Don't Abandon Underwater Mortgages

David Bach, author of The Automatic Millionaire Homeowner: A Lifetime Plan to Finish Rich in Real Estate, pooh-poohs the notion that it makes any sense at all to walk away from a property that is underwater.

In an interview with the AOL.com personal finance Web site, Walletpop.com, Bach said about 50 percent of homes in foreclosure are there because their owners walked away from underwater real estate. He calls that “stupid, short-term thinking” and recalls a condo he bought in New York City in 2003. He put down $600,000, then property values dropped and he lost all his equity. “I was bummed,” he said.

But the loss wasn’t permanent. Four years later he sold the condo for $3.65 million – and made a $1.5 million profit, after commissions and taxes.

Some people might have thought it was “logical” to walk away, he said. “But it would have cost me $1.5 million.”

Source: WalletPop, Zac Bissonnette (07/23/2009)

Buyers Shouldn't Wait on Falling Prices

Fear of overpaying for property is common these days, especially in places like New York where prices continue to be unstable.

If you are potential buyer who is frozen because you are concerned that you will pay too much, here are some factors to consider:

• Waiting for the right time can be expensive. Some buyers would have more equity today, despite falling prices, if they had bought when they were first considering it, instead of continuing to pay rent.



• Financing is fickle. Some people who were highly qualified last year can’t find financing this year because the credit market has tightened or their personal financial situation now makes them an undesirable borrower.



• Interest rates are headed up. If prices decline by another 10 percent, but interest rates increase by 1 percentage point, the monthly payment will be the same.

Source: The Wall Street Journal, Douglas Heddings (07/27/2009)

When Will the Housing Market Rebound?

When will the housing slump finally end? Even the experts' crystal balls are hazy.
The Wall Street Journal, which Thursday reported its latest quarterly survey of housing data, says it depends on which city or part of the country you’re talking about.
Home sales were up compared to last year in Washington, D.C., and Northern Virginia, Orlando, Minneapolis, Southern California, and the San Francisco Bay area, according to findings from research firm MDA DataQuick as well as reports from local real estate practitioner organizations.
Sales declined in New York City and nearby Long Island, Chicago, and Charlotte, N.C., and the outlook was particularly bleak in Miami-Fort Lauderdale and much of Florida, Detroit, and Las Vegas.
But Jody Kahn, an analyst at John Burns Real Estate Consulting, a research organization, points out that there are variations even in the hardest-hit metro areas with the most attractive neighborhoods continuing to thrive.
Employment is the most telling factor, says Mark Zandi, chief economist at Moody's Economy.com. "If people don't have jobs or fear losing their jobs, then buying homes is out of the question," he says.
Source: The Wall Street Journal, James R. Hagerty (07/23/2009)

Survey: Most Banks Tighten Lending Standards

About 75 percent of banks tightened their underwriting standards in the year ending March 31, and 20 percent discontinued, or marked for elimination, at least one kind of unconventional mortgage, according to an annual survey by the U.S. Office of the Comptroller of the Currency.
The survey looked at the lending practices of the 59 largest national banks. For the second year in a row, no banks reported easing standards, although 27 percent left them unchanged.
Banks told the government that they were requiring larger downpayments, tightening payment regulations, and increasing loan fees, according to the OCC report.
Source: Inman News (07/22/2009)

Now Is a Perfect Time to Buy

Just a reminder of something that is obvious to real estate professionals: Now is the time to buy, but that opportunity may be slipping away.
For people who have a job and money, a dream house is within reach, writes Marc Roth, founder of Home Warranty of America and a columnist for BusinessWeek.
He points out that mortgage rates remain low, prices are still at historic lows, and the government is offering incentives for first-time homebuyers.
He also adds that the inventory of homes to buy is still large, but it is shrinking. According to the NATIONAL ASSOCIATION OF REALTORS®, the housing inventory peaked in November 2008 at an 11-month supply. At the end of May 2009, it had fallen to a 9.6-month supply.
Roth says anyone who dallies will miss a good opportunity to buy a first home at a terrific price or go shopping for a move-up property that is a great buy.
Source: BusinessWeek.com, Marc Roth

California Home Prices Rise in June

California’s median home prices rose 7 percent in June compared to May, according to MDA DataQuick, a real estate research firm. The statewide median price increased to $246,000 from $230,000, triggered by an increase in sales of higher-priced homes.
"We're just now seeing the beginnings of more normal mortgage lending patterns," DataQuick President John Walsh says. "There's still a long way to go, but it looks like the worst of the grind is over.
"DataQuick also pointed out that foreclosures accounted for 46 percent of sales, the first month since August 2008 that foreclosure sales were less than 50 percent of the total.
Source: The Associated Press, Jacob Adelman (07/16/2009)

First-Time Buyers: Hurry for $8,000 Tax Credit

It’s time to remind first-time home buyers that in order to qualify for the government’s $8,000 gift in the form of a tax credit, the deal must close by Dec. 1.
Buyers should have a purchase contract signed by early October, so they have 45 to 60 days to arrange financing and safely close the deal.
"There's not as much sand in the hourglass as we may think," said Jim Merrion, regional director at RE/MAX Northern Illinois.
Source: Chicago Tribune, Mary Ellen Podmolik (07/11/2009)

Troubled Jumbo Loans Hurt Broader Market

Houses that cost more than $730,000 – the cap for conforming jumbo loans – can be extremely tough to buy, sell, or refinance these days, freezing the high-end market and holding down activity in lower-priced markets, real estate practitioners say.

The slowdown results from lenders’ reluctance to offer mortgages above the amount Fannie Mae and Freddie Mac will insure.

"What you're seeing are those properties sitting on the market for a lot longer because people can't get loans," says David Kerr, an associate with ZipRealty in Marin County, Calif. " All of what we're showing is in the $200,000 to $300,000 price range."

States that are most affected are those where jumbos account for more than 10 percent of all mortgages, including Hawaii, California and New York, as well as Washington, D.C., New Jersey, Maryland, Massachusetts, Virginia, Connecticut, Washington, Nevada, and Florida.

The Obama administration program to refinance underwater mortgages doesn’t offer help to holders of jumbo mortgages, so borrowers who can’t refinance are defaulting in increasing numbers. According to First American CoreLogic, jumbos that are 90 days or more delinquent reached 4.83 percent in March 2009, up from 1.68 percent in March 2008.

"We need to have a market recovery in all segments," says Lawrence Yun, chief economist for the National Association of REALTORS®. "If the high-end market weakens, those in the middle have to reduce prices . . . All of Middle America is undoubtedly impacted."

Source: USAToday, Stephanie Armour (09/15/2009)

Lennar Defends Itself Against Drywall Suits

Homebuilder Lennar Corp. says it has identified faulty Chinese drywall in 400 homes in Florida, but none outside the state. The company says it has set aside about $40 million in insurance reserves to repair homes that have defective drywall.

The drywall is alleged to contain ingredients that corrode metal, emit an odor, and make people sick.

Lennar says it has been named in 41 Florida state court lawsuits and two federal class action suits. It says it has counter sued its entire supply chain, including the manufacturers of the product.

The U.S. Department of Justice has filed lawsuits on behalf of hundreds of homeowners from Louisiana, Florida, Ohio, and other states, and the court has assigned the cases to a U.S. district judge in New Orleans.

Source: The Associated Press, Brian Skoloff (07/13/2009)

Fewer People Form New Households

The recession has more than halved the formation of new households.
Between March 2007 and March 2008, the number of new households grew by 772,000, compared with an increase of 1.63 million a year earlier, according to the U.S. Census Bureau.
New households results in fewer home sales and rentals, less furniture sold, and less work for electricians, carpenters, painters—and real estate professionals. Harvard University's Joint Center for Housing Studies estimates that the glut of 1.5 million new homes created during the housing boom would be gone now if households had been forming at historical levels.The downturn also has pushed down immigration levels. Even inflows of illegal immigrants have stopped rising since 2008, according to the Pew Hispanic Center.
Source: The Miami Herald, Annys Shin (07/11/2009)

Study: Consumers Were Too Optimistic

Lax lending standards can’t be blamed for the housing bubble, according to a study by the New York Federal Reserve.
The study released Thursday contends that it was consumer confidence that persuaded people that they could afford to pay higher prices for housing, not easy money.
The study argues that consumers, who thought they had been working harder since the 1990s, believed that their paychecks would increase. Their optimism continued until 2007, when it was clear that there was no reason for such a rosy view.
“What appears in retrospect to be relatively lax credit conditions in the early part of this decade may have emerged in part because of then-justifiable, although ultimately misplaced, optimism about income growth," says James Kahn, author of the study and a professor of economics at Yeshiva University.
Kahn says that if productivity growth returns, housing prices could bottom out and begin growing again. But if productivity continues to slow or grow only very modestly, prices could continue to stay low or even decline further.
Source: Reuters News (07/09/2009)

Tips for Negotiating a Mortgage Deal

Getting a mortgage loan these days can be a slow and frustrating experience.Here are some things that buyers should know as they go through the application process:

• Ask for the “Good Faith Estimate” early. It won’t be released until it is officially “complete” and all the questions are answered. Find answers right away to all the lender’s questions.


• Read and ask questions about the fine print. Identifying and negotiating all the fees and charges can cut an applicant’s costs.


• Shop title insurance. Go to web sites like Closing.com, where you can comparison shop.


• Get a commitment. Insist that the lender or loan broker agree that there won’t be any other charges on the HUD-1, which most borrowers don’t see until they are at the settlement table. "If [the lender] won't agree to that, you have to be a little suspicious," says Claire Fennessey, senior vice president of Entitle Direct.


• Question flood insurance. If a property requires flood insurance, consult with a civil engineering firm with experience with the Federal Emergency Management Agency’s resources to ensure that you aren’t paying too much. Eligibility for a preferred risk policy can cut costs substantially.

Tips for Parents Buying Homes for Children

With home prices low, now could be a good time for parents to give their children a home or even an investment property.Here are some suggestions for managing the tax consequences from Mark Luscombe, tax analyst with Wolters Kluwer.
Give a cash gift. Individuals are allowed to gift up to $13,000 per person in a given year without incurring gift tax. That means a couple could give their offspring and spouse $52,000 in a single year to go toward a down payment.
Lend money. The government requires that family members meet or exceed minimum loan rates to avoid having the loan be considered a gift. The rates are currently low. One way to handle this is for parent to use the $52,000 gift exclusion to forgive both interest and principal.
Use a trust. Set up a qualified personal residence trust, or QPRT. You’ll need an attorney to handle this transaction, but in a nutshell, parents put the home they want to give their children into a trust. At the end of a pre-set term, the home passes to the children with no taxes due.

Source: The Wall Street Journal, Shelly Banjo (06/25/2009)

5 Factors That Decide Your Credit Score

Credit scores range between 200 and 800, with scores above 620 considered desirable for obtaining a mortgage. The following factors affect your score:
1. Your payment history. Did you pay your credit card obligations on time? If they were late, then how late? Bankruptcy filing, liens, and collection activity also impact your history.
2. How much you owe. If you owe a great deal of money on numerous accounts, it can indicate that you are overextended. However, it’s a good thing if you have a good proportion of balances to total credit limits.
3. The length of your credit history. In general, the longer you have had accounts opened, the better. The average consumer's oldest obligation is 14 years old, indicating that he or she has been managing credit for some time, according to Fair Isaac Corp., and only one in 20 consumers have credit histories shorter than 2 years.
4. How much new credit you have. New credit, either installment payments or new credit cards, are considered more risky, even if you pay them promptly.
5. The types of credit you use. Generally, it’s desirable to have more than one type of credit — installment loans, credit cards, and a mortgage, for example.
For more on evaluating and understanding your credit score, visit http://www.myfico.com/CreditEducation/?fire=1.

Treasury Makes Refinancing More Attractive

The Treasury Department on Wednesday expanded its foreclosure prevention plan, lifting the current 105 percent loan-to-value cap to refinance up to 125 percent of a home’s value.Applications to refinance mortgages have fallen as rates have increased in the last couple of weeks, but this move may bring more borrowers to the table. At the same time, Fannie Mae and Freddie Mac have agreed to reduce the processing fee for borrowers who select a 25-year mortgage. Fannie said in a statement, "The reduction is intended to lure borrowers to select shorter terms and build positive equity in their homes sooner than with a typical 30-year mortgage.”
Source: Reuters News, Patrick Rucker (07/01/2009)

Is Mortgage Forgiveness the Answer?

Some housing experts say the next logical step for helping home owners with negative equity is loan forgiveness.
Home owners with no equity stake and no likelihood of having one anytime soon are increasingly likely to walk away. Some theorize that curbing that trend is the only thing that will stabilize the market.
The nonprofit Milken Institute has devised a plan that would use Fannie Mae to refinance underwater loans with government money. Under the plan, a private lender would provide the money for the value of the home and the U.S. Treasury would issue a second, interest-only loan for the portion of the current mortgage that is underwater. Every year the home owner keeps current with payments, the Treasury would forgive a portion of the loan.
The institute estimates that this would save 1.5 million homes from foreclosure or abandonment and cost taxpayers between $75 billion and $100 billion.
Ken Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at UC Berkeley, approves that plan, but urges returning some of the appreciation to the original lender as a reward for patience.
"The idea that these loans are worth face value is a fiction," says Richard Green, director of the USC Lusk Center for Real Estate. "If we don't deal with [reducing] the balances, we're not really dealing with the problem."
Source: Los Angeles Times, Tom Petruno (06/27/2009)

REALTOR® Magazine-Daily News-Pending Home Sales Rise Again

REALTOR® Magazine-Daily News-Pending Home Sales Rise Again

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