A fixed rate alternative:

With interest rates at historically low levels, many borrowers are finding value with a reliable fixed-rate mortgage. However, borrowers who think they could be relocating in the near future, or need to shore up savings, might want to consider what some regard as the next best thing: An adjustable-rate mortgage that offers several years at a fixed interest rate.

Making sense of the story

• Hybrid adjustable-rate mortgages, or ARMs, originated in the jumbo-loan marketplace at the end of the 1980s. They fell out of favor – along with the riskier ARMs that offered extremely low teaser rates and interest-only components – after the subprime mortgage market collapsed.

• Some adjustable-rate mortgages have an interest rate that changed every year, but a hybrid – also known as a delayed first-adjustment ARM – has a fixed interest rate for a period of time. Most loan officers refer to a hybrid by the period during which the rate is fixed. A 5/1 loan, for example, has a fixed rate for five years, then adjusts annually for the remainder of the term; a 7/1 loan adjusts after seven years.

• ARMs account for only a small segment of the overall mortgage nowadays, financing just slightly more than 10 percent of home purchases. However, market share for hybrid loans is expected to increase to 14 percent this year, according to an annual survey released last month by Freddie Mac. The 5/1 hybrid was the most popular adjustable-rate loan product in the market, according to the survey. The least popular was a 3/3 ARM, which adjusts once every three years.

• A common reason for choosing a hybrid ARM is projected length of homeownership. It’s a nice option for buyers who don’t expect to stay in their home for longer than three to five years.

• Rates on hybrid ARMs are also attractive. As of last week, the average rate on a 5/1 loan was 2.81 percent, compared with 3.88 percent for a 30-year fixed-rate loan, according to Freddie Mac.

• Borrowers should be aware though that with rates starting at rock-bottom levels, there’s generally only one direction for them to go. And even though there are caps on the rate change amount, the jump could be as much as six percentage points

Consumer Sentiment Continues Climb:

The willingness to "pull the trigger" on a home purchase has more to do with how a home buyer feels about their own financial stability and their view of the economy than any other factor.

So, it is good news for the housing industry to see the Thomson Reuters/University of Michigan's Consumer Sentiment Index continuing to climb upward from our lows of last summer.

The reading of 75.3 was a slight improvement from the prior month and the highest reading in a year. It also continues the trend of improving consumer sentiment since our lowest readings in August 2011.

A third of consumers spontaneously reported hearing about more job opportunities, the highest proportion ever recorded by the survey. The U.S. jobless rate unexpectedly fell to a three-year low in January, stoking hopes the labor market is healing

New Homes Data Shows More Gains:

The Commerce Department said Thursday that builders broke ground on a seasonally adjusted annual rate of 699,000 homes in January. That's up 1.5 percent from December and reached the highest level since December 2008. Construction began work on 508,000 single-family homes last month and December single-family homes were revised up strongly to show builders started 513,000 homes — a 12 percent gain from November.

In a separate report, building permits, a gauge of future construction, rose 0.7 percent. The majority of those permits were for single-family homes. It can take 12 months for a builder to obtain a permit and construct a single-family home.

In a third report released last week, A measure of builder sentiment has risen for five straight months and is now at its highest level in nearly five years. Many builders are seeing more people express interest in buying a home, leading them to believe 2012 could be a turn-around year for the market. Mortgage rates have never been cheaper. And home sales started to rise at the end of last year.

California home prices down due to distressed properties

California home sales declined from both the prior month and year in January, according to data from the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.). The median price also was lower, primarily due to a sales increase in the distressed market.
Making sense of the story

• Closed escrow sales of existing, single-family detached homes in California totaled a seasonally adjusted annualized rate of 517,740 in January, according to information collected by C.A.R. from more than 90 local REALTOR® associations and MLSs statewide.
  
  
• January’s sales were down 0.6 percent from December’s 520,940 pace and down 5.7 percent from the revised 548,760 sales pace recorded in January 2011. The statewide sales figure represents what would be the total number of homes sold during 2012 if sales maintained the January pace throughout the year. It is adjusted to account for seasonal factors that typically influence home sales.
  
  
• The statewide median price of an existing, single-family detached home fell to $268,280 in January, down 6.7 percent from $285,920 in December. The median price also dropped 3.9 percent from the revised $279,220 median price recorded in January 2011.
  
  
• “The decline in the January median home is largely a reflection of an increase in the share of distressed home sales,” said C.A.R. Vice President and Chief Economist Leslie Appleton-Young. “Seasonal factors in the non-distressed market also played a role in the softening of the median home price, as prices typically decline in the non-peak home buying season.”
  
  
• California’s housing inventory rose in January, with the Unsold Inventory Index for existing, single-family detached homes increasing to 5.5 months in January, up from 4.1 months in December but down from the 6.8-month supply in January 2011. The index indicates the number of months needed to deplete the supply of homes on the market at the current sales rate.

Obama Budget Calls for $6B in Home Energy Retrofits

Daily Real Estate News | Tuesday, February 14, 2012   

President Obama is calling for $6 billion in his 2013 budget to expand home energy retrofits. Obama unveiled his $3.8 trillion budget for 2013 on Monday.

The home energy retrofit allocation aims to revive Obama’s Home Star program, which passed the House of Representatives in 2010 but never won over final congressional approval. The Home Star program would grant home owners rebates for efficiency upgrades, including sealing ducts, installing efficient water heaters and heating units, windows, doors, and adding insulation. The program was previously dubbed “cash for caulkers.”

Still, some are skeptical the full $6 billion will win final approval. "While Home Star is unlikely to make it through Congress (this year) due to its price tag, we hope something more modest might be able to move forward," Steven Nadel, executive director of the American Council for an Energy-Efficient Economy, told USA Today

Banks Offer More Cash Incentives for Short Sales

Daily Real Estate News | Monday, February 13, 2012   

More banks are offering home owners incentives to sell their houses in a short sale to prevent a costly foreclosure to the bank. In fact, some banks are offering struggling home owners as much as $35,000 to do a short sale, according to an article at CNNMoney.

Many home owners have been surprised at banks’ recent willingness to approve short sales.
"Initially, the home owners are skeptical," says Elizabeth Weintraub, a real estate professional in Sacramento, Calif. "The bank may have already turned down their request for a modification. Then, one day, they call and say, 'Let us give you some cash.'"
For banks, the incentives have proven to be a smarter move than letting a property fall into foreclosure.

"The first choice is a modification, but if that's impossible then a short sale is a faster, more efficient solution," Tom Kelly, a spokesman for Chase Mortgage, said.
With a foreclosure, home owners stop making their mortgage payments and usually property taxes as well. They also often put off maintenance issues, which can cause the home to lose value even more. Foreclosed homes sold, on average, for 22 percent less than homes not in foreclosure in December, according to National Association of REALTORS®’ data. For comparison, discounts for short sales were about 14 percent.

"I've seen a lot of foreclosures for sale where it would cost a lot more than $20,000 to get them into condition to sell again," says John Hayton, a short sale specialist in Orlando, Fla.

California to Receive $18 Billion in Mortgage Settlement

On February 9, Attorney General Kamala D. Harris announced that California secured up to $18 billion for its distressed homeowners as part of a $25 billion national multistate settlement with the country's five largest loan servicers. More than $12 billion will be used to offer short sales or write down loans over the next three years for about 250,000 underwater homeowners in California, according to the attorney general. Relief will go to areas hardest hit by the foreclosure crisis within the first year of the settlement. Although the actual settlement has not yet been released, the attorney general has stated that other financial benefits for California include $849 million for refinancing 28,000 borrowers who are underwater but current on their payments; $279 million restitution for 140,000 homeowners who were foreclosed upon between 2008 and 2011; $1.1 billion for unemployed homeowners, transitional assistance, and repairing blight; $3.5 billion to extinguish unpaid loans that remain after foreclosure for 32,000 homeowners; and $430 million to the state attorney general's office for costs and fees. As part of a California guarantee, if the lenders fail to reduce principal balances by a minimum of $12 billion, they will be required to pay fines up to $800 million to the state. The loans involved in this settlement are those owned or serviced by Bank of America, JPMorgan Chase, Wells Fargo, Citigroup, and Ally Financial Inc. The settlement releases the five named lenders from certain federal and state claims pertaining to robo-signing and other foreclosure misconduct by the lenders. It does not affect any individual's rights to bring legal action against a lender. It also does not apply to the majority of mortgage loans, which are those owned by Fannie Mae or Freddie Mac. This mortgage settlement does not change any homeowner's existing financial relationship with a settling lender. It does not relieve homeowners from any obligation. It does not require a settling lender to stop any foreclosure. Homeowners seeking relief under the settlement agreement should contact their loan servicer or a HUD-approved housing counselor. More information including detailed FAQs is also available from the California Attorney General's website, or visit the National Mortgage Settlement website

Consumer Sentiment Moves off of Highs:

Americans turned less optimistic about the economy in early February on worries about falling income even as their outlook on the jobs market rose to a record high, a survey released on Friday showed.

The Thomson Reuters/University of Michigan Index of Consumer Sentiment fell back in February with a preliminary score of 72.5 that is 2.5 pts lower than January's score of 75.

Current conditions, and more precisely a negative tone towards current finances, was the heaviest drag. Even though optimism towards the job market kept up, the CSI was unable to hang on to sentiment expressed last month. Market expectations averaged to 74.5.

The optimism in their job outlook is encouraging though and is certainly reflective of the steady string of better than expected Initial Weekly Jobless Claims and the recent decline in the national Unemployment Rate. As these trends in lower Unemployment continue, look for the Consumer Sentiment to regain some ground.

President Obama details plan to help responsible homeowners

In his State of the Union address, President Obama laid out a plan to help responsible borrowers and support a housing market recovery.
Key aspects of the president’s plan include:

• Broad-based refinancing: The president’s plan will provide borrowers who are current on their payments with an opportunity to refinance and take advantage of historically low interest rates
• Homeowner Bill of Rights: The president is putting forward a single set of standards to make sure borrowers and lenders play by the same rules, including: Access to a simple mortgage disclosure form, so borrowers understand the loans they are taking out; full disclosure of fees and penalties; guidelines to prevent conflicts of interest that end up hurting homeowners; support to keep responsible families in their homes and out of foreclosure; and protection for families against inappropriate foreclosure, including right of appeal.
• First pilot sale to transition foreclosed property into rental housing: The FHFA, in conjunction with Treasury and HUD, is announcing a pilot sale of foreclosed properties to be transitioned into rental housing. C.A.R. is opposed to bulk sales of REO properties in California.
• Providing a full year of forbearance for borrowers looking for work: Following the administration’s lead, major banks and the GSEs are now providing up to 12 months of forbearance to unemployed borrowers.
• Pursuing a joint investigation into mortgage origination and servicing abuses: This effort marshals new resources to investigate misconduct that contributed to the financial crisis under the leadership of federal and state co-chairs.
• Rehabilitating neighborhoods and reducing foreclosures: In addition to the steps outlined above, the administration is expanding eligibility for HAMP to reduce additional foreclosures, increasing incentives for modifications that help borrowers rebuild equity, and is proposing to put people back to work rehabilitating neighborhoods through Project Rebuild.

Housing Market Picture Brightens with Job Gains:

The pace of job creation surged in January, with the US economy generating 243,000 new positions while the unemployment rate dropped to 8.3 percent, according to government data released Friday.

Both numbers were far better than the consensus estimates, which expected a growth of 150,000 jobs and a steady unemployment rate of 8.5 percent.

Job gains have been concentrated primarily in the service sector, particularly in retail and the food and beverage industries. Warehousing, manufacturing, mining and health care also have participated.

True to form, services were responsible for 162,000 of the January swell, with manufacturing payrolls growing 50,000. Government cuts subtracted 14,000 from the total. Retail has added 390,000 jobs since December 2009, while durable goods manufacturing is up 418,000 over the past two years, according to government figures.

Housing demand is driven primarily by two factors (neither is interest rate): Consumer Sentiment and Employment Stability. So, the surprisingly strong Nonfarm Payroll data is certainly good news for the housing industry

Bernanke Defends Keeping Rates Low for 3 More Years

Daily Real Estate News | Friday, February 03, 2012   

Federal Reserve Chair Ben Bernanke defended his comments about the housing market and the central bank’s decision to hold interest rates at lows until 2014 in testimony Thursday to the House Budget Committee.

Some lawmakers on Thursday questioned the Fed’s move to keep rates low for three more years, saying it brings a risk to higher inflation and stymies economic growth.

Recently, the Fed announced that it doesn’t plan to raise its benchmark interest rates from a record low until late 2014, a move that will likely keep mortgage rates at record lows as well.

Bernanke says that while the economy is showing improvement, the pace has been slow and many threats remain to economic recovery, such as European’s debt crisis, the nation’s rising debt, and the still-ailing housing market.

Bernanke said he feels the sluggish housing market is holding back overall economic growth.

National Association of Realtors® President Moe Veissi says that while the housing market has shown signs of stabilizing, lawmakers need to make housing needs more of a top priority.

“We fully support Chairman Bernanke’s comments that the lack of available and affordable mortgage financing, low home values, and high foreclosure inventories are inhibiting a meaningful housing market recovery,” Veissi said in a statement. “We believe more can be done to address the lack of available and affordable mortgage financing to creditworthy borrowers and stem the rising inventory of foreclosed homes, which is depressing home values in communities across the country. Housing and home ownership issues affect all Americans, and stabilizing the housing market is critical to the nation’s economy making a meaningful recovery.”