CMPS Legislative Update - Higher loan limits inching toward reality!

Yesterday, the US House of Representatives overwhelmingly passed HR 5140 – an economic stimulus package that includes a temporary increase in the conforming loan limit and the upper threshold for FHA loan programs to as much as $729,750 in high-cost areas. The temporary increase would last only until the end of 2008. The bill would also restrict Fannie Mae, Freddie Mac and the Federal Housing Administration from guaranteeing or purchasing loans above 125 percent of the median home price for a given area.

That means that the existing $417,000 conforming loan limit for mortgages eligible for purchase by Fannie and Freddie would not increase in areas where the median home price is $333,600 or less. The problem of course, is that as of right now, no one knows what the median home price is in different markets because this data has never been published by HUD!

Therefore, it would be up to the Secretary of Housing and Urban Development to determine the median home price for different housing markets "as soon as practicable," but no later than 30 days after passage of the bill, relying on existing commercial data where needed. In other words, if median home prices in your marketplace are $336,000 or less, this bill won't really affect you; and there's no way to tell if median home prices in your area are higher than $336,000 until HUD publishes this data. Nevertheless, jumbo relief is certainly on the way for places like California where median home prices are certain to be above $336,000.

Currently, the loan limit for FHA loan programs is between $200,160 and $362,790, depending on the county where the property is located. The proposed higher limits for FHA loan guarantees are also set to expire at the end of this year, unless Congress passes other legislation intended to modernize FHA programs by introducing risk-based pricing and lowering down-payment requirements.

While House leaders thought they had reached an agreement with the Bush administration to include FHA modernization as part of the stimulus package, they agreed to continue working on that issue separately at the administration's request, the Associated Press reported.

In order to make higher limits a reality, the next step is for the Senate to pass the bill and for the President to sign it into law. The target date for final passage set by the White House and Congressional leaders is February 15, so let’s hope for the best and we’ll be sure to keep you posted as we have more information.

Fed cuts key interest rate by half-point to 3.0%, signals door open for more

WASHINGTON (MarketWatch) - The Federal Reserve decided to cut interest rates by a half-point and signaled that the door remains open for more cuts.

The central bank lowered the federal funds rate by a half of one percentage point to 3.0%. Financial markets were hoping the Fed would cut decide to cut rates by this amount.
The Fed also announced that it was cutting its discount rate, the interest it charges on direct loans it makes to banks by a half-point to 3.5%.
The move signals that the Fed is concerned about the economic outlook.

In a statement, the Fed said that downside risks to growth remain. The Fed said it would act in a timely manner to address risk.
"Financial markets remain under considerable stress, and credit has tightened further for some businesses and households," the Fed said.

"Moreover, recent information indicates a deepening of the housing contraction as well as some softening in labor markets," the statement said.
There was one dissent. Dallas Fed president Richard Fisher said he did not think the Fed should have lowered rates at all.
There was only a passing reference to inflation.

The Fed said it expects inflation to moderate in coming quarters but said it would watch the situation carefully.
The Fed has now cut rates five times by a cumulative 2.25 percentage point. Many Wall Street economists now think the Fed will have to lower rates to 2.5% by spring to stave off a possible serious recession.

The next two formal FOMC meetings scheduled for March 18 and April 29-30.
Last fall, the Fed rate cuts were measured and occurred at regular meetings, but last week the Fed changed tactics and engineered an emergency-three-quarter of a point rate cut.

Many analysts said the Fed also reacted to a sharp downturn in global stock markets. There was concern that this would spread to the U.S. and make the outlook worse.
News that some of the sharp fall in European stock markets might have been exacerbated by Societe General unwinding stock positions from a rogue trader was seen as an embarrassment to the Fed and a sign that global central bank cooperation is not what is often advertised.
But Fed watchers said the trouble at the French bank was more of a sideshow.
Dominating the economic landscape is the weak U.S. housing market. Home prices are falling, an exceedingly rare event.

Some analysts see a risk of a vicious circle, where falling home prices leads to a curb in banking lending that would curb consumer spending. Large international banks are reeling from their holdings of complex securities tied to U.S. mortgages.

Banners Promote Enterprise Zones

On Monday, January 14, 2008, the City of Santa Clarita unveiled its newest advertising tool for promoting the Enterprise Zone – 100 street pole banners placed throughout the industrial and commercial areas of the City. The banners will provide an awareness of the newly designated Santa Clarita Enterprise Zone while reminding businesses that they can save money just by being located “in the Zone.”

The Santa Clarita Enterprise Zone covers more than 8,500 acres representing nearly 97% of all commercial and industrial zoned land in the City. A State of California program, Enterprise Zone benefits include tax hiring credits, sales and use tax credits, business expense deductions, and net interest deductions for lenders. Enterprise Zones lead to more jobs, less poverty, and long-term financial stability.

“The Santa Clarita Enterprise Zone is another great benefit to businesses located in our City,” stated Mayor Bob Kellar. “Put this together with the City having no business license or utility user fee, and local businesses should realize significant savings at tax time. The City is dedicated to serving the business community, and bringing an Enterprise Zone to Santa Clarita should make businesses more successful by reducing their tax burdens and increase the number of local jobs available to our residents.”

City staff is available to answer questions regarding the program, set up individual appointments either at City Hall or at individual places of business, and will also pre-screen potential employees for certificates of eligibility that can lead to vouchers for tax credits for businesses.
For more information and/or to receive a Santa Clarita Enterprise Zone brochure, please contact the City of Santa Clarita’s Economic Development Division at (661) 255-4347 or visit the web site at scenterprisezone.com.

Foreclosures soar to state record

Fed rate cut unlikely to have major impact
A desperate slashing of interest rates may ease some of the nation's economic jitters but may not be enough to stave off recession. It also probably won't provide an immediate fix for a deepening foreclosure crisis that has moved into uncharted territory in California.
As the Federal Reserve announced a key interest-rate cut of three-quarters of a point Tuesday, new statistics showed that foreclosures and defaults during the fourth quarter of 2007 were the highest ever recorded in California. One analyst said it's likely that foreclosures will continue to climb.

DataQuick Information Systems Inc. said foreclosures in California jumped to 31,676 in the quarter, the most since DataQuick began tracking those numbers in 1988. For the whole year, foreclosures rose sevenfold, to a total of 84,375.

The increase was nearly as bad in the eight-county Sacramento region, where 10,049 homeowners lost their properties to lenders over the course of the year.

Perhaps more troubling was the continued rise in notices of default, issued by lenders after homeowners miss two or three mortgage payments. Defaults often lead to foreclosures.
Statewide defaults totaled 81,550 in the fourth quarter, the most since DataQuick began compiling those figures in 1992. Defaults more than doubled, to 254,824, for the entire year.

In Amador, El Dorado, Nevada, Placer, Sacramento, Sutter, Yolo and Yuba counties, defaults more than doubled to 24,787 for the year – a likely sign of more foreclosures to come.
"We're still climbing to a peak in foreclosure activity in California," said DataQuick analyst Andrew LePage. "We don't even have a sign of the peak."

The Fed's interest rate cut is likely to help somewhat. It will translate into lower rates on home equity lines of credit, spelling relief for many cash-strapped homeowners, said Fred Arnold, president-elect of the California Association of Mortgage Brokers.

The cut also may improve consumer confidence and bring some potential homebuyers "out of the woodwork," said Arnold, a broker in the Santa Clarita area.
But the move won't by itself revive California's dormant housing market. Arnold said it will do comparatively little for the thousands of subprime borrowers whose adjustable-rate loans are due to reset this year. The monthly payments for those borrowers will still shoot up significantly, he said.

Some may find relief in a plan announced by the White House last fall that calls for rates on adjustable-rate mortgages to be frozen for certain homeowners who are current on their payments.

For potential buyers, rates on 30-year fixed mortgages already have come down as the market anticipated some lowering by the Fed. But they likely won't go much lower, Arnold said.
Rates are averaging 5.42 percent, according to Bankrate.com. Rates on jumbo loans above $417,000, a threshold that covers much of the California market, are about a point higher.
However, Steve Galster, co-owner of Galster Group real estate in Fair Oaks, said he was told by a big lender that mortgage rates were declining Tuesday in response to the Fed's decision.
The decision by the Fed also will translate into lower rates on car loans, credit cards and many business loans.

Nonetheless, it's unlikely the cut will be enough to prevent a recession, said senior economist Scott Anderson of Wells Fargo & Co.
"This is not going to be a panacea," Anderson said. "The credit system, the banking system, is very much frozen up. We're concerned about Main Street – the supply of loans to businesses and consumers." He believes the chance of a recession in the next six months is 50 percent.
"It could get ugly very quickly, and this is what the Fed is responding to," he added, noting that the Fed signaled it may cut rates again.

Even if it doesn't prevent recession, Anderson said the Fed's action – in tandem with a $145 billion economic plan being negotiated by President Bush and Congress – will help the economy recover more quickly.

In California, where the housing slump has pushed unemployment to 6.1 percent, the specter of more foreclosures continues to haunt the economy. Foreclosures add more homes onto an already depressed market as lenders try to dispose of their properties. Nearly half of all sales in Sacramento County in December were homes that had been repossessed.

That trend will continue to drive prices down through 2008, although several agents said they think the decline in prices will ease off. "I think prices might continue to adjust, but I think by far the worst is behind us," said Warren Adams, an area agent who deals in foreclosed properties.
Others see a lot more gloom ahead. Linda Caoili, a Re/Max Gold agent who works with homeowners struggling to prevent foreclosure, said the decline in prices makes some clients feel their home can't be saved.

One Natomas-area client, who bought her home for $420,000, just watched an identical home across the street sell for $315,000 after foreclosure, Caoili said. This client, like others, is nearly ready to give up her home.

"They're living on credit cards now. There's no equity left," she said. "I'm seeing people who have been able to hang on (but) are turning around and saying, 'Hey, why am I hanging on? I'm $150,000 upside down.' "

DataQuick estimates that just 41 percent of those who have received default notices will be able to avoid foreclosure either by refinancing, getting back on track with their payments or selling their homes. A year ago 71 percent were able to avoid foreclosure. The trend reflects, in part, the continued decline in prices, which makes it harder to work out a rescue plan.

The encouraging news is that prices are beginning to fall to a point where buyers are starting to take notice, agents said. Last week DataQuick reported that Sacramento County's median sales prices fell in December to $280,000, a 28 percent decline from the 2005 peak.
Galster said lenders "are pricing them to sell." His firm just listed an Elk Grove home that sold in 2004 for $420,000 and fell into foreclosure. The bank is now asking $299,000.

"I guarantee that'll sell this week," he said. "That is a flat-out bargain." Some houses for sale are beginning to receive multiple offers, he said.
Adams said small investors, the kind who buy a duplex here or there, are starting to drift back into the market.
"That's a big sign to me that things are starting to pencil out," he said.