Realty Times of June 30, 2009
Market Conditions by Realty Times Staff
The National Association of Realtors is reporting that May saw a gain in the sale of existing homes -- up by 2.4 percent.
Regionally, existing-home sales varied:
Northeast: rose 3.9 percent
Midwest: rose 9.0 percent
South: unchanged
West: down 0.9 percent
Are we out of the woods? Dr. Lawrence Yun said the appraisal problem is serious. "Lenders are using appraisers who may not be familiar with a neighborhood, or who compare traditional homes with distressed and discounted sales," he said. "In the past month, stories of appraisal problems have been snowballing from across the country with many contracts falling through at the last moment. There is danger of a delayed housing market recovery and a further rise in foreclosures if the appraisal problems are not quickly corrected."
Copyright © 2009 Realty Times. All Rights Reserved.
Tuesday, June 30, 2009
Thursday, June 25, 2009
New Loan Modification, Short Sale Options
I can only hope none of you need this information, but if you do:
From Realty Times of June 25, 2009
New Loan Modification, Short Sale Options by Broderick Perkins
Now, mortgage modifications can include second mortgages -- not just first mortgages -- and cash incentives are sweetening short sale deals, thanks to new efforts by the Obama Administration.
The new efforts give some homeowners a second shot at a home-saving loan modification, especially if they were originally turned down -- or turned off -- because the second mortgage (piggy back, home equity loan or line of credit, etc.) impeded the process.
Other homeowners may now be able to take the short sale escape route from unaffordable mortgages that could otherwise wind up in foreclosure.
Second mortgage modifications
Loan modifications are designed to make the home loan more affordable, typically by reducing the interest rate, extending the term of the loan and, less often, by reducing the principal. They are not refinanced mortgages, which pay off the old mortgage with a new mortgage.
Under Making Home Affordable's new second-lien program, borrowers whose first mortgages are modified will automatically have payments reduced on their second mortgages as well, provided the first and second-mortgage lender participates in the program.
Twelve mortgage servicers currently do. Among them are large banks including, Bank of America, Wells Fargo, Countrywide, Citibank, Chase and others.
Eligible homeowners looking to modify their first mortgage must be an owner-occupant of the home; have an unpaid principal balance that is no more than $729,750; have a loan that was originated on or before January 1, 2009; have a mortgage payment (including taxes, insurance, and home owners association dues) that is more than 31 percent of their gross monthly income; and have a mortgage payment that is not affordable, perhaps because of a significant change in income or expenses.
Under the new second mortgage program, in addition to lowering the payment, lenders can also opt to erase a borrower's second mortgage in exchange for a lump-sum payment from the government.
New short sale incentives
Short sale incentives were among recent refinements to the Obama administration's housing rescue programs.
In a short sale, the lender closes the mortgage in return for whatever sale price the homeowner can net. However, the difference is sometimes considered income for which the selling homeowner may be taxed. It's important to include a tax professional's advice in the deal.
Under the new short sale incentive, lenders can receive a $1,000 payment from the U.S. Treasury for allowing the owner to sell the house for less than the amount owed on the mortgage and for accepting the proceeds as full repayment, rather than treat it as a short sale.
Lenders can also receive $1,000 for accepting a deed-in-lieu transaction, in which the deed is simply transferred to the lender instead of going through a costly foreclosure.
Homeowners who agree to short sales or deed-in-lieu deals can receive up to $1,500 in closing costs. To help stop second mortgages from blocking the deal, the Treasury will pay second lien holders up to $1,000 to relinquish their claims in such transactions.
To learn more about these options visit MakingHomeAffordable.gov
Copyright © 2009 Realty Times. All Rights Reserved.
From Realty Times of June 25, 2009
New Loan Modification, Short Sale Options by Broderick Perkins
Now, mortgage modifications can include second mortgages -- not just first mortgages -- and cash incentives are sweetening short sale deals, thanks to new efforts by the Obama Administration.
The new efforts give some homeowners a second shot at a home-saving loan modification, especially if they were originally turned down -- or turned off -- because the second mortgage (piggy back, home equity loan or line of credit, etc.) impeded the process.
Other homeowners may now be able to take the short sale escape route from unaffordable mortgages that could otherwise wind up in foreclosure.
Second mortgage modifications
Loan modifications are designed to make the home loan more affordable, typically by reducing the interest rate, extending the term of the loan and, less often, by reducing the principal. They are not refinanced mortgages, which pay off the old mortgage with a new mortgage.
Under Making Home Affordable's new second-lien program, borrowers whose first mortgages are modified will automatically have payments reduced on their second mortgages as well, provided the first and second-mortgage lender participates in the program.
Twelve mortgage servicers currently do. Among them are large banks including, Bank of America, Wells Fargo, Countrywide, Citibank, Chase and others.
Eligible homeowners looking to modify their first mortgage must be an owner-occupant of the home; have an unpaid principal balance that is no more than $729,750; have a loan that was originated on or before January 1, 2009; have a mortgage payment (including taxes, insurance, and home owners association dues) that is more than 31 percent of their gross monthly income; and have a mortgage payment that is not affordable, perhaps because of a significant change in income or expenses.
Under the new second mortgage program, in addition to lowering the payment, lenders can also opt to erase a borrower's second mortgage in exchange for a lump-sum payment from the government.
New short sale incentives
Short sale incentives were among recent refinements to the Obama administration's housing rescue programs.
In a short sale, the lender closes the mortgage in return for whatever sale price the homeowner can net. However, the difference is sometimes considered income for which the selling homeowner may be taxed. It's important to include a tax professional's advice in the deal.
Under the new short sale incentive, lenders can receive a $1,000 payment from the U.S. Treasury for allowing the owner to sell the house for less than the amount owed on the mortgage and for accepting the proceeds as full repayment, rather than treat it as a short sale.
Lenders can also receive $1,000 for accepting a deed-in-lieu transaction, in which the deed is simply transferred to the lender instead of going through a costly foreclosure.
Homeowners who agree to short sales or deed-in-lieu deals can receive up to $1,500 in closing costs. To help stop second mortgages from blocking the deal, the Treasury will pay second lien holders up to $1,000 to relinquish their claims in such transactions.
To learn more about these options visit MakingHomeAffordable.gov
Copyright © 2009 Realty Times. All Rights Reserved.
Tuesday, June 16, 2009
Real Estate Outlook
From Realty Times of June 16, 2009
Real Estate Outlook: Mortgage Rates and Inflation
by Kenneth R. Harney
Most of the key economic indicators for real estate continue to be at least moderately positive -- home sales are up, prices are stabilizing or up, unsold inventories are down, and even new unemployment filings are down slightly.
But there's a storm cloud looming on the near horizon that everybody needs to keep an eye on: Mortgage rates have been moving up -- fast. Bond market investors are spooked by the federal government's massive borrowings to pay for the stimulus and the deficit.
They're worried that serious inflation may be coming and they're demanding higher rates on the ten year Treasury bonds that are the benchmark used to price mortgages.
But let's focus first on the positive side of the ledger: A key housing price index released last week suggests that the long-awaited turnaround may be underway. The Integrated Asset Services Index - which is based on data from 15,000 local market segments around the U.S. -- went flat on a national basis in May for the first time in a year.
Prices in the Northeast were up by six tenths of a percent for the month. In the Midwest they rose by one tenth of a percent, they were down slightly in the South, and flat in the Western region.
Now that might not impress you, but David McCarthy, CEO of the research and services firm, said flat means bottoming out - and in his words, "that's encouraging (for housing) for the long term."
In some California markets that had experienced severe hits during the darkest days of the bust, the price changes for the month were larger than the national numbers.
San Bernadino prices gained 1.1 percent between April and May. Monterey saw a 3.7 percent increase and Sacramento homes were up four tenths of a percent.
Meanwhile, ZIP Realty's monthly national survey of unsold housing inventories found the number of MLS listings in 28 major markets down by 4 percent in May, and by 24 percent from year-earlier levels.
Now on to the sobering news on mortgage rates: No one can predict precisely how high rates are headed, but in the past two weeks they've jumped by more than a percentage point. The Mortgage Bankers Association reports that last week alone average 30-year fixed rate jumped to 5.6 percent from five and a quarter the week before.
Some analysts project rates to hit and surpass the 6 percent mark if current trends continue.
Bottom line: Given that house prices have turned around, and interest costs are soaring, value-conscious shoppers need to get their contracts and loan applications in -- quick!
Copyright © 2009 Realty Times. All Rights Reserved.
Real Estate Outlook: Mortgage Rates and Inflation
by Kenneth R. Harney
Most of the key economic indicators for real estate continue to be at least moderately positive -- home sales are up, prices are stabilizing or up, unsold inventories are down, and even new unemployment filings are down slightly.
But there's a storm cloud looming on the near horizon that everybody needs to keep an eye on: Mortgage rates have been moving up -- fast. Bond market investors are spooked by the federal government's massive borrowings to pay for the stimulus and the deficit.
They're worried that serious inflation may be coming and they're demanding higher rates on the ten year Treasury bonds that are the benchmark used to price mortgages.
But let's focus first on the positive side of the ledger: A key housing price index released last week suggests that the long-awaited turnaround may be underway. The Integrated Asset Services Index - which is based on data from 15,000 local market segments around the U.S. -- went flat on a national basis in May for the first time in a year.
Prices in the Northeast were up by six tenths of a percent for the month. In the Midwest they rose by one tenth of a percent, they were down slightly in the South, and flat in the Western region.
Now that might not impress you, but David McCarthy, CEO of the research and services firm, said flat means bottoming out - and in his words, "that's encouraging (for housing) for the long term."
In some California markets that had experienced severe hits during the darkest days of the bust, the price changes for the month were larger than the national numbers.
San Bernadino prices gained 1.1 percent between April and May. Monterey saw a 3.7 percent increase and Sacramento homes were up four tenths of a percent.
Meanwhile, ZIP Realty's monthly national survey of unsold housing inventories found the number of MLS listings in 28 major markets down by 4 percent in May, and by 24 percent from year-earlier levels.
Now on to the sobering news on mortgage rates: No one can predict precisely how high rates are headed, but in the past two weeks they've jumped by more than a percentage point. The Mortgage Bankers Association reports that last week alone average 30-year fixed rate jumped to 5.6 percent from five and a quarter the week before.
Some analysts project rates to hit and surpass the 6 percent mark if current trends continue.
Bottom line: Given that house prices have turned around, and interest costs are soaring, value-conscious shoppers need to get their contracts and loan applications in -- quick!
Copyright © 2009 Realty Times. All Rights Reserved.
Monday, June 8, 2009
Arizona Home Market
I spoke with 3 of the large Title Companies this last week All told basically the same story -
May closing were 3 times the April closings!
Urban legend or is it happening?
May closing were 3 times the April closings!
Urban legend or is it happening?
Reshaping Fannie and Freddie
Realty Times of June 8, 2009
Washington Report: Reshaping Fannie and Freddie
by Kenneth R. Harney
Congress took its first step last week on a mission that could totally reshape the American mortgage market.
A House financial services subcommittee held the first hearing on what to do with Fannie Mae and Freddie Mac -- the failed, trillion-dollar mortgage giants that are now operating under direct federal control.
The ultimate answers are likely to determine the types of loans and interest rates that home buyers will have in the future. That's because Fannie and Freddie have dominated the real estate market for decades, writing the rulebook on everything from loan sizes, credit requirements, downpayments and underwriting standards.
Among the idea floated at last week's Capitol Hill hearing were a “utility” concept, where Fannie and Freddie might be merged into a single, privately-owned, federally-regulated superstore for mortgage money.
The model would be along the lines of the water, power and sewage utilities we see all over the country, but there'd just be one mega-utility to fund mortgages. The utility concept was first proposed last year by former Treasury Secretary Hank Paulson. The Obama Administration has not spoken out publicly on it yet.
Another idea floated at the hearing was to broaden the mortgage menus of whatever agency or agencies replace Fannie and Freddie to include types of mortgages they currently can't touch -- especially jumbo home loans and commercial real estate mortgages.
Frances Martinez Myers, representing the National Association of Realtors, said jumbos and commercial real estate loans are suffering in the credit crunch and need more support. Commercial and investment property owners in particular, said Myers, find themselves unable to refinance because there is neither a private nor public secondary market for their loans at the moment.
The Mortgage Bankers Association came to the hearing with a white paper listing various alternative futures for Fannie and Freddie, including turning them into a government-owned version of the FHA and Ginnie Mae, but targeted on conventional mortgages.
Without endorsing any particular alternative, the MBA also suggested consideration be given to a private “cooperative” model, in which banks and other mortgage industry players would pool their assets and provide secondary market services in addition to mortgage originations.
Under this scenario, the federal government would provide back-up insurance against “catastrophic losses” that exceed the private cooperative's capital and pledged assets.
Where's the debate over Fannie and Freddie headed? Look for Congress to hold more exploratory hearings this year. Then, maybe as early as next year if the recession is over and the market is healthier , the Obama administration might begin drafting its preferred solution - which almost certainly will not involve total privatization.
Copyright © 2009 Realty Times. All Rights Reserved.
Washington Report: Reshaping Fannie and Freddie
by Kenneth R. Harney
Congress took its first step last week on a mission that could totally reshape the American mortgage market.
A House financial services subcommittee held the first hearing on what to do with Fannie Mae and Freddie Mac -- the failed, trillion-dollar mortgage giants that are now operating under direct federal control.
The ultimate answers are likely to determine the types of loans and interest rates that home buyers will have in the future. That's because Fannie and Freddie have dominated the real estate market for decades, writing the rulebook on everything from loan sizes, credit requirements, downpayments and underwriting standards.
Among the idea floated at last week's Capitol Hill hearing were a “utility” concept, where Fannie and Freddie might be merged into a single, privately-owned, federally-regulated superstore for mortgage money.
The model would be along the lines of the water, power and sewage utilities we see all over the country, but there'd just be one mega-utility to fund mortgages. The utility concept was first proposed last year by former Treasury Secretary Hank Paulson. The Obama Administration has not spoken out publicly on it yet.
Another idea floated at the hearing was to broaden the mortgage menus of whatever agency or agencies replace Fannie and Freddie to include types of mortgages they currently can't touch -- especially jumbo home loans and commercial real estate mortgages.
Frances Martinez Myers, representing the National Association of Realtors, said jumbos and commercial real estate loans are suffering in the credit crunch and need more support. Commercial and investment property owners in particular, said Myers, find themselves unable to refinance because there is neither a private nor public secondary market for their loans at the moment.
The Mortgage Bankers Association came to the hearing with a white paper listing various alternative futures for Fannie and Freddie, including turning them into a government-owned version of the FHA and Ginnie Mae, but targeted on conventional mortgages.
Without endorsing any particular alternative, the MBA also suggested consideration be given to a private “cooperative” model, in which banks and other mortgage industry players would pool their assets and provide secondary market services in addition to mortgage originations.
Under this scenario, the federal government would provide back-up insurance against “catastrophic losses” that exceed the private cooperative's capital and pledged assets.
Where's the debate over Fannie and Freddie headed? Look for Congress to hold more exploratory hearings this year. Then, maybe as early as next year if the recession is over and the market is healthier , the Obama administration might begin drafting its preferred solution - which almost certainly will not involve total privatization.
Copyright © 2009 Realty Times. All Rights Reserved.
Monday, June 1, 2009
How Much Can You Afford?
Realty Times of June 1, 2009
An excellent guide on keeping your house payment in an affordable range!
Helping Clients Estimate Their Affordability Range by Ralph Roberts
Traditionally, real estate and mortgage professionals have encouraged homeowners to stretch – to shop for homes at the upper end of their affordability range. We wanted them to maximize their investment, and we were seeing property values and incomes rise, especially for homeowners who were first starting out. It all made for a very sound investment in housing.
Recently, I have begun to question what an "affordable house payment" means. Even some of the major players in the mortgage lending industry have different ideas of what "affordable" means:
U.S. Treasury: 31 percent front-end DTI (debt-to-income) ratio, and less than 55 percent back-end DTI
FHA (Federal Housing Administration) Old: 29 percent front-end DTI, and 41 percent back-end DTI
FHA New: 31 percent front-end DTI, and 43 percent back-end DTI
Fannie Mae: 36 percent benchmark back-end DTI with a maximum of 45 percent with "strong compensating factors"
Conventional loans: 28 percent front-end ratio, and a 36 percent back-end ratio My rule of thumb is a maximum 30 percent front-end DTI. This means that a homeowner's monthly house payment or PITIA (principal, interest, taxes, insurance, and association fees) should be no higher than 30 percent of the gross monthly household income. For every $1,000 per month in household income, the homeowner should be able to afford $300 of house payment.
The trouble with these guidelines, even my guideline, is that they fail to take into account other mitigating factors. For example, couple with four children paying their own medical insurance premiums is probably going to be able to afford less house than a young couple with no children whose employers provide health insurance.
Likewise, a family that spends $400 per month to heat their home will have less money available for a house payment. Let's look at a specific example. Suppose a family of four is pulling in about $6,000 per month. That's $72,000 annually. To simplify, we'll assume the family is debt free, except for the new home they are about to purchase. Based on a front-end DTI of 31 percent, the couple should be able to afford a monthly house payment of $1,860. That leaves them with $4,140 per month to cover everything else.
According to Ginnie Mae's How Much Home Can You Afford? calculator, an annual gross household income of $72,000 can afford a monthly house payment of $2,235. This represents a 37 percent front-end DTI, which is outside most guidelines.
Before we encourage the couple to purchase a $200,000 plus house, let's take a look at their current monthly budget. Assuming we were to sell them a house and saddle them with a $1,860 monthly mortgage payment, here's where the rest of the money ($4,140) would be going each month:
Income taxes (28 percent) $1,160
Daughter's college $1,000
Electricity (avg.) $250
Husband's health insurance $160
Groceries $400
Auto insurance $180
Auto fuel $100
Auto license $28
Auto maintenance/repairs $200
Charitable contributions $100
Movies, TV, Internet $120
Medical/dental (un-reimbursed) $250
Clothing & shoes $80
Dining out $100
Gifts $50
Personal care $40
Pets $40
Total $4,258.00
Now, you wouldn't exactly characterize this family as living large, yet if it had a house payment of $1,860, it would be seriously struggling every month to make ends meet.
What we as real estate professionals can learn from this example is that home financing eligibility guidelines are just that – guidelines, ballpark figures to get the conversation going. Mortgage lenders, real estate agents, and other professionals who are providing guidance to homeowners on how much house they can afford do their clients a grave disservice by using these general guidelines to make recommendations to specific families about how much house they can afford.
Currently, we are doing this all backwards. We tell homeowners how much house they can afford and then expect them to make the tough budget decisions to make that payment affordable. When the family still can't afford their house payment, we assume they are overspending and send them to credit counseling to become further humiliated.
Perhaps a better way to qualify homeowners for mortgage loans is to start with the family's existing budget and projections and develop a realistically affordable house payment based on current and projected net income and monthly expenses. Remember, every family's situation is unique. We need to tailor their house payment to their budget, not the other way around.
--------------------------------------------------------------------------------
Copyright © 2009 Realty Times. All Rights Reserved.
An excellent guide on keeping your house payment in an affordable range!
Helping Clients Estimate Their Affordability Range by Ralph Roberts
Traditionally, real estate and mortgage professionals have encouraged homeowners to stretch – to shop for homes at the upper end of their affordability range. We wanted them to maximize their investment, and we were seeing property values and incomes rise, especially for homeowners who were first starting out. It all made for a very sound investment in housing.
Recently, I have begun to question what an "affordable house payment" means. Even some of the major players in the mortgage lending industry have different ideas of what "affordable" means:
U.S. Treasury: 31 percent front-end DTI (debt-to-income) ratio, and less than 55 percent back-end DTI
FHA (Federal Housing Administration) Old: 29 percent front-end DTI, and 41 percent back-end DTI
FHA New: 31 percent front-end DTI, and 43 percent back-end DTI
Fannie Mae: 36 percent benchmark back-end DTI with a maximum of 45 percent with "strong compensating factors"
Conventional loans: 28 percent front-end ratio, and a 36 percent back-end ratio My rule of thumb is a maximum 30 percent front-end DTI. This means that a homeowner's monthly house payment or PITIA (principal, interest, taxes, insurance, and association fees) should be no higher than 30 percent of the gross monthly household income. For every $1,000 per month in household income, the homeowner should be able to afford $300 of house payment.
The trouble with these guidelines, even my guideline, is that they fail to take into account other mitigating factors. For example, couple with four children paying their own medical insurance premiums is probably going to be able to afford less house than a young couple with no children whose employers provide health insurance.
Likewise, a family that spends $400 per month to heat their home will have less money available for a house payment. Let's look at a specific example. Suppose a family of four is pulling in about $6,000 per month. That's $72,000 annually. To simplify, we'll assume the family is debt free, except for the new home they are about to purchase. Based on a front-end DTI of 31 percent, the couple should be able to afford a monthly house payment of $1,860. That leaves them with $4,140 per month to cover everything else.
According to Ginnie Mae's How Much Home Can You Afford? calculator, an annual gross household income of $72,000 can afford a monthly house payment of $2,235. This represents a 37 percent front-end DTI, which is outside most guidelines.
Before we encourage the couple to purchase a $200,000 plus house, let's take a look at their current monthly budget. Assuming we were to sell them a house and saddle them with a $1,860 monthly mortgage payment, here's where the rest of the money ($4,140) would be going each month:
Income taxes (28 percent) $1,160
Daughter's college $1,000
Electricity (avg.) $250
Husband's health insurance $160
Groceries $400
Auto insurance $180
Auto fuel $100
Auto license $28
Auto maintenance/repairs $200
Charitable contributions $100
Movies, TV, Internet $120
Medical/dental (un-reimbursed) $250
Clothing & shoes $80
Dining out $100
Gifts $50
Personal care $40
Pets $40
Total $4,258.00
Now, you wouldn't exactly characterize this family as living large, yet if it had a house payment of $1,860, it would be seriously struggling every month to make ends meet.
What we as real estate professionals can learn from this example is that home financing eligibility guidelines are just that – guidelines, ballpark figures to get the conversation going. Mortgage lenders, real estate agents, and other professionals who are providing guidance to homeowners on how much house they can afford do their clients a grave disservice by using these general guidelines to make recommendations to specific families about how much house they can afford.
Currently, we are doing this all backwards. We tell homeowners how much house they can afford and then expect them to make the tough budget decisions to make that payment affordable. When the family still can't afford their house payment, we assume they are overspending and send them to credit counseling to become further humiliated.
Perhaps a better way to qualify homeowners for mortgage loans is to start with the family's existing budget and projections and develop a realistically affordable house payment based on current and projected net income and monthly expenses. Remember, every family's situation is unique. We need to tailor their house payment to their budget, not the other way around.
--------------------------------------------------------------------------------
Copyright © 2009 Realty Times. All Rights Reserved.
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