Consumers Use Meltdown to Reduce Debt

Americans are erasing debt quickly.

Officially, the Federal Reserve puts total U.S. household debt, including mortgage debt, at $13.7 trillion, or 125 percent of annual after-tax income. But that assumes that the debt will be paid – and that may not be the case.

Mortgage loan expert First American CoreLogic estimates that about 9.3 percent of the country's 52.4 million mortgage holders were 60 or more days behind on their payments as of July.

Joseph Carson, director of global economic research at AllianceBernstein, expects the share of households' after-tax income that goes to pay mortgages and other related financial obligations to fall to 16.3 percent by the middle of 2010. That’s considerably below the 20-year average, leading up to the housing boom, which stood at 18.1 percent as of June.

"It's part of the cleansing process of a downturn," Carson says. "And it's happening a lot faster than people realize.”

Source: The Wall Street Journal, Mark Whitehouse (10/26/2009)

Foreclosures Tricks and Treats

HGTV’s real estate Web site Frontdoor.com has identified what it calls the “tricks and treats” of buying a foreclosure:

Tricks to avoid:

• Just because a foreclosure has a low price tag doesn’t mean it’s a bargain. Many need lots of expensive repairs.
• Buying a foreclosure property isn’t for amateurs. Buyers need a knowledgeable real estate practitioner to guide them through the process.

Foreclosure treats:

• Well-maintained foreclosures priced at 50 percent or less of their market value make homeownership very affordable.
• Building a relationship with a lender’s REO (real estate owned) department can help when it’s time to make a deal.

NAR Lauds Extension of Higher Loan Limits

The NATIONAL ASSOCIATION OF REALTORS^® thanked Congress for speedy action in passing a congressional resolution yesterday that would extend the current higher Fannie Mae, Freddie Mac, and FHA loan limits through 2010. The present loan limits would expire at the end of 2009 and revert to previous lower limits.

“NAR commends both houses of Congress for their quick action in continuing these higher limits during a time for recovery in the housing market and national economy. The higher limits, along with the home buyer tax credit extension, are necessary to keep the markets moving at this critical time,” said NAR President Charles McMillan.

“Home sales have shown significant movement upwards in the past six months and reduced inventory in some segments of the housing market, but not in all. Home purchases in the middle-income and higher brackets have not moved much, and those markets must improve before we can experience a fully sustained housing recovery. These higher loan limits will help motivate qualified home buyers to purchase in those markets,” McMillan said.

The resolution would extend the present conventional loan limits for Fannie and Freddie through the 2010 calendar year at 125 percent of local median home sales prices, up to a maximum of $729,750 in high-cost areas. The floor for FHA is $271,050; the floor for Fannie Mae and Freddie Mac conforming loan limits is $417,000.

The resolution now goes to President Obama, and he is expected to sign it today or Saturday to avoid a government shutdown.

Source: NAR (10/30/2009)

Homebuyer Credit Gets New Life

Key lawmakers in the Senate have tentatively agreed to extend the existing $8,000 tax credit for first-time home buyers and also offer a new $6,500 credit for existing homeowners who have lived in their current residence for a consecutive five-year period in the past eight years.

Home buyers must be under contract by April 30, 2010, and close before July 1. House Democrats have expressed concern about the cost of the tax credit for the government, and allegations of abuse have resulted in an IRS probe of the program.

Source: Wall Street Journal, Corey Boles and John D. McKinnon (10/29/09)

Good Housing News Predicted

All the leading indicators say housing is definitely on the mend, economists reported in advance of the official release of several pieces of good news expected this week.

Bloomberg News surveyed 53 economists and asked them where they expected the numbers to fall. Here are their predictions:

• Construction starts in September are expected to hit a 610,000 annual rate, the most since last November.
• Sales of existing homes likely rose to a two-year high.
• Because of fear of a relapse, the Federal Reserve is predicted to leave interest rates low for a few more months.
• Building permits, a sign of future growth, probably rose to a 590,000 annual pace, also the highest level since November, the Commerce Department is likely to announce.
• The National Association of Home Builders/Wells Fargo index is expected to rise to 20 from 19, the economists say.

Google Inc. plans to resume hiring and acquisitions after its third-quarter sales beat analysts’ estimates. CFO Patrick Pichette says: “We weathered what is an incredible recession. If you have all this behind you, the only outcome you should have as management is: ‘OK, let’s build now.’”

Source: Bloomberg, Courtney Schlisserman (10/18/2009)

Half of States Avoid Big Housing Drop

Parts of the U.S. with plenty of open space and moderate prices have mostly escaped the housing meltdown.

Over the past three years, home prices have risen in most of the metro areas of 23 states, according to analytics firm Fiserv. States mostly likely to escape the housing meltdown were in the South, the Plains states, and most of the non-coastal West.

The state that is the best example of this phenomenon is Texas, where home prices rose in all 26 metro areas over the last three years.

The 16 states hardest hit by the decline were in New England and the Northeast, plus California, Florida, Nevada, and Arizona.

The seven cities that are the best bets for a quick recovery are San Francisco, Seattle, Pittsburgh, Rochester, N.Y., Memphis, Tenn., Oakland, Calif., and Birmingham, Ala.

Source: CNNMoney.com, Les Christie (10/21/2009)

Things Condo Buyers Should Consider

Buyers who are considering the purchase of a condominium should inspect the health of the home owner’s association before they close.

The seller should provide the buyer all financial documents relating to the association in time for an attorney for the buyer to review them before closing.

Here’s some advice from Leonard Baron, professor of finance at San Diego State University, about the information that the seller should consider:

• Does the association budget include money for operating expenses such as water, lights, elevator maintenance, and landscaping?
• Is there extra money set aside in a reserve fund for long-term maintenance? If there is an outside reserve study, that should be provided. If not, there should be adequate money in the reserves right now to cover 50 percent of the estimated cost of repairs over the next 30 years.
• Do the condo’s expenses exceed revenues due to a high foreclosure rate or other reasons that owners’ debts go unpaid?
• If there is a shortfall, does the association have a plan besides cutting back on services for making it up?

Congress Debating the Tax Credit

Congress is considering expanding and extending the $8,000 first-time homebuyer tax credit, which expires Nov. 30.

More than 1.8 million home buyers will have used the credit by the end of November, including an estimated 355,000 who wouldn’t have bought a home without it, according to the National Association of REALTORS® and other analysts.

Mark Zandi, chief economist for MoodysEconomy.com, is among those in favor of extending the credit. Zandi would also make it available to all homebuyers. "The most fundamental argument for the credit is that nothing works in the economy if housing is falling," Zandi said. "[The credit] is a good insurance policy. It's vital to stem the housing price declines."

Opponents argue that the tax credit is too expensive and doesn’t help enough people.
Extending the credit through the end of 2010 and making it available to single filers earning up to $150,000 and joint filers earning up to $300,000 would cost an estimated $16.7 million. Some in Congress propose using unspent money from the $787 billion stimulus bill to pay for it.

Source: CNNMoney.com, Les Christie (10/14/2009)

Buyers Must Hurry to Meet Credit Deadline

There’s still time for a first-time home buyer to complete a transaction before the tax credit expires Nov. 30, says Diann Patton, consumer spokeswoman for Coldwell Banker Real Estate.

But home buyers who have to apply for a mortgage should make sure they have all the necessary paperwork in hand. Patton advises that they’ll need to have tax returns, income verification and bank statements, as well as completed applications forms ready to submit.

Buyers in a hurry to claim the credit should also avoid short-sale properties, Patton says, because that process can delay closings.

Source: USA Today, Sandra Block (10/13/2009)

Long-Term Mortgages Near Record Low

Thirty-year, fixed-rate mortgages moved closer to the all-time low of 4.82 percent reached in May, falling to 4.87 percent this week from 4.94 percent a week ago, according to Freddie Mac.

Home owners who refinance have an opportunity to reduce their payment on a 30-year, fixed-rate loan for $200,000 by nearly $134 a month from a year ago, when long-term rates averaged 5.94 percent.

Other mortgage averages were as follows:

• 15-year loans fell to 4.33 percent.
• Five-year adjustable-rate mortgages dropped to 4.35 percent.
• One-year ARMs rose to 4.53 percent.

A Historic Time to Buy

Young people just starting to invest and buying their first homes are potentially the winners in this recession.

First-time homebuyers, most between the ages of 25 and 45, accounted for about 45 percent of home sales from January through July 2009, according to the National Association of REALTORS®

"This is a historic time," says George Jaramillo, a 35-year-old business analyst in Atlanta, who recently bought three homes, two of them foreclosures. "It's a great opportunity to make some great gains in the future."

A study by investment company T. Rowe Price points out that investing when prices are low can result in amazing gains. For instance, between 1970 and 1990, the annualized rate of return for the S&P 500 was 11.5 percent.

"We need to be shouting from the rooftops that this is not the time to get out of the market if you're young," says Christine Fahlund, a senior financial planner with T. Rowe Price. "This is the time to be in the market."

Source: The Associated Press, Chip Cutter (10/05/2009)

ROBIN WILLIAMS EARNS PRESTIGIOUS DESIGNATION TO HELP HOMEOWNERS IN DANGER OF FORECLOSURE

Robin Williams of The Wells Group has earned the prestigious Certified Distressed Property Expert (CDPE) designation, having completed extensive training in foreclosure avoidance and short sales. This is invaluable expertise to offer home owners who are possibly facing the foreclosure process.

Short sales allow the cash-strapped seller to repay the mortgage at the price that the home sells for, even though it is lower than what is owed on the property. With declining property values, this can save many people from foreclosure and even bankruptcy. More and more lenders are willing to consider short sales because they are much less costly than foreclosures.

In La Plata County there are 234 homes in danger of foreclosing for the year. It is happening in all price ranges. Local experts say that even high-priced homes are not immune.

“This CDPE designation has been invaluable as I work with sellers and lenders on complicated short sales,” said Williams. “It is so rewarding to be able to help sellers save their homes from foreclosure.”

The CDPE is the premier designation for Realtors helping homeowners in distress and handling short sales.  Alex Charfen, founder of the Distressed Property Institute in Boca Raton, Fla., said that Realtors® such as Williams with the CDPE designation have valuable training in short sales that can offer the homeowner much better alternatives to foreclosure, which virtually destroys the credit rating. These experts also may better understand market conditions and can help sellers through the emotional experience.

Guess Who's Ditching Their Mortgages

A study of 24 million credit files by national credit bureau Experian and consulting company Oliver Wyman has shown that home owners with high credit scores are 50 percent more likely to deliberately walk away from a mortgage than lower-scoring borrowers.

The industry calls these “strategic defaults” and their numbers grew to 588,000 in 2008, double the total in 2007, and well beyond most earlier estimates.

The study determined:

• Strategic defaulters tend to go straight from paying their mortgages dependably to not paying at all.
• Strategic defaulters are heavily concentrated in negative-equity markets like California and Florida.
• Two-thirds of strategic defaulters have only one mortgage.
• Most likely to default are home owners with large balances and the highest credit ratings.

Small Mortgage Banks Band Together

Scores of independent mortgage banks have closed their doors over the past two years due to the challenges of obtaining short-term credit, and two new trade groups have been established in response.

The Community Mortgage Lenders of America and the Community Mortgage Banking Project both plan to lobby on behalf of local mortgage banks and lenders not owned by large banking companies, insisting they are necessary for a competitive market and holding down rates and fees.

John Courson, CEO of the Mortgage Bankers Association, says his group advocates a "level playing field" for all lenders and is taking steps to keep independent lenders in business.

Source: Wall Street Journal, James R. Hagerty (09/28/09)

Credit Crunch Stalls Affordable Housing

Tougher Federal Housing Administration standards and falling investor interest in the federal Low Income Housing Tax Credit program has stalled construction of affordable housing. And even when it is built or rehabilitated, it's become difficult for potential buyers to get financing.

"This is a national tragedy," said Judith A. Kennedy, president and chief executive of the National Association of Affordable Housing Lenders.

Affordable-housing giant Enterprise Community Partners and other nonprofit community development leaders have been lobbying Congress to change tax rules to broaden the appeal of the tax credits.

Sandy Marenberg, a real estate practitioner who owns Marenberg Enterprises, has found it particularly frustrating that he’s unable to find buyers able to qualify for loans to buy energy-efficient properties selling for about half their cost to build.

"The pendulum's gone from giving loans to everybody, whether they deserve it or not, to only giving loans to the overqualified. The folks in between are getting turned down, and many of them would be fine home owners," he said.

Source: The Baltimore Sun, Jamie Smith Hopkins (09/28/2009)