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Friday, August 3, 2012

The Power of Assumability


The Power of Assumability
by DEAN HARTMAN on JANUARY 12, 2012 · 5 COMMENTS

One of the rarely touted advantages of people taking FHA mortgages today is the fact that they are assumable. What that means is, when the FHA homebuyer of today is looking to sell his home, a qualified purchaser can “take over” their loan.
Most people believe that interest rates will return to a “normal” range (between 6.5% and 7%) in a couple of years. When you assume a mortgage, the terms remain the same. This means that a buyer five years from now can enjoy a 4 – 4.5% mortgage by assumption rather than the 6.5% – 7% mortgage they would get without it. Since most people buy homes based on how the monthly payment fits into their personal monthly budget, this is extremely impactful.
As an example, a $300,000 loan at 4% today carries with it a $1,432.25 principal and interest payment on a 30 year fixed mortgage. If offered for sale in five years, the purchaser could assume the $271,858.56 balance with the same $1,432.25 payment and remaining term of 25 years. The total payments over the 25 years would be $429,675.
Compare that to a new $272,000 loan at 6.5% for 25 years, which would carry a monthly payment of $1,836.56 (over $400 more a month than the assumption and more than $120,000 more over the 25 year term).
At 6.5% for 25 years, to wind up with the same payment as the assumed mortgage, our borrowers would only be getting $212,000…$60,000 LESS!
The point here is that, when rates go up, homes with assumable mortgages will have more value and will sell at higher prices because they are more affordable. As an additional bonus, the closing costs on assumable mortgages are significantly less (especially here in New York where NYS Mortgage Tax is such a large component of closing costs).
The borrowers must be credit-worthy of course (have good credit, qualifying income, and necessary assets to close), but they would have to be credit-worthy to get a new mortgage too!
Besides the multiple other reasons to obtain an FHA mortgage (low down payment requirements, extended income ratios, lower credit scores, and easier sourcing of funds), there is another perk. In the future, there is a good chance that you may be able to sell your home for more money because of the FHA loan’s assumability.

Tuesday, July 24, 2012

Home values rise for first time in 5 years


NEW YORK (CNNMoney) -- Home prices hit a bottom and are finally bouncing back, according to an industry report released Tuesday.
Nationwide, home values rose 0.2% year-over-year to a median $149,300 during the second quarter, the first annual increase since 2007, real estate listing site Zillow reported. Prices were up 2.1% from the first quarter.
Even though June marked the fourth consecutive month of home value increases, overall home prices are still down almost 24% since April 2007, when Zillow began to track home values.
"[I]t seems clear that the country has hit a bottom in home values," said Zillow's chief economist Stan Humphries. "The housing recovery is holding together despite lower-than-expected job growth, indicating that it has some organic strength of its own."
Last winter, Zillow projected that the housing market turnaround would not arrive until the end of the year.
Other home price indexes have also recorded gains lately, including the S&P/Case-Shiller home price index. In it latest release, it reported thathome prices in 20 major markets rose 1.3% in April, the first monthly increase in seven months.
Zillow uses a different methodology in calculating home values than other home price indexes like Case-Shiller and the Federal Housing Finance Agency. Sales of foreclosed, bank-owned properties, for example, are not factored into Zillow's data. Zillow does include short sales, however, which are more difficult to distinguish from conventional sales.
"Our index is geared to consumers, conventional sellers deciding whether they want to put their homes on the market," said Humphries.
The indexes that include foreclosures in their market data show larger price declines. The peak-to-trough drop for the S&P/Case-Shiller home price index, for example, is about 34% compared with Zillow's 24%.
Fewer than one third of the 167 metro areas Zillow surveyed recorded annual increases in home values, but the size of the price gains in these areas more than offset the losses posted by the remaining two-thirds of the markets.
In Phoenix, the biggest gainer, home values soared 12.1% year-over-year to a median of $136,200. Meanwhile, the biggest loss sustained by any of the 30 largest metro areas was in Chicago where median home values fell 5.8% to $158,600.
Foreclosures remain one of the biggest risks to the housing market recovery, Humphries said. In the wake of the national foreclosure settlement which clarified how banks can legally pursue foreclosures, Humphries expects the pace of foreclosures to pick up.
"That will translate to more homes on the market," he said. "But we think demand will rise to absorb that."
Zillow expects the housing market to continue to slowly recover, with median home values projected to climb 1.1% -- relatively flat -- over the next 12 months.
Beaten down markets like Phoenix, Las Vegas and many Florida cities, will likely record greater-than-average gains over the next 12 months, said Humphries.
The results in those places, however, will be bumpy. Home price increases will cause some homeowners who have been patiently waiting for values to rebound to put their homes on the market. And those additional listings could cool prices for a while, resulting in a staircase effect with "price spikes followed by plateaus," said Humphries.  To top of page

Wednesday, July 18, 2012

More signs of a housing rebound


NEW YORK (CNNMoney) -- A recovery in home construction seems to be underway, with both housing starts and permits up in June year-over-year, according to a report released Wednesday by the Census Bureau.
Housing starts rose 6.9% over May to a 760,000 annual rate, the highest level since October 2008, and were up an impressive 23.6% compared with a year earlier. Starts of single-family homes inched up month-over-month.
Permits fell slightly from revised May numbers to 755,000, but were up 19.3% compared with June 2011.
Another industry release from the National Association of Home Builders (NAHB) reported that builder confidence is at its highest level in five years.
"Builder confidence increased by solid margins in every region of the country in July as views of current sales conditions, prospects for future sales and traffic of prospective buyers all improved," said Barry Rutenberg, NAHB's chairman and a home builder from Gainesville, Fla.
The biggest reason for optimism is a shoring up of home prices lately, according to NAHB's chief economist, David Crowe.
"Once home price increases start to kick in, buyers lose their fear of buying," he said.
Home prices rose in April for the first time in seven months, according to the S&P/Case-Shiller home price index.
Demand for homes has been strong in many markets, according to Glenn Kelman, founder of discount broker Redfin.
"Homebuyers are like a herd of hungry goats right now, going from hillside to hillside looking for something to eat," he said. "There's not enough inventory to go around."
He said many recent house hunters started out looking for existing homes in picture-perfect, move-in condition and were disappointed in what they found. Few of those homes are available because the owners are sitting on them.

Thursday, July 12, 2012

Closer to a bailout? FHA's mortgage delinquencies soar


NEW YORK (CNNMoney) -- The mortgage market appears to finally be stabilizing -- as long as you ignore loans backed by the Federal Housing Administration.
Increasingly, FHA-insured loans are falling into foreclosure or serious delinquency, moving in the opposite direction of loans guaranteed by Fannie Mae and Freddie Mac or those held by banks, which are all showing signs of improvement.
And taxpayers could ultimately be on the hook for FHA's growing number of troubled mortgages. The agency's finances are already on shaky ground, and additional losses from loans going sour could prompt the need for a federal bailout, experts said.
"We can't escape this one," said Joseph Gyourko, a real estate professor at the University of Pennsylvania's Wharton School. "This is an arm of the U.S. government."
The share of government-guaranteed loans, a majority of which are backed by FHA, that were 90 days or more delinquent soared nearly 27% during the year ending March 31. Foreclosures jumped nearly 17%, according to a report published recently by federal regulators.
At the same time, bank loans saw a dramatic improvement, with delinquencies shrinking by 39% and foreclosures declining by nearly 10%. Fannie and Freddie's portfolio also improved as delinquencies dropped by nearly 15% and foreclosures slid by more than 6%, the quarterly report issued by the Office of the Comptroller of the Currency said.
FHA has also had a tougher time successfully modifying loans. More than 48% of government-guaranteed mortgages re-defaulted 12 months after modification, compared to 36.2% of loans overall, the report said.


FHA's risky borrowers: FHA doesn't make loans, but it backstops lenders if borrowers stop paying. With this guarantee in place, banks are more likely to offer mortgages to borrowers with lower credit scores or incomes.
FHA-backed loans made up more than 29% of the market for home purchases in the first quarter of 2012, according to Inside Mortgage Finance, an industry publication.
Housing experts have been warning for years that many FHA-insured loans are not sustainable, especially in these troubled times. That's particularly concerning because FHA's share of the market has swelled in recent years as lenders pulled back on providing mortgages that weren't backed by the government.
One of the main critiques of FHA loans is that they require very low downpayments -- a minimum of 3.5%. In an environment where home prices are declining, borrowers can quickly slip underwater and owe more than their property is worth.
"These are very risky loans," said Ed Pinto, resident fellow at the American Enterprise Institute, a conservative think tank. And loans made in the past three years are "moving into the beginning of the peak delinquency period and they are very big books of business."
Unless the economy improves significantly over the next few years, FHA will experience even more delinquencies, said Guy Cecala, publisher of Inside Mortgage Finance.
Little room for failure: The dramatic jump in delinquencies comes despite the agency's efforts to improve the quality of the loans it insures.
Over the past several years, soaring defaults have been eating away atFHA's emergency reserves, which cover losses on the mortgages it insures. In fiscal 2009, the reserve fund dropped to 0.53% of FHA's insurance guarantees, well below the 2% ratio mandated by Congress. By late last year, it had fallen to 0.24%.
FHA pledged to shore up its standards and its finances in 2009. The agency has since increased its insurance premiumsestablished minimum credit scores for borrowers, required larger downpayments from those with credit scores below 580 and banned sellers from assisting borrowers with the downpayment. It also created an office of risk management and cracked down on lenders with questionable underwriting processes.
Despite the emergency fund's diminishing reserves, FHA maintains that its efforts are working. The loans insured starting in 2009 are much higher quality and should lower delinquency levels over time, an FHA official said.
"We expect the new books will continue with their better performance, primarily because of the steps that were put in place," he said. "And we are benefiting from having more high-credit borrowers."
Still, FHA watchers warn that the agency doesn't have much of a cushion against these rising delinquencies and foreclosures. And if the losses grow too great, the agency could need a taxpayer-funded bailout.
The FHA says that its reserves should be restored by 2014 barring a second recession, but outside experts aren't so sure.
"They are doing very badly ... there's no two ways about it," said Andrew Caplin, a New York University economics professor who has studied the agency. "Over the next five years, there won't be enough of an economic recovery to fix FHA's finances. Not a chance." To top of page

Tuesday, June 26, 2012

Home prices rise for first time in 7 months


NEW YORK (CNNMoney) -- Home prices rose in April for the first time in seven months, though they are still near record lows, according to a report out Tuesday.
Average home prices increased 1.3% in April in 20 major markets, according to the S&P/Case-Shiller home price index. This comes after prices hit new post-bubble lows in March.

As of April, average home prices nationwide are back to where they were in early 2003. Prices are down 34% from their summer 2006 peak.

On an annual basis, prices are down 1.9%, though that's an improvement over March's decline. Ten cities -- Boston, Charlotte, Dallas, Denver, Detroit, Miami, Minneapolis, Phoenix, Tampa and Washington D.C. -- had positive annual returns. 

Monday, June 11, 2012

6 ways to get a great mortgage deal


(MONEY Magazine) -- Finding an affordable house is no longer a problem but qualifying for a mortgage can be. Six tips to getting a mortgage and a good rate.
Put your credit on ice. The higher your credit score, the lower your rate: The best rates go to those with a 760 or more, says credit-score expert John Ulzheimer.
So keep that plastic in your wallet (and don't apply for new cards or other loans) for at least three months before you go loan shopping. One large balance -- even if it's paid off at the end of the month -- can ding your score by 20 points or more.
Ask for time. Most sales contracts give you only 10 days to nab a loan or the seller can move on. Negotiate for an additional five to 10 days to give you some room to shop around.
More: 8 ways to save on remodeling
Get at least six quotes. Rates on a 30-year fixed conforming loan can vary at least as much as a quarter of a percentage point. Get quotes from national lenders at mortgagemarvel.com and find out what your local credit union or regional bank is offering as well. Inquire about fees; while lenders aren't required to give you a good-faith estimate of closing costs (which average 2% of the loan balance) until you actually apply, some will provide it if you ask.
Match the lock period to the loan. You now need 60 days or more to close a loan, says Wharton professor and mortgage expert Jack Guttentag of mtgprofessor.com, and getting an extension on a lock will cost at least a couple hundred dollars. Ask your lender how long it's taking to close loans like yours -- and don't lock for less.
Money 101: Buying homeowner's insurance
Opt for an ARM. If you know you're not going to be in a house for more than seven years, adjustable-rate mortgages can mean big savings, says Guttentag. The monthly payment on a $300,000, seven-year ARM at the recent rate of 3.23% is $1,302, vs. $1,455 for a 30-year fixed at 4.13%.
Talk to a broker. Those who need a jumbo loan or have an unusual situation (say, you're self-employed) will get the best deal from a mortgage broker who has access to and experience with a lot of lenders. Find a fee-only one at upfrontmortgagebrokers.org.

Thursday, June 7, 2012

Mortgage rates sink to new record low


NEW YORK (CNNMoney) -- Mortgage rates have fallen to a new record low, according to Freddie Mac, and the stagnant economy is to blame.
The 30-year fixed-rate mortgage dropped to an average of 3.67% in the week ended June 7, Freddie Mac said Thursday.
This is the sixth consecutive week of declines. The 30-year rate is down from 3.75% in the prior week, and well below from the year-ago rate of 4.49%.
"Interest rates have been on a one-way elevator trip to the cellar," said Mike Larson, housing market analyst for Weiss Research. "We have never seen rates this cheap."
Freddie Mac, one of the nation's largest backers of mortgage securities along with Fannie Mae, also said the average rate for 15-year mortgage -- which is popular for refinancing -- dropped to 2.94%. That's compared to 2.97% in the prior week, and the year-ago average rate of 3.68%.
Rates have continued to slump in tandem with the U.S. economy. Freddie Mac attributed the rock-bottom rates to two recent economic reports: the anemic payroll growth of 69,000 jobs in May, which pushed the unemployment rate up to 8.2%, and the weaker-than-expected gross domestic product growth of a 1.9% annual rate in the first quarter.