Obama administration ramps up mortgage refinancing effort


Original Post Date: October 24, 2011

By: Don Lee

Reporting from Washington—

The Obama administration, worried that the housing crisis is strangling the economic recovery, is stepping up efforts to aid the battered market as another wave of home foreclosures threatens to drive values down further and rattle consumer confidence again.

But the administration’s piecemeal approach — giving temporary reprieves to the jobless, converting empty homes into rental properties, allowing more people to refinance mortgages — isn’t going to help much, said industry leaders and even some lawmakers in the president’s own party.

What’s needed, they said, is a grand plan, such as an across-the-board reduction of the principal homeowners are carrying on their mortgages.

“Abysmally too little is being done to deal with the problem,” said Rep. Dennis Cardoza (D-Atwater), who recently led a contingent of California lawmakers in denouncing the administration’s handling of the crisis.

He said 70% of the homeowners in his district are underwater on their mortgages, meaning they owe more than their homes are worth. And a map of San Joaquin County in his office shows clusters of red where constituents have lost their homes to foreclosures.

To counter such criticism, the White House hopes to announce changes to its main refinancing program within days to make it easier for more homeowners — perhaps millions more — to participate. Agency officials are looking at reducing fees, streamlining processes and raising the the loan-to-home value ratio cap, which is now at 125%, to be eligible for refinancing.

The administration hopes that the “amped up” effort, as one aide to President Obama put it, will help turn the tide. But aides and congressional staff members acknowledged that the economic and political problems afflicting housing recovery efforts remain daunting.

The government doesn’t have the money to rescue every troubled homeowner, lenders are reluctant to take on more risk or add to their mortgage losses and sharp ideological divisions — whether a major stimulus is needed, for instance, or any money should be spent — are hamstringing the kind of quick, large-scale action that some critics want.

Even today’s historically low interest rates aren’t helping.

Underwater borrowers can’t qualify for new loans or refinancings even if they are current on payments. And many would-be buyers are sitting on their hands, spooked by the high numbers of foreclosures and vast tracts of vacant homes.

In the meantime, banks are stepping up efforts to foreclose on borrowers in default. In the three months that ended Sept. 30, notices of default, the first formal step in the foreclosure process, jumped nearly 26% from the previous quarter, according to DataQuick, a San Diego real estate information service.

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Obama administration ramps up mortgage refinancing effort (Continued)

Additionally, a likely national settlement over complaints about banks filing faulty paperwork to take back homes should clear the way for an additional 400,000 foreclosures in coming months, according to Moody’s Analytics, an economics research firm.

Moody’s predicts that foreclosures will rise next year to a record 1.5 million, or a hefty 30% of all sales of previously owned homes.

The new crush of distressed properties will further dampen home values, especially in hard-hit Florida, California and Nevada, inflicting more damage on the broader economy and job growth.

Amid rising concerns, White House officials are intent on easing the rules of the Home Affordable Refinance Program, which allows mortgages backed by financing giants Fannie Mae and Freddie Mac to be refinanced at lower rates.

HARP, begun in 2009, was supposed to help millions of homeowners, but instead just 865,000 loans have been refinanced through July.

Economists and housing industry executives said the program’s stringent requirements made many homeowners ineligible. For example, borrowers can’t qualify if their mortgages exceed 125% of their homes’ value. Those who do qualify might face stiff fees.

Banks, meanwhile, have been reluctant to participate, partly because they feared they might be required to buy back mortgages if even small violations of government underwriting guidelines occurred.

Obama can’t make changes in HARP. That’s the realm of the Federal Housing Finance Agency, an independent agency that took control of Fannie and Freddie in 2008.

Acting Director Edward J. DeMarco has been reluctant to make changes for fear that they could result in more losses for taxpayers. The takeover of Fannie and Freddie already has cost $169 billion.

Democratic lawmakers have urged Obama to exert stronger pressure on DeMarco, but Treasury Secretary Timothy F. Geithner acknowledged at a congressional hearing this month that the administration’s hands are tied because it is up to DeMarco’s agency to lay out specific steps. Housing agency officials wouldn’t comment when asked about White House pressure.

Fannie and Freddie own or back 30 million mortgages, and, according to Federal Reserve estimates, about 4 million might be eligible for refinancing under a revamped program. But most experts say the effect would be much more modest, with only 2 million more loans reworked. About 15 million loans are underwater.

“Putting aside issues of political practicality, the idea holds some appeal,” forecasting firm Macroeconomic Advisers said in a research report. “However, we doubt that it would give a quick and major boost to overall consumer spending.”

And even with changes, the program won’t do anything for the 3.5 million homeowners who are at least 120 days late on their payments or in default.

The administration is working on another plan that could convert a large number of vacant homes to rental properties. The effort, floated by Fed officials and people in the housing industry, could reduce the number of empty houses that are blighting communities.

With demand for rental housing relatively strong, small investors have been buying foreclosures and other homes to turn them into rentals. But Fed Gov. Elizabeth Duke said at a recent forum that large-scale conversions haven’t happened because it’s expensive to manage single-family home rentals and that the standard practice for the government and the industry has been to prepare vacant properties for sale to new homeowners.

Duke suggested that the government help facilitate the bundling of a large number of rental properties so as to make it more attractive to investors. Community activists, however, worry that turning many owner-occupied homes to rentals will only hurt neighborhoods in the long run.

Administration officials wouldn’t comment on specific ideas or give a timetable for the initiative. But economists say it will be at least a year from now before such a program would begin to show meaningful results.

A far more ambitious proposal is offered by Martin Feldstein, a Harvard professor and top economic advisor to President Reagan: Reduce the principal on the mortgages so that the loans are no more than 110% of the value of the properties.

Banks would absorb half the cost of the principal reduction, and the government the rest. Feldstein figures the losses could amount to $350 billion.

But Feldstein acknowledged there’s political resistance to helping some homeowners while leaving others with smaller loans to fend for themselves. Feldstein’s solution would be to allow the government to go after homeowners’ assets if they default on the new, smaller loan.

“Banks will be careful going forward,” he said, “not to make loans that are at risk of creating very high [mortgage-to-home value] ratios.”

But Feldstein’s plan has little chance in Congress, which is averse to passing anything resembling stimulus legislation. And lenders, too, don’t like the idea of lowering debt for many borrowers who they said can afford to pay or for those who are gaming the system.

“People look at foreclosure as a morality play, not as a broad economic one,” said Elyse Cherry, chief executive of Boston Community Capital, a nonprofit financial institution that is working with lenders to avert foreclosures.

Still, attitudes might change, given that housing is increasingly being seen as the biggest weight on the sluggish economy.

“Prices continue to spiral down,” Cherry said. “Nobody knows what the bottom is.”

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Ten Tips for High-Value Home Appraisals

Original Post Date: October 11, 2011

By: S. Mitra Kalita

The appraiser was due in an hour. The beds were unmade, breakfast dishes in the sink and toys scattered about the playroom. Would she care?

I got moving—and cleaning. At 34 weeks pregnant, that’s not so easy.

After all, I know lowball appraisals can kill deals, something I’ve written about for The Journal.

They can also kill a refinancing application, which we are in the midst of for our 1920s Georgian-style house in Queens. If it comes in too low, it’s not worth refinancing or you might need to put in a whole lot more equity.

We don’t know how ours turned out yet but after talking to a handful of appraisers, I felt great regret at not doing more to plan and prep. Here are some tips based on those conversations.

Caution: Some of the advice—like home valuations themselves these days—might feel contradictory. But what they all agree on is to keep the look, feel and condition of the property as updated and cared for as possible.

1. Spruce the house up. But appraisers caution that you don’t need to deep clean under couches and that a few dirty dishes won’t hurt your value. Rats, cockroaches and that car you’ve been tinkering on might… “Things like overgrown landscaping, soiled carpeting, marks on walls — those do affect value and are part of the property’s overall condition rating,” said Dean Zibas, the president and chief appraiser for Zibas Appraisal in San Clemente, Calif. In other words, think broom clean, not set design for a home-decorating magazine.

2. Curb appeal also matters so mow the lawn, hack those weeds and trim those hedges. This can also help offset your house from unfair comparisons with foreclosures nearby. “In today’s climate I can’t stress enough condition, condition, condition,” said Doreen Zimmerman, an appraiser in Paradise, Calif. “An hour or two, for the most part, will set your home apart in the actual picture that the lender gets from the appraiser vs. the actual picture that the appraiser will provide of the (foreclosure) down the street.

3. Keep a list of all the updates you’ve made and be ready to hand it over; a sketch plan of the house indicating square footage also helps. “Have a list of updating done within the past 15 years. Itemize each update with the approximate date and approximate cost. Also highlight the notable features of the property,” says Matthew George, the chief appraiser of Eagle Appraisals Inc. in Denver, Colo. Remember the items that an appraiser might not notice, like a new roof or insulation. Don’t forget the minor items. For example, I mistakenly told the appraiser we hadn’t updated one bathroom but actually we had installed a new sink and had the tub sealed. That counts, according to the experts.

4. Have comps on hand. Yes, you say this is the appraiser’s job but every little bit helps, “especially if they are aware of a property that sold without the aid of a Realtor (i.e. for-sale-by-owner),” says Mark T. Smith, the owner and president of Smith Appraisal Services in St. Augustine, Fla. That can mean it wasn’t posted on the Multiple Listing Service, and result in other delays by the time it gets posted through other government data sources.

5. Be mindful of peeling paint. Government-insured loans such as FHA and veterans’ loans will require peeling paint to be removed in houses built before 1978. But don’t worry too much about a child’s scrawling on his bedroom wall, unless it’s going to require a whole new paint job.

6. Focus. “Don’t spend money that won’t yield a return on the investment. The best expenditures for most markets are paint, carpet, light and plumbing fixtures,” says Denver’s Mr. George. Prioritize what you do; if you’re the type of homeowner who has upgraded and fixed items as they broke, you should be fine.

7. Location still matters. If there have been changes to the neighborhood, mention them, from a new playground to a new Whole Foods. If the area’s just been declared a historic or landmark district, let the appraiser know.

8. Keep the $500 rule in mind. Appraisers often value houses in $500 increments so if there’s a repair over $500 that can or should be made, it will count against the property. Fix leaky faucets, cracked windows, missing hand rails and structural damage.

9. Also remember the concept of “effective age,” the age the appraiser can assign to a home after taking into consideration updating and condition. “Say you have a cracked window, thread-bare carpet, some tiles falling off the shower surround, vinyl torn in the laundry room, and the dog ate the corner of the fireplace hearth, these items could still add up to an overall average condition rating as the home is still habitable, however your effective age will be higher resulting in comparables being utilized which will have the same effective age and resulting lower value,” says Ms. Zimmerman, who wrote the book “Challenge Your Home Appraisal” and runs a web site by the same name.

10. Lock up Fido and Fifi. Appraisers say they get annoyed enough by homeowners following them around but a snarling, growling dog is even worse. Along the same lines, try to make the appraiser comfortable — if it’s cold out, put the heat on; hot out, the air conditioning. “If it’s 100 degrees out and you never put the air conditioning on, put it on for the appraiser so they don’t question that your unit is broken,” says Ms. Zimmerman.

With those things in mind, let the appraiser do his or her job. “Questions and banter may make the inspection go slow or make the appraise miss something,” said James R. Gerot, a residential appraiser in Ottumwa, Iowa. “My inspections have a rhythm to them so once I get started interruptions are just that. Save questions until after.”

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IMS Offers Solution to ‘Defective Drywall’

Original Post Date: October 11, 2011

By: Krista Franks

Integrated Mortgage Solutions (IMS) now offers a cost-effective, long-term solution to defective drywall, a problem that has plagued thousands of homes, particularly along the Gulf Coast. The term “defective drywall” refers to a type of drywall that releases sulfur compounds, especially in warm, moist climates.

Between 2004 and 2006, hundreds of millions of sheets of defective drywall made their way into thousands of homes in the U.S. IMS estimates about 60,000 homes have been affected by defective drywall.

The dangerous sulfur gas drove families from their homes and destroyed metal within the buildings.

Salvaging a home with defective drywall required major reconstruction to replace all the drywall in the structure, but IMS now offers an on-location solution that requires about one-third of the time and about one-half of the cost of traditional methods.
In recent years, defective drywall has augmented lenders’ losses as they must address the problem before returning a property to the market.

IMS announced Monday that after testing its patented biochemical agent in 30 single-family homes and 150 commercial and multifamily buildings over the past three years, its solution has been successful in curing defective drywall.
IMS’ product testing methods follow the Consumer Product Safety Commission specifications and included air corrosivity testing using the latest technology.

“With these results, homeowners, builders and lenders now have a proven, cost-effective alternative to replacing all the drywall in the affected homes,” Cheryl Lang, president and CEO of Texas-based IMS said.

“This is a major milestone in bringing solutions to thousands of families wanting to return to their homes without suffering health risks,” Lang added.

IMS’ solution comes with a three-year warranty.

“This testing and NAHB-approved remediation service represents a potential savings of hundreds of millions of dollars over time to homeowners, property insurers and lenders,” Lang said.

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New addendum could help appraisers give credit for green features

Original Post Date: October 9, 2011

By: Kenneth R. Harney

Here’s some good news for homeowners who’ve installed energy-saving features but haven’t been sure appraisers will credit them with higher valuations: Thanks to a new industry-issued appraisal addendum, the odds have improved that such upgrades get the fairer market value they’re due.

The Appraisal Institute, the country’s largest and most influential association in its field, published the long-awaited addendum late last month. It’s designed to be attached to any standard appraisal report covering a property with significant green features. Owners, sellers, buyers, refinancers and realty agents don’t have to wait for an appraiser to use it. They can download it at no cost and ask that it be made part of the appraisal submitted to the lender.

The new addendum won’t guarantee you that the appraiser will raise your property value by the tens of thousands of dollars you spent on your solar panel array, high-efficiency windows or geothermal system. But it should guarantee at the minimum that he or she will take notice of the energy improvements and seek to come up with a value adjustment for your local market conditions.

The three-page form is a response to growing concerns that although the Obama administration and many state governments and utilities are pushing homeowners to invest in energy-conserving components, standard appraisal forms — including those used by financing giants Fannie Mae and Freddie Mac — are not set up to give adequate recognition to those often costly improvements.

The inevitable result: Owners are frustrated at what they consider lowball valuations. Refinancers can’t get the loan amounts they seek because the appraisal report doesn’t factor in the monthly utility savings they’re getting from their solar panels. Appraisers, for their part, say local real estate listing documents often don’t spell out in detail all the energy-efficiency improvements or they get the facts wrong.

For example, appraisers complain that some realty listings claim that the house is an “Energy Star Home” when in fact there’s nothing more than a few Energy Star appliances installed in the kitchen. The Energy Star Home designation is a much higher standard: It requires qualifying under a comprehensive set of criteria for the lighting, windows, water heating and high-efficiency appliances, among others.

The institute’s addendum runs the gamut of improvements and ratings, and goes well beyond energy efficiency. Though it has basic sections covering insulation, windows, lighting, heating, air conditioning and solar, it also covers sustainability features such as the presence of water-saving or reclamation systems, landscaping that lowers either water or energy use, and even the presence — or lack — of public transportation nearby that might help lower fuel usage.

Of special significance to owners who have had their houses audited or rated for green features and energy efficiency, the addendum asks for detailed information on the rating or auditing entity, the dates of the rating, average utility costs in the area and estimated monthly savings based on the rating itself.

Any certifications such as LEED (Leadership in Energy and Environmental Design) must be attached to the report along with information on any changes made by the owners to the property since the certification. If the house has solar installations, the addendum asks for such details as the age of the panels, the energy production in kilowatt hours for each array, and other information relating to the energy savings attributable to the solar features.

Appraisers using the new addendum should now be better equipped to identify accurate, recent “comparable” sales in the area — a key part of coming up with a valuation, according to Joseph C. Magdziarz, 2011 president of the institute. In other words, if you have a highly efficient, audited house with extensive energy-saving features as demonstrated by the addendum, an appraiser should look for prices of houses that sold recently with and without energy-efficiency features for indications of your home’s true market value.

Appraisers who have training in green valuations can also use one or more techniques that essentially capitalize the documented monthly savings on utility bills into a specific value adjustment appropriate for the local market. Sandra K. Adomatis, an appraiser in Punta Gorda, Fla., who teaches green appraisal courses and is a nationally recognized expert, said the higher the utility charges in a jurisdiction, generally the higher the value gain from solar panels and other energy-saving installations. For instance, in a relatively high-utility-cost state such as California, said Adomatis, the value increment from the same improvements might be double that in a relatively low-cost state such as Florida.

The addendum is available at the Appraisal Institute site, at http://www.appraisalinstitute.org.

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New Discounts for Mortgage Borrowers

Original Post Date: October 5, 2011

By: AnnaMaria Andriotis

As mortgage rates continue to fall, lenders are rolling out splashy discounts and promotions to inspire reluctant home buyers. But critics say the newest offers still stop short of the best deal for borrowers: Lower rates.

From large banks to credit unions, a growing number of lenders are waiving fees, lowering rates and finding new ways to cut loan prices for would-be home buyers and refinancers. Capital One is waiving some closing fees for refinancers, which can save $3,300 on average. Citi and Bank of America are discounting fees by as much as 0.75 percentage point. And online lender Quicken Loans is telling customers who get a mortgage through December that if mortgage rates fall in the future, they’ll be able to get the lower rates with most refinancing costs covered.

While some of the deals are available to refinancers, they are mostly aimed at home buyers. In this market, new purchase mortgages can be more profitable for banks. But they currently account for just about 20% of all mortgage applications, according to the Mortgage Bankers Association. “We are still amazed that record low interest rates and significantly lower home prices have not resulted in strong loan demand,” says Tim Zimmerman, president and CEO at Standard Bank in Pittsburgh, which is lowering closing costs by up to $500 for home purchases and refinances.

That’s a small discount, relatively. Closing costs typically run up to 2% of the loan amount — $500 would fully cover closing costs for a $25,000 loan. Zimmerman says that on refinances closing costs tend to be lower, and that this discount along with low mortgage rates creates an opportunity for borrowers.

But other offers are more generous. In a rare deal for refinancers, Capital One is eliminating on average $3,300 closing costs — including the appraisal and title-related charges — for homeowners who refinance into a 30-year mortgage in some locations, including New York, Texas and the Washington D.C. metro area. Some credit unions are also slashing closing fee costs. In August, for example, the largest credit union, the Navy Federal Credit Union (designated for Department of Defense employees and their families) began offering $2,500 off of closing costs for borrowers.

Other lenders are discounting costs that borrowers may pay when they sign up for a mortgage. Borrowers have the option to pay what are called “discount points” — a prepayment of interest — in exchange for a lower interest rate. One point equals 1% of the loan amount. Citi is offering home buyers 0.75% of the loan amount that can be used to offset discount points. On a $375,000 mortgage, the credit would be $2,812.50 — plus the lower interest rate over the life of the loan. Earlier this year, Bank of America began offering 0.25 percentage point off discount points in 12 states; next month, the bank will extend the offer in nine more states, including South Carolina, Texas and Washington D.C.

But if you’re seeing incentives, says Keith Gumbinger, vice president at mortgage-data firm HSH Associates, there might be a catch. To qualify for the Bank of America discount, for example, consumers must have at least $50,000 socked away with the bank or its investment firm.

Other incentives may be designed to distract from a rate that’s not as low as it could be. The average rate consumers get on a 30-year fixed-rate mortgage is 4.25% — about 0.75 percentage point higher than the lowest advertised, according to LendingTree.com. That’s almost the widest spread since the firm began tracking the data in February 2010. On a $275,000 30-year fixed rate mortgage, the difference adds up to about $120 more per month, or more than $42,000 over the life of the loan.

For their part, banks say they’re looking to attract new customers, or drum up more business with old ones, and that rock-bottom rates, though difficult to get, are accessible for borrowers with the highest credit scores, large down payments and low debt levels. But they also acknowledge that these promotions are good without being too good: A Bank of America spokesman says the institution is looking to price competitively but not low enough to spark an overflow of applications that would prevent it from being able to process the mortgages in a timely manner, the spokesman says.

Still, a low interest rate is still the key to finding the cheapest mortgage. Experts direct borrowers to consider lenders who are most eager for business, including online outfits, which can offer a lower rate because they have lower overhead, and smaller institutions like community banks and credit unions that might have more wiggle room on rates. With rates expected to stay low for a while, qualified borrowers can afford to haggle to get a low rate, which will help them save more than most incentives on the table now.

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