Tuesday, November 11, 2008

3 Chronicle Stories

There are 3 stories in the San Francisco Chronicle that are worth a read…

The market for homeowners looking to sell

Melissa Morris put her Haight-Ashbury flat on the market in mid-September. It was priced right and she accepted an offer of $825,000 within days.

…The contractor's inspection was set for Sept. 29 and as the buyer toured the home, the stock market was in the midst of its historic meltdown. The Dow Jones industrial average would ultimately drop 777.68 points that day, setting a record for the worst point drop in its history.

The buyer's stock portfolio took a hit and he walked away from the deal. Though the buyer ultimately came back, Morris agreed to a lower sale price of $815,000.

…For Morris, though, it wasn't really about timing. She bought the upper Haight home 11 years ago for $280,000. After 20 years in medical sales and a divorce, she was ready for a life change and decided to move to North Carolina, to be closer to family, and start nursing school. "Over the course of a lifetime, you win some and lose some," Morris said. "You have to do what's best for you at that time in your life. In this case, I won quite a bit - it worked out really well."

…Obama is likely to move aggressively to address the problems facing the nation's housing market, said Ken Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at UC Berkeley. Rosen said he expects the Obama administration to seek tax credits for first-time home buyers, push for more loan modification programs and work with Fannie Mae and Freddie Mac to lower down payments to 10 percent again.

But Rosen said he doesn't expect change to come overnight.

"We won't see any of this until late spring or early summer," he said. Obama "won't take office until January and it will take months for this stuff to happen."

Bottom maybe next year

Rosen expects to see the Bay Area housing market begin to bottom out next year and start to stabilize in 2010. While the new president may offer help for housing market in the future, some Bay Area home sellers have managed to make good in the tough market by using it as an opportunity to trade up.

Obama wants to limit foreclosures - but how?

On the campaign trail, the president-elect proposed a 90-day moratorium on foreclosures, giving Bankruptcy Court judges the right to modify mortgages on primary residences, a $10 billion foreclosure-prevention fund and a mortgage tax credit of up to $800 a year for homeowners who don't itemize their deductions.

…This summer, Congress allocated up to $300 billion for the new Hope for Homeowners program, administered by the FHA. Under this plan, a lender submits a troubled mortgage for refinancing. A new, government-guaranteed mortgage is issued for 90 percent of the home's value. The lender writes off the difference between the old and new mortgage. The homeowner agrees to share the home's future appreciation with the government, which shares its portion with the lender.

Originally, the government said the program, which started Oct. 1, would help 400,000 homeowners over three years. But the voluntary program is off to a slow start. In the first two weeks, just 42 applications were received. The FHA now says only 13,300 homeowners will be helped the first year.

…On Friday, Obama said it's "absolutely critical that the Treasury work closely with the FDIC, HUD and other government agencies to use the substantial authority they already have to help families avoid foreclosure and stay in their homes."

Dean Baker, co-director of the Center for Economic and Policy Research, says the most expedient thing Obama could do would be changing the law so Bankruptcy Court judges can modify mortgages on primary residences. These judges already can change the terms of other debts, including commercial loans and loans on second homes.

"In terms of how do you make a difference quickly that lets people stay in their homes, nothing else even comes close," Baker says.

Virtually every banking and mortgage trade group opposed this idea when it surfaced in several bills introduced in Congress this year. None passed.

Allowing judges to reduce mortgage balances on primary residences "will destabilize the market exactly at a time when we should provide stability," says Steve O'Connor, senior vice president with the Mortgage Bankers Association.

He adds that it would raise the cost of mortgages significantly because lenders would demand a higher interest rate, better credit score and/or bigger down payments to compensate for this new risk. "It would help a small minority at the expense of all borrowers," O'Connor says.

Fannie, Freddie soon to drop high limit

Starting Jan. 1, the biggest loan on a single-family home that can be purchased by Fannie Mae and Freddie Mac falls to $625,500 from $729,750 in certain high-cost areas including most Bay Area counties.

In most of the country, the Fannie-Freddie limit for single-family homes will remain at $417,000 in 2009 for the fourth year in a row, the government said Friday.

Loans that can be purchased and guaranteed by Fannie and Freddie, called conforming loans, are cheaper than loans that cannot. Loans that exceed the conforming-loan limit are called jumbo loans. Today, jumbo loan rates are more than a percentage point higher than conforming-loan rates.

Although the conforming-loan limit in high-cost areas won't change until Jan. 1, if you live in a specified high-cost county and want a loan between $625,500 and $729,750, you should apply for it soon because lenders need time to process and sell these loans before the deadline.

…Before this year, one conforming loan limit applied across the continental United States. The limit for one-unit homes has been $417,000 since 2006.

In February, Congress passed a law that temporarily raised the limit to 125 percent of each area's median home prices, with a floor of $417,000 and a ceiling of $729,750. That law was set to expire at the end of 2008.

In July, Congress made the law permanent but changed the formula starting in 2009 to 115 percent of each area's median home price, with a floor set by the government and a ceiling equal to 150 percent of the floor. On Friday, the Federal Housing Finance Agency said the floor would remain at $417,000 for 2009, which pegged the ceiling at $625,500.

In the Bay Area, the conforming loan limit will fall to $625,500 from $729,750 in Alameda, Contra Costa, Marin, San Francisco, San Mateo and Santa Clara counties.

The limit will fall to $520,950 from $662,500 in Sonoma County, to $592,250 from $729,750 in Napa County, and to $417,000 from $557,500 in Solano County, according to government data. For new limits in other areas, see links.sfgate.com/ZFIS.