. Update window treatments. Buyers want light and views, not dated, fancy-schmancy drapes that darken. To diffuse light and add privacy, consider energy-efficient shades and blinds.

8. Hire a home inspector. Do a preemptive strike, since busy home owners seek maintenance-free living. Fix problems before you list the home and then display receipts and wait for buyers to offer kudos to sellers for being so responsible.

Make Sure Your House Sells!

The housing inventory has dipped in Phoenix by 2.6%. That's good news! This is a great sign that things are looking up in our neck of the woods. It means less inventory for buyers to choose from & less competition for sellers. Less competition gives a better chance to actually sell!

There are 3 major components to consider when selling your home: Price, Appearance & Location. The very first thing buyers will look at is the price. You should price your home according to the comparables in your neighborhood. For a quicker sale, price it below the comps! 5% below is a good place to start.

Appearance is how well your property shows. Remember, once you list the house on the market, it is no longer your home. It is now a product that should be displayed accordingly. That means all personal photos should be taken down & the property should be de-cluttered. Having a garage sale or renting a storage unit are great ways to do so. Neutral paint colors on the wall also appeal to buyers. Think taupes & light browns. It helps to have an outside opinion of what needs to be done (ie: a RE Agent or an ASP). Both are professionals and know what needs to be done in order to make the house presentable.

Even with the decline in our housing inventory, there is still a lot of competition. Make sure your property stands out by pricing it well & making it shine!

- Shielamarie Suttle

For more advice & information, visit my website at www.ShielaSuttle.com!