Westside LA Real Estate Advice: First-time deal for buyers had spurred sales, which have since crashed.

The Obama administration has not decided whether it should resurrect a popular tax credit for first-time homebuyers, Housing and Urban Development Secretary Shaun Donovan said on Sunday.

“It’s too early to say whether the tax credit will be revived,” Donovan said in an interview on CNN’s “State of the Union” program. He said the administration would “do everything we can” to stabilize the shaky U.S. housing market.

A federal $8,000 homebuyer tax credit, which expired several months ago, had boosted home sales, helping to revive a flagging housing market that had been a key factor in driving the United States into recession.

It followed a $6,500 credit for those purchasing a new primary residence, which also has expired.

But an unexpectedly large drop in U.S. home sales in July — sales of existing homes in the period fell to their slowest pace in 15 years — has spurred fears that the nation could be on the cusp of another sharp drop in housing.

Donovan acknowledged the data was worse than the Obama administration expected but said the government was taking measures, including rolling out a refinancing program for some borrowers and an emergency loan program for the unemployed.

Those opposed to bringing back the homebuyer tax credit say it would blow a bigger hole in the federal deficit, while supporters see it as key to stabilizing a pillar of the economy that faces headwinds despite low mortgage interest rates.

“I think it would help enormously,” Florida Governor Charlie Crist, who is running as an independent for the U.S. Senate in the November elections, told CNN. “I would absolutely encourage the president to support that.”

One of Crist’s challengers, U.S. Representative Kendrick Meek, a Florida Democrat, said he also supported reviving the tax credit.

Last month, Obama signed a law giving consumers already in the process of buying a home three extra months to close the deal and still get the tax credit.

Homebuyers with contracts signed by April 30 who failed to go to closing by the original June 30 deadline will now have until September 30 to complete their purchases.

Source: Reuters

Westside LA Real Estate Advice: Plenty of forces, from overly cautious lenders to inaccurate appraisals, are wrecking real estate deals right now. But one of the biggest roadblocks to getting a house sold these days is the disconnect between buyers and sellers.

In general, sellers have gotten more realistic in pricing their homes than they were right after the housing bubble burst, but agents say that many still don’t grasp how much they must concede to close a deal. And buyers are still spraying lowball offers around in hopes that sellers will be desperate enough to bite.

Take such unreasonable expectations, multiply by two, and what do you get? “A standoff,” says Glenn Kelman, CEO of real estate brokerage Redfin.

With the busy summer home-sale season drawing to a close, there’s little time to waste. Whether you’re trying to unload your place or land a new one, follow these dos and don’ts to negotiate the best deal — fast.

If you’re buying

Don’t say: “I’ll pay 85% of your asking price and not a penny more.”

Instead: Look for homes that are fairly priced and make a reasonable offer. “Coming in about 10% below list is a good starting place for negotiations now,” says Denver real estate broker Jeff Fogler. Yes, you have the upper hand in most markets, but the average homebuyer is paying only 2.7% below list price (see the chart). Set your expectations accordingly. You can always ask if the seller is willing to bridge a price gap in other ways — for example, by picking up your closing costs (which can run $7,500 on a $300,000 house).

Don’t say: “I haven’t put my own place on the market yet.”

Instead: List your current home before you start shopping seriously for the next one. Because it takes almost three months to move a house these days, sellers are loath to write home-sales contingencies into purchase contracts. You’ll have far more leverage if you’ve gotten rid of your house before you start negotiating: Sellers know there’s less chance of the deal falling apart. (Prequalifying for a mortgage helps too.) What’s more, you’ll know exactly how much money you can put into your new digs.

Don’t say: “This is my dream house.”

Instead: Stop imagining the great parties you’ll throw there and gird yourself to walk away if the seller won’t make reasonable concessions. Your ability to abandon negotiations is your most powerful bargaining chip. Given that plenty of other homes are on the market now, finding another place to love shouldn’t be too hard. You might let the seller know that. Nicely.

If you’re selling

Don’t say: “You’re offering how much? Forget you!”

Instead: When bidders lob low-balls at you, thank them for their interest — and ask that they come back with earnest offers. “If you become offended, enraged, or unreasonable, you’ve blown any chance at negotiation,” says Warwick, R.I., real estate agent Ron Phipps. These days many buyers are just testing you to see how big a discount they can get. Point the bidder to comparable recent sales that support your list price. (Received several super-low offers? Check the comps to make sure your price isn’t too high.)

Don’t say: “I didn’t know the deck was rotting.”

Instead: Pay a few hundred dollars to get your house inspected before you put it on the market. Then arrange to make any necessary repairs yourself. (In most states the law requires you to disclose to potential buyers any defects of which you’re aware.) “Taking care of any inspection issues upfront helps sellers limit the points that buyers can negotiate on,” says Pat Lashinsky, CEO of the national brokerage ZipRealty.

Don’t say: “It might take us a while to move out.”

Instead: Make sure to tell buyers — especially those who might have children starting school this month — that you’re willing to scram pronto, if possible. That will help you stand out from any short sales in your area, which may have lower list prices but can take months to close. “If the buyers have a strict time limit, they’re going to pay more money to get into a house quickly,” says Ellen Klein, a realtor in Rockaway, N.J. More money plus more speed: That’s what it’s all about.

Source: CNNMoney.com

Westside LA Real Estate Advice: The Obama administration may propose that any federal backing of mortgages be paid for through fees on the lending industry, according to people familiar with the internal discussions.

While the administration hasn’t settled on a plan to revamp failed mortgage giants Fannie Mae and Freddie Mac, which are now under federal supervision, a consensus appears to be emerging that some type of government guarantee will be needed to keep the ailing mortgage market functioning.

Some conservatives don’t believe the government should offer any type of guarantee, while others advocate limited, but explicit, backing. About nine in 10 new loans are currently backed by Fannie, Freddie or government agencies.

Policy makers face challenges determining what types of loans or mortgage-backed securities should be guaranteed and how the industry should be charged for government backing. Government officials want the cost of any explicit guarantee fully offset by the mortgage industry to avoid adding to the federal budget deficit.

But Washington must walk a fine line between pricing a guarantee high enough so it accurately reflects risk, while not charging so much that borrowing costs soar.

At a housing-finance conference last week, Treasury Secretary Timothy Geithner cited a “strong case” for a continued federal guarantee but said “the challenge is to make sure that any government guarantee is priced to cover the risk of losses, and structured to minimize taxpayer exposure.”

Officials want to avoid a repeat of what happened to Fannie and Freddie, which had to be bailed out and taken over by the government in 2008 after losses destabilized the firms. Mr. Geithner and others have said the firms wrongly guaranteed increasingly risky mortgages without charging enough to cover the risk.

Others warn the government has a poor track record when deciding how to price guarantees. While guarantees provided by the Federal Housing Administration, which insures mortgages, have traditionally turned a profit for the U.S., in recent months that agency has depleted its reserves and risks running out of money.

“It’s very hard to know what the right fee is,” said Alex Pollock, resident fellow at the conservative American Enterprise Institute think-tank, who supports moving to a fully private mortgage market. “The argument will always be from homebuilders, realtors, affordable housing groups, consumer groups and members of Congress that you’re charging too much and making it too expensive for borrowers.”

The National Association of Realtors, for example, is asking the Treasury to reduce interest payments Fannie and Freddie must currently make to the government, arguing that easing the firms’ expenses could produce more flexible lending standards. In a letter to Mr. Geithner this month, the organization said the Treasury should retroactively lower the 10% dividend the firms must pay on the $148 billion in taxpayer aid they have used.

The industry appears prepared to pay some type of premium to get the government’s backing. Under proposals floated by two trade groups, the Financial Services Roundtable and the Mortgage Bankers Association, new private-sector entities created to securitize and insure mortgages would pay a fee into a government-insurance fund.

Researchers at the New York Federal Reserve Bank, writing on their own behalf, have proposed creating lender-owned cooperatives that would replace Fannie and Freddie. Private lenders would pay into a “mutualized loss pool” to provide guarantees for mortgage-backed securities, and members would also pay a reinsurance fee to the government for a separate fund to backstop additional losses.

Some investors and academics say a government backstop is needed if the U.S. wants to facilitate securitization markets, where investors buy bonds backed by pools of mortgages. While mortgages were once funded primarily through the banking system, securitization fueled the growth of the nation’s $10 trillion mortgage market over the past 30 years, dwarfing the capacity of the nation’s banking system to fund loans.

“To suggest the private market can come back in and take the place [of the government] is simply impractical. It won’t work,” said Pacific Investment Management’s Bill Gross at last week’s summit.

Source: Wall Street Journal

Westside LA Real Estate Advice: Facing new penalties if they lowball estimates of upfront mortgage costs, lenders and brokers appear to be coming clean about how much borrowers will pay. As a result, the so-called good-faith estimates that mortgage providers must give to prospective customers show closing costs soaring 36 percent this year, interest-rate tracker Bankrate.com said in a report this week.

The main reason for the increase, according to Bankrate: Lenders are giving more accurate estimates because they now must pay to cover the difference if they underestimate the costs, according to Bankrate.

In other words, the good-faith estimates are, well, being made in better faith.

Before Jan. 1, there was no penalty for giving bad estimates, so lenders battling for mortgage business had more of an incentive to give lowball quotes.

Lenders told Bankrate that actual closing costs rose modestly this year, in part because regulators and loan buyers Fannie Mae and Freddie Mac are requiring mortgage firms to do far more fact-checking than during the boom years.

Consumer advocates say the report demonstrates how lenders took advantage of lax regulation during the housing boom by often keeping borrowers in the dark about costs until they were faced with nasty surprises when their loans closed.

“Why is transparency such a challenge for them?” said Alan Fisher, executive director of the California Reinvestment Coalition.

According to Bankrate’s survey, which obtained online good-faith estimates for loans of $200,000, estimates of closing costs charged directly by lenders are up 23 percent from a year ago. Estimated charges for third parties such as appraisers and title insurers soared 47 percent.

California was among the highest-priced states in the survey.

The only states with higher fees than California were New York, with costs averaging $5,623, followed by Texas at $4,708 and Utah at $4,605.

Arkansas was the least expensive state, with costs averaging $3,007.

The most expensive component of closing costs was a title search and insurance to protect the lender from the possibility that title is not held free and clear.

These title costs averaged just $1,011 in Arkansas and $1,141 in North Carolina but set Los Angeles borrowers back an average of $2,391 and San Franciscans an average $3,181, Bankrate said.

The increase in estimates of closing costs stems from regulations issued by the U.S. Department of Housing and Urban Development.

Source: Los Angeles Times

Westside LA Real Estate Advice: With housing recovering slowly, most economists predicted in a recent survey that it will take at least five years for average home prices to climb back to the levels they commanded in 2006.

This year, some hard-hit areas may see another dip, but properties values will most likely rise.

“Softness in the summer months will be followed by firming conditions and momentum as the year unfolds and the economy strengthens,” says Robert Denk, an economist for the National Association of Home Builders.

Source: Reuters News

Westside LA Real Estate Advice: Selling a house isn’t easy these days. There are a huge number of homes on the market, and buyers are easily scared off if they encounter problems that may negatively impact resale value. Among the many issues that need to be addressed in order to make a house more marketable, foundation problems rank near the top of the list, according to Walter Molony, an expert in statistics and research at the National Association of Realtors.

“Before a house is listed for sale, the real estate agent will work with the homeowners to make sure that the property is competitive with similar properties in the area,” Molony explains. “A little dampness in the basement or a small drywall crack are flaws that a potential buyer may be willing to overlook,” says Molony, “but a cracked or bowed foundation wall will be a major red flag. Since most home sales are contingent on a satisfactory home inspection, foundation problems are very likely to stop a home sale dead in its tracks.”

Home improvements vs. home repairs
In today’s tight economy, it’s understandable for homeowners to put off home improvements until they feel more financially secure. But it’s important to make a distinction between basic “feel-good” improvements (like painting a room or installing shelving) and repairs that correct safety issues or prevent a problem from getting worse. Fixing a damaged foundation definitely falls into this latter “must-do” category.

“It’s risky to put off fixing a damaged foundation,” says Dave Thrasher, of Nebraska-based Foundation Supportworks. “If a crack starts to enlarge or a wall starts to buckle, you’re seeing a failure that is probably going to get worse,” Thrasher continues. “The longer you wait, the more extensive the problem becomes and the more expensive the repair is going to be.”

Foundation problems follow the building boom
Some foundation problems are obvious—cracks, tilting chimneys and bowing basement walls, for example. But there are other symptoms that may signal a settling or shifting foundation. For example, windows or doors can be racked by a shifting foundation and become difficult to open and close. Drywall cracks that extend from the corners of windows and doors are another telltale sign.

As surprising as it seems, a newer home may be just as likely to have foundation problems as an older one. A Wall Street Journal article (8/13/2009) reported on an entire housing development in California with numerous foundation problems.

According to journalist M.P. McQueen, the decade-long building boom that began in the late 1990s “caused shortages of both skilled construction workers and quality materials. Many municipalities also fell behind inspecting and certifying new homes.” This perfect storm of poor quality control definitely took its toll. Research conducted by Criterium Engineers, a national building-inspection company, confirmed an uptick in the percentage of new homes with major construction defects.

Specialty foundation repair contractors have the right solutions
The good news about foundation problems is that most of them can be corrected, as long as the contractor has the training, tools and materials to do so. “We certainly get our share of calls from panicked homeowners,” says Thrasher. “By the time people call us, they’ve probably realized that local remodeling contractors can only temporarily fix cosmetic problems, but are unable to permanently solve the problem.

Source: RISMedia

Westside LA Real Estate Advice: Borrower Activity Is Picking Up, Lenders Say, but Many Homeowners Who Could Benefit Also Can’t Qualify for a Loan.

After months of hovering near 50-year lows, mortgage rates have fallen even further, into uncharted territory and to a level lenders say is finally igniting more homeowner refinancing.

The average interest rate on new 30-year fixed-rate mortgages was 4.44% for the week ended Thursday, according to mortgage giant Freddie Mac, which said mortgage rates were lower at than anytime since it began tracking them in 1971. This week’s rate was down from 4.49% a week earlier and 5.2% in early April.

For weeks, economists have puzzled over why falling mortgage rates haven’t ignited a wave of refinancing activity. But mortgage bankers said borrower interest was finally picking up. “We’re flat out busy,” said Michael Menatian, president of Sanborn Mortgage Corp. in West Hartford, Conn.

One reason activity could grow stronger is that today’s rates are not only lower, but refinancing has become cheaper. That is because investors have begun paying more for mortgage bonds than in the past, enabling lenders to use this additional money to cover some refinancing costs that borrowers would traditionally bear.

“Usually you have to balance the lower rate with the cost of refinancing because you’ve got to pay the fees. That’s changing,” Mr. Menatian said. “This could open the door for the vast majority of people who can qualify.”

Still, even with the stepped-up refinance volume, analysts say new loan activity will be restrained because many borrowers can’t qualify under loan standards that are near their tightest levels in more than a decade.

“The irony is that it’s terrific for people who have jobs—it’s real economic stimulus. But for the guy who is struggling, he’s un-lendable,” said Brian Wickert, a mortgage banker in Butler, Wis.

Many borrowers may face trouble qualifying for loans because their credit score has taken a hit, they have lost their job or faced a reduction in income, or they don’t have enough equity in their home. “People who were underwater at higher rates one year ago are still underwater. People who had credit problems at higher rates still have credit problems,” said Douglas Duncan, chief economist at Fannie Mae.

Around 60% of all borrowers with a 30-year fixed-rate loan could lower their rate by one percentage point given current rates, said Mahesh Swaminathan, senior mortgage strategist at Credit Suisse. But only about 38% could actually qualify for a refinanced loan because of the stricter loan standards, he said.

It isn’t clear how much low mortgage rates will stimulate the economy. Mortgage bankers and economists say that many of the borrowers who are most likely to refinance are those who have already done so in the past 18 months.

A borrower with a $300,000 30-year loan who refinanced last year at 5.25%, for example, could lower monthly payments by around $150 by refinancing today at 4.44%. “Low rates are helping the same people we helped last year,” said John Cannon, a loan officer in San Mateo, Calif.

While refinancing can put money into borrowers’ pockets, some homeowners are using low rates to pay off their debt faster, by refinancing into loans with shorter terms and knocking off several years of loan payments. During the second quarter, some 30% of borrowers who refinanced and had a 30-year fixed-rate loan refinanced into a 15- or 20-year loan, according to Freddie Mac, the highest share of such borrowers in six years.

“Many folks are simply paying off their debts,” said Patrick Newport, an economist at IHS Global Insight. “There’s some impact, but it’s not going to be quantitatively that important.”

James Alissi is refinancing his 30-year mortgage, which has a 6% fixed-rate, into a 15-year loan that carries a 4% rate. His monthly payments will be slightly lower than they were before. “It was a no brainer. I’ll be done in 15 years as opposed to 23,” said Mr. Alissi, a 43-year-old lawyer who has strong credit and lots of equity in his West Hartford home.

Other potential borrowers who could benefit by refinancing are those who have adjustable-rate mortgages that are about to reset at higher levels. They could trade their variable rate for a fixed rate.

Low rates tend to trigger much bigger jumps in refinance activity than new home purchases, and around four out of five loan applications last week were for a refinance, according to the Mortgage Bankers Association.

While low interest rates help boost purchase activity because more potential buyers qualify for loans, other factors, such as home prices and employment security, are also big drivers of demand.

Home-buying activity has plunged over the past two months following the expiration of tax credits worth up to $8,000 for some home purchases. “Where’s the demand going to come from? Until employment comes back, it’s hard to tell,” said Mr. Duncan, the Fannie Mae economist.

Source: Wall Street Journal

Westside LA Real Estate Advice: Mortgage rates continued to decline this week, plunging to the lowest level in decades, according to surveys from Freddie Mac and Bankrate.

Freddie Mac’s weekly report said the 30-year fixed rate slipped to 4.44% for the week ended Thursday, the lowest since the government-backed lender began tracking the rate in 1971. Last week’s rates stood at 4.49%, and a year ago it was at 5.29%.

The 15-year fixed rate fell to 3.92% this week, the lowest since Freddie Mac began tracking it 1991, down from 3.95% last week and from 4.68% a year ago.

Adjustable-rate mortgages also declined, with the 5-year rate falling to 3.56% this week, the lowest since 2005 when the lender began tracking it.

Mortgage tracker Bankrate.com, which surveys large lenders across the country, said the average 30-year fixed loan sank to a record low for the fourth consecutive week, falling to 4.57% from 4.66% the previous week.

The 15-year fixed rate, which is a popular option for refinancing, also fell to the lowest level in the history of Bankrate’s 25-year old survey, dipping to 4.06%, from 4.11% the week before.

While the 1-year adjustable-rate mortgage held steady at 4.8% for a fourth week, the 5-year adjustable rate mortgage dropped to a record low of 3.92% from 3.95% the previous week.

“Low rates are helping to heal many battered local housing markets by increasing home-purchase activity, said Frank Nothaft, chief economist at Freddie Mac.

Mortgage rate applications inched up a modest 0.6% during the week, according to the Mortgage Bankers Association. Applications for purchase rose 0.3% while refinance applications increased 0.6%.

Source: CNNMoney.com

Westside LA Real Estate Advice: The real estate industry and especially the mortgage industry have been overwhelmed with changes, regulations and consolidations recently. In the last couple of months, many transactions nationally have experienced delayed closings or worse as a result of the application of new guidelines affecting APR, Good Faith Estimates (GFE), Truth in Lending (TILA) and condo project approvals to name a few.

There is one more issue that is critical for real estate agents, loan officers, and anyone else who deals with consumers purchasing a home or obtaining a refinance. Effective with applications on or after June 1, 2010, Fannie Mae has issued new lender mandates (FNMA LL-2010-03 Loan Quality Initiative) on a national basis that, if not understood properly, could have devastating consequences for many buyers and sellers. We want to be certain that everyone understands the implications of the new rules and ensure that all interested parties know what they need to know to minimize negative repercussions.

The intent of this initiative is to assure that all applicant information is disclosed and is honest and accurate as of the moment of closing. Lenders will now be required to re-pull credit report information just prior to closing, re-verify employment, validate Social Security numbers, verify intent to occupy and verify that all parties to the transaction have been checked against the national “excluded party” list, which is managed by HUD and by the General Services Administration. Changes in any of these factors are likely to result in a re-underwrite, the need for additional documentation, or suspension of loan closing.

The most onerous of these is the credit re-pull. It is important that this is done as a “soft pull” so it does not show as an inquiry, which could potentially change the borrower’s credit score. Firms will, however, have to match the outstanding debts and inquiries with the report used to approve the loan. Additional credit or increased balances that change the debt-to-income ratio more than 2% (or less if it now exceeds guidelines) will require the loan to be suspended and re-submitted to underwriting.

Any additional delinquencies will result in a new, full credit re-pull and re-underwriting, utilizing the new credit. Any and all inquiries from other lenders or credit suppliers must be verified by the credit bureau and certified that new debt did not occur. If new credit has been extended, the new debt must be included in the borrower’s debt-to-income ratio and the loan must be re-underwritten.

Other considerations are W-2 employees that may own more than 25% of a business, mandating business returns and cash flow analysis and full disclosure of child support and alimony. Changes could render the applicant unqualified or could delay the closing. As a result of TILA, GFE and risk-based pricing changes, additional debt could result in re-pricing the loan due to a change in credit score, which even if approvable, would delay the closing three business days as re-disclosure would be required.

So How Do We Manage the New Process?
Real estate agents and lenders must impress upon the applicants the need for full and honest disclosure at the time of application, during the loan process and at closing. Buyers must be cautioned against applying for new credit during the process, changing jobs (30-day pay stub requirements are being enforced), and charging to their credit cards. It is imperative that they notify the lender if anything changes from application to closing.

We must all be aware that an applicant that signs an erroneous initial or final closing application could be committing fraud. Lenders choosing to approve loans without the proper loan quality processes and documentation are only endangering the buyer. Any lender or real estate agent that encourages someone to falsify information could be equally responsible. It is noteworthy to mention that many loans go through an immediate quality control audit post closing, so this could affect highly qualified applicants as well. Identified fraud of this nature could be investigated by the FBI.

While this new policy was implemented first by Fannie Mae, it is already a mandate of all national lenders and, based on experience, will soon be required on every loan. It is important to keep this in mind on every deal, not just ones that may involve Fannie Mae.

Jim Dinkel is vice president of FM Lending in Raleigh, North Carolina.

Source: RISMedia

Westside LA Real Estate Advice: Hope for a housing market that has struggled since tax credit expiration.

The demand for U.S. mortgage applications to purchase homes rose last week for a third straight week as interest rates tumbled, the Mortgage Bankers Association said on Wednesday.

The low rates also buoyed demand for home refinancing loans, with activity rising in five out of the past eight weeks, the industry group said.

The trends provide a glimmer of hope for a housing market that has been struggling since the April 30 expiration of popular home buyer tax credits.

The MBA said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, increased 1.3 percent in the week ended July 30. The four-week moving average of mortgage applications, which smooths the volatile weekly figures, was up 0.3 percent.

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 4.60 percent, down 0.09 percentage point from the previous week, the MBA said. The rate was up just 0.01 percentage point from a record low set two weeks earlier. The survey has been conducted weekly since 1990.

Interest rates were also below their year-ago level of 5.17 percent.

The seasonally adjusted purchase index, a tentative early indicator of home sales, increased 1.5 percent. Demand, however, is down about 40 percent since the tax credit expiration.

To take advantage of the tax credits, buyers had to sign purchase contracts by April 30. Contracts originally had to close by June 30, but that was extended another three months.

Kurt Gleeson, national vice president of sales at RealEstate.com, a division of LendingTree, which is headquartered in Charlotte, North Carolina, said he expects poor home sales over the next two to three months.

“The housing market is sputtering,” he said. “There is a smaller pool of buyers who can afford to purchase a home. The economy, and more specifically, the sluggish employment market, has excluded many potential buyers from the housing market.

“Jobs growth ranks No. 1 in importance for the housing market and without it there will be no rebound,” Gleeson said.

Key insight into the state of the jobs market will emerge on Friday when the U.S. Labor Department releases July data.

The MBA’s seasonally adjusted index of refinancing applications increased 1.3 percent.

The MBA said fixed 15-year mortgage rates averaged 4.03 percent, down from 4.12 percent the previous week, a record low. Rates on one-year adjustable-rate mortgage, or ARMs, decreased to 7.10 percent from 7.15 percent.

Source: Reuters