By Walter Hamilton and Alejandro Lazo Print Article
RISMEDIA, August 30, 2010—(MCT)—Hoping there are big profits to be made in the aftermath of the housing collapse, professional investors are flocking to the business of buying foreclosed homes at distressed prices. The investors, primarily private equity funds and groups of wealthy individuals, purchase the homes at public auctions, which are held daily on the steps of local courthouses. They refurbish the properties and try to sell them for quick profits.
Not long ago, the typical home flipper was an amateur tapping a home equity line or savings for an investment property. But professionals have rushed in, partly because of sparse investment opportunities elsewhere.
“In crisis there’s opportunity,” said Rick Hudson, president of investment firm Prosperity Group Real Estate in Irvine, Calif. “Right now, there’s huge opportunity with flipping houses.”
Closely watched gauges of professional buying have surged over the past two years.
The number of homes sold at foreclosure auctions in California increased to 4,336 in April, from 884 in January 2009, according to research firm ForeclosureRadar. It eased back to 3,483 in July as banks offered fewer properties for sale. The auctions are dominated by professional investors who shop with cash (although not usually with actual greenbacks, for practical reasons).
Another measure, the percentage of all homes sold to absentee buyers, paints a similar picture. In California’s hard-hit Inland Empire, for instance, 30% of all homes sold in April went to absentee buyers—up from 19% at the end of 2008 and the highest level in at least seven years, according to San Diego research firm MDA DataQuick. It was at 28.2% in July.
The binge of professional buying has helped spark a nascent housing recovery in Southern California, an area staggered by the subprime mortgage meltdown, because investors have cut significantly into a glut of foreclosed properties.
Home sales in that region rose 7.2% in June from May and 2.6% from a year earlier, according to MDA DataQuick.
The fragile rebound in the broader market contrasts with the behind-the-scenes scramble at foreclosure auctions.
“There’s a tremendous amount of capital that is desperate to just buy anything right now,” said Gil Priel, principal of a real estate investment firm in Woodland Hills, Calif.
In some cases, well-financed newcomers are elbowing out smaller investors at auction sales.
“The people who want to go and buy a house to flip, and do one or two, are already exiting the market,” said Jan Brzeski, who manages a residential investment fund at Standard Capital in Los Angeles.
The swarm of new investors, however, is making a treacherous and labor-intensive business even tougher.
Investors must do their homework on dozens of homes for every one they buy. Legal and other impediments usually prevent them from going into homes prior to buying them, leaving no way to gauge repair costs. And despite being foreclosed on, the original owners often still live in the houses. That forces buyers to pay them to leave, a dynamic known as cash-for-keys.
The influx of new players is pushing up auction prices and squeezing profits. The average discount at auctions—the difference between a home’s sale price and its actual value—is 21.6%, down from 28% in January 2009, according to ForeclosureRadar.
Last year, Chase Merritt, a Newport Beach, Calif., private equity fund management firm, notched strong returns from California auction sales, said Chad Horning, its chief executive. Chase Merritt bought a property in Costa Mesa in June 2009 for $315,500 and sold it 2 1/2 months later for $470,000. It bought a Mission Viejo home for $305,371 and sold it within two months for $375,000.
Chase Merritt launched its first foreclosure fund in May 2009 and has started two more funds since then. But “it’s literally gone from a business that’s very attractive, even lucrative, 12-18 months ago to something that almost doesn’t make sense,” Horning said.
The scramble was on display recently at an auction at the Norwalk, Calif., courthouse.
A semicircle of people crowded around auctioneer Elwood Brown. Most were clad in cargo shorts and flip-flops. A few sat in lawn chairs. But their laptops and cell phones, as well as the thousands of dollars’ worth of cashier’s checks they clutched, marked them as professional investors girding for battle.
Brown announced that bidding for a four-bedroom duplex in Hawthorne, Calif., would start at $179,598.60.
The price shot up within seconds as two men and a woman raised one another’s bids in $1,000 increments.
“It’s at 229, Daryl,” a man in a polo shirt and sunglasses whispered intently into his cell phone. “About to close. Do you want it?” He increased his offer, but a rival bidder claimed the home a few seconds later for $237,000.
Competition at the auctions is brutal, said Bruce Norris of Norris Group, a real estate investment firm in Riverside, Calif.
The daily auction ritual begins each morning when banks signal which homes they are likely to dispose of that day. That sets off an early-hours scramble as would-be buyers speed through suburban neighborhoods to investigate the homes.
On a recent day, Bruce Norris of Norris Group, a real estate investment firm in Riverside, Calif. steered his sport utility vehicle into the driveway of a 3,300-square-foot McMansion on a corner lot in Moreno Valley. The front lawn was brown and the backyard was littered with garbage. But the windows were intact and there was no visible damage—far better than many foreclosures.
Aiming for an all-important look inside, Norris rang the doorbell and delivered the bad news to the teenage boy who answered the door that the home was scheduled to be sold that day.
“Do you mind if I poke around a little bit to see what kind of condition it’s in?”
Norris asked, angling his body to get a glimpse of the living room.
Then another car sped up and a rival buyer hurried up the driveway. She studied the house for a few seconds and craned her neck over the wooden fence protecting the backyard. “This is a dream compared to a lot of them,” she said in a satisfied tone as she rushed back to her car.
In the end, no one bought the home. The sale was delayed after the owner filed for bankruptcy protection.
Norris was philosophical, knowing that there were plenty more foreclosures.
“If you miss one,” he said, “oh well, tomorrow’s another pile.”
(c) 2010, Los Angeles Times.
Distributed by McClatchy-Tribune Information Services.
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Copyright© 2010 RISMedia, The Leader in Real Estate Information Systems and Real Estate News. All Rights Reserved. This material may not be republished without permission from RISMedia.
Don’t miss these headlines on RISMedia.com:Homeownership and Stable Communities Go Hand-in-HandNew Rules Limit Too-Low Estimates of Closing Costs
Inman News
While the Fed and the Obama administration insist that recovery is moving forward, the pattern of inbound data produces the same, queasy sensation as their denial in the fall of 2007 and the summer of 2008.
New unemployment insurance claims hit a one-year high, to 500,000 last week. There was no dramatic spike, just steady deterioration. The Philadelphia Fed index yesterday stunned the remaining optimists: Expected to rise from a weak 5.1 in June, it fell to negative 7.7, weakest in new-order and employment components.
The definitive 10-year T-note broke last weekend from the 2.7 range to 2.59 percent, and is still hovering there, but mortgages are under upward pressure from refinance volume that doubled since April, and from the Fed's halt in buying mortgage-backed securities -- it is buying Treasurys now. Purchase applications are dead flat
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RISMEDIA, August 16, 2010—The number of price-reduced homes on the market increased 5.3% in July 2010 as compared to June, according to a monthly review of MLS-listed properties within 26 of the country’s largest housing markets conducted by the national online real estate brokerage ZipRealty.
Although the number of price-reduced homes increased in July, the median price reduction across the 4,500 cities and communities in 26 markets surveyed slightly declined from June, to $18,949.
“Home buyers this summer have been on the sidelines, waiting to find deals and bargains; so we’re seeing more sellers slashing their list prices to entice these home shoppers to make an offer,” said Leslie Tyler, vice president of marketing for ZipRealty.
Highlights of ZipRealty’s July survey include:
-More than 45% of “for sale” homes included at least one price reduction—an increase of 2.67% compared to June
-”For sale” prices dropped 2.04%—down to a median of $254,987 across the 26 markets surveyed
-In six major metros, more than one out of two home sellers reduced their list price—Jacksonville, Phoenix, Minneapolis, Orlando, Austin and Chicago
-The metro with the highest percentage of price-reduced “for sale” homes continues to be Jacksonville, Fla., where 54% of all July listings had at least one price reduction
-Denver had the lowest percentage of price-reduced homes on the market in July with 32.5%
-Sellers in California housing markets continue to hold steady with prices, compared to other parts of the country; Los Angeles County (39.4%) and the San Francisco Bay Area (40.9%) had the second and third lowest percentage of reduced listings out of all markets surveyed in July
-Buyers in the San Francisco Bay Area again enjoyed the biggest home price discount in absolute dollars, with a median price reduction of $38,000 in July
-Buyers in Houston, Dallas and Raleigh-Durham found the smallest price reductions, with a median price cut of only $10,000 in each of the three markets
-Markets with the largest median price reduction in absolute dollars were: San Francisco ($38,000), Orange County California ($31,000), San Diego ($31,000), Los Angeles ($29,000), Miami/Ft. Lauderdale/Palm Beach ($27,000).
For more information, visit www.ziprealty.com.
By Mary Beth Breckenridge Print Article
RISMEDIA, August 7, 2010—(MCT)—Now that summer is in full swing, your central air conditioning system needs to work its best in order to provide comfort on hot days. Here are some simple tips for getting the most out of your air conditioning in terms of both comfort and energy savings.
Quick fixes
-Block the sunlight – The sun’s heat can increase the indoor temperature significantly, said Harvey Sachs, senior fellow with the nonprofit American Council for an Energy-Efficient Economy in Washington. Close window coverings on the sunny sides of the house during the day, Sachs said. Longer term, you can consider measures such as adding awnings or planting trees to provide shade.
-Close the windows – It’s surprising how often people seek relief by opening windows while the air conditioning is running, said Mike Foraker, president of Jennings Heating and Cooling in Akron, Ohio. But all that does is let in hot, moist air. Air conditioning works in part by removing moisture from the air. If you keep adding humid air to the house, the air conditioner has to struggle to dry it. Consequently, the indoor air can never reach a comfortable temperature and humidity level.
-Leave the unit on – People sometimes turn the central air conditioning on only at night to save money. That’s fine when the weather isn’t too hot, but it’s a bad idea when the temperature reaches 90 or so, Foraker said. Turning off the air conditioning in extreme heat lets warmth and moisture build up in the house, he explained. The unit can’t eliminate it quickly enough to make the house comfortable at night, and it uses a lot of electricity trying.
-Clear the condensing unit - The outdoor condensing unit needs a supply of outside air to blow across the heated refrigerant, which is how hot air gets expelled from the house. Make sure the condenser has enough space around it to permit a good air flow. Trim any plants that are growing close to the unit, and make sure no mulch, grass or debris is blocking the bottom openings.
-Check the air filter - In almost every forced-air system, the furnace filter is also the air-conditioning filter. If it gets clogged, air flow is reduced. Change or clean it as often as the manufacturer recommends, usually every one to three months.
-Set the fan on automatic – Conventional wisdom used to dictate running the fan on an air conditioning system constantly to keep air moving throughout the house. Newer research suggests otherwise. Leaving the fan running increases what’s called the stack effect, the tendency of a house to pull in outside air to replace air that rises and escapes through openings high in the building.
-Mind the registers – Central air conditioning works best if air can flow through the house freely. If necessary, move furniture so it’s not blocking supply registers or cold-air returns. Don’t be tempted by magnetic covers designed to block air returns. It may seem logical that they’ll keep the cooled air in a room, but instead they just keep the air from returning to the central unit.
-Leave the oven off - Even when it’s closed, an oven adds as much heat to the air as an air conditioner can take out in the same amount of time, Foraker said. Grill outdoors, order takeout, make a salad for dinner—just try not to cook indoors on the hottest days.
-Turn out the lights - Incandescent light bulbs turn only 10% of the electricity they use into light, Foraker noted. The rest becomes heat. Turn off unneeded lights or switch to cooler compact fluorescent bulbs.
-Use ceiling fans – A ceiling fan moves air over the skin, evaporating perspiration and making you feel cooler. Running one even when the air conditioning is on will increase your comfort.
-Minimize humidity - Don’t add more moisture to the air than necessary. Run exhaust fans when you shower, and run hot-water appliances such as dishwashers and clothes washers in the evening, the American Council for an Energy-Efficient Economy recommends.
-Check the duct dampers - In a house with more than one floor, adjusting the balancing dampers helps send the cool air where you want it.
One government housing program that had run out of funds months ago was revived by Congress yesterday, and another bill targeted at low-income rental housing moved a step closer to approval.
The Senate yesterday passed HR 4899 to reestablish the popular U.S. Department of Agriculture Single-Family Housing Guaranteed Loan Program (Section 502 Housing) as a self-sustaining program. Also, the House Financial Services Committee approved H.R.4868, the Housing Preservation and Tenant Protection Act of 2010 which aims to stem the loss of affordable rental housing units and prevent the displacement of low-income tenants.
The Rural Housing program had run through its $13.1 billion funding by early this year and many buyers hoping to finance home purchases using Homebuyer Tax Credits were unable to close their loans. Depleted funding has been a nearly annual occurrence for the program that guarantees loans for single family homes in designated exurban and rural areas. The new legislation will end the annual uncertainty by putting the program on a self-funding basis through enacting a 3.5 percent guarantee fee paid by the borrower. The fee, while substantial, can be included in the total amount financed.
Senator Michael Bennet released the following statement, "The Rural Housing Preservation and Stabilization Act increases the maximum loan guarantee fee that USDA's Rural Housing Service has authority to charge for new housing purchases from 2.0 to 3.5 percent and allows an annual fee of not more than 0.5 percent per year on the balance of the loan. The bill would also enable the Rural Housing Service to waive these fees for low-income borrowers for up to $679 million in loans. Together, these changes will enable the USDA-Rural Development's Rural Housing Service to continue offering loan guarantees through the duration of the year and to become self-funding."
Despite the low down payment required to participate in the program, it is generally considered to be a good risk by lenders because of the 90 percent government guarantee and because the loan size is limited to 115 percent of the area's median income. This keeps the loans small; the average loan size is $112,000. Last year the foreclosure rate for these USDA loans was a reported 1.72 percent compared to 3.32 percent for Federal Housing Administration loans.
MORE BACKGROUND ON SECTION 502 LOANS
The bill now goes to President Obama for signature. As we went to press, USDA had not commented on the action and we are still waiting for guidance from lenders.
H.R. 4868 was approved by the House Financial Services Committee Thursday, and passed on to the full House for consideration. It is designed to prevent the loss of rental housing units from the pool subsidized by HUD for low income tenants. According to the bill's sponsor, Committee Chairman Barney Frank (D-MA), approximately 1.7 million rental units in over 23,000 privately owned properties are subsidized by HUD through various programs, some of which have existed since the 1950s. The Government Accountability Office (GAO) six years ago projected that over 193,000 units could convert to market-rate housing in the following 10 years as their HUD mortgages matured. These mortgages carry rental cost restrictions which would also disappear, enabling the owners to convert units to market rates or even to condominiums. While some of the tenants in those units would be sheltered from big rental increases by existing protections such as enhanced vouchers, GAO estimated that approximately 200,000 tenants in 101,000 units might face rent increases or eviction. The bill establishes several mechanisms to keep these units affordable.
Grants and loans will be available to both for- and non-profit housing sponsors to recapitalize the property and keep it affordable and the bill will establish a voluntary Preservation Exchange Program to encourage owners to sell to purchasers who will keep the property affordable. State housing agencies will have a right of first refusal to purchase a property that the owner wishes to sell as it comes out of the HUD program. A right of first refusal does not prevent the seller from accepting a better offer.
The legislation would permit property owners to request project-based assistance in lieu of enhanced vouchers if that would help keep the project affordable or assist with capital for rehabilitation and ensure that tenants are not displaced. Owners will also be able to receive budget-based rent increases as an incentive to renew Section 8 contracts and keep the property maintained.
In the event that housing does convert to market-rate rentals, the legislation will close gaps in existing laws to make sure existing tenants are eligible for enhanced vouchers to prevent displacement and includes notification requirements to ensure that tenants have time to plan for alternative housing.
The law has specific provisions for both elderly and rural housing. It will give HUD and affordable housing providers assistance in recapitalizing the aging Section 202 elderly housing portfolio and enables tenants to be partners with HUD and the Rural Housing Service (RHS) to ensure that housing is properly maintained. A rural housing revitalization demonstration program initiated in 2006 to preserve and recapitalize Section 515 properties will be made permanent and the bill extends the above provisions for HUD-assisted housing to tenants in RHS-assisted multifamily properties.
Finally, the law directs HUD to establish a nationwide database of HUD and RHS assisted properties so that the public and policymakers can more effectively monitor and preserve the existing portfolio of affordable housing. A vote on H.R. 4868 on the House floor has not yet been scheduled. READ MORE
By Toluse Olorunnipa Print Article
RISMEDIA, July 26, 2010—(MCT)—David Kosowski has a full-time job, a sky-high credit score, a solid debt-to-income ratio and enough cash stashed away to put a 20% down payment on the three-bedroom, two-bath home he’s had his eye on since spring.
But when he applied for a mortgage to cover 80% of the $495,000 purchase price of the Coral Gables, Fla., home last month, he was flatly denied.
His story is one that has played out with head-scratching regularity across the troubled housing market, industry analysts say, even as mortgage rates have dropped to historically low levels.
The average interest rate for a 30-year fixed-rate mortgage sank to a record-low 4.56% this week, according to government-sponsored mortgage buyer Freddie Mac. Fixed-rate 15-year mortgages dipped slightly to an average 4.03%, also a record.
But even as rates fall, lenders are raising the bar ever higher for applicants, making it harder for even financially-stable home buyers to qualify, and in some cases making homes affordable only to those able to pay with cash.
Kosowski, who seems to have weathered the recession and the housing market downturn better than many—he’s employed and has considerable equity in the three-bedroom home he purchased 10 years ago—said his application was rejected because the company he works for (and owns a 25% stake in) saw its earnings drop between 2008 and 2009.
That was enough, he said, for the bank to turn down his loan application—despite his 817 credit score, a history of meeting all debt obligations and a 21% debt-to-income ratio.
“They asked me to explain the earnings decline,” he said. “I wrote a letter explaining that the economy had been down in 2009, and the next day they said the loan was denied. I was very surprised.”
Steve Schneider, his mortgage broker, and owner of Greenwich Title Services in South Miami, said he was surprised as well. “His credit is as good as anyone I’ve ever worked with,” he said. “He should’ve flown through.”
Such rejections would have been unheard of a half-decade ago, when credit was flowing freely, often to people who couldn’t afford the homes and condos they were buying, said Doug Dewitt, a Miami-based real estate broker.
“Now the pendulum has swung completely in the other direction, and lenders are making you very accountable in terms of your credit history,” he said. “It’s like they don’t want to write one more bad loan.”
With South Florida’s housing market still struggling to recover from record-high foreclosures, toppled home values and a glut of inventory, the ease with which banks now turn down applicants is nearly unprecedented, he added.
Potential borrowers are being denied access to tantalizingly low interest rates for reasons ranging from insufficient down payments, to a less-than-perfect credit history, to concerns about the property or buildings they hope to buy into.
The current interest rates are so desirable because they translate into significant savings in monthly and total payments for home buyers. For example, someone getting a $250,000 home loan in July 2010 would save an average of about $155 each month, compared to someone getting a similar loan last July, when the average 30-year fixed interest rate was about a percentage point higher.
Mortgage lending in 2010—down about 50% from early 2009—has shown a complete 180-degree turn from the home lending practices that reigned before the housing market bubble burst, and represents yet another obstacle stalling a recovery in the housing market, those who track the industry say.
Kosowski had very little trouble getting a loan for the home he bought back in 2000, when his income was lower than it is today. As he looked to move into a bigger home this year, the stack of paperwork he had to fill was considerably thicker than it was 10 years ago.
“It’s night and day,” he said, comparing the two loan application experiences. “I had to give about a quarter of the information that they ask for now, my income was significantly less than it is now, and there was no problem getting a loan. It’s almost like they don’t want to lend.”
The low-interest rates have done little to spur activity in the housing market. Last week, the number of mortgage-loan applications for home purchases dropped to its lowest level since the 90s, the Mortgage Bankers Association found. Nearly four out of five applications were from existing homeowners looking to refinance, many of them rejected because of insufficient or nonexistent equity.
Despite prices that have fallen drastically in the past five years, traditional home sales to traditional, middle-income buyers have been pushed to the margins.
With the expiration of the federal home buyer tax credit and many still worried about losing their jobs, the stiff lending requirements of banks offer up yet another reason for the average person to not buy a home.
Kosowski, who works for a lighting manufacturing company, ended up paying cash for the Coral Gables home in June, and is hoping to get a refinance loan soon.
Greg McBride, senior financial analyst for Bankrate.com, predicted that mortgage rates would remain low for the foreseeable future, but it will take more than low-rates to spur a recovery.
“Low mortgage rates alone are not going to revive the housing market,” he said. “People are still nervous about their jobs, and reluctant to take the plunge into home ownership. And the market continues to be plagued by a very high level of distressed properties.”
After much ado our political "leaders" have finally come to an agreement on the broadest regulatory overhaul since the Glass Steagal Act of 1933.
By a vote of 60-39, the Senate yesterday passed HR 4173: WALL STREET REFORM AND CONSUMER PROTECTION ACT. The House already gave their seal of approval so the legislation heads to President Obama's desk where he is expected to sign it into law next week.
The bill includes several reforms aimed directly at the housing and mortgage industries. Instead of trying to translate the text into comprehensible English I chose to rely on the Mortgage Bankers Association's outlines. Once again they came through in the clutch...
HERE is an indepth summary of the text. Below are some excerpts from the MBA's overview.
Credit Risk Retention (Section 941) – Requires federal banking agencies and SEC to jointly prescribe rules requiring securitizers to retain economic interest of at least five percent of credit risk of assets they securitize. Regulations must include separate requirements for different asset classes, and may allocate the retention amount between originator and securitizer. HUD and the Federal Housing Finance Agency must participate in joint rulemaking process for residential mortgage backed securities (MBS) risk retention requirements. The statute requires an exemption for “qualified residential mortgages” which shall be defined by regulators based on statutory criteria to ensure sound underwriting and lower risk of default such as:
Exempts loans insured or guaranteed by U.S. from risk retention requirements. For commercial MBS, regulators must give consideration to other types, forms and amounts of risk retention such as representations and warranties, underwriting criteria and first-loss positions. Within 90 days of enactment, requires FRB to complete study on combined impact of risk retention and accounting standards requiring securitizations to be brought on balance sheet.
Prohibition on Steering Incentives (Section 1403)
Definitions of Mortgage Originator (Section 1401) – Means any person who for direct or indirect compensation or gain: (i) takes residential mortgage loan application, (ii) assists consumer in obtaining or applying to obtain residential mortgage loan; or (iii) offers or negotiates terms of residential mortgage loan as well as any person who represents to the public that it will provide any of services in (i)-(iii). Does not include any person who: (1) performs purely administrative or clerical tasks; (2) is employee of manufactured home retailer who does not advise consumer on loan terms; (3) only performs real estate brokerage activities and is licensed or registered in accordance with applicable state law, unless such person or entity is compensated by lender, mortgage broker, or other originator or their agents; (4) person, estate or trust that provides mortgage financing for sale of 3 properties in any 12 month period provided loan is fully amortizing, where borrower has ability to repay and is either fixed or adjustable only after five years and meets other conditions; (5) is servicer or servicer employee, agent or contractor, including but not limited to those who offer or negotiate terms of residential mortgage loan for purposes of renegotiating, modifying, replacing and subordinating principal of existing mortgage where borrower is behind in payments, in default, or has reasonable likelihood of being in default or falling behind; and (6) Excludes creditor except the creditor in a table funded transaction under anti-steering provisions.
Consumer Financial Protection Bureau (CFPB) Established – Establishes CFPB as independent entity housed within FRB. Assigns CFPB broad authority to write rules to protect consumers from unfair or deceptive financial products, acts or practices and reassigns to CFPB responsibility for major consumer protection laws including RESPA, TILA, HOEPA, HMDA and more, detailed below.
Appraisals, AMCs and AVMs – Prohibits appraiser coercion and requires rulemaking by FRB, OCC, FDIC, NCUA, FHFA and the CFPB on appraiser independence. Requires: interim rules by CFPB within 90 days of enactment on appraiser independence to replace Home Valuation Code of Conduct (HVCC); physical appraisal for every subprime mortgage and two appraisals for subprime mortgage when there has been purchase or acquisition of property at lower price within 180 days; Appraisal Subcommittee of the Federal Financial Institutions Examination Council to monitor state and federal efforts to protect consumers from improper appraisal practices and unlicensed appraisers; FRB, OCC, FDIC, NCUA, FHFA and the CFPB to prescribe minimum requirements for appraisers, appraisal management companies and standards for AVMs.
CFPB Authority – Assigns CFPB regulatory and supervisory authority to examine and enforce consumer protection regulations respecting all mortgage-related businesses, large non-bank financial companies, and banks and credit unions with greater than $10 billion in assets. Makes CFPB primary regulator for nondepository lenders. Exclusions from CFPB authority for real estate brokers, persons regulated by state insurance regulators, auto dealers, accountants, tax preparers, and others.CFPB Transfer Date – Requires Treasury, in consultation with FRB, FDIC, FTC, NCUA, OCC, OTS, HUD and OMB, to designate date for transfer of functions to CFPB within 60 days after enactment. Date generally must be between 180 days and 12 months of enactment. Authorizes Treasury to revise date after further consultation with agencies. If determined transfer of functions is not feasible within 12 months, Treasury must report to Congress.Coverage of Mortgage Lending Provisions – Includes mortgage originators who take or assist applications and negotiate terms of mortgages. Excludes creditors (except creditor in table funded transaction for anti-steering provisions) servicer employees, agents and contractors, persons or entities performing real estate brokerage activities and certain employees of manufactured home retailers from “originator” definition.Duty of Care – Requires loan originators to be qualified and licensed and registered, when required, and include on all loan documents the unique identifier of mortgage originator provided by the Nationwide Mortgage Licensing System and Registry (NMLSR).Minimum Standards for Mortgages/Ability to Repay – Prohibits creditors from making residential mortgage loans unless creditor makes good faith determination, based on verified and documented information that, at time loan was consummated, consumer had reasonable ability to repay loan according to its terms, and all applicable taxes, insurance and assessments.Presumption/Safe Harbor for Qualified Mortgages – Allows any creditor and any assignee or securitizer of “qualified mortgage” to be presumed to meet “Ability to Repay” requirements, although presumption may be rebuttable.Qualified Mortgages – Includes loans that meet several requirements including that the income relied on to qualify borrowers is verified and documented, underwriting and ratios are consistent with statutory and regulatory requirements, and total points and fees payable in connection with loan do not exceed 3 percent of total loan amount.3 Percent Limit – Applies definition in TILA with following exclusions: (1) up to and including 2 bona fide discount points depending on interest rate; (2) any government insurance premium and any private mortgage insurance (MI) premium up to amount of the FHA insurance premium, provided the MI premium is refundable on pro rata basis, and (3) any MI premium paid by the consumer after closing, e.g., monthly.Liability for Mortgage Originators – Establishes mortgage originators are liable for violations of duty of care and anti-steering prohibitions up to greater of actual damages or amount equal to 3 times total amount of direct and indirect compensation or gain accruing to mortgage originator for loan involved, plus costs and reasonable attorney’s fees.Discretionary Regulatory Authority – Grants broad discretionary regulatory authority to CFPB to prohibit or condition terms, acts or practices relating to residential mortgage loans found abusive, unfair, deceptive, predatory.Prepayment Penalties – Prohibits prepayment penalties for “not qualified mortgages.” Restricts prepayment penalties to loans that are not adjustable and do not have APR that exceeds Average Prime Offer Rate (APOR) by 1.5 or more percentage points for first lien loans, 2.5 or more percentage points for jumbo loans, or 3.5 or more percentage points for subordinate lien loans. Also, requires three-year phase-out of prepayment penalties for qualified mortgages and prohibits offering loan with a prepayment penalty without offering loan that does not have prepayment penalty.Average Prime Offer Rate (APOR) – Means the average prime offer rate for a comparable transaction as of the date on which the interest rate for the transaction is set, as published by FRB.Arbitration – Prohibits mandatory arbitration for residential mortgages and open-end consumer credit secured by principal dwellings, except on reverse mortgages.HOEPA Expansion – Expands coverage of HOEPA and its restrictions governing high-cost mortgages to purchase mortgages. Also lowers the APR triggers to cover loans with an APR more than 6.5 percent above comparable APOR for first lien loans (8.5 percent if the dwelling is personal property and transaction is less than $50,000) and 8.5 percent above for subordinate loans. Also, lowers point and fees trigger from 8 percent of the total loan amount to 5 percent (the lesser of 8 percent or $1000 for loans under $20,000).
Servicing – Requires escrows for certain mortgages and new escrow disclosures, shortens time frames for qualified written requests, establishes timelines for pay-off statements and crediting of payments, and limits late fees for high-cost mortgages. Requires monthly statements on ARM loans. Establishes new requirements for force-placed insurance including notices to borrower. Expands scope of Protecting Tenants at Foreclosure Act.Counseling – Establishes Office of Housing Counseling within HUD headed by Director to carry out wide range of counseling related activities including research, public outreach and policy development as well as coordinating and administering HUD counseling related programs.Reach of Bill – The bill directs certain provisions to all residential mortgage loans and other provisions to specified categories of mortgages, defined below, which include “qualified mortgages,” “not qualified mortgages,” “higher risk mortgages,” and “high-cost” or “HOEPA mortgages.”Regulatory Authority – Provisions assign regulatory authority to FRB, CFPB, federal banking agencies – FRB, OCC, FDIC and NCUA--and other agencies under various sections of bill. Provisions assigned to FRB under title XIV are reassigned to CFPB, except for provisions relating to housing counseling and certain appraisal-related matters. Assigns HUD regulatory responsibility for housing counseling provisions.
Now we wait and see how lenders interpret these reforms....
Consumer borrowing costs moved higher yesterday morning but were able to recover from weakness later in the day after stocks experienced a late session sell-off that pushed investor funds back into the bond market. A decline in bond yields led mortgage-backed securities prices higher and allowed lenders to reprice for the better.
A flight to safety happens when investors are nervous about owning risky assets like stocks, but do not want to miss out on earning a return on their funds, so they allocate money into risk-free U.S Treasury debt to provide a safe-haven AND an investment return. To remind readers, as benchmark Treasury yields fall, prices of mortgage-backed securities move higher, which allows lenders to offer lower mortgage rates. As Treasury yields rise, mortgage-backed security prices are led lower, which generally forces lenders to push mortgage rates higher.
We only received one economic report today: the Mortgage Bankers Association Weekly Applications Survey.
The MBA loan applications survey covers over 50% of all US residential mortgage apps taken by mortgage bankers, commercial banks, and thrifts. Survey data gives economists a sample of consumer demand for mortgage loans. In a low mortgage rate environment, a trend of increasing refinance applications could imply more consumers are seeking out lower monthly payments. If more homeowners are able to qualify for lower payments, their disposable income would increase which could lead to a rise in consumer spending (or give consumers a chance to pay down other debts like credit cards). A falling trend of purchase applications indicates consumer demand for new and existing homes is on the decline, a negative for the housing industry and the economy as a whole.
Purchase applications have steadily plummeted since the homebuyer tax credit expired on April 30, but that was to be expected. On the other hand, a "flight to safety" into government bonds has been supportive of low mortgage rates. As consumer borrowing costs have declined, more consumers have been able to refinance their home loan, and the MBA's refinance index has reflected it! This trend continued again in the previous week...
The Refinance Index increased 9.2% from the previous week and is the highest Refinance Index observed in the survey since the week ending May 15, 2009. The Purchase Index decreased 2.0% from one week earlier. The Purchase Index has decreased eight of the last nine weeks and the refinance share of mortgage activity is the highest percentage observed since April 2009.
Michael Fratantoni, MBA’s Vice President of Research and Economics said, “Mortgage rates remained near record lows last week, as incoming data on the job and housing markets were weaker than anticipated. As more homeowners locked in to these low rates, the level of refinance applications increased to a new 13-month high...For the month of June, purchase applications declined almost 15 percent relative to the prior month, and were down more than 30 percent compared to April, the last month in which buyers were eligible for the tax credit.”MND ASKS: Is the rise in the refi index a factor of new borrowers entering the refi market or is it a factor of borrowers re-locking at another lender for a lower rate/cheaper cost? Originators, did you lose a deal or two last week?
From my post yesterday: Typically, in weeks like this, the bond market and mortgage rates take their directional guidance from the general sentiment of the market. Stock market sentiment is highly negative and low bond yields continue to reflect weak investor appetites for risky assets. This week is also a popular summer vacation time slot, so investor participation will be below average. Because the scheduled release calendar is thin and many investors have moved to the sidelines, we do not expect a major shift in consumer borrowing costs this week.
Stocks started the session today trading slightly in the red, which helped keep benchmark bond yields low and allowed lenders to improve mortgage rates. Loan pricing looked so aggressive this morning that we checked our database and it looks like lenders were offering the best rate sheets of our lifetime...breaking a "record" that was set just last Tuesday! Unfortunately those good fortunes didn't last all day. Stocks rallied from overnight lows around mid-morning and benchmark interest rates began to rise. Although MBS prices were able to withstand some selling, they eventually caved to the pressure and lenders were forced to reprice for the worse. No big deal though, even after the "reprices for the worse", mortgage rates are still improved vs. yesterday!
The best par 30 year fixed conventional mortgage rates remain in a range between 4.375% to 4.625% ranges. There are a few lenders offering 4.25% but that rate will cost up to 2 points at the closing table. To secure a mortgage rate in the best rates range, you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs including an estimated one point loan origination/discount/broker fee. If you have a lower FICO score or a higher loan to value, you should consider a FHA loan. They offer similar rates but with lower FICO score requirements and higher loan to values, but the closing costs will be higher.
Rates are holding at lifetime lows and I continue to advise my personal clients to lock as soon as possible as the risk of losing loan pricing far outweighs the rewards one might see from floating. Let me repeat, rates are once again at the best level of your lifetime!
By Alana Semuels Print Article
RISMEDIA, July 1, 2010—(MCT)—With home sales sliding, employers reluctant to hire and world stock markets gyrating wildly, the U.S. economy is in danger of stalling. Now one of its only reliable sources of fuel is running out: federal stimulus spending.
Funds flowing from the $787 billion legislation passed last year have helped create hundreds of thousands of jobs and propped up social programs such as unemployment benefits. But with much of that money spent and lawmakers reluctant to approve another big round of spending, concerns are rising about what will replace it in the short term to keep the economy moving.
Jitters about a global slowdown pounded world markets recently after an index forecasting Chinese economic activity was revised downward and Greek workers walked off the job to protest government budget cuts. In the U.S., the Dow Jones industrial average plunged 268 points on news from the Conference Board that consumer confidence fell in June after three straight months of gains.
Economists worry that the weak labor market will spook U.S. consumers, whose spending fuels the economy. Dwindling federal stimulus funds are only heightening those fears.
California’s $85 billion share of stimulus funding has repaired bridges and highways, built barracks on military bases and renovated crumbling infrastructure. Disabled veteran Bill Vaughn says his biggest job this year was a stimulus project repairing a pipe at the VA Greater Los Angeles Healthcare System. Since that job ended in January, he hasn’t found work for his firm, BCV Construction. “My company’s on the verge of closing,” said Vaughn, who lives with his in-laws in the Northridge section of Los Angeles.
In addition to infrastructure improvement, about $18 billion of California’s share of stimulus funds has been spent on social programs such as Medicaid, unemployment insurance and food stamps. Billions more flowed to schools and job centers. But with those funds now gone, officials are preparing for another round of belt-tightening.
“It was unbelievable feast one year and famine the very next,” said Blake Konczal, director of the Fresno Regional Workforce Investment Board, which used stimulus funds to help more than 2,000 unemployed people attend job retraining. The office’s budget doubled thanks to $16.4 million in stimulus funds but will contract again in the new fiscal year, which begins July 1.
The American Recovery and Reinvestment Act has been contentious since Congress approved it in February 2009 to aid an economy mired in a deep recession. Republicans have been particularly critical of the program and its price tag, and the final bill was billions of dollars smaller than the one President Barack Obama had originally proposed.
But seventeen months later, those stimulus jobs, along with temporary government positions created for the 2010 census, are among the few bright spots in a dismal employment market. The nation’s unemployment rate is 9.7% and companies have shown little willingness to hire. Private-sector employers added just 41,000 jobs in May, out of a total of 431,000 jobs created.
The government has few levers left to pull to produce quick growth. Interest rates are already at rock-bottom levels. Concerns about swelling U.S. deficits have many on Capitol Hill opposed to the idea of another stimulus. That has some economists worried.
“There’s an uncomfortably high probability that we slip back into recession,” said Mark Zandi, chief economist of Moody’s Analytics. “If we slip back, there’s no policy response. We won’t have the resources to respond.”
To be sure, there are still thousands of ongoing stimulus projects and billions of dollars to be spent. The Obama administration is calling this “Recovery Summer” and will spotlight dozens of stimulus projects in the coming weeks. But many important programs are losing funding.
Among the most crucial is unemployment insurance. Benefits vary from state to state, but the federal government has helped pay for five extensions that have boosted the duration of payments in states including California to as much as 99 weeks from the standard 26 weeks. Stimulus funds have also helped subsidize health benefits through the Consolidated Omnibus Budget Reconciliation Act, or COBRA, which gives jobless workers an opportunity to continue their coverage at group rates for a limited time.
Efforts to extend those provisions are stalled in Congress. The National Employment Law Project estimates that 1.63 million workers will exhaust their benefits by the end of this week, and at least 140,000 workers will lose COBRA coverage.
In California, which has the nation’s third-highest unemployment rate at 12.4%, the Employment Development Department estimates that 205,000 unemployed workers will not receive further benefits without congressional action. About 2 million Californians are unemployed; nearly half of them have been out of work for 27 weeks or more.
“There’s nothing out there,” said Jennifer Tilt, a resident of Bloomington, a town in San Bernardino County, whose unemployment benefits will expire soon. Tilt, who has a bachelor’s degree, said she’s applied for jobs at fast-food restaurants to no avail. She’s dependent on her two grown children and her mother’s Social Security check to pay the bills.
Other programs are in jeopardy as well. The federal government temporarily increased the amount it contributed to state Medi-Cal payments by 11.6%. Without further congressional action, those contributions will end Jan. 1, halfway through the state’s fiscal year. The state will have to find the money for Medi-Cal elsewhere, probably through $1.8 billion in further cuts, according to the governor’s office.
“The human impact of requiring us to find another $1.8 billion in spending cuts to replace federal funding that was designed to help states avoid deep cuts is both cruel and counterproductive,” Gov. Arnold Schwarzenegger wrote to the state congressional delegation earlier this month.
Republicans say extending benefits and other provisions of the stimulus bill will add to the country’s trillion-dollar deficit. “Here’s another idea Democrats should consider, one that Americans have been proposing loudly and clearly: Stop spending money you don’t have,” Republican leader Mitch McConnell of Kentucky said last week on the Senate floor.
But Democrats—and some economists—say that spending money now to create jobs and fund unemployment benefits is the only way to stave off another recession.
“What worries me the most is this idea that austerity is going to be helpful,” said Michael Reich, a professor of economics at the University of California-Berkeley, who said that ending unemployment benefits could drive more people to file for disability and hamper long-term growth. “When you make an economy shrink, it makes it harder to pay back debt in the future.”
The nation’s construction industry provides a window into the tough choices facing lawmakers. Federal tax credits have helped drive home sales while stimulus spending on infrastructure has put laborers back to work. Such subsidies are unsustainable in the long run. But when to pull the plug?
New-home sales dropped 33% in May 2010 as home buyer tax credits ended. Construction employment declined in 25 states that same month, according to the Associated General Contractors of America.
“In the next few months, unless some other kind of work comes along, we’re not feeling very optimistic,” said Ken Simonson, chief economist for the contractors trade group.
Ever wonder what a real estate "Appraiser Apprentice" job interview, with a recent college graduate, would sound like? The author, R. James Girardot ( aoi@oz.net) says . . . Let's see:
First - Job candidate, can you work for 2 years with no income?
Second - You won't mind setting your schedule around mine because I have to walk through all properties with you. Yes, I know doctors, attorneys, dentists, engineers, teachers, etc. don't require that stipulation, but you see, I am not sure I can tell you that you are entering a "profession" nor even a "business" in which anything from your degree is usable anyway.
Third - After 2 years of working for free and of scheduling your schedule around mine [especially since I will have 2 other apprentices in the same category plus will be doing appraisals myself so that I can financially subsist] your fees will be totally dependent on how many appraisers there are out there at that time competing for the same business that is left after the AVMs and the BPOs do their thing in government approved property valuations for mortgage purposes. Could you gross $30,000 per year? You might. But, again, the trend currently is downward when it comes to appraiser fees.
Lastly, I cannot lie or mislead you, you will have expenses taken out of whatever fees you will earn: those will include:
You say your college buddies are getting 2 weeks vacation, medical insurance, 401(K) and more. No, no, no, you don't get any of that by being an appraiser. If there is income left from the wages you are paid for the appraisals you complete, then you might be able to take a vacation and do all those other things.
You think we should just charge more for your professional services? Sorry, again the answer is "no." There is no way you can charge what you need to in order to be an appraiser; those days are gone just like the dinosaurs. Appraisal fees today are totally beholden on how much of the appraisal fee (that the borrower pays the lender at the time of applying for a mortgage) that the lender and its appraisal agency are willing to pass on to you as the appraiser.
But appraisers are independent business people. Don't they set their own fees? Sorry, again, there are just not enough real appraisers out there to change that situation. The reasoning that is most heard is that "if I don't accept those wages, I will have to go back to the assembly line and I would do anything rather than that. Besides, I like not having a boss."
How many appraisals would you project you could do once you become licensed or certified? THAT is a good question. The answer is really dependent on whether or not you want to have any free time for yourself, your family and your hobbies or, alternatively, whether you want to invest the time in each appraisal to do the right job. You see, while reducing the fees paid to appraisers, those who assign appraisals to appraisers today also insist on getting their reports back within 1 or 2 days.
Yes, you are independent; as I said before, you will have no bosses. However, if you do not meet their timeline requirements, you will also have not appraisal business? So what approach would you use: find out how to cut corner? take the time to do the right job? And given either situation, how many appraisals do you project you could do if you are going to do them correctly, do them within the 1-2 day requirement and still have a private life.
Weekends? No, those who assign appraisals say you do not have to work weekends. BUT remember their clocks begin to tick away time once they send an order to an appraiser.
Could you compete to obtain more business because you are good and honest? Is that your question?I feel like I am apologizing for the Gulf oil spill I am saying "I am sorry" to you so many times. No, there is no competition in the "profession" today. You simply try to find what are called appraisal management companies, otherwise known by the acronym AMCs, see if they will let you register with them, look at their wage sheet to see if you can live with the wages they are offering (keeping in mind ALL expenses and fringes of life are yours to be paid by those wages only) and then see if they actually accept your name. That is just part of the system. The next thing you do is sit and wait for them to notify you that they have an appraisal for you to do.
How many orders will you receive and how often will you receive them? Very good question indeed. You see, the answer to that is totally dependent on how many appraisers that company has approved in its rotation directory. Based on experience to date, I would rather that you plan on a minimum of appraisal orders rather than how many an ambitious, bright and hard-working person you appear to be.
Okay, if I understand what you are saying now, you saying you really do not and never wanted to be a business person who owns their own business? So you had thought you could go to work for an appraisal company, conduct as many appraisals as you were willing to commit and physically able to do and leave all the other registering, delivering of appraisals, tax withholdings, business promotion and business retention to the appraisal company itself.
Again, and I really do mean this: I AM SORRY! Because of the wage scale the companies that assign appraisals impose on those who are willing to do their work, companies like those with regional supervision and all the other benefits of a company team are gone like the dinosaurs, too. You see, those companies used to structure their pay on the experience of the appraiser, the ability of the appraiser and the fees that they used to be able to charge lenders for appraisals which used to allow a good businessperson the ability to budget money to actually pay a staff. But that is gone now that fees charged by appraisers are gone and have been replaced by wages payed by those who order appraisals.
Yes, I am sure your spouse's parents just paid $500 to have an appraisal done on the home they just purchased. But therein is the crux of the story: ask your in-laws to see if they can find out how much of that money actually went to an appraiser to appraise their new home. While this next step might be disappointing, too, you might also suggest that your in-laws now obtain a private appraisal not using their lender's appraiser. The only reason I say that is because of the number of loan officers with banks of all kinds and all sizes apparently now telling their mortgage borrowers not to depend on the bank appraisal as the actual value of the home.
I well appreciate your questions, "So why did I go to college? Why didn't someone tell me all of this before?" Rather than answering with the same answer you have heard me say so many times during our interview, let me just say I sincerely apologize for you feeling that way. Truly, going back to how or whether you will receive appraisal orders that we discussed just a few minutes ago, there is one other thing you should be aware of:
You know how you got grades in college? Well, you will still be receiving grades.
So you don't think you needed a college education to be able to fill out a form? So you think you will be communicating that to your congressperson?
Why don't we just provide training classes on how to fill out forms as other businesses do rather than make someone think they need college education to do that? You might also ask your congressperson that question if you do write a letter.
It was a pleasure meeting you. I can tell from the interview that you are exactly the kind of new blood we need: you appear very professional, very honest, speak like you are ethical in all aspects of your life and your philosophy of life and I do believe you when you said you just wanted to provide an honest service for the benefit of those who are buying or refinancing the single largest investment they make in their lifetimes--their homes. I would be interested in hearing what you decide to do for a career. Thank you for the opportunity to meet and chat with you.
It was a pleasure meeting you. I can tell from the interview that you are exactly the kind of new blood we need: you appear very professional, very honest, speak like you are ethical in all aspects of your life and your philosophy of life and I do believe you when you said you just wanted to provide an honest service for the benefit of those who are buying or refinancing the single largest investment they make in their lifetimes--their homes.
I would be interested in hearing what you decide to do for a career. Thank you for the opportunity to meet and chat with you.
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