Home buyer credit extension heads to President’s desk

Congress passed a bill this week extending the deadline to close escrow and qualify for the federal home buyers tax credit.  President Obama is expected to sign the bill extending the deadline to Sept. 30, 2010, instead of its original June 30 deadline.
 
MAKING SENSE OF THE STORY FOR CONSUMERS
 
The bill extends the deadline to close escrow for home buyers who entered into a home purchase contract by the April 30 deadline.  First-time buyers may be eligible to receive up to $8,000 and qualified existing homeowners may receive up to $6,500 if the home buyer closes escrow by Sept. 30.
Home buyers entering into sales contracts May 1 or later are not eligible for the federal tax credit, but they may qualify for the California home buyer tax credit.
The CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) and the NATIONAL ASSOCIATION OF REALTORS® worked closely with members of Congress to extend the deadline.  Estimates from NAR show nearly 180,000 home buyers nationwide would have missed out on the tax credit if the deadline was not extended, including nearly 17,700 home buyers in California.
Many of the home buyers who would have missed out on the tax credit are in the midst of purchasing a short sale or foreclosure, which generally take longer to close due to the amount of paperwork involved in the transaction.

Percentage of homes with price reductions declines in June

A new report found 22 percent of homes listed for sale nationwide experienced at least one price reduction as of June 1 compared with 23.6 percent in June 2009, according to Trulia.com.  The average discount for price-reduced homes remained unchanged at 10 percent of the listing price.

Cities in the Western U.S. experienced the largest decreases in price reductions compared with the previous year. Las Vegas led the way with a 67 percent decrease and six California cities (Oakland, San Jose, Los Angeles, Sacramento, San Francisco, and San Diego) experienced a price reduction of 24 percent or more, according to the report.  

Price reduction levels for luxury homes–those listed at $2 million and higher–continued to hold steady with 21 percent of homes experiencing a price reduction and an average reduction of 14 percent off the listing price.

House Prices Up 5.1% in April Amid Slower REO Growth

Home prices in April gained 5.1% from last year, while REO levels across the country slowed their climb, according to the real estate data provider Clear Capital. The firm measures home prices on a rolling three-month period. REO took up 29.6% of the market in April, less than a percentage point of growth from 28.9% in March when levels increased from 26.1% in February.  The best performing markets manage to post positive gains as the tax credit expired in April. Alex Villacorta, senior statistician at Clear Capital, said an interesting dynamic they’re seeing is the distinction between markets that resist increased levels of REO and those that remain sensitive to them. “For example, the highest performing metro areas have seen prices remain relatively flat over the last quarter despite REO saturation rates averaging just above 33 percent. Contrast this with the lowest performing areas which have seen prices drop dramatically with average declines of more than 10 percent and a verage REO saturation rate less than those in the highest performing areas,” Villacorta said. “This paradox suggests that price trends are not wholly dependent on distressed sale volume, and re-enforces the need to understand local market trends.”

Consumer confidence rises in April

The Consumer Confidence Index rose to 57.9 in April (1985=100) compared with 52.3 in March, the Conference Board reported yesterday. The Present Situation Index increased to 28.6 in April from 25.2 in March, and the Expectations Index improved to 77.4 from 70.4 last month, according to the report.
“Consumer confidence, which had rebounded in March, gained further ground in April.  The Index now is at its highest reading in about a year and a half,” said Lynn Franco, director of The Conference Board Consumer Research Center.  “Consumers’ concerns about current business and labor market conditions eased again. And, their outlook regarding business conditions and the labor market was also more positive than last month. Looking ahead, continued job growth will be key in sustaining positive momentum.”
Consumers’ assessment of current conditions was more positive in April than in March, with those claiming business conditions are “good” increasing to 9.1 percent in April compared with 8.5 percent in March, while those claiming conditions are “bad” decreasing to 40.2 percent in April compared with 42.1 percent in March. Consumers’ appraisal of the job market also improved, according to the report.

Should you buy or rent a home? Cost gap narrows…

Affordable home prices and low interest rates have created an ideal time for many buyers to purchase homes, and now a new week-long look at homeownership confirms it.  The national study, conducted for The Associated Press, shows that the difference between monthly rents and mortgage payments is at its lowest level in nearly 20 years.
 
MAKING SENSE OF THE STORY FOR CONSUMERS
The analysis of 45 metro areas found the difference between the monthly mortgage payment on a median-priced home and the median rent has declined to $256.  In some areas, the difference is as low as $100, according to the study.  The last time the price gap was that close was in 1993, when it decreased to $264.
The study, conducted by Marcus & Milichap Real Estate Investment Services, used median prices for the last three months of 2009 and calculated mortgage payments by assuming a 10-percent down payment and a 30-year fixed loan at 5.07 percent.  It also assumed borrowers paid for private mortgage insurance and didn’t include repair costs and tax benefits.
Although the difference between monthly rent and monthly mortgage payments is at its lowest level in nearly 20 years, more stringent lending standards have made the home-buying process more challenging.  Home buyers can prepare by ensuring their credit reports are up to date and saving for a down payment of at least 20 percent.  Borrowers putting down less than 20 percent likely will have to purchase private mortgage insurance.
Owning a home has significant tax benefits, including deductions for property taxes and loan interest.  Homeowners also can enjoy building equity and creating a means of forced savings as they pay down the principal on the home.

Although home buyers should not focus solely on future home price appreciation, according to data collected by the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) over the last 40 years, homeowners who purchase a median-priced house, live in it for at least five years, and sell it at the then-current median price, have averaged an annual rate of return of more than 11 percent.

Creative Door Knocking

Mortgage servicers are growing more and more creative in outreach methods and door-knocking services in an attempt to enter distressed borrowers into workout plans, according to speakers at the sixth annual Texas Mortgage Bankers Association (TMBA) Southern States Servicing Conference.  Rick Roniger, executive vice president and chief operating officer at Westlake, Texas-based First American Loss Mitigation, said servicers used to mail outreach packages with return envelopes included. But when that method failed, servicers turned to increasingly creative rewards-based outreach programs.  These “gimmicks” included mailing coffee mugs with single-serving-sized packages of coffee grounds to borrowers with notes encouraging them to “sit back, relax” and fill out the information about their late mortgage payments, Roniger said.  Soon, servicers sent out field units to engage in a door-hanger service to encourage borrowers to contact their mortgage companies if they had trouble paying.
 

Door-hanging services soon became door-knocking services, which ultimately produced occasions of field agents knocking on borrowers’ doors and physically handing them a phone to call their servicers.  “If we can talk to people, we can usually reach a workout deal,” said Brad Staley, managing director at Irving-based iServe Servicing, who also spoke at the TMBA conference.  He noted the main challenge in resolving extremely distressed, low-value assets is making contact with the borrowers and maintaining that contact once a workout plan is initiated. Some field services go so far as to knock on borrowers’ doors after normal business hours and on weekend mornings, as well as stake out in cars in front of houses for up to an hour or until the borrowers return home.  If the borrower responds to the outreach efforts, a workout plan can be reached 85-90% of the time, Staley said.

Time to buy?

 

Consumers trying to time the market and purchase their home when prices are likely to rise again are advised to take a different approach. According to one real estate consultant, while home prices have stopped declining in most areas, and even have risen in some markets, mortgage rates may rise, offsetting any potential savings.

  Early last year, the Federal Reserve began purchasing mortgage-backed securities, which helped maintain low interest rates for consumers. However, the Fed’s purchase program ended in March, and some analysts forecast interest rates to increase throughout the rest of the year. One financial publishing company predicts that rates likely will rise to 5.5 percent by mid-2010 and close the year at 5.75 percent to 6 percent. The CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) projects rates on 30-year fixed-rate mortgages to average 5.6 percent this year.

Closely-watched indices, including the Standard & Poor’s/Case Shiller Index, indicate that the high end of the market didn’t experience the same dramatic price appreciation as the low end. Home prices in this segment have not declined as steeply as homes in the mid- to low-end of the market. Additionally, many discretionary sellers in the high end—those who do not have to sell their homes—are opting to wait until home prices rise before listing their homes for sale.

 The high end of the market also is facing challenges with buyers qualifying for financing. During the height of the market, many high-end home purchases were fueled by exotic mortgage products. Now that those mortgages are no longer readily available, many lenders are requiring borrowers to provide proof of income, such as W-2s and recent paystubs, as well as demonstrate their ability to meet the monthly mortgage obligation

Home prices firm up

In January the Standard & Poor’s/Case-Shiller 20-city home price index fell just 0.7% from last year on a seasonally adjusted basis, showing the smallest annual decline in almost three years.  The index reading of 146.32 was almost in line with analysts expectations, according to a survey by Thomson Reuters.  Better still, prices rose 0.3% from December to January, the eighth consecutive monthly gain. Among the 20 cities in the index, 12 rose.  “The housing market still has something of the blahs,” David Blitzer, an S&P managing director, told CNBC in an interview. “It’s a mixed report—one or two cities going better than last month—but overall ‘flat’ is probably a better description.”  The index, released Tuesday, is up nearly 4% from its bottom in May 2009, but still almost 30% below its May 2006 peak.  Many analysts expect that the Case Shiller number will eventually turn downward.  “It is only a matter of time before the index records a double-dip in prices,” wrote Pau
 l Dales, U.S. economist with Capital Economics, who forecasts a 5% drop. The market will be tested in the second half of the year, he wrote, when a tax credit that has boosted sales is gone.

Some good tips

In today’s economy, many homeowners are looking for ways to reduce spending.  One way to do so is by reviewing their homeowner’s insurance policy and looking for ways to cut costs without adversely affecting coverage.  Raising the deductible from $500 to $1,000, reducing coverage on the “household contents” portion of the policy, and installing home security devices could save as much as 25 percent every month on premiums, according to the Insurance Information Institute.
First-time home buyers easily can become overwhelmed with the many loan choices available to them.  Experts recommend first-time home buyers apply for a loan with an interest rate fixed for the length of time the buyer plans to live in the home. Hybrid loans may be an option worth considering, as they are fixed for a set period and later change to an adjustable-rate mortgage.  This may be a viable option for a buyer planning to stay in the home for just a few years or the length of the fixed-rate period.  However, most buyers should give serious consideration to a 30-year fixed-rate loan.

Shopping for a loan? A good faith estimate will protect you

  Beginning Jan. 1, the Dept. of Housing and Urban Development (HUD) required lenders to issue Good Faith Estimates to protect consumers applying for mortgage loans. Some loan officers, however, sidestep the new requirement by giving their initial quotes on informal worksheets that carry no federal consumer protections. It is important that consumers understand the differences between the federally mandated good faith estimate form and a lender’s informal worksheet.KEEP THIS IN MIND

• Last month, HUD told lenders and loan officers that under no circumstances can worksheet quotes be issued to a mortgage applicant in lieu of a good-faith-estimate form.

• Under the new law, once a mortgage applicant supplies the essential application information, including Social Security number, property address, and estimated value, among other data, lenders must issue a binding-cost good-faith estimate. Once this information is provided, lenders are required to issue the good faith estimate within three days of the application.

• Loan officers cannot refuse to provide a good faith estimate to an applicant who requests one, nor can they tell applicants that they must commit to moving forward with their mortgage company to obtain a mortgage prior to receiving a good faith estimate.

• Once an applicant has received a good faith estimate, they can take the form with them to comparison shop. The new form includes itemized boxes allowing mortgage applicants to compare quotes from up to four lenders, such as interest rates, loan fees, prepayment penalties, and total settlement expenses.

• The good faith estimate also ties upfront estimates to later charges at closing, and encourages borrowers to check line by line for any discrepancies. The form explains which fees come with zero tolerance for changes between upfront estimates and closing—generally the lender’s own fees and local transfer taxes—and which fees allow a 10 percent fluctuation for changes higher than the estimate, such as certain title and closing-related services.

• Some worksheets resemble good-faith estimates, but have titles such as “estimated settlement costs” at the top of the page. Others indicate on the bottom of the form that the worksheet is not a good faith estimate, so consumers should carefully review documents before making any decisions.