Ally Bank Mortgage Unit Files for Bankruptcy

Residential Capital, a mortgage subsidiary of Ally Financial Inc. filed for Chapter 11 bankruptcy on Monday. “By severing itself from ResCap, Ally hopes to focus its efforts on its core auto-lending and online-banking businesses,” The Wall Street Journal reports. Ally is the former in-house financing arm for General Motors Co. ResCap has been a drain on Ally's finances for several years as the number of mortgage defaults soared during the housing crisis. Ally has faced billions of dollars in lawsuits over mortgage securities that have turned sour and the bank has been trying to break ties from ResCap. But some analysts say the companies are too intertwined and it will be difficult to separate the two, despite the bankruptcy filing by ResCap. The Associated Press reports that ResCap’s mortgage unit remains very reliant on Ally for funding "and there can be no assurance that Ally or its affiliates will continue such actions," according to the bankruptcy filing. Ally officials say they will cover about $1.3 billion related to ResCap’s bankruptcy. ResCap is expected to emerge from bankruptcy quickly and by the end of the year, already reaching agreements with creditors, company officials note. Ally is 74 percent owned by the U.S. government and still owes the government nearly $12 billion. Through the ResCap bankruptcy filing and Ally’s possible sale of some of its international operations, the government says it hopes it will get the remainder of the bailout money Ally owes repaid faster. Source: “ResCap Files for Protection Under Chapter 11,” The Wall Street Journal (May 14, 2012) and “Ally Financial's ResCap Mortgage Unit Files for Bankruptcy,” Associated Press (May 14, 2012)

Lenders Put Borrowers Through More Scrutiny

Home buyers and refinancers applying for a mortgage are being caught off guard in what all lenders are asking for when approving a loan. The Wall Street Journal reports an incident where a borrower was even asked for a copy of her divorce decree — from two years ago — and asked to explain a deposit of about $200 into her bank account when applying for a mortgage. Lenders are being more careful in who they issue a loan to nowadays, tightening underwriting standards and carefully documenting applicants’ finances and ability to repay the loan. Practically nothing is off the table these days when it comes to what a lender may ask for. Lenders may question any deposits to bank accounts, increases in a borrower’s income, and any disputed balance over a late payment, even if it was from years ago. Some lenders are even requesting college transcripts and diplomas in verifying employment history. Any credit inquiries on a person’s credit invites red flags and more questions from lenders, Rhonda Porter, a loan officer in Seattle, told The Wall Street Journal. "I have customers who know they're a strong [borrower], and they're still asked for documentation," Porter says. "Some of them get their feathers ruffled." Some borrowers — particularly refinancers — are getting so frustrated by the extra paperwork and questions that they are increasingly just stopping the process, according to news reports. Stella Adams, a fair housing advocate in North Carolina, says banks need to lighten up. Banks should return to "solid, old-fashioned underwriting" standards that were used prior to the housing boom and stop making it so difficult for people to get financing. Source: "Lenders Want to Know Everything," The Wall Street Journal (May 12, 2012)

Housing Affordability Reaches Records

Housing affordability conditions for all buyers reached a milestone in the first quarter, according to the National Association of REALTORS®. NAR’s composite quarterly Housing Affordability Index rose to a record high of 205.9 in first quarter, based on the relationship between median home price, median family income and average mortgage interest rate. The higher the index, the greater the household purchasing power. This is the first time the quarterly index broke the 200 mark; recordkeeping began in 1970. NAR President Moe Veissi said market conditions are optimal for home buyers. “For those with good credit, we’ve never seen better housing affordability conditions or market opportunities than we see at present,” he said. “Although home prices are stabilizing and sales are rising, some buyers still have to jump through a lot of hoops to convince a lender that they are creditworthy, even for a mortgage that would be well within their means. This is especially true for self-employed buyers.” Veissi noted home sales would be much higher if lending standards would return to normal. The index shows the median-income family, earning just under $61,000, could afford a home costing $325,500 in the first quarter, which is more than double the national median existing single-family home price of $158,100. The median monthly mortgage principal and interest payment for a median-priced home would take only 13.5 percent of gross income. A companion index measuring the ability of first-time buyers to purchase a home also set a record, with the first-time buyer index reaching 135.8 in the first quarter. Assumptions for the first-time buyer index include a lower income, at 65 percent of median family income, a starter home costing 85 percent of the median price, and a down payment of 10 percent. This index means the typical entry-level buyer could afford a home costing $182,500, which is well above the overall median price. “It’s never been easy to buy a first home because of the cash required for downpayment and closing costs, but conditions for first-time buyers who are able to get a mortgage have never been better,” Veissi explained. Most first-time buyers choose a loan with a lower down payment, often an FHA-insured loan with 3.5 percent down, and some use the VA program with no down payment. Both home prices and mortgage interest rates are expected to edge up modestly as the year progresses, but housing affordability will remain very favorable with the median-income household well positioned to afford a median-priced home. For all of 2012 the index is projected to set an annual record, averaging 191 for the year. Source: NAR

The Cost of Getting a Loan is on the Rise

Closing costs for a mortgage averaged $4,143 last year, which is 12.4 percent higher than in 2010, Bankrate.com reports. Despite record low mortgage rates, borrowers are finding the cost of getting a loan is on the rise. Origination fees have posted some of the biggest increases, rising 12 percent in 2011 to $1,045, according to Bankrate.com data. Attorney costs and other settlement fees now average $544, a 9.6 percent increase. Appraisal fees have risen 7.8 percent, averaging $406. Closing costs vary quite a bit among lenders so it can pay for borrowers to shop around, housing experts say. For example, origination fees can range anywhere from $123 to more than $2,000. Analysts say part of the reason behind the increase in fees is the increased cost to lenders of processing loans with more paperwork required nowadays. Last week, the Consumer Financial Protection Bureau proposed new rules to limit certain fees lenders require borrowers to pay at closing. One of the fees the agency said it hopes to ban is a fee referred to as “origination points” that buyers sometimes must pay at closing. “Mortgages today often come with so many different types of fees and points that it can be hard to compare offers,” Richard Cordray, the director of the Consumer Financial Protection Bureau, told The New York Times. “We want to bring greater transparency to the market so consumers can clearly see their options and choose the loan that is right for them.” Source: "Rising Costs Hit Homeowners Chasing Lower Rates," The Wall Street Journal (May 9, 2012) and “Consumer Bureau Proposes Mortgage Fee Limits,” REALTOR® Magazine Daily News (May 10, 2012)

2012 NAR Member Survey Shows Rising Incomes

The income and business of REALTORS® is growing after many years of decline, according to the 2012 National Association of REALTORS®Member Profile. Paul Bishop, NAR vice president of research, said member income rose for the first time since 2002. “The median income of a REALTOR® rose 2.3 percent to $34,900 in 2011, which is the first overall gain in nine years,” he said. “Many REALTORS® have persevered through very difficult market conditions and understand the cyclical nature of the business, but have never had to endure a cycle like the one that is presently waning. The good news is home sales are rising, overall activity is expected to be notably better this year and individual prospects are much brighter given there are fewer REALTORS® than several years ago.” Members licensed as brokers typically earned $48,400 in 2011, while the median for sales agents was $27,200. Higher median income was reported by experienced NAR members in the business for 16 years or more, who earned $50,200. REALTORS® working 60 hours a week or more earned $80,900, and 17 percent of all members earned a six-figure income. The typical NAR member has 11 years of experience and works 40 hours per week; 60 percent are women, who account for 55 percent of brokers and 66 percent of sales agents. More than nine out of 10 REALTORS® are certain they will remain in the business for at least two more years. NAR President Moe Veissi, broker-owner of Veissi & Associates Inc., in Miami, said REALTORS® go the extra mile. “REALTORS® bring value to their clients by raising professional standards with specialized knowledge and expertise, which includes training for designations and certifications offered by NAR,” he said. “Our members are tapping into resources that give them an edge up on challenging conditions, whether it’s helping a buyer negotiate a distressed sale or find a loan, or in helping a seller with effective marketing. Beyond that, we’re fighting for both home owners and buyers in Washington and beyond because homeownership matters to the well-being of this nation,” Veissi said. Thirty-two percent of REALTORS® hold at least one out of six certifications in specialized training. The most popular area of training, driven by the ongoing elevated level of distressed homes on the market, is the Short Sales and Foreclosures Resource Certification, held by 18 percent. The second most popular REALTOR® certification is REPA (Real Estate Professional Assistant), 15 percent, followed by e-Pro, held by 11 percent of members to help them better serve the online needs of clients. In addition, 33 percent of REALTORS® have obtained at least one professional designation. The most popular is GRI (Graduate REALTOR® Institute), held by 19 percent of respondents; ABRR® (Accredited Buyer Representative®), 15 percent; and CRS® (Certified Residential Specialist®), 10 percent. Smaller shares hold one of 14 other designations. The survey shows the typical NAR member is 56 years old; only 2 percent of all REALTORS® are under 30 years of age and another 4 percent are 30 to 34 years old; 22 percent are 65 or over. Repeat business and referrals are important to REALTOR® business. Repeat business accounted for a median 19 percent of activity in 2011 and is higher for those with more experience – for members with 16 years or more in the business, that number rises to 38 percent. Referrals accounted for an additional 20 percent of business activity. Most members – 57 percent – are licensed sales agents; 27 percent are brokers, 18 percent broker associates, 3 percent appraisers, and 1 percent other (some hold more than one license). Fourteen percent of members have one personal assistant, while 4 percent have two or more personal assistants. There are two sides to every real estate transaction – one each for the seller and the buyer. Among REALTOR® members the median number of transaction sides or commercial deals handled in 2011 was 10, up from eight transactions sides in 2010. The median brokerage sales volume was $1.3 million, up from $1.1 million in 2010. Several factors limit potential clients in completing transactions. Members said the biggest impediment was difficulty in obtaining a mortgage, cited by 30 percent of respondents. Sixty-nine percent of respondents are compensated through a split commission arrangement, 17 percent receive all of thecommission and another 3 percent receive a commission plus a share of profits; 11 percent received some other form of compensation. Eight out of 10 members work as independent contractors for their firms. Seventy-two percent of REALTOR® receive no fringe benefits, although 23 percent are covered by errors and omissions insurance; only 6 percent receive health insurance. Eight out of 10 NAR members focus on residential sales and 72 percent have secondary real estate specialties. Fifteen percent also offer relocation services, 14 percent commercial brokerage, 14 percent commercial property management, 9 percent counseling and 8 percent land development. Smaller percentages were also in residential property management, residential appraisal, auctions, international or commercial appraisal. Residential brokerage was listed as a secondary business for the 10 percent of respondents who have other primary specialties. Twenty-one percent of REALTORS® belong to one or more of NAR’s affiliated institutes, societies or councils; the most common is CRS (Council of Residential Specialists), identified by 11 percent. Most members begin their careers in other fields and bring a wide range of expertise and experience to the profession; only 5 percent report real estate is their first career. Previous full-time careers include management, business or financial, 18 percent; sales or retail, 15 percent; office or administrative support, 10 percent; and education, 7 percent. Twelve other categories were each 5 percent or less; 17 percent were “other.” Sixty-two percent of NAR members have a personal website, operational for a median of six years, and nine out of 10 report their firm has a Web presence. Fifty-four percent of the respondents use social or professional networking sites and 10 percent have a blog. REALTORS® use a variety of communications methods, with 93 percent preferring e-mail for current clients or customers, followed by telephone at 89 percent. Respondents worked for a firm with a median of 23 brokers and agents, typically with one office, and had been with that firm for six years. Six out of 10 members are affiliated with an independent firm, and 38 percent are with a franchised company. Eleven percent of REALTORS® report their firm was bought by or merged with another during the past two years, the same as in the 2011 study. Nine out of 10 REALTORS® are homeowners. They often invest in real estate and own other homes in addition to their primary residence – 53 percent own at least one residential investment property and 29 percent own at least one commercial property. In addition, 19 percent own at least one vacation home. NAR members are active in the political process – 93 percent participated in the last national election and 82 percent voted in the last local election. They are well-educated, with 48 percent holding at least a bachelor’s degree; 16 percent are fluent in other languages. --------------------------------------------------------------------------------

More Renters Are Finding It's Cheaper to Buy

With rising rents, more renters are being swayed into home ownership, even in pricey housing markets like New York. For example, one New York renter said he started looking into owning a home when his landlord tried to increase his rent by 13 percent when his lease was up for renewal. He found that he could buy a home and get the same amount of space for cheaper than continuing to rent, plus he’d be building equity. Other renters are starting to see that buying may be a better option for them, too. Rents are increasing at about the same pace that home values are dropping, says Stan Humphries, Zillow’s chief economist, who says, according to their surveys, home prices have dropped 3.1 percent year-over-year whereas rents have increased 2.5 percent. "Herein lie the seeds to eventually more interest in buying on the part of consumers, which will help put a floor under home prices," Humphries told Investors Business Daily. Recent housing surveys, including Zillow’s, are showing home prices are starting to rise in recent months. Affordability in housing has been at record highs from the combination of falling home values and record-low mortgages. Humphries says that housing prices have rolled back to 2003 levels. "That increased affordability in the face of rising rental prices will begin to get buyers off the fence this year,” Humphries says. "What's been keeping buyers on the fence is a crisis of confidence. People who don't have a job, or who are worried about losing their job, don't buy homes. They also don't want to buy an asset they think is rapidly depreciating.” National Association of REALTORS®’ Chief Economist Lawrence Yun says the tighter restrictions from lenders are also preventing many potential buyers from securing financing in order to buy. But for those who are able to qualify, Yun says “it’s better to get in now” than wait. Source: “Rising Rents Prompt Buys, May Help Housing Recover,” Investors Business Daily (May 10, 2012)