Mind Your Mortgage: Consider Refinancing

It’s a Good Time To Refinance

RACHEL LOUISE ENSIGN, Wall Street Journal, March 23, 2012, link

For homeowners who have been waiting for interest rates to fall even further before refinancing, it might be time to pull the trigger on a deal. Rates are moving up—and could stay higher for a while, experts say.

The average rate for a 30-year fixed-rate mortgage climbed to 4.08% for the week of March 22, up from the record low of 3.87% it hit in February, according to Freddie Mac. Rates on 15-year loans were up to 3.30% last week from the record low of 3.13% reached earlier in March.

While rates still are below where they were a year ago, some economists say they are likely to keep rising throughout 2012 and into 2013. That means your window of opportunity to lock in a rock-bottom rate might be closing soon.

“If you’re considering refinancing, there’s really no point in waiting,” says Frank Nothaft, the chief economist at Freddie Mac.

[REFI]

Tim Barge considered refinancing the mortgage on his Buford, Ga., home for the last year and a half, but wanted to get the best rate possible. Last month, the 42-year-old information-technology professional decided to take the plunge.

“I was at the point where I just had to do something,” he says. “I knew the rates weren’t going to go much lower” than the 3.875% he locked in.

He opted for a 30-year fixed-rate mortgage, which cut his monthly payment from $1,920 to $1,480.

Freddie Mac, Fannie Mae and the Mortgage Bankers Association all are projecting that rates will keep ticking higher this year and beyond. Freddie Mac and the Mortgage Bankers Association predict the average rate on a 30-year fixed-rate mortgage will reach 5% next year.

The biggest culprit in rising rates: the spike in yields on 10-year Treasury notes over the past two weeks, which mortgage rates generally track, says Mr. Nothaft. This comes as investors who stashed their money in Treasurys as a safe haven are beginning to sell and move into riskier holdings now that the U.S. stock market and European economy are looking a bit healthier.

Rates could go even higher if the Federal Reserve’s so-called Operation Twist, which temporarily pushed down long-term interest rates, ends in June as planned, or if inflation rises, eroding the value of bonds, Mr. Nothaft says.

Good News, Bad News

“It’s a good-news, bad-news situation. The economy seems to be finally getting its legs back under it, and as a natural course interest rates are going to be back up, too,” says Keith Gumbinger, vice president at mortgage-data provider HSH Associates. But if the fledgling economic recovery falters, rates could hold steady or go back down, he says.

If you wait until the end of the year to refinance, and the average 30-year rate goes up to 4.7%—as Freddie Mac projects—you will be paying $1,877 more per year on a $400,000 mortgage than if you refinanced at last week’s average rate.

An adjustable-rate mortgage might be a good choice if you plan to move soon, since it allows you to lock in an even-lower rate for a fixed period, typically five years, and presumably sell your home before it goes up.

When you refinance, you start a new term. So if you have 25 years left on your 30-year mortgage and you opt to refinance with a 15-year loan, you will pay off your mortgage more quickly, though the monthly payments might be higher. If you refinance into a 30-year loan, it will take you longer to pay off your mortgage, though your monthly payment will be lower.

Refinance deals vary depending on your financial situation and location, but borrowers with excellent credit scores typically qualify for rates below the national average.

This past week, Great Western Financial Services of Plano, Texas, was offering a 3.875% rate on a 30-year fixed-rate mortgage to Chicago-area borrowers with a credit score of 771 or higher. PNC Mortgage was offering homeowners in Tampa, Fla., a 4.125% rate on a 30-year fixed-rate loan. And in Boston, Bank of America BAC +0.83% was offering homeowners a 3.5% rate on a 15-year fixed-rate mortgage.

Borrowers looking to refinance jumbo loans—those too large to be backed by Fannie Mae or Freddie Mac—should expect rates 0.3 to 0.4 percentage points above ordinary loans, since most lenders keep these loans on their books and consider them riskier, says Mike Fratantoni, vice president for research and economics at the Mortgage Bankers Association. Jumbo rates vary more by region than so-called conforming loans do: The best 30-year rate available to a homeowner with excellent credit and a loan-to-value ratio near 70% was 4.3% in Dallas, but 5% in Tucson, Ariz., according to LendingTree.

Not all homeowners should consider a refinance, of course. If you aren’t planning to stay in your home for long, refinancing into a 15- or 30-year loan—or even an adjustable-rate mortgage—could cost you more in the end, since you might not recoup the one-time costs that come with refinancing, says Doug Lebda, chief executive of LendingTree.

Such costs typically include an appraisal, credit check and processing fees from the lender, altogether typically 2% to 4% of the loan amount, LendingTree says. That is on top of any so-called points, or origination fees.

Pulling the Trigger

Expect your refinance to take 60 days or longer to close, compared with 30 days before the housing crisis, Mr. Gumbinger says. If borrowers rush to refinance, lenders could experience a logjam that could slow down processing times even more. But it isn’t likely that a further slowdown would jeopardize a borrower’s ability to lock in a rate, he says.

John Ruben, a 54-year-old chief operating officer at a hotel workers’ union, checked mortgages rates online multiple times a day for months before pulling the trigger and refinancing his $321,000 home in Bethlehem Township, N.J., earlier this year.

He had calculated that refinancing would be worth it only if he cut a percentage point off his current 5% interest rate on a 30-year fixed-rate loan. When rates dipped, he refinanced at a 4% rate through a mortgage banker—saving about $150 a month on his payment.

Says Mr. Ruben: “I’m glad I locked in when I did, because now they’re going up again.”

Mind Your Mortgage: Changes are Coming!

Changes in F.H.A. Fees

By VICKIE ELMER, New York Times, March 22, 2012, link

A recently updated, free iPhone app offering in-depth property search tools and mobile features to help you navigate the real estate market.

In a nutshell, here is what’s happening: Fees for refinancings will fall sharply, as the upfront mortgage insurance decreases to 0.01 percent of the base loan amount, from 1 percent, starting on June 11. For buyers, the upfront mortgage insurance premium will increase to 1.7 percent of the loan amount, from 1 percent, effective April 9, and annual insurance costs, paid monthly, will rise 0.10 percentage points. Those with so-called jumbo loans, those above $625,500, will see a 0.35-percentage-point jump in the annual insurance premium, effective June 1.

The F.H.A. announced these changes over the last several weeks; they reflect an Obama administration initiative to make refinancing easier and more affordable for the three million or so homeowners with F.H.A. mortgages. The reduction in refinancing fees applies to those borrowers who are current on payments.

Charles Coulter, the deputy assistant secretary for single-family housing at the Department of Housing and Urban Development, said the changes were intended in part to shore up the insurance fund, “while having a minimum impact on the borrowers’ payments.” The higher fees could add more than $1 billion to the fund through fiscal year 2013, HUD said in an announcement.

The F.H.A.’s market share has risen sharply in recent years as subprime lenders and others left the business during the housing crisis, or were forced out. F.H.A.-insured mortgages represented almost a third of all mortgages in 2011, and as many as 47 percent in the second quarter of 2010, according to HUD data.

From a recent low of 1.8 percent in 2006, F.H.A.’s loan volume grew to a high of 20.4 percent of all mortgage originations in 2009, and last year it insured 15.2 percent based on dollar volume, according to data from Inside Mortgage Finance, an industry publication. In the last three years, F.H.A.’s volume was about four times its levels of 2005 and 2006.

“That is tremendous growth in just five years,” said Terence Floyd, a vice president of People’s United Bank in Bridgeport, Conn. F.H.A. loans appeal to first-timers who otherwise could not afford to buy, he noted, adding, “They don’t have 20 percent to put down.”

Loans insured by the F.H.A. require only a 3.5 percent down payment for borrowers with a credit score above 580; those with a score of 500 to 580 need at least 10 percent down. Some lenders require higher scores. For instance, Somerset Hills Bank in Madison, N.J., looks for a score of at least 640 for an F.H.A loan, according to Jody Tobia, a senior vice president.

Mr. Tobia says he expects many borrowers to continue with F.H.A. loans despite the higher fees, because of the low down payment and the ability to wrap the upfront insurance fee into the initial loan balance.

While some lenders consider F.H.A. “the only game in town” for first-time buyers of modest means, there are other options. Some credit unions, including New York Municipal Credit Union, are offering mortgages with a 5 percent down payment, said Daryl Newkirk, a mortgage loan originator at the New York credit union. The loans are for single-family homes; buyers must have a credit score of 660 or higher. Mr. Newkirk said that about half the borrowers who come to New York Municipal Credit Union are looking for mortgages with down payments of 5 percent or less.

For first-time buyers, determining a maximum affordable monthly payment is key. F.H.A. mortgage insurance premiums are added into the principal, along with interest and escrowed taxes and insurance amounts. HUD estimated that the annual premium increase will add, on average, $5 a month to consumers’ mortgage costs. Some low-income buyers, however, may be eligible for grants or other assistance to cover some of their closing costs.

Mind Your Mortgage: For Seniors

When senior mortgage fraud hits home

Lew Sichelman, United Feature Syndicate, March 16, 2012, link
Mortgage fraud hits homeSeniors who are isolated and lonely are vulnerable to financial abuse, which includes theft, investment fraud and home repair schemes. (Tetra Images, Getty images / March 16, 2012)

 

The recent conviction of a Delray Beach, Fla., loan officer for his participation in a scheme to persuade seniors to refinance their reverse mortgages should serve as a warning to the friends and relatives of elderly people about the surprising ease with which senior homeowners can be exploited.

That the loan officer and his co-conspirators, including a real estate title agent, were fabricating false loan applications and pocketing the money casts a pall over the entire lending business. And with good reason, according to the National Council on Aging, which ranks homeowner/reverse mortgage scams as the eighth-most prevalent scam specifically targeting seniors.

But rogue mortgage professionals aren’t the chief perpetrators of elder abuse. Family members are.

According to MetLife‘s Mature Market Institute, about 60 percent of the financial abuse cases substantiated by adult protective services involve an adult child. Sons are most likely to rip off their parents or grandparents, the study found, even more so than a paramour, bogus contractor, fly-by-night handyman or shady lender.

Still, although most lenders are lawful, some aren’t. If your senior is considering a loan that taps into the home equity he or she has built up over the years, here are a few questions family members and friends can ask to help prevent exploitation:

Does the senior understand the loan? This is something that will be covered in a session with an independent housing counselor, which is mandatory under the Federal Housing Administration‘s Home Equity Conversion Mortgage program. But make sure your mom, dad, grandparent, aunt or uncle knows what he or she is getting into before getting that far into the process.

Of course, this implies that your senior is willing to discuss his or her financial situation. Many keep that information to themselves for fear of losing their independence. But if you can get them to open up, you can discuss the pros and cons of reverse mortgages with them to be sure all of you understand the product.

If the senior doesn’t fully comprehend the nature of a reverse mortgage, that doesn’t mean it isn’t a good fit. It might just mean further education is needed, said Lori Delagrammatikas, who oversees the master’s program in adult protective services at the San Diego State University Research Foundation.

At the same time, the desire to take out a loan they don’t fully comprehend could be a sign that something else is going on in their lives.

Loneliness and isolation raise the risk of elder financial abuse, which covers a lot of territory, including theft, misuse of financial instruments such as powers of attorney, investment fraud, home repair schemes and identity theft. The high rate of dementia among seniors makes them a tempting target, especially when they own their homes free and clear and have good credit ratings.

Who is going to benefit? Find out who the real beneficiary will be and why. If it’s not the senior, your antennae should wiggle.

In one case a few years back, a 65-year-old woman was coaxed into taking out a $100,000 lump-sum reverse mortgage by her son, who gambled away the money in Las Vegas. The son was charged with criminal elder abuse and spent time in jail, but the money was never returned to his mother, who is now losing more than $3,000 of her equity every month.

A Montana woman recently was convicted of bilking her elderly mother out of $120,000 from the proceeds of a reverse mortgage. The mother suffered from Alzheimer’s, and prosecutors argued she did not have the capacity to appreciate or understand the loan. The conniving daughter used the money to pay off her own credit cards, buy jewelry and stable her horses, among other things.

Red flags for this kind of abuse include caregivers who isolate elders from family and friends, newfound anxiety about their finances, new “best friends,” missing belongings or missing statements or other documents from banks or investment advisers.

Is the senior being coerced? Determine if your senior is being pushed into the loan and, if so, by whom.

In another case, an elderly couple turned over the proceeds of their reverse mortgage to their grandson, who had threatened to commit suicide if they didn’t give him the money. It also appeared that some of the loan documents in this case were forged.

Be particularly aware of in-home helpers, including personal care attendants and meal service providers, who have access to the senior’s financial papers and identifying information. Pay special attention to those hired directly from newspaper ads or referral services not screened or supervised by a government agency.

Can the senior’s financial needs be satisfied in another way? There are several alternatives to reverse mortgages.

If you suspect your senior is being taken advantage of, contact the adult protective services agency in your state. Such programs are typically housed within local or state departments of social services or aging. Further information can be found on the National Center on Elder Abuse’s website (ncea.aoa.gov).

Construction Confidence? And now for a more sobering view…

Homebuilders slog ahead on a long road to recovery

John W. Schoen, MSNBC.com, March 20, 2012, link

The home building industry is slogging along on a path to recovery. But it will be awhile before the industry is back to what feels like “normal.”

Permits to build new homes closed in on the highest level in more than three years in February, a sign that the housing market is slowly healing from the worst collapse since the Great Depression.  New building permits surged 5.1 percent to a seasonally adjusted annual rate of 717,000 units last month, the Commerce Department said Tuesday.

The pickup in permits is a signal that builders are seeing stronger demand. Much of the new construction is geared toward multifamily housing, which jumped 21 percent last month as strong demand continues to push rents higher.

“This report is one of the more encouraging new construction reports we have seen in the last four years,” said Patrick Newport, an economist at IHS Global Insight. “Still, as the Fed reminded us in its (policy) statement last Tuesday, the housing sector remains depressed.”

Single-family home construction faces a major headwind as the backlog of unsold existing homes continues to weigh on prices. Housing starts last month fell by 1.1 percent, depressed by a 9.9 percent drop in single-family homebuilding.

As often happens in winter, weather patterns around the country had an impact on the pace of building. Housing starts were up in the Midwest and South last month and down in West and Northeast.

Despite the steady gains, the homebuilding industry still has a long road back to the boom years, when starts peaked an annual rate of 2.3 million units. Falling home prices in many parts of the country have discouraged some would-be home buyers.

“The recovery in housing starts is still being hampered by stiff competition from foreclosures and short sales. Paul Diggle, a housing economist at Capital Economics

Diggle estimates the pace of starts will continue to pick up this year, reaching an annual rate of 750,000 this year.

That pickup in residential construction is expected to help boost to economic growth for the first time since 2005. While the direct impact of home building accounts for just 2.5 percent of gross domestic product, new home buying helps boost other industries from appliance manufacturing to landscaping.

Economists estimate that for every one house built, about 2.5 jobs are created. Those new jobs also help create demand for homes, which helps push the homebuilding recovery forward,

“We are going to see housing (construction) add to GDP in 2012,” said Stephen Stanley, chief economist at Pierpont Securities in Stamford, Connecticut. “There is still a glut of existing homes in areas where there are a lot of foreclosures. But the supply of new homes is getting tighter so if there is sustained demand for them we could see construction continue.”

Construction Confusion? The positive perspective…

Housing starts dip, building permits leap in Feb.

Reuters, March 20, 2012, link

Housing starts
Reuters7:39 a.m. CDT, March 20, 2012

U.S. housing starts fell in February, but permits for future construction jumped to their highest level since October 2008, according to a government report on Tuesday that showed steady improvement in the housing market.

The Commerce Department said housing starts slipped 1.1 percent, to a seasonally adjusted annual rate of 698,000 units. January’s starts were revised up to a 706,000-unit pace from a previously reported 699,000 unit rate.

Economists polled by Reuters had forecast housing starts little changed at a 700,000-unit rate. Compared to February last year, residential construction was up 34.7 percent, the biggest year-on-year rise since April 2010.

New building permits surged 5.1 percent, to a 717,000-unit pace last month, far exceeding economists’ expectations for an advance to a 690,000-unit pace from January’s 682,000-unit rate.

Green shoots are starting to emerge in the housing market, but an oversupply of unsold homes, which is depressing prices, remains a major hurdle, even as sales have picked up in recent months.

Residential construction is expected to add to economic growth this year for the first time since 2005.

Sentiment among home builders held at a near five-year high in March, a survey showed on Monday, and they were optimistic about sales over the next six months.

Housing starts last month were pulled down by a 9.9 percent drop in the construction of single-family homes, which account for a large portion of the market.

Groundbreaking for multi-family housing projects soared 21.1 percent. This segment is benefiting from rising demand for rental apartments as falling house prices discourage some Americans from owning a home.

Housing starts in the South rose to their highest level since October 2008.

Permits to build single-family homes jumped 4.9 percent to a 472,000-unit pace, the highest since April 2010. Permits for multi-family homes increased 5.6 percent to a 245,000-unit rate.

Construction Confidence? Mixed signals…

Mixed Price Signals from Builders

JUNE FLETCHER, Wall Street Journal, March 16, 2012, link

Q. I am interested in new homes, but don’t want to buy one that will go down in value. It looks as if the country’s economy is getting a little better, but I am getting mixed signals from local builders. Some are lowering their prices, while others are raising them. Why is that and what does it mean for my market?

–Denver

A. If you are planning to stay in your home for three or more years, you probably don’t have to worry about falling new-home values.

But we are still in the beginning stages of a recovery, which is one reason why you’re getting such confusing signals from builders. Since the recession began, builders have been hammered, but not all have been affected equally; nor have they responded to the downturn’s demand in similar ways. That puts some of the builders in a much better position than others to give you a good value on their homes.

To see how well any builder you’re considering has weathered the downturn, take a look at their annual reports and financial press for the past several years. You should be looking for signs of how well they anticipated and prepared for the downturn, which will give you clues as to how savvy its management is.

For instance, some had to take steep losses on homes or developments that they over built during the boom years. Others found themselves stuck with big land inventories that they had gobbled up during the boom years at premium prices. These builders may well have to play catch up as the markets turn to make up for their previous poor performance, and one way is to increase prices on new developments. (Other ways include cutting features and squeezing contractors.)

On the other hand, other builders got great deals on lots that their land-bloated peers shed during the recession at bargain prices. They looked for ways to make their homes more competitive, perhaps by making them greener and more energy-efficient. These builders don’t need to pump up prices dramatically on their new customers, and are holding them down—for now.

But as the recovery continues, I do think you will see across-the-board price increases, for several reasons. A 2011 survey by the National Association of Home Builders showed that average construction costs for a single-family home declined to $184,125 from $222,511 in 2009, mostly because the finished area of homes had declined, to about 2,300 square feet from 2,700 square feet. But home shrinkage isn’t likely to continue as the “millennial” generation starts forming families. And several manufacturers and suppliers of building products, including gypsum and roofing, have announced substantial price increases this year.

Meanwhile, in your case, Denver seems to be climbing out of the doldrums. The Metro Denver Economic Development Corp. projects employment growth will be 1.1% in 2012, mirroring the national average, and more demand for housing; about 15,400 people are expected to move to the area, compared with about 8,500 in 2011.

Improved job growth and demand has heartened builders; so has the falling supply of resales, which were down 42% in January from a year earlier, according to the Home Builders Association of Metro Denver. That month, builders took out 318 permits to build single-family detached homes, and 50 to build single-family attached homes. That’s an increase of 48.6% and 117.4%, respectively, from a year earlier.

So if you are interested in buying a new home, I suggest you start shopping now. Once all builders feel more confident that they can raise prices without losing business, they will.

Luxury Becomes Affordable…

It’s A Good Time to Buy – Get A New Home Before Prices Rise

Chicago Tribune, link

There has been a lot of uncertainty and change in the real estate market in the last few years. But, one thing those in the know agree on: The housing market seems to be heading in a positive direction.

While that’s good news for the economy it’s also good news for anyone considering the purchase of a new home.

Someone who buys a new home now is in the perfect position, explains Andy Konovodoff, president of K. Hovnanian Homes. Four years ago buyers were at the height of the market and paying a high price for homes. In three to four more years the market will likely be back to higher prices and rates.

“This is the perfect time, right in the middle,” he says.

Mortgage rates are the best they have been in 50 or 60 years, Konovodoff adds.

“My dad had a mortgage in the late 1940s that was 4 percent. I thought I would never see that,” he says.

As a result of the economy, home prices have gone down while everything else has appreciated and interest rates remain low.

“It’s the perfect storm right now,” he says.

 

Factor in reality

Home prices are still low, but will likely begin to increase as the economy mends.

David Patzelt, president of ShoDeen Inc., says improvements in the industry, such as an increase in home sales, are being seen in markets like Florida that were first hit by the collapse.

“The market appears to have hit bottom and is returning,” he says.

Patzelt says other factors that will impact new home prices include the rental market, which is becoming saturated and driving rental rates higher.

“This will start to push renters back to buyers,” Patzelt says.

Nathan Amidon, division manager of New Home Star, a real estate sales and marketing firm, agrees pricing has come down to a point where owning is more attractive.

“We have seen home sales pick up in recent months, suggesting more people are gravitating back to owning,” he says.

For those who already own a home Konovodoff says a new home could be considered an equity swap. While the home being sold may have decreased in value by 30 percent, so too have prices on new construction.

“It’s a lateral move,” Konovodoff says in terms of the cost, but points out that in return homebuyers are getting new communities, amenities and a place they want to live.

Amidon says new homes are a value right now because the difference in pricing between a newly built home and a resale is not that great and buyers get a lot of benefits from a new home designed to their taste.

Used homes come with their share of costs such as replacing and fixing dated materials and appliances, he says. “New homes don’t have the same risks because all the features are new and come with builder and manufacturer warranties protecting the home owner from these out-of-pocket expenses.”

Commodity or material prices also affect new home prices, says Patzelt.

When housing slowed down many lumber mills closed, Patzelt says.

“Thus, inventories have been greatly reduced. Low inventories on the ground and mill closings has the supply low and thus prices are heading up. When the commodity prices go up, builders will need to start raising prices,” he says.

As the economic downturn hit, there was an oversupply of homes as demand dwindled, explains Amidon. “With demand beginning to increase, as evidenced by the Illinois Association of Realtors statistics showing increased home sales year over year, the opposite will be true,” he says. “Permits in Illinois have dropped by 90 percent meaning there have been very few new homes built over the past few years. Increased demand and very little new home supply will lead to rising prices in the future.”

 

What’s out there?

Konovodoff says with fewer builders in the marketplace and an improving economy, demand for new homes will also drive up home prices.

Some builders saw a profit late last year and others closed the gap on their losses, he says.

“We’re at the tipping point now,” Konovodoff says.

In an effort to keep buyers interested many builders have been offering discounts, free options and credits.

“This is great for buyers because they are able to really minimize the out of pocket cash to purchase and are able to afford better features to truly make it their dream home,” says Amidon. “I see this as the first thing that builders begin to scale down as costs of these options often can rise faster than those items they include in the base home. These deals are still out there right now and buyers should take advantage of them.”

What hasn’t changed during the economic struggles is many homebuilders’ commitment to quality.

Patzelt says during the slowdown ShoDeen took the time to review its product line.

“We analyzed what worked in the past, asked ourselves if it will still work in this new economy, and more specifically do we have what we believe the ‘new home buyer’ is looking for,” explains Patzelt. “As a result we made improvements that include more energy efficient specifications, green building techniques and improved floor plans for the way people want to live today.”

 More coming

Another sign that the housing market is improving is the continued progress of builders with longevity in the market.

ShoDeen is building on its success with a new community, Elburn Station. It will incorporate many of the building and environmentally friendly designs as ShoDeen’s Mill Creek in Geneva, a master planned community of single and multifamily homes that has been built in stages and won awards for its building standards and environmental features since the late 1990s.

Konovodoff says in 2011 K. Hovnanian doubled its communities by acquiring properties and expects to acquire five more this year.

“Things are pretty active,” he says. “It’s exciting.”