The Federal Reserve is facing a difficult but necessary transition from activist investor to pulling back its involvement and allowing higher short-term rates when the economy can stand on its own.

Last week the Federal Reserve took a small step toward reducing its involvement by raising the discount rate by .25% (The discount rate is the interest rate charged to commercial banks and other depository institutions on loans they receive from their regional Federal Reserve Bank’s lending facility). The Fed did recently indicate that the move might be coming, yet the timing of their announcement was surprising to many.

At the start of the credit crunch in mid 2007, nearly one-third of the U.S. lending mechanism was frozen. To increase their liquidity, banks had the option to access the Discount Window at the Federal Reserve (Federal Reserve Banks offer three discount window programs to depository institutions: primary credit, secondary credit, and seasonal credit, each with its own interest rate. All discount window loans are fully secured.) However, because costs for these funds were high AND repayment had to be done within 28 days, most lenders were unable to utilize this option. As a result, the Fed held an emergency meeting, lowered the Discount Rate and extended the repayment period to 90 days. These changes made the Discount Window option a viable solution for lenders and helped curtail the severity of the mortgage meltdown. Last week’s announcement reverses those emergency measures.

When making this change, the Fed noted that the continual improvement in financial market conditions gave them the foundation for this move. The Fed also said that they do not anticipate this raise to lead to tighter financial conditions for households or businesses nor does this move indicate any change in their outlook for the economy or for monetary policy.

However, as the Fed makes changes, the government backs out of Mortgage Backed Securities (MBS) purchases and slows down stimulus programs, we continue to assess economic growth and inflation concerns.

With that in mind, one of the most popular measures of inflation within the U.S. is the Consumer Price Index (CPI). The CPI measures the estimated average price of consumer goods and services purchased by households. This index rose by 0.2% for January, less than the 0.3% expected. With the publishing of the January results, the year-over-year CPI is at 2.6%, below expectations of 2.8%. The more closely watched Core CPI (which strips out food and energy costs), actually fell by 0.1%, below expectations of a 0.1% rise. The last time Core CPI showed a negative monthly reading was 28 years ago. This helped to drop the year-over-year Core CPI rate to 1.6%, a bit below expectations of a 1.8% rise.

These results show that, for the time being, inflation is a non issue. However, it will likely become a factor in the next year or two. And, the best hedge for inflation is to fix as many costs at today’s prices as you can. A home purchase today with a historically low mortgage rate allows buyers to fix the price of their home and the associated financing costs. We will continue to keep an eye on this index and other economic indicators.

Excerpts from an article on CMN Money.com, on February 2010:

As terrible as it is to lose your house to foreclosure, at least it’s a relief to put your biggest financial headache behind you, right?

Wrong.

Former homeowners may still be on the hook if there’s a difference between what they owed on their mortgage and what the bank could sell it for at auction. And these “deficiency judgments” are ticking time bombs that can explode years after borrowers lose their homes.

It can even happen to people who got their bank to approve them selling their home for less than it is worth.

Vanessa Corey, for example, short sold her Fredericksburg, Va., home in April 2008. She and her husband built the house in 2004, but setbacks, both personal (divorce) and professional (housing bust), made it impossible for the real estate agent to keep her home. So she negotiated the short sale and thought that was the end of it.

“My understanding was that the deficiency was negotiated away,” she said. “Then, last November, I got a letter from a lawyer telling me I owed my lender $65,000. I had to declare bankruptcy. There was no way I could pay it.”

Many homeowners are now in the same boat. And not just those who took out bigger loans than they could afford or who did so called “liar loans” where they didn’t have to verify their income.

Because of falling home prices, borrowers who always paid their mortgage but who have run into unforeseen circumstances — like unemployment or a job transfer — can no longer sell their homes for what they owe. As a result, they are being forced to short sell or foreclose and are getting caught up in deficiency judgments.

“After the banks foreclose, it’s very common now to have large deficiencies with houses not worth the balances owed,” said Don Lampe, a North Carolina real estate attorney.

Whether banks can and will pursue deficiency judgments depends on many factors, including what state the borrower lives in and whether there’s a second mortgage or other liens. But if borrowers ignore the possibility of deficiencies, it could haunt them.

“Once they have a judgment, they can pursue you anywhere,” said Richard Zaretsky, a board-certified real estate attorney in West Palm Beach, Fla. “They can ask for financial records, have your wages garnished and, if you fail to respond, a judge can put you in jail.”

In the case of foreclosure, lenders can pursue deficiencies in more than 30 states, including Florida, New York and Texas, according to the U.S. Foreclosure Network, an organization of mortgage law firms.

Some states, such as California, are “non-recourse” and don’t allow deficiency judgments. But, even there, if the if the original loan was refinanced, some or all of it may be subject to claims.

Deficiency judgments on short sales and deeds-in-lieu can happen in many more places. In these cases, extinguishing the debt is often a matter of negotiating with the bank.

But even when lenders are willing, many borrowers may not be aware that they have to ask for release. So, if you are pursuing a short sale, be sure to ask the bank to release you from any further obligation.

Ticking time bomb

What can be scary is that the judgments don’t have to be obtained immediately. Lenders or collection agencies may wait until debtors have recovered financially before they swoop in. In Florida, the bank can wait up to five years to file. Once the court grants a judgment, the lender has 20 years there to collect, with interest.

It doesn’t have to be a large amount of debt for a lender or collection agency to come after borrowers. Richard Varno and his wife short sold their Nashville home back in 2004 after he lost his job.

It wasn’t until 2008, when the second lien holder asked him for $25,000, that he realized he still was liable.

“I told them, ‘Hey, you guys released the title,’” he said. “As far as I know, I’m off the hook.”

He wasn’t. Releasing title does not necessarily end the debt. It’s complicated because of variations in state law, but, generally, a mortgage has two parts: a pledge of collateral, represented by the home, and a promise to pay off the loan.

Lenders may release property liens in order to facilitate short sales without releasing borrowers from their obligations to pay under the promissory notes. The secured debt can convert to an unsecured one after the sale.

Lenders are also very inconsistent. One of Zaretsky’s short-sale clients was ready, willing and able to pay, but the bank did not even ask; another lender always reserves the right to pursue the deficiency.

Strategic defaults

Sometimes lenders go after borrowers walking away from their homes if they have other assets, according to Florida real estate attorney Larry Tolchinsky.

“Banks are pulling credit reports to see if it’s a strategic default,” he said. “If you’re behind on all your other payments, you’re okay. But if you’re not, they’ll come after you.”

If borrowers have any doubts about their risks, they should seek legal advice. Or, at least, call non-profit organizations such as NeighborWorks for advice. According to Doug Robinson, a NeighborWorks spokesman, its counselors always try to negotiate away deficiencies when they facilitate short sales or deeds-in-lieu.

“We don’t favor any short-sale contracts that leave any deficiency that can be pursued,” he said.

January 1 marked the implementation of the new Good Faith Estimate (GFE) that resulted from the Department of Housing & Urban Development’s (HUD) reform of the Real Estate Settlement Procedure Act (RESPA).

Here’s a snapshot of the updated GFE:

• The new GFE provides clarity about locked terms. If the buyer is locked, the expiration date is specified. If they aren’t locked, they know it and know when they must lock by in order to obtain the rate disclosed on the GFE. The new GFE also provides an expiration date for the estimate and is only good if the loan funds by that date.
• The new GFE lumps all fees together regardless of who pays them so the buyer can quickly see the total costs of the transaction but will need further documentation in order to determine his/her true out-of-pocket costs.
• The loan originator is responsible for all fees that are not disclosed; even if they underestimate the fees, your buyers don’t take the brunt of that mistake. As a result, mortgage advisors will naturally include on the estimate any possible fees that could be incurred so as to avoid underestimating and paying those costs themselves.

Under these new guidelines, the numbers from the GFE that the buyer was provided are compared with the final numbers on the HUD-1. If these numbers do not match up, or stay within the variance allotted by law, the lender is held personally accountable for the difference in cost.

While the new form was created to offer more clarity to buyers, there are still some instances where there can be some confusion.

For example, let’s assume a lender includes a $450 fee for the appraisal on the GFE form. Once the appraisal is reviewed by an underwriter, the underwriter may call for an appraisal desk review which carries an additional cost of $200. If this unanticipated $200 charge was not disclosed on the GFE form, the lender is required to pay this cost. As you can imagine, this can become quite costly for a Mortgage Advisor.

One way around this personal expense for the Mortgage Advisor is to include a $200.00 line item on the GFE for an appraisal review. And, if it turns out that an appraisal review is not required the borrower will not pay that cost (the new regulations allow the HUD-1 to be less than the GFE, but not more). However, a different lender that the buyer is considering may not include an appraisal review line item in their initial GFE. As a result, the Mortgage Advisor may appear to be $200.00 more expensive than the other lender.

When in doubt, encourage your buyers to talk to their lenders to ensure they understand the listed fees and any variances among lenders.

Here are a few more considerations associated with this regulation change:

• Your more experienced buyers may be expecting to receive a GFE when they get pre-approved for a loan. Due to the many variances in costs associated with a loan, we will not issue a GFE until buyers are in contract. We will be able to provide them estimates of the costs and fees of their expected loan amount, but it will not be in the form of a GFE.
• In the few instances where there are changes to rates or fees (e.g., if not locked when original GFE was provided or the borrower requests changes – in writing) the lender is authorized to change the settlement variables from the original GFE if the client signs the “Change of Circumstance Affidavit” at least 3 days before the loan closes. In these cases, the updated GFE must be provided to the buyer within three days after receiving the information or request. The basis for the revision must be documented and retained for at least three years after settlement. NOTE: The GFE cannot be updated to adjust fees that are not relevant to the changed circumstance.
• Due to these regulatory changes, we require a firm estimate of final title and escrow costs (doc prep, wire fee, endorsements, copying, etc. . . ) within 24 hours of opening escrow. The final HUD-1 title and escrow fees must not exceed the estimate that the lender provided to the buyer in the GFE. If they do, the lender must personally pay for that difference.

Hey Gary!  Hey Robert!

I‘ve heard the people in Sunnyvale, Ca are generally happy….true?

You bet!  It’s another reason to look at Sunnyvale as a good place to live!

According to the Gallup-Healthways Well Being Index, which surveyed and ranked the happiness of people in 435 congressional districts across the country, Sunnyvale is at the top of the list!

Even in a recession, people here ranked high in physical and emotional health, work quality and access to services. There are good schools, great jobs and fantastic weather. Although the 14th congressional district, which includes Sunnyvale, Mountain View and Palo Alto, received the No. 1 ranking, the City of Sunnyvale was quick to claim the title. And, it has already been named the most well-run city in America.

Next month the Federal National Mortgage Association (FNMA), commonly known as Fannie Mae, will be making some critical changes to their automated Desktop Underwriting system (DU). These changes may impact buyers who could be approved today but will have challenges being approved for financing once these changes take effect.

Here are some of the changes that will take place as of December 12, 2009:

• Fannie Mae will no longer approve ratios exceeding 45%, unless the borrower has very strong assets and exceptional credit scores. They will not approve a debt to income ratio over 50%.
• A minimum credit score of 620 will be required.
• A minimum of 2 months reserves will be required on owner occupied purchases.
• A minimum of 6 months reserves will be required on investment purchases.
• Borrowers using stocks, bonds, or mutual funds as assets for reserves will be able to include up to 70% of their current value.
• Retirement funds will only be counted at 60% of value.
• Credit reports will have to be less than 90 days old on an existing home purchase. This will be important for anyone with an extended escrow, such as a lengthy short-sale purchase.

Conforming loan limits for high-cost areas of the United States will remain at $729,750 through the end of 2010
following action in the House and Senate this week to extend the ability of Fannie Mae, Freddie Mac and the
Federal Housing Administration to make and purchase those bigger loans.

The higher limits were set to expire Dec. 31. The extension removes some year-end uncertainty for mortgage
companies, which had already been preparing for lower limits. Without the new law, the high-cost loan limit
would have fallen back to $625,500.

“Given the lack of a private secondary mortgage market, FHA, Fannie Mae and Freddie Mac are pretty much the
only game in town,” said Robert Story Jr., chairman of the Mortgage Bankers Association. “Extending the
current loan limits through 2010 will allow more loans to qualify for these important programs and will
help keep mortgage credit more accessible and affordable for qualified borrowers.”

“As we try to maintain the momentum of the housing recovery, providing affordable financing for qualified
borrowers is critical. Extending the loan limits, along with other initiatives such as extending and
expanding the home-buyer tax credit, will help restore stability to the housing and mortgage markets,” he said.

By Gino Blefari
President and CEO, Intero Real Estate Services

Today I want to share something that we do here at Intero that I am especially proud of.

I’m talking about the Intero Foundation.

Let me explain.

When we founded Intero just seven years ago, we set out to create a company that was different. That difference would be based on our values. One of those values is commitment – defined as; a pledge to do something, a state of being bound intellectually to a course of action.

As Realtors we earn our living by serving our community. So it was fundamental when creating Intero to figure out a way to give back to the community. We express this commitment now through the Intero Foundation.

To date, the Intero Foundation has donated $1,367,365 to local charities. These organizations range in size and mission, but all work to positively impact the growth and well being of children by enhancing their education and personal development.

Just last week, we announced our most recent list of beneficiaries, we were able to give out over $100,000 in one week divided amongst these organizations which work to make our children – and our communities — stronger: Dream Power Horsemanship, Rape Trauma Services, Family Connections, My New Red Shoes, Jacob’s Heart, Bill Wilson Center (SSJFY), Small Steps Foundation, Community Solutions, and the Learning & Loving Education Center.

To give you an idea of all the non-profits we’ve been able to contribute to since the foundation’s existence – here is our long list:

A Brighter Today Foundation, Alum Rock CounselingCenter, Assistance League of San Jose, Assistance League of Saratoga, Barrett Elementary School, Barrett HomeSchool & Community Club, Bay Area Alliance for Youth Family Svcs, Bay Area Crisis Nursery, Bill Wilson Center (SSJFY), Buena Vista Auxiliary, Buenas Vidas Youth Ranch, Burnett Elementary School, Burton Elementary School, CampHope, CampTaylor, Carlmont Motivational Center, Children’s Hospital Branches, Community School of Arts, Community Solutions, Concord Youth Center, Cross Cultural Community Service Center, Cupertino Community Services, Dan Herbert CampHope, Diablo Valley Assistance League, Discovery Counseling Center, Discovery Counseling Center SCIP Program, Downs Syndrome Connection, Estrella Family Services, Family Connections, Family Giving Tree, Franklin McKinley Education Foundation, Friends Together, Future Families, Future Vision Mentoring, Generations in Jazz, Hellyer Elementary, Housing Industry Foundation, Interfaith Council of Contra Costa County, JW House, Learning for Life, Let Them Hear Foundation, Lincoln High School, Los Paseos Elementary School, Montalvo Arts Center, NAMI Contra Costa, National Alliance of the Mentally Ill, One Step Closer, Open Heart Kitchen, Organization of Special Needs Families, PACE, Partners for New Generations, Project Help, Quilt Museum, Rape Trauma Center, Rebekah Children’s Services, Role Model Program, San Francisco 49ers Academy, San Jose Education Foundation, Schmahl Science Workshop, Shelter Inc. of Contra Costa County, Silicon Valley Education Fund, Silvar-Charitable Foundation Trust, Small Steps, Social Advocates for Youth, Special Olympics, St. Rose Hospital Foundation, St. Joseph Family Center, Starting Point Arts, Super Stars Literacy Program, The Salvation Army, The Wellness Community, The Wish Book, Upward Bound Youth, US Relief for Unicef, Via Services, Westwind Riding Institute.

Each of us at Intero is proud to support these organizations.

And proud that we have 100% participation from each of our Realtor’s.  This means that a portion of EVERY PAYCHECK earned by an Intero agent goes to the Intero Foundation!

So why does this matter to you? Well, there is an obvious connection: We are helping to make the place you call home (or are hoping to call home) better. And that matters.

But we are also expressing something about ourselves that might interest you: That we are a big organization, but not too big to remember that we are part of something still larger; that we take seriously our role as an organization rooted in a place; that we believe we must give in order to receive.

If you share these beliefs, if it matters to you what your real estate company does in the wider world, then we have created something for all of us.

The federal government is providing a first-time home buyer credit of up to $8,000 for qualified
purchasers of a principal residence in 2009. However, that program is scheduled to end as of
December 1, 2009. Although other incentive programs, such as the “cash for clunkers” giveaway,
were extended beyond the originally scheduled termination date, there is no indication that the
first-time home buyer credit will be extended beyond its originally scheduled termination date.
To qualify for the credit, the first-time home buyer must close escrow on or before November 30,
2009 and meet other eligibility requirements (see below).

Unfortunately, many factors can delay the close of escrow. Such factors include, but are not
limited to: the buyer’s ability to secure financing; the seller’s ability to resolve any and all
outstanding financial obligations affecting the property; and the condition of the property.
Mortgage professionals have no control over any or all of these potential timing problems and thus
are not able to guarantee the precise date that escrow will close.

—————————————————————————————————————————

2009 First-Time Home Buyer Tax Credit Facts

Who is Eligible
• The $8,000 tax credit is available for first-time home buyers only.
• The law defines “first-time home buyer” as a buyer who has not owned a principal
residence during the three (3) year period prior to the purchase.
• All U.S. citizens who file taxes are eligible to participate in the program.

Payback Provisions
• The tax credit is a true credit. It does not have to be repaid.
• The only repayment requirement is if the homeowner sold the home within three (3) years
after the purchase.

Income Limits
• Home buyers who file as single or head-of-household taxpayers can claim the full $8,000
credit if their modified adjusted gross income (MAGI) is less than $75,000.
• For married couples filing a joint return, the income limit doubles to $150,000.
• Single or head-of-household taxpayers who earn between $75,000 and $95,000 are eligible to
receive a partial first-time home buyer tax credit.
• Married couples who earn between $150,000 and $170,000 are eligible to receive a partial
first-time home buyer tax credit.
• The credit is not available for single taxpayers whose MAGI is greater than $95,000 and
married couples with a MAGI that exceeds $170,000.

Effective Dates for the Tax Credit
· First-time home buyers can receive an $8,000 tax credit for the purchase of any home on or
after January 1, 2009 and before December 1, 2009. To qualify, you must actually close on
the sale of the home during this period.

Tax Credit is Refundable
• A refundable credit means that if you pay less than $8,000 in federal income taxes, then the
government will write you a check for the difference.
• For example, if you owe $5,000 in federal income taxes, you would pay nothing to the IRS
and receive a $3,000 payment from the government.
• If you are due to receive a $1,000 tax refund from the government, your refund would grow
to $9,000 ($1,000 plus $8,000 from the home buyer tax credit).
· Buyers can take the tax credit on their 2008 or 2009 income tax return.

Types of Homes that Qualify for the Tax Credit
• All homes, whether single-family, townhomes, or condominium apartments will qualify,
provided that the home will be used as a principal residence and the buyer has not owned a
principal residence in the prior three years. This also includes newly-constructed homes.
For more details on the tax credit, go to www.federalhousingtaxcredit.com

Don’t you guys work for RE/MAX anymore?

Not anymore!  We were with RE/MAX for 14 years, and it was a great company at which to work.  However, we felt other companies were doing a better job of keeping up with the changes in technology, and believed both our clients and ourselves deserved to take advantage of those changes.

Over the years, we have been heavily recruited by almost every real estate company in the valley.  While interviewing around, we really saw how our excellent reputation makes us very desirable to real estate companies.

We finally decided that INTERO Real Estate Services gave us the best opportunity to provide the type of service we know our clients deserve.  Intero was started by four friends of Gary’s, who collectively have been in the real estate business here in the Silicon Valley for over 100 years!  They started the company only six years ago, but are already industry leaders, with #1 market share in Santa Clara County.

Our new address is :

INTERO Real Estate Services

10275 N. De Anza Blvd., Cupertino, Ca.  95014

**We are only about ½ mile away from our previous location with RE/MAX.  Our contact info is:

Direct line    408-342-3131
Email             Gary@GaryandRobert.com   &   Robert@GaryandRobert.com

For anyone seriously considering buying, that really is the question. The concern is whether or not they’ll be overpaying if they purchase today. The answer is to use your common sense and go with the voice of reason: If you plan on moving again in a year or two, or even less, then no, this isn’t the time to buy. But if you intend to live in your new home for three to five years or more, then it’s certainly a great time to buy. Owning real estate is one of the best investments — over time — that anyone can make. Where else can you purchase a major asset, live in that asset, have it appreciate over time, AND write off many of the costs of owning that asset? As long as you buy smart, you can always make your investment work for you.