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Should I Rent a Home Or Should I Buy? General Market Factors
1. To Buy or Not to Buy?
Unless you’ve spent the past year or so living under a rock with spotty Wi-Fi service, it’s safe to say you’ve been bombarded with the message that “right now is a great time to buy a house!” It’s certainly an appealing notion for these recession-fatigued times, but alas, the truth is not so cut-and-dried. Let’s take a closer look at the pros and cons, shall we?
BUY!
*Historically Low Interest Rates
The strongest argument in favor of buying would have to be the current extremely favorable mortgage rates. Hovering at around 4% for 30-year loans, they’re the lowest they’ve been in six decades, but are expected to creep back up before the end of the year.
According to Lary Cowart, PhD, assistant professor of Real Estate and Finance at the University of Alabama, one of the biggest mistakes rookie homebuyers make is not grasping the importance of locking in a favorable interest rate. “If rates go up 1 percent, say from 4 to 5 percent, that is a 25 percent increase in the interest rate; so the mortgage payment goes up by more than 10 percent and the amount of house that can be purchased goes down by more than 10 percent,” Coward explains. “People fail to realize that and it is another little thing that will cost them big over the 30-year life of their loan.”
BUY!
*Home Prices Aren’t Likely to Get Much Lower
In its most recent newsletter, Redfin predicted that “home prices won’t fall or rise much in 2012. Prices can’t rise far before banks and regular home-owners put more properties on the market. And they can’t fall far because of increasing rents and — for now — declining foreclosures.” Find more on the affordability of buying over renting here.
Source: www.la.curbed.com
Important HAFA Program Changes
The federal government’s flagship HAFA short sale program continues to evolve in hopes of more effectively addressing the needs of distressed homeowners for whom continued ownership is not longer a realistic option. The most recent Supplemental Directive 12-02 was released on March 9, 2012; loan servicers are instructed to implement program changes effective immediately. They include:
- There are no longer any occupancy requirements for HAFA eligibility.
Previously, HAFA required that the property be occupied as the borrower’s primary residence at some point within the prior 12 months. - The amount a servicer may authorize the settlement agent to pay from gross proceeds to subordinate mortgage holder(s) in exchange for a lien release and full release of borrower liability is increased from $6,000 to $8,500.
- Borrower relocation incentives will be limited to HAFA short sales or Deed-in-Lieu transactions where the property is occupied by a borrower or a tenant at the time of the Short Sale Agreement or DIL Agreement and who will be required to vacate the property as a condition of the sale or DIL.
- Borrowers may now elect to remain current on the loan during the term of the Short Sale Agreement or DIL Agreement.
- Credit bureau reporting of HAFA transactions are amended as follows:
- If the real estate is sold for less than the full balance owed and the deficiency balance is forgiven, report the following Base Segment fields as specified: Account Status Code = 13 (Paid or closed account/zero balance) or 65 (Account paid in full/a foreclosure was started), as applicable.
- The deadline for HAFA has been extended. A borrower now has until December 31, 2013 to submit a Short Sale Agreement or a written request for a consideration for a Short Sale Agreement to be eligible for HAFA.
The stated intention of the program updates is to expand the availability of HAFA’s benefits to more struggling homeowners. Certainly, the increase in the amount of gross proceeds available to settle junior liens should help. This has been an area of particular concern, most especially in California where the implementation in 2011 of SB 457 barred
lien holders from reserving collection rights following short sales or, alternatively, from conditioning short sale approval from additional seller contributions. Of course, as with all previous program changes, the proof will be in the pudding. Stay tuned….
Source: http://www.brianaripley.com/2012/03/26/important-hafa-program-changes-announced/
Becoming a Homeowner Still Goal For Many
A recent report from the National Foundation for Credit Counseling (NFCC) reveals that owning a home is still a large part of the American Dream, while low home prices and record-low mortgage rates continue to make the investment of purchasing a home affordable.
Upon being asked what they were most anxious to do with an improved financial situation, 51 percent of respondents said they would like to buy home. While many potential buyers have been waiting to see if prices and rates would drop lower, recent reports show that both financial factors remain stable and will continue to offer high affordability for those looking at homes for sale in Los Angeles and other areas in Southern California.
While many respondents reported becoming a homeowner was at the top of their goals, NFCC says another 23 percent said they would take advantage of having an improved financial situation by making home repairs and improvements.
“Homeownership has traditionally been a part of sound financial planning,” said Gail Cunningham, spokesperson for the NFCC. “With a combined total of 74 percent of respondents selecting a home-oriented option, the poll results strongly suggests that people continue to place value in owning a home, and are anxious to buy a house or improve their existing one.”
In the most recent Freddie Mac Primary Mortgage Market Survey, long-term mortgage rates fell from the previous week, urging buyers to take advantage of current lows.
Source: www.themls.com
Underwater Sellers, What are your Options? Cash to Short Sell? Cash for Keys? Foreclosure?
We get these questions and would like to share our thoughts about this dilemma. Some home owners who are underwater may not know their alternatives.
The “Cash for Keys” is a program that banks do for some home owners. The “new twist” you’ll be hearing more about is “Cash to Short Sale”. Lenders are figuring out that if there is anything they can do to make a deal happen, they need to do it. This apparently is what is starting to take place with people that are trying to “short sale” their homes. Instead of “Cash for Keys” to homeowners that lose their homes to foreclosure. This was not offered to home owners who were trying to short sale their home. Often the banks would basically give them a certain time to complete the short sale until they foreclosed.
Now because of tight lending practices, new buyers would take so long to qualify, it is often “too little, too late” to close escrow before foreclosure. When that happens it seems everybody loses. The lenders lost a willing & able buyer and the seller because, now, not only did they lose their home to a foreclosure, but also because a foreclosure was now on their credit report instead of a short sale. (It may be better to have a short sale than a foreclosure on a credit report?) Plus, the buyer may or may not wait until the home came back on the market at a later date.
What is a Deed in Lieu?
A Deed in Lieu of foreclosure (DIL) is an option in which a mortgagor (or a home owner) voluntarily deeds the subject property to the lender in exchange for a release from all obligations under the mortgage. A DIL of foreclosure might not be accepted from mortgagors who can financially make their mortgage payments. Often times, this can be as damaging to your credit as a foreclosure and should be considered a last resort (in most cases)
“there are several disadvantages to a deed in lieu, most importantly, it is almost as bad on your credit as a foreclosure or bankruptcy, a short sale can be viewed as a much better option in terms of your credit
“it is considerably more difficult to qualify for a deed in lieu if you have a 2nd, 3rd..mortgage
What are the benefits of a deed in lieu?
Many believe that a deed in lieu of foreclosure looks better on your credit report than does a foreclosure or bankruptcy. In addition, unlike in the short sale situation, you do not necessarily have to take responsibility for selling your house (you may end up simply handing over title and then letting the lender sell the house).
Are there disadvantages to a deed in lieu?
There are several disadvantages to a deed in lieu. If you have second or third mortgages, home equity loans, or tax liens against your property, you probably cannot qualify for a deed in lieu.
In addition, getting a lender to accept a deed in lieu of foreclosure is difficult in the current market. Banks are not in the real estate business, most lenders want cash, not real estate — especially if they own hundreds of other foreclosed properties which is a likely scenario these days. On the other hand, the bank might think it better to accept a deed in lieu rather than drag out the lengthy foreclosure process and incur more expenses. Beware of tax consequences; a deed in lieu may generate unwelcome taxable income based on the amount of your “forgiven debt.”
Source: http://www.sandiegohopenow.com
What is a Loan Modification?
A loan modification restructures the terms of a loan without actually refinancing the property it secures. Modification of a loan applies to the terms governing the interest rate, the amount of the monthly payment, the term of the loan, but very rarely the principle balance.
Are you a good candidate for Loan Modification?
All of the following are great candidates for modification:
- Any homeowner currently stuck with an adjustable rate mortgage
- Any homeowner with a “PayOption ARM”
- Any homeowner behind on Payments
- Any homeowner with a “hardship” or inability to pay what is currently owed
- Any homeowner that has little to negative equity
- Any homeowner that cannot refinance
Are there any NECESSARY requirements to be considered for a loan modification?
- Your monthly mortgage must be affected by a verifiable reduction in income or an increase in expenses.
- It is required that you have a source of a stable and predictable monthly income.
How long is the Loan Modification process?
This depends on the lender, but typical turn times can range from 4-6 weeks up to over a year.
What happens during a Loan Modification?
During a loan modification the terms of your mortgage are renegotiated to bring the interest rate down to a percentage that fits into your budget and the monthly payment no longer presents a severe strain on your ability to meet your other financial obligations.
Loan Modification – Pros
1. Lenders are making a big push for loan modifications. Based on our recent experience it has proven difficult for a truly lasting and helpful modification to be completed.
2. Many lenders seem to be able complete Loan Modifications in the same time it takes to complete short sales.
3. In the future you might get your entire investment back. (It is theoretically possible, though no one can say for sure if it will happen)
4. You may minimize damage to your credit.
5. You may be able to do a loan mod and not waive your anti – deficiency protections.
Loan Modification – Cons
1. Without leverage it is unlikely you will negotiate a principle reduction. We are not seeing these happen.
2. In a typical loan modification – you may just be buying time. You make payments until you decide to sell or your payments go back up. Will it be better to attempt a short sale in a few years? I doubt it. But, you never know.
3. If you are not careful you may lose of waive important anti -deficiency protections. If you have assets or a salary to protect or you expect to have those things, this will need to be negotiated.
4. Your mod may not be successful enough to eliminate the full financial problem.
Source: http://www.sandiegohopenow.com
Fannie, Freddie legal fees: $110 million and counting
WASHINGTON (CNNMoney) — A watchdog agency said Wednesday that the legal tab for former leaders of mortgage finance giants Fannie Mae and Freddie Mac is at least $110 million.
And taxpayers have paid at least $47 million of it, according to an Office of Inspector General of the Federal Housing Finance Agency report.
And the total bill could be even higher since the inspector general report focused on only one particular legal case against Fannie Mae, and isn’t an exhaustive account of the housing giants’ legal bills, reportedly more than $160 million, according to a 2011 congressional hearing.
Yet, a whopping $99.4 million has been paid in legal bills to defend a 2004 case against three former Fannie Mae senior executives accused of inflating the firm’s publicly traded stock price to maximize their own bonuses. About $37 million of that has been picked up by the taxpayer.
For Freddie Mac, the overall legal tab paid by the taxpayers is $10 million, according to inspector general.
The Federal Housing Finance Agency inherited legal bills when it took Fannie Mae and Freddie Mac under conservatorship in 2008. The bills are for employees long gone but must be paid as a part of benefits packages agreed to by legal contract.
Office of Inspector General of the Federal Housing Finance Agency suggested that the housing agency take steps to limit legal expenses, in the report.
With taxpayer bailouts to the housing finance giants hitting $183 billion through the end of December, lawmakers have questioned the “appropriateness” of legal pay outs, the watchdog said.
“Given the significant amounts of taxpayer money involved and the issue’s high visibility, FHFA must continue to scrutinize intensively the enterprises’ advances in order to limit costs,” the report concluded.
The two companies were essentially taken over by the government in September 2008 when they were placed in conservatorship and given large cash infusions to cover mounting losses on the mortgages they owned and guaranteed.
Other efforts, such as the biggest source of money for the bailouts: the Troubled Assets Relief Program (TARP), had a larger initial price tag but the overwhelming majority of the $474.8 billion it gave out has been returned to Treasury.
Tougher lending standards have allowed the mortgage financiers to profit from more recent loans they purchased, even if they continue to suffer losses on loans made during the housing bubble. The two firms are now financing about two thirds of the mortgages being written in the United States.
In response to the inspector general report, the Federal Housing Finance Agency said it agreed with the watchdog’s suggestions about efforts to limit future legal fees, according to a response to the review by FHFA attorney Alfred Pollard.
The report noted that more legal bills are coming down the road, since the U.S. Securities and Exchange Commission just filed a lawsuit against six former senior officers at Fannie Mae and Freddie Mac
Source: By Jennifer Liberto www.CNNMoney.com
What You Should Know Before Buying a Home
Before you start looking for a home, get pre-qualified for a loan. Banks, credit unions and mortgage bankers make home loans; mortgage brokers process them. The lenders will take an application, process the loan documents, and see the loan through to the funding stage.
If you have marginal or bad credit, consult your lender. You may be able to qualify for a loan depending on how long ago and what reason(s) caused the bad credit. A lender should be able to advise you on whether your credit history will prevent you from qualifying for a home loan.
You will need a down payment. Down payment requirements vary depending on the type of loan. Many down payment assistance programs exist. These programs may loan or grant you the funds necessary for the down payment. Consult with a lender about programs available in your area.
You will need funds for closing costs Closing costs are charges for services related to the closing of your real estate transaction. They include, but are not limited to: Escrow fees charged by the company handling the transaction
- Title policy issuance fees charged by the title insurance company
- Mortgage insurance fees
- Fire and homeowners insurance
- County Recorder fees for recording your deed
- Loan origination fees
Consult your lender for an actual estimate of these costs, as well as information about loan programs which can assist in financing your closing costs
Some loans have “points” and some do not. A point is a loan origination fee equivalent to 1% of the loan amount. Together with the interest rate they constitute the yield on your loan for the lender. Some lenders charge a higher interest rate to compensate for charging no points. It is important to comparison shop lenders to make sure your loan is at a competitive yield.
Should you select a mortgage with a fixed rate or an adjustable rate? The answer to this question depends on whether mortgage rates are at a high or a low point when you purchase, and on how long you plan to live in the home. If rates are high, an adjustable rate might be attractive since subsequent rate drops could reduce your monthly payments. Additionally, lenders may offer a low rate during the first few years of an adjustable mortgage to make it appealing to you. If interest rates are low you might want to take a fixed rate to protect yourself against the possibility of rising interest rates.
Be aware of the two main types of loan categories.
- Conventional Loans. Conventional mortgage loans are available with fixed or adjustable interest rates. Some loans may require mortgage insurance.
- Government Loans. These include Federal Housing Administration (FHA) fixed and adjustable rate mortgage loans, and Veterans Administration (VA) fixed rate mortgage loan
If you are a low or moderate income homebuyer, there are special programs designed to help you. These loans are available through private lenders, as well as local and state housing agencies, like the California Housing Finance Agency (CalHFA). Most lenders specializing in real estate mortgage loans are aware of these types of loan programs.
Why might I have to pay mortgage insurance? Mortgage insurance protects the lender from potential loss if you should default on your mortgage loan payment. Generally, conventional loans that require larger down payments do not require mortgage insurance. Mortgage insurance is always required on FHA mortgage loans.
Many organizations offer home loan counseling to prospective homebuyers. These organizations provide classes for homebuyers to cover the steps to homeownership. They will cover home selection, realtor services, lenders, loan programs, homeownership responsibilities, saving for a down payment, and other important pieces of information. Many first-time homebuyer programs require homebuyers to attend this type of class to be eligible for selected programs.
SOURCE: http://www.calhfa.ca.gov
Pending Home Sales Near A 2-Year High
More Americans are signing contracts to buy existing homes than at any time in nearly two years, according to the National Assn. of Realtors’ index of pending home sales.
The measure increased 2% in January from December, when it slipped 1.9%. And compared with January 2011, the index rose 8%. The index is based on the number of signed contracts reported to the nationwide Multiple Listing Service and large brokerages. The trade group said that about 80% of signed deals are finalized within two months.
In January, the index hit 97, its highest level since April 2010, when consumers were drawn by a home buyer tax credit. At that point the index, as tallied by the association, hit 111.3. It was the last time the measure exceeded 100 — the group’s benchmark for industry health.
The index for January showed year-over-year increases in every region — a 9.8% hike in the Northeast, a 10.8% rise in the Midwest, a 10.5% boost in the South and a 0.7% uptick in the West.
Because contracts are usually signed a month or two before a deal closes, the index is an indicator for where the market is headed. The association said last week that existing home sales in January rose more than 4% to an annualized rate of 4.57 million.
Housing experts such as Lawrence Yun, the trade group’s chief economist, credit the boost in the sliding unemployment rate — which fell to its lowest point in three years in January — as well as a downward trend in home prices and a supply of homes at a nearly seven-year low.
“Movements in the index have been uneven, reflecting the head winds of tight credit,” Yun said in a statement, “but job gains, high affordability and rising rents are hopefully pushing the market into what appears to be a sustained housing recovery.”
Source: www.LaTimes.com By Tiffany Hsu