Wednesday, March 30, 2011

Little-known secret to reduce mortgage payment

Request loan recast when financial disaster strikes 

A mortgage recast is an adjustment in the monthly payment that makes the payment fully amortizing. The recast will be a payment increase when the existing payment is less than fully amortizing, and a payment decrease when the existing payment is more than fully amortizing.
For example, let's say your home loan has a balance of $100,000 at 5 percent with 300 months to go and a payment of $450 that, if continued, will not pay off the balance. The payment recast is an increase to $584.60, which will fully amortize the balance over 300 months. However, if the current payment was $650, the recast would be a payment decrease to $584.60.
Payment-increase recasts occur on two kinds of mortgages. One carries an interest-only option, where the required payment for some initial period, often 10 years, covers only the interest. The payment-increase recast occurs at the end of the interest-only period.
The second type of mortgage open to a payment-increase recast is the adjustable-rate mortgage (ARM) that allows payments that are less than fully amortizing. These ARMs sometimes have recasts at specified intervals, often every five years, or the recast may be triggered by the loan balance reaching some limiting value, such as 110 percent of the original loan amount. This can happen at any time, or it may not happen at all.
Payment-increase recasts are designed to protect the interest of the lender by making sure that the loan will pay off as scheduled. All interest-only loans and all ARMs that allow payments that are less than fully amortizing have explicit provisions for recasts in the loan contract.
Provisions for payment-decrease recasts, in contrast, which are designed to meet the needs of borrowers, are not included in loan contracts. The lender can agree to a recast; can agree subject to a charge, which can range from nominal to extortionate; or can refuse it. I have encountered all three such responses.
The borrowers who request recasts usually have fixed-rate mortgages (FRMs) on which they have been making extra payments in order to pay off before term, and then unexpectedly encounter a financial reversal. With their income reduced, their objective shifts from paying off early to reducing the payment, for which purpose they need a recast. They deserve it, and the cost to the lender is nominal, but some lenders will take advantage of them just because they can.
The borrower's right to a payment-reducing recast ought to be mandatory for all home mortgage contracts. Borrowers should not have to grovel for what can be critically important to them and of little consequence to lenders. Making recasts into a right would have the side benefit of encouraging borrowers to make extra payments as a form of contingency insurance.
Note that payment-reducing recasts are needed for fixed-rate mortgages much more than for ARMs. The reason is that when the interest rate is adjusted on an ARM, the payment is automatically recast. On ARMs that reset the rate every year, no additional recasts are needed. On ARMs with initial rate periods of 5-10 years, however, the need for a recast can arise in the early years just as it does on FRMs.
Today, borrowers are motivated to make extra payments primarily by the hope of getting out of debt sooner. With a right of recast made explicit, they will also view extra payments as a worst-case backstop. The more you pay when you have the means, the larger the payment reduction you can command in an emergency. I can't think of an easier way to motivate consumers to save more.

Tuesday, March 29, 2011

Short Sale Buyers Need to Know

Question No. 1: I made an offer for a house that was a short sale. After my offer was accepted and the contract had been sent to escrow, I noticed the house still listed as "active" on the multiple listing service. The listing agent claimed that he kept receiving inquiries on the property, and used that to push me to remove inspection and loan contingencies. He said he would only mark the home "pending" once I had removed contingencies.
Is it possible for the seller to accept a second buyer's offer after accepting mine (even if the later offer comes with a higher price? Don't they need me to sign a release before they do that?
If they do accept another offer and go with the second offer, do I have any legal right for compensation? (I believe this would be a "breach of contract" case, but can you confirm it?) --Mike
Question No. 2: The broker on a short-sale house has not acknowledged my offer and will not sign the papers. He says he wants to wait and see if the first offer goes through first. Isn't this an unlawful way of doing things? I do not know if I am a backup buyer or just left out in the cold. Is there anyone I can contact regarding this unethical way of doing things? --Charles
A: Talk about two sides of the same coin! One of you is in contract on a short sale and concerned about whether a second, higher offer could usurp their position. The other is trying to usurp a first-position contract on a short sale. A little education about this area of the short-sale realm will answer both your questions.
Short sales differ from "regular" sales in that a short-seller is selling a home at a net price (after the seller's closing costs) below what the seller owes on the home. As a result, all mortgage lenders and holders of liens on the property must approve the sale before it can take place.
Procedurally, what happens is a buyer makes an offer on the property and the seller accepts that offer and generally requires that the buyer agree to a short-sale addendum, which significantly alters the normal flow of the contract, as well as the legal rights and obligations of both parties -- mostly in order to work in the fact that there's at least one extra party to the contract besides the signatories who must sign off before the deal can be done.
In some cases, the buyer must sign the standard short-sale addendum used by the agents in the area and an addendum required to be signed by the bank(s) involved on the seller's side, who will not consider the short-sale application without the document being signed.
Ultimately, the short-sale addenda prevents the contract from being finalized so as to prohibit the seller from considering or accepting other offers until after the bank(s) and other lien holder(s), if any, agree to the terms of the transaction.
That is, when you are a short-sale buyer, you are notified upfront that the seller does not have the power to create a binding contract -- not unless and until the bank(s) and lien holder(s) sign off on the price and other terms of your offer, including your qualifications.
The short-sale addenda -- both the boilerplate forms brokers and agents use and the bank versions -- add in the banks' and lien holders' approval as a required condition of the contract. Mike, normally, the buyer's contingency periods for inspection and loan don't even begin running until after the bank(s) involved have approved the sale.
While it is strange that the listing agent would pressure you to remove contingencies so soon in a short-sale situation, it is also highly possible that he was waiting to collect additional offers or waiting to make sure that you were actually able to do the transaction as early as possible in the sale.
It sounds like you are without your own broker or agent in the transaction -- if you were, the chances you would have been pressured into prematurely paying for inspections and appraisals, etc., would have been far, far reduced.
In a "regular" non-short sale, the seller cannot kick a buyer out of place in preference of a later, higher offer once the property is in contract, though in a short sale the bank may actually require that the seller submit any and all offers to purchase the property that are received prior to the bank green-lighting the transaction, so that the bank can take the highest offer and minimize its losses.
Mike, the bottom line for you is that, strictly because your transaction is a short sale, it is highly possible that the seller may retain the legal right to boot your offer out of first place for a higher offer up until the point that the bank approves your offer.
However, Charles, unless their mortgage lender requires them to, it is not the case that the seller is obligated to do anything with your backup/second-in-time offer -- neither is the listing agent's behavior unethical, in your situation, as the agent is being upfront and honest with you about the seller already being in contract.
For both of you, I'll advise you as I advise any and every buyer in a short-sale situation: Do not count your chickens until the bank approves your contract! That is, until the bank has approved your offer, do not spend money on an appraisal, do not spend money on inspections, and do not stop looking for a home.
If you do, you do so at your own risk -- the risk of losing the cash you've spent if the bank does not approve your offer for any reason.
The seller -- to answer your second question, Mike -- does not owe you any compensation for breach of contract, unless you were already notified that the bank had already approved your offer.
Inman News

Wednesday, March 23, 2011

9 steps to the American Dream

9781400069736"The American Dream is dead." That's the provocative headline that topped some news stories announcing Suze Orman's book tour for her latest release, "The Money Class." The headline belied a core message of the book, as reflected in its subtitle: "Learn to Create Your New American Dream."

Read "The Money Class" and you'll see -- Orman's message is less that the American Dream is dead, but that it's molting. If it's dead or dying, it's doing so in order that a new dream can be born, Orman argues.
Orman sets the book up by quoting stats and trends to make her case that the dream is dead. And that's not hard to do -- rampant unemployment, foreclosure and bankruptcy rates at the end of last year, when the book was written, were all at all-time or lifetime record highs.
The book presents a laundry list of ways in which the American Dream of homeownership, job opportunities and upward financial mobility has turned into an unattainable fantasy, or even a nightmare, for many Americans. Orman then proposes to teach readers nine courses on individual financial subjects, which she says will help them build a more conservative, sustainable and personalized dream for their own lives.
Orman's been doing the financial guru drill for a long time, now, and her understanding of Americans' financial pain points -- derived, at least in part, from her live Q-and-A call-in show -- is clear in the subject matter covered in this book. So is Orman's trademark financially conservative, point-blank, "what-are-you-thinking?" approach to money matters.
Her facility with simple, memorable, concrete money rules-cum-catchphrases is also apparent throughout the book. Adages like "the pleasure of saving is equal to the pleasure of spending" and "live below your means, but within your needs" irritate some financial sophisticates as oversimplifications that are tailored more for TV sound bite-dom than for depth. But many, everyday people who seek to have a simple, stable financial system will find that Orman's advice resonates with their frustration and offers some hope for getting back in control of their finances.
Given that few people make dramatic financial change, I suspect that even Orman's most conservative advice -- such as don't buy a home without 20 percent down, or don't spend more than 25 percent of your take-home pay on your housing expenses -- will rarely be followed to the letter. What's more likely is that her advice will temper the financial impulsivity and overextending that got so many in trouble in the recent past.
For example, Orman says the most you should accept as a down-payment gift (gift!) is 5 percent of the cost of the home, or a quarter of the minimum total down payment Orman says buyers should put down. While I doubt you'll see many people refusing down-payment gifts on Orman's advice, you might see some reconsider how that gift is impacting the financial situation of their relative who's giving the gift -- another Orman recommendation.
"The Money Class" offers Orman's signature, black-and-white money advice on family, home, career and retirement planning. Retirement planning is covered in segments tailored to those in their 20s and 30s, 40s and 50s, and those actually living in retirement.
Orman oscillates back and forth between sound bites ("if it doesn't feel right, it isn't right") to providing fairly detailed advice on each of these topics and a long list of subtopics.
In the section on home, for example, Orman quips, "A home is a savings account, not a hot stock," and also makes very clear mandates for what is smart buying and ownership in her world.
Underwater? Suze says if you can't afford to pay the mortgage, the responsible thing to do is sell the place and use your savings to pay the difference. Unless you're 50 percent or more underwater, in which case she says walking away is OK. That seems a little arbitrary to me -- I'm not sure how Orman arrives at 50 percent negative equity as the threshold that turns walking away from an irresponsible to an acceptable act.
Orman's rules and dictates lack some of the aspirational aggressiveness to move on up that some still hold to be part of their own American dreams. I personally know many single women, ethnic minorities, suburbanites and city-dwellers who would never have owned a home if they waited until they had saved up 20 percent, and are much more prosperous for having been able to become homeowners (myself included!).
However, many recession-weary Americans, looking to fatten up their finances for the next economic winter, will find Orman's advice meets them right where they are.
I was pleasantly surprised to see Orman offer personal finance advice to entrepreneurs, as an increasing number of Americans find themselves being "inspired" by unemployment to take on freelance gigs and otherwise start their own businesses.
Suze Orman often provokes love or intense dislike among those within reach of her voice. If she always gives you hives, don't read this book -- it is Orman giving her signature firm, conservative rules, with few exceptions allowed. But if you are seeking what Orman calls a "long-term rehabilitation plan" for your finances, want some very clear and simple rules by which to live your financial life, and you usually like what Orman has to say, you'll probably be very pleased with "The Money Class."
Readers should make sure to check in with their own financial advisers for more personalized advice, though, especially in the realm of mortgage, tax and retirement planning.
Inman News

Look for encroachment issues before buying

Getting neighbor to remove storage shed a lesson in futility

DEAR BARRY: My neighbor has a storage shed that is built against the side of my garage. It encroaches onto my property and prevents me from painting the garage wall. I'd like him to remove it, but he refuses because it was there before I purchased the property two years ago. The city building department sent him a notice, but he won't tear it down. What should I do? --George
DEAR GEORGE: The oppositional purposes of neighbors are chief sources of so many difficulties in life. But your concerns are practical, not philosophical, so let's examine the circumstances and possible solutions.
Clearly, your neighbor is trespassing where he has no permission or reasonable rights. On the other hand, you purchased an existing problem, and the number of years it has existed could have a significant legal bearing on the case. For clarification in this regard, you should consult an attorney. The city building department, however, seems to have rendered an opinion in this regard, but there remains the question of whether the department will exert any degree of enforcement.
The best time to have addressed this situation was while you were purchasing the property. Had you considered the matter at that time, you might have specified removal of the shed as a condition of the sale. That would have obliged the sellers and their agent to negotiate a solution with the neighbor. But that was then.
A possible solution for today is to formally request that the building department enforce its order to remove the shed.
If that doesn't work, here is a more creative approach: Begin by building a fence along the property line, and connect it to both sides of the shed. Next, install a door in the wall of your garage, providing direct entry into the shed. The neighbor cannot rightfully complain because it is your garage. If you choose to install a door in the wall of your garage, that is strictly your business.
Then, construct a partition wall inside the shed, on your side of the property line, of course. Now you have a private storage closet on the side of your garage. If you decide to remove the closet, the remaining portion of the neighbor's shed will be attached to the fence, not to your garage. But don't try this without first consulting an attorney.
DEAR BARRY: I have a simple question. Is a home inspection a legal requirement when a home is sold, or are home inspections optional for homebuyers? --Sandi
DEAR SANDI: No states have made home inspections a legal requirement. Professional property inspections are available to homebuyers at their own discretion, as an elective means of consumer protection and as a proactive way for buyers to beware.
(Although the Federal Housing Administration does not require home inspections, properties that do not meet FHA's minimum health, safety and soundness conditions may be flagged by the appraiser for repair before the FHA will insure a loan).
When performed by a truly qualified inspector, a home inspection protects buyers from negative surprises after the sale. But a thorough inspection benefits the sellers and agents as well, by reducing the likelihood of conflicts after the sale. A state requirement to compel home inspections should not be necessary. Buyers should have the common sense and prudence to do this for themselves.
Inman News

More analysts expect double dip

National home prices near post-crash low

Nearly half of economists, real estate experts and investment strategists polled by MacroMarkets LLC this month said they now expect national home prices to "double dip" this year and hit a new post-crash low.
MacroMarkets polls more than 100 housing experts with a wide range of views, including FusionIQ CEO Barry Riholtz, Moody's Analytics economists Mark Zandi and Celia Chen, National Association of REALTORS® Chief Economist Lawrence Yun, Freddie Mac Chief Economist Frank Nothaft, and Rosen Consulting Group's Kenneth Rosen.
Panelists are asked to project the path of the Standard & Poor's/Case-Shiller U.S. National Home Price Index over the coming five years. In December, only 15 percent of the panel said they expected home prices to double dip.
Now, with national home prices less than 1 percent away from establishing a new post-crash low, on average the panelists expect that national home home prices will fall by 1.38 percent in 2011, before appreciating by 1.26 percent in 2012, 2.72 percent in 2013, 3.19 percent in 2014, and 3.42 percent in 2015.
Right-click to enlarge image.
Persistently weak market fundamentals are the likely driver of this "uninspiring view" for a weak recovery that doesn't take hold until 2013, said MacroMarkets Chief Economist Robert Shiller in a statement.
High unemployment, supply overhang, an unabated foreclosure crisis and constrained mortgage credit continue to be a drag on prices, Shiller said.
Eleven of 20 markets tracked in the S&P/Case-Shiller 20-city composite hit new lows for the downturn during the fourth quarter.
There's a considerable range of opinion on the MacroMarket panel about where home prices are headed. Three panelists expect cumulative growth in national home prices of 20 percent or more through 2015, compared with the 9.64 percent average for the panel as a whole.
Optimists include Bill Cheney, chief economist for John Hancock Financial, who expects national home prices to surge 3 percent this year and 5 percent in 2012 and 2013; Joel Naroff of Naroff Economic Advisors Inc., who expects national home prices to rise by a cumulative 24.19 percent during the next five years; and Jim O'Sullivan, chief economist for MF Global.
At the other end of the spectrum, Gary Shilling, president of A. Gary Shilling & Co., thinks national home prices will fall 19.68 percent through 2015, with an 11 percent drop this year and 5 percent declines in 2012 and 2013.
Mark Hanson of Hanson Advisors predicts national home prices won't hit bottom until 2015, falling 8.8 percent this year, 6.2 percent next year, and 3.7 percent in 2013. Hanson is projecting prices will fall a cumulative 18.44 percent through 2015.
NAR's Yun is slightly more optimistic than the average for the panel, predicting that national home prices will rise a cumulative 12 percent through 2015. Yun is predicting that national home prices will be flat this year, rising 2.5 percent in 2012 and 3 percent in each of the following three years.
From his perspective at Freddie Mac, Nothaft is slightly less optimistic than the panel as a whole, predicting 8.12 percent cumulative growth in national home prices from 2011 through 2015. Nothaft projects national home prices will fall 2 percent this year and stay flat next year before rising 1 percent in 2013 and 3 percent in 2014 and 2015.
Inman News

Sunday, March 20, 2011

Better Ways to Sift Through Today's Homes for Sale

Five years ago, a serious buyer who was pre-approved for a mortgage loan typically spent three to four weeks looking for a home and usually visited 15-20 homes... 
How can buyers find their way in the current marketplace, with its shifting home prices and an extensive inventory that includes many distressed properties? Here’s some advice on how to speed up the process...
-Do enough looking to get to know your local market.  Buyers benefit by looking widely, but are sometimes tripped up by inflated expectations. “Especially in a smaller market like ours, the inventory is limited even if it is large by historic standards. Each local market has its own character, and buyers must adjust their expectations accordingly. Otherwise they continue looking for a home that doesn’t exist,” he advised. At the same time, True urges buyers to do a fair amount of looking because it gives them an understanding of the market and the confidence to make a decision.
-Let your emotions help you. Too often today, buyers aren’t letting themselves fall in love with a home, “They are only looking at price and condition, and that contributes to their uncertainty because they always feel there’s a better deal out there, leaving emotion out of the equation makes it difficult for buyers to commit to a purchase.”
-Decide if a distressed property is really right for you. Foreclosures and short sales offer buyers great value when it comes to price per square foot, but these properties tend to have their own limitations. Foreclosures often, though not always, have serious condition issues and are almost always sold “as is,” meaning the seller won’t do anything to address those issues. As a result, buyers may need to carry out extensive repairs after purchasing. Short sales, while usually in better condition, can take months to get to the closing table, and in at least some cases these transactions eventually fall apart because the lender, seller and buyer can’t agree. “Buyers must decide if they have the patience and flexibility to pursue a short sale and the skills or resources to deal with repairing a foreclosure."
-Don’t focus too heavily on price.  Try not to become totally focused on searching out the best possible price because, “when buyers do that, they may fail to consider the other benefits of purchasing—the tax deductions they’ll get when they own rather than rent, the amazingly low mortgage interest rates currently available and the benefits of living in a home and a community that fit their family,” he said.
-Be ready to negotiate.  Buyers can miss out on a great home if they don’t initiate a negotiation. “When buyers find a home they like, I encourage them to make an offer at a price they are comfortable with, even if it is well below the listed price,” she said. “At worst, the seller won’t negotiate, but in this market that is unlikely. Sellers don’t want a viable buyer to walk away. If a negotiation is initiated, it often ends up in a place that makes the buyers happy because in this market sellers have to do most of the compromising.”
-Get plenty of advice but trust the professionals. The current housing market is complex and can be confusing. Try to realize that not all the advice they get has equal value. “I want buyers to talk to their friends and family about a potential purchase, but at the same time, that advice should be taken with a grain of salt because unless the advice comes from a local real estate professional—a lender, agent, inspector or appraiser—it won’t be grounded in detailed knowledge of the current market.”
-Don’t let negative comments about the housing market scare you off. Those who mean well may wish to warn you about the downside risks of the housing market. “However, buyers shouldn’t lose sight of the many positives in the current market, such as the fact that home affordability is at its highest in decades and that investors are flocking into the market to snap up bargains in all-cash purchases.  Try to keep your eye on the numbers that directly impact you—property prices, interest rates and how those translate into monthly payments.

Home Buyers Get Creative to Close Real Estate Deals

When Efrain Hernandez couldn’t seal a deal before the first-time home buyer tax credit expired earlier this year, he lost faith that he would ever own a house in a market where investors and all-cash buyers are snapping up bargains and mortgages seem hard to come by. But waiting—even though it wasn’t by choice—got him more than the $8,000 federal tax credit.
In a single day last month, Hernandez negotiated a contract on a five-bedroom, three-bath home in a development near Homestead, Fla. By the end of October, he closed, talking homebuilder Lennar into a $40,000 discount off the list price, getting the company to pay $18,000 in closing costs and scoring a $7,500 no-interest loan from Miami-Dade County to lighten his down payment. “I was finally able to buy the house of my dreams,” Hernandez said. “Even though the tax credit was over, it ended up being a better deal.”
While cash is king when it comes to buying properties in a battered housing market, new homeowners like Hernandez are finding ways to finance their homes using hard-nosed negotiation tactics and unusual financing options they never needed during the boom.
And they are scoring deals on homes—not bedraggled or cut-rate foreclosure properties and time-consuming short sales, but well-kept homes with current mortgages.
After a long drought, more money is becoming available to buy homes. Take Wells Fargo Home Mortgage, for instance. Andre Brooks, vice president and regional sales manager for the bank’s Florida operation said his company has made more than $3 billion in mortgages so far this year in Florida, nearly 20% more than last year.
But lending guidelines remain restrictive, said Terry H. Francisco, spokesman with Bank of America. Unlike the loose-money days of the real estate boom, people must painstakingly document their creditworthiness.
Making purchases happen now often requires creativity and calculation.
“Creative financing is about to become the primary means of financing,” said Joe Manausa, a broker and owner of a Century 21 First Realty in Tallahassee, Fla., who has blogged about the topic.
One fruitful financing option is a loan backed by the Federal Housing Administration. FHA loans can require a down payment of just 3.5% compared with the much larger upfront investments many banks require.
“FHA is popular again. It went away when we did that ‘You-don’t-have-to-ask-me-for-anything’ ” no-income-verification kind of loan, said Patricia Perez, senior loan officer at Sunbelt Lending, which works with Coldwell Banker clients. And in the current market, where home values continue to drop and buyers of just a year or two ago may already owe more than their properties are worth, Perez said it makes sense not to make a big down payment. “I would rather have my $50,000 parked in my bank account for emergencies,” she said.
FHA loans do have their limitations. For one, like other loans with a down payment below 20%, these require the buyer to get mortgage insurance.
Another limiting factor: FHA loans have a maximum limit. They are available to people who don’t already have an FHA loan and plan to make the property their primary residence.
A private loan—made by a noninstitutional investor who does not advertise himself or herself as a mortgage lender—is another alternative, but requires some networking and using personal relationships to make a connection.
Grant S. Stern, president of Morningside Mortgage Corp. in Bay Harbor Islands, brokered a loan this summer for a condo buyer, financing half the purchase price.
The borrower had made a preconstruction down payment of $90,000 on a two-bedroom, two-bath $300,000 condo in Sunrise, Fla. He had another $65,000 cash to close, but during the lending process, Fannie Mae’s approval for the project expired.
Stern said he learned that the developer was on the verge of default, and that his client’s money was in jeopardy if he didn’t close the deal quickly. There wasn’t enough time to get a conventional bank loan, so Stern arranged for a real estate investor to fund a five-year, fixed-rate loan in a hurry. “They said, ‘Close in one week.’ We closed in one week,” he said. The borrower, a wholesale electronics distributor with good credit, could conceivably arrange a more conventional refinance in the future. “If this is the only way you are going to close, then it’s a really good option,” Stern said.
Part of real estate agent Gene Mastro’s strategy for buyers is avoiding foreclosures and short sales—especially for those buyers who intend to live in the properties they purchase.
Owners of nondistressed properties are “more ready to correct problems, any minor deficiencies,” said Mastro, who works for Coldwell Banker in Miami-Dade.
Another advantage: Sellers may be willing to pay all or part of closing costs, which can range from 2-7% of the purchase price.
Dilihara Martin said Mastro negotiated a seller’s contribution for closing costs on a home she bought near Kendall this month. The 1,700-square-foot home sits on nearly a quarter-acre.
Martin said the new place will be a nice change for her, her husband Julio and their daughter Isabella, who have been living with her parents. “He managed to negotiate down to $200,000 and we got a 3 percent seller’s contribution on top of that,” said Martin, an accountant. “He fights for you.”
Another client, Daniel Diaz, closes later this month on a three-bedroom, two-bath home in Kendall, Fla. The price is $150,000. Though Diaz said he’s a saver, he doesn’t have enough put away for a 20% down payment, so he opted for an FHA-backed loan. The sellers will contribute 4% of the home’s purchase price toward closing costs, said Diaz. “I had no idea about this,” he said. “Gene’s been educating me along the way.”
Another way to cover closing costs is a fast, short-term loan that doesn’t show up on credit reports.
Todd Hills noticed that some of the recent users of his company, Boomerang Lending, wanted fast cash to pay closing costs. His Colorado-based business works like a pawn shop for those with pricier assets, including paintings and fine jewelry. A recent borrower offered a 1955 Picasso sketch. “It’s not something we’ve experienced before the last six months,” said Hills, the company CEO, but “it makes absolutely perfect sense. This is a way this consumer can get the cash that they need.”
A Texas woman who recently needed an additional $3,500 to pay closing costs sent the company several pieces of jewelry. They gave her the money, and she was able to close. “They get their house deal done, then they have six months to make the determination about whether they want to come back and retrieve their asset,” Hills said.
Yet another possibility for buyers is a lease-to-own option, Manausa said. “It’s a purchase agreement with a very delayed closing—three months or three years.”
Tom Nisbet and fiancĂ© Greta Leber have just such a contract on their condo. They are living in the 1,600-square-foot unit they hope to buy. It comes with two parking spaces, a pool and a gym, and it’s close enough to the University of Miami, where Leber is working on her Ph.D.
After watching others’ experiences with short sales and foreclosures, they steered clear. “This is by far the best place we saw on the market,” Nisbet said.
In their case, they have a contract that is contingent on being able to secure an FHA loan for the unit. It’s in a building that is not currently approved for those kinds of mortgages. The couple doesn’t have the kind of savings needed for a down payment for a traditional mortgage.
“Our sales contract is valid until we hear we have FHA approval or not, or up to a year from now,” Nisbet said. “Maybe, depending on the situation we’re in, we’ll keep renting this place.”
While the federal first-time home buyer’s tax credit ended months ago, as Hernandez found, it’s not too late for house hunters to get government home-buying help.
Many city or county governments offer their own home buyer subsidies. Hollywood, Fla., offers a no-interest second mortgage, which provides up to $40,000 or 25% of the purchase price to assist low-income buyers.
Hernandez benefited from Miami-Dade County’s “surtax” program, which provides a no- or low-interest second mortgage for middle-income home buyers, who can cash in on up to $7,500 in assistance.
Government agencies with home-buying assistance programs say they are fielding lots of calls.
“People are interested in buying homes,” said Mildred Reynolds, housing program manager for Broward County. She suggests people considering a purchase visit a Housing and Urban Development office to learn about their options.
(c) 2010, The Miami Herald.

Tuesday, March 15, 2011

Foreclosures Post Biggest Drop on Record

The number of foreclosure notices filed in February declined 14 percent compared with last month, and foreclosure notices dropped 27 percent compared to last year at this time. That marks the largest year-over-year decline that RealtyTrac, a foreclosure tracking site, has ever recorded.

The number of U.S. homes in some stage of foreclosure fell drastically last month, reaching a 36-month low, RealtyTrac reports.

Initial default notices, scheduled foreclosure auctions, and homes repossessed by lenders all dropped in February, RealtyTrac says.

"Allegations of improper foreclosure processing continued to dog the mortgage servicing industry and disrupt court dockets," says RealtyTrac CEO James Saccacio. "The industry is in the midst of a major overhaul that has severely restricted its capacity to process foreclosures.

Lenders repossessed 64,643 homes in February, a 17 percent drop from January. 

Initial default notices dropped 16 percent from January  and 41 percent from a year ago. What’s more, foreclosure auctions dropped 10 percent from last month and 21 percent from February of last year, RealtyTrac said.

Rick Sharga, a senior vice president at RealtyTrac, says the real estate market isn’t out of the clear quite yet. He expects foreclosure activity to likely spike again as banks resolve foreclosure paperwork issues.

About 2 million households are in foreclosure proceedings. In addition, about 5 million borrowers are at least two months behind on their mortgage payments.

States With the Highest Foreclosure Rates

The states with the highest foreclosure rates for the month: 

1. Nevada (which has held the No. 1 spot for 50 consecutive months, with one in every 119 households receiving a foreclosure notice)
2. Arizona (one in 222)
3. California (one in 239)
4. Utah
5. Idaho
6. Georgia
7. Michigan
8. Florida
9. Colorado
10. Hawaii

AP &

February 2011 Market Report

  • Closed sales for detached single-family homes in February are up 7.89 percent from the previous year and up 12.95 percent from previous month.
  • The median sale price for detached homes in February increased 1.06 percent from the previous year. Condo/townhome sales saw the median sale price increase 8.65 percent from the same period.
  • Dollar volume for single-family homes sales was at $90.3 million for February 2011, up 6.60 percent from the previous year.

10 Real Estate Markets to Watch in 2011

Inman News examined housing, economic and demographic data for metropolitan areas nationwide in compiling a list of 10 housing markets that are showing signs of strength and may outperform other housing markets in 2011 in several key metrics. Inman News also asked a host of real estate search and data companies to share research and methodology to identify high-performing real estate markets across the U.S.
Real estate markets in the Midwest and Northeast dominated a list of 10 fast-rising real estate markets nationwide identified in the Inman News analysis, as many markets in the Sun Belt states are still struggling through the housing downturn.
The Midwest and Northeast U.S. accounted for eight of 10 markets on the list: Bismarck and Fargo, N.D.; Des Moines, Iowa; Bloomington-Normal, Ill.; Elmira and Buffalo-Niagara Falls, N.Y.; Portland-South Portland-Biddeford, Maine; and Burlington-South Burlington, Vt.
The other two markets on the list: Kennewick-Richland-Pasco, Wash.; and the Washington, D.C., metro area.
Nationwide, unemployment is high, home prices are flat and trending lower since the expiration of the federal homebuyer tax credits, and overall sales fell last year compared to the prior year.
Stan Humphries, chief economist for Zillow, said it's unlikely that "substantial price appreciation" will occur "in any market nationwide in the near term." Rather, the company identified some "stabilizing" markets in a chart provided for this report.
"Nationally, I don't think we'll see a bottom in home prices until later this year and once they hit bottom we're looking at a prolonged period of time where housing appreciation is below historical norms," Humphries said.
Nevertheless, Inman News identified some markets with significant price appreciation as well as a vibrant job market, a high level of home affordability, low foreclosure activity, and other indicators for a healthy housing market. Most have populations below 250,000. In addition, jobs in the health care industry and public sector, especially, buoyed employment in these areas. 
To compile the list, Inman News considered markets with low unemployment rates, high median sales price growth, growth in the number of building permits issued, a rise in in-migration from other states, population growth, projected job growth, affordability, low foreclosure activity, median household income growth, fewer average days on market for for-sale properties, and growth in occupied housing units.
Among the findings in this report:
  • Of the states represented in this list of market areas, North Dakota, Vermont, Iowa and, to a certain extent, New York, also shed fewer REALTORS® during the housing bust compared to other states.
  • Two of the 10 markets on this list are state capitals and one is the nation's capital -- agents say government centers can lend job stability.
  • Six of 10 markets had median sales prices below the national median in the fourth quarter of 2010, and seven out of 10 had median prices lower than the national median price for the full year in 2010.
  • Where affordability rankings were available, the markets on the list had no less than 75 percent of homes affordable to those households earning the area's median income.
  • All had unemployment and foreclosure rates lower than the national average. None of the markets had unemployment rates higher than 8.2 percent.
  • Only two of the markets had populations above 1 million. Six of 10 had populations below 250,000.
  • Companies in the health care and medical industries were major employers in at least seven of the 10 markets.
  • Seven out of 10 markets had some military presence. The Fargo, Burlington, Portland and Des Moines metro areas are each home to an Air National Guard base. The North Dakota National Guard Headquarters are in Bismarck. There's an Air Reserve Station in the Buffalo market.
  • Not surprisingly, the Washington, D.C., metro area had the largest military footprint of the 10 markets: the Pentagon, Bolling Air Force Base, Fort McNair, Walter Reed Medical Center, Marine Barracks and Washington Navy Yard are within its limits.
The 10 markets are ranked according to population, sales volume, and median sales price appreciation. Population was weighted most heavily in the rankings, followed by sales volume in proportion to population and rate of price appreciation.



Wednesday, March 9, 2011

5 factors that affect home values

Location has long been touted as the most important variable affecting the value of residential real estate. Recently, the S&P/Case-Shiller Home Price Indices suggested that location is still a front-runner in terms of determining valuation.

In October 2010, four cities in the 10-city composite index registered price gains from the previous year: Los Angeles (3.3 percent), San Diego (3 percent), San Francisco (2.2 percent) and Washington, D.C. (3.7 percent). In many cities around the country, like Las Vegas and Detroit, home prices continue to decline.
The front-runners listed above are coastal port-of-entry cities. Three are in California. However, the inland cities of California -- Fresno, Merced, Bakersfield and Riverside, to name a few -- are not experiencing the same relatively good price performance. They are still plagued with a surplus of foreclosure inventory and high unemployment.
A large number of foreclosures and short sales in an area can bring the overall price of homes down. It's difficult for appraisers to find nondistressed comparable sales to support higher prices because of the lack of conventional, nondistressed sales. However, if there are only a few distressed sales in an area, the distressed sales will probably not have much if any effect on the valuation of conventional sales.
Location within an area can also influence home values. Some market niches in an area are doing better than others. A niche need not be a physical location. It could be a price range. For example, well-priced listings in the $1 million to $1.4 million price range in Piedmont, Calif., have been selling relatively quickly, sometimes with more than one offer. The $3 million and above price range has not been doing as well.
HOUSE-HUNTING TIP: Today's buyers are usually willing to pay more for homes that have a good "walk to" score. That is, they are within walking distance of shops, parks, cafes and transportation. Buyers with children often prefer a location close to schools. However, the value of a home might be diminished if it is located too close to a school -- such as across the street.
Proximity to a major metropolitan area usually has a positive impact on prices, particularly when combined with a good public transportation. Employment opportunities in the area also boost home prices.
Supply and demand are up there with location in terms of impact on price. A surplus of unsold inventory gives buyers choice and a lack of a sense of urgency. Too little inventory relative to demand has the reverse effect. This usually puts an upward pressure on prices. Sellers in sought-after neighborhoods who put their homes on the market when there's little for sale often sell for more than they anticipated.
Buyers take the condition of the property into account before they make an offer to purchase. A home with a lot of deferred maintenance might put off buyers altogether, particularly in the current market. If buyers make offers on homes that have been neglected, they will factor work that needs to be done into their price.
Deferred maintenance can be corrected. Incurable defects can put a bigger damper on price, particularly in a down market. An incurable defect, like being located next to a freeway or on a busy street, is something that can't be corrected. You'll have to live with it.
In a hot market, buyers often overlook these defects because prices are rising and buyers are more willing to make compromises. In a slow market, with no urgency to buy immediately, buyers are pickier. They take their time and buy when they find the right house.
THE CLOSING: Price accommodations need to be made to overcome buyers' objections to incurable defects.

Inman News™

Tuesday, March 8, 2011

The Truth About Appraisals

The appraisal process often baffles consumers. They may feel that their home is worth a higher dollar amount, and so the appraised value doesn't always make sense to them. It is important to know that the appraiser is completely independent from lenders, buyers, sellers, and real estate agents, and that the guidelines to which they adhere are dictated by the Uniform Standards of Professional Appraisal Practice (USPAP) and Fannie Mae. In most states, the mortgage lenders must also disclose the purpose of the appraisal, as each transaction carries its own set of rules.

In essence, these important guidelines help appraisers put a fair market value on homes based on comparable sales in the same area, and the home must be bracketed in size and value.

For example, there is no set dollar figure associated with a great view, pool, spa, bathroom upgrades, etc. If a homeowner installs a custom pool that cost them $30,000, but the local marketplace supports the value of a pool at $15,000, then that item will be bracketed as [$15,000] on the appraisal.

Upgrades can usually be expressed at a higher percentage of their value in newer homes because the only way to obtain those upgrades was to put more money into the cost of building the home. On the other hand, the upgrading or remodeling of an older home is rarely reflected in full in the final appraisal. This is because typically 25-40% of the project involves demolition and the fixing of issues that aren't uncovered until the project has already begun, such as plumbing or wiring that may need updating.

Ultimately, the value of the upgrades must be supported by comparable examples within the same marketplace. These comparisons must be drawn from current market activity within the last six months. This is a safeguard to prevent appraisers from attaching too high a value to the home in question, and opening up the appraisal for review. This guideline further states that appraisers can only base their opinion on the value of home sales that have actually closed.