(MCT)—Good credit is important, especially when you’re looking to buy a house. Mortgage lenders have to know whether you’re able to repay the debt, and have to determine through your credit history if you’re willing to pay, as well.
They use credit scores to determine, statistically, how much of a loan you can afford, whether to approve it, and the interest rate. The scores are obtained from the three major credit bureaus: Equifax, Experian, and Trans Union.
The most common credit score issued is the FICO, named for Fair Isaac Co., which developed the mathematical formula. Rankings are from 300 to 950: The higher the number, the lower the loan-default risk.
Updates from October, 2012
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by The KCM Crew on September 19, 2012
When the economy was exploding in the early 2000s, many of us began to dream about purchasing that vacation home on the lake or securing a home in a more appropriate location for our retirement years. However, with the booming economy came skyrocketing house prices. Many of the homes we fell in love with quickly became out of reach financially. Perhaps we should take a second look at these same homes today.
With prices dropping by over 30% in some markets and with interest rates at historic lows, this may be the perfect time to do what we and our families have always dreamt of doing – buying that second home. Let’s look at the numbers.
Back in 2006 we may have seen the ‘perfect’ home but the $500,000 price tag was just out of reach. Today, we could probably get that home for $400,000 (if not less). We also would be financing it at the current mortgage rate instead of the rates available six years ago. The table below shows the difference in impact on our family’s finances:
Not every family is in the financial position to take advantage of the tremendous opportunities the current real estate market offers. But, if yours is, this may be the time for dreams to come true. Print This Post
Tim Clark, SAP
Dear Depressed Homeowner,
Ready for some good news? Try this on for size:
“While the general U.S. economy continues to struggle to make gains, for the first time since the end of the recession, housing may actually make a significant contribution to economic growth in 2012, a welcome change to affairs for an otherwise struggling economy.”
The above excerpt comes from CoreLogic’s August MarketPulse Report which provides insight into the current and future health of the U.S. economy with emphasis on housing and mortgage metrics.
CoreLogic knows a thing or two about big data – they retain one of the largest and most comprehensive U.S. real estate, mortgage application, fraud, and loan performance databases in the world. And that’s why I don’t take lightly these four reasons they think the U.S. is heading for a housing recovery: (More …) Print This Post
by Steve Harney
What impact will the European economic crisis have on real estate here in the U.S.?
Shouldn’t people wait until after the election to find out who will be the President before buying a home?
Today, I want to tell a story about Kevin Miller who works here at Keeping Current Matters and just signed contracts on the home he and Crystal, his wife, are purchasing. Kevin got married about a year ago and recently found out that he is about to become a father. He’s a great guy who truly loves his bride and wants the best for her and their family. It is for that reason that Kevin and his wife started to look
for a home of their own.
What About Greece?
Kevin and I have discussed the purchase at times and the interesting thing is the European situation never came up – not even once! It isn’t that Kevin is naive to the situation. He probably understands it better than most as he has a degree in International Business and Economics. But, he isn’t buying a house in Greece or Spain. He is buying a home in Babylon,New York – in a wonderful neighborhood with a nice backyard that his future children will play in. Does the world economy impact his purchase? Yes it does. It is one of the major reasons he is getting a 30-year mortgage rate under 4%.
What About the Election?
Again, it never came up. We did talk about the fact that he is buying the home for a fraction of what it would have sold for just a few years ago. We did discuss the great school district. We did talk about how convenient the neighborhood is to the things he and Crystal love. Did we talk about the election? No.
Not that the election won’t have an impact. It was just announced that Congress will postpone its decision on the government’s role in mortgage financing until next Spring (aka until after the election). The new rules, which are anticipated to be more stringent than the current rules, won’t be enacted until after Kevin, Crystal and their child are comfortably living in their dream home financed by a 30-year mortgage at an historically low interest rate. Meanwhile, no one knows what the new mortgage requirements will even be next year.
Is the situation in Europe important? Of course. Is this election one of the most important in our nation’s history? Many believe so. Did either of these situations enter Kevin’s mind while he was deciding to buy a home? No.
He was too busy caring about his wife, his new child and his family’s happiness. Print This Post
Federal Housing Finance Agency (FHFA) recently reported that the National Average Contract Mortgage Rate for the Purchase of Previously Occupied Homes by Combined Lenders, used as an index in some ARM contracts, was 4.08 percent based on loans closed in February.
Beginning this month, FHFA is calculating interest rates using un-weighted survey data. For January, a comparable rate based on unweighted data would have been 4.18 percent. Thus, there was a decrease of 0.10 percent from the previous month’s corresponding un-weighted rate. The average interest rate on conventional, 30-year, fixed-rate mortgage loans of $417,000 or less decreased 5 basis points to 4.36 percent from January’s figure based on unweighted data.
These rates are calculated from the FHFA’s Monthly Interest Rate Survey of purchase-money mortgages. These results reflect loans closed during the February 23-29 period. Typically, the interest rate is determined 30 to 45 days before the loan is closed. Thus, the reported rates depict market conditions prevailing in mid- to late-January.
The contract rate on the composite of all mortgage loans (fixed- and adjustable-rate) was 4.05 percent in February, down 9 basis points from 4.14 percent, based on un-weighted data, in January. The effective interest rate, which reflects the amortization of initial fees and charges, was 4.17 percent in February, down 10 basis points from 4.27 percent, based on un-weighted data, in January. This report contains no data on adjustable-rate mortgages due to insufficient sample size.
Initial fees and charges were 0.93 percent of the loan balance in February, up 0.04 percent from 0.89, based on un-weighted data, in January. Thirty-one percent of the purchase money mortgage loans originated in February were “no-point” mortgages, down three percent from the un-weighted share in January. The average term was 28.8 years in February, up 0.1 years from an un-weighted 28.7 years in January. The average loan-to-price ratio in February was 75.3 percent, down 0.4 percent from 75.7 percent, un-weighted, in January. The average loan amount was $244,300 in February, up $7,300 from an unweighted $237,000 in January.
For more information, visit http://www.fhfa.gov Print This Post
by Dean Hartman on February 16, 2012
1.) The hike in the Guarantee Fees charged by the GSEs Fannie Mae and Freddie Mac.
The 10 basis point increase in the fees has translated to a .375% to .5% increase in mortgage rates for conventional loans. Many customers who started their loans a couple of months ago are being “surprised” with higher than expected rates. Heck, everything you read in the papers says rates are at historic lows and will likely stay there through 2014. Many consumers feel as if their lender is being unscrupulous. However, your lender has fallen victim to the increase in Guarantee Fees and how the secondary market is passing on the cost. What looks like possible lender greed is just a passing on of the increased expense imposed by the government. Sadly, the increased revenue isn’t even being used to help aid an ailing Fannie Mae or Freddie Mac. It is being turned over to the US Treasury to cover the temporary extension of the payroll tax cut.
2.) Permission for HUD to increase the insurance premiums they charge on FHA loans.
If you remember, HUD charges two insurance premiums – a monthly one and an up-front one that is usually added into the loan. Most recently, they reduced the up-front mortgage insurance premium (UFMIP) and dramatically raised the monthly fee (MMIP). It is widely anticipated that, maybe as soon as April, we will see a hike in the UFMIP with no adjustment to the MMIP. While this will help shore up the reserves in the insurance fund, it will simultaneously make buying a home more expensive. No one knows the effective date or amount of the increase. Buyers should look to buy before the increase in fees.
We always hear how our government officials tuck away things in their bills. In this case, while the headlines during the holidays praised Washington for preserving the payroll tax cut, they may have hurt us more in the long run. Print This Post
Fiscal policy issues and political economic uncertainty will take center stage in determining the degree of consumer and business activity—key drivers of economic growth—during 2012, according to Fannie Mae’s (FNMA/OTC) Economics & Mortgage Market Analysis Group. The forthcoming presidential election, potential expiration of tax provisions for businesses and households, and the ongoing healthcare debate are among the uncertainties expected to keep the economy moving at a moderate pace with growth of 2.3 percent expected for the year. Moreover, contagion effects from the sovereign debt crisis in the euro zone, which appears to be slipping into recession, are expected to remain as a primary risk to growth in 2012. Print This Post
December 21, 2011
The median home price in the U.S. has plunged nearly 40% in a little over five years, but the worst is definitely over, according to a recent report by Kiplinger: The market has finally wrung out the last excess valuations born of the housing bubble. Before you break out the party hats, note that this doesn’t mean prices across the nation are poised to rebound anytime soon. Alex Villacorta, director of research and analytics at Clear Capital, a provider of real estate data and analytics, said the housing market is in a “suspended state,” with positive and negative factors offsetting one another. But he doesn’t expect another free fall in prices, assuming “things are left to work themselves out and there are no further shocks to the economy.”
Although the percentage of sales of distressed homes will rise, the federal government’s latest loan-modification program might allow as many as 1.5 million to two million homeowners to refinance, estimated Mark Zandi, chief economist at Moody’s Analytics. Zandi said that further home-price declines nationwide will be limited to 3 percent to 5 percent and that 2012 will be the year that prices finally stabilize—setting the stage for gains in 2013.
Short-lived spikes in prices will affect some cities sooner. When housing markets touch bottom and begin to stabilize, price appreciation tends to be spread unevenly, creating a lot of confusion about where the recovery is occurring and when, said David Stiff, chief economist at Fiserv Case-Shiller. Even within a single city, more desirable neighborhoods will stabilize first, while prices in other neighborhoods may fall at a rapid pace.
In the year ending September 30, home prices across the U.S. fell by 2.6 percent, and the median home price stood at $171,250, according to Clear Capital. That comes on the heels of a 2.5 percent decrease from September 2009 to September 2010. In the five-plus years since the peak of the market, home prices nationally fell by 38.1 percent. Detroit (down 74.7 percent) is the biggest loser, crushed by subprime lending, foreclosures and the gutted auto industry. A few cities enjoyed small price appreciation, largely because they missed the bubble to begin with: the Clarksville, Tenn., metro area; cities in upstate New York, including Syracuse, Buffalo and Rochester; and Pittsburgh.
Houses haven’t been this affordable since appliances came in harvest gold or avocado green. The benchmark of affordability—the ratio of median home price to median family income—has fallen to 2.6, below the historical ratio of 2.9, says Stiff. Another measure, the percentage of monthly family income consumed by a mortgage payment (principal and interest, using a mortgage rate of 4.1 percent), is 12 percent nationally, the lowest since 1971.
Homes in many cities are now substantially undervalued as measured by affordability, says Stiff, and that can lead to double-digit bounces in prices—say, a jump of 10 percent to 15 percent in the year following the trough, as the natural optimists, especially investors with cash, jump in to catch the bottom. It might look like a bubble all over again, but it won’t last long. A good example is Cape Coral-Fort Myers, Fla., where investors pushed up prices by 12 percent during the year ended September 30. Such a bounce will be followed by a sideways drift, during which the “glass half-empty” folks will slowly return to the market.
Theoretically, low rates should help push buyers to act. The average interest rate on 30-year fixed mortgages fell to 3.94 percent in the first week of October 2011, according to Freddie Mac. The past couple of years’ predictions that rates would rise were based on the premise that the economy would improve, said Guy Cecala, publisher of Inside Mortgage Finance, an industry publication. “As long as the economy remains stagnant, unemployment remains high, and the housing market is in the toilet, rates will remain near historic lows,” he said. At least for the first part of 2012, he adds, rates should hover between 4 percent and 5 percent.
Other positive signs: Existing home sales increased during the summer and early fall of 2011, according to the National Association of REALTORS®, after a deep slump following the expiration of the first-time home buyer tax credit. Although the inventory of homes on the market and in foreclosure remains high, a lull in home building over the past three years is gradually easing the surplus. The months’ supply figure, or how long it would take to sell the inventory of homes on the market at the current pace of sales, improved to 8.5 months in September—although that ratio still favors buyers (six months’ supply represents a normal balance between sellers and buyers).
The lure of affordability and low mortgage rates hasn’t increased buyer demand as much as one might expect. Some would-be buyers can’t get a mortgage, given lenders’ stiffer requirements. Many more are hesitant to pull the trigger on a home purchase for fear that home prices will continue to fall or that their job prospects are uncertain. Although the recession has technically ended, the economy doesn’t feel better to many.
But Celia Chen, director of research at Moody’s Analytics, said that both corporate and household balance sheets are healthier and should lead to stronger economic growth and improved confidence. She anticipates more robust growth by the second half of 2012, assuming that Congress follows through on its debt-ceiling deal, the Fed keeps interest rates low, and there are no new shocks to the economy.
The foreclosure problem
The dark cloud of foreclosures still hangs over the housing market. The pace of foreclosures has slowed as lenders, loan servicers and regulators have sorted out paperwork and pro¬cedures in the wake of the robo-signing controversy that emerged a year ago.
Nevada, California and Arizona—among the epicenters of the boom and bust—still suffer the highest rates of foreclosure. Georgia, Florida, Utah, Michigan, Idaho, Illinois and Colorado round out the top ten. Among metro areas, Las Vegas still tops the list.
Currently, about 1.84 million home loans are 90 days or more delinquent (a strong predictor of foreclosure) but not yet foreclosed on, and 2.17 million have finished the foreclosure process but haven’t yet been offered for sale, according to Lender Processing Serv¬ices (LPS). What happens to home prices if and when they come to market? Villacorta, of Clear Capital, says that despite the downward pressure on prices by foreclosures, prices won’t tank as long as lenders continue to bring additional foreclosures to market at a steady pace.
Bank-owned foreclosures sell for an average discount of one-third off the per-square-foot price of conventional homes for sale. Buyers who want to snag a bargain on a distressed property will face competition from investors, and the biggest bargains may require a lot of work. Short sales, or homes sold with lenders’ permission for less than their owners owe on their mortgages, have also grown in number. Lenders take an average of 16 weeks to sign off on a short sale, so patience is imperative.
Of course, the longer lenders take to work through the foreclosure glut, the longer it will take for home-price appreciation to return to its normal pace of 2 percent to 4 percent a year. To hasten the process, the federal government may introduce more policy initiatives—although whether they’ll have any meaningful impact or come soon enough is debatable. In October, Fannie Mae and Freddie Mac, along with their regulator, the Federal Housing Finance Agency, expanded the Home Affordable Refinance Program to allow more underwater borrowers to refinance out of their mortgages into more manageable loans. The FHFA, the Department of Housing and Urban Development and the U.S. Treasury have called for ideas to handle the foreclosures they own, such as converting them to rental properties for purchase by investors. Print This Post
By Steve Cook
Eight million of the more than 28 million outstanding mortgages that have above market rates and that—in theory—could be refinanced, have interest rates higher than 5.1 percent, according to the latest CoreLogic data through the end of the second quarter. Freddie Mac’s current average rate on a thirty year fixed mortgage is 4.12 percent.
The disparity between what homeowners in trouble are paying and today’s average rates is even greater for those with severe negative equity. More than 40 percent of borrowers with 125 percent or higher loan-to-value (LTV) ratios have mortgages with rates at 6 percent or above, compared to only 17 percent for borrowers with positive equity.
Millions of underwater homeowners have not taken advantage of the Home Affordable Refinancing Program (HARP) launched in 2009 to help homeowners refinance to take advantage of lower rates. After more than two years, fewer than one million homeowners have taken advantage of the program, which is limited to those with mortgages owned by Fannie Mae or Freddie Mac and whose first lien mortgage does not exceed 125 percent of the current market value of the property. Borrowers must also pay closing costs.
Last week President Obama announced a new refinancing initiative as part of his jobs agenda that “would put more than $2,000 a year in a family’s pocket, and give a lift to an economy still burdened by the drop in housing prices.
Subsequently, the head of the Federal Housing Finance Agency said that “FHFA staff has been analyzing these issues and discussing with a range of stakeholders various ‘frictions’ in HARP and what may be done to ease those frictions. The final outcome of this review remains uncertain but FHFA believes this undertaking is worthwhile and consistent with our conservator responsibilities.”
CoreLogic also found that 10.9 million, or 22.5 percent, of all residential properties with a mortgage were in negative equity at the end of the second quarter of 2011, down very slightly from 22.7 percent in the first quarter. An additional 2.4 million borrowers had less than five percent equity, referred to as near-negative equity, in the second quarter. Together, negative equity and near-negative equity mortgages account for 27.5 percent of all residential properties with a mortgage nationwide.
Nevada had the highest negative equity percentage with 60 percent of all of its mortgaged properties underwater, followed by Arizona (49 percent), Florida (45 percent), Michigan (36 percent) and California (30 percent).
The negative equity share in the hardest hit states has improved. Over the past year, the average negative equity share for the top five states has declined from 41 percent to 38 percent. Nevada had the largest decline over the last year, with the negative equity share dropping from 68 percent to 60 percent. The reason for the Nevada decline is the high number of foreclosures that led to lower numbers of remaining negative equity borrowers.
Negative equity not only restricts refinancing, but also sales. Since the 2005 sales peak, non-distressed sales in zip codes with low negative equity have fallen 61 percent, compared to an 83 percent sales decline in high negative equity zip codes. The typical seasonal changes in sales volume in high negative equity zip codes is very muted, which indicates that non-distressed sales are being heavily impacted by the high levels of negative equity in their neighborhood, even if sellers have equity.
The federal homebuyer tax credit that expired last year contributed to a spike in high loan-to-value (LTV) loans. As the housing market collapsed, underwriting began to tighten in 2008 and the share of high LTV loans (90 percent to 100 percent LTV) began to decline. However, the federal home buyer tax credit helped propel home sales in 2009 and 2010 and led to minor spikes in high LTV FHA lending centered near the expiration of the tax credit initially in November 2009, which was then extended to April 2010. In the span of six months in 2009, the high LTV share increased from 13 percent to 18 percent, which is large given such a small time period.
“High negative equity is holding back refinancing and sales activity and is a major impediment to the housing market recovery. The hardest hit markets have improved over the last year, primarily as a result of foreclosures. But nationally, the level of mortgage debt remains high relative to home prices,” says Mark Fleming, chief economist with CoreLogic.
For more information, visit http://www.realestateeconomywatch.com/. Print This Post
By Brien McMahon
In my column last month, I discussed a government proposal that could have significant impact on the future of the housing industry: the QRM, or Qualified Residential Mortgage, as part of the Dodd-Frank Act. According to the proposed QRM definition, lenders must hold 5% of the risk of any given residential loan unless it is considered a QRM, which is a loan that has a 20% downpayment and meets other debt-to-income and borrower credit history requirements.
While QRM would not automatically preclude loans from being originated with less than a 20% downpayment, these loans will cost significantly more, as the lender will be required to hold a percentage of the risk.
It seems the speculation and debate surrounding QRM is causing some low-downpayment home buyers to believe they will not be able to obtain financing. These prospective home buyers are hearing that lenders will no longer approve them for a mortgage unless they have at least a 20% downpayment. It appears this belief stems from misinformation from recent media stories and even some loan officers and real estate agents.
This is simply not true. Mortgages are available for low downpayment buyers, both through the FHA and through conventional loans backed by private mortgage insurance.
While news stories continue to emphasize nothing but “doom and gloom” scenarios, the reality is that market conditions have changed for the better in recent months. While the housing crisis has led to an increase in underwriting risk considerations, a more “normal” lending environment has resumed in a majority of U.S. cities and mortgage rates are some of the lowest in years. These low rates, combined with good deals on home prices, equal a time of unprecedented opportunity for potential home buyers.
Although it can be difficult to keep up with rapidly changing lending practices, real estate agents must do their best to have, at a minimum, a general understanding of the lending options currently available to help keep as many qualified home buyers in the market as possible.
Potential home buyers need credible, reliable housing finance information and they can find this information through partnerships that you have established with mortgage loan professionals who are up-to-date on the best possible options for your buyers. As a real estate agent, you are one of the most powerful influencers in the home-buying process, with the ability to provide clarity on misconceptions surrounding the current market and to encourage potential home buyers who may have put their home purchase plans on hold to resume house hunting at full speed.
Otherwise, qualified buyers with low downpayments may turn away from the market based on a misconception, which is a lost opportunity for them to purchase a home at a time of high affordability and for you to make the sale. This is the last thing anyone wants at a time when new buyers are needed to help the market recover.
Brien McMahon is chief franchise officer of Radian Guaranty Inc. More information may be found at http://www.radian.biz.