FHA-friendly…

FHA Mortgage Demand Rises Nationwide, Banks Eager to Lend in Kansas

/ LA Times / October 15, 2012 / link

Federal Housing Administration (FHA) mortgages–both new mortgages and refinances–rose in popularity in August as more homeowners and home buyers took advantage of historically low interest rates.

According to the Campbell/Inside Mortgage Finance HousingPulse Tracking Survey, mortgages insured by the FHA rose from 25.5% to 25.9% of transactions in August as compared to July. That moderate rise is the continuation of a trend towards more home buying and mortgage refinancing across the country, but is still below the peak in January of this year, when FHA transactions were 27.3% of all home purchases.

The report, entitled HousingPulse and released in September, suggested that FHA transactions will possibly become a smaller portion of overall mortgages as conventional loans become more popular. “Conventional mortgages are making a comeback while FHA mortgages are not,” said Thomas Popik, Research Director of Campbell Surveys. In total, mortgages were used to pay for new home purchases more frequently in August than in July. A total of 68.9% of transactions were funded by a mortgage in August, compared to 67.5% in the previous month. This suggests that less home purchases are being made by cash-rich investors, and credit is becoming easier to acquire as banks become more willing to lend to a variety of homeowners and home buyers.

In Kansas, several homeowners had expressed frustration with securing a refinance of their existing FHA home loan. Thanks to new FHA streamline guidelines put into effect on June 11th, it is now easier than ever for homeowners to refinance their loans, and at lower cost. Since the government lowered the cost of FHA mortgage insurance, the rate of FHA streamline refinances has risen considerably both in Kansas and across the country. This is partly because FHA insurance premiums have been drastically cut. Anyone refinancing an FHA loan has to pay a 1.750% upfront premium, but since June 11th that upfront premium was lowered to 0.01% for loans that were endorsed prior to June 1, 2009. This means that a homeowner refinancing a $100,000 mortgage must pay just $10 in upfront insurance premiums.

For the duration of the loan, the annual insurance premiums have also fallen. Eligible homeowners will see their premiums fall to 0.55%, meaning a borrower with a $100,000 mortgage refinanced according to the new FHA streamline rules will pay just $550 in annual premiums, or $45.83 monthly. Homeowners with an eligible existing FHA loan can qualify for the new FHA streamline process, and they can secure extremely low interest rates thanks to record low rates on all types of home loans.

Looking to be a landlord?

It is an ideal time to invest in rental property

 Bob Walker / SFGate / October 12, 2012 / link

Q: What kind of property would you say is the best real estate investment to make in the current market?

A: If you’ve done a rent versus buy analysis and decided buying is the answer, then a principal residence is on the list of best investments.

For those who already own their own home and are fortunate enough to qualify for a loan or are able to pay cash, now is absolutely the best time to invest in residential income property. The perfect storm of historically low interest rates, difficult lending qualifications, increasing household formation and steady job prospects have renters scrambling to find housing. Rental rates have increased dramatically over the last year as tenants compete for scarce rental offerings. It is now common for landlords to receive multiple applications in just one showing and be able to pick and choose from many very well-qualified prospective tenants.

In addition to diversifying your investment strategy, residential investment properties also offer a number of distinct advantages. First, there’s the ability to capture future property appreciation as housing continues its recovery. Second, if fixed rate financing is used, mortgage payments remain constant while inflation continues to drive rents higher. Third is the ability to reduce your taxable income by depreciating the value of the structure over 27.5 years. But always be sure to check out personal tax issues with a tax accounting professional.

 

Older, Wiser and Better Borrowers

Older borrowers rush to lock in rock-bottom mortgage interest rates

Pete Carey / San Jose Mercury News /October 15, 2012 / link

The lowest mortgage rates in history are helping older borrowers ease their debt burden and allowing baby boomers to sock money away for retirement, mortgage brokers say.

“I’ve gotten a lot of people who are not quite to retirement, but can kind of see it on the horizon,” said Cheryl Mehe’ula of mortgage broker E.F. Foley in San Jose.

“They want a payment they can really live with over a longer term,” Mehe’ula said.

The average rate of a 30-year fixed mortgage dropped to 3.36 percent, the lowest it has been since mortgage giant Freddie Mac began record-keeping in 1971, before rising slightly last week. A 15-year fixed loan fell to 2.69 percent.

The low rates carry special urgency for boomers and seniors. The median value of mortgage debt for people 55 to 64 years old has increased 187 percent in the past two decades, probably because many pulled out home equity during the housing bubble, according to a report by AARP. The median amount of debt for people ages 65 to 74 has also increased sharply, the AARP said.

There’s one catch to refinancing and it’s a big one: The borrower has to have enough equity to meet tough credit requirements.

“I’m certainly advising clients, if they’re not underwater, to definitely lock in the best fixed rate they can,” said Michael Olff, a financial planner with Gateway Financial Advisors in Walnut Creek.

For those who can take advantage of them, the low rates can produce big savings.

For example, a 30-year, $300,000 mortgage at 3.36 percent carries a monthly payment that’s almost $200 less than one at 4.5 percent. A 15-year, 2.69 percent loan would carry a higher monthly payment than the 30-year loan but would pay off sooner and save $70,000 in interest.

Carol Bogosian, an actuary and president of CAB Consulting in Chicago, said too many people “just look at the payment and don’t think through this.” A refinance resets the loan period to another 30 or 15 years,

Bogosian said.

“That means you will not only be paying longer but building the equity slower than your current shorter-term mortgage,” she said. Also, fees may be wrapped into the loan, increasing the balance.

“You can make adjustments for these issues by selecting a shorter loan term and paying down principle in advance of the refinance, but most don’t,” Bogosian said. “You want to have that house paid off at some time, especially when you’re in your 80s when you have long-term health care needs.”

Financial planner Olff said many of his clients are choosing shorter-term loans.

“They’re opting for reducing the time, so somebody 55 would be looking at a 15-year loan and paying it off at retirement.

“It really depends on the person’s financial plan and risk profile. Do you want your house paid off or a mortgage you have to pay out of your 401(k) or Social Security?”

He encourages clients who aren’t retired and who refinance for the extra cash to put the savings into their retirement accounts. “It’s not money they should just go out and blow,” he said.

Julie Schatz of Investors Capital Management in Menlo Park said she’s advising clients to refinance because “a fixed-rate 30-year mortgage is the best hedge against inflation.”

Retired Saratoga physician Donald Rawson said he’s refinancing a 4.75 percent loan and saving about $500 a month.

“We had five children and just finished paying off the college expenses not long ago, and upgraded the house a few years back,” he said. “We had a pretty good-size mortgage.”

When interest rates began reaching new lows he contacted Doug Jones at Mortgage Magic in San Jose.

Jones said, “It just blows me away, what the rates are.” The new low reached in early October didn’t cause a spike in business because rates have been low all year, he said. “But it’s been a steady business.”

Average rates started the year below 4 percent and have dropped all year long, save for one week in March when they briefly popped up to 4.08 percent, before resuming their downward march.

Some older borrowers, like retired teacher Wayne Johnson and his wife, Diane, are tapping equity for home improvements.

“We have been remodeling the bathrooms, painting, replacing the deck, doing some yardwork — you name it,” Johnson said. “The change in interest rates made it very favorable for us to do it.”

It’s his second refinance in a year on the home he has owned for almost 35 years in a neighborhood near the high-end shopping center Santana Row in San Jose.

“We have lots of equity in the house. It was a good time to pull some of it out. With Santana Row expanding again, some houses a couple of streets down are going in the high-price range,” he said.

But refinancing is “much more tedious than it was before,” warned Perry Harmon at Financial Strategies Group in Berkeley.

“The banks are going to look at every single little thing, and they’re backlogged,” so everything takes longer. Borrowers have to be patient and be prepared to answer a lot of questions, he said.

Refinance Recommendations

Looking for best refi deal

E. Scott Reckard / Chicago Tribune /October 5, 2012 / link

The latest frenzy of mortgage refinancings has benefited millions of Americans who have been responsible or lucky enough to qualify for 30-year fixed-rate home loans below 4 percent.

Home lending professionals have some bad news, though, for many of these homeowners: They could have done much better had they shopped for the best rate instead of grabbing the first refi pitched to them.

Quoted rates can vary by more than a percentage point for the same customer seeking a 30-year fixed loan, according to LendingTree. The online mortgage shopping service provides information about potential borrowers to lenders who then can bid for the business.

A consumer with a credit score of 759 and a loan amount of $260,000, for example, might have received quotes from lenders in early August ranging from 3.25 percent to 4.625 percent. By choosing the lowest rate, the borrower would save $214 a month, $2,568 a year and nearly $74,000 over the life of the loan.

Yet a recent Harris Interactive survey of 1,380 homeowners, conducted for LendingTree, found that 9 in 10 American adults compared prices when shopping for big purchases. But fewer than half of homeowners shopped around to refinance their current mortgages.

LendingTree Chief Executive Doug Lebda advised borrowers to negotiate with lenders and be prepared to walk away if a deal seems lackluster — even though the mortgage process can seem impossibly daunting and complex.

“Consumers need to be engaged,” Lebda said. “A lot of them are just happy to have it over with rather than hang in there to get the best deal.”

While providing access to multiple lenders, online sites like LendingTree have drawn mixed reviews. Some borrowers complain of being bombarded with high-pressure pitches for nothing-special rates or loan products that they didn’t ask for and don’t want.

Lebda said lenders using his service are free to pitch products other than those the borrowers are seeking. Someone seeking a 30-year fixed loan, for example, might be offered a loan with a lower initial rate that can rise after five or seven years. That’s fine if you’re sure you’ll move before the day of reckoning arrives, he said, but it’s better to compare loans of similar types to get a clear idea of the best deal.

Jeff Blyskal, a senior editor at Consumer Reports, advised borrowers to talk to several banks, savings and loans and credit unions to gauge available rates and terms. “Our whole thing is shop everywhere you can,” he said.

He said borrowers should then consider consulting a mortgage broker who has access to multiple lenders, perhaps consulting the National Association of Mortgage Brokers to find a certified professional.

Don’t rule out small local banks, some of which are eager to make mortgage loans, Blyskal said. “They may get to know you better, so you’re not just a number and a credit score,” he said. “You may fit what they’re looking for.”

Lending standards remain tight as a drum and pose challenges for all but the most rock-solid borrowers, he said.

What customers leave on the table enhances the profits of lenders, who have enjoyed soaring revenue and profits since the typical 30-year fixed mortgage rate dipped below 4 percent last fall and then trended downward to the 3.5 percent range this summer.

The biggest example was Wells Fargo & Co., which issues a third of all U.S. home loans and said in its second-quarter financial report that mortgage applications were at an all-time high. The bank wrote $141 billion in new home loans during the quarter — more than twice the amount from a year earlier and up 2 percent from the booming first quarter.

What is remarkable about the loans is not only their huge numbers but also their profitability for the banks.

Mortage Bankers Association figures show lenders, awash in refinance applications, have been making extra money by keeping the rates relatively high compared to their cost of funds. That makes the loans more profitable when they are sold — as nearly all 30-year mortgages are — to Fannie Mae, Freddie Mac or other buyers in the secondary markets.

A report from the trade group at the end of June showed mortgage lenders made an average profit of $1,654 on each loan they originated in the first quarter of 2012, up 51 percent from $1,093 per loan a year earlier. Income from mortgage sales rose from an average $3,827 per loan in the first quarter of 2011 to $5,011 a year later, an increase of 31 percent and the highest gain on sales since the trade group began tracking mortgage banker production profits in 2008.

The profits are greater despite rising costs for personnel, commissions, office space and equipment in the mortgage industry, the trade group said.

Is flipping coming back our way?

Property flipping regains traction in Chicago area

Mary Ellen Podmolik / The Home Front /October 4, 2012 / link
Property flipping regains tractionMike Baird and Doug Clark, who have been flipping homes together for seven years, advise newcomers to the business to research an area thoroughly before buying properties. (Spike TV, Handout / October 4, 2012)

Property flipping is gaining speed again in the Chicago area.

During the first six months of the year, 1,067 homes were flipped in the seven-county Chicago area, a 30 percent increase from 2011’s first half, according to RealtyTrac, a real estate data provider.

That’s still way down from 2010, and as prices start to move off the bottom, some would-be investors may decide they’ve missed their opportunity. However, home prices remain at levels not seen since the early 2000s, which means there are still ample opportunities for investors.

The Chicago area’s year-to-date flipping volume mirrors that of the nation, where the almost 100,000 flips that took place in the year’s first six months were a 25 percent increase from a year ago.

By RealtyTrac’s definition, a house is flipped if it’s first sold at a discounted price and then resold, typically within 90 days, for market value, which assumes that improvements were made to the property. The majority of flipped properties are thought to have come from distressed sales.

It can be a profitable endeavor for the right person. In Cook County, for instance, the average gross profit for a flipped property, not including the rehab costs and carrying costs, was more than $55,000, and it took an average of 114 days to flip a property.

That profit potential was the reason why Mike Baird and Doug Clark, of Spike TV’s “Flip Men,” got into the business in Salt Lake City.

Baird became interested in real estate and flipping after graduating from college but knew nothing about home repair and maintenance. His father took him to a hardware store, where he learned the difference between a Phillips and a flat-head screwdriver.

Clark was a commercial airline pilot who says “the only thing I knew about real estate was they paid me to fly over it.” After meeting Baird at a real estate auction, he began to shadow him to learn the business and the two formed a company together in 2005.

In a recent webinar for RealtyTrac, the two shared their advice for newcomers to the business.

Do plenty of research. Pick an area, a small area, and know it thoroughly, including the average selling price per square foot for homes, when homes most recently sold and how that price compares with historical trends for the neighborhood.

Clark and Baird would play a game of sorts, driving around looking at homes for sale and their square footage and guessing what their selling price would be. Eventually, they started making accurate guesses, which they said meant they understood the value of the area.

Be patient. Be prepared to look at a lot of properties before deciding to move forward with an offer. Baird and Clark may look at the descriptions of 50 to 100 properties a day and only bid on a few of them.

“It’s much worse to buy a bad deal than no deal at all,” Clark said.

“Don’t get frustrated if your first offer, your first deal, your first day, doesn’t work out.”

Forget real estate’s unwritten rule. Adopt a new way of thinking. “In real estate, it’s location, location, location,” Baird said.

“In flipping, it’s price, price and then price again.”

When an opportunity then presents itself, in a well-researched area, potential investors know what price to bid, what renovations would be needed to make the house marketable and what the market price should be.

Consider becoming a landlord. Think about whether the goal is short-term gains or building a portfolio that produces passive income. The flip men have a sizable portfolio of rental properties in addition to their flipping business.

“Holding is a guaranteed victory, in my opinion,” Clark said. “Everyone looks like a genius when you hold a property long enough. Over time, land values go up. I call it BYOR: Bring your own retirement.”

Paying our tabs…

Mortgages Being Paid Off At Fastest Pace Since 2005

Jann Swanson / Mortgage News Daily / Oct 3 2012 / link

Mortgages were prepaid at a higher rate in August than at any time since 2005 according to the August Mortgage Monitor report issued by Lender Processing Services (LPS) on Wednesday. Prepayments are usually an indicator of home refinancing and the prepayments in August were higher even than those seen in the “mini-refinance waves” of both 2009 and 2010.

LPS Applied Analytics Senior Vice President Herb Blecher said that the impact of the prepayment increase has been both pronounced and broad based.  “Our analysis showed an increase in prepayment activity across the entire combined loan-to-value (CLTV) continuum,” he said. “While those loans with equity, particularly 80 percent CLTV and below, have much higher prepayment speeds, the impact of the Home Affordable Refinance Program (HARP) was also clear. Loans with a CLTV of more than 120 percent saw the greatest uptick – a 65 percent increase for the year to date. However, it is also becoming evident that loans originated in 2007 and earlier have diminished prospects for conventional refinancing opportunities. Fewer than 30 percent of these vintages remain both active and current, and on average, they are marked by larger negative equity positions and lower credit scores. That said HARP might yet represent a viable refi option for a good portion of this pool.”


The U.S. loan delinquency rate fell 2.30 percent during the month to a rate of 6.87 percent. The current rate is 10.6 percent below that of one year ago, 7.69 percent.  Continuing its decline, the inventory of loans 90 or more days delinquent is now almost 50 percent off its January 2010 peak. The bulk of the remaining inventory has now been past due for more than nine months, with a full 43 percent past due for 12 months or more. There are, however still, signs of ongoing modification activity in late-stage delinquency, with loans six or more months past due but not yet in foreclosure showing the greatest increase in cures from the prior month’s status.

The foreclosure presale inventory rate was down 1.00 percent from July and 2.0 percent from a year earlier to 4.04 percent.  This is the lowest point for the inventory since October 2010 but the average is misleading.  In judicial foreclosure states the inventory is at a near record high of 6.49 percent while it is only 2.28 percent in non-judicial foreclosure states.  Foreclosure sales were up 12 percent nationally in August, but remain 33 percent below their September 2010 peak.

Origination volume has recovered substantially from the low points reached in each of the last three years but still remains well below historic levels.  July originations totaled 655,000, up 3 percent from June and 39.0 percent higher than one year ago.

Mortgage Monitor statistics arederived from the LPS database of loan level residential mortgage data and performance information on nearly 40 million loans across the spectrum of credit products.

It’s Raining Loans!

Mortgage applications rise to 3-year high

Mary Ellen Podmolik / Chicago Tribune /October 3, 2012 / link
Mortgage ratesThe Washington, D.C., headquarters of major home financier Freddie Mac. (Freddie Mac / September 6, 2012)

Applications to refinance home mortgages rose last week to their highest level in more than three years, as homeowners sought out record low interest rates caused by the Federal Reserve’s continued purchase of mortgage-backed securities.

The Mortgage Bankers Association said refinance applications increased 20 percent from the previous week, pushing the refinance index higher than it’s been since April 2009. Home purchase applications, meanwhile, rose 4 percent last week.

Last week, each of the five mortgage rates in the trade group’s survey dropped to new record lows, including an average contract interest rate of 3.53 percent for a 30-year, fixed-rate conforming mortgage.

The association said refinancing applications accounted for 83 percent of all applications last week, up from 81 percent the prior week.