“Wake Up and Call John!” - John Wake, Associate Broker, HomeSmart Real Estate

The Fed is scheduled to stop buying mortgage-backed securities (MBS) at the end of March. It seems the consensus is that mortgage interest rates will increase but estimates of the size of the increase are all over the map.

These estimates are taken from a post at Calculated Risk.

• 1%
• 0.75%
• 0.5%
• 1-2%
• 0.5-0.75%
• 0.5%
• 0.35-0.5%

Earlier discussion here.

On the other hand.

{ 3 comments }

From the New York Times;

While both banks and nonbanks practice proprietary trading, only banks have a safety net in the United States. Both, however, would be subject to a resolution authority, an institution that would unwind them in case of collapse, if that idea is enacted as law.

“Nonbanks by and large are not regulated as tightly as banks,” Mr. Volcker said. But “if they got into trouble, the theory is that they will not be rescued, but they will have an orderly demise.”

Just make this guy the Treasury Secretary.

{ 0 comments }

***Smart Financial Weekly Mortgage & Business Update February 12, 2010***

Interest Rates
Retail mortgage rates remained at or just below 5% again. Seems that there is a fairly vigorous debate over what rates will do at the end of March. This week the head of the St. Louis Federal Reserve James Bullard said that he did not expect to see a noticeable increase in mortgage rates when the Fed ends its MBS purchasing program in March. This comment is in contrast to many industry participants who believe that rates will increase .50% to .75%. Guess we’ll know pretty soon.

When Rate
This week 4.97
1 Month Ago 5.06
1 Year Ago 5.16
2 Years Ago 5.72

Note that actual market rates vary geographically and by lender, credit score and Loan to Value.
Source: Federal Reserve Statistical H.15.

Mortgage Industry Update
• CitiMortgage is introducing a new foreclosure pilot program for homeowners. The program calls for the lender to take back the home and forgive the debt without a foreclosure (deed-in-lieu-of-foreclosure). It is aimed at homeowners who don’t want to keep their homes (Strategic Defaulters for example). The homeowner can stay in the home for six months as long as they pay the utilities and negotiate other costs (property taxes, insurance, HOA dues). At the end of six months they will get $1000 to help cover relocation expenses. Citi will also review other options for the homeowner including short sale and loan modification. Six states will participate in the pilot program and if successful it will be expanded. Arizona is not one of the six states.

Good News
• The National Federation of Independent Business said its January Index of Small Business Confidence was 89.3 the highest level since September 2008 but was the seventh consecutive quarter below 90 which is seen as minimally optimistic.
• Retail sales were up .5% in January which was higher than forecast and both November and December’s numbers were revised upward according to the Commerce Department (see below for results of Gallup Poll).

Statistics of Interest/Concern
• A Gallup Poll on consumer spending showed that in January spending was down 16.5% from December 2009 and 5.8% from January 2009.
• The rating agency Fitch said that jumbo loans seriously delinquent continued to increase for the 32nd consecutive month in January and rose to 9.6% from Decembers 9.2%.
• The University of Michigan Consumer Sentiment Index was down to 73.7 in February from January’s 74.4 but this compares favorably to a year ago when the number was 56.3.
• FY 2001 was the last year the government tax receipts ($2.0 TRILLION) exceeded spending ($1.9 TRILLION).

Foreclosure Headlines
• One solution to the foreclosure crisis has been the HAMP (loan modification). Missing from the loan mod program is a principal reduction component. Apparently there is a law/rule/guideline that says first mortgages cannot be written down before seconds. There is just over one TRILLION dollars in second mortgages outstanding and the majority is held by four banks (B of A, Chase, Citi & Wells). Last summer a loan mod program for second mortgages was introduced and has not gone very far. Only B of A has signed up. Hopefully Treasury is working on a way to address the principal reduction issue using whatever tools are available because many believe lowering loan balances is critical to resolving the foreclosure crisis.
• RealtyTrac reported for January foreclosures were down 9.7% from December but still at 315,716 for the month and the 11th consecutive month foreclosures exceeded 300,000.
• Zillow.com reports that 21.4% of homeowners in the fourth quarter of 2009 owed more than their homes than they were worth. This was a slight increase from third quarter’s 21.0%. They also said that home values declined 5% from the previous year and that they expected home values to bottom out in mid 2010.

Job Market Headlines
• Initial weekly jobless claims declined to 440,000 down 43,000 from previous week and below forecast of 465,000.
• The four week moving average of weekly claims was 468,500 down 1,000.
• Continuing jobless claims were 4.538 million down 79,000 from previous week and below forecast of 4.6 million.
• According to ADP the world’s largest payroll processor small business (500 or fewer employees) lost 3,000 jobs in January and has been reducing capital expenditures for several months. Small business growth has helped lead the economic recovery in the last four recessions.

Commentary/Observations
The Chairperson of the committee that oversees the TARP program in commenting about a committee report on the commercial real estate market said unless regulators start preparing now these loans could “go sour and wreck the economy”. Between 2010 and 2014 $1.4 TRILLION in commercial loans come due and at least half are “underwater”. The report predicts that unless appropriate actions are taken hundreds of small and medium size banks could fail.

The CEO of Pimco the world’s largest bond firm has expressed concerns about the massive U.S. debt and says he currently prefers to buy German government bonds over U.S. bonds. He went on to say that the Greek situation is a “massive wake-up call” especially given that our government’s debt is about 60% of total GDP.

Iran’s president claimed that his country will not be bullied by the west into halting its nuclear program just one day after the U.S. imposed new sanctions on the country.

If you have any mortgage or related questions I can be reached at (602) 803-9660 or by e-mail at burt@gosfm.com.

{ 0 comments }

I wondered what this meant, when Freddie Mac decided to buy out more mortgages due to a change in accounting rules.

Well, it turns out to be good news for home buyers and sellers! The increase in mortgage buy outs by Freddie Mac and Fannie Mae should put some downward pressure on mortgage interest rates, at least for a little while.

Meanwhile, Fannie Mae and Freddie Mac announced on Wednesday that they would begin buying delinquent loans out of pools of mortgage-backed securities owned by investors. Freddie plans to buy up most of some $70 billion in delinquent loans this month, while Fannie, which has a bigger pile of defaulted loans that it has guaranteed, will buy out those loans over the next few months.

That could drive down rates in the short term, say analysts, because investors will sell higher-yield bonds to buy par coupons, which drive mortgage rates. “Overall, you would anticipate that that would lower interest-rate pressure a little,” says Jim Vogel, an analyst at FTN Financial.

Meanwhile, Fannie and Freddie’s buy-out of delinquent loans will kick lots of cash back to investors over the next few months, and many of those investors may look to put that money back into mortgages. That could help support lower mortgage rates, too.

To be sure, this would be a short-term event, and one that dissipates as the market adjusts to the buy-out activity.

Most analysts expect mortgage rates to rise later this spring, when the Federal Reserve stops buying mortgage-backed securities. Those purchases have helped hold rates at near-record lows for much of the past year.

This change could partially or completely offset the upward pressure on intestest rates due to the ending of the Federal Reserve program of buying mortgage backed securities… at least for a little while.

This makes me think we may really be entering the sweet spot of this real estate cycle, low interest rates AND low prices (in many areas) at the same time.

{ 1 comment }

Well, that is apparently the conclusion of a recent Deutsche Bank report. I couldn’t find the report online but here are a few snippets from a Fortune piece comparing rents to home prices.

On average, DB [Deutsche Bank] found that families across America were spending about 87% as much to rent as to own in 1999. Hence, they were traditionally willing to pay a premium as homeowners, though not a big one.

But by mid-2006, with the craze in full swing, the figure fell below 60%. At that point, Americans were spending an incredible 66% more to own than to rent. It was far worse in the bubble markets: In Las Vegas, Phoenix and Miami, homeowners were paying twice as much as renters, and in San Francisco and Orange Country, owners’ monthly payments were triple those of their neighbors with leases instead of mortgages.

So how did that happen? During the bubble, rents — the real engine that drives values — were inching along at more or less their usual pace. From 1999 to 2007, apartment rents increased only 32%. But home prices jumped more than three times as fast, around 105%.

DB reckoned that housing prices are more or less reasonable when the ratio returns to its 1999 level. Why 1999? Because the ratio was relatively stable throughout the 1990s, and it was the year the steep rise in prices began in earnest. At the end of the third quarter of 2009, the overall number stood at 83%, meaning renting was just a tad more attractive than owning.

But the picture varies widely from city to city. In 15 of those 53 metro areas, including St Louis, Indianapolis, and remarkably, Phoenix and San Diego, it’s now higher than in 1999, meaning that homeowners’ costs actually dropped versus what renters pay, courtesy of the steep decline in prices. In California’s San Bernadino and Riverside Counties, it now costs 10% less to own than to rent; in 2006, owners paid more than twice as much as renters.

So it looks like in Phoenix today home prices are a better deal compared to rental prices than they were in 1999. But I couldn’t find the full report online so I don’t have the exact numbers.

{ 0 comments }

This is a really amazing video! I’ve seen the same concept explained elsewhere but not nearly as well as here.

{ 4 comments }

Dataquick came out with their December data for Phoenix home sales. Phoenix residential real estate sales continued their upward trend. The number of houses and condos sold has increased on an annual basis for 18 months in a row now (excludes new homes).

New home sales, however, were absolutely terrible in December.

The number of newly built homes sold in December dropped nearly 25 percent compared with November, and fell 17.5 percent from a year earlier. Builders… sold the least number of homes for a December since 1997.

The dismal new home sales in December is contributing to worries about a possible double dip recession.

{ 4 comments }

***Smart Financial Weekly Mortgage & Business Update February 5, 2010***

Fannie Mae HomePath Update: On January 28th Fannie Mae announced 3.5% seller assistance to cover closing costs on Fannie Mae’s HomePath properties. The program is good for HomePath purchases that close by May 1, 2010. For more information go to www.homepath.com.

Jobs Report Headlines: The jobs report for January showed a loss of 20,000 compared to forecast of a 15,000 gain. The unemployment rate was 9.7% (aka U-3) down from 10.0%. However, among other important data in the report were in 2009 the economy lost 4.8 million jobs or 600,000 more than previously thought, 8.4 million jobs have been lost since the recession began in December 2007 or 1.4 million more than previously thought and the under employed number (aka U-6) declined from 17.3% to 16.5%. Note the unemployment rate (U-3) only reports those who are receiving benefits for 26 weeks. As we know many are on extended unemployment benefits or are working part time but looking for full time work (U-6). These people are what makes the under employed number so big and perhaps a better measure of the real unemployment rate.

Interest Rates
One impact from our large national budget is that the government has to sell Treasury notes and bonds to fund the spending. If the number of buyers goes down (say China is not interested or buys less than expected) then the rate of return has to increase to attract buyers which results in increased rates. Speaking of rates the President of the Boston Federal Reserve has said that he believes that when the Fed stops buying MBS mortgage rates could increase to almost 6% pretty quickly.
The Australian Central Bank in a surprising move kept its key lending rate at 3.75% (ours is zero to .25%), the ECB kept its key rate at 1.00% and the Bank of England followed suit by keeping its key rate at .5%. The Australian bank said in its statement that it wanted to see how the three previous increases were working before taking any further action. It also said that if the economy continues to improve it was likely that further increases would be needed.
For the week retail mortgage rates moved lower to 5.00% or slightly lower as the stock market experienced a sharp decline late in the week. The decline was driven by worldwide concerns about sovereign debt that could slow down or stop the economic recovery. Finally, along those lines, the Congress approved increasing our national debt limit to a staggering $14.294 TRILLION.

When Rate
This week 5.01
1 Month Ago 5.09
1 Year Ago 5.25
2 Years Ago 5.67

Note that actual market rates vary geographically and by lender, credit score and Loan to Value.
Source: Federal Reserve Statistical H.15.

Mortgage Industry Update
• In the new national budget the President proposes to increase FHA’s annual mortgage insurance premium from the current .55% to at least .90%. This rate is applied to the loan amount and is then paid monthly with the mortgage payment. If Congress agrees to the increase then the Up Front Mortgage Insurance Premium (paid up front and included in the loan amount) would be reduced from the previously proposed increase of 2.25% down to 1.00%.

Good News
• In the fourth quarter 2009 non-farm productivity rose 6.2% the quickest pace in six years and above forecast of 6.0% according to the Labor Department.
• The ISM Manufacturing Index increased to 58.4 in January from 54.9 in December.
• Construction spending fell 1.2% in December to the lowest level since 2003. For all of 2009 spending was down a record 12.4%.
• Pending home sales were up 1.0% in December and up 10.9% for all of 2009 compared to 2008.

Statistics of Interest/Concern
• Consumer spending rose .2% in December slightly below forecast. For all of 2009 spending was down .4% the sharpest decline since 1938.
• In December defaults by small and medium size businesses on loans, leases and lines of credit fell for the first time in two years according to PayNet. However, moderate delinquency while declining from 4.26% in November to 4.22% in December was still more than double what it would be in more normal times.
• Consumers borrowed less for a record 11th consecutive month in December according to the Federal Reserve.

Foreclosure Headlines
• New research suggests that when a home value falls below 75% of what the homeowner owes they start seriously considering walking away (Strategic Default). For the third quarter 2009 it was estimated that 4.5 million homeowners were at or below the 75% threshold. Data released last week suggested that the latest number could be as high as 5.1 million homes or 10% of all homes in the U.S. with mortgages. It has also been estimated that in 2008 588,000 or 17% of mortgage defaults were homeowners who were capable of making the payment on their mortgage but simply decided to walk away. Finally, according to First American Core Logic it would cost about $745 Billion to restore upside down homeowners to breakeven on debt to value or roughly what the 2008 Economic Stimulus package cost.
• According to Tom Farley, CEO of the Arizona Association of Realtors while Arizona’s anti deficiency laws protect a large number of property owners in foreclosure there is no statute that provides this protection to any property owner in case of a short sale. The bottom line is short sellers need to seek advice of legal counsel.

Job Market Headlines
• Initial weekly jobless claims were up by 8,000 to 480,000 higher than forecast of 455,000.
• The four week moving average for weekly jobless claims was up by 11,750 to 468,750.
• Continuing claims were 4.6 million up 2,000 from the previous week.
• Challenger, Gray & Christmas reported planned layoffs in January increased to 71,482 from December’s 45,094. The January number is much better than a year ago when reported layoffs reached 271,749.

Commentary/Observations
The big question these days for the housing industry is what is going to happen to Fannie Mae and Freddie Mac? Will they or should they become official agencies or departments of the government? The Congressional Budget Office (CBO) says yes. It estimates that it will cost $291 Billion to bail them out and at least another $99 Billion over the next decade. The Administration has not made a decision yet but is showing only what cash it injects into the two entities which so far is $112 Billion. The agencies have a combined $3.9 TRILLION of debt. Interestingly enough Fannie and Freddie got their start in the late 1930’s as government agencies but in 1968 President Johnson privatized them to keep their debt off the books as the cost of the Vietnam War increased.

The FHA continues to struggle as it reported 90 day plus delinquency was at 9.1% in December up from 6.5% just a year earlier. In addition, loans in foreclosure were up 26% from a year ago. It projects that it will have to pay claims on one in four of its 2007 loans which is the highest rate in three decades. Also it expects to lose $10.5 Billion from those popular down payment assistance programs. All the news is not bad however as buyer credit quality has increased. The average credit score in the two years prior to 2009 was 630 but in 2009 the average increased to 690. The increase in scores is due in part to many lenders who do FHA loans increasing their minimum scores.

S & P believes that U.S. banks will lose $800 Billion between 2008 and 2010 and estimates banks are only one third of the way through mortgage losses in their portfolio’s. They also said that they see no big bank ($100 Billion in assets) failure this year. In a related story Market Watch said that the big banks (Chase, Bank of America & Wells Fargo) may have to repurchase up to $10 Billion in bad loans from investors and Fannie Mae and Freddie Mac.

If you have any mortgage or related questions I can be reached at (602) 803-9660 or by e-mail at burt@gosfm.com.

{ 0 comments }

I just stole this from a newsletter I receive.

Waiting Periods for BK/FC/SSale

A common question from borrowers and homeowners these days is how long they will need to wait to buy again if a negative item appears on their credit report. Different loan programs have different disqualification periods for Bankruptcy/Foreclosure/Short Sale. Once the automatic disqualification period has elapsed, the normal income/asset/credit requirements typically apply. It is also important to remember that if a mortgage account is included in a Bankruptcy, then foreclosure waiting periods apply with all loan programs. Here is breakdown by loan program:

Conventional Loans

• Bankruptcy = 4 years
• Foreclosure = 5 years
• Short Sale = 2 years

VA Loans

• Bankruptcy = 2 years
• Foreclosure = 2 years
• Short Sale = industry standard is 2 years

FHA Loans

• Bankruptcy = 2 years
• Foreclosure = 3 years
• Short Sale = industry standard is 3 years unless no mortgage lates in the past 12 months and buying in a different geographic location (out of state job transfer for example).

Ryan Halldorson
Smart Financial Mortgage
Senior Mortgage Consultant
3131 E Camelback #120
Phoenix, AZ 85016
Phone: 602.793.7204
E-Fax: 602.889.2258
ryan@hsmove.com

{ 3 comments }

PMI, the private mortgage insurance company, comes out with a list every quarter of areas they think have the lowest possibility of having lower home prices in the next quarter.

Areas Least Likely to See Lower Home Prices

• Fargo ND
• Grand Forks ND
• Cedar Rapids IA
• Killeen TX
• Ames IA
• Morgantown WV
• Iowa City IA
• Fayetteville NC
• Little Rock AR
• Bismarck ND

There you have it. If you want little downside risk to your home’s value, move to North Dakota.

P.S. The high temperature today in Fargo, North Dakota will be 31 degrees. Not bad but the forecast for Monday is a high of 12 degrees. Now that’s nippy!

P.P.S. My father was from North Dakota and he loved to call his friends and family back home this time of year.

P.P.P.S. Now that I think about it, the real downside risk is that you won’t enjoy living in North Dakota… unless you have an Arizona home too!

{ 3 comments }

My guess is that new homes in the United States will be smaller, with fewer walls (think of the openness of lofts) and in general, cheaper to build.

Below is an excerpt from this article;

Paul Cardis, CEO of AVID Ratings Co., which conducts an annual survey of home-buyer preferences, said there are 10 “must” features in new homes:

1. Large kitchens, with an island. “If you’re going to spend design dollars, spend them where people want them — spend them in the kitchen,” McCune said. Granite countertops are a must for move-up buyers and buyers of custom homes, but for others “they are on the bubble,” Cardis said.
2. Energy-efficient appliances, high-efficiency insulation and high window efficiency. Among the “green” features touted in homes, these are the ones buyers value most, he said. While large windows had been a major draw, energy concerns are giving customers pause on those, he said. The use of recycled or synthetic materials is only borderline desirable.
3. Home office/study. People would much rather have this space rather than, say, a formal dining room. “People are feeling like they can dine out again and so the dining room has become tradable,” Cardis said. And the home theater may also be headed for the scrap heap, a casualty of the “shift from boom to correction,” Cardis said.
4. Main-floor master suite. This is a must feature for empty-nesters and certain other buyers, and appears to be getting more popular in general, he said. That could help explain why demand for upstairs laundries is declining after several years of popularity gains.
5. Outdoor living room. The popularity of outdoor spaces continues to grow, even in Canada, Cardis said. And the idea of an outdoor room is even more popular than an outdoor cooking area, meaning people are willing to spend more time outside.
6. Ceiling fans.
7. Master suite soaker tubs. Whirlpools are still desirable for many home buyers, Cardis said, but “they clearly went down a notch,” in the latest survey. Oversize showers with seating areas are also moving up in popularity.
8. Stone and brick exteriors. Stucco and vinyl don’t make the cut.
9. Community landscaping, with walking paths and playgrounds. Forget about golf courses, swimming pools and clubhouses. Buyers in large planned developments prefer hiking among lush greenery.
10. Two-car garages. A given at all levels; three-car garages, in which the third bay is more often then not used for additional storage and not automobiles, is desirable in the move-up and custom categories, Cardis said.

{ 0 comments }

Do you ever see all those “For Sale” signs in front of other people’s houses and wonder, “Why the heck am I having so much trouble selling my home?”

Here’s your answer. In Scottsdale in 2009, only about 1 in 4 homes listed for sale by individuals actually sold.

So if you saw 4 (non bank-owned) “For Sale” signs on a street in Scottsdale, realize that on average only 1 of the 4 actually sold in 2009.

Unless you’re a bank, your odds of selling a Scottsdale listing in 2009 were about 25% - normal sales 23% and short sales 26%. (If you are indeed a bank, your odds of selling were about 69%.)

My analysis of MLS data for Scottsdale shows that for “normal” single family detached home listings in 2009;

• 1,978 listings sold successfully,
• 4,104 listings failed to sell and were taken off the market, and
• About 2,421 listings were still in the MLS but were unsold on December 31, 2009.

How do you increase your odds of selling? That’s a deep subject. Give me a call at 480-463-4475.

{ 2 comments }

This is interesting, exploring legal and moral justifications for “walking away.”

“If you stop making payments, you’re not breaching the contract, because default and foreclosure are valid means of fulfilling the contract”

RECOMMENDED: Related NPR interview with a Phoenix real estate attorney Mary Kinsley regarding “strategic defaults” and “walking away.” She used to get callers crying and asking how to avoid foreclosure. Now she gets callers saying they haven’t paid their mortgage in many months, they’re tired of paying the property taxes and HOA fees, so how can they force the bank to foreclose on them? (They can’t force the bank to foreclose.)

{ 4 comments }

This real estate bust will be the worst time in many people’s lives, “Remember, when we lost the house in 2008 and almost got divorced?”

But for real estate geeks, the economic shock is exposing the inner workings of housing economics.

The video below compares how the real estate bust effected the median home price per square foot in three neighboring zip codes in the northwest Valley of the Sun. Sun City West is intriguing because it had very few foreclosures while the two other nearby zip codes had tons of foreclosures.

Video Comparing a Low Foreclosure Zip Code to Two High Foreclosure Zip Codes

Click Graph

Sun City West 85375 Boundary Map

Click + to zoom in

View Larger Map

Surprise 85374 Boundary Map

Click + to zoom in

View Larger Map

El Mirage 85335 Boundary Map

Click + to zoom in

View Larger Map

{ 1 comment }