Weekly Real Estate News

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Bernanke: Bursting Bubble Wasn't an Option
Federal Reserve Chair Ben Bernanke told the Financial Crisis Inquiry Commission, meeting in Washington, D.C., on Wednesday that bursting the housing bubble wasn’t an option.

“To significantly affect monthly payments and other measures of housing affordability, the FOMC (Federal Open Market Committee) likely would have had to increase interest rates quite sharply, at a time when the recovery was viewed as ‘jobless’ and deflation was perceived as a threat," the Fed chair said.

Bernanke did admit that government regulators were slow to "forcefully or effectively" end risky practices by banks, and he conceded that regulators neglected to quickly recognize and correct abuses in the U.S. financial system that eventually triggered the economic crisis.

Source: Housing Wire, Jacob Gaffney (09/02/2010

Fannie Warns Servicers About Foreclosures
Fannie Mae is cracking down on loan servicers that fail to follow through on foreclosures after it’s clear that the borrower doesn’t qualify for government or lender help.

Fannie has established a foreclosure schedule for homes in each state that reflects the regulations there. Loan servicers that fail to meet these timetables will be fined, Fannie said in a notice to servicers.

Mortgage data aggregator Lender Processing Services reports an estimated 2.02 million home owners were in foreclosure in July nationwide. Another 5.02 million home owners were behind on their mortgages.

Fannie warned in the company’s most recent quarterly report to investors that when servicers fail to deal with delinquent properties promptly they create "a shadow inventory putting downward pressure on both home prices and rents."

Source: Inman News (09/03/2010

Fannie Mae to Prohibit 'Appraisal Cutting'
Fannie Mae is banning a common practice known as "appraisal cutting," starting next week.
When lenders selling loans to the firm challenge a valuation, the underwriter will have to contact the appraiser directly; if the lender is unable to settle the dispute, its only option will be to order a second appraisal.
Lenders will be unable to simply cut the value of the appraisal or shop around for the best appraisal.
Source: American Banker, Kate Berry and Marc Hochstein (08/26/10

Three Reasons to Buy a Home Now
Stocks are up 50 percent from the March 2009 bottom. Some commodities have risen dramatically. The only asset class left in the cellar is real estate, says Michael Murphy, editor of the New World Investor stock newsletter.
As a result, Murphy is advising investors to buy now for these three reasons:
• Desperate sellers: Both home owners and lenders are eager to unload a flood of foreclosed and underwater properties. Buyers with the patience to push through these complex deals can save a bundle.
• Little competition. Because most people don’t have what it takes to negotiate their way through short sales and REOs, patient investors are winners.
• Low rates. Mortgage rates are at their lowest level in 40 years. If you believe inflation is inevitable, lock in now.
Source: MarketWatch, Michael Murphy (08/19/2010)

Fed: Give Borrowers Time to Change Their Minds
The Federal Reserve released a proposal Monday to give mortgage applicants three days to change their minds.

The proposal was part of a 930-page document that clarifies and finalizes the new financial reform law.

The Fed’s document says that for closed-end loans secured by real property or a dwelling, a creditor must:

• “Refund any appraisal or other fees paid by the consumer (other than a credit report fee), if the consumer decides not to proceed with a closed-end mortgage transaction within three business days of receiving the early disclosures (fees imposed after this three-day period would not be refundable); and
• “Disclose the right to a refund of fees to consumers before they apply for a closed-end mortgage loan.”

The Fed says this proposal will make it easier and cheaper for consumers to comparison shop. It also acknowledged that borrowers who want to close a transaction in a hurry would be handicapped because most lenders will delay sending out an appraiser for a few days.

Other proposals affecting home buyers included:

• A ban on yield-spread premiums, which encourage mortgage brokers to push buyers toward more profitable mortgages.
• A requirement for lenders to tell borrowers when their mortgage is sold or transferred.
• An explanation of the effects of balloon payments, adjustable loan payment fluctuations, and minimum payments on loan balances.

Source: Bankrate.com, Holden Lewis (08/17/2010)

Geithner Calls for Cooperation to Modify GSEs
Treasury Secretary Timothy Geithner told attendees at a housing summit on Tuesday that the U.S. government will continue to guarantee mortgages, but its role will be revised to avoid making it a primary backer if Fannie Mae and Freddie Mac face another meltdown.

Geithner urged Democrats and Republicans to work together to rebuild Fannie and Freddie to avoid another crisis. He called remaking the mortgage market one of the most important and complicated economic policy problems the U.S. faces today.

"There is nothing we can do to decrease the significant losses Fannie and Freddie incurred ahead of this crisis. All we can do is to minimize the risk that they get worse,” Geithner said.

Source: The Wall Street Journal, Nick Timiraos (08/17/2010)

42,000 of California’s jobless will get help with mortgages
The U.S. Treasury Dept. announced yesterday it is providing additional funding to a California program to help homeowners struggling to make their mortgage payments due to unemployment.  The program, administered through the California Housing Finance Agency (CalHFA) will assist struggling borrowers make up to six months of mortgage payments.  Lenders will be asked to match the government contribution.

Demand Strong for Well-Prices Homes
Yes, houses will sell as long as they are priced right. In many — but not all places — that means they’re priced low.

"People who price their homes to the market are selling them in a reasonable amount of time, but people who cling to 2004 or 2005 prices aren't," says Richard Smith, president and CEO of Realogy, the parent company of Century 21, ERA, Coldwell Banker and Sotheby's International Realty.

In some areas, pent-up demand has exploded. "It's crazy," says Brendon DeSimone, an associate with Paragon Real Estate in the Noe Valley near San Francisco. "I had one house with five offers, and it went from $1.4 million to $1.7 million. The valley has just popped. It's not uncommon for one open house to have 200 people come through."

Source: USA Today, Stephanie Armour (07/28/2010)

Renting Unsold Property May Be a Good Move
Home owners who can’t or don’t want to sell their homes in today’s market but must move should consider renting out the property.

Obtaining a professional property manager is a good first step. Professional property managers charge 7 percent to 10 percent of the monthly rent in many areas.

Current rents may not be high enough to cover carrying charges, including mortgage, taxes, and insurance. Nevertheless, renting out the property may still make sense if property values rise in the next few years.

Offering a 12-month lease that converts to month-to-month is a good idea, if the owners are considering selling eventually. Include language in the lease that allows a real estate professional to show the home to potential buyers with 24 hours’ notice to tenants.

Source: Money Magazine, Amanda Gengler (07/28/2010)

California median home price rises 13.6 percent
In the absence of the federal home buyers tax credit, sales of existing, single-family homes in California declined 4.2 percent to a seasonally adjusted annual rate of 492,000 units in June compared with the same period a year ago, according to C.A.R.’s June sales and price report.  The median price of an existing home in California rose 13.6 percent to $350,911.

“Buyers who scrambled to close escrow in May to take advantage of federal and state tax credits before they expired impacted the number of homes sold last month,” said C.A.R. President Steve Goddard. “Although we expect sales to be lower in the second half of the year because of the absence of the government stimulus, they should remain above the long-run average and be significantly higher than the trough in 2007, when sales bottomed out.

“Although the tax credits are no longer available, it’s important to keep in mind that home prices are substantially below their peaks and interest rates remain at historic lows, making this a very affordable time for many first-time buyers to purchase a home of their own,” he said.

C.A.R.’s Unsold Inventory Index (UII) also rose to 4.8 months in June from 4.2 months in June 2009, but still remains lower than the long-run average of a 7.1-month supply of unsold inventory.

HUD to investigate discriminatory mortgage lenders
The U.S. Dept. of Housing and Urban Development (HUD) recently announced it will launch multiple investigations into the lending practices of certain mortgage lenders to determine if they illegally denied families mortgages because the mother is pregnant or a family member is experiencing a short-term disability. The action follows a report published last week in the New York Times outlining the lending practices of some lenders which might violate the Fair Housing Act.

HUD's Federal Housing Administration (FHA) requires approved lenders to review a borrower's income to determine whether they can reasonably be expected to continue paying their mortgage for the first three years of the loan. FHA-insured lenders cannot, however, inquire about future maternity leave. If a borrower is on maternity or short-term disability leave at the time of closing, lenders must document the borrower's intent to return to work; that the borrower has the right to return to work; and that the borrower qualifies for the loan, taking into account any reduction of income due to their leave.

HUD also is reviewing Fannie Mae and Freddie Mac's underwriting guidelines to determine if they satisfy the Fair Housing Act, including income verification of persons taking parental or disability leave.

Tax Credit Extension Passes; Senate OKs Flood Bill
After a close brush with a deadline that could have impacted tens of thousands of home buyers, the U.S. Congress last night passed an extension of the Home buyer Tax Credit closing deadline.

The extension is included in the Home Buyer Assistance and Improvement Act (H.R. 5623) and will prevent as many as 180,000 home buyers from losing their eligibility for the tax credit through no fault of their own. These households had home purchase contracts pending as of April 30 and had until June 30 to close on their purchases to claim the federal tax credit. Under the legislation that passed last night, these households now have until September 30 to close.

The NATIONAL ASSOCIATION OF REALTORS® supported extension of that closing deadline because buyers are experiencing delays in getting their financing closed. The delays are the result of the large number of transactions that are short sales, which can take a long time to close, and the rush of transactions lenders are processing from buyers submitting contracts before the April 30 contract deadline.

The legislation, which now goes to President Obama for signature, is designed to create a seamless extension of the closing deadline; there will be no gap between June 30 and the date the President signs the bill into law.

NAR worked closely with congressional leaders on both sides of the aisle in supporting lawmakers' passage of the legislation, which the association says will help provide additional stability to real estate markets across the nation.

Separately, the U.S. Senate also last night passed the National Flood Insurance Program Extension Act of 2010 (H.R. 5569), which extends the National Flood Insurance Program until September 30. This will allow home purchases in the 100-year floodplain to move forward. The House passed the bill last week.

When signed into law by the President, the bill, which will apply retroactively, will cover the lapse period from June 1 to the date of enactment of the extension. Without flood insurance, households buying homes in the 100-year floodplain cannot obtain mortgage financing.

Three Things Condo Buyers Should Know
Now could be a great time for home buyers to find a great deal on a condominium.

Here are three things that potential buyers of condos should consider:

1. Is this condo likely to fall further in price? Part of the answer is in falling or rising local inventory – even if sales have picked up recently.

2. Is this a fair price? Condo prices are more volatile than single-family homes. One big consideration is whether buyers in this particular complex are likely to be able to qualify for a mortgage. If the complex has too many renters, for instance, the Federal Housing Administration won’t approve loans to buy units.

3. Is the condo association in good fiscal shape? Are they maintaining the grounds and the amenities as well as staying on top of needed structural improvements?

Source: Money Magazine, Beth Braverman (06/29/2010)

Financial Reform Bill Gives Nod to Simple Loans
Under the proposed financial reform compromise bill, a mortgage lender would have to keep 5 percent of each mortgage when it is securitized, unless the mortgage is a plain vanilla type of loan that the government dubs a “qualified residential mortgage.”

Analysts believe that such an incentive is means that the mortgages available to most borrowers will come from conventional institutions like banks. If more exotic loans are available, they will be offered by private lenders that charge significant fees to take these risks.

Source: Bankrate.com, Holden Lewis (06/29/2010)

Foreclosures Account for 31% of Sales
Online foreclosure marketplace RealtyTrac reported today that homes in foreclosures accounted for 31 percent of the residential sales in the first quarter of 2010. The average sales price of these properties was nearly 27 percent below the average sales price of properties not in foreclosure.

RealtyTrac expects foreclosure discounts to stay between 25 percent and 30 percent as lenders steadily release foreclosures. The average price of foreclosed properties is $171,971.

Overall, foreclosures are down 14 percent in the first quarter compared to the fourth quarter of 2009. They are down 33 percent from the peak during the first quarter of 2009.

Source: RealtyTrac and Bloomberg, Dan Levy (06/30/2010)

Lenders Warn Foreclosure May End in Lawsuit
The housing crisis will spark a wave of lawsuits filed by lenders seeking to recoup loses on home sales and foreclosure auctions that do not return enough money to pay the mortgages in full, according to real estate and legal experts.
Experts predict that mortgage companies will begin to sue home owners in the next two years, including borrowers who ransack a house that has been lost to foreclosure and those who walk away from "underwater mortgages," with hopes of discouraging others from such behavior.

Lenders are unlikely to target borrowers who negotiate in good faith or have defaulted on their home due to job loss or other unforeseen circumstances; other borrowers could be hounded by collection agencies that have purchased their mortgage debt from their lender.

Source: RISMedia (06/08/10)

Mortgage Fraud Rises: Who's at Risk?
A report analyzing national mortgage fraud risk in the first quarter of 2010 says it has increased by 4 percent compared to the fourth quarter of 2009 and is up 11 percent from the first quarter a year ago.

Other findings from risk analytics company Interthinx included:

• Arizona surpassed California as the state with the highest fraud risk. Nevada, California, Florida and Michigan rounded out the top five.

• Property valuation fraud risk was the primary driver of the index.

• Identity fraud risk and employment/income fraud risk both increased 10 percent from the fourth quarter of 2009.

• Occupancy fraud risk is down by 11 percent compared to the fourth quarter of 2009, but analysts believe it may trend upward if shadow foreclosure inventory is released for sale.

Source: Interthinx (06/08/2010)

Owners in Default Stay in Homes Anyway
An increasing number of home owners in foreclosure continue to live in their homes, mostly ignoring the foreclosure action and refusing to pay anything.
The average borrower in foreclosure is unlikely to be evicted for 438 days, says LPS Applied Analytics. LPS says more than 650,000 households haven’t paid their mortgage in 18 months, and in the case of 19 percent of those households, the lender hasn’t made any effort to repossess the property.
In some states like California and Texas, lenders can foreclose without a say-so from the courts. In those states, the action is likely to be quick. But in 19 states, including Florida and New York, the court must approve the foreclosure and resulting eviction and the process is slow.
Source: The New York Times, David Streitfeld (05/31/2010)

Vacation Rental Market Continues to Improve
The vacation rental market has improved this year compared to 2009.
"Some companies have reported advanced bookings have increased as much as 60 percent to 80 percent over last season," said Alex Risser, president of the Vacation Rental Managers Association, which manages 150,000 vacation rentals.
Increasing demand doesn’t mean that potential renters are willing to settle for less than ideal properties. “It’s still a tenant market in rentals,” says Theresa Smith, director of vacation rentals for Kinlin Grover GMAC’s Vacation Rentals on Cape Cod.
Source: The Wall Street Journal, Brittany Hutson (05/28/2010)

Luxury Home Market Improving
After a tough 2009, the luxury home market is on the upswing. Sales of homes with asking prices of $2 million to $5 million in the first quarter totaled 2,461, up 32 percent from the previous year.

The increased sales appear to be driven by realistic seller pricing, increased buyer confidence, and improved financing options.

But even though the market appears to be improving, experts still have concerns. They say sales of high-end homes are affected by the movement of the stock market, and "if the markets don't recover soon, it will scare people" and hurt demand for high-end homes, says Kenneth Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley.

Source: The Wall Street Journal, Juliet Chung and James R. Hagerty (05/28/2010)

Bankers Ignored Risks When Housing Boomed
Banks took more risks than they should have during the housing boom because they relied on faulty risk models and were too eager for profits to adequately evaluate lending decisions, concluded a recent study authored by University of Maryland Professor of Finance Clifford Rossi.

Rossi found that mortgage lenders were overly eager for high profits and ignored warnings from risk managers. Plus, as lending standards declined, the historical data used to predict defaults was based on conditions that no longer existed.

Teresa Bryce, president of Radian Guaranty Inc., a mortgage insurer, says the industry “lost the art of underwriting” during the boom. “It became a checklist mentality,” she says, and adds that underwriters were “not actually looking at those documents … or making sure what’s in those files makes sense.”

Source: The Wall Street Journal, James R. Hagerty and Nick Timiraos (05/26/2010

 Post-Tax Credit Buyers May Save Money
Missing the tax credit deadline might have seemed like a big mistake to some home buyers, but waiting could have been the smartest thing to do.
Interest rates have fallen so dramatically since April 30th that the typical purchaser of a $350,000 home, financed with a $280,000 mortgage, would have saved a bundle by waiting until May.
At April’s average rate of 5.34 percent, a home buyer would have locked in a 30-year fixed rate loan with a monthly payment of $1,561.82.
The same borrower could have snagged a 30-year fixed rate loan at a rate of 4.625 percent in May and paid $1,439.59 per month.
That’s a $1,467 annual savings. Over 30 years, it’s a $44,003 savings, dwarfing the tax credit.
Source: Informa Research Services (05/26/2010

Senate Passes Financial Reform Bill
The Senate on Thursday approved the most extensive overhaul of the banking system since the 1930s.

The legislation must still be reconciled with the House bill passed in December.

Measures in both bills that directly affect property transactions include:

• Limits on the ability of mortgage lenders to penalize borrowers who pay off loans early.

• Stated-income loans would be effectively eliminated.

• Lenders would be required to obtain proof from borrowers that they can pay for their mortgages. Buyers would be required to provide tax returns, payroll receipts, or bank documents.

• Lenders and brokers will be prohibited from pushing borrowers to accept loans with higher interest rates or with risky features.
  Source: The New York Times, Gregg Hitt and Damian Paletta (05/20/2010)
   

Now is the Time to Buy, Investment Firm Says
When you compare the real estate downturn to the real estate market in the 1980s, Blumberg Capital Partners, which provides real estate investment management, finds similarities that lead the company to think now is an optimal time to buy.

Its analysts point out that the recession of the 1980s lasted 16 months, running from July 1981 to November 1982. Unemployment peaked in November of 1982 at 10.8 percent. From that point it took 38 months for the economy to recover fully and for unemployment to fall below 7 percent. It was another 10 months before unemployment was consistently below 7 percent.

Philip Blumberg, CEO of Blumberg Capital Partners, said in a note to investors that the real estate cycle is still three or four years from an optimal selling period, so now is the time for investors to buy.

Source: Blumberg Capital Partners (05/19/2010)

Taxes Are Tricky for Second-Home Buyers
Purchasers of second homes should be aware that, according to the IRS , taxpayers who are married and filing jointly can’t deduct interest on more than a combined total of $1 million of “home acquisition debt” for a primary and a secondary residence.
Taxpayers also may deduct up to a combined total of $100,000 of home-equity debt on their first and second homes.
After refinancing, a home owner can only deduct interest on the original amount of the loan at the time they refinanced, plus $100,000.
Buyers and refinancers also can deduct loan fees – "points” – if the money was used to buy or improve their home. They can’t deduct them if they refinanced to lower the interest rate.
Source: Inman News, Tom Kelly (04/07/2010)

Fed Says Keeping Rates Low Is Key
The economy remains in a slump, motivating a Federal Reserve official, who is said to be President Obama’s favored candidate for vice chair of the Fed, to say that keeping interest rates at record-low levels is important.

Janet Yellen, head of the Federal Reserve Bank of San Francisco, said in a recent speech that the Fed remains committed to doing what’s necessary to hold down interest rates.

"Any significant run-up in mortgage rates would create risks for a housing recovery," she said.

Source: Associated Press, Jeannine Aversa (03/23/2010)

FHA Head: Don't Raise Down Payments
Now is not the time to raise the downpayment requirement on a Federal Housing Administration loan, warns FHA Commissioner David Stevens.
Stevens, testifying before a committee of the U.S. House, said his agency would probably insure 300,000 fewer home loans per year if the mandatory down payment was raised from 3.5 percent to 5 percent — a 40 percent increase.
Congress has been considering various ways to put FHA on a sounder financial footing. Besides increasing the downpayment requirement, another suggestion under discussion is raising the upfront mortgage insurance premium to 2.25 percent of the loan amount, up from 1.75 percent currently.
The National Association of REALTORS® also opposes the proposal to raise the mandatory down payment for an FHA loan. The FHA remains financially strong because it has taken steps to ensure solid underwriting standards and responsible lending practices, said Charles McMillan, NAR immediate past president, in testimony before the House Subcommittee on Housing and Community Opportunity.
“As the leading advocate for housing issues, NAR believes that one of the best ways Congress can help strengthen FHA is to quickly consider and pass legislation that would make current loan limits permanent,” McMillan said. “It’s important to note that higher balance FHA loans perform better than lower balance ones. While some argue that higher balance loans put taxpayers at risk, such loans actually strengthen the program and reduce risk to the fund.”
Explaining that FHA has played an important role in the recent housing and economic crisis by filing the gap left by private lenders, McMillan said FHA insured almost 30 percent of single-family mortgages in 2009 and more than 50 percent of first-time buyer loans. “Historically, FHA’s market share has hovered between 10 and 15 percent of all loans. And when the private market is strong enough to return, we welcome a reduced FHA market share,” he said.
McMillan said NAR was also concerned that FHA wanted to decrease seller concessions to 3 percent. Reducing seller concessions could put homeownership out of reach for many buyers, he said, because it could require buyers to pay more at closing.
Source: Associated Press, Alan Zibel, and NAR (03/11/2010)

Foreclosed Borrowers May Get Loans Again
Will people who currently face foreclosure or short sales or who walk away from their underwater properties ever be able to get financing to buy another home down the road?
Banks haven’t been very forthcoming on this issue. However, knowledgeable observers of the situation say that while it may take some time, the situation will right itself for most people.
Because bankrupt borrowers have eliminated their debts, they should "constitute attractive fodder for mortgage lenders," says University of Michigan law professor John Pottow, whose specialty is bankruptcy.
As home prices and the mortgage market stabilize, lenders will be motivated to lend to people who previously had financial troubles if they look like they can pay the next time around, says Alan Riegler, a consultant with CCG Catalyst, which advises banks.
"The lender who figures out how to do more of this case-by-case stuff cost-effectively is going to end up ahead of the pack," Riegler says.
Source: Inman News, Matt Carter (03/05/2010)

Head of FDIC Supports Loan Write-Downs
The possibility of solving the underwater mortgage problem by writing down principal has been deemed politically impossible by the Obama administration, but some government officials see write-downs as the best long-term solution.
One of the most outspoken supporters of write-downs is Federal Deposit Insurance Chair Sheila Bair. This week, she called underwater mortgages a continuing problem and said the FDIC is “actively looking” at ways to encourage principal write-downs in the deals it does to facilitate acquisitions of failed banks.
Overall, Bair was positive about housing finance. "After three long and difficult years for housing and mortgage finance, I think we're seeing some progress in stabilizing our housing markets," she said.
Source: Reuters News, Karey Wutkowski (03/04/2010)

IRS Clarifies What's Needed to Claim Tax Credit
The Internal Revenue Service has clarified which documentation taxpayers need to submit to claim the first-time and move-up homebuyer tax credit.
While the IRS is still requiring the filing of Form 5405, it is not demanding that all parties’ signatures be on the HUD-1 settlement document in areas where requiring both the buyer and the seller to sign the document isn’t common.
The IRS clarification says: "In areas where signatures are not required on the settlement document, the IRS has clarified that it will accept a settlement statement if it is completed and valid according to local law. … The IRS encourages those buyers to sign the settlement statement prior to attaching it to the tax return.”
For repeat buyers, the IRS is seeking documentation that home buyers have lived in the previous property for a consecutive five of the past eight years. Proof can include property tax records, home owner insurance records, or mortgage interest statements.

Source: Washington Post (02/20/2010)

Secure a Lender Quickly for Tax Credit
Home buyers who are eager to close the deal before the tax credit expires should be prepared to deal only with lenders who will respond to the need for speed.
Even buyers without A-plus credit should be able to get a loan. "If you go to enough lenders, you can typically get a loan even with a low credit score. The terms, of course, are not as attractive," says Spencer Rascoff, chief operating officer of Zillow.com.
Another possibility is to propose a lease-purchase deal or land contract to the seller. If the deal is structured properly, both buyer and seller could walk away winners.
Source: CNNMoney.com, Jean Chatzky (02/15/2010)

FHA Relaxes Anti-Flipping Rule
Beginning Feb. 1, the Federal Housing Administration will provide mortgage insurance for some purchases in which the seller bought the property and held it for fewer than 90 days.
The agency is changing what is known as the “anti-flipping rule” to speed up sales of renovated homes in communities with too many bank-owned and foreclosed homes, says FHA Commissioner David H. Stevens.
Waiving the 90-day rule will encourage private investors to buy vacant properties, fix them up, and quickly sell them to buyers who will be eligible to buy them using FHA financing.
FHA's change "is going to be absolutely terrific" for first-time home buyers hoping to take advantage of the tax credit, says Bobby Taylor, an associate with Coldwell Banker Mountain West Real Estate in Salem, Ore.
Source: Washington Post (01/30/2010)

FHA To Toughen Down Payment Rules
The Federal Housing Administration will raise the minimum down payment for its least credit-worthy borrowers, agency announced Tuesday.
Borrowers with credit-rating scores below 580 will be required to put down at least 10 percent. Those with a credit score above 580 will be able to continue to put down only 3.5 percent. The changes are intended to shore up the agency's finances.
The FHA also will increase its upfront mortgage insurance premium from 1.75 percent to 2.25 percent. The agency is expected to seek congressional approval to raise annual mortgage insurance premiums, paid by borrowers over the life of the loan, above the current 0.55 percent maximum. The amount it will seek has yet been announced.
Source: Reuters News, Corbett B. Daly (01/19/2010)

Principal Cuts May Prevent Foreclosures
At least 7 million borrowers will lose their homes this year and next unless there is a broad increase in property values or lenders become much more willing to cut the principal on mortgage loans, an analyst with Amherst Securities Group told the U.S. House Financial Services Committee last month.
That testimony has motivated Federal Deposit Insurance Corp. Chair Sheila Blair to consider incentives for lenders to cut principal on $45 billion in mortgages her agency has acquired from seized banks.
“We’re looking now at whether we should provide some further loss-sharing for principal write downs,” says Bair. “Now you’re in a situation where even the good mortgages are going bad because people are losing their jobs.”
While principal reductions are rare, some banks are doing them. In the third quarter of 2009, about 21,000 home loans were modified by reducing the principal, according to Mortgage Metrics, a government publication.
Mark Zandi, the chief economist for Moody’s Economy.com, suggests that banks receive a federal match of $1 for every $2 in principal reductions they offer to home owners.
“You’re not going to wipe out all the borrowers’ negative equity,” he says. “This just gives them enough hope to get them committed again.”
Source: Bloomberg, John Gittelsohn and Prashant Gopal (01/07/2010)

New Banks to Offer Refinancing
Over the next five years, about $1.5 trillion in real estate loans will come due. Deutsche Bank Securities estimates that only about half as much capital is currently available than will be needed to refinance these loans.
This lending opportunity is encouraging new investment banks to fill the gap, but the faces behind the deals aren’t neophytes.
New names in the game include EdgeRock Realty Advisors, Moelis & Co., Cantor Fitzgerald, and Broadpoint Gleacher Securities Group, as well as CB Richard Ellis Inc., which has expanded its London-based investment bank to the United States. Executives of all these groups are primarily veterans of older investment banks, including bankrupt Lehman Brothers.
“There is certainly going to be a need for specialized knowledge,” says Tom Geurts, director of economic affairs at New York University's Schack Institute of Real Estate. “A lot of the big banks have been marginalized, so there is an opportunity for [the new entrants] to create a niche.”
Source: Crain’s New York Business, Theresa Agovino (12/13/2009)

More Credit Defaults Predicted
Mark Greene, the CEO of credit-scoring formula maker FICO, predicts that the next six months will lead to more mortgage and credit card defaults.
Greene points to 10 percent unemployment and depressed home prices as the reason why no bailout can effectively help the 30 percent of home owners who are underwater on their mortgages. He says the reality of this is so clear to many home owners that they are changing their priorities and paying off car loans and credit card debt before they pay the mortgage.
“I’m a notch less sanguine than some financial observers are,” said Greene, in an interview with Bloomberg. “We still have a very considerable period of working out credit issues.”
Source: Bloomberg, Alexis Leondis (12/11/2009)

Government Announces Short Sales Guidelines
The U.S. Treasury Department announced new guidelines this week designed to make short sales go more smoothly.
To qualify under these new guidelines:

• The property must be the home owner’s principal residence.
• The home owner must be delinquent on the mortgage or close to defaulting.
• The loan must have been made before Jan. 1, 2009, and be for less than $729,750.
• The borrowers’ total monthly mortgage payment must exceed 31 percent of their before-tax income.
  Under the plan, borrowers will receive $1,500 from the government for selling homes for less than the amount of their mortgages. Mortgage-servicing companies will get $1,000 for each completed short sale. Second-mortgage holders can receive up to $3,000 of the sales proceeds in exchange for releasing their liens. Investors who hold the first mortgage can collect up to $1,000 from the government for allowing the payments.
  Borrowers who complete a short sale under the program must be "fully released" from future liability for the debt, according to the guidelines.
  Source: Associated Press, J.W. Elphinstone (11/01/2009) and The Wall Street Journal, Ruth Simon (11/01/2009) 

Obama Signs Extended Tax Credit into Law
Expected to contribute approximately $22 billion to the economy, Congress overwhelmingly passed a bipartisan measure this week extending the $8,000 home buyer tax credit to April 30, 2010.
The legislation, which is part of a larger bill that also extends unemployment benefits, was signed into law by President Obama today.
More people are now eligible to take advantage of the law, which includes a $6,500 tax credit for buyers who are current home owners and have lived in their home for five of the past eight years.
Income limits for eligible home buyers were also expanded to $125,000 for single buyers and $225,000 for couples, up from $75,000 for individuals and $150,000 for couples. Qualifying home prices are capped at $800,000.
NAR's Government Affairs Division has compiled facts on the changes made to the current tax credit. NAR members sent more than 500,000 letters to leaders in Congress and made nearly 13,000 telephone calls to Senate offices last weekend to encourage support. So far this year, REALTORS® have spent nearly $14 million lobbying Congress, according to federal campaign finance records compiled by the Center for Responsive Politics.
Sen. Johnny Isakson, a Georgia Republican and a former member of NAR, was key in extending the credit, as well as pushing it through initially. Other prominent boosters include the National Association of Homebuilders and the Mortgage Bankers Association.
NAR economists estimate that approximately 2 million people will take advantage of the tax credit this year.
Sources: NAR and The Associated Press, Julie Hirschfeld Davis (11/06/2009)

Both Houses OK Tax Credit Extension, Expansion
The House today and the Senate yesterday passed legislation to extend the $8,000 home buyer tax credit to May 1, 2010, for first-time buyers and add a $6,500 tax credit for repeat buyers if they've lived in their home for five of the past eight years. Home prices are capped at $800,000.
The legislation in both houses was included in a bill to extend unemployment benefits and is expected to be signed by President Obama shortly.
“REALTORS® appreciate the swift action by Congress to extend the home buyer tax credit and expand it to some current homeowners,” says NAR President Charles McMillan. “As the leading advocate of housing and real estate issues, we urge President Obama to sign this legislation into law quickly to keep the momentum going in the fragile recovery of the nation’s housing market.”
Under the bill, income limits are expanded to $125,000 for individuals and $225,000 for joint filers. Individuals with incomes up to $145,000 and joint filers with incomes up to $245,000 qualify for reduced credits.
Households who have binding contracts in place by April 30 will be allowed an additional 60 days to complete their transaction. The deadline for members of the military serving out the U.S. for at least 90 days between Jan. 1, 2009, and May 1, 2010, has been extended one year.
Taxpayers can claim the credit on their federal income tax returns. If the credit exceeds their tax bill, the government will issue a check. Taxpayers will be able to claim the credit on their 2009 income tax return for purchases made in 2010.

(11/5/2009)

A Historic Time to Buy
Young people just starting to invest and buying their first homes are potentially the winners in this recession.
First-time homebuyers, most between the ages of 25 and 45, accounted for about 45 percent of home sales from January through July 2009, according to the National Association of REALTORS®
"This is a historic time," says George Jaramillo, a 35-year-old business analyst in Atlanta, who recently bought three homes, two of them foreclosures. "It's a great opportunity to make some great gains in the future."
A study by investment company T. Rowe Price points out that investing when prices are low can result in amazing gains. For instance, between 1970 and 1990, the annualized rate of return for the S&P 500 was 11.5 percent.
"We need to be shouting from the rooftops that this is not the time to get out of the market if you're young," says Christine Fahlund, a senior financial planner with T. Rowe Price. "This is the time to be in the market."
Source: The Associated Press, Chip Cutter (10/05/2009)