Daniel Maloney\’s Blog

Interest rates are the lowest in decades, enticing many borrowers to shop for a loan.  Mortgage lenders adjust their rates based on perceptions of risk, so unless the borrower can show they’re a low-risk individual, the borrower is unlikely to qualify for a rate that matches those seen in recent advertisements and headlines.

Making sense of the story

• The rates quoted are averages drawn from a variety of financial institutions, and lenders use varied approaches to set them.  Consumers who want to try for the lowest rates available need to consider basic factors, such as credit score, points, property type, down payment, and length of the loan.
• Credit score: The ideal borrower has a FICO score of 740 or higher, which puts the individual in the best place for pricing.
• Points: The lowest rates usually are decreased by paying a fee called a point, or 1 percent of the loan amount.  Borrowers may buy points in order to get the best rates at many banks.  Points might make sense depending on the borrower’s financial situation and how long they expect to stay in the home.
• Property type: Borrowers planning to buy a duplex or a four-unit build likely will have a higher interest rate.  Condominiums also may have a rate premium rate, especially if they are newer or the down payment is less than 25 percent.  Lenders also may charge more if the borrower is not planning to live in the home.
• Down payment: Borrowers who put down at least 25 percent are more likely to obtain the best interest rates.  Lenders offer different breaks on rates if equity in the property is higher, so borrowers should ask what is available.
• Length of loan: Borrowers who are likely to move in a few years may want to look into an adjustable-rate loan with a low interest rate fixed for a few years, and adjusted afterword. 

During times of uncertainty, many of us think we must do something different to get things to change.    Many times this coarse of action creates an even greater sense of uncertainty.  Looking to the past or to the history of an issue will give us the greatest sense of what direction or action to take.  Most of the time we need only be patient, resting assured that the things we are doing and have done are exactly what is needed and that timing is the key to change.  Relating this to real estate is essential in understanding your coarse of action or change to a new coarse of action.   Since 1978 we have gone through four market changes where prices have come down and then gone back up again.  When we look at the elements that are affecting us at this time we see some great possibilities with interest rates being so low and prices becoming more attractive to buyers.  When I look at the elements and the history of real estate in San Diego I see great opportunities, activity in sales and an inventory that is shrinking.   The element that I see that is the “x” factor is time.  Listings take longer to market, escrows take a little longer to close, buyers take longer to select the right property and anxiety levels of sellers tend to rise.   Again, I believe patience is the key to a successful real estate transaction in this present climate.  The statistics for my opinions are in the current Homedex report.

Just as in 2011, in 2012 many will be trying to figure out where housing is headed.  While the housing market didn’t worsen in 2011, it also didn’t stabilize either.  This year, the story will be about local markets.  While many housing markets rose and fell together, they’re recovering at difference paces so talking about housing on a national level is not beneficial.

Making sense of the story

• Confidence and jobs: Housing is more affordable than it has been in decades, but many would-be buyers are worried about buying today if prices are going to be lower tomorrow.  Still, others don’t want to buy a house until they have more evidence that they’re not going to get laid off or see their hours cut back.

• Foreclosures: Banks and other mortgage investors own around 440,000 foreclosed properties, but there’s another 3.4 million loans in foreclosure or serious delinquency, according to estimates by Barclays Capital.  Because banks are faster to cut prices to unload inventory than are traditional sellers, home values can fall further as the share of distressed sales rises.

• Rents: If low mortgage rates aren’t enough to give urgency to would-be buyers, rent hikes could accelerate buyers’ decisions to take the plunge.

• Mortgage credit and rates: It’s still hard for many buyers to get approved for a mortgage because banks are demanding lots of documentation of borrowers’ incomes.

• Regulation: Many analysts don’t expect Congress to make major changes to Fannie Mae and Freddie Mac during the election year, but several major regulatory changes could significantly reshape the future of the lending landscape in 2012.

   

• Meanwhile, the regulator that oversees Fannie and Freddie is revamping the way that mortgage companies are paid for collecting loan payments.  This could lead to a broader shakeup in the mortgage industry that ultimately influences how much borrowers are charged for mortgages and how banks handle loans that fall into delinquency.

A study by the Mortgage Bankers Association shows that prospective home buyers believe that given today’s affordable home prices and low interest rates, now is a good time to buy.  However, potential sellers are nearly unanimous in reporting that it is not a good time to sell a home, citing difficulty in finding buyers at desired sales prices.

The study utilizes 30 years of data from the University of Michigan’s Survey of Consumer Attitudes to examine consumer attitudes toward homeownership before, during, and after the most-recent recession to see if consumer sentiment changed toward home buying and selling.

Key findings from the study include:

• Despite high unemployment, slow economic growth and other problems plaguing the economy, almost 80 percent of American households believe that now is a good time to buy a home.
• Negative home-selling sentiment is strongly related to difficulty in finding buyers at desired sales prices, as well as the large overhang of mortgages past due or on foreclosure.
• Over the next five quarters, positive home-buying sentiment is forecast to remain around current and long-run average levels. In contrast, positive home-selling sentiment is forecast to remain around current, historic-low levels. This suggests that selling sentiment and, hence, market activity, will remain sluggish in the near term.

Dec 28 2011, 8:39AM
FHA lenders had reason for cheer and mirth at the end of last week. “In an effort to continue stabilizing home values and improve conditions in communities experiencing high foreclosure activity, Acting FHA Commissioner Carol Galante will extend FHA’s temporary waiver of the anti-flipping regulations.” With certain exceptions, FHA regulations prohibit insuring a mortgage on a home owned by the seller for less than 90 days, but this rule is waived through December 31, 2012.  What this means is that there will be financing through the FHA (3.5% down) programs to help buyers purchase homes that have been bought by investors and rehabed.  In essence, buyers will be able to find homes that have new paint, carpet, appliances, etc.  instead of homes that need so much work that they can’t afford to do the rehab themselves.  Normally these homes have been purchased at auction by investors who are in the business of buying, rehabing and selling.   A great deal for buyers.

California tops a list of states for mortgage fraud activity, as the state’s courts pursue more cases against alleged frausters, MortgageDaily.com found in an index it released Wednesday. The Web site documented activity in FraudBlogger.com, a mortgage fraud blog. While California claimed the top spot, New York and Florida also found themselves perched considerably high on the index, followed shortly by South Carolina and Minnesota. New York ranked second by dollar volume in mortgage fraud at $199,600,000.

With the monthly cost of owning a home more affordable now than at any point in the past 15 years, homeownership is becoming less expensive than renting in a growing number of cities.

Making sense of the story

• The Wall Street Journal’s third-quarter survey of housing-market conditions in 28 of the nation’s largest metropolitan areas found that home values declined in all but five markets compared with the second quarter, according to data from Zillow Inc.
• Meanwhile, rent levels have risen briskly across the country and mortgage rates, hovering around 4 percent, are the lowest in six decades.
• As a result, monthly mortgage payments on the median priced home – including taxes and insurance – are lower than the average rent levels in 12 metro areas, according to data compiled by Marcus & Millichap.

   

• Homeownership also is looking more affordable because after several years of declines, apartment rents will rise approximately 4 percent this year, and rents are poised to pick up even more momentum across the country next year, according to Marcus & Millichap.
• Affordability could continue to improve as prices slide even lower in coming months.  Price declines are likely because the share of “distressed” sales, including bank-owned foreclosures, tend to rise in the winter, when traditional sales activity cools.

Here’s a bit of good news for homeowners in California;

Fewer Americans were upside down on their homes — owing more on their mortgages than what their homes are worth —  in the third quarter than in the second quarter, according to a report released Tuesday by CoreLogic (CLGX: 12.82 +2.31%).

The report also noted that California dropped out of the top five states with the most negative equity, a position it’s held since 2009.

Last quarter, 10.9 million properties, 22.5% of all mortgages, were underwater. Now 10.7 million are considered in negative equity, or 22.1%.

An additional 2.4 million borrowers hold less than 5% equity, which CoreLogic refers to as near-negative equity, in the third quarter.

“The nearly $700 billion mortgage debt overhang has touched many corners of the market, and this overhang is holding back the recovery of the housing market and broader economy,” said Mark Fleming, chief economist with CoreLogic. “Negative equity remains very high and renders many borrowers vulnerable when negative economic shocks occur, such as job loss or illness,” Fleming added.

The top five states for negative equity retain more than 40% of underwater homes in the nation. According to CoreLogic, Nevada has the highest negative equity percentage with 58% of all of its mortgaged properties underwater, followed by Arizona (47%), Florida (44%), Michigan (35%) and Georgia (30%).

This is the first quarter that Georgia entered the top five, surpassing California which had been in the top five since tracking began in 2009, CoreLogic said.

CoreLogic data includes 48 million properties with a mortgage, which accounts for over 85 percent of all mortgages in the U.S.

Recently, I helped a buyer get an entire condominium complex re-approved for FHA lending.  This was a feat of greater magnitude than I imagined prior to embarking on this journey.  The road blocks were varied and many from start to finish and it took over 30 days to accomplish.   You may contact me for info or help in getting this done for your next condominium/townhouse purchase.  The following is a blog on getting a condominium complex certified;

Time is up for many condo associations to benefit from borrowers using mortgages insured by the Federal Housing Administration. Fewer than 10% of the nation’s condominiums received recertification nearly two years after a change in requirements.

So for borrowers looking to buy into those properties, they will be unable to obtain FHA-backing and likely need more in down payment.

But it is those requirements, however, getting backlash from condo associations as well as U.S. lawmakers.

About 2,100 condo projects nationwide were reapproved or recertified for FHA-insured mortgages, more than 25,000 certifications expired this year through Sept. 30, according to the Department of Housing and Urban Development.

HUD said uncertified condo associations failed the process for several different reasons., though largely due inability to meet reserve fund requirements, legal disputes, insufficient insurance coverage and high investor ownership.

But in a letter to HUD Secretary Shaun Donovan, U.S. representatives Barney Frank (D-Mass.), Michael Capuano (D-Mass.) and Stephen Lynch (D-Mass.) expressed worry over the new approval process.

The representatives, all three members of the House Committee on Financial Services, urged “the opportunity for public review” on the guidelines before any changes take effect, as well as reconsideration of special assessment and condo fee limits given “current economic conditions.”

Condo projects applying for mortgage approval cannot have more than 15% of units more than 30 days behind on fee payments, nor can they have special assessments or loans to make necessary improvements.

“We believe that these factors do not necessarily indicate that the association is in poor fiscal health and as such should be ineligible for FHA mortgage approval,” the three representatives wrote in the Oct. 31 letter.

Approval process changes became effective December 2009, requiring condos to apply for recertification every two years. That makes Dec. 7 the latest date a condo’s certification can expire without reapplying.

The Community Association Institute said as long as condo associations have a hard time meeting the guidelines, fewer and fewer people will get FHA-backed funding. Of course, the FHA isn’t the only mortgage financing in town, but condo sellers long argue that the typical owner-occupant these properties are designed for will not hold large amounts of cash laying around to meet the difference required in down payments.

Andrew Fortin, who works in government affairs for the Virginia-based condo trade group added the problem isn’t that FHA is creating guidelines, but rather how it goes about it.

“They’re just making it up as they go along, for lack of a better word,” Fortin said. “It is essentially two folks for FHA coming out with what they think would be good for the program. What they’ve created is a set of requirements that make it unnecessarily difficult, if not impossible.”

The Cotton Mill, a New Orleans condo project, was one of the 2,100 to receive recertification. The property manager, Linda Resor, said she had little problem reapplying for the converted fabric factory, aside from a few hiccups with documents.

But Resor said the Cotton Mill, which has 287 units, doesn’t face the problems of other, smaller condo projects. Previous buildings where she worked struggled to meet the 10% benchmark on budgetary reserves now required by the FHA.

“That was a bummer to smaller communities that they’d rather not have money in the bank,” Resor said. “For them to put away 10% of the reserve, they felt it was like big brother breathing down.”

The FHA made other changes in its eligibility requirements, including restrictions on investor involvement. At least 50% of units must be owner-occupied for projects built longer than a year ago, and a single investor can own no more than 10% of units.

In Miami, only about 13% of condos near or on the coast are owner-occupied, according to local consulting firm CondoVultures.com.

The new FHA financing rules also require that 30% of units must be sold before the endorsement of any mortgage in the project.

The alterations in requirements follow the passing of the Housing and Economic Recovery Act of 2008.