Archive for February, 2014

Mortgage applications fell 8.5% from a week prior continuing its downward trend for the week ended Feb. 21, the latest Mortgage Bankers Association report found.

The seasonally adjusted Purchase Index decreased 4% from one week earlier to the lowest level since 1995.

As a whole, the refinance share of mortgage activity fell slightly to 58% of mortgage applications: the lowest level since September 2013.

Additionally, the refinance index fell 11% from the previous week, as the purchase index decreased 4% from one week earlier.

“Purchase applications were little changed on an unadjusted basis last week, but this is the time of a year we would expect a significant pickup in purchase activity, and we are not yet seeing it,” said Mike Fratantoni, MBA’s chief economist.

Meanwhile, the 30-year, fixed-rate mortgage with a conforming loan balance increased to 4.53% from 4.50%.

The 30-year, FRM with a jumbo loan balance increased to 4.47% from 4.45%.

The 30-year, FRM backed by the FHA reached 4.17%, a growth from 4.16% a week prior.

Furthermore, the 15-year, FRM escalated from 3.55% to 3.56%, and the 5/1 ARM dropped to 3.17% from 3.20%.

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Home prices rose 7.7 percent year-over-year in the fourth quarter, while prices for other goods and services ticked up 0.7 percent, according to the Federal Housing Finance Agency (FHFA) House Price Index, which calculates home prices among mortgages held by Fannie Mae and Freddie Mac. A total of 38 states reported rising prices in the fourth quarter of the year, a significant showing but fewer than the 48 from the previous quarter, according to the FHFA.

On a quarterly basis, prices rose 1.2 percent, marking the tenth consecutive quarter of price increases, according to the FHFA. On a seasonally-adjusted monthly basis, prices rose 0.8 percent in December, according to the agency’s index.

The price appreciation that took place in the fourth quarter was “considerable, but more modest than in recent periods,” according to Andrew Leventis, principal economist for the FHFA.

“It is too early to know whether the lower quarterly growth rate represents the beginning of more normalized price appreciation patterns or a more significant slowdown,” Leventis added.

Prices rose most over the year in Nevada (24.32 percent), California (19.50 percent), Arizona (15.22 percent), Oregon (12.87 percent), and Florida (12.63 percent), according to FHFA’s seasonally-adjusted, purchase-only index.

The five states with the lowest home price appreciation over the year were West Virginia (-1.78 percent), Delaware (0.12 percent), Arkansas (0.50 percent), Connecticut (1.15 percent), and Rhode Island (1.16 percent).

Among the 100 metros with the highest populations in the United States, those with the highest price appreciation over the year were largely based in the West, according to FHFA’s all-transaction index, which includes data from both purchases and refinances. In fact, 15 of top 20 are located in California, according to the FHFA. Modesto, California, topped the list with prices rising 28.50 percent over the year. Other states with metros on the top 20 list were Nevada, Oregon, Arizona, and Florida.

Many of the metros ranking lowest for price appreciation over the year are located in the Midwest and the South. Rockford, Illinois experienced the greatest price depreciation over the year with a 6.46 percent drop, according to the FHFA.

Based on the nine Census divisions, prices rose most over the year ending in December in the Pacific region, where they jumped 14.9 percent. The Mountain division posted the second-greatest increase with a 12.6 percent rise in prices, according to the FHFA purchase-only index.

By:  Krista Franks-Brock

The federal government’s Home Affordable Modification Program, known as HAMP, was designed to keep borrowers from losing their homes to foreclosure. It has resulted in lower monthly mortgage payments for more than a million homeowners.

But some industry experts are now questioning whether HAMP has only prolonged the inevitable. HAMP modifications are a five-year deal, and after that, the interest rate on the loan, which was typically reduced to as low as 2 percent, begins to gradually adjust upward.

Given that household incomes have been largely stagnant since the first HAMP modifications were approved in 2009, as the payments on these loans begin rising this year, many homeowners will find that they are once again at risk of default.

“From the beginning, it was very evident this was going to be a problem,” said Greg McBride, the chief financial analyst for Bankrate.com. “HAMP was only ever designed to kick the can down the road.”

Almost 90 percent of the roughly 900,000 homeowners with an active HAMP modification are scheduled for interest-rate increases from 2014 to 2021, according to a January report from the Office of the Special Inspector General for the Troubled Asset Relief Program.

Most HAMP borrowers received a rate reduction as one step toward lowering their mortgage payment to 31 percent of their gross monthly income. After five years, the reduced rate may rise by up to 1 percent annually to whatever the national average was for a 30-year fixed-rate loan at the time of the modification. The interest rate on some of these loans could rise to as high as 5.4 percent, and monthly payments could soar by as much as $1,724, the report says.

The median increase would be closer to $200 a month, but even that could be too burdensome for borrowers who couldn’t afford their payments to begin with and whose incomes haven’t changed since, Mr. McBride said. As it is, he added, about one in four HAMP borrowers already has defaulted on the modified terms. “There’s just not enough breathing room in most American household budgets,” to absorb a sizable rise in loan payments, he said.

More of these homeowners may have enough equity now to refinance, but that would still mean a mortgage with a market-level interest rate.

HAMP did help to set a new standard for an affordable loan modification based on borrower income and the value of the property, said Bruce Dorpalen, the executive director of the National Housing Resource Center, a nonprofit advocacy group for housing counselors and consumers. But it hasn’t been as effective as it might have been because participation by loan servicers is voluntary, he said. And borrowers only have “one bite at the apple.” Those who get a modification and then lose employment and fall behind by 90 days or more can’t go back and get a remodification under the same program.

“HAMP was designed for a two-year crisis,” Mr. Dorpalen said, “and we had a five-year crisis.”

The people most at risk as their rates start to rise are those who haven’t recovered from the recession or are on fixed incomes, he said. His organization has joined with other housing advocates to call for renewed, permanent modifications for HAMP borrowers who will be unable to afford their payments after the rate resets.

HAMP borrowers are concentrated in four states: New York, California,Florida, and Illinois. The median payment increase for borrowers in New York is an estimated $286, according to the inspector general.

HAMP was set to expire at the end of last year but was extended through 2015.

The degree to which a homebuyer can afford a house depends greatly on whether the buyer already owns a home, according to a report released Thursday by Mark Fleming, chief economist at CoreLogic.

After a few years in a favorable market, first-time buyers are starting to face a tougher time, Fleming reports. The market overall is being affected by the intersection of rising home prices, rising interest rates and stagnating incomes, which puts first-time buyers behind the curve that has benefitted them greatly since 2007.

According to CoreLogic, affordability—the measure of buyers’ ability to purchase a home and make a down payment given their income and the prevailing interest rate—was low in the early 2000s, particularly in the four years between 2003 and 2007, when market prices rose modestly and interest rates were as high as 8 percent. Then in 2007, home prices started to decline. The situation was exacerbated by the Great Recession, leading to a sharp drop in housing prices, open markets and historically low interest rates through 2012 and 2013.

In that time frame, Fleming says, the drop in housing prices and interest rates created a market that first-time buyers could take advantage of. But with the economy growing, despite relatively flat incomes, first-time buyers increasingly face higher home prices in drier markets.

This news, when taken with historical perspective, is hardly the “affordability shock” some economists make it out to be, Fleming says. Yes, affordability (as measured by the National Association of Realtors’ Housing Affordability Index) is down as much as 22 percent from its January 2013 peak, but is still far higher than it was in the early 2000s.

Moreover, Fleming says, there is almost no change in affordability for buyers who already own a home. The simple reason is that existing homeowners have equity that can be directly transferred to the purchase of a new home, meaning that existing buyers—particularly those in good financial standing—have fewer concerns over making down payments or establishing new mortgages.

Whether current trends will make houses unaffordable to most buyers by the end of 2014 remains to be seen, Fleming says. But he is sure of one thing—whatever happens, first-time buyers will be the ones who feel it the most.

The clock is ticking for buyers and homeowners who want to grab a low mortgage rate in 2014. But if you stay on top of your game, keep your finances in order and act quickly, you can still grab attractive mortgage deals.

These 10 mortgage tips can help you with your mortgage decisions in 2014.

1. Document your finances.

Lenders will be extra diligent when underwriting home loans in 2014, as new mortgage regulations go into effect in January. The rules put pressure on lenders to verify that borrowers have the ability to repay their loans.

Keep good records of your finances, including bank statements, tax returns, W-2s, investment accounts and any other assets you own. Be ready to explain any unusual deposits to your accounts. Yes, the $500 that Grandma deposited in your account for Christmas could delay your loan closing if you can’t prove where the money came from.

2. Lock a rate as soon as you can.

Rates will likely climb in 2014 as the Federal Reserve is expected to reduce the pace of the economic stimulus program that has long helped keep rates low. If you are planning to get a mortgage, lock in a rate as soon as you are comfortable with the numbers.

3. Refinance now — if you still can.

Many homeowners lost the opportunity to refinance at a lower rate when rates jumped in 2013. But those who are still paying more than 5% interest on their home loans might still have an opportunity.

If you think you may be able to save with a refinance, but you are not sure, it doesn’t hurt to try. Speak to a loan officer and take a look at the numbers to see if refinancing still makes financial sense for you after you consider how long it will take to break even with the closing costs.

4. Buyers, use your bargaining power.

As mortgage rates climbed, lenders lost a big chunk of their refinance business. In 2014, they will turn their attention to homebuyers and will fiercely compete for their business. Buyers should take advantage of bargaining power they gain with that increased competition. Shop around for the best deal and look beyond the interest rate on the loan.

5. Learn your rights as a borrower.

Mortgage borrowers will get many new rights as consumers this year when new mortgage rules created by the Consumer Financial Protection Bureau go into effect in 2014. If you run into issues with your mortgage servicer in 2014 or fall behind on your payments, make sure you are aware of your rights and put them to use.

6. Take good care of your credit.

It’s nearly impossible to get a mortgage without decent credit these days. That will continue to be the case in 2014. If you are planning to get a mortgage, monitor your credit history and score until your loan closes. The best mortgage rates usually go to borrowers with credit scores of 720 or higher. You may still get a mortgage with a score of 680, but lower scores will mean higher rates or higher closing costs.

7. Don’t overspend.

Lenders don’t want to give out loans to borrowers who will have little money left each month after they pay their mortgages and other debt obligations such as credit cards and student loans. If that becomes the case, the lender will tell you that your DTI, or debt-to-income ratio, is too high and you don’t qualify for a loan. Try to keep your monthly debt obligations, including your mortgage and property taxes, below 43% of your income.

8. Consider alternative mortgage options.

Mortgage rates are rising, but there are alternatives to grab a lower rate, depending on your plans.

A homeowner planning to keep a house for seven to 10 years could take advantage of lower mortgage rates by choosing a seven- or 10-year ARM instead of the 30-year traditional fixed-rate mortgage. Rates on adjustable-rate mortgages can be as much as 1 percentage point lower than on fixed-rate loans.

If you are not sure how long you plan to keep the house, a fixed-rate loan is probably the better choice.

9. Considering an FHA loan? Reconsider.

FHA loans have long been popular among first-time homebuyers because they require low down payments and have somewhat less strict underwriting standards than conventional loans. But they come at a price. Mortgage insurance premiums on FHA loans are likely to continue to rise in 2014, and after recent changes, the borrower is now required to pay for mortgage insurance for the life of the loan. Try to qualify for a conventional loan before you apply for an FHA mortgage.

10. Don’t panic.

Yes, mortgage rates likely will climb in 2014. But don’t panic, thinking you have to buy a home now to grab a low rate. If you are shopping for a home, do your best to move quickly, but remember that this is one of the biggest financial decisions of your life. Get your mortgage and buy your home when you feel ready.

Parents, grandparents and young adults know the problem only too well: Heavy student-debt loads, persistent employment troubles stemming from the recession, plus newly toughened mortgage underwriting standards are all standing in the way of vast numbers of potential first-time home buyers in their 20s and 30s.

But are there effective techniques that family members, friends, even employers can use to bridge the generational gap by offering a helping hand — without hurting their own finances in the process? You bet.

First, some sobering numbers:

•Citing Census Bureau data on homeownership by age, demographer Chris Porter of John Burns Real Estate Consulting calculates that Americans who were 30 to 34 in 2012 — those born between 1978 and 1982 — had the lowest homeownership rate of any similarly aged group in recent decades, 47.9%. By contrast, Americans born between 1948 and 1957 had a 57.1% ownership rate by the time they hit the 30 to 34 bracket. This is despite record low mortgage rates and bumper crops of bargain-priced foreclosures and short sales.

•Debt-payment-to-income ratios increasingly are mortgage application killers for would-be first-timers. Adoption nationwide last month of a new federal 43% maximum debt-to-income ratio for “qualified mortgages” is particularly poorly timed for young buyers. Because of large student debts, which average $21,402 but sometimes balloon into six figures, they may not be able to meet the 43% standard for years.

Typically they’re already paying out large amounts on credit cards, auto loans or leases and their student debt — about 30% of current monthly income for those ages 21 to 30 as of 2012, according to a new research report from research economist Gay Cororaton of the National Assn. of Realtors. Factoring in the monthly cost of a typical mortgage for an entry-level purchase, the debt-to-income ratio as of 2012 for these individuals exceeded 60%, Cororaton estimates. Even with a 5% increase in income per year, they will not be able to qualify under the 43% debt-to-income test until 2019.

That’s a long time to postpone a purchase. Yet consumer research consistently finds that the overwhelming majority of Americans in their 20s and 30s would like to own a home, once they’re able to put together the financial pieces to make it feasible.

So what are some of the solutions available to help bridge the gap? The most popular is also the oldest: Growing numbers of relatives are stepping in with gift money to help defray the down payment and closing costs — 27% of first-time buyers last year, according to one industry estimate.

Down payment gifts do not address the crucial debt-to-income ratio problem, but for young buyers who can get close to the 43% mark for conventional loans (Fannie Mae and Freddie Mac) or slightly higher at the more flexible FHA or VA, they can be extremely important.

Rules on gifts vary among funding sources, but there are some shared basics: The money cannot be disguised as a gift if it is actually a loan; there needs to be a formal gift letter that spells out the purpose of the gift and the specific transaction for which it is to be used; and the source of the funds and the capacity of the gift giver to provide the money need to be documented. For down-payment help outside the family tree, check out http://www.downpaymentresource.com.

But an increasingly important and fast-growing resource is turning the gift concept on its head: Rather than simply handing over their cash with no repayment arrangements, family members are becoming mini-lenders themselves.

With a little professional assistance, they are providing either second mortgages or first mortgages that are custom-designed to deal with whatever financial hurdles — including paying off student loans to reduce debt-to-income ratios — their young relatives are confronting. Properly structured, these loans provide annual returns to family members well in excess of money-market funds or bank deposits, and open the door to homeownership for their kin.

The largest player in the field, National Family Mortgage (www.nationalfamilymortgage.com), has structured and serviced more than $155 million of intra-family transactions in the last two years and is on track, according to founder and Chief Executive Tim Burke, to do $150 million in volume during 2014.

“There is a lot going on” in this field that can help entry-level buyers strapped with student-loan debt, Burke says.

 

Oversite Data Services, a national provider of docket-based legal compliance and management solutions, released a white paper Tuesday that demonstrates how court data-based management of foreclosure cases can reduce foreclosure timelines and improve portfolio management.

The analysis is based on a dataset of over 50,000 foreclosure loan files.

“Our analysis shows that it is possible to quantify a number of factors impacting foreclosure timelines that can then be used to benchmark foreclosure management and more accurately estimate foreclosure timelines,” said Oversite CEO, James Albertelli. “Oversite’s docket-data based technology platform provides the transparency needed to better manage third parties through a data-based systematic process, minimize timelines and reduce avoidable risks.”

The release noted that average servicer timelines varied up to 192 percent from 2007 to 2013.

The data noted a few broad trends, including:

  • Variations in foreclosure timelines by servicer, controlling for geography and year of foreclosure start.
  • Proactive foreclosure management can reduce the number and timelines of outlier cases.
  • Cases with foreclosures and bankruptcies present significant opportunity for proactive case timeline management.

Other findings in the white paper include that cases with a Lack of Prosecution (LOP) finding had an average foreclosure timeline of 308 days, and the number of LOP filings among servicers varied by over 500 percent.