Mortgage Insights Blog

Santa Clara County saw big declines in home foreclosures last month as a new state law took effect and banks tried to work out terms for borrowers struggling with mortgage payments.

The county posted a 55 percent drop in September in notices of default, the first step in the foreclosure process. Foreclosure sales in the county were down 24 percent — double the statewide drop. That still represents a more than threefold increase from September 2007.

The drop appears to be partly caused by a state law that went into effect in September. SB 1137 requires lenders to make a series of attempts to contact homeowners and then wait 30 days before filing a foreclosure notice. It also encourages lenders to work out new terms with the borrowers to keep them in their homes, which banks have already begun doing.

The Federal Deposit Insurance Corp. is aggressively modifying the subprime loans of Pasadena-based IndyMac, which it took over in July. HopeNow, a joint effort by lenders, also has begun helping distressed mortgage holders work out better loan terms. And Bank of America last week announced an $8.4 billion program to modify subprime mortgages issued by Countrywide Home Loans, which it took over in July. Of that, $3.5 billion will be spent modifying the loans of 125,000 California borrowers.

"I think every loan servicer is under immense pressure now to be more aggressive in their modifications,'' said Dustin Hobbs, spokesman for the California Mortgage Bankers Association.

With the law in place, notices of default dropped 61.8 percent statewide, according to Foreclosure Radar.

The figures for September resume the three-month decline of May, June and July in Santa Clara County in foreclosure activity. That was interrupted in August as lenders scrambled to file as many default notices as possible before the new law took effect.

Once lenders adjust to the law, default notices could rise again, though not quite to previous levels, according to Sean O'Toole, head of Foreclosure Radar.

Article by Pete Carey, Mercury News (Article Launched: 10/13/2008 05:28:14 PM PDT)

Without writing a dissertation on this subject I’ll try to provide a general understanding - first, the word “subprime” when referring to Fannie Mae and Freddie Mac is a misnomer— by definition, if Fannie and Freddie don’t purchase a loan it is considered to be a “non-conforming” loan. In the mortgage industry, true subprime loans refer to a certain category of non-conforming loans in which borrowers with really low credit scores were given loans with very aggressive terms (2 & 3 year fixed rates that flipped to very high adjustable rates).

So if Fannie and Freddie didn’t actually make any of these “subprime” loans, then how come they are in so much trouble? As the credit markets loosened, post September 11^th, there was both a lack of oversight and a political push for Fannie and Freddie to make more aggressive loans to low income and underserved neighborhoods. They also started allowing 100% financing to well qualified borrowers, loosened their stated income programs, and even instated “automatic underwriting systems” that offered borrowers the ability to waive their income documentation.

In addition, when the credit crisis first started—Fannie and Freddie tried to help the markets by purchasing, in the secondary markets, more of these “non-conforming” loans from financial institutions around the country in an attempt to stimulate more lending. They were not changing their guidelines by directly offering “subprime” loans but rather gambled in the secondary market by purchasing blocks of mortgages that were not selling on Wall Street.

Finally, come 2007 and 2008, as the Real Estate market dipped, the credit crisis spread to the conforming world where a lot of perfectly good loans became delinquent. Borrowers either found themselves upside-down in home equity or their short-term fixed rate mortgages had flipped to their adjustable rate periods at a time when the rates governing their payments were critically high. When home prices go down and it affects everyone, and with little to no equity in their homes and lack of financing available, borrowers turned to loan modifications, short sales or even foreclosure.

When you take all these factors into consideration, there was plenty of effect on Fannie and Freddie.

Halloween... the children’s night for Trick or Treat. It’s up to us grownups to be aware and be informed so children can have a safe and enjoyable Halloween. Supervise your children's evening and stay in neighborhoods that are well lit and familiar.

GENERAL SAFETY

• Trick or treat with friends or with adult supervision – don’t go alone
• Set a time limit for your children to” trick-o-treat”
• NEVER enter the house or car of a stranger
• Do not take short cuts through alley ways, back yards or unlit parks
• Carry a cell phone or a few quarters for a pay phone so you can call home if you need to

RISKY ROADWAYS

• Children become careless from excitement and may run into the road.
• Dusk is the time of poorest visibility for drivers. Try to trick or treat while it is still daylight.
• Choose a costume that is easy to walk in, easy to see out of and can be seen by car drivers.
• If the trick or treating lasts into the night, wear a light colored costume.
• Use reflective tape on the costume for additional visibility.
• Report any suspicious or criminal activity to your local police department immediately

DANGEROUS DRESS

• Loose costumes, oversized bags or unsafe shoes can cause falls or accidents.
• Sharp or pointed toy weapons are unsafe.
• If wearing a mask, choose one that is cool, comfortable and easy to see out of.
• Take off the mask before crossing the street. Better yet, choose make-up instead of a mask.

FRIGHTFUL FLAMES

• Billowing Costumes are dangerous around an open flame.
• Flowing wigs are unsafe around candles.
• Wigs and costumes should be made of non–flammable materials.
• Use a flashlight. It makes children more visible and lights their way.

TREACHEROUS TREATS

• Treats must be checked for potential poisoning or unsafe objects.
• All fruit should be washed and cut into small pieces to make sure nothing is inside.
• Unpackaged items such as popcorn or small candies should be DISCARDED.
• Candy with loose or torn wrapping should also be DISCARDED.
• Feed the kids before they go out so they will be less likely to eat treats before they get home and warn them not to eat anything until you can inspect it
• If you discover anything wrong with a treat brought home, report it to local law enforcement so that other parents may be warned and the responsible party caught.

Always use common sense, caution and adult supervision to make this Halloween an exciting and fun filled event. Your children will remember their experiences trick or treating for years to come, make them great memories and stay safe.

Inheriting real estate can be one of the most painful ways to acquire property. You've lost a loved one and now you have to settle their estate. Unless you're the surviving spouse – in which case legal transfer of the property to you should occur relatively quickly and seamlessly and without tax penalties – receiving an inheritance can be a long and complicated process. It could take several weeks for the executor of the estate and the courts to divvy up the deceased's assets and property, including the home.

If you plan to sell the property make sure you read on to get a general idea about what to do next as inheriting property can be exceedingly confusing for the heirs.

Transferring the property. Getting legal advice should be your first step. Depending on where you live, the legal process will vary, but all states allow those who inherited property to have the property transferred from the previous owner's name to theirs. Sometimes a lawyer will be needed for this process and other times the clerk of courts office can guide you through the process. Since the property isn't being sold to those inheriting it, it's unlikely that there would be any transfer tax.

Transference of real-estate property can become exceedingly sticky when more than one beneficiary is named. Unless the will is very clear about the percentage of ownership each beneficiary receives or includes provisions about what will happen if one beneficiary wants to sell the home while the others do not, be prepared for disputes that may arise.

Meeting of the minds. After a death, most people are upset and not always able to think clearly about what they should do with the property. Some family members may want to keep it while others may want to sell the property right away and still others may think it should be sold after some time has passed. So if there are multiple heirs to the property then this is the time to have multiple round-table discussions to come together and try to have a meeting of the minds. Allow everyone to express their opinions and ideas about what should happen with the property. Depending on how different everyone's thoughts are, this could take several attempts to reach a decision. However, it's worth the time to try to determine who might want to keep the property and who wants to sell it immediately. Finding a viable solution for all could avoid a lawsuit that forces the sale of the property.

Check the condition of the property. Go to the house and see what condition the property is in. Sometimes inherited property can be badly run down and need a tremendous amount of work before it is ready to be sold. There are cases where those who inherited the property find they have inherited a huge mess that needs immediate attention. If immediate attention isn't necessary, before you dive into fixing up the home, consult with a real estate agent to see which improvement projects might help the home sell faster. Be sure to keep good records of any and all costs for improvements; this will be important when determining if capital gains and state taxes apply.

Get financially organized. Right away it is crucial to figure out if the mortgage has been paid and if there are any liens on the property. Some lenders treat the death of a borrower as a trigger for immediate repayment of the loan, however given the current climate of the market most lenders will not immediately accelerate the note as long as they continue to receive payments. And, if there are provisions for survivorship either through a trust or deed, then the loan will remain in effect.

Your legal advisor or even real estate professional can help you conduct a title search against the property to determine any and all possible liens that may be against the property. Also, check to make sure the property taxes and homeowner's insurance are current and paid until the property is sold or transferred to its new owner occupant.

Get the property appraised. It's very critical to get an accurate appraisal so everyone understands the value of the home. This helps the inherited parties to see how much they can expect to receive after the home is sold. Once the appraisal comes in, have another meeting to determine your low-end offer that will be accepted.

Taxing situations. Inheritance tax may be imposed on the transfer of assets, including real estate. The tax rate is dependent on the relationship between the descendent and the inheritor. Estate taxes, meanwhile, are imposed on the value of the property at death. The Federal government currently has an estate tax for estates in excess of $2 million dollars.

It's easier to sell the home after death as inherited property is taxed on the value of the property the day the owner died and therefore less capital-gains tax. If you are required to pay capital-gains you will be taxed on the difference between what you net from the sale and your taxable basis (the fair market value at time of inheritance plus improvements minus depreciation). Currently, the federal capital-gains tax is 15 percent.

Contact professionals to help. Inheriting a home or other property is an incredibly complex issue with ramifications that can vary from state to state. If you're due to inherit real estate, be sure to contact professional for advice on all areas of the inheritance.

Did you know that the average loss suffered by the victim of an identity theft case was $31,356 last year? But the victims are not the only losers from identity theft, it was estimated that US businesses and financial institutions lost nearly 50 billion dollars last year to fraud and identity theft alone last year.

Avoid becoming one of the 10 million Americans who fall victim to identity theft each year. Here are some tips you can follow to help avoid falling prey to these unscrupulous criminals.

• Be sure to check your credit once a year. By law you are allowed one free credit report from each of the 3 major credit bureaus. Order yours by creating an account at www.annualcreditreport.com or call (877) 322-8228

• Add a Fraud Alert to your credit. Help avoid identity theft by adding these alerts that require the credit bureaus to notify you when new accounts are opened under your credit. You can add them at no cost and they are good for 90-days, call the bureaus directly: Equifax (800) 525-6385; Experian (888) 397-3742 and TransUnion (800) 680-7289.

• If you notice there has been a new account recently opened you can use Credit Freeze to stop credit thieves from continuing to use your credit. Credit Freeze information can be found at The California Department of Consumer Affairs website including costs charged by each of the bureaus. Go to: www.oispp.ca.gov/consumer_privacy/consumer/documents/pdf/cis10securityfreeze.pdf.

• Another way to protect yourself from identity theft is to review your Social Security Earnings and Benefits statement annually. Review these statements carefully once a year. This is a great way to spot whether or not someone else has been using your social security number, usually by an undocumented foreign national or illegal alien. To order a free copy of your latest statement call (800) 772-1213

• Stop the influx of junk mail and remove yourselves from unwanted solicitation lists. One of the easiest ways for a criminal to gain your personal information is to get it form your discarded junk mail, especially all those credit card offers. To remove yourselves from “trigger lists” and other “firm-offer” lists, go to www.optoutprescreen.com or call (888) 567-8688. You can elect to remove your information for 5 years or indefinitely. This is probably on of the most powerful ways to protect your identity!

• Stop unwanted catalogs and other junk mail. The typical adult will receive up to 41 pounds of junk mail annually. Help reduce your chances of suffering form identify theft by limiting the amount of junk mail you receive and help keep the planet green by reducing the consumption of materials used to produce junk mail. To remove yourself from some catalog and junk mail lists go to www.dma-consumers.org/cgi/offmailing and www.41pounds.org. Junk mail produces more CO2 than 2.8 million cars!

• Give yourself some peace in the evening by adding yourself to the “Do Not Call” registry. Register your phone numbers at https://www.donotcall.gov or by calling (888) 382-1222

In the unfortunate event that you discover that you have fallen prey to identity theft then use the following resources to report the incidents.

When reporting ID theft or Credit fraud, immediately contact the three major credit bureaus by calling Experian (800) 525-6285, Equifax (800) 301-7195, and TransUnion (800) 680-7289. Immediately contact the Social Security Administration fraud line at (800) 269-0271 and the Federal Trade Commission ID Theft Hotline at (877) 438-4338.

Report ID Theft to your local police department and keep copies of the report for creditors. Many times, credit card companies will not even speak with you regarding fraudulent purchases or charges until you have filed a police report and can provide them with a police report number.

Access the FTC’s new website for additional guidelines and tips to follow for victims of identity theft: http://www.consumer.gov/idtheft/recovering_idt.html

The Federal Deposit Insurance Corporation (“FDIC”) is an independent agency of the federal government that protects against the loss of FDIC-insured deposits. The FDIC insures banks chartered by the United States government and most state banks. FDIC-insured banks are required to display an official FDIC sign where deposits are received. The FDIC’s website also has information to help consumers find out whether a specific bank or savings association is FDIC-insured.

What accounts does the FDIC protect and for how much?

The FDIC insurance protects deposits at an insured bank, up to the limit. Historically, the limit was $100,000, but Congress has temporarily increased the limit to $250,000. The $250,000 limit will expire on December 31, 2009, unless Congress enacts new legislation.

The insurance covers accounts with deposits like checking, savings, IRAs, money market deposit accounts, and certificates of deposits. The insurance does not cover investments like stocks, bonds, mutual funds, life insurance, or annuities. The insurance also does not apply to credit unions, although there is a separate federal insurance program for credit unions.

The insurance limits apply to all protected accounts within a single institution. All of an individual’s eligible accounts are added together and are only covered up to the limit. So, if you have three eligible accounts within the same bank containing $100,000 each, currently $50,000 would not be protected by the insurance. A "bank" includes all of the bank’s subsidiaries and branches for the purposes of determining the aggregate limit for an individual.

How do the limits work when personal and business accounts are held by the same bank?

As stated above, all of an individual’s personal accounts are aggregated to determine the limit for an individual. If an individual also operates a business that maintains accounts at the bank, the business accounts will be separately insured up to the applicable limit, so long as the business is a separate and distinct legal entity. So, if the business is a separate legal entity like a corporation or partnership, then the accounts will be insured separately from an individual’s account and subject to their own limit. In addition, subsidiaries of the business that are separate and distinct entities will also have separate deposit insurance for their bank accounts. Unincorporated associations that are a distinct legal entity will also have separate deposit insurance limits. However, an individual who maintains personal accounts as well as accounts for an unincorporated sole proprietorship at the same bank will have both his/her individual accounts and business accounts combined to determine the FDIC insurance coverage limit.

It is important to note that businesses and corporations will still have their accounts aggregated in the same manner as an individual for FDIC insurance purposes. So, a homeowner’s association that maintains two accounts (one for operational expenses, the other for reserves) will have both accounts combined for FDIC insurance. It will not matter that the accounts are designated for separate purposes.

How does the insurance apply to accounts with multiple owners?

Joint accounts, or deposits owned by two or more individuals, have separate insurance limits for each co-owner’s share of the account so long as certain requirements are met. These requirements are: (1) all co-owners must be people, not artificial legal entities like a corporation; (2) all co-owners must have equal rights to withdraw deposits from the account; and (3) all co-owners must sign the deposit signature card. The FDIC will assume the co-owners shares are all equal, unless the deposit record indicates otherwise. So, if two individuals maintain a joint checking account containing $10,000, $5,000 will be separately attributed to each individual for purposes of determining the FDIC insurance limit.

For additional information you can visit the FDIC’s website at www.FDIC.gov

Since last week we have seen interest rates on the 30 year fixed mortgage rise more than 1%. You may be asking “How is this possible?” especially since the Fed’s just lowered interest rates and the Treasury is actively buying up bad mortgages.

The main reason for the sudden increase in mortgage rates is due to the increase in mortgage yields in the secondary mortgage market, or an increase to the return that purchasers of Mortgage Backed Securities (MBS) require relative to their investment.

After being originated in the primary mortgage market, most mortgages are sold into the secondary mortgage market. Unknown to many borrowers is that their mortgages usually end up as part of a package of mortgages that comprise a mortgage-backed security (MBS), asset-backed security (ABS) or collateralized debt obligation (CDO). The current MBS yield is over 2.11% higher than (yield spread) the 10 year Treasury bond – meaning that buyers of MBS require a much higher return on their investment when compared to investors of Treasury bonds.

Also, the MBS coupon is now trading at 6.20% which is higher than it was this summer when the government felt it necessary to put Fannie Mae (FNMA) and Freddie Mac (FHLMC) in conservatorship. Interest payments to investors of MBS are determined by the coupon rate, which tends to be about 50 basis points above the mortgage rate on the underlying mortgage loans, with this difference diverted to cover the costs of servicing the mortgages and insuring against default.

This recent increase in mortgage yields and thus mortgage rates is clearly in direct conflict with the Government’s goal of supporting housing and reason would suggest they cannot allow it to continue. Here are a few of the drivers:

• The freeze of short-term credit markets means that the cost to finance MBS positions is increasing. Dealers and investors relying on Libor-index-based funding are struggling to maintain access to funding and/or are seeing the cost increase. They rely on borrowing funds at a lower rate to purchase securities that offer them a larger return – but lately the cost to borrow these funds has unexpectedly increased making it difficult to profit on MBS unless they receive a higher return. These costs must then be recouped by investors in the form of higher yields and lower prices, which is then passed through to borrowers in the primary mortgage market in the form of higher interest rates – less demand means lower prices and higher yields.
• Fewer dealers and investors in MBS markets mean liquidity is tightening and any move in mortgage rates will likely be exacerbated. MBS dealers are very jittery as MBS flows are increasingly dominated by very large players (MSR servicers, big funds, etc. who purchase large amounts of MBS at a time) and unpredictable changes in government policies. Mortgage servicing rights (MSR) trade in the secondary market much like mortgage-backed securities. Large mortgage servicing companies purchase and sell the right, or rights, to service an existing mortgage. Common rights included are the right to collect mortgage payments monthly, set aside taxes and insurance premiums in escrow, and forward interest and principle to the mortgage lender.
• With increased risk investors require higher quality for their investments. All longer-term yields, even Treasury yields, are moving higher as the flight to quality doesn’t just mean Treasuries, it means very short-term Treasuries. Longer-term Treasury yields (2 year, 5 year, 10 year) are moving higher while very short-term yields are approaching zero. As these rates move higher, mortgage servicing companies must sell off their MBS thus reinforcing the trend lower in prices, higher in yields.
• As market volatility in general increases, the embedded call option in a mortgage backed security becomes more valuable and MBS yields must increase to cover it. Due to increasing uncertainty about how that embedded call option should be modeled given recent developments in housing, credit, and the economy investors will require wider yield spreads on MBS when compared to Treasuries. The existence of the embedded call option of a MBS comes from the ability for a borrower to return additional principal either by increased monthly payments, default or paying off the mortgage all together before the scheduled return dates. This option affects a bond's value because as the potential for pre-payment or default increase, the value of the MBS will decrease – the value of the MBS comes from the expected cash flows to be received from versus the likely hood for the MBS to be called.

What will cause this to reverse? More direct purchases of MBS by the Treasury along with time for all the other Treasury/Fed actions to repair credit markets and return financing costs to more reasonable levels. The Treasury has been buying, but not enough and not publicly enough.

Also to consider are how today’s rates compare historically - At the beginning of the 1990s, primary conventional mortgage rates were slightly over 10%. Mortgage rates trended down to slightly below 7% in late 1993, were back up to above 9% by the end of 1994 and have bounced up and down in roughly the 7% to 8-1/2% range during the latter half of the 1990s. Rates are currently in the mid to high 6% range, so historically speaking, rates are still very good.

RISMEDIA, August 19, 2008-(MCT)-Faced with a real estate market that has tightened up lending standards at a time when home values are dropping, more people are borrowing money from their 401(k) retirement plans to help swing a down payment to buy a home.

But before you think that borrowing from your employer-sponsored 401(k) retirement plan (or a 403(b) if you work for a school or nonprofit) is the ticket to buying a home, this strategy has both pros and cons.

On the plus side, the loan principal, along with the interest on the loan is paid back to you and is lower (currently in the 6.5% range) than what a bank typically charges. Also, there is no credit check required since you are lending yourself the money On the negative side, taking out a loan could significantly reduce the retirement account’s long-term growth and earning potential, especially if you stop making contributions while paying off the loan. (That is if you can. Not all plans allow you to make contributions while your loan is active). There is also a tax hit if the loan is not repaid.

Whether you can actually borrow from a 401(k) is up to the plan sponsor, which is your employer. About half of the plans sponsored by the nation’s employers (which collectively reach about 85% of the nation’s 47.2 million 401(k) account holders) allow loans, according to industry statistics. Borrowing is typically capped at $50,000, or up to half of the vested amount, but requires a minimum loan amount of $10,000.

But just ask a financial consultant, like Jim Titus, a vice president in the San Francisco headquarters of financial services firm Charles Schwab & Co, and you might get a very negative response, “number one is the opportunity costs of borrowing - you end up losing the (tax-deferred growth potential) when you take the money out of your 401(k) and the interest you pay back (on the loan) is unlikely to earn as much of a return as your 401(k) investment.”

That said, there are reasons to consider borrowing from a retirement plan to take advantage of the steep drop in home prices in the wake of the mortgage meltdown sparked by the sub-prime loan crisis that began last year. The meltdown has also made lenders reluctant to provide no-money down loans or piggyback lending, which amounts to two mortgages packaged together to finance a home purchase.

“There are some clear risks of using a 401(k) as a funding source for a down payment on a house. You have to assess those risks and weigh them against the particular economic opportunity you have to buy a home. Under normal circumstances, I think borrowing from a

401(k) to purchase a home is ill-advised. But because of what’s going on in the real estate market, special and exceptional opportunities do arise,” he said. “There are some tremendous values… Right now, real estate in a depressed market, I think it’s a great investment.”

But, while a 401(k) loan can indeed help provide the down payment on a home, keep in mind that lenders typically treat the money as a form of debt. That could have an impact on your qualifying “debt-to-income ratio” (a ratio that analyzes your income versus your debt obligations) for the size of the home loan for which you can qualify. The flip side is that using 401(k) money for a down payment could provide the needed equity to avoid paying mortgage insurance which can also help offset any debt obligations incurred from borrowing from your 401(k). And mortgage insurance is not always tax deductible.

Retirement fund loans have to be repaid within five years. But there is no set time frame for paying back the loans if they are used to make a down payment on a primary home. The loans are not subject to ordinary income taxes associated with withdrawals as long as the full amount is repaid. If the loan is not repaid, it is a treated as a distribution subject to ordinary income taxes. A 10% early withdrawal also applies if the account holder is under 59 ½ years.

Given that the stock market has been sliding in recent months, it might be tempting that the interest rate you would pay to yourself on a 401(k) loan could provide a better return than the retirement fund is currently earning. But although in the short term, the interest may currently be outperforming the stock market, it is very unlikely that the interest is going to outperform the stock market in the long-term over the length of the 401(k) investment.

The loan is also being repaid with post-tax dollars, not the pre-tax dollars used to fund the retirement fund. So if you are in the 28% tax bracket, you are actually paying back $1,280 for every $1,000 borrowed on top of the loan interest, he said. Also, the interest paid on the loan is not tax-deductible.

There are other things to be aware of if you are considering taking out a loan. If an employee ends up losing his or her job, most loans have to be paid back within 60 to 90 days. If the loan is not repaid by that time, then the unpaid loan balance is treated as a distribution subject to income taxes and a possible early withdrawal penalty.

Also, check your 401(k) plan as it may not be possible to make contributions while the loan is active. And even in cases where they do, it may be difficult to make both a loan payment and contribution. Additionally, by not making contributions while the loan is active, you also stand to lose out on the potential for employer contributions.

Wondering how taking out a 401(k) loan could impact your retirement nest egg? Find out the answer by visiting an online calculator at c.standardandpoors.com/calculators. Choose the “Borrowing From a 401(k) Calculator” link.

RISMEDIA, Oct. 7, 2008-This week, Bank of America announced the creation of a proactive home retention program that will systematically modify troubled mortgages with up to $8.4 billion in interest rate and principal reductions for nearly 400,000 Countrywide Financial Corporation customers nationwide.

According to the company, the program was developed together with state Attorneys General and is designed to achieve affordable and sustainable mortgage payments for borrowers who financed their homes with subprime loans or pay option adjustable rate mortgages serviced by Countrywide and originated prior to December 31, 2007. Bank of America acquired Countrywide July 1, 2008.

Countrywide mortgage servicing personnel will be equipped to serve eligible borrowers with new program elements by December 1, 2008 and will then begin proactive outreach to eligible customers. Foreclosure sales will not be initiated or advanced for borrowers likely to qualify until Countrywide has made an affirmative decision on the borrower’s eligibility.

The centerpiece of the program is a proactive loan modification process to provide relief to eligible borrowers who are seriously delinquent or are likely to become seriously delinquent as a result of loan features, such as rate resets or payment recasts.

Various options will be considered for eligible customers to ensure modifications are affordable and sustainable. First-year payments of principal, interest, taxes and insurance will be targeted to equate to 34% of the borrower’s income. Modified loans feature limited step-rate interest rate adjustments to ensure annual principal and interest payments increase at levels with minimal risk of payment shock and re-default.

The program applies to eligible mortgage loan customers serviced by Countrywide and who occupy the home as their primary residence. Under the national program, Countrywide will not charge eligible borrowers loan modification fees, and Countrywide will waive prepayment penalties for subprime and pay option ARM loans that it or its affiliates own. Some loan modifications will be subject to compliance with servicing contracts and some will require investor approval.

I know that every time I pass by a fuel station lately I cringe at the thought of having to fill up. So I decided to do a little research and find out exactly why I’m currently spending almost $4.00 per gallon at the pump. Here is what I discovered:

In the United States there are basically 5 categories of costs built into our gas prices. The gas you pump at your local station breaks down as follows:

• Taxes - 12% of the cost per gallon goes to cover Federal and state level taxes, along with fees for oil inspection, storage and environmental protection.
• Distribution & Marketing – 7% covers the cost of transportation and distribution of both the finished product, the gasoline you pump into your car’s holding tank, and the unrefined crude oil. Also passed on to the customer is a share of each oil company’s marketing expenses.
• Refining – 9% but will vary depending on the quality of crude oil that refineries process into gasoline
• Crude Oil – 71% the biggest portion goes to companies that extract crude oil from the ground
• Markup – 1% or less, service stations typically add on a few cents per gallon, though some ad more. Markup laws in some states actually bar stations from charging less than a certain percentage. These laws are enforced to protect individually owned gas stations from being driven out of business by larger chains.

So now that we know what we are paying for at the pump in each gallon of gasoline, what exactly causes the prices to change so often?

Since gasoline is made from crude oil, the global crude oil production, especially by OPEC (Organization of the Petroleum Exporting Countries), is the biggest factor in price of a barrel of oil. When the market tightens, supply is reduced, and prices go up.

Since crude oil is traded globally in increments of the US dollar, as the value of the dollar falls in comparison to international currencies, oil-exporting countries can demand more dollars per barrel to meet expenses paid in other currencies.

The demand and consumption of developing countries is a growing factor. For instance, China and India, two heavily populated and rapidly developing countries account for more than 70 percent of the increase of global oil consumption this year. And China’s imports have doubled over the past 5 years alone.

The cost of transportation to carry both the crude oil from the exporting country’s to the importing country’s refineries and then to transport the final product to your local Shell station directly impacts the cost you pay at the pump. And when gas costs more for other reasons, it directly causes the cost of transporting gas to increase…think about that one.

Unforeseen events such as Natural disasters, war and political instability can interfere with oil production and demand which causes gas prices to rise. The Arab oil embargo in 1973 and 1974, the Iranian revolution in 1978, the Iran-Iraq war in the 1980’s, the Persian Gulf conflict in 1990 and 1991, and the current conflict in Iraq. Not to mention hurricane Katrina and other storms.

Ever changing Federal and State specific taxes on gas as well as competition among local gas stations contribute to the smallest variation in gasoline prices at the pump.

Keep an eye out for a new "foreclosure assistance" scheme that has surfaced in the region!

Some homeowners have been contacted by a company called United First, Inc. that claims to offer a deal to prevent their homes from going into foreclosure. We have received confirmation from the Santa Clara County District Attorney's Office that this is a scam.

According to the contract with United First, the homeowner pays an initial fee and then a monthly fee to the company, and adds United First to the homeowner's insurance policy.

The homeowner is required to retain Sherman Oaks attorney Mitchell Roth as legal counsel to file a "missing title" lawsuit, based on the claim that the foreclosing bank doesn't really own title to the home. In the unlikely events that the bank cut a deal with the homeowner or somehow the lawsuit won outright, United First would keep half or 80 percent of the profit. There are NO guarantees that this process will work.

United First is a shell company recently registered in Nevada. Its president, secretary, treasurer and director, Paul H. Noe, was convicted in 2003 of five felony counts of aiding and abetting wire fraud among other charges.

An SCCAOR member brought this issue to the attention of the Professional Standards Department, which then contacted the DA's Office.

SCCAOR stays vigilant on protecting the rights of consumers and we urge you to spread the word about this scheme among your colleagues and clients.

For information on Paul H. Noe's past conviction:
Click Here

For an article at sfweekly.com on the United First scam:
Click Here

This message brought to you by the Santa Clara County Association of Realtors.

While many Americans may be absolutely blown away by the shear size of the latest economic stimulus proposal, most understand that the package is not only justified but essential to restore the credit markets, our real estate market, and thus our economy. As the Chairman of the Federal Reserve sees it, “I welcome a comprehensive plan to stabilize our financial system and support our economy. This legislation should help to restore the flow of credit to households and businesses that is essential for economic growth and job creation, while at the same time affording strong and necessary protections for taxpayers.”

Why such a plan?

With U.S. financial institutions currently unable to raise any capital because of illiquidity of suspect or poorly performing mortgage backed assets on their books, and no way to remove these assets, which may put the institution at risk, investors have refused to invest or extend new capital to US financial institutions. The result has been a near collapse of the U.S. financial market and a spike in the cost of credit that makes it nearly impossible for even qualified people and businesses to obtain or expand a line of credit. Under these circumstances, Californians will find it very difficult to obtain home loans, student loans, and other financing for the foreseeable future.

What does the plan call for?

The Emergency Economic Stabilization Act of 2008 (EESA) will provide up to $700 billion to the Secretary of the Treasury to buy mortgages and other assets that are clogging the balance sheets of financial institutions and making it difficult for working families, small businesses, and other companies to access credit, which is vital to a strong and stable economy. EESA also establishes a program that would allow companies to insure their troubled assets.

The EESA requires will also require that the Treasury modify the terms of any troubled loans purchased wherever possible to help American families keep their homes. It also directs other federal agencies to modify loans that they own or control. Finally, it improves the HOPE for Homeowners program by expanding eligibility and increasing the tools available to the Department of Housing and Urban Development to help more families keep their homes.

Will it work?

The more important question is--will it work? This is a crisis of confidence. If loans of any kind could be sold more easily, then financial institutions are theoretically more apt to increase their lending capacity. There is no doubt that tightening by lenders is a major factor in the crisis and that they will not loosen up until they can be assured that there are takers for the loans they have on the books that are not performing.

One negative response to the proposal has been an increase in oil prices and interest rates. Why would that happen? Well if the markets feel the proposal will work and that the economy will recover and a stronger economy would produce higher oil prices and rates. Of course, if there is no increase in economic activity, there is also no reason why rates and oil prices will not just adjust back to where they were. Speculation may be interesting--but there is no way to understand what will happen even in the near future in this case.

One major point should be made: The government is not necessarily spending $700 billion. Rather they will be obtaining an asset that could increase in value, especially if the proposal contributes to a recovery in the housing and financial markets. As a matter of fact, the government could wind up in a profit situation. That would be very good with our annual deficit soaring.