The summer is a great time to take on outdoor projects--gardening, fencing, etc. But sometimes it’s also nice to get a break from the heat…step inside and think about refreshing those walls inside the home.
But do you know where to start? What to buy? How to actually paint?
Here are eight tips from Lowe’s on how to get started on a painting project:
1. Choose top-quality rollers and brushes for a great finish.
2. When using two or more cans of paint, mix them together in a separate bucket to ensure uniform color.
3. When painting along edges with a brush (“cutting in”), spread paint far enough from the edge for roller strokes to cover brush strokes. Do not cut in a whole room at once. Instead, do 3- or 4-ft. increments, and then roll.
4. Never stop painting in the middle of a wall for an extended period of time. End at a natural break to ensure uniform color and coating.
5. Create a smooth, blended look by rolling from just-painted areas to unpainted areas. This technique is called keeping a “wet edge.”
6. Roll paint on in a 3-ft. by 3-ft. W-pattern and fill in open areas using horizontal strokes.
7. Remove painter’s tape before paint is dry to reduce peeling.
8. For more tips, advice and inspiration, visit Lowes.com/Paint.
Homeowners across the country are continually striving toward a more eco-friendly lifestyle. While homeowners may not know where to start, there are small steps that can be taken that can add up to make a big difference.
The experts at OurGreenerLife.com offer the following tips to help you lessen your eco footprint.
1. Use less water
Saving water is all about small steps. Here are a few simple ways that will help you conserve water while saving money.
-Shut off the water while you brush your teeth
-Take showers that are a minute or two shorter
-Only run full loads of laundry and dishes
-Buy from sustainable producers. These are farmers, ranchers and other producers that use techniques that pollute less and use less water. You can do some research online or ask at your local organic market to find these products.
2. Use less energy
If you don’t have the money to buy a hybrid car or convert your house to solar power, you can make a big difference with the following small changes.
-Buy energy efficient appliances. They may be more expensive, but make up for the increased cost in lower energy bills.
-Unplug chargers when you’re not using them. Cell phone and other chargers use up power even if there’s nothing attached to them.
-Put devices with remotes, like TVs, VCRs and stereos on a power strip and turn the power strip off when you’re not using the devices. These gadgets use a lot of power to run the remote receiver even when the device is off.
-Walk or ride your bicycle for short trips.
-Buy local products. It takes energy to transport food and other products across the country. Buying local not only supports your local economy, it helps them use less energy.
-When it comes to saving energy and water, it’s a great idea to get the kids involved—you can even make it a game. Have them track how much water and electricity everyone is using and compete to see who uses the least.
Most of us know the three R’s: reduce, reuse, recycle, but when we work on conserving, we often leave reuse out of the picture. While you can often find tips on how to reuse common products from other people, what you need most is creativity. With a little thought, there are many items around your home that can be reused—toilet paper holders can be used to sow seeds for the vegetable patch, old yogurt containers can be cut into strips to make plant labels and old food jars can be refilled with homemade foods or can make great impromptu vases.
4. Use environmentally friendly products
When you go to the grocery store, you probably see more and more ‘natural’ or ‘eco friendly’ products every time. There are generally two big problems with these products: Just because they’re more natural than regular products, doesn’t mean they’re entirely natural and they’re often expensive.
If you want inexpensive, natural, safe products, why not just make them yourself? Vinegar is a great way to clean and disinfect glass and other surfaces. Need to remove stubborn stains? Just add some baking soda to your vinegar cleaner. Some quick searching online will lead you to hundreds of other natural safe home-made cleaning products.
How to handle the sale of a parent's home is a question many baby boomers face after their parents are gone. Here are two different situations answered by Internal Revenue Service specialist Jesse Weller and estate planning attorney Tracy Potts.
QUESTION: My parents lived in a 1910 home until they passed away in the '60s. Eight siblings were willed the home, but we allowed one brother to live there until he died in 2009. The home was sold in 2010 and proceeds divided among eight heirs (gross amount: $10,000 each). Are we obligated to pay federal taxes on this inheritance? If so, how do we determine the home's tax basis and what tax forms are required?
ANSWER: Based on this information, it sounds like you and your siblings will each report a share of the home sale next year on your 2010 federal income tax returns. Normally you would each complete Schedule D, Capital Gains and Losses, showing your one-eighth interest in the sale.
Generally, taxpayers do not pay income tax on inherited property, but they do pay tax on earnings from an inheritance. The initial cost basis of inherited real estate is usually the home's fair-market value on the date of the owner's death.
If the home rose in value during the time you and your siblings owned it, there could be a taxable capital gain on the sale because the increase is considered earnings from the inheritance.
The starting cost basis for you and your surviving siblings is normally each person's respective share of the home's total value on the date of death of the parent who willed it to you.
If a federal estate tax return was filed (after your parents died), the value listed for the property generally becomes your cost basis. If a federal tax return did not need to be filed, your cost basis is the home's appraised value at date of death for purposes of state inheritance or transmission taxes.
For heirs of your deceased brother, their tax basis would normally be the home's fair market value on the date of his passing in 2009.
If you made capital improvements to the home over the years, you would add the cost of those improvements to your adjusted cost basis. Examples include adding a new room, deck or patio, installing a new heating/air conditioning system and adding insulation.
More details are in IRS Publications 523 (Selling Your Home) and 551 (Basis of Assets). More information on capital gains is in Publication 550 (Investment Income and Expenses). All are available at www.IRS.gov or by calling 800-TAX-FORM (829-3676).
Q: My mother passed away in January at age 86. She had a living trust that included her home, which was purchased in 1949. My sister and I are the trustees and beneficiaries of her estate. In February, we sold the house for $325,000 and received the proceeds. Is that money taxable to us? I seem to recall that the home's cost basis after death is stepped up to the current market value. Does this mean there would be no capital gains to pay?
A: In 2010, the children of a deceased parent may obtain a stepped-up cost basis on a total estate valued up to $1.3 million. Since you sold the property very soon after your mother's death, you may use the sales price as the property's value at time of death.
Therefore, you should not owe any capital gains tax on the sale since it appears the estate's overall value fell below this year's stepped-up basis limitation.
Generally, if you sell a home within one year after the death of the trust holder, you may use the sales price as the tax basis and therefore would not pay capital gains taxes.
Scott Katzer owes about $200,000 more than his Fort Lauderdale home is worth. Unable to sell anytime soon, he wants to reduce his monthly mortgage payment by refinancing to a lower interest rate.
Katzer doesn't qualify under a government refinancing program because the value of his home is so much lower than what he owes.
Private lenders turn him down for the same reason.
And he's ineligible for assistance from a state-run program because he has a job and can pay the mortgage.
Katzer, a 40-year-old engineering consultant, is one of thousands of homeowners who are underwater, the term applied to those whose homes are worth less than the mortgages. Many of these people are not in immediate danger of foreclosure, but their finances have been hammered by the housing crash and their pleas for help rejected because other borrowers are considered more desperate.
Katzer could do what some have done — walk away from his house and the loan. But he doesn't think that's appropriate.
"I'm stuck in the middle," he said. "I want to do the right thing. It's incredibly frustrating."
Mike Larson, a housing analyst with Weiss Research in Jupiter, Fla., said the government largely has failed to address the plight of homeowners who still are paying on underwater mortgages.
"The reality," Larson wrote in an e-mail, "is that many of these borrowers just can't be helped under the current structure, and that's why some people are just throwing up their hands and walking away."
The problems facing underwater borrowers across Florida are hurting the state's economy, said Sean Snaith, a University of Central Florida economist. Homeowners don't want to spend money when their personal balance sheets take a hit.
"It's a negative wealth effect," Snaith said. "It's a pretty big burden that these people face, and it's endangering the pace of our recovery."
Participation in the Obama administration's Home Affordable Refinance Program is limited to borrowers who owe up to 125 percent of the current value of their homes. But plummeting home prices over the past several years have left many owners owing more than that. Katzer bought his home for $460,000 in 2006, but he estimates it's now worth in the $250,000 range.
Analysts and mortgage brokers say government-run mortgage companies Fannie Mae and Freddie Mac consider borrowers who owe more than 125 percent poor risks because they likely will give up and abandon the homes, even after a refinancing. A spokesman for Fannie Mae declined to confirm that reasoning.
For the most part, individual lenders won't refinance if the homeowner isn't eligible under the terms outlined by Fannie and Freddie, which together own more than half of the nation's mortgages.
While government and lending officials sympathize, they say aid must go to homeowners who need it most.
In its most recent program for struggling homeowners, the federal government is committing $2.1 billion to 10 states hit hardest by the housing downturn.
Florida is getting $418 million to fight foreclosures, and the Florida Housing Finance Corp. is sending more than $73 million of that to Broward and Palm Beach counties as part of a so-called Mortgage Intervention Strategy expected to begin by the end of the year.
At the end of the first quarter, about 44 percent of single-family homeowners in Palm Beach, Broward and Miami-Dade counties owe more than their properties are worth, said Zillow.com, a Seattle real estate research firm. Borrowers in hard-hit markets like Florida may not be able to break even in a home sale until at least 2020, according to California research firm CoreLogic.
Florida Housing Finance will use the federal money to make loans that will cover up to nine months of mortgage payments for eligible homeowners. It hopes to find lenders or investors willing to forgive another nine months of payments.
Once homeowners resume making their mortgage payments, the loans can be forgiven after five years as long as the borrowers make payments on time and live in the residences.
But to qualify for the program, homeowners have to be out of work or in jobs with salaries that don't let them meet basic living expenses. That excludes underwater borrowers who can make their mortgage payments.
"It made sense to us that most of the people at risk of foreclosure are without jobs or are underemployed," said Cecka Green, spokeswoman for Florida Housing Finance. "This program is not going to help the majority of the people who need it. We understand that. But we wanted to target some of the people considered to be the most vulnerable."
The Mortgage Intervention Strategy could help neighborhoods like Dave Rakszawski's near Lantana, Fla. At least two houses on his block alone have fallen into foreclosure in recent months.
He'd like to see owners get the aid they need so the community of split-level homes can recover. But he questions whether borrowers qualifying for the state mortgage payments will be motivated to find jobs that allow them to leave the program after 18 months.
"Is that person going to benefit by it, or a year and a half from now are they going to say, 'I still can't afford it anyway'?" he asked. "Even if they're given more time, some people really will have no intention of making it work. It'll just be a free place to live for 18 months."
Rakszawski, 49, who manages an art glass company, said the government would be better off helping homeowners who live responsibly and are committed to repaying their debts.
Analysts say the only meaningful help for underwater borrowers still making their mortgage payments is principal reduction.
Banks want to avoid the financial hit, so the practice is not widespread across the industry. Bank of America did announce a mortgage forgiveness plan for some borrowers earlier this year.
Dianne Mattiace, a real estate agent with Balistreri Realty in Lighthouse Point, Fla., co-sponsored a workshop on Wednesday to explain options available to struggling homeowners.
She realizes it's impossible to help everyone who needs it. But she also said it's important for the government and lenders to reach out to underwater borrowers and give them hope.
Without it, she said, the housing market could tank again, as another wave of homeowners abandon their properties.
"Sometimes, you just have to stop the bleeding," she said.
As the temperatures continue to rise this summer, so does the cost of keeping your home cool. While homeowners across the country come to depend on air conditioners to keep the temperature down during the warm summer months, there are other options that will keep you cool while keeping your energy bill low.
Fans and ceiling fans
-If you’re looking for ways to beat the heat, a ceiling fan can be a great investment for your home. This one appliance can make a room feel 6 or 7 degrees cooler, and even the most power-hungry fan costs less than $10 a month to use if you keep it on for 12 hours a day. Good fans make it possible for you to raise your thermostat setting and save on air-conditioning costs. Fans don’t use much energy, but when air is circulating, it feels much cooler. Ceiling fans are best, but a good portable fan can be very effective as well.
-You should remember that even mild air movement of 1 mph can make you feel three or four degrees cooler. Also, make sure your ceiling fan is turned for summer – you should feel the air blown downward.
Shades, drapes or blinds
-Install white window shades, drapes or blinds to reflect heat away from the house. Close blinds, shades and draperies facing the sun (east-facing windows in the morning and west-facing windows in the afternoon) to keep the sun’s heat out and help fans or air conditioners cool more efficiently. Always remember that the best way to keep your home cool is to keep the heat out.
-The most common sources of internal heat gain are; appliances, electronic devices and lighting. Be aware of devices in your home that are generating heat and if you have air conditioning, use it wisely.
Don’t put lamps, televisions or other heat-generating appliances next to your air-conditioning thermostat, because the heat from these appliances will cause the air conditioner to run longer. The heat they produce will make the thermostat think your house is warmer than it really is, and your system will run harder than it needs to.
-Unless you absolutely need them, turn off incandescent lights and heat-generating appliances. Replace incandescent bulbs with compact fluorescents; they produce the same light but use a fifth the energy and heat.
-You should also try to avoid heat-generating activities such as cooking on hot days or during the hottest part of the day. If you are cooking, use your range fan to vent the hot air out of your house. By reducing the amount of heat in your home, you will use less energy to cool it.
-Plant trees or shrubs to shade air conditioning units, but not block the airflow. A unit operating in the shade uses less electricity. Deciduous trees planted on the south and west sides will keep your house cool in the summer and allow the sunlight to warm the house during the winter.
Roof and Walls
-Paint your roof white – If you’ve got a flat roof, paint it with a specially formulated reflective paint or just paint it white. The reflective effect will help to keep the rooms under the flat roof much cooler.
Other things to remember
-Humidity makes room air feel warmer, so reduce indoor humidity. Minimize mid-day washing and drying clothes, showering and cooking. When you must do these things, turn on ventilating fans to help extract warm, moist air.
-Avoid landscaping with lots of unshaded rock, cement, or asphalt on the south or west sides of your home because it increases the temperature around the house and radiates heat to the house after the sun has set.
-If the attic isn’t already insulated or is under-insulated, insulate it now. Upgrading from 3 inches to 12 inches can cut cooling costs by 10%.
FHA Pros, LLC, a national FHA condo approval service, has developed a list of facts speaking to the top misconceptions associated with FHA loans in order to help home buyers better navigate an already confusing market. FHA loans are mortgages issued by qualified lenders and insured by the Federal Housing Administration (FHA).
“We have seen home buyer interest in FHA loans go from practically zero three years ago to upwards of 87 percent today,” said Christopher Gardner, founder and president of FHA Pros, LLC. “Despite this rapid rise in popularity, many buyers still do not fully understand the benefits of these loans, and we believe it’s time to change that.”
1. FHA Loans Are Not Only For Lower-Income Borrowers. FHA loans are available to everyone. In fact, even Bill Gates can get one. There is no maximum income restriction associated with FHA loans. Borrowers do need to substantiate income and assets by submitting proper documentation. This requirement ensures that borrowers are well-vetted and truly able to afford their future homes.
2. FHA Loans Are Not Only For First-Time Buyers. Many people believe FHA loans are available only to first-time homebuyers. This is not the case. Whether borrowers are making their first home purchase or their fifth, they can look to FHA loans as a home financing option.
3. FHA Loans Are Not Just Small Loans; In Fact, Loan Amounts Can Be As High As Almost $800,000. The government recently raised the maximum loan amount from its original cap of $362,790 to $793,750 as a way to help stabilize the housing market. The amount a buyer can borrow varies from county to county. Later this summer, condo buyers interested in FHA loans can visit www.checkfhaapproval.com to instantly identify FHA-approved condo associations and review maximum loan amounts for a given location.
4. FHA Loans Are Not Affiliated With The Section 8 Housing Program. While both programs are administered by the U.S. Department of Housing and Urban Development (HUD), FHA loans have nothing to do with low-income subsidized housing. FHA loans are simply mortgages insured by FHA. This insurance provided by the federal government allows lenders to lend more freely by assuring them that they will be repaid in the event of default. Most traditional lenders, including Wells Fargo & Co., JP Morgan Chase and Citigroup are able to provide FHA loans to their customers.
5. FHA Loans Are Often More Affordable Than Conventional Loans. While FHA loans typically offer the same interest rates as other loans, borrowers benefit from a much lower down payment of as low as 3.5 percent.
6. FHA-Approved Condo Developments Are More Desirable To Buyers. With 87 percent of home buyers indicating that they plan to use FHA loans, condo associations that are not FHA approved are missing out on a significant pool of prospective buyers. Under rules in place since February 2010, an entire condominium development must now apply to HUD and be granted FHA approval before a buyer can purchase a unit in an association with an FHA loan or before an existing unit owner can refinance into an FHA loan.
Due to the general unwillingness of today’s lenders to extend credit with respect to conventional loans, many borrowers find that FHA is their best bet. Lenders don’t mind lending when the federal government (FHA) assures them of repayment.
Homeowners associations (HOAs) should note that although FHA-insured mortgages might be easier to obtain, they are not “risky” loans, due in large part to the strict “full documentation” requirements placed on borrowers.
Individual buyers or sellers can initiate the approval process or current owners can encourage their HOA to apply. More information about the FHA- approval process is available at www.getfhaapproval.com.
7. FHA Loans Are Assumable. In addition to lower down-payment and credit-qualifying requirements as compared to conventional loans, FHA loans are assumable. This means that when a seller with an FHA loan sells his or her property, the loan and its financing terms (interest rate) can be transferred to the new buyer. This unique feature will certainly make a property more valuable in times of rising interest rates.
“Now, more than ever, buyers and sellers need to understand the options available to them when it comes time to buy a home,” continued Gardner. “At FHA Pros we have worked with countless HOAs, attorneys and individuals to easily and efficiently navigate the historically tricky FHA-approval process.”
More than half of all homeowners with modified mortgages fell at least two months behind in their payments a year after the adjustment was made, according to a federal report released Wednesday.
However, the data also shows that modifications made in 2009, which emphasized reduced monthly payments, may perform better.
Only 40.7% of loans modified in the second quarter last year were delinquent after nine months, compared to 51.6% of those adjusted at the end of 2008, according to the report, published by the Office of Thrift Supervision and Comptroller of the Currency.
The quarterly report covers 64% of all mortgages outstanding in the United States -- some 34 million loans totaling nearly $6 trillion in principal balances. It offers one of the most comprehensive looks at the state of mortgages in America.
And modifications made under President Obama's foreclosure prevention program, known as HAMP, also had lower redefault rates than non-government modifications. Some 7.7% of HAMP modifications were delinquent after three months, compared with 11.3% of all modifications.
Under the HAMP program, borrowers' monthly payments are reduced to no more than 31% of their pre-tax income. Borrowers also receive incentives for making timely mortgage payments.
Interest rate reductions were the most common method that servicers used to reduce monthly payments in the first quarter, implementing them in 85.9% of all modifications. Term extensions were used in 46.8% of modifications, while principal reduction was utilized only 1.9% of the time.
Many experts say that servicers must do more principal reduction if they want to halt the foreclosure tidal wave. Homeowners are more likely to walk away if they owe much more than the home is worth, a situation about 1 in 4 borrowers find themselves in.
The report also found that delinquency rates dropped for both mortgage made to credit-worthy and to subprime borrowers. The number of newly initiated and completed foreclosures, however, increased by nearly 19% each.
Short sales increased by 9.2% for the quarter, but 120.4% for the year.
Still, servicers are working with borrowers to help them stay in their homes, the report found. There were 1.7 times as many modifications and payment plans initiated in the first quarter as new foreclosures.
Allison Rinehart's best hope for saving her home isn't the massive federal effort to stem foreclosures.
She's been denied, possibly in error, for that plan so she's banking on an alternative mortgage modification to keep her Charlotte townhouse.
"This is the only thing my daughter and I have," said Rinehart, who is 45. "I am a single parent, no child support, working as many jobs as I can take on."
The taxpayer-funded Home Affordable Modification Program, or HAMP, is the centerpiece of the nation's foreclosure prevention effort. But it doesn't work for many people.
For example, Bank of America estimated in April that more than half its 1.44 million delinquent mortgage customers weren't eligible for HAMP. Wells Fargo says about 80 percent of its roughly 500,000 modifications are non-HAMP. Combined, the two banks serve nearly 40 percent of U.S. mortgages.
HAMP also has seen a surge in homeowners failing the three-month trial period, and a decline in new trial enrollments. Critics blame servicers for the declines, saying they're doing a poor job and unfairly bouncing people from the program. Servicers acknowledge there were problems, especially early on. They also say homeowners aren't complying with payment agreements or document requirements.
Whatever the reason, the problem isn't going away. The number of struggling homeowners nationwide is expected to remain high because job growth remains sluggish and millions of people are out of work. That means alternative modifications are likely to become even more important tools for preventing foreclosure.
"The goal is just to get to affordability ... whether that happens through a modification through HAMP or outside of HAMP," said Tom Goyda, a Wells Fargo spokesman.
There are many reasons property owners can't qualify for the federal program.
For example, they might have refinanced or bought after HAMP's Jan. 1, 2009, cutoff. They might not meet income or debt requirements. HAMP modifications, subsidized by taxpayer dollars, also aren't available for investment property, vacation homes and high-end homes.
In April, Bank of America finalized more than 23,000 HAMP modifications and had more than 210,000 in the pipeline. The Charlotte bank also has been averaging about 13,000 alternative modifications a month this year, said spokesman Dan Frahm. Most are for customers with mortgages issued after the cutoff or above the HAMP limit or on properties that aren't their principal residence.
"HAMP is at the center of our modification efforts at Bank of America," Frahm said. "It's also important to recognize that no one solution or program can address the ... issues facing homeowners, who are experiencing hardship as a result of prolonged recessionary impacts."
President Barack Obama announced the HAMP program in February 2009, well into the financial crisis. Prior to that, lenders and mortgage servicers were already doing modifications so it's natural there are more of those. Many HAMP applicants also are still working through the slow, cumbersome process.
Servicers participating in HAMP must first consider homeowners for loan aid under that program. If that doesn't work for customers, servicers can consider them for their own programs.
Goyda said Wells is doing alternative modifications for about 60 percent of customers who reach HAMP's trial phase but don't ultimately qualify. About 10 percent find other solutions, and the balance are probably headed for foreclosure.
Of HAMP, he said: "It's only one part of our overall efforts to help customers find affordability."
Consumer advocates, while sharply critical of mortgage servicers for poor modification service, generally endorse HAMP's intent and its standardized approach.
"It's a useful template," said Julia Gordon, senior policy counsel with the Center for Responsible Lending in Washington. "It's by no means some kind of gold standard."
For example, a recent HAMP change eliminates unemployment benefits as a qualifying source of income for modifications.
"That's just crazy," she said.
Gordon cautiously welcomes alternative plans because they can potentially help more people. She's concerned homeowners won't have a consistent way to know what's available and how to qualify. She and others have seen instances where payments are actually higher under non-HAMP plans — not a workable solution for a struggling borrower.
She also frets about the lack of federal oversight for in-house plans. The U.S. Treasury oversees HAMP, but has been criticized for not penalizing servicers for mistakes.
Gordon urges people to review any modification offer carefully. What's the new payment? Has the principal been reduced if the loan balance exceeds the value of the house? How long does the modification last?
"It is conceivable you could have a proprietary product that's better," she said.
Under HAMP, the government pays servicers and homeowners for successful modifications. For homeowners who make all their payments on time, that can amount to $5,000 paid toward their loans.
Those incentives aren't available under alternative plans.
Al Ripley, with the nonprofit N.C. Justice Center, has been critical of HAMP's cumbersome nature. He's also concerned about the lack of consistency and transparency in alternative plans. He says all servicers should be required to disclose their guidelines and processes for all modifications.
"It would be very helpful for homeowners to have more predictability when applying for a modification," Ripley said.
Allison Rinehart's budget was tight in late 2004 when she paid about $136,000 for her Charlotte townhome.
She put $4,000 down on the home and took a 30-year mortgage at nearly 9 percent. Her monthly payments were $1,111. Rinehart and her daughter, Sydnea, now 15, got by on the roughly $30,000 a year Rinehart made as a longtime, self-employed hairdresser and middle-school coach.
Last spring, she noticed business dropping off more sharply as her clientele struggled in the downturn. In July, she asked for a modification from Select Portfolio Servicing, the Utah firm handling her mortgage. She received an unusually speedy offer of a trial plan, which is supposed to last three months.
Rinehart was told to make the first payment on Sept. 1 at her original amount. Subsequent trial payments were cut to $685. She made those payments through March, when she received a letter saying she was denied a HAMP modification. Soon after, she contacted McClatchy Newspapers.
"This has caused me sleepless nights, depression and anxiety," said Rinehart, who also works in her church's office and has been a nanny. "My 15-year-old doesn't know whether or not she will have her home the next day or not because of this."
SPS offered another trial, with monthly payments at an even lower $456. Rinehart started the payments in April but worried it was a delaying tactic and she'd be denied again. Meanwhile, she received notices from SPS saying that to keep her house she had to repay the thousands of dollars that hadn't been paid during the trials.
"It really scared me," she said. And angered her. If she had the money, she wouldn't have asked for help.
"It was a slap in the face."
In May, McClatchy Newspapers began contacting SPS, asking about Rinehart's case. After several weeks of messages and e-mails, the company said it would send Rinehart a response.
In that letter, SPS said Rinehart didn't qualify for HAMP because she failed to send documents by a certain date. Rinehart said that's not true, that she has copies and certified mail receipts proving she sent everything requested, on time.
The May 27 letter, which Rinehart provided the newspaper, confirmed Rinehart made the first two trial payments. The letter said once she made the third payment, due last week, "SPS will complete the modification process and you will receive the final modification agreement which requires your signature.
"Once this is received, SPS will permanently modify the terms of your note and bring your account current."
Her June payment cleared her bank shortly after the 1st of the month. On June 10, she arrived home to find the promised paperwork. She believes that happened only because she went public.
Last week, she was reviewing the papers and reflecting on what sustained her.
"I relied on my faith."
As the spring real estate season kicks in and the tax credit deadline for sale agreements approaches, the government is ending a program that has kept interest rates low and housing-affordability levels high for months.
On March 31, the Federal Reserve will stop buying mortgage-backed securities from Fannie Mae and Freddie Mac, returning control of interest rates to private investors.
For months, industry observers have predicted that once government supports are removed, interest rates will rise quickly, pushing many of the first-time buyers critical to housing’s recovery out of the market.
In late summer and fall 2009, lured by fixed 30-year mortgage rates under 5% and the first $8,000 tax credit, which expired Nov. 30, first-timers pushed sales of previously owned homes to the highest levels in at least three years, reducing record inventories and braking price declines.
That tax credit was renewed Nov. 5 and expanded to buyers who had not purchased a property in five years, although the credit for repeat buyers is $6,500. The second credit expires April 30, is unlikely to be renewed, and remains the engine moving buyers.
“Not a single one has expressed concern about interest rates,” said Cheryl Miller of Long & Foster Real Estate in Blue Bell, Pa., acknowledging that “there is, I suppose, a false sense of security regarding rates remaining low.”
As the date for the Fed pullout approaches, analysts now generally agree that an immediate rate spike is no longer the likely result. “We think there will be a significant increase in private demand for mortgage-backed securities to take the place of the Fed,” said David Berson, chief economist at PMI Group in Walnut Creek, Calif. Not enough to offset the Fed’s departure, he said, with rates possibly increasing a quarter of a percentage point, “but a significant one.”
Bankrate.com columnist Holden Lewis said rates are so low now—averaging 4.87% for a 30-year fixed this week—that an increase “is inevitable. But maybe they’ll rise gradually instead of jumping” April 1.
The Fed says it will stop buying “by” March 31 instead of “at” the end of the month, meaning that it likely has reduced its purchases and rates haven’t risen, Lewis said.
Moody’s Economy.com chief economist Mark Zandi said rates will “drift” higher in summer and fall, with the half a percentage point the Fed’s action cut working its way back in—mainly because investors believe the government would return if they got too high. For that reason, Philadelphia mortgage broker Fred Glick said, rates won’t change. “If the old buyers don’t come back, the Fed will intercede again to ensure rates during a continued slowly recovering economy will not go so high as to stymie a positive direction,” Glick said. Buyers of these securities “now see that the lenders have instituted rigorous standards to ensure that the Fannie Mae and Freddie Mac paper they are buying are very good loans,” he said.
On the other hand, said Holland, Pa.-based economist Joel L. Naroff, low rates are not sustainable, and “the only way to get the market to stand on its own is to get people to become realistic again about prices and rates.” Rates will likely rise, but “the level will still be historically low,” Naroff said.
When rates do rise, likely by year’s end, it won’t be because of the Fed’s action, but “natural macroeconomic forces” like a recovering economy and the high budget deficit, said Lawrence Yun, National Association of Realtors chief economist.
The possibility of renewed Fed intervention will likely prevent rate increases resulting from private investors demanding large risk spreads, said economist Brian Bethune of IHS Global Insight in Lexington, Mass. As a result, Bethune and IHS economist Patrick Newport believe, the rate will be at only 5.25% by the fourth quarter.
Many Fed officials have emphasized that “high unemployment and tame inflation warrant a continued promise to hold rates very low for a long time,” said Peter Buchsbaum, of Arlington Capital Mortgage in Horsham, Pa.
Some analysts expect the expansion to ease, “and I am sure the Fed does not want to extinguish the fragile recovery,” Buchsbaum said.
Treasury bond yields “did not move much after the Fed completed its $300 billion in purchases in November,” said Jerome Scarpello, of Leo Mortgage in Spring House, Pa., “meaning they were able to exit and not disrupt that market.” Rates will rise, he said, but not as high as the one percentage point others predict. “With unemployment high and foreclosures an issue, a significant rate increase can push home prices down,” Scarpello said, “and hamper the slight recovery we now have.”
(c) 2010, The Philadelphia Inquirer.
It’s been 16 months since Eugene and Patricia Harrison last paid the mortgage on their Perris, Calif., home. Eleven months since the notice got slapped on their front door, warning that it would be sold at auction.
A terse letter from a lawyer came eight months ago, telling them that their lender now owned the house. Three months later, the bank told them to pay up or get out by the end of the week.
Still, they remain in the yellow ranch-style home they bought seven years ago for $128,000, with its views of the San Jacinto Mountains. They’re not planning on going anywhere.
“We’re kind of on pins and needles, but who’d want to leave when you put this kind of energy into a house?” said Eugene Harrison, gesturing toward a bucolic mural of mountains, stream and flowers the couple painted on the living room wall.
Throughout the country, people continue to default on their home loans—but lenders have backed off on forced evictions, allowing many to remain in their homes, essentially rent-free.
Several factors are driving the trend, industry experts say, including government pressure on banks to modify loans and keep people in their homes. And with a glut of inventory in places like Southern California’s Inland Empire, Nevada and Arizona, lenders are loath to depress housing prices further by dumping more properties into a weak market.
Finally, allowing borrowers to stay in their homes helps protect the bank’s investment as it negotiates with the homeowners, said Gary Kirshner, a spokesman for Chase bank, a major lender. “If the person’s in the property, there’s less chance for vandalism, and they’re probably maintaining the house,” he said.
Economists say the situation won’t last forever, but in the meantime the “amnesty” may allow at least some homeowners to regain their financial footing and avoid eviction.
In the Inland Empire, an estimated 100,000 homeowners are living rent-free, according to economist John Husing, who based that number on the difference between loan delinquencies and foreclosures. Industry experts say it’s difficult to say how many families are in that situation nationally because only banks know for sure how many customers have stopped paying entirely.
But Rick Sharga of Irvine, Calif., data tracker RealtyTrac notes that the number of loans in which the borrower hasn’t made a payment in 90 days or more but is not in foreclosure is at 5.1% nationally, a record high. And yet the number of foreclosures last year was 2.9 million, below the 3.2 million that RealtyTrac economists predicted.
More evidence is provided by another firm, ForeclosureRadar, which says it now takes an average of 229 days for a bank to foreclose on a home in California after sending a notice of default, up from 146 days in August 2008.
“For some reason, banks are being more lenient with homeowners who are behind on their loans,” Sharga said. “Whether it’s a strategy to try and slow down the volume of foreclosures or simply a matter of the banks being able to keep up with volume is something that banks only know for sure.”
Lenders say the trend reflects their efforts to work with borrowers to modify loans to avoid foreclosure. Bank of America “continues to exhaust every possible option to qualify customers for modification or other solutions,” spokeswoman Jumana Bauwens said.
Some lenders are making it a policy to partner with delinquent borrowers. Citibank said this month that it would let borrowers on the brink of foreclosure stay at their homes for six months, whether or not they make payments, if they turn over their property deed. Such policies may partly reflect the fact that lenders can’t keep up with all the foreclosures, some say. “The mortgage lenders are so backlogged that some people are able to slip through the cracks,” said Kathryn Davis, a real estate agent at America’s Real Estate Advocates in Corona.
That was apparently the case for the Harrisons, who were told at various times that their house had been sold, that it belonged to someone else and that it was empty. “It’s been frustrating,” said Eugene Harrison.
The Harrisons missed their first payment in October 2008, shortly after Patricia Harrison lost her job as a healthcare aide and her husband’s part-time towing work dried up. They said they applied for a loan modification but were told that they couldn’t receive one until they were three months behind on their payments. So they stopped paying.
In April 2009, they received a notice warning them that their property “may be sold at a public sale,” and in July, they were told their house was a bank-owned property.
The bank sent a notice by FedEx in October demanding $3,000, and when the Harrisons called to discuss this notice, they were told they had four days to vacate the house.
Panicked, they arranged to stay with family in New Mexico and started packing their things, filling their garage with boxes of books, camping equipment and art. But no one came to kick them out. “We were afraid to leave the house, afraid the sheriff was going to come,” said Patricia.
After contacting consumer advocates about their situation, the Harrisons decided to stay put. Soon after, two men in a white pickup truck showed up at the house and peeped in the windows, telling the Harrisons that they thought the house was abandoned. The Harrisons suspected they were planning to move in themselves and chased them away.
As they wade through the red tape, the Harrisons can’t imagine abandoning a house where they’ve left their mark in the goldenrod and potpourri rose walls, the new fixtures and stenciling in the bathrooms, the fruit trees planted in the yard.
Although the Harrisons’ future is uncertain, industry observers agree that the rent-free life can’t last forever. As home values climb, banks will find it financially advantageous to foreclose on delinquent borrowers and sell their properties.
“In many cases, particularly in California, people owe a boatload of payments, and no bank is going to forgive that,” said Guy Cecala, editor of Inside Mortgage Finance, a trade publication.
In Diamond Bar, the Fraguere family is finally moving on after living rent-free for 18 months. Job loss and other setbacks prevented them from paying their mortgage, but they say they didn’t hear anything from the bank until a real estate agent showed up at their door last month saying she was going to sell their house.
Sandy Fraguere wasn’t surprised that it had taken the bank so long to ask them to move. “I don’t think they really knew what was going on or who was there,” she said.
Next stop for the Fragueres is a hotel, where they plan to stay for two weeks until their apartment in Chino Hills is ready for them to move in. Their dogs are being boarded and their belongings stored until they can retrieve them someday. The Fragueres have started saying goodbye to their neighbors, adding yet another empty house to a block that has already seen two other families forced to pack up and leave.
Military families seeking to buy a home can count on a little tax help. The Homebuyers Tax Credit, which provides eligible buyers with a tax credit of $8,000 for first time buyers and $6,500 for repeat home buyers, ended on April 30, 2010 for civilians. However, active duty military or those on extended overseas duty have until on or before April 30, 2011 to have a binding sales contract in place. The bill also exempts qualified service members on official extended duty from tax credit recapture rules.
"We honor those who serve our country and are glad that this bill acknowledges the unique circumstances they face," said Benjamin Clark, 2010 President of NAEBA (www.naeba.org). "This bill ensures that members of the military have equal opportunity to participate in the homebuyer tax credit and offers relief to struggling military families by making the mortgage payment tax deductible."
The Worker, Homeownership, and Business Assistance Act of 2009 provides a tax credit of up to $8,000 for qualified first-time home buyers purchasing a principal residence and a tax credit of up to $6,500 for repeat home buyers who have owned a home for five consecutive years out of the prior eight years. The tax credit is available for eligible purchasers who have a binding sales contract in place by April 30, 2010, and close by June 30, 2010. However, realizing that members of the military, the Foreign Service and Intelligence Community have unique circumstances the bill has special provisions for this group:
-- Tax credit extended for one year for military personnel serving outside the United States for at least 90 days during the period beginning December 31, 2008 and ending May 1, 2010.
-- Eliminates the 36-month recapture requirement for military personnel, including members of the Foreign Service and intelligence community, forced to sell or move from a tax credit home as a result of an official extended duty of service.
Visit www.irs.gov for more information on qualifying and claiming the tax credit.
With short sales making up almost 35% of home sales in March and the country with a national foreclosure problem, I Short Sale, Inc., one of the largest short sale firms in the U.S., sets the record straight on common short sale myths.
1. You must be default on your mortgage to negotiate a short sale. Short sales are not a function of default status on a mortgage. They are the result of the bank mitigating a potential default situation that, in the long run, will cost more money to the investors. We have completed many short sales in instances when the borrower was not in a default situation.
2. Listing my home as a short sale is embarrassing. Anytime we get ourselves into a tough financial situation it can cause some embarrassing feelings. It is important to remember that those feelings will not help us get back onto stable financial ground. We need to overcome our feelings and do what is right to protect our financial futures.
3. Buyers aren't interested in short sale properties. Short Sale properties are often times available at a competitive price to other properties on the market. In many cases, short sale properties are very well cared for and have not had to endure the deferred maintenance of a REO property. Short Sale properties are in great demand in the marketplace.
4. There's not enough time to negotiate a short sale before foreclosure. A good negotiator takes into account the timeline affiliated with a foreclosure. There is always a chance that a short sale can be negotiated. However, the only way to know for sure is to try.
5. The bank would rather foreclose than complete a short sale. Banks do not want to foreclose on property. It is expensive and carries a high level of liability once the bank owns that property as an REO. Wherever possible, banks are seeking other loss mitigation options before foreclosure.
6. Short sales are impossible and never get approved. Short sales are complicated, but not impossible. We negotiate short sale approvals every day.
Surveys show that staging pays off and often helps to sell a home fast. But your clients don't have to spend thousands to make a big impact. Put the home center stage with these thrifty tips:
1. First Impressions Count. Roll out the red carpet for potential home buyers by sprucing up your entryways, especially the one on a lockbox. Welcome mats, planters filled with seasonal flowers, and clutter-free foyers and hallways set the stage.
2. Sell the Space, Not Your Stuff. Remember that the goal of a successful showing is to make a prospect feel at home – like it's theirs, not yours. Put away your extensive personal collections. Less is more: open up your space so prospects can actually see what they're buying.
3. Paint and Elbow Grease Work Wonders. Fresh paint and a thorough cleaning will give you the greatest “bang for your buck”. Remember that neutral walls are your best bet when staging a home for sale. Lowe's has all the right shades to make your home more inviting. Get started with Lowe's online Paint Visualizer.
4. Go with the Flow. Arrange furniture for easy traffic flow. Consider placing a major piece of furniture at an angle, such as a couch or desk. Angles add interest and can create a more open feel.
5. See the Light. Move lamps to dark corners and arrange window treatments so that natural light floods your rooms. Brighter is better, and your rooms will look larger. Visit Lowe's extensive lighting section for the latest in fashionable, functional lighting.
6. Go Green. Live plants can add decorative flair, without spending a bundle. Plants and cut flowers have a way of warming up a room.
7. Don't Forget the Outdoors. If you have a porch, deck or patio, clean the furniture and replace worn cushions. Give your deck a fresh finish with a new stain and seal.
8. Make the Kitchen Sparkle. Declutter the countertops by removing toasters, food processors, and other non-decorative items. If you have a breakfast table or counter, put out a couple of table settings complete with place mats, napkins, and dinnerware.
9. Warm Up an Empty Home. If your home is vacant, consider renting furniture for key rooms, but don't go overboard. Ask your real estate professional for advice, based on your home's unique features and selling points.
These home staging tips are a great place to start as you gather ideas for your open house. "For more tips, check out our articles about preparing your house for sale."
RISMEDIA, May 5, 2010—Pending home sales increased again in March 2010, affirming that a surge of home sales is unfolding for the spring home buying season, according to the National Association of Realtors®. The Pending Home Sales Index (PHSI) forward-looking indicator based on contracts signed in March, rose 5.3% to 102.9 from 97.7 in February, and is 21.1% above March 2009 when it was 85.0; this follows an 8.3% increase in February. The data reflects contracts and not closings, which usually occur with a lag time of one or two months.
Lawrence Yun, NAR chief economist, said favorable affordability conditions have been working with the tax credit. “Clearly the home buyer tax credit has helped stabilize the market. In the months immediately following the expiration of the tax credit, we expect measurably lower sales,” he said. “Later in the second half of the year, and into 2011, home sales will likely become self-sustaining if the economy can add jobs at a respectable pace, and from a return of buyer demand as they see home values stabilizing.”
The PHSI in the Northeast declined 3.3% to 75.1 in March but remains 27.2% higher than March 2009. In the Midwest the index increased 1.2% to 98.9 and is 18.5% above a year ago. Pending home sales in the South jumped 12.7% to an index of 121.2, which is 28.3% higher than March 2009. In the West the index rose 1.9% to 99.9 and is 8.8% above a year ago.
“Another encouraging sign is the improvement in the availability for jumbo and second-home mortgages,” Yun said. “As bank balance sheets strengthen, it is just a matter of time before lending of non-government-backed mortgages steadily opens up.”
The National Association of Realtors, “The Voice for Real Estate,” is one of America’s largest trade associations, representing 1.1 million members involved in all aspects of the residential and commercial real estate industries.
The Pending Home Sales Index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing.
The index is based on a large national sample, typically representing about 20% of transactions for existing-home sales. In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity parallels the level of closed existing-home sales in the following two months. There is a closer relationship between annual index changes (from the same month a year earlier) and year-ago changes in sales performance than with month-to-month comparisons.
An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined as well as the first of five consecutive record years for existing-home sales.
For more information, visit www.realtor.org.
RISMEDIA, April 30, 2010—While there are varying opinions about the current state of the economy, one thing is for certain—continued growth depends heavily on loan availability for every qualified buyer. The National Association of Realtors (NAR) is pushing heavily to ensure the flow of capital continues into the housing and mortgage markets. In this month’s Power Broker Roundtable, industry leaders James Weichert, Jr. and Gino Blefari discuss where we stand on the issue of restructuring the financial markets.
Steve Brown, Special Liaison for Large Firm Relations, NAR
James Weichert, Jr., Vice President, Weichert REALTORS®
Gino Blefari, Founder, President, CEO, Intero Real Estate Services
Steve Brown: As this issue goes to press, the federal government is once again pledging continued support of Fannie Mae and Freddie Mac—a vital component in the push to ensure adequate liquidity in the mortgage marketplace. And while there are varying opinions about the current state of the economy overall, there is widespread agreement that government efforts such as the Home Buyer’s Tax Credit are contributing to stabilization in our industry. But continued growth, especially in the upper end of the housing market, depends heavily on loan availability for every qualified buyer. That is why NAR, through its Presidential Advisory Group, continues the push to restructure Fannie Mae and Freddie Mac in a way that ensures the continued flow of capital into the housing and mortgage markets to qualified buyers in all economic conditions. Visit www.REALTOR.org/government_affairs/gapublic/gse_principles to learn more.
Where do we stand on these issues today and what do brokers need to know going forward? Today we have invited a couple of outspoken industry veterans to bring us up to date. Jim, your dad was among the earliest proponents of recovery stimulus efforts. What’s your take on restructuring and its impact on lending now?
James Weichert, Jr: The way we see it, we’ve gone from an environment of overly lax lending practices a few years ago to a period where regulatory reforms have become so restrictive that qualified consumers, as you have said, are having trouble getting loans. At the same time, these regulatory changes have increased the lender’s cost of doing business, and the additional expense winds up being transferred to the consumer in the form of more expensive loans. I think we need to find a happy medium that provides checks and balances without inhibiting lending.
Gino Blefari: In my opinion, in some ways, it is as though we’ve fallen down the rabbit hole back into the 1980s, when the first and most important question we asked was, ‘can this buyer get a loan?’ That is something we weren’t so concerned about for a while, and it’s come back front and center. One of the things we might think about now is requiring that buyers have adequate reserves to protect against default—because experience is showing us that even loan modifications don’t necessarily work. Too many people will just find themselves underwater again.
James Weichert, Jr: Which is one reason we have been flooded with short sales.
Gino Blefari: Actually, I got to calling them ‘long sales’ – do I need to explain why? So okay, we all learned that the package needs to be perfect when it goes to the lender, and brokers need to educate agents about how to move those packages through.
James Weichert, Jr: I think the worst might be over on that. In many cases, the wait time seems to be shortening as both REALTORS® and lenders work their way out of what has really been a pretty tight box. I think the lending situation will improve, though it certainly will take time.
Steve Brown: Yes, and NAR provides plenty of material to help brokers train agents in handling the short sale, including the new Short Sales and Foreclosure Resource certification. But the question is, is this surfeit of short sales – even better-managed short sales – helping to firm up what most of us would call a shaky recovery?
Gino Blefari: Not really, because in a short sale, the seller is the bank, and the bank doesn’t move up to a larger home. It’s the move-up market that needs to be addressed. One of the things we’d like to see happen, assuming a borrower has good credit and solid employment, is increasing conforming loan limits.
James Weichert, Jr: Absolutely. Some of the steps the government has taken, like buying mortgage-backed securities and keeping short-term interest rates low, are really helping to ensure adequate liquidity. A viable solution for jumbo loans now would help jump-start the higher end market. There seem to be a number of solutions being discussed…let’s see what transpires.
Steve Brown: You know, I have to say how important I think it is that brokers stay informed about all the options under discussion.
Gino Blefari: Yes, as well as on all the other issues that could impact the move-up market.
James Weichert, Jr: I agree. Also, if we’re going to bring about a sustained market recovery, it’s vital to work collectively as an industry. It’s why NAR is so important to us, and why the real estate, home building and mortgage industry associations need to work together for the common goal.
Gino Blefari: There’s no question that what happens to Fannie and Freddie impacts everyone – FHA and everyone else. Let’s face it, without available financing, none of us get to do real estate! But we’ve been through these kinds of cycles before. Hopefully, getting through this one will leave us all a little wiser, too.
RISMEDIA, April 29, 2010—The expiration of the 2010 Home Buyer Tax Credits on April 30 is unlikely to put off Americans looking to purchase homes who believe now is a good time to buy and are confident that home prices will rise according to a survey released by Prudential Real Estate and Relocation Services, Inc., a Prudential Financial, Inc. company. The survey of 1,000 Americans between the ages of 25-64 with at least $35,000 household income was conducted during April 15-20, 2010.
More than 90% of consumers believe that the home buyer tax credits have helped both first-time home buyers and the U.S. housing market overall. Among consumers actually shopping for homes, 65% believe that the end of the tax credits will have little or no effect on their interest in purchasing a home.
While consumers remain unsure about the direction of the housing market, the survey reveals that they are optimistic about real estate values with 46% of consumers expecting real estate prices in their area to increase over the next year. Just 12% expect prices will decline. Over the next five years, 79% expect real estate prices to increase, with 20% expecting prices to increase substantially.
“The survey underscores the key role the federal home buyer tax credits played in stimulating residential real estate market activity and the U.S. economy,” said James Mallozzi, chairman and chief executive officer of Prudential Real Estate and Relocation Services, Inc. “It also shows that most consumers believe the market has hit bottom and are more optimistic about the future.”
Survey respondents identified concerns about rising mortgage interest rates and unemployment as the most important factors affecting their decision to purchase a home, along with more stringent lending criteria and fewer mortgage-backed securities purchased by the Federal Reserve. The expiration of the tax credits placed lowest on their list of concerns. Among those who have recently purchased a home, 61% cited low mortgage interest rates as “very important” to their decisions – an amount greater than either the tax credit or even cheaper prices. The 66% expecting interest rates to rise underscores potential headwinds for the market.
“The tax credits clearly helped stimulate the market when consumer confidence was low and housing inventory was high,” said Earl Lee, president, Prudential Real Estate and Relocation Services, Inc. “While the tax credit expiration is a concern for many, the bigger issues now are the availability and cost of financing as well as if they will have a job.”
Despite the significant downturn in the real estate market, the survey underscores that the dream of homeownership and the perception that owning a home is a good investment remain intact. Among current renters, 75% still believe owning their home is a better long-term choice for their needs than renting.
The majority of consumers also believe that homeownership is a better investment than individual stocks or bonds (75%), mutual funds (72%), or savings accounts (74%).
“The real estate market is precariously balanced. Consumers are clearly motivated to take advantage of the opportunities the current low interest rates and prices afford,” Lee notes. “While the market is picking up in terms of sales and confidence, and the majority still believe that owning a home is a good investment, the outlook for the market remains highly dependent upon the direction of the economy overall.”
RISMEDIA, April 19, 2010—(MCT)—Latasha Hall never envisioned herself a homeowner. But by the end of the month, she will be. Just in time.
With the soon-to-expire tax credit for first-time buyers as an assist, the single mother plans to close on a $166,650 three-bedroom house in Clifton Heights, Pa. “If it hadn’t been for the credit, I wouldn’t have done it,” Hall said.
To be eligible for the federal tax credits—up to $8,000 for qualified first-timers and up to $6,500 for certain repeat buyers—houses must be under contract by April 30, with settlement by June 30, 2010.
With those deadlines in sight, some real estate agents say they are relishing their first busy days in months.
For some buyers, a tax credit is an added perk in an already-friendly market with good inventory and low mortgage rates.
For those like Hall, who is working toward her bachelor’s degree in behavior and addictions counseling and who works two jobs, it’s the last piece that fits the puzzle. In January, Hall visited Weichert Realtors for help finding a rental home after her landlord’s lender foreclosed.
Steve Madonna, a loan officer with Weichert, looked at her income (about $54,000) and her credit score (which needed some work, but not much) and suggested she buy instead. Madonna connected Hall with a state loan program that would provide $5,000 of the $8,000 credit up front, for use on closing costs or maintenance on the house. Hall set to work paying off two past-due bills and bugging the credit bureaus—sending weekly faxes and calling often—to update her score quickly. “If I hadn’t heard about this credit, I wouldn’t have worked so hard to get it done,” she said. “This is my time to go out and do what I have to do. I kept thinking about my kids.”
The new Clifton Heights neighborhood is safer, she said, and it’s just two blocks from the school her 9-year-old son attends. The credit has been “a blessing,” Hall said.
To Realtors like Daren Sautter, it’s a relief. “It’s nice to be busy,” he said.
Sautter, of Prudential Fox & Roach in Cherry Hill, N.J., watched showings and Internet leads triple in the first three weeks of March.
He expects to be slammed through the April 30 deadline, then figures he’ll see a lull before the spring market picks up some. “If you don’t sell a house in April,” Sautter said, “you’re not selling it.”
Sellers likely will be thinking the same thing, Realtors said, and listing prices could drop this month.
Sautter recently helped Pat Poole price her four-bedroom Cherry Hill house to sell. At $290,000, it went after just one day on the market. Recently divorced, Poole was looking to downsize. She sold the house to a young couple who used the repeat-buyer credit. Her next task: finding a new house for herself and her 17-year-old son in time to secure her own tax credit. “I’m going to get in under the wire,” Poole said.
A flurry of activity is noticeable in areas with a strong inventory of homes affordable to young families, Realtors said.
But some brokers are seeing a “trickle-up” effect. Would-be buyers are able to sell their homes, aided by the rush for the tax credit, and upgrade to communities with better school systems or more historic charm.
In Haddonfield, N.J., the proximity to Philadelphia and access to the PATCO High-Speed Line were big draws for Jeff Minors and Amy Henry. Minors will commute to his job as a financial-news editor in New York City. The couple, longtime renters, were looking to move to southern New Jersey from Norwalk, Conn., with their 2-year-old son. They recently moved into a four-bedroom home in Haddonfield that cost about $575,000. The first-time-buyer credit was an added bonus, Minors said. “We were more concerned about finding the right house at the right price,” he said. “But it’s definitely a nice benefit.”
RISMEDIA, April 23, 2010—Buyers responding to the home buyer tax credit and favorable affordability conditions boosted existing-home sales in March 2010, marking the beginning of an expected spring surge, according to the National Association of Realtors.
Existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, rose 6.8% to a seasonally adjusted annual rate of 5.35 million units in March from 5.01 million in February, and are 16.1% above the 4.61 million-unit level in March 2009.
Lawrence Yun, NAR chief economist, said it is encouraging to see a broad home sales recovery in nearly every part of the country, with two important underlying trends. “Sales have been above year-ago levels for nine straight months, and inventory has trended down from year-ago levels for 20 months running,” he said. “The home buyer tax credit has been a resounding success as these underlying trends point to a broad stabilization in home prices. This is preserving perhaps $1 trillion in largely middle class housing wealth that may have been wiped out without the housing stimulus measure.”
Total housing inventory at the end of March rose 1.5% to 3.58 million existing homes available for sale, which represents an 8.0-month supply at the current sales pace, down from an 8.5-month supply in February. Raw unsold inventory is 1.8% below a year ago, and is 21.7% below the record of 4.58 million in July 2008.
“Foreclosures have been feeding into the inventory pipeline at a fairly steady pace and are being absorbed manageably,” Yun said. “In fact, foreclosures are selling quickly, especially in the lower price ranges that are attractive to first-time home buyers.”
A parallel NAR practitioner survey shows first-time buyers purchased 44% of homes in March, up from 42% in February. Investors accounted for 19% of transactions in March, unchanged from February; the remaining sales were to repeat buyers. All-cash sales remain elevated at 27% in March, the same as in February.
The national median existing-home price for all housing types was $170,700 in March, up 0.4% from March 2009. Distressed homes, typically sold at a 15% discount, accounted for 35% of sales last month – unchanged from February.
“With home values stabilizing, a revival in home buying confidence will likely help the housing market get back on its feet even as the tax credit impact disappears,” Yun said.
NAR President Vicki Cox Golder, owner of Vicki L. Cox & Associates in Tucson, Ariz., said buying conditions are in near-perfect alignment. “Even with tougher loan standards, historically low mortgage interest rates with affordable prices and a sense that the market is turning have created optimal conditions in much of the country,” she said.
“With the fast approaching April 30 deadline to get a contract in place for the tax credit, Realtors are working harder than ever to negotiate transactions, arrange services and complete paperwork,” Golder said. “Because many repeat buyers need to sell their current home first, many will be purchasing later without the tax credit but now have the benefit of a more buoyant housing market.”
According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage dipped to 4.97% in March from 4.99% in February; the rate was 5.00% in March 2009.
Single-family home sales rose 7.3% to a seasonally adjusted annual rate of 4.68 million in March from a level of 4.36 million in February, and are 13.3% above the 4.13 million level a year ago. The median existing single-family home price was $170,700 in March, up 0.6% from March 2009.
Single-family median prices rose in 14 out of 20 metropolitan statistical areas reported in March in comparison with a year earlier. Five metro areas experienced double-digit increases, including San Diego, St. Louis and Boston.
Existing condominium and co-op sales increased 3.1% to a seasonally adjusted annual rate of 670,000 in March from 650,000 in February, and are 39.3% higher than the 481,000-unit level in March 2009. The median existing condo price was $170,600 in March, which is 0.7% below a year ago.
Regionally, existing-home sales in the Northeast increased 6.0% to an annual level of 890,000 in March and are 25.4% higher than a year ago. The median price in the Northeast was $249,800, up 8.9% from March 2009.
Existing-home sales in the Midwest rose 7.2% in March to a pace of 1.19 million and are 15.5% above March 2009. The median price in the Midwest was $139,300, up 0.2% from a year ago.
In the South, existing-home sales increased 7.1% to an annual level of 1.97 million in March and are 13.9% higher than a year ago. The median price in the South was $154,800, up 5.2% from March 2009.
Existing-home sales in the West rose 6.6% to an annual rate of 1.30 million in March and are 14.0% above March 2009. The median price in the West was $209,400, down 7.9% from a year ago.
NEW YORK (CNNMoney.com) -- Short sales are the hottest thing going in the distressed-property market, and the trend is expected to get even hotter in coming weeks, when the government starts handing out cash to encourage lenders to close these deals.
"Banks have ramped up short sale approvals," said Duane Legate of House Buyer Network, which connects short sellers with buyers. "They're hiring a lot of the people who once worked in the mortgage-lending industry and moved them over to short sales."
These transactions, where lenders allow homeowners to sell their houses for less than they owe, accounted for 17% of all residential real estate sales in February, up from nearly 13% in November, according to a monthly real estate market survey by Campbell/Inside Mortgage Finance.
And Bank of America (BAC, Fortune 500), the country's largest mortgage servicer, has more than doubled the number of short sales it processed in recent months.
Elizabeth Weintraub, a Sacramento, Calif.-area real estate agent who handles many short sales, was amazed at how quickly a recent deal went through. "Bank of America approved it in 24 days," she said. "That flipped me out."
This is a huge change from even just six months ago when the short-sale market was stalled and most people would describe the process has real estate hell. Because lenders stand to lose so much on these transactions, they have been reluctant to make short sales happen, often waiting months before getting back to potential buyers.
"In the past, many short sales would never come to fruition and the ones that did averaged over half a year to complete," said Chris Saitta, CEO of Equator, which produces short sale software.
"Things would just fall into a black hole and not come out again," added Weintraub.
And even when banks did agree to the sale, the process could be further complicated if the original owner had a second mortgage.
In most cases, the first lender is repaid in full before any money flows to a second-lein holder. And because most distressed borrowers are severely underwater, there's usually nothing left to send on. As a result, second-lein holders are left holding the bag and have been killing many deals.
But that has been changing. For one thing, banks realize that they make out far better financially with a short sale than a foreclosure. "The lenders lose 50% on a foreclosure and only 30% on a short sale," said Glenn Kelman, founder of the real estate Web site Redfin. "And short sales offer a way to get distressed properties off their books quickly."
And on April 5, lenders and mortgage investors will have even more incentives to offer troubled borrowers short sales instead of foreclosing.
Under the new Home Affordable Foreclosure Alternatives program, borrowers will earn a $3,000 "relocation incentive" and servicers will get $1,500 for handling a short sale.
The investors who actually own the mortgage notes will get $2,000 in exchange for sharing proceeds of the short sales with any second-lien holders. And, finally, those second lien holders will receive up to $6,000 for releasing their claims.
Lenders participating in the program must also determine the market values of properties early on and inform the owners of just what price they're willing to accept. Then, if owners come back to the lenders with bonafide offers, they have to be accepted within 10 days.
Equator's Saiita anticipates a short sale explosion in response to the new program. "The challenge will be handling all the volume," he said.
The company has already tweaked its software, which 58 servicers use, to handle the new HAFA rules. And that should help reduce the time it takes to execute a sale, which currently averages 88 days.
The boom in short sales may accelerate the end to the foreclosure crisis by cleaning out the overhang of borrowers in distress and replacing them with more stable homeowners.
Plus, these sales are better for distressed borrowers because their credit scores suffer less. Going through a foreclosure can knock 200 points off a FICO score, twice as much as the penalty for a short sale.
The Federal Housing Finance Agency has extended the government's Home Affordable Refinance Program by 12 months.
HARP's new end date is June 30, 2011.
Originally known as Making Home Affordable, HARP aims to help homeowners refinance their mortgage who may otherwise be ineligible because of falling home values.
There are 4 basic HARP criteria every borrower must meet:
If you're not sure whether Fannie Mae or Freddie Mac back your mortgage, you can look it up. Fannie's website is http://www.fanniemae.com/loanlookup; Freddie's is http://freddiemac.com/mymortgage. If you don't locate your loan on either website, your mortgage is backed by a third-party and is not HARP-eligible.
For homeowners that meet HARP's criteria, there are some underwriting details of which to be aware.
First, if your original mortgage does not require mortgage insurance, your HARP mortgage will not require it, either -- regardless of your new loan-to-value.
Second, all HARP refinances require income verification. It doesn't matter if your original mortgage was a stated income or no income verification loan. You should expect to produce 1040s and W-2s for your HARP refinance and asset statements, too.
And, lastly, second (and third) mortgages may not be "rolled in" to a new first mortgage loan balance. Junior lien holders must agree to remain in a junior lien position, regardless of combined loan-to-value.
There is a thorough HARP FAQ section on the government's website, but it's for general questions only. For specific Home Affordable Refinance Program information, first make sure you're program-eligible, then pick up the phone to call your loan officer.
HARP is complex enough that you'll want to talk with a human before taking a proper next step.
According to foreclosure-tracking firm RealtyTrac, foreclosure filings topped 300,000 for the 12th straight month last month as 1 in every 418 U.S. homes received a foreclosure filing.
It's a small improvement from January and a just 6 percent increase over February 2009.
On a per-capita basis, foreclosure density varied by state:
Also, as in January 2010, foreclosures across the country were concentrated. 10 states beat the national Foreclosure Per Capita average; 40 states fell below. Like everything else is real estate, it seems, foreclosures are local.
For today's home buyers, foreclosures represent an interesting opportunity.
Homes bought in various stages of foreclosure are often less expensive than other, non-foreclosure homes. It's one reason why distressed home sales account for 38 percent of all resales. However, less expensive doesn't always mean less costly. A foreclosed home may be in various stages of disrepair and they're often sold as-is, as policy.
Buying new or used can be cheaper than buying broken-down.
Therefore, if you're in the market for a bank-owned home, make sure you know what you're buying before you sign a contract. Have qualified professionals review and inspect the property, as needed. Damage to pipes or the property's structure, for example, may not be so obvious on a walk-though and you'll want to know about it before you buy.
Also, foreclosed homes are federal tax credit-eligible. Buyers must be under contract by April 30, 2010 and closed by June 30, 2010.
In November, Congress extended and expanded the First-Time Home Buyer Tax Credit program to include a subset of "move-up" buyers -- homeowners that have owned and lived in their home for 5 of the last 8 years.
The credit ranges up to $8,000 per buyer. There's now just 7 weeks left to take advantage.
To be eligible, home buyers must be under contract for a new home no later than April 30, 2010, and must be closed no later than June 30, 2010.
In addition to meeting the deadline dates, there's a basic set of requirements to be tax credit-eligible:
There's other criteria, too.
For one, the sales price on the subject property cannot exceed $800,000. Homes sold for more than $800,000 are ineligible for the tax credit. Furthermore, households earning more than $125,000 as single-filers, or $225,500 for joint-filers, are ineligible.
You can read the complete eligibility requirements at the IRS website, or, you may just find it simpler to speak with your accountant about it. There are some nuances in qualifying for and claiming the tax credit on your returns and getting a professional's opinion is always wise.
And lastly, don't forget that government's tax credit program is a true tax credit. It's not a tax deduction. This means that a tax filer whose "normal" tax liability is $3,500 and who is eligible for $8,000 in credit will receive a $4,500 refund from the U.S. Treasury.
If you're currently in the House Hunt, mark your calendar for April 30, 2010. It's 7 weeks away and you can be sure that as the date gets closer, buyer traffic is going to increase. You may find sellers more willing to negotiate today than several weeks from now.
Conforming and FHA mortgage rates have improved over the last 10 days, but that could all change this Friday with the release of February's Non-Farm Payrolls report.
Non-Farm Payrolls is the official name of the government's monthly jobs report and, given the fragile state of the U.S. economy, Wall Street will be watching it closely.
Mortgage rates could spike come Friday morning.
Jobs are an important part of the nation's recovery. Among other concerns, unemployed Americans don't spend as much money on goods and services, and are more likely to default on a mortgage. This retards economic growth and increases the potential for foreclosures.
When jobs numbers worsen, therefore, it follows that economic projections worsen, too.
Poor employment figures draw money away from the stock markets and into less-risky bond markets, including mortgage-backed bonds. Mortgage rates improve as a result. Conversely, when jobs numbers improve, stock markets gain and bond markets worsen.
Analysts expect that a net 30,000 jobs were lost in February.
The Bureau of Labor Statistics press release hits at 8:30 A.M. ET, roughly an hour before Friday's mortgage pricing will be available to consumers. If you're worried about rates rising on the heels of a strong jobs report, therefore, be sure to get your rate lock in today instead. Once Friday gets here, it may be too late.
Fewer homes went under contract in January as the housing market continues to limp through the winter months.
According to the National Association of Realtors®, the Pending Home Sales Index fell to its lowest level in 3 quarters this January. By contrast, in October 2009, the index had touched a 3-year high.
The Pending Home Sales Index measures the number of homes that have gone under contract to sell, but have yet to close nationwide. It's compiled using data from more than 100 regional listing services and 60-plus brokerages -- the sample set encompasses 20 percent of all home resales in a given month.
Economists have come to rely on the Pending Home Sales Index because of its high correlation to actual home sales. 80% of all home marked "pending" close within 60 days. Many of the rest close within 120.
Therefore, when we see Pending Home Sales show weakness like it did in January, we can infer that home resales will remain weak through the spring.
But will they really?
In other words, there's a confluence of factors that could lead to a rush of sales around the country over the next two months, reversing the housing market's recent momentum.
According to the the National Association of Realtors®, "distressed homes" represented nearly 2 of every fifth home sold in January 2010. Clearly, real estate investors are taking advantage of good deals on cheap property. But there's risk involved.
This NBC Today Show interview first ran in March 2009, featuring real estate expert Barbara Corcoran. Despite its age, the message remains relevant. Today may be a terrific time to buy a bank-owned home -- just make sure you do your research first. There's plenty of ways for investors to get burned.
Some of the tips in the video include:
Corcoran also gives pointers on how to evaluate a prospective tenant.
Foreclosures should represent a large number of 2010's total home sales and will offer interesting opportunities to bona fide real estate investors. Before you jump in, make sure to watch the video. The rents you save may be your own.
Remember, the stats and the data are from 12 months ago, but the advice stays meaningful.
The winter months have not been kind to home sales.
After plunging 17 percent in December, Existing Home Sales fell by an additional 7 percent in January, according to the National Association of Realtors®. An "existing home" is a home resold by a previous owner (i.e. not new construction).
In looking at the annualized, adjusted Existing Home Sales data, we find:
These are similar findings to the New Home Sales data issued by the government last week. That report put new home sales at a 40-year low and showed new homes supplies higher by an entire month.
But don't think housing rebound has halted! Home sales are cyclical and there are outside forces on today's market.
For one, the market is still feeling the after-effects of the original First-Time Home Buyer Tax Credit. Sales spiked in the months leading up to the original November 2009 expiration date. A pull-back is natural and expected.
Looking at the long-term trend, Existing Home Sales volume appears right in line.
Furthermore, weather across much of the U.S. was awful in January. That, too, can impede home sales as homes are neither shown nor negotiated when weather is majorly inclement.
Anecdotal evidence is showing sales activity higher through February and into March. And, although it's unlikely we'll see a spike through April like we did last November, buy-side demand for homes should remain strong. The good news of the sagging sales reports is that today's buyers may find home prices are lower and sellers are more willing to negotiate.
Earlier this week, the private-sector Case-Shiller Index showed home prices slightly lower between November and December. Thursday, the public-sector Home Price Index showed the same.
Publishing on a 2-month lag, the Federal Home Finance Agency said home prices fell by 1.6 percent nationally in December. And that's an average, of course. Some regions performed well in December as compared to November, others didn't.
These aren't just footnotes. They're an important piece toward understanding what national real estate statistics really mean. In short, "national statistics" are just a compilation of a bunch of local statistics.
For example, if we dig deeper into the FHFA Home Price Index 70-page report, we find that cities like Terre Haute, IN, Buffalo, NY, and Amarillo, TX posted year-over-year home price gains. You won't see that in a "national" report.
Furthermore, it's a sure bet that those same cities, you could find neighborhoods that are thriving, and others that are not. Just because the city shows higher home values overall, it won't necessarily be the case for every home in the city.
Every street in every neighborhood of every town in America has its own "local real estate market" and, in the end, that's what should be most important to today's buyers and sellers. National data helps identify trends and shape government policy but, to the layperson, it's somewhat irrelevant.
So, when you need to know whether your home is gaining or losing value, you can't look at the national data. You have to look at your block -- what's selling and not selling -- and start your valuations from there.
The housing recovery showed particular weakness in the New Homes Sales category last month -- good news for homebuyers around the country.
A "new home" is a home for which there's no previous owner.
New Home Sales fell 11 percent from the month prior and posted the fewest units sold in a month since 1963 -- the year the government first started tracking New Home Sales data.
Right now, there are roughly 234,000 new homes for sale nationwide and, at the current sales pace, it would take 9.1 months to sell them all. This is nearly 2 months longer than at October 2009's pace.
The reasons for the spike in supply are varied:
Now, these might be less-than-optimal developments for the economy as a whole, but for buyers of new homes, it's a welcome turn of events. Home prices are based on supply and demand, after all.
As a result, this season's home buyers may be treated to "free" upgrades from home builders, plus seller concessions and lower sales prices overall.
It's all a matter of timing, of course. New Home Sales reports on a 1-month lag so it's not necessarily reflective of the current, post-Super Bowl home buying season. And from market to market, sales activity varies.
That said, mortgage rates remain low, home prices are steady, and the federal tax credit gives two more months to go under contract. It's a favorable time to buy a new home.
Using data compiled in December, Standard & Poors released its Case-Shiller Index Tuesday. The report shows home prices down just 2.5% on an annual basis, a figure much lower than the 8.7% annual drop reported after Q3.
According to Case-Shiller representatives, the housing market is "in better shape than it was this time last year", but some of the summer's momentum has been lost. 15 of 20 tracked markets declined in value between November and December 2009.
Meanwhile, it's interesting to note the 5 markets that didn't decline -- Detroit, Los Angeles, Las Vegas, Phoenix and San Diego. Each of these metro regions were among the hardest hit nationwide when home prices first broke. Now, they're leading the pack in price recovery.
For some real estate investors, that's a positive signal. But we also have to consider the Case-Shiller Index's flaws because they're big ones.
That said, the Case-Shiller Index is still important. As the most widely-used private sector housing index, Case-Shiller helps to identify broader housing trends and many people believe housing is a key element in the economic recovery.
If the markets that led the housing decline will lead the housing resurgence, December's data shows that full recovery is right around the corner.
You can't get your mortgage rates from the newspaper. Last week proved it. Again.
Friday morning, headlines and around the country read that mortgage rates were down 0.04 percent, on average, since the week prior.
A sampling of said headlines includes:
The story behind the headline was sourced from the Freddie Mac Primary Mortgage Market Survey, am industry-wide mortgage rate poll of more than 100 lenders. The PMMS has reported mortgage rate data to markets since 1971 and is the largest of its kind.
Unfortunately, rate shoppers can't rely on it.
See, unlike governments and private-sector firms, when consumers are in need mortgage rate information, they need the information delivered in real-time; for making decisions on-the-spot. Consumers need to know what rates are doing right now.
The Freddie Mac survey can't offer that.
According to Freddie Mac, the survey's methodology is to collect mortgage rates from lenders between Monday and Wednesday and to publish that data Thursday morning. The survey results are an average of all reported mortgage rates. The problem is that mortgage rates change all day, every day. The PMMS results are skewed, therefore, by methodology.
And, meanwhile, the issue was compounded last week because mortgage rates shot higher Wednesday afternoon -- after the survey had "closed". The market deterioration ran into Thursday, too -- again, unable to be captured by Freddie Mac's PMMS.
Although the newspapers reported mortgage rates down last week, they weren't. Conforming mortgage rates were higher by at least 1/8 percent, or roughly $11 per $100,000 borrowed per month. In some cases, rates were up by even more.
Newspapers and websites can give a lot of good information, but pricing is far too fluid to rely on a reporter. When you need to know what mortgage rates are doing in real-time, make sure you're talking to a loan officer. Otherwise, you may just be getting yesterday's news.
Sometimes, headlines for housing can be misleading and this week gave us a terrific example.
On Wednesday, the Commerce Department released its Housing Starts data for January 2010. The data showed starts at a 6-month high.
A “Housing Start” is a privately-owned home on which construction has started.
Headlines on the Housing Starts story included:
Based to the headlines, the housing market looks poised for rapid growth through the Spring Market.
The real story, though, is that although Housing Starts increased by close to 3 percent last month, the growth is mostly attributed to buildings with 5 or more units. This includes apartments and condominiums -- a sector of the housing market that's notoriously volatile.
If we isolate Housing Starts for single-family homes only, we see that starts grew by just 7,000 units last month and have failed to break a range since June 2009. January's tally is slightly below the 8-month average.
Perhaps more interesting than the Housing Starts, though, is the Commerce Department's accompanying data for Housing Permits. After a 5-month plateau that ended in November, Housing Permits posted multi-year highs for the second straight month.
According to the Census Bureau, 82% of homes start construction within 60 days of permit-issuance.
One reason permits are up is that home builders want to capitalize on the federal homebuyer tax credit's dwindling time frame. Sales are expected to spike in March and April and more homes will come online to deal with that demand. Home buyers should shop carefully, but with an eye on the clock.
As the tax credit's April 30, 2010 deadline approaches, competition for homes may be fierce.
Mortgage markets reeled Wednesday after the Federal Reserve released the minutes from its January 26-27, 2010 meeting. Mortgage rates are now at their highest levels since the start of the year.
The Fed Minutes is a follow-up document, delivered 3 weeks after an official FOMC meeting. It's a companion piece to the post-meeting press release, detailing the debates and discussions that shaped our central bankers' policy decisions.
The Minutes is a terrific look into the Fed's collective mind and, yesterday, Wall Street didn't like what it saw. Specifically, the report disclosed that:
Furthermore, the Fed Minutes said that there is a growing risk of "higher medium-term inflation". Inflation, of course, is awful for mortgage rates.
Overall, the Fed's economic optimism appeared stronger after its January meeting as compared to its December one. A stronger economy should lead to better job growth and higher home prices throughout 2010.
Mortgage rates were up yesterday but they remain historically low. And many analysts think that after March 31, 2010, rates will rise even more. Therefore, if you're buying a home in the near-term, or know you'll need a new mortgage, consider moving up your time frame.
Every 1/8 percent makes a difference in your household budget.
According to the Census Bureau, 2.8 million people commute to work 90 minutes or more each day, in each direction.
Now, your daily commute may not be as long, but time spent in cars, trains and buses is time away from work and from family. Drive-time can affect a person's Quality of Life and it's one reason why Forbes Magazine's Best and Worst Commutes is worth reviewing.
Measuring travel time, road congestion and travel delays in the 60 largest metropolitan areas, Forbes ranks city commutes from best-to-worst with Salt Lake City topping the list and Tampa-St. Petersburg finishing it.
The Top 5 Commutes, as compiled by Forbes:
The bottom 5 are Tampa-St. Petersburg, Detroit, Atlanta, Orlando, and Dallas-Forth Worth.
Long commutes shouldn't deter you from moving to a particular city, but the potential commute should be consideration. Before making an offer on your next home, make a rush-hour commute to work from your potential new neighborhood. Then imagine doing it every day.
You can read the complete Forbes list of Best and Worst Cities for Commuters on its website.
Consumer Sentiment has been on the rise since last February and it's something to which home buyers should pay attention.
The affordability of your next home may hinge on consumer confidence.
As the economy recovers from a near-the-brink recession, many of the elements of a full recovery are in place. Business investment is returning, household spending is expanding, and financial systems are gaining strength.
Consumer confidence is at a 2-year high.
What's missing from the recovery, though, is jobs growth. Another net 20,000 jobs were lost in January. Data like that hinders economic growth.
That said, twenty-thousand jobs lost is a much better figure than the several hundred thousand that were shed per month throughout early-2009, but it's still a net negative number. Not only does household income drop when Americans lose jobs but so does the average American's confidence in his or her own economic future.
This is one reason why jobs growth is so closely watched by Wall Street -- jobs are linked to higher confidence levels which, in turn, is believed to spur consumer spending.
Consumer spending represents 70% of the U.S. economy.
As confidence rises, it could be good news for the economy, but bad news for home buyers. More spending expands the economy and, all things equal, that leads mortgage rates higher.
Same for home prices. More confidence means more buyers which, in turn, squeezes the supply-and-demand curve in favor of sellers.
Later this morning, the University of Michigan will release its February Consumer Sentiment survey. If the reading is higher-than-expected, prepare for mortgage rates to rise and home affordability to worsen.
Foreclosures stories dominate the national housing news. It seems at least one foreclosure-related story makes its way to the front page or the nightly news every week.
But for as much as the foreclosure filing statistics can be astounding -- over 300,000 homes were served last month alone -- the prevalence of foreclosures depends on where you live.
As reported by RealtyTrac, just 4 states accounted for more than half of the country's foreclosure-related activity last month.
The other 46 states (and Washington D.C.) claimed the remaining 49.9%.
However, just because foreclosures are concentrated geographically, that doesn't make them less important to homebuyers around the country. There's been more than 1.4 million foreclosure filings in the last 12 months and that's a figure that can't be ignored.
Distressed properties now play a role in one-third of all home resales.
Therefore, if you're in the market for a foreclosed home, here's a few things to keep in mind.
In order to use the federal homebuyer tax credit, you must be under contract for a home by April 30, 2010 and closed by June 30, 2010. That doesn't leave much time to find a bank-owned home and make it to closing. If you're serious about buying foreclosures, it's probably best to start your search soon.
The mortgage lending landscape changes a lot. Rates and guidelines are in constant flux, and it creates preparedness challenges for buyers that aren't paying in cash.
The loan you get today won't always be the loan you get tomorrow.
Because of how frequently bank rules are changing, it can be hard for laypersons to distinguish between mortgage fact and fiction of "what's coming next".
Recently, we saw this with respect to FHA home loans.
January 20, 2010, the FHA issued a press release with new lending guidelines. Specifically, it announced 3 changes that will be effective starting April 5, 2010:
But, also in its official statement, the FHA announced it would ask Congress for permission to raise monthly mortgage insurance premiums. This is where the rumors started.
Nestled on page 348 of the Budget of the United States Government, Fiscal Year 2011, in a section titled Special Topics, there is a 1-paragraph notation that details the FHA's petition.
For now, the request is neither approved nor acknowledged by Congress. It's merely a request. And in the event that Congress does approves it, that doesn't mean that FHA has to stand by its initial projections.
Truth is, about the only thing we know about the future of FHA lending is that, come April 5, 2010, borrowing money is going to be tougher, and mortgage expensive. These are the facts as we know them today.
Homebuyers should plan accordingly.
The economy's improving but lending standards are not. Nationally, banks are making mortgage approvals harder to come by.
Underwriting guidelines are tightening.
The data comes from the Federal Reserve's quarterly survey to its member banks. The Fed asks senior bank loan officers around the country to report on "prime" residential mortgage guidelines over the most recent 3 months and whether they've tightened.
For the period October-December 2009:
Just 2 of 53 banks said its guidelines had loosened.
Combine the Fed's survey with recent underwriting updates from the FHA and generally tougher standards for conventional loans and it's clear that lenders are much more cautious about their loans than they were, say, in 2007.
Today's home buyers and would-be refinancers face a bevy of new borrowing hurdles including:
So, if you're on the fence about whether now is a good time to buy a home, or make that refi, consider acting sooner rather than later. It doesn't necessarily matter that mortgage rates are low, or that there's an up-to-$8,000 home purchase tax credit for households that qualify. With each passing quarter, fewer and fewer applicants are eligible to take advantage.
As mortgage lenders tighten approval standards nationwide, the importance of a good credit score is rising. Credit scores not only make the difference between a mortgage approval and mortgage turn-down, but they also play a large role in determining your actual mortgage note rate.
In the 3-minute piece, the NBC Today Show talks about 7 ways that homebuyers ruin their credit -- often by accident. Some of the highlighted mistakes include:
In general, a 740 FICO will insulate a borrower from the higher costs and/or rates associated with low credit scores. Below 740, though, every 20 points adds to the damage. Watch the video and apply what you can to your own situation. The more you know, the more you can save.
On the first Friday of every month, the U.S. government releases its Non-Farm Payrolls data from the month prior. The data is more commonly known as "the jobs report" and it swings a big stick on Wall Street.
Especially now -- many analysts believe job growth is tightly linked to the future of the U.S. economy.
Therefore, when January's jobs report hits the wires at 8:45 AM ET tomorrow, home buyers would do well to pay attention. A net job reading that is much higher (or lower) than Wall Street's expectations can make a serious change in home affordability.
Wall Street expects that the economy added 13,000 jobs last month. It would mark the second time in 3 months that the jobs report showed a net monthly gain.
In November 2008, the economy added 4,000.
Jobs matter to the economy for a lot of reasons, but one of the biggest is that when Americans are working, Americans are buying and consumer spending accounts for 70 percent of the economy.
Job growth spurs the economy and draws money to the stock market. Unfortunately for rate shoppers, that kind of stock market growth happens at the expense of the bond market which is where mortgage rates are made.
Good jobs data usually means higher mortgage rates.
Also, job growth can lead to higher home prices. This is because working homeowners are less likely to default on a mortgage versus non-working homeowners. In this way, job growth helps hold foreclosures to a minimum which, in turn, suppresses the housing supply.
Less supply means higher prices for home buyers.
Mortgage rates are idling this morning in advance of tomorrow's data. If you're shopping for a mortgage rate, the prudent play may be to lock your rate before the jobs data is released. A jobs figure that's higher than the 13,000 expected could cause rate to rise sharply.
The Pending Home Sales Index rose slightly in December, climbing 1 percent from November.
A Pending Home Sale is a home that is under contract to sell, but not yet sold. It's a figure compiled by the National Association of Realtors® using sales data from over 100 regional listing services and more than 60 large brokerages around the country.
Because each pending sale is a true measure of sales activity, the Pending Home Sales Index is purported to be the most reliable forward-looking indicator for housing.
Recent data supports this hypothesis.
After Pending Home Sales plunged 16 percent in November, Existing Home Sales fell by 17 percent in December. Based on the most recent Pending Sales Index, therefore, we can expect January's closed sales to be similarly level.
For home buyers , this is all a bit of good news. Home prices are based on the supply-and-demand balance that exists between buyers and sellers. When buyers outnumber sellers, like they did through most of 2009, home supplies dip and, in fact, the national home inventory nearly halved during the 12 months ending November 2009.
With fewer homes for sale, multiple-offer situations were almost commonplace and home values rose as result.
Activity has since slowed, however, and fewer buyers are in today's market. The supply-and-demand equation has shifted back some. In December, home supplies rose for the first time in 7 months and January will likely show the same.
The net result: Home buyers have more homes from which to choose and that can create negotiation leverage for better prices and better concessions.
With mortgage rates still low and a looming deadline on the homebuyer's tax credit, market activity should be strong between now and April. Take your time and bid right. And when you're ready, be ready. The best deals likely won't last.
A "Short Sale" is when a home seller sells his home for a lesser amount than what is owed on his mortgage, and the mortgage lender agrees to accept the lesser amount in lieu of a full payoff.
By way of example, a Short Sale may be appropriate for a home seller whose mortgage balance is $250,000 but whose home wouldn't sell for more than $220,000. Rather than pay the $30,000 difference to the lender at the time of sale, the seller enters into an agreement with the lender by which all sale proceeds are paid to the bank and the deficient balance is forgiven.
Short Sales are a preferable alternative to foreclosure but the process still harms both parties. For one, the seller is penalized with a derogatory tradeline on credit for not fulfilling a mortgage obligation. And, two, the lender is forced to take a loss on a mortgage loan. Versus an executed foreclosure, however, Short Sale damages are relatively limited on both sides.
For this reason, Short Sales are sometimes considered "the economical alternative" to default.
The process of getting a Short Sale approved varies from lender-to-lender and can be time-intensive. Home sellers should not go at it alone -- speaking with a real estate agent about the proper protocol is usually the best place to start. And sellers should be aware of how a Short Sale on their credit can impact future borrowing.
Current Fannie Mae guidelines prevent short-selling homeowners from obtaining new mortgage financing for a period of 2 years.
Reporting on a two-month lag, the government said home values rose 0.7 percent in November.
National home prices are at their highest point since February 2009.
But before we look too much into the FHFA's Home Price Index, it's important that we're cognizant of its shortcomings; the most important of which is its lack of real-time reporting.
According to the National Association of Realtors™, 80% of purchases close within 60 days. As a result, because of its two-month delay, the Home Price Index report actually trails today's market data by an entire sales cycle.
This is one reason why home values appear to be rising even while new data shows that both Existing Home Sales and New Home Sales fell flat last month. The home valuation report is using data from November; the sales reports are using data from December.
The Home Price Index is a trailing indicator and next month, as the Spring Market gets underway, the government will be reporting data from the holidays.
The same is true for the Case-Shiller Index. It, too, operates on a 2-month lag.
All of that said, however, long-term trends do matter in housing and the Home Price Index has shown consistent improvement over the last 10 months. In many markets, home sales are up, home supplies are down, and values have increased. This trend should continue into the early part of 2010, at least.
If you're wondering whether now is a good time to buy a home , consider low prices, cheap mortgages and an available tax credit as three good incentives. By May, none of them will likely be available.
The Federal Open Market Committee voted to leave the Fed Funds Rate within its target range of 0.000-0.250 percent.
In its press release, the FOMC noted that the U.S. economy “has continued to strengthen”, that the jobs markets is getting better, and that financial markets are supportive of growth.
There was no mention of the housing market's strength. The last 3 statements from the Fed included that specific verbiage.
It’s the fifth straight statement in which the Fed spoke about the economy with optimism. This should signal to markets that 2008-2009 recession is over and that economic growth is returning to U.S. economy.
The economy isn’t without threats, however, and the Fed identified several in its press release, including:
The message’s overall tone, however, remained positive and inflation appears is still within tolerance.
Also in its statement, the Fed confirmed its plan to hold the Fed Funds Rate near zero percent “for an extended period” and to wind down its $1.25 trillion commitment to the mortgage market by March 31, 2010. This is noteworthy because Fed insiders estimate that the bond-buying program suppressed mortgage rates by 1 percent through 2009.
Mortgage market reaction to the Fed press release is, in general, negative. Mortgage rates are rising this afternoon.
The FOMC’s next scheduled meeting is March 16, 2010.
The Federal Open Market Committee ends a scheduled, 2-day meeting today in Washington. It's the first of 8 scheduled meetings for the policy-setting group in 2010.
The group adjourns at 2:15 PM ET.
As is customary, upon adjournment, the Fed will issue a press release to the markets recapping its views of the country's current economic condition, and the outlook for the near-term future.
The post-meeting statements from the Fed are brief but comprehensive. And Wall Street eats them up. Every word, sentence and phrase is carefully disected in the hope of gaining an investment edge over other active traders.
It's for this reason that mortgage rates tend to be jittery on days the FOMC adjourns. Wall Street is frantically rebalancing its bets.
Today should be no different.
The FOMC is expected to leave the Fed Funds Rate within its target range of 0.000-0.250 percent — the lowest it's been in history. However, it's what the Fed says Wednesday that will matter more than what it does.
After the Fed's last meeting in December, it made several observations:
The economy is gradually improving, the Fed told us, but there are still risks to the economy ahead. Furthermore, inflation remains in check.
As compared to December's press release, today’s FOMC statement will be closely watched. If the Fed changes its verbiage in any way that alludes to strong growth and/or inflation in 2010, expect mortgage rates to rise as Wall Street moves its money from bonds to stocks.
Conversely, reference to slower growth in 2010 should lead rates lower.
We can't know what the Fed will say so if you’re floating a mortgage rate right now or wondering whether the time is right to lock, the safe approach would be to lock prior to 2:15 PM ET Wednesday. After that, what happens to rates is anyone's guess.
Just one month after from blowing away Wall Street, December's Existing Home Sales hit the skids, shedding nearly 17 percent and falling to a 4-month low.
Don't be alarmed, though. The plunge was expected. And not just because Pending Home Sales cratered last month.
When November's Existing Home Sales surged, it was clear to observers that an expiring $8,000 federal tax credit was the catalyst. At the time, the tax program was slated to expire November 30 and the looming deadline pushed a lot of would-be buyers from a December time frame into November.
The expiration date has a cannibalizing effect on December's sales figures. It was only later that Congress extended the tax credit to June 30, 2010.
So, with home sales plunging in December, it's no surprise that home supplies rose for the first time in 9 months. Home Supply is calculating by dividing the number of homes for sale by the current sales pace.
The national housing supply now rests at 7.2 months.
Despite December's Existing Home Sales report appearing shaky, it's actually terrific new for home buyers.
See, for the past few months, as housing has been improving, sellers nationwide have been bombarded by messages of "hot markets" and rising home prices by the media. Psychologically, a seller is more likely to hold firm on price if he believes the housing market is improving and now December's data is deflating that argument.
This is why we say there's always two sides to a housing story -- the buyers' side and the sellers' side. And, usually, what's good for one party is bad for the other. It's what we're seeing now.
Because of soft data like December's Existing Home Sales, buyers may retake some negotiation leverage that's been lost since Spring 2009, helping to improve home affordability and, perhaps, spur more sales.
A "Housing Start" is a privately-owned home on which construction has started. It's an important gauge of housing health because it tracks new housing stock nationwide.
In December 2009, starts fell by nearly 7 percent.
The news is mildly disappointing but not too bad. The likely cause for the Housing Starts drop is December's rough weather conditions. It's tough to break ground when Mother Nature won't coordinate and last month was especially hazardous in a lot of parts of the country.
More cheery, however, is that for the second straight month, Housing Permits exploded.
A housing permit is an certification from local government that authorizes construction. After posting a 7 percent gain in November, permits rose by another 8 percent in December.
It's a signal that housing is, indeed, in recovery -- despite the falling number of actual starts. More permits mean that builders plan to bring more homes on the market for what's expected to be a very busy spring home-shopping season.
According to the Census Bureau, 82% of homes start construction within 60 days of permit-issuance. Therefore, Housing Starts should start rising soon anyway.
For home buyers, the news couldn't be better.
With more homes coming online, competition among home sellers should increase, and that will suppress the rise in home prices nationwide.
It's basic economics. When home supplies grow faster than home demand, prices fall.
Securing an FHA mortgage is about to get more expensive.
In a statement issued Wednesday, the Federal Housing Authority outlined policy changes to its mortgage assistance program. The shift is meant to both reduce the government group's portfolio risk while strengthening its overall financials.
For consumers, the changes mean higher costs.
As listed in the official announcement, there are 3 major guideline updates for the FHA:
Furthermore, the FHA has appealed to Congress to raise an FHA borrowers' monthly mortgage insurance premiums.
To read the FHA's statement, it's clear what the group is trying to balance. On one side, the FHA wants to provide affordable financing to families that need it. That's its mission statement. On the other side, though, the FHA must manage the risk that comes with insuring lesser-quality loans.
To that end, the FHA is stepping up its enforcement of "bad lenders" in hopes of stopping problems where they start.
Also in its new policies, the FHA is introducing a "termination clause". If banks or loan officers that produce more than their fair share of bad loans, they lose their right to originate FHA mortgages.
As a result, homebuyers should expect tougher FHA underwriting in 2010. Not because the FHA says so, necessarily, but because banks don't want to do "bad loans". Lenders are incented to turn down at-risk applicants and, already, we're seeing examples of this. Despite FHA allowing 580 FICOs and lower, many banks have made 620 their minimum.
Some have other guideline overlays, too.
The FHA's new guidelines don't go into effect until spring. So, between now and then, the old guidelines will apply. Therefore, if you know you're going to need an FHA home loan in the next few months, consider moving up your time-frame.
If nothing else, you'll save some money at closing.
November 6, 2009, Congress voted to extend and expand the First-Time Home Buyer Tax Credit program. There's 100 days left to claim it.
The expiration date of the up-to-$8,000 tax credit has been pushed forward to spring, requiring homebuyers to be under contract for a home no later than April 30, 2010, and to be closed no later than June 30, 2010.
In addition, "move-up" buyers were also added to the program's eligibility list meaning you don't have to be a first-time home buyer to be eligible for the tax credit. If you've lived in your home for 5 of the last 8 years, you meet the IRS requirements.
Move-up buyers are capped at a total tax credit of $6,500.
The tax credit's basic eligibility requirements remain the same:
The new law includes some notable updates, however.
First, the subject property's sales price may not exceed $800,000. Homes sold for more than $800,000 are ineligible. And, also, household income thresholds have been raised to $125,000 for single-filers and $225,500 for joint-filers.
And lastly, don't forget that the program is a true tax credit -- not a deduction. This means that a tax filer who's eligible for the full $8,00 credit and whose "normal" tax liability totals $5,000 would receive a $3,000 refund from the U.S. Treasury at tax time.
The complete list of qualifying criteria is posted on the IRS website. Review it with a tax professional to determine your eligibility. Then mark your calendar for April 30, 2010.
There's just 100 days to go.
Like real estate, it appears that foreclosure activity is a local phenomenon, too.
As reported by RealtyTrac.com, more than half of all foreclosure-related activity in 2009 came from just 4 states:
More than 1.4 million filings made in 2009 are attributed to the above states. Furthermore, each ranks in the Top 10 for 2009 Foreclosures Per Capita.
The other states are Nevada, Utah, Georgia, Idaho, Michigan and Colorado.
Versus 2008, foreclosures are up 21 percent nationwide and that's a big number, but a deeper look at RealtyTrac's annual reports reveals a more positive undertone on the housing market.
Foreclosures are still prevalent, though, and buying homes in foreclosure continues to be big business. First-time buyers, move-up buyers, and real estate investors each are bidding aggressively.
Distressed homes account for one-third of home resale activity, according to an industry trade group.
That said, buying foreclosures can be tricky.
First, properties are often sold "as-is" and the cost of repairs may unwind the home's status as a "value buy". Furthermore, a lender may require specific fixes to be made prior to closing and that, too, costs money.
Second, buying a foreclosed home isn't as streamlined as buying a "normal" home. Closing on a foreclosure can be a 120-day process or longer. A 4-month time-frame may not fit your schedule.
And, third, finding foreclosures can be difficult. Despite the growth in foreclosure search engines, it still takes a good real estate agent to uncover the best homes at the best prices.
Read the complete foreclosure report and take a peek at RealtyTrac's foreclosure heat maps. If you like what you see, talk to your real estate agent about what to do next.
There's still good deals in the foreclosure market -- you just have to know where to find them
Mortgage rates are dropping this morning on weaker-than-expected Retail Sales data from December. Lower rates means more bang for your home-buying buck.
Excluding motor vehicles and parts, December's "ex-auto" sales receipts were down roughly $500 million from November. Analysts had expected receipts to grow.
The relevance of Retail Sales to home affordability isn't obvious, but it's definitely logical.
Retail Sales is directly related to consumer spending and consumer spending accounts for the majority of the U.S. economy. When consumer spending slows, the economy often does, too. It leads investors to seek out "safe" investments.
It's the reason why stock markets often drop on weak economic data -- stocks are among the riskiest investment classes available.
Conversely, the best place to find safety is in the market of government-backed bonds. This world includes products like U.S. Treasuries and many of the mortgage-backed bonds that help set mortgage rates. Weak economic data puts mortgage bonds in demand.
For rate shopper, this is good news. More demand for mortgage bonds causes mortgage rates to fall. Mortgage rates are lower this morning because Wall Street is shedding some risk.
December's Retail Sales report closes out a year of generally-weak data. 2009 marks just the second time that Retail Sales fell year-over-year since the government started tracking it 40 years ago. The other year was 2008.
For home buyers around the country, though, today may represent an opportune time to lock a mortgage rate. Housing data is still improving and other economic indicators are showing strength. Soon, Wall Street will shift from a "safe" mentality and move toward risk.
When it does, mortgage rates will rise.
As the housing market improves across the country, certain cities are emerging as relative bargains. Some areas, like Miami, were hit hard by the recession, and other areas are buoyed by good school systems and strong labor markets.
In this 5-minute video from The Today Show, 10 cities are highlighted for their home prices. And they're not "small towns", either.
Among the featured cities:
Now, this piece is about finding gems on a national scale. They exist locally , too. You just need to know what to look for.
With mortgage rates low and tax credits available, it's not likely that bargains will last.
Despite the headlines, it's important to remember that December's jobs report wasn't all bad news.
Sure, the economy shed 85,000 jobs last month and the Unemployment Rate failed to dip below 10%, but for home buyers and rate shoppers , the news was just fine.
The soft employment data led mortgage rates lower, making homes more affordable for buyers.
There is two sides to every economic coin.
Since early-2008, the U.S workforce has been closely tied to home financing. As the economy slowed and jobs were lost, Wall Streeters pulled money from the risky stock markets and moved it to of the relative safety of bond markets, instead.
Safe haven buying led mortgage bond prices higher which, in turn, caused rates to fall. Mortgage rates fell to 6 all-time lows in 2009. In a related statistic, 4.2 million jobs were lost last year.
And this is why Friday's non-farm payrolls report was so good for buyers.
See, in November, the economy added new jobs for the first time since 2007, housing looked strong, consumer confidence was growing. The safe haven buying reversed and mortgage rates took off. Analysts believed the nation's economic turnaround was complete.
But now, after December's jobs report returned to the red, Wall Street is forced to rethink its position. Safe haven buying is back and mortgage rates are lower because of it.
Over the next few months, expect a lot of this back-and-forth action in rates. In general, positive news for the economy will be met with higher mortgage rates and negative economic news will be met with lower mortgage rates. There will be exceptions, but the general rule should hold.
Data was sparse through 2010's first trading week last week, setting the stage for a week of momentum trading.
In up-and-down trading, mortgage pricing improved overall but the best rates of the week didn't last long.
Rates improved Monday and Tuesday as an oversold market corrected itself to better price points. Then, in anticipation of the December jobs report, rates worsened Wednesday and Thursday. Friday, after the jobs report was released, pricing proceeded to carve out a huge range before settling unchanged.
On average, lenders issued new rate sheets every few hours last week. It was a difficult week to shop for mortgages.
Unfortunately, this week doesn't figure to be much better.
For the second straight week, the economic calendar is bare. Traders -- like last week -- will be forced to rely on "gut feel" to make their trades. That rarely bodes well for shoppers. Especially because traders are facing a mortgage market in the midst of a terrible losing streak.
Since reaching an all-time low December 1, 2009, 30-year fixed rate mortgages have worsened by 300 basis points, or 3 percent.
To a homeowner or rate shopper , the math of 300 basis points looks like this:
1 point is equal to 1 percent of your loan size.
Last month's worsening is the worst 1-month deterioration in consumer mortgage rates from all of 2009.
If you're hoping for rates to fall back to early-December levels, know that it is possible. For this week, here's some things that could push rates in the right direction:
Be ready to lock at a moment's notice this week. Rates may rise or fall, but markets are positioned toward the former.That's where momentum is pointing as of the Market Open today.
Keep an eye on rates and your loan officer on speed dial. Once the mortgage market starts breaking, it's expected to break quickly.
FHA home loans are federal assistance mortgages made by lenders, and backed by the government. The FHA doesn't make loans to homeowners -- it insures loans made to homeowners by federally-qualified lenders.
By all accounts, FHA home loans are surging in popularity.
A major reason for the increase can be tied to guidelines.
As compared to its conforming mortgage cousins Fannie Mae and Freddie Mac, FHA home loans have lower downpayment requirements and looser credit standards. The FHA allows downpayments of 3.5 percent and Fannie Mae and Freddie Mac do not, as an example.
Another reason is that FHA home loans aren't subject to credit score fees the way that conforming mortgages are. Through Fannie or Freddie, a home buyer with a 650 FICO and 20% down is subject to 3% in risk fees. Via the FHA, the fee is zero, making FHA the better "deal".
The FHA published its 2010 loan limits. There's no change from 2009.
The base 2010 FHA loan limits are:
We say "base" because these loan limits don't apply to all areas equally. Higher-cost regions get higher loan limits, based on typical home values. Homes in Los Angeles County, for example, can be FHA-insured up to $729,750 in 2010, and there are special exceptions made for Alaska and Hawaii.
The official FHA announcement included a complete, county-by-county FHA loan limit list. The first spreadsheet shows each county at or above the $729,750 maximum; the second list is everyone else.
If your home's county is on neither list, use the "base" numbers above.
Despite the headlines, it's important to remember that December's jobs report wasn't all bad news. Sure, the economy shed 85,000 jobs last month and the Unemployment Rate failed to dip below 10%, but for home buyers and rate shoppers , the news was just fine.The soft employment data led mortgage rates lower, making homes more affordable for buyers.There is two sides to every economic coin.Since early-2008, the U.S workforce has been closely tied to home financing. As the economy slowed and jobs were lost, Wall Streeters pulled money from the risky stock markets and moved it to of the relative safety of bond markets, instead.Safe haven buying led mortgage bond prices higher which, in turn, caused rates to fall. Mortgage rates fell to 6 all-time lows in 2009. In a related statistic, 4.2 million jobs were lost last year.And this is why Friday's non-farm payrolls report was so good for buyers.See, in November, the economy added new jobs for the first time since 2007, housing looked strong, consumer confidence was growing. The safe haven buying reversed and mortgage rates took off. Analysts believed the nation's economic turnaround was complete.But now, after December's jobs report returned to the red, Wall Street is forced to rethink its position. Safe haven buying is back and mortgage rates are lower because of it.Over the next few months, expect a lot of this back-and-forth action in rates. In general, positive news for the economy will be met with higher mortgage rates and negative economic news will be met with lower mortgage rates. There will be exceptions, but the general rule should hold.
Just one month after touching a 3-year high, the National Association of Realtors® Pending Home Sales index plunged in November. A "pending" home sale is a home that is under contract to sell, but has yet to close.
The 16 percent drop marks the first retreat in Pending Home Sales since January of last year.
The weak Pending Home Sales data is an indication that Existing Home Sales data will be soft this month. This is because, historically, 80 percent of Pending Home Sales convert to "closed sales" within 60 days, and most of the rest close within 120.
With Pending Home Sales down, the housing market should lose some of its momentum. For today's home buyers, this kind of slack can represent a terrific opportunity.
Home prices are a function of supply and demand; of buyers and sellers. When buyers outnumber sellers, competition leads to bidding wars, ultimately, and higher home prices overall. The imbalance can also create a sense of urgency that results in over-paying for a home.
When buyers are sparse, on the other hand, the psychology of real estate shifts.
Home sellers are keenly aware of foot traffic and requests for second and third showings. Without buyers, their homes can't sell. They also note a lack of general feedback from the market.
It's at this point that seller fear can creep in and it becomes a buyer's best time to buy.
Based on November's Pending Home Sales data, it's clear that home sellers are in abundance right now. Home buyers have leverage.
It may not last.
With mortgage rates easing lower this week, the federal home buyer tax credit still in effect, and the Holiday Season officially over, buyers are getting back to business everywhere.
Plus, with the tax credit deadline of April 30, 2010 fast approaching, buyer activity should increase over the next 4-6 weeks.
The market looks ripe for a buy but don't rush it. Take your time and bid right. But when you're ready, be ready -- once the market momentum shifts back to sellers, you might lose all that leverage you built up through the winter.
2010 is just a few days old and already the "experts" are making predictions for the year.
Housing calls and mortgage rate predictions run the gamut:
Given how varied their outlooks, it's clear that the professionals have no better view of the future than the amateurs. An expert can make an educated guess, but it's a guess nonetheless.
Last year, Wall Streeters predicted a 25% pullback in home prices. 12 months later, we know prices didn't fall. Wall Street also predicted higher mortgage rates for 2009. That prediction was fulfilled.
There's a lot of talk on CNBC and elsewhere about what's coming in 2010. Before you take those predictions to the bank, just remember that analysts do a much better job interpreting data from the past than projecting it into the future.
The only thing that's certain right now is that mortgage rates are historically low, the government is giving tax credits to qualified buyers, and there's a lot of good "deals" in housing. Make the most of what's out there today because it will take 12 months for us to look back and know which predictions were right and which were wrong.
Until then, predictions are just opinions and guesses.
More positive signals from housing -- home values are still on the rise.
According to the Federal Housing Finance Agency, after posting its first quarterly increase since 2007 this past September, the Home Price Index rose by another 0.6 percent in October.
Prices are up in 4 of the last six months.
But before we take the stats to the proverbial bank, it's important that we recognize the Home Price Index for its shortcomings.
On a broad scale, the Home Price Index can be useful, but it doesn't specifically apply to any specific U.S. market. For that, analysts tend to turn to the Case-Shiller Index, a privately-produced report that assesses home values in 20 cities nationwide.
The good news for home sellers is that Case-Shiller's most recent report corroborates the government's conclusion -- home values are creeping back.
Home buyers should pay attention. When public and private sector data is in accord, markets tend to go along and, looking back, housing likely bottomed in February 2009. Since then, home sales are up, home supplies are down, and values have increased in most U.S. markets. Furthermore, so long as mortgage rates remain low and government stimulus is in place, the trend should continue through at least the first quarter of 2010.
If you're on the fence about buying a home right now, or wondering about timing, consider your options vis-a-vis today's market. Into the new year, homes won't likely be as cheap to buy, nor to finance.
It's not only the real estate markets that differ from town to town -- the Cost of Living does, too.
Insurance costs, tax bills and just plain, day-to-day living will dent a household budget differently depending on where that household is. It can be a nerve-wracking fact for families moving across state borders.
As an aid for the budget-aware, Bankrate.com keeps a Cost of Living Comparison Calculator on its website. The calculator asks 3 questions: (1) Where do you live now, (2) To where you are moving, and (3) What is your salary. It then spits out a detailed, 58-item cost comparison list between the two cities.
Some of the key costs compared include:
The Cost of Living Comparison Calculator is thorough, with data culled from the ACCRA. You'll be surprised at how granular the list can get. On the ACCRA website, you can buy a similar report for $5.
On the Bankrate.com site, the data is free.
Moving To A New City? Check The Local Cost Of Living First.
It's not only the real estate markets that differ from town to town -- the Cost of Living does, too.
Insurance costs, tax bills and just plain, day-to-day living will dent a household budget differently depending on where that household is. It can be a nerve-wracking fact for families moving across state borders.As an aid for the budget-aware, Bankrate.com keeps a Cost of Living Comparison Calculator on its website.
The calculator asks 3 questions:
(1) Where do you live now,
(2) To where you are moving, and
(3) What is your salary.
It then spits out a detailed, 58-item cost comparison list between the two cities.Some of the key costs compared include:
The Cost of Living Comparison Calculator is thorough, with data culled from the ACCRA. You'll be surprised at how granular the list can get. On the ACCRA website, you can buy a similar report for $5.On the Bankrate.com site, the data is free.
One day after November's Existing Home Sales report blew away estimates, the Census Bureau's related New Homes Sales report failed to impress.
A "new home" is a home that is newly-constructed; not bought as a resale.
In a lackluster showing, New Home Sales dropped 11 percent in November, falling to the lowest levels since April. Furthermore, the all-important "months of supply" climbed by a half-month to 7.9.
The press pounced on the figures and if you only read the headlines, you'd think that housing had cratered. Some of the angles were quite bold, even:
These headlines, although technically accurate, only tell half the story, however. The other half relates to November 30's role as the original First-Time Home Buyer Tax Credit ending date.
See, different from home resales, when a contract is written on a newly-built home, the home is rarely finished. According to the Census Bureau, just 1 in 4 new homes are sold "move-in ready". The other 3 of 4 are in various stages of construction when a buyer signs on the dotted line.
Some have yet to break ground, even.
Regardless, it's at this date of signing that the Census Bureau counts the home as "sold" -- not at the actual closing. This is the main driver of the November New Home Sales data dip.
First-time home buyers would have risked up to $8,000 in federal tax credits if they bought a newly-built home and it wasn't ready for move-in by November 30, 2009. And it wasn't until November 5 that the credit was officially extended.
Suddenly, first-timers representing more than half of last month's Existing Home Sales isn't so shocking. Buying new carried a lot risk.
There's always more to the story than the headline. Sometimes, you have to dig deeper. Looking back over 10 months, the housing market is on a steady course of improvement. November's New Home Sales data -- although weak -- is not terrible.
Despite what the papers might say.
Home resales are soaring.
For the 4th consecutive month, the Existing Home Sales report revealed what today's buyers and sellers already know -- there's a lot of buyer activity right now.
Existing Home Sales surged 7-plus percent in November, posting its largest number of recorded sales in 33 months. Sales volume is up 44% higher versus last year.
It's another example of the housing market in recovery.
There were other interesting statistics buried in the November data, too. According to the National Association of Realtors:
But of all the stats from the November Existing Home Sales report, perhaps the most important one is the one showing home supplies falling to 6.5 months. It's nearly half of the home supply available last November.
The rapid run-off of inventory throughout 2009 is more than a trend at this point and suggests higher home valuations in 2010. Especially because mortgage rates are low, tax credits are available, and the press is giving housing positive coverage.
You shouldn't feel rushed to buy, but you probably don't wait too long, either. The best deals of 2010 may be gone before that Spring Buying Season even starts.
Mortgage pricing worsened Monday, driving mortgage rates to their highest levels since October.
The day's action was drastic, too.
Some banks issued as many as 3 rate sheets Monday -- each worse than the preceding and one reason why rates got so bad, so quickly, is because this week marks the beginning of mini-Vacation Season on Wall Street.
Between now and January 4, 2010, be prepared for big swings in pricing from day-to-day. Shopping for a mortgage could be a challenge.
The relationship between vacation days and mortgage rate volatility is rooted in how mortgage rates are "made".
So, during vacation week, when the total number of market participants are less, there are fewer opportunities for buyers and sellers to meet at a specific price. As a result, bond prices rise and fall with a higher velocity than on a "normal" day. Rallies and momentum plays are exaggerated, too.
Now, mortgage market action like this can work in your favor, or it could work out of your favor. Unfortunately, on Monday, rates moved out of favor.
This rest of this week is stacked with market-moving economic data. The data could be better-than-expected, or worse-than-expected. Either way, markets will react a little more feverishly than normal. Therefore, if you have a chance to lock a favorable rate, consider taking it.
Before long, the rate could be gone.
Housing Starts jumped last month as builders got back to business. It's a telling sign for the economy, but bad news for next season's sellers.
With more homes coming online, home prices may be slow to rise nationwide.
A "Housing Start" is a privately-owned home on which construction has started. In November, starts rose by nearly 9 percent while remaining within the same tight range we've seen since June.
More interesting that Housing Starts, though, is the accompanying data for Housing Permits. After a 5-month plateau, Housing Permits finally broke through, posting its largest number in 12 months.
This, too, bodes poorly for sellers.
Housing permits are precursors to housing starts so because the number of permits are higher today, we expect that the number of starts will be higher just a few months from now.
More permits means more starts which, in turn, leads to a larger home inventory. And when home supplies grow faster than the home demand, prices fall.
Throughout the early part of 2010, low mortgage rates and federal tax credits should help hold demand high but if builders flood the market with new, quality product, sellers may find that they've lost some of their leverage.
For home buyers, the rise in starts is welcomed.
In its press release, the FOMC noted that the U.S. economy "has continued to pick up", that the jobs markets is getting better, and that housing market has shown "some signs of improvement" lately.
It's the fourth straight statement in which the Fed speaks optimistically about the U.S. economy -- a signal that the worst of the recession is likely behind us.
The economy isn't without threats, however, and the Fed identified several, including:
The message's overall tone remained positive, however and inflation appears to be held in check.
Also in its statement, the Fed confirmed its plan to hold the Fed Funds Rate near zero percent "for an extended period" and to honor its $1.25 trillion commitment to the mortgage bond market. That plan -- due to expire at the end of March 2010 -- should be noted by today's homebuyers. Fed insiders estimate that the program suppressed rates by 1 percent through 2009.
Mortgage market reaction to the Fed press release is negative. Mortgage rates are rising this afternoon.
The FOMC's next scheduled meeting is January 26-27, 2010.
Fannie Mae raised the bar for mortgage applicants this past weekend. Getting approved for a home loan just got harder.
In its official announcement, Fannie Mae says the updates minimize long-term lending risks. If that's the case, this won't be the last guideline change Fannie Mae makes -- especially with loans defaulting at an above-normal clip.
The immediate changes are major. The first pertains to credit scores.
Effective December 13, 2009, the bulk of Fannie Mae's loans require a 620 credit score minimum. There are very few exceptions.
A second relates to loans with private mortgage insurance.
Homeowners whose loan-to-value exceeds 80 percent now have a choice:
Both options result in higher consumer loan costs.
A third change concerns maximum debt-to-income ratio. Fannie Mae will no longer approve loans with debt ratios exceeding 45 percent except with very strong assets and very high credit scores.
In no case whatsoever may debt-to-income exceed 50 percent.
There are other changes, too, including the elimination of seldom-used mortgage products and additional risk-based fees for "expanded level" mortgage approvals. These updates affect just a small part of the population.
So, home prices are rebounding, mortgage rates are low, and -- for 5 more months at least -- there's a federal tax credit for qualified buyers. You don't have to buy a home now, but with mortgage guidelines sure to tighten in 2010, now may be a better time than later.
The best "deal" won't matter if you can't get qualified on your mortgage.
The Federal Open Market Committee meets today for the last time in 2009. It's a 2-day meeting and the Fed is expected to leave the Fed Funds Rate near 0.000 percent.
But that doesn't mean mortgage rates won't change.
See, a major misperception among the public is that the Federal Reserve sets mortgage rates. That's false. Mortgage rates are based on the price of mortgage-backed bonds.
As an example, since 2000, the Fed Funds Rate and the 30-year fixed rate mortgage have been within 1 percent of each other at times, and as far apart as 5 percent at others.
If there was a direct relationship between the two, such a spread would be impossible.
The Federal Reserve doesn't set mortgage rates. Wall Street does. However, whenever the Fed adjourns from its meetings, mortgage rates are susceptible to change.
For home buyers and rate shoppers, this week's Fed meeting takes on added significance.
Over the last half-year, the Fed has used its post-meeting press releases to acknowledge an improving economy in which growth is tempered by job loss and tepid spending. In November, though, net job gains nearly went positive and Retail Sales data proved strong.
If the Fed gets more positive in its message tomorrow, mortgage rates will suffer. This is because Wall Street will use the Fed's position on the economy as a reason to buy stocks. Some of the cash to fuel those buys will come from the mortgage bond market.
As extra bond supply hits Wall Street, mortgage rates go up.
Similarly, if the Fed's message goes negative on the economy, investors are expected to sell their stock positions in favor of buying bonds. This makes rates go down.
So, the Federal Reserve doesn't make mortgage rates, but it does exert an influence on them. In other words, rate shoppers would be wise to watch for the FOMC's 2:15 PM adjournment. Even though the Fed Funds Rate is expected to remain unchanged, mortgage rates certainly are not.
If you wonder what mortgage rates and home affordability will look like next year, today's Retail Sales data may hold your answer.
Versus October, November's ex-auto sales were up by more than 1 percent. Analysts expected the increase, but not an increase of this magnitude.
"Ex-auto" means that motor vehicles and parts are excluded from the data.
Home values are increasing in many parts of the country and household net worths are rising, too. Therefore, we can infer from the Retail Sales report that U.S. consumers are starting to feel better about their individual finances, and about the economy overall.
To homebuyers and rate shoppers, strong Retail Sales data may foreshadow higher rates for mortgages ahead. This is because sales data is a by-product of consumer spending and consumer spending accounts for more than two-thirds of the economy.
As spending increases, the economy tends to expand, drawing investment dollars into stock markets and away from bond markets -- including mortgage-backed bonds, the basis for conforming mortgage rates.
Less bond demand leads to higher rates and, therefore, lower levels of home affordability.
Despite the Holiday Season momentum, however, 2009 will likely mark just the second time that Retail Sales data fell year-over-year since the government started tracking it 40 years ago. The other year was 2008.
But, if November's Retail Sales is a reliable indicator of consumer sentiment overall, we should expect 2010 to rebound strongly. And when it does, mortgage rates should suffer.
The housing market is recovering, mortgage rates are still near all-time lows, and the government is offering an $8,000 tax credit to qualified buyers through April 30, 2010. If you plan to buy a home next spring, you may want to consider moving up your timeframe. Waiting may be costly.
Since peaking in July 2009, national foreclosure activity has dropped through 4 consecutive months.
On a month-to-month basis, November's foreclosure activity fell another 8 percent.
However, national foreclosure activity continues to be dominated by a minority of states.
As reported by RealtyTrac.com, more than half of November's foreclosure-related activity sourced from just 4 states:
These are the same 4 states that topped October's foreclosure activity despite three of them posting month-to-month declines last month.
The remaining Top 10 states in terms of total foreclosure activity include Arizona, Texas, Ohio, Georgia, Nevada and New Jersey.
If you've been actively looking at REO lately, you've likely noticed that true bargains are harder to find. This is because buyers of all types -- first-timers, move-ups, and investors -- are purchasing bank-owned homes aggressively and getting better at identifying the "best ones".
But just because supplies are dwindling doesn't mean you should just jump in. Buying foreclosures isn't for everyone for two very strong reasons:
Therefore, if you're thinking of buying a foreclosed home, be sure to talk with your real estate agent about potential problem before going under contract. Better too soon than too late.
There are still good deals in the foreclosure market, but based on November's data, they may not last through the winter. "Distressed home" sales now account for 30 percent of home resale activity.
'Tis the season to do shopping -- and get bombarded with offers to open credit cards.
The deals are tempting, too. "Open a charge card today" and save up to 20% on your purchase. Considering that the average Black Friday ticket was $343, that's $68 saved per store.
For big-ticket items like televisions, the savings are even bigger.
But for people in the market for a new home -- or looking to refinance -- taking advantage of in-store savings could be a long-term money loser.
Every time you apply for a credit card, your credit score drops.
According to myFICO.com, "new credit" accounts for 85 out of 850 possible credit scoring points. New credit is defined by such traits as:
Shoppers with few open credit cards are more likely to see their scores drop that shoppers with many cards.
Regardless, a credit score is worth protecting because of how mortgage rates are made. A conventional mortgage applicant with 20% equity whose FICO is 720-739 will be subject to a 0.125% loan fee that a comparable applicant at 740 would not have to pay.
Having a low credit score can be expensive.
It is okay to take advantage of in-store savings during the holiday shopping season, but it's also important to be aware of how your credit score may be affected.
If you're not applying for a mortgage in the next six months, you'll likely be alright. But, on the other hand, if you know you'll need your FICO soon, consider whether saving 15 percent on a $343 ticket is worth the long-term cost of a higher mortgage rate.
For many American homeowners, interest paid on a mortgage is tax-deductible in the year in which it was paid.
Knowing that, eligible homeowners can increase their 2009 tax deductions just by making their January 2010 mortgage payment before the end of the year.
By paying in 2009, the mortgage interest paid can be applied against 2009's itemized tax deductions even though the payment isn't technically due until 2010.
It can reduce your tax burden come Thursday, April 15, 2010.
And lest you think you're paying the mortgage "in advance", remember that mortgage interest is paid in arrears; a payment due January 1 accounts for interest that accumulated in December 2009 anyway.
Tax planning is a complicated issue and not all homeowners qualify for mortgage interest tax deductions. Check with your tax professional before making tax planning decisions.
If you don't have an accountant you trust, call or email me anytime; I'm happy to make a recommendation to you.
When a home seller accepts a contract on an MLS-listed property, the property's status changes from "Active" to "Pending".
This means the home is scheduled to sell, but not yet sold.
Each month, the National Association of Realtors® tallies the number of pending homes and publishes the data as the Pending Homes Sales Index report.
In October, for the 9th straight month, the index gained. It's the longest such streak in Pending Home Sales history.
Because a "pending" home sale is just a contract between buyer and seller, it's not as important to the economy as actual home sales. However, the Pending Home Sales Index can be a fine predictor of future activity.
Historically, 80 percent of homes under contract "close" within 60 days, and most others close within 120 days. Recent Existing Home Sales data corroborates this. Home sales activity is at its highest pace in nearly 3 years.
The Pending Home Sales Index does have some shortcomings, though:
Despite this, however, Pending Home Sales is a terrific measure of real estate market strength. Homes are going under contract at a dizzying pace. It's thinning out home inventory supplies and pressuring prices to rise.
This chain reaction is what makes Pending Home Sales Index worth tracking. As the number of homes under contract increase, home prices can't be far behind.
The supply of newly-built homes fell to its lowest levels since 2006, offering additional proof of a housing market in recovery.
Home supply is defined as the amount of time it would take to sell the current inventory of homes at the current pace of sales.
In October, for the 8th consecutive month, home supplies fell. Since peaking in January 2009, it's now down by almost half.
Lower supply leads to higher prices. This is Economics 101.
Furthermore, supply is expected fall into 2010. According to the government, builders are breaking ground on new homes at a declining pace, even as sales ramp up.
Builders are cheering the October New Home Sales report, but its the everyday sellers of "existing homes" that have real reason to celebrate.
See, as builders clear out their respective inventories and turn profitable, there's less reason for them to offer the types of over-the-top purchase incentives that characterized the last 12 months of selling.
With fewer builder incentives, the playing field levels between large corporations and individual home sellers.
And while this is happening, buyers are eagerly taking advantage of low mortgage rates and federal tax credits for buying homes. It's pressuring home prices higher overall.
Since January 2009, the average sale price of a newly-built home is up 6 percent.
Home affordability improved this week after the Federal Reserve released its November 3-4, 2009 meeting minutes.
The FOMC Minutes is a companion to the Federal Reserve's post-meeting press release. It's released 3 weeks after the Fed adjourns and details the internal debates that shape our nation's monetary policy.
As compared to the press release, the minutes can be rather lengthy. November's press release featured 428 words, the minutes offered 6531.
However, this extra level of detail shapes markets and mortgage rates. With Wall Street unsure about the economy's path, investors look to our nation's central bankers for guidance.
The Fed has made several points clear:
Overall, the FOMC Minutes paint the economy as in a state of measured repair, and under tight federal surveillance. Investors like this message and, as a result, stock and bonds markets are improving.
If you haven't checked mortgage rates lately, make a point to do that. In the wake of the FOMC Minutes, conforming mortgage rates are now hovering near their all-time lows set exactly 1 year ago.
It's official -- home prices are no longer in free fall.
According to the Federal Housing Finance Agency, the Home Price Index posted its first quarterly increase since 2007 last quarter.
The news was reported Tuesday.
The Home Price Index is an interesting metric. It's huge in its scope, accounting for every home sold in the country that backs a mortgage bound for Fannie Mae or Freddie Mac with two notable exceptions:
Because the Home Price Index makes these specific exclusions, and because it doesn't account for FHA and jumbo mortgages, some analysts discount the HPI's relevance. They prefer the private-sector Case-Shiller Index instead.
Now, to be fair, the Case-Shiller has its own set of flaws, too.
For example, it excludes condos and co-ops, and only tracks sales in 20 cities nationwide. But, of all the private home valuation models, Case-Shiller is the most well-known and most widely-used.
The Case-Schiller Index was also released Tuesday and the report showed the same results as its government-issued counterpart -- home values increased between the second and third quarter.
When the Home Price Index and Case-Shiller Index reach similar conclusions, markets tend to buy-in. Home buyers should, too.
Home values have likely bottomed and are starting to turn higher, as shown in two separate reports. High sales volume and dwindling supply are contributing factors. So are low mortgage rates and a tax credit.
If you're on the fence about buying a home, at least consider your options. In 2010, homes are unlikely to be as cheap to buy, or as cheap to finance.
Another month, another piece of evidence that the housing market is in recovery.
Existing Home Sales surged in October as the nation's homebuyers took advantage of low mortgage rates, low list prices, and, for some, a generous tax credit.
Home resales are 23 percent higher versus a year ago and home supply is down to 7 months nationwide.
Inventory hasn't been this low since February 2007.
The news shouldn't be surprising, however. The same real estate trade group that produces the Existing Home Sales report also publishes a monthly report meant to predict future home sales called the Pending Home Sales Index.
Pending Home Sales have been through the roof since mid-May.
So, with pending home sales showing no signs of slowing and 80% of pendings turning into actual, closed sales, we can expect existing home sales volume to rise in the coming months, too. Especially because Congress extended the home buyer tax credit to include (1) "Move-up" buyers and, (2) Buyers with higher household incomes.
It's terrific news for home sellers. The housing market turnaround means higher sale prices and fewer concessions to buyers long-term.
To buyers, on the other hand, the news isn't so good. The window to find a "deal" appears to be closing quickly.
For today's home buyers and homeowners that can manage the higher monthly payments, 15-year fixed rate mortgage rates look attractive as compared to comparable 30-year products.
The 15-year/30-year interest rate spread is near its 5-year high.
Despite lower rates, however, homeowners opting for a 15-year fixed mortgage should be prepared for its higher monthly payments. This is because the principal balance of a 15-year fixed is repaid in half the years as with a standard, 30-year amortizing product.
As compared to 30-year terms, 15-year products repay 3 times as much principal each month.
Versus a 30-year, 15-year fixed mortgages have a few downsides worth noting. The first is that, because 15-year mortgages are heavy on principal and light on interest, homeowners who itemize tax returns may have to claim a smaller mortgage interest tax deduction at tax time.
Another negative is that the sheer size of the payment. If you run into fiscal trouble down the road, the only way to reduce the monthly obligation is to refinance into a 30-year product and that costs money to do.
In other words, be sure you can manage the payments over the long-term before you opt for a 15-year term. If you can manage it, though, the rewards are tangible.
At today's rates, a 15-year fixed and 30-year fixed costs $230 extra per $100,000 borrowed.
A "Housing Start" is a home on which construction has started and, for the 4th straight month, national single-family housing starts held steady last month.
When the demand for homes grows faster than the number of homes for sale, prices increase.
As recent home sales data confirms, buyers currently outpace sellers and one consequence of this is an increase in multiple-offer situations this year.
It's no wonder home prices are up across so many neighborhoods.
October's Housing Starts report is yet another piece of housing data foreshadowing rising home prices into 2010.
Building Permits were also down in October, a potential demand-to-supply imbalance magnifier. Without permits, there's no future construction. This drains supply. Meanwhile, tax breaks and low rates tend to stimulate demand and, right now, we've got both.
Therefore, so long as demand remains semi-constant into the New Year, expect home prices to rise.
In many markets, they already are.
A conforming mortgage is one that, quite literally, conforms to the mortgage guidelines set forth by Fannie Mae or Freddie Mac.
Each year, the government sets the maximum allowable loan size for a conforming mortgage, based on "typical" housing costs nationwide.
Loans in excess of this amount are typically called "jumbo".
While home prices increased from 1980 to 2006, so did conforming loan limits. Since then, however, as home prices have dipped, the conforming loan limit has held.
Now, in 2010, for the 5th consecutive year, the government set $417,000 as the nation's conforming mortgage loan limit.
The 2010 conforming loan limits, as released by the government, are:
But conforming loan limits don't apply to all U.S. geographies equally. As a result of various economic stimuli since 2008, the government now considers certain regions around the country "high-cost" areas. In these areas, conforming loan limits can range to $729,750.
There are less than 200 such areas nationwide. The complete list is published on the Fannie Mae website.
APR is an acronym for Annual Percentage Rate. It's a government-mandated calculation meant to simplify the comparison of mortgage options.
A loan's APR can always be found in the top-left corner of the Federal Truth-In-Lending Disclosure.
Because APR is expressed as a percentage, many people confuse it for the loan's interest rate. It's not. APR represents the total cost of borrowing over the life of a loan. "Interest rate" is the basis for monthly mortgage repayments.
The main advantage of APR is that it allows an "apples-to-apples" comparison between loan products.
As an example, a 5.000 percent mortgage with origination points and fees will almost certainly have a higher APR than a 5.500 percent mortgage with zero fees. In this sense, APR can help a borrower determine which loan is least costly long-term.
However, APR is not without its shortcomings.
First, different banks includes different fees into their APR calculations. By definition, this spoils APR as a choose-between-lenders, apples-to-apples comparison method.
And, second, when calculating APR, "life of the loan" is assumed to be full-term. When a 30-year mortgage pays off in 7 years or fewer -- as most of them do -- APR comparisons are rendered moot.
In other words, APR is just one metric to compare mortgages -- it's not the only metric. The best way to compare your mortgage options is to review all the loan terms together and determine which is most suitable.
Mortgage markets improved last week as foreign buyers of mortgage debt helped to push mortgage rates to a 4-week low.
It marked the 3rd consecutive week that rates improved, breathing extra life into this year's ongoing Refi Boom.
Fixed-rate, conforming mortgage rates fell about 0.125 percent on the week. ARMs did about the same.
There wasn't much data to move mortgage rates last week; investors worked mostly on momentum and trends. However, the Friday University of Michigan Consumer Sentiment survey release garnered some attention.
After worsening in August and September, consumer sentiment fell for the third straight month in October. Analysts worry about what it could mean to the economy. Holiday Shopping season is here and consumer spending fuels the economy. If households hold the purse strings tight, our nation's budding economic recovery may stall.
In a scenario like that, employment rates won't rebound so fast, but rate shoppers might not mind. Slower-than-expected economic growth tends to suppress mortgage rates, helping to improve home affordability overall.
This week, data comes back into focus.
At 8:30 AM ET today, the government will release October's Retail Sales report. This one should be closely watched for its ability to change rates. A weak report should drag rates down, and a strong one should push rates up.
Then, on Tuesday and Wednesday, look for PPI and CPI -- two key inflation indices. Inflation causes mortgage rates to rise so if either of these reports comes in hotter-than-expected, rates will almost certainly rise.
And, lastly, also on Wednesday, we'll get the Housing Starts report for October. Don't expect the markets to move on this one, but keep an eye on the data anyway. Housing markets remain crucial to economic recovery.
Despite rates hovering near recent lows, remember that markets change quickly. A rate quote from the morning is rarely valid by the afternoon and, when rates rise, rates rise fast.
For the eighth straight consecutive month, national foreclosure activity in the U.S. was dominated by a small set of states.
As reported by RealtyTrac.com, more than half of October's foreclosure-related activity came from just 4 states:
The remaining Top 10 states in terms of total foreclosure activity included Arizona, Georgia, Texas, Ohio, New Jersey, and Maryland.
Foreclosures are up 19 percent from last October, but a deeper look at the RealtyTrac report revealed two positive developments for the housing market.
Furthermore, Nevada's foreclosure pace is down 4% from last year. This is a big deal because Nevada has long led the nation in foreclosure-related activity. Until last month, Nevada's year-to-year foreclosure rate hadn't fallen in more than 4 years.
It's too soon to say that the foreclosure market is drying up, but bargains are getting harder to come by. First-time buyers and bona fide investors alike have been snapping up property at a furious pace.
According to an industry trade group, distressed homes account for nearly one-third of home resale activity.
That said, buying foreclosures isn't for everyone.
For one, properties are often sold as-is and may be defective. The cost of repairs may negate "the deal" or "the steal" -- depending on the cost of the home.
Secondly, closing on a foreclosed home can be a 3-month long process. This is because banks rarely process home sale paperwork as fast as a "person" would. A 3-month timeframe may not fit your schedule.
In the end, fundamentally, buying a foreclosed home is the same as buying a "regular" home -- there's a contract and a closing. Most of the steps in the middle, however, are different.
Read the complete foreclosure report and take a peek at the foreclosure heat maps on the RealtyTrac website. If you like what you see, talk to your real estate agent about what to do next.
There's still good deals in the foreclosure market, but based on October's data, they may not last through the winter.
Despite the economy's improvement and prodding from Congress, banks don't seem ready to open their purse strings just yet.
Nationally, mortgage approval standards are tightening.
The data comes from a quarterly survey the Federal Reserve sends to its member banks. The Fed asks senior bank loan officers around the country whether "prime" residential mortgage guidelines had tightened in the last 3 months.
For the period July-September 2009:
Just one bank said its guidelines had loosened.
Combine the Fed's survey with recent underwriting updates from the FHA and from Fannie Mae and it becomes clear that mortgage lenders are much more cautious about their loans than they were, say, 2 years ago.
Today's borrowers face a host of hurdles including:
In other words, mortgage rates may stay low into 2010, but that won't matter to homeowners that don't meet minimum eligibility standards. With each passing quarter, that list gets smaller.
Therefore, if you're on the fence about whether now is a good time to buy a home, remember that, along with an increase in mortgage approval standards, home values are rising, too.
Acting sooner is probably better than acting later.
Consider this a last call for FHA Streamline Refinances. Starting next Tuesday, the popular rate-lowering program gets strict on borrowers.
There's 5 days left.
Under the current streamline refi guidelines, FHA homeowners have minimal program eligibility requirements.
Beyond that, everything else goes, practically. There's no income, asset, or job verification with the current FHA Streamline program. Neither is there an appraisal requirement. It doesn't matter if you're 50% underwater.
Until next week, that is.
Beginning November 17, FHA Streamline Refinance applicants must show evidence of income and employment, plus proof of cash required to close. Furthermore, the FHA is limited loan-to-values to 97.75% for homeowners that want to "roll closing costs" into their mortgage.
In areas of declining home values, this may render refinancing impossible.
There's more changes, too, as highlighted by the Federal Housing Commissioner. Read up for yourself, or ask a mortgage professional for help.
If you're a homeowner and you're currently financed through the FHA, it may be prudent to explore the possibility of an FHA Streamline Refi. Mortgage rates are low right now and FHA guidelines are loose.
Starting next week, FHA Streamlines will be a completely different beast.
Congress both extended and expanded the First-Time Home Buyer Tax Credit program Thursday.
The White House says the President will sign it into law today.
The up-to-$8000 tax credit's expiration date has been pushed forward to spring, requiring homebuyers to be under contract by April 30, 2010, and to be closed by June 30, 2010.
The program's basic eligibility requirements remain the same:
For one, the definition of "first-time home buyer" has been expanded to include most homeowners with at least 5 years in their current home. "Move-up" buyers like these are now eligible for IRS tax credits, but with a cap at $6,500.
This means that you don't have to be a true first-time home buyer to claim the "first-time home buyer tax credit".
Other eligibility changes include:
And remember, the First-Time Home Buyer program grants a tax credit as opposed to a deduction. This means that a tax filer would receive a cash payment of $2,000 from the U.S. Treasury if his "normal" tax liability totals $6,000 and he was eligible for all $8,000 available under the new law.
The complete list of qualifying criteria is posted on the IRS website. Be sure to review it with a tax professional to determine your eligibility. Then mark your calendar for April 30, 2010.
It's 5 months away.
In its press release, the FOMC noted that the U.S. economy "has continued to pick up" since the September FOMC meeting and that housing market activity has increased.
It's the third consecutive post-FOMC statement in which the Fed speaks optimistically about the U.S. economy -- a signal that the recession is likely over.
The economy isn't without threats, however, and the Fed identified several in its announcement, including:
The overall tone remained positive, however, as inflation appears to be held in check.
Also in its statement, the Fed confirmed its plan to hold the Fed Funds Rate near zero percent "for an extended period" and to honor its $1.25 trillion commitment to the mortgage bond market.
The Fed plans to wind down its mortgage market support over the next 5 months, reaffirming its March 2010 exit date. For now, Fed support helps hold mortgage rates down.
Mortgage market reaction to the Fed's press release is negative overall. Mortgage rates are rising.
The FOMC's next scheduled meeting is December 15-16, 2009.
The Federal Open Market Committee caps off a scheduled, 2-day meeting today in the nation's capital, its 8th meeting of the year.
The group adjourns at 2:15 PM ET and, as is customary, will issue a press release reviewing its monetary policy and the health of the U.S. economy.
The FOMC's post-meeting statements are brief but comprehensive. They're a window into the mind of the Federal Reserve and Wall Street picks apart every sentence for clues.
It's why FOMC meetings tend to shake up the mortgage markets -- for good and for bad.
After its September 2009 meeting, the FOMC said in its press release:
Since September, the momentum has picked up. Credit risks have reduced further, home sales are surging, and, although unemployment remains high, the Fed remains optimistic about a full economic recovery.
Today's FOMC press release will be closely watched. If the Fed alludes to strong growth with inflation in 2010, mortgage rates should rise. Reference to slower growth should help keep rates steady.
The FOMC is expected to leave the Fed Funds Rate within its target range of 0.000-0.250 percent -- the lowest it's been in history. However, it's what the Fed says Wednesday that will matter more than what it does.
If you're floating a mortgage rate or wondering if the time is right to lock, the safe approach is to lock prior to 2:15 PM ET Wednesday.
The housing market continues to steam forward.
As reported by the National Association of Realtors®, the Pending Home Sales Index posted its 8th consecutive monthly gain in September.
It's the longest winning streak in the history of the index and Pending Home Sales are now at their highest levels since December 2006.
A Pending Home Sale is a home under contract to sell, but not yet closed. It's the precursor to an Existing Home Sale.
Trade group data shows that nearly 80 percent of "pending" homes close within 2 months. The majority of those remaining close within months 3 and 4.
When the Pending Home Sales Index rises, it tells us that market activity has picked up. September's data confirms what we've been noticing since February -- the Buyers Market is ending.
With more homes under contract in the marketplace, homebuyers typically face one or more of the following:
1. Competitive, multiple-offer situations
2. Reduced purchase price leverage over sellers
3. Fewer seller concessions
Therefore, if you're buying a home in the next several months, know that the 8-month run in Pending Sales will lead to a run in closed sales. It should result in higher home prices, too
Indeed, we're already seeing it.
Mortgage markets improved last week after a series of hugely volatile trading sessions.
Rates carved out a wide range on the week, culminating in a late-Friday plunge that dropped rates by about 1/8 percent.
It was the first time in 5 weeks that mortgage rates fell.
Volatility like that of last week is nothing new on Wall Street; it's been a running theme in 2009. Volatility occurs when markets don't agree on what's next for the economy and, this year, there's been a lot of disagreement like that.
Data has been inconsistent. Take last week for example.
At 9:00 AM Tuesday morning, the Case-Shiller Index showed home prices rising nationwide. Because many analysts believe housing fueled the recession, strength in the sector is widely construed a positive for the economy.
Mortgage rates rose on the news.
But then, an hour later, the national consumer confidence report revealed a substantial deterioration in sentiment versus the month prior. The data forced Wall Street to do an about-face.
Housing is important to the economy, but it can't affect growth like consumer spending can. When Americans are less confident about their future income, they tend to keep their wallets closed, retarding economic growth.
Holiday Shopping Season is getting underway and the last thing businesses want to see is a suddenly reserved American shopper.
This week, the volatility should continue.
In addition to the release of key employment and housing data, the Federal Open Market Committee has a scheduled 2-day meeting. The group's Wednesday afternoon adjournment will influence mortgage rates.
The Fed is widely expected to keep the Fed Funds Rate in its target range near 0.000 percent, but it won't be what the Fed does that will matter as much as what the Fed says.
If the FOMC's press release shows optimism for the economy, mortgage rates will rise in response. Alternatively, if the Fed appears more dour, rates will fall.
Either way, consider locking your rate before the Wednesday afternoon announcement.
At some point in their lives, every home buyer in America has wondered "Is now the best time to buy a home?" In this 3-minute video, NBC's The Today Show does a good job of answering the question.
The conclusion? Yes, but not if you're going to overpay.
The Buyers Market is ending, we learn, as home prices rise across most of the country. Pockets of opportunity remain, however, and the focused home buyer can still find a "good deal".
Some of the video's tips include:
The piece also goes negative on short sales, noting the amount of time required to buy one. Short sales typically do take longer to close versus a "traditional" purchase, but that doesn't mean they should be avoided.
There's plenty of bargains in the short sale arena, too.
Some days, newspaper headlines are a terrible place to get your real estate news.
Today is one of those days.
After the September New Home Sales report showed sales volume down from August, the mainstream media jumped on the story:
But the headlines miss the point, somewhat. Yes, home sales volume is important to housing, but it's not as important as home supply.
A deeper look at the New Home Sales data reveals an interesting comparison point:
In other words, sales outpaced supply -- a running theme this year and a positive signal for housing.
Since peaking in January 2009, the supply of newly-built homes has now dropped by 40 percent. The average sale price is up 15% over the same period.
This is why you can't get your real estate news from the headlines. You have to dig a little bit deeper to get the real story.
September's New Home Sales report was plenty strong. The housing market recovery continues.
For August, the Case-Shiller Index showed annual home values improving across 19 of 20 U.S. markets. It's the first time in 3-plus years that the benchmark housing index has shown such strength.
According to a Case-Shiller Index spokesperson, "The rate of annual decline in home price values continues to improve."
It's yet another sign that housing may have already bottomed.
However, just because the Case-Shiller Index shows a stabilization in home values, that doesn't necessarily make it true. This is because real estate happens on the local level and the Case-Shiller Index is more "national". It tracks data in just 20 U.S. cities.
Homeowners everywhere else are unaccounted for.
Furthermore, even within the 20 tracked Case-Shiller markets, there's no allowance for the natural sub-markets that exist. Some neighborhoods under-perform and some neighborhoods out-perform.
Case-Shiller treats them all the same.
Despite its imperfections, though, the Case-Shiller Index remains a helpful, broader measurement of U.S. real estate. Economists believe that housing led the U.S. into the recession and they believe housing will lead us out, too.
If that's true, August's Case-Shiller data is another step in the right direction.
Housing Starts on single-family homes gained last month, marking the 8th time that's happened this year.
A "Housing Start" is a home for which the foundation has been excavated and, considered alongside other key market metrics, September data suggests that the housing market stabilization is complete.
Momentum in housing is overwhelmingly positive:
Despite the positive news, the press is calling September's Housing Starts data a "bummer". Citing a drop in monthly building permits, the media purports that housing will slow in the months ahead.
The conclusion may be right, but the rationale may be wrong.
The probable cause for fewer permits isn't that the housing market is overdone. It's that home builders are choosing to exercise caution given the pending expiration of the First-Time Home Buyer Tax Credit and a still-growing number of foreclosed homes.
It's unclear what housing demand will be beginning in December and the last present a builder wants for the holidays is an excess of inventory.
It makes sense that building permits are down, in other words.
Looking back at February of this year, there's a host of signs that housing is on the path to recovery. Now, that path won't be a straight line and there's bound to be setbacks, but September's Housing Starts is not one of them.
Housing Starts are up 40 percent on the year.
The national housing supply fell to a 2-year low last month, according to the National Association of Realtors®.
At the current sales pace, existing home inventories would sell out in 7.8 months -- 30 percent faster versus November 2008.
For a 10-month window, that's a major housing supply reduction and it helps to explain why multiple-offer situations have been so common lately.
Moreover, the same report from NAR showed sales activity reaching its highest point since July 2007, too.
If you're looking for evidence that the long-standing Buyers Market is ending, this month's Existing Home Sales report might be it.
Even median sales prices -- typically dragged lower by distressed and foreclosed properties -- declined at its slowest pace in a year. The market may have turned a corner.
Home prices are rooted in the basic economics of supply and demand.
Since March 2009, the market has been moving in the right direction. Low mortgage rates, ample housing supply and a first-time home buyer tax credit fueled buy-side demand so that home prices are now rising in many U.S. markets.
If home supplies stay on this path into 2010, expect home prices to rise even more.
With crude oil at its highest levels since October 2008, retail gas is up 8 cents per gallon this week.
It's bad news for home buyers and mortgage rate shoppers. The same force that's driving oil higher is linked to rising mortgage rates.
We're talking about the weakening U.S. Dollar which is now at its worst levels versus the Euro in 15 months.
Crude oil is priced in U.S. dollars, by the barrel. When the dollar loses value, more of them are needed to buy the same barrel of oil. As a result, predictably, the price of crude oil goes up.
Now, there are other reasons why crude oil is rising, but the fading U.S. dollar is one of the major ones and it's why we're addressing it.
The dollar has a similar impact on mortgage rates.
Mortgage rates are based on the price of mortgage bonds that -- like crude oil -- are also denominated in dollars. As the dollar loses value, so do mortgage bonds. This causes demand for bonds to drop and prices on bonds to fall.
Because bond prices and bond rates move in opposite directions, mortgage rates rise and this is precisely what's happening on Wall Street today.
Since touching a 5-month low in early-October, mortgage rates have tacked on as much as 1/2 percent, depending on the product. Moreover, with the dollar showing no signs of a rebound, the upward pressure on rates should continue.
If you're trying to time the market bottom, you may have already missed it. Consider locking your mortgage rate before rates increase even more.
And your everyday signal that rates are rising? Just check your price at the pump. If gas prices are up, it's likely that mortgage rates are, too.
According to the government, home values edged lower last month.
The Federal Housing Finance Agency's Home Price Index report shows values down by 0.3 percent from the month prior -- the index's first down month since April.
The Home Price Index is based on the value of homes financed via Fannie Mae or Freddie Mac and, in this sense, the FHFA Home Price Index is more of a "national" real estate index than its private-sector cousin, the Case-Shiller Index.
But like the Case-Shiller, the HPI is as notable for what it specifically excludes as for what it includes. Most notably, the Home Price Index doesn't account for homes meeting any of the following descriptions:
Given the resurgence of FHA financing this year, this last exclusion is especially glaring. FHA represents about one-third of all mortgage loans in 2009.
Because of these exceptions, some analysts label the Home Price Index incomplete. The same could be said of every method of home valuation, however. Case-Shiller only collects data from 20 markets, for example.
In light of these shortcomings, therefore, what's most important is to recognize that both of the "popular" home valuation reports show similar patterns -- home prices have leveled and are showing signs of a rebound.
For a region-by-region breakdown of the Home Price Index, visit the FHFA website.
The new Good Faith Estimate makes its debut January 1, 2010.
Expanded from 1page to 3, the legislators responsible for the new Good Faith Estimate want it to be simpler for homeowners and home buyers to understand than the former version.
By most accounts, Congress will meet this goal.
The new Good Faith Estimate includes plain-English explanations of every fee, charge, and interest payment involved in a purchase or refinance. It also includes a section called "The Shopping Cart" in which applicants can compare lenders.
The new Good Faith Estimate is concise, too. Using a series of "Yes/No" checkboxes on Page 1, mortgage lenders specifically note:
Currently, this information is spread across 3 separate forms.
Furthermore, the new Good Faith Estimate simplifies rate-and-fee comparisons, showing applicants how a lower rate can be available for a higher set of fees, and vice versa.
For all of its clarity, though, the new Good Faith Estimate still fails to address the issue of "suitability". As in, is this the right loan for the right borrower? That's something only a loan officer can do.
For suitable advice, talk with a loan officer who both listens to your needs and helps you plan for them. Great terms on an unsuitable loan are often worse than "good" terms on the right one.
But there's a good chance lawmakers will decide to extend some of the stimulus measures included in the $787 billion economic recovery package passed in February and possibly create some new ones as well.
On Wednesday, House Democrats are convening a forum of economists to debate the state of the economy, with a specific focus on job creation. And lawmakers are convening hearings on Capitol Hill this week to discuss the economic outlook and the state of the housing market.
A number of ideas on the table are lifeline measures, while some are flat-out incentives to spur economic activity.
Here's a rundown of what's under consideration, estimates of what the provisions might cost and where they stand currently in the legislative process.
By year-end, an estimated 1.3 million jobless workers will have run out of unemployment benefits, according to the National Employment Law Project.
It's expected that lawmakers won't let that happen.
The House has already approved an extension and the Senate has amended it but not yet voted on it. Both parties say they want to extend benefits but they disagree over how to pay for it and how to handle amendments to the bill.
In the Senate proposal, unemployment benefits would be extended by up to 14 weeks in every state and then another six weeks on top of that in states where the unemployment rate tops 8.5%.
Currently, states with unemployment rates topping 8% now offer up to 79 weeks of unemployment benefits, said Chad Stone, chief economist of the liberal Center for Budget and Policy Priorities. States with unemployment rates between 6% and 8% now offer up to 59 weeks. And all other states currently offer up to 46 weeks.
Estimated cost: $2.4 billion. But Senate Democrats say the proposal would be paid for in full by extending an add-on tax for employers under the Federal Unemployment Tax Act.
For the past 32 years, employers were required to pay an additional 0.2% on the first $7,000 of a worker's annual wages on top of the 0.6% they normally pay, said George Wentworth, a policy analyst for NELP. That surtax was supposed to expire this year. But lawmakers would extend it through June 30, 2011, to pay for the benefits extension.
If they do, the Congressional Budget Office estimates such a move could reduce the deficit by $200 million over 10 years.
The White House supports extending the federal subsidy now offered to unemployed workers who opt to continue their health insurance coverage from their former employers.
Under the original provision passed under the economic recovery act, Uncle Sam agreed to pick up 65% of the cost of the Cobra premium for up to nine months for workers laid off between Sept. 1, 2008, and Dec. 31, 2009.
That 65% comes close to replicating the share of the premium typically paid for by employers when a worker signs up for coverage.
To date, a Cobra extension has not been attached to any proposed legislation.
Estimated cost: The original provision was estimated by the CBO to cost roughly $25 billion. Absent the exact parameters for an extension, however, it's too early to tell how much the provision would cost.
There will likely be a cost to employers as well. The publication Business Insurance reported recently that companies typically pay out $1.50 in claims for every $1 collected in Cobra premiums.
To compensate for the fact that there will be no cost-of-living adjustment made to Social Security benefits in 2010 due to a lack of inflation, President Obama has proposed sending a $250 economic relief payment to seniors, veterans and the disabled next year. It would be identical to the $250 emergency payment sent out earlier this year under the economic recovery law.
Democratic leaders in the House and Senate have voiced their support for such a payment.
But others don't think it's a good idea. The Committee for a Responsible Federal Budget notes that the cost-of-living adjustment for 2009 was much higher than average -- 5.8% -- due to record energy prices. So "even holding Social Security benefits steady means they will have increased in value. There is no economic or moral justification for increasing them further," said CRFB president Maya MacGuineas in a statement.
To date, a proposed emergency payment to seniors has not been attached to any legislation.
Estimated cost: The measure would cost $13 billion, according to White House estimates.
An estimated 1.4 million tax filers to date have taken advantage of a temporary first-time homebuyer tax credit aimed primarily at people making less than $75,000 ($150,000 for joint filers). An estimated 15% of them bought their home specifically because of the tax break.
The latest iteration of that credit is worth $8,000, and it's scheduled to expire on Nov. 30.
Many lawmakers want to extend that deadline, expand eligibility beyond first-time homebuyers and include those who make more than is allowed under the current rules.
Sen. Johnny Isakson, R-Ga., and Sen. Chris Dodd, D-Conn., co-sponsored an amendment to the unemployment extension bill that would extend the credit until the end of June 2010 and be available to single filers making up to $150,000 and joint filers making up to $300,000.
The amendment may or may not remain attached to the unemployment bill -- which has been stalled due to political skirmishes between Democrats and Republicans. But Congress Daily reports that senators and aides "said both [measures] appear likely to clear the chamber in some form this fall."
It's still not clear where the White House stands. At a Senate Banking hearing on Tuesday, Housing Secretary Shaun Donovan said "within a few weeks we'll have sufficient data to get to a conclusion on this."
Estimated cost: The Isakson-Dodd bill is estimated to cost $16.7 billion. Isakson said at the Senate Banking hearing that he'd be happy to look for ways to pay for it and Dodd concurred. Typically, if a measure is considered stimulus it is not something that lawmakers feel obligated to pay for by either reducing spending or raising revenue in other areas.
Although no formal proposal has been made, there has been some talk of creating an employer tax credit for hiring new workers.
The idea is to spur job creation and to do so in the face of forecasts for a 10% unemployment rate in 2010.
But it's hard to do that without rewarding companies that were already planning to hire anyway, said Clint Stretch, managing principal for tax policy at Deloitte Tax.
Consider two competitors who dealt with the downturn differently, Stretch said. One made deep cuts to its workforce and is ready to ramp up again, while the other cut costs but managed to do so without laying off too many people. In this instance, the first company benefits far more from the credit than its competitor.
A hiring credit was put in place during the Carter administration and the consensus among researchers is that two-thirds of the 2.1 million jobs created by the credit would have been created without it, according to a post on Tax Vox, a blog of the Tax Policy Center edited by Howard Gleckman.
"Tim Bartik [of the W.E. Upjohn Institute for Employment Research] and John Bishop [of Cornell University] ... argue it nonetheless created 700,000 new jobs in a year - not bad, even if a lot of money was wasted. Others insist the research they used is flawed," Gleckman noted.
Estimated cost: Bartik and Bishop estimate that a job creation tax credit that refunds to employers 15% of new wage costs in 2010 and 10% in 2011 could create 5.1 million jobs at a cost of $27 billion, or $5,400 per new job created.
Mortgage markets worsened last week on better than expected economic data, causing mortgage rates to rise.
Last week was the third consecutive week that mortgage rates moved higher and, since touching a multi-month low in early-October, conforming mortgage rates are up by about a half-percent.
It's likely rates will continue to rise, too. That's because the same force that held rates down for so long is now the force pulling them up -- expectations for the U.S. economy.
Over the last 6 months, it wasn't clear in what direction the country was headed. The housing sector has been gaining in strength, but the rest of the economy has been a question mark.
Last week put an end to some of those questions:
Expectations for the U.S. economy are changing on the fly. As a result, stock markets gained last week and mortgage markets lost.
This week, rates could move higher still. There are an unusually large number of key economic reports including on housing and inflation, plus a handful of speeches from key Federal Reserve members.
With each positive announcement, mortgage rates should rise.
When you own a home with a spouse or partner, the issue of what's mine, what's yours, and what's ours can be a divisive one.
Each household has its own money management methodology and, according to financial talk-show host Suze Orman, most leave significant room for improvement.
In this 4-minute piece aired on NBC's The Today Show, Orman talks about co-managing finances with topics including:
Being aware of money is the first step towards protecting it.
Mortgage rates are higher after the Federal Reserve released the internal notes of its September 22-23, 2009 meeting.
Known as the "Fed Minutes", the report details the conversation and cross-currents that led to the Federal Reserve's decision to vote "unchanged" on the Fed Funds Rate after its last meeting.
The Fed Minutes are the lengthy companion to the more famous, succinct post-meeting press release.
As a comparison:
The extra level of details is a big deal because Wall Street is perpetually in search of clues about what the Federal Reserve is going to do next.
In the past week, multiple Federal Reserve members hinted that the Fed Funds Rate may rise as early as April 2010. Fed Chairman Ben Bernanke even alluded to it, too.
The minutes revealed that the economy may improve even faster than was previously expected, too.
These acknowledgements are part of the reason why mortgage rates are up. Because the Fed Funds Rate rises to accommodate a growing economy, the prospect of economic recovery is drawing money into the stock market and away from mortgage-backed bonds.
Less demand for bonds means a lower prices which, in turn, leads to higher rates.
For the seventh consecutive month, foreclosure activity in the U.S. was dominated by a tiny subset of states.
As reported by RealtyTrac.com, more than half of September's foreclosure-related activity occurred in just 4 states:
These states represent just 22.05 percent of the total U.S. population.
Overall, foreclosures are up 29 percent from September 2008 and, while, the data seems negative, defaults are creating some interesting buying opportunities.
Foreclosed homes often sell at a discount as compared to non-foreclosed homes. Cheap prices, low mortgage rates and willing buyers have helped to spur home sales in many U.S. markets. In August, "distressed homes" accounted for one-third of all existing home sales.
First off, foreclosed homes are often sold "as-is" and may be in perfect condition, or may be inhabitable. If the property falls into the latter category, it's important to get estimates for the work needed to make the home livable. Suddenly, the home may not seem like such a "steal".
And, secondly, buying a home in foreclosure can be a 3-month process or more. For some people, this is just too long.
Buying a home in foreclosure is fundamentally the same as buying a "regular" home -- there's a contract and a closing. But most of the steps in between are different.
Read the complete foreclosure report, plus take a peek at foreclosure heat maps on the RealtyTrac website. If you like what you see, talk to your real estate agent about what to do next.
Washington, October 07, 2009
The best available tool for sustaining the still-fragile housing market is the $8,000 homebuyer tax credit, and it is essential that Congress extend the credit into 2010, the National Association of Realtors® testified at a hearing of the U.S. House Small Business Committee today.
The tax credit expires November 30.
NAR Regional Vice President Joseph L. Canfora, a broker-owner with Century 21 Selmar Realty in East Islip, N.Y., also told the panel that a major stumbling block for consumers has been the implementation of appraisal processes spurred by the Home Valuation Code of Conduct, which is causing delays in closings, as well as cancelled sales that led to artificially low existing-home sales numbers for August, reported last month.
“The credit is working,” Canfora said, pointing out that the 355,000 to 400,000 transactions directly attributable to the credit made a significant dent in the housing inventory and will help to stabilize home prices. Further, the credit has provided a huge indirect benefit to local governments, shoring up property tax bases in particularly hard-hit areas.
Further, NAR data has estimated that every home purchase pumps into the recovering economy about $63,000 – the equivalent of one new job added to the employment figures.
But, Canfora said, the threat of more foreclosures coming to the market caused by mortgage rate resets, job losses, and by lender’s unburdening themselves of additional properties to take advantage of today’s more stabilized prices could disrupt the fragile recovery.
In a “normal” market, optimal housing inventory is about six to seven months, he said. When the tax credit was enacted in February, inventory was 9.1 months. Because of the spurt in homes sales since then due to the tax credit, inventory declined to 8.2 months in August, closer to “normal” than at any time since 2007.
In urging Congress to extend the credit, Canfora said, “The more robust the credit and the greater its duration, the greater the chance that the housing market can perform its traditional role of helping the economy move out of a recession.”
“But problems arising from the implementation of the HVCC may reverse the market’s positive momentum at a time when the real estate industry is just starting to show signs of a rebound in many markets,” Canfora said. According to an NAR survey of its members, approximately 40 percent of Realtors® report having lost at least one sale since May 1 because of appraisal problems due to the HVCC rules. Twenty percent say they have lost more than one sale.
The culprit, he said, was that appraisal management companies, which have gained prominence because of the HVCC, have assigned appraisers to areas where they lack geographic competence. That has resulted in unreliable appraisals. It is not uncommon that second and third appraisals have to be done to ascertain fair market value. Appraisal fees have also risen and are being passed on to consumers.
Both Fannie Mae and Freddie Mac have issued guidance on appraisals, but NAR is calling upon the mortgage giants and the Federal Housing Administration to issue a consolidated guidance that should be codified and incorporated into the existing policy to ensure proper information on appraisals is available to the real estate industry.
FHA Commissioner David H. Stevens has asked FHA staff to explore that recommendation with Fannie and Freddie. Last month, Stevens reaffirmed FHA appraisal policy, taking into consideration the unintended consequences that have burdened Fannie and Freddie, and issued two Mortgagee Letters focusing on appraisal changes. The policy reaffirms appraiser independence and geographic competence.
The FHA announcement also included timely steps to protect taxpayers: implementing credit policy changes to enhance risk management; hiring a chief risk officer for the first time in the agency’s history; and shifting responsibility for mortgage brokers away from taxpayers to the lenders who use mortgage brokers.
Canfora told the committee that FHA has performed remarkably well through the housing crises, compared to Fannie and Freddie. “That’s because FHA has never strayed from the sound underwriting and appropriate appraisals that have traditionally backed up their loans.”
“The reason the FHA capital reserve ratio fell below 2 percent had nothing to do with FHA’s current business activities. It is simply a reflection of falling housing values in their portfolio.” He cited an FHA announcement that a 2009 audit will show that even if FHA does nothing, the cap reserves are expected to rise back to that required level within a few years. He also pointed out that FHA total reserves are not in as dire straits as some have reported since the cap reserve fund is not the only FHA reserve fund – FHA also has a separate cash reserve that is higher that it has even been – and the combined assets total $30.4 billion.
The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.2 million members involved in all aspects of the residential and commercial real estate industries.
# # #
Leaving Affordable Mortgage May Become Winning Gambit (Update1)
By Margaret Collins
Oct. 1 (Bloomberg) -- Scott Conroy pays the mortgage every month on his one-bedroom condominium in San Diego, even though it’s worth 33 percent less than what he owes and it may take more than a decade to break even.
Homeowners like Conroy who can afford their monthly payments are weighing whether to sell and pay the difference, stick it out until housing prices recover, or walk away. In the U.S., 26 percent of borrowers owe more than their home is worth, said Karen Weaver, global head of securitization research for New York-based Deutsche Bank Securities. In parts of California, Florida and Nevada, it’s as high as 75 percent.
So-called strategic defaults, in which homeowners stop paying their mortgages while remaining current on other debts, rose 128 percent to 588,000 last year, according to Experian PLC, a Dublin-based credit-checking company, and Oliver Wyman, a New York-based consulting firm. Two-thirds of those who walked away defaulted on their primary residences.
“You’re looking at an extremely long horizon in order to see a return of home values to where they were at their peak,” said Stan Humphries, chief economist for Zillow.com, the Seattle-based real estate data service. “It could be 15 to 20 years in some markets.”
Strategic defaulters represent about 4 percent of all homeowners underwater. That trickle could become a flood as the likelihood recedes that home prices will soon return to their peak values, said Rick Sharga, senior vice president of Irvine, California-based RealtyTrac Inc., an online seller of real estate data.
Forty Percent Drop
In San Diego, where Conroy lives, home values are down about 40 percent since March 2006 when he bought his place, according to the S&P/Case-Shiller Index of 20 U.S. metropolitan areas. Prices have rebounded for three consecutive months, returning to the October 2002 level, before the start of the housing boom. Nationwide, home values are what they were in September 2003, according to the Case-Shiller index as of July.
“You have to ask yourself: Are you just renting the home from the bank?” said Michael Joe, a foreclosure expert at the Legal Aid Center of Southern Nevada. “Would it be cheaper to walk away and rent across the street?”
Conroy, 32, and his wife purchased their home for $385,000 in March 2006, a month before marrying. The property was reassessed this summer for $250,000. The couple is trying to save, he said, knowing they may have to move to a bigger place within 18 months to start a family.
“We’ve given up on this dream of having equity in our home,” Conroy said. “We don’t expect to walk away with cash in hand, we expect to pay.”
More homeowners may opt to take a hit to their credit score rather than come up with cash to cover the loss, especially in California and the nine other U.S. states where the legal repercussions of foreclosures are less than other parts of the country, said Sharga.
Ten states are so-called non-recourse, prohibiting deficiency judgments after most home foreclosures: Alaska, Arizona, California, Hawaii, Minnesota, Montana, North Dakota, Oklahoma, Oregon and Washington, according to the National Consumer Law Center, based in Boston. The bank can repossess your home in those states, not other assets, to settle the debt.
In California, a second-mortgage holder may try to pursue a delinquent borrower to repay through litigation, said Rick Brooks, a financial adviser with the San Diego-based wealth advisory firm Blankinship & Foster. Banks generally prefer not to sue because it can easily cost $60,000 or more, said Debra Guzov, co-founder of the law firm Guzov Ofsink LLC, based in New York.
Banks may be more willing to accept foreclosure alternatives, such as a short sale or deed-in-lieu of foreclosure, in states where a lender can’t sue for personal assets, said Brad Geisen, chief executive officer of Foreclosure.com, based in Boca Raton, Florida.
In a short sale, the borrower finds a buyer for the home at an acceptable price and the bank agrees to forgive the difference, said Greg McBride, senior financial analyst with North Palm Beach, Florida-based Bankrate.com. In a deed-in-lieu of foreclosure, the bank sells the home after a similar debt negotiation.
A 2007 law exempts from tax up to $2 million of debt forgiven in a foreclosure or similar proceeding for a primary residence, according to Internal Revenue Service spokesman Eric Smith. The tax break extends to 2012.
The lender’s willingness to negotiate varies and depends on the loan balance, condition of the property, location, and resale opportunities, said Alberta Hultman, chief executive officer of USFN, an association of U.S. mortgage banking attorneys based in Tustin, California.
Short sales or deeds-in-lieu of foreclosures are considered the same as a foreclosure on your credit score, said Craig Watts, spokesman for Minneapolis-based FICO Corp., owner of the credit-scoring formula most widely used by U.S. lenders.
A foreclosure remains on a credit report for seven years. Credit scores can begin to rebound in as little as 2 years if bills are paid on time, according to FICO.
“You really want to think through the inability to borrow and higher rates that you’ll pay,” Christopher Van Slyke, a partner at Trovena LLC, a wealth management firm based in La Jolla, California, said of walking away.
“If you don’t have the gun to your head then stay right where you are,” said Cheryl Morhauser, a financial adviser based in Nevada City, California, whose clients’ average net worth is $1.5 million to $3 million.
Jennifer Albaugh, 34, plans to keep her Las Vegas home, where prices have dropped 49 percent since she bought it in December 2004, according to the S&P/Case-Shiller index.
Albaugh, who owns a fabric store, might have sold her 3,000-square-foot house for as much as $550,000 four years ago, she said. Today she owes more than $300,000 on her mortgage and says her house isn’t worth even close to that. She and her husband are still looking to buy a bigger home for their two kids, especially while rates are low and might turn their current home into a vacation rental, she said.
“Walking out of your house to get a better deal down the street is just not the right thing to do,” she said. “It hurts everybody.”
Morality and social stigmas play an important role in whether someone who can afford the payments will walk away, said Paola Sapienza, professor of finance at Northwestern University’s business school, in a July study on strategic defaults. Eighty-one percent of 1,646 homeowners interviewed think it is morally wrong, the study found.
“If you know someone who’s done it you’re way more likely to do it,” Sapienza said. “That’s the scariest part, is that there might be some contagion part of this.”
Albaugh and Conroy, the San Diego homeowner, said they’re frustrated by the lack of help for homeowners like them who keep paying.
“It seems like the banks are more willing to work with people who aren’t making their payments rather than people who are,” Conroy said.
To contact the reporter on this story: Margaret Collins in New York at email@example.com.
Last Updated: October 1, 2009 11:26 EDT
The following is a link to an article in the Wall Street Journal about the Treasury calling their 500,000 loan modifications a success.
Is this really helping? According to the feedback I'm getting from my clients, the "bureaucratic stumbles" relating to the new loan modifications make it nearly impossible to get help.
It's a sensational headline -- "The Sellers' Deadly Sins" -- but the message is clear. Home sellers make mistakes that not only cost themselves thousands, but sometimes cost the sale, too.
NBC's The Today Show lays it out cleanly in this 5-minute video:
But, be aware. At the video's end, there's a piece of advice that may sound extremely self-serving coming from a real estate professional. Don't let it turn you off. The video's overall message is spot-on and the advice is real-world tested.
Selling a home is a process. Make sure to do it properly.
Buoyed by a generous tax credit, affordable homes, and low mortgage rates, the Pending Home Sales Index posted its seventh consecutive monthly gain in August.
It's the longest winning streak in the index's history and the highest reading in 2-1/2 years.
It's also another signal that the housing market is in recovery.
"Pending home sales" are a forward-looking indicator, measuring the number homes under contract to sell, but not yet closed.
Historically, 80% of homes under contract close within 60 days. Most others close within 120 days.
It's no wonder home values are rising in so many markets.
Home buyers -- take note. If you're plan to purchase a home between now and the New Year, expect that the recent run in pending sales will turn into run of closed sales which, in turn, should pump prices up and drop home inventory.
With mortgage rates hovering near 4-month lows, the best way to find a value in housing may be to act sooner rather than later.
There is currently a bill to increase the minimum downpayment to 5%.
In the past year or so, the changes we've seen with FHA include eliminating seller funded downpayment assistance programs, and increasing the minimum downpayment to 3.5 percent from 3 percent.
If this most recent bill passes, it may make it difficult for low to moderate income families purchase a home.
The other proposed change is to prohibit the financing of closing costs, which could affect those homeowners that would like to refinance.
An escrow account is a designated savings account into which funds get deposited for a specific purpose.
With respect to real estate and home loans, escrow accounts are used to pay real estate tax bills and homeowners insurance payments.
Escrow accounts are managed and disbursed by lenders.
When a homeowner "escrows" his mortgage, along with his scheduled monthly mortgage payment, he must also send an additional payment to the lender equal to 1/12 of the home's annual real estate tax bill plus 1/12 of the annual homeowners insurance bill.
By sending a pro rata portion of the tax and insurance bill each month, the homeowner's escrow account will always, in theory, have enough funds to make payments in full as tax bills and insurance premiums come due.
As reported by the National Association of REALTORS®, the number of Existing Home Sales dipped last month, ending the metric's 5-month winning streak.
Newspaper headlines today are overwhelmingly negative on housing. You'd almost believe this year's housing recovery had ended.
That's hardly the case.
See, the other side of the Existing Home Sales story is that -- while the number of units sold did fall by 3 percent -- the existing supply fell by nearly an entire month.
To home buyers and home sellers, this is huge. Home prices are based on supply and demand and with supplies plummeting, it means that home prices are poised to rise.
Indeed, dwindling inventory isn't "news" to today's buyers. Multiple offer situations have been common since the start of the summer and, should supplies fall further, they may soon be the home-buying rule rather than the exception.
Since peaking in November 2008, existing home supplies are down 23%.
Sept. 29 (Bloomberg) -- Home values in 20 U.S. cities climbed in July by the most in almost four years, helping stem the record plunge in household wealth that’s depressed spending.
The S&P/Case-Shiller home-price index rose 1.2 percent in July from the prior month, the biggest gain since October 2005, the group said today in New York. Another report showed consumer confidence unexpectedly fell in September, while holding above the record low reached earlier this year.
Home values are rebounding as low borrowing costs and government tax credits lift home sales. Combined with rising stock prices, the gains will begin to restore the $13 trillion plunge in net worth caused by the worst financial crisis since the Great Depression, a process that economists such as Brian Bethune say will take years to complete.
Home prices are “a major, major turning point for the economy,” said Bethune, chief financial economist at IHS Global Insight in Lexington, Massachusetts. “We are eating away at the problem of household balance sheets.”
The New York-based Conference Board’s consumer confidence index fell to 53.1 in September from 54.5 the prior month, the private research group said today, amid growing concern over the lack of jobs. The gauge sank to 25.3 in February, the lowest level in data going back to 1967.
The Standard & Poor’s 500 Index dropped after the confidence report, erasing earlier gains, and closed down 0.2 percent at 1,060.61 in New York. The yield on the benchmark 10- year Treasury note was little changed at 5:15 p.m. in New York from 3.28 percent late yesterday.
From a year earlier, the S&P/Case Shiller index was down 13.3 percent, less than economists anticipated and the smallest decrease in 17 months.
The measure was forecast to fall 14.2 percent, according to the median projection of 36 economists surveyed by Bloomberg News. Estimates ranged from declines of 12.5 percent to 15 percent. It was down 15.4 percent in the 12 months ended in June.
Compared with the prior month, 17 of the 20 cities covered showed an increase, led by a 3.1 percent jump in Minneapolis and a 2.9 percent increase in San Francisco. Las Vegas suffered the biggest one-month decrease at 1.9 percent.
Combined sales of new and existing homes have risen for four out of the last five months, signaling the worst of the housing crisis is over.
The Obama administration’s $8,000 tax credit for first- time buyers, which is due to expire at the end of November, combined with lower prices as foreclosures soared, have helped lift sales this year. The National Association of Realtors and the National Association of Home Builders have lobbied to extend the credit on concern demand will wane after it lapses.
Karl Case, co-creator of the S&P/Case-Shiller index, said the U.S. residential property market is improving enough to end the tax credit for first-time buyers.
“We’ve got to phase back incentives and this may be a good time to do that,” Case said in an interview on Bloomberg Radio. “I believe in some cities you’ll see the beginning of recovery.”
Lennar Corp., the third-largest U.S. homebuilder, is among companies that see demand improving, even as losses mount. The Miami-based company said last week it expects to turn a profit in fiscal 2010.
“In the third quarter we started to see some real signs that the housing market is in fact starting to stabilize,” Stuart Miller, Lennar’s chief executive officer, said on a Sept. 21 conference call. “The sense that now is the time to buy is starting to gain momentum.”
The Conference Board’s confidence gauge was projected to increase to 57, according to the median estimate of economists surveyed by Bloomberg News.
The decline was caused by growing pessimism over jobs. The share of consumers who said jobs are plentiful fell to 3.4 percent this month from 4.3 percent. The proportion of people who said jobs are hard to get increased to 47 percent from 44.3 percent.
“It’s a little hard for households to look at their paychecks, or the lack thereof, and feel more confident,” Ellen Zentner, a senior economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said in a Bloomberg Television interview. Even so, “we should continue to see consumer confidence turn around,” because the recession is over and hiring eventually will rebound, she said.
Fewer Job Losses
The pace of job losses is easing as the economy shows signs of accelerating. Payrolls fell by 216,000 in August, the smallest decline in a year, according to the Labor Department. Employers probably cut another 180,000 workers this month, economists project a Labor Department report later this week will show.
Economists say the Conference Board’s index tends to be more influenced by attitudes about the labor market.
Confidence may improve in future months as balance sheets rebound. Net worth for households and non-profit groups climbed by $2 trillion in the second quarter, marking the first gain since the third quarter of 2007, according to figures from the Federal Reserve.
Fed policy makers last week said they would keep the benchmark lending rate near zero “for an extended period,” and noted that sluggish income growth and tight credit are curbing household spending and slowing the pace of the economic recovery.
To contact the reporter on this story: Bob Willis in Washington at firstname.lastname@example.org; Shobhana Chandra in Washington at email@example.com
Last Updated: September 29, 2009 17:17 EDT
Beginning November 17, 2009, the FHA will make it harder to qualify for its popular Streamline Refinance program.
Available exclusively to homeowners with existing FHA home loans, the streamline program is meant to help homeowners reduce mortgage payments as simply as possible.
As such, the program carries minimum eligibility requirements.
In fact, the FHA Streamline Refinance is more notable for what it doesn't require from applicants.
The two biggest qualifiers, really, are that the homeowner meets a minimum credit score and that the new loan doesn't exceed the original balance of the old loan.
The new program guidelines, however, are much stricter.
Effective next month, among other requirements, applicants must show evidence of employment and income, plus proof of cash required at closing.
Furthermore, homeowners can't finance closing costs into the mortgage without a complete home appraisal. In areas of declining value, this may render refinancing with the FHA impossible.
Therefore, if you're a homeowner with an FHA mortgage, consider contacting your loan officer before the November 17 deadline to explore your Streamline Refinance options. Mortgage rates are low and you never know for what you'll qualify.
The worst thing you can do is to wait too long to find out. Once the deadline passes, the old guidelines will be history.
Young people just starting to invest and buying their first homes are potentially the winners in this recession.
First-time homebuyers, most between the ages of 25 and 45, accounted for about 45 percent of home sales from January through July 2009, according to the National Association of REALTORS®
"This is a historic time," says George Jaramillo, a 35-year-old business analyst in Atlanta, who recently bought three homes, two of them foreclosures. "It's a great opportunity to make some great gains in the future."
A study by investment company T. Rowe Price points out that investing when prices are low can result in amazing gains. For instance, between 1970 and 1990, the annualized rate of return for the S&P 500 was 11.5 percent.
"We need to be shouting from the rooftops that this is not the time to get out of the market if you're young," says Christine Fahlund, a senior financial planner with T. Rowe Price. "This is the time to be in the market."
Source: The Associated Press, Chip Cutter (10/05/2009)
Home builders are cutting back on the freebies they’ve been tacking on new homes for the last couple of years to woo buyers.
The reason is simple: Demand is almost back in sync with supply. According to Jeffrey Laverty, analyst with research firm Oscar Gruss & Son, new-home inventory has declined from 12.4 months in January to 7.3 in August, close to the six-month mark considered standard.
While eliminating incentives like free cars and free pools, some builders are continuing to offer to pay points on mortgages and discounts on upgrades—“Incentives that make sense,” says Laura VanVelthoven, Hovnanian's corporate vice president of marketing and sales.
Source: The Wall Street Journal, Dawn Wotapka (10/05/2009)
The nation's mortgage investors have just won a court victory in New York, a decision likely to change the way we modify loans and foreclose on houses. In effect, you can pretty much throw out a lot of the policies, practices and thinking seen to date. A new reality is here.
Like a good mystery novel the battle between mortgage investors and loan servicers has a bunch of twists and turns. To unravel our little tale — and to explain what just happened in New York — let's go back to the beginning: You want a loan to buy or refinance a home. You go to a lender and get your mortgage. In the majority of cases your loan will be quickly sold, packaged with other loans on Wall Street and then used to create a mortgage-backed security.
Mortgage-backed securities — MBS — are then bought by investors worldwide, typically pension funds and insurance companies. The money they spend is used to pay the folks on Wall Street who assembled and packaged the loans. The banks and brokers on Wall Street pay the lenders who created your loan. Since they once again have cash, the lenders can make new loans, collect new fees and then the process will repeat itself. As to the investors, they're entitled to the interest and principal repayments from the mortgages they own.
So how does any of this impact you, the borrower?
First, the money for your mortgage likely came from an investor. No investor, no loan. Fewer investors, higher rates and maybe no loans for a lot of borrowers.
Second, the odds are overwhelming that you will never hear from an investor. Instead you will make your payments to a “servicer” who collects money for the investor and — if necessary — starts a foreclosure proceeding if you don't make your payments.
The servicer is pretty much like a real estate broker hired to sell your home. The broker is not empowered to sell your home for any price or with any terms, instead he must sell within the standards set out with a listing agreement. In a similar sense a servicer is an agent of the investors who own your mortgage and must act within certain boundaries, standards which are generally created in what's called a pooling and servicing agreement or PSA.
The PSA is a complex document, but it does have a few particulars of interest to us. For instance, it might say that a servicer cannot modify any loans or maybe just a small percentage of loans. It might also say that if a servicer wants to modify a loan without permission of the mortgage owner that's fine — as long as the servicer buys back the mortgage.
In January 2008 Bank of America announced that it would purchase Countrywide Financial for roughly $4 billion . Countrywide had been a major purveyor of option ARMs, and by October 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.”
This wasn't exactly a voluntary effort. Eleven states had sued over Countrywide's practices. As California's attorney general put it, the settlement agreement was likely to “become the largest predatory lending settlement in history.”
It would seem that the deal between Countrywide and various state AGs solved a lot of problems, but did anyone notice something strange? Countrywide and Bank of America were agreeing to modify loans they were servicing but which in many cases they did not actually own.
Some investors were upset by the Countrywide deal for several reasons.
First, their contract with Countrywide — that PSA — did not allow wholesale loan modifications.
Second, they argued that Countrywide had an inherent conflict of interest. If delinquent loans were foreclosed then Countrywide would lose the stream of income it was getting from loan servicing — income that would continue if loans were modified.
Third, some investors thought it was possible that their loans might be modified more than loans which were actually held in portfolio by Countrywide, that Countrywide could play favorites to its advantage.
The situation would seem fairly ripe for a big court battle and then the government intervened. In March of this year a new law was passed which created a "safe harbor" for loan servicers which effectively said they could not be sued for modifying mortgages.
Or did it?
None of this sat right with the Greenwich Financial Services Distressed Mortgage Fund or QED L.L.C., mortgage investors which sued Countrywide claiming their rights under the PSAs had been violated. Now, according to a decision just released by U.S. District Judge Richard J. Holwell, investors have a right to sue because the “safe harbor” language is not absolute — servicers must show they have sought to maximize the “net present value” of the investor's loans.
The Changed World
Until the Countrywide case is settled servicers may well have spectacular levels of liability for any mortgage they modify — remember the deal set out by many PSAs is that servicers who modify loans without investor permission are required to buy back those mortgages, potentially at a cost of hundreds of billions of dollars, money which servicers simply don't have. The result is that a modification slowdown is now likely without new laws from the federal government.
This means a lot of people are about to get hurt. The question is: Which people?
The Countrywide decision and the efforts to modify mortgages also mean that a lot of people have not been hurt. For instance, loan officers and lenders who reaped huge profits by selling costly subprime mortgages to borrowers who qualified for cheaper conventional financing are doing just fine. Few if any bank or brokerage executives have been forced to give back bonuses which were earned from revenue inflated with toxic loan profits. Predatory lending is still not a federal crime. Regulators who didn't regulate are still on the job. And the ratings agencies which vouched for the quality of mortgage-backed securities have not had to give back a dime to investors who relied on their reports.
The central issue raised by the Countrywide suit is who will pay for the massive losses which remain within the financial system. Mortgage investors say they have contract rights which need to be respected — and so far at least one judge has agreed with them.
“The final outcome is likely to very different than what has been seen so far in court,” says Jim Saccacio, chairman and CEO at RealtyTrac.com , the leading online marketplace for foreclosure properties. “Ultimately one can see servicers, borrowers and investors coming together to acknowledge that the agreements between them simply don't fit today's circumstances and that new accommodations need to be developed. Given the gravity of the economic situation, one would hope this can be done as soon as possible rather than arguing about it for years in court.”
Peter G. Miller is syndicated in more than 100 newspapers and operates the consumer real estate site, OurBroker.com .
The government's First-Time Home Buyer Tax Credit program expires November 30, 2009 -- a scant 60 days from today.
Considering it can take up to 60 days to close on a home, first-time buyers have 2 weeks at most to find a home.
Buyers not under contract by October 15 have little chance of meeting the November 30 deadline and, therefore, little chance of claiming the tax credit.
This is especially true for purchases involving short sales and foreclosures.
Congress passed the First-Time Homebuyer Tax Credit program as part of the 2009 economic stimulus plan. IRS Form 5405 outlines the program criteria and includes the following stipulations:
The credit is capped at $8,000 or 10% of the purchase price, whichever is less. And don't forget -- the First-Time Home Buyer Tax Credit is a true tax credit. It's not a deduction.
This means that a tax filer who claims the full $8,000 and whose "normal" tax liability is $5,000 would receive $3,000 cash from the US Treasury when their tax return is processed by the IRS.
If you can't close by November 30, 2009, though, you can't claim the credit.
The clock is ticking. If you're planning to use the First-Time Home Buyer Tax Credit, the time to act is now.
By its most common definition, a quitclaim deed is a document by which one person passes legal and financial ownership of a home to another person.
It's also a way for an owner of a home to remove himself from the title to the property.
Often misspelled as "quick claim deed" or "quit claim deed", quitclaim deeds have a multitude of applications, including:
In order to quitclaim a property, the grantor must have the legal right to assign the property to a grantee, or else the quitclaim deed is worthless. For example, you can quitclaim your interest in City Hall to your neighbor, but it would have no practical or legal consequence because you don't actually own City Hall.
This is where quitclaim deeds vary from warranty deeds (or grant deeds) -- the types of transfers that occur when real estate is sold. In instances of the former, the title to a home is guaranteed to be clear.
Before using a quitclaim deed on your own home, consult an estate planning attorney. Transferring real property can trigger ruin a will, or trigger taxes -- it's important to consult a professional for help.
In what's becoming a regular occurrence, housing data blew away economists expectations Tuesday.
As reported by the National Association of Realtors®, the Pending Home Sales Index posted its 6th consecutive monthly gain in July.
After a meteoric rise that started in January, the index is now at its highest levels in more than 2 years.
A "pending home sale" is a home that is under contract to sell, but not yet closed. It's not the same as an actual home sold, but data shows that nearly 80% of homes under contract close within 2 months and many more close in months 3 and 4.
Home buyers -- take note. When the Pending Home Sales Index is rising, it means that market activity has picked up. This can lead to any one, or a combination, of the following:
So, consider yourself alerted. If you're buying a home in the next several months, expect the recent run in Pending Sales to lead to a run in closed sales, too. That should lead home prices higher in most markets.
Indeed, we're already seeing it. Case-Shiller says prices are on the upswing.