Mortgage deal could bring billions in relief
On Thursday, federal and state officials announced a $26 billion foreclosure settlement with five of the largest home lenders.  California is expected to receive approximately $12 billion in principal write-downs, including through short sales, over the next three years, according to the state attorney general’s office.

Making sense of the story

• The deal settles potential      state charges about allegations of improper foreclosures based on      robo-signing, seizures made without proper paperwork.
• The settlement sets up a      federal monitor to oversee the process and try to prevent the challenges      that tripped up many homeowners seeking help in earlier programs designed      to address the housing crisis.
• Most of the relief will go      to those who are underwater on their homes.  That relief will come      over the course of the next three years, with banks having incentives to      provide most of the relief in the next 12 months.
• At least $17 billion will go      to reducing the principal owed by homeowners who are underwater and behind      on their mortgages.
• Up to 750,000 other      underwater homeowners who are current on their mortgages will be able to      refinance their current loans at lower rates.  They will not receive      a reduction in principal, but with mortgage rates near record lows, they      could receive substantial savings on their monthly payments.
• Approximately $1.5 billion      will go to homeowners who had their homes foreclosed upon between Jan. 1,      2008 and Dec. 31, 2011, and who meet other criteria.  They will      receive up to $2,000 each.
• The five mortgage servicers that are parties      to the settlement include Bank of America, JPMorgan Chase, Citigroup,      Wells Fargo, and Ally Financial (formerly GMAC).

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.

C.A.R. and NAR support the Obama Administration’s efforts to help homeowners and the struggling housing market, because restoring the health of the housing market is critical for the nation’s economic recovery.

January 2012 Report

The January 2012 HomeDex™ Report provides December 2011 housing statistics.

Inside this month’s report:

• The median price for all North County home sales –      attached and detached – rose to $357,250 in December 2011 compared to      $350,000 in November 2011.
• Detached homes in North County increased 3.48 percent      to $413,938 in December 2011 from $400,000 in November countering last      month’s fall.
• The countywide median SFD price increased slightly by      1.41 percent to $354,950 in December 2011 from $350,000 in November 2011,      countering eight months of price decreases.
• The number of North San Diego SFD listings (active and      contingent) decreased 8.4 percent in December 2011 compared to November      2011.
• The number of sold North San Diego County SFD units      jumped 19.82 percent in December 2011 compared to November 2011, and      increased 11 percent year-over compared to December 2010.
• Median days-on-market for single-family detached homes      sold in North County declined to 64 days in December 2011 compared to 65      days in November 2011.
• The HomeDex      affordability percentage for all homes in North San Diego County –      attached and detached – decreased to 41 percent in December 2011 compared      to 44 percent in November 2011.

FHA will keep funding flips

Waiver for 90-day resales extended through 2012

By Inman News, Wednesday, December 28, 2011.

Inman News®

Image via Theresa Martinez /Shutterstock

For the second year in a row, the Federal Housing Administration is extending a temporary waiver of its “anti-flipping” rule, meaning homebuyers relying on FHA-insured financing will continue to be able to buy homes that have changed hands in the last 90 days.

The waiver is a boon for investors seeking to rehab and flip properties, because it expands the pool of eligible borrowers to include those relying on FHA-backed loans, popular with first-time homebuyers and others who lack the cash to make large down payments.

In extending the waiver through 2012, FHA said all transactions must continue to be arms-length. In cases in which the sales price of the property is 20 percent or more above the seller’s acquisition cost, the waiver will apply only if the lender can document the justification for the increase in value, FHA said.

FHA instituted the anti-flipping rule in 2003 to protect its mutual mortgage insurance program from losses on homes that were merely flipped, rather than rehabbed. Homes repossessed by Fannie Mae, Freddie Mac, and state- and federally chartered financial institutions were exempt from the rule.

In February 2010, the Obama administration waived the waiting period for resales — including homes purchased and rehabbed by private investors — in the hopes of stabilizing home prices and revitalizing communities hit by foreclosures.

It often takes less than 90 days to acquire, rehabilitate and sell properties, the Department of Housing and Urban Development said at the time. Some sellers of rehabbed properties had been reluctant to enter into contracts with FHA buyers because of the cost of holding a property for 90 days, HUD said.

California pending home sales post higher for seventh straight month
California pending home sales fell 9.1 percent in November but were up from a year ago, according to C.A.R.’s Pending Home Sales Index (PHSI)*.  The index was 109.8 in November, based on contracts signed in that month, down from October’s index of a revised 120.9.  However, the index was up 11 percent from November 2010, marking the seventh consecutive month that pending sales rose from the previous year.

At 55.1 percent, equity sales made up more than half of home sales in November, up from 53.9 percent in October and 54.4 percent in November 2010.

The total share of all distressed property types sold statewide fell to 44.9 percent in November, down from October’s 46.1 percent and 45.6 percent in November 2010.

Of the distressed properties sold statewide in November, 21 percent were short sales, up slightly from the previous month’s share of 20.7 percent and up from last November’s share of 19 percent.

At 23.5 percent, the share of REO sales was down from October’s 24.9 percent, and down from the 26.2 percent reported in November 2010.

Fannie, Freddie Mac complete nearly 2 million foreclosure-prevention actions
Foreclosure-prevention actions by Fannie Mae and Freddie Mac increased in the third quarter of 2011, according to a report by the Federal Housing Finance Agency.  Since entering conservatorship in 2008, the GSEs have taken nearly 2 million foreclosure-prevention actions and completed 1 million loan modifications.

According to the FHFA report, the increase in completed foreclosure prevention activity in the third quarter was driven primarily by loan modifications and repayment plans. Two-thirds of all borrowers who received loan modifications in the third quarter had their monthly payments reduced by more than 20 percent. Additionally, the GSEs’ cumulative refinancings through the Home Affordable Refinance Program (HARP) increased 11 percent during the third quarter to nearly 928,600 loans.

Home bargains abound, but willing
lenders are rare breed

Faced with finicky lenders, would-be home buyers are increasingly turning to
family members, friends, and even strangers they meet online.  While this
is understandable, given the abundant bargains on the market, they also present
significant risks.

Making sense of the story

• So-called peer-to-peer
  lending sites, such as Prosper and Lending Club, say demand for
  home-related financing is on the rise.  In September, Weemba, a
  social-networking site, launched a platform to connect lenders directly
  with prospective home buyers and other borrowers.
• Despite historically low
  mortgage rates, traditional lenders remain reluctant to provide mortgages
  to anyone with less than stellar credit.  And, in certain markets,
  lenders are requiring down payments of more than 20 percent of the home’s
  purchase price.
• Borrowers taking loans from
  family members – so-called intrafamily loans – save on interest since
  family members are likely to charge less than the banks.
  Additionally, parent lenders can earn a higher return from their child’s
  interest payments than they would on a certificate of deposit or
  money-market fund.  Under federal law, on a loan of more than nine
  years, parents must charge at least roughly 2.8 percent, in most cases.
• Consumers who prefer to look
  for loans beyond the family can apply at peer-to-peer lending sites.
  If approved for a loan after a screening by the companies, applicants may
  then receive money from investors.
• However, these alternative routes to financing
  can be expensive for borrowers.  Rates at Lending Club run from
  around 7 percent to 28 percent.  At Prosper, rates run roughly 7
  percent to 35 percent.  The companies say these rates, which are
  fixed, are higher than traditional mortgage rates in part because their
  loans are unsecured.

QUOTE OF
THE WEEK…“Be not afraid of
going slowly; be only afraid of standing still.”–Chinese Proverb

INFO THAT HITS US WHERE WE LIVE…The housing recovery may be
proceeding slowly, but things are definitely not at a standstill. Earlier this
year, an industry rent vs. buy index found it is more affordable to buy
than rent a two-bedroom home in 72% of America’s 50 biggest cities. In
fact, renting was less expensive than buying only in New York, Kansas City, San
Francisco and Seattle. And in 10 of the cities where renting was relatively
affordable versus ownership, people felt buying may still be a financially
sound long-term decision.

A recent consumer study showed people are getting the message. With home
prices now at such affordable levels, 62% of those surveyed said buying in
today’s market is a good investment over the next 10 years. The most
popular advice people would give to anyone thinking of purchasing a home is to
avoid buying more house than they can afford. Good advice indeed.

BUSINESS TIP OF THE WEEK…Most people don’t base their buying decisions
solely on logic. So if you’re having trouble trying to change someone’s mind,
try instead to change their mood.

Since the beginning of the house-price crash in 2007, analyst after analyst has predicted that “the bottom” in house prices is just around the corner – only to be wrong every time.

But now, finally, it looks as though house prices may actually be nearing a bottom.

Why?

Because, after falling nearly 35% from their 2007 peak, nationwide house prices are finally approaching “normal” levels on two key valuation measures: The “price-to-rent ratio,” which measures house prices relative to what the houses might rent for, and the “price-to-income ratio,” which measures house prices relative to average incomes.

Using the first ratio, economists at Goldman Sachs have concluded that national house prices will decline another 2.5% in 2012 and then bottom over the course of the following year.

(To see a recent chart of the national price-to-rent and other ratios, please click here.)

House prices differ markedly depending on where you live, of course, and Goldman’s analysts have considerably different predictions for different markets. Prices in New York, Portland and Atlanta, Goldman predicts, will still see significant declines. While prices in Detroit, Miami and Cleveland should rise.

Importantly, after a price bubble similar to the one the U.S. just experienced, prices often don’t stop at “average” levels on the way down. On the contrary, they often plunge straight through “fair value” and spend years below average levels. And that certainly could happen to house prices this time around.

But Goldman’s economists believe house prices will level out in a year or two. And unlike other analysts who have made similar predictions in prior years, Goldman’s economists actually have data on their side: The price-to-rent ratio really has fallen to normal levels.

Of course, even if house prices do bottom in 2013, that doesn’t mean that they’ll quickly shoot up again – or that housing will once again be the “great investment” that everyone thought it was back in the boom years.

One of the reasons house prices are expected to bottom soon is that houses are currently more affordable than they have been in the past. But housing “affordability” is judged, in large part, on mortgage rates, and mortgage rates are currently near an all-time low. If and when the economy begins to recover in earnest, mortgage rates will likely rise, and, as they do, houses will become less affordable.

So it is likely that, even after they bottom, U.S. house prices will face headwinds for a long time.

Help with a down payment

With most lenders requiring borrowers to put down at least 20 percent as a down
payment – unless using an FHA or VA loan, or purchasing mortgage insurance –
the best holiday gift some people might receive would be help with a down
payment on a house.

Making sense of the story

• According to a survey by
  Trulia, the biggest barrier to buying a home these days is saving for the
  down payment.  The survey, conducted over the summer, found that 51
  percent of renters said coming up with money for the down payment was
  preventing them from buying, while 35 percent identified qualifying for a
  mortgage as the stumbling block.
• Under federal tax law, each
  individual is permitted to give money or valuables worth up to $13,000 to
  a single recipient in a calendar year.  A married couple could
  jointly bestow up to $26,000 a year per recipient.
• According to one financial
  planner, there also is the option of lending a relative or close friend
  the money for the down payment, or the closing costs, then forgiving the
  loan in a future year.  The recipient would have to pay interest on
  the loan until it was forgiven, at which point it would become a gift.
• Another way to help with the
  down payment is to pay other expenses, such as tuition, thereby freeing up
  money to make a home purchase.  Gifts for educational or medical
  expenses are not subject to taxes, as long as they are paid directly to
  the educational or medical institution.
• However, prior to giving the money,
  gift-givers should consider their own financial picture, and they should
  make sure the recipient is responsible and not behind on other payments
  that could be subject to debt collection.