February 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Secretary Timothy Geithner said that mortgage costs likely will rise in the coming years, as government support is withdrawn and the private sector takes on a bigger role.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

Read more:
Pending Home Sales Continue Recovery

Six Real Estate Markets Poised for Recovery

While home prices continue to fall in many markets across the country, CNNMoney.com has compiled a list of cities that are expected to defy that trend.

Here are six metro areas expected to record some of the largest price gains in real estate by 2012:

1. Tacoma, Wash.

Median home price: $240,000

Projected gain by September 2012: 11.8 percent

Tacoma is in the right location for growth: It’s situated next to the Washington capital and has a port, rail terminus, and access to the mountains and Puget Sound. It also offers plenty of developable land than it’s bigger neighbors, such as Seattle.

2. Palm Bay, Fla.

Median home price: $141,000

Projected gain by September 2012: 9.4 percent

This area was expected to become a popular retirement area but overbuilding caused prices of existing homes to sink 50 percent below replacement costs, Linda Schlitt Gonzalez, a Coldwell Banker broker, told CNNMoney.com. The city is expected to regain some of its growth, now becoming an affordable place for retirees to settle down.

3. Memphis

Median home price: $280,000

Projected gain by September 2012: 7.5 percent

Memphis has had a decrease in foreclosures and continues to add jobs, which are significant factors that are expected to help it climb into rebound mode. Plus, it has affordable housing: Homes can be purchased for $138,000, says John Gnuschke, director of the Sparks Bureau of Business and Economic Research at the University of Memphis.

4. Rochester, N.Y.

Median home price: $125,000

Projected gain by September 2012: 5.3 percent

Affordability ranks high here: The median home price in Rochester is $125,000, while the median family income is more than $64,000. Real estate prices remained low during the housing boom, and foreclosures aren’t an issue here: Rochester ranks 196th out of 206 housing markets for foreclosure filings, according to RealtyTrac.

5. Pittsburgh

Median home price: $133,000

Projected gain by September 2012: 4.6 percent

The Pittsburgh real estate market also remained relatively stable over the last few years with home prices having little fluctuation (it ranks 165th of 206 markets for foreclosure filings). Pittsburgh also has a low unemployment rate, and with a moderately high median family income of $62,400, homes are very affordable here.

6. Seattle

Median home price: $375,000

Projected gain by September 2012: 3.7 percent

Seattle is a hot-spot for well-paying jobs with Microsoft, Amazon, and Boeing, which is expected to help its recovery. Plus, the city has a limited housing supply because of it’s position between mountain and sea.

Find out what other metro areas made the list at CNNMoney.com.

Source: “Housing Markets: Best Recovery Bets,” CNNMoney.com (February 2011)

Read more:
2011 Residential Market Outlook

Welcome To The Weekly Update And More 

 

Good Evening,            

 

POW! BANG! SPLAT! Holy loan debacles Batman we sure are in a pickle here. Oh boy! We had a stumble this week. One of our borrowers has note income from a note that was issued in April of 2010 and also rented out what was formally a 2nd home. The rent started in October of 2010. Unfortunately the original note did not have 3 years left on it (by the way we needed the note income to qualify), so thankfully the note was rewritten to reflect at least 3 years remaining.  Not good enough, OMG, we asked for and received a copy of each check our borrower received on the note. On the 2nd home converted to a rental we also asked for and received all checks and of course a copy of the rental agreement. Back on our knees at the underwriter’s desk we were again kicked to the curb. FNMA said (really the findings from Desk Top Underwriter) we will use the note income if a: it has been received for one year and b: the interest income is on the tax return. Regarding the 2nd home converted to a rental, FNMA said yes we will use the rental income if it is on the tax return. OUCH this is only January and the borrower hasn’t even received their 2010 w-2 yet. The other ouch is the borrower has not received 12 payments on that note yet. Come back in late March early April we were told. RIGHT we have to close the first week in February! Watch us pull a rabbit out of our hat. A private investor came forward and liked the fact that it was a 60% LTV and with a borrower that had 800 credit scores. Talk about being in the right place at the right time. We dodged that bullet. We will take out the private investor hopefully in April or May and everyone will be happy. For a bit of trivia try this one; everyone knows the name of the actor that played Batman on the TV version – Adam West. What is the name of the actor that played Robin? Answer below.

 

 

Creative Qualifying!

 

Stated income and bridge tolls of one dollar are things of the past and will never come back. There are many borrowers that are strong on assets and weak on income. Our Home Ownership Accelerator loan is the only loan we know of that will qualify a borrower using the asset depletion methodology. Here is how it works; let’s say a borrower has $1,000,000 in non retirement assets. We take the million and divide it by 120, which gives us $8,333.33 per month to use as a qualifying income. Call us! This is only one of the many benefits of the Home Ownership Accelerator loan.

 

This is why we are over regulated

 

It is hard to believe that with all the licensing and such required now to do loans, bait and switch is still out there. We spoke with a borrower today that thought she was doing her due diligence by comparing two potential mortgage lenders, obviously not two recommended by her real estate agent. She received an estimate from both lenders and went with the one that she thought was a better deal. She called us today because she started getting responses to her questions from her mortgage broker that were not making sense. She told us that her mortgage person said that rates were worse today. We told her that was not true, most of our lenders had a mid day price change for the better. This was the first clue something was fishy. We asked her to send in the paperwork from her broker and the paperwork she received from her lender. After review of the documents that she sent us we told her that on the day her broker issued the GFE that rate and fee combination she was quoted was not available. The broker’s numbers looked a lot better than the lenders numbers by about $4500.00. This was starting to smell like a classic bait and switch to us. We would never risk our reputation with you and our clients in a stunt like that; you can feel comfortable referring us. We are here for the long haul and bait and switch is not long haul behavior.

 

The actor that played Robin in the TV version of Batman is Burt Ward. What a great show that was.

 

 

 

The Meredith Mortgage Team, CMPS®

Certified mortgage planning specialist

 

“We Will Always Have Your Best  

  Interest In Mind”   

Erin & Kathleen

The Bay Area’s Premier

Mortgage Banker and Broker

 

(925)983-3048 office

(925)226-3215 efax

(925)918-0585 mobile

 

meredithteam@cmgmortgage.com

emeredith@cmgmortgage.com

kathleenmrdth@comcast.net

https://meredithmortgageteam.wordpress.com

 

Apply For Mortgage Financing with The Meredith Team, Click Below: 

 

http://www.cmgmortgage.com/LO/meredithteam/GetStartedApply.shtml

The Home Ownership Accelerator  is helping people

pay off their mortgage in record speed…click here

 

Welcome To The Weekly Update And More

 

               

The cost of getting a conforming loan has gone up. This has nothing to do with interest rates increasing. It is all about the risk based pricing matrix. We talked about this a while back, basically the Y-axis is credit score and the X-axis is loan to value. The higher the loan to value and the lower the credit scores, the more expensive it is.  Previously if your score was >= 740 there was no hit to pricing, now it will cost you .25% to the points unless you have 25% or more to put down. Just about every combination of LTV/ Credit Score on the matrix increased by .25% in fee. If your score is less than 680, you are not going to get a conventional loan unless you put 20% down. If your score is less than 660, and you put 20% down, you will be paying a 3-point risk based pricing premium, which is painful. Please see the article below titled “Get Over It.”

 

 

Not Quite Dollar for Dollar!

 When is a dollar not worth a dollar? When you need it for reserves. Fortunately CMG Mortgage is one of the few lenders that will do loans for borrowers buying the 5th – 10th financed property. One of the big hurdles is that the borrower needs 6 months PITI reserves for each property. Money in retirement / pension / 401K accounts are counted as 60 cents on the dollar. If you have a brokerage account (non retirement) you will get 70 cents on the dollar. CMG Mortgage will still give you dollar for dollar on non-retirement cash, CD’s and Money Market accounts.

 

Get Over It!

 If you have a prejudice against FHA you absolutely need to “get over it.” With the increased cost in the risk based pricing matrix for conforming loans; FHA loans are cheap by comparison. Whatever you have in your mindset preventing you from accepting FHA or doing an FHA loan with your clients you need to flush these thoughts out of your mindset. If you have ANY concerns about FHA call us and we will talk you off the ledge.

 

We were supposed to publish our weekly newsletter last week; however our entire crew was sick at the same time. We are happy to be back on our feet, literally! Stay healthy, the alternative is no fun.  

 

 

The Meredith Mortgage Team, CMPS®

Certified mortgage planning specialist

 

“We Will Always Have Your Best  

  Interest In Mind”   

 

Erin & Kathleen

The Bay Area’s Premier

Mortgage Banker and Broker

 

(925)983-3048 office

(925)226-3215 efax

(925)918-0585 mobile

 

meredithteam@cmgmortgage.com

emeredith@cmgmortgage.com

kathleenmrdth@comcast.net

https://meredithmortgageteam.wordpress.com 

Apply For Mortgage Financing with The Meredith Team, Click Below: 

http://www.cmgmortgage.com/LO/meredithteam/GetStartedApply.shtml

 The Home Ownership Accelerator  is helping people

pay off their mortgage in record speed…click here

Home Ownership Offers Plenty of Tax Benefits

While renting offers zero tax breaks, buying a home offers several tax benefits that can make homeownership more affordable. Real estate professionals need to be careful in providing detailed tax advice to clients to avoid lawsuits, but you can ensure clients have the information they need to understand the all of the tax benefits of home ownership.

The following is a few of the tax benefits to home ownership, according to Stephen Fishman, an author and lawyer who specializes in small business, tax and intellectual property law.

▪ Home mortgage interest deduction: Home owners can take an itemized deduction on interest paid on a mortgage or mortgages of up to $1 million for a principal residence and/or second home. This deduction could potentially reduce the cost of borrowing by one-third or more.
▪ Property tax deduction: Home owners can deduct from their federal income taxes the state and local property taxes that you pay on the home.
▪ Deductible home buying expenses: Several closing costs in a home purchase are also deductible, such as loan origination fees (points), prorated interest on a new loan, and prorated property taxes paid at settlement.
▪ $250,000/$500,000 home-sale exclusion: Home owners who have lived in their home for two of the prior five years prior to its sale do not have to pay income tax on the majority of their profit $250,000 for single home owners and $500,000 for married homeowners who file jointly.
▪ 14 days of free rental income: Home owners can rent the home up to 14 days during the year and pay no tax at all on the rental income.

Source: “The Tax Benefits of Homeownership,” Inman News (Feb. 4, 2011) (log in required)

Read more:

Home Ownership and the American Dream

Is Landing Mortgage More Stressful Than Finding a Job?

 

 

Getting a mortgage in today’s lending market isn’t easy and can be a complicated, stressful process for borrowers, according to findings from a national survey by MortgageMatch.com of 1,000 adults.

 

About 70 percent of Americans say access to affordable mortgages is a serious problem, and that understanding the mortgage process and lenders’ requirements is even more difficult and stressful than getting the mortgage itself or even negotiating the sale price on the home.

 

Nearly 80 percent of recent home buyers, particularly those earning $50,000 a year or more, say getting a mortgage was much more difficult than they had expected. And nearly a quarter of home buyers said waiting to hear if they were approved for a mortgage was even more stressful than waiting to hear if they landed a job.

 

Among the survey’s other findings:

  • 10.8 percent report their lender gave them a higher interest rate than what they were originally quoted.
  • 22.9 percent said applying for a mortgage was challenging because documentation requirements from their lender kept changing.
  • 21.6 percent of borrowers said their lender used too much technical jargon.



“Over the past few years, a lot of buyers have had a hard time not only getting a loan but getting through the process,” says Sue Stewart, senior vice president at Move Inc., which is the operator of MortgageMatch.com. “This survey is a wake-up call and clearly points to the fact that borrowers want a process that’s easy to understand and follow. They don’t want surprises and they want to be able to depend on their mortgage lender. For most people, the home buying process isn’t about the mortgage — it’s about getting a home.”
 

 

 

The Meredith Mortgage Team, CMPS® 

Certified mortgage planning specialist

 

“We Will Always Have Your Best  

  Interest In Mind”   

 

 

 

Erin & Kathleen

The Bay Area’s Premier

Mortgage Banker and Broker

 

(925)983-3048 office

(925)226-3215 efax

(925)918-0585 mobile

 

meredithteam@cmgmortgage.com

kathleenmrdth@comcast.net

emeredith@cmgmortgage.com

https://meredithmortgageteam.wordpress.com

 

Apply For Mortgage Financing with The Meredith Team, Click Below: 

http://www.cmgmortgage.com/LO/meredithteam/GetStartedApply.shtml

The Home Ownership Accelerator  is helping people

pay off their mortgage in record speed…click here

 

NEW YORK (CNNMoney) — The Obama administration will issue a proposal later this week recommending the gradual elimination of government-sponsored mortgage backers Fannie Mae and Freddie Mac, a White House official said Wednesday.

The highly-anticipated “white paper,” which is expected to be released Friday, will include three different options for reducing the role government plays in the mortgage market, the official said.

While the paper would mark an important development in the debate over what to do with Fannie and Freddie, a final decision by Congress is not expected any time soon.

After being rescued by the government in 2008, Fannie and Freddie have presented a major conundrum for policymakers in Washington.

The problem is that phasing out the two publicly traded companies could raise borrowing costs for homeowners and jeopardize the fragile housing market.

At the same time, Fannie and Freddie represent a major liability for taxpayers, who are on the hook for about $150 billion in federal aid the two institutions have received.

The issue has become politically charged, with some Republicans blaming Fannie and Freddie for contributing to the recent housing bubble. Democrats argue that the institutions help promote home ownership, especially among low- and middle-income Americans.

Given the political challenges involved and the threat to the housing market, any winding-down of Fannie and Freddie is likely to take place over a period of years.

A representative for Fannie Mae declined comment. Freddie Mac representatives did not immediately respond to a request for comment.

The three options in the administration’s white paper were outlined in published reports Wednesday.

The most conservative of the three options would involve no government role in the mortgage market beyond existing federal agencies, such as the Federal Housing Administration, according to the Wall Street Journal.

The two other options relate to the government’s place in the secondary mortgage market, previously filled by Fannie and Freddie. Under one option, the government would backstop mortgages during times of “market stress,” while the other recommends that the government be involved at all times.

In addition, officials could also reduce the maximum loan limit for mortgages that Fannie and Freddie are allowed to buy, and encourage them to raise the fees they charge banks to guarantee mortgages.

Other options that could be discussed in the white paper are gradual increases in the minimum down payments on government-backed loans, and an accelerated reduction in Fannie and Freddie’s loan portfolios.

— CNN’s senior White House correspondent Ed Henry contributed to this report. To top of page

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