South Orange County Blog from Bob Phillips

Tax credit deadline ignites buying frenzy

Posted in home affordability, Real estate, taxes by southorangecounty on May 2, 2010

April 30th, 2010, · posted by Jeff Collins of the Orange County Register
 

A lot of last-minute homebuying decisions were made Friday as buyers rushed to qualify for a federal tax credit that expired that day.

Buyers needed to have a signed contracts in hand to get a credit of $8,000 for first-time buyers and $6,500 for repeat buyers. They also must close escrow by June 30.

“I think there’s definitely some last-minute scurrying around,” said Tustin agent Charles Folcke. “I’m sure that if some offers are accepted (this weekend), agents are going to backdate it.”

“Lots of quick decisions (were) made this week from our fabulous last-minute type of folks,” added Huntington Beach agent Vivian Young. “I’ve been showing property for lots of clients the entire month to quickly get them under contract before the month ends.”

Broker Steve Thomas of Altera Real Estate reported that the number of deals signed increased 6.2 percent from two weeks ago and 10 percent over the past month.

“Buyers are pushing their way into escrow, but I think the momentum will carry even after the expiration,” Thomas said.

Coto de Caza agent Bob Phillips spent part of Friday dashing from Santa Ana to Capistrano Beach, then to a listing agent’s office to get a signed contract to an East Coast bank in time for its approval.

His clients got outbid Thursday, after offering $11,000 over the asking price on a bank-owned home. His cell phone rang at 6 a.m. Friday with news that the top bidder got cold feet and backed out.

He had to drive to both clients’ work places to get their signatures, then dash over to the listing agent’s office for the bank’s approval.

“I am now going to drive to Dana Point to open the escrow before they close at 5 p.m.,” he said Friday. “It has been an exciting day.”

Several agents noted that buyers stopped looking at homes listed as short sales, or selling below what’s owed the bank, since lenders typically are pokey in responding to offers.

Thomas and others predicted that the $200,000 set aside for the California tax credit likely will be exhausted in a month, rather than in the seven months allotted for it.

“There is still a lot of confusion about the California tax credit, which will last about a minute,” Thomas said. “The first 17,500 lucky first-time home buyers win and everybody else is going to be upset.”

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Debate Rages Over the Supply of Foreclosed Homes

Posted in Foreclosures, Real estate, Uncategorized by southorangecounty on April 29, 2010

Debate Rages Over the Supply of Foreclosed Homes

Why is there such a fierce debate about whether the housing market is slowly healing or heading for another free fall? Partly because no one can estimate with much confidence how many foreclosed homes banks need to sell or how fast they are getting rid of all that property.

A huge chunk of today’s housing supply comes from homes that have been acquired by banks or mortgage investors through foreclosure, plus those that are being offered by people who hope to avoid foreclosure by doing “short sales,” selling their homes for less than the mortgage balance due. The National Association of Realtors estimates that such “distressed” situations accounted for 35% of home sales in February and March.

The latest heroic attempt to tally how many foreclosed homes are available for sale comes from analysts at Barclays Capital in New York. They estimate that banks and mortgage investors including Fannie Mae and Freddie Mac owned 480,000 homes at the end of February. That’s far lower than previous estimates. Barclays explains that it has acquired more data on mortgages and refined its methods for analyzing foreclosure trends. Under the bank’s previous methods, the estimate for February would have been more than 600,000.

Estimating the inventory of foreclosed homes is tricky because thousands of banks and others that own the properties disclose those holdings in varying ways, if at all. RealtyTrac Inc., another data provider and one of the few other firms that regularly makes such calculations, estimates that banks and mortgage investors own 758,000 foreclosed homes.

So we have a pretty big gap. Is it 480,000 as Barclays thinks, or 758,000, as per RealtyTrac? Tom Lawler, an independent housing economist who tracks reams of housing data when he isn’t tending the livestock on his farm near Leesburg, Va., figures the total is more than 550,000 but probably less than the RealtyTrac estimate.

“What is truly disturbing,” Mr. Lawler wrote in his daily housing-market commentary Wednesday, “is that given all of the economic data the government tracks, the sector it appears to track the worst is…the housing market!  Why is it that the government has not deployed more resources to better track and report data on the housing inventory, households, home sales, home prices, and, of course, foreclosures and the number of homeowners who have lost their home to foreclosure?”

(That’s an especially good question given that the U.S. government has a bit of exposure to the housing market. Inside Mortgage Finance reports that mortgages backed by government-related entities – Fannie Mae, Freddie Mac, the FHA and the VA – accounted for more than 96% of home loans originated in the first quarter.)

Whatever the number of homes that banks, the federal agencies and private mortgage investors own now, it’s likely to increase. Barclays expects the inventory generally to rise over the next 20 months, peaking at 536,000 in January 2012, and then decline gradually.

To get a rough sense of how many more households will lose their homes to foreclosures or related actions, Barclays tallies what it calls a “shadow inventory,” consisting of homeowners 90 days or more overdue on mortgage payments or already in the foreclosure process. At the end of February, 4.6 million households were in that category.

Barclays expects 1.6 million “distressed sales” of homes – mainly foreclosures or short sales – both this year and in 2011, then a slight decline to 1.5 million in 2012. Last year, Barclays estimates, such sales totaled 1.5 million. Around 30% of all home sales this year and next will be foreclosure-related, forecasts Robert Tayon, a mortgage analyst at Barclays, who says that would be only about 6% in a normal housing market.

Barclays expects U.S. home prices on average to fall another 3% to 5% over the next couple of years, adding to a decline of about 30% already recorded since 2006. That forecast assumes a gradual improvement in the unemployment rate to 8% within the next two years from 9.7% in March. The home-price picture would worsen if job growth sputters or banks “push homes through the foreclosure pipeline faster than expected,” Mr. Tayon says.

Efforts to avert foreclosures by offering many borrowers lower payments have slowed the flow of homes into bank ownership. In some parts of the country, such as the Las Vegas area and Orange County, Calif., that has left bargain-hunters frustrated by what they see as a shortage of bank-owned properties in attractive neighborhoods.

In the Las Vegas area, foreclosed homes accounted for 56% of sales in March, down from 73% a year earlier, according to MDA DataQuick, a research firm.

This article appeared in the Wall Street Journal on April 28th, 2010, written by James R. Hagerty

http://blogs.wsj.com/developments/2010/04/28/debate-rages-over-supply-of-foreclosed-homes/

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How Iceland’s Volcanoes Are Helping Mortgage Rates Fall

Posted in home affordability, mortgage rates, Real estate, Refinances by southorangecounty on April 21, 2010

 

Mortgage rates react to natural disastersMortgage rates and home affordability have improved lately, thanks to an unlikely ally — Mother Nature.

In the 7 days since Iceland’s Eyjafjallajökull erupted, ash clouds have grounded planes, disrupted businesses, and stranded exports in warehouses worldwide.

It’s a drag on commerce that’s spilled over onto Wall Street. As experts debate the potential for future seismic activity, traders are taking some of their investment risk off the table. 

In trading circles, it’s called “safe haven buying”. When the market gets cloudy, investors often move their cash into relatively safe assets.  This includes government-backed securities — mortgage-bonds among them.

Demand for bonds rise, pushing up prices and driving down rates.

Conforming and FHA mortgage rates touched a 3-week low earlier this week.

Volcanic eruptions and like natural disasters remind us: mortgage rates change for all sorts of reasons. Some we can predict, most we cannot. There’s literally thousands of influences on the U.S. mortgage market.

If you’ve been shopping for a home or floating a mortgage rate, luck’s been on your side. Mortgage rates have fallen post-Eyjafjallajökull. However, as ash clouds dissipate and business resumes worldwide, investors will regain their collective appetite for risk and safe haven buying will reach its natural end.

When that happens, mortgage rates will rise.

Therefore, use the seismic uncertainty to your advantage.  Consider locking your mortgage rate sooner rather than later — while rates are still low.

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California homeowner defaults down 40%

Posted in Foreclosures, Real estate, short sales by southorangecounty on April 20, 2010

California homeowner defaults down 40%

April 20, 2010, by Jeff Collins, O. C. Register

More evidence surfaced today that home-loan defaults and foreclosures are receding from historic peaks seen a year ago. However, the pace of defaults and foreclosures remain high, especially in areas where lower-cost homes predominate.MDA DataQuick reported that lenders filed 81,054 notices of default in California during the first quarter of 2010, down 4.2% from the previous quarter and down 40.2% from the first quarter of 2009.

DataQuick’s analysis shows that the greatest year-over-year declines occurred in areas with cheaper homes, with smaller declines occurred in pricier areas.“We are seeing signs that the worst may be over in the hard-hit entry-level markets, while problems are slowly spreading to more expensive neighborhoods,” DataQuick President John Walsh said.

Notices of default are the first step in the process that can result in the sale of a home in a foreclosure auction.California foreclosures also declined during the first quarter, DataQuick reported. Homeowners in the state lost 42,857 homes at foreclosure sales. That was down 16.1% from the previous quarter and down 1.7% from the first quarter of 2009. DataQuick’s report showed also:

Area Q1-09 Q1-10 Chng
Los Angeles 27,981 15,797 -43.5%
Orange 8,427 5,270 -37.5%
San Diego 10,111 6,170 -39.0%
Riverside 16,906 8,474 -49.9%
San Bernardino 13,276 6,736 -49.3%
Ventura 2,648 1,643 -38.0%
Imperial 885 491 -44.5%
SoCal 80,234 44,581 -44.4%
Bay Area 19,438 13,517 -30.5%
Statewide* 135,431 81,054 -40.2%
  • Statewide, the default rate was 9.3 notices for every 1,000 homes. That compares to a default rate of 10.5 notices in ZIP codes with median home prices below $500,000 and 4.5 notices in ZIP codes with medians above $500,000.
  • Defaults fell nearly 43% from a year earlier in ZIP codes with median home prices of $500,000 and below. But they fell just 19% in ZIP codes above the $500,000 median level.
  • Southern California defaults fell 44.4% to 44,581 in the first quarter. They were down by nearly half in the Inland Empire.
  • Orange County defaults decreased 37.5% to 5,270 in the first quarter, the smallest percentage drop in Southern California. Foreclosures fell 7.5% in the first quarter to 1,985.
  • In the San Francisco Bay Area, defaults fell 30.5% to 13,517 in the first quarter.
  • Home loans were least likely to go into default in Marin, San Francisco and San Mateo counties. They were most likely to go into default in Merced, Stanislaus and San Joaquin counties.
  • California homeowners getting default notices were behind on house payments by a median rate of 5 months. The median amount left unpaid was $14,066.
  • Default rates were below 10% for the state’s most active lenders during the housing boom — Countrywide, World Savings, Washington Mutual, Wells Fargo and Bank of America. Those lenders, nonetheless originated the most loans that ended in default.
  • Default rates for subprime lenders exceeded 65%.

There also were signs that lenders were being more accommodating in seeking alternatives to foreclosure, either by modifying loans or by allowing the home to be sold for less than was owed on the mortgage. For example, the foreclosure process averaged 7.5 months in the first quarter, compared to 6.8 months a year earlier, DataQuick reported.

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Housing Starts Data Hints That Housing Will Expand Even After The Tax Credit Expires

Posted in home affordability, Real estate by southorangecounty on April 20, 2010

Housing Starts Apr 2008-Mar 2010After a strong March showing and a surprise upward-revision for February, Housing Starts are, once again, trending better.

It’s yet another signal that the housing market nationwide is stabilized.

A Housing Start is a new home on which construction has started and, over the last 6 months, home builders are averaging one half-million starts per month.

This marks the highest 6-month average since 2008 and a reading one-fifth percent better from 12 months ago.  Revisions to prior data have all been higher, too.

Even more interesting, though, is that the number of newly-issued building permits is exploding. Permits were up more than 5 percent last month and have climbed back to the levels of late-2008.

Housing permits are an important data point in housing because permits are precursors to actual housing starts.  According to the Census Bureau, 82% of homes start construction within 60 days of permit-issuance.

Therefore, because March’s housing permits increased, we should expect Housing Starts to continue to rise into the early months of summer.

This, too, reflects well on housing because the federal home buyer tax credit won’t be in existence this summer. The simple fact the homes are being built now shows that housing is likely to expand even after the tax credit expires.

Non-military members must be under contract by April 30, 2010 and closed by June 30, 2010 in order to claim up to $8,000 in federal tax credits. Of course, we Californians have a new $10,000 tax credit which begins on May 1st – until the alloted funds run out, anyway.

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It May Be A Good Time To Look At Adjustable Rate Mortgages

Posted in home affordability, mortgage rates, Real estate, Refinances by southorangecounty on April 19, 2010

Comparing the 30-year fixed to the 5-year ARM Apr 2009-Apr 2010

Each week, government-led Freddie Mac publishes a weekly mortgage rate survey based on data from 125 banks across the country.  According to this week’s results, the relative rate of a 5-year ARM is extremely low versus its 30-year fixed-rate cousin.

Consider this comparison:

  • In April 2009, the two products ran neck-and-neck with respect to rates
  • In April 2010, the two products are split by 0.99 percent

On a $200,000 home loan, that’s a difference of $117 per month to a mortgage payment.

Adjustable-rate mortgages aren’t suitable for everyone, but they can be a terrific fit given your individual circumstance.  For example, any one of the following scenarios could warrant a 5-year ARM:

  1. Buying a home with an intent to sell within 5 years
  2. Currently financed with a 30-year fixed mortgage with plans to sell within 5 years
  3. Interested in low payments and comfortable with longer-term interest rate and payment uncertainty

Additionally, homeowners with existing ARMs may want to refinance into a brand-new ARM, if only to extend the initial change date on the current note.

Before opting an ARM or a fixed, speak with your loan officer about how adjustable-rate mortgages work, and what longer-term risks may exist.  The savings may be tempting, but there’s more to consider than just the payment.

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What’s Ahead For Mortgage Rates This Week : April 19, 2010

Posted in home affordability, mortgage rates, Real estate, Refinances by southorangecounty on April 19, 2010

 

Existing Home Sales Feb 2008-Feb 2010Mortgage markets improved last week for the second week in a row.  And, also for the second week in a row, rates were down on “safe haven” buying — just not for the same safe haven reasons as before.

If you’ll remember, safe haven buying is when investors sense market risk, then move money toward less risky investments.

Well, because the U.S. government backs the bonds of Fannie Mae and Freddie Mac, mortgage bonds tend to fit the “less risky” description and as Iceland’s volcanoes shut down air traffic in Europe, mortgage bonds benefited.

That was early in the week.

Then, on Friday, when the SEC announced fraud charges against Goldman Sachs, a second wave of bond buying began as Wall Street fled the stock market. Mortgage rates fell a second time and the improvement carried through the market’s weekly close.

Conforming and FHA rates are as low as they’ve been since March.

This week, there’s not much data due until Thursday, but even Thursday’s releases won’t make a huge impact on rates.

  1. Initial Jobless Claims : Important vis-a-vis broader employment figures. A strong number could push rates up.
  2. Existing Home Sales : Housing remains a key part of the economy. Strong sales are expected because of the tax credit.
  3. Producer Price Index : A “Cost of Living” index of business. A weak reading is expected because inflation is low.

Then, Friday, New Home Sales is released.

The bigger risk to home buyers this week than data is the reversal of the safe haven buying patterns that have kept mortgage rates down over the past 10 days.  Keep an eye on the markets and your loan officer on speed dial.  Markets can — and do — change quickly. 

You’ll want to time your lock accordingly.

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Home Renovations That Increase Your Resale Value (2010 Edition)

Posted in home affordability, Home improvement, Real estate by southorangecounty on April 14, 2010

Not all home improvement projects are created equalNot all home improvements are created equal. Especially if you’re looking for “resale value” back from your work.

An article from the Wall Street Journal lays it out cleanly. Function beats flash these days so be wary of where you spend.

Environmental upgrades such as home insulation and energy-efficient steel entry doors are recovering a much greater percentage of their cost these days than major remodels including kitchens or bathrooms.  This is especially true for homes that are already “over-improved” relative to the neighborhood.

Upgrading the biggest and best homes on the block can be a losing proposition.

The article’s findings include data from groups such as the National Association of Home Builders, Remodeling Magazine, and Consumer Reports.  It lists the following home improvements among its top “paybacks”:

  • Steel entry door replacement : 129% cost recovery
  • Wood deck addition : 81% cost recovery
  • Vinyl-replacement window : 77% cost recovery

Energy-efficiency projects also recoup costs monthly in the form of lower heating and cooling bills.

Remodeling Magazine says a larger number of homeowners will remodel their homes in 2010 with less emphasis on upgrading kitchens and bathrooms, and more emphasis on adding new rooms.  From an appraisal perspective, this is a terrific way to increase your home’s value — especially if your home’s bed/bath count lags your neighbors.

Before starting a home improvement project, regardless of whether your goal is increase resale value, talk with a real estate agent about other homes in the area and how they’re built. At worst, you’ll gather some ideas you can work into your plan. At best, you’ll keep yourself from over-improving.

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Short Sales are Rapidly Becoming Both Easier and Faster

Posted in Real estate, short sales by southorangecounty on March 29, 2010

Short Sales are Rapidly Becoming Both Easier and Faster

NEW YORK (CNNMoney.com) — Short sales are the hottest thing going in the distressed-property market, and the trend is expected to get even hotter in coming weeks, when the government starts handing out cash to encourage lenders to close these deals.

“Banks have ramped up short sale approvals,” said Duane Legate of House Buyer Network, which connects short sellers with buyers. “They’re hiring a lot of the people who once worked in the mortgage-lending industry and moved them over to short sales.”

These transactions, where lenders allow homeowners to sell their houses for less than they owe, accounted for 17% of all residential real estate sales in February, up from nearly 13% in November, according to a monthly real estate market survey by Campbell/Inside Mortgage Finance.

And Bank of America, the country’s largest mortgage servicer, has more than doubled the number of short sales it processed in recent months.

Elizabeth Weintraub, a Sacramento, Calif.-area real estate agent who handles many short sales, was amazed at how quickly a recent deal went through. “Bank of America approved it in 24 days,” she said. “That flipped me out.”

This is a huge change from even just six months ago when the short-sale market was stalled and most people would describe the process has real estate hell. Because lenders stand to lose so much on these transactions, they have been reluctant to make short sales happen, often waiting months before getting back to potential buyers.

“In the past, many short sales would never come to fruition and the ones that did averaged over half a year to complete,” said Chris Saitta, CEO of Equator, which produces short sale software.

“Things would just fall into a black hole and not come out again,” added Weintraub.

And even when banks did agree to the sale, the process could be further complicated if the original owner had a second mortgage.

In most cases, the first lender is repaid in full before any money flows to a second-lein holder. And because most distressed borrowers are severely underwater, there’s usually nothing left to send on. As a result, second-lein holders are left holding the bag and have been killing many deals.

But that has been changing. For one thing, banks realize that they make out far better financially with a short sale than a foreclosure. “The lenders lose 50% on a foreclosure and only 30% on a short sale,” said Glenn Kelman, founder of the real estate Web site Redfin. “And short sales offer a way to get distressed properties off their books quickly.”

And on April 5, lenders and mortgage investors will have even more incentives to offer troubled borrowers short sales instead of foreclosing.

Under the new Home Affordable Foreclosure Alternatives program, borrowers will earn a $3,000 “relocation incentive” and servicers will get $1,500 for handling a short sale.

The investors who actually own the mortgage notes will get $2,000 in exchange for sharing proceeds of the short sales with any second-lien holders. And, finally, those second lien holders will receive up to $6,000 for releasing their claims.

Lenders participating in the program must also determine the market values of properties early on and inform the owners of just what price they’re willing to accept. Then, if owners come back to the lenders with bonafide offers, they have to be accepted within 10 days.

Equator’s Saiita anticipates a short sale explosion in response to the new program. “The challenge will be handling all the volume,” he said.

The company has already tweaked its software, which 58 servicers use, to handle the new HAFA rules. And that should help reduce the time it takes to execute a sale, which currently averages 88 days.

The boom in short sales may accelerate the end to the foreclosure crisis by cleaning out the overhang of borrowers in distress and replacing them with more stable homeowners.

Plus, these sales are better for distressed borrowers because their credit scores suffer less. Going through a foreclosure can knock 200 points off a FICO score, twice as much as the penalty for a short sale.

By Les Christie, staff writer,  March 29, 2010

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HOPE NOW Modifies Almost Twice as Many Mortgages as HAMP

Posted in Loan modifications, Real estate, Refinances by southorangecounty on March 18, 2010

Wednesday, March 17th, 2010, 9:51 am, from HousingWire.com

HOPE NOW, an alliance between mortgage service professionals and non-profit counselors, reported 99,499 modifications in January, compared to 50,364 new permanent modifications under the Home Affordable Modification Program (HAMP).

January HOPE NOW modification numbers dropped only slightly from 104,423 non-HAMP modifications in December, compared to roughly 35,000 permanent modifications under HAMP in that same month.

The US Treasury Department launched HAMP in March 2009 to provide incentives to servicers for the modification of loans on the verge of foreclosure. Through February 2010, the 113 participating servicers provided 170,000 permanent modifications.

HOPE NOW reported 74% of its January modifications involved interest and principal reductions, equaling more than 73,000 loans. According to the HOPE NOW statement, the fact that non-HAMP workouts outnumbered HAMP modifications two to one is proof that the industry is exploring a wide range of solutions to keep borrowers in their homes.

“While Treasury and other government sponsored programs have garnered much attention, much of the servicers’ hard work has gone unnoticed. Our new data set is proof that the industry continues to aggressively find solutions for borrowers facing default,” said Faith Schwartz, executive director of HOPE NOW.

Since 2008, 2,600,000 borrowers received modifications from the HOPE NOW alliance.( End of HousingWire.com article.)

Meanwhile, doom & gloom bubble bloggers continue to spew their misinformation that such programs are dismal failures. Perhaps if they brought their information up to date, they would gain a little credibility. They continue to spout figures from almost a year ago, when in fact, there were almost no loan modification programs at all, 12 months ago. Here’s a twist on an old saying: “If it sounds too negative to be possible, it probably isn’t – either true, or possible.

Both loan modifications and short sales are gaining more traction every day. In two and a half weeks, when HAFA hits the ground running, things will only get even better.

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