For Most Buyers, the Mortgage Market Is Healthy
The widespread notion that the entire mortgage market is in crisis is just plain wrong, say lenders in various parts of the country.
The majority of mortgage products have been unaffected by troubles in the subprime segment. Interest rates for 30-year, fixed-rated loans remain in the low 6 percent range for people with reasonably good, though not necessarily perfect, credit records, according Kenneth R. Harney, managing director of the National Real Estate Development Center and syndicated columnist.
While there is plenty of money to lend, Harney says underwriting standards are more strict than they were a year ago. Jumbo loans, for example, often require two appraisals – one by an appraiser selected by the lender and the other by one working for the investor.
Similarly, FICO credit-score standards generally are higher than a year ago, stated-income mortgages with no verifications are hard to find and lenders are especially wary of excessive “layering of risk” – combining low down payments with marginal credit scores and high debt-to-income ratios – in markets where prices are trending lower.
Source: The Washington Post Writers Group, Kenneth R. Harney (09/29/07)
House OK’s Flood Insurance Bill
The U.S. House of Representatives approved a bill that will provide federally-backed, affordable flood insurance to communities in flood-prone areas, a move that NAR says is critical to economic growth and development.
The Flood Insurance Reform and Modernization Act of 2007, H.R. 3121, will help home owners, renters, and commercial property owners continue to protect themselves from losses sustained from flooding, NAR says. Since its creation, the National Flood Insurance Program is credited with helping reduce nearly $1 billion in flood damage to communities and nearly 80 percent less damage annually.
NAR urged the Senate to move forward on NFIP reform legislation.
H.R. 3121 would maintain a partnership between local, state, and the federal government and enable property owners in participating communities to purchase insurance as protection against flood losses in exchange for state and community floodplain management regulations that would reduce future flood damage.
“The NFIP is a win-win in that it promotes responsibility by home owners, the community, and the government,” says NAR President Pat V. Combs.
NAR also supports these provisions in the bill:
Protecting the integrity of NFIP by extending the program for five years;
Increasing coverage limits;
Increasing education and incentives for home owner and community participation;
Increasing awareness of flood risks;
Ensuring the 100-year floodplain maps are updated quickly;
Extending the pilot program for mitigation of severe repetitive loss properties; and
Studying the impacts on home owners, renters, and local economies of eliminating subsidies.
— REALTOR® Magazine Online
Housing Discrimination Complaints on the Rise
An increasing number of people are filing housing discrimination complaints.
The Department of Housing and Urban Development (HUD) logged 10,328 complaints last year, an increase of 12 percent over 2005 and the highest number since HUD began keeping track in 1990.
The 1968 Fair Housing Act, amended in 1988, bans discrimination in the housing market based on disability, race, sex, national origin, religion, skin color or whether a family has children. The law covers rentals, purchases and financing.
Reasons for the growing number of discrimination complaints vary, housing officials say. Some areas are dealing with new waves of immigrants. Others have old houses that aren’t readily accessible to the disabled. But the increase also could be a result of HUD’s greater enforcement efforts, housing officials say.
Here’s what happens after a complaint is filed:
HUD is required by law to finish investigating each complaint within 100 days. It must work with the complainant and the respondent to try to reach a conciliation agreement.
After investigating, HUD can either dismiss a case or decide there is evidence the respondent might have violated the Fair Housing Act.
If HUD charges the respondent with a violation, the case goes before an administrative law judge, unless either party elects to have it heard in federal court. In court, Department of Justice attorneys represent the complainant.
If the court finds a discriminatory housing practice has occurred or is about to occur, it can award actual and punitive damages as well as attorneys’ fees.
Source: USA Today, Deborah Barfield Berry (09/28/2007)
Borrowers Fight Back Against Misleading Loans
n the wake of the housing bust, hundreds of lawsuits are being filed against real estate salespeople, mortgage brokers, lenders, and others who earned fees from large and complex mortgage deals.
The suits are on behalf of borrowers who legal advocates say were given high-cost, creative financing so they could buy homes that were way beyond their means.
In California — where one of the most publicized suits has been filed on behalf of nine families — the state affords home owners some protection not found in other states. The law says mortgage brokers must act in the fiduciary interest of their clients. Congress is considering similar legislation nationwide.
The mortgage industry argues that such laws would limit consumer choice and make loans more expensive and harder to obtain. It advocates creation of a national registry of brokers, more requirements on loan originators, and efforts to improve borrowers’ financial literacy.
Meanwhile, in California, some advocates for naïve buyers don’t think the law works. “The fiduciary duty requirement in California may be good at giving people a remedy,” says Kathleen Keest, senior policy counsel at the Center for Responsible Lending, an advocacy and research organization. “But maybe it’s not been so effective at changing the normative standards in the industry for the simple reason that it exploded too fast.”
Source: The New York Times, Noah Berger (09/25/07)
Mortgage Problems Chip Away at August Home Sales
Existing-home sales fell in August, which coincided with the peak of mortgage availability problems, according to the NATIONAL ASSOCIATION OF REALTORS®.
Total existing-home sales — including single-family, townhomes, condominiums, and co-ops — were down 4.3 percent to a seasonally adjusted annual rate of 5.5 million units in August from a level of 5.75 million in July. That represents 12.8 percent below the 6.31 million-unit pace in August 2006.
“The unusual disruptions in the mortgage market, including a significant rise in jumbo loan rates, resulted in a fairly high number of postponed or cancelled sales, with many buyers having to search for other financing when loan commitments fell through,” says NAR’s Senior Economist Lawrence Yun. “Lower sales contributed to a build up of unsold inventory.”
Yun expects similar results for home sales in September. “Once we get through these disruptions, we’ll get a better sense of where the actual market is in late fall as conditions begin to normalize,” he says.
Better Times Ahead?
Total housing inventory rose 0.4 percent at the end of August to 4.58 million existing homes available for sale, which represents a 10-month supply at the current sales pace, up from a 9.5-month supply in July.
Nevertheless, NAR President Pat V. Combs says there is good news: The mortgage picture is showing signs of improving. “Mortgage interest rates have been declining and loan availability is improving,” she says. “Movements to enhance the FHA loan program and to raise the limits for conventional financing could provide additional relief, and it looks like the worse of the mortgage availability problem is behind us.”
Also, she notes, the abundant choice of homes is giving buyers an opportunity to better negotiate price and terms. “There are good opportunities in the market now, especially for first-time buyers,” Combs says.
A Closer Look at the Numbers
The national median existing-home price for all housing types was $224,500 in August, up 0.2 percent from August 2006 when the median was $224,000. The median is a typical market price where half of the homes sold for more and half sold for less.
“Price gains in the Northeast and Midwest were largely offset by a decline in the West, while the median existing-home price in the South was down slightly,” Combs says.
According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage was 6.57 percent in August, down from 6.7 percent in July; the rate was 6.52 percent in August 2006. Last week, Freddie Mac reported the 30-year fixed rate was down to 6.34 percent.
Meanwhile, single-family home sales fell 3.8 percent to a seasonally adjusted annual rate of 4.81 million in August from a pace of 5 million in July. Sales are 13 percent below 5.53 million-unit level in August 2006. The median existing single-family home price was $223,900 in August, which is essentially even with a year ago.
Existing condominium and co-op sales also dropped, falling 8 percent to a seasonally adjusted annual rate of 690,000 units in August from 750,000 in July. They are 11.7 percent lower than the 781,000-unit pace a year ago. The median existing condo price was $228,500 in August, up 2.1 percent from August 2006.
Across the Region
Here’s what happened regionally in the United States with existing-home sales:
Northeast: slipped 2 percent in August to an annual pace of 1 million, which is 5.7 percent below a year ago. Median price: $282,300, up 3.6 percent from August 2006.
South: eased by 2.7 percent to a level of 2.2 million in August, which is 12.7 percent lower than August 2006. Median price: $183,500, down 0.7 percent from a year ago.
Midwest: fell 5.2 percent to an annual rate of 1.28 million in August, and is 10.5 percent below a year ago. Median price: $177,100, up 3.1 percent from August 2006.
West: dropped 9.8 percent in August to a level of 1.01 million, and is 21.7 percent below August 2006. Median price: $332,300, which is 3.8 percent below a year ago.
— REALTOR® Magazine Online
California Toughens Real Estate Licensing
Beginning in October, California will tighten its licensing requirements for real estate sales professionals.
The new rules, which were sponsored by the California Association of REALTORS®, require applicants to complete three college-level courses before taking the state real estate licensing exam.
Previously, applicants could seek a conditional license after taking a single class and passing the state exam, completing course work over 18 months. Under the new law there will be no more conditional licenses.
New requirements “will increase the quality of the agents’ knowledge,” says Vince Malta, past president of the organization.
“Our concern is that people put off education until the very last moment,” he says. “We just didn’t feel like that was enough education for a practitioner to have in dealing with the most important transaction a person will have in his or her lifetime.”
Source: The San Diego Union-Tribune, Emmet Pierce (09/23/07)
Rent-to-Own Deals: Smart Questions to Ask
Sellers who can’t unload their properties through a conventional sale are proposing rent-to-own deals more frequently these days.
For sellers, the advantage of rent-to-own is the likelihood that the renter will eventually permanently take the property off their hands. For buyers, rent-to-own can provide the credit-challenged or cash-strapped a route to homeownership.
But for buyers and sellers, there are also many potential drawbacks. If your customers are considering a rent-to-own deal, here are some smart questions they should consider.
For Sellers:
Who will tend to the property and pay for routine maintenance?
Who pays for major repairs?
What are the costs of setting up and managing an escrow account for the portion of rent allotted to the down payment?
Will you manage the property yourself, or hire an agent?
What if the renters change their minds? Who keeps the money in the escrow account?
If the buyers change their minds, what will be required to put the property back on the market?
For Buyers:
How much of the rent is going to the down payment?
How locked in are you if change your mind? What will it cost you to get out of the deal?
How long will it take to accumulate enough of a down payment that you are likely to qualify for a mortgage?
What happens if you don’t qualify for a mortgage by the specified deadline? Can you continue to rent?
Who will be responsible for routine maintenance?
Who will pay for major repairs?
Do you hope to strengthen your credit rating by paying rent on time? If so, will the owner report your good habits to credit bureaus?
Source: Milwaukee Journal Sentinel, Joanne Cleaver (09/22/07)
Fannie, Freddie Get More Subprime Flexibility
The Office of Federal Housing Enterprise Oversight, which oversees Fannie Mae and Freddie Mac, on Wednesday agreed to allow both companies to buy more subprime loans — a decision that NAR applauds.
Fannie Mae and Freddie Mac will have more flexibility to address problems in the mortgage market, which will benefit the housing market overall, says the NATIONAL ASSOCIATION OF REALTORS®. As a result of Wednesday’s action, more subprime loans will be made available to borrowers and home owners who are having problems refinancing their mortgage.
In providing the ability to make a two percent adjustment to the portfolio limit formula for Fannie Mae, OFHEO director James Lockhart “sends an important signal to America’s home owners and buyers that the government recognizes that there is a major problem and that it is willing to act,” NAR President Pat Combs says.
This week, actions by both houses of Congress to reform FHA programs, and the Federal Reserve to decrease interest rates, should make borrowing more affordable and money more available, Combs says. “With reduced housing prices and increased housing inventory, interest rates that are near historic lows, and now with Fannie’s and Freddie’s increased ability to lend, we may see positive movement in the housing market,” said Combs.
NAR continues to urge Congress to increase Fannie Mae and Freddie Mac’s conforming loan limits, which would help borrowers in high-cost areas who are finding it extremely difficult to secure affordable financing.
“This would have the effect of making more money available for more of our nation’s borrowers,” Combs says.
— REALTOR® Magazine Online
Fed Half-Point Rate Cut to Help Home Buyers
The Federal Reserve Tuesday sliced one-half a percentage point off the federal funds rate, cutting it to 4.75 percent from 5.25 percent. It also cut its discount rate by the same amount, also bringing it to 5.25 percent.
The cuts could be a mixed blessing for home buyers, pushing fixed-rate mortgages higher if inflation worries grow, economists say.
But relief could come in other ways. Consumers should start feeling the impact quickly in the form of reduced payments on home-equity lines of credit, credit cards, and some car loans.
There is likely to be little immediate relief for borrowers with many adjustable-rate mortgages because the rates on roughly half of these loans are tied to the London interbank offered rate (LIBOR). LIBOR recently jumped sharply above the Fed funds rate because of the continuing credit crunch in the markets.
“If LIBOR doesn’t come down, there is no relief” for many mortgage borrowers, says James Bianco, president of Bianco Research LLC, a market-research firm in Chicago.
Nevertheless, the NATIONAL ASSOCIATION OF REALTORS® applauded the Fed’s move to cut interest rates.
“We believe that the Federal Reserve Board made the right move today in lowering the interest rate,” says NAR President Pat V. Combs. “Making borrowing more affordable will make money more available and this could go a long way in helping turn around the sluggish housing market.”
Source: The Wall Street Journal, Jane J. Kim and Ruth Simon (09/19/07) and REALTOR® Magazine Online
Defaults Leave Condo Associations in the Lurch
Defaults Leave Condo Associations in the Lurch
Condo associations are feeling the pain of increased delinquencies and foreclosures, which leaves them with unpaid assessments, additional legal fees and other expenses.
Establishing an aggressive collections policy is the first step toward mitigating the problem, says Jim Stoller, president of The Building Group management company in Chicago. He recommends turning over any account that is 60 days late to the association’s attorney.
Prompt legal intervention also will permit the association to go to court for temporary possession of the unit. It can be rented out until the debt is paid. The process takes several months and possession ends when the foreclosure occurs.
Another option is to wait until the foreclosure and hope there’s enough equity after the lender gets paid first. But that’s risky. “Today we rarely see any surplus,” says attorney David Sugar of Arnstein & Lehr in Chicago.
Under certain circumstances, an association can collect up to six months of unpaid assessments from the buyer when the unit is sold for foreclosure, but the law is a new one and the process is complicated, Sugar says.
Source: Chicago Tribune, Pamela Dittmer McKuen (9/13/07)
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