Jan. 24, 2008 - Rates Drop!

Tuesday, the Fed had an emergency meeting and dropped the rate 3/4 of a point!  That is a huge, unexpected drop in an effort to try to avoid an upcoming recession. 

Will it work?  It is hard to say at this point.  Some economists say it was the right thing to do but others disagree.  Only time will tell.

Well, only one day later, Wednesday, mortgage rates dropped to a new four year low.  According to Bloomberg News, the average rate for a 30-year fixed mortgage declined to 5.31 percent.  This drop could encourage the millions of homeowners across the country who are faced with high rate ARMs to refinance and save money on a monthly basis.  The money that these homeowners would be saving could be used on other items, encouraging consumer spending.  This monthly savings could also be squirreled away for a rainy day, reinvested in the property through improvements, or used to pay down their mortgage loan at a more rapid rate.

If you are thinking of refinancing, I work with several of the area's leading lenders and can offer referrals to banks and brokers who have a proven track record. 

Jan. 21, 2008 - Builders & Investers Choosing Foreclosure

There are many builders and real estate investors who are finding themselves in a difficult place.  The property that they were looking to make money on is in fact costing them money.  With higher than recent market times, some local builders and small time investors/flippers are choosing foreclosure as their best option.  The monthly carrying costs of a mortgage, interest, taxes, utilities, and maintenance are adding up and many are finding that even a break-even sale is going to be impossible.  Now their choices are to lose money or let the bank take over the property. 

Nobody wants to be foreclosed on, but for builders and investors it is a business decision and many are cutting their loses.  There is certainly an opportunity for home owners to strike a deal on these properties before foreclosure occurs.  They are difficult to locate but an experienced Realtor who knows the local market can certainly locate these gems.  The next hurdle is negotiating a price where the buyer gets a great deal and the builder or investor takes a minimal loss but is able to avoid foreclosure and keep a positive reputation.

Jan. 21, 2008 - Option ARMs Add to Subprime Fallout

Lenders are now starting to report a larger number of loans going into default from borrowers with high credit scores and even equity in their property.  The loans causing this new alarm are Option ARMs.  These are loans designed to give the borrower three different options with their monthly payments:

1. Borrower pays the full monthly amount due covering the interest expense with the remainder going to pay down the principal.
2. Borrower pays only the interest expense of the loan with the principal remaining unchanged.
3. Borrower pays only a portion of the interest owed with the principal increasing

After a predetermined time period these options end and a regular payment schedule is put in place. 

Option ARMs have been around for years, but just like the sub-prime lending, they have been used more prevalently for borrowers who could not qualify on any other terms.  Option ARMs are generally stated income/stated asset loans.  This means that in exchange for a slightly higher interest rate borrowers just have to tell the lender what their income & assets are and not necessarily provide proof.  The self employed or individuals with a complex financial situation are prime candidates for this type of loan.

For borrowers who were unable to qualify for a traditional mortgage, the Option ARM was given as an alternative.  The stated income could be slightly inflated in order to get the borrower into a higher priced home.  The borrower would then bank on the appreciation of their newly acquired asset and refinance before the payment schedule removed the payment options.  These borrowers are not seeing the appreciation they had hoped for and are now being forced to either sell or be foreclosed on.

Jan. 18, 2008 - Rental Prices Forced Down

With the growing foclosure rates across the country the market has certainly become flooded with listings in some areas.  With homeowners having trouble selling their current home many sellers are opting to rent outtheir homes in hopes of riding out the market's down turn.  Unfortunatly, this is not an original idea and with more sellers going down this road a new problem is occuring in the market; rental prices are falling!

It comes down to the simplicity of suppy and demand.  The more rental properties in the market, the lower the rental prices will be.  Fortunatly, the Chicagoland area is not being hit very hard.  It is not difficult to find foreclosures in our neighborhoods' but our area has not had the value losses of many other areas across the nation.