Recent forecasts predict better times ahead in 2012

Although small, a slight uptick in the housing market next year is predicted. A survey by MacroMarkets of more than 100 economists and industry experts shows they expect home values to go up — just a little. About .25 percent in 2012 and a total of 1.1 percent through 2015.

Slowing the recovery down are the many foreclosures clogging the market. A recent article in Money Magazine notes that Freddie Mac predicts that in 2012, 4.8 million homes will be sold in total, while there are more than 5 million homes for sale. The market considers six months of housing inventory to be healthy — more than a year’s worth of inventory is a sign that the going will be tough to return to healthy market conditions.

For buyers and sellers in 2012, the recommendations are to “think small” and “price smart.” For buyers, looking at smaller properties mean smaller loans, smaller payments and smaller home costs overall (energy, water, etc.). For sellers, working with — and listening to — an experienced Realtor when it comes to setting the sale price of their home is critical. According to Trulia, about 25 percent of homes it tracks has reduced its price at least once, by an average of about eight percent.

And of course, for homeowners not looking to sell, now is the time to look at refinancing, as mortgage rates continue to hover at all-time lows. Considering that just recently 15-year mortgage rates were more than half a point less than 30-year mortgage rates, a homeowner who could afford the higher payment could refinance a $250,000 mortgage with a 15-year loan and save more than $100,000 over the life of the loan compared to a 30-year mortgage.

The latest settlement proposal between the states’ coalition and five major banks after 11 months of talks includes financing support for underwater loans, including refinancing, principal write downs and other forms of assistance. According to CoreLogic, about 22.5 percent of all residential mortgages are underwater.

Multistate talks to craft a settlement with the major banks stalled a few weeks ago when California State Attorney General Kamala Harris withdrew. Harris pointed to the combination of the banks’ demands for broader immunity from litigation and penalty for their earlier “abuses” along with the inadequate relief proposed for homeowners whose loans are underwater as unacceptable to protect the interests of California and California homeowners.

Earlier this month, Harris stated that she thinks the head of Fannie Mae and Freddie Mac should “step aside” if he will not approve principal reduction for underwater loans. PICO, a California community organizing network, pointed out in a press release that Fannie and Freddie “continue to keep more than one million California families trapped in unsustainable debt.”

The talks, led by Iowa State Attorney General Tom Miller and supported by the Obama administration, had recently increased the suggested penalties from $20 billion to $25 billion. The additional $5 billion, paid directly to state and federal governments, is intended for eligible victims of the five participating banks’ foreclosure processes — restitution payments are estimated to be between $1,500 and $2,000.

In addition to Harris, attorneys general from several other states including New York, Massachusetts, Nevada, Minnesota, Kentucky and Delaware have stated that they don’t feel that the proposed $25 billion settlement is adequate to protect their states’ homeowners.

Gathered from the following sources:

·         California Pulls Out of Foreclosure Talks (WSJ)

·         States near foreclosure deal with banks (Reuters)

·         Kamala Harris, California Attorney General, To Fannie And Freddie Head: 'Step Aside' Over Mortgage Crisis (Huffington Post)

·         Should Fannie, Freddie Write Down ‘Underwater’ Mortgages? (WSJ Blogs)

Two years later after its debut, how has the Home Affordable Refinance Program changed?

Last month, President Obama announced that the Home Affordable Refinance Program (HARP) was being revised and expanded.

HARP was introduced in 2009 as a measure intended, according to a statement by the President, to “make it possible for an estimated four to five million currently ineligible homeowners who receive their mortgages through Fannie Mae or Freddie Mac to refinance their mortgages at lower rates.” In the two years since HARP’s debut, not quite one million homeowners — or 20 to 25 percent of the intended beneficiaries — have received HARP assistance.

As reported on HSH.com, there are two notable changes in the HARP guidelines, impacting borrower qualifications and lender obligations.

Elimination of LTV caps — The original guidelines for qualifying borrowers capped the loan-to-value (LTV) ration at 125 percent. The revised guidelines eliminate this cap, which is good news for borrowers in hard hit states including Nevada and Arizona, where some LTVs exceed 200 percent.

Elimination of Reps and Warranties — The other significant change is the elimination of some representations and warranties for HARP-participating lenders. By transferring certain lender obligations in the case of a loan going bad from the lender to the government, the government is encouraging more banks to participate in HARP, offering homeowners more options and access to loan modification choices.

Tim Manni, managing editor at HSH.com, comments in his post that he anticipates these changes helping Fannie Mae and Freddie Mac (as only mortgages through either of these institutions are eligible for HARP) as well as the loan orginators, who are now able to take on more debt with less risk. Manni does not, however, see these revisions having a noticeable impact on the housing market’s biggest problem: distressed borrowers and shadow inventory. Borrowers who are behind or seriously delinquent are not eligible and REO held out of the market will not be impacted by the expanded guidelines.

New home sales slightly up, while pending home sales are slightly down

The annual pace of new home sales increased a bit more than expected in September, rising 5.7 percent from the previous month. At the same time, although economists had forecast a 0.4 percent gain, contracts for pending home sales declined in September by 4.6 percent.

First time buyers are behind the slight rise in new home sales, as evidenced by the proportion of lower-priced, entry-level homes under contract. Bob Nielsen, chairman of the National Association of Home Builders (NAHB), notes “these consumers are very dependent upon federal policies and programs that support homeownership, such as the mortgage interest deduction and low-down payment mortgage options.”

The number of home buyers able to take advantage of historic low mortgage rates and pricing on existing homes is limited by the combination of low consumer confidence, high unemployment and limited access to credit. Nonetheless, although pending home sales declined from the previous month in the largest month-to-month change since April of this year, the National Association of Realtors (NAR) monthly index shows a year-over-year increase of 6.4 percent.

For more details, read these articles:

·         Bloomberg.com: Sales of New U.S. Homes Hits Five-Month High

·         NAHB: New-Home Sales Rise 5.7 Percent in September

·         Business Week: Purchases of New U.S. Homes Increase More Than Forecast and Pending Sales of U.S. Existing Homes Unexpectedly Decrease 4.6%

Inman: Pending home sales index rises from one year ago

Hoping that higher conforming loan limits will help housing market

Last week, the Senate voted to approve the high-balance conforming loan limit to $729,750 in wealthier neighborhoods, as part of a larger spending bill.

As of October 1, 2011, the largest conforming loan (loans that are eligible to be purchased or guaranteed by Fannie Mae and Freddie Mac) limit returned to $625,500 after several years of a temporary extension to $729,750.

There is a ways to go yet before the higher limit becomes an actuality. The approved measure is attached to a spending bill brought to the Senate by Robert Menendez, D-NJ. If that larger bill is approved by the Senate, it then has to pass through the House of Representatives. The Republicans, who control the House, have decidedly different ideas as to how to stir up the housing market and economy, including eliminating Fannie Mae and Freddie Mac not expanding their eligible loan pool.

In a post in the Wall Street Journal, Edward Mills, an analyst for FBR Capital Markets, is reported as saying that “given the strong bipartisan support in the Senate, the chances of the re-raise are well above 50%.”

What more foreclosures and longer processing times may mean for the housing market

(map from RealtyTrac.com)

RealtyTrac® reported that foreclosure activity in the third quarter was up slightly (less than 1 percent) from Q2, and down 34 percent from the same period last year. September activity was down 6 percent from August, marking the 12^th month in a row that foreclosure activity has decreased from the previous month.

An Associated Press article (found on NPR.org) notes that “A pickup in foreclosure activity also means a potentially faster turnaround for the U.S. housing market. Experts say a revival isn't likely to occur as long as there remains a glut of potential foreclosures hovering over the market.”

Although foreclosure filings may be on an upward trend, the foreclosure timeline seems only to be lengthening. According to RealtyTrac, foreclosures were completed in an average of 318 days in Q2, while the process took 336 days on average to complete in Q3. New York state’s average for completing a foreclosure was the highest in the country at 986 days. Compare that to Tennessee, where a foreclosure process averages about 94 days from beginning to end.

Expert tips on evaluating and managing the cost of your mortgage

As mortgage rates continue to stay at record lows, the costs of obtaining a mortgage are going up — according to Bankrate’s annual survey of closing costs, the average origination and title fees have jumped 8.8 percent from August 2010 to August of the this year.

Closing fees are not set in stone, and savvy mortgage shoppers can often reduce these costs or spread them out over time to minimize the financial burden.  Remember to be cool as ICE in negotiations, and you might save yourself some money:

ITEMIZE —make sure every single fee is identified and explained. Ask your lender to break down grouped fees line by line and to explain any fees that are unclear.

COMPARE —all lenders are not created equal. Compare loan costs from different lenders, and weigh the loan parameters as well. Low cost and no-cost loans often end up costing a lot more in the long term through higher rates and/or stiffer penalties.

EDUCATE —make sure you understand each fee and which ones have more play. Often “lender’s fees,” which can include loan-origination, administrative costs, wire-transfer, mortgage insurance application fee, among others, are the most negotiable. Third-party fees, fees that are passed through from another service provider to you, are less likely to be negotiable.

All experts agree, one of the best things you can do when applying for a mortgage is to request a Good Faith Estimate (GFE) from at least three different lenders. GFEs are a written estimate produced by lenders estimating all anticipated closing costs. Lenders are required by law to provide as accurate a GFE as possible to the inquiring borrower within three days after receiving a mortgage application.

For more tips on closing costs, visit these resources:

·         Zillow.com: Curbing Closing Costs and Understanding Mortgage Fees and Closing Costs

·         SayEducate.com: How to Reduce Your Closing Costs

·         BankRate.com: Is no-closing-cost mortgage for you?

Real Estate on MSN.com: 2011 closing costs survey: Which states have the highest, the lowest?

RealtyTimes reported that Freddie Mac’s weekly mortgage survey, the first since the Fed’s Operation Twist announcement last week, found the average rate for conventional 30-year fixed mortgages to be at an all-time low of 4.01 percent.

As Ed Ferrara pointed out in RealtyTimes, these low rates are a reflection of the slow pace of the economic recovery. Nonetheless, this still offers home buyers in the position to buy (and borrow) an expanded opportunity to take advantage of the rare double whammy combination of low rates and low home prices.

FHA mortgage rates, which are ideal for borrowers whose credit is not the best, remain slightly higher than conforming mortgage rates. Given the easier credit qualifying, along with more inclusive policies regarding using approved gifts, housing grants and bonds for the transaction, these mortgages have been on the rise.

HSH.com’sweekly Mortgage Rate Radar puts the average rate for 30-year fixed-rate mortgages at 4.13 percent. Keith Gumbinger, HSH.com’s vice president, noted that while the lower rates may help spur some additional economic growth, “if the programs are successful, the economy will begin to grow more strongly, and that would tend to firm up interest rates over time.

 As such, the lowest mortgage rates as a result of the Fed program are likely to come sooner than later.”

The low rates seem to be spurring increased refinancing activity, but not yet having the hoped-for impact on purchase loans. Inman News reports that the Mortgage Bankers Association’s weekly survey shows refinancing requests up 11.2 percent from the week ending September 16th to the following week. Demand for new purchase loans rose 2.6 percent from the previous week, to reach about the same level as the same time last year.

A recent article from RIS Media discusses the increasing percentage of real estate deals that are getting snagged when the appraisal comes in lower than expected. According to the article, this past June and July alone saw 16 percent of real estate professionals reporting a sale cancellation as a result of low appraisals.

What can you do?

 1. Negotiate with the seller to lower the price — clearly the simplest solution, though not always the easiest. The earlier in the transaction you address this, the more leverage you may have. Consider that this summer the average home sale took 88 days. Your seller may be willing to balance time against dollars.

2. Ask the seller to carry a second mortgage for the difference — this solution means that the buyer incurs more debt, although it doesn’t cost the seller any more.

 3. Do your research — do you have any reason to contest the appraisal? Check the appraisal management company and specific appraiser’s credentials. Find out what comparables were used and don’t be shy about asking to see a list of recent comparable sales that justify the agreed-upon sale price.

4. Ask for a new appraisal — if your research uncovers some doubt or discrepancy, ask the lender to conduct a second appraisal. You might be charged for it, but if your research is convincing enough to you to think one is warranted, it might be worth the money.

 5. Order your own, independent appraisal — this can go either way, as the bank will most likely ask the original appraiser to say whether they agree or not with your new one. If they don’t agree, the bank could request another, third, appraisal, or just reject yours altogether. On the other hand, if they agree with your new appraisal and the disputed factors you present, the original appraisal might be adjusted.

The S&P/Case Shiller home-price index, released last Tuesday, showed a 3.6 percent increase in home prices from the first quarter of this year to the second. According to the index, however, the average home price year over year dropped 5.9 percent for the first six months of this year compared with last year.

Average home prices are performing differently across the country — The S&P/Case-Shiller index tracks 20 “MSAs” (metropolitan statistical areas), of which, according to David M. Blitzer, Chairman of the Index Committee at S&P Indices, “eight bottomed in 2009 and have remained above their lows. These include all the California cities plus Dallas, Denver and Washington DC, all relatively strong markets. At the other extreme, those which set new lows in 2011 include the four Sunbelt cities – Las Vegas, Miami, Phoenix and Tampa – as well as the weakest of all, Detroit.”

 Mortgage rates continue to stay at record lows for the entire country — Last Thursday, Freddie Mac released the results of its Primary Mortgage Market Survey® (PMMS®), which showed that the average rate for a 30-year fixed mortgage hit an all-time low (at least as far back as 1971) in August of 4.15 percent.

Demand for purchase loans remains down — The Mortgage Bankers Association revealed in a separate survey that, despite record low mortgage rates, demand for purchase loans remains lower than it has been since the 1990s.

Blitzer also noted that “these shifts suggest that we are back to regional housing markets, rather than a national housing market where everything rose and fell together.” In this buyer’s market, that means paying more attention to local sale price trends as cities and areas rebound differently around the country