Maria Sousa's Real Estate Blog

The New York Times

Loans for a niche market
During the height of the real estate cycle, many people complained that lenders issued interest-only loans too freely. Their availability now is restricted to a privileged few.

Making sense of the story

• A staple of the jumbo market, interest-only loans continue to be used by affluent borrowers to help them manage irregular cash flow, reap a tax benefit, or free up cash for investment elsewhere.
• In particular, people in the financial services industry who derive most of their compensation from yearly bonuses commonly rely on interest-only loans to keep their mortgage payments manageable the rest of the year. According to one lender, homeowners who use this tactic often take a portion of their annual bonus to pay down the principal amount on their mortgages, which in turn lowers their monthly mortgage payment.
• Because of this pay-down method, interest-only loans have evolved into a financial tool, and no longer a means to affordability.
• Resulting from big losses, Freddie Mac stopped backing interest-only loans in 2010, resulting in fewer lenders offering them. Lenders who still offer them have strict qualifying standards.
• Lenders generally require that the borrower have at least 30 percent equity in a property, and a minimum FICO score of 720. Determination of ability to pay back the loan is based on the fully amortized payment, not the interest-only payment.
• Additionally, most lenders who will extend an interest-only loan to a borrower will want to see assets to cover as many as 24 months’ worth of principal, taxes, and insurance payments.

Read the full story

In other news …

Los Angeles Times

Home prices post sharp increase in January
The Standard & Poor’s/Case-Shiller index recorded a sharp 8.1 percent year-over-year increase in January, underscoring the vigor of the recent housing recovery.

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The New York Times

A mortgage practice gets a closer look by regulators
Federal and state regulators are taking a look at the practice in the lending industry of purchasing and billing homeowners for property insurance policies that have lapsed.

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The Wall Street Journal

20 seconds for love at first sight
Researchers tracking the eye movements of subjects who looked at online home listings found that more than 95 percent of users viewed the first photo – the one that shows the exterior of the home – for a total of 20 seconds. After that, their eyes tended to flit all over the screen.

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San Francisco Chronicle

Consumer confidence falls in March
The Conference Board’s Consumer Confidence Index fell in March to 59.7 from a revised reading of 68 in February.

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Los Angeles Times

Report: Mortgages become slightly easier to get as standards ease
Credit standards appear to be easing, just a bit, according to an analytical study and reports from front-line lenders.

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Los Angeles Times

Housing investors buy in bulk, aim to profit in hard-hit areas
Investors say they’re providing nice homes for families by buying up bargains, holding them, and renting them out. Critics say they’re taking advantage of a situation they caused.

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Talking Points

• Some homeowners who are behind on their mortgage payments and other debt obligations may think that filing for bankruptcy will prevent their home from going into foreclosure; but they are mistaken.
• A Chapter 7 bankruptcy – the most typical bankruptcy protection filed by individuals – will at best delay, but not prevent, a foreclosure. Banks will typically wait out the bankruptcy case, then immediately proceed with the foreclosure upon discharge.
• Occasionally the banks will petition the court to release the property even during the bankruptcy if it has no equity so they can proceed with foreclosure. If the home has enough equity, it will be sold as part of the bankruptcy case, with the proceeds going to creditors.
• What a bankruptcy will do is convert all “recourse” loans – where a borrower has a personal responsibility for repayment – into “non-recourse” loans, where lenders cannot sue a borrower to get repayment. That’s because a Chapter 7 bankruptcy will discharge the borrower’s personal responsibility for the debt even though it will not release the liens on the property for the loans.
• So, while a bankruptcy does not eliminate secured home loans and a homeowner can still be foreclosed on, all home loans, including second mortgages and home equity lines of credit, will become non-recourse, and lenders cannot sue the homeowners for any balance owed.

Source: Orange County Register

CNNMoney

FHA to hike premiums on mortgages
The Federal Housing Administration, which is the largest insurer of low-down payment mortgages, announced last week that it will raise premiums by 10 basis points, or 0.1 percent, on most of the new mortgages it insures.

Making sense of the story

• A borrower opting for a 30-year, fixed-rate mortgage who puts down 5 percent or more will now pay an annual insurance premium of 1.3 percent of their outstanding balance. Someone who puts down less than 5 percent will pay a premium of 1.35 percent.

• The FHA said it also will raise premiums for borrowers with jumbo loans – loans of $625,000 or more – by 5 basis points, and increase the minimum down payment requirement on these loans to 5 percent from 3.5 percent.

• Additionally, the FHA said it will require most buyers to pay insurance premiums for the life of their loan. A policy that was put in place in 2001 allowed borrowers to cancel premium payments once their debt fell below 78 percent of the principal balance. One exception will be for borrowers who put more than 10 percent down at the time of purchase.

• Other new policies include a requirement that any mortgage for an applicant with less than a 620 credit score and debt-to-income ratio above 43 percent must be underwritten manually. Lenders who want to issue loans to these applicants must be able to adequately document why they decided to approve the loans.

• The FHA also decided to put new restrictions on reverse mortgages, no longer permitting retirees to take such large, upfront payments.

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 In other news …
The New York Times

Growth predicted in home renovations
Homeowners who have been holding off on home improvements, be it a new kitchen or replacement siding, are more likely to call in the contractors in the year ahead.

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The Los Angeles Times

Homeowners facing foreclosures should be wary of scams
If researchers at the nonprofit Center for Responsible Lending are on target when they say the country is only halfway through the foreclosure crisis, many more people are going to be conned out of a great deal of money trying to save their homes.

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Mercury News

Buying a foreclosed house at auction can come with surprises
Buyers should be cautious when buying a house sight-unseen or foregoing a home inspection, as is often the case when purchasing a home at auction.

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The Wall Street Journal

Return of 100 percent financing
Some affluent buyers are getting the keys to their new home without putting a penny down. It’s 100 percent financing – the same strategy that pushed many homeowners into foreclosure during the housing bust.

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Mercury News

As home prices rise, your next credit card could be your house
After years in the doldrums, home equity borrowing jumped last year, reaching its highest level in four years as the housing market rebounded.

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DSNews

Subprime credit scores on the decline
Designating credit scores below 620 as “subprime,” Equifax found the number of subprime borrowers decreased 2.1 percent from the third quarter of 2011 to the third quarter of 2012. The 2.1 percent translates to about 1 million Americans who rose from the subprime category.

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Talking Points

• Adding at least one photo to a residential real estate listing can up the final sale price by 3.9 percent.

• Photos are already fairly established in listings, with roughly 85 percent of online listings including photos. A study on photos in real estate by Florida International University’s Hollo School of Real Estate found that the type of photo also matters.

• Buyers typically look at five or six photos before making a determination whether to continue looking. To get buyers to stay on the listing, sellers are advised to do the following:

• Remove large pieces of furniture: Clearing a room of large furniture can make a home seem more spacious.

• Remember the front door: Sellers should pay special attention to the entrance to the house; pressure clean the sidewalk, plant some flowers, and trim the landscaping.

• Look for details: Photographers often recommend shooting form the corner of a room with a wide-angle zoom lens to show a room at its largest.

The New York Times

Writing the “hardship letter”
Homeowners having trouble paying their mortgage are often required to write a hardship letter when applying for a loan modification.  Such a letter is a requirement for modification applications under the government’s Making Home Affordable program.

Making sense of the story

• A hardship letter is not the basis for modification approval – that depends on the borrower’s financials and the intricacies of the various government and in-house lender programs.  The purpose of the hardship letter is to explain upfront why borrowers missed payments, and what they propose as a solution.
• Some housing experts recommend that homeowners write short letters, using the philosophy that “less is more.”  The lenders’ loss mitigators, faced with mountains of modification requests, are unlikely to spend time reading more than the first few lines of each letter.  Also, there is the risk that borrowers who go on at length could unknowingly trip themselves up with unnecessary details that raise red flags for a mitigator.
• The hardship letter should open with a succinct explanation of why the borrower stopped paying the mortgage.  The letter should cite a specific hardship, like a lost job, illness, or reduced income.
• Next, the letter should briefly cite any steps the borrower took to avoid defaulting on their loan, like cutting household expenses or tapping in to savings.
• If the borrower’s financial situation has since improved, or is likely to, borrowers should mention that as evidence that their hardship was temporary and won’t hamper their ability to make payments on a modified loan.
• Finally, the letter should state exactly what borrowers are applying for.  Is the proposed solution a lower interest rate, for example, or a principal reduction?
• Borrowers who are underwater – those who owe more on their mortgage than their property is worth – may ask their lender to consider a short sale, in which the house is sold to another buyer for less than the amount owed.

Read the full story

In other news …
San Diego Union-Tribune

Mortgage debt relief extended for homeowners
A law that gives financially strained home-sellers tax relief on forgiven mortgage debt has been extended through 2013 as part of “fiscal cliff” talks.

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The Los Angeles Times

Good news about real estate: Home equity is growing again
After hitting a low of $6.45 trillion in the final quarter of 2011, Americans’ combined home equity jumped 20 percent during the next nine months to $7.71 trillion.

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Wall Street Journal

Home prices poised for growth in 2013
Home-listing prices were up 5.1 percent nationally in December on a year-over-year basis, according to Trulia.

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The Los Angeles Times

Foreclosures declined nationally in November
Foreclosures dropped 23 percent in November from the same month in 2011, a report by CoreLogic shows, indicating housing continues to mend.

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The Washington Post

Housing a sweet spot for economy as rebound extends to 2013
U.S. home sales and prices are poised to rise in 2013, solidifying a recovery that began last year after a half-decade slump, according to analysts and economists surveyed by Bloomberg.

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The Los Angeles Times

Ten banks to pay $8.5 billion to settle foreclosure abuse review

Ten of the nation’s largest mortgage servicers have agreed to an $8.5-billion settlement with federal regulators to end a review of foreclosure abuses.

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San Diego Union-Tribune

Freddie Mac economist makes ’13 housing predictions
Housing activity began to turn around in 2012 and will continue to pick up in 2013, according to Frank Nothaft, chief economist for Freddie Mac.

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The Los Angeles Times

2012 a banner year for housing affordability
The NATIONAL ASSOCIATION OF REALTORS® reported that 2012 will probably go down as a record year for housing affordability, according to its affordability index.

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Talking Points

• Homeowners who haven’t refinanced recently are probably paying a higher interest rate on their mortgage than is necessary.  Borrowers should take advantage of today’s record-low mortgage rates while they last.
• With mortgage rates near the bottom and home prices on the rise, it’s still a perfect time to buy a house.  Buyers should get a mortgage preapproval before beginning the house hunt.
• Credit standards remain tight, and as new mortgage rules are unveiled this year, the standards are not expected to loosen.  Borrowers planning to get a mortgage anytime soon are advised to treat their credit score as one of their most valuable assets.  Most borrowers need a credit score of at least 720 to get the best rate.  Borrowers with a credit score of 680 or more can still get a good deal.

NEWS FLASH

Call your member of congress today to protect the mortgage interest deduction
Congress, as part of negotiations on avoiding the “Fiscal Cliff,” has made direct references to “closing loopholes” and “limiting deductions” as a way to raise revenues. Clearly, the mortgage interest deduction is high on this list of revenue raisers.

Losing the mortgage interest deduction will disproportionately affect the middle class because a larger proportion of the middle class takes the deduction. In California 89% of those who took the mortgage interest deduction earned less than $200,000. Losing the deduction would cost the average California taxpayer over $3,900.

What you can do to help:

Call Congress. First and foremost, we are urging the public to get involved by calling Congress to ask that the mortgage interest deduction be preserved. The public may reach Congress by calling 202-224-3121.

The Capitol switchboard operator will help callers identify their member of Congress and connect them.

The public can reach Congress by calling (202) 224-3121.

Monday-Friday from 9 a.m. – 6 p.m., Eastern Time.

Get the word out. Many people seem to be blissfully unaware that their mortgage interest deduction is in danger. Please do the following to make sure that the message spreads.

1. Forward this message to your family, friends, and clients.
2. Post this information on your personal and office websites and blogs.
3. Share this information on Facebook and urge others to share it as well.
4. Tweet about it on Twitter and urge others to retweet. Use the hashtag: #keepthemid.
5. Link to the following web page: www.KeepTheMID.com.  This site has information about contacting Congress, more information on the MID, and links to articles.
6. As you see new information and articles, share these on all your social networking sites.

Watch and share this video about preserving the MID.

 
Mercury News

How to stage your home to sell during the holidays
By properly staging a home, it is possible to sell a house during the holidays, even with the slowdown in house hunting during November and December.

Making sense of the story

• Homeowners should make cleaning and decluttering the house their number one priority when looking to sell their home.  The house should show at its absolute best, which means light, bright, and extremely clean.
• It’s okay to decorate for the holidays, which can make the home feel warm, inviting, and festive.  But the “less is more” mantra definitely holds true.  The goal is to have the house appear spacious and open, and too many decorations may do the opposite.
• A tall Christmas tree is great for those trying to accentuate a two-story foyer or great room, but otherwise, homeowners should opt for a smaller and thinner tree.  Additionally, sellers should use a cohesive color scheme and theme for ornaments that are used for the interior holiday décor.
• Even the gift wrap for presents under the tree should complement the color and style of the décor and tree.  Limit the gift wrap to beautiful neutral colors such as silver or gold metallic, then choose colorful ribbon that matches the rest of the scheme.  Limiting the number of gifts under the tree also may help.
• No matter what time of year, when a house is available for sale, it’s always recommended that homeowners remove all or most family photos.  During the holidays, take this one step further by keeping the personalized stockings over the fireplace put away.
• It’s also recommended that specific religious or cultural decorations be stowed away in order to appeal to the largest group of people and so as not to offend anyone.

Read the full story

In other news …

Los Angeles Times

Index of California consumer sentiment falls slightly in quarter
The California Composite Index of Consumer Confidence decreased to 92.7 from a revised third-quarter reading of 93.4, which was its highest level since the recession, according to a Chapman University index released Tuesday.

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CNN Money

The automated home is one step closer
By remotely controlling heat, locks, even the sprinklers, one company is making the house of the future a reality.

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Mercury News

“Boomerang” home buyers bounce back from foreclosure
The number of boomerang buyers – locals who lost their home to foreclosure or short sale, but are jumping back into the market just two to three years after default – are small now, but real estate agents and home builders say that while these buyers don’t currently make up a big share of their clients, there’s evidence that their ranks are set to rise noticeably, and that could have implications for local home sales and neighborhood vitality.

Read the full story

Los Angeles Times

Housing is adding more vigor to the recovery, report says
The U.S. housing market is becoming the leading source of strength for the long-sluggish American economic recovery, outpacing both business investment and exports.  But even with the return of that crucial linchpin, job growth is expected to remain weak next year, a new report by UCLA says.

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The New York Times

Upshot of the foreclosure backlog
Foreclosures are taking significantly longer in states where lenders must go through the courts, and the delay may or may not be good for borrowers, depending on their circumstances.  But some researchers say that dragging the process out hurts society at large.

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Los Angeles Times

House flipping gets an expensive twist
Luxury-home flipping is heating up in affluent neighborhoods as well-heeled builders and investors seek better returns than they get on other investments.

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 *Talking Points

• During the holidays there are several organizations requesting donations for various causes – many of them legitimate.  However, consumers should take precautions and adhere to certain guidelines to stay safe and avoid being scammed.
• Consumers should be cautious of individuals representing themselves as victims or officials asking for donations via email, in person, or social networking sites.
• Also, never respond to any unsolicited (spam) incoming emails, including clicking links contained within those messages, because they may contain computer viruses.
• Additionally, beware of organizations with copycat names similar to, but not exactly the same as, those of reputable charities.