January 29, 2010 by Mimi Miller.

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Investor Report: 20 Percent Limit
by Kenneth R. Harney

Foreclosure and REO investors have begun taking a closer look at the Obama administration’s recent loosening of rules on property “flips”… . And they’re seeing some potential complications.

The policy change allows investors to resell houses they’ve acquired and rehabbed in less than 90 days to buyers using low-downpayment FHA mortgage financing.

Most investors interviewed by Realty Times last week welcomed the loosening of the rules, but said there are snares for the unwary.

For example, the program sets a 20 percent cap on the difference between an investor’s acquisition cost of a foreclosure and the price paid by the new buyer.

Price gains in excess of 20 percent must be justified with extensive documentation of the improvements made and their impact on the property’s valuation.

Bobby Taylor, a broker with Coldwell Banker Mountain West Real Estate in Salem, Oregon, says the 20 percent standard limit is reasonable, but could prove troublesome for investors who overspend on fix ups or pay too much up front.

In the Salem market, according to Taylor, the average foreclosure sells for about $165,000, while the average non-distressed house sells for around $210,000. If an investor buys a foreclosure at $165,000 and does enough fix up to sell for $210,000 within 90 days, that increase would blow through FHA’s limit.

“Investors who can document how much legitimate value they added would still pass muster, but Taylor warns they’re likely to face tough scrutiny from lenders.

That’s because most FHA lenders today are extremely nervous about getting sideways with FHA - which lately has been sanctioning lenders for rule violations and kicking some of them out of its programs altogether.

Bruce May, who runs Genequity Investment Group in Vista, California, says the 20 percent limit could be a tight squeeze for investors who make significant improvements to properties.

“I think 25 to 30 percent would have been better,” he said, but 20 percent works on properties “where we know we can get in there, turn it around and get out” quickly at a moderate cost.

The challenge for investors focused on the returns on their investments, May said, will be controlling the sometimes high and unpredictable holding costs - which can range from “cash for keys” payments to tenants and former owners to ease them out of the properties, to insurance charges and even vandalism repairs.

On the whole, though, May says, the FHA policy change “is going to open up foreclosures to many more FHA buyers,” and should help put a lot of houses back into the marketplace faster than before.

Published: January 29, 2010

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January 28, 2010 by Mimi Miller.

From the International Builders’ Show: Selling to the Generations
January 22, 2010 by Erica Christoffer ·

By Erica Christoffer, Contributing Editor, REALTOR® Magazine

Whether you are working with a Baby Boomer, Gen Xer, or someone in the Gen Y age range, it’s important to know what your buyers wants in a home.

While age demographics are still a driving factor in the type of home your buyer is interested in, and three presenters at the International Builders’ Show Wednesday said there is a tie that binds – today, less is more.

Saying goodbye to McMansions, Mary Dewalt of Mary Dewalt Design Group, Steve Lane of Denver-based KEPHART, and Ken Perlman of Sullivan Group Real Estate Advisors outlined the driving demand behind each generation and what features they want in their downsized home in the session “From Wow to Now: What Today’s Home Buyers Really Want.”

Baby Boomers (age 45-65):

They don’t see themselves as getting older, and they don’t want to compromise their active lifestyles. About 83 percent plan to work past retirement, and more than half of those are interested in starting a new career or business. This age demographic wants start-of-the-art… and low-maintenance everything! They are design savvy and look at catalogs such as Pottery Barn, Crate & Barrel, and Restoration Hardware. “They are really looking at their homes as a sanctuary,” said Dewalt. Downsizing is appealing to them, but Baby Boomers still want elements such as pet spaces and areas for memorabilia. Amenities, details, and outdoor spaces are also at the top of their lists.

Gen X (age 30-45):

Fueling the first-time buyer and move-up market, Gen Xers love social spaces. Most are willing to give up square footage for location. This generation has also waited longer to have children, and once they do have a family, the emphasis is being on “super-parent.” They are goal-oriented, career-oriented and often they are more attracted to minimalism than Boomers. But they still want amenities. A neighborhood’s walkability is huge for Gen Xers, as is community, outdoor space, sustainable elements, and kids’ spaces. They look at catalogs from IKEA, Pottery Barn and Chiasso.

Gen Y (age 11-30):

Don’t rule out Gen Y, they are taking over the pool of first-time buyers. And location, location, location is the name of their game. Seeking to eliminate their long commutes, Gen Y will give up living space for their community of choice – often urban areas and near public transportation. Think high-density and low-maintenance, said Lane, especially surrounding universities and high-tech business centers. They look at blogs for design tips, as well as catalogs from IKEA, Anthropologie, and Dwell. They are connected, social, and embrace green on a larger scale than Gen X and Boomers. These money-savvy buyers believe energy efficiencies will provide them with a greater return on their home investment in the long run.

For more coverage from the International Builders’ Show in Las Vegas, also visit our Styled, Staged & Sold blog.

Tags: baby boomers, demographics, Gen X, Gen Y, International Builders’ Show

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January 27, 2010 by Mimi Miller.

Daily Real Estate News | January 26, 2010 |
Ten Inexpensive Ways to Wow Buyers
Now is the time for home owners contemplating a spring sale to spruce up their properties in anticipation of what Mike Larson of Weiss Research calls a potentially vibrant home-selling season. “If you have been beating your head against a wall, this is going to feel a lot better,” he jokes.

Here are 10 cheap ways to make a property more attractive to shoppers.

Improve first impressions. Touch up the paint on the front door and other areas that buyers see first.
Clean up the landscaping. Trim the hedges and trees and plant some annuals in the flowerbeds.
Paint the interior. A coat of light yellow or cream with contrasting white woodwork looks fresh and clean.
Refurbish the floors. Buff the hardwoods. Install new carpets – or at least get them professionally cleaned.
Take care of the big problems. If the house needs a roof or the front stoop is crumbling, get them fixed.
Buy warranties. Putting appliances under warranty gives homebuyers a secure feeling.
Improve energy efficiency. New windows or improved insulation tell a potential buyer the seller is on top of things plus they come with tax benefits.
Replace light fixtures. Updated fixtures, especially at the entrance way and in the foyer, create a good first impression.
Buy a stove. Home owners whose kitchen isn’t top of the line can jazz it up for a few hundred dollars by buying a new stove, which gives the room a fresh feel.
Tidy up the bathrooms. Get rid of mildew, replace caulking and replace stained sinks.

Source: U.S. News & World Report, Luke Mullins (01/21/2010)

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January 25, 2010 by Mimi Miller.

Top 10 Must-Have Features in Today’s New Homes
By Steve Kerch Print Article
RISMEDIA, January 25, 2010—(MCT)—Americans want smaller houses and they are willing to strip some of yesterday’s most popular rooms—such as home theaters—from them in order to accommodate changing lifestyles, consumer experts told audiences at the International Builders Show.

“This is a traumatic time in this country and the future isn’t something we’re 100% sure about now either. What’s left? The answer for most home buyers is authenticity,” said Heather McCune, director of marketing for Bassenian Lagoni Architects in Park Ridge, Ill. Buyers today want cost-effective architecture, plans that focus on spaces and not rooms and homes that are designed ‘green’ from the outset,” she said. The key for home builders is “finding the balance between what buyers want and the price point.”

For many buyers, their next house will be smaller than their current one, said Carol Lavender, president of the Lavender Design Group in San Antonio, Texas. Large kitchens that are open to the main family living area, old-fashioned bathrooms with clawfoot tubs and small spaces such as wine grottos are design features that will resonate today, she said. “What we’re hearing is ‘harvest’ as a home theme—the feeling of Thanksgiving. It’s all about family togetherness—casual living, entertaining and flexible spaces,” Lavender said.

Paul Cardis, CEO of AVID Ratings Co., which conducts an annual survey of home buyer preferences, said there are 10 “must” features in new homes:

1. Large kitchens, with an island. “If you’re going to spend design dollars, spend them where people want them—spend them in the kitchen,” McCune said. 2. Granite countertops are a must for move-up buyers and buyers of custom homes, but for others “they are on the bubble,” Cardis said.

3. Energy-efficient appliances, high-efficiency insulation and high window efficiency. Among the “green” features touted in homes, these are the ones buyers value most, said Cardis. While large windows had been a major draw, energy concerns are giving customers pause on those. The use of recycled or synthetic materials is only borderline desirable.

4. Home office/study. People would much rather have this space rather than, say, a formal dining room. “People are feeling like they can dine out again and so the dining room has become tradable,” Cardis said. And the home theater may also be headed for the scrap heap, a casualty of the “shift from boom to correction.”

5. Main-floor master suite. This is a must feature for empty-nesters and certain other buyers, and appears to be getting more popular in general. That could help explain why demand for upstairs laundries is declining after several years of popularity gains.

6. Outdoor living room. The popularity of outdoor spaces continues to grow, even in Canada. The idea of an outdoor room is even more popular than an outdoor cooking area, meaning people are willing to spend more time outside.

7. Master suite soaker tubs. Whirlpools are still desirable for many home buyers, but they clearly went down a notch in the latest survey. Oversize showers with seating areas are also moving up in popularity.

8. Stone and brick exteriors. Stucco and vinyl don’t make the cut.

9. Community landscaping, with walking paths and playgrounds. Forget about golf courses, swimming pools and clubhouses. Buyers in large planned developments prefer hiking among lush greenery.

10. Two-car garages. A given at all levels; three-car garages, in which the third bay is more often than not used for additional storage and not automobiles, is desirable in the move-up and custom categories.

(c) 2010, MarketWatch.com Inc.

Distributed by McClatchy-Tribune Information Services.

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January 23, 2010 by Mimi Miller.

Will new appraisal rules hurt FHA borrowers?
December 8th, 2009, 12:00 pm · 9 Comments · posted by Marilyn Kalfus, real estate reporter
In his blog this week, mortgage broker Dennis C. Smith of Stratis Financial in Huntington Beach writes about the effect he sees the new, controversial appraisal process having on homebuyers taking out FHA loans.
“On January 1, 2010 FHA will require the Home Valuation Code of Conduct (HVCC) process for all appraisals, falling in line with Fannie Mae and Freddie Mac. For a multitude of reasons this will be tremendously negative for the market, for buyers and for sellers. It will further depress property values, it will hinder sellers ability to get open offers and most importantly it will prohibit many FHA buyers from even having their offers looked at by sellers in multiple offer situations-even if they have higher offers.

When FHA converts to HVCC there will be a negative impact on property values that will be more deleterious to the real estate markets than HVCC is currently.”

“A quick review of the HVCC process: originator is randomly assigned an Appraisal Management Company (AMC), AMC randomly assigns appraiser from region, appraiser submits appraisal to AMC who forwards to originator. No one is allowed to communicate with the appraiser except the AMC. Any appeals must go through the AMC and appraiser can agree or disagree with the appeal. Appeals can only be to provide additional comps, they cannot appeal the adjustments appraiser has made; such as no subtraction for location for a home on a major artery versus a home on the interior of a neighborhood. Finally, the most important part: the AMC is guaranteeing the provided value to the lender. This guarantee creates an incentive for the AMCs to encourage low value appraisals, encourages appraisers to select the bottom comps in a market rather than fresher, higher comps. Note as well the AMC and appraiser have already been paid regardless of the outcome.

“What makes the situation even worse for FHA is the case number. Every FHA appraisal is assigned a case number. That case number, and therefore appraisal, stays with the property for six months. Example: Tamara and George offer $325,000 to buy 36 Birdsong Way and the FHA appraisal returns at $300,000. Seller says no way and the deal is cancelled. For the next six months any buyer who wants to purchase the property with FHA financing must use that $300,000 appraisal. Seller’s choices are to only sell it with conventional financing or wait six months, or sell the property with FHA financing for $300,000. Regardless of additional comps provided showing the market solidly supports a value of $325,000 if the original appraiser refuses to accept those comps, again all being filtered through the AMC which is guaranteeing the value, then the FHA value stays.

“Under the current HVCC process a new appraisal can be done either by going to another lender, or if the information being provided in the appeal is compelling enough to show the appraiser is being stubborn, or ignorant, in not re-assessing the value, the AMC can agree to send out a different appraiser for a new evaluation.

“The HVCC policy is far more harmful to Americans than it is helpful, with six months of data and experience there are tens of thousands of testimonials across the country that can attest to this.

“Finally regarding FHA, because of the case number assigning the appraisal to the property, the process is sticking a value on a homeowners property that the homeowner has no control or say over other than, “yes we agree to let you pursue FHA financing.” The seller who may become burdened with a below true market value has no appeal, has no rights to communicate to the appraiser or FHA to re-assess the value, and is put in a six month box because of one person in the process. Because of this risk any multiple offer situation that includes an FHA offer will see the non-FHA buyer win the bid, even if the offer is lower. A buyer with conventional financing will be able to offer less than an FHA buyer and buy the home, making the process uncompetitive and depressing values.”

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January 21, 2010 by Mimi Miller.

FHA loans get dramatically costlier
Homebuyers with credit scores below 580 now need 10% down, not 3.5%, and all buyers will pay more insurance upfront.
Article posted on MSNBC today.
By Marilyn Lewis
The Federal Housing Administration changed the rules for home borrowers Wednesday morning.

Along with tightening requirements for buyers, the FHA is cracking down on unscrupulous lenders who Commissioner David Stevens implies are responsible for the agency’s growing defaults and shrinking reserves. The agency — which is growing to become the lender of choice for buyers without sterling credit or 20% down — has written too many risky loans and now is retrenching.

“Not everybody should own a home,” Stevens told reporters on a conference call Wednesday.

•Ready to tap your home equity?The FHA is a government insurance company that backs mortgages and refinance loans for lenders that follow its guidelines. Last year the FHA insured 1.9 million loans, about 30% of the overall market, up from 1.1 million in 2008.

.
The New York Times reported that in late December, the FHA was insuring 5.8 million single-family homes — a total of $750 billion in loans. This is more than half a million of which were “seriously delinquent and heading toward foreclosure.”

The FHA’s changes were made after an actuarial study took apart the agency’s loan books to see where the most money is being lost.

The biggest change: Starting in spring — no date was given — borrowers will have to pay more upfront to get a loan, at least for a while. The FHA is raising its upfront mortgage insurance premium from 1.75% to 2.25% of the loan amount. (Homebuyers pay for FHA insurance in two ways: through a one-time upfront premium and through monthly insurance payments.)

Today, on a $250,000 loan, you’d pay $4,375, or 1.75%, at closing. With the increase, your upfront payment would go to $5,625 — an increase of $1,250.

At the same time, the FHA will ask Congress to raise the lid on the amount it can charge for annual premiums. Right now, the premiums can’t be more than 0.55%, or $1,375 a year, broken into monthly installments, for a $250,000 loan.

Ultimately, the idea is to raise the cost of yearly payments and drop the upfront costs back down. But for the moment, the upfront amount is going to grow.

Two other big changes, starting sometime in early summer, are coming as well:

•Homebuyers will need minimum 580 FICO scores to get loans with only 3.5% down. Borrowers with lower scores will need minimum down payments of 10%. Stevens, the FHA commissioner, said at a news conference Wednesday morning that the FHA’s numbers show most defaults are by borrowers with credit scores of 580 or below.
•Seller “concessions” will be reduced from 6% to 3%. Sellers who really want a sale to go through aren’t allowed to help buyers with their down payments. But they can, in effect, reduce a home’s price by kicking in money to cover closing costs and upgrades to the home. The practice lets sellers keep their prices higher while allowing buyers to finance expenses like closing costs and home improvements. “The current level exposes the FHA to excess risk by creating incentives to inflate appraised value,” said Stevens.
Stevens repeatedly stressed that he’s going after “outlier” lenders largely responsible for the FHA’s losses. While “the vast majority of lenders” participate within FHA guidelines, he’s focused on identifying and eliminating “rogue” lenders whose laxness has driven the agency’s losses:

•Stevens is planning more-intense monitoring of lenders, including publicly reporting lender performance rankings on the FHA Web site.
•FHA wants congressional approval to clamp down even further, holding lenders liable if they underwrite loans violating FHA policies and standards. “This would require all approved mortgagees to assume liability for all of the loans that they originate and underwrite,” Stevens said.
•The Department of Housing and Urban Development, the FHA’s parent agency, will also ask Congress for authority to drop lenders from FHA programs when they violate FHA standards at regional offices. Right now, lenders can break FHA rules in one region and then, when they’re shut out locally, move operations to another region.
The changes are necessary, Stevens said, because loan defaults have created losses and shrunk the FHA’s reserves below required levels. The problem would right itself by 2013 without intervention, he said, but the proposed changes should bring the reserves back into line in the next fiscal year.

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January 19, 2010 by Mimi Miller.

Government lifts rule discouraging flipping; homes can be bought and resold within 90 days - In a move that could make foreclosed properties more attractive to investors and increase the number of homes available to first-time buyers, the federal government is temporarily lifting a prohibition against providing FHA mortgage insurance for homes that are resold within 90 days. The waiver on the purchase of flipped houses with FHA mortgages, which begins February 1 and is effective for one year, “will give FHA borrowers access to a broader array of recently foreclosed properties,” HUD said Friday in announcing the change. Conditions attached to the waiver are expected to prevent what HUD called “predatory practices” by investors. For instance when a house is resold within 90 days of purchase at a price that is 20 percent higher, the seller would have to justify the increase, such as by showing how much was spent on repairs and renovation.
http://www.pe.com/business/local/stories/PE_Web_FHA.8f462821.html

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January 15, 2010 by Mimi Miller.

Walkaways, Pay Option ARMS Hit Banks Bad
Published: Tuesday, 12 Jan 2010 | 1:53 PM ET Text Size By: Diana Olick
CNBC Real Estate Reporter

A lot of reports out today collectively gave me a very bad feeling about the state of our current housing recovery.

First, Amherst Securities Group took a look at Pay Option ARMs. These are the adjustable rate loans so popular in 2006 that allowed you to choose your monthly mortgage payment, while tacking what you don’t spend on to the principal of your loan. Only 9 percent of these loans had full documentation from the borrower and 76 percent were originated in California, Florida, Arizona and Nevada, our four disaster states for housing. It should therefore come as no shock that they are suddenly approaching subprime in their delinquency status. So while we all sit around saying that the subprime loans have already worked their way through the system, they’re fast being replaced by POA’s. “For 2006 securitized issuance, 61% of subprime loans have defaulted, as have 49% of the option ARMs,” according to the Amherst report.

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Not soon after I saw that report, another flew into my “In” box from Fitch ratings: “Overall, prime RMBS 60+ days delinquencies rose to 9.2% for December 2009, up almost three times compared to the same period last year (3.2% in December 2008). The 2006/2007 vintages combined rose to 12.7% from 4.3%.” They’re talking about residential mortgage backed securities, which of course are pools of residential loans.

Then there was the report I received last night from Lender Processing Services:

“Total delinquencies, excluding foreclosures, increased to a record high 9.97 percent, representing a month-over-month increase of 5.46 percent and a year-over-year increase of 21.29 percent. Loans rolling to a more delinquent status totaled 5.01 percent compared to 1.52 percent of loans that improved. Of loans that were current in December 2008, 4.37 percent were either 60 or more days delinquent or in foreclosure by the end of November 2009, a rate higher than any other year for the same period.”

So instead of diving into a bottle of Ketel One, I jumped on a conference call with the Mortgage Bankers Association that included their chief economist Jay Brinkmann’s economic forecast. Brinkmann spoke quite a bit about unemployment, noting that while the rate of job losses is definitely slowing, the already-unemployed are not getting back into the job market at a healthy rate. He noted specifically that this would mean many more prime loan defaults by borrowers in financial trouble as opposed to borrowers who took out loans they never should have been offered.

“Over one-third of prime jumbo borrowers that are current on their mortgages also are ‘underwater’ on their mortgages,” said Vincent Barberio of Fitch. Makes you wonder how long they’ll stay current.

Mortgages

30 yr fixed 5.18% 5.32%
30 yr fixed jumbo 6.02% 6.11%
15 yr fixed 4.69% 4.91%
15 yr fixed jumbo 5.53% 5.71%
5/1 ARM 4.47% 3.85%
5/1 jumbo ARM 4.91% 3.99%

Find personalized rates:

Bankrate.com

All of this then piled on top of a number I noted yesterday, not newly reported, but new to me, that Experian was forecasting close to a million borrowers who could afford to pay their loans had voluntarily walked away from their commitments because they were so far underwater that they would not see any home equity any time soon. Judging by the fact that a quarter of all borrowers, or about 15 million, are currently underwater, that number will likely rise in 2010.

Needless to say, the big banks, while perhaps trying their darndest to modify as many loans as they can, are looking at potentially millions of borrowers who either can’t be modified due to insufficient income or don’t want to be modified due to insufficient interest in throwing their money into a bottomless pit.

Just some things that crossed my path today.

Questions? Comments? RealtyCheck@cnbc.com

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January 15, 2010 by Mimi Miller.

to view this article click on the following link:

http://www.ncbr.com/article.asp?id=103756

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January 12, 2010 by Mimi Miller.

http://www.realtor.org/rmodaily.nsf/pages/News2010011104

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