Month: September 2012

Renting’s edge at historic low vs. buying

September 19th, 2012,  

 OC Register

By numerous measures, buying a home looks very financially affordable vs. renting a residence. One slice of my Big Orange Index — a compilation of three dozen benchmarks for the local business climate — shows renting’s edge at its lowest since at least 1989.

Source: RealFacts and DataQuick; click to enlarge!

In the second quarter, The Big O found Orange County’s effective rent ran at $1,493 a month, using RealFacts data. Meanwhile, buyers got a house payment of $2,000 a month in the same time, tracking DataQuick estimates.

By this math, renting saved an Orange Countian — in theory — 25% in the last quarter over a homebuyer’s monthly house payment. That’s smaller savings than 29% in the previous quarter or 35% in the year-ago period. It’s also historically thin: In the last five years, rent’s savings has averaged 40% — and 43% since 1989. In fact, it’s never been lower, according to the Big O database that dates to 1989 for this measure. (Psst! Rent’s biggest savings edge? 60% in the first quarter of 2007 — smack at the peak of the homebuying boom!)

Dropping home plus and cheap mortgages are making buying cheaper — for those who can afford a mortgage — as landlords up the cost of their apartments as complexes fill up. The Big O’s rent measure is up 5% in a year and up 1% in three years. Compare that to the corresponding purchase cost — The Big O’s house payment benchmark is down 9% in a year and 16% in three years.

Certainly this is one reason why the homebuying pace and prices are rising. Orange County’s median price for existing, single-family homes was up by nearly 12% from August a year ago, the California Association of Realtors says. Sales rose 23 percent over last August.

And Orange County isn’t alone with buying looking favorable to renting.  Online property tracker Trulia says buying a home is more affordable than renting in all 100 U.S. largest metro areas it tracks.

LPS: Mortgage delinquencies dip 10.6% in August

By Kerri Ann Panchuk

• September 24, 2012 •

Mortgage delinquency rates and foreclosure pre-sale inventory levels fell in August, suggesting a gradual move away from a market rife with troubled home loans, according to data released by Lender Processing Services.

The month of August brought a 10.6% dip in the nation’s mortgage delinquency rate when comparing the 31-day period to year ago levels, LPS said Monday.

It’s a continuing trend. Last month, LPS said said mortgage delinquencies were down 30% from the peak established in January 2010.

LPS uses data from 70% of the nation’s mortgages, available through the firm’s own loan-level databases.

By August, the nation had a 6.87% delinquency rate, a drop from 2011 levels and a 2.3% decline from a month earlier.

The total U.S. foreclosure pre-sale inventory rate also fell 2% from 2011, hitting 4.04% in August.

The number of properties with loans 30 or more days past due, but not in foreclosure, reached 3.42 million, while the number of loans 90-plus days past due but not in foreclosure hit 1.52 million.

States with the most non-current loans included Florida, Mississippi, New Jersey, Nevada and New York. Those with the lowest percentage of non-current loans included Montana, Alaska, South Dakota, Wyoming and North Dakota.

The total number of mortgages in the foreclosure inventory hit 2 million.

FHA eases burdensome condo financing rules

The controversial rules had caused thousands of buildings across the country to lose eligibility for FHA financing.

By Kenneth R. Harney LA TimesSeptember 23, 2012

WASHINGTON — Here’s some encouraging news for condominium unit owners, sellers and buyers: The biggest source of funding for low-down-payment condo mortgages, the Federal Housing Administration, has revamped controversial rules that caused thousands of buildings across the country to lose their eligibility for FHA financing.

The revised guidelines, which were issued Sept. 13 and took effect immediately, should make it easier for large numbers of homeowner associations to seek certification by the FHA. The certification process is intended to provide the FHA, a government-run mortgage insurance agency, with key information about a development’s legal, physical and financial status. Without approval of an entire development — regardless of whether it’s a small complex in the suburbs or a massive high-rise in the center city — no individual unit can be financed or refinanced with an FHA mortgage.

The agency’s previous rules were criticized as heavy-handed, costly and not in touch with the economic realities of some parts of the country. For example, the rules prohibited FHA insurance of units in buildings where more than 25% of the total floor space was used for commercial or nonresidential purposes. Yet many condominiums in urban areas have lower floors devoted to retail stores and offices that generate revenues that help support the entire project. Many of those buildings suddenly found themselves ineligible for FHA financing for residents. The revised rules allow exceptions of up to 35% commercial use, and provide for additional case-by-case exceptions to 50% or higher.

As a result of the previous FHA rules, just 2,100 of the estimated 25,000 condominium developments nationwide that were eligible for unit financing were recertified by late last year, according to the agency. Insurance volume also has plummeted. FHA estimated that it would insure 110,000 condo unit loans during fiscal 2012, which ends this month. But by July, it had insured only 35,433 units.

Although the previous rules focused on entire buildings, individual unit owners seeking to sell often have taken the brunt. The Community Associations Institute, the condo industry’s largest trade group, welcomed the relaxation of the FHA rules, predicting that “this will spark home sales and help tens of thousands of condominium communities begin to recover from the housing slump.”

One of the most significant changes the FHA made involves personal legal liability for condo association boards and officers. The previous rules required officers to attest that they had “no knowledge of circumstances or conditions that might have an adverse effect on the project or cause a mortgage secured by a unit” to become delinquent, of “dissatisfaction among unit owners about the operation of the project or owners association” or of “disputes concerning unit owners.” The penalty for officers who “knowingly” and “willfully” submitted information to the FHA that was found to be false: fines of up to $1 million and 30 years in prison.

Not surprisingly, many board officers declined to take on what they interpreted as lifetime legal responsibility for such details as whether the condominium fully complied with state and local environmental and real estate requirements. Although the FHA insisted that the associations were overreacting, the new certifications contain much less scary language. The penalties for intentional frauds against the government remain the same, however.

Among other key rule changes:

• Greater flexibility on investor ownership. In existing developments, one or more investors are now allowed to own up to 50% of the total units provided that at least half of the units are owner-occupied. The previous rule required that no more than 10% of units could be owned by a single investor.

• The previous treatment of unpaid condo association dues was raised to 60 days from 30 days. Under the revised rule, condo communities where no more than 15% of unit owners are 60 days late on payment of dues can be approved for FHA loans.

• Clarification of certain insurance requirements that many communities found burdensome.

NAR calls for easier mortgage lending

By Kerri Ann Panchuk

September 17, 2012

Regulators and lenders could spur the creation of 250,000 to 350,000 jobs by easing tight lending standards that are causing an overcorrection in the space, the National Association of Realtorssaid Monday.

If there is one complaint NAR Chief Economist Lawrence Yun gets the most from Realtors, it’s that the mortgage market is too tight with 53% of August loans going to borrowers with credit scores above 740, according to NAR survey data.

From 2001 to 2004, only 41% of loans backed by Fannie Mae had FICO scores above 740. For Freddie Mac, that number held at 43% during the first four years of the decade.

But today lenders are worried about regulations, NAR suggests. And these worries are making them overly conservative, pushing the market into overcorrection mode. The end result is a real estate market where job growth is suppressed as lenders only leak out loans to the most prime borrowers.

“Sensible lending standards would permit 500,000 to 700,000 additional home sales in the coming year,” Yun said.  “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.”

Realtors surveyed by NAR says lenders are taking too long when approving mortgage applications while also requiring excessive information from borrowers. The end result is a market where lenders are focusing only on borrowers with prime credit scores.

“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,” Yun said.  “A loosening of the overly restrictive lending standards is very much in order.”

The average FICO score for borrowers denied mortgages this year hit 669 in May, NAR said. Yet, the Office of the Comptroller of the Currency still defines a prime loan as one with a FICO score of 660 and above – a measurement that is not reflected in who is getting a loan in today’s lending environment.

Fannie and Freddie to allow principal reductions

Troubled borrowers whose loans are owned or guaranteed by the mortgage giants will now be able to participate in Keep Your Home California and other states’ programs that shrink mortgages.

September 13, 2012|By Alejandro Lazo, Los Angeles Times
  • Participation by Freddie Mac and Fannie Mae could significantly help officials spend the money available for the Keep Your Home California program.
Participation by Freddie Mac and Fannie Mae could significantly help officials… (Associated Press )

In a rare victory for proponents of principal reduction, Fannie Mae and Freddie Mac said they will immediately allow their borrowers to participate in Keep Your Home California and other states’ Hardest Hit Fund programs that shrink the mortgages of troubled borrowers using taxpayer funds.

California officials made a significant change to the program last year, dropping a requirement that banks match taxpayer funds when homeowners receive mortgage reductions through the program. That means Fannie and Freddie will not have to incur further losses on their loans. The two mortgage giants have now released guidance to the mortgage companies that work with them, signaling they would allow Fannie and Freddie borrowers to get relief through the program.

Only a small number of California homeowners — 8,500 to 9,000 — would be able to get mortgage write-downs with the current level of funds available, The Times has previously reported. Nevertheless, the move was hailed as an important step by consumer advocates.

“Allowing some loans that are owned or insured by Fannie or Freddie to have their principal reduced is good news, and an important step,” said Paul Leonard, California director for the Center for Responsible Lending.

The participation by Fannie Mae and Freddie Mac could help officials spend the money available for the Keep Your Home California program. Fannie Mae and Freddie Mac own about 62% of outstanding mortgages in the Golden State, according to an estimate released by the state attorney general’s office this year. Neither had elected to participate in principal reduction because of concerns about additional costs to taxpayers, and the government-controlled firms won’t have to take writedowns through this program.

Keep Your Home California is part of the Obama administration’s Hardest Hit Fund initiative, which uses federal funds from the 2008 Wall Street bailout to help borrowers at risk of foreclosure.

O.C. home demand in seasonal cooldown

September 17th, 2012,  OC Register

Orange County’s housing market saw what’s described as a seasonal drop in demand in mid-September, by one accounting.

The latest Orange County home inventory report from Steve Thomas and — data as of September 13 includes these thoughts …

Typical for this time of year, there is a slight deceleration in demand, the number of pending sales over the prior month. In the past month, demand has dropped by 6%, 214 pending sales, and now sits at 3,330. Last year at this time, there were 385 fewer pending sales, a 13% difference. Of course, if more homes were placed on the market, buyers that have been anxiously waiting for an increase in fresh inventory would finally be able to purchase. Today’s sparse inventory is actually hurting demand. There are plenty of willing and able buyers, just not enough homes.

Thomas’ signature housing measurement is his “market time” benchmark. It tracks how many months it theoretically takes to sell all the inventory in the local MLS for-sale listings at the current pace of pending deals being made. By this Thomas logic, as of September 13 — we see …

  • Market time of 1.40 months for Orange County buyers to gobble up all homes for sale at the current pace vs. 1.41 months two weeks ago vs. 3.59 months a year ago vs. 4.42 months two years ago.
  • Of the 8 Orange County pricing slices Thomas tracks, 3 had faster market time vs. 2 weeks ago; and 8 improved over a year ago.
  • Orange County homes listed for under a million bucks have a market time of 1.09 months vs. 4.94 months for homes listed for more than $1 million.
  • So, basically, it is 4.5 times harder to sell a million-dollar-plus residence!
  • And just so you know, the million-dollar market represents 30% of all homes listed and 9% of all homes that entered into escrow in the past 30 days.

Here’s the recent data for listings; deals pending; market time in months; latest vs. 2 weeks earllier, a year ago and 2 years ago. Color coding for market time is red (slowed by 5%-plus in year); green (sped up by 5%-plus in year); and yellow (in between!) Note: k=thousand; m=million …

Slice Listings Deals Market Time (months) 2 week ago 1 yr. ago 2 yr. ago
$0-$250k 572 571 1.00 0.95 2.82 3.49
$250k-$500k 1,150 1,476 0.78 0.74 2.62 3.38
$500k-$750k 992 763 1.30 1.42 4.08 4.43
$750k-$1m 632 252 2.51 2.29 5.64 5.97
$1m-$1.5m 468 145 3.23 3.16 7.03 7.92
$1.5m-$2m 284 61 4.66 4.63 10.95 12.03
$2m-4m 413 66 6.26 7.93 14.00 15.36
$4m+ 237 12 19.75 20.33 32.33 70.60
All O.C. 4,676 3,330 1.40 1.41 3.59 4.42

CoreLogic: Number of negative equity homeowners ticks down

By Kerri Ann Panchuk

• September 12, 2012 •

About 10.8 million, or roughly 22.3%, of homes financed with mortgages were in negative equity at the end of the second quarter,CoreLogic said Wednesday.

Despite that figure remaining above 20%, the real estate analytics firm saw noticeable improvement from the first quarter when 11.4 million properties were underwater, representing 23.7% of the entire population of homes with mortgages.

Another 2.3 million borrowers had less than 5% equity in their homes in 2Q, putting them near-negative equity and at risk of going underwater if home prices fall.

The good news is from the first to second quarter, an additional 600,000 borrowers reached a state of positive equity, ending their underwater status.

And in just the first half of 2012, the nation saw 1.3 million borrowers transition into a state of positive equity.

Negative equity and near-negative equity mortgages made up 27% of all properties with a mortgage in the second quarter.

“The level of negative equity continues to improve with more than 1.3 million housholds regaining a positive equity position since the beginning of the year,” said Mark Fleming, chief economist with CoreLogic.

The negative equity situation in the U.S. would improve dramatically if the nation experienced at least a 5% jump in annual home prices, CoreLogic CEO Anand Nallathambi said.

The state of Nevada had the highest percentage of underwater homes with approximately 59% of mortgaged properties sitting in negative equity in the second quarter. Florida and Arizona had at least 40% of financed properties in an underwater state while Georgia and Michigan saw at least 30% of their financed mortgages fall into a similar state.

Of the $689 billion in negative equity, first liens accounted for $339 billion of underwater mortgages while first-liens with home equity lines represented $353 billion, CoreLogic said.

Borrowers affected the most by falling home values are those who acquired properties for less than $200,000. These borrowers represent 32% of the nation’s underwater properties, while only 17% of borrowers with home values greater than $200,000 are in a negative equity state, the research firm asserted.

CoreLogic’s negative equity figures are close to forecasts released bymortgage technology firm Lender Processing Services. LPS claims 18% of homeowners who are timely on their monthly payments are considered underwater. The LPS report, which focuses solely on underwater borrowers who are timely with their payments, is only a few percentage points off from the CoreLogic survey.