MBA to HUD: Lift 203(k) Ban on Investors

The Mortgage Bankers Association (MBA) is urging HUD to end its moratorium on allowing investors to take part in the agency's Section 203(k) rehabilitation loan program. The association concedes that the moratorium was the right course of action when it was implemented in the mid-1990s, but notes that today's housing market is vastly different. "Communities would benefit from investors buying bank-owned properties, renovating them through the 203(k) program and selling or renting them," says Steve O'Connor, MBA's senior vice president of public policy and industry relations. Source: "MBA to HUD: Lift 203(k) Program Ban on Investors," MortgageOrb.com (06/07/12)

Multifamily Market Continues to be ‘Bright Spot’

The apartment and condo market showed big improvements in the first quarter, the National Association of Home Builders reports. NAHB’s latest Multifamily Production Index, which measures builder and developer sentiment over the multifamily markets, reached its highest reading since the third quarter of 2005. This marks the seventh-consecutive quarter the index has posted gains. "In spite of continuing difficulties in the capital markets, it appears that new construction is underway," says W. Dean Henry, chairman of NAHB's Multifamily Leadership Board. "This is certain to help satisfy some of the pent-up demand that has occurred over the past several years." Vacancies in multifamily housing remains at low levels, according to the index. "Multifamily construction continues to be a bright spot in the overall housing market," says David Crowe, NAHB’s chief economist. "However, as indicated by the [index], demand for apartments is now quite high, and production is still very low in a historic context and in the context of what we project is necessary to meet long-term demand." Source: National Association of Home Builders

Bernanke: Economy, Housing Still Have Long Way to Go

High unemployment persists and the European debt crisis continues to threaten the economic recovery, Federal Reserve Chairman Ben Bernanke told the Congressional Joint Economic Committee yesterday. The real estate market also continues to serve as “another drag” on recovery, he noted. But the Fed chairman likely will not push more stimulus programs when the Fed’s policy-making committee meets June 19 and 20, according to media reports. Instead, Bernanke pushed Congress to do more to help stimulate the economy. For the Fed’s part, Bernanke said it will continue to keep short-term interest rates near zero, something it's done since late 2008 and plans to continue until 2014 — at least. This approach has helped keep mortgage rates at or near record lows for weeks. Bernanke notes there have been improvements in the housing market lately, with an increase in sales, construction, and home prices. Still, "despite historically low mortgage rates and high levels of affordability, many prospective home buyers cannot obtain mortgages, as lending standards have tightened and the creditworthiness of many potential borrowers has been impaired," Bernanke said. "At the same time, a large stock of vacant houses continues to limit incentives for the construction of new homes, and a substantial backlog of foreclosures will likely add further to the supply of vacant homes." Consumer confidence also remains low with regard to the economy, with households rating their income prospects as “relatively poor” and reporting they expect little improvement in the coming months, Bernanke noted. Source: “Bernanke: Crisis in Europe Weighing on Consumer Confidence,” Inman News (June 7, 2012) and “Bernanke Offers No Clear Sign of New Action,” The New York Times (June 7, 2012)

Housing Crisis Didn’t Scare Americans Off Home Ownership

Seventy-five percent of Americans still aspire to own a home and consider home ownership a major life goal, according to a new poll of non-home owners aged 22 to 50 conducted by Integra Realty Resources, an independent real estate valuation firm. Despite a housing crisis that saw housing prices drop in many markets, Americans’ enthusiasm for home ownership hasn’t lessened, according to the study. The survey found that non-home owners under the age of 30 are even more positive about home ownership than older buyers: Forty-seven percent of respondents under 30 say owning a home is very important, compared to 41 percent of respondents over the age of 30. While the desire to own remains high, many Americans say they are left on the sidelines unable to take advantage of record-low mortgage rates and record-high housing affordability. Younger generations, in particular, say they face increased job insecurity and are struggling to come up with the financing needed to buy a home. Thirty-one percent of all respondents to the survey said they can’t buy a home because they lack a down payment, 24 percent say they are holding off because they fear making a bad investment, and 21 percent say they aren’t buying because of the uncertain economic outlook. Yet, “clearly, the American dream of home ownership lives on," says Jeffrey Rogers, president of IRR. "But if you go deeper into the research, this may be only in a fantasy not to be realized in the current economy." Source: “The Great American Dream of Owning a Home Is Still Alive and Well,” Business Wire (June 6, 2012)

New Record Lows Again for Mortgage Rates

For the sixth-consecutive week, average fixed mortgage rates set new record lows, pushing home buyer affordability even higher, according to Freddie Mac’s weekly mortgage market survey. Here’s a closer look at rates for the week ending June 7: 30-year fixed-rate mortgages: averaged a new record low of 3.67 percent, with an average 0.7 point, falling from last week’s previous record low average of 3.75 percent. The rates on 30-year mortgages have been below 4 percent since early December. A year ago at this time, 30-year fixed-rate mortgages averaged 4.49 percent. 15-year fixed-rate mortgages: averaged a new record low of 2.94 percent, with an average 0.7 point, dropping from last week’s previous all-time low of 2.97 percent. Last year at this time, 15-year rates averaged 3.68 percent. 5-year adjustable-rate mortgages: averaged 2.84 percent, with an average 0.7 point, holding steady at last week’s average. Last year at this time, 5-year ARMs averaged 3.28 percent. 1-year ARMs: averaged 2.79 percent, with an average 0.4 point, rising from last week’s 2.75 percent average. A year ago, 1-year ARMs averaged 2.95 percent. Source: Freddie Mac

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Probe Widens Into Mortgage Lenders

U.S. attorneys are increasing their scrutiny of FHA lenders, having recouped $1 billion in losses for the agency from Bank of America, Deutsche Bank, Citigroup, and Flagstar, and issued subpoenas for information from others. The probes indicate that Washington does not want taxpayers to cover FHA losses and could prompt lenders to use more caution when making FHA-insured loans. Source: "Probe Widens Into Mortgage Lenders," The Wall Street Journal (06/07/12)

REO Price Increases Bode Well for Overall Market

Recent price increases with bank-owned homes are helping to provide an overall boost to the housing market, a recent report from Clear Capital says. Prices of REOs nationally rose 8.1 percent over year-ago levels on a median price-per-square-foot basis, according to Clear Capital’s May housing data. “Strength in the REO-only price trends as well as some early indications of price gains spreading from low-tier sectors to the mid- and higher-priced homes is helping confirm that the country continues to make progress on its recovery,” says Alex Villacorta, director of research and analytics at Clear Capital. “We are expecting to see improvements extend over the next several months.” Clear Capital also reported quarterly increases to overall prices, rising 0.4 percent for the quarter, the first quarterly gain posted since November 2011. The West saw the most growth in prices, rising 2.7 percent, followed by the South, with a 1.2 percent quarter-over-quarter gain, according to the report. Source: “Improving Foreclosure Prices Drive Recovery,” RISMedia (June 6, 2012)

Obama’s May Housing Scorecard: Market Stabilizing

The latest Housing Scorecard from the Obama administration showed real estate stabilizing in every region of the country, but it still has a long way to go in the road toward full recovery. Existing-home sales increased 2.4 percent in April, according to the Obama administration’s Housing Scorecard for May. Sales also continued to outpace inventory levels. The inventory of homes for sale decreased to 5.1 month supply in April from 5.2 months in March. Also, according to the report, the inventory of newly constructed homes rose for the first time since April 2007. HUD Acting Assistant Secretary Erika Poethig also notes that more borrowers are taking advantage of the government’s refinance programs to lower their mortgage payments, and adds foreclosure starts are declining. “But with so many households still struggling to make ends meet it's clear that we have more work ahead," Poethig says. Underwater mortgages continue to threaten the market recovery, the report notes. The number of borrowers who owe more than their home’s current value rose to more than 11 million. Seriously delinquent subprime mortgages also are on the rise. Source: U.S. Department of the Treasury

Homes Grew Bigger in 2011?

Homes grew by 88 square feet last year, marking the first year in four years that average new-home size increased instead of decreased, according to Census Bureau data. Homes last year grew from 2,392 square feet in 2010 to 2,480 square feet in 2011. "Why was this happening when most people want smaller homes, want to downsize?" Rose Quint, assistant vice president for survey research at the National Association of Home Builders, told MSNBC.com. "This is exactly so counterintuitive to what we know is happening on the ground." According to an NAHB analysis, the increase is likely driven by move-up and luxury buyers rather than first-time home buyers, who tend to dominate the market. According to the Census data, 39 percent of new single-family homes last year had four or more bedrooms, and 28 percent of the new homes had three or more bathrooms. Fifty-four percent of the new homes last year were also two stories or taller. But home builders say the data needs to be kept in perspective: There were much fewer sales last year — the lowest on record, in fact — so the sample size recorded was much lower. Upscale buyers likely skewed the figures, they note. They note that bigger homes don’t really reflect the trend they’re seeing in the new-home market with the majority of buyers. Source: “U.S. Homes Actually Got Bigger During Ugly 2011,” MSNBC.com (June 6, 2012)

Once-Battered Market Now Price-Gain Leader

The Phoenix housing market, which was flooded with foreclosures and underwater home owners and saw home values dip greatly during the housing crisis, is coming back strong. Home values in metro Phoenix and the rest of the state of Arizona are posting the fastest growth rates in the nation, according to CoreLogic home value data, which includes foreclosures and short sales. In the Phoenix metro area, home values soared 11.3 percent year-over-year in April, marking the largest such gain out of the 10 largest U.S. metro areas. Dallas had the second-highest growth at 3.5 percent with home values year-over-year. Meanwhile, the states with the highest year-over-year increase in home values from April are Arizona (8.8 percent increase), District of Columbia (6.4 percent), Florida (5.5 percent), Montana (5.4 percent), and Utah (5.4 percent). Market on the Mend Overall, recent housing reports have shown that the housing market is picking up across the country. "Excluding distressed sales, home prices in March and April are improving at a rate not seen since late 2006 and appreciating at a faster rate than during the tax-credit boomlet in 2010," says Mark Fleming, chief economist for CoreLogic. "Nationally, the supply of homes in current inventory is down to 6.5 months, a level not seen in more than five years, in part driven by the ‘locked in’ position of so many home owners in negative equity." Source: “CoreLogic: Phoenix Leads the Nation in Home Value Gains,” Phoenix Business Journal Online (June 5, 2012)

FHA 203(k) Program Offers Way to Finance Repairs for Foreclosures

Purchasing foreclosures also means discounts, but with the markdown is the price of repairs. According to RealtyTrac, foreclosures or REOs sold at an average discount of 27 percent compared to non-distressed properties in the first quarter of 2012. Through an FHA 203(k) loan, potential buyers who want to purchase a discounted foreclosure but don’t have cash for the repairs may find a way to receive financing. According to HUD, the 203(k) program is the department’s main program for rehabilitating and repairing single family properties, and it’s viewed as an important tool to revitalize neighborhoods. In order to be eligible, the property must be purchased as a primary residence or it can be for a HUD approved nonprofit. Also, the property must be a one-to four-family residence that has been completed for at least one year. Dan Green, loan officer with Waterstone Mortgage and author of themortgagereports.com, explained that FHA 203(k) program can be used on any 1-4 unit residential property, and is not limited to just HUD properties or foreclosures. The maximum amount that can be taken out for the property is based on the value or the purchase price of the property before rehabilitation (whichever is less), plus the estimated cost of rehabilitation or 110 percent of the property after improvements, according to HUD. A down payment is required, and the minimal amount for a down payment is 3.5 percent of the accepted bid price plus the cost of financing additional repairs. Since there is more “file” to underwrite for an FHA 203(k) loan, Green said the approval process takes longer than a standard FHA mortgage. “FHA 203k approvals take more time, but are no more difficult than any other mortgage type,” said Green. “Borrowers should expect to provide the documentation required, and should respond to loan officer requests in a timely manner.” By: Esther Cho

HVF: Elastic Markets Have Highest Rental Yield

REO-to-rental investors would be best served by looking to markets with elastic housing supply and low house prices, a report from HomeValueForecast.com (HVF) suggested. The June 6 edition of HVF’s “Lessons from the Data” showed that rent-to-value ratios, also called rental yields, tend to be highest in areas with elastic markets, where it is easy to add new housing supply, such as Las Vegas. In areas of the city where the ease of adding new housing keeps home prices low, rental yields in certain neighborhoods climbed to 14 percent or higher. On the other hand, areas with restrained housing markets (like many neighborhoods in the New York metro) see yields lower than 2 percent. Many metros showed mixed results, with areas like the Atlanta metro split almost through the middle in terms of rental yields. In neighborhoods where distressed sales have driven average home prices down, rental yields are higher. North of the city, where distressed sales are not as common, yields tend to be much lower. With house prices down from pre-crash highs, investors may be able to make good returns with rentals as the market recovers. However, investors are urged to look beyond rental yields when searching for rental properties. There are other fundamental drivers of home value appreciation, including vacancy rates, rental rates, months of inventory on the market, price trends, and the amount of distressed sales in the area. Mortgage rates, household income, and employment growth also come into play when looking at long-term drivers of appreciation. “Other factors, including the property’s carrying costs (yearly cost for maintenance, insurance, taxes, etc.) and expected appreciation, should be explored to gain a clearer picture of a property’s income potential,” said Tom O’Grady, CEO of Pro Teck Valuation Services. “However, the rental yield by itself, like the classic earnings-to-price ratio, is not a guarantee for a successful investment. It is necessary to look carefully ‘under the hood’ at other considerations.” By: Tory Barringer

Single-Family Rental Boom to Take Toll on Neighborhoods?

Many former home owners displaced by foreclosure are being left with no other option but to rent. They’re increasingly turning to renting single-family homes, which is the fastest growing segment of the rental market from 2005 to 2010, according to Fannie Mae research. Three million former home owners from the foreclosure crisis will likely rent single-family homes between 2010 and 2015, according to estimates by John Burns Real Estate Consulting. "In the next five to 10 years, you'll see tens of billions, if not hundreds of billions, of dollars of private equity" pouring into the single-family rental business, Justin Chang, principal of investment firm Colony Capital, told USA Today. But some home owners are concerned about what the surge in renters will bring to their neighborhoods. Some home owners say that renters don’t tend to take care of the yards or home maintenance as well as home owners, they have more parked cars lining the streets, and they are more disconnected from their neighborhoods. Some home owners fear that more rentals coming into their neighborhoods will hurt home values too. They may have reason for their concern: A study completed 10 years ago showed that a 10 percent increase in a neighborhood’s home ownership rate led to about a 3.6 percent increase to home values, according to a study by Edward Coulson, a Penn State University economist. Coulson’s preliminary data on newer research suggests that an increase in rentals to a neighborhood may slightly decrease home values. Some cities have taken steps to limit the number of the rentals. West St. Paul, Minn., and some other Minnesota communities, for example, have adopted laws to limit single-family home rentals to 10 percent of homes on a neighborhood block. However, some critics argue that investor-owned rentals could help give some neighborhoods a much-needed lift. Some renters may do a better job at upkeeping homes than a distressed home owner, let alone a home that just sits vacant, they argue. Source: “Home Rentals: The New American Dream?” USA Today (June 6, 2012)

Is the Housing Market Recovery Splitting in Two?

A new article at CNBC.com suggests that the real estate market is splitting in two, with the high-end segment soaring and the rest of the market continuing to struggle as it inches toward recovery mode. “It’s become a tale of two markets,” Michael Simonsen, CEO of Altos Research, told CNBC.com. “At the high end, well-financed people have taken advantage of cheap money. And demand is up, inventory is down, and prices are responding.” The article says that wealthy buyers tend to have good credit and are taking advantage of record low mortgage rates. As such, in housing markets with median home prices of $1 million or more, home prices have jumped more than 10 percent year-over-year, according to Altos Research. Inventory is also down by 10 percent. What’s more, areas with a median home price of $10 million or more, home prices have risen 13 percent or more, according to Altos. So how about the other “side” of the market? Unemployment and tightened lending conditions that have caused some buyers to struggle to obtain financing continues to slow the housing recovery, housing experts note. Source: “Tale of Two Markets: No Downturn in Megahome Sales,” CNBC.com (June 5, 2012)

Low Appraisals Continue to Thwart Deals

Home appraisals coming in for lower than the agreed upon selling price of a home is making it difficult for some home buyers to take advantage of the market. About one-third of real estate professionals say low appraisals have caused a transaction to fall through, be delayed, or have to be re-negotiated, according to National Association of REALTORS® housing data from April. The main culprit for the disconnect? Many housing experts blame it on appraisers continued use of distressed sales as comparables when conducting valuations. The low appraisals have caused many borrowers to stay "in a holding pattern for extended periods" because it's difficult to find comparable sales to support the appraisal value, Terry Moore, global managing director of Accenture Credit Services, told The Wall Street Journal. Ron Phipps, NAR's immediate past-president and real estate broker in Warwick, R.I., told The Wall Street Journal that about half of his home sales have had appraisal problems. To help counter low appraisals, appraisers say it’s perfectly acceptable for borrowers to point out home improvements to an appraiser during the inspection process and to provide comparable sales to justify what they think the valuation should be. In cases of seemingly lowball appraisals, borrowers can also request an appraisal review from their lender. Some lenders may even grant a request for a second appraisal to be completed if the first one can be shown to be inaccurate based on comparable sales. Source: “Fighting Back Against Lowball Home Appraisals,” The Wall Street Journal (June 1, 2012)

Is Housing Slowly Turning to a Seller's Market?

It’s been mostly a “buyer’s market” in the majority of housing markets for the past few years, but more Americans are seeing home buyers’ power in home sales and negotiations soon slipping away. More Americans are reporting increased optimism when it comes to selling a home as prices take a gradual turn upward, according to a recent survey. About 28 percent of Americans say it’s a good time to sell now, inching up from 13 percent last quarter, according to a survey by Redfin of more than 1,200 potential buyers in 18 metro areas. Nearly 60 percent of the survey’s respondents say they think prices will rise this year, up from 34 percent last year. Seventy-one percent of the respondents surveyed also said they are seeing more bidding wars and multiple bids on homes today, too. Home buyers are increasingly being lured back to the housing market, according to several recent surveys. Many buyers say record-low interest rates and increased housing affordability has made buying more attractive. However, according to the Redfin survey, buyers also say the drop in inventory of homes for-sale is one reason to hold off on buying nowadays. Source: “Redfin: Homebuyers Think the Market is Beginning to Favor Sellers,” HousingWire (June 4, 2012)

What to Do When Homes Linger on the Market

The showings have started to slow, interest from potential buyers is waning, and your home seller is getting worried. What should you do? Time to update your listing photos. The listing may benefit from having new photos taken of the home to post on the Internet, which may help to renew interest online and get more potential buyers to the front door, according to real estate professionals in a recent article in The Chicago Tribune. “Does the home still look as good as it did in the listing photos or does it look more lived-in now, a few months later?” The Chicago Tribune article also notes. Many real estate pros have also opted for staging homes to try to renew interest: Decluttering, make sure the home is in neutral colors, washing the windows, and paying attention to the smell of the home (particularly if there are pets) to make sure the home is more inviting to potential buyers. And if the home continues to linger, agents may need to revisit comparable sales in the neighbor and have a frank talk with sellers about the price they’re asking for the home. "At the end of the day, it's going to come down to the price," Kevin Tatum, an @properties broker in Chicago, told The Chicago Tribune. "We may be at the bottom, but we're not going to see a rebound. It's not going to be a V-shaped recovery. It's going to be a straight line. That's what we try to have (sellers) keep in mind." Source: “A Reality Check for Idle Home Sellers,” The Chicago Tribune (June 1, 2012)

Gulf Between Good Faith Estimate and Actual Closing Costs Troublesome

A home buyer gets ready for settlement day only to discover right before the “Big Day” that they are going to have to bring a lot more cash to close the deal than they originally thought. The surprise can sometimes threaten to derail a deal. Lenders are required to provide buyers a good faith estimate of closing costs within three days of receiving borrowers’ mortgage applications. But these good faith estimates reportedly are sometimes underestimating—or even greatly over-estimating—the true costs of settlement. The Consumer Financial Protection Bureau is working on revamping the good faith estimates and the HUD-1 settlement sheet, which is given to borrowers prior to closing listing the costs. The revamp is expected to provide more clarity to borrowers on closing costs and also make it easier for borrowers to shop around for their mortgage. Title professionals report that a lot of the times the estimates provided to borrowers on the good faith estimates over-estimate the true cost of the loan. “Lenders' estimates for services rendered by third parties such as appraisers and surveyors are supposed to be within 10 percent of the final figures,” The Chicago Tribune reports. “If the charges listed on the HUD-1 exceed the tolerance, lenders are required to eat the difference.” As such, many title agents report in a recent survey that some lenders “pad” their initial estimates so they ensure they come within that 10 percent limit at closing. “Overquoting” violates the law, says Michelle Korsmo, American Land Title's chief executive. Korsmo says that even if borrowers aren’t charged for items like document preparation and warehouse fees, lenders who provide inaccurate information on good faith estimates make it difficult for home buyers to shop around for the best closing services. Also complicating the picture, title agents report in a survey that often times borrowers are receiving more than just one good faith estimate. Sometimes borrowers are receiving two or even up to seven estimates of their potential closing costs. Source: “Beware of Bad 'Good Faith' Closing Estimates,” The Chicago Tribune (June 1, 2012)



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Radar Logic: Prices Will Fall Further, Strengths Due to Temporary Forces

Even though Radar Logic reported a monthly increase in home prices for March, the analytics company expects prices to fall and gave credit to “temporary market forces” for recent strengths seen in the housing market.
“In light of the oversupply we continue to see in the market, we disagree with the widespread view that home prices have reached a bottom or will do so in the near future,” said Michael Feder, president and CEO of Radar Logic.
Feder added that a negative response to economic news, either in the U.S. or elsewhere, could also undermine housing demand and seriously hurt home prices.
According to Radar Logic, the RPX Composite price, which tracks home prices in 25 major metropolitan areas, showed a 1.8 percent increase on a monthly basis, but decreased by 0.87 percent year-over-year in March.
With distressed homes remaining a significant portion of home sales transactions, Radar Logic said the significant discounts for distressed properties in relation to non-distressed means a further fall in prices.
According to RealtyTrac, homes in foreclosure or bank-owned accounted for 26 percent of all residential sales during the first quarter of 2012. In addition, the average sales price of homes in foreclosure or bank-owned in the same quarter was $161,214, which is a 27 percent discount compared to the average sales price of homes not in foreclosure or bank-owned.

Quinn W. Eddins, director of research and author of the report, wrote, “Large inventories of REO and homes in the foreclosure process still have to make their way into the ‘visible’ inventory of homes listed for sale, and as they do they will weigh on home prices.”

As for the temporary forces giving the market an added boost, the report named institutional investors as one of the driving factors. As rental prices increase, large investors are buying up discounted properties to convert them into rental units. This trend is driving up prices for distressed properties in certain metros where investor demand is high. Once prices for discounted properties rise to the point that investors won’t yield the return they are seeking, demand will decline again.

Another market influence Radar Logic highlighted is the mild winter weather that was seen in many parts of the U.S. This led to an earlier start for home shopping. As a result, Radar Logic said the price for March’s strength may be paid by a weaker buying season later.

Radar Logic expects national home prices to decline over the next 18 months, but said when it comes down to it, timing of the bottom is academic.

However, the analytics company said, “The important point is that national home prices are not going to increase in a sustained and meaningful manner anytime soon.”

By: Esther Cho

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