February 2011


30-Year Rates Drop Slightly, But Still 5%

The 30-year fixed rate mortgage averaged 5 percent this week, after breaking the 5 percent mark last week for the first time in nearly a year, according to the Freddie Mac weekly mortgage market survey. Last week, the 30-year mortgage rate averaged 5.05 percent.

“Fixed mortgage rates eased slightly this week and continue to be very affordable,” says Frank Nothaft, Freddie Mac chief economist. “Prior to 2009, interest rates for 30-year fixed rate mortgages had never been at 5 percent since our survey began in April 1971. In both 1981 and 1982, the rates were over three times as high as they are today. … The housing market is struggling to regain traction despite still historically low rates.”

Here’s how other rates fared for the week:

  • 15-year fixed-rate mortgage averaged 4.27 percent, down from last week’s 4.29 percent.
  • 5-year adjustable-rate mortgage averaged 3.87 percent, down from last week’s 3.92 percent.
  • 1-year adjustable-rate mortgage averaged 3.39 percent, up slightly from last week’s 3.35 percent.

Source: “30-Year Fixed-Rate Mortgage Drops to 5 Percent,” Freddie Mac (Feb. 17, 2011)

New Fed Rule May Lower Costs for Borrowers

A new Federal Reserve rule that takes effect April 1 is expected to lead to lower costs for borrowers, but some experts say it’s going to hurt the mortgage industry.

Under the new rule, borrowers who get their mortgages through brokers likely will pay less for services and brokers will be required to offer borrowers the lowest possible interest rate and fees that they qualify for. Most banks and other direct lenders, including some mortgage companies that operate like banks, are exempt from the rule.

The new Federal Reserve rule–the “Loan Originator Compensation amendment to Regulation Z”–is to help prevent borrowers from being steered into high-cost or risky loans.

Mortgage brokers used to earn more money on a loan the higher the interest rate and points. But the new rule covers how a loan originator is paid, setting a fixed commission and no longer tying the amount to the loan terms.

Some in the mortgage industry aren’t happy with the new rule, saying it makes mortgage brokers less competitive against the big banks.

“I will now get paid the same amount to process a plain-vanilla loan as I will a complex loan of equal size that requires more work,” says Mark Yecies, an owner of SunQuest Funding, a mortgage broker and lender in Cranford, N.J.

Officials with the National Association of Mortgage Brokers also have expressed concerns, saying the rule would likely put a lot of independent brokers out of business.

Source: “New Fed Rule for Mortgage Brokers,” The New York Times (Feb. 17, 2011)

Borrowers May Still Owe Even After Foreclosure

In Michigan, foreclosing on a home or selling it in a short sale doesn’t necessarily erase the home owner from paying back the debt. They still may owe thousands of dollars in debt on the home, and lenders are now collecting even years or decades later.

The state law mostly has gone unenforced, until recently. But with plummeting property values pummeling the state, lenders are now finding it a solution to curtail their mounting debt. As such, lenders are going after borrowers for unpaid balances on home loans in what is called “mortgage deficiency,” plus adding legal fees and interest too.

Lenders can pursue the home owners to pay the difference between what the property is eventually sold for and what was owed on the home. Lenders have up to six years to sue the home owners to reclaim the bad debt. If granted, they can pursue the borrower to recover the debt for a decade, and even renew that judgment for another decade or indefinitely until they collect.

The only way borrowers can avoid being held liable for the outstanding debt is by getting a release from their lender in a short sale or in foreclosure cases if they file for Chapter 7 bankruptcy, the debt will be completely erased.

“There are a lot of folks walking around now who don’t understand that in three or four years they’re going to wake up and have letters coming in from debt collectors,” Dan Lievois, a short-sale expert and chief executive of Devon Title Agency in Troy, Mich., told The Detroit News. “That’s what’s sad.”

Michigan foreclosures have skyrocketed since 2006, and home prices in the state have dropped 34 percent in the past decade.

Source: “Even After Foreclosure, Debt Collectors Still Pursue Borrowers for Repayment,” The Detroit News (Feb. 16, 2011)

Bye-Bye Fannie, Freddie? What It Could Mean

The Obama administration announced on Friday plans to reform the housing finance market, including winding down government-controlled mortgage giants Fannie Mae and Freddie Mac and turning most of the market over to the private sector, as well as requiring larger down payments. The White House proposed three approaches to replacing Fannie Mae and Freddie Mac rather than offering up one final plan.

The administration’s proposal is expected to reshape the way Americans buy and own homes.
Among the plans outlined in the administration’s “white paper”:

▪ Shrinking the size of the portfolio of mortgages held by Fannie Mae and Freddie Mac by at least 10 percent a year.
▪ Creating an insurance fund for mortgages, supported by premiums paid by lenders.
▪ Winding down government subsidies of mortgages by raising the fees charged to cover the risk of default.
▪ Raising fees for borrowers and requiring larger down payments for home loans.

The administration also recommended measures to make government-backed mortgages more expensive in order to allow the private-sector to better compete in the mortgage market. For example, it called for reducing by this fall the size of mortgages Fannie and Freddie may purchase from $729,750 to $625,500.

Raising Rates?

Some critics of the proposal are concerned that the administration’s overall plan would raise mortgage rates.

Treasury Secretary Timothy Geithner said that mortgage costs likely will rise in the coming years, as government support is withdrawn and the private sector takes on a bigger role. Credit Suisse has estimated that rates on a 30-year fixed mortgage may rise as much as 2 percentage points if the government withdraws its backing of Fannie Mae and Freddie Mac.

Higher borrowing costs could be a thorn for a recovering housing market, since interest rates greatly affect how much buyers can afford, experts say.

“Reducing the government’s involvement in the mortgage finance market is necessary for a healthy market, but should not be done at the expense of the economy or home buyers,” NAR President Ron Phipps said in a public statement in response to the Obama administration’s plan. “Any proposal for increasing fees and borrowing costs beyond actuarially sound levels will only make it harder for working, middle-class individuals to achieve home ownership, and only the wealthy will be able to achieve the American dream.”

NAR’s economists estimate that a retreat of capital from the housing market will negatively impact the economy too. For every 1,000 home sales, 500 jobs are created for the country, NAR notes.

Geithner estimates that reducing the government’s role in the mortgage market may take five to seven years for the transition.

“Most people in Congress understand that this is a very political, contentious issue,” says David Berson, a former Fannie Mae chief economist. “It’s going to be a very volatile ride as we move toward what ultimately will be the future of Fannie and Freddie. It’s hard to know what that’s going to be.”

Source: “NAR: Secondary Mortgage Market Needs Improvement,” National Association of REALTORS® (Feb. 11, 2011); “Winners and Losers in the Obama Housing Plan,” Reuters News (Feb. 11, 2011); “White House Wants Fannie, Freddie to Go,” MSNBC (Feb. 11, 2011); and Obama Report on Fannie, Freddie Plan May Boost Mortgage Rates,” Washington Post (Feb. 11, 2011)

Small Houses Squeeze Out McMansions
 

Home sizes continue to shrink across the country as families look to downsize and move closer to the city.

“A McMansion was a trophy–often times a house with five or six bedrooms when you only needed two,” says Scott Phillips, a real estate agent with Keller Williams in Cleveland.

The median home size in 2008, the most recent year for data, is 1,825 square feet, according to the National Association of REALTORS®. First-time buyers are buying even smaller at 1,580 square feet.

Phillips says home owners aren’t just downsizing but they are also moving closer to the city.

“People like to live where they’re closer to the amenities, the parks, night life, grocery stores,” he says.

Source: “McMansions Out of Vogue in New Economic Reality,” Gannett News Service (Feb. 11, 2011)
 

Read More:
Living Big in a Small Home

Banks Want Higher Down Payments From Buyers

Banks are increasingly telling borrowers that if they want to buy a home, they need to come with a higher down payment. Banks are requiring higher down payments in order to help mitigate the bank’s risk as home prices continue to fall. Plus, banks say larger down payments discourage delinquencies.

The Obama administration last week called for gradually increasing down payments to a minimum of 10 percent on conventional loans that can be bought or guaranteed by Fannie Mae and Freddie Mac.

The median down payment in nine major U.S. cities rose to 22 percent in the fourth quarter of 2010 on properties purchased through conventional mortgages–the highest in median down payment since the data started being tracked in 1997, according to a Wall Street Journal and Zillow.com analysis.

In the late 1990s, median down payments once averaged 20 percent in the nine metro cities Zillow analyzed, but in 2001 started inching downward as banks began requiring little or no down payment in some cases during the housing boom.

Now banks want more, believing that the more a buyer has invested, the less likely they are to default.

Borrowers who can’t afford the higher down payments are seeking assistance elsewhere, such as loans for veterans or those backed by the Federal Housing Administration (which require 3.5 percent down payment), or loans by the United States Department of Agriculture for rural areas.

Source: “Banks Push Home Buyers to Put Down More Cash,” The Wall Street Journal (Feb. 16, 2011)

Most Metro Areas See Home Prices Stabilizing

Home sales rebounded in 49 states during the fourth quarter with 78 markets – just over half of the available metropolitan areas – experiencing price gains from a year ago, while most of the rest saw price weakness, according to the latest survey by the National Association of REALTORS®.

Total state existing-home sales, including single-family and condo, jumped 15.4 percent to a seasonally adjusted annual rate of 4.8 million in the fourth quarter from 4.16 million in the third quarter, but were 19.5 percent below a surge to an unsustainable cyclical peak of 5.97 million in the fourth quarter of 2009, which was driven by the initial deadline for the first-time buyer tax credit.

In the fourth quarter, the median existing single-family home price rose in 78 out of 152 metropolitan statistical areas (MSAs) from the fourth quarter of 2009, including 10 with double-digit increases; three were unchanged and 71 areas had price declines. In the fourth quarter of 2009 a total of 67 MSAs experienced annual price gains.

The national median existing single-family price was $170,600 in the fourth quarter, up 0.2 percent from $170,300 in the fourth quarter of 2009. The median is where half sold for more and half sold for less. Distressed homes, typically sold at discount of 10 to 15 percent, accounted for 34 percent of fourth quarter sales, little changed from 32 percent a year earlier.

Lawrence Yun, NAR chief economist, is encouraged by the trend. “Home sales clearly recovered in the latter part of 2010 and are helping to absorb the inventory, including many distressed properties. Even with foreclosures continuing to enter the inventory pipeline, they’ve been selling well and housing supplies have trended down,” he said. “A recovery to normalcy requires steady trimming of the inventories.”

Yun added, “An improving housing market and job growth will go hand in hand. The housing recovery will mean faster job growth.” He projects about 150,000 to 200,000 jobs will be added to the economy this year from an anticipated 300,000 additional home sales in 2011.

Yun further noted, “Better than expected sales and/or strengthening in home values can have an even bigger job impact as consumer spending would naturally rise from a housing wealth recovery affecting a vast number of American families.”

NAR President Ron Phipps, broker-president of Phipps Realty in Warwick, R.I., said a very favorable affordability environment is a huge factor in the recovery. “Although job growth has been relatively modest and credit is tight, you can’t underestimate the impact of historically high housing affordability conditions,” he said.

“Mortgage interest rates recently hit record lows, median family income has edged up and prices in most areas have been stable following the correction from the housing boom. For people with good credit and long term plans, it’s hard to imagine a better opportunity than what we see today,” Phipps said. “Unfortunately the flow of credit is unnecessarily tight and is constraining the pace of the housing and job growth recoveries.”

According to Freddie Mac, the national average commitment rate on a 30-year conventional fixed-rate mortgage was a record low 4.41 percent in the fourth quarter, down from 4.45 percent in the third quarter; it was 4.92 percent in the third quarter of 2009.

“The healthier local housing markets are also experiencing favorable local employment conditions,” Yun said. Job growth is a major factor in price appreciation in metro areas such as the Washington, D.C., region, where the median existing single-family home price of $331,100 in the fourth quarter is 8.1 percent higher than a year ago; the Boston-Cambridge-Quincy area, at $346,300, up 4.2 percent; and Austin-Round Rock, Texas, at $190,300, up 4.1 percent.

Smaller metro areas sometimes see larger swings in price measurement depending on the types of properties that are sold in a given period. In such markets, full year price data can provide additional context.

In the condo sector, metro area condominium and cooperative prices – covering changes in 57 metro areas – showed the national median existing-condo price was $164,200 in the fourth quarter, which is 6.4 percent below the fourth quarter of 2009. Twenty-two metros showed increases in the median condo price from a year ago and 35 areas had declines; only 11 metros saw annual price gains in fourth quarter of 2009.

“Consumers in the hard hit regions of Nevada, Arizona and Florida were able to scoop up condos at absolute bargain basement prices,” Yun said. Median condo/co-op prices in affected metro areas include Las Vegas-Paradise at $60,700, Phoenix-Mesa-Scottsdale with a fourth quarter median of $68,900, and Miami-Fort Lauderdale-Miami Beach at $81,900.

Regionally, the median existing single-family home price in the Northeast increased 2.3 percent to $240,400 in the fourth quarter from a year earlier. Existing-home sales in the Northeast rose 15.0 percent in the fourth quarter to a level of 797,000 but are 22.8 percent below the surge in the fourth quarter of 2009.

In the Midwest, the median existing single-family home price rose 0.5 percent to $139,200 in the fourth quarter from the same period in 2009. Existing-home sales in the Midwest jumped 18.3 percent in the fourth quarter to a pace of 1.02 million but are 25.4 percent below the cyclical peak one year ago.

In the South, the median existing single-family home price edged up 0.3 percent to $152,400 in the fourth quarter from the fourth quarter of 2009. Existing-home sales in the region rose 11.4 percent in the fourth quarter to an annual rate of 1.82 million but remain 17.8 percent below the surge in the fourth quarter of last year.

The median existing single-family home price in the West declined 2.9 percent to $214,400 in the fourth quarter from a year ago. Existing-home sales in the West jumped 19.9 percent in the fourth quarter to a level of 1.17 million but are 14.2 percent below the cyclical peak in the fourth quarter of 2009.

“A good portion of the sales activity in the West has been driven by investors taking advantage of discounted foreclosures, with high levels of all-cash transactions,” Yun explained.

Source: NAR

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Pending Home Sales Continue Recovery

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