Study: Better to Live Near Vacant Home Than Foreclosure

Living near an occupied property in foreclosure can bring down home prices nearly twice as much than just living next door to a vacant home, according to a new study by the Federal Reserve Bank of Cleveland, which analyzed sales data of nearly 10,000 homes in the Cleveland area. "The impacts of homes with multiple indicators of distress are larger than the impacts of homes that are only vacant, delinquent, or recently foreclosed," the researchers found. Some findings from the study: Homes within 500 feet of at least one vacancy sold 0.8 percent lower. Occupied home that had recently entered the foreclosure process lowered the sales price of nearby homes by 1.8 percent. Sales within 500 feet of a home where a delinquent borrower abandoned the home saw, on average, a 3.1 percent drop to home values. The largest drop was from homes that were tax delinquent, vacant, and foreclosed: Home sales prices within 500 feet were found to be 9.6 percent lower. Source: “Study Finds Foreclosures Harm Home Prices More Than Vacancies,” HousingWire (Oct. 20, 2011)

Homeownership Rate Second-Highest on Record

The homeownership rate is at its second-highest level on record, only behind the record high set in 2000, according to the U.S. Census Bureau, which began collecting home ownership data in 1890. By region, the homeownership rate is: Midwest: 69.2 percent South: 66.7 Northeast: 62.2 West: 60.5 Nearly every metro area had more home owners than renters in 2010. The metro areas with the highest homeownership rates were in Michigan and Florida. Monroe, Mich., had the highest percentage of owner-occupied units at 79.8 percent, followed by Punta Gorda, Fla., at 79.7 percent. While the national homeownership rate remained high, the decrease in the rate from 2000 to 2010 by 1.1 percent — to 65.1 percent overall — is the largest decrease since the 1930 to 1940 period, the Census Bureau reported. States With Highest Housing Inventory Meanwhile, housing inventory soared 13.6 percent to 15.8 million units from 2000 to 2010, growing the fastest in the South and West. The states with the largest percentage increase in housing units were: Nevada: 41.9 percent Arizona: 29.9 Utah: 27.5 Idaho: 26.5 Georgia: 24.6 Florida: 23.1 North Carolina: 22.8 Colorado: 22.4 Texas: 22.3 South Carolina: 21.9 Source: U.S. Census 2010 and “Homeownership Near Record,” Investors.com (Oct. 20, 2011)

Obama Expected to Unveil Housing Aid

President Barack Obama is expected to announce Monday new policies to help struggling home owners, including a move that would allow borrowers to refinance their mortgage at current low rates no matter how much their home values have dropped. The announcements are expected to unveil looser terms to qualify for the Home Affordable Refinance Program (HARP), which helps borrowers up-to-date on their mortgage payments refinance, despite a drop in their home values. The Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, also is expected to end a cap that excluded home owners from HARP who had mortgages that were higher than 125 percent of the home’s value. Many borrowers who are underwater on their properties have been unable to refinance their mortgage since they do not have enough equity in their properties. The administration’s plan is expected to eliminate “appraisals and extensive underwriting requirements for most borrowers” who are up-to-date on their mortgage and want to refinance at a lower rate, The Wall Street Journal reports. Obama is also expected to announce a reduction in Fannie Mae and Freddie Mac loan fees and a waiving of fees for borrowers looking to refinance their mortgages into shorter terms. Lenders could start refinancing, following the new policies, as early as Dec. 1. However, mortgages that are more than the current loan-to-value limit may have to wait until early next year, according to media reports. Housing experts believe that allowing underwater home owners to refinance at the current low rates will allow home owners to shave hundreds from their monthly mortgage bills and possibly help avoid foreclosures and free up more household cash to spur economic recovery in other areas. Source: “WSJ: Home Lending Revamp Planned,” The Wall Street Journal (Oct. 24, 2011) [log-in required] and “Obama to Unveil Housing Plan on Campaign Swing West,” Reuters News (Oct. 24, 2011)

Are Banks Getting Better on Short Sales?

Are short sales getting easier? Some home owners are reporting that banks are now not only more willing to consider a short sale, but are even offering incentives to complete a short sale. For example, a home owner in Chicago says his lender approved his short sale and then gave him a $20,000 check after the deal was finalized for selling the home as a short sale instead of letting it sink into foreclosure. Lenders accepting a lower mortgage payoff from an underwater seller traditionally isn’t thought of an easy transaction to complete. Lenders weren’t so willing a few years ago. But as the number of Americans underwater on their mortgages grow, more lenders are reconsidering as they try to avoid extra costs incurred to their bottom-lines that a foreclosure can cause. For 2011, short sales accounted for about 8 percent of total home sales, and rose 7 percent over 2010 totals, according to CoreLogic data. Short sales are up by 59 percent year-over-year in Illinois, 32 percent in Michigan, and 19 percent in Arizona alone, according to CoreLogic. “We’re starting to see that servicers and lenders are viewing short sales as a better alternative than they had in the past,” says Daren Blomquist, spokesman for RealtyTrac. “Some of that relates to the fact that it’s getting harder to foreclose. There are additional requirements in terms of paperwork and requirements that states and judges are imposing.” Short sales can still be complex and lengthy — they can take up to nine months to close and even after that, there’s no guarantee it’ll end successfully. “In general, it is a totally different type of transaction,” says Mike Cuevas, a real estate profesional at Exit Realty in Chicago. “You’re not only selling a house, you’re negotiating debt.” Source: “Why it can Pay to try a Short Sale; Lenders may be Viewing Short Sales as a Better Alternative,” MarketWatch (Oct. 20, 2011)

Existing-Home Sales Off in September

Existing-home sales were down in September on the heels of a strong gain in August, but remain well above a year ago, according to the National Association of REALTORS®. Total existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, declined 3.0 percent to a seasonally adjusted annual rate of 4.91 million in September from an upwardly revised 5.06 million in August, but are 11.3 percent above the 4.41 million unit pace in September 2010. Lawrence Yun, NAR chief economist, said the market has been stable although at low levels, and there is plenty of room for improvement. “Existing-home sales have bounced around this year, staying relatively close to the current level in most months,” he said. “The irony is affordability conditions have improved to historic highs and more creditworthy borrowers are trying to purchase homes, but the share of contract failures is double the level of September 2010. Even so, the volume of successful buyers is higher than a year ago and is remaining fairly stable — this speaks to an unfulfilled demand.” Market Issues According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to a record low 4.11 percent in September, down from 4.27 percent in August; the rate was 4.35 percent in September 2010. Contract failures were reported by 18 percent of NAR members in September, unchanged from August; they were 9 percent in September 2010. Contract failures are cancellations caused by declined mortgage applications, failures in loan underwriting from appraised values coming in below the negotiated price, or other problems including home inspections and employment losses. NAR President Ron Phipps said access to credit is unbalanced. “All year we’ve been discussing the fact that many creditworthy home buyers are being denied mortgages,” he said. “On top of that, loan limits have been lowered, which means buyers of higher priced homes, including many in more expensive housing markets, now have to pay a higher interest rate for a jumbo mortgage than buyers who can qualify for a conventional loan. We need to remove the roadblocks to a housing recovery — not place more obstacles in the way of financially qualified buyers.” Who’s Buying? What’s Selling? All-cash sales accounted for 30 percent of purchase activity in September, up from 29 percent in August and 29 percent also in September 2010; investors make up the bulk of cash purchases. Investors purchased 19 percent of homes in August, down from 22 percent in August; they were 18 percent in September 2010. First-time buyers accounted for 32 percent of transactions in September, unchanged from August; they were also 32 percent in September 2010. The national median existing-home price for all housing types was $165,400 in September, down 3.5 percent from September 2010. Distressed homes — foreclosures and short sales typically sold at deep discounts — accounted for 30 percent of sales in September (18 percent were foreclosures and 12 percent were short sales), down from 31 percent in August and 35 percent in September 2010. Total housing inventory at the end of September declined 2.0 percent to 3.48 million existing homes available for sale, which represents an 8.5-month supply at the current sales pace, compared with an 8.4-month supply in August. Single-family home sales fell 3.6 percent to a seasonally adjusted annual rate of 4.33 million in September from 4.49 million in August, but are 12.2 percent above the 3.86 million-unit level in September 2010. The median existing single-family home price was $165,600 in September, down 3.9 percent from a year ago. Existing condominium and co-op sales rose 1.8 percent a seasonally adjusted annual rate of 580,000 in September from 570,000 in August, and are 5.6 percent above the 549,000-unit pace one year ago. The median existing condo price was $163,800 inSeptember, which is 1.0 percent below September 2010. Around the U.S. Regionally, existing-home sales in the Northeast rose 2.6 percent to an annual level of 790,000 in September and are 6.8 percent above a year ago. The median price in the Northeast was $229,400, down 3.3 percent from September 2010. Existing-home sales in the Midwest slipped 0.9 percent in September to a pace of 1.09 million but are 17.2 percent higher than September 2010. The median price in the Midwest was $137,400, which is 1.4 percent below a year ago. In the South, existing-home sales declined 2.6 percent to an annual level of 1.89 million in September but are 10.5 percent above a year ago. The median price in the South was $144,400, down 3.0 percent from September 2010. Existing-home sales in the West fell 8.8 percent to an annual pace of 1.14 million in September but are 10.7 percent higher than September 2010. The median price in the West was $207,400, which is 4.5 percent below a year ago. “The falloff in Western sales from a surge in August was expected because many lenders had lowered mortgage loan limits over concerns that sales wouldn’t close before the higher loan limits expired at the end of the September,” Yun said. “Given the concentration of higher cost housing in the West, particularly in California, many buyers were motivated to close in the months leading up to the changeover while they could still get low interest rates on conventional mortgages. Unless Congress reinstates the higher limits, the overall housing market recovery will be slower than it otherwise could be, and will hold back the broader economic recovery.” Source: NAR

Beige Book Cites Economic Growth but Weakness in Real Estate

The Federal Reserve released a new rendition of its market-gauging Beige Book Wednesday, which provides an assessment of regional conditions from those in the field. Beige Book findings are based on commentary and observations collected by the 12 Fed districts from businesses and contacts outside of the central banking system. The latest version covers the reporting period from August 26 through October 7. Fed officials say reports from the 12 districts indicate that overall economic activity continued to expand in September, although many districts described the pace of growth as “modest” or “slight” and contacts generally noted weaker or less certain outlooks for business conditions. Loan demand for the most part declined, however the one exception was an increase in mortgage refinancing in many districts. Loan standards were described as still tight for many classes of borrowers, but several districts indicated that strong competition among banks for high quality borrowers was leading to lower rates and fees for these customers. A few districts reported slight improvements in construction and real estate activity, nonetheless, overall conditions for both residential and commercial real estate remain soft. Home sales remained weak overall, and home prices were reported to be either flat or declining across the entire country. In contrast, rental demand continued to rise in a number of districts. Commercial real estate conditions remained weak overall, although commercial construction increased at a slow pace in most districts.

HUD and CitiMortgage in Dispute Over Short Sales

According to a recent report by HUD’s Office of Inspector General (OIG), CitiMortgage, Inc., based in Missouri, has violated the Federal Housing Administration’s (FHA) Preforeclosure Sale Program by submitting improper claims. After reviewing 68 FHA claims, the inspector general found 63 claims for loans Citi had not properly reviewed, according to the OIG’s report. Citi “respectfully disagrees” in its written response. FHA’s Preforeclosure Sale Program is essentially a short sale program for distressed FHA borrowers. “Citi did not properly determine that borrowers were eligible to participate in the program,” the OIG stated in its report. According to the OIG, Citi did not verify that borrowers were in default or in imminent danger of default as a direct result of unavoidable financial stress, and the bank did not determine that the homeowners would not be able to keep current on their mortgages. “We recommend that the U.S. Department of Housing and Urban Development (HUD) require Citi to reimburse HUD for the 63 improper claims totaling nearly $5 million,” states the inspector general’s report. Citi maintains it reviewed each borrower’s financial status using “prudent underwriting practices that are standard in the industry” in each case and concedes that “only seven of the exceptions cited have merit.” In addition, the bank believes the OIG’s recommendations would slow down the preforeclosure program’s processing to such a rate that it could prevent borrowers from qualifying for short sales and send them into foreclosure. “As noted in the report, Citi disagrees with its findings, and we are confident that all appropriate guidelines and procedures were followed accordingly,” a Citi spokesperson told DSNews.com.