HOME LOANS Category
FHA Loans Soon To Be More Costly to Buyers
FHA LOANS, HOME LOANS, INDUSTRY NEWS, TIPS FOR BUYERS
Mary Lake Sunset
Starting April 1, home buyers utilizing FHA financing will see a significant increase in the Mortgage Insurance Premium (MIP) paid upfront by buyers. The MIP premium will rise from the current 1% to 1.75%. Besides the one-time upfront fee, the monthly MIP will also rise 0.1% for loans under $625,000 and 0.35% for loans above $625,000 beginning June 1.
MIP is charged to FHA buyers to cover the cost of foreclosing on loans and liquidating properties which go into default. FHA loans are originated by banks and mortgage bankers using their own capital, with the stipulation HUD will step in and take over the loan if the buyers default. Since the federal government backs these loans, borrowers can purchase a home with as little as 3.5 % down payment monies. In theory, the MIP pays the cost of administering the program so taxpayers do not have to subsidize this loan program. VA loans for veterans are structured similarly.
Other changes to the FHA loan program coming soon include reducing the amount a seller can credit the buyer for closing costs. Currently, sellers can offer up to 6% of the purchase price for the buyer to use for loan fees and other costs to secure a loan. Indications are this will be capped at 3% in the near future.
The reasons cited for the changes in a recent article in The Los Angeles Times include the fact demand for FHA loans has increased to 40% of all new home purchases. Despite the rapid growth in usage, capital reserves have declined far below levels mandated by Congress. Combined with increasing delinquencies, the program is under pressure to rebuild reserves and make the program self-sustaining once again. During the housing bubble, FHA loans were only utilized by a small number of home buyers because conventional loans offered no money down loans.
Borrowers looking now can avoid these fees by taking action before the fee hikes take effect by either buying now or asking your loan officer to secure a case number and buy a home within 60 days after the upfront MIP takes effect.
Feel free to contact me with any questions.
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVING REAL ESTATE PROFESSIONALS
CORNER OF COURT AND PLACER IN DOWNTOWN REDDING
NEARLY 30 YEARS LOCAL REAL ESTATE SALES EXPERIENE
530-941-7492
Hidden Fee In Mortgage Interest Rate to Rise!
HOME LOANS, INDUSTRY NEWS, TIPS FOR BUYERS
Most consumers are unaware three components make up the interest rate of a mortgage. Congress has mandated an increase in one of these components starting this spring. Other increases are expected later in the year according to a recent article in The New York Times.
For several decades now, the guarantee fee has been charged by government sponsored entities(GSE’s) Fannie Mae and Freddie Mac. This fee is not broken out in any disclosure documents provided by the lenders but is incorporated into the interest rate paid by borrowers. The interest rate has three components: the guarantee fee, a loan servicing fee and the largest part of the interest charge going to the bank or investor who buys the loan.
The guarantee fee, the one that is going up, is basically a form of mortgage insurance which offsets losses to investors should the loan go into default (non-payment). The fee increase was incorporated into a larger bill signed into law by President Obama in December, which extended by two months the payroll tax deduction.
The fee increase amounts to 10 basis points which equates to a tenth of one percent added to the mortgage interest rate. One way to avoid the fee is to seek out a lender that holds their loans (aka portfolio loans) instead of selling them off to the secondary market. Credit unions and community banks are lenders most likely to retain their loans.
The guarantee fee not only helps government sponsored entities Fannie and Freddie offset risks, it helps pay the overhead expenses to operate these agencies, in theory saving taxpayers from subsidizing them with tax dollars. However, the housing bubble burst has cost taxpayers in many ways including losses of home equity caused by price declines, losses in retirement accounts due to reactions on Wall Street to the bubble burst and taxpayer dollars given to these GSE’s to shore up their balance sheets.
This fee increase will be hardly noticeable considering mortgage rates are currently near record lows. In fact, some analysts believe rates are excessively high considering the fact the Federal Reserve is loaning money to banks at 0% and banks in turn are loaning money out at nearly 4% for a 30-year fixed rate loan. The typical margin is 2-2.5%, not 4%!!
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVING REAL ESTATE PROFESSIONALS
CORNER OF COURT AND PLACER IN DOWNTOWN REDDING
NEARLY 30 YEARS LOCAL REAL ESTATE EXPERIENCE
530-941-7492
Redding Real Estate: Home Sales On Fire!
FHA LOANS, HOME LOANS, SHASTA COUNTY, SHORT SALES
The number of homes sold in February 2012 soared more than 62% over February 2011 in the Redding/Shasta County area! Low interest rates and low home prices have increased affordability to levels not seen in decades. Here are the numbers:
- 207 home sold in February 2012 compared to 129 a year ago
- 92% of homes sold in February had a list price under $300,000
- 732 homes were listed for sale as of March 5, down 37% compared to the previous year
- 541 homes were pending compared to 472 in early March 2011
- 141 bank-owned homes and 204 short sales equalling 64% of pending home sales are “distressed” properties
- 418 homes have closed escrow in 2012, up 69% for the same time period in 2011
Mortgage rates for fixed-rate loans are averaging 3.17% for a 15-year loan and 3.9% for a 30-year loan. Investors paying cash and first-time buyers using FHA loans dominate the market.
Wild cards which could impact home sales in 2012 include Adjustable Rate Mortgage interest rate resets and strategic defaults by homeowners underwater on their loans. Of the 47 million loans nationwide, 3.6 million are delinquent and 12,533,155 are underwater 125% or more! We still have a long way to go before the housing market recovers and returns to any sense of normalcy. At least we appear to be headed in the right direction!
BRAD GARBUTT
BROKER/REALTOR ASSOCIATE
REAL LIVING REAL ESTATE PROFESSIONALS
CORNER OF COURT AND PLACER IN DOWNTOWN REDDING
NEARLY 30 YEARS LOCAL REAL ESTATE EXPERIENCE
FREE CONSULTATIONS TO BUYERS AND SELLERS
530-941-7492
American Dream of Homeownership Alive and Well
A recent survey found Americans overwhelmingly support home ownership and oppose government changing laws
regarding the mortgage interest deduction or making home loans more difficult to obtain. Here are some of the findings in the poll conducted earlier this month by Public Opinion Strategies and Lake Research Partners:
- 75% agree it is” appropriate and reasonable for the federal government to provide tax incentives to promote home ownership.” Renters and owners alike agreed to this statement. 81% of Democrats and 71% of Republicans and Independents answered in the affirmative.
- 66% believe the federal government should help home buyers secure a 30-year fixed rate mortgage. Loans insured by HUD’s FHA loan program is an example of how the government can help buyers purchase a home with a low down payment and fixed-rate.
- 73% oppose changing or eliminating the mortgage interest deduction regardless of which political party they were affiliated with. 77% of Republicans, and 71% of Independents and Democrats agreed with this statement.
- 68% would be less likely to support a candidate in favor of eliminating the mortgage interest deduction. Respondents from all three parties agreed in virtually equal numbers.
- 96% of home owners, including 84% who are upside down on their mortgage, are happy with their decision to own.
- 79% would advise a family member of friend to buy. 69% of home owners “underwater” on their mortgage would give the same advice.
- Regardless of the turbulence which recently impacted the housing market, 74% still believe homeownership is their best long-term investment.
- Nearly 80% consider owning their own home is very important to them.
- Nearly 70% of non-home owners say buying a home is still one of their goals
- Worries about continued employment and saving for a down payment are deemed the biggest barriers for those wishing to buy a home.
These survey results of 1500 likely voters are consistent with other recent polls by Pew Research and New York Times/ CBS News. This survey was featured in a January 11, 2012 article published by the National Association of Home Builders.
It would appear, despite the negative fallout from the burst of the housing bubble, the American Dream of home ownership is alive and well.
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVING REAL ESTATE PROFESSIONALS
CORNER OF COURT AND PLACER IN DOWNTOWN REDDING
NEARLY 30 YEARS LOCAL REAL ESTATE SALES EXPERIENCE
530-224-6767 OR 530-941-7492
Redding-Shasta County 3rd Quarter Housing Market Update
HOME LOANS, SHASTA COUNTY, SHORT SALES, TIPS FOR BUYERS, TIPS FOR SELLERS
Home sales in the Greater Redding area have picked up significantly year-over-year from 2010. As of today, 1844 homes have closed escrow in the area served by the Shasta Association of Realtors Multiple Listing Service.
Last year at this time, 1582 homes sold and closed. This represents a 16% increase in sales activity. Two factors contributed to the increase in my opinion-higher affordability due to lower home prices and historically low interest rates. Currently, home buyers with good credit can secure a 30-year mortgage at or below 4% and the 15-year rate is close to 3.3%! Low interest rates increase affordability and buying power for first-time buyers and investors are finding buying rental homes pencil out better than expected.
Inventory of available homes has been tight in 2011 with only 1159 active home listings available today. Last year in early October 1537 homes were listed for sale, 25% more than today. Pending home sales are higher despite the skimpier supply with 485 homes in escrow today compared to 421 a year ago.
Bank owned properties (REO’s) and short sales (distress sales) account for more than 60% of sales activity. Of the 485 pending home sales, 150 are bank owned and 150 are short sales. There are 186 active listings which are REO’s and 214 short sale listings.
Home prices continue to decrease, dropping 7.5% thus far in 2011. Last year home prices dropped 11%, which was the steepest decline since the housing bubble burst in 2007. Overall, prices are down 45.6% from the peak in 2006, The avearage sales price today of $176,299 is similar to 2002, when the average price was $174,023.
Home prices appear to have stabilized for the low end of the market for the typical Redding home (defined as a home between 1500-2000 sq ft). In the first quarter of 2011, the typical home sold at $106.15/sq ft, $107.31/sq ft in the second quarter and $108.83/sq ft for the quarter that just ended.
Of the 221 homes that sold in September 2011, 195 were priced under $300,000. No homes priced over $550,000 sold in September. Nearly 100 of th0se sales were priced at or below $150,000.
The raw numbers indicate we have two distinct markets in the Redding/Shasta County area: the very active low-end market below $200,000 and the sluggish mid-to upper-end market! If banks are holding off listing homes which would appeal to first-time buyers and investors, they should reconsider. Many, well-qualified buyers are ready, willing and able, just waiting for affordable properties in good condition to be placed on the market.
Contact me if you have any real estate questions.
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
530-941-7492 or 530-224-6767
REAL LIVING REAL ESTATE PROFESSIONALS
CORNER OF COURT AND PLACER IN DOWNTOWN REDDING
NEARLY 30 YEARS LOCAL REAL ESTATE EXPERIENCE
Credit Score Damage From Foreclosure Alternatives Outlined
HOME LOANS, SHORT SALES, TIPS FOR SELLERS
FICO released an analysis of credit score damage caused by short sale, deed in lieu of foreclosure and foreclosure. The bottom line is all three alternatives result in no significant difference in credit score impact. However, the better your credit score was before the delinquencies, the longer it will take for your credit score to fully recover.
The study found:
- The negative impact on one’s credit score depends on the starting score
- Regardless of the action taken, all three strategies result in about the same credit ding
- Declaring bankruptcy has the largest negative impact on anyone’s credit score
- Expect to wait 7-10 years for your credit score to fully recover from preforeclosure levels
- Short sales completed with a deficiency to the lender will result in 30-35 additional point drop compared to a short sale where there is no deficiency
Variables that determine how large of a drop one can expect include whether the borrower:
- was 30 days or 90 days late on payments
- Had a higher or lower credit score before foreclosure avoidance startegy implemented
- whether there was or was not a deficiency loss on a short sale
- whether foreclosure or bankruptcy events occurred
FICO does not divulge details about the formula used to generate credit scores. The actual credit score impact depends on many other factors so it is possible for more or less damage depending on individual credit profiles.
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVING REAL ESTATE PROFESSIONALS
NEARLY 30 YEARS LOCAL REAL ESTATE EXPERIENCE
CORNER OF COURT AND PLACER IN DOWNTOWN REDDING
Californians Have Best Credit Scores In Nation
HOME LOANS, INDUSTRY NEWS, SHASTA COUNTY
A recent article in a mortgage trade journal pointed out the fact California mortgage applicants have the highest credit scores in the nation. According to the article authored by Heather Cernoch, prospective borrowers in California have average credit scores of 755, 20 points higher than the national average.
Hawaii came in second in the credit score ratings at 751. States in the northeast did well while the lowest credit scores were found in the Southeast region. Mississippi had the lowest average credit score at 695.
I suspect Redding/Shasta County avearge may be lower than California as a whole. The collapse in real estate prices locally in conjunction with double-digit unemployment and conversations with local lenders lead me to believe the average here is significantly lower.
Today, many homeowners with good jobs and credit are wrestling with the idea of strategic defaults on loans for their primary homes, second homes and investment properties. A strategic default is defined as a borrower who elects to walk away from their property because the mortgage is underwater, not because of any financial hardship.
As one mortgage industry expert points out in the article, Californians have managed to weather the wave of foreclosures and precipitous price drops without serious damage to their credit ratings. Let’s hope this trend continues!
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVING REAL ESTATE PROFESSIONALS
CORNER OF COURT AND PLACER IN REDDING
NEARLY 30 YEARS LOCAL REAL ESTATE SALES EXPERIENCE
Wells Fargo Lowers Credit Score Bar for FHA Loans
FHA LOANS, HOME LOANS, TIPS FOR BUYERS
Wells Fargo implemented new underwriting rules in mid-January that will help buyers with credit scores below 600. 
Borrowers with credit scores as low as 500 can now qualify for a loan if they meet certain requirements. Here’s an outline of their new loan policies:
- Borrowers with credit scores of 500-579 must make a 10% downpayment and the downpayment cannot be a gift or provided by a downpayment assistance program such as those offered by Redding and Shasta County.
- Borrowers with credit scores between 580 and 599 must tender a 5% downpayment under the same conditions as above.
- Borrowers with credit scores of 600 or better can make a downpayment as low as 3.5% and gift funds are acceptable.
In all cases, Wells Fargo is limiting closing cost credits to the borrower from the property seller to 3%. In the past, seller contributions up to 6% were allowed.
An FHA loan is a government insured loan. The loans are processed and funded by FHA approved lenders. If the borrower defaults on the loan, the government steps in, makes the lender whole, then resells the property after foreclosure.
Historically, this program has not cost taxpayers a dime. However, the decline in home prices, the struggling economy and the marked increase usage of the FHA loan program has resulted in red ink. HUD, which oversees this loan program, recently modified the mortgage insurance requirements to increase revenues to cover losses. Today, borrowers can expect to pay more in upfront fees and monthly payments of mortgage insurance premiums to keep FHA solvent.
For additional details, contact Mike Whitman at Wells Fargo in Redding at 226-2646.
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVING REAL ESTATE PROFESIONALS
CORNER OF COURT AND PLACER IN REDDING
NEARLY 30 YEARS LOCAL REAL ESTATE SALES EXPERIENCE
Redding/Shasta County Pending Home Sales Soar
HOME LOANS, TIPS FOR BUYERS, TIPS FOR SELLERS
2011 started with 255 pending home sales according to the Shasta Multiple Listing Service as of January 3rd. Today, 405 homes are in escrow. That is a nearly 60% increase in just one month. How can this be?
Some of this can be attributed to dozens of last year’s pending listing inventory expiring on the last day of 2010. Many real estate agents schedule listings to expire the last day of the year. Once these agents realize their listings had expired, they reinstated the listings causing a spike in the pending listing count. This explains about half the spike. The other half is likely due to the upward bump of interest rates that occurred in December. Rates increased about 1/2 % from their historic low point reached in November. Buyers waiting on the fence jumped in when rates started inching upward.
The number of active listings has not changed significantly since the beginning of the year. Today there are 1251 active listings comapred to 1242 on January 3,2011. Likewise, the number of bank owned properties listed for sale is about the same as January 3- 255 vs. 253 today. Short sale listings are also static- 211 then vs. 205 today. The pace of home closings is steady at about 35 homes/week or 159 year-to-date.
Personally, I have noticed an upsurge in activity. The calls I receive on ads, signs, Internet postings and from past clients plus agent referrals are all up from a year ago. 2011 is starting off much brighter than 2010! I have to believe it is not just the beautiful spring-like weather but renewed optimism amongst those wishing to buy and sell. This may be the pent up demand beginning to unleash itself-just in time to absorb the much-talked-about surge of bank owned “shadow inventory” expected in the months ahead.
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVING REAL ESTATE PROFESSIONALS
CORNER OF COURT AND PLACER IN REDDING
NEARLY 30 YEARS LOCAL SALES EXPERIENCE
Stiff Penalty Likely For Strategic Default By Affluent Homeowners
![santacruz-103[1]](http://movetoredding.com/files/2009/11/santacruz-1031-300x199.jpg)
A strategic default is defined as a homeowner who is capable of making their mortgage payment but elects to let the property go into foreclosure because the mortgage is underwater or the property is no longer wanted. Second homes and rental properties are examples of properties purchased by affluent property owners which are likely to be let go if they owe more than they’re worth in today’s market.
A recent article in THE NEW YORK TIMES claims homeowners who decide to stop making payments on a property they no longer wish to keep could be denied a new mortgage for 7-10 years. Not only will their credit be damaged for a lengthy period of time, they could put themselves in a situation where the lender is suing them for the amount of money owed or lost (termed a deficiency) by the bank. Laws allowing a lender to pursue an owner for a loan loss vary from state to state.
In so-called “recourse”states, the lender may go after the home owner’s assets including their primary residence. Maine, New Jersey and Hawaii are examples of recourse states.
In “non-recourse”states, a lender must look only to the value of the subject property to satisfy the outstanding mortgage balance if they take the property through foreclosure, deed-in-lieu of foreclosure or agree to a short sale. However, these laws may only protect the homeowner if the loans were used to purchase the property as the borrower’s primary residence. Refinance, Home Equity Lines of Credit or loans on second homes and investment properties may not have this protection from pursuit for deficiency losses by the lender(s). Florida, Connecticut and Arizona fall into this category.
California, along with Idaho and New York, fall into a third category referred to as “single-action” states which allows the lender to foreclose on the owner or file a civil lawsuit for the full loan amount. I have heard this referred to as judicial or non-judicial foreclosure. Most foreclosures in California are non-judicial and can be accomplished in 4-6 months from start to finish. However, if the lender believes the seller has substantial assets or has intentionally damaged the security through vandalism or stripping the property of fixtures, they may pursue a judicial foreclosure which allows a judge to award a deficiency judgement.
Anyone considering a strategic default should consult with an attorney to discuss potential consequences legally and financially before stopping payments to their lender(s). Since every home owner’s financial situation is unique, consulting with a qualified expert is critical to determine the best course of action to unload an unwanted property.
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVING REAL ESTATE PROFESSIONALS
CORNER OF COURT AND PLACER IN REDDING
MORE THAN 27 YEARS LOCAL REAL ESTATE EXPERIENCE
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