TEAM EMPOWERMENT MORTGAGE CHATTER: April 20; News & Headlines; Will Cost of Buying Increase Even If Prices Fall?; Bill To Allow REO Purchases with Retirement funds; Zillow goes public files for $52 Million IPO; Investors drove homes sales up 3.7%

“Any idea, plan, or purpose may be placed in the mind through repetition of thought.” — Napoleon Hill: Was a lecturer and author of books on achieving success


Dodd Frank is indeed the gift that keeps on giving. Earlier this week the Federal Reserve Board (FRB) requested public comment on a proposed rule under Regulation Z that would require creditors to determine a consumer’s ability to repay a mortgage before making the loan and would establish minimum mortgage underwriting standards. (So let’s take away Fannie & Freddie, and have regulators set underwriting guidelines for private mortgage bankers?) The proposal would apply to all consumer mortgages (except home equity lines of credit, timeshare plans, reverse mortgages, or temporary loans). The proposal would also implement the Dodd-Frank Act’s limits on prepayment penalties.

Housing Starts and Building Permits were both a little stronger than expected – good news for the housing biz although they remain low by historical standards. Today at 9AM CST we have Existing Home Sales, which in February fell 9.6% with declines in every region of the country. Distressed transactions accounted for 39% of all transactions for the month and the median price of an existing single-family home down about 4% over the last year. But analysts are calling for a slight improvement in this morning’s number.

The MBA came out with its weekly index, shopping a little pop last week of 5.3%. Refi’s were up almost 3%, and purchases were up 10% (driven by FHA/VA production). The percentage that refi’s constitute of overall business continues to drop, and is now about 58% – the lowest in almost a year. And ARM share increased to 6.5%.

Rate-wise, yesterday was uneventful. The data was limited to Housing Starts, not a big market-moving number. Agency MBS prices closed around unchanged and the Treasury’s 10-yr settled around 3.36%. A trader reported that “mortgage banker supply remained minimal.” This morning rates are a shade higher, with the 10-yr at 3.40% and agency MBS prices worse by about .125.


We have discussed the proposed modifications to the mortgage process several times in this blog already. We want to make sure our readers understand the potential impact to the cost of financing a home these changes will have. The cost of buying a home may increase even if prices continue to soften. The total cost of a home is determined by two factors:

  • the price of the property
  • the expense of financing the purchase (assuming you are not paying all cash)

Check with a local real estate professional to determine where prices are headed in your region for the type of home you are considering. However, even if prices are predicted to soften further in your area, the COST of the home may rise because of increased expenses in financing. These expenses could increase rather dramatically.

Interest Rates

Interest rates have remained at historic lows for over a year. As the economy improves, there will be less need for the government to keep rates low. Many are predicting interest rates will increase from 1/2 point to 3/4 of a point before the end of the year. We may also see an additional increase in rate for loans deemed “less qualified”.

New Mortgage Standards

The government has proposed a new definition for a “qualified residential mortgage”. The new standard would set a bar much higher than we have today. Anyone not meeting these requirements would not be eligible for the “best” rates available. What could be the difference in interest rate? In a white paper released last week by a group that included the Center for Responsible Lending and the National Association of Realtors:

Some private estimates have concluded that 5 percent risk retention could result in a three-percentage point rise in interest rates for loans funded through securitization. In other words, today’s 5 percent market would become an 8 percent interest-rate market.

Even if the rates for these loans are only one percentage point higher than the best rate, the additional cost to a buyer could be dramatic.

Impact of Interest Rates on Mortgage Payment

The interest rate you receive obviously plays a big role in determining your monthly mortgage payment. How big a role? Here is a chart showing how your payment is impacted even if home prices fall:

Bottom Line

You may have delayed your home purchase decision because of concern over where PRICES may be headed. To make the best financial decision for you and your family, also take into consideration where the overall COST of the purchase may be headed.


A bill introduced in the U.S. House of Representatives would waive withdrawal penalties on certain retirement plans if the funds were used to buy a house that has been in foreclosure for a year or more, HousingWire reports.

The bill, introduced recently by congressman and real estate professional Bill Posey, R-Fla, is expected to apply to Roth IRAs, 401(k) plans, and company pension plans.

The legislation’s aim is to promote REO home purchases by owner occupants or second home owners rather than investors just looking to “flip” a foreclosure for fast money. According to the bill, purchasers must agree to hold the property for at least two years to be exempt from early retirement plan withdrawal penalties.

“It’s just another idea to help the housing market,” says press secretary George Cecala.

The bill has been sent to committee for further consideration.


You may soon be able to buy stock in Zillow. The Seattle-based real estate Web site filed on Monday preliminary documents for an initial public offering. The company hopes to raise about $51.75 million for its IPO.

Zillow has not yet disclosed how many shares it intends to sell or the price for each share.

Technology Crossover Ventures and PAR Investment Partners have already agreed to buy a total of $5.5 million of common stock from Zillow, reports.

Zillow, founded in 2004 and originally known for its popular “Zestimates” home value estimates on homes across the U.S., has seen its Web traffic quickly grow. In March, it boasted 19.4 million unique users from its Web site and mobile app, a more than 90 percent year-over-year increase in traffic. Its revenue has also increased significantly. In 2010, Zillow’s revenue increased by 74 percent to $30.5 million, according to the Securities and Exchange Commission filing.


Investors drove up U.S. home sales last month, plunking down cash to grab cheap homes at risk of foreclosure. But purchases made by first-time homebuyers, who are crucial to a housing recovery, fell.

Sales of previously occupied homes rose in March to a seasonally adjusted annual rate of 5.1 million, the National Association of Realtors said Wednesday. That’s up 3.7 percent from 4.92 million in February. The pace is far below the 6 million homes a year that economists say represents a healthy market.

Foreclosures or short sales, when the lender agrees to accept less than is owed on the mortgage, rose to 40 percent of all purchases. And deals paid for entirely in cash accounted for 35 percent of all sales. The Realtors group says that’s the biggest percentage since they have been tracking all-cash sales.

Many of those purchases are being made by investors, who are targeting cheap properties in areas hit hardest by foreclosures. The trade group’s data only accounts for individual investors and does not include homes sold in bulk at auction or on courthouse steps. So many of the foreclosure sales are likely being picked up en masse by private equity firms.

Another sign of the investor activity is that sales of homes priced under $100,000 have risen 10 percent from a year ago. In that same period, sales of mid-priced homes, between $100,000 and $500,000, have fallen more than 14 percent.

Fewer first-time homebuyers, the types of people who set down roots and raise families, are entering the market. Sales among that group fell to 33 percent in March. A more healthy percentage of first-time buyers is 40 percent, according to the trade group.

One major obstacle to a housing recovery is the glut of unsold homes on the market. There were 3.55 million unsold homes in March. It would take 8.4 months to clear them off the market at today’s sales pace. Analysts say a six-month supply represents a healthy supply of homes.

“It is unlikely that home prices can recover on a sustained basis until the inventory-to-sales balance improves further and the number of distressed properties is significantly reduced,” said Steven A. Wood, chief economist at Insight Economics.

Foreclosures are also playing a big role in weakening the housing industry. A record 1 million homes were lost to foreclosure last year and foreclosure tracker RealtyTrac Inc. said it expects 1.2 million more will be lost to foreclosures this year.

For March, sales rose 8.2 percent in the South, 3.9 percent in the Northeast and 1 percent in the Midwest. Sales fell 0.8 percent in the West.

Sales of single-family homes rose 4 percent to an annual rate of 4.45 million units. Sales of condominiums rose 1.6 percent to a rate of 650,000 units.

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