Tuesday, September 30, 2008

$700B Bailout? NO… stimulus package

This is no bailout of Wall Street that we are dealing with. This is a bailout of our entire economy and possibly even the global economy. This credit crisis has reached critical mass in record time. If the Government does not act immediately we are about to see a depression that will make the Great Depression look like a walk in the park.

Let us take a look at what is really being proposed and how it will affect each of us and Wall Street in detail. It’s important that the American People begin to understand exactly how important it is that we enact this legislation yesterday!

What will it do?

This article is not going to go into depth about how we got into this situation. Let’s take a look at what exactly this proposed “Bailout” stimulus package will do. The proposal is for the Government to purchase up to $700B in distressed assets from banks at a discounted price. These assets will be held by the government until such as time as they can be resold for a potential profit in the future.

In simple terms this is all that is being proposed for this economic “Bailout” stimulus package being considered.

How Does that Help?

Great question. Once these distressed assets are removed from the books they will be able to free up those funds and make a fresh start at incurring more safe assets that will yield profits. This instant liquidity will allow banks to once again lend each other and the consumers of the United States of America credit again in a more responsible and profitable manner. This will reverse the current credit freeze that is in place in our Country. Over time the market will begin to gain confidence in these types of assets and the economy will return to normal.

This is the basic theory of how the stimulus proposal will help.

How Do I Benefit?

The question here should be how I will be hurt if it is not enacted immediately. Without this package being signed into law we expect to see an immediate and swift decline in the US Financial markets that will quickly infect all other aspects of the economy. More and more banks will continue to fall which will either require further intervention on behalf of the Feds or a steep and precipitous depression in our global economy.

- Housing prices will fall at an even faster pace that we are have seen thus far.
- Stocks will fall DRAMATICALLY and CONSISTENTLY causing massive losses to your 401K and any other stock market portfolios
- Your HELOC and credit card balances will be lowered or frozen
- Mortgages will be near impossible to attain except for the elite borrowers with plenty of money and liquidity

In essence you will be living in a modern great depression. This is not an option that should be allowed to come to fruition. It is important that every American educate them about what is happening and push their elected officials to act NOW without partisanship.

In the mortgage market we are seeing interest rates on the 30 year fixed slowly climb. Interest rates doing up on top of home values decreasing, stock market falling, and credit markets tightening all add up to only one thing… that is pain for you and me.

Silver Lining?

If our Government can pull it together and get something workable passed we predict that all of this doom and gloom can be reversed. It won’t be an overnight turn around but within the next 12 months we think that the market will gain some confidence, home values will finally level off in mid to late 2009, and interest rates should remain relatively low assuming inflation stays in check. Depending on which President we elect in November will be the biggest deciding factor after this stimulus legislation that will ultimately decide our economic fates. Hey… one thing at a time lets get this nuclear bomb behind us before we consider the impact of the two Presidential candidates plans for our futures.

We’ll be sure to keep everyone updated and try to translate as much as possible into every man terms the events and the impacts of this financial crisis as it develops!

Monday, September 29, 2008

New Florida Mortgage Blog Opened

Another authority site for Florida Mortgage news we have found is: http://fivestarsmortgage.wordpress.com/

Visit often for all the industry specific inside information about mortgage, rates, and real estate.!

Friday, September 26, 2008

n Depth Look at the $7,500 tax credit

The $7,500 tax credit for first time homebuyers was signed into law as part of the 2008 American Housing Rescue and Foreclosure Act. To qualify for this tax credit, you must close on your new house between April 9, 2008 and July 1, 2009.

Now this sounds like a great incentive to help stimulate home buyers into jumping into the real estate market and helping to dry up some of this excess housing we are floating in. I see this tax credit being plastered all over Florida mortgage company and home builders marketing materials. There are some very important aspects of this "tax credit" that is not being disclosed to buyers. If you don't do some homework on your own you may be in for a big surprise when you find out it's not so much a tax credit as it is an interest free loan that must be PAID BACK!

Now before we get into how this payback is structured, let’s first see how much you qualify for. That's right the law says you can qualify for "up to" $7,500, but that is not necessarily how much you will get.

Here is a breakdown of how it works:

The “first-time home buyer credit” is a temporary refundable, repayable tax credit equal to 10% of the purchase price of a home, up to $7,500 for singles and married couples filing jointly. (Singles who buy a house together get only $3,750 each, as do married couples filing their tax returns separately.)

The income limit is $75,000 for a single and $150,000 for joint borrowers. If your income is above those limits there is a convoluted formula that can be used to determine the diminished amount of tax credit you will qualify for.

Confused? Here's an example...

Just as an example, assume that a married couple has a modified adjusted gross income of $160,000. The applicable phase-out to qualify for the tax credit is $150,000, and the couple is $10,000 over this amount. Dividing $10,000 by $20,000 yields 0.5. When you subtract 0.5 from 1.0, the result is 0.5. To determine the amount of the partial first-time home buyer tax credit that is available to this couple, multiply $7,500 by 0.5. The result is $3,750.

Now lets learn about how you repay this government loan (oops... we meant tax credit)

Home buyers will be required to repay the credit to the government, without interest, over 15 years or when they sell the house, if there is sufficient capital gain from the sale. For example, a home buyer claiming a $7,500 credit would repay the credit at $500 per year. The home owner does not have to begin making repayments on the credit until two years after the credit is claimed. So if the tax credit is claimed on the 2008 tax return, a $500 payment is not due until the 2010 tax return is filed. If the home owner sold the home, then the remaining credit amount would be due from the profit on the home sale. If there was insufficient profit, then the remaining credit payback would be forgiven.

So be prepared that two years after you claim your "tax credit" you will begin repaying the loan back annually at $500 per year until the loan is repaid or you sell that home.

This is some of the detailed information that you should be aware of prior to claiming your tax credit. We are not suggesting anyone NOT claim the credit merely that you be aware so you are not shocked in two years time when the Gov. begins requesting their money back. Hey... it's still an interest free loan! Oops, we meant tax credit :)

SOURCE: http://www.fivestarsmortgage.com/mortgage-articles/13/

Tuesday, September 9, 2008

Feds takover Fannie Mae & Freddie... rates plummet

So the inevitable has finally happened. A few months back the government authorized themselves the power to take over Fannie Mae and Freddie Mac "should the need arise". Yesterday the government finally pulled the trigger on their carefully planned take over of the mortgage giants that are responsible for about $6 trillion dollars in mortgage debt between the two of them. This debt is now no longer held by the independent Fannie Mae & Freddie Mac. It is now you and I, the average tax payer that is responsible for half of the mortgage debt in the U.S.

Make no mistake; this is the largest government bailout of a financial company in U.S. history. The Government will immediately invest about $30M of liquidity into these companies, but in reality most experts agree that the Government will invest at least $250 Billion into the two firms before it is over. These are companies that reported about $14 Billion dollars in losses over the last year.

Why would the Government do such a thing you ask?
They never had a choice!

Had the Gov. not stepped in now and engineered this indefinite Gov. "conservatorship" the fall of these two behemoths was inevitable. Had we seen either or both of these companies fall it would undoubtedly have been the end for the U.S economy and likely a catalyst for a global meltdown. This is big stakes folks. There was no way Uncle Sam was going to let these companies fall, and hey if you are going to bailout the biggest financial firms in the country... why not make a little money while your at it right!

The Gov. will be given nearly 80% of preferred stock in the companies with a guaranteed 10% annual return. All those other investors holding stock are now in 2nd place if anything should happen being Uncle Sam :)

What does this mean to the average Joe?

Well here is the good news. The day after the Feds shot their bazooka at the financial meltdown, the 30 year interest rates fell from 6.25% down to 5.5% overnight! This is in large part because interest rates are risk based. The lower the risk the lower the rates. Now that Uncle Sam is taking charge the market is GUARANTEED by the Fed Gov. to not fail. No matter how much cash it takes to stay afloat Uncle Sam is willing to foot the bill. This means far less risk and therefore far lower rates. We are predicting that very soon we will see par interest rates in the low 5% range!

This not only provides lower rates but also more liquidity into a strangled credit market. The spigot just got opened a little further and we are now drizzling mortgage financing instead of dripping it. So in addition to lower rates and more liquidity we are predicting that the actual cost of banks lending money will decrease which should drive some investor interest back into the mortgage backed securities. This "could" result in slightly less stringent underwriting standards allowing more people to snatch up some of the excess housing inventory that is hammering home prices.

New construction has already decreased significantly so lower rates, more affordable loans, and more accessible financing could be the catalyst to get us on the road to a housing recovery.

What about the future of Fannie & Freddie?

This is where the Gov. is flying blind. Their hands were forced to step in and their "conservatorship" is open ended. This means that the truly hard decisions will be left to whoever becomes president of the United States in our next elections cycle and their Congress. Senator McCain has hinted that he would like to see the companies broken up or at the very least down sized considerably. Senator Obama on the other hand has seemed to tend toward more regulation but allowing them to remain more unchanged.

Yet another reason to stay on top of politics this year and delve deeply into the policies of our two candidates!

Here is to hoping you and your family can take advantage of the lower rates and cheaper financing... hey... you paid for it!

Source: http://www.fivestarsmortgage.com/mortgage-articles/12/