August 2010 What's News in Real Estate

Wright Realtors Real Estate News

Aug 24

Fed Undecided on How to Bolster Sluggish Economy
Miami, FL- The Obama administration may propose that any federal backing of mortgages be paid for through fees on the lending industry, according to people familiar with the internal discussions

While the administration hasn't settled on a plan to revamp failed mortgage giants Fannie Mae and Freddie Mac, which are now under federal supervision, a consensus appears to be emerging that some type of government guarantee will be needed to keep the ailing mortgage market functioning.

Some conservatives don't believe the government should offer any type of guarantee, while others advocate limited, but explicit, backing. About nine in 10 new loans are currently backed by Fannie, Freddie or government agencies.

Policy makers face challenges determining what types of loans or mortgage-backed securities should be guaranteed and how the industry should be charged for government backing. Government officials want the cost of any explicit guarantee fully offset by the mortgage industry to avoid adding to the federal budget deficit. But Washington must walk a fine line between pricing a guarantee high enough so it accurately reflects risk, while not charging so much that borrowing costs soar.

At a housing-finance conference last week, Treasury Secretary Timothy Geithner cited a "strong case" for a continued federal guarantee but said "the challenge is to make sure that any government guarantee is priced to cover the risk of losses, and structured to minimize taxpayer exposure." Officials want to avoid a repeat of what happened to Fannie and Freddie, which had to be bailed out and taken over by the government in 2008 after losses destabilized the firms. Mr. Geithner and others have said the firms wrongly guaranteed increasingly risky mortgages without charging enough to cover the risk.

Others warn the government has a poor track record when deciding how to price guarantees. While guarantees provided by the Federal Housing Administration, which insures mortgages, have traditionally turned a profit for the U.S., in recent months that agency has depleted its reserves and risks running out of money.

"It's very hard to know what the right fee is," said Alex Pollock, resident fellow at the conservative American Enterprise Institute think-tank, who supports moving to a fully private mortgage market. "The argument will always be from homebuilders, realtors, affordable housing groups, consumer groups and members of Congress that you're charging too much and making it too expensive for borrowers."

The National Association of Realtors, for example, is asking the Treasury to reduce interest payments Fannie and Freddie must currently make to the government, arguing that easing the firms' expenses could produce more flexible lending standards. In a letter to Mr. Geithner this month, the organization said the Treasury should retroactively lower the 10% dividend the firms must pay on the $148 billion in taxpayer aid they have used. The industry appears prepared to pay some type of premium to get the government's backing. Under proposals floated by two trade groups, the Financial Services Roundtable and the Mortgage Bankers Association, new private-sector entities created to securitize and insure mortgages would pay a fee into a government-insurance fund.

Researchers at the New York Federal Reserve Bank, writing on their own behalf, have proposed creating lender-owned cooperatives that would replace Fannie and Freddie. Private lenders would pay into a "mutualized loss pool" to provide guarantees for mortgage-backed securities, and members would also pay a reinsurance fee to the government for a separate fund to backstop additional losses.

Some investors and academics say a government backstop is needed if the U.S. wants to facilitate securitization markets, where investors buy bonds backed by pools of mortgages. While mortgages were once funded primarily through the banking system, securitization fueled the growth of the nation's $10 trillion mortgage market over the past 30 years, dwarfing the capacity of the nation's banking system to fund loans. "To suggest the private market can come back in and take the place [of the government] is simply impractical. It won't work," said Pacific Investment Management's Bill Gross at last week's summit.

Mortgage Rates Drop to New Lows
Fixed mortgage rates have maintained recent lows or set new ones for more than two months now, sinking to 4.42 percent on 30-year loans for the week ended Aug. 19. The rate is down from 4.44 percent last week and is the lowest ever recorded since Freddie Mac launched its survey almost 40 years ago.

The fixed 15-year average also hit a new low, at 3.9 percent; while five- and one-year adjustable-rate mortgages remained flat at 3.56 percent and 3.53 percent, respectively.

Source: The Wall Street Journal, Amy Hoak (08/20/10)

Aug 23

5 Most Affordable Housing Markets
The most affordable city in the United States is Syracuse, N.Y., according to the latest Housing Affordability Index from the National Association of Home Builders and Wells Fargo.

The index considers a home affordable if a family would have to pay no more than 28 percent of take-home pay for housing expenses.

Here are the five areas where housing exceeds this benchmark and the median property prices:

Source: CNNMoney.com, Les Christie (08/20/2010)

The fixed 15-year average also hit a new low, at 3.9 percent; while five- and one-year adjustable-rate mortgages remained flat at 3.56 percent and 3.53 percent, respectively.

Source: The Wall Street Journal, Amy Hoak (08/20/10)

Aug 17

Some Guarantee Will Survive Fannie, Freddie
The dominant thread at the conference earlier this week on the future of Fannie Mae and Freddie Mac, hosted by Treasury and the U.S. Department of Housing and Urban Development, was about retaining FHA to ensure finance availability for lower- and moderate-income households and re-shaping Fannie and Freddie into something that backstops losses after private insurers take their lumps.

At least for the near term, most of the academics and business leaders participating seem to agree, some form of government backstopping of the mortgage market is necessary, but it won�t be under the terms that we�ve grown familiar with. Rather, the guarantee would be absolutely explicit, not implicit like we saw with Fannie and Freddie, and, in the view of some, would take the form of a limited, maybe even catastrophic-type, backstopping in which the private sector takes first-risk position.

The government-backed secondary market companies would adjust underwriting and terms to provide counter-cyclical restraints (tightening standards as appreciation rises too far from historical norms) and ensure without question that they would have the reserves to meet their commitments to investors should loans go bad. In a pure market, that would mean costs would rise far too high for most borrowers to afford financing, but with the government�s support, costs would be brought down to a level appropriate for the great middle of the market. FHA would be retained to play its role making safe, affordable financing available to lower- and moderate-income borrowers.

Would the secondary mortgage market companies be pure government entities like FHA or pure private companies? Not clear, except that Geithner said in his opening remarks that the days of private gains subsidized by public losses � the Fannie and Freddie models � are over. Perhaps, as Alex Pollack of the American Enterprise Institute said, the GSEs should be divided into three entities: purely private companies for packaging mortgage-backed securities for Wall Street investors, pure government agencies for meeting public policy goals of homeownership, and third entities for liquidating the existing GSEs� bad debt.

All agree that lack of transparency was one of the great culprits of the mortgage crisis. Borrowers didn�t know what they were borrowing, investors didn�t know what they were investing in, and no one knew whether the federal government would actually step in should a crisis occur. To correct these shortcomings, transparency would have to be a hallmark of any reform. �We need transparency, standardization, and disclosure,� said Susan Wachter of the University of Pennsylvania�s Wharton School.

Vince Malta, NAR vice president and liaison to government affairs, was present on behalf of REALTORS� on the second day of the conference.

More coverage at Speaking of Real Estate

Aug 16

Contingent Offers Regaining Popularity
Offers contingent on buyers� ability to sell their current residence are increasing in popularity. They were almost unheard of during the go-go early 2000s, but common 20 years before that.

Sellers generally don�t like these kinds of offers because it puts them in limbo. If their buyers� home doesn�t sell, they can be back at square one. Also, once sellers accept a contingent sale offer, they must disclose this to other potential buyers, and that can discourage a buyer prepared to make a better offer.

Sellers who accept contingent-sale offers can include an escape clause in the contract. This clause allows the sellers to notify the contingent-sale buyers of a competing offer and they must remove the contingency in 72 hours (on average) or lose the home.

Source: Inman News, Dian Hymer (08/16/2010)

Shorter-Term Refis Can Save Big Money
Shorter-term loans are gaining favor as rates continue to fall.

On average at today�s rates, a borrower refinancing their 6.5 percent loan would save $70,000 over the life of a $200,000 20-year loan vs. a 30-year loan.

These kinds of refinances are particularly popular among people who are approaching retirement, said Peter Iche, president of Carthage Federal Savings and Loan Association in Carthage, N.Y.

Source: USA Today, Stephanie Armour (08/16/2010)

Aug 14

Applications for Public Housing Surge
Cities are being overwhelmed with applications for public housing units.

In Atlanta, 30,000 people lined up to apply for 455 vouchers. Roanoke, Va., opened the waiting list for the first time in three years and added 2,400 people � there are no vacancies.

When Chicago opened its public housing list for the first time in a decade earlier this summer, nearly 215,000 people applied within the four-week window.

The federal government provides 2 million vouchers nationwide. There are four applications for every one vacancy, says Linda Couch, senior vice president for policy at the National Low Income Housing Coalition, an advocacy group.

Source: The Wall Street Journal, Valerie Bauerlein (08/14/2010)

Aug 10

Top 10 Metros With Predicted Price Climbs
Housing prices are about to turn around, predicts financial services technology firm Fiserv.

David Stiff, chief economist at Fiserv, says home prices will fall 32.9 percent from 2006 through early next year. But by early 2014, he believes they will climb an average of 7.2 percent from 2010 levels, with some areas skyrocketing.

Fiserv believes these 10 metropolitan areas will see the most growth in the next four years.

Source: Bloomberg BusinessWeek, Venessa Wong (08/09/2010)

Fewer Home Owners Are Under Water
Some 21.5 percent of borrowers owed more than their homes were worth in the second quarter of the year. That�s compared with 23.3 percent in the first quarter.

"It is the paramount challenge facing housing markets," said Stan Humphries, Zillow.com's chief economist.

Humphries said that much of the improvement came from homes falling into foreclosure, wiping away negative equity.

Rising home values also improved the situation in 45 of the metropolitan statistical areas.

Source: Reuters News, Julie Haviv (08/09/2010)

Aug 09

Mortgage Rate Falls Under 4.5 %
Freddie Mac reports that long-term mortgage rates moved south again this week.

Interest on 30-year fixed loans hit a new low of 4.49 percent, compared to 4.54 percent last week and 5.22 percent a year ago; and the 15-year mortgage landed at 3.95 percent, down from 4 percent last week and 4.63 percent a year ago.

Five-year adjustable-rate mortgages reached a new low of 3.63 percent, down from 3.76 percent last week and 4.73 percent a year ago; while one-year ARMs fell to 3.55 percent from 3.64 percent last week and 4.78 percent a year ago.

Source: The Wall Street Journal, Amy Hoak and Nick Timiraos (08/06/10)

Fannie, Freddie Will Not Forgive Underwater Debt
Despite rumors to the contrary sweeping Wall Street and Washington, D.C., the White House says it is not planning to order Fannie Mae and Freddie Mac to forgive a portion of the mortgage debt of millions of people who owe more than their homes are worth.

"The administration is not considering a change in policy in this area," said Treasury spokesman Andrew Williams.

Mortgage bond prices stabilized after that rumor was quashed.

Source: Reuters News (08/05/2010)

Senate Approves Increase in FHA Fees
The Senate on Wednesday gave the Federal Housing Administration the go-ahead to raise monthly fees that borrowers pay the agency.

The annual fee is expected to raise from the current rate of 0.55 percent to 0.9 percent of the total loan. The bill gives the FHA the authority to raise the annual fee as high as 1.55 percent.

Simultaneously, the agency plans to lower the loan initiation fee that was raised from 1.75 percent to 2.25 percent earlier this year. Officials would like to drop the up-front fee down to 1 percent of the total mortgage amount.

The net effect of lowering the up-front fee and raising the monthly fee would mean that someone who borrowed $170,000 at 5 percent would pay an extra $38 per month. Current mortgage holders won�t be affected.

The fee changes are projected to bring in an extra $3.6 billion per year to help stabilize the agency's finances.

Source: The Associated Press, Alan Zibel (08/05/2010)

Aug 07

How to Price a Rental Right
How much to charge for a rental property?

The Wall Street Journal�s real estate columnist June Fletcher suggests 1.1 percent of the home�s value up to about $100,000 or about $1,100 a month. After that demand and what the market will bear will affect values.

She points to rental sites as a good clue for someone setting prices, particularly VRBO.com, Flipkey.com and Craigslist. She also recommends Rentometer.com, which compares proposed rent with comparable rentals nearby.

For help calculating return on investment, try Rentalsonline.com.

Source: The Wall Street Journal, June Fletcher (07/29/2010)

Aug 05

Republicans Blast 'Livable Communities' Bill
The Livable Communities Act was passed by the Senate Banking Committee on Aug. 3 and, if approved, would earmark $4 billion for "sustainable" living projects to be overseen by the federal government.

The bill would establish two grant programs. The Comprehensive Planning Grants would help cities and counties coordinate land use, housing, transportation, and infrastructure planning processes; determine regional needs through housing, infrastructure, transportation, energy, and environmental assessments; and alter local zoning laws and other codes to promote sustainable development.

Meanwhile, the Sustainability Challenge Grants would promote integration among transportation, housing, energy, and economic development activities; promote sustainable and location-efficient development; and move forward with projects spelled out in a comprehensive regional plan.

The bill also would create an Office of Sustainable Housing and Communities within HUD to disburse and oversee the grant money.

Republicans on the House Budget Committee criticized a similar bill in the House, calling it "a Washington-based, central planning model on localities across the country."

Source: CNSNews.com, Matt Cover (08/04/10)

20-Year Mortgages Cut Interest Significantly
Buyers with the ability to stretch a little might consider a 20-year fixed-rate mortgage instead of the traditional 30-year, suggests CBS Money Matters� financial adviser Ray Martin.

Martin points out that a $200,000 mortgage with a 30-year term and an interest rate of 4.75 would have a monthly payment of $1,043 and the total interest over the life of the loan would be $175,600.

The same mortgage with a 20-year term at 4.5 percent would have a monthly payment of $1,265 with total interest over the life of the mortgage of $103,670.

Young home buyers planning to have children will have their 20-year mortgage paid off by the time their kids enter college, a big financial advantage, Martin points out.

Source: CBS, Ray Martin (08/04/2010)

Aug 03

Ex-Treasury Head: Dismantle Fannie and Freddie
In an op-ed in Friday�s Washington Post, former Treasury Secretary Hank Paulson called for a reduction in government support for homeownership.

His proposals included dismantling and replacing Fannie Mae and Freddie Mac and shrinking the Federal Housing Administration to limit it to serving low-income buyers of low-priced homes.

�The price the government charges this new private-sector entity for its credit guarantee must be high enough to leave room for a robust private-sector mortgage market that serves taxpayers and home owners equally,� Paulson wrote.

Source: Washington Post, Hank Paulson (07/30/2010)

Aug 02

Demand Strong for Well-Prices Homes
Yes, houses will sell as long as they are priced right. In many � but not all places � that means they�re priced low.

"People who price their homes to the market are selling them in a reasonable amount of time, but people who cling to 2004 or 2005 prices aren't," says Richard Smith, president and CEO of Realogy, the parent company of Century 21, ERA, Coldwell Banker and Sotheby's International Realty.

In some areas, pent-up demand has exploded. "It's crazy," says Brendon DeSimone, an associate with Paragon Real Estate in the Noe Valley near San Francisco. "I had one house with five offers, and it went from $1.4 million to $1.7 million. The valley has just popped. It's not uncommon for one open house to have 200 people come through."

Source: USA Today, Stephanie Armour (07/28/2010)

Record Lows Continue for Mortgage Rates,
The 30-year fixed mortgage rate fell to a new low of 4.54 percent this week from 4.56 percent last week and an average of 5.25 percent a year ago.

The 15-year fixed loan rate also hit a record low of 4 percent, down from 4.03 percent a week ago and 4.69 percent last year. The five-year adjustable-rate mortgage averaged 3.76 percent, compared to 3.79 percent last week and 4.75 percent a year earlier; and one-year ARMs averaged 3.64 percent, down from 3.7 percent and 4.80 percent, respectively.

Source: The Wall Street Journal, Nathan Becker (07/30/10)

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August 2010 What's News in Real Estate

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