According to fha.com, the currently loan limit for an FHA loan in Orange County, FL is $353,750. Why they threw in the extra $750 in the limit is beyond me but it’s well above the average price of a home in Orange county so it’s a reasonable limit nonetheless.

The University of Central Florida’s Institute for Economice Competitiveness recently released their quarterly forecast which surprisingly reveals some promising facts about the housing market. They predict a bottom to the housing market in the second quarter of 2009. Amazingly, housing starts are 87% below the peak levels we experienced just a few years ago. They explain that home prices are now below replacement cost which is a natural floor for prices. There’s sense in building a home to sell if you can’t get more than what you put into it and we’re in that situation today. People have been asking me for quite some time where’s the bottom in the market and I think we’re finally here.

Since we’ve hit bottom, does it mean prices will stop falling? Oh contraire mofraire… they’ll continue to decline until we absorb the excess inventory. The good news is that we’ve finally hit below 12 months of inventory which is about half of what we’ve been hovering around for the past couple of years and normal levels are around 6 to 7 months so we’re not that far off. The number of sales have benefited and currently on a positive trend for 2009 reducing the time needed to absorb the excess inventory.

If the banks loosen their lending standards a little bit, we’ll reach equilibrium in no time but that’s what got us into this mess in the first place.

There’s good news about the economy in Orlando as well. Personal income, annual wage, and employment in Orlando are predicted to be the highest in the state. Employment is forecasted to increase 1.5% annually, personal income will increase 4.1% a year, and annual wage is predicted to increase 2.2%. While this sounds great, there are some downside to all this growth. Orlando is no longer an affordable alternative it used to be meaning the population growth we’ve seen in the past is history.

All in all, I’m liking what I’m hearing from this group of supposed experts. Maybe they’ll be better at predicting the bust than the boom.

UCF Institute for Economic Competitiveness: FL Forecast Q1 2009

Well, the drywall coming out of China has some problems like a lot of Chinese products and now I’m required to provide a Chinese Drywall Disclosure to home buyers. Recent reports say drywall from China churns out sulfur based gases that eat away air conditioning coils, pipes, and wiring. Worst of all, it stinks…  literally. When building materials became hard to come by during the housing boom around 2004, builders started importing goods from China. Man, they make everything over there.

One of the major builders to do this in Florida according to the Wall Street Journal is Lennar. I gotta tell ya, they’ve built quite a few homes here in SW Orlando since 2004 including Stoneybrook West, Windsor Landing, and Brookestone to mention a few. I’m sure there’s other major builders that used this product and I’m sure they’ll get pulled out of the rank and file once the lawsuits start piling up.

I can’t believe there’s another toxic import from China. It seems like it was not too long ago, the news was about lead in kid’s toys made in China. One thing that’s for sure is that Chinese products are cheap, but at some point quality will have to come into play.

Here’s a pdf of the new disclosure: Chinese Drywall Disclosure

Click here to view the embedded video.

FHA loans or Federal Housing Administration loans are the simplest forms of mortgage loans for buying real properties. Among all mortgage loans, the eligibility criteria for an FHA loan are the easiest and necessitate lower than 5% down payment.

The FHA loans are totally backed by the Federal Housing Administration. Following are the fundamental eligibility criteria for an FHA loan:

• Your income for the past two years must be at the same level or rising
• You should have two years of stable employment, desirably with the same employer
• In the previous two years, your credit report must normally have lower than two 30-day delayed payments
• If there is any bankruptcy, it should be minimum two years back and you must have carried a good credit score afterwards
• If there is any foreclosure, it has to be minimum three years back and you should have carried a good credit score afterwards
• Your new mortgage payment must not be higher than 30% of your gross earnings

An FHA loan carries a number of advantages. Some of them are the following:

1) Down payment of 3%. FHA loans typically necessitate only a 3% down payment. The borrower can also receive the down payment as a gift that makes it even simpler to get an FHA loan.

2) Less overall expenditures. An FHA loan normally carries a lower interest rate; as a result, the total cost of the loan is reduced.

3) Simpler to qualify. Since FHA loans are insured by the Federal Government, the eligibility guidelines are less strict than traditional mortgage loans.

4) Preventing foreclosure. If you are undergoing significant financial problems, then the FHA loan programs can help you prevent impending foreclosure.

The eligibility criteria for an FHA loan may differ from one place to another on the basis of loan to value ratios and the loan restrictions in various counties. To verify whether you are eligible or not, the official website of HUD can work as an excellent resource.

The stuff in the textbook was boring and redundant as hell, but we all shared our thoughts on the market with each other which was far more useful and educational. Basically, I got a pretty clear picture of the entire market and some ideas on where we’re headed.

Probably the most shocking revelation was a widespread belief that interest rates will surpass double digits in the next 2 years. I think the number being tossed around was 12%. I know… shocking. It was brought up by a lender that I’ve known for a long time named Michelle. She cites the excessive printing of money as the cause of such high rates in the near future.

The Fed actually began printing more money in the second half of 2008 as traditional tools like reducing rates and reserve requirements for banks stopped working. If the Fed did not print money and injected it into companies like Citibank and AIG, the stock market would have seen a much more precipitous fall.

The only problem with printing money is that it causes inflation which has a crippling effect on any economy. Basically, it’s a short term fix which will have long term repercussions in the form of inflation.

Don’t forget that our country is gonna start beginning to lose a huge percentage of the labor force in the next two years as the baby boomers start reaching retirement age which will present another set of problems altogether.

That brings up the social security problem which everyone seems to have forgotten about. The way the system is set up right now, the people that are currently working fund payments to the people that are retired. Simply put, that won’t be possible because of the sheer size of the baby boomer age group. An economy in recession with double digit interest rates won’t help either.

I remember reading Rich Dad Poor Dad author Robert Kiyosaki’s book, Rich Dad’s Prophecy which goes into the subject in more detail.

This post is starting to sound like a doomsday prediction, but I’m just going off what the lender in my class pointed out and many of my classmates which included a medical building developer and a business broker agreed with her.

I sure hope they’re wrong, but I think they have some valid points. I’m sure gonna pay close attention to changes in our nation’s financial policies from here on out.

There will be some more posts this week on the interesting topics that came up in our discussion in class so stay tuned.

related links: Keynes’ Prophetic Words, Why Printing Money Causes Inflation

The new Streamlined Modification Program set to launch December 15th to be based on 38% of a borrower’s income proposed by Bernake makes failing to find a new job the best course of action. Any rational thinker would agree that now is not the time to have a 38% tax hike, but that’s precisely what Fannie, Freddie, the FDIC, and now the US Treasury are forcing banks to operate in the future. The banks wills gladly do this because collecting some bad debt is better than collecting nothing and that means more money in their pocket.

Here’s the hypothetical example Professor Mulligan provides: You and your spouse were both employed in 2005, at which time you bought a house, took out a mortgage equal to four years’ family income and committed to a monthly payment about one quarter of your family’s monthly income. Today your house is worth three year’s income. To add to your injury, your family income is cut in half because you lost your job. Your housing payment is now more than half of your family income. Your best course of action may be to fail to find a new job. Citigroup Inc. is your mortgage lender, and (as part of the Treasury rescue deal) is willing to renegotiate mortgages with people in financial trouble and limit their monthly housing payments to 38 percent of the family’s monthly income. With you unemployed, your family income is low enough that you qualify for this loan forgiveness. If you find a new job quickly, you and your spouse will no longer qualify.

All I have to say is no one’s bailing me out and they want us to pay for those who are too lazy to pay. That’s retarded and irresponsible of the government for rushing into a haphazzard solution.

With all the talk about the bailout plan being debated in Congress, I’ve heard all kinds of reasons why people think the market is failing. I’ve heard it’s because of Fannie Mae, shady mortgage lenders, stupid consumers that can’t comprehend that their payments will go up eventually on interest only loans, President Bush’s economic policy, and a bunch of other bizarre explanations. I don’t believe the American public really has a firm grasp on why many of the major Wall Street firms and financial institutions are going belly up.

Steve Kroft of 60 Minutes sets the record straight on who really is to blame for the huge financial crisis our nation is currently facing. Kroft reveals the shadow market in which Wall Street firms sold bundles of risky mortgages as investment securities to investors at banks and pensions funds without disclosing the inherent risks. Inflaming the crisis even further, the same Wall Street firms then sold the same investors an instrument called credit default swaps which was supposed to insure against any defaults.

This piece is definitely a must watch for anyone trying to understand our current crisis.

I’m sure you’ve heard that the government is taking over Fannie Mae and Freddie Mac. We all learned during the Great Depression of how much the stability of financial markets affects us all, so I can see why they decided to step in. I just can’t help but be a little ticked off that we’re all paying for the mistakes of Fannie Mae and Freddie Mac with our tax dollars.

I know that mortgage rates will probably drop in the coming months and it’s probably gonna help our economy. Their loose lending standards got us into this mess and they haven’t done a good job of managing foreclosures in my opinion.

As a side effect of our current real estate market, I’ve dealt with a lot of short sales which could minimize losses for banks by avoiding foreclosure, but I honestly feel they’ve done a horrible job dealing with the situations.

My most recent experience with the banks involved a home seller facing foreclosure. We found a homebuyer who was willing to buy the home and the seller just needed a payoff to agree to a price. The bank had been tacking on late fees and it was impossible to calculate the fees. Well, it took the bank 2 weeks to give the sellers the payoff but by then the buyer had moved on to another home down the street. Now the sellers are forced into a foreclosure which could have been avoided if the bank provided a payoff amount in a reasonable amount of time.

I feel just awful for these sellers and frustrated with the way things are being handled by the banks. I’m hoping the government will improve things in the mortgage industry, but I’m not holding my breath. I’m a bit of Keynesian what can I say.

On the other hand, my CNBC favorite Jim Cramer of Mad Money, surprisingly thinks this bail out is a good idea. He’s a pretty smart guy and dam funny but I’ve gotta disagree.

He says the new bill will bring stability to Fannie Mae and Freddie Mac which is quite important in my opinion. We learned during the Great Depression how important the stability of financial institutions are to the economy and I guess that’s why many of the policies that originated from this struggle still exist today. On the other hand, the creative and loose lending standards administered by these guys led to the collapse of the financial and real estate markets.

Bishop also feels it’s a positive to provide options for homeowners facing foreclosure. I personally don’t see the economic stimulus in this part of the bill, but I like the fact that they’re lending a helping hand even with my tax dollars.

Probably the coolest part of the bill is the first time home buyer credit which can be up to a $7,500 credit. I wish I had this when I was buying my first home. Either way, it should spur on at least some of the buyers that are sitting on the fence. Right on. There’s a website set up to answer questions on how to qualify for the tax credit at http://www.federalhousingtaxcredit.com/index.html

Finally, Bishop and other famous economists are predicting a bottom half way through 2009. I just can’t figure out why they couldn’t predict our most recent boom or collapse. I can recall so many interviews where they couldn’t see an end in sight so I wouldn’t bet the farm on Bishop’s prediction.

Prices are down to 2004 levels, but prices are still surprisingly up if you look back 8 years. It goes to show ya, real estate is a long term investment. Buyers should look at a home with at least a 5 year time horizon, but preferably 10.