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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