February, 2010

In other news, two new studies just out this week conclude that most efforts to modify troubled home loans with easier terms will only delay , and not prevent the loss of homes to foreclosure. Both reports – one by Standard and Poor’s, the other by the John Burns Real Estate Consulting group – predict that foreclosures will continue to play a big role in the pricing of homes over the next several years. The Burns study estimates that five million homes that are already delinquent will go through foreclosure or similar procedures that will put them on the market over the next few years. That’s nearly two-thirds of the households that are currently behind on their mortgage payments. The S&P study makes a similar prediction. According to The Wall Street Journal, the problems are largely concentrated in four states – Florida, Nevada, Arizona and California. John Burns, whose group conducted one of the studies, says the demand for foreclosed properties remains strong, so he expects home prices overall to remain steady over the next few years, as long as the economy continues to recover and mortgage interest rates don’t jump quickly.

So much focus has been placed on finding people to buy foreclosed homes that new home construction is falling to critically low levels. Brian Wesbury, the chief economist at First Trust Advisors tells Forbes magazine that a housing shortage could strike next year. Wesbury says the nation needs one and a half million houses a year just to keep up with population growth, and that doesn’t even account for homes that are torn down or lost to disasters such as fires.
Government figures put housing starts in December at an annualized rate of just 557-thousand, or about a third of what Wesbury says is needed. You might think that with so many foreclosures that the demand for new housing would fall, but Wesbury says the extra bump from foreclosures will not sustain the nation’s housing needs for long. Ironically, though, some economists say foreclosures will likely rise as long as the nation’s job shortage continues. And one of toughest sectors to find a job in right now – is home construction.

With everything we’ve heard about foreclosures and people owing more to the bank than their homes are worth, it all just sounds like a bad sequel to that Kevin Costner movie, Waterworld, but we’re not as washed up as you may think. A little seen, little-talked about piece of research from none other than the Federal Reserve shows that net equity in Americans’ homes grew by nearly a trillion dollars from the first quarter of last year to the end of the summer. Now – that number itself is not all that impressive compared to the boom years, but it does follow three straight years of seeing home equity values fall and eventually dive underwater, so it could very well be a sign that the down cycle in home values is coming to an end. And that’s good news for people seeking new mortgages, because the fewer underwater homes there are in your neighborhood, the chances are likely that owners will walk away from their loans altogether, and the better chance new owners will have of getting a loan.

Foreclosure has become so trendy that even the rich are getting in on it. Nearly 19-thousand homes worth a million dollars or more went into foreclosure last year in the US – That’s a 162 percent increase over the previous year, according to RealtyTrac. Prices of those kinds of homes have fallen by about a quarter since 2007, and Forbes Magazine reports that more and more desperate homeowners are choosing to sell at auction instead of facing perhaps years to sell their homes. Josh Brian Losh, who runs the website LuxuryRealEstate.com, says “Any home owner selling in this economy is on the market because they have to be.”

We saw progress in all categories across the nation compared to a year ago, so let’s start in the Northeast, where the nation’s highest-priced homes can be found. Again – sales improved across the board, but we saw the most movement in December in the higher-end range. Sales of properties priced between 500 and 750-thousand dollars increased by 31-percent compared to a year earlier. The 750-to one million dollar home sales increased by nearly 30 percent, and the million dollar-plus homes really boomed – with sales increasing 61 percent over December of ’08. Homes priced below 500-thousand dollars all saw sales rates improve by between 12 and 15 percent.

Heading South, we see a similar pattern, with homes priced between 500 and 750-thousand enjoying the biggest bump – a 21 percent increase over the previous year, and home sales enjoying a double-digit increase in all other categories.

The successes were harder to come by in the Midwest, which is taking a tougher economic hit, but even there, home sales are all moving in a positive direction. Homes in the mid-range, costing between 250 and 500-thousand dollars, had the most success, with a 19-percent year-to-year sales increase. Less expensive homes saw sales improve in the low single digits, while high-end home sales grew by about 15 percent compared to December of 2008.

Out West, the biggest move was in the smallest price category. Homes priced under 100-thousand dollars had the biggest year-to-year sales increase – at 27 percent. And, just as we saw in the northeast and in the south, homes in all price ranges in the Western US enjoyed double-digit sales growth as well.

When you look at all of this on a nationwide basis, most of the sales growth has come in the 100 to 250-thousand dollar range – a 46-percent year-to-year increase. And it’s no coincidence that the median price of a home in the U.S. is right in the middle of that sales range – at 178-thousand dollars.

It’s now clear that the housing market is heating up once again across the country, as the economy recovers. And it really is quite a comeback – The government says the economy saw its fastest growth in more than six years in the last quarter. And when you couple that news with the promising sales growth we saw at the end of 2009, it’s shaping up to be a strong spring for home sales – and no better time than now for you to begin working with a REALTOR® to ensure your best possible deal.

One of the great advantages of an FHA loan, is that it allows borrowers to get into homeownership without having to wait months or years to buy a home with a conventional mortgage. Every loan is fully documented, so when we approve a borrower with a low down payment we give them a safe and secured mortgage product, and we also know that their ability to repay that loan has been verified. That’s what makes the program safe for the tax payer but also helps to keep that industry working in this country.

FHA Streamline is a program for existing FHA borrowers, who simply want to refinance their mortgage at a lower rate, without pulling any cash out, and can pay their closing costs associated to that mortgage — we don’t require any documentation. Simply call your lender does FHA, and they can streamline you without having to go through documentation – there’s no new appraisal, and nothing more is needed in the process.

However, one of the barriers to using FHA are the loan limits. Current limits are 125% of a local area’s median home price, with a cap of $729,750. This is because the high end of the mortgage market is not where FHA was designed to serve.

FHA also allows for ten percent down for people with poor credit — those at or below a FICO score of 580 — trying to get a mortgage. We have performance data to show that under the right circumstances, a borrower with a FICO below 580 can afford to have a mortgage. As an example: you may have a family where one or both adults in the household have lost their job and during that period of time their credit became impaired. When they are re-employed and they do have the down payment, they have the money to buy a new home if it’s 10% down or greater. Our performance data clearly shows that this kind of profile performs well, and without having that prevision, we would be locking them out of that opportunity to own a home which we believe is very important to the borrowers who have the ability to repay.

Should everybody own a home? The answer is clearly no; however, with proper counseling and perhaps looking at rentals for a period of years, a family who is ready to buy a home, can be helped by FHA.

Q: So, the people in community banks know your area and are more personal?
A: I think ultimately, that’s the most important part! We did a video based on the movie, A Wonderful Life – which shows Community Unions and small banks being closer to the community and treating you like a human being and not a number. They are more likely to turn around and re-invest in small businesses in the community thereby creating jobs, and less likely to charge you those ridiculous fees for transactions. Big banks are scheduled to make 38 billion dollars in overdraft fees this year; it’s just a huge part of their profitable business.

Q: The community banks make money on fees, and not on interest rates?
A: It’s everything. Of course they make huge profit on their credit cards by charging people up to 30% interest rates if they miss the payments. So, here are all the elements of a good American story, where we take power in our own hands; we don’t want banks that are too big to fail — they are a risk to our economy because if something happens again, we the tax payers will be on the hook. But, we also want to bring more competition and that’s an essential part of the private enterprise principle. We want multiple banks competing for our business instead of 6 big banks having the vast majority of our deposits and acting any way they want because we haven’t cultivated an alternative.