U.S. Housing Market Finally Seen Reaching a Turning Point

Optimism is up, but don't expect a quick single-family recovery as the U.S. Housing Market faces a painful shift

By Mark Heschmeyer

May 30, 2012

I put a bid in on a home over the Memorial Day weekend and, judging by the recent housing indicators, it appears I was part of a growing crowd of potential homebuyers poised to jump into the market and disperse the last remaining outsized cloud hovering over the economic landscape. 

It's a compelling crowd because it is not, I believe, made up of vulture investors expecting to feed on bottom housing prices. Instead, it appears to consist of people choosing to get back into the market after being pent up during five years of recession and dim job prospects. And experts say it will drive both single-family and multifamily housing recovery in the coming years. 

"In these initial years, the prime driver of recovery won't be new home construction, but rather demand for rental properties," said Louise Keely, chief research officer at The Demand Institute, a jointly operated non-profit, non-advocacy organization of The Conference Board and Nielsen. "This is a remarkable change from previous recoveries. It is a measure of just how severe the Great Recession has been that such a wide swath of Americans had to delay, scale back, or put off entirely their dreams of home ownership." 

Five years is long time, and a lot can happen in that timeframe to affect consumer housing decisions. College graduates enter the marketplace; newly married couples begin raising children; young professionals advance in their careers; older families shrink as children go off to college (as in my case); and workers retire. All changes that trigger housing changes and housing demand -- and all that will compel economy going forward. 

Consumers are not expected to surge back into the housing market but, as the Demand Institute estimates, the housing recovery will be moderately scaled. We put our bid knowing it was going to be one of multiple offers on a bank-owned property in a resort area. We bid just $100 more than the asking price - nothing extravagant. The asking price had already been lowered by $25,000 last month. The bank accepted one of the other four bids. 

That rejection will not take us out of the housing market, but neither does it compel us to jump immediately on another property. A purchase, after all, requires uprooting families (in our case from Ohio) and is not a decision consumers make at the snap of a finger. The property and the location have to be the right fit. 

However, it is also clear for many at least, that housing affordability, and perhaps just as importantly, consumer confidence, is finally coming around. 

Between 2006 and 2011, some $7 trillion in American wealth was wiped out when home prices dropped 30% after a dramatic climb in valuations during the housing bubble, the Demand Institute estimates. Looking forward, the moderate growth expectations for coming years suggest a slow return to normalcy. As home prices continue to drop and interest rates hover at all-time lows, first-time buyers and others who remained relatively cautious likely will be drawn back into the housing market. 

Optimism Is Up, but the U.S. Housing Market Faces a Painful Shift

None of the positive indicators means that the cloud is gone yet. Four years after the start of the financial crisis, and six years after home prices began to collapse, the market is still shaky. 

About one in four homeowners with mortgages, some 11 million households, are "underwater" -- owing more than their home values. Construction and sales of new homes remain anemic, with housing starts about one-third the historical average. 

Nationally, prices are about 35.1% below their peaks in 2006, according to the S&P/Case-Shiller Home Price Indices released this week. 

"While there has been improvement in some regions, housing prices have not turned," says David M. Blitzer, Chairman of the Index Committee at S&P Indices. "This month's report saw all three composites and five cities hit new lows." 

However, there were some better numbers in the index. Only about half as many cities, a total of seven, experienced falling prices this month compared to 16 last month. 

"Only three cities - Atlanta, Chicago and Detroit - saw annual rates of change worsen in March," Blitzer said. The other 17 cities and both composites saw improvement in this statistic, even though most are still showing a negative trend. Moreover, there are now seven cities - Charlotte, Dallas, Denver, Detroit, Miami, Minneapolis and Phoenix - where the annual rates of change are positive. This is what we need for a sustained recovery; monthly increases coupled with improving annual rates of change. Once we see this on a broader level we will be able to say the market has turned around." 

Mark Zandi, co-founder of Moody's Economy.com, reported the housing crash is "largely over" and points to some strengthening in sales and new-home construction, but does not believe this is enough to lift home prices. 

"The key is getting through more of the distressed properties that are in the foreclosure pipeline," Zandi noted recently, adding that this involves some 3.6 million of the nation's 49.5 million homes. "Until we work through them to a greater degree, that is going to remain a pall over home prices." 

What the Recovery Could Look Like

Initially, according to the Demand Institute, the recovery will be led by demand from buyers for rental properties, rather than, as in previous cycles, demand from buyers acquiring new or existing properties for themselves. More than 50% of those planning to move in the next two years say they intend to rent. 

Most home purchases require down payments of 10% to 20%, which is unrealistic for the majority of first-time buyers, said Jay Lybik, vice president of market research for Equity Residential, at the National Multi Housing Council's (NMHC) Apartment Strategies/Finance Conference and Spring Board of Directors Meeting last week. 

Citing research from the Brookings Institute, Lybik underscored the fact that just 20% of all households can afford to pay $2,000 in cash in 30 days. 

"The theory of national affordability ignores the real parts of what it takes to own a home," Lybik said. 

But don't expect wannabe homeowners to settle for traditional apartments, Lybik said. Many of these households - mostly families with children - seek single-family homeownership because traditional apartment product cannot meet their lifestyle needs. 

Single-family rentals could fit the bill though, he said. 

According to the Demand Institute, this initial rental demand will help to clear the huge oversupply of existing homes for sale. In 2011, some 14% of all housing units were vacant, while almost 13% of mortgages were in foreclosure or delinquent-increases of 12% and 129% respectively over 2005 levels. It will take two to three years for this oversupply to be cleared and at that point home ownership rates will rise and return to historical levels. 

In other key predictions, the Demand Institute said the housing recovery will look like this:

• Housing market recovery will not be uniform across the country. Some states will see annual price gains of 5% or more. Others will not recover for many years. The deciding factors will include the level of foreclosed inventory and rates of unemployment.


• The average home size will shrink. Many baby boomers who delayed retirement for financial reasons during the recession will downsize. They will not be alone. The majority of Americans have seen little or no wage increase for several years, and many will scale back their housing aspirations. The size of an average new home is expected to continue to fall, reaching mid-1990s levels by 2015.


• Consumer industries including financial services, home furnishings, home remodeling will all experience shifts in demand and new growth opportunities. Part of this spending is linked to increases in wealth from improving home valuations, while an even bigger part is tied to the "transaction" of buying or selling the home, which sets in motion increased demand for a wide range of products and services.

 Source: CoStar Group

Bank of America offering up to $30,000 for short sales

By Les Christie

May 15, 2012

NEW YORK (CNNMoney) -- Bank of America is offering some struggling homeowners payments of up to $30,000 if they sell their homes in a short sale and avoid ending up in foreclosure. 

Under the plan, Bank of America will offer homeowners so-called relocation payments of between $2,500 and $30,000 if they sell their home in a short sale. In short sale deals, the sale price of the home is less than what the seller owes the bank. 

The bank first tested the payments in a pilot program in Florida last fall. Under that initiative, Bank of America paid up to $20,000 to borrowers who sold their homes in short sales. 

"This program can help customers make a planned transition from ownership when home retention options have been exhausted or they have made a decision not to keep the home," said Bob Hora, an executive for the bank.

 

Chase started a similar initiative in late 2010 that pays as much as $35,000 to short sellers. Wells Fargo has also paid five-figure incentives to short sellers or to owners who turned over their deeds to the bank.

BofA said it has completed 200,000 short sales over the past two years. These sales are generally more cost effective for banks than foreclosures. 

By avoiding foreclosure, the lenders get distressed properties back from delinquent borrowers more quickly, which helps them to avoid property tax payments, maintenance expenses and legal fees that can build up for months, even years, as foreclosures work through the system.

In addition, the incentives help guarantee the homes will return to the lenders in better condition. Foreclosed properties are often poorly maintained, even sometimes sabotaged, by angry former owners, making them worth far less to the banks.

During the last three months of 2011, foreclosures sold for an average of about $150,000, according to RealtyTrac. Meanwhile, short sales sold for an average of about $185,000.

To qualify for Bank of America's relocation payments, borrowers must obtain pre-approval on sale prices for their homes. The sale must begin by the end of 2012 and close by September 26, 2013.

The exact compensation is determined case-by-case based on a calculation that involves the home's value, mortgage balance and other factors.

Borrowers can call 877-459-2852 to find out if they may be eligible for the program.

Source: CNNMoney

Mortgage delinquencies drop to 4-year low

By Les Christie
May 16, 2012


NEW YORK (CNNMoney) -- The percentage of borrowers who have dropped behind on their mortgage payments fell to a four-year low in the first three months of 2012, a bankers' group said Wednesday.

The Mortgage Bankers Association said Wednesday that the percentage of loans delinquent or already in the foreclosure process during the first quarter was 11.33%, the lowest level since 2008.

That was a decrease of 1.2 percentage points from a quarter earlier and 0.98 percentage point below the rate 12 months earlier.

"Delinquencies are clearly continuing to improve," said Michael Fratantoni, the MBA's vice president for research and economics.

Another hopeful sign is the falling percentage of borrowers who are just getting into trouble, ones who have missed one payment. 

That's useful for predicting the more seriously delinquencies to come.

"Newer delinquencies, loans one payment past due as of March 31, are down to the lowest level since the middle of 2007, indicating fewer new problems we will need to deal with in the future," said Fratantoni.

These new delinquencies represented 3.1% of loans outstanding, according to Jay Brinkmann, the MBA's chief economist. That matches the long-term historical average of 3.1% going back to the 1990s, he said.

"Basically, we're back to normal on that count," he said.
 
One factor that has slowed the healing is the continued difficulty lenders face moving foreclosures through the pipeline, especially in states that involve the courts in the foreclosure process.

In the so-called judicial states, 6.9% of loans are in foreclosure inventory, loans that the banks have begun the legal process of foreclosing on but have not yet taken control of the property through a foreclosure sale.

In non-judicial states, where foreclosures are handled by trustees such as title companies, only 2.9% of loans are in foreclosure inventory.

The difference is mostly the speed that banks can move defaults through the system, said Brinkmann.

One way banks have started to reduce foreclosures is that they are now encouraging short sales, the deals in which borrowers sell their homes for less than what the owe, leaving the banks to absorb the losses.

That can also move delinquent borrowers out of the homes more quickly.

Banks also know that short sales are less costly to them than foreclosures, in which expenses such as property taxes, insurance and maintenance can mount up. In addition, homes repossessed in foreclosures often come to the bank in poor condition, and they command lower prices, on average, than short sales.

The mortgage lenders now often pay large incentives to borrowers willing to cooperate in getting short sales done. For instance, Bank of America is offering some struggling homeowners payments of up to $30,000 if they sell their homes in a short sale and avoid ending up in foreclosure.

Source:  CNN Money

Could Multifamily Lead Single-Family Out of its Recession?

Private Market Lenders, Investors Would Have To Step it Up

 

By Mark Heschmeyer

May 9, 2012

 

 

The nation's housing finance overseer and Freddie Mac are citing the strong multifamily investment market as a reason for pushing ahead on their agenda to gradually eliminate government guarantees in the multifamily sector business and replace them with new private capital sources well ahead of efforts to begin unwinding their single-family finance operations.

Earlier this year, the Federal Housing Finance Agency (FHFA), issued a strategic plan for Freddie Mac and Fannie Mae that envisioned different kinds of roles for the two big government-sponsored enterprises (GSE) within the single-family and multifamily financing business. Doing so, the FHFA argued, could help revive the lagging housing market. 

Unlike their single-family credit guarantee business, the GSEs' multifamily businesses have performed quite well, generating positive cash flow. Last year, the GSEs multifamily businesses produced $1.9 billion in net income, with Freddie Mac accounting for 70% of this gain, as investors poured into the apartment sector. The trend continued in the first quarter of 2012, with Freddie Mac alone producing $624 million in multifamily net income. 

This week, David Brickman, senior vice president of the multifamily business for Freddie Mac, pressed the case further by outlining other reasons why multifamily finance should have a separate and distinct role in housing. 

· With fewer people owning homes, Brickman said there is a clear need to support more rental housing. 
· Private capital is beginning to flow back into the multifamily market. 
· The business processes and systems for single-family and multifamily financing and development are not alike. 
· Multifamily might aid in the recovery of single-family housing by transforming the large volume of distressed single-family properties into rental housing. 

But for such a plan to work, the private sector would have to step up their role significantly in multifamily finance, CoStar Group's financial analysts argue. 

In the past decade, the GSEs have played an important role in high-quality collateral underwriting and securitization, while lower-quality multifamily collateral was often securitized by conduit issuers, according to CoStar analyst Otto Aletter. However, even most of the better quality tranches of the private conduit issuers were created specifically for Fannie Mae and Freddie Mac to buy, increasing the role of the GSEs in the multifamily securitization market across the risk spectrum leading up to the credit crisis, both as originators and investors. 

Since the crisis, GSEs have increased their dominance of the CMBS issuance market even more. This year, GSE issuance is on track to outpace 2011 and pre-crisis levels. While it's a dominant role, it also demonstrates the continuing strength of the multifamily market, Aletter said. 

According to Freddie Mac's Brickman, during the economic crisis, most forms of private capital quickly beat an exodus from the multifamily market. That is now changing. 

"Recently, the demand for multifamily housing has increased occupancy rates, operating income, and property values, creating an attractive environment for new sources of capital," Brickman argued this week. "For instance, at Freddie Mac, since the beginning of 2011, private investors have purchased $18 billion in new multifamily bonds of ours. Life insurance companies, bank conduits, and real estate investment trusts also have demonstrated increased investment activity. Going forward, the increasing availability of debt and equity capital makes possible a broad range of possibilities for the multifamily market, including us." 

"I like that Brickman explicitly says that it has been private investors who purchased $18 billion of their issuance," CoStar's Aletter said. "One of my concerns was that the GSEs could be quietly buying back a lot of their issuance simply due to the preference for holding CMBS rather than individual loans in their portfolios. 

"The resurgence of multifamily securitization demonstrates that investor demand is much stronger for multifamily debt than for debt in other property types," Aletter continued. "Multifamily issuance accounted for approximately 62% of all conduit and GSE issuance in 2011, in contrast to approximately 21% in 2006." 

Because of that investor demand, Aletter argues, "with a slow and deliberate removal of government conservatorship in the GSE multifamily business and a clearer regulatory environment, other market participants and the privatized agency businesses could absorb the lending gap in most markets with minimal marginal costs to borrowers, establishing a healthier foundation for multifamily lending."

 

Source: CoStar Group

San Diego rents expected to rise this year

Reports: Demand outruns supply, so units will cost more and be harder to land

 

By Lily Leung and Roger Showley

May 13, 2012

Rents are expected to rise and competition for apartments may stiffen in San Diego County as more folks defer owning a home amid what appears to be a slowly improving job market.

Rising demand from young workers — also known as Gen Y’ers — fewer new units and tighter standards for mortgages also have pushed people into the rental market.

The result is a jump in rental rates. In March, the average rent in the county was $1,361, up 2.6 percent from a year ago, says real estate data company MarketPointe.

San Francisco finished 2011 with the highest rental-rate increase, at 4.7 percent, based on a separate report from commercial real estate company Cassidy-Turley, which has an office in San Diego. Washington, D.C., placed 10th with a 2.4 percent increase. San Diego County was not among the Top 10.

The county’s vacancy rate — the percentage of rental units that aren’t occupied — is at 4.43 percent, the lowest it’s been for a given March since 2008, when it was 3.63 percent. On a national level, San Diego has the sixth-lowest vacancy rate behind New York City, Minneapolis, Portland, Ore., San Jose and Seattle, the Cassidy-Turley report shows.

A big reason for the area’s lower-than-normal vacancy rate is lack of finished units.

MarketPointe estimates 2,650 units from nine projects are under construction in the county and most of them are expected to come online this year to help relieve demand, company spokesman Russ Valone said. Valone’s analysis shows the last time the county saw anywhere near that many units was in 2004, when 2,273 units were released into the market.

With such scarce inventory, demand is up and incentives either are no longer needed or are far “more modest now,” said Peter Dennehy, a vice president of John Burns Real Estate Consulting in San Diego. He added that rents in the county are expected to increase 3 percent to 5 percent a year this year because of those factors.

Fewer amenities, better price

 

Becky Parker, 24, was among the growing number of 20- and 30-somethings who moved back in with their parents after college to save up for their own pads.

Parker did that for a year, and last month, she moved into a two-bed, two-bath apartment in Solana Beach. She shares the apartment with a roommate for $1,695 a month, slightly lower than the average rent in that part of the county, according to MarketPointe figures.

“I looked at different places there and in La Jolla,” said Parker, a recent graduate of Loyola Marymount University in Los Angeles. “I chose this one because … it had the best price point.”

However, Parker had to sacrifice a few amenities to get the more affordable price, including an in-unit laundry machine and dryer and more up-to-date appliances.

‘We’re a little spoiled’

 

Daniel George, 30, and his wife went the opposite direction when it came to amenities and price. They spent the first quarter of the year looking for a newer rental in the county that was more decked out.

Last week, the couple from Los Angeles moved into a rental at Circa 37, what will be a 307-apartment community in Mission Valley that boasts a 10,000-square-foot recreation center, lounge, fitness center, spa and junior Olympic-size saltwater pool. They pay $2,200 a month.

“Before, we lived in a brand-new apartment when we were in L.A.,” said George, who relocated to San Diego for a tech job. “I guess you can say we’re a little spoiled. Where we were living, we had stainless steel appliances and hardwood floors. And a lot of the (other) places in (Mission Valley) didn’t have that.”

Homeownership rate low

 

What George and Parker, the Solana Beach renter, have in common is that neither are ready to be homeowners.

The U.S. Census Bureau reported the national homeownership rate was 65.4 percent in the first quarter, the lowest it’s been for a first quarter since 1997. The homeownership rate among those under 35 is 36.8 percent, the lowest it’s been in 17 years.

“We want to be free, to move depending where our jobs are,” said George, who signed a 15-month lease at Circa 37. He and his wife expect to stay there for two to three more lease terms.

Parker, the recent college graduate, says she expects to rent for at least five years.

“Buying a home,” she said, “I don’t know too much about it right now. Maybe once I settle down and everything.”


Source: UT San Diego

7 questions for your next real estate agent

By Beth Braverman

May 9, 2012

Even as the real estate market perks up, you need a savvy agent to nail the sale.  To find one, ask these questions. 

Photo: Jason Hindley

MONEY Magazine) -- After four years of sleepy sales during the traditionally busy spring and summer homebuying seasons, real estate experts are forecasting a pickup.

Record home affordability combined with a stronger economy may bring out bargain-hunting buyers and lure sellers who have been sitting on the sidelines. Already sales this winter were the highest since 2007.

If you're tempted to host or frequent an open house this year, keep in mind that navigating this market is not for the faint of heart. Sellers still face tepid demand in many areas and competition from banks unloading foreclosures and other distressed properties; buyers must grapple with tight credit. 

Pairing up with the right real estate agent can help you close the deal at the price you want. To make a good match, gather referrals, check reviews on sites like Zillow, Yelp, and Angie's List, and pose these questions: 

For buyers and sellers

 

How long was your drive over here? 

The less time the better. The crash has slimmed the ranks of agents (National Association of Realtors membership is down 26% from 2006); those who are left have more years on the job (a median of 12, up from seven). But not all experience is equal -- you want a realtor with hyperlocal knowledge, if not a home nearby. 

"If the agent hasn't closed deals on homes in your neighborhood recently, that could be a red flag," says Ginger Wilcox, head of industry marketing at Trulia.

Your ideal agent should be able to say off the top of her head how long homes in the area have been listed and why they have or haven't sold. If you haven't seen the agent's name on local FOR SALE signs, keep looking.

Can you tell me about your last three deals? 

The description of the people and places should sound like you and what you're selling or buying. The marketing approach varies for a million-dollar listing and a fixer-upper. Investors and first-time buyers have different criteria. And when you're scooping up a short sale or foreclosure -- or buying with all cash -- you need an agent who has negotiated with a bank or cleared the legal hurdles before.

 

For sellers

 

What's your URL?

 

Almost 90% of buyers shop online for a home, says the NAR. You want a realtor with his own homepage, as well as detailed and photo-filled listings on major real estate sites.

"Photos are really important to buyers," says Dorchester, Mass., realtor Julie Simmons, "and as a seller you want to have as many as you can." 

While you're vetting the site, dig deeper. Lots of homes with multiple price cuts could be a sign that the realtor isn't pricing them properly. What you want to see are homes that have been for sale for less than the norm in your area (ask other realtors what's typical). 

What's your batting average? 

Make sure a realtor is making sales, not just scooping up listings. Ask how many of his homes he closed on last year. There's no one right answer, especially in a slow market, but it's another data point for comparing agents.

Am I crazy to ask this much? 

Probably. "In some cases sellers are not going to like what they hear," says Denise Riordan, an agent in Montclair, N.J. 

Don't jump at the highest asking price. Better to get a frank assessment of changes you need to make and a price that would make buyers bite. Then verify by asking to see stats on comparable sales and the methodology behind the estimate. 

What is this going to cost me? 

The commission, paid by the seller and split by the buyer's and seller's agents, is traditionally 6% of the sale price. With homes sitting on the market for nearly 16 weeks, a listing agent who has to put in four months or more of work may not want to budge. But even now you can get it down to about 5% (your agent will typically still split it fifty-fifty and specify that on the listing). One way to bargain: Use the agent to buy your next home. 

For buyers

 

Can you let me in on any secrets?

 

The home you'd really like may not be listed -- sellers take homes off the market when buyers are scarce; others don't want to advertise for privacy reasons. The most connected agents know the homes that aren't officially on the market but whose owners would sell, says Steven Berkowitz, CEO of Move Inc. For the most options, find an agent who has the scoop. 

Going solo

 

You'll save plenty, but only 10% of sellers bypassed an agent last year. 

The costs of going it on your own include:

• MLS listing for six months -- $300
• Appraisal for pricing help -- $450
• Consultation with stager -- $350
• Lawyer to draw up contract -- $550

Versus a 5% commission on a $300,000 home - $7,500

Net savings -- $5,850 

Notes: Based on 5% commission; assumes seller pays 2.5% commission to buyer's agent. Sources: NAR, FSBO.com, Stagedhomes.com, MONEY research 

Source: CNN Money 

10 housing markets set for double-digit price gains

By Les Christie

May 9, 2012

NEW YORK (CNNMoney) -- Ten hard-hit housing markets will record double-digit price increases through 2013, according to a report Wednesday.

And with mortgage rates low, many house hunters have already started to pounce on bargains, said David Stiff, chief economist at Fiserv, a financial analytics company that prepared the forecast. 

 

"Some markets may have overshot to the downside, and people are jumping in to try to catch the bottom," Stiff said.

Nationwide, home prices will start rebounding late this year and gain an average of 4% a year over the next five years, Fiserv projects. 

In a separate report released Wednesday by the National Association of Realtors, the national median home price declined by just 0.4% in the three months ended March 31 compared with the same period in 2011.

About half of the 146 metro-area markets surveyed by NAR showed a price increase, as buyers make inroads into the supply of homes for sale all across the country. National inventory has dropped by 22% compared to a year earlier. 

 

"Given the steadily dwindling supply of inventory and notably higher listing prices that are being negotiated today, prices are expected to show further improvements in the near future," said Lawrence Yun, NAR's chief economist.

Home prices will also be driven higher as banks opt for short sales instead of repossessions. Repossessed homes sell for between 25% and 50% less than comparable homes sold by conventional sellers, according to Daren Blomquist, a spokesman for RealtyTrac, which markets foreclosed properties.

Bank repossessions often go through lengthy foreclosure processes and long periods of vacancy, during which they may deteriorate and lose value. 

Fiserv's Stiff forecasts that Madera, Calif., will produce the largest home price gain over the next two years. This market bubbled during the housing boom, with the median home price jumping above $300,000, according to the National Association of Home Builders.

Prices have since tumbled 53% off their peak, to about $125,000. Fiserv is projecting a price jump of 21.5% by the end of 2013 with 16.5% of that increase coming next year.

Other double-digit gainers will include Medford, Ore., with a 20.1% rise, Yuma, Ariz., with 16.7%, and Corvallis, Ore., with 11.4%.

Source: CNN Money

Another record low for mortgage rates

By Les Christie

May 10, 2012

NEW YORK (CNNMoney) -- Mortgage interest rates hit new lows this week as both the 30-year and the 15-year fixed-rates fell, according to a weekly survey by Freddie Mac. It was the second consecutive week that rates broke records.

The 30-year, the most popular mortgage product, fell by 0.01 percentage points to 3.83%. Last year at this time, it stood at 4.63%. The new lows can save borrowers $46 a month for every $100,000 borrowed. Over a 30-year term that comes to more than $16,000.

 

The 15-year fixed dropped by 0.02 percentage points to 3.03%, lowering borrowing costs to $692 a month for every $100,000 borrowed, a $38 savings compared with a year earlier. Borrowers would pay out only $24,565 in interest over the life of the loan.

Rates are tracking the downward trend in Treasury yields, according to Frank Nothaft, Freddie's chief economist, which have fallen in response to election results in Europe and a weaker than expected U.S. employment report.

"The economy added just 115,000 jobs, below the market consensus forecast and less than in March," he said. "And although the unemployment rate declined, it reflected fewer people actively seeking jobs."

Mortgage rates will likely not fall much further, according to Bob Walters, the chief economist for Quicken Loans. The low rates have sparked refinancings, which have accounted for upwards of 70% of all mortgage applications lately.

That flood of refinancings strain the capacities of mortgage lenders, especially since many have exited the industry over the past few years. When the remaining banks have trouble handling all the applications, they raise rates to discourage any more.

That means that when Treasury yields rise again, mortgage rates will follow at a slower rate, said Walters. Fewer homeowners will seek to refinance their loans and the banks will be better able to handle the lower number of applications.

"The spread between yields and rates will reduce when capacity comes into line," he said.

Source: CNN Money

More mortgage reductions in CA?

By Lily Leung

May 10, 2012

AP file photo

If you're a struggling homeowner in California with a mortgage owned by either Fannie Mae or Freddie Mac, then you may have a shot at a home-loan reduction through a $2 billion state program.

Officials with Keep Your Home California, which gives out mortgage aid, announced a key change earlier this week in its principal-reduction program that now allows both Freddie and Fannie to participate.

Starting in June, mortgage servicers will no longer be required to match program money dollar-for-dollar in order for a principal reduction to happen. However, servicers would have to agree to either a term or rate cut, or both. The state housing agency made the change to encourage more participation in a program that has gained little traction in the past year. 

"In response to this week's announcement by the California HFA (Housing Finance Agency,) the Enterprises will work with the HFA to apply its new program to Enterprise loans," according to a statement from the Federal Housing Finance Agency, which regulates Fannie and Freddie. 

What's important to note: Freddie and Fannie would not be paying off any loan balances in the Keep Your Home California program. With the matching requirement gone, the program itself would pay for 100 percent of the mortgage reductions.

Still, their participation in the state program could have a big impact considering Fannie Mae and Freddie Mac own more than 60 percent of mortgages in the state.

Fannie Mae and Freddie Mac made it clear to servicers in December that they could take part in mortgage-aid programs paid for by the Hardest Hit Fund, or the bailout, as long as they fit these criteria:

--The modification assistance program does not require the Servicer or Freddie Mac to make a financial contribution or match any assistance provided by the HFA

--Program participation and parameters for receiving assistance do not conflict with Freddie Mac’s modification requirements under the Guide or the Servicer’s other Purchase Documents, as applicable

--Receipt of funds does not impair the first Lien priority of the mortgage

--Funds are remitted to the Servicer from the HFA in a one-time lump sum payment

U.S. housing finance director Edward DeMarco, who regulates Fannie and Freddie, has been feeling the heat from California and federal leaders over the agency's unwillingness to cut mortgage balances of borrowers with loans owned or backed by Freddie or Fannie.

He has long said that mortgage write downs are not in the best interest of taxpayers and that the agency has determined other tools, such as the Home Affordable Modification Program, or HAMP, are already doing the job of helping at-risk homeowners avert foreclosure. 

Source:  UT San Diego

Now on sale at Costco: Mortgages

By Les Christie

April 26, 2012

photo: TIM BOYLE/GETTY IMAGES

NEW YORK (CNNMoney) -- Not only can Costco shoppers find bulk-packs of chicken wings, 24-rolls of toilet paper and large-screen TVs at a discount, they can now land themselves a mortgage. 

After a year of testing, Costco is rolling out a full-service mortgage lending program on its website in partnership with First Choice Bank, a New Jersey-based community bank, and 10 other lenders.

Costco's partners have issued more than 10,000 mortgages to members under the program. But Lauren Kutschka, Costco's manager of financial services, expects that number to swell as the warehouse retailer markets the service more aggressively to millions of members in its stores and in its weekly publication Connection.

"I went in to buy some bottled water, big bags of chips, cereal and some Nutri-Grain bars that I eat on my route," said Ray Sheets, a FedEx courier from Canton, Ga. "I saw a home loan brochure on my way out and picked it up." 

Sheets went onto Costco's site, put in his information and quickly accessed offers from four lenders. The rates, closing costs and terms were listed up front. And the closing costs -- of about $2,500 -- were about a third of what he would have had to pay through other lenders, he said.

Within a few weeks, Sheets refinanced his $170,000, 15-year fixed mortgage carrying a 4.25% rate into a 30-year loan with a rate of 4%. The move lowered his monthly payment by nearly $500 to $811 a month. 

Mortgages are just one of several financial products available to Costco's members. The warehouse club also offers health and auto insurance, as well as stock brokerage services, said Kutschka. 

Up next: Auto loans and student loans. 

"We've always known that our members wanted more financial services," she said. "Right now, we offer recreational vehicle and boat loans and we're going to add auto loans to that. We're also looking to offer student loans."

Costco had started offering mortgages a couple of years ago but the service provider it was using didn't share enough details about how it was dealing with Costco's members, said Kutschka. So Costco started over from scratch, partnering with First Choice Bank to build a new mortgage lending portal. 

Much like LendingTree, the site gathers quotes from various lenders. However, there is one key difference. Under the Costco program, the borrower's identity is revealed only after they officially select the lender, said John Alexander, business development director at First Choice. 

With many other lead-generation sites, the consumer fills out an application and any lender can make an offer and begin sending marketing communications to the applicant without restrictions. 

Costco members will still need to do their homework and compare offers, though, said Keith Gumbinger of mortgage information company HSH.com. Even after a year of testing, Costco's service is still new.

First Choice said it will police the other lenders to ensure they comply with Costco's policies, which include giving accurate rates and terms and following up quickly on questions and requests. The technology enables Costco to monitor individual applications and make sure they are handled properly and expeditiously. 

Costco takes no profit on the lending itself, but it does get paid to market the service. 

In Sheets' case, his lender, Bank of the Internet, sent a representative -- an attorney -- to his home to close on the loan, he said. She answered all his questions and explained all of the legal terms in the contract.

"There were no surprises," he said.

Gumbinger said the service may prove better for people like Sheets, who are refinancing than those who are purchasing homes. 

"The mortgage origination process is still a hands-on, face-to-face process," he said. "It involves a comfort level and you don't get that with an online service."

 

That may be true in the initial stages of the borrowing process, but once a Costco borrower has chosen a lender the level of service steps up, as Ray Sheets's lender did for him.

Given the size of Costco's footprint and its ability to squeeze great deals out of vendors, Costco members should at least "include the site in their search plan," said Gumbinger. 

Source: CNNMoney

6 ways to get a great mortgage deal

By Ismat Sarah Mangla

April 30, 2012

photo: thinkstock

(MONEY Magazine) -- Finding an affordable house is no longer a problem but qualifying for a mortgage can be. Six tips to getting a mortgage and a good rate.

Put your credit on ice. The higher your credit score, the lower your rate: The best rates go to those with a 760 or more, says credit-score expert John Ulzheimer. 

So keep that plastic in your wallet (and don't apply for new cards or other loans) for at least three months before you go loan shopping. One large balance -- even if it's paid off at the end of the month -- can ding your score by 20 points or more. 

Ask for time. Most sales contracts give you only 10 days to nab a loan or the seller can move on. Negotiate for an additional five to 10 days to give you some room to shop around.

Get at least six quotes. Rates on a 30-year fixed conforming loan can vary at least as much as a quarter of a percentage point. Get quotes from national lenders at mortgagemarvel.com and find out what your local credit union or regional bank is offering as well. Inquire about fees; while lenders aren't required to give you a good-faith estimate of closing costs (which average 2% of the loan balance) until you actually apply, some will provide it if you ask. 

Match the lock period to the loan. You now need 60 days or more to close a loan, says Wharton professor and mortgage expert Jack Guttentag of mtgprofessor.com, and getting an extension on a lock will cost at least a couple hundred dollars. Ask your lender how long it's taking to close loans like yours -- and don't lock for less. 

Opt for an ARM. If you know you're not going to be in a house for more than seven years, adjustable-rate mortgages can mean big savings, says Guttentag. The monthly payment on a $300,000, seven-year ARM at the recent rate of 3.23% is $1,302, vs. $1,455 for a 30-year fixed at 4.13%.  

Talk to a broker. Those who need a jumbo loan or have an unusual situation (say, you're self-employed) will get the best deal from a mortgage broker who has access to and experience with a lot of lenders. Find a fee-only one at upfrontmortgagebrokers.org.

Source: CNNMoney