Just added a search engine for the local real estate multiple listing service to the web site. http://www.sgrealty.us/
Tag: Real Estate Financing
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Home & Voices In This Corner FHA Chief Risk Officer expects better performance from newer mortgages, by Jon Prior, Housingwire.com
Bob Ryan is the first chief risk officer of the Federal Housing Administration. He was hired in October 2009. A recent increase in the FHA insurance premiums is stirring some controversy in the market as to when the policy changes will help the insurance fund.
Sheila Bair, chairman of theFederal Deposit Insurance Corp. said tighter, common-sense controls for mortgage lenders will help the housing market going forward.
For this edition of In This Corner, Ryan says the models for the policy were built on the forecast that recent FHA mortgages will stay current longer.
The FHA adjustments to its insurance premiums take effect Oct. 4. But is the increase in the monthly yield offset by the cuts in the upfront premiums?
No I don’t think it is. There is a net incremental increase embedded in there. People may have a different view of what the expected life of the new loan is, just as every investor has a potential view of what the prepayments are going to be of a particular loan is when they make an investment decision.
So there is some range of possibilities as far as how long that loan will go out. We use models to help us estimate. It’s a process we go through with the Office of Management and Budget (OMB) and its embedded in the budget process, so it’s pretty well vetted.
It would take three years to make up unless the increase could go into effect on post-closed loans, which it can’t. But the issue is that we would expect, on average, those loans would last a good bit more than three years. In fact, it would be a little bit more than double, to the seven to eight-year range. So if you were to do the arithmetic on that you’d see it would more than offset the decline in the upfront fee.
So, you’re expecting borrowers who receive mortgages written Oct. 4 and beyond to be paying premiums for at least seven years.
These loans will be current longer. There’s a lot of things that play into that, such as the mortgage rate environment. This is all embedded in future forecasting of interest rates, but that the general conventional wisdom is that rates will be more likely to rise than to fall. I’m not making a prediction, I’m just saying that’s what’s embedded in the yield curve.
And all these things conspire to mean that these loans will probably be out there for a long time.
With the rise in insurance premiums, how long will it take to get the FHA insurance fund back to a healthy level?
That’s an involved calculation. You would have to run through and make a bunch of other assumptions. This per rate increase has a large impact on accelerating the return to the 2% capital ratio.
All the other credit policy changes that we’ve announced, some of which have started to go into effect, all of those enforcement actions, have made lenders more aggressive at how they monitor the credit risk and the underwriting processes that they go through. That means that we’re getting higher credit scores and better quality loans. Those activities in combination are also going to contribute to the return to the capital ratio of above 2%.
The biggest contributor in the near term is going to be this premium increase.
Some have said that the FHA’s greatest strength has been its larger upfront fee and the lower monthly premiums. With the latest adjustments, is the FHA moving away from that?
There’s pros and cons to both the upfront and over-time fee. The biggest con to the over-time fee is right now we allow it to be financed into the balance of the loan. You’re taking that upfront premium, and you’re actually increasing the loan-to-value (LTV) ratio because you’re rolling it into the unpaid principal balance of the loan, and that defeats some of the purpose of it.
So I think we get a double benefit from lowering that upfront and increasing it over time. It’s also a little bit more borrower friendly, in that they would have to come out of pocket for more cash if they had to pay the full upfront amount out of cash.
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purchase apps rise as refinance demand falls, by Thetruthaboutmortgage.com
Applications to purchase a home increased during the week ending September 3 as refinanceapps slid, according to the latest survey from the Mortgage Bankers Association.
That bucked an ongoing trend seen over the past few months in which refinance apps were surging and purchase apps were falling flat.
Overall, home loan demand decreased 1.5 percent from one week earlier, thanks to a 3.1 percent dip in refinance activity, offset by a 6.3 percent rise in purchase apps.
“Purchase applications increased last week, reaching the highest level since the end of May. However, purchase activity remains well below levels seen prior to the expiration of the homebuyer tax credit, and is almost 40 percent below the level recorded one year ago,” said Michael Fratantoni, MBA’s Vice President of Research and Economics, in a release.
“On the other hand, refinance volume dropped last week for the first time in six weeks, but the level of applications to refinance remains close to recent highs, as historically low mortgage rates continue to draw borrowers into the market.”
The refinance share of mortgage activity fell to 81.9 percent of total apps from 82.9 percent one week earlier as mortgage rates inched off record lows.
The popular 30-year fixed averaged 4.50 percent, up from 4.43 percent, while the 15-year fixed rose to 4.00 percent from 3.88 percent.
Finally, the one-year adjustable-rate mortgage ticked up to 7.00 percent from 6.95 percent, and remains quite unattractive.
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Short Sale Lease-Backs Make Total Sense – Fannie, Freddie and Servicers Are the Problem, Mandelman Matters
Attention Taxpayers:
There is a solution to the foreclosure crisis that is destroying our country. It keeps people in their homes, doesn’t cost taxpayers a dime, and actually makes the banks more money than were they to foreclose on the property.
It’s called a “short sale lease-back” and here is how it works:
1. The homeowner applies for a loan modification and is turned down, or just applies for permission to short sell the property.
2. The options are foreclosure or short sale, as the homeowner is at risk of immanent default.
3. An unrelated third party investor organization negotiates the short sale with the lender or servicer, and buys the property at the short sale price.
4. That company also, at that time, agrees to lease the home back to the homeowner for five years at an agreed to price, and with specified terms.
5. At the end of five years the homeowner can exercise their lease option and repurchase the home for a previously agreed to price.
There are other relatively minor details, but that covers the broad strokes. It keeps the homeowner in the house, doesn’t cost taxpayers a dime, and makes the bank more money than would be the case if sold after foreclosure as an REO.
So, what’s not to love? Banks win by getting more for the property than would otherwise be the case. Investors win through earning a return that averages 15% on their investment. Banks win by getting more for the sale of the properties than would result from foreclosure. Our society, our economy and other homeowners win from a reduced the number of foreclosures. So, why do Fannie Mae and Freddie Mac both say no. Neither will approve a short sale under such circumstances.
By the way, I’ve spoken with one of the principals in the company that does just what I’ve described for homeowners all over the country, and they’re the real deal. It’s not theory, they’ve done it and it’s fact. Personally, I found Jorge Newbery, one of the company’s principals, to be one of the brightest, most ethical, caring and candid business executives I’ve ever encountered… and that’s really saying something when you consider that I’ve had more than a couple of decades experience meeting with and speaking with business executives from all over the country and around the world.
The company’s name is American Homeowner Preservation (“AHP”), and it’s located in Ohio, one of the hardest hit states in terms of foreclosures, and on top of that they’ve got both Dennis Kucinich and John Boehner. (Kidding, I’m just kidding… sort of… no, I am kidding… sort of… no, really… I am for sure… sort of.)
So, if you’re anything like me, you’re thinking… okay, so what’s the problem here? Who wouldn’t like this? Why in the world wouldn’t Fannie and Freddie, two totally failed mortgage companies whose stocks are listed over-the-counter, right next to Blockbuster video stores, be opposed to a way for them to make more money than foreclosing, something they’re doing far too frequently these days anyway? You’d think they’d like it just for the change of pace, if for no other reason.
Because their opposition to approving short sales when the current owner is going to be renting the house from its new owner, well… it feels like they want to punish the homeowner for losing the house to foreclosure, but that can’t be the reason, right? Tell me I’m right about that… they don’t want to punish the homeowner for anything here, do they? No, they couldn’t… they wouldn’t… talk to me industry people… what’s going on here.
Because if I found out that it did have something to do with punishing the homeowner who is losing the home, I would likely find myself compelled to write all sorts of unpleasant things about the relative intelligence of whomever the overpaid clown is currently running the two failed GSEs into the ground. Why, I might even call him names I haven’t even considered yet. Nah, it couldn’t have anything to do with punishment, right? I so want to be right about that… tell me I’m right.
Well, I did place a call to Fannie Mae and to Freddie Mac inquiring about the rationale behind the policy, so let’s just go on and we’ll all hope for their sake that they say something in response to my inquiries. If they don’t, then all I can say is that if you’re one of those that felt that I was a little too harsh with the Freddie and Fannie executives when writing about the whole “strategic-default-is-bad-thing, then you won’t like what I’m likely to do to them next time, were I to believe that they actually are attempting to punish a homeowner.
Like, here’s one of my questions: I realize that you won’t approve a short sale in which the homeowner agrees to live in the home after the sale, renting it from its new owner, but what about if the homeowner agrees to sleep in the home’s back yard… and not go inside except to use the facilities? Would that be okay, or would the same policy apply? Well readers, what’s your guess?
How about if the old owners park their car in the driveway and sleep in it overnight, but then they leave during the day… and the new owner doesn’t even own a car, so he agrees to the deal? Would you approve the short sale then? You wouldn’t, would you heartless halfwits? I didn’t think so.
Here’s how AHP figures out the monthly lease payments:
It’s $375 for the first $10,000, $12 per thousand up to $50k. After that it’s $10 per thousand. On average, investors make 12% return on the lease. On a $50,000 purchase price, monthly lease is $855. The investor pays the taxes and insurance.
The original homeowner can buy back the house in year one or two for 15% over the short sale sales price. In year 3 it’s 20% over the short sale price, and year four it’s 25% and in year five it’s 30%. Throughout the lease the company provides training and education to help ensure that the original homeowner is financially Also they provide counseling to help homeowner be ready to obtain financing by the fifth year, which I think is terrific.
And, if the homeowner wasn’t able to buy the home in the future, or if they decided not to buy the home, and the house were to sell for more than the pre-agreed to price, the homeowner participates in the profits at 50%. Amazing, if you ask me.
Newbery says that PIMCO, the world’s largest bond holder, has said what AHP does should not present a problem for investors or servicers, but when PIMCO contacted several servicers, they found it to be quite the problem. I want to know why?
One of the problems could involve establishing the short sale price at which the servicer approves the home to be sold. Currently, servicers obtain a BPO, which stands for Broker Price Opinion. It’s sort of an appraisal-lite. A real estate broker is paid to provide his or her opinion as to the value of the home if sold as a short sale. One would think that such an opinion would be based on the comparable sales in the neighborhood, but come to find out… it’s not always the case.
Apparently, servicers that ask for such BPOs from brokers who do broker price opinions are paid an average $35 – $75 for rendering their opinion as to price of home, BUT many of the servicers provide the brokers with something called BRACKETS within which the servicer wants the BPO to come in. As in… give us your opinion as to the price of this home as long as it comes in within $60,000 and $80,000. Yeah, there’s a comp that sold for $40,000 last week, but we’re not interested in that one. We want an opinion between $60,000 and $80,000.
And isn’t that nice?
On the other hand, some servicers actually refer clients to AHP. Default servicers, in particular, that get the charge-off loans from the larger servicers, mostly on low value homes, such that are found in Michigan and Ohio, although there are some in Arizona, Nevada, and even California and Florida, often do so. In these highly devalued markes, principal reductions are commonplace, the homes are generally worth less than $100,000, with loans that can be $200,000 and up… and the original servicer has decided that it’s just not worth going after anymore. Clearly, AHP is the best answer for investors in these properties
Newbery says that the problems his company faces are the same as what everyone else is facing today when negotiating with a lender or servicer. “Our deals take as long as loan modifications. We’ve had them take 12 months and one or two have taken 18 months. If the servicer doesn’t approve it the first time, we resubmit and resubmit, and often times they will accept the fifth offer.”
I think Newbery’s company is the real deal… a truly win-win-win operation. “Transparency means sustainability. Our program is easy to understand, totally transparent and presents a solid value proposition for everyone involved,” explains Newbery.
So, let’s see what I can find out about this from Fannie and Freddie or other servicers. Let’s see if there’s some reason we’re not embracing this as an answer that makes sense… or if we’re just intent on punishing those that find themselves in financial trouble… you know… the old fashioned way.
Personally, I think there should be more companies like Newbery’s, and I hope the idea catches on. I know there have been several that have had a similar idea, but I haven’t seen any getting actual deals done like AHP definitely has. So.., investors… come on… start your engines and let’s get this economy moving in the right direction again, or at least let’s stop it from falling through the floor.
For more information, visit AHPHelp.com. And for the record, I was not paid a nickel for writing this article, nor do I receive anything when you click or decide to do business with this company. It may have sounded like an infomercial or commercial, but it was nothing of the kind. I just think whet they’re doing is great, especially in light of the fact that the government hasn’t the foggiest idea of what to do to change things for the better… obviously.
If you disagree, I’m open to listening to whatever you have to say. Either leave a comment or email me at mandelman@mac.com.
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Multnomahforeclosures.com: Updated Notice Of Default Lists and Books
Multnomahforeclosures.com was updated with the largest list of Notice Defaults to date. With Notice of Default records dating back over 2 years. Multnomahforeclosures.com documents the fall of the great real estate bust of the 21st centry. The lists are of the raw data taken from county records.
It is not a bad idea for investors and people that are seeking a home of their own to keep an eye on the Notice of Default lists. Many of the homes listed are on the market or will be.
All listings are in PDF and Excel Spread Sheet format.
Multnomah County Foreclosures
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Treasury Designs New Federal Program to Help Stimulate Economy, by Mandelman, Mandelman Matters
This week, the federal government is said to be announcing a new federal program designed to keep our economy vacillating between deflationary collapse and contrived recovery. The program, referred to as the Special TARP Underwriting Program to Impede Development, will first tackle the challenge of bringing the government’s most inane economic stability plans together under one larger, yet infinitely more purposeless program banner.
Initial funding for the Special TARP Underwriting Program to Impede Development will come primarily from contributions made on a voluntary basis by the nation’s largest and most insolvent financial institutions, through the sporadic unannounced printing of twenty and fifty dollar bills, and from change found in the couches left behind in foreclosed homes.
Names floated in the press for program director included initial frontrunner, Carrot Top, followed by Dan Quail and Paris Hilton, although confirmed reports say that Treasury Secretary Tim Geithner and White House economic advisor, Larry Summers, have thrown their considerable combined clout behind Elizabeth Warren.
“I can’t think of anymore more qualified for this job than Liz,” the Treasury Secretary said while attending a Telethon for the Boatless in Miami Beach, sponsored by the magazine, Unbridled Avarice, and through a grant made by Goldman Sachs. (In the spirit of full disclosure, Goldman did file papers with the SEC stating that the firm does plan to short that grant in an effort to remain vigilant about it’s risk profile.)
The Special TARP Underwriting Program to Impede Development is known by the acronym, STUPID. The program is projected to provide assistance to responsible American homeowners who have high credit scores, equity of $200,000 in a second home, and surnames that begin with “Gh” or “Pf,” assuming they did not file a tax return in 1992, and reside primarily in a state that ends in the letter “E”. Qualified homeowners can apply for assistance under the program by calling a toll-free number at HUD; area code 212-GET-STUPID.
Secretary Geithner explained the program to reporters while waiting for his dessert soufflé to rise. Those in attendance said that he told the group that the program would help homeowners and get the economy back on track by removing the key obstacle to the future profitability of financial institutions. He also mentioned that the soufflé was dry.
“So, now that you understand what STUPID is, let’s talk about what STUPID does,” Geithner told the group. “I think you can see why Larry and I feel so strongly that Liz Warren be asked to run the new program. I think that she, more than anyone else I can think of, is representative of what the program is all about. I’m hoping that within a very short period of time, the entire country will associate the name Elizabeth Warren with STUPID. I know Larry and I both do already.”
The good news is that almost all of the HAMP participating servicers have already signed on to participate in the new program, so most homeowners are very likely to find that they have a STUPID Servicer handling their loan.
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Related News:Finance Real Estate U.S. Canada Homebuilders Revive Stalled U.S. Projects as Banks Unload Lots, By Prashant Gopal and John Gittelsohn, bloomberg.com
Construction crews are returning to the Cascades of Groveland, a gated 55-and-older community west of Orlando, Florida, almost three years after its bankrupt developer left owners of the existing 238 houses surrounded by empty lots, partially built homes, and an unfinished clubhouse.
Shea Homes, a builder based in Walnut, California, bought the remaining 761 lots from Bank of America Corp. in June and reopened the project Aug. 25 with a new sales office, lower prices and a changed name: “Trilogy.” Residents, who had taken over the guardhouse for mahjong, bingo and poker games, will get a 38,000-square-foot (3,530-square-meter) recreational center with indoor and outdoor pools, tennis courts and a card room.
“For the people here, the activity of construction equipment is music to their ears,” said Eric Sorkin, 61, president of the homeowners association at the development, 35 miles northwest of Walt Disney World. “There’s a future.”
Builders are buying lots at less than half their original prices from lenders eager to move distressed construction loans off their books. Developments are being resuscitated from Florida, California, and Las Vegas to Utah and the suburbs of Washington, D.C., according to Brad Hunter, chief economist for Metrostudy, a Houston-based housing researcher.
“This is a natural progression of the cycle,” Hunter said. “Projects fail, the price of the asset drops until it reaches a point where it’s profitable for someone else to pick it up and remarket it. They reposition the project and then what was formerly infeasible, is feasible.”
Mothballed Projects
Builders, facing record low demand, are trying to boost margins and revenue by pulling unfinished projects out of mothballs. They’re benefiting from cheap land and falling construction costs as they seek to adapt floor plans to today’s market and lure buyers with prices that, in some neighborhoods, are little more than the cost of a foreclosed home. The 12 largest homebuilders by market value added 16,631 lots in their past two quarters, according to data compiled by Bloomberg.
The revived projects could contribute to a delay in the U.S. housing recovery by adding to the supply of available homes, according to Hunter. At the same time, builders are being cautious about flooding the market by limiting the numbers of houses they are constructing without having buyers lined up, he said. Many homebuyers also aren’t interested in foreclosures, which may be damaged or in inferior locations, Hunter said.
The next few months will show whether the revived projects will inflate supply, because many builders purchased lots around the same time, and will likely market them at about the same time, said Jill Lewis, homebuilder specialist for the Land Advisors Organization, a Scottsdale, Arizona-based land broker.
Phoenix Communities
In the Phoenix metro area, 48 communities have reopened with about 40 more coming in the next year, according to Land Advisors. About 6 percent of finished lots for production are owned by banks, down from 20 percent a year ago, the company said. On average, new homes in Phoenix are going for half of what they sold for four years ago, Land Advisors said.
Picking up where another builder left off can be complicated by the passing of years. Without attention, weeds grow, swimming pools go green, government permits expire, and homeowners associations turn insolvent, said Taylor B. Grant, founding principal of California Real Estate Receiverships LLC in Newport Beach, California. Grant, who works as a court- appointed receiver for properties that have gone into default, is often asked by banks to prepare developments for sale.
It can take nine to 12 months to ready a site and construct model homes, said Tom Dallape, principal at the Hoffman Company, a land brokerage advisory firm in Irvine, California.
Knocking Down Homes
Shea, which had some models in place, did it in a couple months. Soon after taking over the Cascades of Groveland, the closely held company began knocking down 16 partially built homes that “were sitting out there too long, and were not protected from the conditions,” said Jeff McQueen, executive vice president for Shea Homes Active Lifestyle Communities.
Developers also are adapting projects to include smaller, more efficient designs that cost less to build, Dallape said.
“They’re tailoring them to the market,” he said. “The average new house used to be 3,000 square feet. Today, it’s 2,100.”
Publicly traded homebuilders such as D.R. Horton Inc., Lennar Corp., Meritage Homes Corp., KB Home, Standard Pacific Corp. and Toll Brothers Inc. started buying about a year ago as the market seemed to be strengthening, according to Tom Reimers, president of the California division of Land Advisors Organization. They deployed cash, which they amassed during the recession by selling land and taking advantage of a change in the tax code that provided them higher refunds, said Megan McGrath, homebuilding analyst with Barclays Plc in New York.
Weaker Market
The housing market weakened with the expiration of a homebuyer tax incentive in April, and builder land purchases could slow as a result, McGrath said.
Sales so far in the restarted projects are relatively strong, Metrostudy’s Hunter said.
Meritage, which builds in Texas, Nevada, Arizona, California, Colorado and Florida, has had a monthly pace of three sales per community in new projects compared with two for older developments, said Brent Anderson, vice president of investor relations. The Scottsdale, Arizona-based company bought 100 projects with 5,400 finished lots since the first quarter of last year and has reopened about half of them, he said.
“If these lots weren’t available, it would be damn tough for builders to make a profit,” Anderson said.
Plunging Sales
New home sales slid 12 percent in July to a record-low annual pace, and existing-home sales tumbled 27 percent to the lowest level in a decade of recordkeeping, according to separate reports last month from the Commerce Department and the National Association of Realtors. Single-family housing starts fell 4.2 percent from June. Foreclosure filings increased almost 4 percent in July from the previous month, RealtyTrac Inc., an Irvine, California-based research company, said Aug. 12.
In Phoenix, where more than half the homes sold are foreclosures, demand is weak. The number of newly built houses and condos sold in July in the metro area fell to 641, down 50 percent from June and 38 percent from a year earlier, San Diego- based MDA DataQuick reported Aug. 26.
“All of us are going to sit back and evaluate the depth of the consumer market, and whether they are going to be chasing after the same buyer,” said Lewis of Land Advisors.
Sales offices are only just starting to reopen. Newly acquired developments make up 20 percent or less of public builders’ closings, and may reach about 50 percent for some companies by the middle of next year, McGrath said.
Less Than Foreclosures
Candlelight Homes, a South Jordan, Utah, homebuilder that bought lots in 20 stalled projects, recently introduced a new slogan: “Quality new homes, less than foreclosures.”
The company, which said most of its houses are cheaper than comparable foreclosed homes, has an average profit margin of 12 percent on the transactions, said Joe Salisbury, a partner at Candlelight. He purchases lots with power, sewer, and water lines and government approvals in place for 30 percent to 50 percent of what they sold for three years ago, he said.
“We’re buying lots for less than the cost of the improvements,” Salisbury said. “If someone offered me raw land for free next door, I wouldn’t even want it because it would cost me more to build out the lots.”
Builder Flexibility
Development-ready lots give builders the flexibility to construct homes as customers sign contracts, and then ramp up quickly when the economy improves, said Robert Curran, a managing director for Fitch Ratings. Rather than paying for parcels upfront, builders often are acquiring the option to buy a minimum number of lots over a period of time, which gives them the freedom to walk away and simply lose their deposit.
“The fact that you can take a lot in and quickly build on it means you’re not tying up capital for an extended period of time and get better returns,” New York-based Curran said.
Private-equity firms are partnering with builders, big and small, to buy projects around the country and put them back on the market. Shea, for example, entered into a $15 million joint venture with Mountain Real Estate Group LLC to revive the Cascades project, the Charlotte, North Carolina-based property investment firm said in a statement. Levitt & Sons LLC, which pioneered the planned suburban community of Levittown, New York, abandoned the Cascades project after it filed for bankruptcy protection in November 2007.
Toll Brothers
Many public builders can finance projects on their own. Toll Brothers, the largest U.S. luxury-home builder, spent about $340 million on new land in the first nine months of its fiscal 2010, adding 4,100 lots, its first rise since 2006. The Horsham, Pennsylvania-based company has $1.64 billion in cash for more deals, Chief Executive Officer Douglas Yearley Jr. said.
“This is an opportunity to be investing that capital back in the market,” Yearley said in an Aug. 11 interview. “We have opportunities now that we haven’t had for some time.”
Toll Brothers paid $23 million in February to SunTrust Banks Inc. for Hasentree, a foreclosed golf course community in Wake Forest, North Carolina, that was once appraised for $78 million, said Tom Anhut, the builder’s group president in the state. Hasentree was built around an 18-hole course designed by Tom Fazio. It featured a completed community activity center, roads, about 400 acres of dedicated green space, 100 developed home sites, 218 raw sites, 18 new homes seeking buyers and 40 occupied houses at the time of the sale.
Lower Prices
Buyers have put deposits on four new Toll Brothers homes, with listing prices starting at $669,995 since Hasentree’s sales office reopened in July, Anhut said. The community’s original homes sold for an average $1.5 million.
“This is really a special golf course and piece of property,” Anhut said. “But there’s a reason that we paid about one-third of the previous appraisal. Obviously, the market is different now.”
Builders are competing for land with investment companies, some of which are buying expansive projects and selling chunks to homebuilders.
Starwood Land Ventures of Bradenton, Florida, paid $81 million in February for 5,499 home sites in the state, most of which were finished, from bankrupt builder Tousa Inc. Miami- based Lennar has an option contract to buy about 1,500 of them across the state, said Mike Moser, east region president for Starwood Land Ventures, which is funded by Barry Sternlicht’s Starwood Capital Group LLC.
Independence
Among the newly opened Tousa projects is Independence, a master planned community in Orange County, Florida, with 500 finished lots, and room for 450 more, Moser said. Builders selling lots in the development include Lennar, Meritage, Ryland Group Inc. and closely held Ashton Woods Homes, he said.
“This product is in a very good location,” Moser said. “There is still demand for housing, and builders are eager to build homes.”
Residents of Trilogy, who have become close in the years since construction halted, are looking forward to having new neighbors, said Sorkin, the homeowners association president. The clubhouse, which Shea plans to complete in phases over the next two years, will be central Florida’s best, he said.
“It will attract many buyers,” he said. “And of course, it will be a wonderful retreat for people who live here.”
To contact the reporter on this story: Prashant Gopal in New York at Pgopal2@bloomberg.net; John Gittelsohn in New York at johngitt@bloomberg.net.
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Credit score gaps narrow for FHA loans: Quality Mortgage Services, by Jason Philyaw, Housingwire.com
The credit score gap for 2010 loans through the Federal Housing Administration fell 43 points from 2006 levels, according to Quality Mortgage Services.
The mortgage quality-control services firm said its data show the average credit score of FHA loans ranked as excellent in 2006 was 665 whereas the average score of a loan ranked fair was 603 for a gap of 62 points. For FHA loans originated so far this year, the firm’s data show excellent loans have average credit scores of 707 while fair loans average scores are 688 for a difference of 19 points.
“This is good news for investors because of the increase number of loans going for securitization where the borrower has a lower probability of a historical or future 90-day late credit scenario,” Quality Mortgage Services executive vice president Tommy Duncan said.
The Franklin, Tenn.-based company performs post-closing quality-control audits and tracks trends of mortgages.
“The decrease in the credit score gap shows that the FHA loan product is limiting itself to home buyers and reducing the number of applicants that would have normally qualified for a FHA loan in 2006,” Duncan said. “Also, this trend may make it more difficult to associate high-risk loans with certain credit score ranges and may place more focus on ratios. This data shows that underwriting templates have adjusted to a higher credit score standard to obtain a FHA loan and may be preventing the tradition first-time homebuyer, or low to moderate income earners, from obtaining a FHA loan.”
Write to Jason Philyaw.
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Fannie Mae tries to stimulate market for foreclosed homes, By Kenneth R. Harney, Latimes.com
The mortgage giant quietly launches the HomePath program, which offers subprime-era terms for buyers: minimal down payments, no appraisals, no mortgage insurance and lower minimum credit scores.
If you’re a buyer with little cash or a small-scale investor looking for a deal on a foreclosed house, a little-publicized national lending program could be just what you need this fall.
Here’s what it offers:
• Minimal down payments — 3% for buyers who plan to live in the house, 10% for investors. Most of your down payment can come from documented gifts from relatives or others with no direct connection to the transaction.
• No requirement for an appraisal on the property unless you’re applying for additional money to renovate the house. This is crucial because lowball appraisals can be deal-killers, especially when the house needs cosmetic or other repairs.
• Generous “seller contribution” limits of up to 6% of the price, effectively reducing the cash you’ll need to pay closing costs.
• No requirement for mortgage insurance coverage, despite your high loan-to-value ratio at purchase.
• A minimum credit score of 660 — significantly lower than the 700-plus scores many lenders now demand for conventional loans on favorable terms.
• Maximum loan amounts tied to standard conventional loan limits: $729,750 in the highest cost markets, $625,500 in others, and $417,000 everywhere else.Who is offering such an unusual package of come-ons like this in an era of stringent underwriting requirements? It’s Fannie Mae, the mortgage investment giant that got into deep trouble when the housing bubble burst and is now bleeding red ink in prodigious quantities under federal conservatorship. As a result of its past problems, Fannie is saddled with a bulging portfolio of tens of thousands of foreclosed homes. It needs to sell those houses, is willing to finance their transfer to new owners and has come up with a program it calls HomePath to do so. In recent weeks, HomePath loans have been rolled out through mortgage brokers and a network of 50 lenders, so it’s probably available on houses in your area.
The basics on HomePath: The program is restricted to Fannie Mae foreclosure holdings. The full lineup of listings can be viewed state by state at http://www.HomePath.com. Participating real estate brokers are listed on the same site; Fannie Mae will entertain only offers that come through those brokers, not directly from consumers. Most properties are open to bids from owner-occupant buyers and investors, but some designated “First Look” are reserved for bids from owner-occupants during the initial 15 days after listing.
There are two main options with HomePath: mortgage financing to buy the house in its current “as is” condition and “renovation” financing, in which Fannie lends additional amounts needed for what it describes as “light to moderate” fix-ups, such as a roof repair or replacement of a heating, ventilation and air conditioning system. Standard HomePath listings are all in “move-in condition,” according to Fannie. That is, the company has inspected them, performed at least cosmetic repairs as needed, and determined them to be structurally sound with no code violations and all systems in working order. Listings eligible for renovation financing generally require some work to be funded through add-on amounts to the mortgage that are held in escrow by the lender after closing and disbursed as repairs are completed during the succeeding six months. The maximum rehab amount is $30,000 or 20% of the projected “as completed” value of the renovated house.
Interest rates on both options are slightly higher than prevailing conventional or FHA-insured loan rates. For example, Peter Boutell, co-owner of Santa Cruz Home Finance in Santa Cruz, Calif., says that in mid-August, when 30-year fixed rates on owner-occupied home loans dropped to the 4 3/8% range, applicants making less than 20% down payments were required to pay mortgage insurance premiums that pushed their effective rate to about 4 7/8%. At the same time, HomePath loans with 5% down payments were available at 5 1/8%. “This is an amazing program” for people looking for a foreclosure at a low price who don’t have big down payment cash, Boutell said. “You cannot buy a fix-up with conventional financing anywhere. Lenders just won’t do them.”
Are there potential downsides to HomePath? Absolutely. Although Fannie Mae says it owns foreclosed houses in a wide variety of neighborhoods, mortgage brokers say they are more likely to be found in lower- to moderate-priced areas that took deeper hits when the housing market unraveled. Buyers looking for pristine properties with zero defects might not find what they want on the HomePath listing board. But check it out. Fannie’s loan terms will be hard to beat.
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Is Debt Really The Problem… or is it something else?, By Bill Westrom, Truthinequity.com
Mainstream media, the Government and consumers themselves vilify debt as the root of the consumer’s financial plight and the root of a weakening country. Debt is not the problem; it’s the management of debt and the way debt is structured that is creating the problem not the debt itself. Unless you win the lottery, invent a cure for cancer or get adopted by Bill Gates or Warren Buffett, debt will be something you will have to face somewhere along the course of your adult life; it’s a natural component of our society.
In today’s economic environment hard working American’s are experiencing a level of fear and financial uncertainty they have never been faced with. This is keeping them up at night wondering how they are going to sustain a life they have worked so hard to build. Americans are also wondering why those we have trusted for all these years; the banks, money managers and politicians, are thriving financially, but don’t seem to be contributing anything of real value to the public? Today, the predominant questions being asked by the American public as it relates to their financial future are; what am I going to do, what can I do, how am I going to do it? We all work way too hard to be faced with these questions. The answers to these frightening questions are right in front of us. The answers lie in the use of the financial resources we use every day. You just need to know how to use them to your advantage.
The crux of the problem for consumers and the country alike lie with misaligned, improper or a shear lack of education on the use of the banking tools we use every day. The three banking tools that we use every day; checking accounts, credit cards and loans are simply being used improperly. The solution lies in educating consumers and institutions to use these tools in the proper sequence and function to manage debt properly, regain control of income and possess the authority to control the repayment of debt. It’s as simple as that. By exposing the failed business model of conventional banking and borrowing practices, realigning them into a model that actually helps consumers get more out of what they own and what they earn, we can once again grow individually, as a society and a nation.
The Truth Is In The Proof.
TruthInEquity.com -
How Ruthless Banks Gutted the Black Middle Class and Got Away With It, by Devona Walker, Truth-out.org
The real estate and foreclosure crisis has stripped African-American families of more wealth than any single event in history.
The American middle class has been hammered over the last several decades. The black middle class has suffered to an even greater degree. But the single most crippling blow has been the real estate and foreclosure crisis. It has stripped black families of more wealth than any single event in U.S. history. Due entirely to subprime loans, black borrowers are expected to lose between $71 billion and $92 billion.
To fully understand why the foreclosure crisis has so disproportionately affected working- and middle-class blacks, it is important to provide a little background. Many of these American families watched on the sidelines as everyone and their dog seemed to jump into the real estate game. The communities they lived in were changing, gentrifying, and many blacks unable to purchase homes were forced out as new homeowners moved in. They were fed daily on the benefits of home ownership. Their communities, churches and social networks were inundated by smooth-talking but shady fly-by-night brokers. With a home, they believed, came stability, wealth and good schools for their children. Home ownership, which accounts for upwards of 80 percent of the average American family’s wealth, was the basis of permanent membership into the American middle class. They were primed to fall for the American Dream con job.
Black and Latino minorities have been disproportionately targeted and affected by subprime loans. In California, one-eighth of all residences, or 702,000 homes, are in foreclosure. Black and Latino families make up more than half that number. Latino and African-American borrowers in California, according to figures from the Center for Responsible Lending, have foreclosure rates 2.3 and 1.9 times that of non-Hispanic white families.
There is little indication that things will get much better any time soon.
The Ripple Effect
If anything, the foreclosure crisis is likely to produce a ripple effect that will continue to decimate communities of color. Think about the long-term impact of vacant homes on the value of neighborhoods, and about the corresponding increase in crime, vandalism and shrinking tax bases for municipal budgets.
“The American dream for individuals has now become the nightmare for cities,” said James Mitchell, a councilman in Charlotte, NC who heads the National Black Caucus of Local Elected Officials. In the nearby community of Peachtree Hills, he says roughly 115 out of 123 homes are in foreclosure. In that environment, it’s impossible for the remaining homeowners to sell, as their property values have been severely depressed. Their quality of life, due to increases in vandalism and crime, diminished. The cities then feel the strap of a receding tax base at the same time there is a huge surge in the demand for public services.
Charlotte, N.C. Baltimore, Detroit, Washington D.C. Memphis, Atlanta, New Orleans, Chicago and Philadelphia have historically been bastions for the black middle class. In 2008, roughly 10 percent of the nation’s 40 million blacks made upwards of $75,000 per year. But now, just two years later, many experts say the foreclosure crisis has virtually erased decades of those slow, hard-fought, economic gains.
Memphis, where the majority of residents are black, remains a symbol of black prosperity in the new South. There, the median income for black homeowners rose steadily for two decades. In the last five years, income levels for black households have receded to below what they were in 1990, according to analysis by Queens College.
As of December 2009, median white wealth had dipped 34 percent while median black wealth had dropped 77 percent, according to the Economic Policy Institute’s “State of Working America” report.
“Emerging” Markets Scam v. Black Credit Crunch
While the subprime loans were flowing, communities of color had access to a seemingly endless amount of funding. In 1990, one million refinance loans were issued. It was the same for home improvement and refinance loans. By 2003, 15 million refinance loans were issued. That directly contributed to billions in loss equity, especially among minority and elderly homeowners. Also at the same time, banks developed “emerging markets” divisions that specifically targeted under-served communities of color. In 2003, subprime loans were more prevalent among blacks in 98.5 percent of metropolitan areas, according to the National Community Reinvestment Coalition.
One former Wells Fargo loan officer testifying in a lawsuit filed by the city of Baltimore against the bank says fellow employers routinely referred to subprime loans as “ghetto loans” and black people as “mud people.” He says he was reprimanded for not pushing higher priced loans to black borrowers who qualified for prime or cheaper loans. Another loan officer, Beth Jacobson, says the black community was seen “as fertile ground for subprime mortgages, as working-class blacks were hungry to be a part of the nation’s home-owning mania.”
“We just went right after them,” Jacobson said, according to the New York Times, adding that the black church was frequently targeted as the bank believed church leaders could convince their congregations to take out loans. There are numerous reports throughout the nation of black church leaders being paid incentives for drumming up business.
Due in part to these aggressive marketing techniques and ballooning emerging market divisions, subprime mortgage activity grew an average of 25 percent per year from 1994 to 2003, drastically outpacing the growth for prime mortgages. In 2003, subprime loans made up 9 percent of all U.S. mortgages, about a $330 billion business; up from $35 billion a decade earlier.
Now that the subprime market has imploded, banks have all but abandoned those communities. Prime lending in communities of color has decreased 60 percent while prime lending in white areas has fallen 28.4 percent.
The banks are also denying credit to small-business owners, who account for a huge swath of ethnic minorities. In California ethnic minorities account for 16 percent of all small-business loans. In the mid-2000s roughly 90 percent of businesses reported they received the loans they needed. Only half of small businesses that tried to borrow received all or most of what they needed last year, according to a survey by the National Federation of Independent Business.
In addition, minority business owners often have less capital, smaller payrolls and shorter histories with traditional lending institutions.
Further complicating matters is the fact that minority small-business owners often serve minority communities and base their business decisions on things that traditional lenders don’t fully understand. Think about the black barber shop or boutique owner, who knows there is no other “black” barber shop or boutique specializing in urban fashions within a 30-minute drive. While that lender may understand there is such a niche market as “urban fashions,” they likely won’t understand the significance of being “black-owned” in the market as opposed to corporate-owned. Or think of the Hispanic grocer with significant import ties to Mexico who knows he can bring in produce, spices and inventory specific to that community’s needs, things people cannot get at chain grocery stores. That lender might only understand there is a plethora of Wal-Marts in the community where he wants to grow his business.
Minority business owners are often more dependent upon minority communities for survival, which of course are disproportionately depressed due to subprime lending. Consequently, minority business owners have a lower chance of success. Banks, understanding that, are even less likely to lend. It’s like a self-fulfilling prophecy, and it’s beginning to resemble the traditional “redlining” of the 1980s and 1990s.
“After inflicting harm on neighborhoods of color through years of problematic subprime and option ARM loans, banks are now pulling back at a time when communities are most in need of responsible loans and investment,” said Geoff Smith, senior vice president of the Woodstock Institute.
Believe it or not, no one in a position of power to stop all this from unfolding was blindsided. Ben Bernanke was warned years ago about the long-term implications of the real estate bubble and subprime lending. Still, he set idly by. He told the advocates who warned him that the market would work it all out. Perhaps they thought the fallout would be limited to minority communities, or perhaps they just didn’t care.
Devona Walker has worked for the Associated Press and the New York Times company. Currently she is the senior political and finance reporter for theloop21.com.
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Rescue from foreclosure? Frustration, anger grow, By Sanjay Bhatt, Seattletimes.com
When he tried to change the terms of his home loan, Michael Guzman was rejected because the bank didn’t consider his joblessness a long-term hardship.
Kamie Kahlo’s bank offered her a modified mortgage on her Queen Anne home but later told her the lower payments weren’t permanent.
And Leslie Oldham was stunned her bank moved to foreclose on her Kent home before it gave her a decision on a loan modification.
“I tried everything I could to work it out with the bank,” said Oldham, 58, “because the last thing I wanted to do was file a bankruptcy.”
More than a year since President Obama announced an unprecedented national foreclosure-prevention program, many homeowners’ experiences with the program have left them feeling frustrated and angry at mortgage servicers.
The program gives servicers financial incentives to permanently lower the monthly payments of homeowners who qualify for and successfully complete a three-month trial period. Servicers can modify a mortgage by lowering the interest rate, extending the loan’s terms or deferring payment of principal.
Federal auditors say the Treasury Department has failed to hold banks and other servicers accountable for following the loan-modification program’s guidelines, and state regulators say there’s little they can do.
Some examples from the Government Accountability Office:
• Delayed decisions: After three months of accepting payments on a modified trial loan, banks are supposed to decide whether to make the new terms permanent. But some banks have a backlog of thousands of homeowners who have been making trial payments for six months or longer.
• Inconsistent treatment: Fifteen of the 20 largest servicers in the program didn’t follow federal guidelines for evaluating borrowers’ loans and may have treated similarly situated borrowers differently.
• No meaningful appeals: The Treasury does not independently review borrowers’ application or loan files, nor does it have clear penalties for servicers who violate the program’s rules.
The program was intended to keep 3 million homeowners from foreclosure, but it had produced only about 435,000 permanent modifications through July.
Treasury officials say the program’s impact can’t be measured by a single statistic. Many homeowners who were deemed ineligible for the federal program have been offered private loan modifications by their servicer.
Still, six of every 10 seriously delinquent borrowers are not getting help, according to a new study by the State Foreclosure Prevention Working Group. Struggling homeowners are alienated by the mixed messages and long delays, the group said, and almost three-quarters of modified mortgages leave borrowers owing more, not less.
“That is not a sustainable solution,” said Roberto Quercia, who consulted on the study and is director of the Center for Community Capital at the University of North Carolina, Chapel Hill. “For people underwater, making the hole deeper is a recipe for disaster.”
Jumbled paperwork
In March 2009, Treasury officials launched the federal Home Affordable Modification Program (HAMP), its cornerstone effort to rescue the nation’s housing market, in which property values have fallen at a rate not seen since the Great Depression.
Homeowners must pass three tests to be considered: First, they must have an eligible hardship, such as unemployment. Second, their mortgage must exceed 31 percent of their gross monthly income.
Finally, the bank applies a “net present value” test to see if it will lose more money from foreclosing on their home than from modifying the mortgage.
Through July, homeowners in the program saw a median 36 percent, or more than $500, savings in their monthly payment after permanent modification, according to the Treasury.
But the number of homeowners making trial payments who were dropped from the program — more than 600,000 — now exceeds the number with permanent modifications.
“Paperwork has been the No. 1 reason homeowners have not been able to convert to permanent modifications,” Treasury spokeswoman Andrea Risotto said.
The second most common reason, she said, is that homeowners are unable to keep up with payments during the trial period.
Housing counselors and lawyers for homeowners say servicers misplace documents or wrongly reject eligible applicants for no good reason — even after they’ve made trial payments for six months or longer.
“The servicers are claiming that the files are a mess or are incomplete,” said Marc Cote, a housing counselor who coordinates Washington state’s foreclosure-prevention hotline. “We have confirmation the fax was received. Then you call back in two days and there’s no record of it. That’s not uncommon.”
Regulators at the state Department of Financial Institutions say they’ve been flooded with consumer complaints about mortgage issues — such as banks failing to properly credit homeowners for payments.
Department director Scott Jarvis says a series of federal court decisions since 2002 has made it nearly impossible for regulators to force national banks and thrifts to comply with state consumer-protection laws.
“It’s a massive shell game,” Jarvis said. “The pea is the consumer, and the consumer ends up getting shuffled around the shells and rarely gets anything resolved.”
For their part, big banks and other servicers say they’re helping distressed borrowers, while being fair to the majority of homeowners who pay their mortgages on time.
This year, Chase opened a loan-modification office in Tukwila that focuses on screening homeowners with Chase mortgages in Washington and Oregon.
And a coalition of big banks recently announced support for a Web portal called HOPE LoanPort that housing counselors can use to submit complete applications, verify their receipt and get status updates.
“In the end I think we all share a common goal, which is to help as many customers as possible stay in their homes,” said Rebecca Mairone, Bank of America’s national default-servicing executive.
Left in limbo
Cote, the housing counselor, recounts this story: On Aug. 6, a national bank told an elderly owner of an Issaquah house that her application for loan assistance — submitted March 3 — was still under review.
A week later, a trustee let the bank repossess the woman’s house. The bank had denied the woman’s application but never notified her in writing, as required.
“They’re violating the guidelines,” said Cote, whose agency doesn’t allow him to identify the national bank.
Some Seattle-area homeowners echo Cote.
Guzman, of Lake Stevens, has been unemployed for more than two years and was told — incorrectly — by Chase last year that his joblessness did not count as a permanent hardship.
“Servicers continue to evolve their implementation of HAMP,” Chase said in a statement.
Moreover, Chase said, it asked Guzman to reapply for loan assistance, but he has refused.
Guzman said he’s already submitted paperwork three times.
“Millions of people have gone through this wringer like I have,” he said.
Kahlo, who bought her Queen Anne home in 1999, said she did everything Bank of America asked her to do to qualify for relief under the federal program.
After the bank told her it wasn’t permanently modifying her mortgage, she sued, alleging it had violated the federal program’s rules.
Bank of America sought to dismiss the suit, saying the lower monthly payment it offered her was an alternative to the federal program.
“A participating servicer is not required to modify every HAMP-eligible loan,” the bank stated in court.
Without a permanent modification, Kahlo says, she’s in limbo. “I don’t know if I’m sleeping in their home or my home,” she said.
Declaring bankruptcy was a last resort for Oldham, a widow in Kent who manages payroll for a small construction company.
But she believed she had no recourse because Bank of America foreclosed on the manufactured home she’s lived in for 15 years.
Oldham said she got behind on her mortgage because of medical bills.
She applied for a modification last year, but the bank tacked a foreclosure notice on her door before she received an answer.
Oldham complained to the state Attorney General’s Office, which passed her on to the state Department of Financial Institutions. That department routinely forwards such complaints — about 540 so far this year — to federal regulators.
With Oldham, though, the state department lost track of her complaint, finally sending it along last month.
Sanjay Bhatt: 206-464-3103 or sbhatt@seattletimes.com
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66% of homeowners who seek foreclosure counseling cite job losses for trouble, Craig Wolf, Poughkeepsiejournal.com
Two-thirds of the people seeking foreclosure -prevention counseling in the major local program say it was their loss of jobs or income that got them in trouble.
And the majority of people counseled did not have subprime mortgages, but conventional, fixed-rate mortgages, according to Hudson River Housing Inc., a Poughkeepsie-based nonprofit.
The group said its count of counseled homeowners has exceeded 1,500 since beginning the program in 2008.
Mary Linge, director of home ownership and education, said that 66 percent of homeowners currently cite loss of jobs and reduced income as primary reasons they face foreclosure.
In foreclosure, a lender who isn’t being paid takes possession of the property.
Of those who have recently sought services, 79 percent have conventional loans, compared with 43 percent in late 2008 when the program began, Linge said.
“The foreclosure crisis is now largely being driven by economic pressures, not bad mortgage products,” Linge said.
Recent research by the Poughkeepsie Journal found that foreclosure filings in state Supreme Court rose in 2009 by nearly 20 percent over 2008. For the first seven months of this year, filings are on course to show a further 10 percent increase.
Hudson River Housing has received three federal grants totalling $308,602 for counseling people through the Hudson Valley Foreclosure Prevention Services.
Linge said the National Foreclosure Mitigation Counseling program that has funded her group has done research on results nationally.
Homeowners who got counseling were 60 percent more likely to avoid losing their homes than people who did not seek help. Clients were more likely to get a loan modification and, on average, saved $454 a month on mortgage payments.
Reach Craig Wolf at cwolf@poughkeepsiejournal.com or 845-437-4815.
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New Program for Buyers, With No Money Down, John Leland, Nytimes.com
MILWAUKEE — When the housing bubble burst, one of the culprits, economists agreed, was exotic mortgages, including those that required little or no money down.
But on a recent evening, Matthew and Hannah Middlebrooke stood in their new $115,000 three-bedroom ranch house here, which Mr. Middlebrooke bought in June with just $1,000 down.
Because he also received a grant to cover closing costs and insurance, the check he wrote at the closing was for 67 cents.
“I thought I’d be stuck renting for years,” said Mr. Middlebrooke, 26, who earns $32,000 a year as a producer for a Christian television ministry.
Although home foreclosures are again expected to top two million this year, Fannie Mae, the lending giant that required a government takeover, is creeping back into the market for mortgages with no down payment.
Mr. Middlebrooke’s mortgage came from a new program called Affordable Advantage, available to first-time home buyers in four states and created in conjunction with the states’ housing finance agencies. The program is expected to stay small, said Janis Smith, a spokeswoman for Fannie Mae.
Some experts are concerned about the revival of such mortgages.
“Loans that have zero down payment perform worse than loans with down payments,” said Mathew Scire, a director of the Government Accountability Office’s financial markets and community investment team. “And loans with down payment assistance” — like Mr. Middlebrooke’s — “perform worse than those that do not.”
But the surprise is the support these loans have received, even from critics of exotic mortgages, who say low down payments themselves were not the problem, except when combined with other risk factors like adjustable rates or lax underwriting.
Moreover, they say, the housing market needs such nontraditional lending, as long as it is done prudently.
“This is subprime lending done right,” said John Taylor, president of the National Community Reinvestment Coalition, an umbrella group for 600 community organizations, and a staunch critic of the lending industry. “If they had done subprime this way in the first place, we wouldn’t have these problems.”
At Harvard’s Joint Center for Housing Studies, Eric Belsky, the director, said the loans might be the type of step necessary to restart the housing market, because down payment requirements are keeping first-time home buyers out.
“If you look at where the market may get strength from, it may very well be from first-time buyers,” he said. “And a very significant constraint to first-time buyers is the wealth constraint.”
The loans are the idea of state housing finance agencies, or H.F.A.’s, quasi-government entities created to help moderate-income people buy their first homes.
Throughout the foreclosure crisis, the state agencies continued to make loans with low down payments, often to borrowers with tarnished credit, with much lower default rates than comparable mortgages from commercial lenders or the Federal Housing Administration. The reason: the agencies did not offer adjustable rates, and they continued to document buyers’ income and assets, which many commercial lenders did not do. In 2009, the agencies’ sources of revenue dried up, and they had to curtail most lending.
Then they created Affordable Advantage. The loans are 30-year fixed mortgages, with mandatory homeownership counseling, available to people with credit scores of 680 and above (720 in Massachusetts). The buyers have to put in $1,000 and must live in the homes.
All of these requirements ease the risk, said William Fitzpatrick, vice president and senior credit officer of Moody’s Investors Service. “These aren’t the loans that led us into the mortgage crisis,” he said.
So far Idaho, Massachusetts, Minnesota and Wisconsin are offering the loans. The Wisconsin Housing and Economic Development Authority has issued 500 loans since March, making it the first state to act. After six months, there are no delinquencies so far, said Kate Venne, a spokeswoman for the agency.
The agencies buy the loans from lenders, then sell them as securities to Fannie Mae. Because the government now owns 80 percent of Fannie Mae, taxpayers are on the hook if the loans go bad.
The state agencies oversee the servicing of the loans and work with buyers if they fall behind — a mitigating factor, said Mr. Fitzpatrick of Moody’s.
“They have a mission to put people in homes and keep them in homes,” not to foreclose unless other options are exhausted, he said. The loans have interest rates about one-half of a percentage point above comparable loans that require down payments.
Ms. Smith, the spokeswoman for Fannie Mae, distinguished the program from loans of the boom years that “layered risk on top of risk.”
With the new loans, she said, “income is fully documented, monthly payments are fixed, credit score requirements are generally higher, and borrowers must be thoroughly counseled on the home-buying process and managing their mortgage debt.”
For Porfiria Gonzalez and her son, Eric, the loan allowed them to move out of a rental house in a neighborhood with a high crime rate to a quiet street where her neighbors are retirees and police officers.
Ms. Gonzalez, 30, processes claims in the foreclosure unit at Wells Fargo Home Mortgage; she has seen the many ways a mortgage holder can fail.
On a recent afternoon in her three-bedroom ranch house here, Ms. Gonzalez said she did not see herself as repeating the risks of the homeowners whose claims she processed.
“I learned to stay away from ARM loans,” or adjustable rate mortgages, she said. “That’s the No. 1 thing. And always have some emergency money.”
When she first started shopping, she looked at houses priced around $140,000. But the homeownership counselor said she should keep the purchase price closer to $100,000.
“They explained to me that I don’t need a $1,200-a-month payment,” she said.
The counselor worked with her real estate agent and attended her closing. On May 28, Ms. Gonzalez bought her home for $90,500, with monthly payments of $834. After moving expenses, she has kept her savings close to $5,000 to shield her from emergencies.
“If I had to make a down payment, it would have wiped out my savings,” she said. “I would have started with nothing.”
Now, she said, she is in a home she can afford in a neighborhood where her son can play in the yard. A neighbor brought her a metal pink flamingo with a welcome sign to place by her side door.
“My favorite part is the big backyard,” said Eric, 10. “And that’s pretty much it.”
“You don’t like it that it’s a quiet, safe neighborhood?” his mother asked.
“Yeah, I do.”
“He didn’t go out much with kids in the old neighborhood,” she said.
“Because they were bad kids,” he said.
Ms. Gonzalez said that owning a house was much more work than renting, and that when the basement flooded during a heavy rain, her heart sank.
“But I look at it as an investment,” she said, adding that a similar house in the neighborhood was on the market for $120,000.
Prentiss Cox, a professor at the University of Minnesota Law School who has been deeply critical of the mortgage industry, said the program met an important need and highlighted the track record of state housing agencies, which never engaged in exotic loans.
“It’s not a story people want to hear, because it won’t bring back the big profits,” Mr. Cox said. “The H.F.A.’s have shown how the problems of the last 10 years were about having sound and prudent regulation of lending, not just whether the loans were prime or subprime.”
He added, “One of the great and unsung tragedies of the whole crisis was the end of the subprime market.”
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Communities Get First Shot at Foreclosed Homes, By Gregory Korte, USA TODAY
Major mortgage lenders will now give state and local governments the right to buy foreclosed properties before they go on the market, giving them “a leg up” on speculators who have often thwarted local redevelopment efforts, Housing Secretary Shaun Donovan announced Wednesday.
The First Look program will give communities a 48-hour heads up on foreclosed properties and the ability to buy them at a 1% discount, Donovan said. The effort is intended to help improve the $7 billion Neighborhood Stabilization Program, he said.
“First Look is good for our housing market because it will bring much-needed speed” to the sale of bank-owned homes, Donovan said. Data show that vacant homes are more than three times more destructive to neighboring home values than those early in the foreclosure process.
USA TODAY reported in July that more than $1 billion in Neighborhood Stabilization Program funds were unspent two years after Congress authorized the program. Short staffing and confusion over rules were partly to blame, but local governments also said lenders wouldn’t deal their foreclosed properties.
Often, cities can’t move as quickly as private companies in buying homes especially in highly visible areas or where they’re trying to assemble multiple properties in a land bank.
“You can’t be successful in neighborhood stabilization unless you control all the pieces on the chess board,” said Craig Nickerson, president of the National Community Stabilization Trust, which runs the clearinghouse.
The participating mortgage lenders account for 75% of foreclosed homes, Donovan said. They include Bank of America, Chase, Citibank, Wells Fargo and Freddie Mac.
The banks won’t offer all their foreclosures. “We’re not going to run all our inventory through this engine,” said Steven Nesmith, senior vice president of Ocwen Financial Corp. He said about 20% will be offered to governments and non-profits.
The plan might come too late to help communities involved in the first round of funding. Many have just days to write contracts or risk losing their federal funding. In all, 143 communities have less than a month to spend their federal money. If they don’t, the Department of Housing and Urban Development will freeze their unused funds as much as $354 million nationally and could take the money back.
Palm Bay, Fla., has until Friday to spend its $5.2 million, and might fall $200,000 short. “Just with our purchasing requirements, we do not move as quickly as the private sector,” said David Watkins, the city’s growth management director.
“If First Look had been available from the beginning, he said, “we might be at least three or four months ahead of where we are now.”
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Federal Housing Stimulus: How Much More?, Diana Olick, CNBC
New reports are rolling around Wall Street and Washington today that the Obama Administration is considering yet another economic stimulus package; this round would be for small businesses. This comes just one week after increased chatter about more government stimulus for housing.
Congress returns the week of September 13th, and as Democrats face an uncertain election this November, you know they’re going to be looking to make average Americans feel more secure about their finances.
But how much has housing stimulus really helped?
Through July 3, 2010, the IRS reports a bill of $23.5 for the home buyer tax credit, according to a letter dated yesterday (September 2nd) from the Government Accountability Office to Rep. John Lewis, Chairman of the House Ways and Means Committee’s Subcommittee on Oversight. $16.2 billion for the first time and move-up credits and $7.3 billion for interest-free loans which recipients will begin repaying in January.
The Department of Housing and Urban Development has also already allocated nearly $6 billion for the Neighborhood Stabilization Program, which gives state and local governments and non-profit housing developers funds to acquire property, demolish or rehabilitate foreclosures and offer assistance to low- to middle-income homebuyers for down payments and closing costs. In the coming weeks it will add $1 billion to that. Just this week HUD Secretary Donovan gave NSP grantees a leg up over investors, by providing a first right of refusal for those grantees to buy foreclosed homes.
The talk around Washington is for yet another home buyer tax credit, this time perhaps for short sale and foreclosure buyers. Unfortunately every time we get a short-term stimulus, we get an inevitable drop off in sales and prices, as we’re experiencing now. Yes, we saw a mini burst of buying from credits last fall and this spring, but the overall numbers are still way down, and inventories are still far too high.
The one steady in gauging housing is confidence, and until we get that back, sales will remain weak for the foreseeable future.
Government stimulus, arguably, sells houses, and we need that to bring down our currently record-high inventories.
But Government stimulus is also temporary, and everyday buyers and sellers recognize that, which doesn’t add to their already faltering confidence.
Questions? Comments? RealtyCheck@cnbc.com
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When to refinance a mortgage? , Thetruthaboutmortgage.com
Mortgage Q&A: “When to refinance a mortgage?”
With mortgage rates at record lows, you may be wondering if now is a good time to refinance.
The popular 30-year fixed-rate mortgage slipped to 4.32 percent this week, well below the 5.08 percent seen a year ago, and much better than the six-percent range seen years earlier.
So should you refinance now?
Well, that answers depends on a number of factors.
First, what is the current interest rate on your mortgage(s)? And what will the closing costs be on the new mortgage? They’ve been rising lately…
Let’s look at a quick example:
Loan amount: $200,000
Current mortgage rate: 5.5% 30-year fixed
Refinance rate: 4.25% 30-year fixed
Closing costs: $2,500The monthly mortgage payment on your current mortgage (including just principal and interest) would be roughly $1,136, while the refinanced rate of 4.25 percent would carry a monthly payment of about $984.
That equates to savings of $152 a month.
Now assuming your closing costs were $2,500 to complete the refinance, you’d be looking at about 17 months of payments before you broke even and started saving yourself some money.
So if you refinanced again or sold your home during that time, refinancing wouldn’t make a lot of sense.
But if you plan to stay in the home (and with the mortgage) for many years to come, the savings could be substantial.
Other Considerations
If you’re currently in an adjustable-rate mortgage, or worse, an option arm, the decision to refinance into a fixed-rate loan could make even more sense.
Or if you have two loans, consolidating the balance into a single loan (and ridding yourself of that pesky second mortgage) could result in some serious savings.
Additionally, you might be able to snag a no cost refinance, which would allow you to refinance without any out-of-pocket costs (the rate would be higher to compensate).
A cash-out refinance could also contribute to your decision to refinance if you were in need of money and had the necessary equity.
Finally, if you’re already in a 30-year fixed and want to build equity, you might consider taking a look at the 15-year fixed, which is pricing at a record low 3.83 percent, assuming you could handle a higher monthly payment.
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Refinance Demand Up as Mortgage Interest Rates Maintain Low Levels, by Rosemary Rugnetta, Freerateupdate.com
September 2, 2010 (FreeRateUpdate.com) – As mortgage interest rates continue to maintain low levels, refinance demand continues to increase across the nation. According to the Mortgage Banker’s Association, refinances have reached a 15 month high, the highest point since May of 2009. Rates are at the lowest point than any other time since Freddie Mac began keeping track in 1971. Mortgage applications rose for the fourth straight week with refinances accounting for the bulk of the demand. This is due to mortgage interest rates that continue to remain low with the 30 year fixed rate at 4.125% and the 15 years fixed rate at 3.625%.
The current refinance demand is not surprising considering the record low mortgage rates that have continued for the past several weeks. After a slow start, these low mortgage rates are finally spurring home owner interest. Unfortunately, not all home owners can refinance with these historic rates. Those who are underwater due to the depressed housing market and those whose credit has been compromised will not be able to take advantage of the market’s record low interest rates. On the other hand, for others, especially those who have refinanced within the past two years, it is a great time to do it again. In addition, those home owners who currently have adjustable rate mortgages that are about to reset, could benefit from refinancing at this time into a fixed rate mortgage.
The demand for refinances, which has continued to increase each week, could also be a positive sign for the weak economy. The current low mortgage interest rates have made it possible for home owners to refinance into a better interest rate loan or a shorter length loan. Many with higher interest 30 year loans are finding that, at today’s rates, it is in their best interest to refinance into a 15 year mortgage which is, in many circumstances, cheaper. By putting extra cash in consumers hands, they are able to pay off outstanding debts, money can be saved or just put back into the economy through spending. Although it is not certain if this refinance boom will do anything to stimulate the economy, this just might be the boost that the sluggish economy is in need of.
It is anyone’s guess at which way mortgage rates will go from here. If mortgage interest rates maintain these low levels or drop even lower, refinance demand should go up with more home owners deciding to refinance during the fall months just in time for the Holiday season. In the meantime, home owners probably should not wait for rates to go much lower since anything can happen with such a volatile market.
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Foreclosures Heavey Toll on Health, Suzanne Bohan, Contra Costa Times
Maria Ramirez is one of the fortunate ones. She’s lived for more than 10 years with her family in ZIP code 94621 in Oakland, one the East Bay neighborhoods hardest hit by home foreclosures. But she fought back when Wachovia Bank began foreclosing on her house in 2009, and won an affordable loan modification.
Her victory doesn’t only secure stable housing for Ramirez and her family. In a little-discussed aspect of the foreclosure crisis gripping the nation, it also protects the Ramirez’s long-term mental and physical health.
Nearly one in 10 American households with a mortgage are behind on their payments, according the Mortgage Bankers Association. In Oakland, the numbers are even worse: Between 2006 and 2009, one in 4 homeowners with a mortgage entered into foreclosure.
And a first-of-its kind report released today by the Alameda County Public Health Department and Causa Justa :: Just Cause warns of the looming health consequences of widespread home foreclosures, while also detailing steps to mitigate those harmful effects.
“We’re trying to get people to understand this is a public health issue,” said Sandra Witt, deputy director of the Alameda County Public Health Department.
Last year, the health department released a preliminary report on the link between health and foreclosures, and the new report is the most comprehensive yet published on the topic.
In a door-to-door survey of 388 East Oakland and West Oakland homes
in the summer of 2009, workers with Causa Justa :: Just Cause, a community action group, conducted an in-depth look at the health effects of home foreclosures on these hard-hit communities. They found that 38 percent of those coping with foreclosure threats reported declining health during the past two years, compared with 24 percent of those unconcerned about foreclosures.
Mental health also deteriorated.
Almost a third of those dealing with home foreclosure threats reported that their mental and emotional health had worsened during the past two years, compared with only 16 percent of those in stable housing.
“This is really about the stress that one feels,” Witt said. The stress also increased the likelihood of developing hypertension and a host of other health conditions, and increases visits to emergency departments.
The report noted the survey doesn’t establish direct links between foreclosure risk and health outcomes, but “suggests associations.” The report, titled “Rebuilding Neighborhoods, Restoring Health,” is available on the county health department’s website at www.acphd.org.
These health declines also portend an increasing demand for medical care. “It will absolutely create a demand for more services, both health services and mental health services,” Witt said.
The new report, however, includes a long list of remedies to mitigate the potential health harms from the stress of facing foreclosure and coping with eviction.
Those include state and federal policies to promote home loan modifications by banks, as well as foreclosure relief. These remedies are tough to enact, however, as demonstrated by the failure in the state Assembly on Monday of legislation that would protect homeowners from eviction while they’re pursing more lenient loan terms. The bill was supported by consumer groups but opposed by the banking industry.
But other laws on the books can sometimes help distressed homeowners. And the report urges community groups to join together to educate those facing foreclosures about their rights, as well as strategies for securing loan modifications.
Homeownership has long been indirectly linked to health and wellness. The federal push to promote home buying began in the early 20th century. And in 1921, then-Commerce Secretary Herbert Hoover, elected President in 1928, held that homeownership “may change the very physical, mental and moral fiber of one’s own children.”
The new report, conversely, points to marked deterioration in health among homeowners and tenants facing eviction due to foreclosures.
Suzanne Bohan covers science. Contact her at 510-262-2789. Follow her at Twitter.com/suzbohan.
OREGON REAL ESTATE ROUND TABLE 