The Associated Press
Published: March 23, 2009
WASHINGTON: One month does not a recovery make. But a surprising leap in existing home sales in February was a welcome if tentative sign of hope that the real estate market may be stabilizing. While sales of existing homes remain at lows not seen in more than a decade, economists were encouraged by the news, saying it reflected buyers who were taking advantage of deep discounts on foreclosures and other distressed properties. That's essential if home prices are to find their long-awaited bottom.
Prices plunged by almost 16 percent from a year ago in February and are expected to keep falling well into 2009. Tens of thousands of homes remain tied up in the foreclosure process and are not yet for sale. Plus, as the recession deepens and job losses mount, many buyers are likely to stay on the sidelines. "The four-letter word in the housing market is 'jobs,'" said Nicolas Retsinas, director of Harvard University's Joint Center for Housing Studies. "If you're worried about having a job tomorrow, you're not likely to buy a home now."
Sheryl Morgan, a real estate agent in Canonsburg, Pa., about 20 miles south of Pittsburgh, recently lost two potential clients after strapped local employers cut back on pay. "Instead of selling and buying a new home, they're staying and refinancing," she said. The National Association of Realtors said Monday that sales of existing homes grew 5.1 percent to an annual rate of 4.72 million last month, from 4.49 million units in January.
It was the largest monthly sales jump since July 2003, with first-time buyers accounting for about half of all transactions. Home sales activity has returned to December's levels, but still remains lower than most of last year. Without adjusting for seasonal factors, though, sales nationwide were down more than 10 percent from a year earlier. The West was the only part of the country to show increased sales, rising nearly 24 percent from a year earlier. February's sales figures don't reflect the new $8,000 tax credit designed to lure even more first-time buyers into the market. However, the credit has begun to attract buyers like Mindy Robbins, 30, of Billings, Montana. Robbins, who is scheduled to close next month on a $129,000 house with three-bedroom and two baths, said, "I wanted to take advantage of the stimulus package."
Buyers like Robbins should help invigorate spring and early summer sales, but how much will depend on the overall condition of the U.S. economy.
"If the economy stabilizes around midyear and financial conditions improve, then sales will probably begin to slowly increase as buyers step back into the market," wrote JPMorgan Chase analyst Abiel Reinhart. He noted that homes are now far more affordable to average Americans due to far lower prices and attractive mortgage rates. The median sales price in February skidded to $165,400, down from $195,800 a year earlier. That was the second-largest drop on record and prices are now off 28 percent from their peak in July 2006. However, in a positive sign, sellers' asking prices are starting to rise in places like San Diego and Orange County, Calif., said Lawrence Yun, chief economist for the Realtors. That could be an early indication that prices are stabilizing in the most distressed parts of the country.
Meanwhile, in contrast with the housing boom, when buyers took out ever-riskier loans and maxed out their home equity lines, "homebuyers are not over stretching" Yun said. "They want to stay within their budget." The number of unsold homes on the market last month rose 5 percent to 3.8 million, a typical increase for the winter months. At February's sales pace, it would take almost 10 months to rid the market of all of those properties. "Inventories are still high relative to sales rates, and would probably be even more so if all those wishing to sell their home actually had the house on the market instead of pulling it off in the face of rapidly eroding prices," wrote Joshua Shapiro, chief U.S. economist at MFR Inc. Sellers don't want to compete with foreclosures that have swamped the market, especially in California, Florida, Nevada and Arizona.
Up to 45 percent of sales nationwide are foreclosures or other distressed property sales, which typically sell at a 20 percent discount, according to the Realtors group. That's great news for buyers, who are paying the most attractive prices in years. Plus, interest rates have sunk to historic lows, with the national average for a 30-year fixed rate mortgage sinking to 4.98 percent last week, just above record lows, according to mortgage giant Freddie Mac.
Tuesday, March 24, 2009
Sunday, March 15, 2009
Mortgages: A Waiting Game for Refinancing
Excerpt for The New York Times
Mortgage professionals are advising clients on the fence about refinancing not to wait.
By BOB TEDESCHI
Published: March 6, 2009
IN the weeks before the Obama administration announced its housing plan, some members of Congress were lobbying the government to subsidize 4 percent mortgages for homeowners who were current on their loans. But that proposal never made it into the plan. Rather, the administration has decided so far to focus on helping distressed borrowers more easily refinance or modify loans, with terms typically reflecting today’s market rates, now in the low 5-percent range for qualified borrowers. (Only loans owned or backed by Fannie Mae and Freddie Mac would qualify.)
While mortgage professionals have not lost hope that low-rate, government-subsidized mortgages could eventually happen, they are advising clients on the fence about refinancing not to wait. Interest rates remain near historic lows, but at the same time, lending standards have tightened and property values have fallen. If those trends continue, some borrowers may no longer be eligible to refinance.
The waiting game is particularly risky for homeowners in areas where property values are dropping sharply, and for those with barely above 20 percent equity in a home — the typical minimum for qualifying for any home loan. If the borrower has already secured a mortgage commitment during that time, most lenders are likely to proceed with the transaction even if a property’s value has dropped, according to Regina Garlin, an owner of RCG Mortgage in Montclair, N.J. “If a rate is locked and the loan was approved,” she said, “most lenders will usually honor the original agreement.”
To prevent any problems, though, Ms. Garlin suggests that borrowers have at least an informal home appraisal beforehand. “I recommend having a real estate agent provide comparable sales within the most recent three to six months,” she said. “While it’s not as exact as a certified property appraisal, it can serve to prepare for the unexpected before incurring costs or wasting time.”
These days, home loans are taking longer to review. Lenders are scrutinizing applications more closely, and because of industrywide layoffs, many banks now have fewer loan processors to help vet applicants. Ms. Garlin said it used to take four to six weeks to complete a purchase mortgage, and three to four weeks for a refinance mortgage. Now, she said, a refinance can take as long as six weeks, and a purchase mortgage can take as long as two months.
Loans insured by the Federal Housing Administration are an exception, mortgage experts say, because lenders can more easily sell these loans to investors. Nicholas Bratsafolis, the senior managing director of structured refinance at Lend America, a mortgage bank based in Melville, N.Y., says his company can complete an F.H.A. loan in 12 days or less from the time that initial contact is made with a borrower. The loan process is also faster, he said, because his company no longer works with brokers. “Many banks who bought loans from brokers were badly burned,” Mr. Bratsafolis said, referring to banks that did business with brokers during the housing boom. “So while the broker put together the loan package, the fear for a bank is that there’s something in the package that may not be correct or verifiable.”
Reflecting a move toward more conservative business practices, many major lenders have either chosen not to work with brokers, or are working with far fewer brokers than in years past. But Alan Rosenbaum, the chief executive of the GuardHill Financial Corporation in Manhattan, said consumers who go directly to a major lender do not always have the experience described by Mr. Bratsafolis of Lend America. Mr. Rosenbaum said borrowers who go to a bank’s retail branch can sometimes wait 90 days for a loan to close, because the lenders are so backed up. “We know which banks are slow or fast,” he said, “so we can place loans with the banks with the best rates and the best service levels.”
Mortgage professionals are advising clients on the fence about refinancing not to wait.
By BOB TEDESCHI
Published: March 6, 2009
IN the weeks before the Obama administration announced its housing plan, some members of Congress were lobbying the government to subsidize 4 percent mortgages for homeowners who were current on their loans. But that proposal never made it into the plan. Rather, the administration has decided so far to focus on helping distressed borrowers more easily refinance or modify loans, with terms typically reflecting today’s market rates, now in the low 5-percent range for qualified borrowers. (Only loans owned or backed by Fannie Mae and Freddie Mac would qualify.)
While mortgage professionals have not lost hope that low-rate, government-subsidized mortgages could eventually happen, they are advising clients on the fence about refinancing not to wait. Interest rates remain near historic lows, but at the same time, lending standards have tightened and property values have fallen. If those trends continue, some borrowers may no longer be eligible to refinance.
The waiting game is particularly risky for homeowners in areas where property values are dropping sharply, and for those with barely above 20 percent equity in a home — the typical minimum for qualifying for any home loan. If the borrower has already secured a mortgage commitment during that time, most lenders are likely to proceed with the transaction even if a property’s value has dropped, according to Regina Garlin, an owner of RCG Mortgage in Montclair, N.J. “If a rate is locked and the loan was approved,” she said, “most lenders will usually honor the original agreement.”
To prevent any problems, though, Ms. Garlin suggests that borrowers have at least an informal home appraisal beforehand. “I recommend having a real estate agent provide comparable sales within the most recent three to six months,” she said. “While it’s not as exact as a certified property appraisal, it can serve to prepare for the unexpected before incurring costs or wasting time.”
These days, home loans are taking longer to review. Lenders are scrutinizing applications more closely, and because of industrywide layoffs, many banks now have fewer loan processors to help vet applicants. Ms. Garlin said it used to take four to six weeks to complete a purchase mortgage, and three to four weeks for a refinance mortgage. Now, she said, a refinance can take as long as six weeks, and a purchase mortgage can take as long as two months.
Loans insured by the Federal Housing Administration are an exception, mortgage experts say, because lenders can more easily sell these loans to investors. Nicholas Bratsafolis, the senior managing director of structured refinance at Lend America, a mortgage bank based in Melville, N.Y., says his company can complete an F.H.A. loan in 12 days or less from the time that initial contact is made with a borrower. The loan process is also faster, he said, because his company no longer works with brokers. “Many banks who bought loans from brokers were badly burned,” Mr. Bratsafolis said, referring to banks that did business with brokers during the housing boom. “So while the broker put together the loan package, the fear for a bank is that there’s something in the package that may not be correct or verifiable.”
Reflecting a move toward more conservative business practices, many major lenders have either chosen not to work with brokers, or are working with far fewer brokers than in years past. But Alan Rosenbaum, the chief executive of the GuardHill Financial Corporation in Manhattan, said consumers who go directly to a major lender do not always have the experience described by Mr. Bratsafolis of Lend America. Mr. Rosenbaum said borrowers who go to a bank’s retail branch can sometimes wait 90 days for a loan to close, because the lenders are so backed up. “We know which banks are slow or fast,” he said, “so we can place loans with the banks with the best rates and the best service levels.”
2009 Economic Real Estate Forecasts by Gary Watts
For the Buyer:
1. Buyers putting down less than 20% must have a FICO score of at least 720.
2. All assets and income must be verified and could be re-verified at closing.
3. Fixed rate mortgages account for 69% of funded loans.
4. New conforming residential loan amount for Orange County is $625,500. (loan limits may vary by county)
5. Only 2.9% of buyers are taking an adjustable rate mortgage vs 85% in 2005.
6. Short-sales are selling for 97% of list price, while foreclosures sell for 101% of list price.
FHA is the New Big Player
1. Up-front insurance premium (MIP) is now 1.75%.
2. Down payment is 3.5% and the FICO score must be at least 580.
3. Down payment assistance programs have been abolished.
4. 45% front end and 55% back end debt ratios and 2 year employment history.
5. Must be greater disclosure to buyer on monthly payment changes.
6. Borrower must have a valid Social Security Number and be a legal resident of the U.S.
7. Owner-occupied properties only, but gift is still available for down payment.
A. Kiddy condos for kids in college.
8. FHA appraisers must be certified, which will cause a decrease in the number of appraisers.
9. New FHA loan limits for Orange County, are: (loan limits may vary by county)
One Unit Two Units Three Units Four Units $625,000 $800,775 $967,950 $1,202,100
For Lenders:
1. Some lenders may no longer use in-house appraisers.
2. Financial institutions will be held liable for any misleading advertising.
3. Adjustable sub-prime loans cannot have a pre-payment penalty for 4 years.
4. Fixed sub-prime loans cannot have a pre-payment penalty for 2 years.
5. Truth in Lending statement must be printed in the native language of the borrower.
For The Investor:
1. No more than 4 investment properties can be financed.
2. If investor puts down less than 20%, it introduces: PMI; higher rates; added approval by
insurance companies.
3. Loan rates are usually .75% higher to 1% higher than owner-occupied financing.
4. Investor loans are more difficult to get, because 40% of foreclosures are investment properties.
Source: FHA, Mortgage Bankers Association, Federal Reserve
*The above excerpts are from Gary Watts economic forecast dated 1/28/2009
1. Buyers putting down less than 20% must have a FICO score of at least 720.
2. All assets and income must be verified and could be re-verified at closing.
3. Fixed rate mortgages account for 69% of funded loans.
4. New conforming residential loan amount for Orange County is $625,500. (loan limits may vary by county)
5. Only 2.9% of buyers are taking an adjustable rate mortgage vs 85% in 2005.
6. Short-sales are selling for 97% of list price, while foreclosures sell for 101% of list price.
FHA is the New Big Player
1. Up-front insurance premium (MIP) is now 1.75%.
2. Down payment is 3.5% and the FICO score must be at least 580.
3. Down payment assistance programs have been abolished.
4. 45% front end and 55% back end debt ratios and 2 year employment history.
5. Must be greater disclosure to buyer on monthly payment changes.
6. Borrower must have a valid Social Security Number and be a legal resident of the U.S.
7. Owner-occupied properties only, but gift is still available for down payment.
A. Kiddy condos for kids in college.
8. FHA appraisers must be certified, which will cause a decrease in the number of appraisers.
9. New FHA loan limits for Orange County, are: (loan limits may vary by county)
One Unit Two Units Three Units Four Units $625,000 $800,775 $967,950 $1,202,100
For Lenders:
1. Some lenders may no longer use in-house appraisers.
2. Financial institutions will be held liable for any misleading advertising.
3. Adjustable sub-prime loans cannot have a pre-payment penalty for 4 years.
4. Fixed sub-prime loans cannot have a pre-payment penalty for 2 years.
5. Truth in Lending statement must be printed in the native language of the borrower.
For The Investor:
1. No more than 4 investment properties can be financed.
2. If investor puts down less than 20%, it introduces: PMI; higher rates; added approval by
insurance companies.
3. Loan rates are usually .75% higher to 1% higher than owner-occupied financing.
4. Investor loans are more difficult to get, because 40% of foreclosures are investment properties.
Source: FHA, Mortgage Bankers Association, Federal Reserve
*The above excerpts are from Gary Watts economic forecast dated 1/28/2009
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