Mortgages may be easier to get than potential home buyers believe - LA Times Real Estate

http://www.latimes.com/business/realestate/la-fi-harney-20140427,0,242681.story#axzz30OXWpgbK

Mortgages may be easier to get than potential home buyers believe

Many potential buyers think they need near-perfect credit scores to get a home loan. But lenders may be loosening their tight underwriting standards.

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By Kenneth R. Harney

April 27, 2014, 5:00 a.m.

WASHINGTON — Are you on the home-buying sidelines this spring because you think you won't be able to qualify for a mortgage? Do you know what sort of FICO credit scores are being accepted by lenders at the moment — they're lower than they were a year ago — and whether yours could now be good enough?

You may be part of the surprisingly large crowd of folks who fear the home-loan unknown. A new national consumer survey found that 56% of potential purchasers of homes say they're out of the market because they don't want to face the possibility of rejection by lenders. Even 30% of current homeowners believe that they wouldn't pass muster today.

Using a statistical sample of 1,055 Americans 18 and older, survey research firm OmniTel, polling on behalf of mortgage lender LoanDepot, documented widespread uncertainty and lack of specific knowledge about current market conditions when it comes to qualifying to buy a home. According to the survey, 74% of potential buyers who would need a mortgage concede that they have not scoped out the current market or taken the steps needed to qualify.

Many potential buyers believe that they need near-perfect credit scores to get a home loan. Half of those surveyed said they had no idea what minimum FICO score is needed for a mortgage, and nearly a fifth (18%) said the minimum score might be 770 or higher.

Debt-to-income ratios are another insurmountable obstacle in many potential buyers' eyes — enough so that they don't even try to obtain a mortgage.

Most lenders use two forms of debt ratios: a "front end" ratio that compares the monthly costs of the proposed new mortgage and other housing expenses with the applicant's monthly income, and a "back end" ratio comparing all recurring monthly debt obligations — housing expenses, student loans, credit cards and the like — with the applicant's monthly income. Roughly a third of potential buyers on the sidelines believe that their debt ratios are too high.

But what's the statistical reality on debt ratios, FICO score minimums and down payments? What are lenders approving?

The best answers come from a company called Ellie Mae, whose loan origination and tracking software is widely used by lenders. Every month Ellie Mae analyzes a huge sample of new mortgage originations nationwide and issues an overview report rich with the sort of detail that buyers sitting on the sidelines could use.

Here's what it found in its report on March:

•Thirty-three percent of new loans last month had borrower FICO scores below 700. A year ago it was just 27%. (FICO scores max out at 850, which is considered excellent credit; applicants with scores under 700 present higher credit risks to lenders.) Federal Housing Administration-insured home purchase loans had an average FICO in March of 684. Conventional mortgages, those designed for purchase by investors Fannie Mae and Freddie Mac, still have relatively high FICOs — they averaged 755 in March, but that was down slightly from 759 a year before. Lenders are doing far fewer refinancings this year, so they are loosening up on FICO minimums for purchasers.

•Debt ratios also are more generous than many sidelined potential borrowers probably imagine. The FHA's average front-end (housing costs) ratio last month for purchase loans was 28%. In other words, if your projected housing and mortgage-related costs represent 28% of monthly income, you're average. Fannie Mae and Freddie Mac loans averaged 22% ratios on the front end. Back-end (total recurring debt) ratios for FHA averaged 41%. For Fannie and Freddie it was lower — 34%.

•Down payments can be small if that's what you need. FHA's average down payment last month for home purchases was 5%, but many borrowers put down just 3.5%. Fannie and Freddie allow 5% down as well, provided that you can pay mortgage insurance premiums. VA loans can go to zero down if your veterans status allows you to qualify. Department of Agriculture home buyer loans, which are designed for people who live in small towns, also allow for no down payments.

The point here: If you're on the sidelines, check out what's really going on in the mortgage market. There may be more opportunities — even in an era of tighter underwriting — than you think.

February 2014 Sales Statistics - Source: Realtors Association Maui

Residential sales declined to 60 homes sold while Condominium sales decreased to 87 units sold. Land sales came in at 11 lots sold.

The Residential and Condo median prices decreased to $560,000 and $345,000 respectively. Land median price came in at $400,000.

Days on Market, Residential homes = 119, Condos = 99 DOM, Land = 279 DOM.

Residential unit sales decreased (125 homes sold / -4 units / -3% change YTD), average sold price =

$1,142,909 (+60%YTD), median price = $585,000 (+6%YTD) and total dollar volume sold = $142,863,582 (+55%YTD). Condo unit sales increased (181 units / +17 units / +10%YTD), average sold price = $572,457 (+23%YTD), median price = $390,000 (+13%YTD). Total Condo dollar volume sold = $103,614,752 (+35% YTD). Land – NOTE: Land Lot sales are such a small sampling that statistics in this property class are not necessarily reliable indicators. Land lot sales increased (24 lots / +3 units / +14% YTD), average sold price = $669,021 (-22%), median price = $385,000 (-31%), Total dollar volume = $16,056,499 (-11% YTD).

Total sales for immediate past 12 months: Residential = 977 (with 17.3% being REO or Short

Sale), Condo = 1,357 (9.7% REO or SS), Land = 224 (9.4% REO or SS).

NOTE: 45% of these Sales in the last 12 months have been CASH transactions.

Current Absorption Rate base on this month’s Active/Pending-Continue to Show/Contingent status

inventory divided by February Sales: Residential = 11.4 months, Condo = 10.5 months, Land = 37.5

months of inventory.

Sales Unit numbers seesaw, Inventory growing due to rising Prices ……

Year-to-Date prices are rising. Increased showings and sales, multiple offers on “well priced” listings,

hesitant buyers become onlookers…... Window of opportunity is quickly closing for first-time

homebuyers (see below).  Well priced properties are attracting multiple offers making for a quick sale. Inventories in Residential and Condo classes are increasing somewhat as Sale Prices increase. REO (Foreclosures) and Short Sales are dwindling, with any “hidden inventory” (or overhang) backlog slowly trickling onto the market. Mortgage Interest Rates are inching up slightly which may help motivate would-be Buyers to go ahead and buy IF they can qualify.

Savvy Investors are buying with Cash, giving them a strong negotiating position, no financing/appraisal

hassles and a quick closing. 

Rising Sales prices cause some “Owners” to become “Sellers,” putting their homes on the market.

To be successful, Sellers need to beat competing properties with better property condition, REALISTIC pricing, good marketing, and flexible, creative terms (Seller Second Loan, Agreement of Sale, Lease-with-option-to-buy, and Sale-with-lease-back to seller). Days on Market figures show that properties priced right will sell in a reasonable timeframe, often with multiple offers. “Priced Right” is still the determining factor.

BEST Deals are selling, while significantly over-priced listings remain un-sold.

Pro-Active SELLERS are getting their properties appraised, inspected and surveyed in advance to encourage realistic offers from knowledgeable Buyers. This can prevent unanticipated escrow fallout or Buyers whittling your price down during the transaction when previously unknown facts come to light.

FOR BUYERS: Low interest rates prevail; however have started to nudge up. Buyers should get Pre-

Approved so they can shop in confidence (fewer last minute disappointments due to non-funding loans).

"Short-sales" and foreclosures are still in the marketplace, yet they can be less of a bargain than they seem, requiring more hurdles to leap and more time (often 4-6-12 months) to close, if at all.

Be prepared, but BE REALISTIC. 

The low point in the market has passed, so check it out carefully NOW, don’t delay. The opportunity is

fading quickly. If you can’t buy now, start saving your down payment for the next market cycle.

HOUSING OUTLOOK: PRICE GAINS IN DOUBLE DIGITS - Source: RealtyTimes

http://realtytimes.com/consumeradvice/sellersadvice1/item/27609-20140217-housing-outlook-price-gains-in-double-digits?utm_source=twitterfeed&utm_medium=linkedin

According to CoreLogic's Home Price Index (HPI), the 11 percent increase in December home prices represented the 22nd consecutive monthly year-over-year increase.

Freezing temperatures did little to cool the housing market in January. The Pending HPI forecasts home prices to have risen 10.2 percent higher than the year before.

Excluding distressed sales, including short sales and foreclosures, equity sales prices rose 9.9 percent in December and are expected to rise 9.7 percent in January year-over-year.

A slowdown in momentum is not necessarily a halt to brisk housing sales.

"Last year, home prices rose 11 percent, the highest rate of annual increase since 2005, and ten states and the District of Columbia reached new all-time price peaks," said Dr. Mark Fleming, chief economist for CoreLogic. "We expect the rising prices to attract more sellers, unlocking this pent-up supply, which will have a moderating effect on prices in 2014."

The latest quarterly report from the National Association of REALTORS® suggests that price gains are regional. While 119 out of 164 metropolitan statistical areas (73 percent) reported year-over-year price gains in Q4 2013, 42 areas or 26 percent showed double-digit gains. Forty-three percent recorded lower median prices.

Rising markets slowed down in Q4 from 88% in the third quarter and with 33 percent reporting double-digit growth.

Lawrence Yun, NAR chief economist, believes that home prices and mortgage rates are more expensive and are natural drags on higher prices, but that areas that are still seeing large gains will need more inventory for prices to moderate.

January 2014 Sales Statistics - Source: Realtors Association Maui

While Residential and Condo unit sales declined typically from December 2013, the Median and Average Sales Prices rose significantly compared to December 2013 or January 2013 (same-month-a-year-before). The highest January Home Sales Price was $11,900,000 and the highest Condo Sales Price was $3,900,000. Looks like the Maui Real Estate market got over many of the fears of 12-15 months ago (Mayan Calendar End-of-the-World, Fiscal Cliff, Sequestration). Confidence in the Future breeds Investment in the Present.

January's Sales Unit Volume – Residential sales declined to 64 homes sold while Condominium sales decreased to 93 units sold. Land sales came in at 13 lots sold.

January's Median SALES prices –The Residential and Condo median prices increased to $691,500 and $437,000 respectively. Land median price came in at $370,000.

Days on Market, Residential homes = 130, Condos = 122 DOM, Land = 91 DOM.

(General DOM Note: this is the average DOM for the properties that SOLD. If predominantly OLD

inventory sells, it will move this indicator upward, and vice versa. RAM's Days on Market are calculated

from List Date to Closing Date [not contract date], including approximately 60 days of escrow time.)

WARNING!! "Year to Date Sales" numbers compare only one month, January 2014 to January 2013. Shorter time frame (monthly) views do not necessarily reflect the longer time frame trends. Big percentage changes may be misleading or misunderstood. Be Careful.

Residential unit sales increased (64 homes sold / +1 unit / +2% change YTD), average sold price = $1,371,304 (+93%YTD), median price = $691,500 (+26%YTD) and total dollar volume sold = $87,763,445 (+96%YTD).  Condo unit sales increased (93 units / +30 units / +48%YTD), average sold price = $686,988 (+68%YTD), median price = $437,000 (+47%YTD). Total Condo dollar volume sold = $63,889,901 (+148% YTD). Land Lot sales are such a small sampling that statistics in this property class are not necessarily reliable indicators. Land lot sales increased (13 lots / +6 units / +86% YTD), average sold price = $836,154 (-19%), median price = $370,000 (-45%), Total dollar volume = $10,869,999 (+50% YTD).

Total sales for immediate past 12 months: Residential = 983 (with 18.2% being REO or Short

Sale), Condo = 1,370 (9.7% REO or SS), Land = 226 (9.3% REO or SS).

Current Absorption Rate base on this month’s Active/Pending-Continue to Show/Contingent

status inventory divided by January Sales is:

Residential = 10.7 months, Condo = 9.5 months, Land = 31 months of inventory.

_______________________________________________________________________________________

IN A NUT SHELL...... Sales Unit numbers seesaw, Inventory growing due to rising Prices ……

Year-to-Date prices are rising. Increased showings and sales, multiple offers on “well priced” listings,

hesitant buyers become onlookers…... Window of opportunity is quickly closing for first-time

homebuyers (see below).  Well priced properties are attracting multiple offers making for a quick sale. Inventories in Residential and Condo classes are increasing somewhat as Sale Prices increase. REO (Foreclosures) and Short Sales are dwindling, with any “hidden inventory” (or overhang) backlog slowly trickling onto the market. Mortgage Interest Rates are inching up slightly which may help motivate would-be Buyers to go ahead and buy IF they can qualify.

Savvy Investors are buying with Cash. While general U.S. economic news looks cautiously hopeful, current

World and US events will have ripple effects on cost of living, consumer confidence, Financial and Real Estate Markets. Rising Sales prices cause some “Owners” to become “Sellers,” putting their homes on the market.

FOR SELLERS: Sharpen your pencil, talk to your CPA and your Realtor® to explore the hidden benefits

or consequences. Make no assumptions that will sting later. To be successful, Sellers need to beat competing properties with better property condition, REALISTIC pricing, good marketing, and flexible, creative terms (Seller Second Loan, Agreement of Sale, Lease-with-option-to-buy, and Sale-with-lease-back to seller). Days on Market figures show that properties priced right will sell in a reasonable timeframe, often with multiple offers. “Priced Right” is still the determining factor. BEST Deals are selling, while significantly over-priced listings remain un-sold. Pro-Active Sellers are getting their properties appraised, inspected and surveyed in advance to encourage realistic offers from knowledgeable Buyers. This can prevent unanticipated escrow fallout or Buyers whittling your price down during the transaction when previously unknown facts come to light.

FOR BUYERS: Low interest rates prevail; however have started to nudge up. Buyers should get Pre-

Approved so they can shop in confidence (fewer last minute disappointments due to non-funding loans).

"Short-sales" and foreclosures are still in the marketplace, yet they can be less of a bargain than they seem, requiring more hurdles to leap and more time (often 4-6-12 months) to close, if at all.

Be prepared, but BE REALISTIC. Lenders are much more stringent on requirements now for loan approval,

compared to 2004-2008. First-Time Home Buyers – Many programs are available….. Attend a First-Time Home Buyers workshop, get familiar with the process, get qualified/approved, do your homework to get your own home. Many current owners never thought they would be able to own until they attended a workshop, discovered they could own a home, and are glad they did. The low point in the market has passed, so check it out carefully NOW, don’t delay. The opportunity is fading quickly. If you can’t buy now, start saving your down payment for the next market cycle.

Disclaimer: Zooming in on the figures of a specific geographic area or property type may lead to different

conclusions that looking at the overall view. Maui's market place is much smaller than Oahu's, and a few high or low sales have a greater effect on the statistical numbers without necessarily indicating a big market swing one way or another.

"In Housing, Big Is Back…"- NY Times

When it comes to new homes, bigger is again better. The median size of new homes built for sale peaked in 2007 at 2,295 square feet, then fell to 2,159 two years later, after the housing crisis hit. But the appetite for ever-larger homes has returned: In 2012, new homes reached a new peak of 2,384 square feet and, according to the National Association of Home Builders, some 41 percent of new homes had four or more bedrooms, up from 34 percent in 2009.

“The housing market is being driven by the move-up buyer, the luxury buyer,” said Brad Hunter, chief economist and director of consulting atMetrostudy. “And those who have strong incomes, secure jobs, their stock portfolio is doing well — they are able to buy whatever they want. And what they are buying is larger houses.”

Affluent buyers have been flocking to real estate, according to the Mortgage Bankers Association, with applications for home loans of $625,000 to $729,000 up 56.7 percent from August 2012 to August 2013. Mortgageapplications for more than $729,000 were up 41 percent.

For the full article, click here:

http://www.nytimes.com/2014/01/26/business/in-housing-big-is-back-not-counting-the-extras.html?_r=0

Restarting Mortgage Finance: Step 1 - by Ken Fears, Manager, Regional Economics and Housing Finance Policy

Restarting Mortgage Finance: Step 1

Recently the Consumer Financial Protection Bureau (CFPB) released a much anticipated rule that finally gets the ball rolling on reform of the mortgage finance industry. Investors fled the market following the housing bust, reducing the flow of financing to borrowers. Likewise, many homebuyers were sold mortgage products that were untenable, resulting in damaged credit and lost savings. Transparency, verification and documentation are keys to restoring confidence from investors and homebuyers. The majority of the market will benefit from the new QM rule, but a subset of the market will likely face higher prices or lose access to financing all together.

The Qualified Mortgage rule, or QM, lays out basic requirements for lender underwriting. In short, the originator of the loan must verify all sources of income and assets and verify that the borrower has the ability to repay the mortgage (ATR). A number of loan types are prohibited from receiving the QM statu,s including those with negative amortization (balloon payments), interest-only features, as well as those with durations greater than 30-years. Finally, there is a cap on fees that lenders can charge of 3% (with an exception for loans under $100,000) and the back-end debt to income ratio (DTI) must be less than or equal to 43%.

Mortgages that qualify as a QM will be further bisected by those that have a rate 1.5% above the prime borrowing rate and those that do not. Loans below the 1.5% will receive special legal status known as a safe harbor, where the borrower in default must first prove that their loan was not affordable when originated in order to sue the lender. If the loan is QM and above the 1.5% rate threshold, then there is a rebuttable presumption where the lender must prove that the borrower had the ability to repay. Under the rebuttable presumption, even if the lender can prove the loan met the ATR, the lender incurs legal costs making the case of $70,000 to $110,000 [1] according to some industry analysts, while others analysts argue that the incidence of claims would be extremely low [2]. However, if the lender cannot demonstrate that the borrower had the ability to repay, then the lender faces new enhanced legal fees. Furthermore, the borrower’s ability to fight the foreclosure applies for the life of the loan, which would extend foreclosure timelines, increasing costs to banks. Lending outside of either definition of a QM may be sparse as the lender would have to raise rates further to compensate for litigation risk since these would fall outside either definition of a QM loan; these higher rates might then reach HOEPA limits.

So, who will fall outside the QM?

• Jumbo loan users with DTIs greater than 43%, which is estimated to be roughly 0.5% to 1.0% [3]of the entire market.
• Mortgages where fees are greater than the 3% cap – this is difficult to quantify, but it could be a large portion of the market. Still, lenders can “pay for” some costs by including them in a higher rate, so long as it is under the 1.5% cap, thereby ameliorating the impact to the market.
• Borrowers who use interest-only or negative amortization loans. Some estimates have this portion of the market in the range of 15%. However, this type of financing is commonly used by wealthier individuals with large reserves who can shift to different financing options.
• Borrowers with interest rates 1.5% or more above the average prime borrowing rate are roughly 4.9% [4] of the purchase market and just 0.04% [5] of the jumbo segment. Some borrowers in the conforming space may be able to shift to FHA, which is seeking an exemption to this point, but more borrowers may be pushed into this space if banks finance origination costs to comply with the 3% cap.
• The subprime market will be more restricted. The FHA will likely be the only option for borrowers with a FICO less than 620 and DTI over 43% as the FHA recently rescinded the ability to process these loans through automated underwriting.

The Impact on Today’s Market

Lenders can use the automated underwriting models of the GSEs and FHA to vet mortgages that are not financed by the government since there is currently no automated underwriting for a QM loan. However, jumbo loans will have to be manually underwritten as there is no automated underwriting for jumbos. As a result, these may take more time or cost slightly more to compensate originators for the underwriting costs and risk of writing to the QM definition.

In time, though, the FHA, USDA, and VA will derive their own QM definitions and the GSEs could come out of conservatorship. When this happens, loans not meeting the new QM definitions established by the government agencies will need to meet the narrower QM definition. By that time, it is hoped that lenders will have more confidence in making non-QM loans. In the near term, this final rule should help to stimulate some bank and investor demand for non-government backed QM mortgages as it clarifies and boosts protections for lenders and who make loans and hold them in portfolio or shelve them for securitization.

An interesting outcome of the new QM rule is that it will raise the importance of the high-cost loan limits that delineate the maximum limits at which the GSEs and FHA can lend. In high cost areas like California, New York City or Washington, DC, many borrowers may not be able to use the government programs or their automated underwriting programs. As a result down payment may rise as buyers with DTIs greater than 43% seek to reduce mortgages below conforming limits in order to avoid the more strict 43% limit on QM loans in the jumbo space. First-time buyers in these areas may be the biggest casualty, as this group may not have the resources to increase down payment. As a result, the loan limits will play an increasingly important role as home prices rise over the next decade. Worse yet, if loan limits were to decline, a larger portion of the market would fall outside the QM.

In addition, for safety and expediency, lenders are likely to defer to the agency’s automated underwriting (AU) systems in the near term. This shift places more importance on how the AUs are defined by the agencies going forward.

After nearly two years of waiting, the final QM rule has been released. While some aspects of the rule will limit market activity, the long awaited clarity will likely help to stimulate demand. However, before investors come back in strength, the market will need additional clarity as to what mortgages will meet the qualified residential mortgage (QRM) rule, which dictates the type of mortgages that can be securitized and sold as MBS without risk retention, and how the Basel III rule will affect the treatment of loans and mortgage servicing rights on bank balance sheets. Still, the finish line is in sight for regulatory reform.

December Sales Statistics - Source: Realtors Association Maui

Residential sales held steady at 76 homes sold while Condominium sales increased to 116 units sold. Land sales came in at 22 lots sold.

The Residential home median price held steady at $512,500 while the Condo median price increased to $365,000. Land median price came in at$370,000.

Days on Market, Residential homes = 125, Condos = 109 DOM, Land = 108 DOM.

Year to Date:

Residential unit sales increased (980 homes sold / +42 units / +4% change YTD), average sold price =

$782,764 (+11%YTD), median price = $530,000 (+13%YTD) and total dollar volume sold = $767,108,838 (+16%YTD). Condo unit sales increased (1,334 units / +81 units / +6%YTD), average sold price = $571,380 (+22%YTD), median price = $374,500 (+5%YTD). Total Condo dollar volume sold = $762,220,783 (+30% YTD). Land lot sales increased (218 lots / +42 units / +24% YTD), average sold

price = $664,091 (+18%), median price = $399,500 (+14%), Total dollar volume = $144,771,747 (+46% YTD).

Total sales for immediate past 12 months: Residential = 980 (with 18.8% being REO or Short Sale), Condo = 1,334 (9.9% REO or SS), Land = 224 (9.4% REO or SS).

Current Absorption Rate base on this month’s Active/Pending-Continue to Show/Contingent

status inventory divided by December Sales is:

Residential = 8.7 months, Condo = 7.3 months, Land = 18 months of inventory.

Close of 2013 - Sales Unit numbers up, Inventory growing due to rising Prices ……

Year-to-Date prices are rising. Increased showings and sales, multiple offers on “well priced” listings,

hesitant buyers become onlookers…... Window of opportunity is quickly closing for first-time

homebuyers (see below). Well priced properties are attracting multiple offers making for a quick sale. Inventories in Residential and Condo classes are increasing somewhat as Sale Prices increase. REO (Foreclosures) and Short Sales are dwindling, with any “hidden inventory” (or overhang) backlog slowly trickling onto the market. Mortgage Interest Rates are inching up slightly which may help motivate would-be Buyers to go ahead and buy IF they can qualify.

Savvy Investors are buying with Cash. While general U.S. economic news looks cautiously hopeful, current

World and US events will have ripple effects on cost of living, consumer confidence, Financial and Real Estate Markets.

Rising Sales prices cause some “Owners” to become “Sellers,” putting their homes on the market.

FOR SELLERS: Sharpen your pencil, talk to your CPA and your Realtor® to explore the hidden benefits

or consequences. Make no assumptions that will sting later. To be successful, Sellers need to beat competing properties with better property condition, REALISTIC pricing, good marketing, and flexible, creative terms (Seller Second Loan, Agreement of Sale, Lease-with-option-to-buy, and Sale-with-lease-back to seller). Days on Market figures show that properties priced right will sell in a reasonable timeframe, often with multiple offers. “Priced Right” is still the determining factor. BEST Deals are selling, while significantly over-priced listings remain un-sold. Pro-Active Sellers are getting their properties appraised, inspected and surveyed in advance to encourage realistic offers from knowledgeable Buyers. This can prevent unanticipated escrow fallout or Buyers whittling your price down during the transaction when previously unknown facts come to light.

FOR BUYERS: Low interest rates prevail; however have started to nudge up. Buyers should get Pre-

Approved so they can shop in confidence (fewer last minute disappointments due to non-funding loans).

"Short-sales" and foreclosures are still in the marketplace, yet they can be less of a bargain than they seem, requiring more hurdles to leap and more time (often 4-6-12 months) to close, if at all.

Be prepared, but BE REALISTIC. Lenders are much more stringent on requirements now for loan approval,

compared to 2004-2008. First-Time Home Buyers – Many programs are available….. Attend a First-Time Home Buyers workshop, get familiar with the process, get qualified/approved, do your homework to get your own home. Many current owners never thought they would be able to own until they attended a workshop, discovered they could own a home, and are glad they did.

The low point in the market has passed, so check it out carefully NOW, don’t delay. The opportunity is

fading quickly.