Arlington real estate blog

FHA to Allow First Time Buyers Credity Advance

2009-06-04T01:34:00Z

The first-time homebuyer tax credit just keeps getting better. The credit was increased to $8,000 this year and no longer has to be paid back.

Now HUD has said that it will allow the credit to be advanced to FHA purchasers for use toward a downpayment via a bridge loan from lenders and nonprofit organizations. Details are expected soon.

The credit is 10% of the cost of a home, so a house costing a little as $80,000 is enough to qualify for the full credit. The credit is refundable, which means that the government pays you the difference if your tax liability is less than your credit.

Because the credit is intended to encourage purchasers to stay for a while, it is recaptured if you sell the home or stop using it as your principal residence within three years of the date of purchase.

Also, there is an income limit above which you won’t qualify.

Ask your Realtor for detailed program rules and requirements.

Don’t wait, the credit won’t be available after November 30, 2009.

Borrowers with Second Liens May Get Help

2009-06-04T01:31:00Z

The Treasury Department has announced an expansion of its Making Home Affordable Program aimed at encouraging loan modifications for struggling homeowners with second liens.

The original version of the program did not address situations where homeowners had second liens, such as where a purchaser used a piggy-back second mortgage to reduce the need for a downpayment.

Second mortgages can create significant challenges in helping borrowers avoid foreclosure, even when a first lien is modified, Treasury found. Treasury estimates that up to 50% of at-risk mortgages have second liens.

By offering homeowners a way to lower payments on their second, Treasury said it may potentially reduce payments further for up to 1 to 1.5 million homeowners with second mortgages.

Under the new program for second liens, when a modification is initiated on a first lien, servicers participating in the second lien program will automatically reduce payments on the associated second lien according to a pre-set protocol.

Treasury will enter into agreements with second lien holders to reduce interest rates for five years to 1% on fully-amortizing second liens and 2% for interest-only seconds. Treasury will also pay second lien servicers for modifying a loan and a bonus for each year the homeowner stays current on the payments

As an alternative, servicers will have the option to extinguish the second lien in return for a lump sum payment under a pre-set formula determined by Treasury in cases where extinguishment is most appropriate.

Under the plan, whenever first mortgage holders cut a borrower’s principal balances by a percentage of the loan amount, second lien holders will be required to reduce balances owed by a similar percentage.

Stressed homeowners with second liens should call the servicer of the lien to see if help is available under the program.

Mid-Year Mortgage Overview

2009-06-04T01:24:00Z

I t might have better to have titled this article “Condos for Cash,” since it seems that all-cash might be the only guaranteed way to purchase a condo today. Simply put, if you are interested in buying a condominium in today’s market, be prepared to face some substantial financial hurdles.

Let’s define what a condominium really is. Most of us view a condo as an apartment-style unit that can be either in a high-rise or low-rise building that you can own rather than rent. Most condo units are like that.

However, the true, legal definition of a condominium is an “estate in real property consisting of an individual interest in an unit and an undivided common interest in the common areas of the project such as the land, parking areas, elevators, stairways, exterior structure, etc.”

This means that, while you own the inside of your property, you jointly own everything else with all the other owners of that condominium. This definition also can cover a single-family, detached home as well as a townhouse.

Part of the “bundle of rights” you have in a “fee simple” form of ownership (a fee simple estate is the most absolute form of ownership you can have and it’s the way most people take title to their homes) is the ownership of the land on which your home sits, as well as the air rights above your home. No one could build a bridge over your house or drill sideways from another property without your permission.

If any of the townhomes in your development are piggy-backed (i.e. one built on top of the other) chances are the entire development has to be sold in a condo form of ownership since land and air rights are in question.

In the case of single-family detached homes, you will often see a condo-style of ownership in retirement developments or gated communities where the Home Owners Association or Management Group is completely responsible for exterior and grounds maintenance.

The problem now lies with the speculative growth that took place during the last real estate boom. Apartment buildings were converted at an incredible rate to take advantage of the demand and sold at exorbitant prices.

When the market sagged, it affected developers who were building new units. Since a condo owner is also a joint owner of all the common areas, any sizeable drops in ownership due to people not going through with their contracts, being foreclosed on or sales coming to a halt affects the cash flow (since condo dues are not being paid) needed to pay the association’s bills.

As this economic stress began to impact condo communities, its effects have been disastrous for their financing. Almost all mortgage insurance companies are now refusing to insure any condo loans and Fannie Mae and Freddie Mac have tightened their rules considerably, making financing very hard to obtain.

So how can you buy a condo? First of all, all-cash transactions will always work and you can negotiate some incredible deals in today’s market due to the enormous supply and lack of buyers. However, this is generally a path reserved for well-heeled investors.

If, like most, you have to finance the purchase, here are your current options:

FHA—This is the only option if you have limited funds since FHA only requires a 3.5% downpayment. However, the condo project has to be FHA/VA approved and this approval list can change rapidly. The key requirement for FHA/VA approval is the size of the investor concentration in the project.

The higher the percentage of non-owner occupants (renters), the greater chance that the project is not approved or is in danger of losing its approval.

The reason the number changes is that in a slow market if you can’t sell the property you may have to rent it in order to stay current on your mortgage.

Conventional Financing—You will have to make at least a 20% downpayment and pay a premium (rates will be higher due to the perceived risk) in order to get the mortgage.

Fannie Mae also has rules regarding investor concentration. But Fannie Mae also monitors the type of development you are buying in (mixed–use projects that have a non-residential component are not eligible), seller concessions and the percentage of units already sold and settled.

A seller will have to provide an incredible amount of documentation to satisfy both Fannie Mae as well as the underwriter.

Developer/Seller Financing—Where one party is eager to sell, many options are always available. Developers may well be able to offer below-market financing from the bank that provided the construction loans. Here, everyone has an interest in making things work.

If you are thinking about buying a condo, extra due diligence is required, so you will need to:

• Find a Realtor who is knowledgeable about condos and who you can trust.

• Closely analyze the financials that must be provided to you before the contract can be ratified. Be especially careful if the development lacks adequate reserves for future maintenance (parking lots will have to be repaved), has a large number of delinquent condo dues payers or too many units on the market.

Today’s approved project may be tomorrow’s casualty.

• Don’t give up hope. Many good developments are being affected through no fault of their own. Bargains are there but will require some extra effort on your part.

• BE PATIENT. These purchases and loans will take longer.

New Appraisal Rules Not Without Flaws

2009-06-04T01:20:00Z

There’s a new sheriff in appraisal town and the name is HVCC. Not to be confused with HVAC (that’s your heating, ventilation and air conditioning system), HVCC stands for Home Valuation Code of Conduct.

The HVCC, which was implemented May 1 by Fannie Mae and Freddie Mac, was meant to make appraisals less susceptible to undue influence by loan officers, real estate agents and others, and thus more accurate and reliable. Whether the HVCC will, on balance, be a benefit to homebuyers remains to be seen.

Ironically, the genesis of the code of conduct was not HUD or Fannie Mae and Freddie Mac, but New York State Attorney General Andrew Cuomo. Cuomo settled a lawsuit against the two mortgage giants for faulty appraisals with their agreement to adopt the code.

However, all of the U.S., not just New York State will feel the effects of the settlement.

That the appraisal system will be different is certain and, in some respects, not in a good way. For one thing, it is making appraisals substantially more costly for consumers.

As with any big change, there are winners and losers. The clear winners are appraisal management companies (AMCs), because they are the easiest way for lenders to comply with HVCC rules requiring separation between loan production workers and risk management.

While the code allows lenders (but not mortgage brokers) to engage individual appraisal companies, many lenders are just farming out appraisals to the large national AMCs.

The certain losers, are independent appraisers, who can no longer count on the patronage of satisfied local lenders. Most will be forced to dance to the tune of the AMCs or starve. And they are being asked to work for less, even as the AMCs are charging borrowers more.

How about the consumer-borrowers the code was meant to protect? How do they fare? In one respect, cost, they are clear losers.

The AMCs are charging more per appraisal and adding extra charges. Plus, appraisals previously could be paid at settlement; now they must be paid up front on a credit or debit card. And should you change lenders before closing, you may have to pay for a new appraisal at additional cost.

FHA has not adopted the HVCC, so it is not requiring lenders to use the AMCs. Nevertheless, many FHA lenders are using AMCs anyway and charging even more for the privilege than for Fannie and Freddie loans!

Still, if the result ultimately is a more accurate appraisal, then the extra cost burden may make the change worthwhile for consumer-borrowers.

The problem is, independent appraisers argue, undue influence can be just as easily exerted by the AMCs as by any other group. And there is no guarantee that the appraisers willing to work for the AMCs lower rates will be as knowledgeable or skilled in the local market. We’ll just hope it works out.

FICO ’08 LAUNCHED

2009-02-28T23:32:00Z

Fair Isaac Corporation is finally rolling out the latest remake of its FICO credit score, which is the scoring standard for mortgage lenders.

Yes, it has taken until 2009 to get FICO ‘08 launched, and even now many consumers, potential homeborrowers in particular, may not be affected by it for some time.

For one thing, the three major credit reporting agencies are not all simultaneously jumping into the FICO ‘08 waters.

TransUnion will be first to adopt the new scoring regime. Equifax is expected to follow later this year. Experian, the last of the big three bureaus, is a whole different kettle of cod. More on that later.

Another thing is that, even though a reporting agency may be offering the new score profile, a lender can ask for a score based on the original FICO methodology and many will do just that.

A lender who has been happy with the results from using the old FICO or who have not fully tested the new version will likely stick with the original for some period of time.

Fair Isaac claims that this latest tweak of its FICO scoring model will bring a big improvement in the power to predict creditworthiness. It does this by adding new predictive variables and by dicing consumers into a greater number of risk profile groups.

The new generation of FICO should better address consumers who have “thin” credit histories (few credit accounts) and those with young files (few years of credit history), says Fair Isaac.

The new FICO score retains the same 300-850 scoring range, score reason codes, minimum scoring criteria, and treats creditor inquiries as in previous versions.

When first announced, FICO ‘08 was committed to ending a practice that enabled individuals added as authorized users of a credit card to get the benefits of the good credit history of the card holder, a practice called “piggybacking.”

Now Fair Isaac says that, rather than ending the practice outright, it will help lenders protect against authorized-user account piggybacking by incorporating new technology that it says will materially reduce the potential score impact associated with the abuse of authorized user accounts.

Will the new scoring approach be better or worse for consumers? Both. As they get shuffled into new risk profiles, some will surely see higher scores, while others will see lower ones.

Okay, so what is happening with Experian and your FICO score?

Right now, Fair Isaac and Experian are in a spitting match (technically, an antitrust lawsuit) and Experian’s latest move has been to deny Fair Isaac the ability to sell Experian-based FICO scores at myFICO.com. That has been the only place you could buy an Experian FICO score.

Oh, you can buy a credit score at Experian.com, but don’t be fooled; it won’t be a FICO score, so it won’t tell you what you need to know if you are in the market for a mortgage.

Since, at present, you can’t buy an Experian-fueled FICO score on your own anywhere, the only alternative is to ask your trusted mortgage specialist to run it for you.

Doing this will also allow you to find out whether improving your score will save you money or help you qualify for better mortgage programs. It also

may get a tip or two about ways to improve your score if you need to.

FIRST-TIME HOMEBUYER CREDIT EXPANDED

2009-02-28T23:28:00Z

The economic stimulus bill just signed into law contains two major items for 2009 homebuyers.

The measure increases the first-time homebuyer tax credit to $8,000 and does away with its onerous repayment requirement. It also reinstates the 2008 loan limits for FHA, Freddie Mac, and Fannie Mae loans, which were generally higher than the ones that have been in place for 2009.

For existing homeowners who have put off making energy-saving improvements, the time to act is now. The law has kicked up the 10% tax credit for certain energy-related expenditures to 30%!

First-Time Homebuyer Credit

With the repayment requirement now ditched, the first-time homebuyer credit deserves a fresh look by potential first-time buyers, many of whom were underwhelmed by the old credit with its 15-year payback.

The credit is 10% of the cost of a home, so a house costing $80,000 will be enough to qualify for the full credit. The credit is refundable, which means that the government will pay you the difference if your tax liability is less than your credit amount.

The credit is designed to encourage purchasers to stay for a while. If you sell the home or stop using it as your principal residence within three years of the date of purchase, the credit will be recaptured.

There is an income limit, above which you won’t qualify for the credit. You must have “modified” adjusted gross income (MAGI) of $150,000 or less if you are a couple filing a joint return, $75,000 or less if you’re single to get a full credit.

You can still get a partial credit up to $170,000 MAGI (joint) and $95,000 (single) based on where your income falls within the $20,000 phaseout range.

What constitutes a “first-time homebuyer?” It is a person who has not owned a principal residence in the three years prior to the date of purchase of the home for which the credit is being claimed.

If you are a first-time buyer who bought on or after January 1 of this year, you already qualify for the credit. If you haven’t bought yet, you have until December 1 (not Dec. 31!) 2009 to buy and get the credit.

Restoration of 2008 Loan Limits

The stimulus bill restores the emergency 2008 high-cost FHA and Fannie Mae/ Freddie Mac loan limits for the remainder of 2009.

Those limits were equal to the greater of 125% of the 2008 local area median home price or $271,050 for FHA and $417,000 for Fannie and Freddie, with an overall maximum cap of $729,750. For the few areas where the 2009 limits were higher, the higher limits will apply.

For communities with particularly high home prices, there may be some additional help from the new legislation. The bill permits HUD to increase the loan limit for a “sub-area,” i.e. an area smaller than a county. These exceptions would also be capped at $729,750.

THE SPRING 2009 MORTGAGE OVERVIEW

2009-02-28T23:23:00Z

Will the lower mortgage rates we have seen so far in 2009 help to lift the housing market this spring?

There have been several positive market developments recently, lower rates among them, but whether these positives finally have enough power to jump start buyers is the question of the season.

A little recent rate history is in order. In the wake of the Federal Reserve’s announcement late in 2008 that it would be buying over $500 billion in mortgage-backed securities this year, rates on 30-year fixed-rate conforming mortgages started falling.

And they fell and fell, every week for eleven straight weeks, finally hitting a low under 5% in mid-January, 4.92%. That was the lowest rate ever registered on Freddie Mac’s weekly mortgage rate survey, which began in 1971.

After touching those lows, rates shot up for a couple of weeks as nervousness about future inflation spooked the financial markets. More recently, rates have backed down again, averaging below 5 1/4% in mid-February.

Good as those rates sound, we think there is something you need to know about them: you may not qualify to get the very lowest rates.

If your credit score is too low, below 740 or so, depending on the lender, you won’t be eligible for the best rates. You can get a rough idea of how credit scores affect rates at myFICO.com.

The lowest rates are available for Fannie Mae and Freddie Mac conforming loans up to the regular $417,000 limit.

However, those seeking “jumbo conforming” loans above that, available for loans as high as $729,750 in high-cost housing markets, will have to pay more in points or the rate.

And jumbo loans that don’t have the blessing of Fannie Mae or Freddie Mac are still costing a percentage point and more in the rate. That is because lenders will probably have to hold these mortgages themselves for at least a while, since the market for non- Fannie and Freddie mortgage securities is still broken.

Disturbingly, we have heard stories that the rates promised on some internet web sites aren’t always finding their way to the settlement table, so make sure that you review your Good Faith Estimate of closing charges and any loan lock documents.

These issues aside, the sweet perfume of low rates in the air did manage to lure extra homebuyers into the market in December, normally the off-est of off-months for home sales. This could be good omen for spring sales.

While the low rates started attracting buyers, those rates really got mortgage lenders’ phones ringing for refinances.

Sadly, because of the higher credit standards and loan-to-value ratios that couldn’t be attained, many (maybe half or more) of those callers weren’t able to qualify for a refinance.

A particular problem has been appraisals. In some communities, foreclosures and distress sales are fouling the pool of comparable sales, resulting in disappointing appraisals.

As a general proposition, appraisers, who are now selected by the lender/investors, not local mortgage officers, are often going out of their way to come up with conservative appraisals.

While appraisers used to feel pressure to “make the number,” now they don’t really care if deals go through, so long as they are seen as protecting the lender.

Still, enough refi applicants did manage to qualify to overstuff the mortgage pipeline and it has caused the system to temporarily choke on the high volume. Because many mortgage lenders have reduced their staffs as business sagged, they struggled to cope with the latest refi wave.

If this situation persists, it may require borrowers to seek longer lock options to make sure they don’t suffer if loan processing takes longer than expected.

As for mortgage options, one thing is clear, the 30-year fixed-rate mortgage, at or close to historic lows, is such an astonishingly attractive option, that ARMs just aren’t in the ballpark

Should You Pay Down Your Mortgage

2009-02-28T23:19:00Z

In the old days (much of the last century), many people stayed in their homes for 30+ years, long enough to pay off their mortgages and live mortgage-free ever after.

In the more recent past, mortgages became transient instruments, remaining in existence barely longer than a subatomic particle, long enough only to get to the next cash-out or rate/term refinance.

Few people gave much thought to the contribution of principal payments toward increasing their equity when they were banking much greater equity gains through price appreciation.

It might be time to give a little more respect to the advantages of paid-in equity, not just required amortization payments, but optional payments of equity that reduce a mortgage balance.

One virtue of paying down your mortgage is that you are effectively guaranteeing a rate of return equal to the interest rate on the mortgage.

The recent chaos in the financial markets has many people too shell-shocked to do anything with their money except shove it under the mattress or put in government bonds.

We are sure that there are investments that will pay better returns in the next five years than paying down your mortgage. We just don’t know today exactly what those investments are.

For the highly risk-averse homeowner, paying down a mortgage will yield a return that is set (with a fixed-rate mortgage) or at least determinable in the short run (with an adjustable).

The age-old problem of paying in home equity, of course, is that money committed to equity has limited means of access. These days, those means—home equity credit and cash-out refinancings—have higher hurdles to clear.

So, if you anticipate needing cash for some purpose in the future, your home equity may not be there for you to easily lay your hands on.

As a consequence, you should make sure that you have adequate cash reserves and have paid off high-rate credit card debt before embarking on a program to pay down your mortgage.

If you decide to make extra payments toward principal, do review your mortgage documents to see what, if any limitations there might be. Most will allow extra periodic payments in sizable amounts, but be sure.

The current market situation has created two circumstances that might warrant special consideration of a mortgage paydown, either in the form of a lump sum or with periodic payments.

(1) You have the income and inclination to sell your current home and move up or away, but you are underwater on your mortgage (owe more than the house is worth).

(2) You would like to refinance, but don’t have sufficient equity for the programs that you are interested in.

By paying in equity, you will be able to achieve either of these objectives faster than if you simply wait for housing prices to begin rising again.

The Spring Housing Market Outlook

2009-02-28T23:06:00Z

The spring housing market is usually greeted with eagerness and enthusiasm by home sellers and buyers, Realtors and mortgage professionals. This year, though, it is being met with, well…hope. While there are still plenty of negatives, a sour economy and widespread job losses are at the top of the list, there are some distinct positives that have some industry experts seeing the storm clouds clearing later this year.

To start with, first-time homebuyers have every reason to step up in 2009, thanks to a more attractive federal tax credit. The economic stimulus bill boosted the first-time buyer credit to $8,000 and removed the unpopular payback requirement (see page 4 for details). Of course, we would like to have seen a broader and bigger credit. The homebuilders had pushed a visionary (some might say “hallucinatory”) proposal for a $22,500 tax credit available to all homebuyers. No deal. Still, the improved first-timers credit should lend added support to what has been one of the bright spots in the market.

A plan announced by the White House to stem foreclosures, full details of which were expected to be available March 4, should help stabilize the housing market if it succeeds by markedly reducing inventories and sales of distressed properties.

In some communities, foreclosures have constituted the bulk of the homes on the market. Most homeowners in these neighborhoods who have been paying their mortgages are unable to sell if they wanted to without having to bring cash to the table, so they haven’t. Once foreclosures are swept from those areas, prices should stop falling, as considerably fewer homes will be available.

Historically low mortgage rates, at or below 5%, even if they aren’t available to all-comers (see Page 4), are a cornerstone for the foundation of an improved housing market. Even those who don’t qualify for the very best rates will usually find better rates than they would have six or twelve months ago.

With Fannie Mae and Freddie Mac playing an even more essential role in the mortgage market these days, the Treasury recently upped its backing for Fannie and Freddie.

That move was intended to assure purchasers that Fannie and Freddie securities are still safe to buy, enabling the two mortgage giants to keep loan funds flowing.

The combination of low mortgage rates and falling home prices has sent affordability measures soaring.

The National Association of Realtors’ Housing Affordability index recently stood at the highest reading on record. The NAR index, started in 1970, rose to 158.7 in December. The index tracks the relationship among home prices, mortgage rates and household incomes.

New home starts have continued to sag, falling to 50-year record low levels in January. Good. We can’t expect to work down the inventory of existing homes if homebuilders keep adding to the overall supply of houses, so that is another positive for the market, if not for the builders.

Falling prices are starting to bring in buyers. It is a real estate truism that location is the key to the attractiveness of a home. This is true on a regional, state, metropolitan area or community level. Some markets that have seen big price declines and sagging sales and foreclosures have seen increases in sales volume.

Home sales posted the largest monthly gain since 2002 in December, as calmer conditions started to bring buyers out of their bomb shelters following a tumultuous October and November in the financial markets.

What was really promising is that a greater number of sales contracts were signed in December 2008 than in December 2007. If we start seeing regular year-over-year improvements, that would be huge.

In the third quarter, homes in California sold at the fastest rate since 2006. Arizona and Nevada saw similar bounces. Virginia and Florida registered improving sales figures as well. The reason? Prices have fallen to levels that buyers are finding irresistible.

And within regions that may not have seen a overall rebound yet, individual neighborhoods are stabilizing and sales picking up. Consult with your Realtor to learn the current market conditions where you have an interest.

Ultimately, the unleashing of pent-up demand (a number of housing experts are certain it exists) amid the lure of attractive prices and mortgage rates are the elixer that will cure our housing ills.

Outlook for Spring

2009-02-28T23:06:00Z

With Fannie Mae and Freddie Mac playing an even more essential role in the mortgage market these days, the Treasury recently upped its backing for Fannie and Freddie.

That move was intended to assure purchasers that Fannie and Freddie securities are still safe to buy, enabling the two mortgage giants to keep loan funds flowing.

The combination of low mortgage rates and falling home prices has sent affordability measures soaring.

What was really promising is that a greater number of sales contracts were signed in December 2008 than in December 2007. If we start seeing regular year-over-year improvements, that would be huge.

Look For New Mortgage Disclosure Rollout

2009-01-06T17:02:00Z

H omebuyers will soon have improved mortgage disclosures to help with their decision-making, the result of Real Estate Settlement Procedures Act rules finalized by the Department of Housing and Urban Development in November.

Although the new disclosures are not required until January 2010, we would expect to see lenders start rolling out the new procedures in 2009, both to make sure they are in place and functioning effectively before the due date and to demonstrate they are consumer-friendly.

Under the new RESPA rules, there will be a standardized good faith estimate intended to enable borrowers to more easily review and compare mortgage rates and settlement charges.

The three-page GFE form will consolidate closing costs into major categories and display total estimated charges on the front, so a borrower can easily compare loan offers. HUD will specify which closing costs can and cannot change at settlement and limit the amount fees can change.

A revised HUD-1 settlement statement, which borrowers receive at closing, would cross-reference the line on the GFE to make it easy to compare estimated and actual charges. HUD estimates that the new process will save the average borrower $700 on closing costs.

Lenders would have three days after receiving all the relevant information to provide a mortgage shopper with the GFE. However, the lender would have to wait for a go-ahead from the potential borrower to verify the information provided in order to give the borrower the opportunity to shop for other offers, if so desired.

To view the new GFE and HUD-1 forms, go to HUD.gov/news and look for news release 08-175.

The Housing Watch List for 2009

2009-01-06T16:56:00Z

T here are a few trends/issues to which we think you should pay particular attention this year.

Builders require extra due diligence. In November, homebuilders started the fewest number of new homes since 1959. That’s tough for builders, but good for the housing market as a whole.

We need builders to stop building homes on spec, i.e., homes without a contracted buyer. Mostly they have. Its hard to shrink inventories if builders are adding unsold homes to the supply.

Builders are still having cancellations and these homes, with construction already underway, can be great opportunities. Builders are still offering a host of incentives. How about funding your downpayment on layaway, through deposits to an escrow account?

However, builders need to be approached with great caution. So far, the big national builders have all avoided bankruptcy. So far. The smaller ones are another matter.

Be sure to check out the financial health of any builder, especially small and regional builders, before relinquishing a big deposit check.

Some publicly traded builders have substantial cash reserves on their balance sheets and should be worthy of your trust. Others with shakier financials need to be vetted like a cabinet nominee before making a commitment.

It’s a great time to “go green.” Energy prices have fallen off a cliff, so it’s the perfect time to go green. That’s because contractors for solar energy systems will see demand temporarily slacken as the economy weakens and energy prices sag. It is actually a great time for any remodeling or rehab project.

With an expanded tax credit of 30% of the cost (and there is no longer a credit cap), demand for solar systems should soar if/once energy costs do, so acting now should get faster action and maybe a discount. Some states and electric utilities are offering their own incentives, as well.

If you don’t want or can’t afford to make a big money commitment, small scale energy tunes, such as efficient appliances, windows, etc. will contribute to lower carbon emissions and pay off big time when energy costs rise again.

Even historic homes can benefit from a number of low-tech tweaks.

Most of these items can be purchased “on sale” these days and will start saving money immediately.

No fibbing about your income. In the past, mortgage lenders asked for the right to get copies of your tax returns, requiring that you fill out an IRS Form 4506-T at closing. But they checked them only rarely, on a spot basis.

No rolling the dice with that, anymore, though. Most lenders are processing the return request as a matter of course, so fibbers will be found out, and face the consequences.

Approach condos with caution. Condos were in the midst of a renaissance just a few years ago. They have been popular choices for many first-time homebuyers, empty nesters and those generally seeking amenities and convenience without maintenance responsibilities.

That popularity was their downfall. Developers rushed to build new condos or convert apartments to condo owner-ship. Just in time for the housing market nose-dive. It doesn’t take very many mega-projects to create a glut and that is what we have in many areas.

While a glut should mean low prices and opportunities for buyers, and that is the case, it has also caused strains on condo association finances. Unsold units in new projects and foreclosures or delinquent association fees can cripple association budgets.

That is why a close examination of a condominium association’s finances are a must for condo buyers before making a final commitment to purchase. Many states require disclosures before contracts become final. Don’t take that opportunity lightly.

Oh, in a double whammy for condominiums, lenders and mortgage insurers have significantly toughened their requirements for condo purchases.

Be nice to your real estate professionals. It’s been a run of difficult years in the real estate market, weeding out many marginal participants. So most of the professionals who remain, both Realtors and mortgage specialists, are the serious, committed survivors.

Real estate agents these days often go beyond the call of duty to help out their homesellers. That has sometimes emboldened sellers to exploit their agent’s good nature by asking them to perform tasks waaay outside the bounds of a normal professional relationship.

Similarly, mortgage specialists who help potential borrowers clean their credit, restructure their balance sheets and develop a mortgage plan have too often have found themselves “shopped” to another lender (who may or may not deliver what they promise) for a few dollars in savings.

All we ask is that you extend to your professionals the same degree of respect, faithfulness and commitment that you would expect from them and that their code of conduct demands.

The 2009 Mortgage Landscape

2009-01-06T16:50:00Z

M ost prospective mortgage shoppers should be aware by now that mortgages are tougher to get. “Stringent” is the word we keep hearing used to describe the tests for borrowers these days. That’s putting it mildly!

The traditional touchstones of risk avoidance—solid credit scores, sizable down payments, documented income, sensible debt-to-income ratios and adequate reserves—are not just back in vogue, they are being judged with an even more critical eye.

Just when you would seem to have cleared the bar for the vanilla mortgage programs at Fannie Mae and Freddie Mac, which have definitive standards, some lenders are imposing even tougher ones. Finally, when you do clear all the hurdles, you will have to pay higher fees. In most cases, you should probably count yourself fortunate to have that opportunity; many won’t.

As for those exotic loan products, such as 100% financing programs and no- or low-documentation loans, they are now gone entirely, extremely limited or exceptionally costly.

And the risky mortgage products that married low teaser rates with so-so credit scores have vanished, along with many of the lenders who offered them.

But piercing the gloom of the mortgage market, there are some bright rays of sunshine: dramatically falling mortgage rates.

Mortgage rates began their recent plunge in late November after the Federal Reserve announced that it would be buying a ton of Fannie Mae, Freddie Mac mortgage paper. Rates started falling immediately, even though the Fed program won’t start until February 2009.

When rates dropped below 6% for 30-year conforming fixed-rate mortgages, that got the attention of refinancers, who stormed mortgage lenders to board the low-rate express. Potential homebuyers have started to pay attention, too.

Rates have continued to drop since, to just above 5% in mid-December. And the Treasury Department is reported to be weighing a program to facilitate mortgages as low as 4 1/2% for purchases (but not refinances, it is said).

The conforming limit is the basic maximum for Fannie Mae and Freddie Mac loans across the country. Along with FHA, that is where the money is these days. For 2009, the conforming limit is $417,000, the same as it has been since 2006, but in high cost areas it is 115% of the median home price, to a maximum of $625,500. That’s a reduction from the temporary limits in effect in 2008, 125% of the median, up to $729,750.

Need a mortgage higher than the conforming limit? You are now in jumbo no man’s land, territory where many lenders fear to tread.

Jumbo loans can’t be sold to Fannie or Freddie. Lenders used to be able to securitize them to sell to investors. That is now difficult, if not impossible, so the lender has to keep them in their portfolio and assume all the risk.

As a result, lenders are asking markups of 1 to 1 1/2% above conforming rates and imposing standards so strict a stoic would beg for mercy.

Need a low-downpayment loan? A popular option ( 3 1/2% down required) is FHA. The 2009 base FHA loan limit is $271,050, but in higher cost areas it is 115% of the local area median home price, up to a maximum of $625,500.

As with conforming loans, this is a reduction from the 2008 max of $729,750.

Need 100% financing? Hope you’re a veteran. A veteran with full eligibility can purchase a home costing up to $417,000 anywhere in the U.S without a downpayment. The VA does this by guaranteeing 25% of the loan amount.

VA loans are now available without a downpayment for loan amounts up to 125% of the median price for a single-family residence in a county. That means no-downpayment loans of up to $1,094,625 in the very highest cost areas.

It is important to understand that, while mortgage qualification requirements are stricter these days, if you meet those requirements, you will be very popular with lenders.

Lenders can’t make money by denying credit willy-nilly; they are just hyper cautious. So when a lender sees a potential solid citizen, they will often go out of their way to court your business.

Loan Modification Dilemma

2009-01-06T16:43:00Z

Homeowners who have fallen behind on their mortgage payments or who are poised to do so in 2009 will find that mortgage lenders are more willing to try to keep them in their homes and avoid foreclosure than in previous years. Lenders have learned a lot, but maybe not enough.

Major loan modification initiatives are underway at a number of the country’s biggest lenders: Bank of America (and its Countrywide Financial unit), Citigroup and J.P. Morgan Chase, to name just a few prominent ones.

The FDIC, in its role as receiver of IndyMac Federal Bank, is vigorously and notoriously modifying mortgages of faltering borrowers in what they view as a lab experiment in avoiding foreclosures.

And there are programs at Fannie Mae, Freddie Mac, FHA and VA to help troubled borrowers.

One thing is true of all these efforts. If a troubled homeowner doesn’t seek out assistance from their lender or respond to them when they take the initiative in seeking out the homeowner, there isn’t much they can do to help! Generally, the point of contact is the loan servicer’s loss mitigation department.

Unfortunately, borrowers whose loans have been securitized and are owned by investors may not be eligible for a modification if the investor is maintaining a hard line about such programs, so help won’t be available.

While lenders have varying approaches to modifying loans, some of the options being employed include: freezing or lowering the mortgage interest rate; extending the term of the loan from to 40 or even 50 years; recalculating the monthly payment based on a lower principal amount (without actually lowering the principal balance) and cutting the loan balance.

Unfortunately, it has been found that many recipients of modifications, maybe 50%, redefault (fall behind) on their mortgage payments again within six months. Some of the redefaults are due to deteriorating incomes, while others are a result of modifications that didn’t reduce mortgage payments enough. The FDIC’s aggressive program reworks mortgages so they don’t exceed 31% to 38% of monthly income.

If you engage in talks with your lender about a modification, it is important to try to negotiate a restructured mortgage payment that will work for you long term.

2009 Housing Market Preview

2009-01-06T16:21:00Z

Will 2009 be the year that we finally see an end to the slide in home prices and the start of a rebound? Some market watchers think so. Of course, recent spells of optimism about the housing market have proven premature and that could be the case again. Still, there will be an upturn in housing eventually and there is an argument being made that this will be that year.

While the housing market may be suffering a sales slump, it is enjoying an affordability boom. Some markets that have seen big price declines have been bouncing back in terms of sales volume. Many of the purchasers are savvy investors and first-time buyers seizing what some have called a “once-in-a lifetime” opportunity, as low mortgage rates and even lower prices converge. As a result, in many markets, the previously unaffordable is now within reach.

As we move into 2009, we expect to see economic policymakers launching a reinvigorated attack to stabilize home prices and stimulate sales. Most of the focus until now has been on shoring up financial institutions and reworking troubled mortgages for beleaguered borrowers. The former effort has arguably been successful to this point, the latter less so. Neither has kept sales from slumping and prices falling further, though.

While these were efforts to treat the symptoms of a sick market for houses, we think there will be new efforts to address at least one aspect of the disease itself: swollen inventories of homes and large numbers of distress sales that have undercut home values in many communities. Another component of the disease, tighter standards for getting a mortgage will be harder to treat.

Really, really low mortgage rates, historically low rates in fact, could be the irresistible force needed to get more potential buyers off their sofas and out viewing the homes they have been waiting for and the confidence and motivation to buy, thus lifting sales.

The lure of low mortgage rates started to be dangled in November when the Federal Reserve announced that it would be buying mortgage securities from Fannie Mae, Freddie Mac and others.

Mortgage rates almost immediately dropped below 6% for the first time since May and were headed in the direction of 5% by mid-December, their lows for the year.

Even better, Treasury has reportedly been mulling a plan to make mortgages available for as little as 4 1/2% (for purchases only), which would be 50-year plus lows.

Some expect mortgage rates to go lower, even if Treasury doesn’t act. Bond guru Bill Gross of Pimco, among others, has predicted that mortgage rates could drop to 4 1/2% this year.

Low mortgage rates not withstanding, though, it will be hard for potential homebuyers to justify thinking about purchasing a home if the economy looks a if it is in a protracted downturn.

Everyone agrees the economy is headed down, extending a recession that was said to have started in December 2007, but how far down and for how long are the unknowns.

The performance of the stock market is widely recognized as an important “tell” of the nation’s economic hand, usually turning higher months before the end of an economic downturn. So the rally in late November through mid- December sparked hope among the optimists that it foretold a late 2009 upswing.

Of course, another financial or economic shoe (it sometimes seems that we are dealing with a milleped!) could drop causing the rally to still fizzle (January is frequently a problem), but there will be relief if it doesn’t resume the seemingly relentless plunge of much of 2008.

But the economy as a whole doesn’t have to be in full recovery mode for the housing market to improve. The dive in home sales and prices led the economy down. The confidence boost from stable prices and improved sales can help lead the economy back up.

That is why economic policymakers are going to try to ramp up home sales and staunch further price declines.

What more might they do?

First, policymakers likely will act anew to stem the tide of foreclosures.

The attack on foreclosures so far has been piecemeal. A more coordinated, sweeping approach is expected from the new administration.

Second, they will probably take more aggressive steps to stimulate home sales.

The National Associations of Realtors and Home Builders have urged increasing the $7,500 tax credit, making it apply to all buyers, not just first-time buyers, and/or doing away with the payback. Such proposals will get a close look.

The plunge in mortgage rates can be a big, big help. Some economists have said that home prices may need to fall another 10-20% to bring them to a level where they will be affordable and appealing widely to potential buyers.

But it is affordability, not necessarily price alone, that is the key here.

What would be the impact of 4 1/2% mortgages on affordability? Mortgages at that level would constitute a 19% increase in affordability compared with the 6.46% rate that was the norm as recently as late October. This would bring about a major boost in affordability without prices having to fall any further.