If you have clients planning on waiting out this housing downturn, intending to buy a home when the coast is clear, the first step for them is to start checking their credit reports now. There may be some surprises waiting.
Credit card companies are reducing credit limits on some borrowers. And for some people, that may cause a drag on their credit score.
Here's why: A major factor in calculating a person's credit score is credit utilization. When your total available credit shrinks, the percentage of credit that is being used goes up-and that has the potential to do some damage to your credit score.A good credit score is necessary to get the best loan rates, and for more than a year now lenders have been requiring higher scores as mortgage underwriting standards tightened.
If your credit limit is cut, it might be difficult today to change a lender's mind.
In addition to cutting limits, credit card companies have been making changes to interest rates and fees. They're also reaching out earlier to borrowers when they have a missed payment, using a "soft touch" to help them create payment plans shortly after the due date has passed instead of waiting a month.
Granted, not everyone is seeing their credit disappear. To determine where to make changes, companies look at customers' credit scores and their track record for paying bills on time. If, say, a company's data shows that people with FICO scores of 710 or less have shown a higher pattern of risk lately, someone with a 700 score could very well be affected. Unfortunately, that creates the possibly of a consumer experiencing a "snowball effect," which could push a score down even farther.
Those with credit accounts that haven't been used in a while might also be affected. Recently, lenders have been freezing home equity lines of credit as well, although a reduction in these lines shouldn't hurt a person's credit score much, if at all.
If you plan on buying a new home in the next year, there are some things you can do to keep your credit looking as good as possible.
- Check your credit report. Find out if there have been changes to your account limits, and make sure there aren't any errors. Look for any negatives on your report-many negative items should be removed after seven or 10 years. - Don't get close to card limits. About 30% of your FICO is based on the ratio of the amount that is owed on active cards to your available credit. But utilization on individual cards is important too; getting close to the limit on one card will also reflect negatively on your score. Pay down balances as much as possible. - Keep accounts active. Accounts get closed when there hasn't been activity on them for a while. Make small purchases on cards a couple of times a year-then pay them off right away-to keep accounts active and your available credit up. - Pay bills on time. This should an easy one, but could prove challenging for people who could lose their jobs in the months ahead. Be proactive, and contact the credit card company as soon as possible if you're having problems paying your bill. Payment history counts for about 35% of your credit score. - Don't apply for new cards. Store cards are tempting when they offer discounts at the register, but don't bite. Applying for that card will have a negative effect on your score in the short term.
A lot of inflation data will highlight the Economic Calendar next week.
The important Consumer Price Index (CPI) inflation report will come out on Wednesday. CPI looks at the price change for those finished goods which are sold to consumers.
The Producer Price Index (PPI) will be released on Tuesday. PPI focuses on the increase in prices of "intermediate" goods used by companies to produce finished products.
In addition, Industrial Production, an important indicator of economic activity, will come out on Monday. Housing Starts and the detailed minutes from the October 29 Fed meeting will be released on Wednesday. The Philly Fed index and Leading Indicators will round out the schedule on Thursday. The G20 economic summit, a meeting between large industrialized nations, will take place over the weekend.
HUD today released their proposed changes to the HUD-1 settlement statement. If you haven't seen it, I've got a copy of the website page below to take a look at it.
The good news: easier for clients to read. The bad news......it will make a Realtor's life more difficult because it give Chartered Banks a leg up in dealing with clients over Mortgage Professionals. They still require Brokers to list any YSP (yield spread premium) but Banks DON'T HAVE TO. I have no problem with listing YSP....but why shouldn't everybody have to??? It's still paid out regardless. I guess the NAMB needs better lobbyists!
Here in Minneapolis-St. Paul, we are still a 2 newspaper town. It's interesting to see how each looks at some Real estate trends that surfaced this morning.
The St. paul paper has an above-the-fold headline, " Over One-Third of Homeowners Lose Money on Homes". Of course, that caught my eye....being in the business. Upon reading the article, it uses stats from Zillow.com to show that 34% of Twin Cities homeowners are selling their homes for less than the purchase price of that home. Does that take into account any information on financing, down payment, foreclosure or not? But it makes a great headline, feeding into the depression many feel about the housing market.
The Minneapolis paper has a story below-the-fold of their business section, "Some good news for Twin Cities Real Estate", which talked about the fact that for the 3rd month in a row, listed inventory is down and median home prices are up. It does talk in the article about being cautious.....factoring in the current economic landscape.....but overall, it was a positive article.
But of course, positive news wouldn't sell on the front page!!!
Let your clients know what YOU see in your market......don't let the writers try and shape your market for you!
Today's mortgage market reaction to the weaker than expected Employment report appeared to be counterintuitive, as mortgage rates rose a little after the news, offsetting some of the rate improvement seen earlier in the week. The explanation is that the jobs data was so bad that investors now expect that another economic stimulus package will be implemented soon. The government will need to issue even more debt to pay for a stimulus package, and mortgage investors pushed rates higher on Friday on concerns about the added supply of debt.
As expected, the Employment report reflected weakness in the labor market. The economy lost -240K jobs in October, and the figures for August and September were revised lower as well. This marked ten straight months of job losses in 2008, bringing the total decline in jobs to 1.18 million so far this year. The manufacturing and construction sectors continued to show weakness.
The Economic Calendar will be much lighter next week. Next Friday's Retail Sales report will be the only major economic data for the week. Consumers account for about 70% of economic activity, and the Retail Sales report is a major indicator of spending levels by consumers. Import Prices and Consumer Sentiment will also be released on Friday. Other than that, the only report will be the Trade Balance on Thursday. There will be Treasury auctions on Wednesday and Thursday. Mortgage markets will close early on Monday and will be closed on Tuesday in observance of Veterans Day.
After publishing an article last week titled, "Understanding FHA," I received quite a few comments regarding FHA - Rehab loans. Here is a summary of more detailed information on the Rehab loan.
Section 203k loans are a key part of the FHA's efforts to rehab and repair owner occupied, one to four unit properties. I make this distinction because the program includes condos, "mixed use" residential and other qualified properties. It can also accommodate purchases of existing properties as well as refinances.
A key difference between a 203k loan and most mortgage programs is the method of financing. Traditional mortgages require that a home equity line of credit or similar financing be arranged to pay for the rehab after the initial home purchase and mortgage were completed. With a 203k loan, one loan covers both the purchase and the rehab of the property by basing the mortgage on the projected value of the property. FHA allows for fixed 15 or 30 year loans as well as 1 year arms.
The 203k has two primary programs, one for "minor" repairs, a second for "major" repairs. The principle difference between the two, "major" repairs require architectural plans or structural repairs, while "minor" repairs can be completed without plans requiring review or approval. Minor repairs can total up to $35,000 in rehab costs and must be completed within six moths of purchase.
As with any loan program, there are a number of stipulations that need to be met. First, the property has to qualify as well as the end value of the property, including the rehab. That is why it is important to choose the right FHA approved lender. Not all FHA approved lenders service 203k loans.
There are those who make things happen, those who watch what is about to happen and the rest who wonder what happened. Some people instinctively know what to do next in order to progress and succeed, and yet the high majority has to be shown the way. The former are the leaders and the latter are the followers. Which one are you?
If timing is everything and being prepared is paramount, is now the right time for you to be readying yourself for an upward turn in the market? Let's explore the patterns of the real estate market right back to the 1980's.
Starting in 1985: we experienced the highest-rising, longest-lasting positive market in real estate, which lasted about six and a half years. This was then followed by a severe recession in the 90's, lasting about the same period of time.
From 1999: the market climbed positively again for seven solid years, rising to even greater heights, which then took a nose-dive, triggered by the sub-prime mortgage debacle in the spring of 2006.
Presidential Election: On November 4th, 2008, we will witness a Presidential Election in which will result in the new leader taking official office on January 21, 2009. Then the first 100 days in office will be assessed seriously at all levels of media.
Market flow: From now until then there will still be a tendency for the final stages of a downward trend. Once this is all complete however, "the bottom of the market" will be declared at all media outlets. At that point everyone will begin to look up. Then, slowly but surely, recovery will begin to transpire. Real estate markets usually fall fast and rise relatively slowly, certainly in the beginning. Then given about a three-year stretch, things would have returned to where they had been.
Result: What you would have witnessed is seven years up and seven years down.
It is imperative that those who have come through this challenging market be fully prepared to take advantage of the upward shift. Sharpen your skills, position yourself with the right organization and align your systems and services. You will be the leaders. Timing is everything.
Since AR was down today...and I am a BIG Hockey fan, I decided to use my time to go get a NEW flat-panel TV at Best Buy. Now that it's plugged in, I'm loving it...and since it's on my mind, I'm passing along tips I used to shop with...
1. I'd recommend measuring the space you have available in your home for your new television and bringing those measurements, and a measuring tape, with you to the store. Flat screen TVs will require less depth but perhaps more width and height on your table, wall or shelf space. When determining what size DTV is best for your family, "bigger is not always better." You should determine the appropriate size for your new DTV set based on your viewing distance. The ideal viewing distance is approximately two to three times the diagonal of your TV set. So, before you head to the store, measure the viewing distance available in your room and purchase a set that is either half or a third of that distance.
2. Determine which type of Digital TV meets your preferred picture quality, screen type and budget. HDTVs offer the highest quality picture, but there are also EDTVs and SDTVs available at lower prices. Also, screen types vary between LCD, plasma and cathode ray tubes (CRTs), which are like traditional TVs but digitally updated.
3. You need more than just a great set to maximize your home theater experience (if that's the way you're going). Make sure you have all of the right cords and accessory parts before you leave the store. Bring a list of the other devices you will need to connect, such as a DVD player, speakers and more, so the retailer can help you determine if you need special connector cables. Some cables may not be included in the basic purchase price and others may be extra. Check out the HDTV Accessories Guide to help get everything you need-go to http://www.digitaltips.org/docs/07HDTVguide.pdf.
4. Don't forget the extended service plan. In fact, many consumer advocate groups have recommended purchasing service plans for large and flat screen televisions. By protecting your investment, you will benefit from the peace of mind and convenience service plans offer. Here's why: Most consumers who purchase a new television for their home plan to own it for at least five years.
Most television manufacturer warranties are good only for one year for parts and labor, with some limiting labor coverage for just the first three months. Also, these limited warranties generally only cover defects in materials and workmanship-hence the term "limited."
An extended service plan extends the length of the warranty and provides additional protection beyond the manufacturer, including protection for failures caused by normal wear and tear; heat, dust and humidity; and damage due to power surge. Service plans can also provide coverage for remote controls, and provide a no lemon guarantee. Without coverage, typical repair costs for the most common problems with LCD TVs may range from $280 to $1,200.
For larger televisions, in-home service is a great convenience offered by many extended service plans.
Beyond repair and replacement services, many retailers today are providing additional services and benefits as part of their service plans to meet the growing interconnectivity needs of home electronics systems.
No matter what kind you get....enjoy it! My Minnesota Wild never looked better....and the kids like the 'new look' of their DVD's. Enjoy...and have a great week!
Welcome to November! As we start the first business week, there are a number of economic reports out this week that will affect mortgage rates.
The biggest report this week will be Friday's important Employment data. As usual, this data on the number of jobs, the Unemployment Rate, and wage inflation will be the most highly anticipated economic data of the month, since the health of the labor market is perhaps the single biggest factor in the performance of the economy. Also this week, the ISM manufacturing index and the Construction Spending report will be released on Monday. ISM Services is scheduled for Wednesday, and Productivity will come out on Thursday. Finally, Pending Home Sales, very important to all of us, will be released on Friday.
It should be a wild week. I'll do my best to keep you informed. Hope yours is a good one!!
I spent my afternoon & evening yesterday at an "Emerging Homeowner" seminar in brooklyn Park, which was sponsored by the Minnesota Housing Finance Agency. There were 36 'vendors' of services there, from credit repair services to child care.......to mortgage & realtor services. 2 things really suprised me, however.
1.) Of those 36, only 4 were Realtors. I was very suprised. I would have thought there would have been more Realtors there. But more suprising......
2.) Almost every consumer I talked with was VERY confused and VERY nervous about buying a home. They really didn't know the 1st thing about buying a home. They were all very timid, and didn't want to say they had any questions. Then, once they started talking, they all had a LOT of questions!
Perhaps holding "1st time home-buyer" seminars isn't the best way to go. These folks would have not attended one, because they seemed a bit too overwhelmed. Perhaps a "5 easy steps to owning your own home" is a better name, and may put more people at ease. I think it may work. What brought them to this seminar/open house? The title was "Your Credit- how to understand it and fix it". Almost none of the attendees cared about their credit....they wanted to know how to buy a house!
Just thought I would share......hope it might help you all as you head into 2009 planning. Have a great weekend!
Loren Johnson, CMPS
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