(Florida) Housing Forecast 2014: Sun and clouds

ORLANDO – At the tail end of the healthiest year for residential real estate since the Great Recession, housing economists are predicting a continued upswing in 2014.

A panel of market analysts on Tuesday told an Orlando banquet room packed with Realtors from Panama City to South Florida that they expect the industry to maintain its brisk pace well into the coming year.

Their general consensus was that home sales would climb another 10 percent next year, with appraised values rising by 5 percent and median sale prices increasing 12 percent. That would be another significant step forward for an industry now among the key drivers of the Sunshine State’s economic recovery.

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Money’s not easy, but it’s less tight

WASHINGTON – Feb. 5, 2013 – Banks are slightly loosening standards for many kinds of loans, and cutting into their own profit margins to try to make more loans, especially to businesses and real estate developers, the Federal Reserve says.

The central bank’s quarterly survey of bank lending officers said most banks haven’t made it materially easier to get business loans and commercial real estate loans in the last three months. But more than half of banks said they are accepting interest rates closer to what they pay for deposits, or other sources of money they lend out, according to the survey released Monday.

The report is one of the Fed’s primary ways to assess how credit is making its way into the economy, powering both business investment and consumer spending.

Demand for car loans rose since the October report, and demand for mortgages was little changed, the Fed said. About 16 percent of banks are easing car-borrowing standards slightly, including lengthening the maximum term of loans and downpayment requirements.

“This is another sign that the economy is gaining traction,” said Andrew Wilkinson, chief economic strategist at brokerage firm Miller Tabak. “While interest rates will likely remain low for a long time, the Fed is unlikely to need to keep the pedal to the metal in terms of bond purchases as 2013 develops.”

Banks are also trimming their markups, also known as spreads, on car loans, but have not been willing to make the same concessions to credit card customers, the Fed found. Standards for new credit cards remain tight, the Fed said: Just over 90 percent of banks said their standards for approving credit cards haven’t changed since the fall.

The report shows few signs that banks are returning to the business of offering high-risk credit, as they did in the middle of the last decade.

More than 20 percent of banks said they have actually tightened standards for “subprime” residential mortgages in the last three months. For mortgage loans to consumers with good credit, credit standards are still about the same, more than 90 percent of the banks said. And just fewer than 90 percent of banks reported no change in standards for home-equity lines of credit.

Demand for many loans is picking up, the Fed said.

About a quarter of banks said they were seeing more applications for commercial loans, slightly less than the number that said they were seeing more applications for mortgages and cars.

Banks expect credit quality to improve this year in nearly all categories of loans, meaning fewer write-offs to cut into bank profits, the Fed said.

© Copyright 2013 USA TODAY, a division of Gannett Co. Inc., Tim Mullaney, USA TODAY

Concerns remain over mortgage interest deduction

WASHINGTON – Feb. 1, 2013 – Tax reform remains a possibility this year, and it could include more talks about nixing or lowering the homeowner’s tax deduction on mortgage interest.

Should that possibility be raised, a lawmaker, analysts and Capitol Hill staff speaking at a forum yesterday said that it would help legislators to hear from Realtors to reduce the chance that their decisions could hurt markets.

“We really value your judgment because of your sense of the economy, and also because you know what your neighbors think,” said Rep. Chris Van Hollen (D-Md.), ranking minority member on the House Budget Committee.

Van Hollen made his remarks before a group of politically active Realtors in town for a day of orientation on federal issues of importance to real estate.

Staff professionals who work with members of Congress told Realtors that lawmakers have a lot on their plate, and it’s difficult to predict the likelihood that they’ll tackle tax reform. But a staff person on the House’s tax-writing Ways and Means Committee says the committee chair, Rep. Dave Camp (R-Mich.), would like to see comprehensive reform passed out of his committee this year.

Would the mortgage interest deduction be part of the mix?

It can’t be ruled out, the staff aides and other speakers said, so Realtors have to remain engaged and sift through proposals that would be unacceptable.

“Some proposals will be worse than others,” Van Hollen said. He added that his sense is many members of Congress believe supporting homeownership is a “good policy choice” and that he will “certainly oppose any effort” to change or dismantle the mortgage interest deduction.

Van Hollen and Hill staffers said Congress faces three more “fiscal cliff”-like deadlines that will keep the economy in a state of uncertainty: the deadline for the automatic, across-the-board cuts to federal programs, known as the sequester, on March 1; the deadline for raising the debt ceiling on May 19; and the deadline for extending a continuing resolution, which is a temporary budget measure for keeping the federal government operating in the absence of a congressionally passed appropriations bills, which expires March 28.

A panel of analysts agreed that for most of the public and lawmakers, the issue of whether the federal government should support homeownership is largely decided, and it’s in favor of maintaining a path for a broad swath of households.

“I think that’s where the country is,” said Jaret Seiberg, managing director and financial services policy analyst for Guggenheim Securities.

“There isn’t a snowball’s chance in hell that any of these programs are going away,” said George Mason University professor Anthony Sanders, referring to FHA, Fannie Mae and Freddie Mac, among other ways the federal government is involved in homeownership.

The more immediate issue isn’t whether the programs will go away – it’s how they might be modified. On that question, analysts and staffers echoed Van Hollen’s argument: Realtors must stay engaged in the discussions. The worst thing that can happen is for lawmakers to make changes without understanding the impact of what they decide.

“Come in to see us and tell us how these different ideas impact the market,” said one of the staff aides on the House tax-writing committee.

Source: Robert Freedman, Realtor® Magazine

Record low mortgage rates gone for good?

WASHINGTON – Feb. 1, 2013 – Mortgage interest rates have ticked up for three of the past four weeks, and while big increases are unlikely, further drops are, too.

The average for a 30-year, fixed-rate mortgage hit 3.53 percent this week, the first time rates pushed above 3.5 percent in more than three months, mortgage giant Freddie Mac reported Thursday.

“I do think that perhaps the all-time low is behind us,” says Freddie’s chief economist, Frank Nothaft.

That was set in November when 3.31 percent was the average for a 30-year fixed-rate loan, according to Freddie Mac’s weekly mortgage rate surveys.

For the rest of 2013, Nothaft expects rates to gradually rise, ending the year at about 3.75 percent and then moving above 4 percent next year. “There’s no point to dilly-dally” to wait for lower rates if someone is considering refinancing their home, Nothaft says.

Rising rates will affect homeowners looking to refinance more than home shoppers, says Jed Kolko, chief economist with real estate website Trulia. That’s because refinancing is mainly an interest-rate-driven decision, while home purchases have more to do with jobs and lifestyle changes, he said. Even though they’re up, rates are still near historic lows.

Along with an improving economy, rates have edged up, given less demand for “safe haven investments” such as bonds since Congress partly averted the so-called fiscal cliff of tax increases and spending cuts on Jan. 1, says Greg McBride, senior financial analyst for Bankrate.com.

McBride said mortgage interest rates may dip below current levels on occasion. He, too, expects them to hover between 3.5 percent and 4 percent for most of this year. That assumes no big shocks to the U.S. economy.

Except for a few weeks, mortgage rates have been below 4 percent for the past 14 months, Freddie Mac data show. The low rates have helped the housing market, which is showing signs of strengthening. Home prices were up 5.5 percent in November year-over-year, Standard & Poor’s/Case-Shiller data showed this week. New and existing home sales are also up. That is helping the overall economy.

“If the economy is getting better, slightly higher interest rates are a natural occurrence,” says Keith Gumbinger, vice president of mortgage tracker HSH.com. “But there’s no reason to believe that rates are headed upward in a straight line.”

© Copyright 2013 USA TODAY, a division of Gannett Co. Inc., Julie Schmit

FHA to tighten some loan rules

WASHINGTON – Jan. 31, 2013 – The Federal Housing Administration (FHA) announced a series of changes to be issued this week.

Commissioner Carol Galante calls the changes “essential and appropriate” as the administration tries to bolster its cash reserves in its Mutual Mortgage Insurance Fund (MMI Fund).

Changes to mortgage insurance premiums
FHA will increase the annual mortgage insurance premium (MIP) added onto most new mortgages by 10 basis points (0.10 percent). Premiums on FHA jumbo mortgages ($625,500 or larger) will go up by 5 basis points (0.05 percent). There are a few exceptions, such as some streamline refinance transactions.

In addition, most new FHA borrowers will pay the MIP for the life of their loan.

Previously, FHA automatically cancelled MIP on loans when the current principal balance reached 78 percent of the original principal balance. FHA’s Office of Risk Management and Regulatory Affairs says that cancellation has cost the MMI Fund billions of dollars in premium revenue on mortgages endorsed from 2010 through 2012.

Manual underwriting on higher-risk loans
If a buyer has a credit score below 620 and a total debt-to-income (DTI) ratio greater than 43 percent, FHA won’t allow lenders to automatically approve a loan request. Lenders must now manually underwrite these loans, document compensating factors that support their approval based on FHA guidelines.

Higher downpayment on loans above $625,500
FHA says it will raise the mandatory downpayment on jumbo loans from 3.5 to 5 percent. It will officially announce it soon in the Federal Register. FHA says the change will encourage more private lenders to participate in the housing finance market.

Home equity conversion mortgage consolidation
FHA will consolidate its Standard Fixed-Rate Home Equity Conversion Mortgage (HECM) and Saver Fixed Rate HECM pricing options. This change will be effective for FHA case numbers assigned on or after April 1, 2013.

FHA loans after a foreclosure
FHA has a minimum waiting period of three years for a borrower who went through a foreclosure. However, the administration says it’s not that simple – a buyer must also reestablish good credit and qualify under other FHA loan guidelines.

“It has come to FHA’s attention that a few lenders are inappropriately advertising and soliciting borrowers with the false pretense that they can somehow ‘automatically’ qualify for an FHA-insured mortgage three years after their foreclosure,” FHA says in a release. “This is simply not true and such misleading advertising will not be tolerated.”

FHA says non-FHA lenders have also started advertising FHA mortgages. “FHA will work with other federal agencies to address such false advertising by non-FHA-approved entities,” according to the release.

© 2013 Florida Realtors®

4 ways buyers can mess up a loan approval

WASHINGTON – Jan. 22, 2013 – A homebuyer has been approved for a mortgage loan, and both buyer and Realtor expect to be at the closing table soon. However, buyers sometimes do things that jeopardize the loan, and lenders sometimes rescind a loan offer shortly before a scheduled closing.

Common mistakes

• Making a big purchase. Big purchases, such as a new car or furniture, can change the buyer’s debt-to-income ratio that the lender used to initially approve the buyer’s home loan.
• Opening new credit. Buyers should avoid new credit card applications between approval and closing.
• Missing payments. Even bills in dispute should be paid on time between loan approval and closing.
• Cashing out. Avoid transferring large sums of money between bank accounts or making undocumented deposits – both could send up “red flags” to a lender.

Source: “How to Keep Your Mortgage Approval Approved,” Realty Times (Jan. 14, 2013)

NAR: Bring back sensible lending standards

WASHINGTON – Sept. 17, 2012 – According to the National Association of Realtors® (NAR), new survey findings, combined with an analysis of historic credit scores and loan performance, show home sales could be notably higher by returning to reasonably safe and sound lending standards. The change would also create new jobs.

“Sensible lending standards would permit 500,000 to 700,000 additional home sales in the coming year,” says Lawrence Yun, NAR chief economist. “The economic activity created through these additional home sales would add 250,000 to 350,000 jobs in related trades and services almost immediately, and without a cost impact.”

A monthly survey of Realtors shows widespread concern over unreasonably tight credit conditions for residential mortgages. Respondents say lenders take too long in approving applications, and that they require excessive information from borrowers. Some respondents expressed frustration that lenders appear to be focusing only on loans to individuals with the highest credit scores.

Even though profits in the financial industry have climbed back to pre-recession levels, lending standards still remain unreasonably tight.

All it takes is a willingness to recognize that market conditions have turned in the wake of an over-correction in home prices, with all of the price measures now showing sustained gains, says Yun. “There is an unnecessarily high level of risk aversion among mortgage lenders and regulators, although many are sitting on large volumes of cash which could go a long way toward speeding our economic recovery. A loosening of the overly restrictive lending standards is very much in order,” he says.

According to the NAR survey, 53 percent of August loans went to borrowers with credit scores above 740. In comparison, only 41 percent of loans backed by Fannie Mae had FICO scores above 740 during the 2001 to 2004 time period, while 43 percent of Freddie Mac-backed loans were above 740.

In 2011, about 75 percent of total loans purchased by Fannie Mae and Freddie Mac, which is now a smaller market share, had credit scores of 740 or above.

There is a similar pattern for FHA loans. The Office of the Comptroller of the Currency has defined a prime loan as having a FICO score of 660 and above. However, the average FICO score for denied applications on FHA loans was 669 in May of this year, well above the 656 average for loans actually originated in 2001.

Loan performance over the past decade shows the 12-month default rate averaged just under 0.4 percent of mortgages in 2002 and 2003, which is considered normal. Twelve-month default rates peaked in 2007 at 3.0 percent for Fannie Mae loans and 2.5 percent for Freddie Mac loans, clearly showing the devastating impact of risky mortgages.

Yun says, however, the 12-month default rates have been abnormally low since 2009. Fannie Mae default rates have averaged 0.2 percent while Freddie Mac’s averaged 0.1 percent, which are notable given higher unemployment in the timeframe.

“Sales this year are projected to rise 8 to 10 percent. Although welcoming, this still represents a sub-par performance of about 4.6 million sales,” Yun says. “These findings show we need to return to the sound underwriting standards that existed before the aberrations of the housing boom and bust cycle, and thoroughly re-examine current and impending regulatory rules that may cause excessively tight standards.”

© 2012 Florida Realtors®

20% downpayment not a QM requirement

WASHINGTON – Sept. 17, 2012 – Realtors and other housing groups worry that new rules now under development will make it more difficult for homebuyers, particularly first-time buyers, to obtain a mortgage. However, at least one fear seems to be unwarranted for the moment.

The Consumer Financial Protection Bureau (CFPB), created to oversee credit companies in the U.S., is developing a QM (qualified mortgage) code. An industry fear voiced by the National Association of Realtors® (NAR) and others was that the rules, once announced, would require a mandatory 20 percent downpayment, which would bump many homebuyers from the market and force others to wait years to qualify for a home.

In testimony before the Senate Banking Committee on Sept 13, however, CFPB Director Richard Corday said a 20 percent downpayment was not under consideration.

The issue is not yet finalized. Two federal groups are working independently on separate mortgage qualification rules. The Federal Reserve plans to issue its own qualified residential (QRM) code that, while similar, is unrelated to the QM code. In the past, Fed regulators have suggested a 20 percent downpayment rule.

© 2012 Florida Realtors®

New guidelines to help condos get FHA loans

WASHINGTON – Sept. 17, 2012 – Many first-time homebuyers consider condos a good home when starting out, but loans issued by the Federal Housing Administration (FHA) that come with relatively low downpayments have not been offered in many condo buildings.

FHA approval for a condo is more complicated the FHA approval for a single-family home. To minimize its risk, FHA looks at more than the unit requesting a loan – it also considers traits of the association itself. Associations can help individual condo sellers get an FHA loan by becoming certified, but fairly stringent rules kept many from applying.

That may change and, according to the Community Associations Institute (CAI) Chief Executive Officer Thomas Skiba, it’s “excellent news for sellers, buyers, condominium communities and the housing market across the country.”

In creating its certification system, FHA listed traits considered desirable. Certification was denied, for example, if an association had too many rental condominiums or too much commercial space.

According to real estate writer Kenneth Harney, the previous certification process also presented considerable risk to associations. During the application process, Harney says, they were asked to “accept broad legal liability on matters they couldn’t totally be certain about, such as disputes among tenants in the building, litigation filed with courts” and more.

CAI says the FHA made “temporary adjustments.” While it applauded FHA’s guidelines, it says it will continuing pushing for “long-term certainty of process, flexibility and support for the future of condominium housing, and to resolve critical policy areas not addressed by today’s announcement.”

Major changes

• FHA looks at the percent of current condo owners who are delinquent on mortgage payments. The cutoff is 15 percent, but the individual standard was 30 days late; it’s now 60 days late.

• New rules require at least 50 percent of units to be inhabited by owner-occupants or under contract, while the other 50 percent may be owned by investors. A single investor can own up to 50 percent of the units; previously, single investors could not own more than 10 percent.

• The amount of commercial space is limited now, as it was before, to 25 percent. However, a new rule gives associations a little wiggle room. In certain circumstances, they can request a variance up to 35 percent for commercial space, providing the development remains “primarily residential.”

FHA’s new guidelines are outlined in Mortgagee Letter 2012-18 issued by the Department of Housing and Urban Development.

© 2012 Florida Realtors®

Homeowners don’t shop for best mortgage deal

CHARLOTTE, N.C. – Aug. 22, 2012 – According to an online LendingTree survey, 89 percent of American adults compare prices when shopping for a big-ticket item but only 51 percent of homeowners with a mortgage comparison shopped for their mortgage. The remaining 49 percent of homeowners with a mortgage accepted the first loan offer.

“It’s important for borrowers to understand that they have the power to choose which loan and which lender to use,” says Doug Lebda, founder and CEO of LendingTree. “It is acceptable to negotiate with lenders and to walk away if you are not fully satisfied. Consumers need to be engaged in the mortgage process to secure the best deal.”

Mortgage rates can vary significantly from lender to lender. LendingTree says the week of Aug. 6, rates varied by as much as 1.5 percent for a 30-year fixed rate mortgage loan. A consumer with a credit score of 759 and a loan amount of $260,000 could have received loan quotes ranging from 3.25 percent to 4.625 percent. By choosing the lowest rate, the borrower would save $214 per month, $2,568 per year and nearly $74,000 over the life of the loan.

In most cases, couples work together to obtain a mortgage, but the study found that twice as many women (23 percent) allowed their spouse to take care of the financial details compared to the number of men (23 percent) who took a backseat. In the 18- to 34-year-old age group, 45 percent of women weren’t involved in the mortgage process compared to 21 percent of women ages 35 to 44 and 16 percent of women ages 45 to 54 years.

“Many people approach the process of getting a mortgage with apprehension, thinking they have very little control of the end result,” says Lebda. “But rushing through the process without comparing loan offers could be a costly mistake.”

This survey was conducted online within the United States by Harris Interactive on behalf of Lending Tree from May 31 – June 4, 2012 among 2,209 adults ages 18 and older, 1,380 of whom are homeowners. The online survey is not based on a probability sample and therefore no estimate of theoretical sampling error can be calculated.

© 2012 Florida Realtors®