FHA ‘streamline refi’ is a breeze for homeowners who qualify


Original Post Date: March 18, 2012

By: Kenneth R. Harney

Reporting from Washington—

The Obama administration’s new plan to stimulate refinancings of FHA mortgages is likely to help large numbers of homeowners — even those who are deeply underwater — cut their monthly costs by switching to a loan with a rate below 4%.

Here’s a quick overview of the “streamline refi” program and what it will take for you to qualify.

First, the baseline criteria: Your current home loan must be FHA-insured and must have been put on the Federal Housing Administration’s books no later than May 31, 2009. If you have a mortgage owned or backed by Fannie Mae, Freddie Mac, the Department of Veterans Affairs or private investors, you’re out.

The May 31, 2009, date is crucial. Your lender can tell you precisely when the FHA “endorsed” your loan for insurance. This is different from the dates you applied for your loan or closed on your house. If it turns out to be any time later than May 31, 2009, you miss the cut.

You also need to have an unblemished record of on-time mortgage payments for the last 12 months. Maybe you were late occasionally a couple of years back. That’s OK. But the last 12 months need to be pristine.

On top of that, if your refinancing does not provide you a net savings of at least 5% in your monthly principal, interest and mortgage insurance payments, you won’t be eligible either. The program won’t take effect until June 11.

Those are the main hurdles. But they are substantial enough to exclude hundreds of thousands of FHA borrowers who might otherwise want to refinance. According to an FHA spokesman, Brian Sullivan, the agency has roughly 500,000 active loans in its portfolio that are eliminated from participation solely on the basis of the May 31, 2009, cutoff date. Of those, an estimated 145,000 have mortgage interest rates higher than 5% — making them prime candidates for a refi if it weren’t for the cutoff date.

Now for the good stuff: Under the Obama plan, if you qualify on the criteria above, you get to breeze through the paperwork maze and underwriting hassles that come with any refinancing. The FHA streamline refi requires:

•No new verifications of your income or employment status. If you’ve been paying on time for a year, the presumption is that you’ve got the needed income.

•No new credit evaluation, credit reports or FICO scores.

•No new physical appraisal. The program generally accepts the appraised value of your home at the time you closed on your current FHA loan as good enough — even if you’re now in serious negative equity territory.

Along with the stripped-down underwriting, the new program also comes with valuable financial concessions. To sweeten the deal, the FHA has slashed its regular insurance premium charges for qualified streamline applicants.

Take this hypothetical example provided by Paul Skeens, president of Colonial Mortgage Co. in Waldorf, Md. Say you now have a $180,000 FHA loan at 5.25% that dates to March 2009. Your monthly principal and interest payment is $993.93. With the addition of FHA’s mortgage insurance premium of $82.50, your total monthly outlay is $1,076.43.

If you qualify for the new streamlined plan, you could lower your interest rate to 3.875% and your monthly principal, interest and mortgage insurance to $928.92 — an immediate savings of $147.51 a month or $1,770.12 a year. Over the next 60 months, you’ll save $8,850.60.

But why the May 31, 2009, cutoff? What about the thousands of responsible borrowers who happened to have taken out their FHA loans a little more recently, have paid on time and have rates higher than 5%? Why exclude them?

Sullivan said it’s all about the traditional three-year “seasoning” period for mortgages during which the bulk of insurance claims — delinquencies and foreclosures — normally occur. He denied industry rumors that the 2009 date had anything to do with the FHA’s policy of making partial refunds of upfront insurance premiums to borrowers who refinance during the first 36 months, which might cost the agency millions of dollars if more recent borrowers could qualify for the new program.

“How cynical,” he said in response to a question on the refunds. “This is about easing the pressure on [borrowers] in a responsible way.” Saving money by cutting out more recent FHA borrowers “was never a consideration.”

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It’s a Good Time To Refinance

Original Post Date: March 23, 2012

By: Rachel Louise Ensign

For homeowners who have been waiting for interest rates to fall even further before refinancing, it might be time to pull the trigger on a deal. Rates are moving up—and could stay higher for a while, experts say.

The average rate for a 30-year fixed-rate mortgage climbed to 4.08% for the week of March 22, up from the record low of 3.87% it hit in February, according to Freddie Mac. Rates on 15-year loans were up to 3.30% last week from the record low of 3.13% reached earlier in March.

While rates still are below where they were a year ago, some economists say they are likely to keep rising throughout 2012 and into 2013. That means your window of opportunity to lock in a rock-bottom rate might be closing soon.

“If you’re considering refinancing, there’s really no point in waiting,” says Frank Nothaft, the chief economist at Freddie Mac.

Tim Barge considered refinancing the mortgage on his Buford, Ga., home for the last year and a half, but wanted to get the best rate possible. Last month, the 42-year-old information-technology professional decided to take the plunge.

“I was at the point where I just had to do something,” he says. “I knew the rates weren’t going to go much lower” than the 3.875% he locked in.
He opted for a 30-year fixed-rate mortgage, which cut his monthly payment from $1,920 to $1,480.

Freddie Mac, Fannie Mae and the Mortgage Bankers Association all are projecting that rates will keep ticking higher this year and beyond. Freddie Mac and the Mortgage Bankers Association predict the average rate on a 30-year fixed-rate mortgage will reach 5% next year.

The biggest culprit in rising rates: the spike in yields on 10-year Treasury notes over the past two weeks, which mortgage rates generally track, says Mr. Nothaft. This comes as investors who stashed their money in Treasurys as a safe haven are beginning to sell and move into riskier holdings now that the U.S. stock market and European economy are looking a bit healthier.

Rates could go even higher if the Federal Reserve’s so-called Operation Twist, which temporarily pushed down long-term interest rates, ends in June as planned, or if inflation rises, eroding the value of bonds, Mr. Nothaft says.

Good News, Bad News

“It’s a good-news, bad-news situation. The economy seems to be finally getting its legs back under it, and as a natural course interest rates are going to be back up, too,” says Keith Gumbinger, vice president at mortgage-data provider HSH Associates. But if the fledgling economic recovery falters, rates could hold steady or go back down, he says.

If you wait until the end of the year to refinance, and the average 30-year rate goes up to 4.7%—as Freddie Mac projects—you will be paying $1,877 more per year on a $400,000 mortgage than if you refinanced at last week’s average rate.

An adjustable-rate mortgage might be a good choice if you plan to move soon, since it allows you to lock in an even-lower rate for a fixed period, typically five years, and presumably sell your home before it goes up.

When you refinance, you start a new term. So if you have 25 years left on your 30-year mortgage and you opt to refinance with a 15-year loan, you will pay off your mortgage more quickly, though the monthly payments might be higher. If you refinance into a 30-year loan, it will take you longer to pay off your mortgage, though your monthly payment will be lower.

Refinance deals vary depending on your financial situation and location, but borrowers with excellent credit scores typically qualify for rates below the national average.

This past week, Great Western Financial Services of Plano, Texas, was offering a 3.875% rate on a 30-year fixed-rate mortgage to Chicago-area borrowers with a credit score of 771 or higher. PNC Mortgage was offering homeowners in Tampa, Fla., a 4.125% rate on a 30-year fixed-rate loan. And in Boston, Bank of America BAC +0.81%was offering homeowners a 3.5% rate on a 15-year fixed-rate mortgage.

Borrowers looking to refinance jumbo loans—those too large to be backed by Fannie Mae or Freddie Mac—should expect rates 0.3 to 0.4 percentage points above ordinary loans, since most lenders keep these loans on their books and consider them riskier, says Mike Fratantoni, vice president for research and economics at the Mortgage Bankers Association. Jumbo rates vary more by region than so-called conforming loans do: The best 30-year rate available to a homeowner with excellent credit and a loan-to-value ratio near 70% was 4.3% in Dallas, but 5% in Tucson, Ariz., according to LendingTree.

Not all homeowners should consider a refinance, of course. If you aren’t planning to stay in your home for long, refinancing into a 15- or 30-year loan—or even an adjustable-rate mortgage—could cost you more in the end, since you might not recoup the one-time costs that come with refinancing, says Doug Lebda, chief executive of LendingTree.

Such costs typically include an appraisal, credit check and processing fees from the lender, altogether typically 2% to 4% of the loan amount, LendingTree says. That is on top of any so-called points, or origination fees.

Pulling the Trigger

Expect your refinance to take 60 days or longer to close, compared with 30 days before the housing crisis, Mr. Gumbinger says. If borrowers rush to refinance, lenders could experience a logjam that could slow down processing times even more. But it isn’t likely that a further slowdown would jeopardize a borrower’s ability to lock in a rate, he says.

John Ruben, a 54-year-old chief operating officer at a hotel workers’ union, checked mortgages rates online multiple times a day for months before pulling the trigger and refinancing his $321,000 home in Bethlehem Township, N.J., earlier this year.

He had calculated that refinancing would be worth it only if he cut a percentage point off his current 5% interest rate on a 30-year fixed-rate loan. When rates dipped, he refinanced at a 4% rate through a mortgage banker—saving about $150 a month on his payment.
Says Mr. Ruben: “I’m glad I locked in when I did, because now they’re going up again.”

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Southland housing market gains momentum

Original Post Date: March 15, 2012

By: Alejandro Lazo

A Southland home sales recovery gained steam in February as a record number of deep-pocketed investors snapped up distressed properties at bargain-basement prices. With so many purchases of low-end homes, median prices remained in a slump.

The influx of cash from speculators helped push February sales to their highest level for that month in five years, real estate firm DataQuick reported Wednesday. The increase was fueled by purchases of properties costing less than $200,000. Sales of homes costing more than $800,000 sank.

The activity on the low end helped push the region’s median price down 3.7% from February 2011. At $264,750, the median — the point at which half the homes in the region sold for more and half for less — is now just 7.2% above the market’s 2009 bottom, reached during the worst of the financial crisis.

In related news, the foreclosure picture improved throughout California last month, according to Irvine data tracker RealtyTrac.

In Los Angeles and Orange counties, all forms of foreclosure filings fell 18% in February from a year earlier. Filings include notices of default, notices of foreclosure sales and repossessions. Foreclosure filings dropped 11% in the Inland Empire and 9% in San Diego County over the same time period. Nationwide, February filings declined 8% from a year earlier.

Longtime Los Angeles real estate agent Leo Nordine said Southern California’s housing market has probably hit bottom, but he added, “prices are going to be flat as a pancake this year.”

Investors seeking to refurbish foreclosed properties and either resell them to first-time buyers or rent them out were flooding the real estate market at an unprecedented level, Nordine said.

“I’ve never seen it like this before,” Nordine said. “There are so many investors buying right now it’s insane. The top 1% is buying up all the real estate.”

Big-money investors, including Wall Street hedge funds and private equity firms, are positioning themselves to snap up foreclosed homes and convert them into rental units. Billionaire investor Warren Buffett, for instance, said in a recent cable news interview that he would buy foreclosed homes if he could find the right way to manage those properties.

“Single-family homes are cheap now,” Buffett told CNBC. “If I had a way of buying a couple hundred thousand single-family homes and had a way of managing [them] … I would load up on them.”

Wall Street types are aiming to do exactly that. A spokesman for New York buyout firm GTIS Partners said it plans to spend $1 billion through 2016 purchasing single-family properties and converting them to rentals. Oaktree Capital Management of Los Angeles recently announced it had started a fund that would buy $450 million worth of single-family homes.

Also in Southern California, G8 Capital of Ladera Ranch has bought several portfolios of distressed properties that it plans to rent out. The real estate investment firm McKinley Capital Partners of Oakland has purchased hundreds of homes in the San Francisco Bay Area.

Mia Melle, president of RentToday.us, a company that manages rental homes for investors throughout Southern California, said many of her clients were now private equity funds.

“Those guys are hot and heavy on the market buying houses — as many as they can possibly get their hands on,” Melle said. “That’s the main thing we are dealing with.”

The Obama administration is looking to capitalize on this interest by selling to investors pools of foreclosed homes owned by mortgage titans Fannie Mae and Freddie Mac as well as the Federal Housing Administration. The administration hopes to use investors to convert some of the nearly 250,000 foreclosed homes owned by government-controlled entities into rentals. Fannie recently listed for sale about 2,490 homes in some of the nation’s hardest-hit markets, including about 484 in Los Angeles and the Inland Empire.

But investors flush with cash are already busy buying foreclosures and other distressed homes. A record 29.7% of previously owned properties sold last month were bought by absentee purchasers, who paid a median $192,750. The Inland Empire was the epicenter of this activity, with absentee buyers accounting for 37.2% of sales.

In total, 15,573 houses and condominiums were bought throughout the Southland in February. That was a 7.2% increase from January and an 8.4% jump from February 2011.

Excluding sales of new homes, foreclosed properties accounted for about 1 in 3 sales. Short sales — in which a bank allows a home to be sold for less than what’s owed on the mortgage — made up about 1 in 5 sales.

Many observers expect the long-suffering housing market to finally hit bottom in 2012, particularly if the jobs picture brightens. But foreclosures, tight mortgage credit and high regional unemployment remain significant impediments to a housing recovery.

Unemployment is still a harsh reality for many in Southern California. The jobless rate was 11.8% in Los Angeles County in January, a drop from 12% in December. In Orange County, The rate rose to 8% from 7.8%. In the Inland Empire, it rose to 12.4% from 12.2%.

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Rise in Phoenix Housing Shows Path for Other Cities

Original Post Date: March 13, 2011

By: Nick Timiraos

PHOENIX—As home prices continue to drop in most cities, a nascent real-estate rebound here holds lessons for the rest of the country.

This sprawling desert metropolis was one of the hardest hit housing markets during the bust. Phoenix home prices declined 55% from 2006 through the end of 2011, and Arizona’s foreclosure rate jumped to No. 3 in the nation in 2009. Hundreds of thousands of homeowners are underwater, meaning they owe more than their homes are worth.

Now real-estate economists across the country are studying an early but surprisingly broad Phoenix turnaround. The sharp drop in home prices has brought new buyers into the market. Unlike other markets where housing recoveries have been snuffed out by big overhangs of homes for sale and foreclosed properties, inventories are lean here.

“Phoenix has hit a bottom,” says Thomas Lawler, an independent housing economist who was one of the first to warn six years ago that prices in overbuilt metros were poised to fall.

The nation’s hard-hit housing markets face a tough act: engineering a housing recovery without traditional trade-up buyers, many of whom are either unwilling or unable to sell because of huge price declines.

Phoenix has found a viable formula. Low prices are igniting demand from first-time buyers and investors who are converting the homes to rentals. The local economy is on the upswing with several big employers like Amazon.com Inc. and Intel Corp. hiring again, which is further increasing demand for housing. And the region is benefiting from a surge of buyers from Canada who are using their favorable exchange rate to scoop up bargains in the desert.

Local mom-and-pop investors are also playing key roles in soaking up supply. “I’m running my Realtor ragged looking at properties,” said Robert Gerundo, who last month stood inside a two-bedroom condominium, scribbling his signature on an offer to buy the unit for $50,200, slightly above the listing price set by the bank, which recently foreclosed on the unit.

Mr. Gerundo has bought 13 properties in Phoenix in the past two years and rents them out for as little as $950 a month. The 49-year-old, who drives around in a Jaguar with a Rutgers sticker on it, says he is making so much money as a landlord that he quit his job last year in New Jersey as a banker.
Nationally, housing demand still remains weak and bank-owned sales are expected to rise this year, putting more pressure on prices. Many economists say they expect home prices nationally could fall by another 3% or so this year before hitting a bottom next year. Most expect that prices will rise little for several years.

U.S. home prices fell another 2% in the fourth quarter on a seasonally adjusted basis, according to the Standard & Poor’s/Case-Shiller index tracking 20 cities. But prices rose by 2% in Phoenix, the biggest increase of any metro area in the country. Over the past year, prices in Phoenix are down by 1.2%, the smallest drop since its prices started falling in 2006.

Other markets are showing signs of life, too, as the spring buying season gets under way. Recent job gains for Detroit’s auto sector have helped rev up sales in recent months. Home prices in Washington, D.C., have fared better than in much of the country thanks to better employment prospects from government-related hiring.

Big price drops, like those in Phoenix, are another key. In Detroit, prices are down by 46% over the past six years and have fallen to levels last seen in 1994. Sales have picked up in Miami, where prices are down by 51% over the past five years.

But low prices alone haven’t been enough to so stabilize other epicenters of the housing bust where job growth still lags. In Las Vegas, where prices have tumbled 62% since 2006, including 8.9% over the past year, the local economy is heavily dependent on tourism and gambling, both industries that haven’t recovered. “A lot of markets in the country have hit a bottom, but I just don’t see them coming back the way Phoenix has,” says John Burns, a homebuilding consultant in Irvine, Calif.

The improving housing market in Phoenix isn’t much comfort to anybody who bought a home there a few years ago. More than 52% of mortgage borrowers owe more than their homes are worth, according to CoreLogic, a real-estate data company. And not everyone in Phoenix is convinced that the improvements will last, especially if the economy falters or oil prices soar.

Phoenix saw a small run-up in prices three years ago when federal tax credits spurred a buying frenzy, but prices dropped again once the credits expired. Others worry that banks have delayed foreclosures and will begin to saturate the market with more properties in the coming year. “It feels like a temporary bottom,” says Brett Barry, a real-estate agent who lists properties for Fannie Mae.

Such concerns haven’t discouraged buyers like Lloyd Sheiner from taking advantage of low prices to build an inventory of 143 homes, which he rents out to families that haven’t been able to hold on to their homes.

“The panic is over,” says Mr. Sheiner, an apartment and commercial real-estate investor who lives in Montreal and began buying 18 months ago after he concluded prices were too low.

His average renter, he says, is a family of four with parents who have jobs. “They’ve been sitting around their kitchen table with a $350,000 mortgage on a house worth $140,000,” he says. “And they’re saying to themselves, ‘Geez, what are we going to do? Do we spend the next 20 years of our life paying this down or do we start over?’ ”

His company, Living Well Homes, has built its own property-management infrastructure that allows tenants to submit work orders online and automatically deducts rent from their checking account. “We don’t go running around the valley banging on the door collecting rent,” he says.

Out-of-state buyers accounted for one-quarter of all purchases last month. One in every 25 sales went to a buyer that listed a Canadian address when registering the sale, according to the Cromford Report, a local real-estate publication. Many are flush with cash from a real-estate boom of their own in Canada and an exchange rate that has given Canadians unusual buying power.

Dean Selvey, a real-estate agent and investor who has built his business around marketing to Canadian snowbirds, last month set up a big booth at a two-day trade show in nearby Mesa called “Canadian Snowbird Extravaganza Celebration” that drew 5,000 attendees. “It’s chase the Canadians—that’s our market,” he says.

A few days later, Jon Mirmelli, a local real-estate agent who has bought nearly a dozen foreclosures as rentals, knocked on the door of a homeowner whose home was slated for a bank foreclosure auction. After introducing himself and informing the occupant about the imminent foreclosure sale, he popped the question: “If you’re not able to keep your house, would you be interested in renting it?”

From the porch, Mr. Mirmelli’s business partner sized up the condition of the three-bedroom house, which the current owner bought for $150,000 in a short sale two years ago. At courthouse auctions, homes are sold as is, meaning the buyers may have to evict the former owner.

Nearly 29% of homes sold last month went to buyers who indicated they planned to rent out the properties, according to the Cromford Report. That figure has been on the rise over the past two years. In mid-2010, the share stood near 15%.

Competition from investors is frustrating for aspiring first-time buyers like Adam Brenner. “This does not feel like a buyer’s market at all,” says Mr. Brenner, a pharmacist who estimates that he has looked at 60 houses since last fall. “You hear and read about how there are so many homes for sale, but once you start looking, it’s a pretty big shock.”

Many real-estate agents have reported more bidding wars in recent weeks, and some buyers are agreeing to escalation clauses, a bubble-era provision where they agree to pay a certain price above the highest offer.

Arizona makes it easier for banks to take back properties through foreclosure without going to court. The state saw the largest decline in the share of loans that were seriously delinquent or in foreclosure during 2011, according to Lender Processing Services. So-called judicial states such as Florida, where banks must process foreclosures by going through court, have seen growing backlogs, which some fear could eventually drag down Florida markets again in the future.

Now prices are firming up because fewer homes are selling out of foreclosure. Foreclosed properties accounted for 36% of all home resales in January, down from 55% one year ago and a peak of 66% in March 2009, according to DataQuick, a real-estate data firm. Those declines have fallen, in part, because banks are also becoming more efficient at approving short sales, where it allows a sale for less than the mortgage debt owed.

Mike Orr, founder of the Cromford Report, says concerns that banks will begin to dump more foreclosures on the market are overblown, at least in Phoenix. “People think there’s a glut of homes the banks are hiding somewhere, and that may be the case in other markets, but not here,” he says.

Still, a market recovery on paper means little to hundreds of thousands of underwater homeowners. Consider the case of Gil Monti. In just two days, he received five offers for this home—four above his asking price.

But that offers little comfort: He has been forced to sell the home, which he built 34 years ago and where he raised all three of his children, in a short sale for $275,000.

Mr. Monti was one of many people who refinanced his home repeatedly during the boom, pulling out cash along the way to fund home improvements and his kids’ college educations. He paid $100,000 in construction and land costs in 1978, and the home was valued at nearly $600,000 in 2006. He sold the property last month in a short sale because his “interest only” $473,000 mortgage reset last year, requiring full interest and principal payments.

He realized the depth of his troubles last year when a neighbor sold a home for just $199,000, a third of what Mr. Monti’s home was worth at the peak.

Mr. Monti isn’t alone. “The recovery that gives people like Gil the freedom to sell their property is not going to happen, possibly ever, for a lot of people here,” says Greg Markov, his real-estate agent.

Mr. Markov also represents Mr. Gerundo, the investor who bought 13 properties as rentals. “That recovery is already here” for Mr. Gerundo, Mr. Markov says. “His investment is not going down in value.”

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Mortgage Rates Keep Dancing With ‘Record’

Original Post Date: March 8, 2012
By: Mia Lamar and Ben Fox Rubin
Mortgage rates in the U.S. declined over the past week as rates continued to hold near record lows, according to Freddie Mac’s weekly survey of mortgage rates. For the week ended Thursday, the 30-year fixed-rate mortgage averaged 3.88%, compared with 3.9% the previous week and 4.88% a year ago.
Rates on 15-year fixed-rate mortgages averaged 3.13%, compared with 3.17% a week earlier and 4.15% a year ago. This shorter-term mortgage is a popular option for refinancing, and the latest rate marks a new record low in the survey, which has tracked the 15-year fixed since 1991.
Five-year Treasury-indexed hybrid adjustable-rate mortgages, or ARMs, averaged 2.81%, compared with 2.83% the prior week and 3.73% a year ago.
To obtain the rates, 30-year and 15-year fixed-rate mortgages required an average 0.8 point payment. Five-year and one-year adjustable rate mortgages required an average 0.7 point and 0.6 point payment, respectively. A point is 1% of the mortgage amount, charged as prepaid interest.

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How to seek a reduction on your home’s property tax

Original Post Date:March 4, 2012

By: Scott J. Wilson

If you believe you’re paying too much property tax because the county has overestimated the value of your home, you can seek a reduction. Here are tips on how to do this:

•If you believe the assessment was unfair in the past, contact your county assessor’s office or visit its website as soon as possible. At this time of year, many assessors are in the process of updating property values, so it’s good to express your concerns before the new assessment is finalized.

•Be cautious of any mail, email or phone solicitations by people or companies offering to contest your property valuation for a fee. You can usually do it yourself, except for a fee in some counties to file an appeal. In the past, groups have sent out property tax adjustment mailings that were made to look like government documents. Beware.

•Many assessments are based on “comps” — recent sale prices of similar-size homes in your area. If you suspect that inappropriate comps were used, use websites such as Yahoo Real Estate or Zillow.com to look for comps that might be more apt.

•If your home has suffered more than $10,000 worth of damage from a fire or other disaster, you may be eligible in California for a lower taxable value. Contact your assessor’s office to get an application for the discount.

•If you get turned down for a reduction, you can take your case to your county’s assessment appeals board, a panel independent of the assessor’s office. For information on how to file an appeal, including filing deadlines, call your county assessor’s office.

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