By Sarah Max, contributing writerSeptember 2, 2010: 3:14 PM ET
(MONEY Magazine) -- 1. Loyalty is overrated
Many insurers have been raising rates to make up for losses they suffered during the financial crisis, industry experts say. At the same time, insurers are competing hard for new customers, which means some of them are cutting better deals for new policy holders than for existing ones, says Deeia Beck, executive director of the Office of Public Insurance Counsel, a state consumer agency in Texas.
diggEmail Print CommentWhen your annual renewal statement lands in your mailbox, check InsWeb.com and NetQuote.com to see if you can snag a better deal elsewhere. Consider moving your auto policy too; bundling home and auto coverage with the same insurer can cut your total premiums by 5% to 15%.
2. You may have too much coverage
It's common for policies to contain inflation-protection provisions that automatically increase your coverage amount. "In most years, that's a good thing," says Scott Richardson, director of the South Carolina Department of Insurance. Now that construction costs have fallen? Not so much.
For now, pass on inflation protection and adjust your coverage amount to a more realistic figure. Lowering replacement value from, say, $300,000 to $250,000 might shave 10% off your premium.
3. A bad rep can cost you
Just as lenders check your credit history before figuring out what rate to charge you, insurers tap into national databases such as the Comprehensive Loss Underwriting Exchange (CLUE) to see what claims you've filed in the past. Those records can be full of errors, warns Doug Heller, executive director of Consumer Watchdog, an insurance advocacy group.
Check your insurance report for mistakes at choicetrust.com; it's free if you've been denied coverage ($19.50 otherwise).
4. Small claims can cost you, too
Go with the highest deductible you can afford and bank the savings to cover the cost of minor repairs. Filing a claim for every broken window or leaky pipe can drive up your premiums by 10% to 15%, says Don Griffin, a vice president at Property Casualty Insurers Association of America. (Some experts say that even inquiring about making a claim can raise a red flag.)
Increasing your deductible from, say, $500 to $1,000 can lower your annual premium by as much as 25%, according to the Insurance Information Institute.
5. A home's history matters
In the market for a new house? It may seem unfair, but claims associated with the property before you buy it can result in your paying more than you would otherwise. "Certain locations [such as those vulnerable to flooding] may be more prone to claims," explains Kiran Rasaretnam, CFO of InsWeb.
To get info on past claims, ask for a copy of the seller's CLUE disclosure report (see No. 3). Yes, you're stuck with the history of the house you buy, but you can use what you find to negotiate a lower price with the seller.
Sunday, September 12, 2010
Sunday, August 22, 2010
4 Big Money Mistakes of First-Time Homebuyers
by Michele Lerner
Wednesday, August 18, 2010
First-time homebuyers almost always make a few mistakes when buying their home. Perhaps they pay too much, choose the wrong type of mortgage or neglect to budget for needed home improvement
Working with a trustworthy, experienced lender can help prevent such mistakes. But consumers also need to take responsibility for their budgets and choices.
"Before buying a home, consumers need to develop a short- and long-term perspective on their purchase," says Michael Harrison, area director for MetLife Home Loans in Southwest Ohio.
Following are the four biggest financial mistakes of first-time homebuyers:
1. Spending the Maximum on Housing
Lenders qualify buyers based on their incomes and debt-to-income ratios without considering how much the borrowers spend on items such as transportation, savings, food and other necessities
"A lot of first-time buyers are optimistic about the future and excited about buying a home, so they borrow the absolute maximum they can afford instead of allowing themselves wiggle room for a partial loss of income or for future expenses such as children," Harrison says.
Financial experts recommend that consumers decide how much they want to spend each month on housing before meeting with a lender.
"Every buyer should create their own budget and know their limits," says Stephen Adamo, president of Weichert Financial Services in Morris Plains, N.J.
Adamo says many first-time homebuyers experience a sizable change in their housing payments. Some new owners may go from $500 per month in rent to a monthly mortgage payment of $2,000, he says.
"You need to deal with payment shock," Adamo says.
2. Not Getting Prequalified Early Enough
Meeting with a lender for a buyer consultation and prequalification for a mortgage should be the first step toward homeownership. Yet many first-time homebuyers wait until they are ready to start house hunting before contacting a lender.
"It's never too early to set up a free buyer consultation with a lender," Adamo says. "Every buyer needs to get prequalified early enough in the process so that they can make some changes if they need to or correct errors on their credit report."
Some buyers may need to spend up to a year saving more money, increasing their incomes or cleaning up their credit before making an offer on a home.
A buyer consultation should include creating long-term financial goals and strategies for buying property, Adamo says.
3. Misunderstanding the Importance of a High Credit Score
While most consumers know it's important to have a high credit score, not everyone understands how costly a low score can be.
"All mortgage lending is done with a tier of interest rates and terms based on consumer credit scores," Harrison says. "A credit score of 720 or above will earn you the best rates and can potentially save you thousands of dollars."
A score of 680 to 720 can get you good mortgage rates, while a FICO score of 620 is usually about the lowest score to qualify for most loans, Harrison says.
Consumers should learn about credit scores the minute they start working, Harrison says.
Websites such as Bankrate provide information about how to improve your credit score.
Even after a mortgage approval, consumers must avoid applying for new credit or taking on new debt, Adamo says, because a second credit check is often required before settlement.
4. Choosing the Wrong Mortgage Product
First-time homebuyers today typically opt for a 30-year fixed-rate mortgage. Their conservatism is a reaction to stories about the dangers of interest-only mortgages and adjustable-rate mortgages.
But Harrison says home loan alternatives to a 30-year-fixed sometimes make more sense. For example, buyers certain they will be relocated by their companies within five years may find a 5/1 ARM "could be a much better mortgage," he says.
"There's no reason to pay a premium for a product you don't need like a 30-year loan," Harrison says.
Homebuyers eager to build equity in their homes or who are older and want to live mortgage-free in retirement should consider a 15-year fixed-rate loan or, if they can afford it, even a 10-year mortgage to reach their goals.
Copyrighted, Bankrate.com. All rights reserved.
Wednesday, August 18, 2010
First-time homebuyers almost always make a few mistakes when buying their home. Perhaps they pay too much, choose the wrong type of mortgage or neglect to budget for needed home improvement
Working with a trustworthy, experienced lender can help prevent such mistakes. But consumers also need to take responsibility for their budgets and choices.
"Before buying a home, consumers need to develop a short- and long-term perspective on their purchase," says Michael Harrison, area director for MetLife Home Loans in Southwest Ohio.
Following are the four biggest financial mistakes of first-time homebuyers:
1. Spending the Maximum on Housing
Lenders qualify buyers based on their incomes and debt-to-income ratios without considering how much the borrowers spend on items such as transportation, savings, food and other necessities
"A lot of first-time buyers are optimistic about the future and excited about buying a home, so they borrow the absolute maximum they can afford instead of allowing themselves wiggle room for a partial loss of income or for future expenses such as children," Harrison says.
Financial experts recommend that consumers decide how much they want to spend each month on housing before meeting with a lender.
"Every buyer should create their own budget and know their limits," says Stephen Adamo, president of Weichert Financial Services in Morris Plains, N.J.
Adamo says many first-time homebuyers experience a sizable change in their housing payments. Some new owners may go from $500 per month in rent to a monthly mortgage payment of $2,000, he says.
"You need to deal with payment shock," Adamo says.
2. Not Getting Prequalified Early Enough
Meeting with a lender for a buyer consultation and prequalification for a mortgage should be the first step toward homeownership. Yet many first-time homebuyers wait until they are ready to start house hunting before contacting a lender.
"It's never too early to set up a free buyer consultation with a lender," Adamo says. "Every buyer needs to get prequalified early enough in the process so that they can make some changes if they need to or correct errors on their credit report."
Some buyers may need to spend up to a year saving more money, increasing their incomes or cleaning up their credit before making an offer on a home.
A buyer consultation should include creating long-term financial goals and strategies for buying property, Adamo says.
3. Misunderstanding the Importance of a High Credit Score
While most consumers know it's important to have a high credit score, not everyone understands how costly a low score can be.
"All mortgage lending is done with a tier of interest rates and terms based on consumer credit scores," Harrison says. "A credit score of 720 or above will earn you the best rates and can potentially save you thousands of dollars."
A score of 680 to 720 can get you good mortgage rates, while a FICO score of 620 is usually about the lowest score to qualify for most loans, Harrison says.
Consumers should learn about credit scores the minute they start working, Harrison says.
Websites such as Bankrate provide information about how to improve your credit score.
Even after a mortgage approval, consumers must avoid applying for new credit or taking on new debt, Adamo says, because a second credit check is often required before settlement.
4. Choosing the Wrong Mortgage Product
First-time homebuyers today typically opt for a 30-year fixed-rate mortgage. Their conservatism is a reaction to stories about the dangers of interest-only mortgages and adjustable-rate mortgages.
But Harrison says home loan alternatives to a 30-year-fixed sometimes make more sense. For example, buyers certain they will be relocated by their companies within five years may find a 5/1 ARM "could be a much better mortgage," he says.
"There's no reason to pay a premium for a product you don't need like a 30-year loan," Harrison says.
Homebuyers eager to build equity in their homes or who are older and want to live mortgage-free in retirement should consider a 15-year fixed-rate loan or, if they can afford it, even a 10-year mortgage to reach their goals.
Copyrighted, Bankrate.com. All rights reserved.
Sunday, July 25, 2010
Price Cuts Galore on Mega - Mansions
By Les Christie, staff writerJuly 16, 2010: 6:23 AM ET
NEW YORK (CNNMoney.com) -- For deep-pocketed plutocrats purchasing trophy homes, times are good. There is a glut of mega-mansions on the market -- at deep discounts.
On Realtor.com alone there are currently 6,610 listings of houses with interiors larger than 10,000 square feet.
What's surprising is that these homes are starting to move again. "Maybe not quickly, but they're selling," Filice said.
The super-wealthy fled the mega-mansion market in the wake of the Lehman Brothers collapse in the fall of 2008. But with the stock market recovering and real estate markets stabilizing, they're ready to deal again. But only if the price is right.
The $100 million home
"The super wealthy were watching and waiting," said Jonathan Miller, a New York-based appraiser, who follows real estate in Manhattan and the Hamptons. "It's always been my feeling that the high-end market comes in waves. I looked at the Hamptons in 2009 and you just weren't seeing trophy property sales. Now you are -- but not at the prices you saw during the boom."
A 48,000-square-foot home in Bel Air, Calif., was recently reduced by $13 million to $72 million. A 16,000-square-foot nouveau Mediterranean in Las Vegas went to $11.9 million from $14 million. And a 15,000-square-foot Dallas domain is down to $15 million from $17.5 million after more than two years on the market.
Don't like those prices? There are plenty more to choose from. So many homes started during the boom, when owners were flush, were not completed until the bust, when owners' fortunes had changed. And they're ready to unload them.
"A number of people back in the 2003, 2004 and 2005 boom built very large homes," said Philip White, president of Sotheby's International Realty. "Then, with the adjustment in the economy, it proved to be too much house for some of them."
0:00 /3:09NYC's $60M apartment - view included
In Alpine, N.J., developer Richard Kurtz broke ground in October 2007 on a home for himself. He calls it Stone Mansion, a 30,000-square-foot spread with 12 bedrooms, 15 full baths, a screening room, wine grotto and indoor basketball court. The house was finished just a couple of months ago.
Between then and now, Kurtz decided to buy a house in Florida and sell the Stone Mansion. Asking price: $68 million.
A house near Orlando has been under construction for more than three years and is not done yet. Business has been slow for owner David Siegel, who also owns Westgate Resorts, so he is putting his house on the market.
The 67,000-square-foot house sits on 10 acres and is called Versailles because it incorporates many of the design features of the French palace. Siegel hopes to get $100 million if the buyer wants the 67,000-square-foot property finished.
Or he'll take $75 million as is.
NEW YORK (CNNMoney.com) -- For deep-pocketed plutocrats purchasing trophy homes, times are good. There is a glut of mega-mansions on the market -- at deep discounts.
On Realtor.com alone there are currently 6,610 listings of houses with interiors larger than 10,000 square feet.
What's surprising is that these homes are starting to move again. "Maybe not quickly, but they're selling," Filice said.
The super-wealthy fled the mega-mansion market in the wake of the Lehman Brothers collapse in the fall of 2008. But with the stock market recovering and real estate markets stabilizing, they're ready to deal again. But only if the price is right.
The $100 million home
"The super wealthy were watching and waiting," said Jonathan Miller, a New York-based appraiser, who follows real estate in Manhattan and the Hamptons. "It's always been my feeling that the high-end market comes in waves. I looked at the Hamptons in 2009 and you just weren't seeing trophy property sales. Now you are -- but not at the prices you saw during the boom."
A 48,000-square-foot home in Bel Air, Calif., was recently reduced by $13 million to $72 million. A 16,000-square-foot nouveau Mediterranean in Las Vegas went to $11.9 million from $14 million. And a 15,000-square-foot Dallas domain is down to $15 million from $17.5 million after more than two years on the market.
Don't like those prices? There are plenty more to choose from. So many homes started during the boom, when owners were flush, were not completed until the bust, when owners' fortunes had changed. And they're ready to unload them.
"A number of people back in the 2003, 2004 and 2005 boom built very large homes," said Philip White, president of Sotheby's International Realty. "Then, with the adjustment in the economy, it proved to be too much house for some of them."
0:00 /3:09NYC's $60M apartment - view included
In Alpine, N.J., developer Richard Kurtz broke ground in October 2007 on a home for himself. He calls it Stone Mansion, a 30,000-square-foot spread with 12 bedrooms, 15 full baths, a screening room, wine grotto and indoor basketball court. The house was finished just a couple of months ago.
Between then and now, Kurtz decided to buy a house in Florida and sell the Stone Mansion. Asking price: $68 million.
A house near Orlando has been under construction for more than three years and is not done yet. Business has been slow for owner David Siegel, who also owns Westgate Resorts, so he is putting his house on the market.
The 67,000-square-foot house sits on 10 acres and is called Versailles because it incorporates many of the design features of the French palace. Siegel hopes to get $100 million if the buyer wants the 67,000-square-foot property finished.
Or he'll take $75 million as is.
Sunday, July 18, 2010
Mortgage Market Specific Summary of the Financial Reform Bill
by Adam Quinones
--------------------------------------------------------------------------------
After much ado our political "leaders" have finally come to an agreement on the broadest regulatory overhaul since the Glass Steagal Act of 1933.
By a vote of 60-39, the Senate yesterday passed HR 4173: WALL STREET REFORM AND CONSUMER PROTECTION ACT. The House already gave their seal of approval so the legislation heads to President Obama's desk where he is expected to sign it into law next week.
The bill includes several reforms aimed directly at the housing and mortgage industries. Instead of trying to translate the text into comprehensible English I chose to rely on the Mortgage Bankers Association's outlines. Once again they came through in the clutch...
HERE is an indepth summary of the text. Below are some excerpts from the MBA's overview.
Credit Risk Retention (Section 941) – Requires federal banking agencies and SEC to jointly prescribe rules requiring securitizers to retain economic interest of at least five percent of credit risk of assets they securitize. Regulations must include separate requirements for different asset classes, and may allocate the retention amount between originator and securitizer. HUD and the Federal Housing Finance Agency must participate in joint rulemaking process for residential mortgage backed securities (MBS) risk retention requirements. The statute requires an exemption for “qualified residential mortgages” which shall be defined by regulators based on statutory criteria to ensure sound underwriting and lower risk of default such as:
Documentation of borrower’s financial resources;
Debt- to-income standards;
Mitigating potential for payment shock on adjustable rate mortgages through product features and underwriting standards;
Mortgage insurance or other credit enhancements to reduce risk of default; and
Prohibiting use of loan features that have been demonstrated to exhibit a higher risk of borrower default.
Exempts loans insured or guaranteed by U.S. from risk retention requirements. For commercial MBS, regulators must give consideration to other types, forms and amounts of risk retention such as representations and warranties, underwriting criteria and first-loss positions. Within 90 days of enactment, requires FRB to complete study on combined impact of risk retention and accounting standards requiring securitizations to be brought on balance sheet.
Prohibition on Steering Incentives (Section 1403)
Prohibition: Prohibits mortgage originator from receiving from any person, or any person from paying mortgage originator, directly or indirectly, compensation that varies based on terms of loan (other than amount of the principal). With the exceptions below, generally prohibits a mortgage originator from receiving from any person other than consumer and any person other than consumer, who knows or has reason to know that a consumer has directly compensated or will directly compensate mortgage originator, from paying mortgage originator any fee or charge except bona fide third-party charges not retained by creditor, mortgage originator, or affiliate of creditor or mortgage originator. Intended to prohibit yield spread premiums or other similar compensation based on terms including rate that would cause originator to “steer” borrower to particular mortgage products.
Exceptions: Does not limit compensation to originator based on principal amount of loan. Also, does not restrict person other than consumer from receiving, or person other than consumer from paying, origination fee or charge if: (1) originator does not receive any compensation directly from consumer; and (2) consumer does not pay discount points, origination points or fees however denominated (other than bona fide third-party charges not retained by originator, creditor or affiliate of creditor or originator), except that Board may, by rule, waive or provide exemptions to restriction if Board determines waiver is in interest of consumers and public.
Regulations: Requires CFPB to prescribe regulations prohibiting mortgage originators from: (1) steering any consumer to loan that (a) consumer lacks reasonable ability to repay, or (b) has predatory characteristics or effects such as equity stripping, excessive fees or abusive terms; (2) steering any consumer from a “qualified mortgage” to “not qualified” mortgage when consumer qualifies for ”qualified mortgage;” (3) abusive or unfair lending practices that promote disparities among consumers of equal creditworthiness but of different race, ethnicity, gender, or age; (4) mischaracterizing the credit history of consumer or residential loans available to consumer, (5) mischaracterizing or inducing mischaracterization of appraised value of property securing extension of credit; or (6) if unable to suggest, offer or recommend to consumer loan that is not more expensive than loan for which consumer qualifies, discouraging consumer from seeking mortgage from another originator.
Rules of Construction: While expressly prohibiting any yield spread premium or similar compensation that would permit total amount of direct and indirect compensation from all sources to originator to vary based on loan terms other than amount of principal, expressly permits compensation to a creditor upon the sale of a consummated loan to a subsequent purchaser, i.e. compensation to lender from secondary market for sale of consummated loan. Also does not restrict: (1) consumer’s ability to finance at option of consumer through principal or rate, any origination fees or costs as long as fees or costs do not vary based on terms of loan or consumer’s decision to finance such fees; or (2) incentive
Definitions of Mortgage Originator (Section 1401) – Means any person who for direct or indirect compensation or gain: (i) takes residential mortgage loan application, (ii) assists consumer in obtaining or applying to obtain residential mortgage loan; or (iii) offers or negotiates terms of residential mortgage loan as well as any person who represents to the public that it will provide any of services in (i)-(iii). Does not include any person who: (1) performs purely administrative or clerical tasks; (2) is employee of manufactured home retailer who does not advise consumer on loan terms; (3) only performs real estate brokerage activities and is licensed or registered in accordance with applicable state law, unless such person or entity is compensated by lender, mortgage broker, or other originator or their agents; (4) person, estate or trust that provides mortgage financing for sale of 3 properties in any 12 month period provided loan is fully amortizing, where borrower has ability to repay and is either fixed or adjustable only after five years and meets other conditions; (5) is servicer or servicer employee, agent or contractor, including but not limited to those who offer or negotiate terms of residential mortgage loan for purposes of renegotiating, modifying, replacing and subordinating principal of existing mortgage where borrower is behind in payments, in default, or has reasonable likelihood of being in default or falling behind; and (6) Excludes creditor except the creditor in a table funded transaction under anti-steering provisions.
Consumer Financial Protection Bureau (CFPB) Established – Establishes CFPB as independent entity housed within FRB. Assigns CFPB broad authority to write rules to protect consumers from unfair or deceptive financial products, acts or practices and reassigns to CFPB responsibility for major consumer protection laws including RESPA, TILA, HOEPA, HMDA and more, detailed below.
Appraisals, AMCs and AVMs – Prohibits appraiser coercion and requires rulemaking by FRB, OCC, FDIC, NCUA, FHFA and the CFPB on appraiser independence. Requires: interim rules by CFPB within 90 days of enactment on appraiser independence to replace Home Valuation Code of Conduct (HVCC); physical appraisal for every subprime mortgage and two appraisals for subprime mortgage when there has been purchase or acquisition of property at lower price within 180 days; Appraisal Subcommittee of the Federal Financial Institutions Examination Council to monitor state and federal efforts to protect consumers from improper appraisal practices and unlicensed appraisers; FRB, OCC, FDIC, NCUA, FHFA and the CFPB to prescribe minimum requirements for appraisers, appraisal management companies and standards for AVMs.
CFPB Authority – Assigns CFPB regulatory and supervisory authority to examine and enforce consumer protection regulations respecting all mortgage-related businesses, large non-bank financial companies, and banks and credit unions with greater than $10 billion in assets. Makes CFPB primary regulator for nondepository lenders. Exclusions from CFPB authority for real estate brokers, persons regulated by state insurance regulators, auto dealers, accountants, tax preparers, and others.
CFPB Transfer Date – Requires Treasury, in consultation with FRB, FDIC, FTC, NCUA, OCC, OTS, HUD and OMB, to designate date for transfer of functions to CFPB within 60 days after enactment. Date generally must be between 180 days and 12 months of enactment. Authorizes Treasury to revise date after further consultation with agencies. If determined transfer of functions is not feasible within 12 months, Treasury must report to Congress.
Coverage of Mortgage Lending Provisions – Includes mortgage originators who take or assist applications and negotiate terms of mortgages. Excludes creditors (except creditor in table funded transaction for anti-steering provisions) servicer employees, agents and contractors, persons or entities performing real estate brokerage activities and certain employees of manufactured home retailers from “originator” definition.
Duty of Care – Requires loan originators to be qualified and licensed and registered, when required, and include on all loan documents the unique identifier of mortgage originator provided by the Nationwide Mortgage Licensing System and Registry (NMLSR).
Minimum Standards for Mortgages/Ability to Repay – Prohibits creditors from making residential mortgage loans unless creditor makes good faith determination, based on verified and documented information that, at time loan was consummated, consumer had reasonable ability to repay loan according to its terms, and all applicable taxes, insurance and assessments.
Presumption/Safe Harbor for Qualified Mortgages – Allows any creditor and any assignee or securitizer of “qualified mortgage” to be presumed to meet “Ability to Repay” requirements, although presumption may be rebuttable.
Qualified Mortgages – Includes loans that meet several requirements including that the income relied on to qualify borrowers is verified and documented, underwriting and ratios are consistent with statutory and regulatory requirements, and total points and fees payable in connection with loan do not exceed 3 percent of total loan amount.
3 Percent Limit – Applies definition in TILA with following exclusions: (1) up to and including 2 bona fide discount points depending on interest rate; (2) any government insurance premium and any private mortgage insurance (MI) premium up to amount of the FHA insurance premium, provided the MI premium is refundable on pro rata basis, and (3) any MI premium paid by the consumer after closing, e.g., monthly.
Liability for Mortgage Originators – Establishes mortgage originators are liable for violations of duty of care and anti-steering prohibitions up to greater of actual damages or amount equal to 3 times total amount of direct and indirect compensation or gain accruing to mortgage originator for loan involved, plus costs and reasonable attorney’s fees.
Discretionary Regulatory Authority – Grants broad discretionary regulatory authority to CFPB to prohibit or condition terms, acts or practices relating to residential mortgage loans found abusive, unfair, deceptive, predatory.
Prepayment Penalties – Prohibits prepayment penalties for “not qualified mortgages.” Restricts prepayment penalties to loans that are not adjustable and do not have APR that exceeds Average Prime Offer Rate (APOR) by 1.5 or more percentage points for first lien loans, 2.5 or more percentage points for jumbo loans, or 3.5 or more percentage points for subordinate lien loans. Also, requires three-year phase-out of prepayment penalties for qualified mortgages and prohibits offering loan with a prepayment penalty without offering loan that does not have prepayment penalty.
Average Prime Offer Rate (APOR) – Means the average prime offer rate for a comparable transaction as of the date on which the interest rate for the transaction is set, as published by FRB.
Arbitration – Prohibits mandatory arbitration for residential mortgages and open-end consumer credit secured by principal dwellings, except on reverse mortgages.
HOEPA Expansion – Expands coverage of HOEPA and its restrictions governing high-cost mortgages to purchase mortgages. Also lowers the APR triggers to cover loans with an APR more than 6.5 percent above comparable APOR for first lien loans (8.5 percent if the dwelling is personal property and transaction is less than $50,000) and 8.5 percent above for subordinate loans. Also, lowers point and fees trigger from 8 percent of the total loan amount to 5 percent (the lesser of 8 percent or $1000 for loans under $20,000).
Servicing – Requires escrows for certain mortgages and new escrow disclosures, shortens time frames for qualified written requests, establishes timelines for pay-off statements and crediting of payments, and limits late fees for high-cost mortgages. Requires monthly statements on ARM loans. Establishes new requirements for force-placed insurance including notices to borrower. Expands scope of Protecting Tenants at Foreclosure Act.
Counseling – Establishes Office of Housing Counseling within HUD headed by Director to carry out wide range of counseling related activities including research, public outreach and policy development as well as coordinating and administering HUD counseling related programs.
Reach of Bill – The bill directs certain provisions to all residential mortgage loans and other provisions to specified categories of mortgages, defined below, which include “qualified mortgages,” “not qualified mortgages,” “higher risk mortgages,” and “high-cost” or “HOEPA mortgages.”
Regulatory Authority – Provisions assign regulatory authority to FRB, CFPB, federal banking agencies – FRB, OCC, FDIC and NCUA--and other agencies under various sections of bill. Provisions assigned to FRB under title XIV are reassigned to CFPB, except for provisions relating to housing counseling and certain appraisal-related matters. Assigns HUD regulatory responsibility for housing counseling provisions.
Now we wait and see how lenders interpret these reforms....
--------------------------------------------------------------------------------
After much ado our political "leaders" have finally come to an agreement on the broadest regulatory overhaul since the Glass Steagal Act of 1933.
By a vote of 60-39, the Senate yesterday passed HR 4173: WALL STREET REFORM AND CONSUMER PROTECTION ACT. The House already gave their seal of approval so the legislation heads to President Obama's desk where he is expected to sign it into law next week.
The bill includes several reforms aimed directly at the housing and mortgage industries. Instead of trying to translate the text into comprehensible English I chose to rely on the Mortgage Bankers Association's outlines. Once again they came through in the clutch...
HERE is an indepth summary of the text. Below are some excerpts from the MBA's overview.
Credit Risk Retention (Section 941) – Requires federal banking agencies and SEC to jointly prescribe rules requiring securitizers to retain economic interest of at least five percent of credit risk of assets they securitize. Regulations must include separate requirements for different asset classes, and may allocate the retention amount between originator and securitizer. HUD and the Federal Housing Finance Agency must participate in joint rulemaking process for residential mortgage backed securities (MBS) risk retention requirements. The statute requires an exemption for “qualified residential mortgages” which shall be defined by regulators based on statutory criteria to ensure sound underwriting and lower risk of default such as:
Documentation of borrower’s financial resources;
Debt- to-income standards;
Mitigating potential for payment shock on adjustable rate mortgages through product features and underwriting standards;
Mortgage insurance or other credit enhancements to reduce risk of default; and
Prohibiting use of loan features that have been demonstrated to exhibit a higher risk of borrower default.
Exempts loans insured or guaranteed by U.S. from risk retention requirements. For commercial MBS, regulators must give consideration to other types, forms and amounts of risk retention such as representations and warranties, underwriting criteria and first-loss positions. Within 90 days of enactment, requires FRB to complete study on combined impact of risk retention and accounting standards requiring securitizations to be brought on balance sheet.
Prohibition on Steering Incentives (Section 1403)
Prohibition: Prohibits mortgage originator from receiving from any person, or any person from paying mortgage originator, directly or indirectly, compensation that varies based on terms of loan (other than amount of the principal). With the exceptions below, generally prohibits a mortgage originator from receiving from any person other than consumer and any person other than consumer, who knows or has reason to know that a consumer has directly compensated or will directly compensate mortgage originator, from paying mortgage originator any fee or charge except bona fide third-party charges not retained by creditor, mortgage originator, or affiliate of creditor or mortgage originator. Intended to prohibit yield spread premiums or other similar compensation based on terms including rate that would cause originator to “steer” borrower to particular mortgage products.
Exceptions: Does not limit compensation to originator based on principal amount of loan. Also, does not restrict person other than consumer from receiving, or person other than consumer from paying, origination fee or charge if: (1) originator does not receive any compensation directly from consumer; and (2) consumer does not pay discount points, origination points or fees however denominated (other than bona fide third-party charges not retained by originator, creditor or affiliate of creditor or originator), except that Board may, by rule, waive or provide exemptions to restriction if Board determines waiver is in interest of consumers and public.
Regulations: Requires CFPB to prescribe regulations prohibiting mortgage originators from: (1) steering any consumer to loan that (a) consumer lacks reasonable ability to repay, or (b) has predatory characteristics or effects such as equity stripping, excessive fees or abusive terms; (2) steering any consumer from a “qualified mortgage” to “not qualified” mortgage when consumer qualifies for ”qualified mortgage;” (3) abusive or unfair lending practices that promote disparities among consumers of equal creditworthiness but of different race, ethnicity, gender, or age; (4) mischaracterizing the credit history of consumer or residential loans available to consumer, (5) mischaracterizing or inducing mischaracterization of appraised value of property securing extension of credit; or (6) if unable to suggest, offer or recommend to consumer loan that is not more expensive than loan for which consumer qualifies, discouraging consumer from seeking mortgage from another originator.
Rules of Construction: While expressly prohibiting any yield spread premium or similar compensation that would permit total amount of direct and indirect compensation from all sources to originator to vary based on loan terms other than amount of principal, expressly permits compensation to a creditor upon the sale of a consummated loan to a subsequent purchaser, i.e. compensation to lender from secondary market for sale of consummated loan. Also does not restrict: (1) consumer’s ability to finance at option of consumer through principal or rate, any origination fees or costs as long as fees or costs do not vary based on terms of loan or consumer’s decision to finance such fees; or (2) incentive
Definitions of Mortgage Originator (Section 1401) – Means any person who for direct or indirect compensation or gain: (i) takes residential mortgage loan application, (ii) assists consumer in obtaining or applying to obtain residential mortgage loan; or (iii) offers or negotiates terms of residential mortgage loan as well as any person who represents to the public that it will provide any of services in (i)-(iii). Does not include any person who: (1) performs purely administrative or clerical tasks; (2) is employee of manufactured home retailer who does not advise consumer on loan terms; (3) only performs real estate brokerage activities and is licensed or registered in accordance with applicable state law, unless such person or entity is compensated by lender, mortgage broker, or other originator or their agents; (4) person, estate or trust that provides mortgage financing for sale of 3 properties in any 12 month period provided loan is fully amortizing, where borrower has ability to repay and is either fixed or adjustable only after five years and meets other conditions; (5) is servicer or servicer employee, agent or contractor, including but not limited to those who offer or negotiate terms of residential mortgage loan for purposes of renegotiating, modifying, replacing and subordinating principal of existing mortgage where borrower is behind in payments, in default, or has reasonable likelihood of being in default or falling behind; and (6) Excludes creditor except the creditor in a table funded transaction under anti-steering provisions.
Consumer Financial Protection Bureau (CFPB) Established – Establishes CFPB as independent entity housed within FRB. Assigns CFPB broad authority to write rules to protect consumers from unfair or deceptive financial products, acts or practices and reassigns to CFPB responsibility for major consumer protection laws including RESPA, TILA, HOEPA, HMDA and more, detailed below.
Appraisals, AMCs and AVMs – Prohibits appraiser coercion and requires rulemaking by FRB, OCC, FDIC, NCUA, FHFA and the CFPB on appraiser independence. Requires: interim rules by CFPB within 90 days of enactment on appraiser independence to replace Home Valuation Code of Conduct (HVCC); physical appraisal for every subprime mortgage and two appraisals for subprime mortgage when there has been purchase or acquisition of property at lower price within 180 days; Appraisal Subcommittee of the Federal Financial Institutions Examination Council to monitor state and federal efforts to protect consumers from improper appraisal practices and unlicensed appraisers; FRB, OCC, FDIC, NCUA, FHFA and the CFPB to prescribe minimum requirements for appraisers, appraisal management companies and standards for AVMs.
CFPB Authority – Assigns CFPB regulatory and supervisory authority to examine and enforce consumer protection regulations respecting all mortgage-related businesses, large non-bank financial companies, and banks and credit unions with greater than $10 billion in assets. Makes CFPB primary regulator for nondepository lenders. Exclusions from CFPB authority for real estate brokers, persons regulated by state insurance regulators, auto dealers, accountants, tax preparers, and others.
CFPB Transfer Date – Requires Treasury, in consultation with FRB, FDIC, FTC, NCUA, OCC, OTS, HUD and OMB, to designate date for transfer of functions to CFPB within 60 days after enactment. Date generally must be between 180 days and 12 months of enactment. Authorizes Treasury to revise date after further consultation with agencies. If determined transfer of functions is not feasible within 12 months, Treasury must report to Congress.
Coverage of Mortgage Lending Provisions – Includes mortgage originators who take or assist applications and negotiate terms of mortgages. Excludes creditors (except creditor in table funded transaction for anti-steering provisions) servicer employees, agents and contractors, persons or entities performing real estate brokerage activities and certain employees of manufactured home retailers from “originator” definition.
Duty of Care – Requires loan originators to be qualified and licensed and registered, when required, and include on all loan documents the unique identifier of mortgage originator provided by the Nationwide Mortgage Licensing System and Registry (NMLSR).
Minimum Standards for Mortgages/Ability to Repay – Prohibits creditors from making residential mortgage loans unless creditor makes good faith determination, based on verified and documented information that, at time loan was consummated, consumer had reasonable ability to repay loan according to its terms, and all applicable taxes, insurance and assessments.
Presumption/Safe Harbor for Qualified Mortgages – Allows any creditor and any assignee or securitizer of “qualified mortgage” to be presumed to meet “Ability to Repay” requirements, although presumption may be rebuttable.
Qualified Mortgages – Includes loans that meet several requirements including that the income relied on to qualify borrowers is verified and documented, underwriting and ratios are consistent with statutory and regulatory requirements, and total points and fees payable in connection with loan do not exceed 3 percent of total loan amount.
3 Percent Limit – Applies definition in TILA with following exclusions: (1) up to and including 2 bona fide discount points depending on interest rate; (2) any government insurance premium and any private mortgage insurance (MI) premium up to amount of the FHA insurance premium, provided the MI premium is refundable on pro rata basis, and (3) any MI premium paid by the consumer after closing, e.g., monthly.
Liability for Mortgage Originators – Establishes mortgage originators are liable for violations of duty of care and anti-steering prohibitions up to greater of actual damages or amount equal to 3 times total amount of direct and indirect compensation or gain accruing to mortgage originator for loan involved, plus costs and reasonable attorney’s fees.
Discretionary Regulatory Authority – Grants broad discretionary regulatory authority to CFPB to prohibit or condition terms, acts or practices relating to residential mortgage loans found abusive, unfair, deceptive, predatory.
Prepayment Penalties – Prohibits prepayment penalties for “not qualified mortgages.” Restricts prepayment penalties to loans that are not adjustable and do not have APR that exceeds Average Prime Offer Rate (APOR) by 1.5 or more percentage points for first lien loans, 2.5 or more percentage points for jumbo loans, or 3.5 or more percentage points for subordinate lien loans. Also, requires three-year phase-out of prepayment penalties for qualified mortgages and prohibits offering loan with a prepayment penalty without offering loan that does not have prepayment penalty.
Average Prime Offer Rate (APOR) – Means the average prime offer rate for a comparable transaction as of the date on which the interest rate for the transaction is set, as published by FRB.
Arbitration – Prohibits mandatory arbitration for residential mortgages and open-end consumer credit secured by principal dwellings, except on reverse mortgages.
HOEPA Expansion – Expands coverage of HOEPA and its restrictions governing high-cost mortgages to purchase mortgages. Also lowers the APR triggers to cover loans with an APR more than 6.5 percent above comparable APOR for first lien loans (8.5 percent if the dwelling is personal property and transaction is less than $50,000) and 8.5 percent above for subordinate loans. Also, lowers point and fees trigger from 8 percent of the total loan amount to 5 percent (the lesser of 8 percent or $1000 for loans under $20,000).
Servicing – Requires escrows for certain mortgages and new escrow disclosures, shortens time frames for qualified written requests, establishes timelines for pay-off statements and crediting of payments, and limits late fees for high-cost mortgages. Requires monthly statements on ARM loans. Establishes new requirements for force-placed insurance including notices to borrower. Expands scope of Protecting Tenants at Foreclosure Act.
Counseling – Establishes Office of Housing Counseling within HUD headed by Director to carry out wide range of counseling related activities including research, public outreach and policy development as well as coordinating and administering HUD counseling related programs.
Reach of Bill – The bill directs certain provisions to all residential mortgage loans and other provisions to specified categories of mortgages, defined below, which include “qualified mortgages,” “not qualified mortgages,” “higher risk mortgages,” and “high-cost” or “HOEPA mortgages.”
Regulatory Authority – Provisions assign regulatory authority to FRB, CFPB, federal banking agencies – FRB, OCC, FDIC and NCUA--and other agencies under various sections of bill. Provisions assigned to FRB under title XIV are reassigned to CFPB, except for provisions relating to housing counseling and certain appraisal-related matters. Assigns HUD regulatory responsibility for housing counseling provisions.
Now we wait and see how lenders interpret these reforms....
Sunday, June 27, 2010
Lenders Reprice For The Better. Rates At Record Lows Again
by Victor Burek -
--------------------------------------------------------------------------------
Refinance RatesPurchase RatesRefinance Rates, June 27th Product: Today Last Week 30 yr Fixed Rate
15 yr Fixed Rate
5/1 ARM
Compare rates in your area: Refinance rates provided by Refinance RatesPurchase RatesPurchase Rates, June 27th Product: Today Last Week 30 yr Fixed Rate
15 yr Fixed Rate
5/1 ARM
Compare rates in your area: Refinance rates provided by Mortgage rates were priced at the most aggressive levels of our era on Wednesday following a steady stream of disappointing housing data that sent stock indexes lower. Rates did back up a few basis points yesterday for what seemed like no reason besides rally exhaustion, but we got those losses back today...
Consumer borrowing costs were influenced by two economic reports today. First out was the final revision to first quarter Gross Domestic Product (GDP).
GDP is the broadest measure of total economic activity. It reports on the output of every economic sector. It's basically our economic report card. A rapidly growing economy can lead to price inflation, the bond market prefers stable growth while stocks generally enjoy a faster pace of economic expansion.
--------------------------------------------------------------------------------
Refinance RatesPurchase RatesRefinance Rates, June 27th Product: Today Last Week 30 yr Fixed Rate
15 yr Fixed Rate
5/1 ARM
Compare rates in your area: Refinance rates provided by Refinance RatesPurchase RatesPurchase Rates, June 27th Product: Today Last Week 30 yr Fixed Rate
15 yr Fixed Rate
5/1 ARM
Compare rates in your area: Refinance rates provided by Mortgage rates were priced at the most aggressive levels of our era on Wednesday following a steady stream of disappointing housing data that sent stock indexes lower. Rates did back up a few basis points yesterday for what seemed like no reason besides rally exhaustion, but we got those losses back today...
Consumer borrowing costs were influenced by two economic reports today. First out was the final revision to first quarter Gross Domestic Product (GDP).
GDP is the broadest measure of total economic activity. It reports on the output of every economic sector. It's basically our economic report card. A rapidly growing economy can lead to price inflation, the bond market prefers stable growth while stocks generally enjoy a faster pace of economic expansion.
Sunday, April 18, 2010
6 housing trends in a still-shaky market
By Amanda Gengler, writerApril 1, 2010: 10:37 AM ET
(Money Magazine) -- The drama is nearly over. After a decade of extremes -- the ebullient highs of the real estate boom, then the devastating lows of the bust -- calmer forces are beginning to prevail in the housing market.
The big fall-off in home values, which has taken the median price of a house down almost 30% since 2006, looks to be in its final stages in most places: Three-quarters of the nation's 384 metropolitan areas will see prices down less than 5% a year from now, according to projections from Fiserv and Moody's Economy.com; 10% seem poised for modest increases. Meanwhile, Uncle Sam is lending a steadying hand with programs designed to prop up the market -- at least for a while yet.
Facebook Digg Twitter Buzz Up! Email Print Comment on this story
In this quieter environment lie new challenges and opportunities for homebuyers, sellers, owners, and investors. For the first time in years you aren't completely at the mercy of market forces: You can really affect how much you make (or lose).
To come out on top, though, you need to understand the key trends shaping the shifting market. You'll find them outlined below, along with smart moves that should help you exploit them.
1. Distressed properties will keep prices under pressure.
For a while last year it might have seemed as if the long-awaited housing recovery was just about here. Home prices stopped falling in spring, and have stayed fairly stable since, according to the Case-Shiller housing index. Sales rose from their recessionary lows, and inventories came down from their highs.
But the pickup turned out to be short-lived. Sales of existing homes dropped sharply in January from the previous month, and inventories crept back up. Economists predict that the national median price for a single-family home will dip another 5% to 10% before finally bottoming by year-end or early 2011.
Place much of the blame squarely on the glut of distressed properties spilling onto the market. More than 3 million homes are expected to get foreclosure notices this year, according to RealtyTrac, a foreclosure listing website, as job losses strain with their mortgage payments.
In addition, one in every four homeowners with a mortgage now owes more on that loan than the house is worth. A growing number of these owners are making a strategic decision to default -- 18% of delinquent borrowers were purposely behind, according to a recent study by Experian and Oliver Wyman. They're choosing to walk away rather than pour money into a home that will take years to regain its value.
0:00 /3:10Homeowners walking away
Meanwhile, short sales -- when a lender agrees to let a homeowner sell for less than he owes -- are also expected to spike, reports Moody's Economy.com. Contributing to the jump: a streamlined approval process and a new government program that gives servicers financial incentives to arrange short sales instead of foreclosing on a troubled property.
Your move.
If you're in the market for a new home, you may be tempted by the low prices on bank-owned properties, which are going for about 30% less than seller-owned homes. But be prepared to come in with a hefty down payment (at least 20% to 25%) to compete with investors offering banks all-cash or significant cash deals.
Be aware too that many of these homes need serious repairs, and you don't always have a chance to check them out before bidding. If you can't get a thorough inspection, walk away. And don't focus on short sales if you have to move quickly. Last year such transactions often took as long as six months. While some banks have streamlined the process, you can't count on a speedy deal.
But you don't have to take on the risks of a distressed property to nab a bargain. If you're shopping in an area with a growing number of foreclosures, use that fact to wring price concessions from owners anxious to sell. And ask the homeowner to fix anything wrong with the house flagged in the inspection, or to give you a discount to account for it.
Hoping to sell your house this year? Don't try to compete with repossessed properties on price. Instead, play up your advantages: a home in move-in condition (get your house inspected and do the repairs before you list it) and the possibility of a quick deal. To reassure prospective buyers that they're not getting a lemon, advises Pat Lashinsky, CEO of the online brokerage ZipRealty, toss in a one-year home warranty that will pay to fix problems like a broken furnace or hot-water heater. Cost: about $350.
2. Big homes are lagging small ones in the recovery.
Rushing to take advantage of what was then the expiring federal tax credit for first-time buyers, newcomers accounted for 50% of sales in October and November vs. 31% a few months earlier. That's helped stabilize prices on smaller, more affordable homes.
But the market for larger, more expensive homes is hurting. The inventory of homes for sale priced at $750,000 to $1 million is now 20 months, vs. 11 months for homes in the $100,000 to $250,000 range, the National Association of Realtors reports. Many people don't feel comfortable making a large financial commitment these days, and fewer can meet stricter standards for the jumbo loans often needed to buy these homes. Shifting tastes are also a factor.
"If you asked someone 10 or 15 years ago what they wanted in a house, the reply likely would have been 'space, space, space,' but not anymore," says Nicolas Retsinas, director of the Joint Center for Housing Studies at Harvard. In response to dwindling demand for bigger residences, the median size of a new home shrank to 2,100 square feet in 2009, down from 2,300 three years ago, the National Association of Home Builders says. Size typically dips in a recession, but Retsinas believes this time the trend will stick beyond the recovery.
"Americans now view their home primarily as a place to live, not as an investment," he says. "They're willing to give up some room for shorter commutes and lower energy bills."
Your move
Trade-up buyers who want bigger houses will find the best deals this year. The big question is when to make your move. Act swiftly if prices are already stabilizing in your area (go to cnnmoney.com/realestate2010 for price projections for the country's 384 metropolitan areas). Otherwise, hold off for a few months if you can, in anticipation of further price drops, since the high end of the market will be especially hard hit.
Whenever you make your move, base your bid on comparable sales over the prior 60 days rather than the home's list price. Coming in 5% to 10% lower than the comps is a smart starting point, says Ellen Klein, a realtor in Rockaway, N.J.
If you want to sell a big house, try to unload your property quickly before prices dip further. Setting the right price at the outset is key: If you go too high, many buyers won't even look, knowing you'll probably have to go lower later. "One price reduction is okay, but when you start to see multiple reductions, it raises a red flag," says Ken Shuman of Trulia.com.
Are homes in your area affordable?
You may be able to expedite a sale with aggressive pricing, listing your home for slightly below what comparable homes have sold for in the past couple of months. Another ploy to attract more traffic: Offer a larger cut -- say, 3.5% vs. 3% -- to the buyer's agent. True, you'll pay a little more in total commissions. But that's preferable to having to lower your price by 5% to 10% later if your house doesn't sell.
As for smaller homes, investors and first-time buyers will have a tougher time finding deals. Homes in good locations are getting multiple bids and are often selling above the listing price, says Alan Wagner, a Sacramento realtor. So if you find a house you love, don't bid less than similar homes have sold for in the past two months. You can find the median difference between listing and sales prices in your area at zillow.com under Market Reports.
3. Mortgage rates will rise as Uncle Sam exits the market.
Say goodbye to the lowest mortgage rates in about 50 years. For the past 16 months the Federal Reserve has helped keep rates low -- around 5% for a 30-year loan -- by purchasing mortgage-backed securities. But that program was scheduled to end in March, and private investors aren't expected to step in to fill the void at the same low rates. As a result, the consensus among economists is that rates will climb to between 5.3% and 6% by year-end. "It will be a gradual rise," says Mark Zandi, chief economist at Moody's Economy.com. "If rates spike, the Fed will get back into the market."
One exception to the rising-rate outlook: Rates on jumbo mortgages (typically loans larger than $417,000, but up to $729,750 in some high-cost areas) are expected to hold steady at 6% or so. That's because the government wasn't propping up the jumbo market, so these loans won't be affected much by the Fed's exit.
Your move
Here's the dilemma if you're in the market for a new home: Do you move quickly to lock in low rates, or would you be better off waiting?
For anyone who is house hunting in the majority of areas where prices are expected to drop 5% or less, locking in low rates now will probably be more valuable.
See home price forecasts in your state
Consider this: Taking out a $300,000 30-year loan at 5% today will cost $1,610 a month. Wait until the end of the year, and maybe you can land the house for $15,000 less. But by then rates may have climbed to 5.75%, so your monthly payment will be $50 more, and you'll pay almost $34,000 more in interest over the life of the loan.
For homeowners, the decision is much clearer. If today's rates are at least one point below your current loan, or you have an adjustable rate and plan to stay put for at least five years, refinance pronto. On a $300,000 30-year loan, shifting from a 6% rate to 5% could cut your payments by $300 a month.
4. Financing for condos, second homes, and jumbo loans are especially tough to get.
To qualify for a new mortgage at the lowest rates, however, you'll have to meet some stiff requirements. You'll need at least 10% down or 10% equity in your home and a credit score of 720 or higher; your mortgage, insurance, and property taxes shouldn't exceed 31% of your gross income; and no more than 41% can go to paying debts of any kind.
Exceptions: You usually need only 3.5% down for an FHA loan, and can refinance with less than 10% equity through the HARP program. (Makinghomeaffordable. gov has details.)
The standards are even more onerous for anyone buying a condo or a vacation or investment home, or who will need a jumbo. Many banks will approve a condo loan only if the building is at least 70% occupied by owners, which is often problematic for new construction. Meanwhile, jumbo borrowers and investors must often put 30% to 35% down. "These loans are often riskier, so lenders make you jump through more hoops to get one," says Keith Gumbinger of HSH Associates, a mortgage publishing website.
Your move
Don't even think about shopping for a new home without being pre-approved for a mortgage. You don't want to fall in love with a house only to discover you don't have enough cash for the down payment the bank requires or you fail to meet some other requirement. Plus, most sellers and realtors won't even work with you unless they're sure you'll qualify for financing.
If a bank turns you down, try other lenders. Local banks and credit unions may be more lenient about whom they approve and often offer better rates than national banks. Can't prove income because you're self-employed or rely heavily on commissions? Apply at the bank where you have business or personal accounts; familiarity may help the lender get to yes. Buyers in the market for a condo should also make sure to research the association's financial health and the building's occupancy rate.
5. Buyers, rushing to beat the tax-credit deadline, will set off a flurry of spring deals.
One more reason prospective buyers and sellers may be tempted to move quickly: the looming expiration of valuable tax credits that have been dangled by Uncle Sam to spur sales.
Homeowners who move can get up to $6,500, first-time buyers as much as $8,000, as long as they have a joint income of less than $245,000 (or $145,000 for singles). But there isn't much time left to act because buyers must be under contract on the new home by April 30 and close by June 30 to qualify for the credit.
Look for transactions to pick up as the deadline nears. When the credit for first-time buyers was originally set to expire last November, sales surged in the three months before the cutoff. Experts expect a similar pattern this spring.
Your move
If you're looking to buy a home in an area where prices are still expected to fall more than 5% over the next year, don't rush to purchase just to get the tax break -- a substantial drop in home prices in your desired town could more than offset the value of the credit. Otherwise, strictly from a price standpoint, there's no reason not to house hunt in earnest in case you find a place you love and can afford by the government deadline.
But homeowners hoping to buy have to consider another factor: how long it will take you to sell the place you live in now, since the cost of carrying two properties would quickly offset the credit. To avoid that double whammy, you'd need to unload your house in less time than the 110 days or so that the average home is now on the market. (Find out how long it's taking to sell homes in your area at zillow.com; click on Market Reports.)
Of course, the anticipated pickup in traffic among prospective buyers does enhance the prospect of a quick sale. But you'll have to move fast to get your house listed, and be prepared to negotiate a speedy deal.
6. Going green this year can save you more money.
Hoping to save the earth and a few extra bucks while you're at it? Well, the payback on energy-saving home improvements recently got a whole lot sweeter, thanks to a government program that extended and expanded tax breaks that had been scheduled to expire for those upgrades. You can get a federal credit for 30% of the cost of products like highly energy-efficient heating and air-conditioning systems, windows, and insulation up to $1,500 for 2009 and 2010 combined. (For details on the available tax credits, go to ase.org.)
Your move
To figure out which upgrades will save you the most, do an energy audit to identify your biggest leaks. Ask your utility company if it offers this service free (many do) or DIY using the kit at energysavers.gov. Sealing leaks and adding insulation, including in your attic and basement, typically provide the best bang for your buck.
And keep your eyes open for other incentives from Uncle Sam. In March, President Obama outlined an idea for a new program that would give homeowners even larger rebates right at the cash register for renovations that boost energy efficiency. More greenbacks for going green could be a deal you won't want to miss
(Money Magazine) -- The drama is nearly over. After a decade of extremes -- the ebullient highs of the real estate boom, then the devastating lows of the bust -- calmer forces are beginning to prevail in the housing market.
The big fall-off in home values, which has taken the median price of a house down almost 30% since 2006, looks to be in its final stages in most places: Three-quarters of the nation's 384 metropolitan areas will see prices down less than 5% a year from now, according to projections from Fiserv and Moody's Economy.com; 10% seem poised for modest increases. Meanwhile, Uncle Sam is lending a steadying hand with programs designed to prop up the market -- at least for a while yet.
Facebook Digg Twitter Buzz Up! Email Print Comment on this story
In this quieter environment lie new challenges and opportunities for homebuyers, sellers, owners, and investors. For the first time in years you aren't completely at the mercy of market forces: You can really affect how much you make (or lose).
To come out on top, though, you need to understand the key trends shaping the shifting market. You'll find them outlined below, along with smart moves that should help you exploit them.
1. Distressed properties will keep prices under pressure.
For a while last year it might have seemed as if the long-awaited housing recovery was just about here. Home prices stopped falling in spring, and have stayed fairly stable since, according to the Case-Shiller housing index. Sales rose from their recessionary lows, and inventories came down from their highs.
But the pickup turned out to be short-lived. Sales of existing homes dropped sharply in January from the previous month, and inventories crept back up. Economists predict that the national median price for a single-family home will dip another 5% to 10% before finally bottoming by year-end or early 2011.
Place much of the blame squarely on the glut of distressed properties spilling onto the market. More than 3 million homes are expected to get foreclosure notices this year, according to RealtyTrac, a foreclosure listing website, as job losses strain with their mortgage payments.
In addition, one in every four homeowners with a mortgage now owes more on that loan than the house is worth. A growing number of these owners are making a strategic decision to default -- 18% of delinquent borrowers were purposely behind, according to a recent study by Experian and Oliver Wyman. They're choosing to walk away rather than pour money into a home that will take years to regain its value.
0:00 /3:10Homeowners walking away
Meanwhile, short sales -- when a lender agrees to let a homeowner sell for less than he owes -- are also expected to spike, reports Moody's Economy.com. Contributing to the jump: a streamlined approval process and a new government program that gives servicers financial incentives to arrange short sales instead of foreclosing on a troubled property.
Your move.
If you're in the market for a new home, you may be tempted by the low prices on bank-owned properties, which are going for about 30% less than seller-owned homes. But be prepared to come in with a hefty down payment (at least 20% to 25%) to compete with investors offering banks all-cash or significant cash deals.
Be aware too that many of these homes need serious repairs, and you don't always have a chance to check them out before bidding. If you can't get a thorough inspection, walk away. And don't focus on short sales if you have to move quickly. Last year such transactions often took as long as six months. While some banks have streamlined the process, you can't count on a speedy deal.
But you don't have to take on the risks of a distressed property to nab a bargain. If you're shopping in an area with a growing number of foreclosures, use that fact to wring price concessions from owners anxious to sell. And ask the homeowner to fix anything wrong with the house flagged in the inspection, or to give you a discount to account for it.
Hoping to sell your house this year? Don't try to compete with repossessed properties on price. Instead, play up your advantages: a home in move-in condition (get your house inspected and do the repairs before you list it) and the possibility of a quick deal. To reassure prospective buyers that they're not getting a lemon, advises Pat Lashinsky, CEO of the online brokerage ZipRealty, toss in a one-year home warranty that will pay to fix problems like a broken furnace or hot-water heater. Cost: about $350.
2. Big homes are lagging small ones in the recovery.
Rushing to take advantage of what was then the expiring federal tax credit for first-time buyers, newcomers accounted for 50% of sales in October and November vs. 31% a few months earlier. That's helped stabilize prices on smaller, more affordable homes.
But the market for larger, more expensive homes is hurting. The inventory of homes for sale priced at $750,000 to $1 million is now 20 months, vs. 11 months for homes in the $100,000 to $250,000 range, the National Association of Realtors reports. Many people don't feel comfortable making a large financial commitment these days, and fewer can meet stricter standards for the jumbo loans often needed to buy these homes. Shifting tastes are also a factor.
"If you asked someone 10 or 15 years ago what they wanted in a house, the reply likely would have been 'space, space, space,' but not anymore," says Nicolas Retsinas, director of the Joint Center for Housing Studies at Harvard. In response to dwindling demand for bigger residences, the median size of a new home shrank to 2,100 square feet in 2009, down from 2,300 three years ago, the National Association of Home Builders says. Size typically dips in a recession, but Retsinas believes this time the trend will stick beyond the recovery.
"Americans now view their home primarily as a place to live, not as an investment," he says. "They're willing to give up some room for shorter commutes and lower energy bills."
Your move
Trade-up buyers who want bigger houses will find the best deals this year. The big question is when to make your move. Act swiftly if prices are already stabilizing in your area (go to cnnmoney.com/realestate2010 for price projections for the country's 384 metropolitan areas). Otherwise, hold off for a few months if you can, in anticipation of further price drops, since the high end of the market will be especially hard hit.
Whenever you make your move, base your bid on comparable sales over the prior 60 days rather than the home's list price. Coming in 5% to 10% lower than the comps is a smart starting point, says Ellen Klein, a realtor in Rockaway, N.J.
If you want to sell a big house, try to unload your property quickly before prices dip further. Setting the right price at the outset is key: If you go too high, many buyers won't even look, knowing you'll probably have to go lower later. "One price reduction is okay, but when you start to see multiple reductions, it raises a red flag," says Ken Shuman of Trulia.com.
Are homes in your area affordable?
You may be able to expedite a sale with aggressive pricing, listing your home for slightly below what comparable homes have sold for in the past couple of months. Another ploy to attract more traffic: Offer a larger cut -- say, 3.5% vs. 3% -- to the buyer's agent. True, you'll pay a little more in total commissions. But that's preferable to having to lower your price by 5% to 10% later if your house doesn't sell.
As for smaller homes, investors and first-time buyers will have a tougher time finding deals. Homes in good locations are getting multiple bids and are often selling above the listing price, says Alan Wagner, a Sacramento realtor. So if you find a house you love, don't bid less than similar homes have sold for in the past two months. You can find the median difference between listing and sales prices in your area at zillow.com under Market Reports.
3. Mortgage rates will rise as Uncle Sam exits the market.
Say goodbye to the lowest mortgage rates in about 50 years. For the past 16 months the Federal Reserve has helped keep rates low -- around 5% for a 30-year loan -- by purchasing mortgage-backed securities. But that program was scheduled to end in March, and private investors aren't expected to step in to fill the void at the same low rates. As a result, the consensus among economists is that rates will climb to between 5.3% and 6% by year-end. "It will be a gradual rise," says Mark Zandi, chief economist at Moody's Economy.com. "If rates spike, the Fed will get back into the market."
One exception to the rising-rate outlook: Rates on jumbo mortgages (typically loans larger than $417,000, but up to $729,750 in some high-cost areas) are expected to hold steady at 6% or so. That's because the government wasn't propping up the jumbo market, so these loans won't be affected much by the Fed's exit.
Your move
Here's the dilemma if you're in the market for a new home: Do you move quickly to lock in low rates, or would you be better off waiting?
For anyone who is house hunting in the majority of areas where prices are expected to drop 5% or less, locking in low rates now will probably be more valuable.
See home price forecasts in your state
Consider this: Taking out a $300,000 30-year loan at 5% today will cost $1,610 a month. Wait until the end of the year, and maybe you can land the house for $15,000 less. But by then rates may have climbed to 5.75%, so your monthly payment will be $50 more, and you'll pay almost $34,000 more in interest over the life of the loan.
For homeowners, the decision is much clearer. If today's rates are at least one point below your current loan, or you have an adjustable rate and plan to stay put for at least five years, refinance pronto. On a $300,000 30-year loan, shifting from a 6% rate to 5% could cut your payments by $300 a month.
4. Financing for condos, second homes, and jumbo loans are especially tough to get.
To qualify for a new mortgage at the lowest rates, however, you'll have to meet some stiff requirements. You'll need at least 10% down or 10% equity in your home and a credit score of 720 or higher; your mortgage, insurance, and property taxes shouldn't exceed 31% of your gross income; and no more than 41% can go to paying debts of any kind.
Exceptions: You usually need only 3.5% down for an FHA loan, and can refinance with less than 10% equity through the HARP program. (Makinghomeaffordable. gov has details.)
The standards are even more onerous for anyone buying a condo or a vacation or investment home, or who will need a jumbo. Many banks will approve a condo loan only if the building is at least 70% occupied by owners, which is often problematic for new construction. Meanwhile, jumbo borrowers and investors must often put 30% to 35% down. "These loans are often riskier, so lenders make you jump through more hoops to get one," says Keith Gumbinger of HSH Associates, a mortgage publishing website.
Your move
Don't even think about shopping for a new home without being pre-approved for a mortgage. You don't want to fall in love with a house only to discover you don't have enough cash for the down payment the bank requires or you fail to meet some other requirement. Plus, most sellers and realtors won't even work with you unless they're sure you'll qualify for financing.
If a bank turns you down, try other lenders. Local banks and credit unions may be more lenient about whom they approve and often offer better rates than national banks. Can't prove income because you're self-employed or rely heavily on commissions? Apply at the bank where you have business or personal accounts; familiarity may help the lender get to yes. Buyers in the market for a condo should also make sure to research the association's financial health and the building's occupancy rate.
5. Buyers, rushing to beat the tax-credit deadline, will set off a flurry of spring deals.
One more reason prospective buyers and sellers may be tempted to move quickly: the looming expiration of valuable tax credits that have been dangled by Uncle Sam to spur sales.
Homeowners who move can get up to $6,500, first-time buyers as much as $8,000, as long as they have a joint income of less than $245,000 (or $145,000 for singles). But there isn't much time left to act because buyers must be under contract on the new home by April 30 and close by June 30 to qualify for the credit.
Look for transactions to pick up as the deadline nears. When the credit for first-time buyers was originally set to expire last November, sales surged in the three months before the cutoff. Experts expect a similar pattern this spring.
Your move
If you're looking to buy a home in an area where prices are still expected to fall more than 5% over the next year, don't rush to purchase just to get the tax break -- a substantial drop in home prices in your desired town could more than offset the value of the credit. Otherwise, strictly from a price standpoint, there's no reason not to house hunt in earnest in case you find a place you love and can afford by the government deadline.
But homeowners hoping to buy have to consider another factor: how long it will take you to sell the place you live in now, since the cost of carrying two properties would quickly offset the credit. To avoid that double whammy, you'd need to unload your house in less time than the 110 days or so that the average home is now on the market. (Find out how long it's taking to sell homes in your area at zillow.com; click on Market Reports.)
Of course, the anticipated pickup in traffic among prospective buyers does enhance the prospect of a quick sale. But you'll have to move fast to get your house listed, and be prepared to negotiate a speedy deal.
6. Going green this year can save you more money.
Hoping to save the earth and a few extra bucks while you're at it? Well, the payback on energy-saving home improvements recently got a whole lot sweeter, thanks to a government program that extended and expanded tax breaks that had been scheduled to expire for those upgrades. You can get a federal credit for 30% of the cost of products like highly energy-efficient heating and air-conditioning systems, windows, and insulation up to $1,500 for 2009 and 2010 combined. (For details on the available tax credits, go to ase.org.)
Your move
To figure out which upgrades will save you the most, do an energy audit to identify your biggest leaks. Ask your utility company if it offers this service free (many do) or DIY using the kit at energysavers.gov. Sealing leaks and adding insulation, including in your attic and basement, typically provide the best bang for your buck.
And keep your eyes open for other incentives from Uncle Sam. In March, President Obama outlined an idea for a new program that would give homeowners even larger rebates right at the cash register for renovations that boost energy efficiency. More greenbacks for going green could be a deal you won't want to miss
Sunday, March 14, 2010
From Robert Kiyosaki's book Conspiracy of The Rich
The Root of All Evil
Is the love of money the root of all evil? Or, is it the ignorance of money?
What did you learn about money in school? Have you ever wondered why our school systems do not teach us much—if anything—about money? Is the lack of financial education in our schools simply an oversight by our educational leaders? Or is it part of a larger conspiracy? Regardless, whether we are rich or poor, educated or uneducated, child or adult, retired or working, we all use money. Like it or not, money has a tremendous impact on our lives in today's world.
Changing the Rules of Money
In 1971, President Richard Nixon changed the rules of money: Without the approval of Congress, he severed the U.S. dollar's relationship with gold. He made this unilateral decision during a quietly held two-day meeting on Minot Island in Maine, without consulting his State Department or the international monetary system.
President Nixon changed the rules because foreign countries being paid in U.S. dollars grew skeptical because the U.S. Treasury was printing more and more money to cover our debts, and they began exchanging their dollars directly for gold in earnest, depleting most of the U.S. gold reserves. The vault was being emptied because the government was importing more than it was exporting and because of the costly Vietnam War. As our economy grew, we were also importing more and more oil.
Is the love of money the root of all evil? Or, is it the ignorance of money?
What did you learn about money in school? Have you ever wondered why our school systems do not teach us much—if anything—about money? Is the lack of financial education in our schools simply an oversight by our educational leaders? Or is it part of a larger conspiracy? Regardless, whether we are rich or poor, educated or uneducated, child or adult, retired or working, we all use money. Like it or not, money has a tremendous impact on our lives in today's world.
Changing the Rules of Money
In 1971, President Richard Nixon changed the rules of money: Without the approval of Congress, he severed the U.S. dollar's relationship with gold. He made this unilateral decision during a quietly held two-day meeting on Minot Island in Maine, without consulting his State Department or the international monetary system.
President Nixon changed the rules because foreign countries being paid in U.S. dollars grew skeptical because the U.S. Treasury was printing more and more money to cover our debts, and they began exchanging their dollars directly for gold in earnest, depleting most of the U.S. gold reserves. The vault was being emptied because the government was importing more than it was exporting and because of the costly Vietnam War. As our economy grew, we were also importing more and more oil.
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