Rates Drop a Half Point: Who Will it Help

The Federal Reserve slashed the federal funds rate, by one-half a percentage point to 4.75 percent. The Fed Funds rate is the rate that banks charge banks for overnight loans to keep their loan ratios intact. A half point move is a big reduction and it indicates the Fed is taking the mortgage mess and the credit problems its created very seriously. This is a welcome move that will help the overall economy remain buoyant in the face of a real estate recession. It will help owners and borrowers quite a bit.

Lets take a look at who benefits. All loans tied to short term indexes will feel almost immediate relief:

Credit Card Holders: The rate reduction should show up on your next statement, reducing rates considerably

Variable Home Equity Lines of Credit: These rates are tied to short term rates and will see immediate reductions


Variable Mortgages/ARMs: The ARMs that are resetting now will not go up quite as much due to the recent reduction, but the increase may not be significant enough to everyone facing steep monthly increases.

Variables tied to short term increase such a ten year treasuries may see a help. Variable tied to the "LIBOR" or London Interbank rate will see little help. because it recently jumped sharply above the Fed funds rate because of the continuing credit crunch in the markets. "If Libor doesn't come down, there is no relief" for many mortgage borrowers, says James Bianco, president of Bianco Research LLC, a market-research firm in Chicago.

Fixed Rate Mortgages: New fixed rates will be slightly lower

Credit Cards: Almost immediate reductions in credit card interest rate charges.

The Fed hopes to help reduce the flood of foreclosures by helping lower the reset increases and to stimulate the economy by reducing the cost of credit. The next step is the consumers...they want us to spend and spend to help keep the housing recession from becoming a total economic slowdown. Although interest rates will be lower, the full extent of whether this will result in more home sales remains to be seen. Cheaper money will be offset by tighter credit rules and how that plays out is still an unknown.

Your Property Path


Section 8 Housing: A Reasonable Choice

HUD administers the section 8 Program; it is the federal government's major program for assisting very low-income families, the elderly, and the disabled to afford decent, safe, and sanitary housing in the private market. But the program is administered locally and not from the national level by public housing agencies (PHAs).

A housing subsidy is paid to the landlord directly by the PHA on behalf of the participating family. The family then pays the difference between the actual rent charged by the landlord and the amount subsidized by the program. Under certain circumstances, if authorized by the PHA, a family may use its voucher to purchase a modest home.


In general, the family's income may not exceed 50% of the median income for the county or metropolitan area in which the family chooses to live. By law, a PHA must provide 75 percent of its voucher to applicants whose incomes do not exceed 30 percent of the area median income.

Section 8 families must:

1. Meet Govt. income guidelines

2. Pass a criminal background check

3. Have at least one family member who is a U.S. Citizen or has eligible Immigration status

Their are pros and cons to using section 8 applicants to help fill your vacancies. The main thing to understand is to dispel the myth that section 8 eligible applicants are criminal or something to be afraid of. Following is a bullet list of some of the reasons why and the complications that come along with a Government subsidized program of any kind....You have a relationship with a bureaucracy as well as your tenant.


* Owners get rent security

* Yearly inspections of the unit

* Fair market rental rates

* Strict renter responsibilities defined in the lease addendum

* On-time payments

* Tenants can be removed from the program for damages to the unit or failure to pay rent.

* Waiting list of tenants provides landlord with a stream of eligible renters


* Two Contracts: Your standard lease and a Govt contract with HUD.

* Govt is another party to the tenant landlord relationship

* Rules may be different: California Civil Code statue provides in pertinent part as follows: Where an owner terminates or fails to renew a contract or recorded agreement with a governmental agency that provides for rent limitations to a qualified tenant, the tenant or tenants who were the beneficiaries of the contract or recorded agreement shall be given at least 90 days' written notice of the effective date of the termination and shall not be obligated to pay more than the tenant's portion of the rent.

* Annual Govt inspections of the unit by Govt inspectors to assure quality housing

* Fair Market Rent is the cap the Govt imposes on what it will pay for your rental unit - you may feel you can get more for the unit

Howard Bell for Your Property Path


Existing Homes Sales: The Good, The Bad and the Ugly

The Good

Sales are increasing in Some Areas

According to Lawrence Yun the NAR senior economist, Home sales probably would be rising in the absence of the mortgage liquidity issues of the past two months. So if we hadnt had the bubble excesses of the sub prime meltdown we would see some increase in sales.

The NAR economist goes on to say: “The rise in sales and prices in the Northeast region on a fairly consistent basis in recent months is promising because this was the first region that underwent sales and price weakness after the boom. Now, it appears that it will be the first region to climb back, indicating that other regions could follow a similar path.”

Now we all know that NAR is the rosy picture, but still it is notable that the downtrend is not consistently gloomy and that there are bright spots....When trends are choppy and some areas are doing better and some of the reasons for the downturn are changing (mortgage money is now available), its is easier to see that its not all hell in a hand basket.

The Bad

According to Freddie Mac, The existing home median price was down only .06% in July 2007 relative to July 2006. Seems to me a livable drop....that would be about 7.2% annual annualized drop in price, nationally.

The Ugly

Housing Starts: NAR slashes forecasts for home sales and construction. Tighter credit conditions, results of the mortgage industries loose loan policy, will certainly put off any speedy recovery, according Lawrence Yun, senior economist for the real estate trade group. Housing starts are expected to fall 24% this year and an additional 8% next year to 1.26 million.

In summary,

1. Some areas appear to be in a partial recovery

2. Tight credit will slow this recovery at least into 2008

3. New homes seem to be suffering the most

4. As I mentioned in my last blog, the apartment sector is doing well due to increased rents

Thanks for Reading

Howard Bell for

Finding Money: The Hunt for a Mortgage

There was a very good article on Marketwatch yesterday. It had to do with finding money for a buy or a refi today. I know a mortgage banker in San Francisco that has not had money for new home sales for almost ten days...I mean totally dry.

The author of this article pointed out two very interesting facts:
1. Shop the Credit Unions. They are flush with cash and did not participate in some of the easy lending practices of their bigger brothers. In order to have a credit union consider your business, you must belong to the group or industry they serve. They are considered non-profits because they provide loans and other services at lower rates than their commercial counterparts.
2. The authors, Gail Liberman and Alan Lavine point out that the best loan availability will come from "portfolio Lenders". These are institutions that keep most of the loans they originate rather than sell them in the primary market. Presumably, they are more prudent and have made stronger loans, since they are not so quick to repackage them and sell them off.

In your search for a new loan or a refi it helps to know the terms of the profession. Its much easier to be sure you are getting what you expect if you can read the contract.

Thanks for Reading

Howard Bell for Your Property Path