You'd think with so many homes for sale, there would be no problem finding one to buy. However, plenty of buyers who would like to buy now to take advantage of low interest rates and prices can't find the right home.
One problem is that the most desirable areas don't have an oversupply of good homes for sale. Sellers who don't have a good reason to sell now aren't, so the supply of good listings is low.
Many listings that are available in these coveted areas either need a lot of work or are overpriced for the market.
Fixer-uppers aren't popular because they add to the uncertainty of the transaction. Most buyers are already concerned about the market, their jobs and the state of the economy. They shy away from homes that need a lot of work because it raises more questions and uncertainty. How much will it cost? Could it cost more than expected? How long will it take to complete the job?
HOUSE HUNTING TIP: Buyers who have the vision to imagine a home in its fixed-up condition can keep costs down if they live in the home while the work is being done. Expect it to be a stressful experience and plan on the work taking longer than anticipated. Uncontrollable factors, like rain, can hold a project up due to no fault of the contractor.
Most contractors like to work on a time and materials basis, which leaves the ultimate cost unknown. A fixed-price contract may cost more, but if unanticipated work needs to be done, it won't cost you more. It's like paying for insurance.
A listing that has been on the market for some time is likely to be overpriced. Try making a low offer. You might be able to negotiate a mutually acceptable price. Before making an offer, ask your agent to find out if the sellers are planning on reducing the price. If so, make your offer quickly. When listings are lowered to the market price, more than one offer can appear.
Have your agent search the multiple listing service to see if there are any listings that might suit your needs that didn't sell and were withdrawn from the market. If the owners still want to sell and are willing to be flexible on price (the listing probably didn't sell because it was overpriced), make an offer and see if you can reach an agreement. First, ask to see disclosures and reports to find out if there's any reason, other than price, why you wouldn't want to buy the property.
Another approach is to broaden your search. If you've been focusing on only one area, you might consider several other neighborhoods that could work for you. This opens you up to more new inventory.
One couple was set on buying in a particular neighborhood for the location and schools. There was so much demand in their price range and so few listings that they were priced out of that niche market. They bought a home in a neighboring county where they got much more for their money and good schools, although they had to sacrifice on location.
Easing up on your homebuying requirements helps you to buy sooner rather than later. For instance, if you'd like a view but can drop that requirement, you'll have a much easier time finding a home to buy. All home buyers need to make compromises. But don't buy a home that won't serve your ongoing housing needs. In this market, it makes sense only to buy for the long term.
THE CLOSING: It's better to rent until the right place comes along than it is to buy a home that you'll need to sell again soon.
Dian Hymer is a real estate broker with more than 30 years' experience, and is a nationally syndicated real estate columnist and author.
By Dian Hymer
Friday, December 2, 2011
Three mortgage mistakes you can avoid
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Congress votes to restore FHA loan limits
House and Senate leaders signed off on a conference report for a "minibus" appropriations bill that included language restoring FHA's ability to insure loans of up to $729,750 in high cost markets through 2013.
Because the minibus appropriations package also contains a continuing resolution to avoid a government shutdown and continue federal operations until Dec. 16 -- or until Congress completes nine remaining appropriations bills -- lawmakers didn't dally in approving it.
The House approved the bill in a 298-121 vote, and it sailed through the Senate 70-30.
The ceiling on so-called jumbo conforming loans -- raised in 2008 after the collapse of secondary markets for loans that don't lack government backing -- dropped, as scheduled, to $625,500 last month.
The formula for determining the jumbo conforming loan limit within that ceiling in high cost housing markets, which for much of the last four years has been 125 percent of median home price, was also trimmed back to 115 percent of median home price.
In October, Senate lawmakers approved an amendment to the same spending bill that would have restored through 2013 the $729,750 ceiling and 125 percent formula in high cost markets for FHA, Fannie Mae and Freddie Mac. But there were doubts that the proposal would fly in the Republican-controlled House.
The compromise plan hammered out by a Conference Committee excluded Fannie and Freddie.
A summary of the "minibus" bill issued by House Appropriations Committee Chairman Hal Rogers, R-Kentucky, said the bill does not increase the limits for Fannie and Freddie, which have been "under public scrutiny for their questionable businesses practices and use of billions in federal bailout funds, some of which have been used for extravagant management bonuses."
FHA, the summary said, "is subject to greater congressional scrutiny and oversight."
FHA expects claims on defaulted mortgages to climb to new peaks during the next two years, but is unlikely to require a taxpayer bailout unless there's another recession, according to assessments by independent actuaries.
If there is another recession, FHA could require $13 billion to $43 billion in taxpayer assistance to build up its loss reserves, depending on the severity of a second economic downturn, those studies show.
Dr. Joseph Gyourko, chairman of the real estate department at the University of Pennsylvania's Wharton School, thinks those projections are overly optimistic.
In a paper published by the American Enterprise Institute for Public Policy Research, Gyourko predicts that even without an unexpected deterioration in housing markets, FHA will need $50 billion to $100 billion in taxpayer assistance.
In an annual report to Congress, the Department of Housing and Urban Development (HUD) maintains that loans insured after the first quarter of 2009 are generating profits that will allow FHA to build its capital reserves back up to statutory minimums by 2014.
But the report acknowledges that the loan guarantee program is facing a massive backlog of claims on loans insured during the housing boom, particularly those made with seller-financed down payment assistance.
"FHA has not yet seen the peak of claim expenses from this national housing recession," Secretary of Housing Shaun Donovan said in the report.
Although the robo-signing scandal has slowed down claims, Donovan said, there will soon be a day of reckoning for loans now stuck in the foreclosure pipeline.
"Current expectations are that claims could come in very large numbers this next fiscal year and, as a result, capital resources decline significantly over (fiscal years 2012-2013) as loss reserves are expended," Donovan said.
In fiscal year 2011, which ended on Sept. 30, FHA had a $2.2 billion cash flow deficit as it collected $7.6 billion in premiums and $6.1 billion on sales of foreclosed homes but paid out $14.9 billion in claims and racked up $1.1 billion in property maintenance expenses.
Projections show that even if an economic recovery remains on track, FHA will have a $19.5 billion deficit in fiscal year 2012, which begins Oct. 1, as claims rise to $35.7 billion, outstripping revenue from insurance premiums ($8.7 billion) and sales of foreclosed properties ($7.5 billion).
That dramatic increase in claims -- nearly equal to the $37 billion FHA paid out in the past three years -- will put a serious dent in FHA's $32.4 billion in net capital resources. In the event there is not another recession, FHA's net capital resources are projected to bottom out in fiscal year 2014 without dipping below $10 billion.
But Gyourko argues that actuaries have overestimated the value of FHA's Mutual Mortgage Insurance Fund, in part because they have made overly optimistic assumptions about expected declines in default rates.
Previous studies failed to acknowledge that borrowers who used the federal homebuyer tax credit to fund down payments pose a higher risk, he said, and underestimated the amount of negative equity on homes backing FHA's mortgage insurance portfolio.
"Rather than requesting that Congress strengthen its capital resources as the housing bust deepened, FHA decided to pursue a strategy of growing out of its problems beginning in 2008," Gyourko said in his paper.
While FHA's total insurance-in-force has more than tripled from $305 billion at the end of the 2007 fiscal year to just over $1 trillion, FHA has not increased its capital resources proportionally, he said.
"Unless one believes that the risk of the mortgages it insures has declined substantially, FHA has become a much riskier organization," Gyourko concludes.
But FHA does believe the mortgages it's insuring today are much less risky than many of those it guaranteed during the boom.
Losses on loans insured through the first quarter of fiscal year 2009 are expected to reach $26 billion within a few years, Donovan said. Net losses on seller-funded down payment assistance loans -- banned in 2009 -- grew by $1.8 billion over the past year to $14.1 billion, he said.
But lower default rates and higher premium charges on loans FHA has insured since then will boost the economic value of the MMI Fund by $18 billion, Donovan said. The mortgages FHA expects to insure next year alone will boost FHA's bottom line by an additional $9 billion.
The FHA's mortgage insurance program has been self-sustaining since it was created in 1934 during the Great Depression. Although the program faced similar challenges during the 1980s, borrower premiums have always covered claims.
Even as HUD projects that the more profitable loans FHA is insuring today will help the mortgage insurance program squeak through the downturn without taxpayer assistance, it's also expecting to insure fewer loans going forward.
The Obama administration has said it wants to see the government gradually reduce its role in mortgage lending to make way for the return of private capital.
In terms of the dollar volume of single-family loans insured, 2011 was FHA's third biggest year ever, second only to 2009 and 2010. But FHA's share of the purchase loan market fell from 19 percent in 2009 and 2010 to 15 percent this year.
FHA raised mortgage insurance premiums three times in 2010, and "We are already seeing signs that premium rate increases we have put in place are causing a shift of some business back to the conventional mortgage market," Donovan said.
Homeowners can obtain conventional mortgages backed by Fannie Mae and Freddie Mac with down payments of as little as 5 or 10 percent by purchasing private mortgage insurance.
Another change that could also dent FHA's market share was the reduction of FHA loan limits in 669 counties on Oct. 1. HUD estimates that about 3 percent of the loans insured by FHA in 2010 -- 33,300 mortgages -- would have been ineligible under the new limits.
Mortgage Bankers Association Chairman Michael Young said it's not surprising that FHA's financial reserves are under stress, given the "persistent troubles in the economy and real estate markets" and FHA's mission of providing access to home loans for lower-income and first time homebuyers.
With its low, 3.5 percent minimum down payment requirement, 75 percent of the purchase loans FHA guaranteed in 2011 were for first-time homebuyers.
"FHA plays an important countercyclical role in the housing market, with its greatest contributions coming during those times of market stress, like those we have seen in recent years," Young said in a statement. "Without FHA's support, our housing market would be in far worse shape than it is today."
By Inman News
Because the minibus appropriations package also contains a continuing resolution to avoid a government shutdown and continue federal operations until Dec. 16 -- or until Congress completes nine remaining appropriations bills -- lawmakers didn't dally in approving it.
The House approved the bill in a 298-121 vote, and it sailed through the Senate 70-30.
The ceiling on so-called jumbo conforming loans -- raised in 2008 after the collapse of secondary markets for loans that don't lack government backing -- dropped, as scheduled, to $625,500 last month.
The formula for determining the jumbo conforming loan limit within that ceiling in high cost housing markets, which for much of the last four years has been 125 percent of median home price, was also trimmed back to 115 percent of median home price.
In October, Senate lawmakers approved an amendment to the same spending bill that would have restored through 2013 the $729,750 ceiling and 125 percent formula in high cost markets for FHA, Fannie Mae and Freddie Mac. But there were doubts that the proposal would fly in the Republican-controlled House.
The compromise plan hammered out by a Conference Committee excluded Fannie and Freddie.
A summary of the "minibus" bill issued by House Appropriations Committee Chairman Hal Rogers, R-Kentucky, said the bill does not increase the limits for Fannie and Freddie, which have been "under public scrutiny for their questionable businesses practices and use of billions in federal bailout funds, some of which have been used for extravagant management bonuses."
FHA, the summary said, "is subject to greater congressional scrutiny and oversight."
FHA expects claims on defaulted mortgages to climb to new peaks during the next two years, but is unlikely to require a taxpayer bailout unless there's another recession, according to assessments by independent actuaries.
If there is another recession, FHA could require $13 billion to $43 billion in taxpayer assistance to build up its loss reserves, depending on the severity of a second economic downturn, those studies show.
Dr. Joseph Gyourko, chairman of the real estate department at the University of Pennsylvania's Wharton School, thinks those projections are overly optimistic.
In a paper published by the American Enterprise Institute for Public Policy Research, Gyourko predicts that even without an unexpected deterioration in housing markets, FHA will need $50 billion to $100 billion in taxpayer assistance.
In an annual report to Congress, the Department of Housing and Urban Development (HUD) maintains that loans insured after the first quarter of 2009 are generating profits that will allow FHA to build its capital reserves back up to statutory minimums by 2014.
But the report acknowledges that the loan guarantee program is facing a massive backlog of claims on loans insured during the housing boom, particularly those made with seller-financed down payment assistance.
"FHA has not yet seen the peak of claim expenses from this national housing recession," Secretary of Housing Shaun Donovan said in the report.
Although the robo-signing scandal has slowed down claims, Donovan said, there will soon be a day of reckoning for loans now stuck in the foreclosure pipeline.
"Current expectations are that claims could come in very large numbers this next fiscal year and, as a result, capital resources decline significantly over (fiscal years 2012-2013) as loss reserves are expended," Donovan said.
In fiscal year 2011, which ended on Sept. 30, FHA had a $2.2 billion cash flow deficit as it collected $7.6 billion in premiums and $6.1 billion on sales of foreclosed homes but paid out $14.9 billion in claims and racked up $1.1 billion in property maintenance expenses.
Projections show that even if an economic recovery remains on track, FHA will have a $19.5 billion deficit in fiscal year 2012, which begins Oct. 1, as claims rise to $35.7 billion, outstripping revenue from insurance premiums ($8.7 billion) and sales of foreclosed properties ($7.5 billion).
That dramatic increase in claims -- nearly equal to the $37 billion FHA paid out in the past three years -- will put a serious dent in FHA's $32.4 billion in net capital resources. In the event there is not another recession, FHA's net capital resources are projected to bottom out in fiscal year 2014 without dipping below $10 billion.
But Gyourko argues that actuaries have overestimated the value of FHA's Mutual Mortgage Insurance Fund, in part because they have made overly optimistic assumptions about expected declines in default rates.
Previous studies failed to acknowledge that borrowers who used the federal homebuyer tax credit to fund down payments pose a higher risk, he said, and underestimated the amount of negative equity on homes backing FHA's mortgage insurance portfolio.
"Rather than requesting that Congress strengthen its capital resources as the housing bust deepened, FHA decided to pursue a strategy of growing out of its problems beginning in 2008," Gyourko said in his paper.
While FHA's total insurance-in-force has more than tripled from $305 billion at the end of the 2007 fiscal year to just over $1 trillion, FHA has not increased its capital resources proportionally, he said.
"Unless one believes that the risk of the mortgages it insures has declined substantially, FHA has become a much riskier organization," Gyourko concludes.
But FHA does believe the mortgages it's insuring today are much less risky than many of those it guaranteed during the boom.
Losses on loans insured through the first quarter of fiscal year 2009 are expected to reach $26 billion within a few years, Donovan said. Net losses on seller-funded down payment assistance loans -- banned in 2009 -- grew by $1.8 billion over the past year to $14.1 billion, he said.
But lower default rates and higher premium charges on loans FHA has insured since then will boost the economic value of the MMI Fund by $18 billion, Donovan said. The mortgages FHA expects to insure next year alone will boost FHA's bottom line by an additional $9 billion.
The FHA's mortgage insurance program has been self-sustaining since it was created in 1934 during the Great Depression. Although the program faced similar challenges during the 1980s, borrower premiums have always covered claims.
Even as HUD projects that the more profitable loans FHA is insuring today will help the mortgage insurance program squeak through the downturn without taxpayer assistance, it's also expecting to insure fewer loans going forward.
The Obama administration has said it wants to see the government gradually reduce its role in mortgage lending to make way for the return of private capital.
In terms of the dollar volume of single-family loans insured, 2011 was FHA's third biggest year ever, second only to 2009 and 2010. But FHA's share of the purchase loan market fell from 19 percent in 2009 and 2010 to 15 percent this year.
FHA raised mortgage insurance premiums three times in 2010, and "We are already seeing signs that premium rate increases we have put in place are causing a shift of some business back to the conventional mortgage market," Donovan said.
Homeowners can obtain conventional mortgages backed by Fannie Mae and Freddie Mac with down payments of as little as 5 or 10 percent by purchasing private mortgage insurance.
Another change that could also dent FHA's market share was the reduction of FHA loan limits in 669 counties on Oct. 1. HUD estimates that about 3 percent of the loans insured by FHA in 2010 -- 33,300 mortgages -- would have been ineligible under the new limits.
Mortgage Bankers Association Chairman Michael Young said it's not surprising that FHA's financial reserves are under stress, given the "persistent troubles in the economy and real estate markets" and FHA's mission of providing access to home loans for lower-income and first time homebuyers.
With its low, 3.5 percent minimum down payment requirement, 75 percent of the purchase loans FHA guaranteed in 2011 were for first-time homebuyers.
"FHA plays an important countercyclical role in the housing market, with its greatest contributions coming during those times of market stress, like those we have seen in recent years," Young said in a statement. "Without FHA's support, our housing market would be in far worse shape than it is today."
By Inman News
Monday, August 1, 2011
Home improvements that pay off
The temptation is strong: Clean up the yard, declutter the house, and put it on the market without spending time and money sprucing the place up for sale. This is especially the case if you anticipate losing money on the sale.
Some real estate agents recommend you do little if anything to get your home ready for sale. This could work if you price the listing to look like a bargain. However, most buyers in today's market are nervous and picky. They aren't in a hurry and they want a house that's move-in ready.
An agent who is looking for a fast sale might steer his or her clients away from doing any fix-up work. It takes a lot of time and coordination, not to mention money, to get a home properly prepared for sale in today's market. Some agents don't want to take on the effort, or haven't the vision to see the home's potential. This could cost you on the sale.
One agent told his clients that they needn't do anything to get their house ready for sale. True, the house had inherent charm and good bones. But, the seller's furniture was much too big to show the rooms off to advantage. The dogs had damaged the hardwood floor and the beautiful garden was overgrown. The house didn't sell until the sellers found another agent who recommended a laundry list of items to take care of before selling, including moving most of the seller's furniture out and having the house staged.
Unfortunately, market values declined between the first and second times the home was listed. Even though the house sold quickly with multiple offers the second time it was listed, it sold for less than it would have if it had showed well the first time it hit the market.
HOUSE HUNTING TIP: Choose an agent to work with who has experience helping sellers prepare their homes for the market. Ask an agent you're thinking about hiring for references. Call past sellers and ask them how effectively the agent helped them get their home sold and whether they made back the money they invested getting the home ready for sale. A good agent should be able to supply you with a list of tradespeople who can help you paint, change outdated floor coverings and light fixtures, etc., at reasonable prices. And your agent ought to be able to provide access to the home for the people you select to help with the fix-up if you are out of town or at work.
Ideally, you should work with your agent who will help you prioritize the things that should be done to bring about a timely sale. For example, an outdated kitchen can usually be improved considerably by painting, changing light fixtures, refinishing or replacing a worn floor, and changing cabinet pulls.
It might make sense to change extremely old appliances and counters. However, it's not a good idea to gut the kitchen and completely remodel it for sale. You won't get that money back when you sell. The aim is to make cost-effective improvements that make your home appealing to the broadest number of buyers possible.
Painting is the least expensive improvement you can make that is likely to return more than you invest, provided you select the right colors. One seller repainted the exterior of his home before he selected a real estate agent. He painted it the same dowdy colors that adorned the house for decades. The first thing the buyers wanted to change was the exterior paint color.
THE CLOSING: For the best result, talk to a color consultant before you paint.
Dian Hymer is a nationally syndicated real estate columnist, and author.
By Dian Hymer
Some real estate agents recommend you do little if anything to get your home ready for sale. This could work if you price the listing to look like a bargain. However, most buyers in today's market are nervous and picky. They aren't in a hurry and they want a house that's move-in ready.
An agent who is looking for a fast sale might steer his or her clients away from doing any fix-up work. It takes a lot of time and coordination, not to mention money, to get a home properly prepared for sale in today's market. Some agents don't want to take on the effort, or haven't the vision to see the home's potential. This could cost you on the sale.
One agent told his clients that they needn't do anything to get their house ready for sale. True, the house had inherent charm and good bones. But, the seller's furniture was much too big to show the rooms off to advantage. The dogs had damaged the hardwood floor and the beautiful garden was overgrown. The house didn't sell until the sellers found another agent who recommended a laundry list of items to take care of before selling, including moving most of the seller's furniture out and having the house staged.
Unfortunately, market values declined between the first and second times the home was listed. Even though the house sold quickly with multiple offers the second time it was listed, it sold for less than it would have if it had showed well the first time it hit the market.
HOUSE HUNTING TIP: Choose an agent to work with who has experience helping sellers prepare their homes for the market. Ask an agent you're thinking about hiring for references. Call past sellers and ask them how effectively the agent helped them get their home sold and whether they made back the money they invested getting the home ready for sale. A good agent should be able to supply you with a list of tradespeople who can help you paint, change outdated floor coverings and light fixtures, etc., at reasonable prices. And your agent ought to be able to provide access to the home for the people you select to help with the fix-up if you are out of town or at work.
Ideally, you should work with your agent who will help you prioritize the things that should be done to bring about a timely sale. For example, an outdated kitchen can usually be improved considerably by painting, changing light fixtures, refinishing or replacing a worn floor, and changing cabinet pulls.
It might make sense to change extremely old appliances and counters. However, it's not a good idea to gut the kitchen and completely remodel it for sale. You won't get that money back when you sell. The aim is to make cost-effective improvements that make your home appealing to the broadest number of buyers possible.
Painting is the least expensive improvement you can make that is likely to return more than you invest, provided you select the right colors. One seller repainted the exterior of his home before he selected a real estate agent. He painted it the same dowdy colors that adorned the house for decades. The first thing the buyers wanted to change was the exterior paint color.
THE CLOSING: For the best result, talk to a color consultant before you paint.
Dian Hymer is a nationally syndicated real estate columnist, and author.
By Dian Hymer
Refi before sale can backfire
Homeowners who anticipate that they will be selling their house within a few years want to net as much from the sale as possible. The usage of the verb "net" indicates that what matters is not how much they receive for the house but how much they have left after repaying the mortgage. Real estate agents counsel borrowers on ways to get the best sale price, such as repairing obvious defects, keeping the house sparkling clean for potential buyers to view, and so on. But some owners view an impending sale as a way to save money on the mortgage if they can refinance into a lower payment. The borrowers who do this often ignore the impact of the refinance on the size of the loan balance that they will have to pay when they sell. Here is an example: The current balance on a 4.125 percent mortgage is $300,000, with a payment of $1,685 and 23 years remaining. The borrower expecting to sell in two years refinances into a new interest-only adjustable-rate mortgage (ARM) at the same rate, reducing the payment to $1,031.
The refinance cost is $6,000, but the borrower reduces his payment by $654, which over two years sums to $15,696. Hence, by his logic, he is ahead by $15,986 minus $6,000, or $9,986.
What he has overlooked is that if he had stayed with his existing mortgage, he would have paid down the balance by $16,307, which would have resulted in net proceeds at sale $16,307 larger. His supposed gain of $9,986 is actually a loss of $6,321.
Of course, if the new loan has a significantly lower interest rate than the existing loan, the refinance could result in larger net proceeds at sale. But if the refinance is profitable over a short period, it would be even more profitable over a longer period, which means that the borrower should do it despite an impending sale rather than because of it.
Can you time a lock to your advantage? Home mortgage prices are based on the secondary market prices of mortgage-backed securities (MBSs), but changes in MBS prices seldom impact mortgage prices immediately. Typically, mortgage lenders set the prices they deliver to their loan officers and mortgage brokers in the morning, after markets open, and keep them unchanged through the day unless MBS changes during the day are large enough to justify the cost of another change.
The MBS market closes at 3 p.m. Eastern Standard Time (EST). Mortgage borrowers who have been cleared to lock by their lender can do it between 3 p.m. and 5 p.m. EST, and sometimes even later. In principle, therefore, a borrower who knows what happened to MBS prices that day could judge whether mortgage prices the next morning would be higher or lower, and therefore whether they should lock then or wait another day.
Some advisors encourage borrowers to lock as soon as possible, on the grounds that 1) borrowers can't predict future interest rates, and 2) locking ASAP may prevent larcenous behavior by the lender. Jack Guttentag is professor of finance emeritus at the Wharton School of the University of Pennsylvania.
By Jack Guttentag
The refinance cost is $6,000, but the borrower reduces his payment by $654, which over two years sums to $15,696. Hence, by his logic, he is ahead by $15,986 minus $6,000, or $9,986.
What he has overlooked is that if he had stayed with his existing mortgage, he would have paid down the balance by $16,307, which would have resulted in net proceeds at sale $16,307 larger. His supposed gain of $9,986 is actually a loss of $6,321.
Of course, if the new loan has a significantly lower interest rate than the existing loan, the refinance could result in larger net proceeds at sale. But if the refinance is profitable over a short period, it would be even more profitable over a longer period, which means that the borrower should do it despite an impending sale rather than because of it.
Can you time a lock to your advantage? Home mortgage prices are based on the secondary market prices of mortgage-backed securities (MBSs), but changes in MBS prices seldom impact mortgage prices immediately. Typically, mortgage lenders set the prices they deliver to their loan officers and mortgage brokers in the morning, after markets open, and keep them unchanged through the day unless MBS changes during the day are large enough to justify the cost of another change.
The MBS market closes at 3 p.m. Eastern Standard Time (EST). Mortgage borrowers who have been cleared to lock by their lender can do it between 3 p.m. and 5 p.m. EST, and sometimes even later. In principle, therefore, a borrower who knows what happened to MBS prices that day could judge whether mortgage prices the next morning would be higher or lower, and therefore whether they should lock then or wait another day.
Some advisors encourage borrowers to lock as soon as possible, on the grounds that 1) borrowers can't predict future interest rates, and 2) locking ASAP may prevent larcenous behavior by the lender. Jack Guttentag is professor of finance emeritus at the Wharton School of the University of Pennsylvania.
By Jack Guttentag
Up to 1M foreclosure filings pushed to 2012, beyond
RealtyTrac: Foreclosure activity drops to lowest level in nearly 4 years
Foreclosure activity fell 29 percent in the first six months of this year compared with the first six months of 2010, according to a report from foreclosure data site RealtyTrac.
A total of 1.17 million properties nationwide received foreclosure filings -- including default notices, auction sale notices or bank repossessions -- in the first half of this year, down 29 percent from the first half of 2010 and 25 percent from the second half, the report said. The nation's foreclosure activity rate was 1 in 111 housing units, or 0.9 percent of all units.
Foreclosure activity fell year-over-year for the ninth straight month in June, though it rose nearly 4 percent month-to-month. For the second quarter as a whole, filings fell nearly 11 percent compared to the first quarter and 32 percent compared to the second quarter of 2010, to a total of 608,235 properties. That's the lowest quarterly total since fourth-quarter 2007, the report said.
That low is not from an improving housing market or economy, however, said James J. Saccacio, RealtyTrac's CEO, in a statement.
"Processing and procedural delays are pushing foreclosures further and further out -- we estimate that as many as 1 million foreclosure actions that should have taken place in 2011 will now happen in 2012, or perhaps even later," he said. "This casts an ominous shadow over the housing market, where recovery is unlikely to happen until the current and forthcoming inventory of distressed properties can be whittled down to a manageable number."
For homes foreclosed in the second quarter, it took an average of 318 days for a home to go through the foreclosure process from the initial notice to the completed foreclosure, a 14.8 percent rise from 277 days in second-quarter 2010. The state to see the longest processing timeline was New York, at an average of 966 days, followed by New Jersey (944 days) and Florida (676 days).
By contrast, Texas (92 days) and Virginia (106 days) had the shortest timelines.
Bank-owned properties (REOs) sold in the second quarter took an average of 178 days to sell after being foreclosed, an 8.5 percent rise from 164 days in second-quarter 2010.
Properties took the longest to sell in New York (an average of 309 days), New Jersey (285 days), and Minnesota (268 days).
Properties in the foreclosure process, typically short sales, sold in the second quarter took an average of 213 days to sell from the beginning of the foreclosure process, up from 195 days in second-quarter 2010, the report said. Nevada had the nation's highest foreclosure rate in the first half of 2011, with 1 in 21 units receiving a foreclosure filing -- a total of 53,217 properties. That's a decrease of 17 percent from the first half of 2010.
Foreclosure activity in the state fell year-over-year for the fifth straight month in June, despite a 19 percent jump in bank repossessions, the report said.
Arizona and California had second- and third-highest foreclosure rates among the states, with 1 in 36 units and 1 in 51 units, respectively, receiving a filing.
Properties in California accounted for more than a fifth of all U.S. properties to receive a foreclosure filing. The state had 263,500 properties with foreclosure filings -- the highest total among all states, even though it declined 23 percent compared to the first half of 2010.
A total of 113,641 properties in Florida received a foreclosure filing in the first half of 2011, a 59 percent drop from the same period a year ago.
Although overall foreclosure activity fell year-over-year in the state in June, on a month-to-month basis default notices and scheduled auctions rose 44 percent and 17 percent, respectively.
Arizona had the third-highest state total, with 77,525 properties receiving a foreclosure filing in the first half of the year. Foreclosure activity in the state fell 15 percent compared to the first half of 2010.
By Inman News
Foreclosure activity fell 29 percent in the first six months of this year compared with the first six months of 2010, according to a report from foreclosure data site RealtyTrac.
A total of 1.17 million properties nationwide received foreclosure filings -- including default notices, auction sale notices or bank repossessions -- in the first half of this year, down 29 percent from the first half of 2010 and 25 percent from the second half, the report said. The nation's foreclosure activity rate was 1 in 111 housing units, or 0.9 percent of all units.
Foreclosure activity fell year-over-year for the ninth straight month in June, though it rose nearly 4 percent month-to-month. For the second quarter as a whole, filings fell nearly 11 percent compared to the first quarter and 32 percent compared to the second quarter of 2010, to a total of 608,235 properties. That's the lowest quarterly total since fourth-quarter 2007, the report said.
That low is not from an improving housing market or economy, however, said James J. Saccacio, RealtyTrac's CEO, in a statement.
"Processing and procedural delays are pushing foreclosures further and further out -- we estimate that as many as 1 million foreclosure actions that should have taken place in 2011 will now happen in 2012, or perhaps even later," he said. "This casts an ominous shadow over the housing market, where recovery is unlikely to happen until the current and forthcoming inventory of distressed properties can be whittled down to a manageable number."
For homes foreclosed in the second quarter, it took an average of 318 days for a home to go through the foreclosure process from the initial notice to the completed foreclosure, a 14.8 percent rise from 277 days in second-quarter 2010. The state to see the longest processing timeline was New York, at an average of 966 days, followed by New Jersey (944 days) and Florida (676 days).
By contrast, Texas (92 days) and Virginia (106 days) had the shortest timelines.
Bank-owned properties (REOs) sold in the second quarter took an average of 178 days to sell after being foreclosed, an 8.5 percent rise from 164 days in second-quarter 2010.
Properties took the longest to sell in New York (an average of 309 days), New Jersey (285 days), and Minnesota (268 days).
Properties in the foreclosure process, typically short sales, sold in the second quarter took an average of 213 days to sell from the beginning of the foreclosure process, up from 195 days in second-quarter 2010, the report said. Nevada had the nation's highest foreclosure rate in the first half of 2011, with 1 in 21 units receiving a foreclosure filing -- a total of 53,217 properties. That's a decrease of 17 percent from the first half of 2010.
Foreclosure activity in the state fell year-over-year for the fifth straight month in June, despite a 19 percent jump in bank repossessions, the report said.
Arizona and California had second- and third-highest foreclosure rates among the states, with 1 in 36 units and 1 in 51 units, respectively, receiving a filing.
Properties in California accounted for more than a fifth of all U.S. properties to receive a foreclosure filing. The state had 263,500 properties with foreclosure filings -- the highest total among all states, even though it declined 23 percent compared to the first half of 2010.
A total of 113,641 properties in Florida received a foreclosure filing in the first half of 2011, a 59 percent drop from the same period a year ago.
Although overall foreclosure activity fell year-over-year in the state in June, on a month-to-month basis default notices and scheduled auctions rose 44 percent and 17 percent, respectively.
Arizona had the third-highest state total, with 77,525 properties receiving a foreclosure filing in the first half of the year. Foreclosure activity in the state fell 15 percent compared to the first half of 2010.
By Inman News
Friday, April 29, 2011
4 Signals It Might be Time to Buy (vs. Rent) Your Home
To rent or to buy: what used to be a given – that you would buy a home as soon as you could afford to – has become an agonizing conundrum for many a would-be homebuyer, in the face of the housing market’s big bust and super-slow recovery. Low prices seem to create a wide-open window of opportunity, but they also create the concern that prices will keep falling after closing. And that Catch-22 has hundreds of thousands of buyers-to-be stuck on the fence.
Fortunately, there are handful of life, mortgage and local market signals which indicate that the time *might* be right to hop – scratch that – leap off the fence and into homeownership:
Mortgage rates are going up. Home prices have been low for the last several years, and in fact are currently looking like they’re heading back down to the same levels they were at the depths of the real estate recession. During this same time frame, interest rates have also been low – this one-two punch has created record-high affordability for the last four years running, causing buyers to believe that this window of opportunity won’t be closing anytime soon.
While prices don’t look like they’ll be skyrocketing anytime soon, interest rates are another story. Rates have been on a rollercoaster over the past few months, and with inflation and Fed rates set to spike later this year, today’s low interest rates might be as good as they’re going to get for a long time to come. And I mean a very long time – in the next few years, governmental intervention in the mortgage markets is likely to wind down, and that means higher mortgage interest rates are not only inevitable, they’ll probably be here for a long, long time.
Mortgage rates on the rise are one signal that now might be the peak of home affordability, and the peak of the opportunity to buy.
Rents are going up. Rental rates in many areas are also on the rise – in fact, the foreclosure crisis has acted created additional demand on many markets’ rental housing inventory in several different ways. First, former homeowners who lost homes to foreclosure now need to rent; as well, buyers in foreclosure hot spots have been hesitant to buy, many electing to stay renters far beyond when they would have otherwise. On top of all that, super-tight lending guidelines have stopped even some who would like to buy homes from doing so. As a result, rental homes are in high demand – and rents are rising. Rising rents at a time when the prices of homes for sale are low and, in some places, falling? One more signal that now might just be the time to buy. (Of course, where foreclosures are high, the chances of continued depreciation are, too – to offset this risk, have a long-term plan, to minimize the possibility that you’ll owe more than your home is worth when you need to sell. Read on for more on how to plan for the long term and minimize your homebuying risk.)
Your income and career are stable for the foreseeable future. The smartest homebuyers look to their lives, not just the market, for signals about when the time is right to buy. Homebuying is a long, long-term endeavor these days. The goal is to be able to commit to staying in the same place, geographically-speaking, for 7 to 10 years before you buy (more in a foreclosure-riddled market, less in an area that has been more recession-resistant). Most lenders will require that you’ve been at your job – or in the same general field of work – for at least two years before you buy. But that’s the bare minimum – beyond that, you don’t want to be barely beginning a career in which you think you may need to move sooner than that, nor do you want to buy when you’re advanced in your career, but in an industry which is dying or downsizing the workforce in your region (unless you have a strong Plan B).
When you get to the spot in your career where you can realistically project a stable income 7 to 10 years out, life might be giving you a green light to move forward on your homebuying dreams.
You can reasonably predict the home you’ll need in the years to come. Since successful homeownership requires that you be ready to be in the place for a good number of years, best practice is not just to buy a home with the space and number of rooms you need right now – rather, you should aim to buy the home you’ll need 5, 7 or even 10 years down the road (to the best of your ability to predict, of course). You might be a newlywed with no kids now, but you plan to have them in a few years. Or maybe you’re a newly minted empty nester right now, but can project that you’ll want to retire - and might not want to climb two flights of stairs to get to and from your bedroom - 10 years down the road. Before you buy, you should be in a position to buy the home that meets your future needs – not just your current ones; and that requires that you have a reasonable idea of your life vision and plan for the future.
If you’re able to predict – and afford, at today’s prices – a home with the space, amenity and geographic location you’ll need 7 to 10 years from now, you might be in a good phase of life to get off the rent vs. buy fence.
With that said. . . buying a home is a massive decision and includes multiple, long-term financial and lifestyle obligations, so if one or more of these signals are present for you, that doesn’t mean you have the green light to run out and buy a home tomorrow – rather, it’s a good sign you should begin down that path, if you’re so inclined. You’ll still need to do the work to make sure your personal finances and holistic life picture are also in alignment before you buy, as well of the work it takes to ensure that your real estate and mortgage decisions are sustainable and smart, over the long-term.
It’s not overkill to check in with a mortgage pro, a tax pro, a local real estate broker or agent and a financial planner to make sure all your ducks – not just one - are in a row before you make your move.
By Trulia
Fortunately, there are handful of life, mortgage and local market signals which indicate that the time *might* be right to hop – scratch that – leap off the fence and into homeownership:
Mortgage rates are going up. Home prices have been low for the last several years, and in fact are currently looking like they’re heading back down to the same levels they were at the depths of the real estate recession. During this same time frame, interest rates have also been low – this one-two punch has created record-high affordability for the last four years running, causing buyers to believe that this window of opportunity won’t be closing anytime soon.
While prices don’t look like they’ll be skyrocketing anytime soon, interest rates are another story. Rates have been on a rollercoaster over the past few months, and with inflation and Fed rates set to spike later this year, today’s low interest rates might be as good as they’re going to get for a long time to come. And I mean a very long time – in the next few years, governmental intervention in the mortgage markets is likely to wind down, and that means higher mortgage interest rates are not only inevitable, they’ll probably be here for a long, long time.
Mortgage rates on the rise are one signal that now might be the peak of home affordability, and the peak of the opportunity to buy.
Rents are going up. Rental rates in many areas are also on the rise – in fact, the foreclosure crisis has acted created additional demand on many markets’ rental housing inventory in several different ways. First, former homeowners who lost homes to foreclosure now need to rent; as well, buyers in foreclosure hot spots have been hesitant to buy, many electing to stay renters far beyond when they would have otherwise. On top of all that, super-tight lending guidelines have stopped even some who would like to buy homes from doing so. As a result, rental homes are in high demand – and rents are rising. Rising rents at a time when the prices of homes for sale are low and, in some places, falling? One more signal that now might just be the time to buy. (Of course, where foreclosures are high, the chances of continued depreciation are, too – to offset this risk, have a long-term plan, to minimize the possibility that you’ll owe more than your home is worth when you need to sell. Read on for more on how to plan for the long term and minimize your homebuying risk.)
Your income and career are stable for the foreseeable future. The smartest homebuyers look to their lives, not just the market, for signals about when the time is right to buy. Homebuying is a long, long-term endeavor these days. The goal is to be able to commit to staying in the same place, geographically-speaking, for 7 to 10 years before you buy (more in a foreclosure-riddled market, less in an area that has been more recession-resistant). Most lenders will require that you’ve been at your job – or in the same general field of work – for at least two years before you buy. But that’s the bare minimum – beyond that, you don’t want to be barely beginning a career in which you think you may need to move sooner than that, nor do you want to buy when you’re advanced in your career, but in an industry which is dying or downsizing the workforce in your region (unless you have a strong Plan B).
When you get to the spot in your career where you can realistically project a stable income 7 to 10 years out, life might be giving you a green light to move forward on your homebuying dreams.
You can reasonably predict the home you’ll need in the years to come. Since successful homeownership requires that you be ready to be in the place for a good number of years, best practice is not just to buy a home with the space and number of rooms you need right now – rather, you should aim to buy the home you’ll need 5, 7 or even 10 years down the road (to the best of your ability to predict, of course). You might be a newlywed with no kids now, but you plan to have them in a few years. Or maybe you’re a newly minted empty nester right now, but can project that you’ll want to retire - and might not want to climb two flights of stairs to get to and from your bedroom - 10 years down the road. Before you buy, you should be in a position to buy the home that meets your future needs – not just your current ones; and that requires that you have a reasonable idea of your life vision and plan for the future.
If you’re able to predict – and afford, at today’s prices – a home with the space, amenity and geographic location you’ll need 7 to 10 years from now, you might be in a good phase of life to get off the rent vs. buy fence.
With that said. . . buying a home is a massive decision and includes multiple, long-term financial and lifestyle obligations, so if one or more of these signals are present for you, that doesn’t mean you have the green light to run out and buy a home tomorrow – rather, it’s a good sign you should begin down that path, if you’re so inclined. You’ll still need to do the work to make sure your personal finances and holistic life picture are also in alignment before you buy, as well of the work it takes to ensure that your real estate and mortgage decisions are sustainable and smart, over the long-term.
It’s not overkill to check in with a mortgage pro, a tax pro, a local real estate broker or agent and a financial planner to make sure all your ducks – not just one - are in a row before you make your move.
By Trulia
A minefield of mortgage charges: What's shopable?
Shopping for a mortgage would be a breeze if borrowers paid only an interest rate and lenders paid for everything else, embedding their expenses in the rate.
The reality is just the opposite: Not only do lenders impose fees of various sorts, but a large number of other players will have their hands in your pocket before you land a mortgage.
The best way for borrowers to navigate this minefield is to identify at the outset the charges that are "shopable" and those that aren't. Don't confuse "shopable" with "negotiable."
A service is shopable if different providers quote different prices, but that does not imply that any of them will negotiate their price. They might or they might not. In many cases, services are shopable, but not negotiable.
Shopping occurs before the borrower has chosen the service provider. It is the only point in a long process at which the borrower is in full control. The service is shopable because the service provider wants to be chosen.
In contrast, negotiations occur (if they occur) after the borrower is at least partly committed to the service provider. Backing out is costly to the borrower, and the further along he is in the process, the higher the cost -- and the less likely it is that the service provider will negotiate.
Lender fees: There are many, but don't get distracted by what they are called or what they are for. The only thing that matters is the total amount at a specified interest rate. It is item A on Page 2 of the new Good Faith Estimate (GFE), but you won't receive that until after you have applied for the loan.
Lender title policy: You are required to purchase a title insurance policy that will cover the lender for the amount of the loan. But you need not buy this policy from the title agency recommended by your REALTOR® or lender. Title insurance can be shopped at EntitleDirect.com and other online providers.
Note that the agent writing the title policy will often be providing the closing services as well, and the focus of the pricing is the sum of the two charges. That should be your focus as well. Shop the sum of the title policy, the closing services and also an owner's title policy if you elect to buy one.
Closing services: These services are provided by the title agent in title agent states, and by an attorney in attorney-preference states, but that should not affect your shopping strategy of combining the two. The GFE combines the two into "Title Services and Lender's Title Insurance".
Owner's title policy: Because the lender's policy only covers the amount of the loan, title insurers offer an optional add-on that covers the remainder of your exposure. For example, if you pay $200,000 for a home and take a $160,000 mortgage, the lender's policy covers title-related losses up to $160,000. To protect $200,000 you have to buy an owner's policy which is available for an additional premium.
The risk that a title claim against your property will arise and require an owner's policy to protect you in full is very small. If you want an owner's policy, you should shop for the complete package covering the lender policy, closing services and owner policy.
Homeowners Insurance: You are required to have a homeowners policy that protects your home against fire and most hazards other than floods. You should have such a policy, even if it were not required. Homeowners insurance is easy to shop for online, at Netquote.com and other sites.
Flood Insurance: If your home is on a flood plain, the definitions of which can change over time, you will be required to purchase flood insurance.
If you don't know that your house is on a flood plain, you will receive the bad news in the appraisal. You can shop for flood insurance at the same time as you shop for homeowners insurance, since the companies that offer one also offer the other.
Jack Guttentag is professor of finance emeritus at the Wharton School of the University of Pennsylvania.
By Jeff Guttentag
The reality is just the opposite: Not only do lenders impose fees of various sorts, but a large number of other players will have their hands in your pocket before you land a mortgage.
The best way for borrowers to navigate this minefield is to identify at the outset the charges that are "shopable" and those that aren't. Don't confuse "shopable" with "negotiable."
A service is shopable if different providers quote different prices, but that does not imply that any of them will negotiate their price. They might or they might not. In many cases, services are shopable, but not negotiable.
Shopping occurs before the borrower has chosen the service provider. It is the only point in a long process at which the borrower is in full control. The service is shopable because the service provider wants to be chosen.
In contrast, negotiations occur (if they occur) after the borrower is at least partly committed to the service provider. Backing out is costly to the borrower, and the further along he is in the process, the higher the cost -- and the less likely it is that the service provider will negotiate.
Lender fees: There are many, but don't get distracted by what they are called or what they are for. The only thing that matters is the total amount at a specified interest rate. It is item A on Page 2 of the new Good Faith Estimate (GFE), but you won't receive that until after you have applied for the loan.
Lender title policy: You are required to purchase a title insurance policy that will cover the lender for the amount of the loan. But you need not buy this policy from the title agency recommended by your REALTOR® or lender. Title insurance can be shopped at EntitleDirect.com and other online providers.
Note that the agent writing the title policy will often be providing the closing services as well, and the focus of the pricing is the sum of the two charges. That should be your focus as well. Shop the sum of the title policy, the closing services and also an owner's title policy if you elect to buy one.
Closing services: These services are provided by the title agent in title agent states, and by an attorney in attorney-preference states, but that should not affect your shopping strategy of combining the two. The GFE combines the two into "Title Services and Lender's Title Insurance".
Owner's title policy: Because the lender's policy only covers the amount of the loan, title insurers offer an optional add-on that covers the remainder of your exposure. For example, if you pay $200,000 for a home and take a $160,000 mortgage, the lender's policy covers title-related losses up to $160,000. To protect $200,000 you have to buy an owner's policy which is available for an additional premium.
The risk that a title claim against your property will arise and require an owner's policy to protect you in full is very small. If you want an owner's policy, you should shop for the complete package covering the lender policy, closing services and owner policy.
Homeowners Insurance: You are required to have a homeowners policy that protects your home against fire and most hazards other than floods. You should have such a policy, even if it were not required. Homeowners insurance is easy to shop for online, at Netquote.com and other sites.
Flood Insurance: If your home is on a flood plain, the definitions of which can change over time, you will be required to purchase flood insurance.
If you don't know that your house is on a flood plain, you will receive the bad news in the appraisal. You can shop for flood insurance at the same time as you shop for homeowners insurance, since the companies that offer one also offer the other.
Jack Guttentag is professor of finance emeritus at the Wharton School of the University of Pennsylvania.
By Jeff Guttentag
New mortgage roadblocks on horizon
Going through the mortgage approval process hasn't been easy these last few years, due to lender tightening and underwriting scrutiny. Aside from requiring mounds of documentation, large down payments, and sterling credit scores, conforming lenders now want more of the buyer's money.
Even though interest rates are low, the borrower's cost of financing has increased recently due to new Fannie Mae and Freddie Mac add-ons to cover the cost of perceived risk factors.
For example, well-qualified buyers with credit scores above 800 and a 20-percent cash-down payment are now charged an extra 1/4 percent of the loan amount. So if you're applying for a $500,000 mortgage, you'll be charged an extra $1,250 at closing. The extra 1/4 percent is waived if the borrower puts 25 percent cash down.
The extra fee is higher for buyers with lower credit scores, lower cash downs and other perceived risks like an interest-only loan.
On April 1, the Dodd-Frank bill regarding mortgage compliance requirements took effect. Part of Dodd-Frank deals with how loan originators (mortgage brokers or loan agents) are compensated.
Dodd-Frank prohibits mortgage originators from basing their loan origination fee on the interest rate or terms of the loan. They cannot steer borrowers to a loan with a higher interest rate in order to collect a higher fee, unless they can prove that this was done in the client's best interest.
Loan originators can still base their fee (called points) on the loan amount. However, under Dodd-Frank loan originators can't charge the buyer points and collect an origination fee from the lender (called rebate financing).
Although the intent of the legislation is to protect consumers from being overcharged, there could be complications for buyers trying to get approved for a mortgage in a timely fashion. Most buyers don't know when they make an offer if they want a loan with points or a no-point loan with a higher interest rate. Dodd-Frank could make it more difficult to move from one loan product to another.
HOUSE-HUNTING TIP: In addition to checking into add-on fees and how Dodd-Frank might affect your ability to switch loan products mid-stream, buyers should find out who their loan originator uses for appraisals. In most cases, mortgage approval is dependent on the lender's underwriter accepting an appraisal of the property that will secure the loan. Appraisals that come in lower than the price the buyers have agreed to pay can cause a transaction to collapse.
Due to changes in Fannie Mae home mortgage appraisal guidelines last year, loan originators are no longer permitted to select the appraiser. They are also prohibited from having any direct contact with the appraiser during the course of the appraisal process. Many mortgage lenders have used third-party appraisal companies to comply with this guideline.
This has in some cases resulted in unsatisfactory appraisals when inexperienced, out-of-area appraisers who don't know the local market are hired to do the job. The third-party companies are often located out of state and they retain a portion of the appraiser's fee. Many good appraisers won't work for these companies.
Local appraisal services have sprung up that provide realistic appraisals from knowledgeable local appraisers. Some lenders and mortgage bankers who weren't satisfied with the quality of the appraisal they received from third-party appraisal companies have set up their own group of local appraisers.
THE CLOSING: An employee from the lender, who is not involved in loan origination, selects the appraiser.
Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist and author.
By Dian Hymer
Even though interest rates are low, the borrower's cost of financing has increased recently due to new Fannie Mae and Freddie Mac add-ons to cover the cost of perceived risk factors.
For example, well-qualified buyers with credit scores above 800 and a 20-percent cash-down payment are now charged an extra 1/4 percent of the loan amount. So if you're applying for a $500,000 mortgage, you'll be charged an extra $1,250 at closing. The extra 1/4 percent is waived if the borrower puts 25 percent cash down.
The extra fee is higher for buyers with lower credit scores, lower cash downs and other perceived risks like an interest-only loan.
On April 1, the Dodd-Frank bill regarding mortgage compliance requirements took effect. Part of Dodd-Frank deals with how loan originators (mortgage brokers or loan agents) are compensated.
Dodd-Frank prohibits mortgage originators from basing their loan origination fee on the interest rate or terms of the loan. They cannot steer borrowers to a loan with a higher interest rate in order to collect a higher fee, unless they can prove that this was done in the client's best interest.
Loan originators can still base their fee (called points) on the loan amount. However, under Dodd-Frank loan originators can't charge the buyer points and collect an origination fee from the lender (called rebate financing).
Although the intent of the legislation is to protect consumers from being overcharged, there could be complications for buyers trying to get approved for a mortgage in a timely fashion. Most buyers don't know when they make an offer if they want a loan with points or a no-point loan with a higher interest rate. Dodd-Frank could make it more difficult to move from one loan product to another.
HOUSE-HUNTING TIP: In addition to checking into add-on fees and how Dodd-Frank might affect your ability to switch loan products mid-stream, buyers should find out who their loan originator uses for appraisals. In most cases, mortgage approval is dependent on the lender's underwriter accepting an appraisal of the property that will secure the loan. Appraisals that come in lower than the price the buyers have agreed to pay can cause a transaction to collapse.
Due to changes in Fannie Mae home mortgage appraisal guidelines last year, loan originators are no longer permitted to select the appraiser. They are also prohibited from having any direct contact with the appraiser during the course of the appraisal process. Many mortgage lenders have used third-party appraisal companies to comply with this guideline.
This has in some cases resulted in unsatisfactory appraisals when inexperienced, out-of-area appraisers who don't know the local market are hired to do the job. The third-party companies are often located out of state and they retain a portion of the appraiser's fee. Many good appraisers won't work for these companies.
Local appraisal services have sprung up that provide realistic appraisals from knowledgeable local appraisers. Some lenders and mortgage bankers who weren't satisfied with the quality of the appraisal they received from third-party appraisal companies have set up their own group of local appraisers.
THE CLOSING: An employee from the lender, who is not involved in loan origination, selects the appraiser.
Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist and author.
By Dian Hymer
Monday, April 4, 2011
Make cost-effective home improvements
Imagine walking into an important job interview looking like you just dragged yourself out of bed. You'd be unlikely to make a good impression and diminish your chance of securing the job.
The same goes for selling a home. First impressions are lasting. Some buyers won't even look at the inside of a listing that doesn't have good curb appeal.
Today's buyers are picky. There is no sense of urgency in the market, so buyers are holding out for the best home they can find that will work for them for years to come. In some areas, there are a lot of homes for sale. It's important to make sure that buyers will be attracted to your home before they even walk through the front door.
Fortunately, exterior improvements needn't be expensive. The recent Remodeling Cost vs. Value Report 2010-2011 found that the improvements that yielded the highest return on the investment when sold were a new steel front door and a new garage door.
The average cost nationally for a new front door was $1,218; the return was 102 percent. The average cost for a new garage door was $1,191; the return was 83.9 percent. The top nine of 10 most cost-effective improvements nationally were for exterior projects. Curb appeal is as important as ever, and may be more so in this market.
The Remodeling Cost vs. Value Report is a collaborative report done annually by Remodeling Magazine and the NATIONAL ASSOCIATION OF REALTORS®. It compares construction costs with resale values, which are based on estimates from more than 3,000 REALTORS® and appraisers.
Sprucing up the front yard for sale needn't be costly. Clean out weeds and dead plants. Add flowering plants for color and mulch to tidy up areas that aren't heavily planted. Replace a lawn that has seen better days with less lawn and a border bed of flowering shrubs.
Do in-ground planting well in advance, if possible, so that plants have a chance to get established before your home goes on the market. If you have no choice and must plant at last minute, be sure to remove the ID tags from the nursery.
A deteriorated fence should be removed, repaired or replaced. Any peeling paint on the front walk and steps and house exterior and trim should be refreshed. The side of the house that gets the most exposure needs the most maintenance. If you've let it go, you'll be docked dollars by the buyers unless you repaint where needed before you sell.
HOUSE HUNTING TIP: The amount returned on home improvement investments varies from one location to the next. It's important to consult with your local real estate agent before you embark on an upgrade to make sure that you don't overpay on an improvement that won't generate the desired result. Most homeowners assume they'll get their money back and more when they sell. In fact, most upgrade investments often don't return 100 percent of the amount invested, particularly in a down market.
A minor mid-range kitchen remodel returns 72.8 percent nationally, according to the 2010-11 Remodeling Cost vs. Value Index. In the Pacific region of the U.S., you're likely to recoup 84.1 percent.
However, a major upscale kitchen remodel pays back only 59.7 percent nationally and 66 percent in the Pacific region. It makes sense to take on a major remodel project only if you're staying in your home and can enjoy the use of the improvements before selling. A deck addition ranked high on the list of popular exterior improvements. Although, nationally the cost recouped is only 72.8 percent, it may be an essential enhancement if your home has no outdoor living space and all the homes for sale in your neighborhood do.
THE CLOSING: Supply and demand in your local area will also impact how much you'll recoup from your fix-up investments.
By Dian Hymer
Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist and author.
The same goes for selling a home. First impressions are lasting. Some buyers won't even look at the inside of a listing that doesn't have good curb appeal.
Today's buyers are picky. There is no sense of urgency in the market, so buyers are holding out for the best home they can find that will work for them for years to come. In some areas, there are a lot of homes for sale. It's important to make sure that buyers will be attracted to your home before they even walk through the front door.
Fortunately, exterior improvements needn't be expensive. The recent Remodeling Cost vs. Value Report 2010-2011 found that the improvements that yielded the highest return on the investment when sold were a new steel front door and a new garage door.
The average cost nationally for a new front door was $1,218; the return was 102 percent. The average cost for a new garage door was $1,191; the return was 83.9 percent. The top nine of 10 most cost-effective improvements nationally were for exterior projects. Curb appeal is as important as ever, and may be more so in this market.
The Remodeling Cost vs. Value Report is a collaborative report done annually by Remodeling Magazine and the NATIONAL ASSOCIATION OF REALTORS®. It compares construction costs with resale values, which are based on estimates from more than 3,000 REALTORS® and appraisers.
Sprucing up the front yard for sale needn't be costly. Clean out weeds and dead plants. Add flowering plants for color and mulch to tidy up areas that aren't heavily planted. Replace a lawn that has seen better days with less lawn and a border bed of flowering shrubs.
Do in-ground planting well in advance, if possible, so that plants have a chance to get established before your home goes on the market. If you have no choice and must plant at last minute, be sure to remove the ID tags from the nursery.
A deteriorated fence should be removed, repaired or replaced. Any peeling paint on the front walk and steps and house exterior and trim should be refreshed. The side of the house that gets the most exposure needs the most maintenance. If you've let it go, you'll be docked dollars by the buyers unless you repaint where needed before you sell.
HOUSE HUNTING TIP: The amount returned on home improvement investments varies from one location to the next. It's important to consult with your local real estate agent before you embark on an upgrade to make sure that you don't overpay on an improvement that won't generate the desired result. Most homeowners assume they'll get their money back and more when they sell. In fact, most upgrade investments often don't return 100 percent of the amount invested, particularly in a down market.
A minor mid-range kitchen remodel returns 72.8 percent nationally, according to the 2010-11 Remodeling Cost vs. Value Index. In the Pacific region of the U.S., you're likely to recoup 84.1 percent.
However, a major upscale kitchen remodel pays back only 59.7 percent nationally and 66 percent in the Pacific region. It makes sense to take on a major remodel project only if you're staying in your home and can enjoy the use of the improvements before selling. A deck addition ranked high on the list of popular exterior improvements. Although, nationally the cost recouped is only 72.8 percent, it may be an essential enhancement if your home has no outdoor living space and all the homes for sale in your neighborhood do.
THE CLOSING: Supply and demand in your local area will also impact how much you'll recoup from your fix-up investments.
By Dian Hymer
Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist and author.
How public record errors hurt real estate sellers
Real estate buyers today often turn down a listing because they think it's priced too high relative to the livable square feet it has to offer. In some neighborhoods, like planned unit developments, price per square foot might be a fairly reliable value indicator because there is little variability in the housing stock. It's of limited use in neighborhoods with great variability in home style, size, age and condition.
Regardless of what the sellers report as the livable square footage, the buyers usually want to know what the public record on the home says. For example, if the sellers say their house has 3,000 square feet of living space, but the public record reports only 2,300 square feet, the buyers expect an explanation for the discrepancy.
It's not only prospective buyers who are concerned when the public record differs from what is reported in the multiple listing service. Due to recent lender tightening, many appraisers consider only legal square footage, that can be verified with a building permit, to establish valuation.
Owners of homes that were added onto over the years without the benefit of building permits from the local planning authority could end up with a low appraised value. A lender will lend only a certain amount (usually 80-95 percent of the appraised value). If the price on the purchase contract is much higher, the transaction could fall apart unless the buyers put down more cash or the sellers lower the price, or both.
A low appraisal might not cause a problem if the buyers are making a large cash down payment. If they make a 50 percent cash down payment ($150,000) for the purchase of a $300,000 house and the house appraises for $250,000, the lender will likely lend up to $200,000 with 20 percent down, or $50,000. However, if the purchase contract includes an appraisal contingency, the buyers could withdraw without penalty based on the low appraisal.
HOUSE HUNTING TIP: The information reported in the public record is often wrong. Before you put your home on the market, find out what the public record reports on the characteristics of your home and try to correct any mistakes that could work against a sale.
In California, properties are reassessed for property taxes based on renovations and additions done legally, with permits. Often, the local assessor's office will update its record but the information doesn't get into the public record that is accessible by real estate agents, buyers and appraisers.
In one case, a couple had purchased a vacant lot and architectural plans from the previous owner who couldn't afford to build. The couple then added more than 1,000 square feet to the plans and built a bigger house.
The public record showed a 3,600-square-foot house, which was the size of the house that was originally planned. The Certificate of Occupancy issued by the city planning department reflected the larger 4,800-square-foot house that was built. Armed with this documentation, the appraiser had no problem appraising the property for the purchase price.
Sometimes, when an addition is made to a home, the public record is not amended to include the additional square footage. In some areas, a seller can visit the Assessor's Office and ask for a copy of the Property Characteristics Report on their home. If it's not accurate, the seller can request that changes be made.
Mistakes in the public record aren't confined to livable square feet. The public record also includes information about such things as the number of total rooms, the number of bedrooms and bathrooms, and whether there's a garage.
THE CLOSING: It can take months for changes to show up in the public record, so start working on this early.
By Dian Hymer
Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist and author.
Regardless of what the sellers report as the livable square footage, the buyers usually want to know what the public record on the home says. For example, if the sellers say their house has 3,000 square feet of living space, but the public record reports only 2,300 square feet, the buyers expect an explanation for the discrepancy.
It's not only prospective buyers who are concerned when the public record differs from what is reported in the multiple listing service. Due to recent lender tightening, many appraisers consider only legal square footage, that can be verified with a building permit, to establish valuation.
Owners of homes that were added onto over the years without the benefit of building permits from the local planning authority could end up with a low appraised value. A lender will lend only a certain amount (usually 80-95 percent of the appraised value). If the price on the purchase contract is much higher, the transaction could fall apart unless the buyers put down more cash or the sellers lower the price, or both.
A low appraisal might not cause a problem if the buyers are making a large cash down payment. If they make a 50 percent cash down payment ($150,000) for the purchase of a $300,000 house and the house appraises for $250,000, the lender will likely lend up to $200,000 with 20 percent down, or $50,000. However, if the purchase contract includes an appraisal contingency, the buyers could withdraw without penalty based on the low appraisal.
HOUSE HUNTING TIP: The information reported in the public record is often wrong. Before you put your home on the market, find out what the public record reports on the characteristics of your home and try to correct any mistakes that could work against a sale.
In California, properties are reassessed for property taxes based on renovations and additions done legally, with permits. Often, the local assessor's office will update its record but the information doesn't get into the public record that is accessible by real estate agents, buyers and appraisers.
In one case, a couple had purchased a vacant lot and architectural plans from the previous owner who couldn't afford to build. The couple then added more than 1,000 square feet to the plans and built a bigger house.
The public record showed a 3,600-square-foot house, which was the size of the house that was originally planned. The Certificate of Occupancy issued by the city planning department reflected the larger 4,800-square-foot house that was built. Armed with this documentation, the appraiser had no problem appraising the property for the purchase price.
Sometimes, when an addition is made to a home, the public record is not amended to include the additional square footage. In some areas, a seller can visit the Assessor's Office and ask for a copy of the Property Characteristics Report on their home. If it's not accurate, the seller can request that changes be made.
Mistakes in the public record aren't confined to livable square feet. The public record also includes information about such things as the number of total rooms, the number of bedrooms and bathrooms, and whether there's a garage.
THE CLOSING: It can take months for changes to show up in the public record, so start working on this early.
By Dian Hymer
Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist and author.
Little-known secret to reduce mortgage payment
A mortgage recast is an adjustment in the monthly payment that makes the payment fully amortizing. The recast will be a payment increase when the existing payment is less than fully amortizing, and a payment decrease when the existing payment is more than fully amortizing.
For example, let's say your home loan has a balance of $100,000 at 5 percent with 300 months to go and a payment of $450 that, if continued, will not pay off the balance. The payment recast is an increase to $584.60, which will fully amortize the balance over 300 months. However, if the current payment was $650, the recast would be a payment decrease to $584.60.
Payment-increase recasts occur on two kinds of mortgages. One carries an interest-only option, where the required payment for some initial period, often 10 years, covers only the interest. The payment-increase recast occurs at the end of the interest-only period.
The second type of mortgage open to a payment-increase recast is the adjustable-rate mortgage (ARM) that allows payments that are less than fully amortizing. These ARMs sometimes have recasts at specified intervals, often every five years, or the recast may be triggered by the loan balance reaching some limiting value, such as 110 percent of the original loan amount. This can happen at any time, or it may not happen at all.
Payment-increase recasts are designed to protect the interest of the lender by making sure that the loan will pay off as scheduled. All interest-only loans and all ARMs that allow payments that are less than fully amortizing have explicit provisions for recasts in the loan contract.
Provisions for payment-decrease recasts, in contrast, which are designed to meet the needs of borrowers, are not included in loan contracts. The lender can agree to a recast; can agree subject to a charge, which can range from nominal to extortionate; or can refuse it. I have encountered all three such responses.
The borrowers who request recasts usually have fixed-rate mortgages (FRMs) on which they have been making extra payments in order to pay off before term, and then unexpectedly encounter a financial reversal. With their income reduced, their objective shifts from paying off early to reducing the payment, for which purpose they need a recast. They deserve it, and the cost to the lender is nominal, but some lenders will take advantage of them just because they can.
The borrower's right to a payment-reducing recast ought to be mandatory for all home mortgage contracts. Borrowers should not have to grovel for what can be critically important to them and of little consequence to lenders. Making recasts into a right would have the side benefit of encouraging borrowers to make extra payments as a form of contingency insurance.
Note that payment-reducing recasts are needed for fixed-rate mortgages much more than for ARMs. The reason is that when the interest rate is adjusted on an ARM, the payment is automatically recast. On ARMs that reset the rate every year, no additional recasts are needed. On ARMs with initial rate periods of 5-10 years, however, the need for a recast can arise in the early years just as it does on FRMs.
Today, borrowers are motivated to make extra payments primarily with the hope of getting out of debt sooner. With a right of recast made explicit, they will also view extra payments as a worst-case backstop. The more you pay when you have the means, the larger the payment reduction you can command in an emergency. I can't think of an easier way to motivate consumers to save more.
By Jack Guttentag
Jack Guttentag is professor of finance emeritus at the Wharton School of the University of Pennsylvania.
For example, let's say your home loan has a balance of $100,000 at 5 percent with 300 months to go and a payment of $450 that, if continued, will not pay off the balance. The payment recast is an increase to $584.60, which will fully amortize the balance over 300 months. However, if the current payment was $650, the recast would be a payment decrease to $584.60.
Payment-increase recasts occur on two kinds of mortgages. One carries an interest-only option, where the required payment for some initial period, often 10 years, covers only the interest. The payment-increase recast occurs at the end of the interest-only period.
The second type of mortgage open to a payment-increase recast is the adjustable-rate mortgage (ARM) that allows payments that are less than fully amortizing. These ARMs sometimes have recasts at specified intervals, often every five years, or the recast may be triggered by the loan balance reaching some limiting value, such as 110 percent of the original loan amount. This can happen at any time, or it may not happen at all.
Payment-increase recasts are designed to protect the interest of the lender by making sure that the loan will pay off as scheduled. All interest-only loans and all ARMs that allow payments that are less than fully amortizing have explicit provisions for recasts in the loan contract.
Provisions for payment-decrease recasts, in contrast, which are designed to meet the needs of borrowers, are not included in loan contracts. The lender can agree to a recast; can agree subject to a charge, which can range from nominal to extortionate; or can refuse it. I have encountered all three such responses.
The borrowers who request recasts usually have fixed-rate mortgages (FRMs) on which they have been making extra payments in order to pay off before term, and then unexpectedly encounter a financial reversal. With their income reduced, their objective shifts from paying off early to reducing the payment, for which purpose they need a recast. They deserve it, and the cost to the lender is nominal, but some lenders will take advantage of them just because they can.
The borrower's right to a payment-reducing recast ought to be mandatory for all home mortgage contracts. Borrowers should not have to grovel for what can be critically important to them and of little consequence to lenders. Making recasts into a right would have the side benefit of encouraging borrowers to make extra payments as a form of contingency insurance.
Note that payment-reducing recasts are needed for fixed-rate mortgages much more than for ARMs. The reason is that when the interest rate is adjusted on an ARM, the payment is automatically recast. On ARMs that reset the rate every year, no additional recasts are needed. On ARMs with initial rate periods of 5-10 years, however, the need for a recast can arise in the early years just as it does on FRMs.
Today, borrowers are motivated to make extra payments primarily with the hope of getting out of debt sooner. With a right of recast made explicit, they will also view extra payments as a worst-case backstop. The more you pay when you have the means, the larger the payment reduction you can command in an emergency. I can't think of an easier way to motivate consumers to save more.
By Jack Guttentag
Jack Guttentag is professor of finance emeritus at the Wharton School of the University of Pennsylvania.
Tuesday, March 1, 2011
Preapprovals prove less reliable
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Five steps to first-time-buyer happiness
The first step in the home-buying process is to find out what you can afford to pay for a house, condo or co-op. This will depend on the amount of cash you have available for a down payment, your credit, income, assets, and overall financial situation.
Mortgage qualification is easier for buyers who work as employees whose income can be easily verified. Self-employed individuals or buyers with income from investments may find the qualification process more difficult.
A wrinkle in the financing end of the home-buying process is that it's not as easy to get a preapproval letter from your mortgage broker or loan agent as it used to be. As of Jan. 1, 2010, the Department of Housing and Urban Development (HUD) began requiring lenders and mortgages brokers to issue a binding Good Faith Estimate (GFE) within three days of receiving a loan application.
Before then, buyers shopped around for a mortgage. When they saw a house they wanted to buy, they asked their loan agent or broker to provide a preapproval letter to accompany their purchase offer. The loan person would run a credit check and verify the buyers' income and assets without, in many cases, taking a formal loan application. On the basis of this information, a preapproval letter was written.
Without a formal loan application, many lenders today will issue only a prequalification letter, which does not carry the weight of a preapproval letter. Find out from the loan representatives you talk with what kind of letter they can provide and what you have to do to get a preapproval letter.
HOUSE HUNTING TIP: You are in a much stronger position negotiating with a seller if you have a preapproval letter stating that you are qualified for the mortgage you will need to close the sale. It could be essential if you are in a multiple-offer competition. A prequalification letter may suffice in an area where there is a surplus of inventory of unsold homes.
Your goal is to buy in the best neighborhood you can afford without overextending yourself financially. Don't buy a home that you will outgrow in the next couple of years. The economic recovery is going to take years. You don't want to be caught having to sell at a price lower than what you paid. Even if prices don't decline further, you won't break even if you sell for the price you paid after taking the costs of sale into account.
Buy a home that has good resale potential. Many homes that aren't selling in today's market have incurable defects, such as a steep or shared driveway, a lot of stairs leading to the front door, or a location on a busy street, next to a freeway or too close to a commercial zone. An incurable defect is one you can't change. A curable defect includes such things as deferred maintenance or an outdated décor. These can be improved.
When home prices are escalating, buyers are more willing to compromise. They'll buy a home with an incurable defect, just to have the opportunity to buy in their desired neighborhood. Sellers don't always have control over when they sell.
THE CLOSING: It makes sense to buy a house that has broad-based appeal and will sell well in any market.
-By Dian Hymer
Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist and author.
Mortgage qualification is easier for buyers who work as employees whose income can be easily verified. Self-employed individuals or buyers with income from investments may find the qualification process more difficult.
A wrinkle in the financing end of the home-buying process is that it's not as easy to get a preapproval letter from your mortgage broker or loan agent as it used to be. As of Jan. 1, 2010, the Department of Housing and Urban Development (HUD) began requiring lenders and mortgages brokers to issue a binding Good Faith Estimate (GFE) within three days of receiving a loan application.
Before then, buyers shopped around for a mortgage. When they saw a house they wanted to buy, they asked their loan agent or broker to provide a preapproval letter to accompany their purchase offer. The loan person would run a credit check and verify the buyers' income and assets without, in many cases, taking a formal loan application. On the basis of this information, a preapproval letter was written.
Without a formal loan application, many lenders today will issue only a prequalification letter, which does not carry the weight of a preapproval letter. Find out from the loan representatives you talk with what kind of letter they can provide and what you have to do to get a preapproval letter.
HOUSE HUNTING TIP: You are in a much stronger position negotiating with a seller if you have a preapproval letter stating that you are qualified for the mortgage you will need to close the sale. It could be essential if you are in a multiple-offer competition. A prequalification letter may suffice in an area where there is a surplus of inventory of unsold homes.
Your goal is to buy in the best neighborhood you can afford without overextending yourself financially. Don't buy a home that you will outgrow in the next couple of years. The economic recovery is going to take years. You don't want to be caught having to sell at a price lower than what you paid. Even if prices don't decline further, you won't break even if you sell for the price you paid after taking the costs of sale into account.
Buy a home that has good resale potential. Many homes that aren't selling in today's market have incurable defects, such as a steep or shared driveway, a lot of stairs leading to the front door, or a location on a busy street, next to a freeway or too close to a commercial zone. An incurable defect is one you can't change. A curable defect includes such things as deferred maintenance or an outdated décor. These can be improved.
When home prices are escalating, buyers are more willing to compromise. They'll buy a home with an incurable defect, just to have the opportunity to buy in their desired neighborhood. Sellers don't always have control over when they sell.
THE CLOSING: It makes sense to buy a house that has broad-based appeal and will sell well in any market.
-By Dian Hymer
Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist and author.
Monday, February 7, 2011
HUD monitoring REO vendors
The U.S. Department of Housing and Urban Development (HUD) has hired a consultant to help it track the performance of vendors it employs to manage, maintain, market and sell foreclosed FHA homes.
HUD is using a real estate owned (REO) performance evaluation model developed by Walzak Consulting Inc. of Deerfield Beach, Fla., to measure whether vendors are following HUD guidelines and providing cost-effective and reliable performance, the company said.
The model will allow HUD to understand what factors produce the best results when measuring vendor performance, and reward top-performing companies by assigning them more properties to manage.
Under a new Federal Housing Administration management and marketing program detailed in a November 2010 Federal Register notice, HUD employs three types of vendors to help it dispose of REO properties:
• Mortgagee compliance managers, who are intended to protect HUD's interests by reviewing property inspections and providing guidance to lenders on their responsibilities;
• Field service managers, who inspect, secure and maintain properties;
• Asset managers, who are responsible for the marketing and sale of REO properties.
Brokers who wish to list HUD REO properties must be selected by HUD's asset manager vendors.
Any broker can represent buyers interested in HUD REO homes by submitting a broker application and selling-broker certification form to HUD and being assigned a name and address identification number (NAID). Only brokers who are registered with HUD may show homes and submit contracts for purchase.
HUD pays brokers a commission of up to 6 percent of the selling price, to be split evenly between the listing broker and selling broker (also known as a buyer's broker).
Before HUD REO properties are publicly listed for sale, they are evaluated to determine if they qualify for a "first look" and direct sale to local governments and FHA-approved nonprofit organizations. Those properties are generally located in designated Revitalization Areas.
HUD REO properties that are not sold under any special programs are listed on HUD Home Store and multiple listing services, and offered on an exclusive, priority basis to owner-occupant purchasers. Following an exclusive sales period, unsold properties are then made available for purchase to all interested buyers, including investors.
As of November 2010, HUD's inventory of REO properties totaled 55,486, up 37 percent from the same time a year ago.
Not including reverse mortgages, FHA insured loans on 6.75 million homes, up 18 percent from November 2009, and 568,863 of those loans were in default -- an 11 percent increase from a year ago.
Although some of those borrowers will be able to get current on their loan, obtain a loan modification, or negotiate a short sale, many will be foreclosed on. Lenders convey properties that complete the foreclosure process to HUD after filing an FHA insurance claim.
Top perfomers will get more homes to manage
By Inman News
HUD is using a real estate owned (REO) performance evaluation model developed by Walzak Consulting Inc. of Deerfield Beach, Fla., to measure whether vendors are following HUD guidelines and providing cost-effective and reliable performance, the company said.
The model will allow HUD to understand what factors produce the best results when measuring vendor performance, and reward top-performing companies by assigning them more properties to manage.
Under a new Federal Housing Administration management and marketing program detailed in a November 2010 Federal Register notice, HUD employs three types of vendors to help it dispose of REO properties:
• Mortgagee compliance managers, who are intended to protect HUD's interests by reviewing property inspections and providing guidance to lenders on their responsibilities;
• Field service managers, who inspect, secure and maintain properties;
• Asset managers, who are responsible for the marketing and sale of REO properties.
Brokers who wish to list HUD REO properties must be selected by HUD's asset manager vendors.
Any broker can represent buyers interested in HUD REO homes by submitting a broker application and selling-broker certification form to HUD and being assigned a name and address identification number (NAID). Only brokers who are registered with HUD may show homes and submit contracts for purchase.
HUD pays brokers a commission of up to 6 percent of the selling price, to be split evenly between the listing broker and selling broker (also known as a buyer's broker).
Before HUD REO properties are publicly listed for sale, they are evaluated to determine if they qualify for a "first look" and direct sale to local governments and FHA-approved nonprofit organizations. Those properties are generally located in designated Revitalization Areas.
HUD REO properties that are not sold under any special programs are listed on HUD Home Store and multiple listing services, and offered on an exclusive, priority basis to owner-occupant purchasers. Following an exclusive sales period, unsold properties are then made available for purchase to all interested buyers, including investors.
As of November 2010, HUD's inventory of REO properties totaled 55,486, up 37 percent from the same time a year ago.
Not including reverse mortgages, FHA insured loans on 6.75 million homes, up 18 percent from November 2009, and 568,863 of those loans were in default -- an 11 percent increase from a year ago.
Although some of those borrowers will be able to get current on their loan, obtain a loan modification, or negotiate a short sale, many will be foreclosed on. Lenders convey properties that complete the foreclosure process to HUD after filing an FHA insurance claim.
Top perfomers will get more homes to manage
By Inman News
Need-to-knows before you buy
There are obvious decisions that need to be made before embarking on a home purchase. How much can you afford to pay? How much do you feel comfortable paying? Which neighborhoods offer the kinds of homes and amenities -- like good schools, shops and transportation nearby -- that you want? How secure is your employment? Do you have enough cash reserves for emergencies?
In addition to these practical considerations, you should find out as much as possible about the local area. Does it have a strong and diversified economic base? Is employment improving or are employers laying workers off? Are businesses moving into or out of the area?
Are new facilities planned that will impact the community, like a freeway that might change the character of a neighborhood by creating unwanted noise? This could negatively impact property values.
However, a new rapid transit station under construction within walking distance of where you want to buy could make commuting to the closest urban center easier. This might have a positive impact on local property values and cut your commute time considerably.
HOUSE HUNTING TIP: Residential real estate is a localized business. Home prices differ from one area to the next. State laws governing home-sale transactions also differ. Federal law requires sellers to disclose lead-based-paint hazards. But, state laws differ on whether or not sellers need to disclose other defects, like a drainage problem. Many states have mandatory seller disclosure requirements. In other states, seller disclosures are voluntary, not mandatory.
Agency relationships also vary from state to state. For example, dual agency, where one broker represents both the buyer and seller, is illegal in many states. It's legal in others. In states where dual agency is legal, like California, the broker has a split loyalty to the buyer and seller. However, in states like Massachusetts, Michigan and North Carolina, designated agency is an option. With designated agency, both buyer and seller are represented by the same broker, but by different agents. Each agent owes loyalty to the party he or she is representing.
It's important that your real estate agent explain the different agency relationships recognized in your state, particularly if you're coming from another state where different agency relationships are recognized. You should also find out how much disclosure about property defects you can expect to receive from the sellers. You should always have a property you're considering buying thoroughly inspected by qualified professionals. Include an inspection contingency in the contract even if the sellers have provided presale inspection reports.
Work with a knowledgeable, experienced local real estate agent that can inform you about issues, statutes and ordinances that will affect you when you buy or sell a home in the area. Many real estate companies require buyers and sellers to sign generic disclosures, sometimes 10-18 pages long, covering such things as ordinances, disclosures and agency laws, rent control and schools.
THE CLOSING: Be sure to read these and ask your agent if you have any questions. Most buyers and sellers don't take the time.
Local economy, seller disclosures can impact resale value
By Dian Hymer
Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist and author.
In addition to these practical considerations, you should find out as much as possible about the local area. Does it have a strong and diversified economic base? Is employment improving or are employers laying workers off? Are businesses moving into or out of the area?
Are new facilities planned that will impact the community, like a freeway that might change the character of a neighborhood by creating unwanted noise? This could negatively impact property values.
However, a new rapid transit station under construction within walking distance of where you want to buy could make commuting to the closest urban center easier. This might have a positive impact on local property values and cut your commute time considerably.
HOUSE HUNTING TIP: Residential real estate is a localized business. Home prices differ from one area to the next. State laws governing home-sale transactions also differ. Federal law requires sellers to disclose lead-based-paint hazards. But, state laws differ on whether or not sellers need to disclose other defects, like a drainage problem. Many states have mandatory seller disclosure requirements. In other states, seller disclosures are voluntary, not mandatory.
Agency relationships also vary from state to state. For example, dual agency, where one broker represents both the buyer and seller, is illegal in many states. It's legal in others. In states where dual agency is legal, like California, the broker has a split loyalty to the buyer and seller. However, in states like Massachusetts, Michigan and North Carolina, designated agency is an option. With designated agency, both buyer and seller are represented by the same broker, but by different agents. Each agent owes loyalty to the party he or she is representing.
It's important that your real estate agent explain the different agency relationships recognized in your state, particularly if you're coming from another state where different agency relationships are recognized. You should also find out how much disclosure about property defects you can expect to receive from the sellers. You should always have a property you're considering buying thoroughly inspected by qualified professionals. Include an inspection contingency in the contract even if the sellers have provided presale inspection reports.
Work with a knowledgeable, experienced local real estate agent that can inform you about issues, statutes and ordinances that will affect you when you buy or sell a home in the area. Many real estate companies require buyers and sellers to sign generic disclosures, sometimes 10-18 pages long, covering such things as ordinances, disclosures and agency laws, rent control and schools.
THE CLOSING: Be sure to read these and ask your agent if you have any questions. Most buyers and sellers don't take the time.
Local economy, seller disclosures can impact resale value
By Dian Hymer
Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist and author.
Monday, January 3, 2011
Real estate negotiation tips that pay off
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Best time to make a price adjustment
There was a time when a price reduction tainted a listing. That was several years ago when listings in many areas sold quickly. At that time, it was assumed that something was wrong with a listing if it needed a price reduction.
In today's market, price reductions are common. Sometimes, sellers aren't content with listing unless they try a price that's higher than what the comparable sales data indicate. Or, a price reduction could be necessary simply because it's difficult to price homes in a changing market, particularly if the local housing stock is varied in size, condition, age and style.
It's easier to establish current market value in housing developments where the homes are similar to one another, particularly if there are a number of recent comparable sales. It's hard to price right for the market in any neighborhood if few or no homes have sold recently.
It's best to list your home at a price that buyers will perceive as a good value. Overpriced listings sit on the market. Real estate agents and buyers forget about them.
The home-sale market slowed in some areas this summer. Today's buyers are cautious about buying. Some are back on the fence waiting for a clear sign that the market has hit bottom and that prices won't drop further.
Although some markets appear to have stabilized, there is no guarantee that prices won't slip. Buyers who realize that they can't time the market and who want to take advantage of low interest rates are moving ahead with their home search. They are very selective, are buying for the long term, will wait for the right home, and won't pay over market value.
HOUSE HUNTING TIP: As difficult as it may be for sellers to consider a price reduction after only a couple of weeks on the market, this is often the best strategy. Buyers and their agents focus on the new listings. If you bring your home on the market priced too high, but it's otherwise a nice house in good condition and in a good location, a price reduction early in the marketing period is likely to attract the attention of agents and buyers who still have the listing fresh in their minds.
Make sure that your agent gives your listing a renewed marketing effort to generate enthusiasm about the property. More than 85 percent of today's home buyers use the Internet to search for a home. Some sign up for services that notify buyers when a new listing is submitted to the multiple listing service (MLS) and when there is a price reduction or pending sale.
Your agent should schedule an open house for brokers as soon as possible after a price reduction to alert real estate agents who may have missed the price reduction when they ran an MLS update. MLS updates list price changes.
It's a good idea to have a Sunday open house for the public as soon as possible after the price is reduced. The open house ads for the open house should showcase the price reduction.
Depending on your local market, you may need to lower the price more than once, particularly if you waited months to make a price adjustment. If market values have moved down since you listed, you could find yourself out of sync with the market again. Don't rely on what your neighbors are asking for their homes. If they aren't selling, they are probably overpriced for the market. Rely on sales of comparable properties that closed after you put your home on the market.
THE CLOSING: Ideally, you want to reduce the price before your competition does.
Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist and author.
In today's market, price reductions are common. Sometimes, sellers aren't content with listing unless they try a price that's higher than what the comparable sales data indicate. Or, a price reduction could be necessary simply because it's difficult to price homes in a changing market, particularly if the local housing stock is varied in size, condition, age and style.
It's easier to establish current market value in housing developments where the homes are similar to one another, particularly if there are a number of recent comparable sales. It's hard to price right for the market in any neighborhood if few or no homes have sold recently.
It's best to list your home at a price that buyers will perceive as a good value. Overpriced listings sit on the market. Real estate agents and buyers forget about them.
The home-sale market slowed in some areas this summer. Today's buyers are cautious about buying. Some are back on the fence waiting for a clear sign that the market has hit bottom and that prices won't drop further.
Although some markets appear to have stabilized, there is no guarantee that prices won't slip. Buyers who realize that they can't time the market and who want to take advantage of low interest rates are moving ahead with their home search. They are very selective, are buying for the long term, will wait for the right home, and won't pay over market value.
HOUSE HUNTING TIP: As difficult as it may be for sellers to consider a price reduction after only a couple of weeks on the market, this is often the best strategy. Buyers and their agents focus on the new listings. If you bring your home on the market priced too high, but it's otherwise a nice house in good condition and in a good location, a price reduction early in the marketing period is likely to attract the attention of agents and buyers who still have the listing fresh in their minds.
Make sure that your agent gives your listing a renewed marketing effort to generate enthusiasm about the property. More than 85 percent of today's home buyers use the Internet to search for a home. Some sign up for services that notify buyers when a new listing is submitted to the multiple listing service (MLS) and when there is a price reduction or pending sale.
Your agent should schedule an open house for brokers as soon as possible after a price reduction to alert real estate agents who may have missed the price reduction when they ran an MLS update. MLS updates list price changes.
It's a good idea to have a Sunday open house for the public as soon as possible after the price is reduced. The open house ads for the open house should showcase the price reduction.
Depending on your local market, you may need to lower the price more than once, particularly if you waited months to make a price adjustment. If market values have moved down since you listed, you could find yourself out of sync with the market again. Don't rely on what your neighbors are asking for their homes. If they aren't selling, they are probably overpriced for the market. Rely on sales of comparable properties that closed after you put your home on the market.
THE CLOSING: Ideally, you want to reduce the price before your competition does.
Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist and author.
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