"THE NINE MOST TERRIFYING WORDS IN THE ENGLISH LANGUAGE ARE: `I'M FROM THE GOVERNMENT, AND I'M HERE TO HELP.`" Ronald Reagan.

It is rare that we have the Federal Reserve Board reporting on the economy and a State of the Union Address in the same week, let alone the same day. Yet, that is just what happened last week. First the Fed met and released a statement. The fact that they left rates where they were was no surprise as said that they will "stay the course" and keep rates low despite the fact that the economy is starting to recover. The Fed repeated its earlier forecast that conditions are "likely to warrant exceptionally low levels of the federal funds rate for an extended period." There is no indication that the recovery will be anything but moderate and fragile and increasing rates now could put this recovery in jeopardy. The Fed did say that they will let some stimulus measures expire, including halting their purchase of securities backed by home loans. Potentially, this could cause rates to increase on these loans if the markets can't absorb the supply.

The State of the Union Address also did not contain many surprises. The President's focus was jobs. The recovery can't sustain itself until it starts to produce jobs. While we were losing hundreds of thousands of jobs on a monthly basis 12 months ago and the losses are much lower now, the economy must start creating jobs. This is a tall order, especially considering the fact that we have already spent trillions trying to rescue the economy from oblivion. There are just not enough resources left to provide significant future stimulus. It is expected that future measures will be very specific and focused upon job creation, such as the proposed employee tax credit specifically for small businesses. If last year was a year of survival, this year will be the year of making sure we build a strong foundation to sustain a long-term economic recovery. The market's initial reaction to the government's statements were not positive when mixed in with other news, partially because they have heard this song before. One day later, the strong 4th quarter preliminary economic growth figures released did not reverse that negative trend. Look for the employment numbers due to be released at the end of this week as the next big statistical release.

Interest Rates �

The Markets. Rates were slightly lower in the past week. Freddie Mac announced that for the week ending January 28, 30-year fixed rates averaged 4.98%, down from 4.99% the week before. The average for 15-year fixed eased to 4.39%. A year ago 30-year fixed rates were at 5.10%. Rates held steady this week ahead of the Federal Reserve's (Fed) policy committee meetings, " said Frank Nothaft, Freddie Mac vice president and chief economist. The Fed announced on January 27th that economic activity has continued to strengthen. It also noted that with substantial resource slack continuing to restrain cost pressures and with longer-term inflation expectations stable, inflation is likely to be subdued for some time." Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.

Forecast for the Week -

This will be a busy week for economic reports, starting off with the Personal Consumption Expenditures report on Monday. This report measures consumer price changes, and also gives us a look at inflation.

We'll also get a glimpse at Personal Income and Personal spending on Monday, as well as the Institute of Supply Managers Index, which is the king of all manufacturing indices, and is considered the single best snapshot of the factory sector.

By mid-week, the labor market will lead the big news. In addition to the latest Initial Jobless Claims numbers, ADP's Employment Report will also be delivered. These two data points will lead the way to Friday's official Jobs Report from the Labor Department. This report includes the latest information on job losses and the unemployment rate, as well as the average work week and hourly earnings. With all the recent talk about the job market, it will be important to get a current read on the situation.

Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result.

Mortgage Bonds traded in a tight technical range last week between a ceiling of resistance at the 100-Day Moving Average and a floor of support at the 200-Day Moving Average - and as always, I'll be watching carefully to see which way Bonds and home loan rates are headed.

As I told you last fall, HUD announced it would make some changes to FHA financing in the 1^st and/or 2^nd quarter of 2010.  It appears as though they have hashed out most of the details and they announced this morning FHA Policy Changes that will start to go into effect this Spring.  FHA will officially release a Mortgagee Letter tomorrow with more details on the time-frame of these changes.

FHA borrowers must now look better on paper and may need more cash at closing.

In their announcement this morning, FHA said it is trying to "better position the FHA to manage its risk while continuing to support the nation's housing market".

HUD did not change the minimim down payment which was on the drawing board last fall.  They did however, roll out a number of changes: 

• Mortgage insurance premium (MIP) will be increased to build up capital reserves and bring back private lending
  • Increase the Upfron Mortgage Insurance Premium (MIP) from 1.75% to 2.25%.
  • Congressional request to increase monthly MIP
• Reduce allowable seller concessions from 6% to 3%
• Increase enforcement on FHA lenders
• Minimum Credit Score of 580
  • A 10% down is required for those who fall below 580

Now keep in mind, just because FHA allows a 580 score, doesn't mean the Lender will approve the loan.  Many Lenders/Banks have imposed additional "risk layers" in their underwriting of both FHA and Conventional loans due to investor requirements.  Most Lenders/Banks already have minimum scores for FHA loans.  Lenders/Banks use FHA's guidelines as the starting point and then they add additional underwriting rules.  And they have good reason to do so.

HUD is pursuing legislative authority that would require all require all approved mortgagees to assume liability for all of the loans that they originate and underwrite.  And if a Lenders/banks defaults exceeds the mean by a certain number, FHA terminates the Lender/bank. 

This is one of the reasons why someone might not get approved for an FHA loan at one place, but can someplace else.  Guidelines will vary from Lender to Lender. 

If you have any questions or would like to know if you can qualify for an FHA loan, please call me at 509-232-7725.

Realty Trac released their statistics on January 14, 2010 and foreclosures in Spokane County fell in 2009 compared to the two previous years.  It is a nice boost for Spokane.  Unfortunatley, the same cannot be said for Kootani County. 

There were 979 properties in Spokane subjet to a foreclosure notice; this is a 15% decerease from 2008 and a 3% decrease from 2007.  A total of one-half of one percent of homes in Spokane County received a notice of a trustee sale or was repossessed by a bank.

For Kootenai County, RealtyTrac reported 1,552 foreclosure filings.  This is an 87% increase from 2008 and a whopping 310% jump from 2007.  Only 46 properties received a notice in 2006!  This accounts for 2.6% of homes in Kootenai County receiving a notice of default or trustee sale.

Both the Spokane and Coeur d' Alene assocations of Realtors suggest both markets were showing signs of improvement at year's end.

HUD Secretary Shaun Donovan announced on Friday, January 15, 2010, a temporary policy that will expand access to FHA mortgage insurance and allow for the quick resale of foreclosed properties. Effective February 1, 2010 there will be a one-year temporary suspension of the 90-day flipping policy.

The waiver will take effect on February 1, 2010 and is effective for one year, unless otherwise extended or withdrawn by the FHA Commissioner. To protect FHA borrowers against predatory practices of "flipping" where properties are quickly resold at inflated prices to unsuspecting borrowers, this waiver is limited to those sales meeting the following general conditions:

• Appraiser has to explain why the value has increased since previous sale
• Lender may require a 2^nd appraisal to justify increase in valuue
• Seller may have to provide documentation to justify increase in value

Denelle

First, let me do my best to briefly explain RESPA.  RESPA stands for Real Estate Settlement Procedures Act and was established in 1974 by the Department of Housing and Urban Development (HUD) as a consumer protection statute.  It has been revised numerous times, 1976, 1983, 1990, 1992 and 1996.  Attempted to be revised in 2002 but never passed. 

However, there was a major overhaul of RESPA in 2009 which went into full effect January 1, 2010.  The main goal was to help borrowers shop for a loan more efficiently by clarifying and simplifying the process.  RESPA estimated each individual borrower can save between $518 to $670 per transaction.  How, I am not sure.

As a consumer what can you expect to see differently when purchasing a home?  The major two changes are the Good Faith Estimate (GFE) and the HUD-1 settlement statement you receive at closing; with the GFE getting the major overhaul.

For anyone who has purchased or refinanced a home in, lets say the last ten years to throw out a number, you may recall receiving a GFE.  The GFE listed the costs associated with purchasing your home, your impounds or escrow items, the estimated house payment, down payment and total funds needed to complete the transaction.  It would also reflect any credits you would be receiving from the lender, Realtor or seller. 

The GFE of 2010 will no longer reflect all of this information.   

Now, don't think I am not all for change as I think the lending industry as a whole was in need of (1) more monitoring, (2) licensed and educated loan officers (originators) and (3) tighter guidelines.  However, I am not sure the new RESPA rules help the consumer understand what is going on or save you money.

The new GFE does provide more clearer details regarding your loan program and how your payment may or may not change in the near future.  It does provide you with an opportunity to compare costs with other lenders.  And it does provide some protection for your pocket book by limiting how much some of the fees can increase from what was originally disclosed to you by your loan originator.

However, the main guts of the GFE that lists everything are so confusing, HUD has needed 52 pages of Frequently Asked Questions to help Lenders and Originators complete the form.    Remember what I said in the beginning about RESPA's main goal in making these major changes was to help consumers.."shop for a loan more efficiently by clarifying and simplifying the process".    52 pages of explanations does not seem simple to me?

O.K. so what do you need to know?  First, the charges from your Lender cannot change one dime from the time they issue the GFE unless your loan amount changes or your rate is not locked at the time the GFE is issued.  All charges from the Lender or Broker are now lumped into one lump sum; i.e, origination charge, processing fee, underwriting fee, etc.   The GFE does not provide a place for the Lender/Broker to breakdown the fees.  If you are paying points to buy the rate down, it is clearly stated and added to the Lender/Broker fees.  If your Broker is receiving added money from the Lender for the rate charge, it is clearly listed and credited back to you to reduces your overall fees.  **NOTE** Very Important ** If you receive a GFE with a credit from the Broker for your fees and you opt NOT to lock in your rate, this credit may decrease if the market worsens.  Make sure you have constant communication with your loan officer to understand the daily changes of mortgage rates.

Moving on-The next few sections of your GFE is where it will get a little confusing. 

Your Lender will now list charges for services that you are required to obtain from their providers.  This will be items such as an appraisal or credit report.  You have to have these items completed and you don't get to choose who you use.  The fees listed in this section generally cannot increase more than 10% from what was originally quoted unless there is an event that was not expected; i.e, a 2nd appraisal was needed, items needed to be repaired on your credit report that resulted in additional fees.

Title charges and escrow charges are now listed as one lump sum even though they may be two separate entities/companies.  There is no place to break down how much you are paying for title insurance and how much the escrow company is charging you.

Owner's Title Policy - This is something that is typically paid by the Seller.  The Purchase & Sale Contract for Spokane County specifically states the Seller will pay this.  However, HUD wants the amount listed on the GFE for the buyer.  At closing, you will be charged this amount and then credited the same amount from the Seller to offset the charge.

Services that you can shop for, such as home or pest inspection, well tests, etc., will all be listed in one section with corresponding charges for each item.  The loan officer will need to provide you with a list of their preferred providers for these services.  If you elect to use someone on this list, then the quoted fees go into a buck of charges than cannot increase more than 10% of what was originally quoted.  Unless of course a changeable event occurs.

Transfer tax is a hot topic right now.  What is transfer tax?  Each Lender is answering the question differently.  HUD requires the Lender to list the transfer tax charge on the GFE.  In Spokane and surrounding counties, Sellers will pay an excise tax for selling the property. This is a Seller cost; not a buyer's costs.  Is an excise tax the same as a transfer tax?  HUD doesn't address this specifically in their 52 page document.  So, some lenders are being very cautious and listing the excise tax amount on the GFE for the buyer.  Then once again, the buyer will receive a credit for this same amount for the Seller.  Some Lenders have clearly defined the excise tax is not a transfer tax are leaving it off all together.  Why does it matter?  Read on

The rest of the GFE will list the total deposit that will need to be made into your escrow account if your loan program has one.  It will also list your annual premium for homeowner's insurance and any interest you will pay on your new loan for the month in which you close your loan.

Then all the figures will be totaled and listed at the bottom.  No where can the loan officer indicate what items the seller or lender/broker will be paying on your behalf.  It also will not list your down payment. 

Now let's talk about how you will see the Seller's credits.  When you go to sign your final loan papers, the first document you will review will be the HUD-1 Settlement (HUD for short).  Page 2 of the HUD lists all the fees that were included on your GFE.  If the Seller is paying any of the fees on your behalf, you will be given a one-lump sum credit on page one.  Page one is where it will list your purchase price, add your costs and then deduct your loan amount and credits to come up with the total amount you need to purchase the home. 

Here is where it may get sticky.  Oftentimes, the Seller agrees to pay for a portion or all of the buyer's closing costs as a condition of the sale of the property.  The amount they will pay is listed in the Financing Addendum to the Purchase & Sale Agreement.  At closing, the escrow officer will not credit the buyer for any more than what is listed in the contract.  Unfortunately, the escrow officer will now be forced to add in the cost of the Owner's Title Policy as HUD now requires this cost to be shown as a buyers expense and a seller credit.  If your Realtor does not specify that the credit for the Owner's Title Policy is NOT to be included in what is paid by the Seller, you can be short changed at closing.  Here is an example:

Loan officer tells  buyer their down payment is $5,000 and their costs will be $4,000; they will need $9,000 to purchase home.  Seller agrees to pay $3,500 towards buyers costs now reducing the total amount needed from buyer to $5,500.  On the HUD, the escrow officer will indicate a credit of $3,500 for the buyer and total closing costs of $4,500.  The extra $500 in costs is for the Owners Title Policy which was never their cost to begin with but HUD requires it to be listed on the buyer's side.  Now the buyer needs $500 more than was told. 

How do you fix it?  Make sure your Real Estate Agent is specific on the Financing Addendum.  Clearly state that the Seller's credit will NOT include the Owner's Title Policy or the Excise Tax (remember some Lenders are requiring this to be listed on the buyer's side as well). 

Wrap up -

1. Be informed.  Make sure you are using a reputable, experienced and most importantly educated loan officer to finance your mortgage.  A good one will have a separate form that clearly lists the total costs, house payment, credits and total amount you will need.  If they don't; walk away.
2. See your loan officer BEFORE you decide to buy.  Do all your comparison shopping before you find the perfect house. 
3. USE a Realtor!  Again, use a good one.  Ask around and see who you know used or ask your loan officer for some good recommendations.  Now more than ever, you need to use someone who understands the complexities of our industries.
4. Ask Questions.  Make sure you understand the GFE to the best of your ability.  Know what can change and when it change. 
5. Lock your loan.  Waiting around for the rates to drop an extra 1/8th could cost you thousands in the long run.  Once you lock, get everything requested by your loan officer immediately.  Not closing on time could result in you needing more money at closing.
6. Expect to pay a little more.  Since there are so many areas in which fees cannot change or can change very little, we have seen an immediate increase in fees that both Lenders and service providers now charge. 

HUD had great intentions with the new RESPA rules but somewhere along the line, I feel they have made things a bit more confusing to both the consumer and the lenders.  The best we can do is work with what we have and move forward.  As I mentioned in the beginning, there are some very good improvements to the new GFE.  If nothing else, HUD is providing you with the to become more informed and educated regarding the lending industry.  Just make sure the right person is teaching you.

If you have any questions at all regarding this information, please get in touch with me.  I can be reached at 509-232-7725.  Denelle

HI HO, HI HO, IT'S OFF TO WORK WE GO!" And even those who have been feeling grumpy about the weak labor market found something to smile about last Friday. The official Jobs Report for November was released - and the improving numbers were a big surprise to the markets.According to the Labor Department, only 11,000 jobs were lost in November, despite expectations of 125,000 jobs lost. As you can see from the chart below, this marks the least number of jobs lost in nearly two years - since December 2007. Adding to the favorable news, the Unemployment Rate improved to 10.0%, when expectations were for it to remain at the 10.2% level.While the news was good for the economy and helped Stocks improve sharply, it wasn't so favorable for Bonds...and as a result, home loan rates moved slightly higher on the news, continuing their worsening trend for the week overall.

In other news, based on early numbers, 195 Million shoppers hit the stores and websites on Black Friday, which was up from last year's 172 Million. Cyber Monday - the online equivalent of Black Friday - also showed an increase in web shoppers, up by 6% from last year. It appears that the shopping traffic was up, but the dollars-per-shopper may be down a bit. This might be indicative of not only consumers being conservative...but also the fact that with all the deep sales taking place to incent buyers, fewer dollars may be spent to get the very same merchandise as a year ago.

Real Estate News.  The U.S. Treasury Department announced new guidelines last week designed to make short sales go more smoothly. To qualify under these new guidelines: The property must be the home owner’s principal residence; The home owner must be delinquent on their loan or close to defaulting; The loan must have been made before Jan. 1, 2009, and be for less than $729,750; and The borrowers’ total payment must exceed 31 percent of their before-tax income. Under the plan, borrowers will receive $1,500 from the government for selling homes for less than the amount of their loans. Loan-servicing companies will get $1,000 for each completed short sale. Second-lien holders can receive up to $3,000 of the sales proceeds in exchange for releasing their liens. Investors who hold the first lien can collect up to $1,000 from the government for allowing the payments. Borrowers who complete a short sale under the program must be "fully released" from future liability for the debt, according to the guidelines. Sources: Associated Press and The Wall Street Journal

The Markets.  Rates moved down to record lows in the past week. Freddie Mac announced that for the week ending December 3, 30-year fixed rates averaged 4.71%, down from 4.78% the week before. The average for 15-year fixed fell to 4.27%. A year ago 30-year fixed rates were at 5.53%.  Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.

Forecast for the Week.  The week ahead starts out a bit sleepy in terms of economic reports, with no major releases due until Thursday when the Initial Jobless Claims report and the Balance of Trade report will both arrive.Friday will bring another shot of economic news when the Retail Sales Report - the most-timely indicator of broad consumer spending patterns - is released. We'll also get a look at the Consumer Sentiment Index for an updated snapshot of how consumers are feeling about the economy.In addition to these reports, the markets will be watching the latest round of Treasury auctions. This week's auctions include longer-term maturities such as 10-year Notes and 30-year Bonds that compete with Mortgage Backed Securities or Mortgage Bonds. So as we've been seeing of late, the auctions could cause some volatility, depending on how well they are received.Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result.  Mortgage Bonds hit a high for 2009 on November 27th, but traded lower last week due to financial news and a better-than-expected Jobs Report.