The recently signed federal housing bill has many provisions, including changes to reverse mortgages, which are loans against a house that the borrower is not required to pay back as long as they live in the home. Some of the amendments include raising the amount that seniors, age 62 and older, can borrow using a federally backed reverse mortgage; and lowering the cost of receiving the home's equity. Some ageing experts advise consumers to be cautious before refinancing into a reverse mortgage.
What does this mean.......
· Although seniors can access their home equity by refinancing into a reverse mortgage, many of these loans come with a variety of fees. Once the fees are paid, borrowers may choose to receive a lump sum payment, monthly payments, a credit line, or a combination based on the home's value. A provision in the housing bill reduce the maximum fee to 2 percent on the initial $200,000 of a home's value and 1 percent on the remaining balance, with a maximum set at $6,000. Some lenders charge less fees, so similar to finding a traditional mortgage, consumers should shop around and negotiate with their lender on these fees. In some cases, closing costs, service fees, mortgage insurance premiums, and interest rates also can be negotiated.
· Most reverse mortgages are Home Equity Conversion Mortgages (HECM), which are backed by the Federal Hosing Administration. In order for a borrower to qualify for an HECM, they must discuss the loan with a loan counselor employed by a nonprofit or public agency approved by the U.S. Dept. of Housing and Urban Development. This ensures borrowers understand all of their options and make the right decision.
· Some borrowers may not understand that although the loan does not have to be repaid, as long as they remain in the home, they still are responsible for property taxes, insurance, utilities, fuel, maintenance, and other homeowner expenses. If some of these items are not kept up to date, the borrower risks the lender calling the loan due. It is important to note that reverse loans must be paid back with the proceeds, along with any remaining equity, if the home is sold.
Wednesday, August 27, 2008
Wednesday, June 18, 2008
Future Of Interest Rates
Bernanke Says Rate `Well Positioned,' Watching Dollar
By Scott Lanman
June 3 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke signaled he's done cutting interest rates for now and raised his biggest concerns yet about the inflationary effects of the dollar's 16 percent drop in the past year against the euro.
The Fed is working with the Treasury to ``carefully monitor developments in foreign exchange markets'' and is aware of the effect of the dollar's decline on inflation and price expectations, Bernanke said today in his first speech on the economic outlook in two months. In addition, interest rates are ``well positioned'' to promote growth and stable prices, he said.
Bernanke's comments are a shift from past remarks by Fed officials that have highlighted both the spur to exports from a cheaper dollar and the pressure it puts on import prices. The dollar climbed after the speech indicated exchange rates will be a consideration in setting rates.
``I can't recall such a strong defense of the dollar from a Fed chairman,'' said Sophia Drossos, a currency strategist at Morgan Stanley in New York who used to work at the New York Fed, where she helped manage the central bank's foreign-exchange holdings. ``The Fed is putting its marker down in letting the market know that a weaker dollar would be detrimental.''
Investors anticipate the central bank will keep its benchmark rate at 2 percent this month after 3.25 percentage points of cuts since September, futures prices show.
ECB's Trichet
Bernanke, 54, spoke via satellite to the International Monetary Conference in Barcelona, Spain. European Central Bank President Jean-Claude Trichet also spoke at the event, where he reiterated that ``monetary policy stays firmly focused on delivering price stability.''
``For now, policy seems well positioned to promote moderate growth and price stability over time,'' Bernanke said. ``We will, of course, be watching the evolving situation closely and are prepared to act as needed to meet our dual mandate.''
The remarks come as the central bank's optimism that inflation is abating and growth will start to pick up has been dashed by the unexpected surge in oil prices, which is eroding the potential benefit to the economy from more than $100 billion in federal tax rebates. The resulting increase in inflation expectations is also getting the attention of Fed officials.
The dollar strengthened to $1.5450 per euro from $1.5537 earlier today. Gold dropped 1.3 percent to $879.69 an ounce. Crude oil fell 2.8 percent to $124.15 a barrel.
Fed `Attentive'
``We are attentive to the implications of changes in the value of the dollar for inflation and inflation expectations,'' Bernanke said. The Fed's commitment to price stability and maximum employment ``will be key factors ensuring that the dollar remains a strong and stable currency.''
During the dollar's decline over the past six years, some Fed officials have said foreign demand for U.S. assets may fade. Bernanke's predecessor, Alan Greenspan, told a European audience on Nov. 19, 2004, that ``given the size of the U.S. current account deficit, a diminished appetite for adding to dollar balances must occur at some point.''
Bernanke and other Fed officials, when asked for their opinion on the dollar, tend to defer to the U.S. Treasury Department, which is responsible for currency policy. The Fed chief meets weekly with Treasury Secretary Henry Paulson, who yesterday repeated his backing for a ``strong dollar.''
``I believe the long-term economic fundamentals will be reflected in our currency,'' Paulson said in Abu Dhabi.
`Financial Stability'
David McCormick, Treasury's undersecretary for international affairs, said in a Bloomberg Television interview today that Bernanke's and Paulson's remarks this week ``are consistent in that they are advocating policies that will strengthen the U.S. economy and ultimately ensure ongoing financial stability within the global markets.''
Asked about the dollar at a congressional hearing Feb. 27, Bernanke at the time noted that its decline ``does increase U.S. competitiveness.'' He also noted its impact on inflation.
Robert Eisenbeis, former head of research at the Atlanta Fed, said the comments indicate ``more rate cuts would hurt the dollar and that would have negative feedback effects to our inflation situation.''
``I don't read it as saying that intervention is on the horizon,'' said Eisenbeis, who is now chief monetary economist at Cumberland Advisors Inc. U.S. officials haven't intervened in foreign-exchange markets to buy or sell the dollar since President George W. Bush took office in January 2001.
`Significant Headwinds'
Today, Bernanke said financial-market conditions ``remain strained,'' and consumers face ``significant headwinds'' from declining home prices, a weaker labor market, stricter lending standards and higher energy costs.
The U.S. economy grew at an annualized 0.9 percent pace in the first quarter, capping the weakest six-month performance in five years, government figures showed last week.
The second quarter is ``likely to be relatively weak,'' Bernanke said, leaving out his mention in an April speech of a possible contraction. The second half may have ``somewhat better economic conditions,'' and growth may pick up further in 2009, he said.
``Until the housing market, and particularly house prices, shows clearer signs of stabilization, growth risks will remain to the downside,'' Bernanke said. ``Recent increases in oil prices pose additional downside risks to growth.''
Supply and Demand
Bernanke, in a question-and-answer period, said soaring oil costs are more the result of supply and demand than the weaker dollar. ``The effect of the dollar on commodity prices is relatively modest,'' he said. Supply and demand conditions are ``by far the strongest and most important factor.''
Crude oil has climbed 93 percent in the past year. Gasoline prices have also hit a record, impairing spending by consumers who are already buffeted by a slump in home values.
``The possibility that commodity prices will continue to rise is an important risk to the inflation forecast,'' Bernanke said. Higher public inflation expectations are also a ``significant upside risk'' to prices and may ``ultimately become self-confirming,'' he said.
By Scott Lanman
June 3 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke signaled he's done cutting interest rates for now and raised his biggest concerns yet about the inflationary effects of the dollar's 16 percent drop in the past year against the euro.
The Fed is working with the Treasury to ``carefully monitor developments in foreign exchange markets'' and is aware of the effect of the dollar's decline on inflation and price expectations, Bernanke said today in his first speech on the economic outlook in two months. In addition, interest rates are ``well positioned'' to promote growth and stable prices, he said.
Bernanke's comments are a shift from past remarks by Fed officials that have highlighted both the spur to exports from a cheaper dollar and the pressure it puts on import prices. The dollar climbed after the speech indicated exchange rates will be a consideration in setting rates.
``I can't recall such a strong defense of the dollar from a Fed chairman,'' said Sophia Drossos, a currency strategist at Morgan Stanley in New York who used to work at the New York Fed, where she helped manage the central bank's foreign-exchange holdings. ``The Fed is putting its marker down in letting the market know that a weaker dollar would be detrimental.''
Investors anticipate the central bank will keep its benchmark rate at 2 percent this month after 3.25 percentage points of cuts since September, futures prices show.
ECB's Trichet
Bernanke, 54, spoke via satellite to the International Monetary Conference in Barcelona, Spain. European Central Bank President Jean-Claude Trichet also spoke at the event, where he reiterated that ``monetary policy stays firmly focused on delivering price stability.''
``For now, policy seems well positioned to promote moderate growth and price stability over time,'' Bernanke said. ``We will, of course, be watching the evolving situation closely and are prepared to act as needed to meet our dual mandate.''
The remarks come as the central bank's optimism that inflation is abating and growth will start to pick up has been dashed by the unexpected surge in oil prices, which is eroding the potential benefit to the economy from more than $100 billion in federal tax rebates. The resulting increase in inflation expectations is also getting the attention of Fed officials.
The dollar strengthened to $1.5450 per euro from $1.5537 earlier today. Gold dropped 1.3 percent to $879.69 an ounce. Crude oil fell 2.8 percent to $124.15 a barrel.
Fed `Attentive'
``We are attentive to the implications of changes in the value of the dollar for inflation and inflation expectations,'' Bernanke said. The Fed's commitment to price stability and maximum employment ``will be key factors ensuring that the dollar remains a strong and stable currency.''
During the dollar's decline over the past six years, some Fed officials have said foreign demand for U.S. assets may fade. Bernanke's predecessor, Alan Greenspan, told a European audience on Nov. 19, 2004, that ``given the size of the U.S. current account deficit, a diminished appetite for adding to dollar balances must occur at some point.''
Bernanke and other Fed officials, when asked for their opinion on the dollar, tend to defer to the U.S. Treasury Department, which is responsible for currency policy. The Fed chief meets weekly with Treasury Secretary Henry Paulson, who yesterday repeated his backing for a ``strong dollar.''
``I believe the long-term economic fundamentals will be reflected in our currency,'' Paulson said in Abu Dhabi.
`Financial Stability'
David McCormick, Treasury's undersecretary for international affairs, said in a Bloomberg Television interview today that Bernanke's and Paulson's remarks this week ``are consistent in that they are advocating policies that will strengthen the U.S. economy and ultimately ensure ongoing financial stability within the global markets.''
Asked about the dollar at a congressional hearing Feb. 27, Bernanke at the time noted that its decline ``does increase U.S. competitiveness.'' He also noted its impact on inflation.
Robert Eisenbeis, former head of research at the Atlanta Fed, said the comments indicate ``more rate cuts would hurt the dollar and that would have negative feedback effects to our inflation situation.''
``I don't read it as saying that intervention is on the horizon,'' said Eisenbeis, who is now chief monetary economist at Cumberland Advisors Inc. U.S. officials haven't intervened in foreign-exchange markets to buy or sell the dollar since President George W. Bush took office in January 2001.
`Significant Headwinds'
Today, Bernanke said financial-market conditions ``remain strained,'' and consumers face ``significant headwinds'' from declining home prices, a weaker labor market, stricter lending standards and higher energy costs.
The U.S. economy grew at an annualized 0.9 percent pace in the first quarter, capping the weakest six-month performance in five years, government figures showed last week.
The second quarter is ``likely to be relatively weak,'' Bernanke said, leaving out his mention in an April speech of a possible contraction. The second half may have ``somewhat better economic conditions,'' and growth may pick up further in 2009, he said.
``Until the housing market, and particularly house prices, shows clearer signs of stabilization, growth risks will remain to the downside,'' Bernanke said. ``Recent increases in oil prices pose additional downside risks to growth.''
Supply and Demand
Bernanke, in a question-and-answer period, said soaring oil costs are more the result of supply and demand than the weaker dollar. ``The effect of the dollar on commodity prices is relatively modest,'' he said. Supply and demand conditions are ``by far the strongest and most important factor.''
Crude oil has climbed 93 percent in the past year. Gasoline prices have also hit a record, impairing spending by consumers who are already buffeted by a slump in home values.
``The possibility that commodity prices will continue to rise is an important risk to the inflation forecast,'' Bernanke said. Higher public inflation expectations are also a ``significant upside risk'' to prices and may ``ultimately become self-confirming,'' he said.
Tuesday, April 22, 2008
Sacramento region's home-sales tally offers ray of hope
By Jim Wasserman , Sac Bee
There may actually be a bottom out there.
The first of several reports on first-quarter home sales is in, showing the number of new homes sold in the eight-county Sacramento region has fallen to the lowest level since possibly the early 1990s. But amid the dreary statistics there appears to be the suggestion of a market in the beginning stages of stabilizing.
Greg Paquin, president of the Gregory Group, a Folsom-based building industry consultant, says the 1,304 new homes sold in January, February and March were almost equal with those sold during the previous quarter. That mirrors a market trend seen in February, when year-over-year sales of existing homes declined in single digit percentages for the first time in three years.
'That's not much on which to build a case for recovery. But Paquin and other analysts whose reports are due in the next two weeks say that while the numbers remain discouraging, they can see what looks like a market bottom forming before year's end. They say the picture should be clearer by June or September.
"My sense is we're going through the worst of it now," Paquin said. "If that's the first half of the year, my impression is the second half is starting to dig our way out or moving forward."
Gregory Group statistics showed prices are still falling for new homes. The average $404,144 first-quarter price was off 5.3 percent from the previous quarter and down 13.1 percent from the same time last year. The silver lining: Paquin believes prices probably have just another 3 percent to 5 percent to fall.
That hint of hope comes with some pretty important warnings: That the nation's economic troubles don't substantially worsen or the financial system isn't shell-shocked by something like last year's subprime meltdown and subsequent credit crunch. What's more, the region is still working through a foreclosure crisis contributing to an oversupply of homes with "For Sale" signs.
Even finding a bottom doesn't mean it's over: The market may be slow to rebound and remain stagnant for a long time.
Still, after a free-fall in sales and prices that has lasted nearly three years, any notion of mere stability will appeal to thousands of area homeowners who have seen their values fall. It also will appeal to sellers who have lost bargaining power in a market where buyers rule.
"We've dropped the price twice, maybe three times," said George Vargas of Elk Grove this week. "We've had a few more people since our latest price drop, but it's slowed down in the last month." Vargas' situation is similar to that of home builders: Both are competing with mortgage lenders and banks dumping thousands of foreclosed homes onto the market and slashing prices to move them. Bank-owned homes have come to account for about half of the sales in the region, a factor that has scrambled standard market indicators.
Real estate agents such as James Becker of Sacramento see a sign that things are looking brighter in bidding wars occurring on bank-owned listings in the suburbs. He suggests the market already is "bouncing off the bottom."
Becker, managing partner of Becker Mortgage and Realty, said bank-owned homes in Elk Grove that once sold for $120 a square foot have risen to $135 per square foot and are going higher.
March closings of resale homes are, indeed, expected to show an "uptick," said Andrew LePage, an analyst for La Jolla-based DataQuick Information Systems. DataQuick is expected to release its figures on sales of new and existing homes next week.
Doug Pautsch, Sacramento division president of Dallas-based Centex Homes, maintains that buyers believe the market has bottomed and is bouncing back.
"We've seen prices stabilize and even go up in some of our communities," he said. Centex, the region's leading builder this year, has started saying no to buyers who ask for concessions that might have been routinely granted earlier.
Some market watchers aren't convinced better times are soon ahead. They're taking their cues from the 10,000 foreclosures last year in Amador, El Dorado, Nevada, Placer, Sacramento, Sutter, Yolo and Yuba counties – and the 5,573 more being reported in just the first three months of this year by Foreclosures.com, a Folsom-based Web site that tracks defaults.
That's a strong sign the downturn may still have a lot of strength, said Scott Syphax, president and chief executive officer of Sacramento-based nonprofit housing firm Nehemiah Corp. of America. Syphax said he wonders whether every time a bank-owned home is sold "there's another right behind it to take its place."
"As long as that's happening the market is not going to go up," he said. "The most charitable thing you can say is it's treading water. I still think the biggest part of that volume has yet to surface."
DataQuick's LePage said banks have sold only about 40 percent of the homes they foreclosed on in the region during the second half of 2007. The thousands more slated for sale will put a downward pressure on prices. Neighborhoods closest to downtown Sacramento likely will be the most immune. But not so the suburbs.
"There are just a heck of a lot of foreclosures to burn off before the market can kick into gear in any big way," he said.
But like Paquin, LePage said sales seem to be edging down toward a base level. "It's hard to go much lower than all the natural things that force people to move all the time," he said. "It seems we're getting closer and closer to whatever that number is."
There may actually be a bottom out there.
The first of several reports on first-quarter home sales is in, showing the number of new homes sold in the eight-county Sacramento region has fallen to the lowest level since possibly the early 1990s. But amid the dreary statistics there appears to be the suggestion of a market in the beginning stages of stabilizing.
Greg Paquin, president of the Gregory Group, a Folsom-based building industry consultant, says the 1,304 new homes sold in January, February and March were almost equal with those sold during the previous quarter. That mirrors a market trend seen in February, when year-over-year sales of existing homes declined in single digit percentages for the first time in three years.
'That's not much on which to build a case for recovery. But Paquin and other analysts whose reports are due in the next two weeks say that while the numbers remain discouraging, they can see what looks like a market bottom forming before year's end. They say the picture should be clearer by June or September.
"My sense is we're going through the worst of it now," Paquin said. "If that's the first half of the year, my impression is the second half is starting to dig our way out or moving forward."
Gregory Group statistics showed prices are still falling for new homes. The average $404,144 first-quarter price was off 5.3 percent from the previous quarter and down 13.1 percent from the same time last year. The silver lining: Paquin believes prices probably have just another 3 percent to 5 percent to fall.
That hint of hope comes with some pretty important warnings: That the nation's economic troubles don't substantially worsen or the financial system isn't shell-shocked by something like last year's subprime meltdown and subsequent credit crunch. What's more, the region is still working through a foreclosure crisis contributing to an oversupply of homes with "For Sale" signs.
Even finding a bottom doesn't mean it's over: The market may be slow to rebound and remain stagnant for a long time.
Still, after a free-fall in sales and prices that has lasted nearly three years, any notion of mere stability will appeal to thousands of area homeowners who have seen their values fall. It also will appeal to sellers who have lost bargaining power in a market where buyers rule.
"We've dropped the price twice, maybe three times," said George Vargas of Elk Grove this week. "We've had a few more people since our latest price drop, but it's slowed down in the last month." Vargas' situation is similar to that of home builders: Both are competing with mortgage lenders and banks dumping thousands of foreclosed homes onto the market and slashing prices to move them. Bank-owned homes have come to account for about half of the sales in the region, a factor that has scrambled standard market indicators.
Real estate agents such as James Becker of Sacramento see a sign that things are looking brighter in bidding wars occurring on bank-owned listings in the suburbs. He suggests the market already is "bouncing off the bottom."
Becker, managing partner of Becker Mortgage and Realty, said bank-owned homes in Elk Grove that once sold for $120 a square foot have risen to $135 per square foot and are going higher.
March closings of resale homes are, indeed, expected to show an "uptick," said Andrew LePage, an analyst for La Jolla-based DataQuick Information Systems. DataQuick is expected to release its figures on sales of new and existing homes next week.
Doug Pautsch, Sacramento division president of Dallas-based Centex Homes, maintains that buyers believe the market has bottomed and is bouncing back.
"We've seen prices stabilize and even go up in some of our communities," he said. Centex, the region's leading builder this year, has started saying no to buyers who ask for concessions that might have been routinely granted earlier.
Some market watchers aren't convinced better times are soon ahead. They're taking their cues from the 10,000 foreclosures last year in Amador, El Dorado, Nevada, Placer, Sacramento, Sutter, Yolo and Yuba counties – and the 5,573 more being reported in just the first three months of this year by Foreclosures.com, a Folsom-based Web site that tracks defaults.
That's a strong sign the downturn may still have a lot of strength, said Scott Syphax, president and chief executive officer of Sacramento-based nonprofit housing firm Nehemiah Corp. of America. Syphax said he wonders whether every time a bank-owned home is sold "there's another right behind it to take its place."
"As long as that's happening the market is not going to go up," he said. "The most charitable thing you can say is it's treading water. I still think the biggest part of that volume has yet to surface."
DataQuick's LePage said banks have sold only about 40 percent of the homes they foreclosed on in the region during the second half of 2007. The thousands more slated for sale will put a downward pressure on prices. Neighborhoods closest to downtown Sacramento likely will be the most immune. But not so the suburbs.
"There are just a heck of a lot of foreclosures to burn off before the market can kick into gear in any big way," he said.
But like Paquin, LePage said sales seem to be edging down toward a base level. "It's hard to go much lower than all the natural things that force people to move all the time," he said. "It seems we're getting closer and closer to whatever that number is."
Friday, February 22, 2008
Group says more Californians can afford to buy their first home
Information provided by, By ALEX VEIGA, AP Business Writer
Frustrated California renters take heed: A trade group says it's getting easier for people to afford their first home.
With home prices in a downward spiral in many once-booming areas, the percentage of California households that can afford to finance an entry-level home increased in the last three months of 2007 compared to the same period a year earlier, the California Association of Realtors said Tuesday.
The trade group for real estate agents calculates affordability based on the minimum household income required to make a 10 percent downpayment and secure an adjustable interest rate loan at 6.21 percent.
Some 33 percent of the households in the state met those guidelines in the fourth quarter — up from 25 percent in the same three months of 2006, the association said.
Buyers needed to earn $82,200 to afford financing of $411,170, the typical statewide price for an entry-level home during the quarter, the trade association estimated.
The monthly payment for such a purchase, including taxes and insurance, was $2,740, the association said.
An entry-level home was defined as one priced at about 85 percent of the median home price in an area.
The most affordable area of the state during the quarter was the desert north of Los Angeles, where some 54 percent of households met the association's $43,800 annual income threshold to finance an entry-level home priced at $218,880.
Sacramento County was next, with 53 percent of households within the income range needed to afford a home priced at $252,920.
The least affordable area was the Central Coast region of Monterey, where only 20 percent of households earned the $118,200 needed to finance an entry-level home at $591,200.
In Los Angeles County, 27 percent of households earned the $86,700 a year needed to buy a home priced at $433,200.
Some 46 percent of households in Riverside and San Bernardino counties, which have been hit particularly hard by rising foreclosures and falling home values, earned $57,600 a year, enough to finance a $287,330 home, the association said.
In the San Francisco Bay area, meanwhile, only 23 percent of households reported income of at least $132,300, the minimum to purchase a home priced at $660,660.
Frustrated California renters take heed: A trade group says it's getting easier for people to afford their first home.
With home prices in a downward spiral in many once-booming areas, the percentage of California households that can afford to finance an entry-level home increased in the last three months of 2007 compared to the same period a year earlier, the California Association of Realtors said Tuesday.
The trade group for real estate agents calculates affordability based on the minimum household income required to make a 10 percent downpayment and secure an adjustable interest rate loan at 6.21 percent.
Some 33 percent of the households in the state met those guidelines in the fourth quarter — up from 25 percent in the same three months of 2006, the association said.
Buyers needed to earn $82,200 to afford financing of $411,170, the typical statewide price for an entry-level home during the quarter, the trade association estimated.
The monthly payment for such a purchase, including taxes and insurance, was $2,740, the association said.
An entry-level home was defined as one priced at about 85 percent of the median home price in an area.
The most affordable area of the state during the quarter was the desert north of Los Angeles, where some 54 percent of households met the association's $43,800 annual income threshold to finance an entry-level home priced at $218,880.
Sacramento County was next, with 53 percent of households within the income range needed to afford a home priced at $252,920.
The least affordable area was the Central Coast region of Monterey, where only 20 percent of households earned the $118,200 needed to finance an entry-level home at $591,200.
In Los Angeles County, 27 percent of households earned the $86,700 a year needed to buy a home priced at $433,200.
Some 46 percent of households in Riverside and San Bernardino counties, which have been hit particularly hard by rising foreclosures and falling home values, earned $57,600 a year, enough to finance a $287,330 home, the association said.
In the San Francisco Bay area, meanwhile, only 23 percent of households reported income of at least $132,300, the minimum to purchase a home priced at $660,660.
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