Speed of Subprime Bust Surprising Lenders

The subprime mortgage meltdown has been a shock to industry insiders, but now they say it's hitting harder and faster than expected - even to those who predicted the crisis in the first place.  Many would-be homebuyers are now finding they can no longer qualify for a mortgae due to stricter standards.

Speaking recently at a Mortgage Bankers Assoication Market Conference, David Lowman, a panelist and chief executive of JPMorgan Chase & Co.'s global mortgage business said, "Anything that smacks of no-income and no-documentation is history…Anything above 85 percent to 90 percent loan-to-value, anything non-owner occupied, anything ludicrous as to value - like someone stepping up from a $1,000 a month payment to a $6,000 a month - is history."

Investors who buy and sell bonds backed by the mortgage payments of ordinary homeowners have seen bad loans rise and have told lenders and brokers they will no longer buy whole classes of securitized mortgages, which can quickly pull the plug on a prospective home buyer.

All the fudging, the lax underwriting, the push for loans that went on during the housing boom were facilitated by the rapid rise of home prices. Outsized increases in home equity in many U.S. housing markets covered a multitude of sins and encouraged lenders to extend loans to poor risk borrowers.  That day has come and gone, but according to several analysts at the MBA, despite their surprise at the speed and depth of the subprime meltdown, many expect a quicker recovery than all the gloom and doom that is being broadcast everywhere.

The group cites a strong economy, low unemployment, and favorable demographic growth for their optimistic stance, that recovery will soon come.

Housing Starts Up, Permits Down

U.S. home construction unexpectedly rose in April but permits for future building sank to the lowest pace in nearly a decade according to a government report, pointing to extended troubles in the housing market.

The Commerce Department said housing starts hit a seasonally adjusted annual pace of 1.528 million units, a 2.5 percent increase from the prior month.  However, building permits, which signal future construction plans, dropped in April by 8.9 percent to a pace of 1.429 million units.

Even though housing starts increased in April to the highest pace since December 2006, they were down 16 percent from a year ago and, in a sign the troubled housing market may not be turning the corner as quickly as hoped, building permits were off 28.1 percent from a year ago.

All of this news about how bad the housing market is can actually make it a GREAT time to think about buying a home.  Builders are making more deals than ever to move homes, and it could be the best time in many years to get a great deal on a house.

Contact us to schedule a time to help you decide if now is the right time for you to think about buying real estate.

St. Louis Schools Ranked Among the Best

Newsweek magazine included eight St. Louis-area high schools in its annual ranking of the nation's best public high schools.  

The rankings are based on the number of students in advanced placement classes and the number of Baccalaureate or Cambridge tests taken by students at the school, divided by the number of graduating seniors.

In all, 10 Missouri and 33 Illinois schools made the list. None of the Illinois schools were in the St. Louis area.

See the list of schools ranked in the St. Louis area…

Housing Weighs on Growth Forecast

Troubles in the U.S. housing market will weigh on economic growth this year even more than earlier estimated.   According to a forecast of economists released recently, real gross domestic product, the government's broadest measure of economic output, is expected to advance 2.3 percent in 2007.  That is down from an earlier estimate in February for 2.8 percent growth.

However, growth in 2008 is expected to pick up to 3.1 percent after the housing market bottoms out.

The survey of 48 economists taken between April 19 and May 8, found that housing market troubles, particularly those in the risky subprime mortgage lending market, will drag out through this year.  Almost half of those surveyed expect the bottom in housing will not be reached until the fourth quarter.

All of this bad news about housing and how bad the real estate market is right now equates to there being no better time than now to find the best value for your money when shopping for a home.  Savvy investors have always known to "buy when the market is down".. that's when the best return on the investment is usually realized.  To find out whether now is the best time for you to own a home, give us a call.  There is no obligation for us to talk with you about your options.

Delinquent Borrowers May Get a Tax Surprise

For homeowners seriously delinquent on their mortgages and hoping for some relief, the IRS has bad news: If your lender agrees to modify your loan and forgive any part of your debt, you could owe federal income taxes on the amount forgiven.

When personal debts are canceled by a creditor, the amount forgiven is treated as ordinary income under the Internal Revenue Code unless the taxpayer is insolvent or bankrupt. And the lender is required by law to report the amount canceled to the IRS.

This is especially bad news for the growing numbers of credit-impaired sub-prime borrowers who find themselves "upside down" in the current market: They owe more on their mortgages than the value of their houses, thanks to noxious combinations of zero down payments, declining property values and hefty payment increases they can't afford.

Proposed new, bipartisan legislation on Capitol Hill could soften some of the effects on financially stressed homeowners, however. The Mortgage Cancellation Tax Relief Act of 2007 (HR 1876) would amend the tax code to exempt debt forgiveness on principal home mortgages from being treated as income.  The legislation potentially could assist many other homeowners in financial trouble who negotiate pre-foreclosure "short sales" or deeds in lieu of foreclosure, or whose foreclosure proceeds are insufficient to pay off their mortgage debt.

We'd love to hear any comments you'd like to leave on this proposed new legislation.  Just click the Comment link below.