Our columnist advises a reader on things to do to make a listing more appealing in the winter
By JUNE FLETCHER
Q: I live in Bethesda, Md. Most people around here put their homes on the market in the spring, when everything is in bloom. But I need to sell my home now. What can I do to make it more marketable?
A: Although winter is the most challenging time to put your house on the market, you can turn the season to your advantage if you emphasize the qualities that make your house more inviting than the competition.
[Selling a home in winter House Talk] Associated Press
While a log cabin in Alaska may be cozy, many homes aren't as appealing to buyers during the winter months.
Here are some tips:
* Keep up with maintenance. In their rush to get their homes ready to show, many sellers forget to button up their homes for the winter. But buyers will notice the icicles that form when gutters aren't cleaned, and will feel the drafts from windows that haven't been weather-stripped. If you need to move out before your house is sold, don't forget to turn off the valves to outside spigots and drain them so pipes don't freeze and burst. Also, if your house is vacant, hire someone to make sure tree branches felled by ice are hauled away, your walks, steps and driveway are always kept free from snow, and floors aren't dirty with tracked-in salt and sand.
* Take down holiday decorations. Although some agents think holiday lights and Christmas trees make a house festive, they can be a turn-off to buyers who don't share your religious beliefs -- particularly in an area like yours, which has a diverse population. It's better simply to stick to hot cider and a roaring fire during your open houses.
* Emphasize energy efficiency. Buyers are always interested in knowing a home's operating costs, but these concerns naturally come to the fore during winter. List everything you have done to your home to make it more energy efficient, from beefing up insulation and wrapping pipes with foam sleeves to replacing windows and appliances. You might want to copy utility bills and leave them out for showings as well. (To foil potential identity thieves, black out your account number.)
Getting the Best Price
What's the best way to determine if a home is priced competitively? Join a discussion on Journal Community.
* Lighten up. Everyone wants more light in the winter, so make your house is as bright as possible. Window screens block an amazing amount of sunshine, so put them in storage (don't toss them, though -- home inspectors will note if there are any missing). Have your windows cleaned and take down heavy draperies. If your house is unoccupied, put some lights on timers so it will look inviting from the street at night. Also, consider putting motion detectors on walk-in closet lights, so they'll turn on when buyers open the door.
* Show other seasons. Even though buyers can't see your azaleas in bloom under the snow, you can help them visualize other times of year. Hang or arrange photos of your house with the maple tree in full glory on the mantel, or buy a digital picture frame and upload photos you may have taken of the flower beds in different seasons. Put it on the kitchen table, next to the stacks of brochures, so buyers can't miss it. Also, use landscaping software to create a diagram of your yard. Mark what's planted in beds and identify the types of trees and shrubs, as well as any water features or statuary that might be covered up by snow. (A hint: If your family is in the pictures, crop or Photoshop them out; you want buyers to project themselves mentally into the scene.)
* Update Web photos regularly. These days, homes can spend weeks on the market -- though agents sometimes try to hide that fact by withdrawing and then relisting houses. But buyers can immediately spot a stale listing if the photo is out of season. I hope your house sells quickly, but if it doesn't, please make sure that you or your agent updates photos on Web sites and marketing materials as soon as the trees leaf out and the daffodils start to bloom.
Write to June Fletcher at fletcher.june@wsj.com
Monday, December 29, 2008
Wednesday, December 24, 2008
Some Loan Modifications Are Better Than Others
Do borrowers have any say over the type of loan modification they get? What kind of modification should they look for?"
Mortgage modifications are changes in the terms of a mortgage loan designed to make it more affordable to the borrower. Generally, modifications are available only to borrowers in default or in imminent danger of default. The purpose is to cure or avoid the default, thereby averting foreclosure.
In general, borrowers must take the modification they are offered, since they have very little bargaining power. Their only card -- the implicit threat that, if they don't receive an adequate modification, they will default -- is one they can't play, at least not explicitly. However, borrowers can indicate what they can afford to pay without it being perceived as a threat.
The major types of modifications are discussed below.
Capitalization of arrears: The past due payments -- and perhaps late fees and other charges arising out of past delinquencies -- are added to the loan balance. A new payment, which will be a little higher than the previous payment, is then calculated.
This is the most common type of modification because it has very little cost to the investor. Its only value to the borrower is that it provides a new start by making him current. It works for a borrower who has hit a temporary rough patch and is now back on track, but not for a borrower who needs a lower payment.
Extension of the term: A term extension is the payment reduction modification that is least costly to the investor. However, if a loan was originally for 30 or 40 years and is now only a few years old, the payment can't be reduced very much this way. If the loan was originally for 10 or 15 years, a term extension to 30 years will reduce the payment materially, but 10- and 15-year loans make up a very small share of loans in distress.
Reduction in interest rate: This is a more effective way to get the payment down. Cutting the interest rate on a 30-year loan from 6 percent to 3 percent will reduce the payment by about 30 percent, whereas extending the term to 40 years reduces it by only 8 percent. Rate reductions are flexible, since they can be adjusted to the needs of each individual borrower. They are more costly to the investor than a term extension, and correspondingly they are more valuable to the borrower.
To minimize the cost, rate reductions in some cases are made temporary. The modification may call for the original rate to be phased back over, say, five years. This presumes that the borrower's payment capacity will grow over the same period.
Freezing the interest rate: On adjustable-rate mortgages that are close to a rate reset date, where the new rate and payment will be well above the one the borrower is now paying, a modification can freeze the rate and payment at the current level. Many subprime loans have been modified in this way because they carried margins of 5 percent to 7 percent, which, when added to the current value of the rate index, would have resulted in substantial increases in rates and payments.
Reduction in loan balance: The mortgage payment declines in tandem with the balance. A 20 percent drop in the balance, for example, results in a 20 percent drop in the payment. Unlike a cut in the interest rate, however, a cut in the balance can't be temporary, which makes it the most costly modification for investors and the best modification for borrowers.
Balance reductions do have one major advantage for investors: They reduce the borrower's negative equity, which increases the borrower's incentive to do everything possible to keep the house. It is very plausible that re-default rates on loans that are modified with a balance reduction are materially lower than on other types of modifications.
New data compiled by the Office of the Comptroller of the Currency show that about half of all modified loans re-default within six months. I am told that breakdowns of re-default rates by type of modification will soon be available.
Modification decisions are made not by investors but by servicing agents under contract with investors, and the agents generally view balance reductions as a last resort. It is not in their own financial interest to cut balances because their servicing fees are based on the loan balance. A 20 percent cut in the balance also means a 20 percent cut in the fee.
Probably more important to their decision process, the initial cost of balance reductions is higher than that of rate reductions, which imposes a burden of proof on servicing agents to justify balance reductions to investors. Their argument has to be that a balance reduction has a materially lower probability of re-default, but so far only sketchy data have been available to support it. Hopefully, this will soon change.
Mortgage modifications are changes in the terms of a mortgage loan designed to make it more affordable to the borrower. Generally, modifications are available only to borrowers in default or in imminent danger of default. The purpose is to cure or avoid the default, thereby averting foreclosure.
In general, borrowers must take the modification they are offered, since they have very little bargaining power. Their only card -- the implicit threat that, if they don't receive an adequate modification, they will default -- is one they can't play, at least not explicitly. However, borrowers can indicate what they can afford to pay without it being perceived as a threat.
The major types of modifications are discussed below.
Capitalization of arrears: The past due payments -- and perhaps late fees and other charges arising out of past delinquencies -- are added to the loan balance. A new payment, which will be a little higher than the previous payment, is then calculated.
This is the most common type of modification because it has very little cost to the investor. Its only value to the borrower is that it provides a new start by making him current. It works for a borrower who has hit a temporary rough patch and is now back on track, but not for a borrower who needs a lower payment.
Extension of the term: A term extension is the payment reduction modification that is least costly to the investor. However, if a loan was originally for 30 or 40 years and is now only a few years old, the payment can't be reduced very much this way. If the loan was originally for 10 or 15 years, a term extension to 30 years will reduce the payment materially, but 10- and 15-year loans make up a very small share of loans in distress.
Reduction in interest rate: This is a more effective way to get the payment down. Cutting the interest rate on a 30-year loan from 6 percent to 3 percent will reduce the payment by about 30 percent, whereas extending the term to 40 years reduces it by only 8 percent. Rate reductions are flexible, since they can be adjusted to the needs of each individual borrower. They are more costly to the investor than a term extension, and correspondingly they are more valuable to the borrower.
To minimize the cost, rate reductions in some cases are made temporary. The modification may call for the original rate to be phased back over, say, five years. This presumes that the borrower's payment capacity will grow over the same period.
Freezing the interest rate: On adjustable-rate mortgages that are close to a rate reset date, where the new rate and payment will be well above the one the borrower is now paying, a modification can freeze the rate and payment at the current level. Many subprime loans have been modified in this way because they carried margins of 5 percent to 7 percent, which, when added to the current value of the rate index, would have resulted in substantial increases in rates and payments.
Reduction in loan balance: The mortgage payment declines in tandem with the balance. A 20 percent drop in the balance, for example, results in a 20 percent drop in the payment. Unlike a cut in the interest rate, however, a cut in the balance can't be temporary, which makes it the most costly modification for investors and the best modification for borrowers.
Balance reductions do have one major advantage for investors: They reduce the borrower's negative equity, which increases the borrower's incentive to do everything possible to keep the house. It is very plausible that re-default rates on loans that are modified with a balance reduction are materially lower than on other types of modifications.
New data compiled by the Office of the Comptroller of the Currency show that about half of all modified loans re-default within six months. I am told that breakdowns of re-default rates by type of modification will soon be available.
Modification decisions are made not by investors but by servicing agents under contract with investors, and the agents generally view balance reductions as a last resort. It is not in their own financial interest to cut balances because their servicing fees are based on the loan balance. A 20 percent cut in the balance also means a 20 percent cut in the fee.
Probably more important to their decision process, the initial cost of balance reductions is higher than that of rate reductions, which imposes a burden of proof on servicing agents to justify balance reductions to investors. Their argument has to be that a balance reduction has a materially lower probability of re-default, but so far only sketchy data have been available to support it. Hopefully, this will soon change.
Tuesday, December 23, 2008
Fed rate cut sparks a rush of refinancing
Some mortgages to be had for 4.5 percent for very qualified borrowers
WASHINGTON - Homeowners across the United States on Wednesday took advantage of the Federal Reserve's extraordinary decision to lower interest rates, refinancing their homes to lower their monthly mortgage payments amid an economic downturn.
Mortgage brokers reported a surge of calls from borrowers seeking to take advantage of the Tuesday decision to cut the federal funds rate from 1 percent to a target range of zero to 0.25 percent and pledged to keep funneling money into the market for mortgage investments.
Some brokers were quoting mortgage rates of close to 4.5 percent for people with strong credit and hefty down payments.
The national average rate on 30-year, fixed mortgages was 5.06 percent on Wednesday, according to financial publisher HSH Associates — the lowest since the 1960s and down from 5.3 percent Tuesday.
"This is beautiful, oh my gosh!" said Patti Mazzara, a mortgage broker in Minnesota, who was surprised when she looked up rates and found them well below 5 percent, down at least three-quarters of a percentage point from earlier in the week. "This is a whole new game now. Hopefully it's going to give people some relief."
It was the best news in months for anyone looking to lock in a 30-year, fixed-rate mortgage. But it was not expected to be a cure-all, and borrowers already in danger of foreclosure probably won't be able to take advantage.
"It's a call to action for homeowners looking to get out of adjustable-rate mortgages," said Greg McBride, senior financial analyst at Bankrate.com. "Unfortunately, it's not an equal-opportunity party."
Even Wall Street, which pushed the Dow industrials up 360 points after the Fed announcement Tuesday, tempered its enthusiasm on Wednesday. The Dow finished down about 100 points.
An estimated 12 million Americans owe more on their home loans than their houses' current value, unemployment is still rising quickly, and foreclosures are soaring.
For people whose home values have plunged, "I could have a 1 percent interest rate, but it wouldn't help them," said Michael Maynard, a mortgage broker in Connecticut.
"People losing their homes aren't losing their homes because they can't get a 6 percent mortgage," Maynard said. "They're not qualifying at all."
In Charlotte, Jabon's mortgage broker, Will Mullinix, said that while rates that low are "pretty unprecedented," the best deals are available only to borrowers with pristine credit who are taking out loans for under 80 percent of their house's current value.
"All the stars have to align," Mullinix said.
And economists expect falling rates to provide only a modest boost to home sales, especially as unemployment worsens amid what could be the longest economic downturn since the Great Depression of the 1930s.
"People tend to be more inclined to buy a house when they're confident about their employment and income prospects," said Wachovia Corp. economist Mark Vitner.
Besides lowering the interest on fixed-rate mortgages, rates should come down on adjustable-rate home equity loans. Those are tied to the prime rate, and prime rates came down immediately after the Fed move Tuesday.
The Federal Reserve also plans to buy up mortgage debt and is considering buying long-term Treasury bonds that are closely tied to mortgage rates, so analysts expect rates to drop even further.
"We're going to see just a massive refinancing boom," said Mark Zandi, chief economist at Moody's Economy.com, who estimates that up to 10 million U.S. borrowers, or about one in five Americans with a mortgage, could wind up refinancing.
Senate Majority Leader Harry Reid said Wednesday that some of the $700 billion financial bailout should spent to aid borrowers in danger of losing their homes.
"We've given enough big checks to these banks. Let's do something to help foreclosures," he said in a conference call with reporters.
President-elect Barack Obama's advisers were weighing an economic recovery plan that could cost as much as $850 billion over two years. Though they had not settled on a final figure, it was bound to be bigger than the $600 billion that Obama's team initially envisioned.
President-elect Barack Obama's advisers were weighing an economic recovery plan that could cost as much as $1 trillion over two years. The figure is far bigger than the $600 billion that Obama's team initially envisioned.
Mortgage applications rose about 3 percent last week, but are still below highs for the year reached in early February, the last time rates were attractive enough to cause refinancings to surge.
For homeowners who haven't been able to sell their houses, the lower rates represent an opportunity to at least save some money. And if they have enough equity in their homes, they can still pull out money to make improvements — albeit at a higher interest rate.
Lisa Wallwork, 37, and her husband, Shawn, are in the process of refinancing the mortgage on the house they've owned for five years in Connecticut. They pulled it off the market in September after their house didn't sell for more than a year.
"We wanted to move up to a bigger and better house," she said.
Instead, the couple are refinancing their $185,000 mortgage, pulling out equity to remodel their kitchen and getting a new front door. And they still expect to save up to $300 a month in the process.
WASHINGTON - Homeowners across the United States on Wednesday took advantage of the Federal Reserve's extraordinary decision to lower interest rates, refinancing their homes to lower their monthly mortgage payments amid an economic downturn.
Mortgage brokers reported a surge of calls from borrowers seeking to take advantage of the Tuesday decision to cut the federal funds rate from 1 percent to a target range of zero to 0.25 percent and pledged to keep funneling money into the market for mortgage investments.
Some brokers were quoting mortgage rates of close to 4.5 percent for people with strong credit and hefty down payments.
The national average rate on 30-year, fixed mortgages was 5.06 percent on Wednesday, according to financial publisher HSH Associates — the lowest since the 1960s and down from 5.3 percent Tuesday.
"This is beautiful, oh my gosh!" said Patti Mazzara, a mortgage broker in Minnesota, who was surprised when she looked up rates and found them well below 5 percent, down at least three-quarters of a percentage point from earlier in the week. "This is a whole new game now. Hopefully it's going to give people some relief."
It was the best news in months for anyone looking to lock in a 30-year, fixed-rate mortgage. But it was not expected to be a cure-all, and borrowers already in danger of foreclosure probably won't be able to take advantage.
"It's a call to action for homeowners looking to get out of adjustable-rate mortgages," said Greg McBride, senior financial analyst at Bankrate.com. "Unfortunately, it's not an equal-opportunity party."
Even Wall Street, which pushed the Dow industrials up 360 points after the Fed announcement Tuesday, tempered its enthusiasm on Wednesday. The Dow finished down about 100 points.
An estimated 12 million Americans owe more on their home loans than their houses' current value, unemployment is still rising quickly, and foreclosures are soaring.
For people whose home values have plunged, "I could have a 1 percent interest rate, but it wouldn't help them," said Michael Maynard, a mortgage broker in Connecticut.
"People losing their homes aren't losing their homes because they can't get a 6 percent mortgage," Maynard said. "They're not qualifying at all."
In Charlotte, Jabon's mortgage broker, Will Mullinix, said that while rates that low are "pretty unprecedented," the best deals are available only to borrowers with pristine credit who are taking out loans for under 80 percent of their house's current value.
"All the stars have to align," Mullinix said.
And economists expect falling rates to provide only a modest boost to home sales, especially as unemployment worsens amid what could be the longest economic downturn since the Great Depression of the 1930s.
"People tend to be more inclined to buy a house when they're confident about their employment and income prospects," said Wachovia Corp. economist Mark Vitner.
Besides lowering the interest on fixed-rate mortgages, rates should come down on adjustable-rate home equity loans. Those are tied to the prime rate, and prime rates came down immediately after the Fed move Tuesday.
The Federal Reserve also plans to buy up mortgage debt and is considering buying long-term Treasury bonds that are closely tied to mortgage rates, so analysts expect rates to drop even further.
"We're going to see just a massive refinancing boom," said Mark Zandi, chief economist at Moody's Economy.com, who estimates that up to 10 million U.S. borrowers, or about one in five Americans with a mortgage, could wind up refinancing.
Senate Majority Leader Harry Reid said Wednesday that some of the $700 billion financial bailout should spent to aid borrowers in danger of losing their homes.
"We've given enough big checks to these banks. Let's do something to help foreclosures," he said in a conference call with reporters.
President-elect Barack Obama's advisers were weighing an economic recovery plan that could cost as much as $850 billion over two years. Though they had not settled on a final figure, it was bound to be bigger than the $600 billion that Obama's team initially envisioned.
President-elect Barack Obama's advisers were weighing an economic recovery plan that could cost as much as $1 trillion over two years. The figure is far bigger than the $600 billion that Obama's team initially envisioned.
Mortgage applications rose about 3 percent last week, but are still below highs for the year reached in early February, the last time rates were attractive enough to cause refinancings to surge.
For homeowners who haven't been able to sell their houses, the lower rates represent an opportunity to at least save some money. And if they have enough equity in their homes, they can still pull out money to make improvements — albeit at a higher interest rate.
Lisa Wallwork, 37, and her husband, Shawn, are in the process of refinancing the mortgage on the house they've owned for five years in Connecticut. They pulled it off the market in September after their house didn't sell for more than a year.
"We wanted to move up to a bigger and better house," she said.
Instead, the couple are refinancing their $185,000 mortgage, pulling out equity to remodel their kitchen and getting a new front door. And they still expect to save up to $300 a month in the process.
Monday, December 22, 2008
NAR Urges Financial Regulators and Industry to Make Mortgages More Attainable
The National Association of Realtors® applauds recent actions by the Federal Reserve and the Treasury making mortgage interest rates more affordable. However, further action is needed to help the thousands of people trying to buy a home or to stem off foreclosure to get a mortgage easily and quickly.
“Our members tell us that families are once again looking to enter the housing market only to find that delays, process and bureaucracy are getting in the way,” said NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth. “The federal government and the mortgage lending industry must address continuing problems that are impeding the delivery of mortgage credit to home buyers and those trying to avoid foreclosure.”
In a letter to the Treasury Department, the Federal Reserve Board and the Federal Housing Finance Agency, and copied to President-elect Barack Obama’s transition team, NAR notes that in addition to lowering interest rates, the federal government must work with mortgage lenders and credit reporting agencies to eliminate processes that are making it difficult to close on a mortgage loan so that the housing market and the nation’s economy can have a robust recovery.
“Now really is a great time to buy a home. Inventory is high, prices are down and mortgage rates are near 50-year lows. We have to unclog the system and let people achieve and hold on to the dream of homeownership,” McMillan said.
NAR is recommending that the Treasury Department provide additional TARP funds for the sole purposes of making additional loans and modifying mortgages to help prevent foreclosures.
“The housing market is clogged with short-sales that take frustratingly too long to clear. Though lax underwriting standards should never return, many lenders’ credit score requirements have become overly stringent. Good people with good credit scores are finding it difficult to qualify for loans despite the historically low mortgage rates,” said McMillan.
NAR is asking mortgage lenders and mortgage insurers to make sure they have not over-corrected their underwriting standards and added unnecessarily strict underwriting standards, such as excessively high credit scores to qualify for a mortgage. In addition, credit reporting bureaus should improve compliance with the Fair Credit Reporting Act, including providing prompt responses to consumers who want to correct errors in their file.
Lastly, NAR is calling on all mortgage lenders, their servicers, Fannie Mae and Freddie Mac, and investors in mortgage assets to implement aggressive policies that result in more loan modifications to prevent as many foreclosures as possible, expedited processes for short-sales, and added liquidity to the nonconforming mortgage market.
“If rates stay low at near 5 percent or lower, home sales could rise nationally by 10 to 15 percent in 2009 and stabilize prices in many parts of the country,” said NAR Chief Economist Lawrence Yun. “That, in turn, will help reduce foreclosure pressures and lower the rate of re-defaults on recently modified distressed loans. Improved loan modification tools are also necessary. Everyone needs to work together so this can become a reality.”
NAR continues to advocate for other measures that would help create long-term stability by ensuring that safe and affordable mortgages are available throughout the nation, including making the higher loan limits passed in the economic stimulus bill earlier this year permanent and extending the temporary $7,500 tax credit for first-time home buyers to all home buyers and eliminating the repayment requirement.
“The work is not yet finished, and NAR is committed to continuing its efforts with policy makers and the new Congress and administration to get the real estate market back on track – the nation’s economy depends on it,” McMillan said.
“Our members tell us that families are once again looking to enter the housing market only to find that delays, process and bureaucracy are getting in the way,” said NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth. “The federal government and the mortgage lending industry must address continuing problems that are impeding the delivery of mortgage credit to home buyers and those trying to avoid foreclosure.”
In a letter to the Treasury Department, the Federal Reserve Board and the Federal Housing Finance Agency, and copied to President-elect Barack Obama’s transition team, NAR notes that in addition to lowering interest rates, the federal government must work with mortgage lenders and credit reporting agencies to eliminate processes that are making it difficult to close on a mortgage loan so that the housing market and the nation’s economy can have a robust recovery.
“Now really is a great time to buy a home. Inventory is high, prices are down and mortgage rates are near 50-year lows. We have to unclog the system and let people achieve and hold on to the dream of homeownership,” McMillan said.
NAR is recommending that the Treasury Department provide additional TARP funds for the sole purposes of making additional loans and modifying mortgages to help prevent foreclosures.
“The housing market is clogged with short-sales that take frustratingly too long to clear. Though lax underwriting standards should never return, many lenders’ credit score requirements have become overly stringent. Good people with good credit scores are finding it difficult to qualify for loans despite the historically low mortgage rates,” said McMillan.
NAR is asking mortgage lenders and mortgage insurers to make sure they have not over-corrected their underwriting standards and added unnecessarily strict underwriting standards, such as excessively high credit scores to qualify for a mortgage. In addition, credit reporting bureaus should improve compliance with the Fair Credit Reporting Act, including providing prompt responses to consumers who want to correct errors in their file.
Lastly, NAR is calling on all mortgage lenders, their servicers, Fannie Mae and Freddie Mac, and investors in mortgage assets to implement aggressive policies that result in more loan modifications to prevent as many foreclosures as possible, expedited processes for short-sales, and added liquidity to the nonconforming mortgage market.
“If rates stay low at near 5 percent or lower, home sales could rise nationally by 10 to 15 percent in 2009 and stabilize prices in many parts of the country,” said NAR Chief Economist Lawrence Yun. “That, in turn, will help reduce foreclosure pressures and lower the rate of re-defaults on recently modified distressed loans. Improved loan modification tools are also necessary. Everyone needs to work together so this can become a reality.”
NAR continues to advocate for other measures that would help create long-term stability by ensuring that safe and affordable mortgages are available throughout the nation, including making the higher loan limits passed in the economic stimulus bill earlier this year permanent and extending the temporary $7,500 tax credit for first-time home buyers to all home buyers and eliminating the repayment requirement.
“The work is not yet finished, and NAR is committed to continuing its efforts with policy makers and the new Congress and administration to get the real estate market back on track – the nation’s economy depends on it,” McMillan said.
Friday, December 19, 2008
Fed Action Creates Best Interest Rates in 50 Years, Realtors® Report
The National Association of Realtors® applauds the actions of the Federal Reserve Board in lowering interest rates for home buyers and homeowners who need to refinance. This will significantly impact housing sales, home valuations, and the nation’s overall economy.
The Federal Reserve is purchasing large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets.
“NAR has been aggressively calling for mortgage rate reductions, and the Fed’s action to slash interest rates, coupled with the actions by the Federal Housing Finance Agency and the Department of the Treasury, has driven down interest rates to make the dream of homeownership once again attainable for thousands of Americans,” said NAR President Charles McMillan.
Mortgage rates, which had averaged 6.3 percent in the third quarter, have recently fallen into the 4 percent range in some parts of the country. “That is the lowest rate in nearly 50 years and will bring buyers back to the market,” McMillan said. “We are pleased that the government heard our message and responded to our call for action.”
NAR has estimated that a one percentage point decrease in mortgage rates will increase home sales by more than 500,000 homes. “To boost the economy, it is critical to stem the rising tide of foreclosures and boost home buyer confidence in the housing market.” McMillan said. “Lower interest rates coupled with increased foreclosure mitigation are the key ingredients to stabilizing the housing market and preserving communities and homeownership.”
NAR continues to call on the federal government to maintain the higher loan limits passed in the economic stimulus bill earlier this year and to expand the $7,500 tax credit for first-time home buyers to all buyers and to eliminate the credit repayment requirement. “Together, all of these actions will stimulate and stabilize the housing market and begin an overall economic recovery,” McMillan said.
The Federal Reserve is purchasing large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets.
“NAR has been aggressively calling for mortgage rate reductions, and the Fed’s action to slash interest rates, coupled with the actions by the Federal Housing Finance Agency and the Department of the Treasury, has driven down interest rates to make the dream of homeownership once again attainable for thousands of Americans,” said NAR President Charles McMillan.
Mortgage rates, which had averaged 6.3 percent in the third quarter, have recently fallen into the 4 percent range in some parts of the country. “That is the lowest rate in nearly 50 years and will bring buyers back to the market,” McMillan said. “We are pleased that the government heard our message and responded to our call for action.”
NAR has estimated that a one percentage point decrease in mortgage rates will increase home sales by more than 500,000 homes. “To boost the economy, it is critical to stem the rising tide of foreclosures and boost home buyer confidence in the housing market.” McMillan said. “Lower interest rates coupled with increased foreclosure mitigation are the key ingredients to stabilizing the housing market and preserving communities and homeownership.”
NAR continues to call on the federal government to maintain the higher loan limits passed in the economic stimulus bill earlier this year and to expand the $7,500 tax credit for first-time home buyers to all buyers and to eliminate the credit repayment requirement. “Together, all of these actions will stimulate and stabilize the housing market and begin an overall economic recovery,” McMillan said.
Wednesday, December 17, 2008
6 Things to Know About the Fed Rate Cut
By Luke Mullins
The Federal Reserve on Tuesday cut its federal funds target rate by more than three-quarters of a percentage point to a range of between 0 and .25 percent. The decision signals that Fed Chief Ben Bernanke is more concerned with the rapidly deteriorating economy--which has been mired in a recession since December of last year--that the prospect of stoking inflation. "Since the Committee's last meeting, labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined," the rate-setting Federal Open Market Committee said in its statement. "Financial markets remain quite strained and credit conditions tight."
Here's how the Fed's actions affect you:
1. Fixed mortgage rates: Today's rate cut will have little if any impact on 30-year fixed mortgage rates, which are determined by factors that operate largely outside of the Federal Open Market Committee's reach, says Keith Gumbinger of HSH Associates. "Any change in the rate has little to do with long-term mortgage rates," he says. But in its statement the Fed said it could expand a recently announced program to buy up debt and mortgage-backed securities from Fannie Mae and Freddie Mac that has already driven mortgage rates down to a very attractive 5.28 percent, according to HSH Associates. It also reiterated that it was looking at the possibility of buying long-term Treasury bonds. Both of these announcements could work to bring rates even lower.
2. Prime rate loans: The real impact of today's cut will be felt by consumers with loans that are tied to the prime rate, a benchmark rate that typically moves in lock step with the federal funds rate. "The only place where you would see a concrete impact at the consumer level would be things that are directly tied to prime," says Mike Larson, a real estate analyst at Weiss Research. Many home-equity lines of credit and certain credit cards with variable interest rates are tied to prime rate. As such, borrowers with these loans could see their interest rates decline.
3. Home-equity savings: Home-equity loans averaged 5.5 percent in October but dropped to 5.26 percent in November following the Fed's half-point cut. Gumbinger says he expects average rates on home-equity lines of credit to experience similar declines this time around--but not everyone will be able to take advantage of them. That's because many of the interest rates on these loans are already at their minimums, and are contractually prohibited to go any lower. So check the terms of your home-equity loan to see if you are eligible to cash in on the decline.
4. Target vs. effective: When credit markets are functioning normally, Fed rate cuts reduce banks' cost of funding, which allows them to widen profit margins and pass along savings to consumers in the form of lower interest rates. But today's credit conditions have changed all that. Although the Fed's target rate stood at 1 percent before today's cut, such funds were actually being traded in the market at much less than that--just 0.18 percent as of yesterday before the Fed's action. Although the Fed can usually control the effective rate by buying and selling government securities, the credit crisis has eroded its ability to do so. "Any juice that you would get from a funds rate cut in a normally functioning market, you're not really going to get that here," Larson says. "It's not going to lower the banking industry's cost of funds, because the banking industry's cost of funds is already below the target rate anyway." That means that interest rates tied to the federal funds rate won't decline as much as they otherwise would have.
5. Now what? Nariman Behravesh, chief economist at IHS Global Insight, expects rates to go all the way to zero in a matter of weeks. "The Fed has already cut the federal funds rate to 1 percent and is likely to take it all the way to zero by the end of January," Behravesh said in a recent report, issued before today's announcement. "Once the overnight rate is at zero, the Fed may have to engage in 'quantitative easing' [direct purchases of long-term Treasuries]." Even if it doesn't bring rates all the way to zero, the Fed signaled Tuesday that it's not about to push rates higher anytime soon. "The Committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time," the Fed said in the statement.
6. Expect more unexpectedness. With only less than a quarter of a percentage point left to cut, look for the Fed to get even more creative in its efforts to revive the financial markets. New programs to support different corners of the credit market could certainly be introduced in 2009. "The Federal Reserve will continue to consider ways of using its balance sheet to further support credit markets and economic activity," the Fed said in the statement.
The Federal Reserve on Tuesday cut its federal funds target rate by more than three-quarters of a percentage point to a range of between 0 and .25 percent. The decision signals that Fed Chief Ben Bernanke is more concerned with the rapidly deteriorating economy--which has been mired in a recession since December of last year--that the prospect of stoking inflation. "Since the Committee's last meeting, labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined," the rate-setting Federal Open Market Committee said in its statement. "Financial markets remain quite strained and credit conditions tight."
Here's how the Fed's actions affect you:
1. Fixed mortgage rates: Today's rate cut will have little if any impact on 30-year fixed mortgage rates, which are determined by factors that operate largely outside of the Federal Open Market Committee's reach, says Keith Gumbinger of HSH Associates. "Any change in the rate has little to do with long-term mortgage rates," he says. But in its statement the Fed said it could expand a recently announced program to buy up debt and mortgage-backed securities from Fannie Mae and Freddie Mac that has already driven mortgage rates down to a very attractive 5.28 percent, according to HSH Associates. It also reiterated that it was looking at the possibility of buying long-term Treasury bonds. Both of these announcements could work to bring rates even lower.
2. Prime rate loans: The real impact of today's cut will be felt by consumers with loans that are tied to the prime rate, a benchmark rate that typically moves in lock step with the federal funds rate. "The only place where you would see a concrete impact at the consumer level would be things that are directly tied to prime," says Mike Larson, a real estate analyst at Weiss Research. Many home-equity lines of credit and certain credit cards with variable interest rates are tied to prime rate. As such, borrowers with these loans could see their interest rates decline.
3. Home-equity savings: Home-equity loans averaged 5.5 percent in October but dropped to 5.26 percent in November following the Fed's half-point cut. Gumbinger says he expects average rates on home-equity lines of credit to experience similar declines this time around--but not everyone will be able to take advantage of them. That's because many of the interest rates on these loans are already at their minimums, and are contractually prohibited to go any lower. So check the terms of your home-equity loan to see if you are eligible to cash in on the decline.
4. Target vs. effective: When credit markets are functioning normally, Fed rate cuts reduce banks' cost of funding, which allows them to widen profit margins and pass along savings to consumers in the form of lower interest rates. But today's credit conditions have changed all that. Although the Fed's target rate stood at 1 percent before today's cut, such funds were actually being traded in the market at much less than that--just 0.18 percent as of yesterday before the Fed's action. Although the Fed can usually control the effective rate by buying and selling government securities, the credit crisis has eroded its ability to do so. "Any juice that you would get from a funds rate cut in a normally functioning market, you're not really going to get that here," Larson says. "It's not going to lower the banking industry's cost of funds, because the banking industry's cost of funds is already below the target rate anyway." That means that interest rates tied to the federal funds rate won't decline as much as they otherwise would have.
5. Now what? Nariman Behravesh, chief economist at IHS Global Insight, expects rates to go all the way to zero in a matter of weeks. "The Fed has already cut the federal funds rate to 1 percent and is likely to take it all the way to zero by the end of January," Behravesh said in a recent report, issued before today's announcement. "Once the overnight rate is at zero, the Fed may have to engage in 'quantitative easing' [direct purchases of long-term Treasuries]." Even if it doesn't bring rates all the way to zero, the Fed signaled Tuesday that it's not about to push rates higher anytime soon. "The Committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time," the Fed said in the statement.
6. Expect more unexpectedness. With only less than a quarter of a percentage point left to cut, look for the Fed to get even more creative in its efforts to revive the financial markets. New programs to support different corners of the credit market could certainly be introduced in 2009. "The Federal Reserve will continue to consider ways of using its balance sheet to further support credit markets and economic activity," the Fed said in the statement.
Tuesday, December 16, 2008
Realtors® Push for 4.5 Percent Interest Rate Buy-Down
Washington, December 15, 2008
A federal mortgage interest buy-down program would help spark the housing market, the National Association of Realtors® said in a letter sent today to James B. Lockhart, chairman of the Oversight Board of the Federal Housing Finance Agency. NAR seeks a 4.5 percent mortgage interest rate buy-down program financed through the U.S. Treasury Department’s Troubled Asset Relief Program.
In the letter to FHFA, NAR shared three potential implementation procedures for a federal buy-down plan:
* TARP would fund the payment of points at the individual level.
* The Federal Home Loan Banks would raise funds by selling below-market-rate bonds to the Treasury Department for them to make the 4.5 percent interest rates available to lenders.
* Fannie Mae and Freddie Mac would purchase mortgages at the 4.5 percent interest rate but pay lenders the market rate.
“The buy-down program would complement other initiatives and help stabilize, stimulate and revitalize the housing market,” said NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth. “We must address the foreclosure crisis and increase housing demand. Lower interest rates and foreclosure mitigation are two sides of the same coin. Together they represent the key ingredients to stabilizing the housing market and preserving communities and homeownership.”
NAR has calculated that a 1 percentage-point decrease in mortgage rates would result in an additional 500,000 home sales.
In addition to suggesting that TARP assets be used to buy-down mortgage interest rates, NAR has recommended other principles that would help create long-term stability by ensuring that safe and affordable mortgages are available throughout the nation:
* The higher loan limits passed in the economic stimulus bill earlier this year should be made permanent.
* The federal government should ensure sufficient capital to support mortgage lending in every type of market.
* The temporary $7,500 tax credit for first-time home buyers should be extended to all home buyers and the repayment requirement eliminated.
A federal mortgage interest buy-down program would help spark the housing market, the National Association of Realtors® said in a letter sent today to James B. Lockhart, chairman of the Oversight Board of the Federal Housing Finance Agency. NAR seeks a 4.5 percent mortgage interest rate buy-down program financed through the U.S. Treasury Department’s Troubled Asset Relief Program.
In the letter to FHFA, NAR shared three potential implementation procedures for a federal buy-down plan:
* TARP would fund the payment of points at the individual level.
* The Federal Home Loan Banks would raise funds by selling below-market-rate bonds to the Treasury Department for them to make the 4.5 percent interest rates available to lenders.
* Fannie Mae and Freddie Mac would purchase mortgages at the 4.5 percent interest rate but pay lenders the market rate.
“The buy-down program would complement other initiatives and help stabilize, stimulate and revitalize the housing market,” said NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth. “We must address the foreclosure crisis and increase housing demand. Lower interest rates and foreclosure mitigation are two sides of the same coin. Together they represent the key ingredients to stabilizing the housing market and preserving communities and homeownership.”
NAR has calculated that a 1 percentage-point decrease in mortgage rates would result in an additional 500,000 home sales.
In addition to suggesting that TARP assets be used to buy-down mortgage interest rates, NAR has recommended other principles that would help create long-term stability by ensuring that safe and affordable mortgages are available throughout the nation:
* The higher loan limits passed in the economic stimulus bill earlier this year should be made permanent.
* The federal government should ensure sufficient capital to support mortgage lending in every type of market.
* The temporary $7,500 tax credit for first-time home buyers should be extended to all home buyers and the repayment requirement eliminated.
Monday, December 15, 2008
Interest Rate Drop Good Sign, But Government Must Continue to Help Families
For more information, contact:
Lucien Salvant 202/383-1176 lsalvant@realtors.org
The National Association of Realtors® is urging the federal government to proceed rapidly to drive down mortgage interest rates and move ahead with housing stimulus action to drive up consumer confidence.
“We are very encouraged that mortgage interest rates are moving in the right direction. However, we will continue to press ahead because rates are not coming down fast enough to impact the housing market,” said NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas. “Many homeowners are struggling to get out of underwater mortgages and many potential buyers are sitting on the fence waiting for still better rates before they act.”
“We implore the Treasury, the Federal Reserve, the incoming Obama administration and Congress to get together and use all available resources, including the Troubled Assets Recovery Program, to quickly put a rate buy-down in place. This will really assist American families facing difficult economic times in the coming holiday season,” said McMillan.
“Housing has always led our economy out of downturns, and lower interest rates coupled with foreclosure mitigation are key ingredients to stabilize the housing markets and preserve homes and communities,” McMillan said.
NAR data show that a 1 percentage point decrease in mortgages interest rates—whether the decrease is brought about by a buy-down or through government purchase of mortgage-backed securities—increases home sales by a half-million. “Without better rates for home buyers, inventory will continue to remain high and home prices can overshoot downward causing consumer spending to fall further and leading to a broader contraction in credit availability. Without home price stabilization, foreclosures will continue to rise sharply and many of the remodified loans will re-default,” said Lawrence Yun, NAR chief economist.
A 4-Point Housing Stimulus Plan put forward by NAR earlier this year urged the government to buy up mortgage-backed securities from banks; the Federal Reserve has announced it is moving ahead with plans to do that. NAR also proposed an interest rate reduction, and the Treasury Department is considering such an action.
Additionally, NAR has asked Congress to make the higher loan limits passed in the economic stimulus bill earlier this year be made permanent. NAR has also been pushing for the $7,500 tax credit for first time homebuyers be extended to all homebuyers and that the repay feature be eliminated.
Lucien Salvant 202/383-1176 lsalvant@realtors.org
The National Association of Realtors® is urging the federal government to proceed rapidly to drive down mortgage interest rates and move ahead with housing stimulus action to drive up consumer confidence.
“We are very encouraged that mortgage interest rates are moving in the right direction. However, we will continue to press ahead because rates are not coming down fast enough to impact the housing market,” said NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas. “Many homeowners are struggling to get out of underwater mortgages and many potential buyers are sitting on the fence waiting for still better rates before they act.”
“We implore the Treasury, the Federal Reserve, the incoming Obama administration and Congress to get together and use all available resources, including the Troubled Assets Recovery Program, to quickly put a rate buy-down in place. This will really assist American families facing difficult economic times in the coming holiday season,” said McMillan.
“Housing has always led our economy out of downturns, and lower interest rates coupled with foreclosure mitigation are key ingredients to stabilize the housing markets and preserve homes and communities,” McMillan said.
NAR data show that a 1 percentage point decrease in mortgages interest rates—whether the decrease is brought about by a buy-down or through government purchase of mortgage-backed securities—increases home sales by a half-million. “Without better rates for home buyers, inventory will continue to remain high and home prices can overshoot downward causing consumer spending to fall further and leading to a broader contraction in credit availability. Without home price stabilization, foreclosures will continue to rise sharply and many of the remodified loans will re-default,” said Lawrence Yun, NAR chief economist.
A 4-Point Housing Stimulus Plan put forward by NAR earlier this year urged the government to buy up mortgage-backed securities from banks; the Federal Reserve has announced it is moving ahead with plans to do that. NAR also proposed an interest rate reduction, and the Treasury Department is considering such an action.
Additionally, NAR has asked Congress to make the higher loan limits passed in the economic stimulus bill earlier this year be made permanent. NAR has also been pushing for the $7,500 tax credit for first time homebuyers be extended to all homebuyers and that the repay feature be eliminated.
Friday, December 12, 2008
Mortgage rates hit 4 1/2 year low
By Larissa Padden CNNMoney.com contributor
New York (CNNMoney.com) -- Mortgage rates fell again this week, following the government's efforts to assist the troubled housing market.
Government sponsored mortgage lender Freddie Mac said Thursday that fixed rates on 30-year mortgages averaged 5.47% for the week ending Dec. 11. That's down from 5.53% last week and well below 6.11%, which is where the rate stood at this time last year.
Mortgage rates began to fall after November 25th, when the administration announced that it would pump another $800 billion into the credit markets to unfreeze consumer and mortgage lending.
Specifically, mortgage rates responded to the Federal Reserve's announcement that it would purchase up to $500 billion in mortgage backed securities backed by Fannie Mae, Freddie Mac and Ginnie Mae. It will also buy another $100 billion in direct debt issued by those firms.
Rates dipped to 5.77% on a 30-year, fixed rate loan the day after the government's announcement, down from the previous Monday's 6.06% average, according to Keith Gumbinger, vice president of HSH Associates. And the downward trend has persisted.
"What we're seeing is a slight continued decline influenced by the Federal Reserve's announcement to buy half a trillion in mortgage backed securities," Gumbinger said. "And this continued minor downdraft is also due to the poor economic climate."
The 30-year rate has not been this low since March 25th, 2004 when it averaged 5.40%.
"Following the release of the November employment report, which showed the largest monthly decline in jobs since December 1974, bond yields fell slightly this week allowing fixed-rate mortgage rates room to ease back a little further," said Frank Nothaft, Freddie Mac vice president and chief economist, in a release on Thursday.
The 15-year fixed rate mortgage this week averaged 5.20%, which is down from 5.33% last week. A year ago at this time, a 15-year fixed rate loan averaged 5.78%.
The 15-year rate has not been this low since February 7, 2008, when it averaged 5.15%.
Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) averaged 5.82% this week, up from last week when it averaged 5.77%. At this time a year ago, the 5-year ARM averaged 5.89%.
And the one-year Treasury-indexed ARM averaged 5.09% this week, up from last week when it averaged 5.02%. Last year, the 1-year ARM averaged 5.50 percent.
"The housing market still hangs in the balance," Nothaft said in a release. "On a year-over-year basis, after rising in both August and September, pending existing home sales fell 1.0% in October, based on figures from the National Association of Realtors. Meanwhile, conventional mortgage applications for home purchases over the week ending December 5th were up 2.0% from four weeks prior, but were still 51% below the same period last year, according to the Mortgage Bankers Association."
First Published: December 11, 2008: 11:33 AM ET
New York (CNNMoney.com) -- Mortgage rates fell again this week, following the government's efforts to assist the troubled housing market.
Government sponsored mortgage lender Freddie Mac said Thursday that fixed rates on 30-year mortgages averaged 5.47% for the week ending Dec. 11. That's down from 5.53% last week and well below 6.11%, which is where the rate stood at this time last year.
Mortgage rates began to fall after November 25th, when the administration announced that it would pump another $800 billion into the credit markets to unfreeze consumer and mortgage lending.
Specifically, mortgage rates responded to the Federal Reserve's announcement that it would purchase up to $500 billion in mortgage backed securities backed by Fannie Mae, Freddie Mac and Ginnie Mae. It will also buy another $100 billion in direct debt issued by those firms.
Rates dipped to 5.77% on a 30-year, fixed rate loan the day after the government's announcement, down from the previous Monday's 6.06% average, according to Keith Gumbinger, vice president of HSH Associates. And the downward trend has persisted.
"What we're seeing is a slight continued decline influenced by the Federal Reserve's announcement to buy half a trillion in mortgage backed securities," Gumbinger said. "And this continued minor downdraft is also due to the poor economic climate."
The 30-year rate has not been this low since March 25th, 2004 when it averaged 5.40%.
"Following the release of the November employment report, which showed the largest monthly decline in jobs since December 1974, bond yields fell slightly this week allowing fixed-rate mortgage rates room to ease back a little further," said Frank Nothaft, Freddie Mac vice president and chief economist, in a release on Thursday.
The 15-year fixed rate mortgage this week averaged 5.20%, which is down from 5.33% last week. A year ago at this time, a 15-year fixed rate loan averaged 5.78%.
The 15-year rate has not been this low since February 7, 2008, when it averaged 5.15%.
Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) averaged 5.82% this week, up from last week when it averaged 5.77%. At this time a year ago, the 5-year ARM averaged 5.89%.
And the one-year Treasury-indexed ARM averaged 5.09% this week, up from last week when it averaged 5.02%. Last year, the 1-year ARM averaged 5.50 percent.
"The housing market still hangs in the balance," Nothaft said in a release. "On a year-over-year basis, after rising in both August and September, pending existing home sales fell 1.0% in October, based on figures from the National Association of Realtors. Meanwhile, conventional mortgage applications for home purchases over the week ending December 5th were up 2.0% from four weeks prior, but were still 51% below the same period last year, according to the Mortgage Bankers Association."
First Published: December 11, 2008: 11:33 AM ET
Thursday, December 11, 2008
Buying Opportunities In Nation's Rural Housing Markets
by Broderick Perkins
Forget the credit squeeze, get out of town, enjoy the fresh air, buy a home in the country.
If you've been unable to buy a metropolitan area home, take a look at rural America's neighborhoods. The commute to work could be a real trip, but it's also an opportunity to take the glass-half-full approach, slow down and work at home.
Either way, your dream home may await in a quiet pastoral setting, far from the din of city life, but a lot closer to the money to finance it.
Homebuyers who purchased homes underwritten by the USDA Rural Development Housing and Community Facilities Programs are doing far better these days than the rest of the nation when it comes to keeping a roof over head.
And that market condition is freeing up more loan money for homes in bucolic settings.
Dust Bowl in reverse
The USDA program this year posted the lowest foreclosure rates in the past 40 years, an average of 3.53 percent, down from 3.93 percent five years ago, according to an Agri Pulse interview with Russ Davis, administrator of the USDA housing program.
Meanwhile, with millions of homeowners struggling with mortgages larger than the value of their homes, national foreclosure rates this year have skyrocketed, at times, nearly double what they were a year ago. Even with foreclosure rates leveling off, the year-over-year rate of increase nationwide remained up 25 percent in October, according to RealtyTrac.
A difference between the two markets is also reflected in the rate of homeownership. While the rate is about 67 percent in metropolitan areas, non metro areas enjoy homeownership rates averaging around 75 percent, higher in the South and Midwest, according to the Hoover Institution.
Rural homeownership is surviving because of sound lending practices and isolation -- both geographical and financial -- from the boom-bust markets.
USDA makes loans directly out of its service centers, working with 2,000 local banks and mortgage lenders to guarantee the value of the loan in case of default, enabling those institutions to sell the mortgages and not hold as much capital against each one.
To help prevent default, the loans mandate credit and homeownership counseling and, as a result, the end rate of foreclosures is actually smaller than reported. USDA loans' built-in counseling and financial relief for homeowners facing financial difficulties removes many homeowners from the foreclosure rolls.
Housing the old fashioned way
Underwriting also recognizes unique rural America characteristics -- seasonal work, shift work, changing income and migration patterns -- thanks to long-term market evaluation efforts. The out-migration that has occurred since WWII may be in for a change, given today's yen for a simpler life and a piece of owner-occupied housing pie. The trend hasn't gone unnoticed by USDA underwriters.
That saner, detailed approach to underwriting -- rather than the assembly line loans-for-all policy that failed the national housing market -- sheltered the rural housing market from "bubble" conditions that caused skyrocketing home values and the eventual crash.
The result has been more mortgage money to lend, not less. The federal ag agency's loan volume tripled in the last year, increasing from about 35,000 to 100,000 in guarantees, according to Agri Pulse's report.
Credit unions pulled off a similar coup with sound underwriting policies.
USDA's guaranteed housing loans are limited, but you don't have to grow corn or raise chickens to enjoy green acres.
The loans are for:
* People living in rural areas where the population is less than 20,000.
* People with incomes under 115 percent of household median income for the area. In most areas, the upper income limit for borrowers will be $60,000 to $70,000 per year.
* People buying homes, not refinancing or taking out equity loans.
USDA Programs include no-money down loans (imagine that), home improvement and rehabilitation loans and grants, construction loans, loans for minorities and true to the work-ethic of rural life, sweat-equity loans that require buyers to help build their own homes.
Get in before the word gets out.
* USDA Rural Development Housing & Community Facilities Program.
* USDA Real Estate For Sale.
* More on USDA Rural Development information.
Forget the credit squeeze, get out of town, enjoy the fresh air, buy a home in the country.
If you've been unable to buy a metropolitan area home, take a look at rural America's neighborhoods. The commute to work could be a real trip, but it's also an opportunity to take the glass-half-full approach, slow down and work at home.
Either way, your dream home may await in a quiet pastoral setting, far from the din of city life, but a lot closer to the money to finance it.
Homebuyers who purchased homes underwritten by the USDA Rural Development Housing and Community Facilities Programs are doing far better these days than the rest of the nation when it comes to keeping a roof over head.
And that market condition is freeing up more loan money for homes in bucolic settings.
Dust Bowl in reverse
The USDA program this year posted the lowest foreclosure rates in the past 40 years, an average of 3.53 percent, down from 3.93 percent five years ago, according to an Agri Pulse interview with Russ Davis, administrator of the USDA housing program.
Meanwhile, with millions of homeowners struggling with mortgages larger than the value of their homes, national foreclosure rates this year have skyrocketed, at times, nearly double what they were a year ago. Even with foreclosure rates leveling off, the year-over-year rate of increase nationwide remained up 25 percent in October, according to RealtyTrac.
A difference between the two markets is also reflected in the rate of homeownership. While the rate is about 67 percent in metropolitan areas, non metro areas enjoy homeownership rates averaging around 75 percent, higher in the South and Midwest, according to the Hoover Institution.
Rural homeownership is surviving because of sound lending practices and isolation -- both geographical and financial -- from the boom-bust markets.
USDA makes loans directly out of its service centers, working with 2,000 local banks and mortgage lenders to guarantee the value of the loan in case of default, enabling those institutions to sell the mortgages and not hold as much capital against each one.
To help prevent default, the loans mandate credit and homeownership counseling and, as a result, the end rate of foreclosures is actually smaller than reported. USDA loans' built-in counseling and financial relief for homeowners facing financial difficulties removes many homeowners from the foreclosure rolls.
Housing the old fashioned way
Underwriting also recognizes unique rural America characteristics -- seasonal work, shift work, changing income and migration patterns -- thanks to long-term market evaluation efforts. The out-migration that has occurred since WWII may be in for a change, given today's yen for a simpler life and a piece of owner-occupied housing pie. The trend hasn't gone unnoticed by USDA underwriters.
That saner, detailed approach to underwriting -- rather than the assembly line loans-for-all policy that failed the national housing market -- sheltered the rural housing market from "bubble" conditions that caused skyrocketing home values and the eventual crash.
The result has been more mortgage money to lend, not less. The federal ag agency's loan volume tripled in the last year, increasing from about 35,000 to 100,000 in guarantees, according to Agri Pulse's report.
Credit unions pulled off a similar coup with sound underwriting policies.
USDA's guaranteed housing loans are limited, but you don't have to grow corn or raise chickens to enjoy green acres.
The loans are for:
* People living in rural areas where the population is less than 20,000.
* People with incomes under 115 percent of household median income for the area. In most areas, the upper income limit for borrowers will be $60,000 to $70,000 per year.
* People buying homes, not refinancing or taking out equity loans.
USDA Programs include no-money down loans (imagine that), home improvement and rehabilitation loans and grants, construction loans, loans for minorities and true to the work-ethic of rural life, sweat-equity loans that require buyers to help build their own homes.
Get in before the word gets out.
* USDA Rural Development Housing & Community Facilities Program.
* USDA Real Estate For Sale.
* More on USDA Rural Development information.
Wednesday, December 10, 2008
Pending Home Sales Holding In Stable Range
Pending home sales eased against a deteriorating economic backdrop but remain in a stable range, according to the National Association of Realtors®.
The Pending Home Sales Index,¹ a forward-looking indicator based on contracts signed in October, slipped 0.7 percent to 88.9 from an upwardly revised reading of 89.5 in September, and is 1.0 percent below October 2007 when it was 89.8.
Lawrence Yun, NAR chief economist, said a review of the past year is instructive. “Despite the turmoil in the economy, the overall level of pending home sales has been remarkably stable over the past year, holding in a generally narrow range,” he said. “We did see a spike in August when mortgage conditions temporarily improved, which underscores two things – there is a pent-up demand, and access to safe, affordable mortgages will bring more buyers into the market.”
Conditions remain uneven around the country, but some areas that are showing healthy gains in pending home sales from a year ago include many Florida and California markets, Providence, R.I.; Lansing, Mich.; Oklahoma City; and Las Vegas. ²
The PHSI in the South jumped 7.8 percent to 95.9 in October but remains 2.9 percent below a year ago. In the Northeast the index rose 0.6 percent to 68.1 but is 14.1 percent below October 2007. The index in the Midwest declined 4.3 percent to 79.7 in October and is 6.8 percent below a year ago. In the West, the index fell 8.7 percent to 103.7 but is 17.4 percent higher than October 2007.
NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth, said he’s hopeful about considerations by the U.S. Treasury. “Efforts to bring down mortgage interest rates demonstrate a clear understanding of the role housing plays in stabilizing the economy,” McMillan said. “We’re very encouraged by all of the proposals getting serious consideration in Washington to help home buyers. More sales will stabilize home prices by bringing down inventory, and would lessen foreclosure pressure.”
Yun expects growth in the U.S. gross domestic product (GDP) to contract through the first half of 2009, then stabilize and expand in latter part of the year – lifted by a home sales recovery. “Given the critical role of housing in an economic recovery, we’re confident sufficient stimulus will be offered to bring more buyers to the market,” he said.
Looking at middle-ground assumptions, existing-home sales are forecast to total 4.96 million this year, and then increase to 5.19 million in 2009 and 5.55 million in 2010.
New-home sales for 2008 should total 486,000 this year, decline to 393,000 in 2009 and then grow to 446,000 in 2010. Housing starts, including multifamily units, are projected at 934,000 units in 2008 and 731,000 next year before rising to 772,000 in 2010.
“Price projections are challenging in an environment with so many variables and divergent local conditions,” Yun said. “The home price correction to date has brought prices in line with fundamentals, but buyer pessimism could cause prices to overshoot downward, resulting in further economic deterioration.”
The 30-year fixed-rate mortgage will probably decline to 5.6 percent in the first quarter, rise slowly to 6.0 percent by the end of 2009, and average 6.2 percent in 2010. NAR’s housing affordability index is likely to remain quite favorable, averaging 138 in 2009.
The unemployment rate is estimated at 7.2 percent in the first quarter, rising to 8.3 percent by the end of 2009. Inflation, as measured by the Consumer Price Index, is seen at 0.7 percent in 2009. Inflation-adjusted disposable personal income is expected to grow 1.5 percent in 2009.
The Pending Home Sales Index,¹ a forward-looking indicator based on contracts signed in October, slipped 0.7 percent to 88.9 from an upwardly revised reading of 89.5 in September, and is 1.0 percent below October 2007 when it was 89.8.
Lawrence Yun, NAR chief economist, said a review of the past year is instructive. “Despite the turmoil in the economy, the overall level of pending home sales has been remarkably stable over the past year, holding in a generally narrow range,” he said. “We did see a spike in August when mortgage conditions temporarily improved, which underscores two things – there is a pent-up demand, and access to safe, affordable mortgages will bring more buyers into the market.”
Conditions remain uneven around the country, but some areas that are showing healthy gains in pending home sales from a year ago include many Florida and California markets, Providence, R.I.; Lansing, Mich.; Oklahoma City; and Las Vegas. ²
The PHSI in the South jumped 7.8 percent to 95.9 in October but remains 2.9 percent below a year ago. In the Northeast the index rose 0.6 percent to 68.1 but is 14.1 percent below October 2007. The index in the Midwest declined 4.3 percent to 79.7 in October and is 6.8 percent below a year ago. In the West, the index fell 8.7 percent to 103.7 but is 17.4 percent higher than October 2007.
NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth, said he’s hopeful about considerations by the U.S. Treasury. “Efforts to bring down mortgage interest rates demonstrate a clear understanding of the role housing plays in stabilizing the economy,” McMillan said. “We’re very encouraged by all of the proposals getting serious consideration in Washington to help home buyers. More sales will stabilize home prices by bringing down inventory, and would lessen foreclosure pressure.”
Yun expects growth in the U.S. gross domestic product (GDP) to contract through the first half of 2009, then stabilize and expand in latter part of the year – lifted by a home sales recovery. “Given the critical role of housing in an economic recovery, we’re confident sufficient stimulus will be offered to bring more buyers to the market,” he said.
Looking at middle-ground assumptions, existing-home sales are forecast to total 4.96 million this year, and then increase to 5.19 million in 2009 and 5.55 million in 2010.
New-home sales for 2008 should total 486,000 this year, decline to 393,000 in 2009 and then grow to 446,000 in 2010. Housing starts, including multifamily units, are projected at 934,000 units in 2008 and 731,000 next year before rising to 772,000 in 2010.
“Price projections are challenging in an environment with so many variables and divergent local conditions,” Yun said. “The home price correction to date has brought prices in line with fundamentals, but buyer pessimism could cause prices to overshoot downward, resulting in further economic deterioration.”
The 30-year fixed-rate mortgage will probably decline to 5.6 percent in the first quarter, rise slowly to 6.0 percent by the end of 2009, and average 6.2 percent in 2010. NAR’s housing affordability index is likely to remain quite favorable, averaging 138 in 2009.
The unemployment rate is estimated at 7.2 percent in the first quarter, rising to 8.3 percent by the end of 2009. Inflation, as measured by the Consumer Price Index, is seen at 0.7 percent in 2009. Inflation-adjusted disposable personal income is expected to grow 1.5 percent in 2009.
Tuesday, December 9, 2008
Waiting, Waiting, Waiting . . .
It's Taking Longer and Longer to Sell. Here's How Some Owners Cope.
By Kirstin Downey
When Arthur Meisnere and Marilyn Chilton put their Bethesda townhouse on the market, they assumed it would be snapped up within days. Their biggest worry was where they would live until their new D.C. condo was completed.
They packed away their art collection, stored their winter clothes, got rid of the clutter and put their home on the market April 15, priced at $1.1 million. They were right in their belief that people would find the place attractive -- more than 130 people have toured the house -- but more than seven months later, they are still nervously tidying the house each day, living without cherished keepsakes and trying to stay patient.
"It's kind of depressing that no one has liked it enough to make an offer," Meisnere said. "We're drinking wine and crying," he said, only half-joking.
Patience is a character trait that more home sellers are being forced to cultivate because it takes so much more time to sell a house than it used to, here and nationwide. At current purchase rates, according to the National Association of Realtors, it would take 9.9 months for all the existing homes on the market to sell -- if no more were placed up for sale. That's down a bit from the summer highs, when many people put their homes on the block, but still more than double the 4.8 months it would have taken in 1999.
In the Washington area, the average length of time on the market has risen substantially in the past three years, according to Metropolitan Regional Information Systems, which compiles market statistics. In 2005, many homes changed hands within 30 days. Now sellers in Alexandria and Arlington typically wait about two months for their homes to sell; in the District, Loudoun and Fairfax counties, it takes more like three months. And in Prince William, Montgomery and Prince George's counties, the norm in October was closer to four months, according to MRIS.
And those statistics, of course, do not reflect the bad economic news since October, which has further chilled the real estate market. The lag time between listing and sales contract appears to have gotten even longer.
"The market is starting to move, but each time, some new monkey wrench is thrown into the works," said Walter Molony, a spokesman for the National Association of Realtors.
"If you're a seller, it's stressful," said real estate agent Pete Blondin, of ERA Teachers in Herndon. Compounding the strain for both buyers and sellers, he said, is the newly fierce attitude of many lenders. After years of doling out loans with what increasingly appears to have been devil-may-care nonchalance, they are once again studying borrowers' eligibility for mortgages with greater attention to detail.
Tempers can flare as wait times lengthen, Blondin said. He recently handled the sale of a townhouse in Reston, priced at $625,000. The lender carefully scrutinized the buyers, a married couple with good credit and a 10 percent down payment, interviewing several of their creditors and even the renter in an investment property they owned. It took six weeks for the loan to be closed, or about three times as long as it would have taken in a more ordinary market, Blondin said. The sellers, meanwhile, a couple who were divorcing, cooled their heels. The wife was left alone in the house amid the packing boxes.
"They were going bananas," Blondin said. "Holy smoke!"
Sellers are biting their nails and trying to develop their own coping strategies. Meisnere and his wife have cut the asking price for their house by about $50,000, without a sale. He's 71, and he said growing older has made him better able to handle the stress of juggling two mortgages, since they closed on the sale of the condo in the District. "I'm a very impatient person," but age, he said, is helping him "mellow out."
Keeping a businesslike and upbeat attitude has been the key for Christian Spencer, 35, and his wife, Patty Escalante, 32. The accountants were recently married and have moved into their own home, so they would like to sell the house Escalante bought with her mother. Two months ago, they put the Arlington townhouse on the market at $755,000, now reduced to $715,000, but they haven't found a buyer yet.
They are selling the house on their own, and the process has taken a lot of time, they have found. They spend six to seven hours a week holding open houses and fielding inquiries, particularly telephone calls from real estate agents, whom Spencer said he has found to be "pretty persistent." Escalante's mother spends about eight to 10 hours a week cleaning the house, Spencer estimated.
"She never knows when anybody will be coming by," he said.
Spencer said he remains optimistic; it's "only been two months," he said. But now he also comforts himself with the knowledge that they avoided some of the exotic mortgages that are getting other borrowers into trouble. Spencer and Escalante count themselves fortunate that they have handled their money conservatively and can afford the two mortgages -- at least for a while, and until it comes time to start a family.
"You kind of make the best of it, unfortunately," Escalante said.
Many real estate agents now recommend that sellers prepare themselves for a prolonged siege. The first step before entering the market, however, said real estate agent Jane Fairweather of Coldwell Banker Residential Brokerage in Bethesda, is to face reality and price the property properly -- in other words, as cheaply as possible. Setting the right price can really expedite the process, she said.
Sellers also should consider the implications of dealing with a property that remains on the market for a long time. If they need to move immediately, because of a job change or family crisis, leaving the house vacant, the yard will still need to be maintained. Vandalism becomes a risk, too.
Sellers eager to cut costs must decide which utilities to keep and which to terminate. The house's heating system can be turned off in the summer but needs to be connected in the winter, for instance.
"Your house will be a disaster if the pipes freeze," Fairweather said. "There are huge consequences to vacating your property."
On the other hand, remaining in place while the home is on the market can be an ordeal. Blondin said the loss of privacy is difficult.
"You're in the shower, and they call to say a buyer will be there in 15 minutes," he said. "It is intrusive."
It also can be hard to live without the little sentimental objects that real estate agents view as needless clutter but that sellers see as priceless mementos.
"They're told to get rid of the clutter, but that's the stuff they like having around," Blondin said.
Marc Nodell and his wife, Dale, don't have much of a clutter problem. They keep their Reston condominium so clean that buyers have asked who did the staging for them. But their decision to buy a house in Loudoun County last month, an opportunity that, they felt, they "couldn't turn down," has left them with two mortgages.
Nodell, in his mid-50s, is trying to take it in stride. He focuses on maintaining a philosophical attitude about the whole process. The condo, an end unit overlooking Reston Town Center, priced at $449,900, has been on the market for about a month, but he realized it could take a good deal longer to sell.
"You've got to plan for it now," he said, noting that he has seen similar boom and bust real estate cycles in his 30 years living and working in the Washington area. "It would be nice if it sold, but it may take a while."
By Kirstin Downey
When Arthur Meisnere and Marilyn Chilton put their Bethesda townhouse on the market, they assumed it would be snapped up within days. Their biggest worry was where they would live until their new D.C. condo was completed.
They packed away their art collection, stored their winter clothes, got rid of the clutter and put their home on the market April 15, priced at $1.1 million. They were right in their belief that people would find the place attractive -- more than 130 people have toured the house -- but more than seven months later, they are still nervously tidying the house each day, living without cherished keepsakes and trying to stay patient.
"It's kind of depressing that no one has liked it enough to make an offer," Meisnere said. "We're drinking wine and crying," he said, only half-joking.
Patience is a character trait that more home sellers are being forced to cultivate because it takes so much more time to sell a house than it used to, here and nationwide. At current purchase rates, according to the National Association of Realtors, it would take 9.9 months for all the existing homes on the market to sell -- if no more were placed up for sale. That's down a bit from the summer highs, when many people put their homes on the block, but still more than double the 4.8 months it would have taken in 1999.
In the Washington area, the average length of time on the market has risen substantially in the past three years, according to Metropolitan Regional Information Systems, which compiles market statistics. In 2005, many homes changed hands within 30 days. Now sellers in Alexandria and Arlington typically wait about two months for their homes to sell; in the District, Loudoun and Fairfax counties, it takes more like three months. And in Prince William, Montgomery and Prince George's counties, the norm in October was closer to four months, according to MRIS.
And those statistics, of course, do not reflect the bad economic news since October, which has further chilled the real estate market. The lag time between listing and sales contract appears to have gotten even longer.
"The market is starting to move, but each time, some new monkey wrench is thrown into the works," said Walter Molony, a spokesman for the National Association of Realtors.
"If you're a seller, it's stressful," said real estate agent Pete Blondin, of ERA Teachers in Herndon. Compounding the strain for both buyers and sellers, he said, is the newly fierce attitude of many lenders. After years of doling out loans with what increasingly appears to have been devil-may-care nonchalance, they are once again studying borrowers' eligibility for mortgages with greater attention to detail.
Tempers can flare as wait times lengthen, Blondin said. He recently handled the sale of a townhouse in Reston, priced at $625,000. The lender carefully scrutinized the buyers, a married couple with good credit and a 10 percent down payment, interviewing several of their creditors and even the renter in an investment property they owned. It took six weeks for the loan to be closed, or about three times as long as it would have taken in a more ordinary market, Blondin said. The sellers, meanwhile, a couple who were divorcing, cooled their heels. The wife was left alone in the house amid the packing boxes.
"They were going bananas," Blondin said. "Holy smoke!"
Sellers are biting their nails and trying to develop their own coping strategies. Meisnere and his wife have cut the asking price for their house by about $50,000, without a sale. He's 71, and he said growing older has made him better able to handle the stress of juggling two mortgages, since they closed on the sale of the condo in the District. "I'm a very impatient person," but age, he said, is helping him "mellow out."
Keeping a businesslike and upbeat attitude has been the key for Christian Spencer, 35, and his wife, Patty Escalante, 32. The accountants were recently married and have moved into their own home, so they would like to sell the house Escalante bought with her mother. Two months ago, they put the Arlington townhouse on the market at $755,000, now reduced to $715,000, but they haven't found a buyer yet.
They are selling the house on their own, and the process has taken a lot of time, they have found. They spend six to seven hours a week holding open houses and fielding inquiries, particularly telephone calls from real estate agents, whom Spencer said he has found to be "pretty persistent." Escalante's mother spends about eight to 10 hours a week cleaning the house, Spencer estimated.
"She never knows when anybody will be coming by," he said.
Spencer said he remains optimistic; it's "only been two months," he said. But now he also comforts himself with the knowledge that they avoided some of the exotic mortgages that are getting other borrowers into trouble. Spencer and Escalante count themselves fortunate that they have handled their money conservatively and can afford the two mortgages -- at least for a while, and until it comes time to start a family.
"You kind of make the best of it, unfortunately," Escalante said.
Many real estate agents now recommend that sellers prepare themselves for a prolonged siege. The first step before entering the market, however, said real estate agent Jane Fairweather of Coldwell Banker Residential Brokerage in Bethesda, is to face reality and price the property properly -- in other words, as cheaply as possible. Setting the right price can really expedite the process, she said.
Sellers also should consider the implications of dealing with a property that remains on the market for a long time. If they need to move immediately, because of a job change or family crisis, leaving the house vacant, the yard will still need to be maintained. Vandalism becomes a risk, too.
Sellers eager to cut costs must decide which utilities to keep and which to terminate. The house's heating system can be turned off in the summer but needs to be connected in the winter, for instance.
"Your house will be a disaster if the pipes freeze," Fairweather said. "There are huge consequences to vacating your property."
On the other hand, remaining in place while the home is on the market can be an ordeal. Blondin said the loss of privacy is difficult.
"You're in the shower, and they call to say a buyer will be there in 15 minutes," he said. "It is intrusive."
It also can be hard to live without the little sentimental objects that real estate agents view as needless clutter but that sellers see as priceless mementos.
"They're told to get rid of the clutter, but that's the stuff they like having around," Blondin said.
Marc Nodell and his wife, Dale, don't have much of a clutter problem. They keep their Reston condominium so clean that buyers have asked who did the staging for them. But their decision to buy a house in Loudoun County last month, an opportunity that, they felt, they "couldn't turn down," has left them with two mortgages.
Nodell, in his mid-50s, is trying to take it in stride. He focuses on maintaining a philosophical attitude about the whole process. The condo, an end unit overlooking Reston Town Center, priced at $449,900, has been on the market for about a month, but he realized it could take a good deal longer to sell.
"You've got to plan for it now," he said, noting that he has seen similar boom and bust real estate cycles in his 30 years living and working in the Washington area. "It would be nice if it sold, but it may take a while."
Friday, December 5, 2008
Curb Appeal Matters Now More Than Ever, Say Realtors®
For the second year in a row, Realtors® report that exterior remodeling projects return the most money as a percentage of cost, as detailed in the 2008 Remodeling Cost vs. Value Report.
On a national level, wood deck additions and all types of siding replacements – upscale fiber cement, midrange vinyl, and upscale foam-backed vinyl – returned more than 80 percent of project costs upon resale. Of these, the most profitable project was upscale fiber cement siding, which recouped 86.7 percent of costs, followed by wood decks at 81.8 percent, midrange vinyl siding at 80.7 percent, and upscale foam-backed vinyl siding at 80.4 percent.
“Because today’s buyers have much more to choose from in the way of inventory, any home for sale must make a positive first impression,” said National Association of Realtors® President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth. “As a trusted source for real estate information, Realtors® understand what attracts and motivates their buyer clients, which is why the results of this year’s Cost vs. Value report underscore the importance of curb appeal in the buyer’s eye.”
The 2008 Remodeling Cost vs. Value Report compares construction costs with resale values for 30 midrange and upscale remodeling projects comprising additions, remodels and replacements in 79 markets across the country, expanding from 60 markets last year. Data are grouped into nine U.S. regions, following the divisions established by the U.S. Census Bureau. This is the 11th consecutive year that the report, which is produced by Hanley Wood, LLC, was completed in cooperation with REALTOR Magazine, as Realtors® provided their insight into local markets and buyer home preferences within those markets.
In addition to wood decks and siding, window replacements and kitchen remodels also returned a relatively high percentage of remodeling costs on a national basis. All types of window replacements – upscale and midrange wood and upscale and midscale vinyl – returned more than 76 percent of costs. A major midrange kitchen remodel returned 76.0 percent of project costs, while a minor midrange kitchen remodel returned 79.5 percent of costs.
On a national level, bathroom remodels, while still a relatively good investment, do not return as high a percentage as in previous years. A midrange bathroom remodel was estimated to return 74.4 percent on resale, comparable to a midrange attic-to-bedroom conversion, at 73.6 percent of costs recouped, and a midrange basement remodel, at 72.7 percent of costs recouped.
As in last year’s report, the least profitable remodeling projects in terms of resale value were home office remodels, sunroom additions, and back-up power generators, returning only 54.4 percent, 56.6 percent, and 57.1 percent, respectively, of project costs.
Although most regions followed national trends, the regions that consistently were estimated to return a higher percentage of remodeling costs upon resale were the Pacific region of Alaska, California, Hawaii, Oregon and Washington; the West South Central region of Arkansas, Louisiana, Oklahoma, and Texas; the East South Central region of Alabama, Kentucky, Mississippi and Tennessee; and the South Atlantic region of the District of Columbia, Florida, Georgia, Maryland, North Carolina, South Carolina, Virginia and West Virginia.
The regions that generally returned the lowest percentage of costs were New England (Connecticut, Massachusetts, Maine, New Hampshire, Rhode Island, and Vermont), East North Central (Illinois, Indiana, Michigan, Ohio and Wisconsin), West North Central (Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota and South Dakota), and Middle Atlantic (New York and Pennsylvania).
McMillan explained that the resale value of any given remodeling project depends on a variety of factors. “A home’s overall condition, availability and condition of surrounding properties, location, and regional economic climate are all factors that will influence the value of any remodeling project,” he said. “That’s why it’s important to consult with professionals like Realtors® in your area when you want to enhance the value of your home. Realtors® see hundreds, if not thousands, of homes every year with their buyer clients and can provide valuable insight into what projects and improvements will make a difference with buyers in your area.”
Results of the report are summarized in the December 2008 issue of REALTOR® Magazine. The issue also includes examples of actual remodeling projects that were less expensive than many of the report’s cost estimates. Full project descriptions, as well as national, regional and local project data for the 79 cities covered by the report will be posted at www.costvsvalue.com by December 5. “Cost vs. Value” is a registered trademark of Hanley Wood, LLC.
Hanley Wood, LLC, is the premier media company serving housing and construction. Through four operating divisions, the company produces award-winning magazines and Web sites, marquee trade shows and events, rich data, and custom marketing solutions. The company also is North America’s leading provider of home plans. Founded in 1976, Hanley Wood is a $240 million company owned by JPMorgan Partners, LLC, a private equity affiliate of JPMorgan Chase & Co.
On a national level, wood deck additions and all types of siding replacements – upscale fiber cement, midrange vinyl, and upscale foam-backed vinyl – returned more than 80 percent of project costs upon resale. Of these, the most profitable project was upscale fiber cement siding, which recouped 86.7 percent of costs, followed by wood decks at 81.8 percent, midrange vinyl siding at 80.7 percent, and upscale foam-backed vinyl siding at 80.4 percent.
“Because today’s buyers have much more to choose from in the way of inventory, any home for sale must make a positive first impression,” said National Association of Realtors® President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth. “As a trusted source for real estate information, Realtors® understand what attracts and motivates their buyer clients, which is why the results of this year’s Cost vs. Value report underscore the importance of curb appeal in the buyer’s eye.”
The 2008 Remodeling Cost vs. Value Report compares construction costs with resale values for 30 midrange and upscale remodeling projects comprising additions, remodels and replacements in 79 markets across the country, expanding from 60 markets last year. Data are grouped into nine U.S. regions, following the divisions established by the U.S. Census Bureau. This is the 11th consecutive year that the report, which is produced by Hanley Wood, LLC, was completed in cooperation with REALTOR Magazine, as Realtors® provided their insight into local markets and buyer home preferences within those markets.
In addition to wood decks and siding, window replacements and kitchen remodels also returned a relatively high percentage of remodeling costs on a national basis. All types of window replacements – upscale and midrange wood and upscale and midscale vinyl – returned more than 76 percent of costs. A major midrange kitchen remodel returned 76.0 percent of project costs, while a minor midrange kitchen remodel returned 79.5 percent of costs.
On a national level, bathroom remodels, while still a relatively good investment, do not return as high a percentage as in previous years. A midrange bathroom remodel was estimated to return 74.4 percent on resale, comparable to a midrange attic-to-bedroom conversion, at 73.6 percent of costs recouped, and a midrange basement remodel, at 72.7 percent of costs recouped.
As in last year’s report, the least profitable remodeling projects in terms of resale value were home office remodels, sunroom additions, and back-up power generators, returning only 54.4 percent, 56.6 percent, and 57.1 percent, respectively, of project costs.
Although most regions followed national trends, the regions that consistently were estimated to return a higher percentage of remodeling costs upon resale were the Pacific region of Alaska, California, Hawaii, Oregon and Washington; the West South Central region of Arkansas, Louisiana, Oklahoma, and Texas; the East South Central region of Alabama, Kentucky, Mississippi and Tennessee; and the South Atlantic region of the District of Columbia, Florida, Georgia, Maryland, North Carolina, South Carolina, Virginia and West Virginia.
The regions that generally returned the lowest percentage of costs were New England (Connecticut, Massachusetts, Maine, New Hampshire, Rhode Island, and Vermont), East North Central (Illinois, Indiana, Michigan, Ohio and Wisconsin), West North Central (Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota and South Dakota), and Middle Atlantic (New York and Pennsylvania).
McMillan explained that the resale value of any given remodeling project depends on a variety of factors. “A home’s overall condition, availability and condition of surrounding properties, location, and regional economic climate are all factors that will influence the value of any remodeling project,” he said. “That’s why it’s important to consult with professionals like Realtors® in your area when you want to enhance the value of your home. Realtors® see hundreds, if not thousands, of homes every year with their buyer clients and can provide valuable insight into what projects and improvements will make a difference with buyers in your area.”
Results of the report are summarized in the December 2008 issue of REALTOR® Magazine. The issue also includes examples of actual remodeling projects that were less expensive than many of the report’s cost estimates. Full project descriptions, as well as national, regional and local project data for the 79 cities covered by the report will be posted at www.costvsvalue.com by December 5. “Cost vs. Value” is a registered trademark of Hanley Wood, LLC.
Hanley Wood, LLC, is the premier media company serving housing and construction. Through four operating divisions, the company produces award-winning magazines and Web sites, marquee trade shows and events, rich data, and custom marketing solutions. The company also is North America’s leading provider of home plans. Founded in 1976, Hanley Wood is a $240 million company owned by JPMorgan Partners, LLC, a private equity affiliate of JPMorgan Chase & Co.
Thursday, December 4, 2008
Your 2009 Recession Survival Guide
by Kimberly Palmer, James Pethokoukis, and Luke Mullins
How to Weather the Storm
Even though you can't control the economy, you don't have to just sit there and be buffeted by these big economic forces. You can do stuff!
Live below your means. Some people are shopping for this year's holiday gifts while still paying off their 2007 purchases, says Gail Cunningham of the National Foundation for Credit Counseling. Now's the time to re-evaluate those habits, she says, before piling on even more debt. You can make sure you pay as little as possible for gifts by using online comparison websites. Another option is taking advantage of layaway programs at retailers that let you pay off purchases before you bring them home. That way, you avoid paying high interest rates to credit card companies.
Bolster that emergency cushion. Even in flush times, financial advisers say consumers should have about six months' worth of expenses in their bank account to guard against job loss or other emergencies. Now, with the unemployment rate headed toward 7 percent, it's more important than ever.
Toughen up your portfolio. It doesn't matter how smart your investing strategy is if you won't stick with it. And the roller-coaster stock market is sure making that tough to do. Jittery investors might want to think about stashing somewhere between 30 and 40 percent of their portfolio in less risky investments, such as bond funds, treasury bills, or money market funds. But don't overdo it. Investors who are decades away from retirement should keep the bulk of their portfolios in stocks. If you want to dial down your risk, look to stock funds that have been bucking the bear, such as Apex Mid Cap Growth and Reynolds Blue Chip Growth. Also, exchange-traded funds, which look like mutual funds but trade like stocks, give you more diversified exposure to a particular sector or industry than betting on individual issues.
Save for a down payment. Unlike in the housing-boom days, borrowers will have to be able to make a sizable down payment to qualify for the lowest mortgage interest rates. So if you're looking to go bargain hunting in real estate, begin setting aside a little bit of cash each paycheck to put toward a down payment. When you begin to feel better about your job security, you'll be ready to take the plunge.
How to Take Advantage of the Bad Times
Time to stop surviving and shift to thriving. It's an ill wind that doesn't blow some good, and you need to make the most of the opportunities that are out there.
Energize your career. Don't just worry about keeping your job--make it better. Lean times present an opportunity for niche employees to put other skills to work and rebuild their reputations as go-to multitaskers. Employees should actively try to pick up the work of their departed peers. Also, volunteering to take on new responsibilities can pave the way for a negotiation in six to eight months, when an employee can prove that the job has evolved and is now worth more on the market. A new outlook and approach like this will help you hold on to your current job, or pave the way to your new career.
Refinance your home. Recent Federal Reserve announcements intended to ease the financial crisis have sharply reduced 30-year fixed mortgage rates, to 5.5 percent at the start of the week vs. 6.2 percent just two weeks earlier, according to HSH Associates. "Recession equals lower Treasury rates, which equals lower mortgage rates, which equals a great opportunity to refinance," says Mike Larson, a real estate analyst at Weiss Research.
Buy a home. Home prices nationally have already fallen more than 20 percent from their 2006 peak, and in certain boom-and-bust states the declines have been even more precipitous. So if you've got a stable job, good credit, a down payment, and a strong stomach, there are certainly buying opportunities out there for you. "I can point to properties here in [Florida] that are off 40 to 50 percent from their peak bubble levels," says Larson, who is based in Florida. "This is creating an opportunity."
Look for the next great stock investments. Not only can you pretty much count on next year being one of lousy economic growth, you can for sure count on Barack Obama being president. And there are a few stocks out there that could get a boost from an Obama administration, including Chesapeake Energy (natural gas) and AeroVironment (aerial vehicles for Afghanistan). Also, keep an eye out for "growthy" (high earnings growth) small stocks, especially techs, which often are the first ones to rise when a new economic expansion nears. Hey, the recession can't last forever, right?
Forget about keeping up with the Joneses. Since almost everyone's budgets are strained right now, cutting back is en vogue. Pollster John Zogby has found that a growing segment of the population has become more focused on spiritual fulfillment than on material success. Similarly, futurist Faith Popcorn's research shows that the concept of "frugality" has taken hold among families, with parents increasingly teaching their children to reconsider how much they consume and whether they could do with less. The "new frugality" movement, as she calls it, will usher in a new set of values for the next generation, she says.
Negotiate almost everything. From credit cards to clothes, companies are open to making deals as they struggle to keep customers. "If you're a good customer, [credit card companies] may be more apt to negotiate your rate because they don't want to lose you," says McHenry of IndexCreditCards.com. At farmers markets and clothing boutiques, simply asking, "Can I get a discount?" can lead to a lower price. Paying with cash increases the chances of making a deal because it allows retailers to avoid credit card transaction fees.
Copyrighted, U.S.News & World Report, L.P. All rights reserved.
How to Weather the Storm
Even though you can't control the economy, you don't have to just sit there and be buffeted by these big economic forces. You can do stuff!
Live below your means. Some people are shopping for this year's holiday gifts while still paying off their 2007 purchases, says Gail Cunningham of the National Foundation for Credit Counseling. Now's the time to re-evaluate those habits, she says, before piling on even more debt. You can make sure you pay as little as possible for gifts by using online comparison websites. Another option is taking advantage of layaway programs at retailers that let you pay off purchases before you bring them home. That way, you avoid paying high interest rates to credit card companies.
Bolster that emergency cushion. Even in flush times, financial advisers say consumers should have about six months' worth of expenses in their bank account to guard against job loss or other emergencies. Now, with the unemployment rate headed toward 7 percent, it's more important than ever.
Toughen up your portfolio. It doesn't matter how smart your investing strategy is if you won't stick with it. And the roller-coaster stock market is sure making that tough to do. Jittery investors might want to think about stashing somewhere between 30 and 40 percent of their portfolio in less risky investments, such as bond funds, treasury bills, or money market funds. But don't overdo it. Investors who are decades away from retirement should keep the bulk of their portfolios in stocks. If you want to dial down your risk, look to stock funds that have been bucking the bear, such as Apex Mid Cap Growth and Reynolds Blue Chip Growth. Also, exchange-traded funds, which look like mutual funds but trade like stocks, give you more diversified exposure to a particular sector or industry than betting on individual issues.
Save for a down payment. Unlike in the housing-boom days, borrowers will have to be able to make a sizable down payment to qualify for the lowest mortgage interest rates. So if you're looking to go bargain hunting in real estate, begin setting aside a little bit of cash each paycheck to put toward a down payment. When you begin to feel better about your job security, you'll be ready to take the plunge.
How to Take Advantage of the Bad Times
Time to stop surviving and shift to thriving. It's an ill wind that doesn't blow some good, and you need to make the most of the opportunities that are out there.
Energize your career. Don't just worry about keeping your job--make it better. Lean times present an opportunity for niche employees to put other skills to work and rebuild their reputations as go-to multitaskers. Employees should actively try to pick up the work of their departed peers. Also, volunteering to take on new responsibilities can pave the way for a negotiation in six to eight months, when an employee can prove that the job has evolved and is now worth more on the market. A new outlook and approach like this will help you hold on to your current job, or pave the way to your new career.
Refinance your home. Recent Federal Reserve announcements intended to ease the financial crisis have sharply reduced 30-year fixed mortgage rates, to 5.5 percent at the start of the week vs. 6.2 percent just two weeks earlier, according to HSH Associates. "Recession equals lower Treasury rates, which equals lower mortgage rates, which equals a great opportunity to refinance," says Mike Larson, a real estate analyst at Weiss Research.
Buy a home. Home prices nationally have already fallen more than 20 percent from their 2006 peak, and in certain boom-and-bust states the declines have been even more precipitous. So if you've got a stable job, good credit, a down payment, and a strong stomach, there are certainly buying opportunities out there for you. "I can point to properties here in [Florida] that are off 40 to 50 percent from their peak bubble levels," says Larson, who is based in Florida. "This is creating an opportunity."
Look for the next great stock investments. Not only can you pretty much count on next year being one of lousy economic growth, you can for sure count on Barack Obama being president. And there are a few stocks out there that could get a boost from an Obama administration, including Chesapeake Energy (natural gas) and AeroVironment (aerial vehicles for Afghanistan). Also, keep an eye out for "growthy" (high earnings growth) small stocks, especially techs, which often are the first ones to rise when a new economic expansion nears. Hey, the recession can't last forever, right?
Forget about keeping up with the Joneses. Since almost everyone's budgets are strained right now, cutting back is en vogue. Pollster John Zogby has found that a growing segment of the population has become more focused on spiritual fulfillment than on material success. Similarly, futurist Faith Popcorn's research shows that the concept of "frugality" has taken hold among families, with parents increasingly teaching their children to reconsider how much they consume and whether they could do with less. The "new frugality" movement, as she calls it, will usher in a new set of values for the next generation, she says.
Negotiate almost everything. From credit cards to clothes, companies are open to making deals as they struggle to keep customers. "If you're a good customer, [credit card companies] may be more apt to negotiate your rate because they don't want to lose you," says McHenry of IndexCreditCards.com. At farmers markets and clothing boutiques, simply asking, "Can I get a discount?" can lead to a lower price. Paying with cash increases the chances of making a deal because it allows retailers to avoid credit card transaction fees.
Copyrighted, U.S.News & World Report, L.P. All rights reserved.
Wednesday, December 3, 2008
Self-Employed Are Frozen Out of Mortgages
By NICK TIMIRAOS and RUTH SIMON
The government's recent moves to backstop the mortgage market have made it easier for many people with decent credit scores to get a loan. But for many self-employed people -- even those with pristine credit -- the mortgage freeze has yet to thaw.
A reversal of the loose lending practices that led to the banking industry's current woes was certainly expected. But some economists and mortgage brokers say lending standards have become overly restrictive, which could be exacerbating the credit crunch and helping push down home prices further.
Locked Out of a Home Loan
* Some self-employed professionals are not benefiting from federal moves to loosen the mortgage market.
* The volume of jumbo loans -- those that exceed limits for government backing -- fell by more than 70% for the first nine months of the year from a year earlier.
"Underwriting criteria have swung from foolish ease to tighter than any in modern times," says Lou Barnes, a mortgage banker in Boulder, Colo.
The changes are increasingly frustrating a group of borrowers whom banks once coveted: affluent self-employed professionals such as doctors, lawyers, accountants and small-business owners.
Hubert Noguera, a 38-year-old medical-device engineer who also owns a small business, is one of them. He can't get approved for a loan, even though he has a strong 800 credit score and is prepared to make a 40% down payment on a house near San Francisco in the $800,000-to-$900,000 range. Mr. Noguera says he has assets worth three times the $500,000 loan he's requesting and is in the process of selling his share of a recently inherited residence in Saratoga, Calif., worth $1.1 million.
Banks have turned down the loan because the amount he's requesting appears high relative to the portion of his income that he can fully document -- and they won't consider his other income, says his mortgage broker, Connie Madrid.
"My blood type is O positive. What else do they want?" Mr. Noguera recalls asking Ms. Madrid.
The chief problem for self-employed people is that they don't have W-2 forms from an employer to document their full wages. For proof of income, they must rely solely on their income-tax returns. But income for the self-employed is often understated for tax purposes, in part because they tend to take large business-related deductions. Self-employed borrowers who don't take any big deductions won't likely face the same difficulty getting a loan.
"When you're self-employed, the write-offs that you use help at tax time -- but that means when you apply for a loan, your income won't reflect your cash flow," says Richard Redmond, a mortgage broker in Larkspur, Calif. Lenders are also cautious because nonsalaried workers can see greater volatility in their annual income.
In the past, most self-employed people took out "stated-income loans," which don't require borrowers to fully document their income. Such borrowers typically made substantial down payments, had strong credit profiles and paid a slight premium -- around 0.25 percentage point -- on their interest rates. Defaults were low.
That changed as the loans grew in popularity during the housing boom and expanded beyond their traditional market of affluent professionals. Stated-income loans eventually became disparaged as "liar's loans" because borrowers' incomes were frequently exaggerated.
Many banks have eliminated stated-income loans entirely, and Freddie Mac -- which, with Fannie Mae, is one of two government-held buyers of mortgages -- will end its stated-income lending program designed for self-employed borrowers next month.
"If the market stays as it is, we've frozen thousands and thousands of good borrowers out of the mortgage market," says Peter Ogilvie, past president of the California Association of Mortgage Brokers. "People who've demonstrated they can pay their bills cannot get a mortgage -- and that's people who have homes."
Mr. Noguera's loan hasn't been approved because he receives part of his income from a human-resources consulting business that he also inherited last year, but lenders won't count income from the firm because he doesn't have two years of reported earnings.
"Six months ago, I know I could have done this no problem," says Ms. Madrid, his broker. She says that even the loan officer at Wells Fargo & Co., for example, was surprised that the loan couldn't be approved. A Wells Fargo spokesman wouldn't comment on the particular case, but said in a statement: "Like everyone else in financial services, Wells Fargo has adjusted underwriting standards to effectively manage risk in this difficult credit environment."
This part of the market is tightening despite the government's attempts to jump-start mortgage activity. Earlier this year, it approved larger loan limits for Fannie Mae, Freddie Mac and the Federal Housing Administration. Last week, the government announced it would buy $600 billion worth of mortgage-backed securities and debt from Fannie and Freddie, which helped push down mortgage rates on government-backed loans by a third of a percentage point.
Self-employed borrowers aren't the only ones finding themselves shut out despite having good credit and savings. Lenders have also sharply tightened requirements for so-called jumbo loans, which are too big to qualify for government backing. That's because banks are relying heavily on loans guaranteed by Fannie and Freddie and the FHA, which have loan limits that vary by market from $417,000 to $729,000. Government-backed lending now accounts for 87% of loan volume, according to Inside Mortgage Finance, a trade publication.
At J.P. Morgan Chase & Co., for example, more than 95% of mortgage originations are now sold to a government agency. In certain distressed markets, such as South Florida, J.P. Morgan Chase won't go above a 60% loan-to-value on jumbo mortgages. Overall, jumbo-loan originations declined 71% to $87 billion in the first nine months of 2008 from $303 billion during the same period last year, according to Inside Mortgage Finance.
Those who can get a jumbo loan are finding them very expensive. Rates on jumbo loans averaged 7.49% last week, nearly 1.6 percentage points above the rates on loans eligible for government backing, according to HSH Associates, financial publishers in Pompton Plains, N.J. The gap widened from 1.3 percentage points two weeks ago. In July 2007, the gap between the two was as little as 0.25 percentage point.
Mike Castrichini, a chiropractor in Scottsdale, Ariz., has been caught between the tightened jumbo market and the disappearance of stated-income loans, which he says he's used for more than a decade without any problem. He's been unable to find a lender willing to refinance the $900,000 adjustable-rate mortgage on his primary residence, which he says is worth around $1.1 million now, down from $1.8 million a few years ago. "Nobody will touch the loan," says Steve Walsh, his mortgage broker.
The 42-year-old Mr. Castrichini, who has a solid 787 credit score, owns his two offices and a small strip mall in Illinois. Even if he's approved for the loan, he laments the fact that he is facing a much higher interest rate. "I'm going to have to cut back," he says, expressing concern that he'll be unable to keep his children in private school.
Banks, meanwhile, are tightening their requirements beyond those of Fannie and Freddie. J.P. Morgan Chase, for instance, has set tighter standards than the agencies for loans that exceed 80% of the home's value and has stopped making loans for second homes and condos in Florida, according to a recent investor presentation.
"No one wants to be stuck with a loan," says Mr. Walsh, the Arizona broker. He says underwriters he works with have been told they'll be fired if a loan they originate can't be sold to Fannie, Freddie or the FHA.
Lenders have tighter standards than government agencies because they "usually have a more granular understanding of where credit losses are coming from," says Sanjiv Das, chief executive of Citigroup Inc.'s CitiMortgage unit. Lenders say they are also concerned that Fannie and Freddie will force them to repurchase delinquent loans.
Brokers say there's little borrowers can do to improve their chances of getting a loan right now, but that they can prepare themselves once guidelines ease. The most important steps include maintaining a stellar credit rating and being able to show liquid assets. Borrowers who can't get a jumbo loan will have a better chance at getting a so-called conforming loan -- one not exceeding $417,000, with a higher ceiling in some markets.
Mr. Redmond, the California broker, says he sees enough rejected borrowers with strong credit that he is setting up a $15 million private lending fund targeting those good credit risks. He warns that the inability of creditworthy borrowers to refinance mortgages, particularly those that have rising rates, could spur forced sales and further depress home values.
"Fannie and Freddie can sit on the stoop with buckets of cheap money, but if they have raised the bar too high for the borrowers to get at it, it doesn't matter," he says.
The government's recent moves to backstop the mortgage market have made it easier for many people with decent credit scores to get a loan. But for many self-employed people -- even those with pristine credit -- the mortgage freeze has yet to thaw.
A reversal of the loose lending practices that led to the banking industry's current woes was certainly expected. But some economists and mortgage brokers say lending standards have become overly restrictive, which could be exacerbating the credit crunch and helping push down home prices further.
Locked Out of a Home Loan
* Some self-employed professionals are not benefiting from federal moves to loosen the mortgage market.
* The volume of jumbo loans -- those that exceed limits for government backing -- fell by more than 70% for the first nine months of the year from a year earlier.
"Underwriting criteria have swung from foolish ease to tighter than any in modern times," says Lou Barnes, a mortgage banker in Boulder, Colo.
The changes are increasingly frustrating a group of borrowers whom banks once coveted: affluent self-employed professionals such as doctors, lawyers, accountants and small-business owners.
Hubert Noguera, a 38-year-old medical-device engineer who also owns a small business, is one of them. He can't get approved for a loan, even though he has a strong 800 credit score and is prepared to make a 40% down payment on a house near San Francisco in the $800,000-to-$900,000 range. Mr. Noguera says he has assets worth three times the $500,000 loan he's requesting and is in the process of selling his share of a recently inherited residence in Saratoga, Calif., worth $1.1 million.
Banks have turned down the loan because the amount he's requesting appears high relative to the portion of his income that he can fully document -- and they won't consider his other income, says his mortgage broker, Connie Madrid.
"My blood type is O positive. What else do they want?" Mr. Noguera recalls asking Ms. Madrid.
The chief problem for self-employed people is that they don't have W-2 forms from an employer to document their full wages. For proof of income, they must rely solely on their income-tax returns. But income for the self-employed is often understated for tax purposes, in part because they tend to take large business-related deductions. Self-employed borrowers who don't take any big deductions won't likely face the same difficulty getting a loan.
"When you're self-employed, the write-offs that you use help at tax time -- but that means when you apply for a loan, your income won't reflect your cash flow," says Richard Redmond, a mortgage broker in Larkspur, Calif. Lenders are also cautious because nonsalaried workers can see greater volatility in their annual income.
In the past, most self-employed people took out "stated-income loans," which don't require borrowers to fully document their income. Such borrowers typically made substantial down payments, had strong credit profiles and paid a slight premium -- around 0.25 percentage point -- on their interest rates. Defaults were low.
That changed as the loans grew in popularity during the housing boom and expanded beyond their traditional market of affluent professionals. Stated-income loans eventually became disparaged as "liar's loans" because borrowers' incomes were frequently exaggerated.
Many banks have eliminated stated-income loans entirely, and Freddie Mac -- which, with Fannie Mae, is one of two government-held buyers of mortgages -- will end its stated-income lending program designed for self-employed borrowers next month.
"If the market stays as it is, we've frozen thousands and thousands of good borrowers out of the mortgage market," says Peter Ogilvie, past president of the California Association of Mortgage Brokers. "People who've demonstrated they can pay their bills cannot get a mortgage -- and that's people who have homes."
Mr. Noguera's loan hasn't been approved because he receives part of his income from a human-resources consulting business that he also inherited last year, but lenders won't count income from the firm because he doesn't have two years of reported earnings.
"Six months ago, I know I could have done this no problem," says Ms. Madrid, his broker. She says that even the loan officer at Wells Fargo & Co., for example, was surprised that the loan couldn't be approved. A Wells Fargo spokesman wouldn't comment on the particular case, but said in a statement: "Like everyone else in financial services, Wells Fargo has adjusted underwriting standards to effectively manage risk in this difficult credit environment."
This part of the market is tightening despite the government's attempts to jump-start mortgage activity. Earlier this year, it approved larger loan limits for Fannie Mae, Freddie Mac and the Federal Housing Administration. Last week, the government announced it would buy $600 billion worth of mortgage-backed securities and debt from Fannie and Freddie, which helped push down mortgage rates on government-backed loans by a third of a percentage point.
Self-employed borrowers aren't the only ones finding themselves shut out despite having good credit and savings. Lenders have also sharply tightened requirements for so-called jumbo loans, which are too big to qualify for government backing. That's because banks are relying heavily on loans guaranteed by Fannie and Freddie and the FHA, which have loan limits that vary by market from $417,000 to $729,000. Government-backed lending now accounts for 87% of loan volume, according to Inside Mortgage Finance, a trade publication.
At J.P. Morgan Chase & Co., for example, more than 95% of mortgage originations are now sold to a government agency. In certain distressed markets, such as South Florida, J.P. Morgan Chase won't go above a 60% loan-to-value on jumbo mortgages. Overall, jumbo-loan originations declined 71% to $87 billion in the first nine months of 2008 from $303 billion during the same period last year, according to Inside Mortgage Finance.
Those who can get a jumbo loan are finding them very expensive. Rates on jumbo loans averaged 7.49% last week, nearly 1.6 percentage points above the rates on loans eligible for government backing, according to HSH Associates, financial publishers in Pompton Plains, N.J. The gap widened from 1.3 percentage points two weeks ago. In July 2007, the gap between the two was as little as 0.25 percentage point.
Mike Castrichini, a chiropractor in Scottsdale, Ariz., has been caught between the tightened jumbo market and the disappearance of stated-income loans, which he says he's used for more than a decade without any problem. He's been unable to find a lender willing to refinance the $900,000 adjustable-rate mortgage on his primary residence, which he says is worth around $1.1 million now, down from $1.8 million a few years ago. "Nobody will touch the loan," says Steve Walsh, his mortgage broker.
The 42-year-old Mr. Castrichini, who has a solid 787 credit score, owns his two offices and a small strip mall in Illinois. Even if he's approved for the loan, he laments the fact that he is facing a much higher interest rate. "I'm going to have to cut back," he says, expressing concern that he'll be unable to keep his children in private school.
Banks, meanwhile, are tightening their requirements beyond those of Fannie and Freddie. J.P. Morgan Chase, for instance, has set tighter standards than the agencies for loans that exceed 80% of the home's value and has stopped making loans for second homes and condos in Florida, according to a recent investor presentation.
"No one wants to be stuck with a loan," says Mr. Walsh, the Arizona broker. He says underwriters he works with have been told they'll be fired if a loan they originate can't be sold to Fannie, Freddie or the FHA.
Lenders have tighter standards than government agencies because they "usually have a more granular understanding of where credit losses are coming from," says Sanjiv Das, chief executive of Citigroup Inc.'s CitiMortgage unit. Lenders say they are also concerned that Fannie and Freddie will force them to repurchase delinquent loans.
Brokers say there's little borrowers can do to improve their chances of getting a loan right now, but that they can prepare themselves once guidelines ease. The most important steps include maintaining a stellar credit rating and being able to show liquid assets. Borrowers who can't get a jumbo loan will have a better chance at getting a so-called conforming loan -- one not exceeding $417,000, with a higher ceiling in some markets.
Mr. Redmond, the California broker, says he sees enough rejected borrowers with strong credit that he is setting up a $15 million private lending fund targeting those good credit risks. He warns that the inability of creditworthy borrowers to refinance mortgages, particularly those that have rising rates, could spur forced sales and further depress home values.
"Fannie and Freddie can sit on the stoop with buckets of cheap money, but if they have raised the bar too high for the borrowers to get at it, it doesn't matter," he says.
Tuesday, December 2, 2008
Lower Mortgage Rates Are Not the Answer
By JUNE FLETCHER
On Tuesday, the government announced an $800 billion plan to stimulate the economy by buying $600 billion worth of mortgage-backed assets and $200 billion in consumer-debt securities. The intent is to make it easier for consumers to buy cars, pay for college tuition and get credit cards. Mortgage interest rates fell about a half-percentage point on the news. (See "Fed Aid Sets Off a Rush to Refinance")
Will the effort finally get the economy moving again? Frankly, I doubt it.
Lower mortgage rates can help people buy housing, but only if they feel secure enough in their jobs, and confident enough in their financial future to take the plunge. Given that consumers are drowning in debt -- especially housing debt -- fearful of layoffs, and waiting for housing prices to hit bottom, it's unlikely that they'll react to this initiative with a spending spree.
Consumers don't react to debt like companies, though the government is behaving like they do. Giving companies better access to credit allows them to meet payrolls while they adjust their production and expenses in response to tighter economic condition. But families who can't pay their bills can't lay off a spouse and kids. For them, debt grows from burdensome to monstrous as interest charges accumulate. Eventually, the load becomes overwhelming.
Testifying before the Senate on July 28, Harvard law professor Elizabeth Warren noted that the situation for the middle class has worsened during this decade. She explained that, adjusted for inflation, median household income fell $1,175 from 2000 to 2007, while expenses increased $4,655, pushed primarily by higher costs for mortgages, gas, health insurance and food, in that order. Families with children have borne an additional $3,180 in expenses for day care, after-school care and college tuition. To help cope with these rising costs, families turned to home equity lines of credit and refinancing -- effectively sucking the equity out of their homes -- as well as credit card debt. Nearly 44% of American households now carry a balance on their credit cards, she testified; to retire it, a family earning the median income of $48,201 would have to turn over every paycheck for nearly three months.
Foreclosure or bankruptcy will take a toll on a certain portion of these families, even though, as Ms. Warren points out in her book "The Two-Income Trap" (Basic Books: 2003), that's something most people desperately try to avoid. After studying 2,200 families that had filed for bankruptcy, she found that families that fail financially are most likely to be ones with children, who are struggling to buy and maintain homes in decent school districts, not flippers or status-seekers out to make a quick buck. For every family that officially declares bankruptcy, she writes, there are seven more whose debt loads suggest that they ought to file. But they don't, given the stigma that financial failure still holds in society.
Many Americans are so indebted that a job loss, illness or divorce inevitably pushes them over the financial precipice These days, I'm inundated with pleas for help from readers who were coping with their bills until they were blindsided by bad luck, like the Utah real estate agent who was hit with both diabetes and a falling home-sale market that destroyed her business, or the California man who got behind on mortgage payments after a heart attack, or the Massachusetts woman who lost a high-paying job and took on a lower-paying one that forces her to choose between going without food and heat and paying her mortgage. These readers aren't trying to game the system; they're trying to find ways to hold on to their homes, and failing that, their dignity.
While emergency relief measures and loan modifications may help the hardest cases, there's clearly not enough money in the federal budget to help everyone. Temporary stimulus measures like mortgage rate cuts and easier access to credit are limited, too, since they only work when people feel rich enough to buy something. Ultimately, it will take more permanent solutions, like the proposal recently unveiled by President-elect Barack Obama to boost job growth, to restore confidence enough to get the economy moving again.
In the meantime, expect some relief in the form of more affordable home prices, which continue to fall even with massive government intervention: In the third quarter, they declined a record 16.6% from a year earlier, according to the latest home price index by Standard & Poor's/Case-Shiller. As painful as this deflation is to those who are forced to sell, in the long run, lower home prices will help family budgets to come into balance, and personal debt levels to become more manageable. That will help the economy far more than trying to enti
On Tuesday, the government announced an $800 billion plan to stimulate the economy by buying $600 billion worth of mortgage-backed assets and $200 billion in consumer-debt securities. The intent is to make it easier for consumers to buy cars, pay for college tuition and get credit cards. Mortgage interest rates fell about a half-percentage point on the news. (See "Fed Aid Sets Off a Rush to Refinance")
Will the effort finally get the economy moving again? Frankly, I doubt it.
Lower mortgage rates can help people buy housing, but only if they feel secure enough in their jobs, and confident enough in their financial future to take the plunge. Given that consumers are drowning in debt -- especially housing debt -- fearful of layoffs, and waiting for housing prices to hit bottom, it's unlikely that they'll react to this initiative with a spending spree.
Consumers don't react to debt like companies, though the government is behaving like they do. Giving companies better access to credit allows them to meet payrolls while they adjust their production and expenses in response to tighter economic condition. But families who can't pay their bills can't lay off a spouse and kids. For them, debt grows from burdensome to monstrous as interest charges accumulate. Eventually, the load becomes overwhelming.
Testifying before the Senate on July 28, Harvard law professor Elizabeth Warren noted that the situation for the middle class has worsened during this decade. She explained that, adjusted for inflation, median household income fell $1,175 from 2000 to 2007, while expenses increased $4,655, pushed primarily by higher costs for mortgages, gas, health insurance and food, in that order. Families with children have borne an additional $3,180 in expenses for day care, after-school care and college tuition. To help cope with these rising costs, families turned to home equity lines of credit and refinancing -- effectively sucking the equity out of their homes -- as well as credit card debt. Nearly 44% of American households now carry a balance on their credit cards, she testified; to retire it, a family earning the median income of $48,201 would have to turn over every paycheck for nearly three months.
Foreclosure or bankruptcy will take a toll on a certain portion of these families, even though, as Ms. Warren points out in her book "The Two-Income Trap" (Basic Books: 2003), that's something most people desperately try to avoid. After studying 2,200 families that had filed for bankruptcy, she found that families that fail financially are most likely to be ones with children, who are struggling to buy and maintain homes in decent school districts, not flippers or status-seekers out to make a quick buck. For every family that officially declares bankruptcy, she writes, there are seven more whose debt loads suggest that they ought to file. But they don't, given the stigma that financial failure still holds in society.
Many Americans are so indebted that a job loss, illness or divorce inevitably pushes them over the financial precipice These days, I'm inundated with pleas for help from readers who were coping with their bills until they were blindsided by bad luck, like the Utah real estate agent who was hit with both diabetes and a falling home-sale market that destroyed her business, or the California man who got behind on mortgage payments after a heart attack, or the Massachusetts woman who lost a high-paying job and took on a lower-paying one that forces her to choose between going without food and heat and paying her mortgage. These readers aren't trying to game the system; they're trying to find ways to hold on to their homes, and failing that, their dignity.
While emergency relief measures and loan modifications may help the hardest cases, there's clearly not enough money in the federal budget to help everyone. Temporary stimulus measures like mortgage rate cuts and easier access to credit are limited, too, since they only work when people feel rich enough to buy something. Ultimately, it will take more permanent solutions, like the proposal recently unveiled by President-elect Barack Obama to boost job growth, to restore confidence enough to get the economy moving again.
In the meantime, expect some relief in the form of more affordable home prices, which continue to fall even with massive government intervention: In the third quarter, they declined a record 16.6% from a year earlier, according to the latest home price index by Standard & Poor's/Case-Shiller. As painful as this deflation is to those who are forced to sell, in the long run, lower home prices will help family budgets to come into balance, and personal debt levels to become more manageable. That will help the economy far more than trying to enti
Monday, December 1, 2008
NAR Says Fed's Buying of Fannie, Freddie Debt Will Drive Down Interest Rates and Help to Stabilize Housing
Great news for home buyers, home sellers and the U.S. economy is how the National Association of Realtors® greeted this morning’s announcement by the Federal Reserve that it will purchase housing-related debts of Fannie Mae and Freddie Mac, thus freeing up mortgage money on Main Street.
“This is one of the key actions we’ve been advocating ever since the Treasury altered its course on how it would use the $700 billion recovery package passed in September. This is great news for home buyers and sellers and we applaud the Fed for taking this historic step,” said NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth. “Housing recovery is the key to economic recovery in this country and it always has been.”
In a four-point plan submitted to Congress last month, NAR called for the Treasury Department to purchase mortgage-backed securities (MBS) from banks to provide price stabilization for housing. Today the Fed said it would purchase mortgage-backed securities from Fannie Mae, Freddie Mac, and Ginnie Mae for up to $500 billion. “This will be critical to a housing recovery,” McMillan said.
Lawrence Yun, NAR chief economist, said purchasing debt obligations of Fannie and Freddie is an important move. “We commend the Fed decision because it will directly bring down long-term interest rates,” he said. “The level of investment should be aggressive enough to bring interest rates down in a meaningful manner. As we've seen in past recessions, home sales rise when mortgage interest rates fall.”
Yun said that given the present state of the mortgage market, interest rates on 30-year fixed-rate mortgages are too high. “If Fed action brings down mortgage interest rates by even 1 percentage point, it would increase homes sales by 500,000 units. That should help to draw inventory down and stabilize prices.”
Yun said higher home sales are critical now to absorb inventory and stabilize prices. “Only with stabilization in home prices can we have a healthy housing and economic recovery,” he said.
In its announcement, the Fed said it will purchase up to $100 billion of GSE debt from primary dealers through a series of competitive auctions to begin next week. Purchases of up to $500 billion in MBS will be conducted by selected asset managers before year-end. Both the direct obligations and MBS purchases are expected to take place over several quarters.
“This is one of the key actions we’ve been advocating ever since the Treasury altered its course on how it would use the $700 billion recovery package passed in September. This is great news for home buyers and sellers and we applaud the Fed for taking this historic step,” said NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth. “Housing recovery is the key to economic recovery in this country and it always has been.”
In a four-point plan submitted to Congress last month, NAR called for the Treasury Department to purchase mortgage-backed securities (MBS) from banks to provide price stabilization for housing. Today the Fed said it would purchase mortgage-backed securities from Fannie Mae, Freddie Mac, and Ginnie Mae for up to $500 billion. “This will be critical to a housing recovery,” McMillan said.
Lawrence Yun, NAR chief economist, said purchasing debt obligations of Fannie and Freddie is an important move. “We commend the Fed decision because it will directly bring down long-term interest rates,” he said. “The level of investment should be aggressive enough to bring interest rates down in a meaningful manner. As we've seen in past recessions, home sales rise when mortgage interest rates fall.”
Yun said that given the present state of the mortgage market, interest rates on 30-year fixed-rate mortgages are too high. “If Fed action brings down mortgage interest rates by even 1 percentage point, it would increase homes sales by 500,000 units. That should help to draw inventory down and stabilize prices.”
Yun said higher home sales are critical now to absorb inventory and stabilize prices. “Only with stabilization in home prices can we have a healthy housing and economic recovery,” he said.
In its announcement, the Fed said it will purchase up to $100 billion of GSE debt from primary dealers through a series of competitive auctions to begin next week. Purchases of up to $500 billion in MBS will be conducted by selected asset managers before year-end. Both the direct obligations and MBS purchases are expected to take place over several quarters.
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