Top 10 Reasons To Hire A Real Estate Agent

Strategic Defaults

 By   Kyle Herkenhoff  Researcher, UCLA Ziman Center for Real Estate
Were defaults driven purely by negative equity during the 2007-
2009 recession? Or were households defaulting because of
liquidity constraints (a lack of cash-on-hand) stemming from job
loss?
Even several years after the National Bureau of Economic
Research (NBER) marked the trough of the recession (June 2009), there is still considerable debate about
the causes of default. Using a new data supplement from the Panel Study of Income Dynamics (PSID), my
coauthors (Kris Gerardi, Lee Ohanian, and Paul Willen) and I found that job loss is the main “single trigger”
determinant of default.
These findings have important policy implications. They suggest that temporary mortgage modifications do not
provide a long-term solution to default. Rather, the key to stemming mortgage defaults is developing policies
that promote re-employment and higher earnings, such as payroll tax cuts.
More specifically, we found that job loss increases the probability of default between 5 to 13 percentage points.
Severe negative equity (-20% or more) also increases the probability of default by 5 to 18 percentage points.
But the impact of severe negative equity on default drops significantly in magnitude when liquid asset positions
are taken into account. Furthermore, we found evidence for the “double trigger” event of job loss and negative
equity, as well as job loss and severe negative equity. Specifically, we found that the joint occurrence of both
job loss and negative equity raises the unconditional default rate by 11.3% over and above either trigger on its
own.
A striking finding of the empirical analysis is on the frequency of strategic default, which is typically defined as
default by borrowers who have sufficient resources to make the mortgage payment. As a suggestive measure,
we looked at whether or not defaulting households with negative equity have enough liquid assets to make
their mortgage payment
We found that strategic default is rare in the PSID data. In particular, only 13.9 percent of defaulters in the
PSID had sufficient liquid assets to make a mortgage payment. We confirmed the rarity of strategic default
using data from the SCF which shows that only 6 percent of defaulters have sufficient liquid assets to make
one mortgage payment. These findings suggest that strategic default is not a major factor in understanding
recent mortgage default decisions, but rather that defaulters may have few options other than to default.

FHA Trims Waiting Period for Borrowers Who Experienced Foreclosure

The Federal Housing Administration (FHA) is allowing borrowers who went through a bankruptcy, foreclosure, deed-in-lieu, or short sale to reenter the market in as little as 12 months, according to a mortgage letter released Friday.

Borrowers who experienced a foreclosure must wait at least three years before getting a chance to get approved for an FHA loan, but with the new guideline, certain borrowers who lost their home as a result of an economic hardship may be considered even earlier.
For borrowers who went through a recession-related financial event, FHA stated it realizes “their credit histories may not fully reflect their true ability or propensity to repay a mortgage.”
In order to be eligible for the more lenient approval process, provided documents must show “certain credit impairments” were from loss of employment or loss of income that was beyond the borrower’s control. The lender also needs to verify the income loss was at least 20 percent for a period lasting for at least six months.
Additionally, borrowers must demonstrate they have fully recovered from the event that caused the hardship and complete housing counseling.
According to the letter, recovery from an economic event involves reestablishing “satisfactory credit” for at least 12 months. Criteria for satisfactory credit include 12 months of good payment history on payments such as a mortgage, rent, or credit account.
The new guidance is for case numbers assigned on or after August 15, 2013, and is effective through September 30, 2016.

Boomerang Homebuyers Get a Shorter Ride Home

HUD recently announced that people who lost their home through a foreclosure, short sale or bankruptcy, may be eligible to finance a home again in as little as 12 months. This is a reduction from the previously required minimum of 36 months from the date of the “most recent event.”

Released August 15, HUD provided guidelines under “Back to Work – Extenuating Circumstances” meant to ease the path for home ownership for many.

Boomerang  homebuyers, as they are now known, will need to document that the reason they were unable to make their payments was due to a specific Economic Event.  This impact of this event must have resulted in a decline in income of 20% or more for at least six months.

Some boomerang homebuyers who experienced a bankruptcy and simultaneous foreclosure have discovered that the two events may not be recorded at the same time. In cases where the property did not transfer back to the lender at the time of the bankruptcy, the period for the 36 month minimum waiting period as was required by HUD, did not start until the title transferred back to the lender.  In some states, the time for transfer could be months or even years after the discharge of the bankruptcy.

Extenuating Circumstances

Extenuating circumstances for the purpose of these guidelines are as follows. The borrower(s) must have experienced a decline in income of 20% or more for a period of at least six months. This could have been due to a job loss or a loss of income tied to earnings like commissions or other customary bonus or incentive income.

Demonstrated Cure

With any situation of extenuating circumstances, a boomerang homebuyer must be able to document that the event was isolated in nature and not likely to reoccur again in the future. The borrower must also be able to document that they have regained economic stability through timely payments for a minimum of 12 months.

The timely payment history will include rental/mortgage payments, installment payments, and/or revolving payments for the 12 months preceding the mortgage application. There also should not be any new collection accounts.

In addition to re-establishing acceptable credit, the borrower(s) will be required to complete Housing Counseling.

Eligibility Requirements for Documenting Loss of Income

In the event of a loss in employment, the lender will need to document the event by a written Verification of Employment evidencing the termination date, public information documenting the closure of the business if applicable and/or documentation of unemployment income.

The lender will also need to substantiate the loss of income through the verification of tax returns, W-2s and tax transcripts.

Important Definitions

HUD announced several key terms that must be reviewed in accordance with this program.

Economic Event: an occurrence beyond the borrowers control that resulted in a Loss of Employment, Loss of Income or a combination of both which resulted in a loss of Household Income of 20% or more for a period of six or more months.

Onset of Economic Event: the month of the start of or loss of income

Recovery from an Economic Event: the re-establishment of acceptable or satisfactory credit. Satisfactory Credit equates to no derogatory credit for any mortgaged or leased property in the 12 months preceding the mortgage application. This also includes any installment or revolving debt for the same period.

Borrower: “Borrower” includes all parties including primary and/or co-borrower as listed on the loan application.

Borrower Household Income: the income of all parties on the application or Household Members as listed from the previous Economic Event and derogatory credit.

Housing Counseling: Counseling from a HUD-approved housing counseling agency related to home ownership and meets acceptable requirements.

Other Requirements and Information

HUD establishes a base line for lenders to underwrite and approve mortgage applications. Some lenders may choose to require baseline standards that exceed the minimum guidelines listed here with regards to time from short sale, foreclosure or bankruptcy.

Lenders may also choose to enact additional overlays with requirements to evaluation acceptable credit regarding payment history, collection accounts and/or judgments.

In the event a prior defaulted mortgage was endorsed by FHA, the lender will need to request a waiver which may require additional time for processing. For anyone this pertains to, they would be wise to alert the new lender to this as soon as possible in the loan process.

Boomerang homebuyers whose prior hardship was economically driven should be excited by this announcement from HUD. For many, it is now recognized the worst is behind them and the time to buy a new home is here.

*Additional Resource: HUD Approved Housing Counseling Agencies

  The number of single people buying homes has dipped in the last few years, but single women remain better represented among buyers than single men. Today they are buying at roughly twice the rate.

  According to the National Association of Realtors, single women accounted for 16 percent of home buyers last year, lower than their long-term average of 20 percent. Yet they were still well ahead of single men, who accounted for only 9 percent.

Women began to outpace men in home-buying in the late 1990s, and although no one is really sure why men haven’t caught up, “it may be as simple as most guys don’t get serious about housing until they meet the right woman,” said Walter Molony, a spokesman for the association.

Demographic changes are helping to fuel the trend. More women than ever are the primary earners in their households, according to a recent Pew Research Center study.

In a record 40 percent of American households with children— nearly four times the level in 1960 — women are the breadwinners. And about two-thirds of these breadwinners are single.

“It really is a market that wasn’t there a couple of decades ago,” said Hale Walker, a founder of Michigan Mutual, a mortgage lender in Port Huron, Mich.

In Mr. Walker’s experience, single women are more proactive these days in planning for their financial future, and they often approach a home purchase as a smart addition to their portfolio. He categorizes them with engineers and schoolteachers as the type of client who tends to be focused and organized.

“They’re coming in with a good handle on what they’re trying to accomplish,” he said.

But then again, many single women who have never owned a home are intimidated by the process, said Jeanie Douthitt, an agent with Private Label Realty in the Dallas area.

She tries to ease these fears with a step-by-step program she created called Smart Women Buy Homes. The idea is to educate women new to the market, a group that includes single moms, divorcees, recent college graduates and older professionals who have never been married.

“Qualifying for a mortgage — that is probably the scariest part for single women,” Ms. Douthitt said. “Even if they’ve been married before and bought a home, they often aren’t knowledgeable about the process. They were just signing papers.”

Many are under the impression that they cannot possibly qualify for a loan unless they save enough cash for a 20 percent down payment, which is a particularly daunting prospect for women who have children to support. Instead, Ms. Douthitt said, “we put a lot of women into an F.H.A. loan,” which requires as little as 3.5 percent down.

Cara Hawkins, a production manager at Ameripro Funding who works closely with Ms. Douthitt, has found that single women are more interested than single men in fully understanding the process. For that reason, “they are more apt to reach out for help,” she said, “and if they have a good advocate on their side, they will move faster than men.”

In a 2006 study, the Joint Center for Housing Studies at Harvard calculated the value of home purchases by single women over a three-year period at $550 billion. Ms. Douthitt believes that market would swell considerably if more real estate professionals followed her lead.

“What most people don’t understand is that one out of every five homes being sold are being bought by single women,” Ms. Douthitt said.

“If more people were out there helping single women, that 20 percent would double, I promise you.”

A version of this article appeared in print on August 4, 2013, on page RE6 of the New York edition with the headline: Wh

                                                                                                                                       

Real Estate Prices Over 30 Years

A Few Comments on Rising Interest Rates

A Few Comments on the Impact of Rising Interest Rates

Posted: 14 Aug 2013 04:00 AM PDT

Here are a few interesting comments on how rising interest rates might impact the real estate market as we move forward.

Zillow

Dr. Svenja Gudell, Senior Economist
“As long as mortgage interest rates don’t rise too far and too fast, most markets should be able to absorb these changing dynamics while still remaining healthy.”

Fannie Mae

Doug Duncan, SVP and chief economist at Fannie Mae:
“Consumers have taken the interest rate rise in stride. Expectations for continued improvement in housing persist, and sentiment toward the current buying and selling environment is back on track from its dip last month. These results are consistent with our own analysis of previous housing cycles, which finds that interest rates and home prices are not strongly correlated.”

National Association of Realtors (NAR)

Lawrence Yun, Chief Economist:
“Affordability conditions remain favorable in most of the country, and we’re still dealing with a large pent-up demand. However, higher mortgage interest rates will bite into high-cost regions of California, Hawaii and the New York City metro area market.”

Trulia

Jed Kolko, Trulia’s Chief Economist:
“If you were worried about a housing bubble, July’s asking-price slowdown will probably be the best news you’ve heard this year. The asking home price slowdown in July could be the start of the return to normal price gains. The blazing fast price increases we’ve seen in recent months could not last, especially with rising mortgage rates, expanding inventory, and declining investor interest.”

Movoto

David Cross, Chief Writer
“Going forward, we expect prices to continue to move laterally on a month-over-month basis. Higher mortgage rates and increased inventory will keep prices from increasing at the same pace we saw in the first half of the year.”

Real Estate without Fannie and Freddie

Ending Freddie Mac and Fannie Mae will mean two things to the housing industry: higher rates and probably shorter mortgages. This will result in larger monthly mortgage payments.

Fannie Mae and Freddie Mac are government run agencies that have propped up a troubled real estate market over the last several years. The agencies always had a place within the mortgage sector but over the past several years have been involved in over 90% of new mortgage originations. As they wind down this involvement, the mortgage space may change dramatically.

David Stevens, CEO of the Mortgage Bankers Association and a former Obama administration housing official, in a recent AP article explains what will be the result of winding down Fannie and Freddie:

“You have to assume that almost in any future model being drafted, loans will be more expensive.”

This will be felt in two ways.

Higher Interest Rates

In the same AP article, Mark Zandi, chief economist at Moody’s Analytics, reveals:

“It will mean higher mortgage rates. The question is how much higher.”

According to Zandi, borrowers could pay about ½ point higher in interest rate ($75-$135 extra in interest payments per month to the average purchaser on a $200,000 loan).

Why a projected increase in rates? The average 30 year mortgage rate over the last three decades is 8.69%. From 2003-2008, it was 6.06%. Part of the government’s stimulus program was spent on keeping mortgage rates low while the economy recovered. Many think that rates will return to the 6-6.5 range should Fannie and Freddie cease operations.

Shorter Loan Terms

Once Freddie and Fannie no longer exist, the question becomes whether or not the private sector will any longer feel comfortable issuing a fixed rate loan for 30 years. In Canada, for example, they don’t even have 30 year fix rate mortgages available. The vast majority of Canadian home loans have a 25 year payout with the interest rate being renegotiated every five years. If rates go down, the borrower will wind up with a lower rate. If rates go up, the borrower ends up paying a higher rate. If you want a fixed rate mortgage for 25 years you pay a rate approximately two percentage points higher than the going rate at the time of your closing.

Some believe that the private sector will no longer make the 30 year mortgage option available for at least a portion of borrowers.

Bottom Line

It will be interesting to see how the winding down of the two agencies impacts the housing market going forward.

5 Reasons for Buying a Home

Moving Up? Do It Now!!

New reports are revealing that the number ofexisting home owners purchasing a house is beginning to increase. Some are moving up, some are downsizing and others are making a lateral move. Another study shows that over 75% of these buyers will, in fact, be in that first category: a move-up buyer. We want to address this group of buyers in today’s blog post.

There is no way for us to predict the future but we can look at what happened over the last year. Let’s look at buyers that considered moving up last year but decided to wait instead.

Assume they had a home worth $300,000 and were looking at a home for $400,000 (putting 10% down they would get a mortgage of $360,000). By waiting, their house appreciated by 12% over the last year (national average based on the Case Shiller Pricing Index). Their home would now be worth $308,000. But, the $400,000 home would now be worth $448,000 (requiring a mortgage of $403,200).

Here is a table showing what additional monthly cost would be incurred by waiting:

If your family sees yourself in this situation, it may make sense to move now than later. Prices are definitely appreciating and interest rates are beginning to rise.