Homeowner Affordability and Stability Plan

One I the most common frustrations I encounter among struggling homeowners is that banks simply aren't willing to adjust or modify loan terms unless the homeowner is late on their payments and facing foreclosure. This mechanics of the process have actually incentivized the failure to make mortgage payments in this sense. However, this comes at a huge cost of its own: try being 30 or 60 days late on a mortgage payment and see how it decimates your credit rating. The phrase "between a rock and a hard place" was never more appropriate.

However, the Homeowner Affordability and Stability plans--due to go into affect this month--aims to assist those very people who are struggling to make their payments but are in need of help. It consists of three key sections and is aimed at helping those who have “played by the rules and acted responsibly,” but are stuck in high interest mortgage or at risk of foreclosure.

In brief, the plan offers:

1.) Refinancing for up to 4 to 5 million responsible homeowners to make their mortgages more affordable.
2.) A $75 billion homeowner stability initiative to reach up to 3 to 4 million at-risk homeowners.
3.) Supporting low mortgage rates by strengthening confidence in Fannie Mae and Freddie Mac.

The first part will help homeowners by making low-cost refi's more accessible to those who have seen their home values fall over the past few years. This should help out those who no long have the 20% worth of equity in their homes required to get the current low interest rates.

The second aims to assist primarily those homeowners whose mortgage payments have exceeded their monthly income. Simply put, so many have seen their debt to income ratios get knocked way out of balance due to unemployment or rising tax or loan costs. The idea is for lenders and government to share the expense of lowering monthly mortgage payments to no more than 31% of a homeowner’s after-tax income.

The third part will allow for increased accessibility of affordable mortgages by financial aid for government-backed loans through Fannie Mae and Freddie Mac.

Further information about this plan can be found at the US Treasury Website.

These are confusion and anxious times for homeowners. Don't hesitate to contact me if you have further questions about how this plan may be able to help you.

What the Fannie Mae/Freddie Mac Takeover Means for You

As you may have heard by now, the Federal government, through the newly created Federal Housing Finance Agency, has taken over Fannie Mae (FNMA - The Federal National Mortgage Association) and Freddie Mac (FHLMC - The Federal Home Loan Mortgage Corporation). This was done to try to shore up confidence in Fannie and Freddie, which together have lost over $14 Billion in the last 4 quarters.

Why does this matter? Fannie Mae and Freddie Mac own or guarantee almost half of the $12 Trillion in outstanding mortgage debt in this country. Financial markets have lost confidence in Fannie and Freddie as a result of their huge losses. Their stock values have dropped by over 90%, and foreign banks and other investors have been unloading their holdings of FNMA and FHLMC stock. This has caused FNMA and FHLMC to have to raise capital by selling bonds at "higher than treasury" market prices. So, while long term treasury interest rates have been dropping, rates on mortgage bonds have been going in the opposite direction. This move by the Federal government, and the full backing of the U.S. Treasury that comes with it, should help to bring FNMA and FHLMC's borrowing costs down which will ultimately lead to lower mortgage rates.

Who wins and who loses? If it goes as planned, the winners will be the embattled housing industry. With lower borrowing costs and lower mortgage rates, mortgage lenders may loosen up some of the tighter underwriting rules that they are forcing on the system. Hopefully this will reduce the backlog of inventory of both new and existing homes on the market. Obviously this would be good for both buyers (who would continue to have access to low interest rates and helpful mortgage programs,) and sellers (who will see prices level off--or even climb again--with the decrease of inventory and more buyer activity.) The losers are likely to be the current stockholders of FNMA and FHLMC stock, which may be worthless after its all said and done.

Will this work? It certainly should! What we know for sure is that the status-quo with FNMA and FHLMC would certainly not work. They could not have continued on with their viability in question, their stock prices continuing to plummet on every bit of bad news, and their borrowing costs continuing to rise.

Should I get excited about this? Yes! You should get excited because this will definitely boost confidence in the credit system. Greater confidence from first time home buyers--combined with lower interest rates--should serve to get the market moving from it's current stagnant state. Hopefully bad news in the mainstream media of the pending demise of FNMA, FHLMC and the whole mortgage industry will now be replaced by positive news on lower interest rates, rising home sales and increasing consumer confidence.

Chicago homes becoming more affordable

One of the upsides to the slow housing market is the degree to which homes are affordable.
This from Crain's :
An index of home affordability rose to 92.0 in fourth-quarter 2007, up from 87.2 in the third quarter, according to a report by Moody’s Economy.com and Homes for Working Families, a Washington D.C.-based non-profit group that promotes affordability. Falling home prices have helped nudge the index higher, but it has yet to cross the 100 mark — the point at which the market is considered affordable again.

Unfortunately, falling home prices have been offset by the woes in the economy as a whole. Lower rates of income growth and rising unemployment serve to make would be buyers skittish about investing. More importantly, however, tightened lending restrictions are making it harder for buyers to qualify for a loan. Banks “have tightened loan qualifications and imposed increased fees, mortgage rates are higher than they were at the peak of the housing boom and banks have substantially reduced loan-to-price ratios,” the report says.

Chicago's affordability tracks just about equally when compared to 40 other major metropolitan cities.

Schools in the City

Check out the great article in Sunday's Tribune Real Estate section on Chicago schools.

Inner city schools have historically taken a beating (admittedly, with good reason,) for their lack of innovation, poor attendance, security and many other issues. I have often felt that the true test of any "urban renewal" would be the school system. It's one thing to lure 20 something singles to live in the city but to get those people who, 10 years later are married with a kid starting kindergarten, to stay in the city will be the true challenge.

I'm happy to say that Chicago seems to be rising to that challenge--at least in some neighborhoods. As the parent of a 1st grader in Chicago Public Schools, I applaud all those who buck the trend and actually stay in the city to raise their children. Most of us do so with a sense of commitment and the understanding that a school system needs active, involved parents to make it really thrive.

If you have (or are planning on having,) children and you live in the city, you definitely should read this story. Check it out here.

Chicago Median Sales Price Goes Up

New figures released by the Illinois Association of Realtors continue to show a discrepancy between city and suburban home sales.

Area-wide, home sales were down 29% for the month of March. In the nine-county Chicago Primary Metropolitan Statistical Area, home and condominium sales in March totaled 5,753, compared with 8,101 in March 2007, the association said Tuesday in a news release.

However, totals from the city were more forgiving. Sales fell only 11.5% in March in the city of Chicago, to 2,045 from 2,311.

The degree to which the prolonged winter weather effected these totals can't be accurately counted but should not be ignored either.

On the bright side, for those home that are selling, the median sales price is actually rising. The median sale price in the Chicago area rose to $248,000 in March, up 1.2% compared with March 2007. The median price in the city rose 5.3% to $300,000.

Two New Upscale Boutiques in Bucktown

The hip just keep hipper.

Bucktown is getting not one but two new upscale clothing stores this summer. California based Joe's Jeans Inc will open a 1890 sq. ft. storefront at 1715 N Damen avenue in August. Just down the street, New York based clothier Intermix just leased a 2350 sq. ft. storefront at 1633 N Damen ave.

It would seem that this further cements the reputation of Bucktown--a drug and gang infested neighborhood just 15 years ago--as being the boutique capital of world...or at least Chicago.

Energy Efficient Home Electronic Tips

Between cell phones, iPods, computers, DVR's and everything else that we use in our tech savvy lives, we use a lot of energy. Over the course of a year that can really add up to some bucks! Here are a few tips you can use to reduce your energy consumption at home and save you and your family money.

• Look for the Energy Star® label. It can help you identify products that use less energy.

• Unplug mobile phone or PDA chargers when batteries are fully charged or when the chargers are not in use.

• When available, use personal and laptop computers' power management features to control energy consumption.

• When you're finished watching a movie or playing a video game, don't forget to turn off your DVD player or video game console as well as the television or monitor.

• Plug electronics, such as TVs, DVD players and audio systems, into power strips, and turn the power strips off when the equipment is not in use especially for long periods of time.

• Investigate home-networking and automation products and services that let you control heating, lighting and cooling from a central location in the home.

• When in the market for home office products, consider multifunction units combining, say printing, copying, scanning and faxing, instead of a single device for each function.

• Use technology to save money. For example, save fuel by shopping and banking from home on your computer.