Mortgage News

Home affordability remains near 10-year highs, according to the 2nd edition of the Administration's Housing Scorecard released today by the US Department of Housing and Urban Development (HUD) and the Treasury Department. The July scorecard is the second aggregate of housing initiative reports.

"The housing market is performing better than the predictions made over a year ago," said HUD assistant secretary Raphael Bostic, in a statement. "We're absolutely not claiming victory, but due to the Obama Administration's efforts, improved home affordability is continuing to provide opportunities for prospective, qualified, homebuyers, while promising neighborhood stabilization efforts are helping hard hit neighborhoods start to recover."

More than 7.2 million homeowners refinanced under historic low rates since April 2009, saving a total estimated $12.9 billion, according to the scorecard. Nearly 3 million borrowers restructured their home loans, including through modification, since April 2009, twice the rate of 1.24 million foreclosures during the same time period...q

Source: Housing Wire

We are in a credit crisis in America. If you listen to the media, there is nothing but bad news when you hear about the real estate and financial markets. But with every challenge comes opportunities. For example, the precarious financial markets have caused interest rates on home loans to move to record low levels.

These low rates mean that the majority of homeowners can save significant sums by refinancing their present loans. The problem is, many consumers are getting “shut out” from taking advantage of these lower interest rates. A recent study by Credit Suisse revealed that only 38% of Americans qualified for a refinance.

Why? Because the financial crisis has also brought tighter lending guidelines. Many who purchased homes in the past five years can’t even qualify to refinance these homes. We would like to help you take advantage of these low rates and not get “shut out.” We mentioned tighter qualification guidelines. What does it take to qualify for a mortgage at a lower rate?

Credit. A good credit score is a pre-requisite. During the real estate boom just a few years ago, lenders had programs for anyone of any credit level. Now tighter guidelines are causing those with moderate credit issues to pay more and those with severe credit issues perhaps not to get approved at all. Typical credit scores range from 500 (poor credit) to 800 (great credit). Just a few years ago, someone with a credit score of 680 was considered moderate credit and was not asked to pay more. Now many lenders are charging premiums for this “moderate” credit score. If a homeowner has a credit score below 620, they may not get approved at all and, if they do, the premiums they could have to pay could eliminate most or all of their savings.

Income. Income is also another issue. It makes sense that lenders would verify that you have enough income to make sure you can repay the mortgage. But again, during the real estate boom years many lenders did not even ask for income data or let borrowers qualify at very low adjustable rates even if the loans were likely to adjust upward very quickly. Once again, lender tightening is taking away options for those who do not make enough income to pay for loans. It is a “catch-22” because refinancing at lower rates will help consumers afford their payments and avoid foreclosure.

Debt Levels. Related to the measurement of income is someone’s debt levels. It is important to note that when a lender “qualifies” someone for a loan, that lender must look at all the payments a person is obligated to make, not just the mortgage. Americans have run up a significant amount of debt in the form of credit card, car and other payments during the past several years. And these debts are also helping to prevent qualification for low rates.

Home Value. Finally, another issue may prevent qualification. That is the value of the home. Many lenders have been more restrictive on the amount of the loan they will approve versus the value of the home. The mortgage divided by the value is considered the “loan-to-value” (LTV). During the boom LTVs at 100% (or no money down) were proliferating. Now these programs are scarcer. Therefore, even if you have good credit, adequate income and a small amount of debt, if the home is not worth as much as what you owe, refinancing could be a challenge.

Many American’s are facing these challenges. How do you take advantage of low rates when you have challenges? The first step is to work with a mortgage representative that will help you with more than obtaining a good rate. A representative can also help you with services that will increase your credit score, lower your debt load and even accelerate the repayment of your present mortgage so that you can refinance more quickly. In addition, there are special government programs available which may help you refinance or even get your present loan modified. Your mortgage representative can let you know if you might be eligible for these programs.

How quickly? Results will vary dependent upon your situation. For example, severe credit issues take more time to correct than moderate credit issues. The higher your debt load, the more time it will take to bring it under control. But one thing is for sure, you can’t take advantage of these historically low rates without taking the first step. And who knows how long these record low rates will last. So contact me today and let me help you either obtain a lower rate now or get in position to lower your payments as quickly as possible...

As the nation struggles to shrug off the worst housing crisis in decades, it may be hard to believe a housing shortage could be on its way. The nation is simply not building enough homes to keep up with potential demand. Just 672,000 new homes were started in April, less than half the long-term run rate needed to meet the nation's natural population growth. "It is ironic, but there is a growing consensus that there may be a new housing shortage coming," said James Gaines, a real estate economist with Texas A&M.

So far, the shortfall has been masked by a weak economy that has put a damper on homebuying. Once the job market rebounds, however, people will look to have their own homes again. This pent-up demand could be unleashed on unprepared markets, causing shortages and rising local prices. Household formation has been on hold during the past few years as young people, especially, have been unable to find jobs. In the past, an average of more than 1.3 million households were formed each year, causing demand for 1.5 million new homes, including replacement homes. In 2009, only 398,000 new households were formed, according to the Census Bureau. That is much lower than average and a quarter of the number formed just two years earlier. "The decline in household formation is artificial," said Gaines. "The young are moving in with their parents. There's even doubling up among working class people. There's a pent-up demand coming if and when the economy recovers."

Those doubting a new bubble is near point to a large inventory overhang. The inventory number, however, can be deceiving for two reasons: People may not want to live in hard-hit areas where the houses are or the homes may be beyond repair. "Many of these vacant homes may not be habitable or are in locations where nobody wants to live," Gaines said...q

Source: Source: CNN/Money

The Federal Reserve Board met late last month and even though the markets were not expecting surprises to emanate from this meeting and none surfaced, an interesting article was released by CNN/Money this past week. The article asks an important question--is the Fed out of bullets? By way of background, we have been recovering from the deepest financial crisis since the Great Depression. The government, led by the Fed, has been firing on all cylinders ever since. In our opinion, they started a bit late and that became part of the problem as we were convinced the markets could survive what was then termed a "sub-prime crisis." Well, it became much more than that. Since this late start, the Fed has been doing just about everything besides washing America's dishes.

The next question arises--what if this medicine is not enough? The Fed already moved short-term rates to zero and purchased trillions of dollars of mortgage and Treasury securities while the government took over housing agencies Fannie Mae and Freddie Mac as well as doling out tax stimulus dollars like they were going out of style. What if the economy does move back into recession and more bullets are needed? We say perish the thought. From day one, this has been a crisis of confidence. The public and the markets must be convinced that the economy will recover. We must not think or speak negative thoughts. It may take some time, but employment will grow and as employment grows, Americans will purchase houses and cars. Then our worry will be when will the Fed raise rates and how will we pay for all the bullets we have spent. Meanwhile, today we have an unprecedented opportunity to take advantage of bargains courtesy of the Federal Reserve Board

Buying a home is the biggest purchase most people will ever make, yet many go into it blind. Here are the most common, and costly, mistakes homebuyers make

Not knowing your credit score. If you're even toying with the idea of buying a home, you must find out exactly what your FICO score is. If you find it is less than ideal, wage a systematic campaign to raise it. Too many borrowers ignore this step and get surprised when they get interest rate quotes. Once you've pored over your credit history and corrected any errors, your next step is to pay down revolving debt balances to no more than 30% usage. That will help raise your score significantly.

The lower your score, the higher your costs of borrowing. Fannie Mae and Freddie Mac, for example, charge higher up-front fees to borrowers with credit scores below 740. For a buyer with a credit score between 680 and 700, the fee comes to 1.5% of the mortgage principal. On a $200,000 mortgage, that adds up to $3,000. Someone with a 740 score pays nothing. Lower-score borrowers also get saddled with higher interest rates, about a 0.4 percentage point more for the below 700 borrower. That costs an extra $62 a month -- $744 a year -- on a $200,000, 30-year, fixed rate loan.

Buying a car before a house. Anytime consumers open new credit accounts -- credit card, auto loan, etc. -- their FICO score could drop, according to Craig Watts, a spokesman for Fair Isaac, the creator of FICO scores. "Hence the admonition to not open other new accounts while your mortgage application is in process," he said.

A big purchase would use up a considerable proportion of a borrower's total credit limit, which results in a drop in the score. Lenders often continue to check credit scores in the weeks before closing. "The lender will likely slam on the brakes if the applicant's credit scores have suddenly dropped below the minimum required for the requested loan rate," Watts said.

Skimping on the home inspection. Buying a pig in a poke can cost buyers big bucks, just when they can least afford it. So It's vital to find all the costly flaws before you buy. Many homes on the market today are distressed properties -- foreclosures and short sales -- and that only increases the importance of good inspections, according to David Tamny, president of the American Society of Home Inspectors. "The owners usually didn't have the money to keep up these homes," he said. "There's a lot of deferred maintenance."

A home inspection can find problems with the foundation, electrical, plumbing, roof, attic insulation, and heating and air conditioning. In some states, separate licensed inspectors offer mold or termite inspections. Often homebuyers, who may be strapped for cash, stint on inspections and look for the cheapest way to go. That can lead to disaster. The cost of repairs far exceeds the cost of inspection," said Tamny.

No contingencies. When signing a sales contract, buyers usually have to put up 1% to 3% in "earnest money," which they don't get back if they pull out of the deal except under certain conditions spelled out in the contract. Sellers try to limit the grounds for canceling, and inexperienced buyers may sign contracts that don't include common exceptions, such as uncovering major problems during the home inspection, failing to obtain financing and failure of the house to appraise. Failure to obtain financing is common these days because lenders have become very picky; underwriting is very strict.

Even if your mortgage company is still willing to finance your purchase, the house itself may be worth less than you've contracted to pay for it, and the lender will pull its approval.

With residential real estate markets still slow, sellers usually accept contingency clauses, but if they resist, it may be better to rethink the deal. Losing a deposit of $2,000 to $6,000 on a $200,000 home hurts.

Not budgeting for insurance. Don't underestimate insurance costs and fail to budget for them. Many homebuyers don't understand just what is -- and what is not -- covered. Standard policies pay for theft and wind, fire, lightning, hail and explosion damage. Not covered is flooding, earthquake damage or problems caused by neglect of routine maintenance, according to Jeanne Salvatore, spokeswoman for the Insurance Information Institute, an industry-sponsored educational group. "The most important thing before you buy a home is to find out what it will cost to insure it," she said. "Insurance needs to be calculated into the cost of owning a home. Unlike a mortgage you can pay off, you'll be responsible for insurance costs forever."

For flood insurance, most buyers use the National Flood Insurance Program. Earthquake coverage may be available through a state authority or some private companies. Depending on location, flood insurance can run into a lot of money. The cost of $250,000 worth of government flood coverage on the building and $100,000 of its contents can go as high as $5,714 in high-risk, coastal areas. Source: CNN/Money.com

You want to buy a foreclosure? Remember, there are both great opportunities and great pressures and pitfalls in this market. First, you have to decide at what stage of foreclosure you want to buy. There are three options: 1. pre-foreclosure; 2. sheriff's auction; 3. repossession, called REO (for real estate owned by the bank).

The safest and best way to buy is when it's a bank-owned property," said Rick Sharga, a spokesman for RealtyTrac, the online marketer of foreclosure properties.

Pre-foreclosure: These homes are in the foreclosure process, but they have yet to be sent to auction. Owners are typically trying to unload them because they are "underwater," owing more on the homes than they are worth. As a result, potential buyers must negotiate a deal with the lender as well as the owner. That makes buying at this stage of foreclosure complicated and slow. But, you have the advantage of being able to inspect the home before purchase, which isn't the case in other types of foreclosure sales. Sharga warned, that prices are usually higher than at other stages of foreclosure.

Sheriff's auction: These sales yield the lowest prices, but they are fraught with difficulties. Often the house is unavailable for inspection, leaving buyers with a long list of expensive repairs, and a much larger bill than they intended. This stage is usually best left to the professionals, the contractors and investors who regularly bid on these places and know what they're doing.

Repossession: This occurs after the home has gone through a sheriff's auction but does not sell and the bank gains possession of the property. Homebuyers may not get the best bargains during this stage, but they can nearly always perform a thorough inspection before closing, minimizing costly surprises. Plus, the property comes with a clear title. In addition, the banks selling these places may extend preferential financing terms to the buyers and may have made some repairs before putting the property on the market.

Even in this safer stage, though, homes are still usually sold in "as is" condition. "That means the bank won't pay for cosmetic issues," said Adam Wiener, a spokesman for the Redfin, the online real estate marketer. "Although, they will often pay for some or all of repairs that are health and safety issues. That makes the home inspection even more critical."

He also pointed out that, since you're buying from a corporation, not an individual, the buying process can be faster, so be prepared to move quickly. Many times a listing goes on sale on a Friday and is sold over the weekend. "The buyers and their agents need to be on top of everything from the inspection to the financing," said Wiener. "Some banks will even charge a per diem fee for late closings."

Once you've decided which type of home to buy, there are several common mistakes foreclosure buyers should take care to avoid. These include:

Getting caught up in a bidding frenzy: The banks often under-price repossessions, hoping to generate excitement, attract multiple bids and sell them quickly. The problem is, as in any auction-type sale, bidders get excited and pay too much. "Remember," said Sharga, "there are 800,000 REOs in the banks' inventories. There'll be another home to bid on tomorrow."

Underestimating repair costs: Take full advantage of the home inspection and don't delude yourself about how much the repairs will cost. "Take along someone who can give you a good estimate of how much repair costs will come to," said Sharga. Redfin coaches its agents to warn buyers to factor in a cushion of 10% to 20% of the purchase price to pay for unexpected repairs. "If you end up not using it, go on vacation after 6 months," Wiener said.

Not knowing what comparable properties cost: This is important in any market but especially in this endeavor. In high foreclosure areas, prices can be eroding very quickly. You want to have the latest homes sale prices on repossessed properties and try to keep your bid comparable or lower.

Buying in a neighborhood flooded with foreclosures: This is most important for people buying for the short-term. Any neighborhood saturated with REOs and foreclosures may be headed for further price falls. If you're planning to relocate within a few years or buying a bigger house, that could mean selling at a loss. A better bet is to buy the only foreclosed home in an otherwise stable community which more likely to hold its value in the short-run.

Not having financing in place: If you don't have a pre-approved mortgage, you're really not in the market. "You have to be able to move quickly," Sharga said. Banks don't want to dilly-dally on sales; they're losing money every day that homes sit on the market. That means they'll often jump on the highest bid with the best financing already in place.

Having a loan beforehand carries another advantage: It tells you how much credit you have available. Remember that pre-approved financing is different from pre-qualified financing; it means the loan is ready to go. Pre-qualified is more like an opinion of a loan officer and there's still work to be done before final approval...qSource: CNN Money

Just a few years ago you could count on getting the bulk of your money back for almost any home-improvement project you took on. According to a study from Remodeling magazine, the average return on value for an upgrade declined from 87% in 2005 to 64% in 2009. But these six rules will help you maximize your return on your remodeling investment.

Rule No. 1: Repairs get the biggest returns. The smartest money now goes into "un-deferring" needed maintenance. That's because while buyers might appreciate enhancements like Jacuzzis and Sub-Zeros, they won't tolerate a house with a leaky roof or antiquated plumbing. "If a property is known to have issues, today's buyers won't even look at it," says appraiser Jim Amorin.

And trying to keep problems a secret can cost you big-time. If buyers discover them during inspection, it's now common practice to ask sellers not only to pick up the tab for the repair but also to pay a penalty to compensate the buyer for the inconvenience of having work done. So the $20,000 you saved by putting off a roof repair, say, could turn into a $30,000 credit to the buyers at closing, says Amorin.

Rule No. 2: Remodeling beats adding on. McMansions have gone the way of the SUV and large additions don't pay off either. "There's been a fundamental shift toward quality over quantity," says real estate agent Ron Phipps. Having a big, formal living room plus an everyday family room is less desirable than having a multi-use common space. So rather than adding on, you're better off repurposing existing square footage by reconfiguring the floor plan or capturing unused basement or attic space.

Want an eat-in kitchen? Knock down the wall between the kitchen and dining room ($2,000 to $8,000, depending on whether it's load-bearing or contains plumbing). That will instantly create a large eat-in kitchen and give the whole house a more open feel, without a huge investment to make up at resale.

Rule No. 3: Eco-friendly upgrades can save cash. Some green improvements pay you back long before you sell your house. Install energy-efficient features, such as EnergyStar appliances and extra wall insulation, and you'll see lower energy bills every month. Add in the federal tax credit of up to $1,500 that lasts through 2010, plus many local rebates and incentives, and the work may pay for itself in just five years. Green features are also increasingly a selling point, says Phipps. "Most people in the market right now are first-time buyers in their thirties, and they've been raised to care about carbon footprints and being eco-friendly," he says.

The best way to go green is with a while-you're-at-it job: When it's time to replace your furnace, for example, upgrading to super-efficiency might add only $500 (after tax credits), compared with standard new equipment, but it will save you and your buyers someday $150 or more in annual heating costs.

Rule No. 4: Tech infrastructure trumps cool gadgets. Home electronics seem like a deal, since prices have fallen about 50% over the past three years and continue to drop, according to Stephen Baker, president of industry analysis at NPD Group, a market research firm. Still, that doesn't change the fundamental problem with expensive built-in technology. Put in a $10,000-plus home theater today, and something better will come along tomorrow and make your system look as if it's ancient.

Tech infrastructure is different, however. Anytime you're opening up walls for a construction project, have cabling and Ethernet ports installed. At about $80 a room, it's a low-cost way to provide the capability for whatever technologies come along.

Rule No. 5: Let the Joneses be your guide. During the boom, you could be the first on your block to have a luxury kitchen, spa bathroom, or in-ground pool and count on others following suit. And even if the neighbors never took your lead, there was plenty of equity growth to cover your costs. Nowadays that fudge factor is gone. "You really have to keep your house's amenities in line with the neighborhood," says Kermit Baker, director, remodeling futures program at Harvard's Center for Housing Studies.

If other houses on the block have real marble countertops, add one to your house, but if everyone still has faux blue-marble Formica from the '70s, you're not getting your money back. Keep your projects design-neutral so they'll appeal to the greatest number of people. Choose neutral colors and traditional electrical and plumbing fixtures unless your house has a modern architectural style.

Rule No. 6: The new payback time is five years. As with any investment, the longer your time frame, the lower the risk. Don't take on a big project if you're likely to move in less than three to five years. There's just too much chance that any money you put in, aside from necessary repairs or superficial cosmetic work, could be lost while the housing market continues to meander.

But if you plan to stay awhile, don't delay starting a project. Home improvements are a bargain right now, with contractors bidding 10%, 20%, even 40% lower for the same work than just a year or two ago, says Bernie Markstein, senior economist for the National Ass. of Home Builders...q Source: Money Magazine

The best deals on homes these days are often on properties that aren’t perfect. Home shoppers looking for a great deal should keep these factors in mind when they are looking for a place with potential:

¨ Location, location, location. It’s still true that you get a better deal when you buy the worst house in a great neighborhood than you do when you buy a fancy house in a not-so terrific neighborhood.

¨ Less than 50 years old. Properties older than a half decade are likely to have more fundamental problems like aging wiring, inadequate plumbing and sagging foundations. Home inspections are extremely important when purchasing less than perfect properties.

¨ Livable floor plan. Buyers should select a home with a basic design they can live with. Once they start moving walls, they’re into big money.

¨ Light. Houses with the most potential have plenty of natural light. Make sure you view the property at different stages during the day so you can assess this situation.

¨ Good storage. Adding storage isn’t cheap, so it’s smart to choose a property that already has it...q

Source: MSN.com

According to John Migliaccio, director of research for MetLife's Mature Market organization, more than 78 million baby boomers, born between 1946 to 1964, will reach age 55 over the next 10 years.

He and other trend spotters believe this dominant group of home owners will lead the industry out of its slump. Baby Boomers approaching retirement continue to be interested in buying into active-adult communities, but their moves are slowed due to a decline in the value of both their retirement savings and their current homes.

To encourage seniors to find a way, 51 percent of builders of active-adult housing cut prices in the third quarter of 2009 – often as much as 25 percent or more – according to a survey by the National Association of Home Builders.

Practitioners point out that new isn’t always best. Buying an existing home in an active adult community can be a particularly good deal because these communities have extensive amenities, including golf courses and gyms. Some new construction projects on which builders have trimmed prices are not nearly as well equipped

In response to our protracted recession and financial crisis, we have experienced a long period of fiscal stimulus from the Federal Reserve Board. In a typical cycle we focus on the Fed's actions with regard to rates. However, during this cycle their activity has extended far beyond traditional stimulus. Certainly, keeping short term rates near zero for over a year has been very significant. Remember at the beginning of the crisis we were focusing upon subprime loans and the lurking danger of rate increases because of rising adjustables. As most adjustable rate indices moved to less than 1.0%, this threat became secondary to many other issues within the housing sector.

The Fed has supplied hundreds of billions in stimulus to help stabilize the economy. Paramount has been their purchases of Treasuries and mortgage-backed securities (MBS). The Treasury purchase program has winded down and now the Fed says that they are on track to end the MBS purchase program. These actions have been significant in their efforts to keep long-term rates low to facilitate the recovery, especially in the housing sector. Now that the economy has stabilized and it looks like the recovery is beginning, the Fed is returning fiscal policies to normal.

The next action would be an increase in rates and the speculation has started in this regard, despite the fact that the Fed has indicated that rates will remain low for an "extended" period of time. The Fed also has indicated that because the recovery is expected to be fragile, they remain ready to reintroduce fiscal stimulus as needed. The more immediate question is, how much will home loan rates rise when the Fed stops purchasing securities? This will be a good test to see if the financial markets have indeed begun to return to normal...