The article below is very interesting to read. Housing is definitely improving with interest rates at their lowest in 3 months making it a perfect time to refinance! We are now seeing multiple offers on single family homes by investors and first time buyers.
The secret is definitely out regarding lower interest rates and real estate beginning to bottom out.
Also 2009 is winding up which means you only have a limited amount of time to cash in on your $8,000 tax credit for all first time home buyers! The time is now for purchase and refinance. Call Harnan Financial Group, Inc. today!
Wednesday, September 9, 2009
Home loan demand at 3-month high,millions more foreclosures
By Julie Haviv
NEW YORK (Reuters) - The lowest mortgage rates in 3 months had U.S. consumers clamoring for home loans last week even as the government said on Wednesday it expected millions more foreclosures.
The Treasury Department followed up with a report saying only 12 percent of U.S. homeowners eligible For loan modifications under the Obama administration's housing rescue plan have had their mortgages modified.
But aside from the mixed picture on housing, the Federal Reserve said the overall economic situation was improving in spite of weakness in the housing and labor markets, while Treasury Secretary Timothy Geithner added that the economy was starting to grow again.
The housing market has been showing signs of stabilization in recent months, with sales on the increase and home price declines moderating in many regions of the country. In fact, home prices in some areas have risen.
Mounting foreclosures could mean another leg down for home prices and perhaps send the sector into a vicious cycle, analysts say.
The Treasury said 360,165 people had their monthly payments reduced through August, up from 235,247 through July, but a senior Treasury official conceded much more must be done to soften the impact of a severe and prolonged housing crisis.
"The recent crisis in the housing sector has devastated families and communities across the country and is at the center of our financial crisis and economic downturn," Michael Barr, assistant Treasury secretary for financial institutions, told a House of Representatives Financial Services subcommittee.
But the housing crisis is showing signs of easing. The Federal Reserve's Beige Book survey said most regions reported some improvement in hard-hit residential real estate markets.
And U.S. mortgage applications surged last week to their highest since late May as consumers sought to take advantage of the lowest interest rates in months, data from the Mortgage Bankers Association showed.
The MBA said rates on 30-year fixed-rate mortgages tumbled to a 3-month low, spurring a surge in demand for home refinancing loans. Applications to buy a home, a tentative early indicator of sales, also climbed, hitting their highest since early January.
Low mortgage rates, high affordability and the government's $8,000 tax credit -- part of the economic stimulus bill -- for first-time home buyers have helped pave the way for stabilization.
"CAUTIOUSLY POSITIVE"
The Fed report said half of Federal Reserve districts saw evidence the U.S. economy had improved by the end of August, although labor markets remained weak and retail sales were flat overall.
"Most districts noted that the outlook for economic activity among their business contacts remained cautiously positive," the Fed said.
But it also said there was still downward pressure on housing prices, and that business people in some areas believed recently higher vehicle sales levels were likely not sustainable after the government's "cash for clunkers" incentive program lapses.
Geithner, however, said the government's efforts to help the financial sector were paying off and helping the overall economy.
"The economy is now growing again. We've seen the cost of credit start to come down. Banks are repaying the investments the government had to make in them with a significant... return," he said during a speech at Syracuse University in New York.
"We are going to keep at this until we fix it --- until we get it back on track," he added
By Julie Haviv
NEW YORK (Reuters) - The lowest mortgage rates in 3 months had U.S. consumers clamoring for home loans last week even as the government said on Wednesday it expected millions more foreclosures.
The Treasury Department followed up with a report saying only 12 percent of U.S. homeowners eligible For loan modifications under the Obama administration's housing rescue plan have had their mortgages modified.
But aside from the mixed picture on housing, the Federal Reserve said the overall economic situation was improving in spite of weakness in the housing and labor markets, while Treasury Secretary Timothy Geithner added that the economy was starting to grow again.
The housing market has been showing signs of stabilization in recent months, with sales on the increase and home price declines moderating in many regions of the country. In fact, home prices in some areas have risen.
Mounting foreclosures could mean another leg down for home prices and perhaps send the sector into a vicious cycle, analysts say.
The Treasury said 360,165 people had their monthly payments reduced through August, up from 235,247 through July, but a senior Treasury official conceded much more must be done to soften the impact of a severe and prolonged housing crisis.
"The recent crisis in the housing sector has devastated families and communities across the country and is at the center of our financial crisis and economic downturn," Michael Barr, assistant Treasury secretary for financial institutions, told a House of Representatives Financial Services subcommittee.
But the housing crisis is showing signs of easing. The Federal Reserve's Beige Book survey said most regions reported some improvement in hard-hit residential real estate markets.
And U.S. mortgage applications surged last week to their highest since late May as consumers sought to take advantage of the lowest interest rates in months, data from the Mortgage Bankers Association showed.
The MBA said rates on 30-year fixed-rate mortgages tumbled to a 3-month low, spurring a surge in demand for home refinancing loans. Applications to buy a home, a tentative early indicator of sales, also climbed, hitting their highest since early January.
Low mortgage rates, high affordability and the government's $8,000 tax credit -- part of the economic stimulus bill -- for first-time home buyers have helped pave the way for stabilization.
"CAUTIOUSLY POSITIVE"
The Fed report said half of Federal Reserve districts saw evidence the U.S. economy had improved by the end of August, although labor markets remained weak and retail sales were flat overall.
"Most districts noted that the outlook for economic activity among their business contacts remained cautiously positive," the Fed said.
But it also said there was still downward pressure on housing prices, and that business people in some areas believed recently higher vehicle sales levels were likely not sustainable after the government's "cash for clunkers" incentive program lapses.
Geithner, however, said the government's efforts to help the financial sector were paying off and helping the overall economy.
"The economy is now growing again. We've seen the cost of credit start to come down. Banks are repaying the investments the government had to make in them with a significant... return," he said during a speech at Syracuse University in New York.
"We are going to keep at this until we fix it --- until we get it back on track," he added
Wednesday, August 12, 2009
Lower Prices on Homes fuel Housing Market...Harnan Financial Group can get you into a home!
Existing-Home Sales Rise, Helped by Lower Prices
Published: Wednesday, 12 Aug 2009 10:47 AM ET
By: CNBC.com
A real estate group says U.S. home prices posted a gain in the second quarter, another sign that the ailing housing market is finally coming to life.
AP
The National Association of Realtors says the median sales price in the quarter was $174,100, up 4 percent from the first quarter, but still almost 16 percent below a year ago.
Prices were still down from a year ago in 129 out of 155 metropolitan areas the group tracks.
Total sales rose to a seasonally adjusted annual rate of 4.76 million, from 4.58 million in the first quarter, but were still about 3 percent below a year ago.
Thirty-nine states reflected sales increases from the first quarter, and nine states were higher than one year ago.
"With low interest rates, lower home prices and a first-time buyer tax credit, we've been seeing healthy increases in home sales, which are a hopeful sign for the economy," said Lawrence Yun, NAR chief economist.
Foreclosures & Short Sales: Are You Buying a Money Pit?
Foreclosures and short sales made up more than one-third of the sales, weighing down home prices. The national median price was $174,100 — 15.6 percent lower on the year.
The largest sales gain between the first and second quarters was in Idaho, up 67.5 percent; followed by Hawaii which rose 24.2 percent; New York, up 22.3 percent, Wisconsin; with a 21.7 percent gain; and Nebraska with a 20.3 percent increase. Twelve other states experienced double-digit sales increases from the first quarter.
RELATED LINKS
Current DateTime: 03:16:26 12 Aug 2009LinksList Documentid: 32386143
Toll Brothers: Sales Contracts Rise; Shares Jump
Realty Check with Diana Olick
Year over year, California, Minnesota and Michigan are showing double-digit gains from the second quarter of 2008 but are off from the first quarter of this year.
Sharp price declines have continued to be concentrated in areas with high levels of foreclosures, such as California, Florida, Arizona and Nevada.
The biggest metro area price drop, of nearly 53 percent, was in Fort Myers, Fla. Prices also fell 35 percent or more in Phoenix, Riverside, Calif. and Las Vegas. The biggest price gain, of nearly 31 percent, was in Davenport, Iowa, followed by Cumberland, Md., at nearly 22 percent.
Regionally, existing-home sales in the Northeast jumped 15.0 percent in the second quarter, but are 8.4 percent below a year ago. In the midwest, existing-home sales rose 3.2 percent in the second quarter but are 5.3 percent lower on the year.
Sales rose 3.9 percent in the second quarter in the south, 7.2 percent lower on the year. In the west, existing-home sales fell 2.3 percent in the second quarter, but are 11.8 percent above a year ago.
Many economists now say that the worst of the housing recession is over, though foreclosures are expected to rise over the next year.
© 2009 CNBC.com
Published: Wednesday, 12 Aug 2009 10:47 AM ET
By: CNBC.com
A real estate group says U.S. home prices posted a gain in the second quarter, another sign that the ailing housing market is finally coming to life.
AP
The National Association of Realtors says the median sales price in the quarter was $174,100, up 4 percent from the first quarter, but still almost 16 percent below a year ago.
Prices were still down from a year ago in 129 out of 155 metropolitan areas the group tracks.
Total sales rose to a seasonally adjusted annual rate of 4.76 million, from 4.58 million in the first quarter, but were still about 3 percent below a year ago.
Thirty-nine states reflected sales increases from the first quarter, and nine states were higher than one year ago.
"With low interest rates, lower home prices and a first-time buyer tax credit, we've been seeing healthy increases in home sales, which are a hopeful sign for the economy," said Lawrence Yun, NAR chief economist.
Foreclosures & Short Sales: Are You Buying a Money Pit?
Foreclosures and short sales made up more than one-third of the sales, weighing down home prices. The national median price was $174,100 — 15.6 percent lower on the year.
The largest sales gain between the first and second quarters was in Idaho, up 67.5 percent; followed by Hawaii which rose 24.2 percent; New York, up 22.3 percent, Wisconsin; with a 21.7 percent gain; and Nebraska with a 20.3 percent increase. Twelve other states experienced double-digit sales increases from the first quarter.
RELATED LINKS
Current DateTime: 03:16:26 12 Aug 2009LinksList Documentid: 32386143
Toll Brothers: Sales Contracts Rise; Shares Jump
Realty Check with Diana Olick
Year over year, California, Minnesota and Michigan are showing double-digit gains from the second quarter of 2008 but are off from the first quarter of this year.
Sharp price declines have continued to be concentrated in areas with high levels of foreclosures, such as California, Florida, Arizona and Nevada.
The biggest metro area price drop, of nearly 53 percent, was in Fort Myers, Fla. Prices also fell 35 percent or more in Phoenix, Riverside, Calif. and Las Vegas. The biggest price gain, of nearly 31 percent, was in Davenport, Iowa, followed by Cumberland, Md., at nearly 22 percent.
Regionally, existing-home sales in the Northeast jumped 15.0 percent in the second quarter, but are 8.4 percent below a year ago. In the midwest, existing-home sales rose 3.2 percent in the second quarter but are 5.3 percent lower on the year.
Sales rose 3.9 percent in the second quarter in the south, 7.2 percent lower on the year. In the west, existing-home sales fell 2.3 percent in the second quarter, but are 11.8 percent above a year ago.
Many economists now say that the worst of the housing recession is over, though foreclosures are expected to rise over the next year.
© 2009 CNBC.com
Friday, June 26, 2009
Home Sales Going Up, but Prices Should Continue to Drop
Recent reports that home sales may have bottomed out appear to have stirred some optimism that the worst of the housing crisis could be over.
Unfortunately, house prices and loan performance are lagging indicators in a recovery — and this downturn has seen the biggest price drops and the worst loan performance since the Great Depression.
Historical patterns show that house prices will fall and defaults and foreclosures will continue to rise until there is an improvement in the job market. If the employment numbers start to increase in mid-2010, as many expect, the turnaround in prices and delinquency rates may not come until the first quarter of 2011.
Nevertheless, sales are expected to trend upward and that is an important development, according to David Berson, chief economist for the PMI Group Inc. in Walnut Creek, Calif. "It is the precursor to everything else improving. Sales had to go up first and that is happening now," Mr. Berson said.
The National Association of Realtors reported a 2.9% increase in existing home sales in April and the trade group is forecasting a major jump in sales during the last three quarters of this year. NAR economists expect home sales will rise to a 5.5 million seasonally adjusted annual rate in the fourth quarter, up 19% from the first quarter, as the $8,000 tax credit for first-time homebuyers boosts sales.
Federal Reserve Board chairman Ben Bernanke even told Congress that he is seeing "some signs of bottoming" in the housing market. And he expects overall economic activity to "bottom out, and then turn up later this year."
Despite the improvement in sales, the PMI chief economist says house prices will continue to fall this year. "It will go down 9% to 10% this year and it will be roughly flat next year," Mr. Berson said. "There are just too many homes for sale," he said, and too many vacant homes.
The PMI Group uses First American Loan Performance data in forecasting house prices, which shows prices have declined by 22% since the peak in the third quarter of 2006. From the first quarter of 2008 through the first quarter of 2009 prices have fallen 11.7%.
Meanwhile, the Census Bureau reported that only 345,000 full-time employees lost their jobs in May, compared 700,000 during the winter months. But the unemployment rate jumped to 9.4% from 8.9% in April.
"It is a good sign and it bolsters the argument that the housing market should bottom in terms of sales and perhaps in (housing) starts" possibly in June or July, according to Scott Anderson, senior economist at Wells Fargo & Co.However, the yield on the 10-year Treasury note has risen sharply in the past few weeks and the
Federal Reserve is struggling to keep mortgage rates low. The average rate on 30-year fixed-rate mortgages hit 5.59% during the week of June 12, according to Freddie Mac. This has already impacted refis. The Mortgage Bankers Association refinancing application index has plummeted to 2,600 from 6,800 on April 3.
"Just as we are hitting bottom in the housing market there is a lot of uncertainty about how strong the recovery will be," the Wells Fargo economist said. "The risk factor is mortgage rates," Mr. Anderson said, which could keep home sales stuck at "moribund levels."
His forecast calls for house prices to drop 5%-10% from April 1 through February 2010. He expects the unemployment rate will peak around 9.7% in the fourth quarter of 2009 or the first quarter of 2010 and remain at that level for most of the year. Defaults and foreclosures won't "top out until some time in 2010," Mr. Anderson said.
Meanwhile, declining house prices undermine homeowners' equity and make it difficult to modify mortgages, especially if the owner losses their job.
A Mortgage Bankers Association delinquency report shows there were 600,000 foreclosure starts in the first quarter. And foreclosure starts on prime loans jumped ahead of subprime loans for the first time this decade.
Defaults on prime loans are the "hardest to fix" because they mostly reflects the loss of a job or other life event, according to MBA chief economist Jay Brinkmann. "Since the mortgage performance lags improvement in the job market, that would put us to the end of 2010 or possibly the first quarter of 2011 before we see a nationwide improvement in the performance of mortgages," Mr. Brinkmann said.
He made his comments in releasing MBA's delinquency report, which shows the serious delinquency rate on all single-family loans (90 days or more past due or in foreclosure) hit an all-time high of 7.38% in the first quarter.
Recent reports that home sales may have bottomed out appear to have stirred some optimism that the worst of the housing crisis could be over.
Unfortunately, house prices and loan performance are lagging indicators in a recovery — and this downturn has seen the biggest price drops and the worst loan performance since the Great Depression.
Historical patterns show that house prices will fall and defaults and foreclosures will continue to rise until there is an improvement in the job market. If the employment numbers start to increase in mid-2010, as many expect, the turnaround in prices and delinquency rates may not come until the first quarter of 2011.
Nevertheless, sales are expected to trend upward and that is an important development, according to David Berson, chief economist for the PMI Group Inc. in Walnut Creek, Calif. "It is the precursor to everything else improving. Sales had to go up first and that is happening now," Mr. Berson said.
The National Association of Realtors reported a 2.9% increase in existing home sales in April and the trade group is forecasting a major jump in sales during the last three quarters of this year. NAR economists expect home sales will rise to a 5.5 million seasonally adjusted annual rate in the fourth quarter, up 19% from the first quarter, as the $8,000 tax credit for first-time homebuyers boosts sales.
Federal Reserve Board chairman Ben Bernanke even told Congress that he is seeing "some signs of bottoming" in the housing market. And he expects overall economic activity to "bottom out, and then turn up later this year."
Despite the improvement in sales, the PMI chief economist says house prices will continue to fall this year. "It will go down 9% to 10% this year and it will be roughly flat next year," Mr. Berson said. "There are just too many homes for sale," he said, and too many vacant homes.
The PMI Group uses First American Loan Performance data in forecasting house prices, which shows prices have declined by 22% since the peak in the third quarter of 2006. From the first quarter of 2008 through the first quarter of 2009 prices have fallen 11.7%.
Meanwhile, the Census Bureau reported that only 345,000 full-time employees lost their jobs in May, compared 700,000 during the winter months. But the unemployment rate jumped to 9.4% from 8.9% in April.
"It is a good sign and it bolsters the argument that the housing market should bottom in terms of sales and perhaps in (housing) starts" possibly in June or July, according to Scott Anderson, senior economist at Wells Fargo & Co.However, the yield on the 10-year Treasury note has risen sharply in the past few weeks and the
Federal Reserve is struggling to keep mortgage rates low. The average rate on 30-year fixed-rate mortgages hit 5.59% during the week of June 12, according to Freddie Mac. This has already impacted refis. The Mortgage Bankers Association refinancing application index has plummeted to 2,600 from 6,800 on April 3.
"Just as we are hitting bottom in the housing market there is a lot of uncertainty about how strong the recovery will be," the Wells Fargo economist said. "The risk factor is mortgage rates," Mr. Anderson said, which could keep home sales stuck at "moribund levels."
His forecast calls for house prices to drop 5%-10% from April 1 through February 2010. He expects the unemployment rate will peak around 9.7% in the fourth quarter of 2009 or the first quarter of 2010 and remain at that level for most of the year. Defaults and foreclosures won't "top out until some time in 2010," Mr. Anderson said.
Meanwhile, declining house prices undermine homeowners' equity and make it difficult to modify mortgages, especially if the owner losses their job.
A Mortgage Bankers Association delinquency report shows there were 600,000 foreclosure starts in the first quarter. And foreclosure starts on prime loans jumped ahead of subprime loans for the first time this decade.
Defaults on prime loans are the "hardest to fix" because they mostly reflects the loss of a job or other life event, according to MBA chief economist Jay Brinkmann. "Since the mortgage performance lags improvement in the job market, that would put us to the end of 2010 or possibly the first quarter of 2011 before we see a nationwide improvement in the performance of mortgages," Mr. Brinkmann said.
He made his comments in releasing MBA's delinquency report, which shows the serious delinquency rate on all single-family loans (90 days or more past due or in foreclosure) hit an all-time high of 7.38% in the first quarter.
FHA Loans may soon use the new first-time home buyer tax credit...
FHA Preps Tax Credit for Down Payment Use
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Home buyers qualifying for Federal Housing Administration-insured mortgages may soon use the new first-time home buyer $8,000 tax credit as a down payment, US Department of Housing and Urban Development secretary Shaun Donovan said today.
The process of applying the tax credit toward down payment, called ‘monetization’ in the industry, allows for FHA-qualified borrowers to use the tax credit to obtain a government-insured mortgage.
Donovan’s announcement came at a National Association of Realtors legislative summit this morning, although HUD’s details on the initiative aren’t scheduled for official release until next week. The initiative will allow FHA-approved lenders to monetize the tax credit through short-term bridge loans, letting borrowers access the funds at the closing table.
“We all want to enable FHA consumers to access the home buyer tax credit funds when they close on their home loans so that the cash can be used as a down payment,” Donovan said, according to NAR.
The tax credit arrived as part of the American Recovery and Reinvestment Act of 2009 for qualifying taxpayers that buy homes in 2009. The law states that qualifying home buyers may claim up to $8,000 — or $4,000 for married individuals filing separately — on either their 2008 or 2009 tax returns. Unlike the previous law — which required recipients of the tax credit to repay the funds over a number of years without interest — the new home buyer credit effective with the passage of the act does not have to be repaid.
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Home buyers qualifying for Federal Housing Administration-insured mortgages may soon use the new first-time home buyer $8,000 tax credit as a down payment, US Department of Housing and Urban Development secretary Shaun Donovan said today.
The process of applying the tax credit toward down payment, called ‘monetization’ in the industry, allows for FHA-qualified borrowers to use the tax credit to obtain a government-insured mortgage.
Donovan’s announcement came at a National Association of Realtors legislative summit this morning, although HUD’s details on the initiative aren’t scheduled for official release until next week. The initiative will allow FHA-approved lenders to monetize the tax credit through short-term bridge loans, letting borrowers access the funds at the closing table.
“We all want to enable FHA consumers to access the home buyer tax credit funds when they close on their home loans so that the cash can be used as a down payment,” Donovan said, according to NAR.
The tax credit arrived as part of the American Recovery and Reinvestment Act of 2009 for qualifying taxpayers that buy homes in 2009. The law states that qualifying home buyers may claim up to $8,000 — or $4,000 for married individuals filing separately — on either their 2008 or 2009 tax returns. Unlike the previous law — which required recipients of the tax credit to repay the funds over a number of years without interest — the new home buyer credit effective with the passage of the act does not have to be repaid.
Friday, June 19, 2009
Use Your $8,000.00 homebuyers credit for closing!!!!
The $8,000 First-Time Home Buyer Tax Credit Program Expands: 5 Things to Know
As the historic housing plunge rumbles on, Uncle Sam is offering a fresh incentive to get first-time home buyers off the sidelines. U.S. Housing and Urban Development Secretary Shaun Donovan on Friday unveiled a policy change that would provide home buyers with quicker access to a recently enacted first-time home buyer tax credit. Buyers would be free to put the funds toward closing costs and a portion of their down payment. The federal government hopes that the measure will stimulate housing demand, something desperately needed to help mop up the glut of unsold inventory.
Here are five things you need to know about the policy change:
1. Less waiting: President Barack Obama's $787 billion economic stimulus plan—which was signed into law in mid-February—included a tax credit worth up to $8,000 for qualified first-time home buyers. These buyers, however, couldn't get their hands on the cash until after tax season. The new HUD initiative would enable these borrowers to obtain short-term loans allowing them to tap the tax credit before going to closing. "Families will now be able to apply their anticipated tax credit toward their home purchase right away," Donovan said in a news release. "What we're doing today will not only help these families to purchase their first home but will present an enormous benefit for communities struggling to deal with an oversupply of housing."
2. Initial 3.5 percent: The measure, however, comes with several key limitations. First, it only applies to Federal Housing Administration mortgages. More importantly, the short-term loans can't be used to pay for the minimum 3.5 percent down payment that FHA loans require. Instead, the loan can be used for closing costs and to finance the portion of the down payment that exceeds the 3.5 percent threshold. The administration opted to have borrowers come up with the initial 3.5 percent themselves to ensure that buyers have "some skin in the game," which may reduce the likelihood of default, says Howard Glaser, a mortgage industry consultant and a former HUD official. In so doing, federal officials had to strike a delicate balance. "On the one hand, you want to make sure that homes are affordable to first time home buyers, but you don't want to set the bar so low that people who can't afford homes are buying homes," Glaser says.
3. Closing costs: Despite these limitations, the benefits of the program should not be overlooked, says Guy Cecala, publisher of the trade publication Inside Mortgage Finance. "The down payment is probably the biggest chunk of change you have got to pay [when purchasing a home], but it is not the only thing," Cecala says. "Even with a typical FHA loan, there are probably $3,000 to $4,000 in closing costs, title insurance, and [additional fees]." By chipping in toward such costs, the program "could just grease the wheels for a couple more people to get into FHA," says Keith Gumbinger of HSH.com. At the same time, borrowers who use the short-term loan to increase the size of their down payment could obtain a lower mortgage rate.
4. Impact? Cecala doesn't believe the new measure is a game changer for the battered real estate market. "I think it will be helpful to a first-time home buyer," he says. "Is it going to generate a lot more housing activity? No." Cecala argues that would-be buyers remain on the fence largely out of a concern that a home will lose value after the purchase. Such concerns will continue with or without the policy change.
Glaser, however, is more optimistic. "This is the missing piece," he says. "Home prices are coming down significantly in some markets, interest rates at historic lows, and now, by addressing cash on the table at closing, I think that borrowers who wouldn't have otherwise been in the market are going to feel more confident about investing in a home."
5. State efforts: The details of the HUD initiative come after several states have enacted similar programs. Missouri, for example, has had a program in place since January that enables home buyers to put the tax credit towards closing costs or their down payment.
As the historic housing plunge rumbles on, Uncle Sam is offering a fresh incentive to get first-time home buyers off the sidelines. U.S. Housing and Urban Development Secretary Shaun Donovan on Friday unveiled a policy change that would provide home buyers with quicker access to a recently enacted first-time home buyer tax credit. Buyers would be free to put the funds toward closing costs and a portion of their down payment. The federal government hopes that the measure will stimulate housing demand, something desperately needed to help mop up the glut of unsold inventory.
Here are five things you need to know about the policy change:
1. Less waiting: President Barack Obama's $787 billion economic stimulus plan—which was signed into law in mid-February—included a tax credit worth up to $8,000 for qualified first-time home buyers. These buyers, however, couldn't get their hands on the cash until after tax season. The new HUD initiative would enable these borrowers to obtain short-term loans allowing them to tap the tax credit before going to closing. "Families will now be able to apply their anticipated tax credit toward their home purchase right away," Donovan said in a news release. "What we're doing today will not only help these families to purchase their first home but will present an enormous benefit for communities struggling to deal with an oversupply of housing."
2. Initial 3.5 percent: The measure, however, comes with several key limitations. First, it only applies to Federal Housing Administration mortgages. More importantly, the short-term loans can't be used to pay for the minimum 3.5 percent down payment that FHA loans require. Instead, the loan can be used for closing costs and to finance the portion of the down payment that exceeds the 3.5 percent threshold. The administration opted to have borrowers come up with the initial 3.5 percent themselves to ensure that buyers have "some skin in the game," which may reduce the likelihood of default, says Howard Glaser, a mortgage industry consultant and a former HUD official. In so doing, federal officials had to strike a delicate balance. "On the one hand, you want to make sure that homes are affordable to first time home buyers, but you don't want to set the bar so low that people who can't afford homes are buying homes," Glaser says.
3. Closing costs: Despite these limitations, the benefits of the program should not be overlooked, says Guy Cecala, publisher of the trade publication Inside Mortgage Finance. "The down payment is probably the biggest chunk of change you have got to pay [when purchasing a home], but it is not the only thing," Cecala says. "Even with a typical FHA loan, there are probably $3,000 to $4,000 in closing costs, title insurance, and [additional fees]." By chipping in toward such costs, the program "could just grease the wheels for a couple more people to get into FHA," says Keith Gumbinger of HSH.com. At the same time, borrowers who use the short-term loan to increase the size of their down payment could obtain a lower mortgage rate.
4. Impact? Cecala doesn't believe the new measure is a game changer for the battered real estate market. "I think it will be helpful to a first-time home buyer," he says. "Is it going to generate a lot more housing activity? No." Cecala argues that would-be buyers remain on the fence largely out of a concern that a home will lose value after the purchase. Such concerns will continue with or without the policy change.
Glaser, however, is more optimistic. "This is the missing piece," he says. "Home prices are coming down significantly in some markets, interest rates at historic lows, and now, by addressing cash on the table at closing, I think that borrowers who wouldn't have otherwise been in the market are going to feel more confident about investing in a home."
5. State efforts: The details of the HUD initiative come after several states have enacted similar programs. Missouri, for example, has had a program in place since January that enables home buyers to put the tax credit towards closing costs or their down payment.
California Housing Prices Continue to Rise
Southern California home prices rise slightly in May
Stefano Paltera / For The Times
Real estate experts attribute the slight rise in the Southern California median home price to an increase in sales of higher-priced properties. Orange County, the region’s most affluent county, had the biggest gain.
The median price was $249,000, which is up less than 1% from $247,000 in April. It was the first month-to-month gain since July 2007.
Southern California's median home price rose slightly in May for the first time in nearly two years. But the increase was more reflective of a change in the types of homes sold than an end to falling values, a real estate research firm reported Wednesday.The $249,000 median price in May was up less than 1% from April's $247,000 figure, and marked the fifth-straight month the median has held at roughly $250,000, according to San Diego-based MDA DataQuick.
The modest rise reflects increasing purchases at the high end of the housing market, where sales have been virtually frozen. For much of the last year, most home sales have occurred in the low end of the housing market, with banks unloading foreclosed properties at deep discounts, dragging the median price down.Now, more expensive properties are selling, which raises the median, through a market paradox: many of those homes sold after owners cut prices to lure buyers. Still, stirring sales activity at the high end is a sign that the market is crawling toward equilibrium."As more sellers get realistic, more buyers get off the fence and more lenders offer reasonable terms for high-end purchase financing, we'll see a more normal share of sales in the more established, higher-cost areas that have been nearly comatose," said John Walsh, president of San Diego-based MDA DataQuick.
A slowly growing number of buyers like Geoff Graham, 40, is changing the mix of homes sold. Graham and his husband, James Tee, 35, bought a new three-bedroom row house in San Diego's Hillcrest neighborhood last month for $750,000.The couple had admired the place a year ago but couldn't believe the seller wanted $995,000. "I thought, 'What a cool place, but who in the world would ever pay so much money for it ?' " Graham said.The answer was no one.In January, Graham and Tee saw that another row house in the development had sold for $760,000 and decided that price was within their comfort zone. The $10,000 state tax credit for new-home purchases also "made us feel a little more comfortable paying that price," Graham said.Homes priced at $500,000 and above accounted for 17% of Southland home sales in May, up from 15% in April, DataQuick reported.The median price is the level at which half of the homes are sold at higher prices and half at lower prices. As higher-priced homes have trickled into the sales mix, foreclosures are less dominant. In May, foreclosed homes accounted for 50% of sales, down from 54% in April and a peak of 57% in February.The April-to-May Southern California median price increase was the first month-to-month gain since July 2007, when it moved from $502,000 to $505,000, which was the market's peak.May's price was a 51% drop from that peak, and it was down 33% from the May 2008 median price of $370,000.Lower prices continued to drive purchases: the 20,775 Southern California homes sold in May was up 1% from April and 23% above the May 2008 sales total.The housing market "is starting to reach the bottom; prices have reached levels where they make sense again," said Christopher Thornberg, a Los Angeles economist who was an early forecaster of the housing bubble."But hitting the bottom is different from coming off the bottom," he said, noting that prices will probably remain low as long as "we still have a massive wave of foreclosures to deal with."About 150,000 homes in California were in some stage of foreclosure in May, according to ForeclosureRadar, an online seller of default data.The median price climbed most in the region's more affluent counties. Orange County posted the largest monthly median price increase among the Southern California counties. Its $410,000 median price was up 8% over its April median of $380,000. Ventura County's median was up 4% in May, to $355,000 from $340,000 in April. San Diego also saw a modest 2% price increase in May, to $295,000 from $290,000 in April.Those counties rank first, second and third, respectively, in household income among the six counties, according to the U.S. Census Bureau.The median home price in May essentially matched April's figure in Los Angeles ($300,000), Riverside ($180,000) and San Bernardino ($137,000) counties.San Diego County may be a bit ahead of the local housing market curve: Its median sale price peaked at $517,500 in November 2005. That peak occurred 1 1/2 years before Los Angeles County hit its high median price in May 2007, at $550,000, according to DataQuick.Those 18 additional months of price declines may have worn down the resistance of some San Diego sellers who until recently had expected to sell properties for near-peak prices. Kris Berg, a San Diego broker who works in the Scripps Ranch community, said homes in her area listed for around $700,000 are now selling quickly.Those same homes might have sold for more than $900,000 at the height of the market, and until recently sellers continued to demand such prices, with few if any takers."A year ago, two years ago, so many sellers were still insisting their house was special. Now, the ones who want to sell are getting it; they're pricing their homes more appropriately," Berg said.
Stefano Paltera / For The Times
Real estate experts attribute the slight rise in the Southern California median home price to an increase in sales of higher-priced properties. Orange County, the region’s most affluent county, had the biggest gain.
The median price was $249,000, which is up less than 1% from $247,000 in April. It was the first month-to-month gain since July 2007.
Southern California's median home price rose slightly in May for the first time in nearly two years. But the increase was more reflective of a change in the types of homes sold than an end to falling values, a real estate research firm reported Wednesday.The $249,000 median price in May was up less than 1% from April's $247,000 figure, and marked the fifth-straight month the median has held at roughly $250,000, according to San Diego-based MDA DataQuick.
The modest rise reflects increasing purchases at the high end of the housing market, where sales have been virtually frozen. For much of the last year, most home sales have occurred in the low end of the housing market, with banks unloading foreclosed properties at deep discounts, dragging the median price down.Now, more expensive properties are selling, which raises the median, through a market paradox: many of those homes sold after owners cut prices to lure buyers. Still, stirring sales activity at the high end is a sign that the market is crawling toward equilibrium."As more sellers get realistic, more buyers get off the fence and more lenders offer reasonable terms for high-end purchase financing, we'll see a more normal share of sales in the more established, higher-cost areas that have been nearly comatose," said John Walsh, president of San Diego-based MDA DataQuick.
A slowly growing number of buyers like Geoff Graham, 40, is changing the mix of homes sold. Graham and his husband, James Tee, 35, bought a new three-bedroom row house in San Diego's Hillcrest neighborhood last month for $750,000.The couple had admired the place a year ago but couldn't believe the seller wanted $995,000. "I thought, 'What a cool place, but who in the world would ever pay so much money for it ?' " Graham said.The answer was no one.In January, Graham and Tee saw that another row house in the development had sold for $760,000 and decided that price was within their comfort zone. The $10,000 state tax credit for new-home purchases also "made us feel a little more comfortable paying that price," Graham said.Homes priced at $500,000 and above accounted for 17% of Southland home sales in May, up from 15% in April, DataQuick reported.The median price is the level at which half of the homes are sold at higher prices and half at lower prices. As higher-priced homes have trickled into the sales mix, foreclosures are less dominant. In May, foreclosed homes accounted for 50% of sales, down from 54% in April and a peak of 57% in February.The April-to-May Southern California median price increase was the first month-to-month gain since July 2007, when it moved from $502,000 to $505,000, which was the market's peak.May's price was a 51% drop from that peak, and it was down 33% from the May 2008 median price of $370,000.Lower prices continued to drive purchases: the 20,775 Southern California homes sold in May was up 1% from April and 23% above the May 2008 sales total.The housing market "is starting to reach the bottom; prices have reached levels where they make sense again," said Christopher Thornberg, a Los Angeles economist who was an early forecaster of the housing bubble."But hitting the bottom is different from coming off the bottom," he said, noting that prices will probably remain low as long as "we still have a massive wave of foreclosures to deal with."About 150,000 homes in California were in some stage of foreclosure in May, according to ForeclosureRadar, an online seller of default data.The median price climbed most in the region's more affluent counties. Orange County posted the largest monthly median price increase among the Southern California counties. Its $410,000 median price was up 8% over its April median of $380,000. Ventura County's median was up 4% in May, to $355,000 from $340,000 in April. San Diego also saw a modest 2% price increase in May, to $295,000 from $290,000 in April.Those counties rank first, second and third, respectively, in household income among the six counties, according to the U.S. Census Bureau.The median home price in May essentially matched April's figure in Los Angeles ($300,000), Riverside ($180,000) and San Bernardino ($137,000) counties.San Diego County may be a bit ahead of the local housing market curve: Its median sale price peaked at $517,500 in November 2005. That peak occurred 1 1/2 years before Los Angeles County hit its high median price in May 2007, at $550,000, according to DataQuick.Those 18 additional months of price declines may have worn down the resistance of some San Diego sellers who until recently had expected to sell properties for near-peak prices. Kris Berg, a San Diego broker who works in the Scripps Ranch community, said homes in her area listed for around $700,000 are now selling quickly.Those same homes might have sold for more than $900,000 at the height of the market, and until recently sellers continued to demand such prices, with few if any takers."A year ago, two years ago, so many sellers were still insisting their house was special. Now, the ones who want to sell are getting it; they're pricing their homes more appropriately," Berg said.
Monday, April 20, 2009
10 Homebuying Tips for Uneasy Times
Mortgages are harder to obtain today, and deals require more money down, but it's still a good time for buyers. Here's how to get the home you want at the best price.
David Koeppel, MSN Money
Nervous about buying a home? You should be. Your home is probably the single biggest investment you'll make in your lifetime. With an unpredictable economy, a mortgage crisis and record foreclosures, the commitment to buy can be downright overwhelming. In recent years, lax lending standards eliminated some of the obstacles, but now lenders are once again getting picky. The good news is that for those who qualify for a mortgage -- with a steady income, strong credit and a modicum of savings -- this is actually a good time to purchase a home. Mortgage rates are low, and home prices have been declining in most parts of the United States. To help you navigate the uncertainties, especially if you're entering the market for the first time, here are 10 tips for buying a house:
1. Find out how much you can afford, and stay within your budget.
Don't overreach. Forget the McMansion on the hill if it's beyond your means. Focus on finding something that will offer affordable monthly payments and a debt load you can handle.To make sure you fully understand and remain within your boundaries, consider a preapproved mortgage. Many reputable lenders offer them. The preapproval process tells you exactly what you will have to pay. Preapproval also provides some extra peace of mind, ensuring that when the time comes, you'll have financing in place. That can be important to real-estate agents and sellers as well as to buyers. If you're planning to buy, your household budget should allow for hefty savings toward a down payment, unless you're expecting a generous gift from a family member. The days when first-time buyers could purchase a home with a down payment of less than 10% are gone. Lenders are now requiring buyers to put down a minimum of 10% and sometimes up to 20% to 25%. "First-time buyers must come to the table with some dollars," says Ilyce Glink, the author of "100 Questions Every First-Time Home Buyer Should Ask". "You need more income, a better credit score and to think about how much debt you can carry. It has become a more difficult process."
2. Shop around for the right agent.
Real-estate agents operate on different internal clocks. One may be inclined to call you every day, while another may want to call every few weeks. Ask questions about the agent's approach and try to find one well-suited to your situation. Ideally, the agent you choose will do a lot of business in your neighborhood of choice and will have been in the business for years, gathering plenty of useful information about lending options, title searches and useful ways to compare properties. Try to avoid real-estate agents who are doing on-the-job training. "Finding a Realtor is a lot like a short-term marriage," Glink says. "Shop around; look for the Realtor who is working the most. What's their level of experience? Are they a good fit with you personality-wise?"
3. Do your homework.
A diligent and dedicated agent by your side is not enough. Buyers need to research their potential new home and neighborhood as thoroughly as possible. Thankfully, a lot of that work can be done from your bedroom or office computer. The National Association of Realtors says 84% of buyers use the Internet to help them find a home. Do not be part of that other 16%. You'll find the Net is packed with resources about cities, neighborhoods, crime statistics and school districts. Local bloggers can give today's homebuyers insight into everything from pricing trends to who's feuding with a neighbor down the block. "The Internet is a terrific tool. When I last looked for a house in 1992, that kind of information was nonexistent," says Elliot Goldstein, 46, who, with his wife, Stacey, 45, and their two children, is planning to move to Hoboken, N.J. "I get virtual house tours, multiple listing services . . . everything I need to find out about Hoboken I can find out online."
4. Visit the neighborhood.
Rich as the information on the Internet is, it's no substitute for showing up. Experts suggest repeated visits to your neighborhood of choice, so you can check out homes for sale and attend open houses. Walk around. Shoot the breeze with the neighbors. Visit the community several times at different times of day. "Walk it, smell it, hear it," says Dennis Torres, director of real-estate operations at Pepperdine University. "At 3 p.m., maybe your lawn will be overrun with kids getting off school. At 10 p.m., there could be a club that's only open at night playing loud music."
5. Don't be afraid to haggle.
How low can you go? Real-estate agents say it all depends on the pressures facing the individual seller. Some of those pressures are related to particular locations -- towns go up and down in appeal -- and some have to do with the individual's situation. But broadly speaking, if ever there was a buyer's market, this it. "In a strong market, a seller would laugh off a lowball bid," Glink says. "Now you may be able to bid 20% less than you did nine or 12 months ago. Sellers will entertain lowball bids if they're truly desperate to get on with their lives." Or at least negotiate a few additional amenities. That was the case for first-time homebuyer Jenna Smith, 23, whose six months of near-constant house hunting in suburban Atlanta taught her what she could and couldn't negotiate. Smith wound up buying into a new suburban development in January. But first she asked the builder to install hardwood floors instead of carpeting. She also wanted a new refrigerator and microwave. The builder eventually agreed, and Smith had her home -- with hardwood floors and appliances -- for $197,000.
6. Buying foreclosed properties? Proceed with caution.
This gets a bit tricky. Real-estate experts are talking a lot about foreclosed properties. Many suggest that, under the right circumstances, exploitation of a foreclosure can give a buyer a nice home at a very nice price. Foreclosure filings and bank repossessions are up dramatically, according to RealtyTrac, a California company that monitors homes in stages of foreclosure. So much so that some agents and lenders have been organizing weekend bus tours (one charges passengers $97 a ride) to showcase foreclosed properties in hard-hit cities such as Stockton, Calif., Chicago and New Haven, Conn. The tours have been popular both with shoppers searching for homes and with investors interested in buying multiple properties. Though buying a foreclosed property can potentially provide big savings, it can also present a lot of problems that may not be apparent. Pepperdine's Torres recommends that buyers avoid homes with title uncertainties and consider only properties that have been officially foreclosed on and deeded back to the foreclosing bank.
7. Find the right lender and mortgage.
Many unscrupulous subprime lenders have been shut down. That doesn't mean there aren't still some shady characters around. Don't be tempted to deal with them. Find a lender with roots in the community and a record of integrity that offers reasonable rates. It pays to do some comparison shopping. Real-estate agents can be a good source. A good agent should be able to recommend reputable area lenders and help a buyer compare types of loans. "Mortgage rates are very near historic lows, and inventory is high," says Stephanie Singer, a spokeswoman for the National Association of Realtors. Thorough research of loan offerings will pay off. Smith, the recent buyer from the Atlanta area, landed a 5.875%, 30-year fixed-rate mortgage from her employer, Merrill Lynch. Merrill required her to come up with a 20% down payment on the $197,000 home, or $39,400. Her monthly mortgage payments are about $1,100.
8. A good home inspector is hard to find. But find one.
In recessionary times, the pride of homeownership tends to suffer. It's not that people don't want to maintain their homes; it's that other priorities intervene. With competing pressures coming from credit card bills, skyrocketing gas prices and rising grocery bills, that new paint job on the house may not make it to the top of the list. A good inspector can help you spot problems that may result from neglect. Bringing in a home inspector is relatively cheap (often from $200 to $300), but according to Torres, it's the least buyers should do to make sure they're purchasing a home in reasonably good shape. Torres recommends buyers accompany inspectors when they examine a home and look out for anything suspicious. Don't be afraid to ask plenty of questions, he adds. "Ask what every crack, what every stain might be," Torres says. "Look beyond the cosmetic, the paint, the carpet and the flowers. Check under the steps, check under the eaves."
9. Buy for the long run.
Homebuying should be viewed as a long-term investment. Don't expect the kind of price appreciation that occurred in the early 2000s. Buy a home you can live in happily for a good many years, if possible. A long-term commitment will pay dividends in peace of mind. "A home is about putting down roots," author Glink says. "It's not about fixing or flipping or making a mint no matter what some infomercial tells you."
10. Don't time the market. Do take your time.
When will market prices hit rock-bottom? No one knows for sure, so waiting to get in at the lowest possible price isn't recommended. Still, experts predict it will remain a buyer's market for the foreseeable future, so don't rush. Goldstein and his wife will be moving into their new
three-story row house in Hoboken for about $1.2 million at the end of August, allowing his two children to spend a final summer at the family home in Closter, N.J. If negotiations hadn't gone his way, Goldstein was prepared to walk away, he said. That's the way to do it. "Don't let other people talk you into something you don't want," says buyer Smith. "It's your house; they don't have to live in it."
Produced by Anh Ly
David Koeppel, MSN Money
Nervous about buying a home? You should be. Your home is probably the single biggest investment you'll make in your lifetime. With an unpredictable economy, a mortgage crisis and record foreclosures, the commitment to buy can be downright overwhelming. In recent years, lax lending standards eliminated some of the obstacles, but now lenders are once again getting picky. The good news is that for those who qualify for a mortgage -- with a steady income, strong credit and a modicum of savings -- this is actually a good time to purchase a home. Mortgage rates are low, and home prices have been declining in most parts of the United States. To help you navigate the uncertainties, especially if you're entering the market for the first time, here are 10 tips for buying a house:
1. Find out how much you can afford, and stay within your budget.
Don't overreach. Forget the McMansion on the hill if it's beyond your means. Focus on finding something that will offer affordable monthly payments and a debt load you can handle.To make sure you fully understand and remain within your boundaries, consider a preapproved mortgage. Many reputable lenders offer them. The preapproval process tells you exactly what you will have to pay. Preapproval also provides some extra peace of mind, ensuring that when the time comes, you'll have financing in place. That can be important to real-estate agents and sellers as well as to buyers. If you're planning to buy, your household budget should allow for hefty savings toward a down payment, unless you're expecting a generous gift from a family member. The days when first-time buyers could purchase a home with a down payment of less than 10% are gone. Lenders are now requiring buyers to put down a minimum of 10% and sometimes up to 20% to 25%. "First-time buyers must come to the table with some dollars," says Ilyce Glink, the author of "100 Questions Every First-Time Home Buyer Should Ask". "You need more income, a better credit score and to think about how much debt you can carry. It has become a more difficult process."
2. Shop around for the right agent.
Real-estate agents operate on different internal clocks. One may be inclined to call you every day, while another may want to call every few weeks. Ask questions about the agent's approach and try to find one well-suited to your situation. Ideally, the agent you choose will do a lot of business in your neighborhood of choice and will have been in the business for years, gathering plenty of useful information about lending options, title searches and useful ways to compare properties. Try to avoid real-estate agents who are doing on-the-job training. "Finding a Realtor is a lot like a short-term marriage," Glink says. "Shop around; look for the Realtor who is working the most. What's their level of experience? Are they a good fit with you personality-wise?"
3. Do your homework.
A diligent and dedicated agent by your side is not enough. Buyers need to research their potential new home and neighborhood as thoroughly as possible. Thankfully, a lot of that work can be done from your bedroom or office computer. The National Association of Realtors says 84% of buyers use the Internet to help them find a home. Do not be part of that other 16%. You'll find the Net is packed with resources about cities, neighborhoods, crime statistics and school districts. Local bloggers can give today's homebuyers insight into everything from pricing trends to who's feuding with a neighbor down the block. "The Internet is a terrific tool. When I last looked for a house in 1992, that kind of information was nonexistent," says Elliot Goldstein, 46, who, with his wife, Stacey, 45, and their two children, is planning to move to Hoboken, N.J. "I get virtual house tours, multiple listing services . . . everything I need to find out about Hoboken I can find out online."
4. Visit the neighborhood.
Rich as the information on the Internet is, it's no substitute for showing up. Experts suggest repeated visits to your neighborhood of choice, so you can check out homes for sale and attend open houses. Walk around. Shoot the breeze with the neighbors. Visit the community several times at different times of day. "Walk it, smell it, hear it," says Dennis Torres, director of real-estate operations at Pepperdine University. "At 3 p.m., maybe your lawn will be overrun with kids getting off school. At 10 p.m., there could be a club that's only open at night playing loud music."
5. Don't be afraid to haggle.
How low can you go? Real-estate agents say it all depends on the pressures facing the individual seller. Some of those pressures are related to particular locations -- towns go up and down in appeal -- and some have to do with the individual's situation. But broadly speaking, if ever there was a buyer's market, this it. "In a strong market, a seller would laugh off a lowball bid," Glink says. "Now you may be able to bid 20% less than you did nine or 12 months ago. Sellers will entertain lowball bids if they're truly desperate to get on with their lives." Or at least negotiate a few additional amenities. That was the case for first-time homebuyer Jenna Smith, 23, whose six months of near-constant house hunting in suburban Atlanta taught her what she could and couldn't negotiate. Smith wound up buying into a new suburban development in January. But first she asked the builder to install hardwood floors instead of carpeting. She also wanted a new refrigerator and microwave. The builder eventually agreed, and Smith had her home -- with hardwood floors and appliances -- for $197,000.
6. Buying foreclosed properties? Proceed with caution.
This gets a bit tricky. Real-estate experts are talking a lot about foreclosed properties. Many suggest that, under the right circumstances, exploitation of a foreclosure can give a buyer a nice home at a very nice price. Foreclosure filings and bank repossessions are up dramatically, according to RealtyTrac, a California company that monitors homes in stages of foreclosure. So much so that some agents and lenders have been organizing weekend bus tours (one charges passengers $97 a ride) to showcase foreclosed properties in hard-hit cities such as Stockton, Calif., Chicago and New Haven, Conn. The tours have been popular both with shoppers searching for homes and with investors interested in buying multiple properties. Though buying a foreclosed property can potentially provide big savings, it can also present a lot of problems that may not be apparent. Pepperdine's Torres recommends that buyers avoid homes with title uncertainties and consider only properties that have been officially foreclosed on and deeded back to the foreclosing bank.
7. Find the right lender and mortgage.
Many unscrupulous subprime lenders have been shut down. That doesn't mean there aren't still some shady characters around. Don't be tempted to deal with them. Find a lender with roots in the community and a record of integrity that offers reasonable rates. It pays to do some comparison shopping. Real-estate agents can be a good source. A good agent should be able to recommend reputable area lenders and help a buyer compare types of loans. "Mortgage rates are very near historic lows, and inventory is high," says Stephanie Singer, a spokeswoman for the National Association of Realtors. Thorough research of loan offerings will pay off. Smith, the recent buyer from the Atlanta area, landed a 5.875%, 30-year fixed-rate mortgage from her employer, Merrill Lynch. Merrill required her to come up with a 20% down payment on the $197,000 home, or $39,400. Her monthly mortgage payments are about $1,100.
8. A good home inspector is hard to find. But find one.
In recessionary times, the pride of homeownership tends to suffer. It's not that people don't want to maintain their homes; it's that other priorities intervene. With competing pressures coming from credit card bills, skyrocketing gas prices and rising grocery bills, that new paint job on the house may not make it to the top of the list. A good inspector can help you spot problems that may result from neglect. Bringing in a home inspector is relatively cheap (often from $200 to $300), but according to Torres, it's the least buyers should do to make sure they're purchasing a home in reasonably good shape. Torres recommends buyers accompany inspectors when they examine a home and look out for anything suspicious. Don't be afraid to ask plenty of questions, he adds. "Ask what every crack, what every stain might be," Torres says. "Look beyond the cosmetic, the paint, the carpet and the flowers. Check under the steps, check under the eaves."
9. Buy for the long run.
Homebuying should be viewed as a long-term investment. Don't expect the kind of price appreciation that occurred in the early 2000s. Buy a home you can live in happily for a good many years, if possible. A long-term commitment will pay dividends in peace of mind. "A home is about putting down roots," author Glink says. "It's not about fixing or flipping or making a mint no matter what some infomercial tells you."
10. Don't time the market. Do take your time.
When will market prices hit rock-bottom? No one knows for sure, so waiting to get in at the lowest possible price isn't recommended. Still, experts predict it will remain a buyer's market for the foreseeable future, so don't rush. Goldstein and his wife will be moving into their new
three-story row house in Hoboken for about $1.2 million at the end of August, allowing his two children to spend a final summer at the family home in Closter, N.J. If negotiations hadn't gone his way, Goldstein was prepared to walk away, he said. That's the way to do it. "Don't let other people talk you into something you don't want," says buyer Smith. "It's your house; they don't have to live in it."
Produced by Anh Ly
Tuesday, March 31, 2009
Existing Home Sales Post Surprising 5.1% Gain
Sales activity remains slow, but plunging prices draw in first-time buyers
updated 11:14 a.m. PT, Mon., March. 23, 2009
WASHINGTON - Sales of previously occupied homes jumped unexpectedly in February by the largest amount in nearly six years as first-time buyers took advantage of deep discounts on foreclosures and other distressed properties.
Economists said sales, while still extremely slow, may finally be coming back to life after declining sharply following the stock market plunge last autumn.
Prices, however, are expected to keep falling well into the year. Tens of thousands of homes reman tied up in the foreclosure process and are not yet for sale. Plus, as the recession deepens and job losses mount, many buyers are likely to stay on the sidelines.
“The four-letter word in the housing market is 'jobs,'’ said Nicolas Retsinas, director of Harvard University’s Joint Center for Housing Studies. “If you’re worried about having a job tomorrow, you’re not likely to buy a home now.”
It was the largest monthly sales jump since July 2003, with first-time buyers accounting for about half of all transactions, according the data released Monday. Sales had been expected to dip to an annual pace of 4.45 million units, according to Thomson Reuters. The results, which came after a steep decline in January, mean that sales activity has returned to December’s levels, but still remains lower than most of last year.
The sales figures don’t yet reflect the new $8,000 tax credit designed to lure even more first-time buyers into the market. That should juice up early summer sales, but how much will depend on the overall condition of the U.S. economy.
Full article available:http://www.msnbc.msn.com/id/29836196/from/ET/
TAX CREDITS: As listed above, in its efforts to stimulate the economy and revive the housing market, Congress has enacted legislation providing a tax credit of up to $8,000 for
first-time home buyers.
CA Home Buyer 10000 Tax Credit, entitled on new homes brought between March 1, 2009 and March 1, 2010 (must be new construction to meet the minimum requirements).
City of Los Angeles Housing Department (LAHD) will offer purchase assistance financing to
eligible low- and moderate-income homebuyers seeking to purchase a foreclosed home in an NSP Priority Area in the City of Los Angeles.
updated 11:14 a.m. PT, Mon., March. 23, 2009
WASHINGTON - Sales of previously occupied homes jumped unexpectedly in February by the largest amount in nearly six years as first-time buyers took advantage of deep discounts on foreclosures and other distressed properties.
Economists said sales, while still extremely slow, may finally be coming back to life after declining sharply following the stock market plunge last autumn.
Prices, however, are expected to keep falling well into the year. Tens of thousands of homes reman tied up in the foreclosure process and are not yet for sale. Plus, as the recession deepens and job losses mount, many buyers are likely to stay on the sidelines.
“The four-letter word in the housing market is 'jobs,'’ said Nicolas Retsinas, director of Harvard University’s Joint Center for Housing Studies. “If you’re worried about having a job tomorrow, you’re not likely to buy a home now.”
It was the largest monthly sales jump since July 2003, with first-time buyers accounting for about half of all transactions, according the data released Monday. Sales had been expected to dip to an annual pace of 4.45 million units, according to Thomson Reuters. The results, which came after a steep decline in January, mean that sales activity has returned to December’s levels, but still remains lower than most of last year.
The sales figures don’t yet reflect the new $8,000 tax credit designed to lure even more first-time buyers into the market. That should juice up early summer sales, but how much will depend on the overall condition of the U.S. economy.
Full article available:http://www.msnbc.msn.com/id/29836196/from/ET/
TAX CREDITS: As listed above, in its efforts to stimulate the economy and revive the housing market, Congress has enacted legislation providing a tax credit of up to $8,000 for
first-time home buyers.
CA Home Buyer 10000 Tax Credit, entitled on new homes brought between March 1, 2009 and March 1, 2010 (must be new construction to meet the minimum requirements).
City of Los Angeles Housing Department (LAHD) will offer purchase assistance financing to
eligible low- and moderate-income homebuyers seeking to purchase a foreclosed home in an NSP Priority Area in the City of Los Angeles.
Tuesday, March 24, 2009
EXISTING HOME SALES ROSE 5% IN FEB
Biggest jump in more than five years; median price down 5% to $165,400
WASHINGTON - Sales of previously occupied homes jumped unexpectedly in February by the largest amount in nearly six years as first-time buyers took advantage of deep discounts on foreclosures and other distressed properties.
Economists said sales, while still extremely slow, may finally be coming back to life after declining sharply following the stock market plunge last autumn.
Prices, however, are expected to keep falling well into the year. Tens of thousands of homes reman tied up in the foreclosure process and are not yet for sale. Plus, as the recession deepens and job losses mount, many buyers are likely to stay on the sidelines.
“The four-letter word in the housing market is 'jobs,'’ said Nicolas Retsinas, director of Harvard University’s Joint Center for Housing Studies. “If you’re worried about having a job tomorrow, you’re not likely to buy a home now.”
The National Association of Realtors said sales of existing homes grew 5.1 percent to an annual rate of 4.72 million last month, from 4.49 million units in January.
It was the largest monthly sales jump since July 2003, with first-time buyers accounting for about half of all transactions, according the the data released Monday. Sales had been expected to dip to an annual pace of 4.45 million units, according to Thomson Reuters. The results, which came after a steep decline in January, mean that sales activity has returned to December’s levels, but still remains lower than most of last year.
The median sales price plunged to $165,400, down 15.5 percent from $195,800 a year earlier. That was the second-largest drop on record and prices are now off 28 percent from their peak in July 2006.
However, in a positive sign, asking prices are starting to rise in places like San Diego and Orange County, Calif., where declines have been severe, said Lawrence Yun, chief economist for the Realtors. That could be an early indication that prices are stabilizing in the most distressed parts of the country.
Meanwhile, in contrast with the housing boom, when buyers took out ever-riskier loans and maxed out their home equity lines, “homebuyers are not overstretching” Yun said. “They want to stay within their budget.”
The number of unsold homes on the market last month rose 5.2 percent to 3.8 million, a typical increase for the winter months. At February’s sales pace, it would take 9.7 months to rid the market of all of those properties.
“Inventories are still high relative to sales rates, and would probably be even more so if all those wishing to sell their home actually had the house on the market instead of pulling it off in the face of rapidly eroding prices,” wrote Joshua Shapiro, chief U.S. economist at MFR Inc.
Sellers don’t want to compete with foreclosures that have swamped the market, especially in California, Florida, Nevada and Arizona.
About 45 percent of sales nationwide are foreclosures or other distressed property sales, which typically sell at a 20 percent discount, according to the Realtors group.
Tuesday, February 24, 2009
New Homeowner Affordability and Stability Plan
Questions and Answers to the Obama $75 Billion Plan to Aid 9 Million borrowers suffering from falling home prices & unaffordable payments
Borrowers Who Are Current on Their Mortgage:
Q: I owe more than my property is worth, do I still qualify to
refinance under the Homeowner Affordability and Stability Plan?
A: Eligible loans will now include those where the new first mortgage (including any refinancing costs) will not exceed 105% of the current market value of the property. For example, if your property is worth $200,000 but you owe $210,000 or less you may qualify. The current value of your property will be determined after you apply to refinance.
Q: Will refinancing reduce the amount that I owe on my loan?
A: No. The objective of the Homeowner Affordability and Stability Plan is to help borrowers refinance into safer, more affordable fixed rate loans. Refinancing will not reduce the amount you owe to the first mortgage holder or any other debt you owe. However, by reducing the interest rate, refinancing should save you money by reducing the amount of interest that you repay over the life of the loan.
Q: When can I apply?
A: Mortgage lenders will begin accepting applications after the details are announced on March 4, 2009.
Q: What are the interest rate and other terms of this refinance offer?
A: The objective of the Homeowner Affordability and Stability Plan is to provide borrowers with a safe loan program with a fixed, affordable payment. All loans refinanced under the plan will have a 30 or 15 year term with a fixed interest rate. The rate will be based on market rates in effect at the time of the
refinance and any associated points and fees quoted by the lender. Interest rates may vary across
lenders and over time as market rates adjust. The refinanced loans will have no prepayment penalties or balloon notes.
Borrowers Who Are at Risk of Foreclosure:
Q: How do I know if I qualify for a payment reduction under the Homeowner Affordability and
Stability Plan?
A: In general, you may qualify for a mortgage modification if (a) you occupy your house as your primary residence; (b) your monthly mortgage payment is greater than 31% of your monthly gross income; and (c) your loan is not large enough to exceed current Fannie Mae and Freddie Mac loan limits. Final
eligibility will be determined by your mortgage lender based on your financial situation and detailed
guidelines that will be available on March 4, 2009.
Q: Do I need to be behind on my mortgage payments to be eligible for a modification?
A: No. Borrowers who are struggling to stay current on their mortgage payments may be eligible if their income is not sufficient to continue to make their mortgage payments and they are at risk of imminent default. This may be due to several factors, such as a loss of income, a significant increase in expenses, or an interest rate that will reset to an unaffordable level.
Q: I heard the government was providing a financial incentive to borrowers. Is that true?
A: Yes. To encourage borrowers who work hard to retain homeownership, the Homeowner Affordability and Stability Plan provides incentive payments as a borrower makes timely payments on the modified loan. The incentive will accrue on a monthly basis and will be applied directly to reduce your mortgage debt. Borrowers who pay on time for five years can have up to $5,000 applied to reduce their debt by the end of that period.
Q: My loan is scheduled for foreclosure soon. What should I do?
A: Contact your mortgage servicer or credit counselor. Many mortgage lenders have expressed their intention to postpone foreclosure sales on all mortgages that may qualify for the modification in order to allow sufficient time to evaluate the borrower’s eligibility. We support this effort.
Q: How much will a modification cost me?
A: There is no cost to borrowers for a modification under the Homeowner Affordability and Stability Plan. If you wish to get assistance from a HUD-approved housing counseling agency or are referred to a
counselor as a condition of the modification, you will not be charged a fee. Borrowers should beware of any organization that attempts to charge a fee for housing counseling or modification of a delinquent loan, especially if they require a fee in advance.
Borrowers Who Are Current on Their Mortgage:
Q: I owe more than my property is worth, do I still qualify to
refinance under the Homeowner Affordability and Stability Plan?
A: Eligible loans will now include those where the new first mortgage (including any refinancing costs) will not exceed 105% of the current market value of the property. For example, if your property is worth $200,000 but you owe $210,000 or less you may qualify. The current value of your property will be determined after you apply to refinance.
Q: Will refinancing reduce the amount that I owe on my loan?
A: No. The objective of the Homeowner Affordability and Stability Plan is to help borrowers refinance into safer, more affordable fixed rate loans. Refinancing will not reduce the amount you owe to the first mortgage holder or any other debt you owe. However, by reducing the interest rate, refinancing should save you money by reducing the amount of interest that you repay over the life of the loan.
Q: When can I apply?
A: Mortgage lenders will begin accepting applications after the details are announced on March 4, 2009.
Q: What are the interest rate and other terms of this refinance offer?
A: The objective of the Homeowner Affordability and Stability Plan is to provide borrowers with a safe loan program with a fixed, affordable payment. All loans refinanced under the plan will have a 30 or 15 year term with a fixed interest rate. The rate will be based on market rates in effect at the time of the
refinance and any associated points and fees quoted by the lender. Interest rates may vary across
lenders and over time as market rates adjust. The refinanced loans will have no prepayment penalties or balloon notes.
Borrowers Who Are at Risk of Foreclosure:
Q: How do I know if I qualify for a payment reduction under the Homeowner Affordability and
Stability Plan?
A: In general, you may qualify for a mortgage modification if (a) you occupy your house as your primary residence; (b) your monthly mortgage payment is greater than 31% of your monthly gross income; and (c) your loan is not large enough to exceed current Fannie Mae and Freddie Mac loan limits. Final
eligibility will be determined by your mortgage lender based on your financial situation and detailed
guidelines that will be available on March 4, 2009.
Q: Do I need to be behind on my mortgage payments to be eligible for a modification?
A: No. Borrowers who are struggling to stay current on their mortgage payments may be eligible if their income is not sufficient to continue to make their mortgage payments and they are at risk of imminent default. This may be due to several factors, such as a loss of income, a significant increase in expenses, or an interest rate that will reset to an unaffordable level.
Q: I heard the government was providing a financial incentive to borrowers. Is that true?
A: Yes. To encourage borrowers who work hard to retain homeownership, the Homeowner Affordability and Stability Plan provides incentive payments as a borrower makes timely payments on the modified loan. The incentive will accrue on a monthly basis and will be applied directly to reduce your mortgage debt. Borrowers who pay on time for five years can have up to $5,000 applied to reduce their debt by the end of that period.
Q: My loan is scheduled for foreclosure soon. What should I do?
A: Contact your mortgage servicer or credit counselor. Many mortgage lenders have expressed their intention to postpone foreclosure sales on all mortgages that may qualify for the modification in order to allow sufficient time to evaluate the borrower’s eligibility. We support this effort.
Q: How much will a modification cost me?
A: There is no cost to borrowers for a modification under the Homeowner Affordability and Stability Plan. If you wish to get assistance from a HUD-approved housing counseling agency or are referred to a
counselor as a condition of the modification, you will not be charged a fee. Borrowers should beware of any organization that attempts to charge a fee for housing counseling or modification of a delinquent loan, especially if they require a fee in advance.
Tuesday, February 17, 2009
Homeowner Help?......Finally
I haven't posted a commentary in quite some time. Finally I feel I've got something to say!! It's been a difficult 12 months, but help appears to be on the horizon. I will be truthful, I was not one for bailouts....any of them!!! In my heart, I still feel that we as homeowners have got to take responsibility.(i don't mean those of us who have always acted responsibly, pay our bills on time, live within our means etc.) There's a reason why everyone isn't able to own a home. It takes sacrifice, perserverance, determination and timing to make real estate ownership a reality. Now don't get me wrong, there are definitely individuals who were taken advantage of. But folks, if it sounds to good to be true, guess what......IT IS!!!!
As a mortgage broker, our industry is taking the brunt of this catastrophe. And although there were a few who acted criminally, the banks, wall street and now out of business mortgage bankers are really the true culprits. I say all this to say that I have resided to the fact that it appears there is no other way out for us except to bail out those who are upside down and those whose mortgage payments have skyrocketed. I don't believe in rewarding irresponsible behavior but I've finally come to except it's no other way. Let's just get it on and over with and begin to heal our country.
This is a painful lesson for all of us. We are back to the days of working to save for a down payment, having and maintaining good credit and demonstrating a stable work history. (this one could be the toughest)..... There are good reasons why everyone can't/doesn't own real estate.
As a mortgage broker, our industry is taking the brunt of this catastrophe. And although there were a few who acted criminally, the banks, wall street and now out of business mortgage bankers are really the true culprits. I say all this to say that I have resided to the fact that it appears there is no other way out for us except to bail out those who are upside down and those whose mortgage payments have skyrocketed. I don't believe in rewarding irresponsible behavior but I've finally come to except it's no other way. Let's just get it on and over with and begin to heal our country.
This is a painful lesson for all of us. We are back to the days of working to save for a down payment, having and maintaining good credit and demonstrating a stable work history. (this one could be the toughest)..... There are good reasons why everyone can't/doesn't own real estate.
Thursday, February 12, 2009
Home Buyer Tax Credit Help or Hindrance
The Senate measure offers the credit to anyone buying a primary residence. But buyers must earn enough to have $7,500 in income taxes -- $81,900 per year for a family of four -- to get the full benefit.
By Ben Meyerson and Sarah Gantz 7:03 AM PST, February 9, 2009
Reporting from Washington --
The Senate's proposed $15,000 tax credit for home buyers would boost the ailing housing market but do little to help low-income people who need it most, experts say.
The measure, which is part of the $827-billion economic stimulus plan that the Senate is due to vote on Tuesday, would offer the credit to anyone who buys a primary residence. But to take full advantage of the credit, buyers would have to earn enough to use it and spend at least $150,000 on a home.
As many as 1 million home sales could result from the tax credit, according to Mary Trupo of the National Assn. of Realtors. "By increasing demand and decreasing inventory, it'll help to stabilize home values and result in fewer foreclosures," she said.
But low-income people will not benefit, said Linda Couch, deputy director of the National Low Income Housing Coalition. "The bill is focusing a lot more of its resources on higher-income households and home ownership than it is on the lowest-income people and people really teetering on the edge of homelessness."
Since the money comes as a deductible tax credit spread over two years, home buyers must earn enough to have $7,500 in income taxes -- $81,900 per year for a family of four to get the full benefit, according to the housing coalition.
But if the home costs less than $150,000, the deduction is only worth 10% of the house's value, meaning that those buying the cheapest homes wouldn't receive the full benefit.
Alma Jill Dizon, a Realtor from Riverside, agreed that there wasn't much in the measure for low-income Americans. "From what I can tell, it's really going to benefit people who already have enough salary" to buy a house, said Dizon, who said she sells homes from $150,000 to more than $1 million.
Dizon said her market is dominated by older, three-bedroom, one-bath homes in need of repair. Those houses sell for about $150,000 to first-time buyers who don't have the savings to make a deposit on something larger.
"You have to owe enough in taxes in the first place" to take advantage of the rebate, Dizon said. "That's why it benefits people who earn more money and earn more on taxes."
But the tax credit could greatly help the housing market by making the more expensive homes in the area more appealing, she said. What once were multimillion-dollar homes in Riverside now are priced between $500,000 and $1 million, she said. With a tax credit, those homes -- many of which are on the brink of foreclosure -- are beginning to look more attractive to buyers.
"This isn't actually going to get a lot of people buying houses at the very bottom," Dizon said. "Who is going to start buying more houses is people in the middle and upper range. That can be good as far as staving off more trouble in those ranges, in those better neighborhoods."
But halfway across the country, in Cleveland, another Realtor, Ralph A. Vaneck could use a hand selling nicer homes. There, the median income is half of Riverside's -- $27,007 compared with $54,099.
"The non-foreclosure market is where the major help is needed -- that's the dead part of the market," said Vaneck, president of Westway Realty. Those homes are priced between $95,000 and $120,000.
People are more interested in purchasing foreclosed homes because they can get them for as little as $35,000, he said; 85% of his business comes from selling foreclosed homes.
The Senate measure expands an incentive approved last year -- a $7,500 credit for first-time home buyers that had to be repaid later. The House's version of the economic stimulus package renewed last year's provision and eliminated the payback requirement.
But the Senate bill goes further, making the credit available to anyone buying their primary residence, and doubling the eligible amount to $15,000.
Once the Senate passes its version of the stimulus package, a conference committee will resolve differences between it and the House bill. Then both houses will be asked to vote on the compromise.
Trupo of the National Assn. of Realtors sees hope in whatever the housing credit turns out to be, although Realtors favor the higher amount.
"If it's $15,000, $7,500 or somewhere in the middle, there is going to be a significant impact to the market," she said.
Helping the housing market get back on its feet is in the interest of everyone, said Jerry Howard, president and chief executive of the National Assn. of Home Builders.
"Until you stabilize house values, you won't be able to stabilize -- let alone stimulate -- the economy," he said. "This is the kind of stimulus that ought to get buyers off the sidelines and into the housing market."
bmeyerson@tribune.com
sgantz@tribune.com
By Ben Meyerson and Sarah Gantz 7:03 AM PST, February 9, 2009
Reporting from Washington --
The Senate's proposed $15,000 tax credit for home buyers would boost the ailing housing market but do little to help low-income people who need it most, experts say.
The measure, which is part of the $827-billion economic stimulus plan that the Senate is due to vote on Tuesday, would offer the credit to anyone who buys a primary residence. But to take full advantage of the credit, buyers would have to earn enough to use it and spend at least $150,000 on a home.
As many as 1 million home sales could result from the tax credit, according to Mary Trupo of the National Assn. of Realtors. "By increasing demand and decreasing inventory, it'll help to stabilize home values and result in fewer foreclosures," she said.
But low-income people will not benefit, said Linda Couch, deputy director of the National Low Income Housing Coalition. "The bill is focusing a lot more of its resources on higher-income households and home ownership than it is on the lowest-income people and people really teetering on the edge of homelessness."
Since the money comes as a deductible tax credit spread over two years, home buyers must earn enough to have $7,500 in income taxes -- $81,900 per year for a family of four to get the full benefit, according to the housing coalition.
But if the home costs less than $150,000, the deduction is only worth 10% of the house's value, meaning that those buying the cheapest homes wouldn't receive the full benefit.
Alma Jill Dizon, a Realtor from Riverside, agreed that there wasn't much in the measure for low-income Americans. "From what I can tell, it's really going to benefit people who already have enough salary" to buy a house, said Dizon, who said she sells homes from $150,000 to more than $1 million.
Dizon said her market is dominated by older, three-bedroom, one-bath homes in need of repair. Those houses sell for about $150,000 to first-time buyers who don't have the savings to make a deposit on something larger.
"You have to owe enough in taxes in the first place" to take advantage of the rebate, Dizon said. "That's why it benefits people who earn more money and earn more on taxes."
But the tax credit could greatly help the housing market by making the more expensive homes in the area more appealing, she said. What once were multimillion-dollar homes in Riverside now are priced between $500,000 and $1 million, she said. With a tax credit, those homes -- many of which are on the brink of foreclosure -- are beginning to look more attractive to buyers.
"This isn't actually going to get a lot of people buying houses at the very bottom," Dizon said. "Who is going to start buying more houses is people in the middle and upper range. That can be good as far as staving off more trouble in those ranges, in those better neighborhoods."
But halfway across the country, in Cleveland, another Realtor, Ralph A. Vaneck could use a hand selling nicer homes. There, the median income is half of Riverside's -- $27,007 compared with $54,099.
"The non-foreclosure market is where the major help is needed -- that's the dead part of the market," said Vaneck, president of Westway Realty. Those homes are priced between $95,000 and $120,000.
People are more interested in purchasing foreclosed homes because they can get them for as little as $35,000, he said; 85% of his business comes from selling foreclosed homes.
The Senate measure expands an incentive approved last year -- a $7,500 credit for first-time home buyers that had to be repaid later. The House's version of the economic stimulus package renewed last year's provision and eliminated the payback requirement.
But the Senate bill goes further, making the credit available to anyone buying their primary residence, and doubling the eligible amount to $15,000.
Once the Senate passes its version of the stimulus package, a conference committee will resolve differences between it and the House bill. Then both houses will be asked to vote on the compromise.
Trupo of the National Assn. of Realtors sees hope in whatever the housing credit turns out to be, although Realtors favor the higher amount.
"If it's $15,000, $7,500 or somewhere in the middle, there is going to be a significant impact to the market," she said.
Helping the housing market get back on its feet is in the interest of everyone, said Jerry Howard, president and chief executive of the National Assn. of Home Builders.
"Until you stabilize house values, you won't be able to stabilize -- let alone stimulate -- the economy," he said. "This is the kind of stimulus that ought to get buyers off the sidelines and into the housing market."
bmeyerson@tribune.com
sgantz@tribune.com
Monday, January 26, 2009
Myths on Buying and Selling Your Home
The truth about the housing market
In today’s uncertain market, fear runs rampant on both the buying and selling sides of the fence. Many myths need debunking. Here are five untruths held by buyers, and five held by sellers.
Buyer myth No. 1: The longer the house is on the market, the more you can negotiate.
When buyers ask, “How long has this property been on the market?”, they think “six months” means they can negotiate the price down. It more often means the seller is stubbornly holding on to their price.
Buyer myth No. 2: The sellers today are desperate.
Most aren’t. Always ask why the sellers are selling. It’s the key to finding how motivated and anxious they are. “I’m being transferred to Dallas” is a very different answer than “We’d like to find something bigger.” The first homeowner is hot to trot.
Buyer myth No. 3: You can’t buy a home today with less than 20 percent down.
FHA loans require only 3.5 percent down, and you can even ask the seller to pay the closing costs.
Buyer myth No. 4: You need good credit to get a good loan.
Once again, the FHA to the rescue! They’re happy to lend money to buyers with bad credit.
Buyer myth No. 5: You shouldn't buy before prices have bottomed.
You can’t sharpshoot the real estate market. Once you identify the “bottom,” prices have already moved up.
Seller myth No. 1: Now’s the absolute worst time to sell.
Not necessarily. It depends upon where you live. Many of the worst hit markets, like Las Vegas, Phoenix or San Diego, are already beginning to turn around. And if you’re a homeowner who wants to trade up, the loss you’ll take on your current home will be more than offset by the bargain you’ll get on the next one.
Seller myth No. 2: Never respond to a low-ball bid.
All buyers today feel obligated to put in low-ball offers to see if the seller bites. If you respond with a reasonable counter offer, most buyers can be convinced to come up in price and make the deal.
Seller myth No. 3: The first offer is never the best offer.
Most sellers believe that it’s smart to hold out for something better. But four times out of five, the first offer is the best you’ll ever see.
Seller myth No. 4: 'I can always reduce my price later.'
Sellers often price their home high for a few weeks just to test the market. But buyers shop by price bracket and if your house is in the wrong one, you’ll just help sell everyone else’s home while yours sits there overpriced. And reducing your price later in small increments puts you in the position of chasing the tide as it goes out.
Seller myth No. 5: Before you refinance, shop around.
You can if you want, but you’ll usually get the best deal from your current lender. And you’ll be able to negotiate your closing costs.
Source: Barbara Corcoran
MSNBC.com The Today's Show
In today’s uncertain market, fear runs rampant on both the buying and selling sides of the fence. Many myths need debunking. Here are five untruths held by buyers, and five held by sellers.
Buyer myth No. 1: The longer the house is on the market, the more you can negotiate.
When buyers ask, “How long has this property been on the market?”, they think “six months” means they can negotiate the price down. It more often means the seller is stubbornly holding on to their price.
Buyer myth No. 2: The sellers today are desperate.
Most aren’t. Always ask why the sellers are selling. It’s the key to finding how motivated and anxious they are. “I’m being transferred to Dallas” is a very different answer than “We’d like to find something bigger.” The first homeowner is hot to trot.
Buyer myth No. 3: You can’t buy a home today with less than 20 percent down.
FHA loans require only 3.5 percent down, and you can even ask the seller to pay the closing costs.
Buyer myth No. 4: You need good credit to get a good loan.
Once again, the FHA to the rescue! They’re happy to lend money to buyers with bad credit.
Buyer myth No. 5: You shouldn't buy before prices have bottomed.
You can’t sharpshoot the real estate market. Once you identify the “bottom,” prices have already moved up.
Seller myth No. 1: Now’s the absolute worst time to sell.
Not necessarily. It depends upon where you live. Many of the worst hit markets, like Las Vegas, Phoenix or San Diego, are already beginning to turn around. And if you’re a homeowner who wants to trade up, the loss you’ll take on your current home will be more than offset by the bargain you’ll get on the next one.
Seller myth No. 2: Never respond to a low-ball bid.
All buyers today feel obligated to put in low-ball offers to see if the seller bites. If you respond with a reasonable counter offer, most buyers can be convinced to come up in price and make the deal.
Seller myth No. 3: The first offer is never the best offer.
Most sellers believe that it’s smart to hold out for something better. But four times out of five, the first offer is the best you’ll ever see.
Seller myth No. 4: 'I can always reduce my price later.'
Sellers often price their home high for a few weeks just to test the market. But buyers shop by price bracket and if your house is in the wrong one, you’ll just help sell everyone else’s home while yours sits there overpriced. And reducing your price later in small increments puts you in the position of chasing the tide as it goes out.
Seller myth No. 5: Before you refinance, shop around.
You can if you want, but you’ll usually get the best deal from your current lender. And you’ll be able to negotiate your closing costs.
Source: Barbara Corcoran
MSNBC.com The Today's Show
Wednesday, January 21, 2009
What's Ahead For Mortgages in 2009??
The mess won't be cleaned up soon, so homeowners -- and buyers -- must address key questions about financing, the housing market and 'underwater' loans.
If 2008 was the year of foreclosures and when "underwater" entered every homeowner's lexicon, 2009 will be the year of refinances and mortgage modifications.
In hindsight, the mortgage mess seemed inevitable: Absurdly loose credit from 2002 to 2007 led to a bubble in house prices, scores of subprime lenders went out of business in 2007 as the risks caught up with them, and the misery spread to homeowners in 2008.
As home prices fell, millions of homeowners discovered that they owed more than their houses were worth. They were unable to refinance and unable to sell. Delinquencies (defined as house payments at least 30 days late) soared.
As the recession matures in 2009, more people are going to fall behind on their mortgage payments. At the same time, the federal government will try to hold down mortgage rates. And house prices will continue to fall. These three factors limit the smart moves you can make in 2009 with your mortgage and equity debt.
Buying a house
House prices have been falling in most places. In declining markets, people have trouble deciding whether to buy a house now or wait for prices to fall further. Instead of getting stuck on the buy-or-wait question, smart consumers consider other questions first:
1. Have we put our financial house in order? Not long ago, the best mortgage deals were offered to borrowers with credit scores of 720 or higher. Nowadays, many lenders' thresholds have risen to 740. The necessity of a higher credit score is just one consequence of the mortgage debacle, and lenders have tightened their requirements in other ways, too.
During the boom years, many applicants merely stated their incomes without having to provide documentation. Those days are gone. Low-documentation and no-documentation loans are rare. Expect to provide paycheck stubs or tax returns, or both, to demonstrate that you earn what you say you earn.
The lender will want to see that your expenses are in line with your income. You might have to provide bank statements to show where the money goes. If a big chunk of your monthly income goes toward debts for credit cards, cars and college, the lender might constrain the amount you may borrow.
2. Have we saved enough for a down payment? During the credit and housing boom, people routinely bought houses with no money down. Piggyback loans were the norm as homeowners avoided mortgage insurance. Now, substantial down payments have made a comeback, and so has mortgage insurance.
A few low-down-payment programs are still available, all courtesy of the federal government. The Department of Veterans Affairs guarantees mortgages with no down payment, and so does the Department of Agriculture's Rural Housing Service. There are restrictions on who is eligible for those loans, where the loans are available and for how much.
More people are eligible for Federal Housing Administration-insured mortgages, which require down payments as low as 3.5%.
Outside those federal loan programs, most lenders require significant down payments. The requirements vary by lender, the type of dwelling and where it is. A few creditworthy people might be able to buy houses with 5% down, but a 10% minimum is more common.
Mortgage insurance companies won't insure loans on Florida condominiums, so lenders require down payments of at least 20%. For jumbo mortgages in California, many lenders require 30% down payments.
On top of that, the lender will want to know how you got the down payment money. Is it from personal savings? Was all or part of the money a gift from family? If some of the money was given to you, the lender will want to make sure you have enough savings and income to handle temporary financial setbacks.
3. Is this the right time in our lives? Homebuyers, especially first-timers, should aim to own for the medium to long term. House prices have room to fall further in many -- if not most -- markets, and it could take years for prices to rebound. In short, it's a bad idea to buy a house with the intention of selling it in two or three years. Doing so could be a money-losing proposition, especially after factoring in the costs of real-estate commissions and taxes.
Refinancing the mortgage
Elements within the housing industry flew a trial balloon in December to gauge public support for using the Treasury to cut mortgage rates to 4.5%. There was one catch: The low rates supposedly would be for purchases, not refinances.
Nevertheless, mortgage rates have dropped to levels not seen since the refinancing boom of 2003. The low rates sparked a refi boomlet in late 2008, but lots of homeowners were frozen out because their homes had lost equity.
About two-thirds of homes have mortgages. Of those, an estimated one-sixth are underwater -- in other words, the owner owes more on the mortgage than the house is worth. These borrowers can't refinance unless they have enough money saved to make up the difference -- and then some, because they need a bit of equity, too.
According to First American CoreLogic, almost one-quarter of mortgages nationwide were in the category of "near negative equity" in October. These loans were not underwater (yet), but the owners had 5% equity or less. Such borrowers might have trouble refinancing because of the paucity of their equity.
The squeeze caused by falling home values will have a relatively big effect on homeowners with good credit who got adjustable-rate mortgages sometime in 2004, 2005 or 2006. These are the people who will have an incentive to refinance out of their ARMs and into fixed-rate mortgages (a process that Quicken Loans chief economist Bob Walters calls "dis-ARMing").
Most prime adjustables during the 2004-06 period were 3/1 and 5/1 ARMs. These loans had introductory rates that lasted for three or five years; after that the rates will be reset annually. Dates of that first rate reset peaked last summer, but about half a million prime borrowers will see their first reset in 2009.
Modifying the mortgage
One of the big questions of 2009 -- politically, economically and financially -- will be: How do we mass-modify mortgages to avoid foreclosures? Coming up with an answer won't be easy.
A mortgage modification is an alteration of the details of the existing home loan. Usually, but not always, a modification is done after the borrower has fallen behind on the payments by 90 days or more. In a modification, the borrower keeps the loan -- in other words, it's not a refinance. Modifications are usually done when the house is worth less than the mortgage balance.
There are several ways to modify a mortgage. Sometimes the term is extended -- for example, a 30-year mortgage is turned into a 40-year loan. In other cases, the rate is reduced. Or interest is charged on only some of the loan balance. Occasionally, in what's called a principal reduction, the lender forgives some of the debt so that the borrower no longer owes more than the house is worth.
Modifications traditionally have been done case by case. But skyrocketing demand for mortgage modifications will require companies to apply rules that apply to large swaths of borrowers. The rules will determine who gets a modification and who doesn't. Controversy will result when deserving people don't qualify for modifications, while some undeserving people do.
When the government took over IndyMac, one of the country's largest mortgage servicers, the Federal Deposit Insurance Corp. set up rules designed to encourage mortgage modifications. Since then, the government has required lenders, such as Citigroup, to adopt the FDIC's mortgage modification rules as a condition for receiving federal aid.
It's too early to know how successful the FDIC's mortgage modification plan will be, but overall, modifications haven't worked all that well. According to the Office of the Comptroller of the Currency, more than half of loans modified in the first three months of 2008 had fallen behind on their payments within six months.
FDIC Chairwoman Sheila Bair questioned the comptroller data, saying it failed to distinguish "sustainable modifications versus cosmetic modifications."
Paying home equity debt
Because of declining home values, lenders became reluctant in 2008 to underwrite new home equity loans and home equity lines of credit. That trend is likely to continue through 2009.
In areas where home prices are falling fastest, lenders have been reducing the limits on home equity lines of credit or canceling them outright. The best advice on home equity debt is the most basic: Keep paying the monthly bills if you can.
By: Bankrate.com
If 2008 was the year of foreclosures and when "underwater" entered every homeowner's lexicon, 2009 will be the year of refinances and mortgage modifications.
In hindsight, the mortgage mess seemed inevitable: Absurdly loose credit from 2002 to 2007 led to a bubble in house prices, scores of subprime lenders went out of business in 2007 as the risks caught up with them, and the misery spread to homeowners in 2008.
As home prices fell, millions of homeowners discovered that they owed more than their houses were worth. They were unable to refinance and unable to sell. Delinquencies (defined as house payments at least 30 days late) soared.
As the recession matures in 2009, more people are going to fall behind on their mortgage payments. At the same time, the federal government will try to hold down mortgage rates. And house prices will continue to fall. These three factors limit the smart moves you can make in 2009 with your mortgage and equity debt.
Buying a house
House prices have been falling in most places. In declining markets, people have trouble deciding whether to buy a house now or wait for prices to fall further. Instead of getting stuck on the buy-or-wait question, smart consumers consider other questions first:
1. Have we put our financial house in order? Not long ago, the best mortgage deals were offered to borrowers with credit scores of 720 or higher. Nowadays, many lenders' thresholds have risen to 740. The necessity of a higher credit score is just one consequence of the mortgage debacle, and lenders have tightened their requirements in other ways, too.
During the boom years, many applicants merely stated their incomes without having to provide documentation. Those days are gone. Low-documentation and no-documentation loans are rare. Expect to provide paycheck stubs or tax returns, or both, to demonstrate that you earn what you say you earn.
The lender will want to see that your expenses are in line with your income. You might have to provide bank statements to show where the money goes. If a big chunk of your monthly income goes toward debts for credit cards, cars and college, the lender might constrain the amount you may borrow.
2. Have we saved enough for a down payment? During the credit and housing boom, people routinely bought houses with no money down. Piggyback loans were the norm as homeowners avoided mortgage insurance. Now, substantial down payments have made a comeback, and so has mortgage insurance.
A few low-down-payment programs are still available, all courtesy of the federal government. The Department of Veterans Affairs guarantees mortgages with no down payment, and so does the Department of Agriculture's Rural Housing Service. There are restrictions on who is eligible for those loans, where the loans are available and for how much.
More people are eligible for Federal Housing Administration-insured mortgages, which require down payments as low as 3.5%.
Outside those federal loan programs, most lenders require significant down payments. The requirements vary by lender, the type of dwelling and where it is. A few creditworthy people might be able to buy houses with 5% down, but a 10% minimum is more common.
Mortgage insurance companies won't insure loans on Florida condominiums, so lenders require down payments of at least 20%. For jumbo mortgages in California, many lenders require 30% down payments.
On top of that, the lender will want to know how you got the down payment money. Is it from personal savings? Was all or part of the money a gift from family? If some of the money was given to you, the lender will want to make sure you have enough savings and income to handle temporary financial setbacks.
3. Is this the right time in our lives? Homebuyers, especially first-timers, should aim to own for the medium to long term. House prices have room to fall further in many -- if not most -- markets, and it could take years for prices to rebound. In short, it's a bad idea to buy a house with the intention of selling it in two or three years. Doing so could be a money-losing proposition, especially after factoring in the costs of real-estate commissions and taxes.
Refinancing the mortgage
Elements within the housing industry flew a trial balloon in December to gauge public support for using the Treasury to cut mortgage rates to 4.5%. There was one catch: The low rates supposedly would be for purchases, not refinances.
Nevertheless, mortgage rates have dropped to levels not seen since the refinancing boom of 2003. The low rates sparked a refi boomlet in late 2008, but lots of homeowners were frozen out because their homes had lost equity.
About two-thirds of homes have mortgages. Of those, an estimated one-sixth are underwater -- in other words, the owner owes more on the mortgage than the house is worth. These borrowers can't refinance unless they have enough money saved to make up the difference -- and then some, because they need a bit of equity, too.
According to First American CoreLogic, almost one-quarter of mortgages nationwide were in the category of "near negative equity" in October. These loans were not underwater (yet), but the owners had 5% equity or less. Such borrowers might have trouble refinancing because of the paucity of their equity.
The squeeze caused by falling home values will have a relatively big effect on homeowners with good credit who got adjustable-rate mortgages sometime in 2004, 2005 or 2006. These are the people who will have an incentive to refinance out of their ARMs and into fixed-rate mortgages (a process that Quicken Loans chief economist Bob Walters calls "dis-ARMing").
Most prime adjustables during the 2004-06 period were 3/1 and 5/1 ARMs. These loans had introductory rates that lasted for three or five years; after that the rates will be reset annually. Dates of that first rate reset peaked last summer, but about half a million prime borrowers will see their first reset in 2009.
Modifying the mortgage
One of the big questions of 2009 -- politically, economically and financially -- will be: How do we mass-modify mortgages to avoid foreclosures? Coming up with an answer won't be easy.
A mortgage modification is an alteration of the details of the existing home loan. Usually, but not always, a modification is done after the borrower has fallen behind on the payments by 90 days or more. In a modification, the borrower keeps the loan -- in other words, it's not a refinance. Modifications are usually done when the house is worth less than the mortgage balance.
There are several ways to modify a mortgage. Sometimes the term is extended -- for example, a 30-year mortgage is turned into a 40-year loan. In other cases, the rate is reduced. Or interest is charged on only some of the loan balance. Occasionally, in what's called a principal reduction, the lender forgives some of the debt so that the borrower no longer owes more than the house is worth.
Modifications traditionally have been done case by case. But skyrocketing demand for mortgage modifications will require companies to apply rules that apply to large swaths of borrowers. The rules will determine who gets a modification and who doesn't. Controversy will result when deserving people don't qualify for modifications, while some undeserving people do.
When the government took over IndyMac, one of the country's largest mortgage servicers, the Federal Deposit Insurance Corp. set up rules designed to encourage mortgage modifications. Since then, the government has required lenders, such as Citigroup, to adopt the FDIC's mortgage modification rules as a condition for receiving federal aid.
It's too early to know how successful the FDIC's mortgage modification plan will be, but overall, modifications haven't worked all that well. According to the Office of the Comptroller of the Currency, more than half of loans modified in the first three months of 2008 had fallen behind on their payments within six months.
FDIC Chairwoman Sheila Bair questioned the comptroller data, saying it failed to distinguish "sustainable modifications versus cosmetic modifications."
Paying home equity debt
Because of declining home values, lenders became reluctant in 2008 to underwrite new home equity loans and home equity lines of credit. That trend is likely to continue through 2009.
In areas where home prices are falling fastest, lenders have been reducing the limits on home equity lines of credit or canceling them outright. The best advice on home equity debt is the most basic: Keep paying the monthly bills if you can.
By: Bankrate.com
Monday, January 12, 2009
Power to Modify Mortgages Sits Well With Judges
Federal bankruptcy judges say they are eager to have the power to restructure mortgages for struggling debtors because it could save hundreds of thousands of homeowners from foreclosure.
Top Senate Democrats are advancing legislation to let bankruptcy-court judges approve new repayment terms on first mortgages for primary residences for homeowners who have sought protection in a Chapter 13 filing. The proposal allowing so-called mortgage cramdowns, in which the principal amount of the loan is reduced, is one of several efforts Democrats are pushing to give homeowners relief as they wrestle with increasing debt levels and plummeting home values.
Reuters
Proposed changes to bankruptcy laws could save thousands of homeowners from foreclosure.
Judges overseeing bankruptcy cases already can approve modifications for credit-card debt and most other kinds of loans, including second-home mortgages. But they haven't been able to modify primary-home mortgages since 1979, when the U.S. bankruptcy code went into effect, said Samuel L. Bufford, a U.S. bankruptcy judge in Los Angeles. Before then, many states allowed judges to do some form of modification, he said.
Allowing a judge to modify loans gets around the problem that many mortgages have been turned into securities and sold to multiple investors. "The bankruptcy system depends on people making deals, but the deal-making piece of it has disappeared when it comes to mortgages because of the way mortgages were sold and packaged," Judge Bufford said. "There's nobody on the lender side to do the deal unless you [get permission] from investors, and that's impossible."
The measure is "a good idea," said Laurel Isicoff, a federal bankruptcy judge in Miami. Financial institutions have gotten help from the government, but the only way to fix the economy is through "a holistic approach" that also "solves the problem of people losing their homes."
Until last week, when Citigroup Inc., one of the nation's largest mortgage lenders, dropped its opposition, the banking industry had long fought modification of first mortgages in bankruptcy, fearing it would encourage more homeowners to file for Chapter 13 and that it would further destabilize the housing market. Representatives of the Mortgage Bankers Association said last week that they were still opposed to cramdowns. But Citigroup's support increases the chances of passing legislation that would allow judges to lower the interest rate, reduce the principal or alter the length of primary mortgages.
Opponents of the proposed law change, including the Securities Industry and Financial Markets Association, say it would have "serious and negative consequences," including increasing mortgage rates for consumers overall because investors who typically buy the loans might deem new mortgage contracts too risky.
A Chapter 13 filing is a plan in which debtors can retain assets and pay back their debt over three to five years. About two-thirds of Chapter 13 filers have a mortgage, but half of them aren't able to keep paying the mortgage as part of their reorganization, judges and lawyers say.
A. Jay Cristol, a federal bankruptcy judge in Miami, said that changing the bankruptcy law would be beneficial because "after foreclosure, families get broken up and lenders hold on to nonperforming assets that they sell at a loss."
Samuel Schwartz, a Las Vegas bankruptcy lawyer, has a client who is facing foreclosure on her primary residence even though she has been able to modify the loans on her two investment houses. Under the current bankruptcy rules, she was able to "strip away" the second mortgage on one of the investment homes and she "crammed down," or reduced, the principal balances on the first mortgages for both rentals -- reducing her combined loan balances to a total of $355,000 from $590,000.
She was also able to strip away the second mortgage on her primary residence but couldn't modify the first mortgage. That mortgage, Mr. Schwartz said, is more than $100,000 above the current value of the property. Thus, she still may lose her own home. Under the new law, her first mortgage on her home also could be modified.
By: Amir Efrati and Jennifer S. Forsyth of The Wall Street Journal
Top Senate Democrats are advancing legislation to let bankruptcy-court judges approve new repayment terms on first mortgages for primary residences for homeowners who have sought protection in a Chapter 13 filing. The proposal allowing so-called mortgage cramdowns, in which the principal amount of the loan is reduced, is one of several efforts Democrats are pushing to give homeowners relief as they wrestle with increasing debt levels and plummeting home values.
Reuters
Proposed changes to bankruptcy laws could save thousands of homeowners from foreclosure.
Judges overseeing bankruptcy cases already can approve modifications for credit-card debt and most other kinds of loans, including second-home mortgages. But they haven't been able to modify primary-home mortgages since 1979, when the U.S. bankruptcy code went into effect, said Samuel L. Bufford, a U.S. bankruptcy judge in Los Angeles. Before then, many states allowed judges to do some form of modification, he said.
Allowing a judge to modify loans gets around the problem that many mortgages have been turned into securities and sold to multiple investors. "The bankruptcy system depends on people making deals, but the deal-making piece of it has disappeared when it comes to mortgages because of the way mortgages were sold and packaged," Judge Bufford said. "There's nobody on the lender side to do the deal unless you [get permission] from investors, and that's impossible."
The measure is "a good idea," said Laurel Isicoff, a federal bankruptcy judge in Miami. Financial institutions have gotten help from the government, but the only way to fix the economy is through "a holistic approach" that also "solves the problem of people losing their homes."
Until last week, when Citigroup Inc., one of the nation's largest mortgage lenders, dropped its opposition, the banking industry had long fought modification of first mortgages in bankruptcy, fearing it would encourage more homeowners to file for Chapter 13 and that it would further destabilize the housing market. Representatives of the Mortgage Bankers Association said last week that they were still opposed to cramdowns. But Citigroup's support increases the chances of passing legislation that would allow judges to lower the interest rate, reduce the principal or alter the length of primary mortgages.
Opponents of the proposed law change, including the Securities Industry and Financial Markets Association, say it would have "serious and negative consequences," including increasing mortgage rates for consumers overall because investors who typically buy the loans might deem new mortgage contracts too risky.
A Chapter 13 filing is a plan in which debtors can retain assets and pay back their debt over three to five years. About two-thirds of Chapter 13 filers have a mortgage, but half of them aren't able to keep paying the mortgage as part of their reorganization, judges and lawyers say.
A. Jay Cristol, a federal bankruptcy judge in Miami, said that changing the bankruptcy law would be beneficial because "after foreclosure, families get broken up and lenders hold on to nonperforming assets that they sell at a loss."
Samuel Schwartz, a Las Vegas bankruptcy lawyer, has a client who is facing foreclosure on her primary residence even though she has been able to modify the loans on her two investment houses. Under the current bankruptcy rules, she was able to "strip away" the second mortgage on one of the investment homes and she "crammed down," or reduced, the principal balances on the first mortgages for both rentals -- reducing her combined loan balances to a total of $355,000 from $590,000.
She was also able to strip away the second mortgage on her primary residence but couldn't modify the first mortgage. That mortgage, Mr. Schwartz said, is more than $100,000 above the current value of the property. Thus, she still may lose her own home. Under the new law, her first mortgage on her home also could be modified.
By: Amir Efrati and Jennifer S. Forsyth of The Wall Street Journal
Monday, January 5, 2009
Home Ownership Goals Created a House of Cards
Lender guidelines were 'obliterated' in buying frenzy
Government long has promoted home ownership as a means of strengthening communities and building the wealth of its citizens, but the recent housing market collapse has some analysts wondering whether consumers have gotten too much of a good thing.
While federal policies helped tens of thousands of U.S. consumers achieve home ownership during the housing boom, they also opened the door to the widespread use of risky loans, a national credit crunch and a wave of foreclosures.
“Public policy has been used to promote home ownership since the wake of the Great Depression,” said Mark Zandi, chief economist at Moody's Economy.com. “These efforts were overdone this decade during the housing boom and bubble.”
In 2005, the year the San Diego County real estate boom peaked, the home ownership rate in the county was 58.2 percent, according to the U.S. Census Bureau's American Community Survey. By 2007, the rate in the county had fallen to 55.9 percent. That marked a loss of nearly 22,000 owner-occupied residences.
Nationally, the home ownership rate steadily increased from 44 percent to 63 percent between 1940 and 1970, the bureau found. It remained in the mid-60s for more than three decades before rising to 67.3 percent in 2006. In 2007, it declined slightly to 67.2. Zandi expects the rate to continue to slide until it reaches to pre-boom levels.
Veteran lender Bill Dallas, a former board member of the California Mortgage Bankers Association, said government intervention combined with loose loan underwriting standards put many buyers into home loans they couldn't afford. In the buying frenzy that characterized the first half of this decade, guidelines for making sure that borrowers had enough cash in reserve to weather economic storms were “obliterated.”
Adriana Erni, a real estate broker, recently became a renter after losing her University City home to foreclosure. Erni bought her three-bedroom house in 2005, near the height of the surge in prices.
When she and a friend bought the home with an adjustable-rate loan and no money down, she figured they could refinance it before their mortgage payments increased. Instead, she found herself unable to get a new loan when home values dropped. At the same time, her income declined as the real estate market slumped.
Erni sought help from Community HousingWorks, a nonprofit that assists distressed borrowers in negotiating loan modifications. Even with the agency's help, she was unable to stop the foreclosure process. She vacated the home in late November.
Although she feels “crushed and wounded,” Erni hopes to buy another home. For now, she is content to rent.
“You need some time to heal,” she said.
Healing the economy was what U.S. policymakers had in mind when they were looking for ways to boost home ownership in 2001. The nation was in a slump amid the bursting of the dot-com bubble and the Sept. 11 terrorist attacks. To get back on track, then-Federal Reserve Chairman Alan Greenspan decided to lower interest rates.
Home ownership became a key driver of the economy. Federal regulators did not intervene when lenders began using subprime, adjustable-rate mortgages to temporarily reduce mortgage payments, allowing more people to qualify for loans.
Thousands of borrowers became homeowners without regard to their creditworthiness or their ability to cope when adjustable mortgages reset at higher rates. Because such loans carry higher fees, lenders made more money.
Attempts to pass federal legislation against predatory lending to protect borrowers from being placed in unnecessarily costly loans were opposed by the Bush administration and members of Congress. They feared that restrictions on lending would slow the rise of home ownership.
Instead, the housing market heated up as lenders and consumers went on an easy-credit bender. Highly leveraged loan products surfaced that had not been widely used since the Great Depression. At the height of the home-buying frenzy, a running joke in the lending industry was that anyone who could fog a mirror could get a loan.
In mid-2002, President Bush urged lenders to add 5.5 million minority homeowners by the end of the decade. In the years that followed, San Diego County neighborhoods with large minority populations would be hard-hit by foreclosures resulting from risky subprime loans.
Government-sponsored mortgage giants Fannie Mae and Freddie Mac ensured that funds were consistently available to lending institutions. Under pressure from the Bush administration, Fannie Mae and Freddie Mac increased their funding of mortgage loans to lower-income borrowers.
If government and lenders pushed hard for increased home ownership, it was with good intentions, said Dustin Hobbs, spokesman for the California Mortgage Bankers Association.
“You definitely had, for generations, presidents from both parties and congressmen from both sides really pushing home ownership, with Fannie and Freddie and every way they could, and with good reason,” Hobbs said. “It is the best way that individuals acquire wealth. There was a consensus from consumer groups to mortgage bankers to government that more needed to be done to create home ownership.”
Not everyone bought into the idea that owning is preferable to renting. Some contrarian economists held that people could build more wealth by renting and investing the money that would have gone into down payments and home maintenance.
They pointed out that home prices fluctuate. People who buy at the peak of a fevered market run the risk of losing wealth during a speculative price bubble.
“What is wrong with renting?” asked economist Christopher Thornberg of Beacon Economics. “I am so tired of hearing that owning a home is the height of being an American.”
While government played a strong role in triggering the current credit crisis, others share the blame, said Alex J. Pollock, a resident fellow at the American Enterprise Institute, a research group in Washington, D.C. Real estate speculators and consumers were eager to take advantage of low interest rates.
One of the first national voices to warn that the rising home ownership rate was based on unsustainable debt was Nicolas P. Retsinas, the head of Harvard University's Joint Center for Housing Studies. Retsinas recalled that the marketing of risky loans to consumers was aggressive.
“At one point, there were 250,000 people working for mortgage brokerages in the U.S.,” he said. “Their compensation was based on transactions. And they were all selling. Were risks understated? Yes.”
Lenders were feeding Wall Street investors' growing appetite for securities backed by subprime loans.
Rob Katz, president of the Del Mar DataTrac software firm in San Diego, recalls meeting with his company president in 1999 when he was a technology officer at a mortgage firm in Northern California. Katz was told that the company was going to begin making loans for 107 percent of a home's value without verifying income. When Katz protested, he was assured that the loans would quickly be sold to mortgage investors, who would take the hit if they failed.
Many lenders have been forced out of business since the end of the housing boom. Most analysts say that chastened financial institutions won't loosen their purse strings and allow another big surge in home ownership.
While he applauds the newfound restraint, Retsinas worries that tight credit will prevent low-and moderate-income households from achieving home ownership, particularly in high-cost markets such as San Diego County.
Although there was much abuse of adjustable subprime loans, they were a home ownership lifeline for many buyers.
“The question going forward is, what is going to replace subprime lending?” Retsinas said. “There are always going to be people who do not make a lot of money. Should they be shut out? I think we can find a way to develop mortgage products that are reasonable, that are transparent, where everyone knows the risks involved. That will be a challenge, because we just shut the spigot tight.”
By Emmet Pierce (Contact) Union-Tribune Staff Writer
Government long has promoted home ownership as a means of strengthening communities and building the wealth of its citizens, but the recent housing market collapse has some analysts wondering whether consumers have gotten too much of a good thing.
While federal policies helped tens of thousands of U.S. consumers achieve home ownership during the housing boom, they also opened the door to the widespread use of risky loans, a national credit crunch and a wave of foreclosures.
“Public policy has been used to promote home ownership since the wake of the Great Depression,” said Mark Zandi, chief economist at Moody's Economy.com. “These efforts were overdone this decade during the housing boom and bubble.”
In 2005, the year the San Diego County real estate boom peaked, the home ownership rate in the county was 58.2 percent, according to the U.S. Census Bureau's American Community Survey. By 2007, the rate in the county had fallen to 55.9 percent. That marked a loss of nearly 22,000 owner-occupied residences.
Nationally, the home ownership rate steadily increased from 44 percent to 63 percent between 1940 and 1970, the bureau found. It remained in the mid-60s for more than three decades before rising to 67.3 percent in 2006. In 2007, it declined slightly to 67.2. Zandi expects the rate to continue to slide until it reaches to pre-boom levels.
Veteran lender Bill Dallas, a former board member of the California Mortgage Bankers Association, said government intervention combined with loose loan underwriting standards put many buyers into home loans they couldn't afford. In the buying frenzy that characterized the first half of this decade, guidelines for making sure that borrowers had enough cash in reserve to weather economic storms were “obliterated.”
Adriana Erni, a real estate broker, recently became a renter after losing her University City home to foreclosure. Erni bought her three-bedroom house in 2005, near the height of the surge in prices.
When she and a friend bought the home with an adjustable-rate loan and no money down, she figured they could refinance it before their mortgage payments increased. Instead, she found herself unable to get a new loan when home values dropped. At the same time, her income declined as the real estate market slumped.
Erni sought help from Community HousingWorks, a nonprofit that assists distressed borrowers in negotiating loan modifications. Even with the agency's help, she was unable to stop the foreclosure process. She vacated the home in late November.
Although she feels “crushed and wounded,” Erni hopes to buy another home. For now, she is content to rent.
“You need some time to heal,” she said.
Healing the economy was what U.S. policymakers had in mind when they were looking for ways to boost home ownership in 2001. The nation was in a slump amid the bursting of the dot-com bubble and the Sept. 11 terrorist attacks. To get back on track, then-Federal Reserve Chairman Alan Greenspan decided to lower interest rates.
Home ownership became a key driver of the economy. Federal regulators did not intervene when lenders began using subprime, adjustable-rate mortgages to temporarily reduce mortgage payments, allowing more people to qualify for loans.
Thousands of borrowers became homeowners without regard to their creditworthiness or their ability to cope when adjustable mortgages reset at higher rates. Because such loans carry higher fees, lenders made more money.
Attempts to pass federal legislation against predatory lending to protect borrowers from being placed in unnecessarily costly loans were opposed by the Bush administration and members of Congress. They feared that restrictions on lending would slow the rise of home ownership.
Instead, the housing market heated up as lenders and consumers went on an easy-credit bender. Highly leveraged loan products surfaced that had not been widely used since the Great Depression. At the height of the home-buying frenzy, a running joke in the lending industry was that anyone who could fog a mirror could get a loan.
In mid-2002, President Bush urged lenders to add 5.5 million minority homeowners by the end of the decade. In the years that followed, San Diego County neighborhoods with large minority populations would be hard-hit by foreclosures resulting from risky subprime loans.
Government-sponsored mortgage giants Fannie Mae and Freddie Mac ensured that funds were consistently available to lending institutions. Under pressure from the Bush administration, Fannie Mae and Freddie Mac increased their funding of mortgage loans to lower-income borrowers.
If government and lenders pushed hard for increased home ownership, it was with good intentions, said Dustin Hobbs, spokesman for the California Mortgage Bankers Association.
“You definitely had, for generations, presidents from both parties and congressmen from both sides really pushing home ownership, with Fannie and Freddie and every way they could, and with good reason,” Hobbs said. “It is the best way that individuals acquire wealth. There was a consensus from consumer groups to mortgage bankers to government that more needed to be done to create home ownership.”
Not everyone bought into the idea that owning is preferable to renting. Some contrarian economists held that people could build more wealth by renting and investing the money that would have gone into down payments and home maintenance.
They pointed out that home prices fluctuate. People who buy at the peak of a fevered market run the risk of losing wealth during a speculative price bubble.
“What is wrong with renting?” asked economist Christopher Thornberg of Beacon Economics. “I am so tired of hearing that owning a home is the height of being an American.”
While government played a strong role in triggering the current credit crisis, others share the blame, said Alex J. Pollock, a resident fellow at the American Enterprise Institute, a research group in Washington, D.C. Real estate speculators and consumers were eager to take advantage of low interest rates.
One of the first national voices to warn that the rising home ownership rate was based on unsustainable debt was Nicolas P. Retsinas, the head of Harvard University's Joint Center for Housing Studies. Retsinas recalled that the marketing of risky loans to consumers was aggressive.
“At one point, there were 250,000 people working for mortgage brokerages in the U.S.,” he said. “Their compensation was based on transactions. And they were all selling. Were risks understated? Yes.”
Lenders were feeding Wall Street investors' growing appetite for securities backed by subprime loans.
Rob Katz, president of the Del Mar DataTrac software firm in San Diego, recalls meeting with his company president in 1999 when he was a technology officer at a mortgage firm in Northern California. Katz was told that the company was going to begin making loans for 107 percent of a home's value without verifying income. When Katz protested, he was assured that the loans would quickly be sold to mortgage investors, who would take the hit if they failed.
Many lenders have been forced out of business since the end of the housing boom. Most analysts say that chastened financial institutions won't loosen their purse strings and allow another big surge in home ownership.
While he applauds the newfound restraint, Retsinas worries that tight credit will prevent low-and moderate-income households from achieving home ownership, particularly in high-cost markets such as San Diego County.
Although there was much abuse of adjustable subprime loans, they were a home ownership lifeline for many buyers.
“The question going forward is, what is going to replace subprime lending?” Retsinas said. “There are always going to be people who do not make a lot of money. Should they be shut out? I think we can find a way to develop mortgage products that are reasonable, that are transparent, where everyone knows the risks involved. That will be a challenge, because we just shut the spigot tight.”
By Emmet Pierce (Contact) Union-Tribune Staff Writer
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