According to the Tribune, county employment numbers have gradually improved over the past three months. Since July, about 2,800 jobs have been added, which is an increase of 3 percent off the bottom.  County employment peaked in 2007 at 104,600 nonfarm jobs. After October’s gains, the number of jobs ticked up to 96,700, which is still down 8.2 percent from the top. Despite the slight increase in jobs, unemployment actually increased to 9.7 percent from 9.6 percent in September.

Rates are favorable this week. We have the 30 year fixed at 3.75 percent (3.884 percent APR) and the 15 year fixed at 3.250 percent (3.489 percent APR).  FHA and VA 30-years look extremely favorable as well, at 3.5 percent (4.543 percent APR) and 3.5 percent (3.736 percent APR) respectively.

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The labor market recovery seems to be picking up speed. Weekly US claims for unemployment benefits dropped to a 9-month low last week.  Jobless claims fell to 23,000 to 381,000, down from 404,000 the week before.

Additionally, the nation’s jobless rate fell to 8.6 percent in November. In some ways, the number is misleading. Employers added 120,000 jobs, true, but the 0.4% drop in the unemployment number is also due to the 315,000 people who stopped looking for work and left the workforce.

Rates are favorable this week. 30 Year Fixed 3.750 percent (3.892 percent APR), 15 Year Fixed 3.250 percent (3.503 percent APR), 30 Year High Balance 3.750 percent (3.976 percent APR), 30 Year FHA 3.5 percent (4.600 percent APR), 30 Year VA 3.5 percent (3.764 percent APR).

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Some weeks ago, we had a post on here about the announcement of the HARP II loan program, which would modify the first HARP program and broaden the base of eligibility for home refinance.  Last week, Fannie Mae and Freddie Mac released the official guidelines for the program. What follows is a review of the HARP program and a few of the specific changes that are expected to make a difference.

In 2005, the San Luis Obispo county median home price peaked at $581,305. Six years later, the median home price has fallen to $354,842. As home prices drop, a number of homeowners have found themselves owing more than their home is worth. Nationwide, 11 million home loans are underwater.

Meanwhile, interest rates have fallen to the lowest they have ever been. This drop has been a problem for homeowners that want to refinance to lower rates. Banks look at the loan-to-value (LTV) ratio when determining loan qualification and this has left a number of homeowners unable to refinance, even though they are current on payments. 

Enter, HARP. The Federal government passed its Home Affordable Refinance Program in March 2009 to help responsible borrowers who were current on mortgage payments but could not refinance due to an underwater loan. HARP was expected to reach 5 million underwater borrowers, but only reached 894,000.

The FHA went back over the program to fix the issues, and recently made a number of changes in an attempt to address the problem. This is HARP II. 

HARP II was reformed to be more effective than HARP I because it broadens the base of eligible borrowers by eliminating the loan-to-value ceiling of 125 percent, and incentivizes lenders to accept this base by relieving underwriting stress.

One important issue to make note of... for a LTV greater than 125 percent, refinancing will not be available until March of 2012.  For more information on your status here, give us a call at 805.543.LOAN.

The major change made to help lenders was to remove the representation and warrants requirement, which is a fancy way for saying that lenders have been responsible for mistakes during underwriting. This makes lenders reluctant to take the risk of underwriting an underwater loan, because in the case of a mistake, they must take on the cost.  In theory, by removing the reps and warrants rule, lenders will be more likely to underwrite loans with a high LTV.

HARP II is designed to help responsible borrowers refinance despite an underwater loan. Following are some program guidelines.

Guidelines:

No mortgage delinquency in the past 6 months and only one in the past 12 months.

Eliminate loan-to-value ceiling. The previous maximum was 125 percent.

Must re-qualify if payment increases by more than 20 percent.

Borrower benefit requirement. Must reduce monthly payment, reduce interest rate, or reduce the loan amortization term.

Allows for refinancing for the purpose of reducing monthly principal and interest payment.

The program will expire on December 31, 2013.

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Home prices fell 1.1% from August to September according to CoreLogic. From September 2010, home prices declined 4.1 percent. These numbers include distressed sales, short sales and foreclosures.

The continued decline in prices caused more American borrowers to fall into a negative equity position, in which they owe more than their home is worth. These “underwater” mortgages are a particular drag on the housing market because it can cause foreclosures, depress consumer spending, and trap potential home buyers and sellers in place.

CoreLogic estimates that 14.6 million borrowers are in a negative equity position. However, as CNBC’s Diana Olick points out, the “effective” negative equity is a lot higher and has hit around half of US homeowners.  This refers to borrowers with so little equity in their homes that they cannot afford to move.  In practice, this means that the negative equity target would be 85 percent (not 100 percent), to give the individual homeowner enough room to pay the realtor, sell the house, and put a down payment on a new property, and all without going out of pocket. 

In other news, Freddie Mac sustained a $4.4 billion loss in the third quarter, and will seek $6 billion in additional funding moving forward.  As the mortgage finance company is government owned, this $6 billion would come from US taxpayers. 

If you recall, Freddie Mac and Fannie Mae were taken over by the government in September 2008 to help avoid collapse.  The companies faced insolvency as mortgage losses piled up.  The government moved to take over the company and shore up finances to protect from the chaos that the failure of the biggest mortgage holders in the US would cause.  Taxpayers have paid the price.  Freddie Mac has drawn $72.2 billion from the government since it was taken over in 2008.

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The wealth gap between our younger and older Americans is at its widest on record. According to 2010 US census data, US households headed by a person age 65 years or older has a net worth on average 47 times greater than a household headed by someone under age 35. This gap has doubled since 2005. "Net worth" takes into consideration college and mortgage debts, as well as possession and savings accumulations. Part of the disparity is explained by the likelihood that older individuals would have had time to pay off debts while accumulating investments.

30 year fixed 3.750 percent (3.957 percent APR), 15 year fixed 3.000 percent (3.593 percent APR), 30 year High Balance 3.750 percent (4.032 percent APR), 30 year FHA 3.50 percent (4.621 percent APR), VA 3.50 percent (3.610 percent APR).

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After posting large gains last Thursday, the Dow has fallen by over 276 points to move back below 12,000 and end the month of October at 11,995.01. Despite the thudding end, the market enjoyed a positive October. The Dow had its highest monthly gain since 2002, and the S&P 500 had its best month since 1991.

Today's drop was influenced by the bankruptcy filing by MF Global Holdings Ltd due to a bad European debt bet. The bankruptcy is the eighth-largest filing in the US by assets according to Reuters.com. The market was also influenced by renewed concerns about European debt.

New rates for the beginning of the week: 30 year fixed 3.750 percent (3.902 percent APR), 15 year fixed 3.000 percent (3.345 percent APR), 30 year High Balance 3.750 percent (3.896 percent APR), 30 year FHA 3.750 percent (4.609 percent APR), VA 3.750 percent (3.806 percent APR).

Check out our post over at Keith Byrd's Real Estate blog as we go over the developments of last week.

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We have an interesting show planned for tomorrow on Mortgage Matters. Join us for a talk with Tom Bordonaro Jr., the San Luis Obispo County Tax Assessor. We will be discussing local property value trends and home value re-assessment for tax purposes (among other topics). Remember, you can call in and ask questions.

(For those of you who don't know, we host a weekly radio program on Saturdays on KVEC 920 a.m. from 10 a.m. to 12 noon to discuss real estate, finance, and the economy).

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Breaking News:  The Federal Housing Agency has eased refinance standards under the Home Affordable Refinance Program (HARP) in order to help homeowners qualify for current low rates.  The modification eliminates the cap of 125 percent loan-to-value ratio, removes the representations and warrants rule, and reduces some of the program fees.  The program is directed at “responsible” homeowners that have a mortgage backed by Freddie Mac or Fannie Mae, and are current on loan payments, but are not able to take advantage of the low rates for refinance due to a loss of home equity.

The original HARP program was passed in 2009 under the Obama Administration and has been underwhelming.  When passed, the program sought to bring relief to 5 million struggling homeowners with Fannie Mae or Freddie Mac backed loans, but only 894,000 have refinanced thus far.  Part of the problem has been that banks are reluctant to fund loans over 105 percent LTV due to an assumed risk, in which banks assume liability for any mistakes during underwriting and must purchase back the loan from Freddie or Fannie.  With the cancellation of this representations and warrants rule, it is hoped that banks will loosen lending standards.

This time around the program has lower standards, and is aiming to enable another one or two million refinances.  With 11 million homeowners underwater, many analysts say that the action is not enough and the impact will be minimal.  Other analysts suggest that there is little reason to think banks will relax lending standards further.  Some are optimistic, stating that refinance to record low rates will free up money for families to spend in other places.

FBR analyst Paul Miller told the San Francisco Chronicle that Fannie and Freddie still have 22 to 23 million mortgages with an interest rate above 5 percent.

Some specifications are as follows:

-         Loan must be owned by Freddie Mac or Fannie Mae on or before May 31, 2009. You can check HERE for Freddie Mac and HERE for Fannie Mae.

-         Eliminates 125 percent loan-to-value cap on refinancing.

-         Must be current on loan payments over last 6 months, and can only be late once over last year.

-         Fees will be waived with refinance to lower loan duration (from 30 years to 20 for example).

-         Elimination of representations and warrants rule for banks to reduce risk for banks and encourage looser loan standards.

-         Qualifying income does not change.

If you have any questions about the program specifics and want to learn more, give us a call at 805.543.LOAN.  Use us as a free resource.

UPDATE: We have had a few questions about the program, and we wanted to provide some clarity.  We have yet to receive the exact details of the program, only the general framework.  As details are released (such as on fee waivers, and so on) we will provide them here.

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Federal officials are working with banks to create a mortgage refinancing plan to broaden the availability of lower rates to struggling home owners. The program would be directed towards home owners that are current on mortgage payments, but are not able to refinance because they lack equity in their homes. The plan would be available to home owners with mortgages from Ally Financial, Bank of America, Citigroup, J.P. Morgan Chase, and Wells Fargo.

30 Year Fixed 3.750% (3.902% APR), 15 Year Fixed 3.000% (3.271% APR), 30 Year Jumbo 3.750% (3.896% APR), 30-Year Fixed FHA 3.750% (4.638% APR), 30 Year Fixed VA 3.750%, (3.828% APR).

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Expect a rather volatile week in the stock market, as focus shifts to Greek debt. On Wednesday and Thursday, a 48-hour general strike will virtually shut down the country as protests intensify against another round of spending cuts and tax hikes. The turmoil surrounds another round of austerity measures to be voted on Thursday in an attempt to ease Greek debt. European debt issues have caused volatility in markets around the world, and this should be no different. 3.750% (3.902% APR), 15 Year Fixed 3.000% (3.522% APR), 30 Year Jumbo 3.750% (3.896% APR), 30-Year Fixed FHA 3.750% (4.634% APR), 30 Year Fixed VA 3.750%, (3.840% APR).

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We wrote this on our weekly post over at Keith Byrd's real estate Blog, and we thought it should be posted here as well.

The conforming loan ceiling extension expired on September 30.  The extension was passed in 2008 during the recovery as a means to increase the availability of conforming loans.  In practice, this means the size of home loans in San Luis Obispo County that can be guaranteed by government backed entities Freddie Mac and Fannie Mae has dropped from $687,500 back to the high-cost limit of $561,200.  Homes above that figure will fall under the “jumbo loan” programs offered by individual banks, which, in practice, means they will be subject to stricter qualification standards.

Interest rates are now reaching all-time lows. Home prices continue to drop. Seems like a recipe for housing recovery? Well... no. In this past six-month period known to be the "peak" of home-buying season (March through August), Americans bought the fewest number of homes since 1963. The struggling economy is to blame for the continued struggles. The job market has stalled and unemployment remains above 9 percent. Consumer confidence is shot. On the other side of the equation, banks are making difficult to get the money necessary to take advantage of the low rates.

Central Coast Lending has been extremely busy over the past few months, and we are skilled enough to help get you the loan you need to take advantage of lower rates. Give us a call today at 805.543.5626 for a comfortable, free conversation with one of our loan officers to help explore your options. Here are our rates from last week:

3.750% (3.758% APR), 15 Year Fixed 3.250% (3.231% APR), 30 Year Jumbo 3.750% (4.597% APR), 30-Year Fixed FHA 3.750% (4.597% APR), 30 Year Fixed VA 3.750%, (3.737% APR).

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Interest rates have dropped again and APR is particularly favorable the last few days.  As the market struggles, rates become favorable as money is withdrawn from stocks and put into US government bonds.  Yields on bonds are historically low, and with that we have rates that are at their lowest since the 1950s.  Check it out:  30 Year Fixed 3.750% (3.758% APR), 15 Year Fixed 3.250% (3.231% APR), 30 Year Jumbo 3.750% (4.597% APR), 30-Year Fixed FHA 3.750% (4.597% APR), 30 Year Fixed VA 3.750%, (3.737% APR).

Yesterday, the Dow plummeted nearly 400 points, with investors fear of a possible global recession. The Fed offered a bleak outlook of the global economy in its announcement of "operation twist", and the Europe debt issue has no solution in sight. Investors have sold off stocks and commodities and are flocking to US government bonds as a safe haven. Interest rates should remain low for awhile now. 

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The yield on the 10-yr note is at 1.91 percent and earlier in today's session it was at 1.88 percent. This is a low we haven't seen since the 1940s. What does this mean for home owners? The 10-year yield tracks mortgage rates, and the lower the yield, the lower the rates. Bond markets are surging, dropping yields. Interest rates are going to be extremely favorable the next few days. Now is the time to act if you have been waiting to refinance.

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According to the Tribune, San Luis Obispo County unemployment rate in August dropped to 9.7 percent from 10.3 percent a year ago. Overall, there were 500 more people working in the county last month compared to August 2010. Compared to August 2007, when unemployment stood at 4.5 percent, the current number shows just how much further we have to go.

During the same year-over-year period, nearly 1,500 more people have joined the labor force.  To put this into perspective, unemployment numbers are calculated using the work force, and so unemployment only takes into consideration those out of work who are still looking. Individuals that are not looking for work, have officially dropped out of the labor force and do not count towards unemployment.  The fact that the labor force has grown but unemployment has still dropped, suggests additional positive jobs growth.

Education and healthy services, construction, and leisure and hospitality all posted healthy job gains during the year. These advances were offset by local government job loss, in which 2,500 jobs have been cut over the year.

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President Obama unveiled his jobs plan Thursday. As is characteristic of our 24-hour political news cycle, the speech had been billed as a last-gasp attempt by Obama to help right the economy before the election cycle begins in earnest. Obama's approval ratings are hovering around the mid to low 40s and citizens largely disapprove of his handling of the economy. Obama's plan is an attempt to combat unemployment while also injecting some stimulus dollars into infrastructure projects and schools. Below, we break down some of the key aspects of the plan. Here is a LINK to the source we used (CNBC).

$240 Billion in tax relief

- Cut payroll taxes for employees in half. This would amount to a tax credit on average of $1,500 for the typical working family.

- Trim Payroll taxes.

- Provide tax breaks for companies who hire new workers. According to CNBC, this would be a "$4,000 tax credit if they hire someone who has been looking for a job for more than six months and an extra tax credit for hiring military veterans."

$49 Billion for extending unemployment.

$30 Billion for "modernizing schools."

$50 billion for investing in transportation infrastructure projects.

$35 billion to states and local governments to help prevent layoffs of teachers and safety services.

Broaden range of eligibility for homeowners with mortgages backed by Federal housing agencies to let more people refinance at today's lower rates.

President Obama noted that he will release another plan in the near future that will provide cuts to offset the cost of the jobs bill and "stabilize our debt in the long run."

The markets still fell sharply on Friday after the plan was announced, although this is more likely due to the Euro's slump against the dollar due to concern about the Greek debt situation. The Euro has hit a 6 month low against the dollar. A a result, yields on the 10-year treasury have hit a 60-year low.

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Economists expected the jobs report to show fewer additions from July to August.  What they didn't expect was the jobs report to show net job growth settling at ZERO. I will be posting a longer explanation early next week but for now I will give you a rundown of the basics:

- Economists had expected to see around 75,000 jobs added in August, which is a sluggish number but still growth. Instead, we saw non-farm job growth hault completely.

- The report showed that the US added 17,000 jobs, but this gain was offset by job loss - making the net growth zero.

- Unemployment remains at 9.1%.

- We are still unlikely to see QE3 (a third period of quantitative easing, in which the Fed buys treasuries, which effectively is printing money to add liquidity to the markets). It is likely the Fed will respond with "Operation Twist" in a bid to keep interest rates low long term. In this action, the Fed would purchase longer-dated Treasurys and sell short-dated Treasurys. John Mellow of CNBC describes the maneuver as a bid to "give investors and corporations longer-term certainty and hit directly at the rates linked to consumer loans like mortgage." Link.

- Partially as a result of this report (poor European economic news didn't help), stocks dropped sharply. The Dow finished down 253 points on the day, and the Nasdaq (-65.71) and the S&P 500 (-30.45) had similar troubles.

- As a result of this sell-off, investors flocked over to the bond market, and we saw an increase in bond sale price and a drop of yields today. With security expected in the long-term interest rates, mortgage rates should remain at the low we have had recently.

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The Tribune released its Biz Buzz Extra magazine on August 27. The magazine profiles a few successful local businesses and industries, spotlights Q & A with "the experts" and includes an array of interesting local economic statistics. Below, we have included a rundown on these profiled statistics.

1) Housing Market

The SLO County median home price has dropped 40 percent off its 2005 peak of $581,305 to $354,842 in the first quarter of this year. That number represents the lowest median price since 2002. The number of foreclosures, 300, at the beginning of 2011 has easily been the most since the housing bubble burst. Despite the slump, there are reasons for optimism. This July, home sales grew 34.7 percent in SLO County, including a 32.8 percent increase in existing home sales. The hike in sales has helped take excess inventory off of the market, which was helping to keep home price low. We could be seeing the bottom of housing market prices, and as foreclosed properties continue to be purchased, a recovery seems to be likely.

2) Taxable Sales

We have seen a slight uptick in taxable sales around the county from 2009 to 2010. Specifically, last year there were $30.5 million in taxable sales, as opposed to $29.4 million in 2009.  The county peaked at $36.3 million in sales in 2007, which then dropped to $34 million in 2008 before the $5 million drop in 2009.

3) (Un)employment

SLO County enjoyed healthy employment rates through the early 2000s, and until 2008 unemployment rates ranged between 3 and 5% - well below the national average. Now, SLO county has an unemployment rate higher than the national average, and there does not appear to be an easy break through in sight. We have hovered at an unemployment rate between 10.5% and 9.5% for much of the past year. We have seen slight job growth early in the year, and have remained just below 10% since peak unemployment in November 2010.

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If you haven't seen our weekly update over at Keith Byrd's blog, go check it out (Link).

To give you a brief summary, the national housing market has a glut of supply, which continues to force down prices. Lower prices are good for those searching for homes, but they also undercut consumer confidence and reduce general demand.  We have been stuck in this circle since the 2008 crash.

Nationally, the picture is ugly:

Meanwhile, existing home sales continue to struggle, falling 3.5% to 4.67 million units in July. At this pace, it would take 9.4 months to sell the inventory on the market, which is well above typical supply in a normal market (below 6 months). As a result, economists expect that the imbalance between demand and supply will keep home prices low. In other words, as demand decreases, prices would need to decrease to move the excess supply.

Locally, however, we have seen relative stability from the larger cities in the area.

Locally, the picture is quite different. July home sales grew 34.7 percent in San Luis Obispo County, including a 32.8 percent increase in existing home sales. The market is aided by the steady fall of local home prices. Currently, the median overall home price has dropped 13.2 percent from last year to $330,000, and a total of 44 percent since the 2006 high of $585,000.

Thanks to The Tribune for those numbers. San Luis Obispo buyers, it seems, are taking advantage of lower prices to purchase. This makes sense considering we live in a beautiful, growing area and can have confidence that property values will only increase.

In the second quarter, Arroyo Grande (sales up 25 percent, 6 month inventory), San Luis Obispo (sales up 10 percent, 5 month inventory), Atascadero (sales up 88 percent, 4 month inventory) and Paso Robles (sales unchanged, 5 month inventory) are showing particularly good health in home sales and supply.

Interest rates recently hit a 50 year low in the United States, increasing finance activity across the nation. Our rates are as follows:

30 Year fixed 3.875% (4.028% APR) 15 Year Fixed 3.250% (3.430% APR) 5 Year ARM 2.375% (2.541% APR) 30 Year Jumbo 3.875% (4.0018% APR).

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Existing home sales fell 3.5% in July, and at this pace it would take 9 months to get through the inventory on the market. This imbalance between demand and supply should keep home prices low and lower to clear excess supply. With the lowest rates since 1950, now is a good time to look.

30 Year fixed 3.875% (4.028% APR) 15 Year Fixed 3.250% (3.430% APR) 5 Year ARM 2.375% (2.541% APR) 30 Year Jumbo 3.875% (4.0018% APR).

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Last week, the Dow did something it had never done before: in four straight days, it had 400 point swings. The volatility of the market spooked investors over to bonds, which dropped interest rates to yearly lows (for an explanation about the relationship between bond price/demand and interest rates, go HERE). After breaking the cycle of 400 point swings, the market enjoyed a three-day winning streak before dropping yesterday and struggling today. The concern yesterday seemed to be largely based around Eurozone uncertainty. This blog post will review this topic.

The European Union has had a rough year so far, as it imposed austerity measures on Greece and has seen a great deal of uncertainty about Italian, Spanish and Portuguese debt.  This, coupled with the US debt crisis and monetary devaluation has been a cause of market instability. Yesterday, French President Nicolas Sarkozy and Germany Chancellor Angela Merkel met to discuss the European debt crisis and made two announcements that sent stocks tumbling.

1) The EU will not issue Euro Bonds to fix the Europe's debt crisi.

What this means: Experts have been making noise about raising cash to help Europe's most distressed countries have a means to affordable financing. Such a movement would have alleviated concern that Europe's debt situation was untenable and possible unstable as a result. Portugual, Italy, Ireland, Greece and Spain all have difficult debt situations that could turn worse and put pressure on other European Union countries to bail out the hurting countries and impose severe austerity measures.

2) Rather than issue Euro Bonds, France and Germany suggested a tax on financial transactions and closer joint governance of economic policy.

What this means: This sent the markets into further discomfort. A tax on financial transactions is surely not the prefered choice of investors, and joint governance is hardly a concrete policy solution. Stocks fell after the announcement, suggesting that generally investors backed the bond solution and certainly that investors are wary about a new tax on financial transactions.

Some experts say that bonds are the best solution for the debt crisis and indeed the only way to help the EU stay afloat in its current form. According to this line of thought, there are too many toxic debt issues that will hurt the entire eurozone.

Today, the markets rose before dipping back below yesterday's close. Moving forward, we will monitor how the instability of European markets effect our own.

Interest rates drop even more from last week: 30 Year fixed 3.875% (4.028% APR), 15 Year Fixed 3.250% (3.430% APR), 5 Year Arm 2.375% (2.541 APR), 30 Year Jumbo 3.875 (4.0018% APR).

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