By ALAN ZIBEL, AP Real Estate Writer Alan Zibel, Ap Real Estate Writer
WASHINGTON – Once again, the government has offered another plan to help troubled homeowners. Once again, critics say it doesn't go far enough.
The plan announced Tuesday by federal officials and mortgage giants Fannie Mae and Freddie Mac sounds sweeping in its approach: Borrowers would get reduced interest rates or longer loan terms to make their payments more affordable.
But there's a catch. The plan focuses on loans Fannie and Freddie own or guarantee. They are the dominant players in the U.S. mortgage market but represent only 20 percent of delinquent loans.
Sheila Bair, chairman of the Federal Deposit Insurance Corp., said the plan "falls short of what is needed to achieve wide-scale modifications of distressed mortgages."
With the government spending billions to aid distressed banks, "we must also devote some of that money to fixing the front-end problem: too many unaffordable home loans," Bair said in a statement.
Democrats on Capitol Hill aren't satisfied, either. "When the loan is chopped up into a million pieces and any investor can block a modification from happening, a program like this will only scratch the surface of the mortgage crisis," said Sen. Charles Schumer, D-N.Y.
The economic crisis is still unnerving Wall Street. Stocks fell again as investors found few industries safe from the consumer spending slump. With Starbucks Corp. and luxury homebuilder Toll Brothers Inc. both posting disappointing quarterly results, the Dow Jones industrial average closed down nearly 180 points.
The financial crisis took on a new dimension on Capitol Hill. House Speaker Nancy Pelosi called for "emergency and limited financial assistance" for the battered auto industry and urged the outgoing Bush administration to join lawmakers in reaching a quick compromise during a postelection session of Congress.
The new mortgage assistance plan was announced by the Federal Housing Finance Agency, which seized control of Fannie and Freddie in September, and other government and industry officials.
Officials say they hope the new approach, which takes effect Dec. 15, will become a model for loan servicing companies that collect mortgage payments and distribute them to investors. These companies have been roundly criticized for being slow to respond to a surge in defaults.
James Lockhart, director of the housing finance agency, urged investors to "rapidly adopt this program as the industry standard."
Still, government officials had no estimate of how many homeowners would be able to qualify. Fannie and Freddie own or guarantee nearly 31 million U.S. mortgages, or nearly six of every 10 outstanding. But they have far lower overall delinquency rates — under 2 percent.
To qualify, borrowers would have to be at least three months behind on their home loans and would have to owe 90 percent or more than the home is worth. Investors who do not occupy their homes would be excluded, as would borrowers who have filed for bankruptcy.
Qualified borrowers would get help in several ways: The interest rate would be reduced so that they would not pay more than 38 percent of their gross income on housing expenses. Another option is for loans to be extended to 40 years from 30, and for some of the principal to be deferred, interest-free.
Though lenders have beefed up their efforts to aid borrowers over the past year, their action hasn't kept up with the worst housing recession in decades.
More than 4 million American homeowners, or 9 percent of borrowers with a mortgage, were either behind on their payments or in foreclosure at the end of June, according to the most recent data from the Mortgage Bankers Association.
Indeed, Tuesday's announcement comes too late for Troy Courtney, a 44-year-old San Francisco police officer.
He moved out of his home in Mill Valley, Calif., earlier this month — taking his children, three dogs and one cat with him — after failing at several attempts to get a loan modification or a short sale. A short sale occurs when the lender agrees to receive less than the loan is worth.
Courtney worked overtime and tapped into his retirement account to try to catch up with two loans on his home. But in the end, he couldn't persuade Countrywide Financial, which managed the loan for Wells Fargo, to modify the loan.
"I feel like I missed the boat," he said of the new efforts to help more homeowners. "I'm just mad at the whole system."
One reason the problem has been so tough to solve for borrowers such as Courtney is that the vast majority of troubled loans were packaged into complex investments that have proved extremely hard to unwind.
Deutsche Bank estimates more than 80 percent of the $1.8 trillion in outstanding troubled loans have been packaged and sold in slices to investors worldwide. Most of those loans won't likely be helped by the new plan.
The rest are "whole loans," which are easier to modify because they have only one owner.
Still, after more than a year of slow and weak initiatives, there seems to be a serious effort among major retail banks to get at the heart of the credit crisis: falling U.S. home prices and record foreclosures.
Citigroup said Monday it is halting foreclosures for borrowers who live in their own homes, have decent incomes and stand a good chance of making lowered mortgage payments.
JPMorgan Chase & Co. last month expanded its mortgage modification program to an estimated $70 billion in loans, which could aid as many as 400,000 customers. The bank already has modified about $40 billion in mortgages, helping 250,000 customers since early 2007.
Starting Dec. 1, Bank of America Corp. plans to modify an estimated 400,000 loans held by newly acquired Countrywide Financial Corp. as part of an $8.4 billion legal settlement reached with 11 states in early October.
_______ Associated Press Writers David Espo and Sara Lepro contributed to this report.
Wednesday, November 12, 2008
Tuesday, November 11, 2008
Foreclosed Home Sales Likely Driving Up U.S. Pending Home Sales
Economists say the second unexpected rebound in three months in the U.S. pending home sales index is likely due to sales of foreclosed homes. The June report from the National Association of Realtors (NAR) defied expectations for a 1.0% decline and rebounded 5.3% in June, following the 4.9% loss of sales in May.
The bounce is better than the most optimistic forecasts beforehand.
“This is promising news for July/August existing home sales as the pending sales figures become an existing home sale a month or two down the road (assuming they’re not cancelled),” wrote Jennifer Lee, economist at BMO Capital Markets.
Pending home sales represent homes that have been signed for but not finalized, a process that takes another month or two. The value of the index lies in its ability to forecast existing home sales, which represent eight-tenths of the market.
Lee said the gains likely represent sales of homes in foreclosure, which economists also believe were responsible for April’s gain. She pointed to a USA Today story that said home sales were rebounding in Las Vegas, 60% of which were foreclosed properties.
Millan Mulraine, economics strategist at TD Securities, added, “Despite the unexpected surge in pending home sales in June, with most other housing-related indicators pointing downward, there is little to suggest an imminent abatement in the U.S. housing market correction.”
The PHSI now stands at 89.0, up from 84.5 in the previous month. From a year prior, the index has declined by 12.1%, compared with an annual 15.7% decline in the previous month. An all-time low in the seven-year index was reached in March at 83.0.
On the plus side, each of the four regions saw improvement in the month as sales in the Midwest rose 1.3%, the South rose 9.3%, the West advanced 4.6% and the Northeast posted a 3.4% gain.
However, Lee said “the underlying problem remains,” noting that inventories of new and existing homes stand at 4.33 million homes, representing 11 months of overhang at the current pace of sales for existing homes and 10 months for new properties.
HFE chief U.S. economist Ian Shepherdson added, “We doubt sales of non-foreclosed homes are rising, given the recent rise in mortgage rates and continued price declines. Still, anything which reduces inventory, whether of foreclosed homes or not, is a very welcome development.”
Lawrence Yun, chief economist at the NAR, projected home prices would rise between 3% and 6% in 2009, as buyers entering the hardest-hit markets are putting a floor on prices.
“Builders need to further cut production to help trim inventory. However, new home sales are expected to bottom around the second quarter of next year with slight gains in the second half of 2009,” Yun said.
The bounce is better than the most optimistic forecasts beforehand.
“This is promising news for July/August existing home sales as the pending sales figures become an existing home sale a month or two down the road (assuming they’re not cancelled),” wrote Jennifer Lee, economist at BMO Capital Markets.
Pending home sales represent homes that have been signed for but not finalized, a process that takes another month or two. The value of the index lies in its ability to forecast existing home sales, which represent eight-tenths of the market.
Lee said the gains likely represent sales of homes in foreclosure, which economists also believe were responsible for April’s gain. She pointed to a USA Today story that said home sales were rebounding in Las Vegas, 60% of which were foreclosed properties.
Millan Mulraine, economics strategist at TD Securities, added, “Despite the unexpected surge in pending home sales in June, with most other housing-related indicators pointing downward, there is little to suggest an imminent abatement in the U.S. housing market correction.”
The PHSI now stands at 89.0, up from 84.5 in the previous month. From a year prior, the index has declined by 12.1%, compared with an annual 15.7% decline in the previous month. An all-time low in the seven-year index was reached in March at 83.0.
On the plus side, each of the four regions saw improvement in the month as sales in the Midwest rose 1.3%, the South rose 9.3%, the West advanced 4.6% and the Northeast posted a 3.4% gain.
However, Lee said “the underlying problem remains,” noting that inventories of new and existing homes stand at 4.33 million homes, representing 11 months of overhang at the current pace of sales for existing homes and 10 months for new properties.
HFE chief U.S. economist Ian Shepherdson added, “We doubt sales of non-foreclosed homes are rising, given the recent rise in mortgage rates and continued price declines. Still, anything which reduces inventory, whether of foreclosed homes or not, is a very welcome development.”
Lawrence Yun, chief economist at the NAR, projected home prices would rise between 3% and 6% in 2009, as buyers entering the hardest-hit markets are putting a floor on prices.
“Builders need to further cut production to help trim inventory. However, new home sales are expected to bottom around the second quarter of next year with slight gains in the second half of 2009,” Yun said.
Monday, November 10, 2008
Realtors® Help Buyers, Sellers, With Short Sales Solutions
ORLANDO, November 09, 2008
When families lose their homes to foreclosure, communities, the housing market and the economy all suffer. Short sales are one way that some troubled homeowners can avoid foreclosure, and Realtors® at the Short Sales Solutions session today at the 2008 REALTORS® Conference & Expo gained valuable insights into how to facilitate these complex sales.
“Homeowners who are struggling to make their mortgage payments must have more options available to them to avoid foreclosure,” said National Association of Realtors® President Richard Gaylord, a broker with RE/MAX Real Estate Specialists in Long Beach, Calif. “Short sales can benefit not only the homeowner in question, but also buyers, lenders and the surrounding community. With their established lender relationships and insights into complicated real estate transactions, Realtors® can add real value for both sellers and buyers interested in short sales.”
A short sale is a transaction in which the seller’s mortgage lender agrees to accept a payoff of less than the balance due on the loan. The lender often receives a higher amount of the remaining loan balance than it would from the sale of the property after a foreclosure. This helps support home values in the surrounding community. Short sales also help homeowners maintain some level of credit.
According to Freddie Mac, of homeowners who have loans that enter into the foreclosure process, 50 percent did not have any contact with the lender before foreclosure began. One of the most valuable services Realtors® can provide to clients who may be facing a foreclosure is guiding them through the lender’s short sale process and facilitating communication, according to session panelists Michael and Stacey Spikes of America’s Home Rescue.
“The process for short selling an FHA loan is different than the process for shorting a Veterans Administration or conventional loan,” said Stacey Spikes. “Knowing the type of loan the seller has, and understanding the proper steps for short selling that loan and the order of those steps, is critical.”
Homeowners who are having difficulty making their mortgage payments and who may be considering a short sale must generally meet three qualifying criteria: they must be behind on their payments, be able to prove a legitimate hardship, and have little or no equity in their home.
While a typical real estate transaction involves two real estate professionals, a seller, a buyer, and the buyer’s lender, a short sale can include all of these parties in addition to the seller’s loan servicer, housing counselor, junior lienholders, mortgage investors and mortgage insurers. In addition to the number of parties involved, Realtors® say there are many reasons for the difficulty in completing a short sale. These include burdensome paperwork, appraisals that do not consider the sellers’ duress or number of foreclosures in the community, over-burdened loss mitigation departments, and the complications created by second mortgages.
NAR has created a working group to examine the problems and difficulties surrounding short sales and to educate its members on how to best work with their clients through this process. NAR is also reaching out to its partners in the housing and mortgage industry to encourage adoption of principles and practices to streamline the short sale process.
“Short sales give many families in financial difficulties the possibility of salvaging their credit and avoiding the embarrassment of a foreclosure,” said Gaylord. “Realtors® across the country stand ready to help, and NAR will work hard to ensure that short sales are a viable alternative to foreclosures whenever possible.”
When families lose their homes to foreclosure, communities, the housing market and the economy all suffer. Short sales are one way that some troubled homeowners can avoid foreclosure, and Realtors® at the Short Sales Solutions session today at the 2008 REALTORS® Conference & Expo gained valuable insights into how to facilitate these complex sales.
“Homeowners who are struggling to make their mortgage payments must have more options available to them to avoid foreclosure,” said National Association of Realtors® President Richard Gaylord, a broker with RE/MAX Real Estate Specialists in Long Beach, Calif. “Short sales can benefit not only the homeowner in question, but also buyers, lenders and the surrounding community. With their established lender relationships and insights into complicated real estate transactions, Realtors® can add real value for both sellers and buyers interested in short sales.”
A short sale is a transaction in which the seller’s mortgage lender agrees to accept a payoff of less than the balance due on the loan. The lender often receives a higher amount of the remaining loan balance than it would from the sale of the property after a foreclosure. This helps support home values in the surrounding community. Short sales also help homeowners maintain some level of credit.
According to Freddie Mac, of homeowners who have loans that enter into the foreclosure process, 50 percent did not have any contact with the lender before foreclosure began. One of the most valuable services Realtors® can provide to clients who may be facing a foreclosure is guiding them through the lender’s short sale process and facilitating communication, according to session panelists Michael and Stacey Spikes of America’s Home Rescue.
“The process for short selling an FHA loan is different than the process for shorting a Veterans Administration or conventional loan,” said Stacey Spikes. “Knowing the type of loan the seller has, and understanding the proper steps for short selling that loan and the order of those steps, is critical.”
Homeowners who are having difficulty making their mortgage payments and who may be considering a short sale must generally meet three qualifying criteria: they must be behind on their payments, be able to prove a legitimate hardship, and have little or no equity in their home.
While a typical real estate transaction involves two real estate professionals, a seller, a buyer, and the buyer’s lender, a short sale can include all of these parties in addition to the seller’s loan servicer, housing counselor, junior lienholders, mortgage investors and mortgage insurers. In addition to the number of parties involved, Realtors® say there are many reasons for the difficulty in completing a short sale. These include burdensome paperwork, appraisals that do not consider the sellers’ duress or number of foreclosures in the community, over-burdened loss mitigation departments, and the complications created by second mortgages.
NAR has created a working group to examine the problems and difficulties surrounding short sales and to educate its members on how to best work with their clients through this process. NAR is also reaching out to its partners in the housing and mortgage industry to encourage adoption of principles and practices to streamline the short sale process.
“Short sales give many families in financial difficulties the possibility of salvaging their credit and avoiding the embarrassment of a foreclosure,” said Gaylord. “Realtors® across the country stand ready to help, and NAR will work hard to ensure that short sales are a viable alternative to foreclosures whenever possible.”
Friday, November 7, 2008
Fighting Fear With Information
By Jack Guttentag
The mortgage world has suddenly become very frightening to many people who have no real reason to be frightened.
Their loans are in good standing, and they are not having any trouble meeting their payments. Still, they are in distress -- in large part because so many around them are in distress. Fear is contagious. The only antidote I know is good information.
One thing that people suffering from mortgage fright often forget is that a mortgage loan is a contract between two parties and cannot be violated by either without the permission of the other. If the loan is sold, the purchaser replaces the originating lender as the contracting party and is subject to the contract in the same way. If the servicing of the loan is sold, the servicer as the agent of the owner is required to abide by the terms of the contract, and the same holds if the loan is placed in a pool as collateral for a mortgage-backed security.
The first two letters below are from borrowers who do not have a problem with their mortgages but are distressed about what might happen to cause them a problem. The third is from a borrower in a more difficult position.
Q: Can whoever owns my mortgage demand immediate repayment of the balance? I know it doesn't make sense, but crazy things seem to be happening.
A: Mortgage contracts do not give the lender the right to demand immediate repayment. Balloon loans require repayment at the end of the balloon period, but that is stated in the contract. Fortunately, there are not too many balloon loans around.
Even if lenders had the legal right to demand immediate repayment, they wouldn't do it because it would only generate more foreclosures. For the same reason, borrowers with balloon loans in good standing who are unable to refinance anywhere else will find that their existing lender would prefer to refinance rather than to foreclose.
Q: When my adjustable-rate mortgage adjusts next year, the new rate should be the one-year Treasury rate plus a margin of 2.5 percentage points. Last year, my lender replaced the Treasury rate on new loans with Libor. Because of the crisis, Libor is now much higher than the Treasury. Can my lender switch my ARM to Libor when my rate is adjusted?
A: No. The rate is adjustable, but not the index used to calculate it. Your ARM contract stipulates the index and its source, and the only circumstance in which a different index can be substituted is if the specified index is no longer available. The different Treasury indexes used for ARMs are compiled by the Federal Reserve, and there is zero likelihood that they will disappear.
I wish I could answer the next letter with the same degree of certainty.
Q: We bought our house last year with 100 percent financing. Now it is worth $40,000 less than we owe. I don't know what to do. Do we keep making mortgage payments, or do we stop? A friend has advised us to lock the door and send the key to the lender, but that doesn't sit well with me. We've always met our obligations and have good credit. What do you advise?
A: This letter is typical of many I have received from borrowers who are "upside down" -- they owe more than their houses are worth. I have a lot of trouble dealing with it because, in good part, it is a moral issue.
One part of me says that when you borrow money, you should pay it back if you can. During the many years when house prices were rising, I never once heard of a mortgage borrower offering to share the capital gain with the lender. There is no justification in forcing the lender to share the capital loss.
Another part rejoins that few of the people who are upside down today enjoyed a capital gain on previous homes that they owned. Further, the borrower's major obligation is to his family, not to his lender. If the financial gain from letting the house go to foreclosure more than offsets the pain of having his credit trashed and searching for a new place to live, then that is what the borrower should do.
There is an economic dimension to this quandary. If those who are upside down could be assured that house prices have hit bottom and within a year or two will be right-side up, there is little doubt that most would choose to stay the course. Unfortunately, no economist in good conscience can provide such assurance today.
Finally, there is a policy dimension. Upside-down borrowers would be encouraged to keep going if they had some reason to believe that the government would help them get right-side up. Right now, the prospects for this are extremely murky, but don't write it off just yet.
The mortgage world has suddenly become very frightening to many people who have no real reason to be frightened.
Their loans are in good standing, and they are not having any trouble meeting their payments. Still, they are in distress -- in large part because so many around them are in distress. Fear is contagious. The only antidote I know is good information.
One thing that people suffering from mortgage fright often forget is that a mortgage loan is a contract between two parties and cannot be violated by either without the permission of the other. If the loan is sold, the purchaser replaces the originating lender as the contracting party and is subject to the contract in the same way. If the servicing of the loan is sold, the servicer as the agent of the owner is required to abide by the terms of the contract, and the same holds if the loan is placed in a pool as collateral for a mortgage-backed security.
The first two letters below are from borrowers who do not have a problem with their mortgages but are distressed about what might happen to cause them a problem. The third is from a borrower in a more difficult position.
Q: Can whoever owns my mortgage demand immediate repayment of the balance? I know it doesn't make sense, but crazy things seem to be happening.
A: Mortgage contracts do not give the lender the right to demand immediate repayment. Balloon loans require repayment at the end of the balloon period, but that is stated in the contract. Fortunately, there are not too many balloon loans around.
Even if lenders had the legal right to demand immediate repayment, they wouldn't do it because it would only generate more foreclosures. For the same reason, borrowers with balloon loans in good standing who are unable to refinance anywhere else will find that their existing lender would prefer to refinance rather than to foreclose.
Q: When my adjustable-rate mortgage adjusts next year, the new rate should be the one-year Treasury rate plus a margin of 2.5 percentage points. Last year, my lender replaced the Treasury rate on new loans with Libor. Because of the crisis, Libor is now much higher than the Treasury. Can my lender switch my ARM to Libor when my rate is adjusted?
A: No. The rate is adjustable, but not the index used to calculate it. Your ARM contract stipulates the index and its source, and the only circumstance in which a different index can be substituted is if the specified index is no longer available. The different Treasury indexes used for ARMs are compiled by the Federal Reserve, and there is zero likelihood that they will disappear.
I wish I could answer the next letter with the same degree of certainty.
Q: We bought our house last year with 100 percent financing. Now it is worth $40,000 less than we owe. I don't know what to do. Do we keep making mortgage payments, or do we stop? A friend has advised us to lock the door and send the key to the lender, but that doesn't sit well with me. We've always met our obligations and have good credit. What do you advise?
A: This letter is typical of many I have received from borrowers who are "upside down" -- they owe more than their houses are worth. I have a lot of trouble dealing with it because, in good part, it is a moral issue.
One part of me says that when you borrow money, you should pay it back if you can. During the many years when house prices were rising, I never once heard of a mortgage borrower offering to share the capital gain with the lender. There is no justification in forcing the lender to share the capital loss.
Another part rejoins that few of the people who are upside down today enjoyed a capital gain on previous homes that they owned. Further, the borrower's major obligation is to his family, not to his lender. If the financial gain from letting the house go to foreclosure more than offsets the pain of having his credit trashed and searching for a new place to live, then that is what the borrower should do.
There is an economic dimension to this quandary. If those who are upside down could be assured that house prices have hit bottom and within a year or two will be right-side up, there is little doubt that most would choose to stay the course. Unfortunately, no economist in good conscience can provide such assurance today.
Finally, there is a policy dimension. Upside-down borrowers would be encouraged to keep going if they had some reason to believe that the government would help them get right-side up. Right now, the prospects for this are extremely murky, but don't write it off just yet.
Thursday, November 6, 2008
Credit Unions To The Rescue
by Broderick Perkins
Been down to your friendly neighborhood credit union lately?
You could find that elusive home loan you been unable to get anywhere else.
Credit unions didn't need a bail out during the Great Depression, they didn't need federal intervention during the Savings & Loan debacle and they don't need government assistance now.
In fact, right now, they are rolling out the red carpet for home loan borrowers.
During the boom, credit unions avoided writing subprime home loans and other easy-money mortgages. They also shunned selling packages of mortgages to Wall Street moguls who packaged them into now low- to no-return securities.
That means credit unions are relatively untainted by the credit squeeze and they have both money to burn and a sound business foundation that allows them to keep on lending.
Instead of fearing the next Great Depression, member-owned credit unions are bracing for what could be their boom time in home loans and other financial services, now that banks and mortgage lenders are crashing and burning.
Mortgage production among credit unions is small by comparison to banks and mortgage lenders, but their originations rose a whopping 10.1 percent during the first half of 2008, according to the industry's federal regulator, the National Credit Union Administration (NCUA).
The Mortgage Bankers Association recently reported bank and mortgage lender loan originations took a nose dive, falling 17 percent during the same period.
Credit unions are more willing than many lenders to make homes loans for the creditworthy, but the old fashioned way.
If you go shopping for a credit union mortgage, leave your subprime attitude at the door. You won't be coddled, you can't get away with lying on your application, your creditworthiness will have to pass muster and you likely won't get more home than you can truly afford.
Credit unions are non-profits in the business to make money, but not profits. They serve members who pool their money to get a decent return, either in the form of savings interest or competitively priced loans.
The fundamentals apply: Credit unions take in deposits. They use the money to make loans. They charge more on those loans than they pay on deposits. Voila! A thriving business.
It's the lack of the profit motive that kept credit unions out of harms way during the mortgage meltdown. They have no incentive to get involved in the subprime racket, no reason to sell and repackage loans as investments and no need to otherwise venture into untried and untrue investment schemes.
Credit unions hold most loans to maturity and return the interest to members in the form of interest-bearing checking, savings and CD accounts. The rest they invest smart so they can continue to help members.
Also, because credit unions didn't hop aboard the home loan assembly line, their members aren't suffering the kind of housing hangover many home owners face today.
Less than 1 percent of all credit union mortgages are 60 days or more late, according to their Credit Union National Association (CUNA)
And, along with fixed-rate 30-year mortgages they also offer conventional adjustable rate mortgages (ARM) and hybrids.
As with other financial products -- savings and CDs -- rates on loans are often better at credit unions. The spread isn't as much with mortgages as it is with credit cards and car loans, but credit unions' mortgage rates are competitive.
As of October 15 CUNA reported the average rate on a 30-year fixed rate mortgage was 6.27 percent; for a 1-year ARM, 4.91 percent. Meanwhile, the MBA reported an average 6.47 percent for a 30-year loan and an average 6.67 for a 1-year ARM.
"Credit unions are the safest depository institution in the country to put your money in right now," says Dan Mica, President and CEO of CUNA.
He has room to boast.
Just as the Federal Deposit Insurance Corporation (FDIC) insures accounts up to $250,000 in federally insured banks, credit unions are likewise regulated and federally insured by the NCUA for the same amount.
Been down to your friendly neighborhood credit union lately?
You could find that elusive home loan you been unable to get anywhere else.
Credit unions didn't need a bail out during the Great Depression, they didn't need federal intervention during the Savings & Loan debacle and they don't need government assistance now.
In fact, right now, they are rolling out the red carpet for home loan borrowers.
During the boom, credit unions avoided writing subprime home loans and other easy-money mortgages. They also shunned selling packages of mortgages to Wall Street moguls who packaged them into now low- to no-return securities.
That means credit unions are relatively untainted by the credit squeeze and they have both money to burn and a sound business foundation that allows them to keep on lending.
Instead of fearing the next Great Depression, member-owned credit unions are bracing for what could be their boom time in home loans and other financial services, now that banks and mortgage lenders are crashing and burning.
Mortgage production among credit unions is small by comparison to banks and mortgage lenders, but their originations rose a whopping 10.1 percent during the first half of 2008, according to the industry's federal regulator, the National Credit Union Administration (NCUA).
The Mortgage Bankers Association recently reported bank and mortgage lender loan originations took a nose dive, falling 17 percent during the same period.
Credit unions are more willing than many lenders to make homes loans for the creditworthy, but the old fashioned way.
If you go shopping for a credit union mortgage, leave your subprime attitude at the door. You won't be coddled, you can't get away with lying on your application, your creditworthiness will have to pass muster and you likely won't get more home than you can truly afford.
Credit unions are non-profits in the business to make money, but not profits. They serve members who pool their money to get a decent return, either in the form of savings interest or competitively priced loans.
The fundamentals apply: Credit unions take in deposits. They use the money to make loans. They charge more on those loans than they pay on deposits. Voila! A thriving business.
It's the lack of the profit motive that kept credit unions out of harms way during the mortgage meltdown. They have no incentive to get involved in the subprime racket, no reason to sell and repackage loans as investments and no need to otherwise venture into untried and untrue investment schemes.
Credit unions hold most loans to maturity and return the interest to members in the form of interest-bearing checking, savings and CD accounts. The rest they invest smart so they can continue to help members.
Also, because credit unions didn't hop aboard the home loan assembly line, their members aren't suffering the kind of housing hangover many home owners face today.
Less than 1 percent of all credit union mortgages are 60 days or more late, according to their Credit Union National Association (CUNA)
And, along with fixed-rate 30-year mortgages they also offer conventional adjustable rate mortgages (ARM) and hybrids.
As with other financial products -- savings and CDs -- rates on loans are often better at credit unions. The spread isn't as much with mortgages as it is with credit cards and car loans, but credit unions' mortgage rates are competitive.
As of October 15 CUNA reported the average rate on a 30-year fixed rate mortgage was 6.27 percent; for a 1-year ARM, 4.91 percent. Meanwhile, the MBA reported an average 6.47 percent for a 30-year loan and an average 6.67 for a 1-year ARM.
"Credit unions are the safest depository institution in the country to put your money in right now," says Dan Mica, President and CEO of CUNA.
He has room to boast.
Just as the Federal Deposit Insurance Corporation (FDIC) insures accounts up to $250,000 in federally insured banks, credit unions are likewise regulated and federally insured by the NCUA for the same amount.
Wednesday, November 5, 2008
Can Home Builder Be Trusted?
By JUNE FLETCHER
Q: I keep seeing model lease-back offers from builders. Most of them pay enough rent to more than cover the monthly cost, but my biggest concern is about the builder's financial viability, since so many of them have gone bankrupt. Are there any particular things one should watch out for?
A: Builder lease-backs, in which the buyer rents a home to the builder who uses it as a model home, are generally great deals for all concerned. Builders get an early sale. Buyers get an upgraded home at a discount price, and a tenant who won't be calling in the middle of the night to complain about a clogged toilet.
But in these uncertain times, I can understand your caution. Since last year, an .estimated 20% of builders went out of business, according to Gopal Ahluwalia, director of research for the National Association of Home Builders. Most were small or mid-sized builders who didn't have enough cash in reserve to cushion them through a downturn.
[builder] Associated Press
You can analyze the earnings, debt and cash flow of a public company to determine its long-term financial health, but you can't do that with a small, privately-held one. You can talk to suppliers and subcontractors to see if they're being paid promptly, to recent buyers to see if they are satisfied and to local regulatory and consumer agencies to see if any complaints have been filed against the company. If you're still concerned, you can try to negotiate a lump-sum rather than a month-to-month lease payment, payable at closing.
Keep in mind that when the lease is up, you won't be getting a brand-new home. Although builders usually make an effort to keep models looking fresh, as they cut back on expenses they may cut down on the number of times carpets are shampooed and paint scuffs are touched up. In downturns, builders also sometimes make one model home complex serve several different communities, which means more wear and tear on each unit. I recently visited a model home in Prince William County, Virginia that was being used this way. It was only one year old, but felt much older. Visitors had slammed a kitchen drawer so often that the front was coming loose and had broken a closet light switch. The gray, opaque stain on the deck had worn through in spots.
A builder will often promise to repair and repaint a model at the end of the lease, to convert the sales office to a garage and to re-route sidewalks and fences running through the model-home complex. If you're worried that the builder will go belly-up before all this happens, get an estimate from an independent contractor of what it could cost to perform these necessary fixes. Have the builder deposit the funds to cover them in an escrow account. It's smart to hire an experienced real estate attorney to represent you during all these discussions.
Finally, don't just consider the builder's financial staying power -- think about your own. If home prices fall while the project is being built out, are you prepared to hold on until the market recovers? What if there's a delay in building planned community amenities like pools and clubhouses, a situation that's sure to hurt your ability to attract buyers or renters? As scary as it may be to think about these possibilities, planning for worst-case scenarios is the best way to avoid being overcome by them.
Write to June Fletcher at fletcher.june@gmail.com
Q: I keep seeing model lease-back offers from builders. Most of them pay enough rent to more than cover the monthly cost, but my biggest concern is about the builder's financial viability, since so many of them have gone bankrupt. Are there any particular things one should watch out for?
A: Builder lease-backs, in which the buyer rents a home to the builder who uses it as a model home, are generally great deals for all concerned. Builders get an early sale. Buyers get an upgraded home at a discount price, and a tenant who won't be calling in the middle of the night to complain about a clogged toilet.
But in these uncertain times, I can understand your caution. Since last year, an .estimated 20% of builders went out of business, according to Gopal Ahluwalia, director of research for the National Association of Home Builders. Most were small or mid-sized builders who didn't have enough cash in reserve to cushion them through a downturn.
[builder] Associated Press
You can analyze the earnings, debt and cash flow of a public company to determine its long-term financial health, but you can't do that with a small, privately-held one. You can talk to suppliers and subcontractors to see if they're being paid promptly, to recent buyers to see if they are satisfied and to local regulatory and consumer agencies to see if any complaints have been filed against the company. If you're still concerned, you can try to negotiate a lump-sum rather than a month-to-month lease payment, payable at closing.
Keep in mind that when the lease is up, you won't be getting a brand-new home. Although builders usually make an effort to keep models looking fresh, as they cut back on expenses they may cut down on the number of times carpets are shampooed and paint scuffs are touched up. In downturns, builders also sometimes make one model home complex serve several different communities, which means more wear and tear on each unit. I recently visited a model home in Prince William County, Virginia that was being used this way. It was only one year old, but felt much older. Visitors had slammed a kitchen drawer so often that the front was coming loose and had broken a closet light switch. The gray, opaque stain on the deck had worn through in spots.
A builder will often promise to repair and repaint a model at the end of the lease, to convert the sales office to a garage and to re-route sidewalks and fences running through the model-home complex. If you're worried that the builder will go belly-up before all this happens, get an estimate from an independent contractor of what it could cost to perform these necessary fixes. Have the builder deposit the funds to cover them in an escrow account. It's smart to hire an experienced real estate attorney to represent you during all these discussions.
Finally, don't just consider the builder's financial staying power -- think about your own. If home prices fall while the project is being built out, are you prepared to hold on until the market recovers? What if there's a delay in building planned community amenities like pools and clubhouses, a situation that's sure to hurt your ability to attract buyers or renters? As scary as it may be to think about these possibilities, planning for worst-case scenarios is the best way to avoid being overcome by them.
Write to June Fletcher at fletcher.june@gmail.com
Monday, November 3, 2008
No Economic Recovery Without Housing Stabilization, Say Realtors®
Mary Trupo 202/383-1007 mtrupo@realtors.org
The National Association of Realtors® has stepped up its challenge to lawmakers encouraging them to take new, decisive actions to address the continuing problems in the housing industry, as well as the ongoing economic crisis.
“Our members see firsthand the impact that an unstable housing market is having on communities all across this great country,” said Richard F. Gaylord, NAR president. “The U.S. Treasury and Congress need to work together to ensure that the American people – not Wall Street and large banks – benefit from the economic recovery plan.”
NAR sent a letter last week to U.S. Treasury Secretary Henry Paulson calling on him to refocus the Federal Housing Finance Agency’s efforts on restoring strength to the mortgage-backed securities market, which would help lower mortgage rates for all home buyers and for those who need to refinance.
NAR today provided an economic analysis demonstrating that a reduction, or a buydown, of interest rates by just 1 percentage point could result in up to 840,000 additional home sales and reduce the inventory of homes by as much as 20 percent. Inventories currently at 9.9 months’ supply would decrease to approximately a 7.5 month supply.
“These changes would help stabilize home values and the housing industry,” Gaylord said. “The Treasury Department has gotten off track by focusing too much attention and stimulus money on Wall Street and banks that are in turn using the money for mergers and acquisitions. The administration needs to get back to the original intent of the plan – stabilizing the mortgage and housing markets – to help families avoid foreclosure. Home price stabilization would bring clarity to the valuations of mortgage-backed securities, removing uncertainty in the financial markets and positively affecting the overall U.S. economy.”
A recent consumer survey conducted by NAR member Realogy Corp. reinforces the importance of housing in a broader economic turnaround. The survey found that nine out of 10 homeowners believe that owning a home is still the best long-term investment they can make, but nearly one-third of those surveyed said they were putting plans to buy a new or existing home on hold because of the current economic environment. In a related survey, nearly half of all brokers surveyed said that they would expect sales to increase 10- 25 percent if 4.5 percent mortgage rates were available today.
Realogy President and CEO Richard A. Smith said that substantially lower mortgage rates would stimulate both existing- and new-home sales. “When home sales increase, housing-related consumer purchasing follows, and we would expect this to help lead our economy to a recovery,” he said. Both NAR and Realogy have called on the federal government to take corrective actions that will result in lower mortgage rates.
Federal Deposit Insurance Corp. Chairman Sheila Bair has presented some ideas aimed at helping millions of homeowners by guaranteeing their mortgages. “NAR would support this effort,” said Gaylord. “The government must focus on protecting homeowners and making the dream of homeownership once again attainable. This would help stabilize the housing market and strengthen the national economy.”
Toward this end, NAR submitted a stimulus plan to Congress and the administration earlier this month, calling on Congress to enact a new housing stimulus package that would help boost the economy. The plan includes consumer-driven provisions that would eliminate repayment of the first-time home buyer tax credit and expand the credit to all home buyers, make the increased mortgage loan limits permanent, and focus the economic stabilization efforts on supporting the housing and mortgage markets instead of providing capital to banks with no strings attached.
Reducing the interest rate, combined with removing the home buyer tax credit repayment, would result in an additional 10 percent reduction in inventory, down to a 6.5-month supply, and would produce modest home price gains of 2 to 4 percent. Such price gains would provide up to $760 billion in housing equity recovery for the nation’s 75 million homeowners.
“There is no question – there cannot be an economic recovery without a stabilized housing market. Congress and the new administration need to act immediately to help America’s families protect their homes, savings and futures,” Gaylord said.
The National Association of Realtors® has stepped up its challenge to lawmakers encouraging them to take new, decisive actions to address the continuing problems in the housing industry, as well as the ongoing economic crisis.
“Our members see firsthand the impact that an unstable housing market is having on communities all across this great country,” said Richard F. Gaylord, NAR president. “The U.S. Treasury and Congress need to work together to ensure that the American people – not Wall Street and large banks – benefit from the economic recovery plan.”
NAR sent a letter last week to U.S. Treasury Secretary Henry Paulson calling on him to refocus the Federal Housing Finance Agency’s efforts on restoring strength to the mortgage-backed securities market, which would help lower mortgage rates for all home buyers and for those who need to refinance.
NAR today provided an economic analysis demonstrating that a reduction, or a buydown, of interest rates by just 1 percentage point could result in up to 840,000 additional home sales and reduce the inventory of homes by as much as 20 percent. Inventories currently at 9.9 months’ supply would decrease to approximately a 7.5 month supply.
“These changes would help stabilize home values and the housing industry,” Gaylord said. “The Treasury Department has gotten off track by focusing too much attention and stimulus money on Wall Street and banks that are in turn using the money for mergers and acquisitions. The administration needs to get back to the original intent of the plan – stabilizing the mortgage and housing markets – to help families avoid foreclosure. Home price stabilization would bring clarity to the valuations of mortgage-backed securities, removing uncertainty in the financial markets and positively affecting the overall U.S. economy.”
A recent consumer survey conducted by NAR member Realogy Corp. reinforces the importance of housing in a broader economic turnaround. The survey found that nine out of 10 homeowners believe that owning a home is still the best long-term investment they can make, but nearly one-third of those surveyed said they were putting plans to buy a new or existing home on hold because of the current economic environment. In a related survey, nearly half of all brokers surveyed said that they would expect sales to increase 10- 25 percent if 4.5 percent mortgage rates were available today.
Realogy President and CEO Richard A. Smith said that substantially lower mortgage rates would stimulate both existing- and new-home sales. “When home sales increase, housing-related consumer purchasing follows, and we would expect this to help lead our economy to a recovery,” he said. Both NAR and Realogy have called on the federal government to take corrective actions that will result in lower mortgage rates.
Federal Deposit Insurance Corp. Chairman Sheila Bair has presented some ideas aimed at helping millions of homeowners by guaranteeing their mortgages. “NAR would support this effort,” said Gaylord. “The government must focus on protecting homeowners and making the dream of homeownership once again attainable. This would help stabilize the housing market and strengthen the national economy.”
Toward this end, NAR submitted a stimulus plan to Congress and the administration earlier this month, calling on Congress to enact a new housing stimulus package that would help boost the economy. The plan includes consumer-driven provisions that would eliminate repayment of the first-time home buyer tax credit and expand the credit to all home buyers, make the increased mortgage loan limits permanent, and focus the economic stabilization efforts on supporting the housing and mortgage markets instead of providing capital to banks with no strings attached.
Reducing the interest rate, combined with removing the home buyer tax credit repayment, would result in an additional 10 percent reduction in inventory, down to a 6.5-month supply, and would produce modest home price gains of 2 to 4 percent. Such price gains would provide up to $760 billion in housing equity recovery for the nation’s 75 million homeowners.
“There is no question – there cannot be an economic recovery without a stabilized housing market. Congress and the new administration need to act immediately to help America’s families protect their homes, savings and futures,” Gaylord said.
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