For Some Borrowers, It's Now Easier to Get a Mortgage

DAILY REAL ESTATE NEWS | THURSDAY, JANUARY 16, 2014 Borrowers may be having an easier time applying for a mortgage compared to a year ago. The average credit score for approved mortgages dropped to 727 in December, down from 748 one year prior, according to Ellie Mae, a mortgage technology firm. FICO credit scores run on a scale from 300 to 850. Forty-six percent of mortgages that closed in December had credit scores above 750. One year earlier, 57 percent of mortgages posted credit scores that high. In December, about 31 percent of loans had credit scores below 700. One year earlier, that percentage stood at 21 percent, according to Ellie Mae. Debt-to-income ratios are growing. The average total monthly debt for borrowers of closed loans in December stood at 39 percent of their incomes. That’s up from 35 percent in June. “Rising interest rates and home prices could account for some of the increase in debt-to-income ratios,” MSN Real Estate reports. More lenders may be getting comfortable easing standards since home prices have been rising over the past year. Also, lenders are facing a big drop in refinance business, which may prompt them to get more competitive in trying to nab more borrowers for home purchases, housing experts say. However, the effect of new mortgage regulations, which took effect last week, have yet to be seen. Tighter credit standards may be making for better borrowers, according to a new report. Loans originated last year are performing better than any year since tracking began in 1997, according to a report by Black Knight Financial Services.

4 Keys Identified for a Full Housing Recovery

DAILY REAL ESTATE NEWS | FRIDAY, JANUARY 17, 2014 In order to have a fully recovered housing market and economic recovery, economists point to the need for four positive indicators: 1. A healthy job market with low stable unemployment; 2. Mortgage delinquencies that have returned to historical averages; 3. Home prices consistent with an affordable mortgage payment–to–income ratio; and 4. Home sales that are in the range of historical norms. So, is the housing market inching closer? Freddie Mac’s U.S. Economic and Housing Market Outlook for January takes a look at how the housing market is performing among these four indicators. Economists note that the unemployment rate -- while inching down -- still remains high at 6.7 percent. Meanwhile, mortgage delinquencies have fallen to 5.88 percent -- nearly half of their peak rate but still higher than the national average of about 2 percent, Freddie notes. Home prices still have some room to grow without outpacing income growth, economists say. “From 1999–2006, mortgage payments on a hypothetical 30-year fixed-rate mortgage would have increased by 50 percent more than income growth,” Freddie Mac notes in the report. “Currently, payment-to-income ratios are only 60 percent of the level we had in 1999, suggesting room for continued housing growth.” Finally, home sales have risen over the past two years but remain below levels from a nearly a decade ago. Home sales, historically, average a rate of about 6 percent of the housing stock every year. They dropped to 4 percent during the housing crisis. Economists are predicting a 5.7 percent pace in 2014. "As we start 2014, the housing recovery continues its steady pace,” Frank Nothaft, Freddie Mac’s chief economist. “House-price gains will likely moderate from last year's pace but rise about 5 percent in national indexes. Home sales, as well as other key indicators, continue to trend in the right direction, although in some markets we are seeing the sales recovery strengthen while many others remain weak.

Small Lenders Hesitate Over New Rules DAILY REAL ESTATE NEWS | MONDAY, JANUARY 13, 2014 New mortgage rules that took effect last week could further hamper small lenders’ ability to issue loans, The Wall Street Journal reports. Under the new rules, lenders must ensure that borrowers can pay back their loans. Loans that meet “qualified mortgage” standards will provide a safe harbor to lenders from future lawsuits, while loans issued outside of QM standards will carry more legal risk. The Consumer Financial Protection Bureau defines “qualified mortgages” as loans that meet the ability-to-repay rule and in which borrowers spend no more than 43 percent of their income on debt. Furthermore, fees and other charges may make up no more than 3 percent of the loan. Small lenders reportedly will tread cautiously in the new lending environment because they are worried about the legal risk of making loans that don’t meet new standards, according to The Wall Street Journal. “We’re going to be very conservative just to make sure that we’re in compliance and don’t get into trouble,” says Mark Walker, chief executive of Michigan Mutual Inc., a lender with 300 employees based in Port Huron, Mich. “There are going to be loans that we did in 2013 that we are not going to be able to do in 2014.” Any lender who falls outside of the new rules may be unable to sell the loan to investors such as Fannie Mae and Freddie Mac. Large lenders—such as Wells Fargo and Bank of America—already have said they plan to continue issuing loans outside of CFPB’s Qualified Mortgage standards and will hold those loans on their own books. But smaller lenders will likely think twice. Non-bank lenders will be particularly cautious since they often don’t use their own investment portfolios to hold the loans on their books, The Wall Street Journal reports. For example, Linda Sweet, president and CEO of Big Valley Federal Credit Union in Sacramento, Calif., says her credit union will mostly stop making mortgage loans in 2014. Her credit union made about 30 mortgage loans in 2013. “The burden of trying to comply with the regulation is just overwhelmingly costly for a small financial institution,” Sweet says. CFPB announced it is monitoring the new rule’s impact closely on loan availability to see if any tweaks need to be made. “I think we got the rule right,” says Peter Carroll, CFPB’s assistant director for mortgage markets. But he adds that “we don’t want to see credit get unduly cut for people, where there are responsible loans being made.”

Banks Aim to Clear Foreclosure Backlogs

DAILY REAL ESTATE NEWS | MONDAY, JANUARY 06, 2014 Banks are trying to capitalize on rising home prices by selling seized homes more quickly. States with some of the largest backlogs of foreclosures are seeing an upswing in properties that are moving to auction for quicker sales since last July, according to RealtyTrac. “Lenders know there’s now a much better chance they can get those properties sold, so they’re moving to do that,” says Daren Blomquist, vice president at RealtyTrac. The number of new foreclosures entering the pipeline is slowing. However, the number of foreclosures going to auction is seeing an uptick in 19 states, particularly in Oregon, Massachusetts, Utah, Connecticut, Delaware, and New York. In New York, the average foreclosure can take 1,037 days to process, and in Florida, the process averages 929 days. Back when buyers were on the sidelines and prices were still falling, lenders' had little incentive to speed up the foreclosure process. Doing so would only add to the large amount of empty houses that needed to be maintained. But now that prices are rising in most markets, the backlog of bank-owned homes is being trimmed quickly. With tight inventories of homes for-sale in many cities, banks are seeing opportunity in getting repossessed homes back on the market faster for a quick sale, analysts say.

3 Big Reasons Why Home Sales Are Falling

DAILY REAL ESTATE NEWS | FRIDAY, DECEMBER 20, 2013 Existing-home sales dropped in November, falling 4.3 percent from October sales, and marking the first time in more than two years that home sales are below year ago levels, the National Association of REALTORS® reports. What’s behind the drop in sales? NAR’s chief economist Lawrence Yun pinpoints three main factors: Higher mortgage rates, constrained inventories, and continuing tight credit. 1. Higher mortgage rates: The 30-year fixed-rate mortgage is up nearly a full percentage point in the past year, causing home buyers to face an increase in borrowing costs. The 30-year fixed-rate mortgage increased to 4.26 percent in November compared to a 3.35 percent average in November 2012, Freddie Mac reports. The Federal Reserve announced this week that it would begin winding down its bond-buying stimulus program next month, which is expected to result in higher mortgage rates. The average 30-year fixed-rate mortgage could likely rise to 5 percent or 5.5 percent next year, Yun notes. 2. Tight credit: New rules defining Qualified Mortgage will take effect soon, and could leave more borrowers on the sidelines. “New underwriting rules to protect borrowers, effective in January, will prohibit many loan features, set tighter limits on the amount of debt a borrower can have and still get a mortgage, and require that lenders accurately measure a borrower’s ability to repay,” says Steve Brown, NAR’s president. “This means that qualified borrowers are getting a loan that they are very likely to be able to repay, but some borrowers may wind up paying much more for their mortgage, or not get a loan at all due to the tougher standards. The new rules may tighten credit too much, but we’re hopeful regulators will make adjustments if this proves to be true.” 3. Constrained inventories: Housing inventory in November fell 0.9 percent to 2.09 million existing homes available for sale. The total housing inventory represents a 5.1-month supply at the current sales pace, NAR notes. One factor is a shrinking number of distressed homes – foreclosures and short sales. Distressed homes accounted for 14 percent of November sales compared to 22 percent in November 2012, NAR notes. “There is a pent-up demand for both rental and owner-occupied housing as household formation will inevitably burst out, but the bottleneck is in limited housing supply, due to the slow recovery in new home construction,” Yun notes. “As such, rents are rising at the fastest pace in five years, while annual home prices are rising at the highest rate in eight years.” The national median home price for existing-homes was up 9.4 percent year-over-year in November, averaging $196,300 nationwide.

Real Estate Matters | Don’t rush home upgrades just to get a tax credit

Robert F. Bukaty/ASSOCIATED PRESS) I have a furnace and a roof that will need replacing in the next year or two. Do you recommend I rush to do this before the end of the year for the tax credit? One roofer told me the amount of tax credit was not worth it. One HVAC installer told me it only applies to a total system replacement (heat and air). I’d appreciate whatever guidance you can provide. Every year, for at least the past seven years, Ilyce has had three tax experts come on her show before the end of the year to discuss what’s new with regard to taxes and what consumers should look out for. The experts are Bill Nemeth, Chet Burgess and Merry Brodie. They are all enrolled agents (EAs), which are tax preparers who are licensed to represent taxpayers before the IRS. To answer your question, we went directly to the source, Bill Nemeth. He wrote that the “maximum tax credit is $300 on the purchase of a qualifying HVAC system (assuming you did not get credit for other energy-saving expenditures since 2006). For reference, the credit was formerly $1,500 for energy-saving devices.” Further, the roof replacement you are considering “only qualifies for the energy credit if it is made up of white shingles (usually a bad thing since the white shingles will quickly turn green from the normal weathering of the roof) or if it is metal,” he wrote. Bill said that he and Merry replaced their roof several years ago and found the contractor by consulting Angie’s List. “We were delighted with the price and the quality of work of the contractor, which took just one day to start and finish. Our neighbor replaced his roof in the same month with some ‘guys.’ They were at it for several weeks and the workmanship was not on a par with our roof.” The problem with rushing to take advantage of a tax credit (which is a dollar for dollar reduction in your taxes, compared with a tax deduction, where you get a percentage savings), is that the maximum amount of the tax credit is limited. You won’t be able to take advantage of the entire amount if you rush to get it done before the end of the year, and you might actually lose money by replacing mechanical systems that still have some life left in them. Rather than rush into an HVAC install/upgrade, Nemeth recommends that you take some time to study the available alternatives to reduce your costs. Some utility companies will rebate you 10 percent of the purchase price of energy-efficient HVAC, for example. “The hard lesson we learned first-hand is to check out the various companies offering you the HVAC system. We thought that all companies are pretty much the same — not so. The young kids that installed our new HVAC heat pumps had never installed one before — it took four visits by a senior technician after they left to get it working. When they installed the units, they set it up to use the strangest size filter,” Nemeth recounted. His advice, which is has nothing to do with taxes but everything to do with being a satisfied consumer, is a good one: Consult with a number of companies and be sure to check references before you decide which company to use for the purchase and installation of your HVAC system. “We went with a brand name (system) but the install was terrible, and we continue to live with this terrible install, probably until we sell the house,” he added. And we’ll say this: It’s never a good idea to rush on a big purchase just to get a tax credit. Because the price of living with a bad system or a terrible install over the years is just too high, even if you get a small tax credit as an offset.

33450 San Gabriel Avenue, Acton, CA 93510 - MLS/Listing # SR13150425

33450 San Gabriel Avenue, Acton, CA 93510 - MLS/Listing # SR13150425