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I have had a lot of questions lately in regards to the upcoming changes to the appraisal process, known as the CU Program, with Fannie Mae. Many of you watched this link:
and after watching my email was full of questions on how this would effect upcoming transactions. I decided to dig in and talk to the head of our appraisal department. The key item to remember when dealing with HomeStreet is we own and operate our appraisal department, so our appraisers are hand selected by HomeStreet for the panel and have to pass rigorous standards in order to be a part of our panel. “Our appraiser panel nearly rejects 1/3 of its applicants, so most of our panel has already been weeded out” as per our head of appraisal department. With that said what we believe at HomeStreet is the companies that do not own/operate their AMC’s, Appraisal Management Companies, will have issues due to lack of experience and whom is sitting behind the desk trying to review these appraisals and interpret this new change. Below you will read the commentary straight from the head of all appraisal at HomeStreet and how we interpret the changes. Bottom line, HomeStreet Bank is positioned very, very well to tackle these changes and we can protect your sellers and buyers.
Tip: If you are listing agent accepting offers you are looking pre approval letters from lenders whom own operate their appraisal panel. Typically your large banks, brokers, and most correspondent lenders do not. They use a 3rd party AMC typically.
Tip#2: If you are working with buyers I would also make sure the lenders they are pre approved with have the above criteria as well.
Tip#3: If you are working my team and HomeStreet Bank we will make sure to let the listing agents know on the offer going in we can help both their seller and agent navigate this new uncharted territory.
Here is the email from the head our appraisal department, Clark Dickson, in response to the upcoming CU changes: (READ THIS)
My thoughts are that it is simply too early to determine how this all will affect appraisals/appraisers/mortgages, going forward. As usual, there are always “The sky is falling” folks in the mix who always predict doom and gloom.
None of us here at the bank in the appraisal department has actually “seen” what CU will actually be. All of us are aware of it and our compliance officer has been in any number of meetings and seminars to determine how it may affect us moving forward.
When I was in Las Vegas in November listening to the head FNMA appraiser discuss the implications of this “CU” program, he was downplaying it’s immediate influence. The way he described it was as a double-check against appraiser’s choosing inferior comps, to inflate values and additionally, some minor level of insurance that the appraisers at least considered the most appropriate comps.
Generally, I believe that good appraisers, doing good appraisals, will be just fine, doing what they have historically done, provided that they explain what they did and why they did it. To that end, we just finished an all-day seminar in both Carlsbad and Pasadena (and Fairfield/Dublin-Cathy), where we strongly encouraged appraisers to stop being form-fillers and gave them permission to become appraisers again. This seminar was CA-approved for continuing education credits for appraisers. We gave them specific language and techniques to more-strongly support their appraisals, along with a myriad of other issues. Between the four venues, we had nearly 300 HomeStreet-only appraisers in, to re-learn how to work for us and provide well supported, credible appraisals for the secondary market.
FNMA appears to be trying to weed out weaker appraisers. Our appraiser panel rejects nearly 1/3 of it’s applicants, so most of our panel has already been weeded out.
One of the assumptions made by the article below, is that AMC’s don’t have access to local data for ROV purposes and won’t be able to respond to the now-available 20 additional “low risk” comps. Our experienced appraisal review team all have over 20 years of technical appraisal experience each, and we have MLS access to data for almost every area that we service. In addition, our review team is residentially certified in all states that we serve. We have three dedicated, experienced review appraisers stationed in or near Southern CA with MLS data for all So Cal counties. We have three more in Northern CA.
It is a sure bet that many cost conscious AMCs will use low cost unlicensed staff to ‘review’ these computer generated comparables and ask for the originating appraiser to respond to any that have a lower ‘risk rank’ than the comparables selected by the appraiser. This is not the case with us. We will read the appraisal to determine if the appraisal has performed a reasonable analysis and supported his/her assertions in a credible manner, irrespective of computer generated printouts. Based on all of the appraisal, we will question or have the appraiser respond to issues, based on sound reasoning and not a printout.
The directives from FNMA are that the neighborhood IS the neighborhood and that the data from the 1004MC (market conditions report) is dependent upon the actual sales data. Irrespective of how they think they will be able to use CBG (Census Book Groups) to determine neighborhood data, they won’t. It’s an apples-to-oranges comparison, which will never fit.
Every one of our HomeStreet appraisers on staff is already registered for THREE different units of FNMA training in January/February to become expert in CU. Our compliance officer will keep us up to date and compliant. But the sky is not yet falling and there is always a knee-jerk, over-reaction when these edicts come out from FNMA.
If there are truly issues to be addressed, then we will do so in a rational, compliant manner, leaving the sky where it belongs. There is truly no need to panic at this point, although the dooms-dayers are already at it.
“The key to success is to focus our conscious mind on things we desire not things we fear.”
— Brian Tracy: is a self-help author and motivational speaker
Some people live in one of those pockets of the U.S. where home prices never dropped as dramatically as elsewhere and in some instances, appear now to be rising. Other such pockets exist across the U.S. — just look at your local (not national) headlines to see whether you’re in one of them. But even if you’re not, keep reading to see what growing pains your own market might soon endure.
We’re only at the tentative beginnings of this mini-trend. And that very transition is leading to complications at appraisal time. The situation was summed up recently by Realtor Julie Scheff as, “multiple offers driving prices upward and conservative appraisals  dampening them downward“ (in an April 20 article in the Montclarion called “Multiple offers signal a strengthening realty market”).
By way of reminder, most home buyers take out a loan in order to buy a home, thus making the bank or other lender a key player in closing the sale. What the bank says, basically goes. And the bank will nearly always require an appraisal, in order to make sure that the house is worth the amount of the loan in case it ends up foreclosing.
Appraisers, meanwhile, have become a conservative lot. They got burned in the real estate meltdown, collectively accused of having willingly gone along with insane levels of home price inflation. So they take a much closer look at properties now before proclaiming their value, and if they don’t see comparable sales supporting the amount the buyer wants to pay, they may not sign off on the magic number.
The last thing you want in a market that still isn’t exactly superheated is to have the deal fall apart because the appraiser, having looked around at all the low comparables, says that property isn’t worth what the buyer and seller have agreed upon. Fortunately, there’s no reason to just sit back and wait for that to happen.
Avoiding a low appraisal in advance. It’s possible to forestall a low appraisal by helping the appraiser recognize the property’s value. Whether you are the seller or the buyer, you can commission your own, independent appraisal of the property, and give those to the lender’s appraiser ahead of time.
You (or your real estate agent) can also research and advise the appraiser of any local short sales or foreclosures that might artificially bring down the numbers. (Contrary to rumor, you are allowed to speak with the appraiser, though the lender may not do so.) Give the appraiser a list (with before-and-after photos, if possible) of interior features, upgrades, and improvements, all of which can boost the property’s value. And by the way, sellers, keeping the property looking good through appraisal day doesn’t hurt, either.
Your real estate agent’s industry connections can help here, too. Your agent can speak to other agents with homes in escrow and ask for the sales prices, then — assuming they reflect rising values — prepare a list of these homes with their agents’ contact information for the appraiser.
Dealing with a low appraisal. If providing advance information doesn’t work, and the appraisal still comes in low, the seller and the buyer can call up the appraiser and question the bases for the appraisal, hoping for a reevaluation. You can also commission a second appraisal, and (assuming it’s better) show that to the lender — though the lender has no obligation to accept it.
If you’re the seller, your main hope may end up being that the buyer is willing to pay the original price (particularly likely if you were in a multiple bid situation) but increase the down payment and take out a smaller loan. That just heightens the importance of sellers carefully scrutinizing the buyer’s financials before accepting an offer, and asking for detailed information on the buyer’s income and savings. Yes, it may feel like the seller is delving for private information, but the buyer has good reason to consent to share it in this situation. (It’s also another good reason for sellers to prefer a buyer who offers a large down payment to begin with.)
Barring this, a price drop (or failed deal) may be your only option. But buyers, don’t be overly alarmed if an appraisal comes in low, particularly if you did your research or were in a competitive bidding situation. While the appraiser is a professional, and the process is backed up by evidence, every house is unique. A house’s value comes down to what a buyer is willing to pay and a seller is willing to accept.
“Imagination is the true magic carpet.” — Norman Vincent Peale: Was a minister and author of inspirational books
4 FINANCIAL REASONS TO BUY NOW
As Dean Hartman said last week, the purchase of a home is a personal decision. However, we want to give everyone four great financial reasons why you should not wait before taking the plunge into homeownership.
Interest Rates Are Increasing
Interest rates have increased almost 3/4 of a point in the last six months. Most experts expect rates to continue to increase through the year. Interest rates along with price determine the overall cost of a home. Even with prices softening, if interest rates rise, it may be less expensive to buy now rather than wait.
The 30-Year Mortgage May Disappear
There has been much debate regarding government’s role in providing support for homeownership. There are several experts who believe If Fannie Mae and Freddie Mac’s roles are eliminated, or even limited, it may be the end to the 30-year mortgage. This concern is addressed in MSN Real Estate’s Is it curtains for the 30-year mortgage?
QRM Requirements Could Be Much More Stringent
Here are proposed changes to the requirements for a “qualified residential mortgage“:
Certain mortgage types would be eliminated
You would need to put a minimum of 20% down
You would need a minimum 690 FICO score
The ratios of income to both the mortgage payment and overall debt would become much more conservative (28% and 36%)
There would be loans available to purchasers who don’t qualify under the new rules. However, they will probably be more expensive to the buyer (both in rate and costs).
Rents Are Expected to Increase
The qualified residential mortgage is decreasing and the demand is increasing. That will lead to an increase in rental costs throughout the year. The Wall Street Journal this week quoted a report by Reis, Inc:
“Expect vacancies to continue declining, and rents rising through the rest of 2011 at an even faster pace.”
You may be waiting on the sidelines to see if prices will continue to depreciate before you purchase a home. The mortgage expense is a major piece in the overall financial picture of homeownership. Make sure you consider it when timing your decision.
FANNIE MAE BRINGS BACK REO BUYER INCENTIVES
RPM Offers HomePath Financing (See Flyer Below)
Fannie Mae is once again offering closing-cost assistance for buyers who close on a home in the mortgage giant’s real-estate owned (REO) inventory, but in most states will not bring back cash bonuses it previously paid to buyers’ agents.
Buyers who put in initial offers on or after April 11, and close on the sale of a Fannie Mae HomePath property by June 30, will be eligible to receive up to 3.5 percent in closing-cost assistance.
The offer is only good for buyers who intend to occupy the home they are purchasing as their primary residence — second homes and investor properties are not eligible.
Offers submitted before May 15 have the best chance of qualifying, Fannie Mae said, as offers submitted after that “are particularly questionable for closing” by the June 30 deadline.
It’s essentially the same deal Fannie Mae offered to buyers last year. In the last three months of the year, Fannie Mae was also offering a $1,500 cash bonus to buyer’s agents on each sale of a HomePath property.
In announcing that it’s restoring its closing-cost assistance for HomePath buyers, Fannie Mae said it will offer a $1,000 bonus to buyers’ agents in California and Washington whose clients close on a HomePath property by June 30.
Fannie Mae pays listing agents representing its REO properties a standard commission of 2.5 percent, with a guaranteed minimum of $1,000. Buyer’s agents are paid commissions equal to 3 percent of the sales price.
In its most recent annual report to investors, Fannie Mae said it acquired 262,078 homes in 2010, up 80 percent from 2009. REO sales picked up 51 percent, to 185,744, leaving Fannie Mae with REO inventory of 162,489 homes valued at $14.9 billion at the end of the year. The company also said $212.8 billion in mortgages guaranteed by the company were delinquent by 60 days or more.
“Given the large number of seriously delinquent loans in our single-family guaranty book of business and the large current and anticipated supply of single-family homes in the market, we expect it will take years before our REO inventory approaches pre-2008 levels,” Fannie Mae warned.
REGULATORS TAKE LIERTIES WITH REAL ESTATE LEGISLATION
Maybe a federal government shutdown now and then would be a good idea — certainly for the current crop of financial regulatory officials. Twice in the past six months they have taken congressional mandates that significantly affect real estate transactions and home mortgages, and mangled them badly.
Cases in point: The long-awaited appraisal reform regulations that took effect April 1, and the “qualified residential mortgage” (QRM) proposals that were called for in last year’s Dodd-Frank financial legislation. In both instances, regulators took straightforward statutory language and arrived at rules that vastly altered clear congressional intent.
When the Fed produced its rules implementing the Dodd-Frank language, an entirely new concept emerged on “customary and reasonable” appraisal fees. The Fed created a “safe harbor” — a loophole — for lenders and others to arrive at their own definitions of fair fees by incorporating recent amounts paid by appraisal management companies.
Anybody who’s been active in real estate in recent years knows that, spurred along by the infamous Home Valuation Code of Conduct (HVCC) promulgated by Fannie Mae, and Freddie Mac under pressure from New York attorney general (now governor) Andrew M. Cuomo, appraisal management companies now dominate the home-valuation business.
QRM, the “qualified residential mortgage” proposal. Last year’s Dodd-Frank legislation assigned the task of coming up with a nationally recognized “safe” mortgage standard to six federal financial regulatory agencies, including the U.S. Housing and Urban Development Department, the Federal Housing Finance Agency, the Federal Reserve, Federal Deposit Insurance Corp. and the Comptroller of the Currency.
The congressional intent, according to sponsors of the QRM amendment, was to devise a standard that would incorporate the key features statistically associated with on-time payments of home loans. The law suggested such features as:
Full documentation of borrower income and assets.
Rigorous underwriting standards to ensure the borrower has the capacity to repay the debt.
Avoidance of loan structures that increase the probability of default, such as balloon payments and negative amortization.
Mortgage insurance and other credit enhancements.
A highly restrictive QRM with a mandatory 20 percent down payment for home purchases, 30 percent minimum equity for refinancings, and mandatory debt-to-income ceilings of 28 percent (housing expenses) and 36 percent (total household monthly debt load).
Fortunately, the QRM is still a proposal open for public comment through June 10. You can bet there’ll be a lot of it.
ZILLOW ACQUIRES LISTING SYNDICATION PLATFORM – POSTLETS
Postlets offers tools that allow users to promote properties and distribute property listings information for free to 13 real estate and social media websites, including Zillow, Trulia, Yahoo Real Estate, Facebook and Twitter, among others.
The company was founded in 2005 and has more than 500,000 registered users who currently distribute more than 350,000 for-sale and for-rent listings nationwide, Zillow said.
Zillow has no plans at this time to make any changes to the user experience on Postlets, the company said.
“Postlets is a great tool for agents, property managers and landlords looking to promote their listings and manage their online presence, for free,” said Spencer Rascoff, Zillow’s CEO, in a blog post. “As part of this acquisition, Postlets will continue to send listings to its current distribution partners.”
Financial terms of the deal were not disclosed. Postlets’ two employees, co-founders Asher Matsuda and Raymond Chen, have joined Seattle-based Zillow as full-time employees, and will will remain based in San Francisco.
Move Inc., operator of Zillow competitor Realtor.com, acquired national listings syndication platform ListHub in September 2010 — that platform distributes listings information to Zillow and Trulia, among other sites.
Remote Area Medical (RAM) is at the Oakland Coliseum today! (April 9-12) Click Here for More Information! Maintain a healthy heart
“Patience and perseverance have a magical effect before which difficulties disappear and obstacles vanish.” – John Quincy Adams
NEWS & HEADLINES
Any company originating FHA & VA loans, and either securitizing them or selling the loans to a company that does, should be aware of HUD’s new data elements to Ginnie Mae pool issuance. Commencing 9/1, Ginnie Mae will require Issuers to provide up to eight additional new data elements on single-family forward mortgages in an effort to provide greater transparency for investors, which in turn should help prices and therefore rates. For complete details go to GinnieData
Here is one trend that Realtors and mortgage originators should pay attention to, and that is household formation. Yes, as a nation the population in the US is steadily increasing, which in the past led to an increase in the number of households. But at present, household formation has been slowed by the recession. There are a large number of adults who have either moved back in with their parents because they can no longer maintain the expense of their own household, or are not even moving out due to economic uncertainty. A loan agent wrote to me, “In the recent past many kids got down payment gifts from their parents, but now the parent’s wealth has gone down, and a portion of my clients don’t feel comfortable giving their kids any money to move them out of the house.”
Owning a home is a subset of forming a household (which includes rentals), and most analysts believe that several years ago home was driven up artificially high by political mandates, bad mortgage lending, artificially low rates, or any number of other factors. The homeownership rate has been inching back down for a variety of reasons, but the number of households is not showing the same dramatic decline since people do, indeed, need a place to live. And many in the business believe that encouraging more investor loans would be an improvement rather than the government concentrating on keeping people in homes with mortgage modifications. Clearing the existing inventory, and the inventory of about-to-be foreclosures, is a necessary condition to improve the housing market.
Many originators are hoping that this week is an improvement over last week, when we saw the price on the 10-yr Treasury Note worsen by nearly 1.25 (3.45% up to 3.57%) and current coupon mortgage-backed securities worsen by roughly .5 in price. What’s been driving interest rates higher for three weeks in a row? The markets seem focused on the trend in rates moving higher, commodity price pressures (seen every time one drives by the gas station), the job market improving, persistent stock market gains, European Central Bank tightening, increasing Treasury supply (this week we have 3’s, 10’s, and 30’s), our Fed tightening going from “if” to “when”, and so forth. In early February the 10-yr yield hit 3.74%, but most don’t expect us to see that high of a yield in the near future.
Last week we had very little scheduled economic news to chew on but this week we have “a ton.” We don’t have anything today, but tomorrow we have the trade balance figures and import & export prices. Wednesday is the MBA application index, Retail Sales, Business Inventories, and the Fed’s Beige Book monitoring economic activity in the various Fed districts. Thursday brings us Jobless Claims and the Producer Price Index. Tax Day we’ll see the Consumer Price Index, so we can see how much of the change in the PPI is passed on the consumers, Empire Manufacturing, Industrial Production and Capacity Utilization, and a University of Michigan sentiment number. Ahead of that our 10-yr Treasury is sitting around 3.59% and MBS prices are roughly unchanged.
PRICING IS ALWAYS LOCAL…MOST OF THE TIME
We understand that real estate is intensely local. Whether you are thinking of buying or selling a home, you should sit with a real estate professional familiar with your local area. However, that does not mean that what is happening nationally doesn’t apply to your market. What is taking place with home values is a perfect example of this. Prices are softening in many parts of the country. We all hope that our region is the exception to this trend. Before we buy or sell we should make sure. Just how widespread are these price declines? Let’s take a look at what the current pricing indices have found.
Their Home Price Index shows that 18 of the 20 cities they monitor had year-over-year depreciation. San Diego and Washington D.C. were the only two markets to record appreciation. However, San Diego was up a “scant 0.1%”, while Washington DC posted a healthier +3.6% annual growth rate.
Their Home Price Index states:
“Of the top 100 Core Based Statistical Areas measured by population, 86 are showing year-over-year declines.”
National Association of Realtors (NAR)
Their Existing Sales Report showed that 13 of 17 metros they report on had median sales prices decline in the last year. Only Dallas/Fort Worth, Houston, San Diego and St. Louis saw their median price increase.
Federal Housing Finance Agency (FHFA)
Their website has a visual that shows how widespread the price situation has become:
Pricing is a major challenge in the vast majority of regions right now. Definitely sit with a local agent. However, make sure they tell you what you need to know not just what they think you may want to hear.
COACH, MENTOR, TRAINER: PICK THE RIGHT PATH FOR YOUR REAL ESTATE GROWTH
Are you ready to double or triple your real estate income? Who is the best person to get you there: A coach, a trainer or a mentor?
First, most real estate professionals who want “coaching” are really looking for real estate sales training. Second, there is tremendous confusion about what constitutes coaching, training, and mentoring.
Depending on what you want to achieve, each of these approaches is a viable way to increase your income. Here’s how to tell whether training, coaching, or mentoring is the best choice to help you achieve your goals.
1. Real estate sales training
Training teaches you a skill or a strategy for your business. This can include how to conduct a listing presentation, scripts for working with buyers, or how to use Web tools or mobile apps. In each of these examples, the trainer is the expert who is showing you what to do and how to do it.
No matter how long you have been in the business, attending regular training can help you improve your business and your income. Today’s technology innovations are occurring at such a rapid pace that it takes a concerted effort to stay up to date.
In fact, when I do a major speaking gig for a company, the management almost always makes the same observation: “My top producers were all sitting in the first three rows. The people who really needed this aren’t here.”
When I ask the top producers about why they are such avid consumers of training books, seminars, and webinars, they pretty much agree on this one point: “If I learn just one thing that can help my business, it was worth my time.”
2. Real estate sales mentoring
Mentoring refers to learning from someone who is an expert. An excellent example includes working with a top producer and shadowing that person to learn how the individual conducts business. A mentor draws upon professional experience and can provide you with practical and proven success strategies.
3. Real estate coaching
Many agents have discovered the benefits of working with a coach both in terms of increased production and having a better life. While training and mentoring can help you achieve your goals, coaching is usually the best tool for helping you to double or triple your commission income.
Unfortunately, because of the confusion about what constitutes real estate coaching vs. training and mentoring, agents often end up with a solution that won’t work for them.
Here are some examples of real estate “coaching” that may or may not be a great solution for your business. Use this list to determine what will work for you:
1. The granddaddy of them all
Mike Ferry was a pioneer in launching a national coaching program. Ferry’s programs have a proven track record for success that date back over two decades. His programs are well suited to those who have a strong drive to succeed, handle rejection well, and are numbers-focused.
Coaching consists of staying on target with your numbers, mastery of scripts and dialogues, and access to video, online, and live training to support your success. The core emphasis is on cold-calling, door-knocking, and calling on owners of expired listings and for-sale-by-owner homes.
2. Oh, by the way
Brian Buffini and Joe Stumpf focus on helping agents build their businesses “by referral.” Their programs provide a turnkey solution that sends snail-mail letters to your database each month. Your coach works with you on using their systems and strategies to generate referrals.
3. Words of wisdom from Gary Keller
Gary Keller, who consults and coaches the top agents in his company, made an interesting observation about how well his agents did with each of these two different approaches.
According to Keller, the people who rely exclusively on door-knocking and calling on owners of expired and FSBO listings must place up to five times as much effort into their lead generation activities vs. those using the by-referral model.
On the other hand, because the referral approach requires someone else to generate the lead for you, agents who rely exclusively on this approach often see their business decrease by as much as 80 percent during market downturns. This occurs because someone else is controlling their lead generation.
The agents who have consistent top performance are those who actively prospect daily and maintain strong relationships with their referral database.
4. You know what to do … what’s keeping you from doing it?
Coaching is about removing the blocks that keep you from achieving success, and building on your strengths. It’s not about trying to force yourself to do something that you hate doing.
As Joeann Fossland says, “No one ever got to the top by developing their weaknesses.”
The challenge with training and mentoring is that they address the “what to do,” but don’t provide the coaching necessary for you to personally implement these skills in your business.
If you want to double or triple your business, implementation is the key. See Part 2 for specific steps on methods that could help you to multiply your real estate income.
PLAY BALL! San Francisco Giants Home Opener Today! Enjoy Giants Fans!
“In the long run, men hit only what they aim at. Therefore… they had better aim at something high.” — Henry David Thoreau: Was an author, poet, naturalist, and philosopher
NEWS & HEADLINES
Rain or shine, whether or not the US government is closed or open, the US Treasury will be open next week to auction off $32 billion in 3-yr notes, $21 billion in 10-yr’s, and $13 billion in 30-yr’s.
Word has it that since it doesn’t rely on Congressional funds, the Federal Reserve (central bank) would remain open for business as usual, with normal staffing levels. The Fed would therefore be able to continue with its day-to-day operations. The SEC is expected to continue operations as well. But lenders and vendors were out warning originators about possibilities. CoreLogic told clients that, “If the government does a shutdown, the last date of service for 4506-T and SSA-89 orders would be this Friday April 8…We will make every effort to transmit orders to the IRS and SSA as quickly as possible once received. All SSN orders will be processed during standard business hours and may not be affected by the shutdown. In the event of a shutdown, we will still continue to submit all 4506-T Direct and SSN orders but service time is expected to be affected due to the IRS and SSA being unavailable to respond.”
For licensing, “Since CSBS is the nationwide organization representing state banking regulators, a shutdown of federal government agencies will not have an immediate impact on day-to-day operations. NMLS offices will remain open during any government shutdown and NMLS staff will continue to report to work…Test candidates should not expect their appointments to be cancelled or be affected by a shutdown of federal government agencies.”
Wednesday HUD issued a memorandum (APM 11-04) that is not a surprise, but turned some investor heads. Ginnie Mae will change its policy with regards to the delinquency status of loans being pooled into their MBS. “Effective for single-family securities with an issue date of June 1, 2011 and later, all loans pooled into Ginnie Mae single-family securities may not be delinquent by more than the monthly installment of principal and interest that is due on the issue date.” In other words, the loan being pooled would need to be current till the month prior to the issuance of the MBS pool – no more allowing new up-to-60-day delinquent loans to be pooled into Ginnie securities. Ginnie Mae was already requiring “re-performing” loans to be current at the time of the issuance. The impact on the market and investors is not huge, as analysts estimate that at most 0.5% to 1% of loans being securitized into Ginnie Mae MBS were delinquent at issuance.
In the markets on Thursday, MBS volumes were anemic, as opposed to Wednesday when they were decent. 10-year notes were worse by a smidge and closed with a yield of 3.55% while current coupon MBS prices were slightly better than Wednesday’s close. Rates were pushed around a little by the .25% rate hike by the ECB, another strong earthquake in Japan, more hawkish comments from a Fed official, and the potential for a government shutdown as Republicans and Democrats are unable to reach an agreement on the budget.
The week closes out with gold marching toward $1,500 per ounce, oil at $111 per barrel, and another day of no substantive scheduled economic news (unless one counts Wholesale Trade for February later today). Even though the markets assume a shutdown will be averted, these factors have served to push rates higher, and the 10-yr yield is up to 3.61% and MBS prices worse by .250.
RENTAL COSTS ARE ABOUT TO TAKEOFF
We are often asked whether it is better to rent or buy in the current housing market. The answer to that question is: “It all depends”. There are certain situations where renting short term probably makes sense. It may make sense if you are retiring to a different region of the country and are not yet sure where you want to set down roots for the next 25 years. It may make sense if you have a one year employment contract which will probably require a move to another place upon termination.
However, in most other cases, renting right now makes little sense for several reasons.
Even though prices may still soften, waiting to buy makes no sense as the cost of owning a home may still increase.
Mortgages may soon become much more expensive than they are right now.
Owning a home is less expensive than renting a home in 72% of major U.S. cities.
Rental costs are about to explode.
Let’s take a closer look at the last reason. We have often said that the cost of anything is based on supply and demand. The number of widgets for sale and the number of widget buyers together create the price for widgets. That will also apply to rents. There is a much larger demand for rentals right now. The economy has forced many to leave their foreclosed homes and other buyers are afraid to plunge into homeownership.
At the same time, the supply of rentals is rapidly decreasing. Here is a graph from Calculated Risk showing the apartment vacancy rate in the United States:
When supply is rapidly decreasing and demand is quickly increasing, prices have only one place to go – and that is UP! That is exactly where rental prices are headed.
Is now a good time to rent? We think not. You can buy a home today at a discounted price and get a 30 year mortgage at a historically low interest rate. You can set your housing expense for the next thirty years. On the other hand, rental costs are poised to increase for years to come.
GREATER STABILITY IN NONDISTRESSED REAL ESTATE PRICES
U.S. home prices fell for the seventh month in a row during February, although price declines are increasingly concentrated in sales of distressed properties such as bank-owned homes, data aggregator CoreLogic said in releasing its home price index.
The CoreLogic home price index showed U.S. home prices down 6.7 percent from a year ago during February, a sharper decline than the 5.5 percent year-over-year drop registered in January.
Excluding distressed sales, the index was essentially flat, declining by 0.1 percent from a year ago compared to 1.4 percent in January. Distressed sales include short sales and real-estate owned, or “REO,” properties.
“When you remove distressed properties from the equation, we’re seeing a significantly reduced pace of depreciation and greater stability in many markets,” said CoreLogic Chief Economist Mark Fleming in a statement. “Price declines are increasingly isolated to the distressed segment of the market, mostly in the form of REO sales, as the stock of foreclosures is slowly cleared.”
The index showed national home prices down 34.5 percent from their April 2006 peak, or 21.7 percent if distressed transactions were excluded.
Prices were down from a year ago in 86 of the top 100 markets tracked by CoreLogic, down from 88 in January.
February 2011 single-family home prices: Top 10 biggest U.S. markets
Nine out of 10 of the nation’s biggest markets saw prices decline from a year ago, although six out of 10 of those markets experienced price appreciation among non-distressed properties, CoreLogic said.
The five states with the greatest year-over-year depreciation were Idaho (-14.6 percent), Arizona (-12 percent), Florida (-11.2 percent), Michigan (-11.1 percent) and Illinois (-11.1 percent). When distressed sales are excluded, the five states with the greatest depreciation were Idaho (-9.3 percent), Montana (-8.6 percent), Maine (-6.2 percent), Arizona (-5.4 percent) and Rhode Island (-5.4 percent).
BUDGET IMPASSE THREATENS FHA LENDING
The budget deadlock and looming shutdown of the federal government wouldn’t affect Fannie Mae and Freddie Mac, but it could put the brakes on FHA and other government-backed loan guarantee programs.
The Obama administration has proposed $33 billion in spending cuts, while Republicans are reportedly pushing for $40 billion or more. House Republicans Thursday passed a bill to push back a shutdown by one week. But that bill includes spending cuts opposed by Democrats, and President Obama has threatened a veto if it’s approved by the Senate.
In the event of a government shutdown, the Federal Housing Administration “will not be able to endorse any single-family loans, and staff will not be available to underwrite and approve new loans,” a HUD spokeswoman told Inman News.
Although so-called “full eagle” lenders vetted by FHA have direct endorsement authority, in the event of a government shutdown FHA would power down its automated systems for processing those loans, in effect suspending all lender insurance approvals.
“Technically, the banks can close on a loan that’s been FHA-approved if they want to, but they will be taking the risk on their own books,” the HUD spokeswoman said. “Some may choose to do so, but (in the event of a government shutdown), they will not receive FHA insurance until FHA is up and running.”
FHA insured mortgages on about 19 percent of home sales in the fiscal year ending Sept. 30, 2010, and just under 16 percent of sales in October, according to the latest figures from HUD.
USDA and VA loan guarantee programs, although smaller, could be affected in similar ways. Those agencies did not immediately respond to requests for comment.
According to a bulletin issued by the National Association of Realtors, lenders may continue to process and guaranty mortgages through the VA Loan Guaranty program.
For U.S. Department of Agriculture rural housing programs, staff who typically issue conditional commitments, loan note guarantees, and modification approvals are not classified as “essential personnel,” and lenders would not receive approvals in the event of a shutdown, NAR said. Lenders who have received conditional commitments may close those loans.
As the Obama administration and Republican lawmakers continue negotiations over proposed budget cuts, the President has pointed to the potential impacts to FHA lending as one example of how a shutdown “could have real effects on everyday Americans.”
“It may turn out that somebody who was trying to get a mortgage can’t have their paperwork processed by the FHA and now the person who was going to sell the house — what they were counting on, they can’t get it,” President Obama said Wednesday, speaking at a town hall discussion in Pennsylvania on energy policy.
Testifying before Senate lawmakers today, U.S. Housing and Urban Development Secretary Shaun Donovan said he is “very concerned that a significant number of lenders would not choose to close” on pending FHA loans, Dow Jones reported.
Fannie Mae and Freddie Mac, which the government placed under conservatorship in 2008, would not be affected by a shutdown because the Treasury Department’s preferred stock purchase agreements with the companies are not subject to the annual appropriations process, said a spokeswoman for their regulator, the Federal Housing Finance Agency (FHFA).
FHFA itself is not subject to a shutdown because it is funded by assessments on Fannie, Freddie and the Federal Home Loan Banks.