Zillow Mortgage Market recently reported some alarming – but not surprising – news.

Buyers still don’t know how to do mortgage math.
More specifically:

■ 44% admitted they were not confident in their comprehension of the mortgage process;
■ 57% did not understand how adjustable rate mortgages (ARMs) work;
■ 34% were not aware loan terms vary from lender to lender, lender fees are negotiable and different lenders charge different fees for appraisals and credit reports;
■ 55% did not know mortgage rates are constantly fluctuating;
■ 45% believed they should always purchase mortgage discount points (prepaid interest) regardless of the length of time they intended to keep their home;
■ 37% were under the impression that pre-approval for a loan is synonymous with obtaining permanent financing; and
■ 42% believed Federal Housing Administration (FHA) loans are only available to first time homebuyers.

In a marketplace where (in California) it is possible (perhaps for the first time since, what, 1953?) to buy a single family home and rent it out with POSITIVE cash flow, investors and/or Joe and Martha Buyer still don’t grasp mortgage fundamentals.

So, brokers and agents should not despair. There is still a client base out there that NEEDS your help.

The New York Times recently reported that “high value” homes are going to lose government support in the secondary mortgage market – and that that loss will likely further deteriorate the real estate recovery. It was right.

“By summer’s end,” it reported “buyers and sellers in some of the country’s most upscale housing markets are slated to lose their biggest benefactor of the economic downturn: the deep pockets of the federal government. In [Monterrey, CA, a] seaside community of pricey homes, the dread of yet another housing shock is already spreading.

‘We’re looking at more price drops, more foreclosures,’ said Rick Del Pozzo, a loan broker. ‘This snowball that’s been rolling downhill is going to pick up some speed.’

For the past three years, federal agencies have backed new mortgages as large as $729,750 in desirable neighborhoods in high-cost states like California, New York, New Jersey, Connecticut and Massachusetts. Without the government covering the risk of default, many lenders would have refused to make the loans. With the economy in free fall, Congress broadened its traditionally generous support of housing to an unprecedented degree.

But Democrats and Republicans agree that the taxpayer should no longer be responsible for homes valued well above the national average and are about to turn a top slice of the housing market into a testing ground for whether the private mortgage market can once again go it alone. Michael Barr, a former assistant Treasury secretary, said the federal government’s retrenchment would be painful for many communities.

‘There’s always going to be a line, and for the person just over it, it’s always going to be an arbitrary line,’ said Barr, who teaches at the University of Michigan Law School. ‘But there is no entitlement to living in a home that costs $750,000.’

As the housing market braces for the trouble, homeowners everywhere have been reduced to hoping things will some day stop getting worse. In some areas, foreclosures are the only thing selling. New-home construction is nearly nonexistent. And CoreLogic, a data company, said Tuesday that house prices fell 7.5 percent over the past year. Each month, the number of faltering cities rises.

Federal agencies last year backed nine out of 10 new mortgages nationwide, and losses from soured loans are still mounting. Fannie Mae, which buys mortgages from lenders and packages them for investors, said last week that it needed an additional $6.2 billion in aid, bringing the cost of its rescue to nearly $100 billion.

Getting the government out of the mortgage business, however, is proving much more difficult than doling out new benefits. As regulators prepare to drop the level at which they will guarantee loans — here in Monterey County, the level will drop by a third, to $483,000 — buyers and sellers are wondering why they should be punished simply for living in an expensive region. Sellers worry that the pool of potential buyers will shrink. ‘I’m glad to see they’re trying to rein in Fannie Mae, but I think I’m being disproportionately penalized,’ said Rayn Random, who is trying to sell her house in the hills for $849,000 so she can move to Florida.

The National Association of Realtors is making an extension of the loan guarantees a top lobbying priority.

‘Reducing the limits will put more downward pressure on prices,’ said president Ron Phipps. ‘I just don’t think it makes a lot of sense.’ But he said that in contrast to last year, when a one-year extension of the higher limits sailed through Congress, ‘there’s more resistance.’
Federal regulators acknowledge that mortgages will get more expensive in upscale neighborhoods but say the effect of the smaller guarantees on the overall housing market will be muted.”

Really? No “entitlement” to live in an expensive house? Let Wall Street come up with a private secondary market for expensive (i.e. anything over $500,000?) homes? Who are they kidding? Especially in CA, CT, NT, VT.

This “sock it to the ‘rich’” business is a bunch of baloney.

Oh how I do LOVE first tuesday. Here’s their latest take on Bank of America’s “new and improved” loan modification centers. (And, while they don’t use the word ‘bullshit’ – which I would – they come pretty darn close!)

“Six new Bank of America (BofA) mortgage help centers will be opened in Los Angeles, San Diego, Riverside/San Bernardino, Antelope Valley, Modesto and Bakersfield by early summer. These new mortgage help centers will provide homeowners in danger of foreclosure on a BofA loan the ability to discuss their individual loan situations with BofA staff in hopes of obtaining the near-mythical permanent loan modification.

This newly-announced move comes in response to a scathing critique (full of bark, but oddly bite-less) of the Big Banks’ loose lending and servicing procedures which precipitated the Great Recession.

The housing counselors staffing these new mortgage help centers will be comprised largely of existing BofA employees the Big Bank is looking to redistribute during the current slowdown in loan originations.

But will these six new mortgage help centers actually help? The critics are skeptical. Like many Americans, the pundits have taken a “we’ll-believe-it-when-we-see-it” attitude to the multitude of reform promises made by the Big Banks. These centers, after all, aren’t changing BofA’s modus operandi; they merely provide friendlier faces for their refusals.

first tuesday Take: Count us as one of the critics, but don’t believe the modifications will somehow magically flow forth. Viewed in the best light, BofA is 1) providing its homeowners with a more reliable way of reaching someone who will deny their loan modification requests, and 2) giving its under-employed employees something to do. But we are talking about a bank here, so the likelihood that this move will live up to the best possible interpretation is pretty darned miniscule.

It’s been clear for awhile that marking all these loans to market will hugely undermine (and that’s a nice way of saying “topple”) BofA’s claim to solvency. And even if you believe BofA cares for its customers, it doesn’t care enough for them to go out of business. [For more on mark-to-market vs. mark-to-management accounting, see the October 2010 first tuesday article, Deflation’s push on the real estate recovery.]

So, we’ll say this for BofA: they can be congratulated on their ability to get press coverage on their staffing acuity while they avoid increasing the swollen ranks of California’s unemployed. But mortgage assistance? Don’t count on it.”

From first tuesday Journal Online — P.O. Box 20069, Riverside, CA 92516

The Ney Work Times reported on teh story May 5. Some of its commentary:

“Just over two million homes are in foreclosure nationwide, according to LPS Mortgage Monitor, and another two million borrowers are severely delinquent.

Additional centers may open later this year, the bank said. Counselors fluent in languages including Spanish, Korean, Vietnamese and Russian will be available for non-English speaking customers.

‘There are some people that prefer a face-to-face experience,’ said Rebecca Mairone, national mortgage outreach executive for Bank of America. ‘They prefer telling their story face to face or need additional information about documents or other counseling. We’re committed to helping distressed customers.’

Most of the counselors in the new centers will be transferred from other areas of the mortgage business, like sales and originations, which have slowed with the decline in mortgage demand.

Bank of America officials said their internal foreclosure procedures had changed in the wake of public criticism, and that the centers were being opened partly in response to customer feedback.”

“THERE ARE SOME PEOPLE THAT PREFER THE FACE TO FACE EXPERIENCE”?

“WE’RE COMMITTED TO HELPING DISTRESSED CUSTOMERS”

“MOST OF THE COUNSELORS WILL BE TRANSFERRED FROM OTHER AREAS OF THE MORTGAGE BUSINESS”

What a crock.

It would have been more honest to say: “We don’t want any more bad press so we’re not going to announce layoffs of our mortgage staff, and it’s better public relations to give our customers a face to face denial.”

2 to 1, agents to brokers. That’s the current ratio. “Back to normal,” says first tuesday. You betcha. The 5 to 1 ratio – from the “good old days” (?) when you could get a real estate license if you were breathing, are long LONG gone. Thank the gods.

“When you compare the number of newly-licensed real estate brokers to the number of newly-licensed agents, the data show that for every two newly-licensed sales agents there will be approximately one newly-licensed broker. Newly licensed brokers come, in approximately equal numbers, from the ranks of current agents and from unlicensed professionals. Approximately 25 percent of newly-licensed agents will become brokers, and they are most likely to do so between 12 and 18 months after getting their agent’s license. Those who are not initially sales agents may also qualify to become brokers by virtue of their education or profession.

The current ratio of two agents for each broker is a recent shift back to historic norms, from the abnormally high number of agents in the boom years. Through most of the 2000s, until the real estate market crash in October 2007, a ratio of 5 agents to every 1 broker was the temporary expectation. This unsustainably high ratio was fueled by high home sales, high home prices, and rampant speculation. In the absence of these distorting factors, the real estate profession now reflects a more natural balance between brokers and their sales agents.

From: first tuesday Journal Online — P.O. Box 20069, Riverside, CA 92516.

The Wall Street Journal recently reported that the oprices of houses are Up, and Down. Depending on where.

Seems like everyone jusst wants to ad their own shpin on a story that has no right, wrong, left or middle.

“With the National Association of Realtors reporting that home prices rose in about half of U.S. metropolitan areas in the last three months of 2010, it’s easy to think that that the housing market is showing some signs of recovery. “Home sales clearly recovered in the latter part of 2010,” Lawrence Yun, the NAR’s ever-optimistic economist says in a statement.

But the proverbial grain of salt is in order, given many other sources report prices continue falling. The Journal recently reported that home values declined in all of the 28 major metropolitan areas tracked during the fourth quarter when compared to a year earlier, and repeat-sales indexes such as the S&P/Case Shiller index have shown that prices declined in October and November.

The Realtors are looking at a different measure, median prices, which show that prices for home resales rose in about half of the nation’s 152 metro areas during the October-December quarter. Prices rose in 78 cities, fell in 71 and were unchanged in three. The group says the national median price for single-family homes was $170,600 in the fourth quarter of 2010, up 0.2% from $170,300 a year earlier.
The Washington, DC, area gained 8.1%. There were decliners: Portland, Ore., came in down 3.8% and Seattle dipped 3.9%.
Data from Zillow, however, show bigger declines in those three markets. Washington fell 5.8%, Portland declined 12.1% and Seattle tumbled 11.9%.

Why the difference? When comparing the fourth quarter of 2010 to the prior-year period, the Realtors use median price, the point where half of sales fall above and half fall below. Last year’s data still include buyers tapping a tax credit of up to $8,000. Many of those sales were first-time buyers, who typically buy lower-priced houses. The expired credit isn’t in this year’s numbers, so median prices in some markets could be higher from a year ago because the more higher-priced sales were added to the “mix” of sales.

Most industry watchers agree that the housing market must endure more pain before it can fully recover. Lending standards are tight, preventing would-be buyers from inking deals. The foreclosure crisis, meanwhile, continues with no end in sight. Many economists and housing analysts expect home prices to fall an additional 5% to 10% before prices hit the long-awaited bottom later this year or early next year.

By Alan Zibel, WSJ.com; Dawn Wotapka and Nick Timiraos contributed to this article.

Here’s the link to register for listings from BofA.
Who knows…

https://realestateagent.bankofamerica.com/baapp.aspx

Freddie Mac bulleting 2011-05 states No More MERS foreclosures.
MERS must transfer the interest it holds as indentured trustee (or whatever) to the actual loan services.

I wonder how much money MERS just lost on all those fees it was generating?

And how will the true servicers will feel about having to foreclose the old way?

According to Fair Issac Company (My FICO) a company that provides analytic, decision making, and credit scoring services for financial service companies a credit score will go down by 40 to 110 points after being 30 days late. Further, the scoring drop will increase to 70 to 135 points after 90 days late on a mortgage payment.

The average scoring drop in a short sale, foreclosure or deed in lieu is 85 to 160 points. You need to keep in mind that in both short sales and foreclosure it is possible that the credit score drop could be closer to 200-300 points.

Credit scoring factors vary from individual to individual. The scoring change is heavily dependent on where the credit score was before the negative event took place. Both a short sale and foreclosure are considered a loan that was not paid as agreed.

March 10, 2011

An important message from the CALIFORNIA ASSOCIATION OF REALTORS®:

I write on behalf of the CALIFORNIA ASSOCIATION OF REALTORS®, whose 170,000 members continue to witness the devastating consequences the home foreclosure crisis is having on California’s families, neighborhoods, and communities on a daily basis.

The number of families affected by foreclosure is staggering. During the past three years, more than 640,000 Californians have lost their homes. With the number of homeowners who owe more than their home is worth hovering at 30 percent, experts predict there will be many more foreclosures in 2011 and 2012. Unless we take immediate, aggressive action to assist these homeowners, any meaningful recovery in the housing market and overall economy will continue to be delayed.

Tragically, only a fraction of those who face foreclosure will remain in their homes when all is said and done. Those whose incomes and financial circumstances meet strict guidelines may qualify for a loan modification that will reduce their monthly payment to more affordable levels. Yet the federal Home Affordable Modification Program (HAMP) is expected to prevent only 700,000 to 800,000 foreclosures nationwide before it expires at the end of 2012, and the program does little to help those homeowners who are unemployed or otherwise no longer able to meet their financial commitments. Their last hope is to sell their home, which often means convincing their lender or the investor who “owns” the loan (and, in many cases, the holder of a second mortgage lien and the mortgage insurer) to accept a “short sale.”

With a short sale, homeowners with a proven hardship negotiate an agreement to sell their home for less than the balance owed. Although not every homeowner or mortgage is eligible, those who are able to finalize a short sale avoid a foreclosure on their credit record and can move on with their lives. Last year, 20 percent of home sales in our state involved short sales.

Short sales can play an important role in our state’s economic recovery by accelerating the pace of home sales and reducing the inventory of bank-owned homes on the market. There are other benefits as well. Homebuyers who can qualify for a mortgage at today’s low interest rates also are able to purchase a home at below-market prices. Banks get a nonperforming asset off their books and avoid the headaches associated with disposing of assets they don’t want to own in the first place. Neighborhoods have fewer abandoned homes, and local businesses have more customers with money to spend.

Unfortunately, many homeowners are unable to successfully negotiate a short sale. According to a recent survey of 2,150 California REALTORS® who have assisted clients with a short sale, only three out of five transactions closed – even when there was an interested and qualified buyer.

What’s the problem? For one, no two mortgage agreements are the same, so it can be difficult to standardize short sale processes and procedures. Many homeowners have second mortgages, which further complicate matters. Then there’s the challenge of convincing multiple parties to take a financial loss or, in the case of loan servicers, to forego fees they otherwise might earn during the course of the foreclosure process. Poor and slow service by many banks and servicers has only exacerbated the problem. Horror stories abound from potential homebuyers and REALTORS® forced to wait 90 or more days for a response to a purchase offer or being required to fax short sale applications or other paperwork as many as 50 times. These delays discourage potential homebuyers from considering a short sale purchase and undermine the process for those who short sales are intended to benefit – the hundreds of thousands of families facing foreclosure.

Increasing the number of closed short sales by speeding up and streamlining the short sale process is one important way we can help California families avoid foreclosure and move our economy closer to recovery. That’s why the California Association of REALTORS® is taking steps to enable more families to arrange a short sale. Recently, we advocated for improvements to short sale guidelines established under the federal Home Affordable Foreclosure Alternative (HAFA) program. We’re meeting with major banks, U.S. Treasury officials, government-sponsored entities (including Fannie Mae and Freddie Mac), and others to urge them to standardize processes, comply with federal guidelines, improve communication with other stakeholders and increase staffing with the goal of eliminating service issues. We’ve also offered our members training in every aspect of the short sale process so they can assist their clients.

But we can’t do it alone. That’s why we’re focusing the spotlight on short sales and calling on regulators, elected officials, nonprofits, business organizations, companies, and individuals with a stake in California’s economic future to resolve this issue and others that get in the way of a recovery. It won’t be easy, and some compromises will be required. The important thing is that we need to act today. Our families and our communities can’t wait any longer.

Sincerely,

Beth L. Peerce
President
CALIFORNIA ASSOCIATION OF REALTORS®

While there will always be opportunities for the knowledgeable and dilligent to make money flipping properties, declining prices and increasing loan costs will shrink the profit margins available as flippers find it harder to re-sell.

First it was the (unreasonable) restriction on the number of loans an investor could get, then it was the (reasonable) restriction of Uncle Fluffy purchases. The Fed only wants you to flip so many, you see.

In contrast, those who buy for their home or for rental investment could benefit from 1) locking in the profit margin between current prices and actual value (I know, whatever THAT is?); and 2) potentially higher rental values as the ranks of renters swell with people who cannot obtain a loan to buy their own home.

So, “right now” may be the ideal time to buy real estate, not for quick profit but for the long-term stability and financial growth that real estate has historically provided as a part of an overall financial plan.