MORE CHANGE IS COMING

They say the only constant is change... And more change is coming, as the sweeping Financial Regulation Bill was passed by the Senate last week and will be signed by President Obama in short order to become law. So what does this change mean... and how will it impact home loan rates? Here's what you need to know.
The Bill calls for a new consumer protection agency and prohibits Banks from taking risky bets. While those things are important, it's also important to realize that this legislation... over 2,000 pages worth... amazingly does nothing to address the core reasons for the financial collapse. Fannie Mae and Freddie Mac are completely left out of this legislation. The credit rating agencies, who may have played the largest role in the financial collapse, also go unmentioned.
In fact, when former Fed Chairman Alan Greenspan was asked about the Financial Regulation Bill, he noted that this was the first time the Fed was not asked to write a regulation of this kind. He also said that there are "unintended consequences" in every page of this bill.
What all this will mean for our economy and home loan rates remains to be seen... which is why now is the perfect time to act, while home loan rates continue to be some of the best they have ever been!
Banks seem to be creating two classes of troubled homeowners. Those who are falling behind in their payments are being allowed to stay in their homes longer because lenders are reluctant to ad to the glut of foreclosed homes on the market. At the same time, lenders are stepping up repossessions to clear out the backlog of bad loans.
On average, it takes about 15 months for a home loan to go from being 30 days late to the property being or foreclosed and sold, according to Lender Possessing Services Inc., which tracks mortgages.
The number of homeowners that received a legal warning that they could lose their homes in the first half of the year climbed 8 percent from the same period last year. But the rate dropped 5 percent from the last six months of 2009, according to RealtyTrac, which tracks notices for defaults, scheduled home auctions and home repossessions.
About 1.7 million homeowners received a foreclosure-related warning, between January and June. That translates to one in 78 U.S. homes.
Nevada posted the highest foreclosure rate in the first half of the year. Arizona, Florida, California and Utah were among the other foreclosure hotbeds.

REAL ESTATE TRENDS & FORECASTS

At a recent luncheon of the St. George Chapter of the Women’s Council of Realtors, Vardell Curtis, Chief Executive Officer of the Washington County Board of Realtors, talked about real estate trends and forecasts. The following are some of the highlights of Vardell’s presentation:
Pending home sales have risen for three consecutive months, reflecting the broad impact of the home buyer tax credit and favorable housing affordability conditions. The forward-looking indicator rose 6 percent to a level of 110.9 based on contracts signed in April, from an upwardly revised 104.6 in March, and is 22.4 percent higher than the same month last year. The tax stimulus, combined with improved consumer confidence and low mortgage interest rates, are contributing to the surging sales. The housing market has to get back on it’s own feet and now appears to be in a good position to return to sustainable levels even without government stimulus, provided the economy continues to add jobs.
“The economy grew at a slower rate than originally reported in the first three months of the year, according to the Bureau of Economic Analysis, which suggest inflation will remain tame in the near term,” stated Frank Nothaft, chief economist for Freddie Mac. He continued by saying, “As a result, mortgage rates held at historic levels this week. In fact, rates on 15-year fixed-rate mortgages set another record low for the third week in a row.”
It remains a very attractive time to refinance a mortgage or buy a new home or foreclosed property, while recognizing that one in four U.S. homeowners is “underwater” on their mortgages...owing more than the home is worth. Mortgage rates could move higher later this year if global investor anxiety declines.
The Utah market is rebounding slowly. While some sectors of Utah’s economy are slowing heading toward the rebound track, real estate is still not there yet. And some local analysts predict it may be a while before it finally finds its way back onto the road to stability. The commercial real estate market may not even begin to recover until next year.
On the residential side, declining home values have pushed housing prices back to much more affordable levels. The lower end of the market (under $300,000) is recovering. We’ve probably seen a bottom or very close to a bottom in that part of the market. The middle part of the market is “a little bumpy” with the higher end “going to remain in a mess for some time to come.” There is just too much high-end real estate in the state….and we just don’t have people with the incomes and fundamentals that can support those higher payments.
Prices on the more expensive unsold inventory are falling more dramatically – on a percentage basis—than any other segment of the housing market. Eventually, the market could see more foreclosures or sort sales as those properties are no longer financially viable for their owners.
According to newly released data from CoreLogic on foreclosures for the St. George area, the rate of foreclosures among outstanding mortgage loans is 4.24 percent for the month of April, an increase of 1.04 percentage points compared to April 2009 when the rate was 3.2 percent. Foreclosure activity in St George is higher than the national foreclosure rate which was 3.20 percent for April 2010, representing a 1.04 percentage point difference.
Perhaps the best news for Washington County is progress in the residential housing market. Sales are booming as the market continues to adjust to more realistic prices. In addition, preliminary data for the first two months of 2010 shows approved home permits almost doubled the number permitted for the same months in 2009. Information courtesy of Vardell Curtis, CEO, WCBR

TAX CREDIT GONE, BUT RECOVERY WILL STAY

Now that the federal Home Buyer’s Tax Credit has expired, many thought home-buying activities would dry up. Unlike last winter, the credit has neither been expanded nor extended, and industry watchers have worried that home prices might see a “double dip” without the stimulative effect of the money.
There’s no denying the program has been successful. But the free lunch has ended and reality is staring us right in the face. Where will the housing market head from here?
I predict a continued slow recovery in prices and activity, and I have three reasons for believing it:
● The overall economy is improving. Slowly but surely, people are feeling a little better about their own financial situation, and that translates directly into spending. The more spending that occurs, the better the economy. The better the economy, the more jobs that are created. The more jobs that are out there, the more houses that sell.
That’s an oversimplification of an extremely complex situation, and we still have a long way to go, but things are definitely better than they were a year ago, and most believe better times are ahead.
Interest rates are still extremely attractive. And I’m not talking about some weird adjustable rate instrument that is tied to an offering of inter-bank rates in London. I’m referring to the all-American 30-year, fixed-rate loan that our parents had on the house in which we grew up.
Most Americans are firmly convinced that a single-family house in a good neighborhood in a growing community is a solid investment, and they are right. And if you can lock in a good price with a low fixed interest rate, you add strength to your financial position by being able to predict your housing expense into the future.
● And what about the loss of the tax credit? I don’t think it will matter.
The housing market is still soft enough to absorb the financial hit. By that I mean a savvy shopper who isn’t afraid to negotiate can expect to buy a house in this market at enough of a discount to offset the lost tax credit.
Sellers are painfully aware that price sells houses, and I expect builders to offer their own version of a “home buyer’s discount” as a way to incentivize the home-buying public. Owners of resale homes will follow suit.
Is that a cheap and crass marketing gimmick designed to fool the public into thinking they are getting a benefit that they truly are not receiving? Yes.
Will it work? Yes.
John Adams is an author, broadcaster and investor. He answers real estate questions on radio station WGKA (920 AM) Iin Atlanta. For more real estate information or to make a comment, visit www.money99.com.

Buy and Bail

FHA and Fannie Mae “Buy and Bail” rules have been in effect for several months and this is old news to many. This information comes as a reminder.
Because values have declined in most areas making it difficult to refinance, many home owners have decided to purchase another home while their credit is still good claiming they will rent their existing home. Once their new home closes, they then allow their existing home to go into foreclosure and a new term has emerged, “Buy and Bail”.
How Does Buy and Bail Work? Buy and Bail involves lying. It typically involves drawing up a phony rental agreement and presenting this false documentation to the lender. That is mortgage fraud. The FBI defines mortgage fraud as “any material misstatement, misrepresentation or omission relied upon by an underwriter or lender to fund, purchase or insure a loan.”
Here are the steps that a home owner would follow:
First, the home owner decides that (for whatever reason), his home no longer suits his purposes.
Since the home owner cannot obtain a new mortgage loan after a short sale or foreclosure, he sets out to find a home to buy before going into default on the existing mortgage.
A purchase offer is written on the new home and the home owner/buyer submits a loan application.
The lender requests a rental agreement to show that a tenant will move into the home owners old home and make rental payments.
Home owner gets a friend to sign a rental agreement, even though the friend has not intention of moving into or renting the home owner’s old home.
The lender approves home owners new mortgage and funds the loan
The home owner never makes a payment on his old home. A Notice of Default is filed and the home goes into foreclosure, subsequently going back to the bank.
The home owner’s credit is ruined, but he doesn’t care because he has already bought a new home and has no intentions of moving for a long time.
As a result of buy and bail practices, Fannie Mae guidelines now require buyers to qualify for mortgages on both homes at loan inception, unless the existing home has plenty of equity. That’s because a home owner with plenty of equity would be foolish to walk away from it.
Fannie Mae’s Guidelines for converting a principal residence to a second home or investment property is as follows:
If a customer is purchasing a new home prior to selling their existing home they must qualify with both payments (PITI, interest, taxes and insurance). If the equity is less than 30% (market value less than amount owed) 6 months reserves are required. If equity position is 30% or greater 2 months reserves are required. Note: Only 75% of the rental income can be used, even then, for qualifying purposes. An executed 12 months lease and proof that a security deposit in the customers’ account is required.
If a customer is renting out their existing residence the borrower must also qualify with both payments. Rental income can only be used if the equity position is equal to or greater than 30%.
If a client’s pending sale for the existing home blows up before the closing of their new purchase, or will not occur prior to the new home closing the rules are a little different but similar to the first explanation. The payments for the existing home are not required for qualifying purposes if reserves can be documented along with a copy of an executed sales contract and confirmation of all financing contingencies are provided.
FHA’s Guidelines now require buyers who are legitimately purchasing a home and converting their existing home to a rental either qualify for both loans or have 25% equity in their present home. Exception—Relocation:s: The home-buyer is relocating with a new employer, or being transferred by the current employer to an area not within reasonable and locally recognized commuting distance. A properly executed lease agreement (i.e., a lease signed by the homebuyer and the lessee) of at least one year’s duration after the loan is closed is required. FHA recommends that underwriters also obtain evidence of the security deposit and/or evidence the first month’s rent was paid to the homeowner.
About.com and Activerain.com

Shadow Market

The housing market is facing swelling ranks of homeowners who are seriously delinquent but have yet to lose their homes, and this is threatening a new wave of foreclosures that could hit just as the real estate market has begun to stabilize.
As these foreclosed properties add to the supply of homes for sale, they could undercut housing prices, which have increased modestly through December, according to the most recent figures in the S&P/Case-Shiller home prices index. That rise partly reflected a slowdown in the flow of foreclosed homes onto the market.
The rate at which J.P. Morgan Chase seized properties, for example, peaked in the middle of 2008 and fell steadily last year, according to a February investor report. But the bank expects repossessions to increase this year, nearly doubling to 45,000 by the fourth quarter.
"Some of the positive housing data may not be signaling a true turning point, as many servicers are holding back on foreclosures and the related houses are not yet being offered for sale," said Diane Westerback, a managing director at Standard & Poor's. Westerback said it could take 33 months to clear the backlog.
Data released Thursday by RealtyTrac illustrate the dynamic. While banks repossessed fewer homes in February than a month earlier, borrowers continued to fall behind on their payments, adding to the inventory of properties headed toward foreclosure that have yet to be put on the market, said Daren Blomquist, RealtyTrac's spokesman.
"Just looking at the numbers, we would expect there to be a bigger percentage of properties" repossessed by banks by now, he said.
This "shadow market" reflects the increasing lag between defaults and foreclosures. Many lenders are struggling to keep up with the overwhelming number of borrowers who can't make their payments, and they're reluctant to rush repossessed homes onto the market when prices are depressed. The borrowers in trouble now are, for the most part, people who have better credit and safer loans and have become delinquent because they've lost their jobs or are dealing with other economic setbacks, economists said.

More than 75 percent of the borrowers who are now seriously delinquent -- meaning they have missed at least three monthly payments -- have traditional prime loans, according to First American CoreLogic. Most of these borrowers have not made a mortgage payment in six months.
These borrowers are among the most difficult to help. Homeowners with economic troubles such as extended unemployment often cannot make even reduced mortgage payments. And the longer borrowers stay delinquent, the more difficult it is to fashion a mortgage relief plan for them. Some lenders are giving distressed borrowers more time to see whether they can modify the terms of their loans.
Over the past year, the number of foreclosed homes going up for sale has declined. Distressed properties made up just 38 percent of purchases in January, compared with the 49 percent peak in March 2009, according to the National Association of Realtors. That helped the inventory of homes on the market fall to a 7.8-month supply, close to the figure during normal times and down from more than 11 months in July 2008. But as prices continue to stabilize, lenders are likely to take advantage of the situation by putting more of these distressed properties on the market, economists said.
"Banks have remained in foreclosure paralysis, allowing that backlog to get larger and larger. You can't do that indefinitely," said Sandeep Bordia, head of U.S. residential credit strategy at Barclays Capital.
That impact could be muted if enough buyers emerge to snap up properties or efforts to enroll borrowers in mortgage relief programs improve. Some lenders are looking for ways to ease delinquent borrowers out of their homes without a foreclosure. For example, lenders are allowing more short sales, in which the home is sold for less than the outstanding loan balance. Citigroup is testing a program that allows delinquent borrowers to stay in their home for six months free if they leave the property in good condition, making it easier to sell afterward

FORECLOSURE ESTIMATE FALLS

Banks have fewer foreclosed homes to sell than previously believed, but those holdings are likely to grow gradually over the next couple of years, a new study by Barclays Capital says.
The investment bank's latest calculations support the view that the U.S. housing market is stabilizing but that a major recovery isn't imminent and there are still risks of falling prices.
Barclays estimates banks and mortgage investors including Fannie Mae and Freddie Mac owned 480,000 homes at the end of February. Barclays has acquired more data on mortgages and refined its methods for analyzing foreclosure trends. Under the bank's previous methods, the estimate for February would have been more than 600,000.
Barclays expects the inventory generally to rise over the next 20 months, peaking at 536,000 in January 2012, and then decline gradually.
Estimating the inventory of foreclosed homes remains tricky because thousands of banks and others that own the properties disclose those holdings in varying ways, if at all. RealtyTrac Inc., another data provider and one of the few other firms that regularly make such calculations, estimates banks and mortgage investors own 758,000 foreclosed homes.
To get a sense of how many more households will lose their homes to foreclosures or related actions, Barclays tallies what it calls a shadow inventory, consisting of homeowners 90 days or more overdue on mortgage payments or already in the foreclosure process. At the end of February, 4.6 million households were in that category.

Barclays expects 1.6 million "distressed sales" of homes—mainly foreclosures or sales of homes for less than the mortgage balance due—both this year and in 2011, then a slight decline to 1.5 million in 2012. Last year, Barclays estimates, such sales totaled 1.5 million. About 30% of all home sales this year and next will be foreclosure-related, forecasts Robert Tayon, a mortgage analyst at Barclays, who says that would be only about 6% in a normal housing market.
Barclays expects U.S. home prices on average will fall another 3% to 5% over the next couple of years, adding to a decline of about 30% already recorded since 2006. That forecast assumes a gradual decrease in the unemployment rate, to 8% within the next two years, from 9.7% in March. The home-price picture would worsen if job growth sputters or banks "push homes through the foreclosure pipeline faster than expected," Mr. Tayon says.
Efforts to avert foreclosures by offering many borrowers lower payments have slowed the flow of homes into bank ownership. In some parts of the country—such as the Las Vegas area and Orange County, Calif.—that has left bargain-hunters frustrated by what they see as a shortage of bank-owned properties in attractive neighborhoods.
In the Las Vegas area, foreclosed homes accounted for 56% of sales in March, down from 73% a year earlier, according to MDA DataQuick, a research firm.
By James R. Hagerty, April 28, 2010

FIRST QUARTER HOME SALES

First Quarter Homes Sales indicate strong signs of recovery after posting 41 percent surge in year-over-year sales. Bolstered by an influx of affordable bank-owned properties coupled with attractively low interest rates, Washington County recorded 993 sales in the first quarter, representing an increase of 287 sales from last year’s quarterly figure. With an ample selection of low-priced distressed properties enticing buyers and driving sales upward, affordable pricing is a primary factor in the market’s renewed activity. The recent sales boost likely serves as the first indication of the market’s inevitable resurgence from the depths of the sub-prime lending crisis. From January to March, the average price of a dwelling in Washington County increased by about $11,000 to $173,673. This slight increase is an encouraging indication of recovery. SUTC Developer Services

Two-Thirds of Americans Say Now Is a Good Time to Buy a Home. A nationwide survey recently conducted by Fannie Mae has determined that 65% of today's home owners and renters still believe in the solid value of homeownership and prefer to own their own home if possible. The survey did, however, determine that potential home buyers have become more cautious since the recession in real estate markets and precipitous rise in foreclosures nationwide.
As Fannie Mae Chief Economist Doug Duncan explains it, the downturn in the housing market has led to a "rebalancing" of consumer attitudes toward homeownership, with most Americans adopting a more realistic and long-term view than the investor mentality in which property "flipping" for near-term gain was a major consideration. The survey also determined that 60% believe that purchasing a home today is harder than it was for their parents, and nearly 70% believe it will be even tougher for their children to achieve homeownership. At the same time, two-thirds of respondents said that they believe now is a good time to buy a house — nearly as many as said so back in 2003, prior to the housing boom. And 70% indicated that they think buying a home is one of the safest investments they could make, although this was down from 83% who said as much in 2003. Read more about Fannie Mae's survey on CNN.com. NAHB