FICOs and FHA: 2 Big Lenders Loosen Up

There is some good news for home buyers, especially first-timers according to Ken Harney of Inman News.  With no fanfare or public announcements, two of the largest FHA-approved lenders – Wells Fargo and Quicken Loans – have backed off their controversial "overlay" requirements on FICO scores (lender overlays are qualification requirements that can be more stringent than FHA's own requirements).

Both these large lenders confirmed last week that they will now lend to applicants with 580 FICOs and 3.5 percent down payments. These revised standards conform in most respects to FHA's own minimums, and open the agency's financing to large numbers of buyers whose credit scores have sagged during the recession.

Along with most other major lenders, both companies previously had insisted on minimum FICOs of 620 for otherwise qualified borrowers seeking 3.5 percent down payment loans. If your score came in even slightly lower, they wouldn't even look at your application. An estimated one third of Americans now have FICO scores below 620, according to one consumer group's estimate.

The lending industry's rationale for imposing a higher bar than FHA's own: They need an extra cushion of protection against potential defaults by borrowers with subpar credit scores. Many of those defaults, they said, could prompt indemnification demands by the Federal Housing Administration -- essentially punitive repayments for insured loans that go belly up. Similarly, FHA lenders want to avoid the costs of servicing nonperforming defaulted mortgages.

Wells' newly revised policy actually dips the FICO score cutoff line well below 580 -- all the way down to deep subprime 500 -- but also sets strict underwriting hoops and snares to weed out unqualified applicants. For example, borrowers with scores in the range of 500-579 will need a 10 percent down payment from their personal resources. They will not be able to use gift money from relatives, friends or a charitable down payment assistance program to meet the 10 percent upfront equity test.

Home buyers with scores of 580-599 will need 5 percent down payments, and will be prohibited from supplementing their own cash with gifts. Borrowers with FICOs above 600 will qualify for 3.5 percent down payment FHA deals, but will be allowed to use gift money.

Contributions from home sellers to defray buyers' closing or loan origination costs will be limited to 3 percent. Debt-to-income ratios will be tight: 31 percent for monthly housing-related expenses, and 43 percent for total household debt service.

If the mortgage industry adopts the Wells and Quicken guidelines in some form, tens of thousands of consumers -- along with the real estate professionals assisting them -- could be beneficiaries in the weeks immediately ahead.

International Buyers of US Real Estate On The Rise

Prior to the ongoing real estate crisis, the U.S. stock market was the primary investment vehicle for foreign investors. But thanks to record foreclosures, international buyers are increasingly attracted to American real estate. Several factors such as the economic recession, weakness of the dollar and the bountiful availability of real estate in choice markets are contributing to this phenomenon. Most foreign buyers believe purchasing a home in the U.S. is more affordable than in their home countries.

A survey conducted by NAR estimates that between April 1 2009 and March 31, 2010, $66 billion worth of residential properties, which is about seven percent of the residential market, were bought by foreign buyers, including those with residency outside the U.S. and workers with temporary visas.

Buyers from Canada, Mexico, the U.K. and China were the top 4 of the 55 countries. In 2010, foreign buyers purchased properties in 39 states. However, slightly over fifty three percent of the buyers are concentrated in Florida, California, Arizona and Texas. Florida and California have been the top two destinations since the past three years.

International buyers seem to have specific geographic preferences.  Florida typically attracts Canadian, European and South American buyers while the Europeans prefer the East Coast. The West Coast has been the favorite location for Asian buyers for many years and the Mexicans are drawn to the Southwest.

$247,100 was the median price paid by foreign buyers. For most buyers, the U.S. purchase was either an investment property or a second home. Sixty six percent purchased single family detached homes. International buyers purchased more condos than Americans and Florida was their top preference. Sixteen percent of the total international buyers purchased homes valued over S500,000. Interestingly, fifty five percent of international buyers bought properties by paying cash.

With the U.S. housing market continuing to be in a depressed state, 2011 will likely see more foreign buyers than 2010, especially from countries where the currency is stronger than the dollar. This could be the silver lining for America’s real estate industry in an otherwise gloomy outlook.

Florida’s existing home, condo sales up in January

ORLANDO, Fla. – Feb. 23, 2011 – Florida’s existing home and existing condo sales rose in January, according to the latest housing data released by Florida Realtors®. Existing home sales increased 14 percent last month with a total of 12,151 homes sold statewide compared to 10,702 homes sold in January 2010, according to Florida Realtors. January’s statewide sales of existing condos rose 36 percent compared to the previous year’s sales figure.

Seventeen of Florida’s metropolitan statistical areas (MSAs) reported increased existing home sales in January; 16 MSAs had higher condo sales.

“Now is a great time for anyone thinking of buying a home in Florida to make that decision,” said 2011 Florida Realtors® President Patricia Fitzgerald, manager/broker-associate with Illustrated Properties in Hobe Sound and Mariner Sands Country Club in Stuart. “Mortgage rates are historically low, although they are beginning to tick up slightly as the economy shows signs of strengthening. Conditions remain very favorable for buyers, with a range of housing inventory and attractive prices.

“Homebuyers soon will have the opportunity to visit a number of open houses in their preferred locales all in a single weekend, as part of the second annual Florida Open House Weekend, March 26-27, 2011! From the Keys to the Panhandle, Realtors across Florida are participating in this statewide open house event sponsored by Florida Realtors. Consult a local Realtor® about Florida Open House Weekend, and find out more about qualification criteria and opportunities in your local housing market.”

Florida’s median sales price for existing homes last month was $122,200; a year ago, it was $131,000 for a 7 percent decrease. Analysts with the National Association of Realtors (NAR) note that sales of foreclosures and other distressed properties continue to downwardly distort the median price because they generally sell at a discount relative to traditional homes. The median is the midpoint; half the homes sold for more, half for less.

The national median sales price for existing single-family homes in December 2010 was $169,300, down 0.2 percent from a year ago, according to NAR. In California, the statewide median resales price was $301,850 in December 2010; in Massachusetts, it was $285,950; in Maryland, it was $240,000; and in New York, it was $225,000.

According to NAR’s latest outlook, improving economic conditions and strong affordability are positive factors for the coming months. “Modest gains in the labor market and the improving economy are creating a more favorable backdrop for buyers, allowing them to take advantage of excellent housing affordability conditions,” said NAR Chief Economist Lawrence Yun. “Mortgage rates should rise only modestly in the months ahead, so we’ll continue to see a favorable environment for buyers with good credit.”

In Florida’s year-to-year comparison for condos, 6,681 units sold statewide last month compared to 4,916 units in January 2010 for an increase of 36 percent. The statewide existing condo median sales price last month was $79,400; in January 2010 it was $97,000 for an 18 percent decrease. The national median existing condo price was $165,000 in December 2010, according to NAR.

The interest rate for a 30-year fixed-rate mortgage averaged 4.76 percent in January, down from the 5.03 percent average during the same month a year earlier, according to Freddie Mac. Florida Realtors’ sales figures reflect closings, which typically occur 30 to 90 days after sales contracts are written.

© 2011 Florida Realtors®

NAR: Existing-home sales rise again in January

WASHINGTON – Feb. 23, 2011 – The uptrend in existing-home sales continues, with January sales rising for the third consecutive month. Sales numbers are now at a pace that is above year-ago levels, according to the National Association of Realtors®.

Existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, increased 2.7 percent to a seasonally adjusted annual rate of 5.36 million in January from a downwardly revised 5.22 million in December, and are 5.3 percent above the 5.09 million level in January 2010. This is the first time in seven months that sales activity was higher than a year earlier.

Lawrence Yun, NAR chief economist, said the improvement is good but could be better.

“The uptrend in home sales is consistent with improvements in the economy and jobs, which are helping boost consumer confidence,” Yun said. “The extremely favorable housing affordability conditions are a big factor, but buyers have been constrained by unnecessarily tight credit. As a result, there are abnormally high levels of all-cash purchases, along with rising investor activity.”

A parallel NAR practitioner survey shows first-time buyers purchased 29 percent of homes in January, down from 33 percent in December and 40 percent in January 2010 when an extended tax credit was in place. Investors accounted for 23 percent of purchases in January, up from 20 percent in December and 17 percent in January 2010; repeat buyers made the remaining purchases.

All-cash sales rose to 32 percent in January from 29 percent in December and 26 percent in January 2010.

“Increases in all-cash transactions, the investor market share and distressed home sales all go hand-in-hand. With tight credit standards, it’s not surprising to see so much activity where cash is king and investors are taking advantage of conditions to purchase undervalued homes,” Yun said.

All-cash purchases are at the highest level since NAR started measuring these purchases monthly in October 2008, when they accounted for 15 percent of the market. The average of all-cash deals was 20 percent in 2009, rising to 28 percent last year.

The national median existing-home price for all housing types was $158,800 in January, down 3.7 percent from January 2010. Distressed homes edged up to a 37 percent market share in January from 36 percent in December.

NAR President Ron Phipps said the median price is being dampened by unusual market factors. “Unprecedented levels of all-cash purchases, primarily of distressed homes sold at deep discounts, undoubtedly pulls the median price downward,” Phipps said. “Given the levels of inventory we see today, we believe that traditional homes in good condition have held their value.”

Total housing inventory at the end of January fell 5.1 percent to 3.38 million existing homes available for sale, which represents a 7.6-month supply at the current sales pace – down from an 8.2-month supply in December. The inventory supply is at the lowest level since December 2009.

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage rose to 4.76 percent in January from 4.71 percent in December; the rate was 5.03 percent in January 2010.

Single-family home sales rose 2.4 percent to a seasonally adjusted annual rate of 4.69 million in January from 4.58 million in December, and are 4.9 percent higher than the 4.47 million level in January 2010. The median existing single-family home price was $159,400 in January, down 2.7 percent from a year ago.

Existing condominium and co-op sales increased 4.7 percent to a seasonally adjusted annual rate of 670,000 in January from 640,000 in December, and are 7.9 percent above the 621,000-unit pace one year ago. The median existing condo price was $154,900 in January, which is 10.2 percent below January 2010.

Regionally, existing-home sales in the Northeast fell 4.6 percent to an annual pace of 830,000 in January from a spike in December and are 1.2 percent below January 2010. The median price in the Northeast was $236,500, which is 4.0 percent below a year ago.

Existing-home sales in the Midwest rose 1.8 percent in January to a level of 1.14 million and are 3.6 percent above a year ago. The median price in the Midwest was $126,300, which is 3.2 percent below January 2010.

In the South, existing-home sales increased 3.6 percent to an annual pace of 2.02 million in January and are 8.0 percent higher than January 2010. The median price in the South was $136,600, down 2.1 percent from a year ago.

Existing-home sales in the West rose 7.9 percent to an annual level of 1.37 million in January and are 7.0 percent above January 2010. The median price in the West was $193,200, down 5.7 percent from a year ago.

© 2011 Florida Realtors®

Foreclosures to Eclipse 2 Million This Year

            In case you missed the news the other day, Nobel Prize-winning economist Joseph Stiglitz dropped another bombshell on the nation’s real estate industry. He expects an additional 2 million foreclosures to hit the U.S. this year – adding to the whopping 7 million that have occurred since the economic crisis of 2008.

            “U.S Foreclosures are continuing apace,” Stiglitz told a packed news conference near Port Louis, the capital of Mauritius. “A quarter of U.S. homes are underwater.”

            Why the gloomy forecast? Because the number of U.S. homes worth less than their outstanding mortgage jumped in the fourth quarter as prices dipped and lenders seized fewer properties from delinquent borrowers.

            Currently 15.7 million homeowners had negative equity, also known as being underwater, at the end of 2010, according to Seattle-based Zillow Inc. That’s a 13 percent increase over the 13.9 million in the previous three months.

            That total represented 27 percent of the mortgaged single-family homes, the highest in Zillow data dating back to the first quarter of 2009.

            The news on the local front appears just as bleak.  The Orlando Sentinel reported in its February 12th edition that the number of foreclosed homes on, or about to hit Metro Orlando’s resale market has more than doubled in the past year – forcing down the prices of other houses that have already lost more than half of their value since before the recession.

            The four-county metro area of Orange, Seminole, Osceola and Lake counties had 13,712 bank-owned properties in January – up from 5,874 a year earlier, according to figures from California-based RealtyTrac. This has contributed to a record statewide glut of foreclosed properties that now stands at 104,759 and counting.

            “Americans today are worse off than they were 10 to 12 years ago,” Stiglitz said, adding that the U.S. faces “increasing inequality,” with the “upper 1 percent controlling 40 percent of wealth. Instead of trickling down, it has trickled up.”

            There are, however, some significant positives that have come to light.

First, foreclosures did slow down in the fourth quarter. Lenders, including Bank of America Corp. and Ally Financial Inc., halted many home seizures after accusations they used improper documentation and processes. Attorney generals in all 50 states are investigating.

But, more importantly, the wave of foreclosures, especially here in Central Florida, has created a tidal wave of opportunities for both homebuyers and investors alike.

Prospective buyers who previously were priced out of the housing market are using this opportunity and taking advantage of lower property values to purchase their first home and begin a new chapter toward their futures. Lower property values also have been a boon to investors who are adding to their real estate portfolios.

Take Larry and Janelda Minor, for example. They purchased a vacant eight-unit apartment complex in Kissimmee valued at $350K for just $200K. Within a few months all eight units were fully rented – a property lemon was turned into lemonade.

“Our experience with Rajia Ackley with Coldwell Banker Ackley Realty while purchasing the property was very positive,” the Minors said. “Our questions and concerns were answered quickly and completely throughout the entire process. We appreciate her guidance in helping us secure this commercial property during these trying times.”

Despite the gloomy real estate predictions of Joseph Stiglitz, et al, there’s still some happiness to be found. Just ask the Minors.

            We’ll keep you updated.

           

Why Home Ownership Matters

Homeownership has always been a bedrock of the American dream. But the ongoing economic storm and its unmitigated effects have radically changed how many people are perceiving it. In 2010, even the media jumped on the bandwagon and questioned if home ownership was good for America. Since the real estate crash, housing gurus have been saying that the new norm of the future is less home ownership and more people renting. Other analysts are claiming there is no financial benefit in the long run to home ownership based on recent market drops and skyrocketing foreclosures.

Buying a home is one of the largest financial decisions most potential homeowners will ever make, and in addition to individual financial situation, emotion plays a big role in the buying decision. So let’s attempt to answer the question “if home ownership still matters?”

The largest tangible benefit to homeownership is building equity in the home. This can happen over time with price appreciation. In the economics of homeownership price appreciation is the dominant determinant. For most homebuyers, purchasing a home is not a short-term investment. The second biggest financial advantage of homeownership is tax benefits, which includes the ability to deduct the annual interest paid on a mortgage from income. There are other secondary tax advantages such as property tax deduction, deductible home buying expenses, tax free capital gains, etc.

Homeownership also has other distinct advantages, many of which may be emotional and not necessarily tangible. For some, home ownership provides a sense of stability and financial security for their children, and for others, it gives them the opportunity to establish family traditions. Many studies have documented the positive impact of home ownership on children, which include better health, fewer behavioral problems, higher achievement in math and reading, lower school dropout rates and higher high school graduation rates. Although the association of these outcomes with home ownership is debatable, some research has shown that home ownership has a measurable effect on children’s success.

Housing is a key driver of the American economy. It accounts for more than 15% of the national Gross Domestic Product. The housing market needs to be strong and sturdy in order for the U.S. economy to recover and remain healthy over the long term. Home ownership is an integral component of the American way of life and it also helps shape the financial fabric of the nation. While the merits of home ownership continue to be actively debated on blogs and by industry experts, most Americans believe that home ownership is still relevant and shall continue to be the biggest component of the American dream.