Thinking about home financing?

Check out the article below from CNNMoney.com. Basically, the article is suggesting home financing interest rates are going to be on the rise. Are you considering financing a new home purchase and still on the fence? I can't afford a decent crystal ball so I just have to make decisions on the best informaiton available just like anyone else would but I have to believe interest rates are going to be rising soon. FYI

Here is the the article:

NEW YORK (CNNMoney.com) -- Even though signs of a housing recovery are uneven at best, the Federal Reserve is about to take off the training wheels it has had in place for more than a year to help the battered market.

The Fed has been buying mortgage-backed securities, the bundling of home loans that are used to fund mortgage lending, since late 2008. But next month it plans to complete its purchase of $1.25 trillion in mortgages

That could be bad news. There is wide agreement that the removal of this support will mean higher mortgage rates, which could hit housing prices and sales hard. Some even worry that this could cause the broader economic recovery to stall.

The program was the largest single injection of cash into the economy by the Fed during the financial crisis, and it will be the longest-lasting source of funds as well. Even though the Fed intends to stop buying mortgages, few expect the central bank will start selling them to private investors any time in the next few years.

Higher rates on the way. But even if the Fed holds onto the mortgages it has already purchased, the act of no longer buying additional mortgages is likely to raise mortgage rates in the coming weeks. Experts say a jump of at least a quarter to a half percentage point is likely.

San Francisco Federal Reserve President Janet Yellen warned of higher rates in a speech Monday. Fed Chairman Ben Bernanke is likely to take questions about the Fed's mortgage program when he testifies about economic conditions on Capitol Hill Wednesday and Thursday.

The spread between the interest on 30-year fixed rate mortgages and the benchmark 10-year Treasury note now stands at about 1.2 percentage points. Before the financial crisis, this spread was typically closer to 1.5 percentage points.
0:00 /4:36Why we missed the housing crisis

The worry is that high foreclosure rates and a still struggling economy will make investors demand a bigger spread than "normal", since mortgages carry far greater risk in the current market.

Before the Fed started buying mortgages, the spread had climbed to about 2.5 percentage points. A return to that spread is unlikely, but there is uncertainty about how high it could go.

Paul Kasriel, director of economic research at Northern Trust, said he "wouldn't be surprised" if the spread widened by half a percentage point from current levels.

That can have a significant impact on prices by limiting what a buyer can pay for a home. Take the $178,000 median home price of existing homes sold in January. A buyer with a 20% down payment will pay just over $750 a month in mortgage payments for a 30-year fixed loan at today's rate.

Raise that rate by a half point, and the same buyer will only be able to afford a home worth $170,000 to keep payments near the $750 a month level.

The other concern is that even if the spread doesn't increase that much, mortgage rates could still shoot up simply if Treasury yields start to rise. That's possible if the debt problems in Greece and other weaker European countries is resolved in the new few months and investors who moved to U.S. government debt in a flight to quality move out of Treasurys.

End of tax credit to add to problems. The worries about the Fed pulling back support for housing are compounded by the end of up to $8,000 in tax credits for home buyers. To qualify, buyers face an April 30 deadline to sign a sales contract.

Dean Baker, co-director of the Center for Economic and Policy Research, argues that the Fed's program and tax credit for home buyers "ended the free fall in home prices."

But he thinks that the removal of this support could mean that home prices could start to drop by as much as 1% a month again. He also thinks mortgage rates could climb by as much as a percentage point in the coming months.

Jay Brinkman, chief economist for the Mortgage Bankers Association, said even if there isn't a big impact on home sales and prices, higher rates will lead to a plunge in mortgage refinancings.

The MBA now forecasts refinancings will fall to a range of $500 billion to $600 billion this year from $1.4 trillion last year. That will mean even less cash available for homeowners to spend on other goods or to reduce debt.

But Brinkman said the Fed is right to do what it is doing, even if the housing market is still in tenuous condition.

"It's kind of like a pain killer. If you stay on it too long, the withdrawal pains may be worse than the pain you were trying to deal with," he said.

But David Wyss, chief economist with Standard & Poor's, said he isn't sure that the Fed will even follow through and stop buying mortgages. If home sales and prices start to tumble sharply once again, the central bank could be back buying mortgages fairly quickly.

"It's like the parent who is teaching a child to ride a bike who carefully lets go while running along side," he said. "The Fed thinks the child is able to balance by himself at this point, but it's still going to be running alongside the bike, just in case."
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Jon Drews, Broker Associate with Century 21 Vista, Inc.

The Warmth of a Minnesota Winter

One of my favorite Minnesota winter events is witnessing the first whisper of spring! The moment looks, feels, smells, and sounds like 'hope'. It is at that moment I begin to believe the ice and snow will eventually yield to a glorious refrain of seasonal civility. Yesterday offered this hope. I sensed the whisper. Additionally, my good friend, Paul, arrived from Colorado. It was the perfect combination of events.

Paul and I met yesterday morning at the Viking Cafe in downtown Fergus Falls to 'recap and assess' current happenings. After filling ourselves with coffee, bacon, and hash browns (uff da), we decided a drive through the country would be the perfect sedentary activity to promote some much needed digestion. Besides, I had an itch to view a nice piece of lakefront property south of Battle Lake and was looking for an excuse. (Yes, a person can look at lake property in the winter - you just need a bit more imagination to absorb the full potential!)

On the way Paul and I talked about fly fishing, the 'Viking Regulars', and Colorado. (We may have also covered gas mileage, road salt, the band members of 'Cream', and the current price of an oil change.) Through it all we had some fun taxing our respective memories with things mostly mundane.

Traveling passed Clitherall Lake I noted all the fish houses dotting the otherwise barren lake surface. I recalled my last trip out on the ice: great coffee, great conversation, great fishing! (And is there anything tastier than fresh walleye taken from ice water?) At the same time I couldn't help but think how odd it must seem for folks less familiar to consider such outings as 'high' entertainment during a Minnesota winter.

Winter in Minnesota can be a fascinating study. At first glance one only views a barren, monochrome landscape. A person might initially sense the rush of nothing except an expansive, calming stillness. Closer examination, however, reveals tracks - evidence of life, bustling organisms, and much activity. There are cross-country skiing tracks, deer tracks, and 'alfalfa-flaking-off-hay-bale tracks' (as farmers haul behemoth bales of fodder for their livestock). Along the highway right-of-ways we find snowmobile tracks. We can discover the hurried tracks of turkey and coyote as they course open breaks of pasture. Rumbling snow plows leave 'tracks' everywhere. Chickadee tracks and empty sunflower hulls are scattered at our doorsteps. Tracks of smoke are pluming up from the newly established fish-house villages. And there are still more tracks to the fish houses. Winter in Minnesota: It bustles with the many varied signatures of life. It is vital. I would miss it.

The drive continues and Paul and I speak less. (Good digestion requires focus and silence.) The passing farm yards, timber tracts, and fields dull the senses like Novocaine. And what was once only suspected is now confirmed: I ate way too much at The Viking.

This particular drive is a favorite of mine. I know the destination as well as the journey (and we have nearly arrived). Just ahead is 'the curve'. Passing through 'the curve' is like passing into another time. The view transforms. In an instant the perspective changes from driving 'through' the country to one of 'overlooking' the country. The road's shoulder falls out of site. The southern horizon opens beyond a deep, oak-rimmed bowl of bramble and willow. The colors in the sky wash across the snow. It is a stunning view that is measured in miles. The distant skyline is beaded with pronounced hilltops, gnarled oak, and draws. Paul comments, "This is like 'Currier & Ives'."

Are you looking for a place to live that gives back more than it takes? A place that passes time with great conversation, meals of winter walleye, and peace-of-mind? Why not invest yourself in all four seasons of Otter Tail County? You may discover there is no finer place on earth for you to find yourself. Far too few people take occasion to experience - and appreciate - Minnesota's winter season. Looks just like 'Currier & Ives'. Feels just like home.

Jon Drews - Broker Associate with Century 21 Vista, Inc.

Jon is a fourth-generation resident of Otter Tail County and looks forward to serving all your Otter Tail County real estate needs.

You get what you pay for

I read a not-so-interesting article yesterday regarding the purchase of a foreclosed property. The title was something along the lines of 'Foreclosure money pit ends up costing much more.' What a shocker (insert eye-roll here).

During a typical month as a real estate agent I visit with many buyers that are looking to purchase a foreclosed property for 'pennies on the dollar'. Some of these buyers think they will be purchasing a 'move-in ready home' or something they can flip for a 100% return on their investment with little or no effort/cost. Time for a 'realty' reality check.

Granted, there are foreclosed properties available that are 'move-in ready' but there are many more that are not. Equally, if you are thinking you are going to purchase a property that can be flipped for big bucks with just a 'Swiffer' and a can of 'Carpet Fresh', think again.

'You get what you pay for.' How true. Here is the secret to save you BIG headaches when purchasing a foreclosed property: SEE the existing property condition with your eyes wide open; UNDERSTAND what it will cost to bring the property up to condition; have the necessary RESOURCES to get the job done; JUMP when you find what you are looking for. (Look, I did an acronym! 'SURJ' - See, understand, resources, jump. OK, so it is not a great acronym. . . [ahem].)

Virtually all foreclosure properties are being sold 'as-is'. What that means is there is no warranty, there are no refunds. You bought it, you own it. The buck did not stop here, it stopped elsewhere - and it is not coming back. If there is a 'surprise' problem that needs to be addressed after the sale your only real option is to find a mirror and have a nice heart-to-heart talk with the new owner - you.

Please understand: There are many good values in the foreclosure market - and occasionally, there is a real steal. But if you are going to capitalize on such a deal you need to SURJ! Know what you are looking for and be positioned to act quickly when you find what you are looking for - because good deals do not wait around!

If you are the type of person that can't tolerate a little risk exposure, the foreclosure may not be for you. In that case there are probably better options - such as properties that are not being sold 'as-is'. I think it is worth noting when a foreclosed property is sold, the owner (often times a bank) requires the buyer(s) to accept and sign multiple documents that basically repeat the same statement over and over, "Mr./Mrs. Buyer(s), do you understand you are purchasing this property 'AS-IS'?" Hmmm. I wonder if they are trying to make a point?

Questions on foreclosed properties? Call me.

Jon Drews, Broker Associate with Century 21 Vista.

Visit my website at www.RealEstateFergusFalls.com to view foreclosed properties plus much, much more!

The ‘Short’ in Short Sales

Hi there! I just stumbled across in interesting article today and feel the need to share. The article relates to a very real risk for individuals that have been – or are considering – a short sale of their home. We’ll get to a brief summary of definitions and risks in just a moment but for those who wish to dive right into the CNN Money.com article, it can be viewed here: Mortgage lenders pursue homeowners even after foreclosure

Basically, a short sale is an arrangement – an agreement – between a homeowner and their lender. Let’s say a homeowner needs to sell their property and they have not been able to do so for an amount that would satisfy their mortgage balance on the property. That homeowner may be able to negotiate with the mortgage holder for the sale of the property at a price less than the mortgage. For most people in this situation this would appear to be the end of their problem: they sold their home and their mortgage has been satisfied. WRONG!

Please understand 'short sale' transactions are quite common these days and, when properly negotiated, can lend themselves very well in certain situations. There is nothing wrong with a properly negotiated short sale.

If you are thinking a ‘short sale’ type of arrangement is the right approach for your situation you absolutely must be talking to an attorney that deals with short sale transactions!

Here it is in a nutshell: There are two basic ‘commitments’ made by a homeowner when securing a mortgage. The first is the homeowner agreeing to offer the home as collateral for the loan. The second is a promise by the borrower to repay the mortgage. BOTH elements need to be addressed when negotiating a short sale. If a homeowner only addresses the first element and agrees with the mortgage holder to release the property as collateral so that it can be sold, there is still the second element that states the borrower agrees to repay the loan.

Some folks that have gone through the short sale process are getting a nasty surprise after the fact. Banks are contacting these people and informing them they still owe the difference in what the home ultimately sold for and the mortgage balance! Ouch.

Read the linked article from CNN Money.com for all the details. And, again, if you are considering a short sale be absolutely certain you do so with the assistance of a legal professional.

Until next time -

Jon Drews, Broker Associate with Century 21 Vista, Inc.

www.C21Vista.com