Bank of America has announced plans to start forgiving mortgage loan principal for troubled homeowners who owe more than 120 percent of their home's value or are battling negative amortization loans.
Bank of America will begin to offer certain mortgage holders a "earned principal forgiveness" program whereby up to 30 percent of their mortgage balance will be foregiven in two stages. Provided the homeowner stays current on their payments over five years, the foregiveness plan is designed to bring the loan value down to 100 percent of the home's value at that time.
I am somewhat torn by news of this plan.
As a responsible homeowner who purchased a home that they could afford in 2007 (not one three times more expensive and larger than they could not afford even though it would have been possible), I do not think that the plan engenders or rewards financial responsibility; rather it continues the precedent in the US that you can take whatever loan amounts are offered to you and not be responsible for repayment. At the same time, it is pleasing to see the largest US mortgage lender become the first to take a systematic approach to reducing mortgage principal and to preventing foreclosures, instead of leaving this difficult issue to the government to handle.
Existing home sales dropped slightly by 0.6% in February from January numbers while sales prices edged up from $164,900 to $165,100.
Longer-term, both prices (in BLUE) and existing sales ( in RED) are holding steady if not trending down. At best, the housing market looks stabilized, and that's with the homebuyer tax credit and historically low interest rates.
NAR's economist Lawrence Yoon had this to say about the real estate market:
“Some closings were simply postponed by winter storms, but buyers couldn’t get out to look at homes in some areas and that should negatively impact near-term contract activity,” he said.
“Although sales have been higher than year-ago levels for eight straight months and home prices are much more stable compared to the past few years, the housing recovery is fragile at the moment.”
Total housing inventory at the end of February rose 9.5 percent to 3.59 million existing homes available for sale, which represents an 8.6-month supply at the current sales pace, up from a 7.8-month supply in January. Raw unsold inventory is 5.5 percent below a year ago.
“The key test for a durable recovery comes in the next few months as the tax credit deadline approaches,” Yun said. “If we see a surge in home buying comparable to last fall in the months leading up to the original tax credit deadline, then enough inventory should be absorbed to ensure a broad home price stabilization.”
In Boston home prices have held up well in cities and towns around the city. I was just talking to a real estate agent and he seemed to think there was more activity because of the tax credit. He was a bit sanguine about what will happen once it expires at the end of April.
Sales trends are regional. The Northeast has seen strong growth in the $1M+ end of the market while The West has gotten clobbered in houses below $100K. While high-end homes have shown the greatest increases in sales over the past 12-months, they represent less than 10% of the unit sales market.
Buying or selling a home in your local housing market takes research, but how do you understand your local housing market? Here are some tips to help you out.
Your local housing market is often quite different than the nationwide averages and trends. Local markets do not always follow the trends and when sales are good nationwide, that could mean sales are mediocre in your area. On the flip side, when sales are bad across the nation, sales in your local housing market could be going very well. That is why it is so important to know how to understand your local housing market if you plan on selling your home or buying another one in the area in the near future. Here are some tips on how to understand your local housing market so you can make informed decisions when buying a selling.
Define the Phrase \"Local Market\"
Before understanding the housing market in your area, you have to define your \"local market.\" The best way to do this is to choose the smallest unit of area for which you can find information. Some local housing markets only consist of a neighborhood which may include three or four blocks. In more suburban areas, a local housing market may consist of a single housing development. In a rural market, the local market may be considered the entire county.
Once you have determined what the local housing market is going to be, take some notes about the geographic and political boundaries in that area. Are the houses and properties on one side of the street larger than on the other side? Are commercial buildings mixed in with the local area or is there a clear boundary between the businesses and the residential homes? These and other observations can help you break down your local housing market into an even smaller unit so you can understand it better.
Begin Your Research
These days, it is so easy to go online and research various neighborhoods across the country. Thousands of websites exist where you can find prices of mortgages in various areas, safety statistics, school information and pretty much anything else you want to know about local housing markets. You can even go to Google and find actual maps and pictures of the neighborhoods when doing your research. You can also compare mortgage rates and other fees and charges with various companies from the comfort of your own home. There are so many things you can do before you even step out of your house.
It sounds like a lead-in to bad science fiction, but the so-called "anti-flippers" are making the most of several downed markets at the same time.
One thing you've got to love about the markets: just when you think you've seen enough weirdness and wackjob behavior for three lifetimes, along comes some new twist to make you question your own sanity.
Today we're talking about anti-flippers, folks--the rise of which is steadily climbing. And where a flipper bought a cheap house in poor repair to fix up and sell at a higher profit, today the anti-flippers are buying cheap houses to fix them up...and hang on to them.
How do they make money at this, you ask? Simple--by using their newfound properties as rental properties.
See, those houses that went into the dirt-cheap-foreclosure-sale pile needed to go somewhere. The last thing the banks wanted was to own a raftload of steadily decomposing empty houses; it's bad press, bad for business, and karmically speaking it pretty much guarantees they're all going to die of blunt force trauma after being crushed by several dozen amorous gorillas with irritable bowel syndrome.
And, all those former homeowners now need a place to stay, and renting's looking a lot better than trying to get another mortgage in this credit-crunch economy. So the anti-flippers are taking their shot to buy up these deeply depressed-priced homes, fixing them up, and providing nice places for people to live.
Say one thing about a bad economy, it never fails to bring out the entrepreneur.
Arizona's recent rise in home sales figures represents a disturbing trend.
It's easily one of the most counterintuitive things you'll hear today--the state of Arizona is looking at internal home sales figures, seeing they're going up, and are very, very unhappy. How can this be, you wonder? How can they look at property tax payers moving back into houses that were formerly empty?
The answer is fairly simple, and deeply disturbing--the home resale numbers, so says Arizona State University, are largely coming from people buying foreclosure houses. About sixty five percent of all homes sold in Arizona in the last year were sold due to foreclosure.
This represents several troubles--of course, it means a whole lot of families lost their homes, and that's bad enough for anyone, but it also means that the houses were purchased for a whole lot less than they were originally paid for, which in turn drops home value and from there drops property tax. It's different everywhere, of course, but market value generally does figure in on at least some level.
Real estate companies are glad for the business, not surprisingly, but the state government, already strapped for cash, is quaking in its collective boots. How long will this foreclosure-fuelled market last? No one knows, but it can't end soon enough for the state of Arizona.
Average mortgage rates moved very little over the past week with the 30-year fixed rate mortgage moving up 1 basis points from 4.95% to 4.96%. The BestCashCow averages also rose slightly, with the average 30-year fixed rate mortgage moving from 4.964% to 4.981%.
Averages though won't get you a mortgage and I like to check and see what rate is actually available. Since I live in Massachusetts I checked Massachusetts mortgage rates. Below I compared the best rate I could find on a $200,000 30-year fixed rate mortgage with 0 points:
This Week Last Week
Rate: 4.750% 4.750%
Points: 0 0
Fees: $1,995 $1,995
AimLoan.com continues to offer the best 30-year fixed rate mortgage in Massachusetts according to the BestCashCow rate tables at 4.750%. It has remained at this rate for 7 out of the last 8 weeks. Despite the discussion of the Fed ending its program to keep mortgage rates low, they have moved very little over the past few weeks. Will they move up in the future? I explore this a bit in an article entitled Will Mortgage Rates Rise When the Fed MBS Program Ends? The bottom line seems to be yes, but not as much as people once feared.
Other mortgage averages also showed little movement. The 15-year FRM this week averaged 4.33 percent, up from last week when it averaged 4.33 percent. The 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 4.09 versus last week's 4.05 percent. The 1-year Treasury-indexed ARM dropped from 4.22% to 4.11%.
Here's what Freddie Mac had to say about the rate situation:
"Mortgage rates for fixed-rate mortgages were virtually unchanged this week as the effects of the prior storms emerged in recent housing data," said Frank Nothaft, Freddie Mac vice president and chief economist. "New construction slowed by 5.9 percent in February to 575,000 homes. Both the South and Northeast regions had all the declines due to the snow storms. In addition, homebuilder confidence unexpectedly dipped in March according to the NAHB/Wells Fargo Housing Market Index .
"With house prices starting to stabilize and even rise, homeowners on aggregate are slowly building back equity in their homes based on figures from the Federal Reserve Board. After losing almost $7.9 trillion in home equity since the end of 2006, homeowners regained almost $1.1 trillion over the past three quarters ending in 2009."
Mortgage rates continue to move in a tight range. As the chart shows, they've gone mostly sidways since September of 2009. Many analysts are predicting rates will rise, but we have yet to see any indication of that.
Use the BestCashCow rate tables to find the best mortgage rates in your area.
Leader Bank's Senior Loan Officer Jim O' Malley provides some tips and insight into how to get the best possible mortgage: what your FICO score needs to be, what small mistakes can really hurt your credit score, what's happening to mortgage rates, and are banks lending. Plus he discussed real estate values and more.
Parts II and III are coming shortly with additional insight and tips.
Last week I had the opportunity to sit down and interview Jim O' Malley, a Senior Loan Officer at Leader Bank, a MA-based community bank. Jim has over 12 years experience in the mortgage business. The video is must-watch for anyone about to buy a home and go through the mortgage process. This is the first of a three-part interview we did with Jim.
Where Do You Start the Mortgage Process?
The #1 factor in getting a mortgage is your FICO score. Before applying for a mortgage you should get a copy of your most recent credit report. Last year, it was possible to get a decent mortgage rate with a 620 FICO score. Now, you need a 720 to get the best rate. Between 640-720 you'll have to pay a higher rate and potentially PMI.
The profile of someone who has a 720 or higher is:
Responsibly using and managing debt. It's better to have some debt (car payment, studentl loan, etc.) and show that you can handle it.
History of paying back money.
No late fees
A clean record for the past two years.
According to Jim, it's still relatively easy to get a mortgage if you have a down payment. You also need to have strong earnings that appear on a W-2. If you are self-employed then you need two years of salary history.
How Does Today's Mortgage Environment Compare to Pre-Recession 2007?
Self-employed borrowers are experiencing the biggest impact. No income verification loans are gone. This is the biggest difference with 2007. This change has knocked out about 30% of potential buyers who might have strong finances but don't have it well documented. This is especially true in areas like Boston with a large entrepreneurial and self-employed population.
What's the State of the Real Estate Market?
Demand for homes is high right now spurred on by the homebuyer tax credit plus low rates. To take advantage of the tax credit you must have a home under agreement by the end of April.
What Can People Do to Get Best Mortgage Rate?
Make sure you don't have any small collections on your credit report. An outsanding $20 Verizon bill can have as much impact as a late payment on a credit card.
Are Rates Going Up?
Rates will go up slowly. They won't shoot up but he believes they will go higher.
How Are Home Values Doing?
Jim serves the Boston market so that was his reference. Close to the city home prices have faired pretty well - dropping by 5% or less. The further out you go, the worse the market is. He says the old adage is true: location, location, location.
We'll shortly be posting the rest of my informative interview with Jim.
