Mortgage Rates Hover at Record Lows; Buying Is Cheaper than Renting

Mortgage rates are hovering at historic lows largely due to implementation of the third round of quantitative easing (QE3). This program, recently orchestrated by the Federal Open Market Committee (FOMC) involves purchasing additional agency mortgage-backed securities at a pace of $40 billion per month.

In an additional effort to keep borrowing costs down and spur economic growth, the FOMC announced it would continue Operation Twist through the end of the year. The plan entails selling $400 billion in short-term Treasurys in exchange for the same amount of longer-term Treasurys.

The FOMC noted that “these actions, which together will increase the Committee’s holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative,” according to a statement.

This is timely news particularly for a housing market that’s healthier than many realize. According to Trulia, on average, buying a home is now 45% cheaper than renting in the100 largest metro areas in the nation (providing the homeowner plans to stay in the home for the national average time of seven years). That’s a savings of $771 every month!

At the same time, housing prices are now posting solid gains. According to the most recent CoreLogic data, year-over-year home prices have increased 4.6% since August 2011. And according to its most recent Housing Markets Insights report, investment bank Morgan Stanley anticipates a 2012 housing price increase of 7% to 9%.

from Prospect Mortgage Industry Insider

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Analysis Blames Slow Recovery on Tight Credit Market

Daily Real Estate News |      Monday, September 17, 2012

High lending standards are preventing a full economic recovery, according to new survey findings and an analysis of historic credit scores and loan performance by the National Association of REALTORS®. The group estimates that the U.S. economy would reap significant benefits if mortgage lending conditions were to return to normal.

“Sensible lending standards would permit 500,000 to 700,000 additional home sales in the coming year,” said NAR Chief Economist Lawrence Yun.  “The economic activity created through these additional home sales would add 250,000 to 350,000 jobs in related trades and services almost immediately, and without a cost impact.”

This view appears to be shared by real estate professionals as well. According to the REALTORS® Confidence Index, based on more than 3,000 responses by NAR members, there is widespread concern over the tight credit conditions for residential mortgages.  Respondents report that lenders are slow to approve applications, and that banks request information from borrowers that is considered to be excessive.

Some expressed the belief that lenders are focusing only on loans to individuals with the highest credit scores. The survey found that 53 percent of loans in August went to borrowers with credit scores above 740.  From 2001 to 2004, only 41 percent of loans backed by Fannie Mae went to borrowers with FICO scores above 740, while 43 percent of Freddie Mac-backed loans went to such borrowers. In 2011, about 75 percent of total loans purchased by Fannie Mae and Freddie Mac, which are now a smaller market share, had credit scores of 740 or above.

Yun said the financial industry has not recognized that the market has turned in the wake of an over-correction in home prices.

“There is an unnecessarily high level of risk aversion among mortgage lenders and regulators, although many are sitting on large volumes of cash which could go a long way toward speeding our economic recovery. A loosening of the overly restrictive lending standards is very much in order,” he said.

Yun added that lenders’ high aversion to risk was unnecessary because default rates have been abnormally low since 2009.  Fannie Mae default rates have averaged 0.2 percent while Freddie Mac’s averaged 0.1 percent. The association deemed such rates especially notable due to higher-than-usual unemployment levels.

“These findings show we need to return to the sound underwriting standards that existed before the aberrations of the housing boom and bust cycle, and thoroughly re-examine current and impending regulatory rules that may cause excessively tight standards,” Yun said.

Source: “Home Sales and Job Creation would Rise with Sensible Lending Standards,” National Association of REALTORS® (Sept. 17, 2012)

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Fed Moves to Keep Rates Low

Daily Real Estate News |      Friday, September 14, 2012

The Federal Reserve announced Thursday that, in an effort to re-ignite economic recovery, it was taking aim at mortgage rates— a move that will likely take rates even lower from their current record lows.

The Federal Reserve announced it will purchase $40 billion of mortgage-backed securities that will help boost the recovery in the housing market. What’s more, the central bank said that it will continue with the purchase program until the economy shows greater improvement, particularly with unemployment.

“These actions, which together will increase the Committee’s holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative,” according to the Fed in a public statement.

The Fed says the economy still has a long way to go toward recovery. The Fed predicts the jobless rate will stay above 7 percent well into 2014 and that economic growth will remain slow in the coming months.

At its Thursday meeting, the Fed left its funds rate unchanged at near-zero, but announced the rate — which has a bearing on mortgages — would remain at “exceptionally low levels” until at least mid-2015.

As mortgage rates sink lower, home shoppers have been taking advantage. The Mortgage Bankers Association announced this week that mortgage applications for home purchases were up 8.1 percent for the week ending Sept. 7. Mortgage applications for purchases also were up 7 percent from year-ago levels, MBA said.

“While low interest rates impose some costs, Americans will ultimately benefit most from the healthy and growing economy that low interest rates promote,” Fed Chairman Ben Bernanke said Thursday following the Fed committee’s meeting.

Source: “Fed Pulls Trigger, to Buy Mortgages in Effort to Lower Rates,” CNBC (Sept. 13, 2012)

Editor’s note: The Federal Reserve’s decision to buy $40 billion a month in mortgage-backed securities isn’t expected to have a significant impact on housing, since it’s no longer lower rates that stimulate home sales, says NAR Chief Economist Lawrence Yun. It’s even possible mortgage rates will rise, despite the Fed action, if private investors, fearful of inflation, sell mortgage-backed securities at a faster rate than the Fed is purchasing them. A game changer for housing would be something that moves the dial on lenders’ underwriting standards, from today’s overly stringent standards to standards that are closer to normal — that is, closer to the safe but reasonable underwriting standards that characterized lender practices prior to the housing boom.

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Interest Rates Hover at Record Lows

Concerns about the strength of the economy have recently taken Treasury yields to new lows. This, in turn, is causing fixed-rate mortgages to remain low.

Homeowners are taking advantage of the low interest rates. The refinance index recently reached a three-year high. Also, the Federal Housing Administration (FHA) projects to receive 630,000 refinance applications for fiscal year 2012, a 23% increase from the previous 12 months.

The vast majority of refinancing is going into fixed-rate mortgages. The adjustable-rate share of mortgage activity recently fell to 4.1% of all mortgage applications.

At the same time, home prices are increasing. Zillow reported a second-quarter increase nationwide for the first time since 2007. Standard & Poor’s/Case-Shiller housing price index is also reporting monthly price increases.

When thinking about refinancing, there are some important things to consider. For instance, if refinancing to a lower rate will save $125 a month, you, or your client, should then factor in the tax rate. If the Federal tax rate is in the 25% tax bracket, the actual savings will be $94 a month.*

Another consideration is how long it will take to recover the refinancing costs. If the costs are $4,000, it will take 43 months ($4,000 divided by $94) to recoup those costs. Then, refinancing is a good option even for those who might move in five years. If, however, the refinancing costs are $6,000, it will take 64 months ($6,000 divided by $94) to recover the costs, which, if planning to move in five years, would not be a good option.

* For example, a typical FHA loan of $300,000 has 360 monthly payments of $1,432.25; 4.000% interest rate, 4.117% APR. The monthly payment does not include taxes and insurance premiums.

from Prospect Mortgage Industry Insider

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FHA Streamline Refinancing Fees Reduced

The White House recently announced significant changes that will reduce the fees charged for the Federal Housing Administration‘s (FHA) Streamline Refinance Program.

Beginning June 11, 2012, the Streamline Refinance upfront fee of 1% will be reduced to 0.01% of the total loan amount. And the annual fee will be lowered from 1.15% to 0.55% of the total loan amount.

By refinancing through this streamlined process, the average qualified FHA-insured borrower will save approximately $3,000 a year or $250 per month, on top of any savings from refinancing to a lower mortgage rate.

The “streamline” refers to the minimal amount of documentation and underwriting that needs to be performed. Streamline refinancing can be done without an appraisal or income verification, providing the person(s) on the loan hasn’t changed.

There are no loan-to-value (LTV) restrictions on streamline refinancing. This is significant for underwater borrowers whose loan amount may exceed the current value of their home. However, second liens must subordinate with a maximum combined LTV ratio of 115% based on the original appraised value of the property.

The basic requirements of a streamline refinance are:

  • The loan must already be FHA insured and endorsed on or before May 31, 2009.
  • Borrowers must be current on their mortgage payments with no late payment in the previous 12 months.
  • The refinance must result in a lowering of the borrower’s monthly principal and interest payments.

Currently, 3.4 million households with loans endorsed on or before May 31, 2009, pay more than a 5% annual interest rate on their FHA-insured mortgages.

from Prospect Mortgage Industry Insider

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Can’t claim a loss when short-selling home

Due to the decline in housing prices, many home sales are “short sales” in which the purchase price offered by the buyer is less than the mortgage amount owed by the seller.

In a recent column, we discussed how some lenders go out of their way to grab both a tax deduction for the mortgage debt not paid while also attempting to go back to the seller and collect that same mortgage debt.

When a lender agrees to a short sale, it can either retain the ability to collect from the seller the amount of mortgage debt owed that is not satisfied by the purchase price, or it can discharge all or a portion of the unsatisfied debt amount.

If a lender discharges debt, it reports this discharge of debt to the Internal Revenue Service on a 1099-C Cancellation of Debt Form. The issuance of the 1099-C allows the lender to take a tax deduction for the loss represented by the amount of debt discharged, and this same amount of debt discharged becomes taxable income to the home seller.

A lender is now able do one or the other, not both. Some consumers are confused by how lenders can collect the mortgage debt owed after agreeing to the short-sale price. Others feel they are protected from the practice under a law passed five years ago.

In December 2007, Congress passed the Mortgage Forgiveness Debt Relief Act. This law provides some relief for homeowners who lose their house through foreclosure or short sales, or who restructure their mortgages with a lower principal amount. The law enables individuals to exclude from tax up to $2 million of certain mortgage debt canceled by lenders.

According to Nathan Gordon, government affairs director for the Washington Association of Realtors (WAR), some short-sale negotiations do not include language of the forgiveness — that the difference between what is owed and what is paid will actually be “forgiven.”

“In cases where, for whatever reason, that is not negotiated as part of the short sale, a recent court case ruled that even if the bank gives the borrower a 1099, (the bank) still can go back after the borrower for the remaining amount for up to three years, because both the bank and the borrower have up to three years to amend their IRS returns,” Gordon said.

“The Mortgage Forgiveness Debt Act really doesn’t speak to this specific point. The MFDA merely says that until the end of 2012, if you do get a 1099 from the bank as a result of a short sale, that you do not have to pay taxes on the forgiven amount even though it is technically unearned income.”

Gordon said the distinction to keep in mind is that currently a 1099 does not necessarily indicate that the debt is forgiven, just that, for the time being, the bank is writing it off as a loss on their taxes. WAR is backing legislation that would clarify all short-sale terms for the homeowner.

“Should our bill (Senate Bill 6337) pass, that would all change and a 1099 would be a concrete declaration of forgiveness of the short sale.”

While you don’t have to pay tax on the forgiven amount, there is no relief or tax deduction for selling your home at a loss. There is no benefit for folks who bought at the peak or made expensive remodels, then had to sell in a hurry and actually got less for their home than the cash they had invested in it.

Uncle Sam will not let you show a loss on your primary residence if you sell for an amount less than the purchase price. If you’ve planned on writing that down on your 2011 federal return, think again.

By Tom Kelly, Wednesday, March 14, 2012.

Inman News®

Tom Kelly’s new e-book, “Bargains Beyond the Border: Get Past the Blood and Drugs: Mexico’s Lower Cost of Living Can Avert a Tearful Retirement,” is available online at Apple’s iBookstore,, Sony’s Reader Store, Barnes & Noble, Kobo, Diesel eBook Store, and Google Editions.

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Short-sale debt collection draws ire – Why are banks getting tax break while also pursuing discharged debt?

Homebuyers may be attracted to the big bargains that foreclosures and preforeclosures can offer. But distressed properties can involve tricky, lengthy transactions, and there’s a lot to think about before jumping in.

In fact, some home shoppers have shunned short sales altogether, preferring a more reliable process to a reduction in price. Getting all parties to agree to a short-sale price can be problematic, and lenders have been known to change their minds when more bidders surface.

Given the difficulty and uncertainty of negotiating a short-sale transaction, you would think lenders would bend over backward to make things easier for the consumer once the deal is finally done.

But it appears some lenders are seeking an additional pound of flesh long after the frustrated, exhausted and often financially drained seller has moved on.

Short sales occur when owners, often in distress, sell their homes for less than the amount they owe their lenders. The lender may then write off the remainder of the debt and receive tax benefits.

Some lenders, however, will also assign or sell the remaining debt obligation to third-party debt collectors, often for pennies on the dollar. The third-party debt collector can then use the legal system to continue to pursue the former homeowner for the balance owed.

This has become such an issue that legislators in Olympia, Wash., have taken action. Senate Bill 6337, proposed by David Frockt, D-Seattle, would protect short-sale sellers from being pursued by lenders or their assignees for the difference between the sale price and remaining loan balance.

“The banks will basically have to make a choice,” Frockt said, “to either write off the amount and take the tax benefit, or pursue the owner — but they cannot do both.”

When a lender agrees to a short sale, it can either retain the ability to collect from the short-sale seller the amount of mortgage debt owed by the seller that is not satisfied by the purchase price, or it can discharge all or a portion of the unsatisfied debt amount.

If a lender discharges debt, it reports this discharge of debt to the Internal Revenue Service on a 1099-C Cancellation of Debt Form. The issuance of the 1099-C allows the lender to take a tax deduction for the loss represented by the amount of debt discharged, and this same amount of debt discharged becomes taxable income to the short-sale seller.

After the taxpayers bailed out the mortgage industry, many borrowers are still unable to get a loan modification to stay in their homes. Now the industry has a sketchy-to-lousy national reputation, and more stringent qualifying standards are not helping their case.

In light of all this, how can some lenders knowingly seek both a tax deduction for the mortgage debt not paid while also seeking to collect that same mortgage debt?

“Yes, we have heard of this happening,” said Deborah Bortner, director of consumer services for the Washington state Department of Financial Institutions.

“I hear it mostly from attorneys or others who assist those in obtaining a short sale. I understand that the documentation provided by the institutions doesn’t always make it clear whether they will pursue a short sale or not. The consumer only finds out later when contacted by someone trying to collect the deficiency.”

In some instances, mortgage debt collection rights have been referred to third-party debt collection companies, even though short-sale sellers have paid income tax on the amount of this discharged debt.

“This is another step to help the short-sale process that is keeping many homeowners from the tragedy of foreclosure,” said Faye Nelson, president of the Washington Association of Realtors. “Nearly 40 percent of the inventory in the Puget Sound region right now is short sales. State legislators recognize that protecting this process is critical to homeownership and the housing market.”

By Tom Kelly, Wednesday, March 7, 2012.

Inman News®Tom Kelly’s new e-book, “Bargains Beyond the Border: Get Past the Blood and Drugs: Mexico’s Lower Cost of Living Can Avert a Tearful Retirement,” is available online at Apple’s iBookstore,, Sony’s Reader Store, Barnes & Noble, Kobo, Diesel eBook Store, and Google Editions.

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FHA Insurance Premiums Will Increase Soon

If your clients are considering buying or refinancing a home, you should let them know that the Federal Housing Administration (FHA) will soon increase mortgage insurance premiums on FHA home loans.

The Department of Housing and Urban Development (HUD) announced it would increase the annual mortgage insurance premium (MIP) by 0.10% for FHA loans under $625,500. This would raise the fee from 1.15% to 1.25% of the total loan amount. This annual premium increase — which is broken down into monthly payments — takes effect April 1, 2012.

In addition, HUD announced it would raise the FHA’s upfront annual mortgage insurance premium (UFMIP) from 1% to 1.75% effective April 1, 2012.

Starting June 1, 2012, the MIP for FHA loans over $625,500 will increase 0.35%, raising that fee to 1.50% of the total loan amount.

The primary reason for the changes is to bolster capital reserves for FHA’s Mutual Mortgage Insurance Fund. Congress has mandated the fund keep 2% in reserves. Last year, that reserve had slipped to 0.2%. The changes are expected to generate about $1 billion annually for the fund.

The increase in mortgage insurance costs applies to the purchase or refinancing of all FHA loans regardless of the amortization term or loan-to-value (LTV) ratio. The increases will not apply to borrowers already in an FHA-insured mortgage, a Home Equity Conversion Mortgage (HECM), and other special loan programs to be outlined in a forthcoming FHA Mortgagee Letter.

For your customers considering refinancing or making a purchase, they might want to act before the new mortgage insurance premiums take effect.

from Prospect Mortgage Industry Insider

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HARP Changes Are Coming This Spring

The Federal Housing Finance Agency recently announced changes to the Home Affordable Refinance Program (HARP) that will allow more borrowers to refinance and take advantage of historically low mortgage rates.

These changes to HARP (often referred to as HARP 2.0) are set to rollout this spring. Fannie Mae and Freddie Mac are currently updating their automated loan underwriting software. This is due to be completed in March 2012.

Some enhancements to HARP include:

  • Removing the 125% loan-to-value (LTV) ceiling on fixed-rate mortgages backed by Fannie Mae and Freddie Mac when the automated underwriting software is updated eliminates the need for a new property appraisal. Depending on occupancy type, Prospect’s current LTV ceiling is between 105% and 125% with any HARP 2.0 LTV limitations forthcoming.
  • Eliminating certain risk-based fees for borrowers who refinance into shorter-term mortgages.
  • Extending the end date for HARP until on or before December 31, 2013.

HARP borrowers must meet the following criteria:

  • The mortgage must have been owned or guaranteed by Fannie Mae or Freddie Mac on or before May 31, 2009.
  • The mortgage cannot have been refinanced under HARP previously unless it’s a Fannie Mae loan that was refinanced under HARP from March 2009 to May 2009.
  • The current LTV ratio must be greater than 80%.
  • Borrowers must be current on their mortgage payments with no late payment in the previous 12 months to 24 months, depending on the LTV.

Owner-occupied, secondary residences and investment properties may be considered for HARP refinancing. There are many HARP refinancing scenarios available.

from Prospect Mortgage Industry Insider

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Economists don’t agree on real estate recovery

It wasn’t long ago that some economic forecasters anticipated a turnaround in the home-sale market by 2012. When the economic recovery stalled and the housing market showed no sign of turning around quickly, projections for a housing recovery were pushed out two, three and even seven years.

Ken Rosen, chairman of the Fisher Center for Real Estate & Urban Economics at the University of California, Berkeley, believes that home prices have bottomed and are increasing in areas powered by strong job growth. However, even in places where prices are rising, they are not rebounding.

Not all economists agree that home prices have hit bottom; many anticipate another 5 percent price decline over the next two years.

Rosen gives a 65 percent probability that the recovery will be choppy. He forecasts a 5 percent chance of a strong recovery and a 30 percent chance of a double-dip recession. Factors holding a recovery back: a general sense of uncertainty that undermines consumer confidence; millions of unsold foreclosure properties; high unemployment; cutbacks in services; and tight credit conditions.

In some urban areas of the country, like Atlanta, Chicago, Miami and Phoenix, it may be more advantageous to buy than to rent. Apartment rents have been rising due to increased demand for rentals from people who have lost their homes in foreclosure, empty nesters trading down, people with jobs who have decided not to buy, and people who would like to buy but who can’t qualify.

The same lenders who gave risky mortgages to buyers who couldn’t afford them in 2005 and 2006 are now making it difficult for qualified buyers to get financing. It used to take a credit score of 620 or more to qualify for a conventional mortgage. In those days, loans to buyers with 5 to 10 percent cash down were readily available.

Today’s buyers need a credit score of 760. Some conventional lenders require a 20 percent cash down payment. If the buyers are self-employed it can be more difficult to qualify. It’s a great time to trade up, but most buyers can’t qualify to buy the new home without first selling their current home.

One of the best things that could happen to the housing market at this point would be an easing of credit-qualifying standards — not to the ridiculously low level of several years ago, but to a level that would enable more creditworthy buyers to take advantage of today’s low interest rates and relatively low home prices.

Good news lately bodes well for the future, but you should anticipate continued volatility. The jobless rate dropped to 8.6 percent nationally in November, the lowest level in 2 1/2 years. The consumer confidence index rose 15 points in November, to 56. Although encouraging, if the economy were on solid ground we would expect a reading of 90.

HOUSE HUNTING TIP: It’s a good time to buy a home in many areas of the country. However, it’s only a good time if you buy for the long term and you have realistic expectations about what buying a home will entail. It will require maintenance, which costs money and takes time.

Your home is unlikely to be the cash cow that most buyers expected — and many achieved — during the bubble years. According to Robert Shiller, Yale University economist, home prices track, on average, with the inflation rate over long periods.

Renters with good incomes and good credit who are tired of moving could benefit from buying a home now. Just be aware that if we go into a double-dip recession, prices could drop another 10 percent in some areas. That’s why you don’t want to buy for the short run.

THE CLOSING: Buyers having trouble amassing 20 percent for a down payment should check with independent banks that have more flexibility in their qualifying criteria.

By Dian Hymer, Monday, January 9, 2012.

Inman News®

Dian Hymer, a real estate broker with more than 30 years’ experience, is a nationally syndicated real estate columnist and author of “House Hunting: The Take-Along Workbook for Home Buyers” and “Starting Out, The Complete Home Buyer’s Guide.”

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