ALOHA!!

***Be sure to read the Housing Rescue Bill Summary within this e-mail

Monday July 28^th, 9:00 am Hawaii time and we’re seeing our first price improvements of the day. If you’ve been watching rates lately then you’ve seen similar behavior in recent weeks but it never really went anywhere. However, the optimists or at least those who currently favor positive speculation in the area of mortgage interest rates are alerting that this could be the sign of a positive swing for rates and further price improvements into August. In the first part of last week we saw the worst pricing on 30 year fixed loans in over a year. Then in a blink of an eye we had instant recovery come Wednesday and were back down in the 6.375% range. Thursday followed suit and we were back around 6.25% at the best priced lenders. Things were looking good and the forecast was sunny. Unfortunately Friday didn’t give us the momentum into the weekend we had hoped for, but Saturday the Senate passed a $300 billion housing rescue bill and that seems to be helping us at the start of this week. Perhaps the reason that some of these speculations are so cheeky is because we’ve been in the ditch for quite awhile, probably since May, and those of us still in this business have this deep gut hope that, “it’s just got to get better soon”. Blind faith aside, there are some very interesting statistics and analysis that support the idea of summer end improvements. You can take my word for it and those that live for this kind of stuff or you can try to digest it yourself. One mathematical analysis that is supporting the current speculations is the Elliot Wave Theory which is based on the Fibonacci Series, enjoy http://www.acrotec.com/ewt.htm.

 The Housing Rescue Bill is good, but it’s not perfect. Although, I’m not real keen about certain aspects of the Bill, the “catch” if you will with some parts is why I feel it to be a worthwhile law. Before I share a few of the bills’ highlights let me give some further insight into why I generally support the $300 Billion legislation. Many people who didn’t do “bad” loans or were more conservative about how they used credit and leveraging over the past decade have shared a tone of resentment towards these government bail out attempts. It’s important to realize that this decision is not shortsighted and Capitol Hill isn’t just creating this type of legislation because it likes to “wipe our backside” (that was the most PG way I could say it). The ripple effect from mortgage defaults, a struggling housing sector, and a crippled credit industry, has been massive and has put our economy on the brink of a depression. If something isn’t done to stop the bleeding, the economic hemorrhage could potentially be fatal (How’s that for a metaphor). The dollar would be worth nothing and an economic power house would end up choking under its’ own pile of debt and I.O.U’s. These sorts of things have happened all over the world, even in countries far more rich in resources then the United States. Creating some sense of stability in housing and mortgage lending is crucial not only fiscally but also for the morale of our overall economy and its’ future continued growth. Senate committee banking chair Chris Dodd (D) had this to say, “You're having the worst of all possible worlds. Wealth is declining, the source of wealth creation and costs are rising simultaneously. When we consider the role home equity has played in support of consumer spending, we see the danger of a vicious downturn". With this being said we are in fact still seeing small growth, but as just mentioned, along side of job cuts and rising fuel, food, and other commodities. Things aren’t really all doom and gloom, and I don’t mean to sound “snippy” with you, but don’t get a chip on your shoulder just because you aren’t in default on your mortgage and a bill has been passed to support those who have fallen behind. It is for the good of all.
The Housing Rescue Bill - Highlights

Once the President signs the Bill, perhaps sometime this week, it will become law on October 1^st 2008.

• Pros

• Cons

* What is considered positive (pro) or negative (con) is just my opinion

1)     First-time homeowner tax credit (“First-time” is defined as someone who hasn’t owned a home in 3 years)

·        Up to $7,500

·        Home owners are eligible if they bought after April 8^th of this year and before July 1^st 2009

o       This is a one time tax credit NOT a reduction; you don’t get to keep taking it year after year

o       The money has to be repaid over 15 years, starting two years after the purchase which makes the Tax-credit an interest free loan. If you sell the house before then you have to pay Uncle Sam the remaining balance of the credit.

2)     Short-Pay FHA refinancing for Homes which have lost value below what they owe on the current Mortgage

·        The current lender forgives all debt above 90% LTV allowing another lender to underwrite a new 90% LTV loan insured by FHA.

·        i.e. You owe $110,000, but the home is only valued at $100,000. So the new loan would 90% LTV of $100,000 value = $90,000. The previous lender would forgive the $20,000 and let you pay off the loan for $90,000 and would not be allowed to seek any of that $20,000 later.

o       If you sell or refi less then a year after doing the FHA loan the government gets 100% of the home price appreciation. More then a year and less then two, the FHA gets 90%. The cut then decreases by 10% until the five year mark. Anytime after that , the FHA gets half of the appreciation no matter how long you have the loan or own the home.

* This arrangement will encourage homeowners to keep their FHA-insured mortgages for at least five years, but to refinance before home prices zoom upward again.

3)     FHA Down Payment Assistance – No More!

·        The housing rescue bill, soon to be a law (Oct 1^st), bans down payment assistance programs such as the ones offered by Nehemiah and AmeriDream.

o       One of the few options left for 100% financing will be gone when the bill becomes law.

4)     Loan Limits Extended Permanently

·        The current FHA loan limit increases were initially temporary for 2008; the new law raises these limits permanently.

·        The new limit will be 115% percent of the median home price

o       The limits go up or down according to a price index

Feel free to e-mail me for more information. I also encourage you to check in with me later this week for updates on the Market activity and an end of the week forecast. I hope this e-mail finds all of you well! Aloha!