Be Aware of Upcoming FHA Changes…

Posted on August 19, 2010 by admin

The Real Story…

News and commentary about the real estate market and related topics.
Dave Parrish, ABR®, CRSA, CSP, GRI, ePRO®,REALTOR ®, RealtySouth

The opinions expressed here are my own and don’t necessarily represent those of HomeServices South.

Buyers and Sellers Be Aware of the Effect of Upcoming FHA Changes…

We take long-term mortgages for granted today, but it wasn’t always that way. Long ago it was likely that if you financed a home you borrowed money with a five-year “term” mortgage — and even then you needed 50 percent down. FHA was the beginning of what we know as the American Dream!

The FHA loan program allows buyers to purchase a home with a low down payment and flexible guidelines, as compared to most other options…In Alabama the FHA loan limit for a single-family unit is generally $271,050 with the only exception being Baldwin County where the loan limit is $285,000. FHA has become the most common method of mortgage financing in the current economic environment.

It is important that FHA stay healthy; for without this government-sponsored program to insure home mortgages, home values would plummet.

Last fall, the FHA said its cash reserves had tumbled to 0.5 percent of its loans outstanding, far below the 2 percent mandated by Congress. As a result in January of this year, FHA announced that it would be making changes to the program to keep the program on a self-sustaining basis as mandated by congress.

In a nutshell the changes proposed at that time were:

  • 3% limit on seller contributions (Down form 6%)
  • 10% down payment for borrowers with less than 580 FICO score
  • FHA Insurance “Up Front Fee” will increase to 2.25% (Of money borrowed) but can be
    rolled into loan
  • Possible increase in FHA insurance  “annual fee” (Broken down and paid monthly)
  • One Year Temporary Waiver, for 90 day “flipping” rule

At that time the implementation dates for these changes were yet to be determined.

At the beginning of this month (August 2010), FHA announced implementation of a portion of those new rules dealing with Mortgage Insurance Premiums (MIP). In that announcement, FHA Commissioner David Stevens stated that upfront premiums for FHA mortgage insurance would be rolled back from 2.25 percent to 1 percent on Sept. 7, while annual premiums would nearly double.

It was announce this week (week of 8/9/2010) that implementation of these new requirements would be delayed to October 4th to allow lenders time to update loan disclosures and computer systems.

Under the new guidelines, closing costs will be reduced and monthly payments raised. The net effect, while increasing homeowner costs, is not expected to measurably impact the buying market. However, that does not mean that it will not impact buyers… some negatively and some positively.

On the positive side, buyers who were previously short of funds for closing costs may now be able to close their loan. This positive impact, however, is probably extremely limited, as it is currently the norm for sellers to assist with closing cost. That assistance is presently capped at 6% of sales price and under new FHA guidelines (implementation date yet to be announced) the amount of sellers’ assistance will be limited to 3%. Movement toward including the bulk of the MIP to the monthly payments should prove beneficial to most buyers in terms of the total cost of mortgage insurance, as most buyers will sell or refinance within 7 years.

On the negative side, the monthly payments will increase to cover the increased monthly MIP payment. Some buyers who may have previously qualified for loans based on the current DTI (Debt-to-income) ratio, will no longer qualify. Seems to me the negative impact is much more substantial than the positive impact when you look at what is actually happening in the market today.

To understand the impact of these changes, let’s look at the impact on a home purchase at a price of $100,000. Under the current guidelines, the MIP would add an upfront closing cost of $2250. Under the new guidelines, the MIP component of closing cost would be $1000. When you look at today’s norms the benefit is actually realized by the Seller who more times than not is paying most if not all of the closing costs.

Now looking at the same transaction, the purchasers monthly payment would increase by $29 per month. New Annual MIP is .90% per year on the outstanding balance versus .55% under existing requirements (based on loans representing more than 95% of the sales price (less than 5%down), the rate is .0005% lower for loans representing less than 95% of sales price (5% or more down)).

With the new payment, some buyers will no longer qualify for the same purchase; however, those buyers were already pretty marginal.  Their options: look at a lower price range or negotiate a lower price or perhaps better, reduce their debt so that the DTI ratio is less of an issue. . Either way this creates a downward pressure on home prices. Although, I believe the impact to be negligible.

Note: FHA mortgages are subject to MIP until the borrower has 22% equity in the home and has paid mortgage insurance for 5 years. MIP is avoided completely in 15-year mortgages with 89.99 percent loan to value.

For the majority of refinancing FHA homeowners and homebuyers, the MIP change is neither good nor bad – things will just look a little different.  It’s true that loans will cost more per month, but also true they’ll be less expensive to obtain. It’s a trade-off requiring you to evaluate your individual circumstances to decide the best time to apply FHA.

So while neither sellers nor buyers will celebrate these changes, it was absolutely necessary for FHA to take these actions. It is not kind nor does it make sense to put people into homes that they cannot afford. In terms of what actions should be taken by the respective groups…

Buyers: Reduce your debt, become fiscally responsible so that you can afford the home you want.

Sellers: Be ready to price your house right and willing to negotiate to make your deal work. The buyer pool for your house may well be shrinking!

To ALL: There is a new window in which to act. Use the new rules to your advantage by negotiating a successful/accepted offer and having your FHA loan application in place (with FHA Case number assigned) prior to the new rules taking effect on October 4, if those rules benefit you/your transaction.

Don’t curse the FHA. They are acting responsibly and as required by law! Rather be thankful for FHA. Without FHA Home values would plummet!

May the market be with you.

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Reality…

Posted on August 11, 2010 by admin

The Real Story…

News and commentary about the real estate market and related topics.
Dave Parrish, ABR®, CRSA, CSP, GRI, ePRO®,REALTOR ®, RealtySouth

The opinions expressed here are my own and don’t necessarily represent those of HomeServices South.

Reality…

Reality TV is all the rage… but real reality is another thing!

It is certainly not new news that we are in a recession. Below are some bullet points from a report by the US Department of Commerce published July 30th confirming that the recession is indeed deeper than originally reported.

· Recalculation Discovers Deeper Recession – The Great Recession that started in late 2007 was even deeper than government economists said it was in early estimates.

· The Commerce Department released a revised report July 30th that said the U.S. economy shrank 4.1 percent from the fourth quarter of 2007 to the second quarter of 2009. Previously, the government had said the drop was 3.7 percent.

· Household spending fell 1.2 percent in 2009, twice as much as the government estimated. This was the biggest decline since 1942.

· The recovery has been slower as well with the economy growing at an average 3.3 percent annually from July 2009 through December 2009. Previously, the government projected a 3.9 percent growth rate.

· Residential construction fell at a 22 percent annual pace from 2007 to 2009, one percentage point more than previously reported.

Now none of us really need a reminder that the economy has been less than stellar. Most of us are filled with hopes for better times ahead and the sooner the better. That wish acknowledged, almost all in depth analysis indicates that it is unreasonable to think that we would be in full recovery prior to 2013. No reasonable forecast predicts a recovery to the levels of 2000-2005 any time soon.

So there is a new realty for most of us… And the sooner we come to grips with that reality, the sooner we can act in ways that are beneficial.

As you have read here repeatedly: It is a Buyers’ Market! That means now may not be the best time to sell your home, especially if you don’t have to sell or at least have a really good reason to sell. Those reasons would include the following:

  • Job Transfer
  • Move up to a larger home
  • Health issue(s) requiring a different living space configuration or location
  • Better school system or location affecting overall/long-term quality of life
  • Divorce or other change of family/relationship status
  • Uncorrectable Safety Issues
  • Substantial change in economic situation
  • Avoidance of foreclosure
  • 1031 Exchange (Investors)

Generally, the good reasons for moving (selling) in this market are dictated by a true need that cannot be deferred or is so urgent that the short-term loss of equity is not a driving factor in your decision making process. There are, as with all things, exceptions to the rule… but for most people who can’t afford the hit on equity and the prospects of bringing money to the closing table to sell their home this is a decision that will need to be looked at deeply before putting their homes on the market.

The reality is none of the following factors have any impact on the value of your home:

  • How much you paid for it
  • How much you have invested in it
  • How much you owe on it
  • How much you need for it
  • How much you love it

The value of real estate is determined by the market… what the market is willing to pay!

At the risk of sounding repetitious: “It is a Buyers’ Market!”

It would be rare to find a buyer in today’s market that had not looked at enough homes to know what is over-priced and what isn’t. Basing your list price on anything other than the market will not get you more for your home. In fact, the strategy of pricing higher than the market price will generally result in lower offers (more on that in a future column).

In reality, those over-priced listings flooding the market contribute to a poor housing market (for sellers) by keeping inventory levels high, which translates to lower selling prices! It’s the old law of supply and demand! So when looking to sell you should always see your home through the eyes of the buyer! You want your home to be the home that is in demand, not just part of the supply!

May the Market be with you.

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No Money Down…

Posted on August 5, 2010 by admin

The Real Story…

News and commentary about the real estate market and related topics.
Dave Parrish, ABR ®, CRSA, CSP, GRI, ePRO ®, REALTOR ®, RealtySouth

The opinions expressed here are my own and don’t necessarily represent those of HomeServices South.

No Money Down…

No … this is not the introduction to an infomercial or a get rich quick scheme. Make no doubt about it this is a great buyers’ market … But for many buyers, affordable housing seems out of reach since they have been unable to save the down payment!

Generally, the favored and least expensive way for a home owner to get into a new home is via a FHA Mortgage which requires a minimum down payment of 3.5% of the purchase price or $3500 on a $100,000 home. Add to that closing costs and you have an insurmountable obstacle for lots of folks. Now in today’s market, you can probably get the seller to pay most if not all of the closing costs and pre-paid items required to close the loan… but, you still have that down payment.

USDA Rural Development / Rural Housing Services

USDA Rural Development / Rural Housing Service

Enter the USDA Rural Housing Program… which provides up to 102% financing of the purchase price. More on the extra 2% in a moment.

Yes, the US Department of Agriculture … the same people who inspect the beef… provide funding options for qualified purchasers on rural properties (homes in rural areas, typically defined as open country or rural towns with no more 20,000 in population). This program allows a purchaser to purchase with no money down and thus take advantage of these historically favorable market conditions for home buyers.

These loan guarantees have become enormously popular during the financial crisis and consumer demand has tripled the annual number of loans that are typically issued each year.

Wow… so what’s the catch you ask…Well not every home qualifies and not every buyer qualifies; however, it’s still a great program… So good in fact that due to the high number of users of this program during the recent (now expired*) Home Buyer’s Tax Credit Incentive, the program had used up its funding allocation. However, Congress acted on July 29th to refund/extend the funding of this program which has been around since the late 1940’s.

The Rural Housing Service (RHS) administers direct loans, loan guarantees and grants. Direct loans are made and serviced by USDA staff; loan guarantees are made to banks or other private lenders, and grants are made directly to a person or organization.

It is worth noting that USDA Rural Housing program is a self-funding program with no cost to the tax payer. The expense of the program is covered by the funding fee, which has been 2% of the purchase price which may be financed with the loan thus allowing loans up to 102% of purchase price. Note that the funding fees may increase based on loss histories, just as the MIP fees are subject to increase on FHA loans.

Eligibility is two part: first, the property must qualify via its location/address and secondly, the prospective purchaser must qualify

In order to qualify for the program an applicant must have good credit and reliable and adequate income sufficient to sustain mortgage payments. The average guarantee in 2009 was for a $112,000 mortgage.

For more information as to qualifying properties and individuals use the following link: http://eligibility.sc.egov.usda.gov/ or talk with a qualified lender.

May the market be with you…

_________

* The Home Buyer’s Tax Credit required that purchaser’s home be under contract by 4/30/2010 and close by 6/30/2010. The closing date has been extended to 9/30/2010. Qualified Armed Services personnel have an extension that allows them to use this program if the home is under contract by 4/30/2011. Contact your tax professional to see if you qualify for this extension.

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Getting mortgage is tougher… but worth it!

Posted on July 29, 2010 by admin

he Real Story…

News and commentary about the real estate market and related topics.
Dave Parrish, ABR ®, CRSA, CSP, GRI, ePRO ®, REALTOR ®, RealtySouth

The opinions expressed here are my own and don’t necessarily represent those of HomeServices South.

Getting that mortgage is tougher than in the past… but worth it!

If you’ve been in the market for a mortgage recently, you’ve no doubt noticed how difficult it can be to get approved. You’re not imagining it, and it’s not just you. In today’s market the number of mortgage applications that get approved is probably around 30% while just a few years back it was closer to 90%.

Underwriting standards have tightened, meaning that borrowers need higher credit scores, more income and higher down payments. And that’s not all. There are many challenges to financing a home, but the following are especially at issue in today’s market.

1. Higher Credit Score Requirements
Want a loan? You’d better have top-notch credit to get the best deal, or in some cases, to get approved at all. While loans can be had in most cases for credit scores down to 620, they do come with higher rates and/or fees, which means you’ll get approved for less house for the available dollars. Lenders have raised the bar on credit scores. Those low rates you see in news are available only for the best credit. In 2006 a 680 FICO would get you into a house. Now it takes about a 740.

2. Greater Scrutiny of Income and Assets
For all practical purposes, gone are the days of the “No Doc” or “Stated Income” programs. In the past, banks were lax in verifying income and deposits. Now those things have more scrutiny. Home buyers better get ready to prove just about anything on their application. In today’s market lenders have to verify, re-verify and re-verify again. Qualified buyers are now put through the ringer and often turned down because of appraisal issues, property issues or anything that looks strange or questionable.

3. Ever-Changing Borrower Requirements. What it takes to get qualified, pre-approved and actually funded is a moving target. A buyer can have all of the requirements to get pre-approved for a loan under the current guidelines, only to have the guidelines change at the last minute. See last week’s blog.

4. Home Appraisals are coming in Low
Because of slow sales, which lead to fewer comparables and the large number of short sales and foreclosure / bank-owned sales, houses are frequently not appraising for the contract price. Part of this problem can be blamed on the government enacting the HVCC (Home Valuation Code of Conduct), which regulates the appraisal industry in an attempt to curtail fraud. However, the HVCC has proven to be an unexpected obstacle for the real estate market recovery. As a result of the HVCC, appraisals are now often completed by appraisers who are inexperienced and/or out of market appraisers that are unfamiliar with the local markets in which they are performing appraisals. This often results in inaccurate appraisals and unnecessarily rejected loan applications.

5. Fewer Opportunities for Small Business Owners and Independent Contractors
Congress recently introduced legislation that would make “liar loans’ illegal.” “Liar loans” is a term to describe low or no-documentation or stated income loans. Loans of this type have been used by borrowers to obtain a mortgage they didn’t really qualify for. However, these loans were also a valuable tool for many honest people who are either non-U.S. citizens or self-employed and therefore don’t receive regular paycheck stubs or have a simple, straightforward way to prove their income to lenders. Typically, small business owners pay themselves a minimum amount to avoid paying payroll taxes while reinvesting profits into their businesses. Banks will no longer make exceptions for circumstances like these and turn many loans down that previously would have been granted.

6. Condo Purchases Face Additional Tests
Condo loans are much more difficult today than in prior times. In today’s market not only must the buyer be approved but also the condo building… meaning that the condo association’s cash reserves, owner occupancy rates, low delinquency rates on monthly assessments and more must be documented and verified. Additionally, the FHA recently changed the condo approval method, which has further inhibited many buyers who only qualify for FHA loans. If looking for a condo and wanting to use be sure to ask your lender for the list of approved Condo in the target market area.

Becoming a homeowner
For worthy borrowers seeking to take advantage of today’s low interest rates and relatively low home prices, having to jump through hoops that home buyers just a few years ago didn’t have to can seem very unfair.

On the other hand, home affordability numbers are better than they have been in decades. So yes it’s a great time to buy; and, these tighter restrictions should go a long way in reducing the number of foreclosures in the years ahead.

May the market be with you.

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It’s not over until…

Posted on July 22, 2010 by admin

The Real Story…

News and commentary about the real estate market and related topics.
Dave Parrish, ABR ®, CRSA, CSP, GRI, ePRO ®, REALTOR ®, RealtySouth

The opinions expressed here are my own and don’t necessarily represent those of HomeServices South.

It’s not over until…

You’ve been pre-approved and that low ball offer you made was accepted… Just 4 weeks until you close on your new home! No time to let down your guard…

Be aware that during the processing of your loan there are things that you can do or not do that could cause your loan to be disapproved or otherwise impact the ultimate and final status of your loan request. Now some of these may seem like no brainers… but I’ve seen them kill deals in the past… so a word or two of warning… Your Pre-Approval was conditional! To quote or paraphrase Yogi… It’s not over till the fat lady sings and your loan has been funded!

Just six weeks ago, we had a young client who failed to make a $24 credit card payment… That failure resulted in the loss of his approval and the $8000 first-time buyer tax credit. So what seems like a small thing can make a big difference in outcome!

It is common place for all of the facts that were checked at the time of the pre-approval to be re-verified just a few days, if not hours before closing! This includes your credit scores, amount of credit extended, income, employment, debt to income ratio, assets, etc…

With that in mind be aware of the following:

Don’t… Quit your job or get another job unless it is in the same line of work AND for equal or greater pay.

Don’t… Change bank accounts or transfer money within existing bank accounts.

Don’t… Make counter deposits at the bank for more than $500 which not attached to your pay.

Don’t… Purchase any other real estate

Don’t… Apply for additional credit of any kind.

Don’t… Co-sign a loan for anyone.

Don’t… Purchase an automobile or take on any additional debt… including buying new appliances or furnishings for your new home.

Don’t… Charge a large amount on existing credit cards or start home improvements or other projects that require you to open credit.

At the same it is critically important to…

Be sure to… Keep all accounts current… Mortgages, car payments, credit cards and any other debt.

Be sure to… Keep copies of all paycheck stubs and any statements on bills being paid off through the loan process.

Be sure to… Make payments on all accounts on or before the due date, even if the account is being paid off.

Be sure to… be ready for the unexpected!

A final word of advice… The rules for final approval are subject to change and believe me a change in the underwriting requirements are not at all uncommon. Surprise payments and bills may arise… You will not be allowed to put any of the expenses for closing on a credit card or otherwise borrow those funds.

Understanding that this is a fluid process your best course of action is to cut all unnecessary expenses, save every penny you can and respond to every request made by your lender as expeditiously as possible. The inability to follow these steps could result in the loss of that sweet deal!

May the market be with you…

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Credit Repair and Mortgage Fraud Scams…

Posted on July 15, 2010 by admin

The Real Story…

News and commentary about the real estate market and related topics.
Dave Parrish, ABR ®, CRSA, CSP, GRI, ePRO ®, REALTOR ®, RealtySouth

The opinions expressed here are my own and don’t necessarily represent those of HomeServices South.

Credit Repair and Mortgage Fraud Scams…

Seems that there’s always someone out there  lurking in the shadows waiting to take advantage of the unsuspecting, the vulnerable, those among us who are struggling to survive and do the right thing.

Joni and I were recently working with a young couple who were working earnestly to repair (improve) their credit and lower their debt to income ratio through the use of a credit repair service to whom they were making a fairly large monthly payment that was allegedly being used by the “agency” to pay off his debt in a manner that would get his debt paid down while improving his scores “quickly” for a future home purchase.  But all was not as it seemed… the actions of this “agency” had actually resulted in a decline in their credit rating… which would have originally been good enough to qualify them for a purchase… With his “improved” rating he probably has a six month period to get back to where they were before the credit “repair!”

Perhaps you saw the local news about tmortgagewo weeks ago (June 17th) about the 10 member Birmingham-area mortgage fraud ring caught as the result of the Department of Justice’s (Financial Fraud Enforcement Task Force) “Operation Stolen Dreams?” These 10 persons and two others from the Birmingham area were a part of 485 arrests made in the sweep that began this past March to seek out fraud and prosecute their perpetrators.

While it is distressing to know that these activities are taking place, it is encouraging to know that the government is moving in a multi-faceted and swift fashion to uncover such schemes, arrest and punish the perpetrators of these schemes to defraud our friends and neighbors and yes even us.

Federal Trade Commission (FTC) has created this video to help people in Foreclosure and AVOID companies that charge for their loan “modification” services.

Similarly, the U.S. Department of Housing and Urban Development (HUD), in partnership with the Loan Modification Scam Prevention Network, launched PreventLoanScams.org a tool to help homeowners avoid scammers.

Homeowners at risk of foreclosure can be easy prey for home loan modification scammers. Often, dishonest individuals lure vulnerable homeowners into foreclosure rescue scams by making false promises. Scammers frequently claim they can lower mortgage payments or stop the foreclosure process. Troubled homeowners lose time and money when they are tricked by con artists who promise to help but never do.

John Trasviña, HUD Assistant Secretary for Fair Housing and Equal Opportunity sates that: “This initiative combines the collective energies of public and private enterprises to strengthen the ability of law enforcement to prosecute scammers and protect homeowners.”

The Loan Modification Scam Prevention Network, a national coalition of public and private enterprises, is led by the Lawyers’ Committee for Civil Rights Under Law. Assisting the Lawyers’ Committee in leading the coalition’s fight against loan modification scams are: Fannie Mae, Freddie Mac, the Homeownership Preservation Foundation, and NeighborWorks America.

The Network developed PreventLoanScams.org to provide home-owners with a single destination to report alleged scammers. Complaints filed online are added to a national complaint database and forwarded to the appropriate law enforcement agencies for review. The Network estimates that the website will assist approximately 50,000 homeowners affected by scams. Additionally, HUD has directed its local fair housing and housing counseling grantees to begin reporting alleged loan modification scams via the website.

The creation of a national complaint database is a major step in the fight against loan modification scams. Prior to the launch of PreventLoanScams.org, federal, state, and local government agencies could not share complaint data with non-profit organizations. The new system allows for better analysis of trends across jurisdictional lines and will likely lead to an increase in private enforcement action filings.

As always: If it sounds too good to be true… it probably is! Use local, knowledgeable professionals in all your financial dealings and take advantage of these FREE government sponsored programs to research or report possible scams.

But please be careful out there… Scammers frequently use official sounding sites and titles to lure you. Be sure to check out any organization offering help and wanting you to pay up front, pay them directly, ask for your social security or credit card number, are willing to falsify information to make a loan application work for you, have must act today programs or otherwise offer you a deal that nobody else can!

Help

For additional resources, visit: http://DavidParrishRealtor.com/DontBeScammed (case sensitive).

Hope your summer is grand and that you got to the beach before the oil!

May the market be with you.

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Are we there yet?

Posted on July 8, 2010 by admin

The Real Story…

News and commentary about the real estate market and related topics.

Dave Parrish, ABR ®, CRSA, CSP, GRI, ePRO ®, REALTOR ®, RealtySouth

The opinions expressed here are my own and don’t necessarily represent those of HomeServices South.

Are we there yet?

It’s vacation time and many of us find ourselves traveling with children… from the backseat you can be sure you will hear the question: Are we there yet? Little voices of anticipation and yes perhaps anxiety wondering: Are we at the final destination… How much longer will it be?

Well I’m guessing you know where I am headed from here: Are we there yet? Has the housing market hit bottom, yet?

I know that like my granddaughters, the long qualified and detailed answers aren’t what most folks are looking for…The girls want to know if we’re about to go swimming in the ocean not that we are another 60 miles from Seagrove, that we’ll need to unpack the car, go buy groceries, get a bit to eat and perhaps take a nap, not to mention the inspection of the beach and water for tar balls before we decide if it’s alright to get wet! I also know better than saying: Just a few minutes girls; lest I be reminded more than once: But Poppy you said!

So here’s Poppy’s answer to that question…And are you going to hate this… My answer starts with a question… Actually a list of questions:  Are you buying or are you 4TCMD9G3TL78_jpg-80x80selling? What do you want to accomplish… What are you hoping so see when we get there? That is: What are your motivations for buying or selling? Do you have specific timelines or deadlines (pressures that will impact your decisions)? Where is the home that you want to sell? What are you looking for in a home? What location(s) are best for you and your family… and why those locations? And the list goes on… You see the answer to the question: “Are we there yet?” is as unique as the individual asking the question.

Now I know that most of you will find little satisfaction for your curiosity or anxiety with this answer; so, I will offer the opening bit of information and advice I offer to my clients.

whereisthemarketFor Prospective Sellers… My opening statement in a listing appointment is: This may not be the right time for you to sell… We can only make that decision when we evaluate your circumstance as a whole. Why do you want to sell now? What is the condition of your micro market… Is it a declining  or advancing market? What are the prospects for recovery of this market … Short-term, mid-term, and long-term (with facts that back that assessment)? What buyers in this neighborhood are getting in terms of concessions? What can you realistically expect to net from a sale in today’s market? Pros and cons of selling today versus waiting… Are you up to competing in a Buyer’s Market?

For Prospective Buyers… the concerns are a bit different, yet we begin with a similar list of questions: Why do you want to buy now? Are you able to buy now? Realize that unless you’re making a cash housingaffordability purchase (buying without a mortgage) or have a well-heeled friend or family member providing the funds for free or below the historically low market rates, the cost of a home is in more than the purchase price. What we are looking at is Home Affordability, which in addition to price is impacted by mortgage rates, mortgage insurance (PMI/MIP) rates, seller concessions and federal (RESPA) laws and regulations governing the sale of real estate, just to name a few factors.

While the present environment seems like it couldn’t be better for the prospective home buyer… you still need to consider market conditions in your desired location, and perhaps the effects of doing some work to improve credit scores, lower Debt-to-Income ratios, or perhaps saving the money for a down payment… You see it’s really all about the net of all these conditions that determines if now is the right time for you to buy,

Will prices decline further? Perhaps… depends on the price range and location and your desires. Are you locked in on new construction, or are you interested in looking in a previously owned home… how about a real fixer-upper? Will the historically low mortgage rates drop further… Hard to see how they could. Will down-payment requirements increase… looks like a possibility! Will mortgage insurance rates go up again… maybe… the doorway to do so has been opened.

Anyone who tells you point blank the market is this or that without getting into the specifics is simply giving half truths… at best!

A final word for buyers: I am reminded of a conversation I heard at a local Circuit City twenty-five years ago… The customer who was looking at buying a PC asked the sales clerk; “Well prices are dropping, why should I buy one now… it will be cheaper next year?” I smiled a bit inside as I heard the clerk’s response… “”you’re probably right… but think of the opportunity you will have missed to have the use of a computer while you’re waiting for the prices to quit falling” I’ve often wondered if that person ever bought a PC? I know one thing for sure: We will never know where the bottom of the market is until the bottom has passed us by. But is that really why anyone buys a home?

So we’re off to the beach… the girls are asking: Are we there yet? Poppy responds: “No…Not yet… but just imagine how much fun we will have when we get there! Tell me: What do you want to do first?”

May the market be with you!

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Strategic Walk Aways…

Posted on July 1, 2010 by admin

The Real Story…

News and commentary about the real estate market and related topics.
Dave Parrish, ABR ®, CRSA, CSP, GRI, ePRO ®, REALTOR ®, RealtySouth

The opinions expressed here are my own and don’t necessarily represent those of HomeServices South.

Strategic Walk Aways…

I mentioned them a couple of weeks back… Strategic Walk Aways have been on the rise!

For those who may have missed that brief mention, a strategic walk away is when a home owner that owes more on their home than its current market value and who is capable of making the payments elects to walk away from the home and the mortgage obligation. The logic being: I owe more on my home than it’s worth, the market is still declining and I don’t believe that my continued investment (making of mortgage payments) will provide me a net gain in the foreseeable future or in the time frame that I desire. Based on this logic, the homeowner makes a strategic decision to walk away from their debt and allow the home to go into foreclosure.

Now it’s very tempting here to go into a rant about these individuals and the practice of strategic walk aways… But, I will refrain! What I will do is to discuss some facts about foreclosures and current practices, as well as some recent announcements and moves to discourage this practice.

First of all let’s review the provisions of the laws and practices associated with foreclosures. We mentioned last week the Right of Redemption and how Alabama has one of the most lenient rules concerning a homeowner’s right to redeem their property following foreclosure. On the flip side of that is the fact that Alabama is one of the states which allows Deficiency Judgments in a foreclosure. Actually, there are only 6 states which do NOT allow Deficiency Judgments (California, Minnesota, Mississippi, Montana, North Dakota and West Virginia).

A deficiency judgment may occur after a foreclosure has been completed, if the lender suffers a loss on the loan, and is not able to recoup their original principal.  The lender can go to court and get a judgment against the borrower for the amount of their loss. Note also that junior lien holders who were wiped off title by a foreclosed senior lien may be allowed deficiency judgments if the junior lien was NOT created at the time of purchasing the property (non purchase money junior liens).

Those are the rules or possible actions. What can happen in theory rarely happens in practice however. Even if they are allowed to sue the homeowners, banks rarely go after a deficiency judgment. Just as the foreclosure victims are worried about how they would ever pay tens of thousands of dollars in judgments; the mortgage company is worried about how they would ever be able to collect it and how long the process would take.

However, there seems to be a change in the air toward the attitude toward those electing to use foreclosure as a way to insulate themselves from the forces of the market. While it has been the practice of banks to only go after those who had another home (second home or rental property) or other substantial assets, it appears that those to be pursued for deficiency judgments will be enlarged.

Fannie Mae says it will get tough on borrowers who engage in “strategic defaults,” or walk away from a home that’s worth less than what’s owed on the mortgage even when they can afford to keep making their payments. Next month, Fannie Mae says it will instruct its servicers to begin monitoring delinquent loans facing foreclosure and issuing recommendations for cases that warrant the pursuit of deficiency judgments.

For those that are determined to have chosen to default it will not only refuse to guarantee another loan for seven years; but, it will seek to recoup losses in court through deficiency judgments. There is, however, a carrot-and-stick aspect to the new policy. Troubled borrowers who work with their servicer on foreclosure alternatives such as loan modifications, short sales, or deeds in lieu of foreclosure can be eligible for a new loan in two to three years if they can show extenuating circumstances such as job loss, illness or divorce.

Under these new policy changes, borrowers may be eligible for a loan guaranteed by Fannie Mae within two years of a short sale or deed in lieu of foreclosure. Those who can demonstrate extenuating circumstances such as a job loss will be required to make down payments of at least 10 percent, and those who cannot must make 20 percent down payments.

Walking away from a mortgage is bad for borrowers and bad for communities, this new approach is meant to deter the disturbing trend toward strategic defaulting.

May the Market be with you.

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The Right of Redemption…

Posted on June 24, 2010 by admin

The Real Story…

News and commentary about the real estate market and related topics.
Dave Parrish, ABR ®, CRSA, CSP, GRI, ePRO ®, REALTOR ®, RealtySouth

The opinions expressed here are my own and don’t necessarily represent those of HomeServices South.

The Right of Redemption…

Redemption is a good thing! Right? Aren’t you glad to live in a state that believes in redemption and extending it as a right to its citizenry? Actually, I am very proud to live in one of the two states that provide the most extensive Right of Redemption policies in the USA. Yes, Alabama is number 1 in another positive category…

Alabama and Kansas provide a 12 month period for a homeowner to redeem their property following losing it in a foreclosure proceeding…the longest redemption periods in the nation. Next closest would be Michigan, Minnesota, Iowa and South Dakota each of which allow a six months Right of Redemption. Forty of the states provide no redemption period.

So what exactly is the Right of Redemption, how does it work and how does a home purchaser of a foreclosed property deal with it.

A right of redemption after foreclosure sale, allows the borrower who just lost their home at the foreclosure auction, the opportunity to buy it back from the bank (or winning bidder), usually at the same price as the highest bid at the trustee sale. This is allowed in some states and for a specific amount of time after the trustee/foreclosure sale (weeks to many months). This is a disadvantage for bidders and lenders, as property “improvement” costs will not be recouped if the previous homeowner exercises this right.

In Alabama the Right of Redemption process does provide some protections to the intermediate owner, that is the bank or winning bidder, and others who purchase the property prior to the Redemption period’s expiration. While improvement costs are not included in the amount the former homeowner must repay, repair costs are included plus an added fee equal to 12% per annum interest. In addition the previous homeowner must make whole all in the chain of possession to reinstate their position. This would include past due payments including interest, cost to foreclose and all associated fees incurred during the foreclosure process. Note these costs can be substantial.

All of this may be made more complicated by the fact that a homeowner may sell his redemption rights, say to an investor who chooses to redeem the property. Additionally, there may be factors which cause an extension to the Right of Redemption.

As you can see, the Right of Redemption is not a gift… simply an opportunity for the previous homeowner to make right a problem that they encountered. In practice, the Right of Redemption is rarely exercised… except in cases where the property has some sentimental value or the previous homeowner had a large equity position (one that exceeds the net costs to redeem). In today’s declining markets where many homeowners may owe more on their homes than the current market value, redemption makes no financial sense for many if not most experiencing foreclosure.

Not al distressed property sales include a Right of Redemption. When a homeowner does a deed-in-lieu of foreclosure, they relinquish Right of Redemption as there was no foreclosure. Likewise, the bank may do a cash-for-keys offer with the homeowner in which they would include the relinquishment of the redemption rights. Short sales, another alternative for troubled home owners, do not include the provision of a redemption period, as no foreclosure took place.

As to the home purchaser of a property with an unexpired Right of Redemption, it is important to remember that improvement costs are not covered in the monies reimbursed. For example replacing damaged kitchen counters would be covered so long as the replacement is typical for like properties in the neighborhood. Replacing laminate counter tops with granite could be considered an improvement, if granite/solid surface countertops are not “normal” in the neighborhood for similar properties. So be careful of those upgrades… only address the really needed repairs prior to the expiration of the redemption period.

As I mentioned last week, Fannie Mae just enacted new rules making properties with unexpired Rights of Redemption ineligible as properties with unacceptable title defects, which could be problematic. However, other financing options should be available.

In the past, Sellers have been quick to disclose that the Right of Redemption may apply to a property. Going forward, we could see a disclosure of the Right of Redemption period expiration date.

Now in closing, let me remind you: I am not an attorney and do not represent this description as a substitute for legal advice.

Until next week… May the market be with you.

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Foreclosures Revisited…

Posted on June 17, 2010 by admin

The Real Story…

News and commentary about the real estate market and related topics.
Dave Parrish, ABR ®, CRSA, CSP, GRI, ePRO ®, REALTOR ®, RealtySouth

Foreclosures Revisited…

I know you’re thinking: So what‘s left to say. True enough it is a topic that has had more than a little coverage and not without reason. Foreclosures seem to be one of the few growth industries in today’s market and they are here to stay for some time yet… Do any of us not know not just someone but multiple persons who have experienced the pain of foreclosure?

So what is left to say?

First of all… and I’ve already alluded to it: Foreclosures are here to stay… at least for the foreseeable future. While the most recent prognosticators (read “guessers”) predict little improvement before 2013, real improvement probably lies at a point well beyond that date. For you see the world has changed! The stigma which once surrounded foreclosure seems to have been erased.

Distressed home sales are on the rise again, accounting for an incredible  29% of all home sales – and the number is growing. Of all home sales in 2009, nearly 1 Million were classified as distressed, which includes bank owned (REO) sales and homes sold via a short sale.

While the primary causes of foreclosure will remain job losses and medical debt, we are now seeing the market affected by Strategic Foreclosures, which will probably continue long after jobs and medical debt issues have improved. So what is a Strategic Foreclosure? There are homeowners who, while they can pay their mortgage, can’t afford to sell their home, as they owe more on their home than it is worth in the current market… Rather than staying in that home, they are making a strategic decision to walk away, as a way (despite the damage to their credit score) to stop the loss and prepare to purchase in a market with much lower values. Currently, there are no effective methods of discouraging this practice. However, I do anticipate that the issue will be addressed at some point in the not too distant future.

My second point in this update is that the number of foreclosures and foreclosures in progress is greater than the number of REO (the term to describe properties following foreclosure… basically it means Bank Owned) properties being actively marketed. The difference between these two numbers is referred to as the foreclosure shadow market or more clearly that part of the foreclosure market that is invisible even though it exists. This is being caused by the fact that the financial institutions simply can’t handle the volume of foreclosures, or have made a strategic decision to either allow the homeowner to remain as a way to protect the property from further decline often associated with vacant properties or lastly to refrain from flooding the market with additional REO properties further driving down home prices and thus the value of these assets.

Third Point: The word seems to have gotten out to the buying public… You get what you pay for! Foreclosures are typically in very poor condition and while marketed at a depressed price will generally require a good sized investment of upfront cash and/or sweat equity to be of comparable condition to a properly priced re-sale property. The best deal isn’t necessarily the property with the lowest price… but the property that offers the best value and that fits the purchaser’s tolerance for pain.

At a time when foreclosures continue to mount, there’s less of an appetite to buy these distressed homes, according to a a recent survey of homebuyers by Harris Interactive showed that 47% of home buyers would consider buying a home in foreclosure as compared to 54% just a few months prior.

Fourth Point: Fannie Mae’s new rule announced and effective last week that it would no longer accept loans for properties with unexpired rights of redemption as such properties are deemed as having unacceptable title defects. While it is true that not all loans are Fannie Mae loans, Fannie Mae is seen as the maker of the secondary market in which loans are re-sold. Therefore it is reasonable to assume that other will follow suit. In Alabama, one of two states with a 12month standard right of redemption, the new rule will certainly favor investors who typically operate with private funds. Other investors operating outside of these guidelines may end-up charging a bit higher interest rate for properties with unexpired redemption periods. The jury is still out on this one.

Final Point: As always, I remind you that all Real Estate Markets are local. Check with a qualified Realtor® for detailed information about the situation in your target micro market.

May the market be with you.

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