June Market Report

June 24, 2010 (Washingtonpost.com)

Government-sponsored mortgage purchaser Fannie Mae is trying to encourage distressed homeowners to find alternatives to foreclosure by banning those who walk away from getting new loans for seven years.  Troubled borrowers who do not try in good faith to work out a deal, but have the capacity to pay, are targeted by the policy announced Wednesday.

“Walking away from a mortgage is bad for borrowers and bad for communities and our approach is meant to deter the disturbing trend toward strategic defaulting,” said Terence Edwards, executive vice president for credit portfolio management.

A strategic default occurs when a homeowner stops making payments on a mortgage despite being able to do so.  It has become increasingly common in communities where housing values fell sharply and homeowners are “underwater,” or owe more than their houses are worth.  Fannie Mae said that in locations where the law allows, it also plans to take legal action to recoup outstanding mortgage debt from borrowers who strategically default.  The company plans to instruct its servicers to monitor delinquent loans facing foreclosure and recommend cases to pursue for such judgments.

A spokesman for Freddie Mac, the other government-sponsored mortgage buyer, could not immediately say if it will institute a similar policy.  Freddie Mac’s current policy requires at least a five-year wait.

Fannie and Freddie were created by Congress to buy mortgages from lenders and package them into bonds that are resold to investors.  Together, they own or guarantee almost 31 million home loans worth about $5.5 trillion. That’s about half of all mortgages.

You may have seen today’s Inman News article reporting on the Senate’s approval of an amendment to a bill that would, among other things, provide for an extension of the June 30 closing deadline for buyers who took advantage of the federal government’s tax credit.

While the Senate has approved its version, differences with the House version must still be reconciled before the amendment can take effect.

This is certainly a positive development for those homebuyers who took advantage of the tax credit but who are having difficulty meeting the June 30 closing deadline due to the significant increase in activity for lenders, title agencies and other related services required for closing.

The amendment, should it be passed, provides an extension only to those whose homes were under contract by April 30, extending the deadline to close the transaction another three months to September 30. The amendment does not extend the benefits of the tax credit, but applies only to deals already in the pipeline.

My office will continue to monitor the progress of this important piece of legislation.

Don’t foreclose! Do a short sale

Short sales are the hottest thing going in the distressed-property market, and the trend is expected to get even hotter in coming weeks, when the government starts handing out cash to encourage lenders to close these deals.

“Banks have ramped up short sale approvals,” said Duane Legate of House Buyer Network, which connects short sellers with buyers. “They’re hiring a lot of the people who once worked in the mortgage-lending industry and moved them over to short sales.”

These transactions, where lenders allow homeowners to sell their houses for less than they owe, accounted for 17% of all residential real estate sales in February, up from nearly 13% in November, according to a monthly real estate market survey by Campbell/Inside Mortgage Finance.

And Bank of America (BAC, Fortune 500), the country’s largest mortgage servicer, has more than doubled the number of short sales it processed in recent months.

Elizabeth Weintraub, a Sacramento, Calif.-area real estate agent who handles many short sales, was amazed at how quickly a recent deal went through. “Bank of America approved it in 24 days,” she said. “That flipped me out.”

This is a huge change from even just six months ago when the short-sale market was stalled and most people would describe the process has real estate hell. Because lenders stand to lose so much on these transactions, they have been reluctant to make short sales happen, often waiting months before getting back to potential buyers.

Beware: You lost your house but still have to pay….
“In the past, many short sales would never come to fruition and the ones that did averaged over half a year to complete,” said Chris Saitta, CEO of Equator, which produces short sale software.

“Things would just fall into a black hole and not come out again,” added Weintraub.

And even when banks did agree to the sale, the process could be further complicated if the original owner had a second mortgage.

In most cases, the first lender is repaid in full before any money flows to a second-lein holder. And because most distressed borrowers are severely underwater, there’s usually nothing left to send on. As a result, second-lein holders are left holding the bag and have been killing many deals.

But that has been changing. For one thing, banks realize that they make out far better financially with a short sale than a foreclosure. “The lenders lose 50% on a foreclosure and only 30% on a short sale,” said Glenn Kelman, founder of the real estate Web site Redfin. “And short sales offer a way to get distressed properties off their books quickly.”

And on April 5, lenders and mortgage investors will have even more incentives to offer troubled borrowers short sales instead of foreclosing.

Under the new Home Affordable Foreclosure Alternatives program, borrowers will earn a $3,000 “relocation incentive” and servicers will get $1,500 for handling a short sale.

The investors who actually own the mortgage notes will get $2,000 in exchange for sharing proceeds of the short sales with any second-lien holders. And, finally, those second lien holders will receive up to $6,000 for releasing their claims.

Lenders participating in the program must also determine the market values of properties early on and inform the owners of just what price they’re willing to accept. Then, if owners come back to the lenders with bonafide offers, they have to be accepted within 10 days.

Equator’s Saiita anticipates a short sale explosion in response to the new program. “The challenge will be handling all the volume,” he said.

The company has already tweaked its software, which 58 servicers use, to handle the new HAFA rules. And that should help reduce the time it takes to execute a sale, which currently averages 88 days.

The boom in short sales may accelerate the end to the foreclosure crisis by cleaning out the overhang of borrowers in distress and replacing them with more stable homeowners.

Plus, these sales are better for distressed borrowers because their credit scores suffer less. Going through a foreclosure can knock 200 points off a FICO score, twice as much as the penalty for a short sale.

Re-Print of Article from CNN Money.com

I can not stress the importance enough of working with a lender that has a proven track record of processing and approving a condominium product loan. If they don’t, many loans have not been placed, because lenders take a loan that they can not compete.

Paul Soule with Coldwell Banker Home Mortgage takes the time to discuss with me, the unique situations that arise with condominium financing, and thoughts for 2010 interest rates.

HUD, (Housing and Urban Development), in an effort to improve disclosure of key loan terms and closing costs paid by the consumer when they buy or refinance a property, HUD has reformed the RESPA Rules.

Here is a summary of the final rule:

Good Faith Estimate – now it will be a three page document, including disclosure of yield spread premiums and the tolerance restriction. Effective date January 1, 2010.

Settlement Statement (HUD-1)- it will now also be a three page document. It will be redesigned to look like the Good Faith Estimate with cross references and a chart comparing charges in the Good Faith Estimate with the final charges appearing on the HUD-1.  Effective date January 1, 2010.

30 Day Cure Period – loan originators may reimburse the borrower for tolerance violations within 30 days of settlement.  Effective date January 1, 2010.

Tolerance limitations on settlement charges – 10% price tolerances for certain services packaged by lenders.  Effective date January 1, 2010.

No Volume-Based Discounts- this eliminates explicit volume based discount language and reiterates HUD’s contention that all settlement service providers may negotiate discounts as long as they go to the consumer.

Use Of Average Charges – this is available to all settlement service providers with added flexibility for calculations.  Effective date January 16, 2009.

*Revised Definition of Required Use – this is extended to both sellers and borrowers and allows legitimate consumer discounts.  Requires that discounts or incentives be given by the referred provider and not as an inducement by the referrer.  Effective date April 16, 2009.

Application Process – a one stage application process with greater flexibility on selecting underwriting criteria.  Effective date January 1, 2010.

Misc. – miscellaneous modifications regarding escrow accounts, servicing transfer notifications and the applicability of E-Sign.  Effective date January 16, 2009.

HUD has agreed to exercise restraint in enforcing these provisions for the first 120 days of 2010.

For more detailed information on the Final RESPA Rules go to:

http://www.hud.gov/offices/hsg/sfh/res/finalrule.pdf.

Buyers, make sure you qualify for the mortgage loan you will be obtaining to purchase your home or condominium. The rules to qualify seem to be changing almost daily.

When you apply for a mortgage, most (if not all) lenders will sell your loan to the secondary mortgage market (a/k/a Fannie Mae or Freddie Mac). In order for you to be approved to borrow monies, there are debt to income ratios (as well as other things) that are used to determine your ability to repay. Today we are talking about changes to these ratios.

In the past, there had been some leniency in Fannie Mae’s debt to income ratio. Fannie Mae is making changes that will affect your borrowing power. They had been allowing up to a 55% total debt to income ratio.  Effective sometime this week (week of 12/7/09, they love to keep us guessing), they will be changing this ratio to reflect a total debt to income not to exceed 45% for almost all scenarios.

What does this mean to you the borrower? Well, the obvious is that you will either have to earn more money or have less existing debt in order to qualify for the same amount of a mortgage that you did as recent as last week.

If you had been pre-approved for a mortgage loan and have not yet secured your loan, you will want to contact your real estate agent and your lender and have them re-evaluate your qualifying criteria to make sure that you can still borrow the same amount of money.

Stay tuned. There is probably more change in store in the wonderful world of banking.

As an aside, don’t let this newest information be a deterent in making your property purchase.  The overall benefits of owning a primary, secondary or investment property, far out weigh some of the push ups we now have to go through to obtain that goal.

Homebuyer Tax Credit Update!

On November 6, 2009, President Obama signed a bill to extend the tax credit for first-time homebuyers (FTHBs) through June 30, 2010. The bill also opens up opportunities for others who are not buying a home for the first time.

TAX CREDIT OVERVIEW

Who Gets What?

First-Time Homebuyers (FTHBs): First-time homebuyers (that is, people who have not owned a home within the last three years) may be eligible for the tax credit. The credit for FTHBs is 10% of the purchase price of the home, with a maximum available credit of $8,000

Single taxpayers and married couples filing a joint return may qualify for the full tax credit amount.

Current Owners: The tax credit program now gives those who already own a residence some additional reasons to move to a new home. This incentive comes in the form of a tax credit of up to $6,500 for qualified purchasers who have owned and occupied a primary residence for a period of five consecutive years during the last eight years.

Single taxpayers and married couples filing a joint return may qualify for the full tax credit amount.

What are the New Deadlines?

In order to qualify for the credit, all contracts need to be in effect no later than April 30, 2010 and close no later than June 30, 2010.

What are the Income Caps?

The amount of income someone can earn and qualify for the full amount of the credit has been increased.

Single tax filers who earn up to $125,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, single filers who earn $145,000 and above are ineligible

Joint filers who earn up to $225,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, joint filers who earn $245,000 and above are ineligible.

What is the Maximum Purchase Price?

Qualifying buyers may purchase a property with a maximum sale price of $800,000.

What is a Tax Credit?

A tax credit is a direct reduction in tax liability owed by an individual to the Internal Revenue Service (IRS). In the event no taxes are owed, the IRS will issue a check for the amount of the tax credit an individual is owed. Unlike the tax credit that existed in 2008, this credit does not require repayment unless the home, at any time in the first 36 months of ownership, is no longer an individual’s primary residence.

How Much are First-Time Homebuyers (FTHB) Eligible to Receive?

An eligible homebuyer may request from the IRS a tax credit of up to $8,000 or 10% of the purchase price for a home. If the amount of the home purchased is $75,000, the maximum amount the credit can be is $7,500. If the amount of the home purchased is $100,000, the amount of the credit may not exceed $8,000.

Who is Eligible fort FTHB Tax Credit?

Anyone who has not owned a primary residence in the previous 36 months, prior to closing and the transfer of title, is eligible.

This applies both to single taxpayers and married couples. In the case where there is a married couple, if either spouse has owned a primary residence in the last 36 months, neither would qualify. In the case where an individual has owned property that has not been a primary residence, such as a second home or investment property, that individual would be eligible.

As mentioned above, the tax credit has been expanded so that existing homeowners who have owned and occupied a primary residence for a period of five consecutive years during the last eight years are now eligible for a tax credit of up to $6,500.

How Much are Current Home Owners Eligible to Receive?

The tax credit program includes a tax credit of up to $6,500 for qualified purchasers who have owned and occupied a primary residence for a period of five consecutive years during the last eight years.

Can Homebuyers Claim the Tax Credit in Advance of Purchasing a Property?

No. The IRS has recently begun prosecuting people who have claimed credits where a purchase had not taken place.

Can a Taxpayer Claim a Credit if the Property is Purchased from a Seller with Seller Financing and the Seller Retains Title to the Property?

Yes. In situations where the buyer purchases the property, even though the seller retains legal title, the taxpayer may file for the credit. Some examples of this would include a land contract or a contract for deed.

According to the IRS, factors that would demonstrate the ownership of the property would include:

1. Right of possession,
2. Right to obtain legal title upon full payment of the purchase price,
3. Right to construct improvements,
4. Obligation to pay property taxes,
5. Risk of loss,
6. Responsibility to insure the property, and
7. Duty to maintain the property.

Are There Other Restrictions to Taking the FTHB Credit?

Yes. According to the IRS, if any of the following describe a homebuyer’s situation, a credit would not be due:

• They buy the home from a close relative. This includes a spouse, parent, grandparent, child or grandchild. (Please see the question below for details regarding purchases from “step-relatives.”)
• They do not use the home as your principal residence.
• They sell their home before the end of the year.
• They are a nonresident alien.
• They are, or were, eligible to claim the District of Columbia first-time homebuyer credit for any taxable year. (This does not apply for a home purchased in 2009.)
• Their home financing comes from tax-exempt mortgage revenue bonds. (This does not apply for a home purchased in 2009.)
• They owned a principal residence at any time during the three years prior to the date of purchase of your new home. For example, if you bought a home on July 1, 2008, you cannot take the credit for that home if you owned, or had an ownership interest in, another principal residence at any time from July 2, 2005, through July 1, 2008.

Can Homebuyers Purchase a Home from a Step-Relative and Still be Eligible for the Credit?

Yes. As long as the person they buy the home from is not a direct blood relative, the purchase would be allowed.

If a Parent (Who Will Not Live In The Property) Cosigns for a Mortgage, Will Their Child Still be Eligible for the Credit?

Yes, provided that the child meets the other requirements for the tax credit.

All of these incentives are wonderful for new and current home, condominium or townhouse buyers to consider making that real estate purchase now.

As always, many thanks to Paul Soule from Coldwell Banker Home Loans for this most valuable information.

Mortgage Rates Seen Below 6% Through 2010

Even as mortgage rates remain near record lows, the Mortgage Bankers Association believes that the looming expiration of a key Federal Reserve program may increase home loan costs next year. Still, the MBA expects rates to remain extremely attractive throughout 2010, helping to juice home sales and insert a floor underneath real estate values. Here are five things you need to know about the MBA’s 2010 economic outlook:

1. Opposing forces: The MBA expects subdued inflation and high unemployment to put downward pressure on 30-year fixed mortgage rates next year. However, “there is a lot of uncertainty regarding rates immediately following the termination of the Federal Reserve’s purchase of mortgage-backed securities,” Jay Brinkmann, MBA’s chief economist and senior vice president for research and economics.  “No doubt the Fed will do its best to minimize adverse effects, but the elimination of these purchases will put upward pressure on all long-term rates as well as the spread between mortgage rates and Treasuries.”

2. Fed programs and rates: The Federal Reserve got into the business of driving down mortgage rates in November of 2008 as it scrambled to stabilize the free-falling housing market. To that end, it announced plans to buy up debt and mortgage-backed securities from Fannie Mae and Freddie Mac. In March of this year, it expanded the program to include the purchase of long-term treasury bonds and additional Fannie and Freddie assets. This asset purchase program is a key reason why rates have remained so attractive for nearly a year. Guy Cecala, publisher of Inside Mortgage Finance, says the program has brought rates roughly a full percentage point lower than they would be otherwise.

3. Getting out: But as the housing market shows signs of stabilization, the Fed is looking to unwind some of this support. Its treasury-bond purchase program, for example, is expected to conclude by the end of the month. However, in the absence of a private market for mortgage-backed securities, the Fed moved in late September to extend its program for buying up these assets. Without committing additional funds to the initiative, the Fed said it will continue buying up debt and mortgage-backed securities from Fannie and Freddie through the first quarter of 2010. (The program had been scheduled to expire at the end of the year.) By remaining in the market, the Fed can help ensure that rates remain in an attractive range for a longer period of time. And rather than risk sharply higher mortgage rates, the Fed may extend the program again, depending on how the economy and housing markets perform in the coming months.

4. Less than 6 percent: While acknowledging that the expiration of this program is likely to push rates higher, the MBA expects rates to remain in an attractive range in 2010. Fixed mortgage rates will average around 5 percent in the final quarter of this year and rise to 5.6 percent by the end of 2010, the MBA predicts.

5. Sales and prices: The MBA predicts the unemployment rate will peak at 10.2 percent in the second quarter of next year. Nevertheless, the trade group expects to see an increase in home buying activity next year, with exiting-home sales up 11 percent from 2009 levels and new-home sales increasing 21 percent. In addition, “[national] average home price declines should abate by early 2010, but will vary by state and home value,” the MBA said in its press release. “The demand will be highest for entry-level homes.”

Mortgage Rates This Week – Relatively Unchanged

NATIONAL RATE SURVEY RESULTS (10/29/2009 Results)

30-year Conv:          5.35% -- w/ avg. points: 0.37 pts

15-year Conv:          4.74% -- w/ avg. points: 0.37 pts

30-year FHA:           5.27% -- w/ avg. points: 0.17 pts

5-year ARM:            4.64% -- w/ avg. points: 0.37 pts

PHH DAILY RATE CHANGES – LAST 10 BUSINESS DAYS

Date                      Conventional                           FHA                                      VA                                        

10/29                     Relatively Unchanged             Relatively Unchanged            Relatively Unchanged                      

10 Year Treasury Yield opens at 3.42

10/28                     Slightly Lower                        Relatively Unchanged            Relatively Unchanged                       

10 Year Treasury Yield closed at 3.41

10/28 (2)                Lower                                    Slightly Lower                       Slightly Lower                                     

Rate Change for the Better!

10/27                     Relatively Unchanged             Relatively Unchanged            Relatively Unchanged                       

10 Year Treasury Yield closed at 3.46

10/27 (2)                Lower                                     Lower                                   Lower               

Rate Change for the Better!

10/26                     Relatively Unchanged             Relatively Unchanged            Relatively Unchanged                       

10 Year Treasury Yield closed at 3.55

10/26 (2)                Slightly Higher                       Slightly Higher                       Slightly Higher  

Rate Change for the Worse.

10/23                     Slightly Higher                       Relatively Unchanged            Relatively Unchanged                       

10 Year Treasury Yield closed at 3.47

10/22                     Relatively Unchanged             Slightly Higher                      Relatively Unchanged                       

10 Year Treasury Yield closed at 3.42

10/21                     Higher                                     Slightly Higher                      Slightly Higher                                       

10 Year Treasury Yield closes at 3.41

10/20                     Lower                                      Lower                                   Lower               

10 Year Treasury Yield closes at 3.34

10/19                     Relatively Unchanged             Slightly Higher                      Slightly Higher

10 Year Treasury Yield closes at 3.40

10/16                     Slightly Higher                         Slightly Higher                     Slightly Higher                                 

10 Year Treasury Yield closes at 3.42

RATE FORECAST

Will rates rise or remain relatively unchanged?

Industry experts and analysts provide their insights.

8% of respondents expect rates to fall in the coming weeks

67% predict a further increase in mortgage rates while the remaining

25% forecast that mortgage rates will remain more or less unchanged

As always many thanks to Paul Soule from Coldwell Banker Home Loans for providing these statistics.

Here are the National Rate survey Results (10/01/2009)

30 year Conventional Loan: 5.25% w/ average points 0.31

15 year Conventional Loan: 4.64% w/ average points 0.31

30 year FHA Loan: 5.24% w/ average points 0.09

5 year Adjustable Rate Mortgage: 4.69% w/ average points 0.31

Will rates rise or remain relatively unchanged?
Industry experts give their insights;

• 29% of respondents expect rates to fall in the coming weeks
• 21& predict a further increase in mortgage rates
• 50% forecast that mortgage rates will remain more or less unchanged

In my market in Ocean City, where a significant number of the properties that I sell are second home or investment condominiums, we have a pretty fair amount of different loan products available to assist the buyer.

Right now some local lenders have great rates on a 5/1 ARM at 4%.

Let’s compare:

• $300,000 loan amount @ 4.375% is a monthly interest only payment of $1,094
• $300,000 loan amount @ 4% is a principal and interest payment of $1,432
• $300,000 loan amount @ 5.25% on a year year fixed monthly payment is $1,657

just a quick update to keep you posted.