Month: February 2013

Fewer Americans are stuck in underwater mortgages

Foreclosed houseA Glendale property in foreclosure. (Kevork Djansezian / Getty Images)
By Alejandro Lazo L TimesFebruary 22, 2013, 3:27 p.m.

Nearly 2 million Americans got out of negative equity positions as home prices rose last quarter, according to new estimates.

Negative equity fell to 27.5% of all U.S. homeowners with mortgages in last year’s fourth quarter, compared with 31.1% during the same period a year earlier, according to data from real estate website Zillow.

“Underwater” homeowners — those who owe more on their mortgages than their homes are worth — have played a counterintuitive role in the housing market’s recovery, helping boost home prices in an unexpected way.

Rather than walking away from their properties en masse, many of these borrowers have continued paying their home loans, even when they are stuck in high-interest-rate loans.

As foreclosures have eased, for-sale inventory has plummeted. In many markets, the level of competition for a home is now so severe, it’s reminiscent of the bubble days.

“Freed from negative equity, homeowners will have more flexibility, and some will likely choose to list their home for sale, helping to ease inventory constraints and moderating sometimes dramatic, demand-driven price increases in some markets,” said Stan Humphries, chief economist for Zillow.

“But negative equity is still very high,” Humphries said, “and millions of homeowners have a very long way to go to get back above water, even with current robust levels of home value appreciation in most areas.”

Some experts are predicting the supply constraint will remain in place this spring, when the traditional home-selling season kicks off.

According to estimates by Zillow, about 13.8 million homeowners were still underwater on their homes in the fourth quarter of 2012. That was down from 15.7 million a year earlier.

U.S. homeowners with mortgages were collectively underwater by more than $1 trillion at the end of 2012.Home prices are rising rapidly in the West, and Zillow forecasts that of the nation’s biggest metro areas, Los Angeles — which includes Los Angeles and Orange counties — will produce the most homeowners freed from negative equity, with 72,696; followed by the Inland Empire, with 62,407; Phoenix, with 43,044; and Sacramento, with 33,356.

The Los Angeles area has a lower percentage of borrowers underwater — 24.3% — than the national average. The Inland Empire has about 43.8% of mortgage holders underwater.

More first-time home buyers have tough time entering the market

High unemployment for young people, strict lending standards and massive student debt loads are among the factors hurting entry-level buyers.

February 22, 2013|By Kenneth R. Harney LA times
WASHINGTON — Although the housing market is rebounding in many local markets, one important segment is not: First-time buyers are missing in action and represent a smaller proportion of overall sales activity than their historical norm.
Whereas first-timers typically account for roughly 40% of sales, lately they’ve been involved in about 30% to 35%, depending on the source of the data. Lawrence Yun, chief economist for the National Assn. of Realtors, estimates that there were 2.2 million fewer first-time buyers in the United States between 2008 and 2012 — a deficit of about 450,000 a year.

Recent surveys of Realtor members by Yun’s research team have found that first-time purchases slipped to just 30% during each of the last three months. Mortgage investment giant Freddie Mac reports that first-time buyers represented just 35.9% of loan acquisitions by the firm in 2011. Last year, the Federal Reserve found that whereas between 1999 and 2001 about 17% of 29- to 34-year-olds took out a mortgage to buy a first home, the figure plunged to just 9% during 2009-11.

All of this represents a potentially significant issue for homeowners and sellers in the overall market. Without entry-level buyers, the housing system doesn’t work well. If there’s no one to buy moderately priced starter homes, the owners of those houses can’t sell and move up.

So what’s the problem? Where are these first-timers who should be jumping in while mortgage interest rates are near all-time lows and prices in some markets are still at 2004-05 levels? Recent economic jolts — the recession and relatively high unemployment rates for younger workers — are crucial factors. Disproportionate numbers of twenty- and thirtysomethings have moved back in with their parents or are renting with others rather than buying a house.

Tougher underwriting and qualification requirements by the banks are also important contributors. Fed Chairman Ben S. Bernanke has said so, and President Obama singled out tight lending standards, even for borrowers with solid credit, as an issue in his State of the Union address.

On top of these burdens, though, is still another financial albatross: massive student debt levels and their toxic interaction with lenders’ stringent rules on debt-to-income ratios.

Student loan debt loads have exploded in the last decade and now exceed $1 trillion, according to financial industry estimates. A Pew Research study last fall found that the average student debt balance is $26,682, and that more than 1 in 10 graduates are carrying close to $62,000 in unpaid student loans. Both numbers are up sharply from just five years earlier.

Lenders and realty agents who work with first-time buyers say the student debts that many bring to the table are often deal killers because they can’t qualify under current debt-to-income limits.

“Even a $30,000 or $40,000 debt can mean you don’t make the cut,” said Paul Skeens, president of Colonial Mortgage Group in Waldorf, Md.

Lenders typically look at two measures of debt-to-income to help gauge creditworthiness: the monthly costs of the proposed new mortgage compared with household income; and total recurring household debts such as credit cards, auto, student loans and the new mortgage. If you have $3,000 a month in recurring debt payments and $6,000 a month in household income, you’ve got a total debt-to-income ratio of 50%.

Under current lending standards, a total debt ratio of 43% is about as high as an applicant for a conventional loan can go, absent strong compensating factors such as lots of money in the bank — something most first-timers sorely lack.

FHA-insured mortgages offer a little more flexibility, Skeens said. He recommends them for buyers with student debts, but usually after the applicants negotiate a deferral of payments if the balances are troublesome.

Paul Reid, an agent with online brokerage Redfin in Irvine, said it’s particularly tough for first-timers right now because even when they qualify for a mortgage, they often get outbid by investors who offer all-cash deals for starter homes. Reid tries to make first-timers more competitive by getting them fully underwritten by a lender before they shop for a house, then keeping their offers as uncomplicated as possible so as not to put off sellers.

Good advice for first-timers carrying student debt: Check out FHA loans. Keep your offers simple. And work with an agent who knows how to navigate you through today’s perilous underwriting shoals.

They bailed on mortgage, but now want to buy again

Diana Olick , CNBC.com February 23rd 2013

Home sales are slowly climbing back, thanks to investor demand, improving consumer confidence in housing, and the surprising return of former homeowners who once walked away from their commitments.

These so-called “strategic defaulters,” some of them investors and some owner-occupants, are coming back to the market, despite damaged credit, and apparently the market is welcoming them back.

A new survey of past clients by YouWalkAway.com, a website that assists borrowers in the legal pitfalls of strategic default, found that nearly 80 percent expressed a desire to buy a home again within the next 12 months. It also cites data by Moody’s analytics, showing that the number of eligible home buyers who have had a previous foreclosure will be 1.5 million by the first quarter of 2014.

Crashing home prices and sketchy mortgage products caused millions of Americans to default on their loans and eventually lose their homes. For some, it was a tragic fight to the end to keep their single largest investment; for others it was a conscious decision to walk away from their mortgage commitments, given the real fact that they would likely not see home equity again for many years to come.

Some saw this as morally reprehensible, others as a sensible business decision.

While home ownership has fallen dramatically since the recent housing boom, from a high of 69.2 percent in 2004 to 65.4 percent at the end of 2012, according to the U.S. Census, the desire to own a home is still strong. About 70 percent of Americans surveyed by online real estate website Trulia.com said homeownership was still a part of the “American Dream.” Of those surveyed by Fannie Mae in January of 2013, 65 percent said that if they had to move, they would buy a home, rather than rent.

Coming back to home ownership may not be as difficult as some think. Consumers who only defaulted on their mortgage during the recent recession were far better risks than those who went delinquent on multiple credit accounts, like credit cards and auto loans, according to a 2011 study by TransUnion.

“There appears to be a pocket of opportunity among mortgage-only defaulters that is not the result of excess liquidity, but rather the unique circumstances of the recent recession,” said Steve Chaouki, group vice president in TransUnion’s financial services business unit in the study release. “This new market segment that the recession created is an important one for lenders to understand. They have the potential, today, to be stronger and more reliable customers.”

Not surprisingly, given this potential, YouWalkAway.com is launching the “AfterForeclosure.com Pass/Fail App,” which claims to tell potential borrowers in just one minute, “if they have a shot at home ownership.”

“We want people to know that it’s possible and, in a lot of cases, it’s advantageous,” says Jon Maddux, former CEO and co-founder of YouWalkAway.com.

It is possible, but mortgage underwriting is far more strict today than during the housing boom, and there are varying waiting periods before former homeowners who went through foreclosure can qualify for a new loan. The Federal Housing Administration, the government insurer of home loans which now backs just over 20 percent of new loan originations, requires a three-year wait. Fannie Mae and Freddie Mac, which own or guarantee the bulk of the remaining new loan originations, require up to seven years for a strategic defaulter to qualify again for a mortgage.

AUSTIN HOUSING MARKET ON A ROLL

AUSTIN (Austin Board of Realtors) – Last month marked the 20th straight month of existing single-family home sales increases and the most January home sales since 2007.

According to the MLS report released this week by the Austin Board of Realtors, 1,402 homes were sold last month — 33 percent more than January 2012. The total dollar volume of single-family properties sold was $368.3 million, 55 percent higher than the same month last year.

The median price for area homes also increased to $197,900, up 10 percent from the same month last year.

The market had 2.5 months of inventory, which was 1.6 months less than January 2012 and the lowest inventory in the area in the last decade.

This is putting added pressure on buyers, JB Goodwin Realtors agent Dylan Everett told the Austin American-Statesman.

“The local housing market is exploding right now,” Everett said. “In fact, it can be very stressful working with a buyer right now because you are fighting multiple offers.”

Everett added that some homes are selling before they reach the database of listings.

There were 1 percent fewer new listings, 25 percent fewer active listings and 25 percent more pending sales last month than the previous January. On average, homes spent 71 days on the market, 14 days fewer than the year before.

Estimated cost of mortgage interest write-off is revised down

The mortgage deduction has been targeted by tax reformers looking for ways to reduce the federal deficit.

February 17, 2013|By Kenneth R. Harney LA Times

WASHINGTON — In the contentious debate over whether to reduce or eliminate the home-mortgage interest tax deduction — or leave it alone — one fact has been virtually unchallenged: The popular write-off used by millions of American owners costs the government massive amounts of revenue, somewhere in the neighborhood of $100 billion a year.

This adds to the federal deficit and debt, and has ranked the deduction high on the hit list of most tax reformers’ agendas, including the bipartisan Simpson-Bowles deficit commission’s plan. President Obama called for limiting it throughout his first term in office and ran on a platform to pare down its costs in his reelection campaign. The compromise congressional tax package that ended the “fiscal cliff” crisis Jan. 2 also contained a limitation on the mortgage write-off, targeted at high-income taxpayers.

But hold on. How much does allowing owners to deduct the interest they pay on their home loans really cost the government? Congress’ technical experts on the subject have come up with new estimates that should figure into congressional deliberations expected later this year on overhauling the federal tax code. Their findings: The mortgage write-off costs tens of billions of dollars less than the government previously believed.

One day after the Internal Revenue Service released its latest instructions for homeowners on claiming the mortgage-interest write-off for the upcoming tax season, the nonpartisan Joint Committee on Taxation published revised estimates indicating that because of changes in the economy and tax legislation, the cost of the deduction for fiscal 2013 will be $69.7 billion.

That’s a dramatic reduction from the committee’s earlier numbers. In a projection released in January 2010, it said the cost of the mortgage write-off in fiscal 2013 would hit an all-time high of $134.7 billion. Under the revised estimates, costs will slowly rise into the $70-billion-plus range over several years and will only exceed $80 billion in fiscal 2017, when they will hit $83.4 billion.

Sure, these are all eye-glazing, monstrous numbers. And there’s no question that mortgage write-offs can be criticized for being skewed toward wealthier owners, especially in higher-cost markets on the West and East coasts.

But the fact remains that there’s less fiscal meat here than previously advertised. The write-off is still a large and vulnerable target, but it’s not as costly as widely portrayed. You could even argue that if congressional tax reformers are looking for reductions in projected “tax expenditures” to reduce deficits, they just got a nice chunk via the revised estimates from the Joint Tax Committee, their own in-house technicians.

The same committee also just lowered its earlier estimates on local property tax write-offs by homeowners. Rather than the $30 billion for fiscal 2013 projected in 2010, the updated estimate is now $27 billion. The only significant increase in the revised projections: In part because of improvements in the housing market, capital gains exclusions — the $250,000 and $500,000 amounts that single and joint-filing homeowners respectively get to pocket tax-free on profits when they sell their primary homes — will cost the Treasury $23.8 billion in 2013, rather than the $19.8 billion estimated in 2010. In the curious world of tax subsidies, good news — in this case, higher home values — costs the government more.

Meanwhile, the IRS has released its latest instructions for owners seeking to take the mortgage-interest deduction in the coming tax-filing season. Among some noteworthy points:

•Thanks to the fiscal cliff tax bill, mortgage insurance premiums, including those paid on conventional low-down-payment loans, FHA premiums, VA funding fees and Rural Housing Service guarantee fees, are deductible for tax year 2012. But note the income limitations: Once your adjusted gross income exceeds $100,000 ($50,000 if you’re filing singly), your write-offs are subject to a phase-down schedule that reduces the deduction to zero above $109,000 ($54,500 for singles).

•The federal tax code contains a variety of restrictions — some of them complex — on whether and how much mortgage interest you can write off. For example, if you’ve got an office in the home, rent out a portion of your house, rent out your second home for significant periods of time during the year or paid “points” on a new mortgage or refinancing last year, there are special rules you need to know. The best way to get up to speed on how they might affect you is to download the IRS’ latest guidance on the mortgage interest deduction, Publication 936, 2012 revised edition, at IRS.gov.

Lansner: Less ‘slow’ is good housing news

By JONATHAN LANSNER / THE ORANGE COUNTY REGISTER

Feb. 14th 2013

Here’s a little statistical nugget you may have missed about Orange County’s recent homebuying spurt: The number of residences sold in January was 20.8 percent lower than the previous month.

That decline is actually good news.

Article Tab: image1-Lansner: Less 'slow' is good housing news

You see, homebuying — at least, official closings as tracked by DataQuick — traditionally slips after New Year’s. Yes, no bang to housing’s kickoff.

For one, many of the transaction-paid players in the real estate game like to close deals before a calendar year ends to meet various goals, incentives and quotas. And some sellers and buyers don’t mind closing before the year is out for either tax reasons, or to meet a need to have a new home before a year gets going — say, to get a kid into a new school.

So a year-end push for December sales counts is all-but inevitable.

Once the ball has dropped, the champagne stops flowing and the Rose Parade is completed, the reality of a New Year hits. For home selling, January’s typically a bit of a respite for deals being finished.

Comparatively, not this year.

Orange County shoppers bought 2,431 residences last month, DataQuick says. That was 30 percent higher than 2102’s start. It was the fastest-selling January since 2006. And 2013’s opening month’s Orange County sales pace was just 4 percent below the average sales counts for the first month of a year in the past quarter century. That’s an improvement because it was not too long ago that sales were running 20 percent to 30 percent below historic norms.

Another way to look at the speed of the start of 2013 is to ponder the scope of the typical year-opening drop. Yes, the year starts with a sales drop — or at least DataQuick’s history shows that it’s happened 25 out of 25 times since 1988.

This year’s starting closed sales in Orange County were off 20.8 percent from December’s closings. That’s roughly one-third smaller than the historic drop that’s averaged 31 percent in the last 25 years. Only three years since 1988 — 2002, 2007 and 1991 — started the year with smaller declines vs. December than 2013.

I’m usually no fan of analysis based on one-month of data compared to the previous month’s trend.

Be honest: it’s an awfully short period — too many variables, serious or not, can slip into the math. Plus, even in data sets where attempts are made to “seasonally adjust” the numbers, traditional fluctuations always seem to creep in.

To overcome a human tendency to overanalyze short-run movements, deeper perspective becomes critical. So when pondering the beginning of a year for local housing — remember that a slow start vs. year’s end is the norm.

Boomerang buyers making a comeback

By JEFF COLLINS / ORANGE COUNTY REGISTER

Feb. 15th 2013

Andreea Stucker thought she made a good investment when she bought a Huntington Beach condo with her boyfriend in December 2005.

But then she and her boyfriend split up. He moved out just as the housing market crashed, leaving Stucker broken hearted and broke.

Article Tab: new-dog-previously-gus
Andreea Stucker with her dog, Gus, and her new home in Huntington Beach. She previously lived in a condo that she sold as a short sale.
MARK RIGHTMIRE, ORANGE COUNTY REGISTER

Here’s a breakdown of waiting periods for boomerang buyers who lost their homes due to a foreclosure or a related event:

Foreclosure:

  • Seven years for a government-backed Fannie Mae or Freddie Mac loan.
  • Three years for a Federal Housing Administration (FHA) loan.
  • One to two years for a FHA loan if there were extenuating circumstances (such as illness or death of a wage earner).

Short sale:

  • Seven years for Fannie Mae or Freddie Mac with less than 10 percent down.
  • Four years for Fannie Mae or Freddie Mac with 10 percent down.
  • Two years for Fannie Mae or Freddie Mac with 20 percent down.
  • Three years for an FHA loan.

Deed in lieu of foreclosure:

  • Seven years for Fannie Mae or Freddie Mac with less than 10 percent down.
  • Four years for Fannie Mae or Freddie Mac with 10 percent down.
  • Two years for Fannie Mae or Freddie Mac with 20 percent down.
  • Three years for FHA.
  • One to two years for FHA loan with extenuating circumstances.

Source: Fannie Mae, Department of Housing and Urban Development

With her own income down at least 60 percent, the real estate agent was unable to make the $4,400-a-month mortgage payments on her own, even after taking in room-mates.

“I begged the bank for over seven months to grant me a loan modification to reduce my payments, because I was rapidly going through my savings,” Stucker, 34, recalled. “I ended up completing a short sale on my home, and my credit took a huge hit.”

Three years later, Stucker has mended both her heart and her credit score. She has a new husband and, “miraculously,” a new house.

Stucker is among the emerging ranks of boomerang buyers — people who bounce back from foreclosures or short sales to become homeowners again.

Generally, buyers must wait at least three years after a foreclosure or short sale to qualify for a government-backed Federal Housing Administration mortgage. It can take seven years to get a conventional loan backed by Fannie Mae or Freddie Mac.

It’s been 4 1/2 years since the foreclosure crisis peaked, and real estate industry observers say they have seen boomerang buyers gradually returning to the Orange County market for at least a year.

“I think over three-fourths of these folks will take a stab at the comeback trail,” said Paul Scheper, division manager for Greenlight Financial in Irvine. “Even though some are coming off a bitter experience, most will be looking to regain the American Dream.”

Three to five people who went through a foreclosure or short sale show up each month at homeownership courses offered in Santa Ana and Irvine by the Consumer Credit Counseling Service of Orange County, or up to 20 percent of the attendees, said Sahara Garcia, the agency’s director of education. She first noticed the boomerangers in late 2011.

“They’re out there,” Garcia said.

Kicked when you’re down

After 3 ½ years, Stucker still cries at the memory of losing her Huntington Beach condo.

She and her ex-boyfriend paid $613,000 with no money down for a two-level condo with cathedral ceilings and skylights, two bedrooms, two bathrooms and a spacious loft less than two miles from the beach.

They spent $40,000 more installing granite countertops, hardwood and travertine floors, new bathroom vanities recessed lighting and other upgrades.

But it turns out that the real estate game isn’t just about location, location, location. It’s also about timing.

By December 2005, Orange County home sales had just headed into a three-year nose dive. Home prices soon would follow.

Stucker’s income as a real estate agent dropped. Her boyfriend moved out after five months. Eventually, she depleted $29,000 in savings, then quit making house payments.

Unable to get a loan modification she could live with, Stucker sold the condo in May 2009 for $425,000 — $188,000 less than what she owed on two mortgages.

Her credit score went from 798 in December 2005 to the low 500s by May 2009.

“It was probably nine months that I fought for that home,” Stucker said. “I loved my house, and I wanted to stay.”

In hindsight, she says she should have cut her losses before dipping into her savings. But she kept thinking the market would turn around, and she’d be able to afford the home again.

“It’s like getting kicked when you’re down,” Stucker recalled. “You’re going through this awful breakup with this person you thought you had a future with, (and) your income is crap even though you’re working full time. … It was tough.”

Road to redemption

More than 33,000 Orange County households now potentially could qualify for an FHA loan because it’s been three years since their short sale or foreclosure. In the nation as a whole, more than 3.4 million households have completed the minimum waiting period.

But many people still do not have the money or sufficient credit to get a loan.

Natalie Lohrenz, the Credit Counseling Service’s director of development and counseling, said there are two types of foreclosed homeowners.

Those who had a bad loan they couldn’t afford. And those whose finances got nuked.

The first type couldn’t make their house payments, but still had enough income to stay on top of their other bills.

The second – because they went through a divorce, illness, job loss or business reversal – basically ended up with nothing, and trashed their credit across the board.

Stucker fits the first category, and her story serves as an example of how people can recover from a housing market wipe out.

She followed this approach: She paid her homeowner association dues. She paid her bills. She kept credit cards and car payments current.

When Stucker went from homeowner to renter, she could show the landlord everything apart from the mortgage was paid on time.

From then on, she kept her nose to the grindstone and kept paying her bills.

“Eventually, enough time passed, and I didn’t have any 60- or 90- or 180-days late on my credit,” she said. “Right before the two-year mark, I checked my credit for something else. … It had gone up more than 100 points.”

By October, after Stucker married, she and her new husband had saved enough to get an FHA loan on a four-bedroom, 2,500-square-foot house in south Huntington Beach. They paid $625,000 with 3 ½ percent down.

Her credit score is back up to 720.

Her new home needs work. She and her husband repainted the home inside and out, removed 11 trees and fixed a leaky pool. They did much of the work themselves.

Because of the experience, Stucker thinks she’s a better real estate agent.

Clients going through their own short sales worry they’ll never be able to buy a home again. She knows what they’re going through, emotionally and financially, and shares her experience.

“In retrospect, it was a mistake to buy a house with no money down at the height of the market. But who knew it was the height of the market?” Stucker said. “(But) no matter how far you’ve fallen, there’s always up. There’s always the possibility that you can own again.”