IS THE HOUSING MARKET ARTIFICIALLY INFLATED BECAUSE OF INVESTORS?

IS THE HOUSING MARKET ARTIFICIALLY INFLATED BECAUSE OF INVESTORS?

The real estate industry has been one of the strongest driving forces behind the economy recently.  Home values, home sales, and new developments have drastically increased in the last 12 months.  We have all seen consumers getting back into the mix.  The most visible types of buyers you likely know yourself: boomerang buyers–buyers that lost or walked away from a home during the bust, are now looking to buy again. Consumer level investors–those with an eye to get into the rental market as landlords are also looking towards real estate to generate passive income. And Generation Y; first-time home-buyers, trying to live out the American dream.  However, how many new homes purchase are these three demographics really accounting for?

The Washington Times writes: “The recovery in housing prices seems to be disconnected from traditional economic drivers,” said Christopher Whalen, managing director at Carrington Investment Services, who estimates that about one-third of Americans who would have qualified for mortgages in 2006 can’t get them today. People of ordinary means, unlike investors, can’t buy homes without credit because they hardly have the cash for down payments much less the entire costs of the properties. The truth is, housing activity has been pushed by large investors looking to buy and hold, taking advantage of the high rental rates and large numbers of Americans that cannot qualify to purchase their own homes.

My take on the current market isn’t too complicated: The Fed is trying to hold rates down and make it appealing for borrower to get affordable housing, but much of the market is still suffering from the bust. For those that can buy, there is no way to compete with cash offers without simply outbidding them. This leaves the majority of home sales to the large investors. Firms that are investing millions or billions of dollars into single-family homes. Investors can then turn around and watch these homes rent out while housing values go up and all of their assets appreciate. The business plan seems brilliant if you have the money, the loser here is the average everyday home-buyer trying to compete with the bigger players. What are your thoughts?

Mortgage Rates Plummet

MORTGAGE RATES HAVE THEIR BEST WEEK OF GAINS SINCE JUNE

Bad employment data, a lack of new job production, European economic uncertainty and geopolitical crises–such as North Korea and Cyprus; caused rates to tumble this week. Great news for everybody in real estate! Those of us in the mortgage industry want rates to stay as low as possible, for a long as possible. Hopefully they will continue to get better! The more people who can get into homes at an affordable cost, the quicker we will recovery economically. This week’s change was the largest drop since June 2012, at which time rates stayed very good for sometime. How long do you think rates will stay low? Leave a comment below.

Image courtesy of and Renjith Krishnan and FreeDigitalPhotos.net

What to Consider Before Buying a Home

Inform Yourself Before Buying a Home

For many people, buying a home is the single biggest investment they will make in a lifetime. The so-called “right time” is different for everyone. Before making a decision to buy a home, ask your loan officer to help you answer the following questions:

WHAT CAN I QUALIFY FOR?

The best way to determine this is to figure out your debt-to-income ratio. As an example, if a loan program uses a 40/45 qualifying ratio, it means the home-buyer is allowed to spend no more than 40% of his or her gross income on housing expenses (principle, interest, taxes, mortgage insurance, homeowners insurance and HOA fees) and no more than 45% on total debt. Total debt includes the housing expenses as well as car and school loans, credit cards, child support and alimony. Expenses like utilities or other standard bills are not usually included. If your expenses exceed the ratios outlined by the program you are seeking, then you will not qualify. However, not all programs have the same ratios, and a lot of the time the ratios are note concrete. Compensating factors, such as assets, can allow for higher DTI ratios.

HOW MUCH DO I NEED TO PUT DOWN?

Down payments are based on a percentage of the home’s selling price and are due to escrow at closing. If you are able to make a down payment of 20% or more, you can avoid the cost of mortgage insurance with a standard conventional program. If you are not able to put 20% down on a home, don’t fear! There are many other options available–in fact most purchase programs allow for 0%-5% minimum down payments. The VA and USDA programs are the only programs that offer no-money down options. For the other programs please reference the Purchase Information Page above.

WHAT ABOUT MY CREDIT SCORE?

Usually this is one of the main areas that will differ from one bank to another. Lenders typically require a tri-merge credit report (Experian, Trans-Union, and Equifax), using FICO formulas when purchasing a home. These scores are often different than the reports obtained through online credit reporting organizations. Different programs allow for different minimum scores, just like they vary with down payments and DTI ratios. Credit scores play a large part in the rate you will be offered, so credit can be vary important in getting a low rate.

Obama Adminstration to Push Riskier Mortgages

The Washington Post published an article today outlining the Obama administration’s desire to open up the housing market to demographics that currently lie outside typical banking standards. Primary focusing around people with weaker credit, and borrowers that owe more than their home is worth.

To quote the article: “If the only people who can get a loan have near-perfect credit and are putting down 25 percent, you’re leaving out of the market an entire population of creditworthy folks, which constrains demand and slows the recovery,” said Jim Parrott, who until January was the senior adviser on housing for the White House’s National Economic Council.

That quote peaked my interest. I know that Carrington Mortgage lends down to 600 FICO scores on FHA and VA programs. Those scores are certainly quite low, but many banks do not go below 640. FHA currently does not have a floor for FICO scores, however, you are not seeing many banks going below 580. That is because banks do not want to take on the risk issuing a borrower that has a low FICO a loan. Despite this, many of these borrowers can easily obtain credit repair through a third party company, and gain a substantial increase with as little as a one-time $350 payment.

What I am primary taking away here, is that the Obama Administration is going to get aggressive over the summer in the housing market. Hopefully they will be offering subsidies to banks allowing them to offset risk and refinance borrower that are upside down and currently not able to refinance. A lot of people in the industry are hoping that this will be a “HARP 3.” My take away is this: I think the push will be positive in the short-term, especially if banks can mitigate their risk based off of government subsidies. However, pushing the banks to offer riskier loans is a issue that should be looked at with a cautious approach. Another housing crisis would be a nightmare.

HUD Mortgagee Letter 2013-04

HUD Mortgagee Letter 2013-04

April 1st is here, and with the passing of Easter, so goes the passing of removable mortgage insurance on FHA loans. It isn’t new to those of use in the industry, it has been in the works for some time, the only difference–it is here now. 

ML 2013-4 Will:

 rescinds the automatic cancellation of the annual MIP collection
announced in MLs 2000-38 and 2000-46;
 rescinds ML 2011-35, under which mortgages with terms of 15 years or
less and LTVs of less than or equal to 78 percent at time of origination
were exempt from the annual MIP; and
 rescinds and updates Sections 7.3.a, 7.3.c, 7.3.d, 7.3.e, 7.3.f, and 7.3.g of
HUD Handbook 4155.2 as appropriate.
This ML increases the annual MIP on all forward mortgages previously
announced in ML 2012-4, except single family forward streamline refinance
transactions that are refinancing existing FHA loans that were endorsed on or
before May 31, 2009; the rate for those streamline transactions remains at the
level announced in ML 2012-4.