Glimmer of hope in new home sales report March 2011
New home sales report March 2011
Is there hope for a recovery cycle to begin in 2011?
Industry insiders and prognosticators alike have been making guesses at exactly when we would hit bottom and when recovery would begin since we entered the market downtrend. While many were well educated guesses and other hunches based on theories created on the barstools of America they have all been simply guesses. Whether or not they are accurate will only be born out in the coming days, weeks, months, and years.
According to the Census Bureau report (see graphic) there were over 300,000 new homes sold in March of this year (2011). The more encouraging number for this southeastern based mortgage marketer is that 162,000 – well over half – were sold in the south. Click the graphic for a larger representation.
March 2011 housing numbers may hold promise
Although modest and somewhat an island of positive in a vast ocean of negative the March 2011 new home sales numbers as tabulated by the US Census Bureau proved an increase.
On the other hand there are variables in the equation
“We’ve gotten spoiled by the idea that
Mortgage Calculator
interest rates will stay in the low single-digits forever,” said Jim Caron, an interest rate strategist with Morgan Stanley. “We’ve also had a generation of consumers and investors get used to low rates.” (NYT)
$ % yrs % $
We are not certain when mortgage interest rates will begin to rise, nor are we sure how high they will trend. The cyclical nature of the economy indicates a strong likelihood rates will rise, possibly sharply, and could easily see double digits in a short time. This, however, is an unknown although it is predicted by some professional economists who have a track record of prediction such changes.
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Possible negative impact of “Qualified Residential Mortgage”
Chris Dodd - Co-Author
The Wall Street Reform and Consumer Protection Act of 2010 – aka The Dodd-Frank Act included a bit of somewhat obscure language about lenders leaving “skin in game” when they sell mortgages to investors. To sum it up it is a good idea but risky business.
The definition is being written and adjusted by the FDIC and we should know very soon what that definition is. On the “bad” side for first time home buyers, sellers who had to take cash to closing to pay the difference between their payoff and sales price, and buyers who make enough to live but not enough to say is that this could result in private loans all requiring 20% down. (This is not a set fact, just a possibility.)
The intent is to get the government out of the mortgage business by dwindling the holdings of Fannie Mae and Freddie Mac. With the goal of allowing private investor back into the game through the well practiced method of mortgage backed securities, a result of the securitization of pools of mortgages sold on Wall Street, the steps are precarious and the definition must be clear. The government is not always the best at being clear with definitions which causes a knee-jerk panic in the mortgage banking industry like the current brouhaha over how to compensate loan officers.
This short post is designed simply to give awareness to the reader there are, possibly, some major changes coming to the way lenders and banks make loans and to whom. Watch the video, Google “Qualified Residential Mortgage”.
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FHA Monthly Premiums will rise on April 18, 2011
FHA MMIP increases - click for larger view
FHA Mortgage Insurance Premiums Increase
We have enjoyed several months of the lowest FHA UFMIP (Upfront Mortgage Insurance Premiums) and MMIP (Monthly Mortgage Insurance Premiums) in recent history. With monthly rates being at .9% payments have been lower resulting in higher debt-to-income ratio for home buyers and owners who have refinanced. With our dollars being stretched because of a damaged and weakened economy this has helped sales and refinances to remain higher than they would have been with higher rates.
Effective with all FHA loans at 95% LTV (Loan To Value) and higher starting with new casefile ID numbers being issued on and after April 18, 2011, the monthly rate is increasing to 1.1% per month. Here is how that stacks up on a $180,000 loan;
| Loan | UFMIP | New | MIP .9 | MIP 1.1 | Monthly + | Annual + |
|---|---|---|---|---|---|---|
| 180,000 | 1,800 | 181,800 | 134.10 | 163.89 | 34.79 | 417.48 |
On a $180,000 home mortgage loan the increase in the FHA monthly mortgage insurance premium from .9% (of the principal balance) to 1.1% will mean nearly $35 more per month cost added to the mortgage. This multiplies to nearly $420 for the year.
While these numbers may not be astronomical you can see how this may make the difference to a family or single homeowner already working on a stretched budget. If income taxes are increased, deductions decreased, property taxes or home owner’s insurance increases, any of these need to be considered when purchasing a new home or refinancing.
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Get a home for just $1
Buy a home for one dollar?
Don’t shoot the messenger! In fact I was inadvertently involved today in an exchange between a real estate agent and a loan officer from another company where the agent was insisting the HUD $100 down program was over. It is not as of today and you can verify that for yourself.
If the $100 down HUD homes program was an issue I can only imagine what the $1 HUD homes debate would bring. So instead of making any statements about it at all simply follow the link and see what new special (if any) HUD is offering in your area.
HUD’s Dollar Homes initiative helps local governments to address specific community needs by offering low to moderate income families the opportunity to purchase qualified HUD-owned homes for $1 each.
Dollar Homes are single-family homes that are acquired by the Federal Housing Administration (FHA) as a result of foreclosure. The following link is for Georgia homes and as of this posting there are 12 available in Georgia on the $1 program. That changes regularly.
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Loss Mitigation Lender List
People call or email regularly looking for contact information for someone to help with their mortgage. The best source for help is your existing lender. The second best source is your existing servicer. Do not fall victim to the scam artists out their preying on people who need a loan modification or help with their mortgage. I don’t care if they are a big name attorney with dozens of initials after their name – it’s up to the lender whether or not they will modify and they have a school bus full of attorneys just looking to get in the ring with a firm with a big name.
Do what you can for yourself first. Be insistent that you do not have any late or negative information reported on your credit because regardless of what anyone tells you just one late payment or a negative comment on your credit can hurt, maim or destroy your credit. At least for a year or more. Late payments can and probably will prevent you from doing anything else in the mortgage area for the next 12 months. Forbearances can help but make sure the lender commits in writing to not report you as paying late. I have seen forbearances show up as “rolling lates”. In other words late every month during the forebearance period. This is bad for you.
Read the full article for the list of lenders and contact information for their loss mitigation department. And remember, if someone who does not work for the lender calls their self a loss mitigator be very VERY cautious of everything else that comes out of their mouth.
I am a multi-year veteran of the industry who has served in the highest offices in the industry. I can help you get the best deals and avoid getting ripped off!
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How do I find out if Fannie Mae owns my loan?
One of my most frequently asked questions is “How do I find out if I have a Fannie Mae home loan?”
The Fannie Mae DU Refi Plus has made it ever more important to know if your existing loan is a Fannie Mae loan. To find out who owns your loan you simply need to go to the Fannie Mae website and check using your address. You will need to tick a checkbox indicating you are the owner of the property or have authorization to check on behalf of the owner.
Mortgage answers should be delivered only by licensed mortgage professionals. Your agent should serve in the transaction and transference of the property and not be relied upon for accurate mortgage information. Experienced, license mortgage professionals spend hundreds of hours every year in training, compliance updates, and working with clients similar to you with resolving their mortgage needs. Nothing against agents and the smartest ones will tell you, “ask your mortgage professional”. To see if they are licensed simply go to the NMLS Custom Access site.
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Subprime loans and home ownership
Home Ownership and Subprime Loans
During the last decade lending guidelines changed dramatically. The changes at the beginning of the decade were precipitated by loosening federal guidelines as a result of the outcry for more equal access to home loan products for under-served markets. The old adage ”give ‘em and inch and they’ll take a mile” soon came into play.
While sub-prime loan products, a name simply referring to loans that did not meet conventional guidelines, had been in existence prior to – and in fact are still in existence today – they became more the standard for many brokers and banks alike because they were simpler to close due to their lax lending requirements. By 2007 non-conforming loans comprised the largest percentage they had in history and the lack of requirements for underwriting are what made these loans so dangerous.
Among the many requirements for underwriting conforming loans which did not exist in non-conforming (sub-prime) loans was the necessity to verify the legitimacy and originality of required documentation like bank statements, pay stubs and others. Unfortunately this laxness spilled over into conforming and government lending as well. Until recently underwriters and investors rarely required any sort of evidence of the originality of documents.
The Veteran’s Administration (VA) has always been more likely to ask for evidence of originality when the copies are actually submitted. It only follows that the VA would be one of the first agencies to re-enforce this policy. However the VA is not the only agency or organization to require CTC for non-original documentation. In fact it was very common in the 1990s and earlier for post-closing auditors to write up a file which did not have “Certified True Copy” (CTC) photo-copies in the file.
Chances are over the next few months the CTC policy will come into play across the board. This means applicants will be increasingly like to be asked to submit either original documentation or notarized copies. It may be possible your lender will ask you to send in documentation or visit your local notary public to have your photo copies witnessed. Chances are the request is non-negotiable.
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What are closing costs?
It would be simple to say “closing costs” are the amount of money required to be brought to the closing table at the time of purchase or refinance. Oh that it were that simple yet it is not. In fact different agencies and organizations have different definitions for the same term. Perhaps we can do some good here and provide the true definition for the components of closing costs, establish which costs go where and which costs are negotiable.
If you want to say closing costs are the total fees you bring to the closing table that would include this list and maybe more in some cases:
- Appraisal fee – to the appraiser
Pie Chart of Closing Costs
- Credit score fee – to the credit bureau
- Origination fee – to the loan officer
- Funding fee – to the lender
- Underwriting fee – to the lender
- Processing fee – to the processing company
- Broker fee – to the mortgage broker (if there is one)
- Recording fee – to the county courthouse
- Loan registration fee – to the state department of banking and finance
- Title exam – to the title company/private investigator
- Attorney fee – to the closing attorney
- Attorney’s wire fee – to the attorney
- Lender’s title insurance – to the title insurance company
- Owner’s title insurance – to the title insurance company
- Real estate taxes and escrow – to the state, county, city where due
- Home owners insurance – to the owner’s insurance company
- HOA fees – to the HOA/COA
Some of these fees are only closing costs because the lender, unless the borrower chooses to waive escrows of taxes, insurance and HOA, would be required to be paid over time anyway. In fact most HOAs require an initiation fee even if you are paying cash. That is the best way to think of closing costs as associated with purchasing a home anyway: which fees would exist even if there were no lender: attorney fees, recording fees, appraisal fee, home owner’s insurance, etc.
Two of the biggest fees associated with the purchase of a home are not considered closing costs and those are the down payment and the real estate broker fees. Brokerage fees are not considered a closing cost because they are added to the sales price and the seller pays them and down payment is going straight to the purchase of the home. If we counted down payment as a closing cost then someone paying cash would be considered to be paying 100% closing costs.
What about “no closing costs” loans? Simple. They don’t exist. The buyer or home owner who is refinancing pays the costs either in cash, from the proceeds of the loan, using a down payment assistance program, or by the lender increasing the rate enough to earn more in interest. None of those closing costs go away when they are required. The attorney doesn’t work for free, the appraiser doesn’t work for free, the loan officer, processor and underwriters do not work for free.
Hopefully understanding these fees and where they go will help you in your next purchase or refinance to understand the cost and how to better manage or prepare for your closing.
*The set of closing costs used for this chart are typical for a mortgage broker. They will vary from state to state and lender to lender … but not by much.
Related articles
- Good-faith estimates bring higher closing costs (sfgate.com)
- Survey: Mortgage closing costs 37% higher (usatoday.com)
- New rules limit too-low estimates of closing costs (knoxnews.com)
- What are “seller concessions”? (kennycook.com)
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What are “seller concessions”?
- Image by familymwr via Flickr
You may have heard the term seller concessions in conjunction with a home purchase. What is generally meant by that term is when the seller uses part of the proceeds of the sale to pay some of the costs of the loan for the buyer. Generally speaking government loans allow up to 6% (of the loan amount) in seller concessions and conventional loans allow up to 3%.
Seller concessions are intended to pay closing costs and pre-paids, not down payment. If the seller wishes to contribute more than the allowed maximum in lender allowed concessions the simple solution is to lower the sales price. In return this lowers the loan amount and the seller can still cover the closing costs and pre-paids (taxes, insurance, HOA escrows) from the proceeds of the purchase. The proceeds, in case you are wondering, come from the money going to the seller for the purchase of the home.
Plain math example:
- Allowed seller concessions 6%
- Closing costs 1.5%
- Pre-paids 4.5%
- Sales price $200,000
- Loan amount $193,000
- 6% of $193,000 is $11,580
- Cash to seller decreased to $181,420 ($193,000 – $11,580)
- Cash from buyer $7,000 (down payment)
The seller cannot contribute (under most rules) to the down payment. Seller concessions can only go to closing costs and pre-paids. Check with your reputable lender and see what maximum concessions are and how they may be used for your particular loan program.
As a seller offering the max in concessions is a great way to attract buyers.
UPDATE: Taxes, insurance and HOA are NOT considered closing costs. Although they may be paid at the time of closing they are costs that would be required to be paid regardless of whether or not there is a loan. If you do not wish to escrow your taxes, insurance and HOA fees most lenders and most loan programs allow a “waiver of escrow” for a small increase in interest rate. The reason the interest rate increases is because loans without escrow accounts present a higher risk to the lender.
Related articles
- FHA Gets Tougher on Mortgages (online.wsj.com)
Dangers of shopping mortgage rates online
You’ve seen those ads touting some crazy low number like 2.125% home loans! The first thing I usually notice is there is no APR advertised on the same line and in the same font – federal violation. This is often my first hint this is a lead generation company and not an actual lender. Lead generations companies, so it seems, can advertise just about anything they like since they are not actually providing home loans. In my opinion those who buy leads from companies who advertise should be held equally accountable – not likely to make me popular among “the liars club”.
Some months ago I wrote a post about this subject and even received a couple of phone calls from mortgage brokers, mostly out west, who would like to have done me bodily harm. We all know people in the industry who make outrageous claims they can very rarely deliver and weasel their way around the law by publishing a mult-paragraph disclaimer secreted away on some difficult to find asterisk centric page.
Even with the rates you see published by Zillow and BankRate, both reputable companies, you will often find the brokers and lenders who feed those companies the rates pushing it to the very lowest number possible to be achieved under the best circumstance on the best of days. Those rates never take into consideration anything except the best of circumstances and to really see the full picture one would need access to the qualifying factors – which are will hidden if published at all.
Understanding mortgage pricing is like understanding pricing for any other service: the higher the risk the higher the cost. Lenders base mortgage rate factors on credit score, loan amount, property type, and other factors due to the risk provided from those types of loans over the years. It’s no secret that the pool of borrowers of people with 720 or higher credit scores, 20% or more down payment and purchasing a single family home in the $200,000 range are less likely to miss a payment or default on the loan than the pool of borrowers with credit scores around 630 and 3.5% down on the same home. It’s just a fact of numbers.
So when you see interest rates advertised your first response should be doubt – and that will serve you well. If you have a middle credit score of 740 or higher, are paying at least 20% down on a home within the conventional mortgage limits for your area, you have a good income and ample assets then it is possible you will qualify for the rates you see advertised online.
BIG WARNING: There is a, an I use the term very loosely, “mortgage company” which advertises regularly on one of these type websites and their rates always seem about a full 1% lower than everyone else’s. Every day they take thousands of phone calls of people who do not qualify for those rates. Do yourself a favor – find a reputable lender who doesn’t use parlor tricks and flashy numbers to steal your trust. Hang up, call someone local and trustworthy, and give them your business.
ABOUT ONLINE LEAD COMPANIES: Most online lead companies will sell your information to 3 to 5 (or more) people. Even though the lead company may have advertised some obnoxiously low interest rate the company who purchases your lead is under no obligation to offer it. These mortgage brokers will pay as much as $50 or more for your phone number and you bet they are going to do whatever they can to get their money back. Don’t get me wrong, some of these lead buyers are the most honest and ethical people you will meet. Unfortunately many of the lead companies have neither honesty nor ethics.
Related articles
- Mortgages: Preventing Credit Score Dings (nytimes.com)
- Benefit of higher credit score dwindles at top end (sfgate.com)
- U.S. 30-year mortgage rates fell in week – Zillow (reuters.com)
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Daily Rates for Qualified Buyers
Today |
Last Week |
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| 30 Year Fixed | 3.59% | 3.65% |
| 15 Year Fixed | 2.91% | 2.89% |
| 5/1 ARM | 2.81% | 2.57% |
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