Metro Markets Improve

 Metro Markets Improve

According to the National Association of Home Builders (NAHB) latest Leading Markets Index (LMI), national metropolitan housing markets are continuing a gradual return to normalcy from the low points of activity in the recent “great recession.”

The LMI shows that “markets in 56 out of the approximately 350 metro areas nationwide returned to or exceeded their last normal levels of economic and housing activity.”  Normal market levels in these 56 metro areas represent a net gain of two metro areas from the previous month. The index showed a nationwide score of .86, which indicates that the nationwide average is running at 86 percent of normal economic and housing activity, this is based on current permits, prices and employment data.

NAHB Chairman Rick Judson said that, “More markets are slowly returning to normal levels and we expect this upward trend to continue as an improving economy and pent-up demand brings more home buyers back into the marketplace.”  However, he added that actions by policymakers need to avoid harming consumer confidence or impeding the current economic recovery.

Another NAHB official, Chief Economist David Crowe, said that, “Forty-five percent of metro areas are recovering at a faster pace than the nation as a whole, with smaller markets leading the way.”  He added that, “Of the 56 markets that are at or above normal levels, 48 of them have populations that are less than 500,000, and many of these local metros are fueled by a strong energy sector, which is producing solid job and economic growth.”

Additionally the LMI data shows that even more markets are solidly on the way to full recovery with, more than 35 percent of the nearly 350 metro markets on the month’s LMI operating at a capacity of 90 percent or better of previous norms.  The NAHB believes that this is a clear sign that the housing recovery will continue to pick up steam in 2014.

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Foreclosure Picture Brighter

Foreclosure Picture Brighter

According to the Year-End 2013 U.S. Foreclosure Market Report™ just released by RealtyTrac® (www.realtytrac.com), the leading online marketplace for foreclosure properties, foreclosure filings, which include default notices, scheduled auctions and bank repossessions, were reported on 1,361,795 properties in the U.S. last year.

This paints a brighter picture relative to foreclosures nationally in that this figure is 26 percent lower than foreclosure filings in 2012, and 53 percent lower than at the peak of the foreclosure meltdown in 2010 when there were 2.9 million foreclosure filings. The report shows that the approximate 1.4 million total foreclosure filings for last year (2013) was the lowest annual total since 2007, when there were 1.3 million properties with foreclosure filings.

Additionally the report also shows that, “1.04 percent of U.S. housing units (one in every 96) had at least one foreclosure filing during the year, down from 1.39 percent of housing units in 2012 and down from a peak of 2.23 percent of housing units in 2010.”

The report notes that the five states with the highest foreclosure rates were Florida, with 3.01 percent of all housing units showing a foreclosure filing, Nevada (with 2.16 percent), Illinois (1.89 percent), Maryland (1.57 percent) and Ohio (1.53 percent).

Though overall foreclosure activity was down nationally, there were 10 states that saw an increase in 2013 compared to one year earlier, these included “Maryland (up 117 percent), New Jersey (up 44 percent), New York (up 34 percent), Connecticut (up 20 percent), Washington (up 13 percent), and Pennsylvania (up 13 percent).”

According to the report, the estimated value of property receiving a foreclosure filing in 2013 was $191,693 at the time of the filing; this was up 1.0 percent over the average estimated value in 2012.  Also the report shows that those properties that did receive a foreclosure filing in 2013, the average estimated market value of that property increased 10 percent since the foreclosure notice was filed.

 

 

 

 

 

 

 

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Escrow in Brief

Escrow in Brief

In California there are four principals involved in any real estate transaction: the buyer, seller, lender and borrower.  Our role at Prominent Escrow is to assure all parties that the transaction will be completed in a manner that fulfills all the legal obligations necessary, and do so in a timely manner.

Once the seller and buyer have signed a real estate sales purchase agreement with the real estate professional, the documents are sent to us, and your escrow account will be opened.  The document package normally will include any receipt of deposit.  This document, with the deposit, and any additional instructions will serve as a guideline in completing the escrow process.

When escrow opens a number will be assigned to the escrow account.  At this time Prominent Escrow will collect all contracts, documents, instructions, deposits or additional funds.  For the sake of a timely, professional and legal escrow process any, and all, principals need to be responsive to any additional requests from us.

It will be Prominent Escrows responsibility to safeguard all funds and documents, and not to disperse any funds, or convey any title until all instructions and legal provisions have been met.

A preliminary title search is ordered to be sure there are no claims against the title.  The title report will summarize the condition of the title that will include any liens, easements, encumbrances or claims against the property.  The seller will normally be responsible for resolving any claim against the property.

The contract or escrow instructions may contain “contingencies.”  These may include the purchase of home and/or flood insurance, any home inspection, additional financing, any repairs to be made or any other tasks or instructions.  All of these must be completed and “signed off” before escrow is finalized.  All parties will receive a signed copy of the completion of each contingency.

When all contingencies are met, the loan is funded, and all final escrow instructions are complete the final disbursement sheet will also be completed.  Final title can now be transferred and escrow closed, and the deal is sealed when the escrow office records a new deed in the buyer’s name.

 

 

 

 

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MBA Credit & Application Update

MBA Credit & Application Update

The latest data from the Mortgage Bankers Association (MBA) shows that both mortgage credit availability and mortgage application activity rose.

The MBAs Mortgage Credit Availability Index (MCAI) for December increased slightly from the previous month.  The MCAI is a relatively new index, and is the only standardized quantitative index that is solely focused on mortgage credit.

The index increased 0.6 percent to 110.9 in December rising slightly from 110.2 in November.  An increase in the MCAI indicates that lending standards are loosening, while a decrease in the index indicates a tightening of credit.  The index was benchmarked to 100 in March of 2012.

Though there was an increase in the index it was so slight that credit availability was essentially unchanged.  The MCAI is calculated using different factors related to borrower eligibility that include, the credit score, loan type and loan-to-value ratio.

Mortgage application activity is monitored on a weekly basis, and the MBAs Weekly Mortgage Applications Survey shows that the Market Composite Index (MCI) for mortgage loan application volume rose 11.9 percent for the week ending on January 10th, this on a seasonally adjusted basis, and up from the previous week.  On an unadjusted basis the Index jumped 61 percent from the previous week.

A closer look shows that the Refinance Index increased 11.0 percent from the previous week, while the Purchase Index rose 12.0 percent on a seasonally adjusted basis.  The unadjusted Purchase Index increased by 66 percent compared to one week earlier.

The survey shows that the refinance share of all mortgage applications dropped slightly to 62 percent of total applications, down from 63 percent the previous week.  The adjustable-rate mortgage (ARM) share of total mortgage applications remained unchanged at 8.0 percent from the previous week.

The average contract interest rate for conventional 30-year fixed-rate loans declined slightly to 4.29 percent, down from 4.36 percent.

 

 

 

 

 

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6.4 Million Still Underwater

6.4  Million Still Underwater

Data for the fourth quarter is not yet available, but CoreLogic, an Irvine, California based company providing financial, property and consumer information states that nearly 6.4 million homes in America are still underwater.

The 6.4 million figure represents approximately 13 percent of all residential properties nationwide which are still showing negative equity, thus owing the bank more than what the property is worth on the market.  The CoreLogic information reflects data through the third quarter of last year.

Their report found that properties typically considered on the “low end” of the economic scale were more greatly impacted.  CoreLogic data shows that 92 percent of homes worth more than $200,000 had positive equity; whereas only 82 percent of the homes valued less than $200,000 had equity.

Also the CoreLogic analysis shows that a small key segment of the states nationally are bearing the burnt of the problem. Just five states accounted for more than one-third of all the underwater homes nationally.

Nevada, which was severely hit by the foreclosure meltdown that started in 2008, still leads the way in underwater homes with 32.2 percent of properties still upside down.  Nevada was followed by Florida, another hard hit state, which has 28.8 percent of homes owing more than what they are worth.  These two states are followed by Arizona within 22.5 percent underwater, then Ohio with 18.0 percent and Georgia at 17.8 percent.

Recently Reuters News reported that a “new wave” of mortgage trouble is appearing.  The news agency reported a “worrying rise” in the number of US borrowers who are frequently missing payments on the home equity lines of credit they took out during the housing bubble.

The Reuters report warned that as mortgage interest rates rise, consumers’ payments on these lines of credit will increase also, because the loans usually carry floating interest rates.

 

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Loans Easier to Get pt. 2

Loans Easier to Get pt. 2

Following part one of this blog, and looking further at the same Origin Insight Report from Ellie Mae, it can be seen that the amount borrowers are required to put on the table for a down payment is declining slightly along with the allowable average credit score.

According to the report, the average percentage amount of the total loan necessary for a down payment fell slightly from 22 percent to 19 percent.   Jonathan Corr, president of Ellie Mae, noted that after the recent tighter lending standards most lenders “weren’t even doing loans with less than a 20 percent down payment.”  A 20 percent down payment creates an 80 percent loan-to-value ratio (LTV).

By example: For a home costing $300,000 the borrower would have to come up with a down payment of $60,000 with an 80 percent LTV that would require a 20 percent down payment.  The above noted dip in the average allowable down payment from 22 percent to 19 percent doesn’t seem like much, being only a 3 percent difference.

However, on a $300,000 home, that 3 percent difference amounts to $9,000 in the amount the borrower would need to front for a down payment.  For many, that $9,000 can be the difference in qualifying for the loan or not.  Corr notes positively that this drop to 19 percent is an average; so many borrowers may be able to get a loan with a down payment even lower than the 19 percent.

Corr also notes that the report shows that debt-to income (DTI) ratios have been allowed to rise, also helping more borrowers qualify for a loan.  He says the average percent of DTI is going up, and doing so for a variety of reasons, which include a strengthening economy and stronger housing market.  He adds that, “lenders are becoming more lenient about how much debt they see as acceptable for borrowers to take on.”

Previously DTIs, front-end and back-end, were about 23 percent and 34 percent respectively, but now have been allowed to rise upwards to 25 percent and 37 percent.  “So while it’s not massive, you are seeing some loosening, which is a positive sign for borrowers,” says Corr.

 

 

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Loans Easier to Get pt. 1

Loans Easier to Get pt. 1

Since the mortgage collapse of 2008 home mortgage loans, for either purchase or refinance, had distinctly become more difficult to come by as a consequence of tighter lending standards.  However, according to Ellie Mae, a national mortgage tracking company, data shows that mortgage loans are becoming a little easier to acquire.

Ellie Mae recently released another of their Origin Insight Reports (OIR) in which data, through the third quarter of last year, reveals that both down payments and allowable average credit scores have been dropping modestly for closed mortgage loans.  At the same time the report shows that allowable debit limits have been rising slightly.

President of Ellie Mae, Jonathan Corr, stated, “Although it’s not loosening rapidly, we are seeing a consistent loosening that has happened over the last 12 months and in particular since the beginning of the year, in underwriting criteria.”

Relative to credit scores, the report shows that the average FICO credit score for closed loans was 732, this is down from 750 one year earlier. Corr says that the FICO score, which ranges from 300 to 850, is the one mortgage lenders use most.

Along the same line the report also shows that not only did the allowable average credit score dip, but the percentage of borrowers with credit scores under 700 who qualified for loans rose sharply jumping from 17 percent in 2012, to 32 percent in September of 2013.

Corr stated that this figure is important because, “People see a 732 average score and they get worried that they can’t qualify if they don’t have it. But actually, what we’re seeing is the number of folks who have [a credit score of] under 700 and have closed loans jumped quite a bit. That shows a loosening of qualifying standards and gives more people a chance.”

 

 

 

 

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Unemployment and Our Industry

Unemployment and Our Industry

Last week the Bureau of Labor Statistics released the current unemployment figures stating that unemployment in November had dropped to 7.0%, the lowest rate in the past five years, this was down from 7.3% in October.  

With no intention of being political, the above 7.0% figure was put forward by the media, this administration and many economic and industry analysts as clear indication that our economy in full recovery mode.  Many in the escrow, mortgage and real estate industry have taken this position by pointing to the “turnaround” in our industry over the past several years, using gains in home sales and prices, and also looking to the record setting heights in the stock market as evidence.

A further look at other labor statistics should give a slight pause as to the real lost potential for our industry if all was truly well.  Between December 2005 and November 2007, the two years prior to the economic decline and the “Great Recession,” the unemployment rate never rose above 5.0%, and for the full ten years prior (from November 2003 to 2013) it never rose above 5.8%.  Between June 2004 and June 2008 unemployment rates of 5.5% or lower were the norm, with rates dropping to as low as 4.4% on several occasions.

The 7.0% rate actually equates to 10.9 million people unemployed, this figure only includes those currently receiving unemployment benefits.  There are another 7.7 million listed in November as being employed part-time…unable to find full-time work.  Estimates for the number of people unemployed and totally out of the labor force, meaning they no longer receive unemployment benefits and therefore are no longer counted as officially unemployed, varies from the current 2.1 million officially to perhaps two to four times that number.

When combining each of the previous categories (officially unemployed, under-employed, unofficially unemployed), what is the real unemployment rate?  Depending on their sources, some economists and analysts put this estimate between 11.5% to as high as 15% or more.  Our current Labor Participation Rate is 63%, in October it fell to 62.8%, this is the lowest labor participation numbers if nearly 35 years.

One commentator pointed out that the 10.9 million officially unemployed is a little more than the combined 10.3 million people living in the cities of Los Angeles, Chicago, Houston and Philadelphia.  Now consider if the economic impact of those three cities were eliminated from the national economy, remember, consumer spending drives 70% of national economic activity.

Those true unemployment numbers thus represent an enormous amount in lost revenue and financial wellbeing for our industry, as well as for our national economic health.

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Shift in Distressed Sales

Shift in Distressed Sales

According to the October 2013 U.S. Residential & Foreclosure Sales Report from RealtyTrac® (www.realtytrac.com) a shift is occurring in how distressed properties are being purchased.

Daren Blomquist, vice president at RealtyTrac, in referencing the report states that, “After a surge in short sales in late 2011 and early 2012, the favored disposition method for distressed properties is shifting back toward the more traditional foreclosure auction sales and bank-owned sales.”  He adds that, “The combination of rapidly rising home prices, along with strong demand from institutional investors and other cash buyers able to buy at the public foreclosure auction or an as-is REO home, means short sales are becoming less favorable for lenders.”

Data from the report shows that short sales in October represented only 5.3 percent of all sales; this was down from 6.3 percent in the previous month and was down substantially from the 11.2 percent in October of 2012.

Nationally for October, states with the highest percentage of short sales were Nevada (14.2 percent), Florida (13.6 percent), Maryland (8.2 percent), Michigan (6.7 percent) and Illinois (6.2 percent).

A new category included in the report for first time this October deals with ‘auction sales to third parties.’  According to the report 2.5 percent of all sales were auction sales to third parties; this was down from 2.8 percent in September, but was almost twice the 1.3 percent for October 2012.

The report’s market analysis shows that the metro markets with the highest percentage of foreclosure auction sales include both Orlando and Jacksonville Fla. Leading with 8.6 percent, Columbia, S.C. at 8.1 percent, Las Vegas at 6.6 percent, Charlotte at 6.1 percent, Miami at 6.0 percent and Tampa with 5.7 percent.

Real Estate Owned (REO) sales in October accounted for 9.6 percent of all sales; this compares with 8.9 percent of all sales the previous month and 9.4 percent during October of 2012.

REO statistics from the report shows that the markets with highest percentage of REO sales included Stockton, Calif., (24.4 percent), Las Vegas (23.8 percent), Cleveland (22.3 percent), Riverside-San Bernardino, Calif., (20.1 percent), Detroit (18.8 percent) and Phoenix (18.0 percent).

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