Signs of a Double Dip?

U.S. home prices fell 2% in the third quarter and may continue down, after having gained steadily since early 2009 according to the S&P Case-Shiller Home Price Index.

That leaves national home prices down 1.5% year over year and off 2% compared to the second quarter, according to the information released on Tuesday.

Some factors attributed to the decline were the expiration of the homebuyer tax credit, an increased supply of foreclosures, and a high unemployment rate.

There is also the fear of a "shadow inventory" of homes repossessed by the banks but not yet listed for sale. Millions of these homes could be put on the market at distressed prices, which would force prices down even further.

There is a glimmer of hope with consumer confidence up, mortgage interest rates at near record lows, and reports of fewer jobless benefit claims.

FHA reports decline in insurance claims

The Federal Housing Administration (FHA) released its annual report to Congress last week on the financial status of its Mutual Mortgage Insurance (MMI) Fund -- FHA’s principal insurance account that includes all single-family and reverse mortgage activity.

FHA’s study finds that since last year, the capital reserve ratio held steady, insurance claims declined significantly, and the economic value of FHA’s single-family insurance program grew by more than $1 billion, from $3.6 billion in 2009 to $4.7 billion in 2010.

Like last year’s report to Congress, the report shows that FHA is sustaining significant losses from loans insured prior to 2009 and its capital reserve ratio remains below the congressionally mandated threshold of two percent of all insurance-in-force.

Over this past year, FHA:

• Served more than 1.75 million households by insuring $319 billion in single-family mortgages.
• Enabled one-third of all first-time buyers in the nation (882,000 families) to become homeowners for the first time.
• Helped more than 450,000 families avoid foreclosure through loss mitigation actions.
• Helped 556,000 families to refinance their mortgage at lower interest rates, saving households an average of more than $140 per month.
• Provided access to credit for close to 40 percent of purchase mortgages, including 60 percent of all African-American and Hispanic homebuyers.

To learn more about FHA financing, click here.

New Lending Guidelines Benefit Young Borrowers

Under Fannie Mae's new lending guidelines, which will take effect Dec. 13, 2010, securing a mortgage will become easier for some borrowers and more difficult for others.

These new rules will allow buyers to use gifts and grants from nonprofit groups for their minimum 5 percent down payment. Borrowers previously were required to contribute a minimum 5 percent down payment from their own funds, with additional down payment money permitted from a gift.

These new rules are going to help upgrade buyers and young couples who for whatever reason don’t have enough money and are getting some from their families. The gift rules apply only to single-family principal residences and cover mortgage amounts in excess of 80 percent of the property’s value. The loan balance also has a limit of $697,500 in high-cost areas like San Diego and $417,000 in other areas.

At the same time, Fannie Mae is cracking down on debt-to-income ratios, with the maximum ratio for those seeking a conventional mortgage set to drop from 55 percent to 45 percent under the new guidelines. Fannie Mae is also increasing its scrutiny of payment histories on revolving debt, and buyers who have missed a payment will have 5 percent of the total balance added to their ratios.

Under the new rules, borrowers who have gone through foreclosure will be excluded from obtaining a Fannie-backed loan for seven years, an increase from the previous limit of four years.

7 Trends That Will Drive the Future of Housing

Here are seven trends that may have the biggest impact on housing in 2011.

1. Big builders are wringing the extras out of construction costs and dropping the national average cost-to-build 36 percent to $52 per square foot.

2. Starting in 2011, Energy Star will ramp up its efficient design and quality installation standards. To get Energy Star certification, builders will have to install the right insulation, HVAC systems, and other features related to energy efficiency correctly every time.

3. Sheds are the next evolution. As homes get smaller, a separate shed will become a popular home addition.

4. There are 81 million 'Echo Boomers' who were born from 1981 to 1999, compared to just 78 million Baby Boomers born from 1946 to 1964. These children and grandchildren of Boomers will drive home-building for years.

5. By 2015, demographers say, more than two out of every five households occupied by Generation Y people born between 1981 and 1999 will be WINKs (women with incomes and no kids).

6. Make room for the 'Sandwich Generation' – Baby Boomers living with both their kids and their parents. These families like having two master suites, a second cooking area, and lots of storage.

7. Baby Boomers want to keep working and continue to live where they have always lived. They want a first-floor master bedroom near the washer and dryer and lots of convenient storage.

4 Ways to Get Your Offer Accepted

Home prices in San Diego have fallen along with mortgage interest rates, resulting in multiple offers and high competition.  Here are 4 great tips that our company utilizes to help our client's offer stand out from the crowd.

1. Always Provide a DU Underwriting approval with the offer

All of our offers are accompanied by Fannie Mae's or FHA's DU (Desktop Underwriter) underwriting approval. An offer letter accompanied by a DU underwriting approval will always carry more weight than a basic approval letter, as a DU underwriting approval shows the most important information needed on a buyers profile to give the seller a good idea of the strength of the buyer.

2. Make sure the loan approval is current

We constantly double check that the date on the buyers approval letter is current and the DU approval has an approval date from the past 30 days. Fannie Mae and FHA have been making changes to their DU underwriting guidelines very frequently recently, so the buyer may not qualify for the particular loan program that they got approved for a few months ago.  It is our job to make sure your offer is accepted, and our clients will qualify under current loan underwriting guidelines.

3. Provide proof of down payment funds

By providing proof of down payment funds, the buyer showing the seller that they are serious about their offer and they have the money to close the deal.  We usually will send over recent bank statements with the offer, or if the buyers are going FHA and are getting a gift from the parents, we will provide a copy of the gift letter from the parents.

4. Provide a copy of the buyers credit report (first page only)

Very few offers come across with proof of the buyers credit scores, so this is a great way to stand out. If our client's credit scores are high, we will list them on the pre-approval letter and point this out on the offer. We also provide a copy of the first page of the buyers credit report that lists the 3 credit bureaus and the 3 fico scores, and we make sure to black out their social security numbers for privacy issues. This is a great way to provide full transparency on your offer, so the seller can see the credit strength of our client's profile.

Beware of the "Mortgage Terminator"

With record numbers of foreclosures nationwide, homeowner associations are being forced to cut back on services. Banks have been dragging their feet to iniate the foreclosure process because they will be responsible for delinquent association dues and property taxes. This has left thousands of communities holding the bag, either putting the burden on other homeowners in the community or by cutting amenities.

To combat the banks, a Miami Beach law firm has come up with a strategy, called the Mortgage Terminator,  where homeowner associations can force nonpaying lender-owners to either take ownership and pay deliquencies or give up their ownership interest so the association can take title to the property and sell it. The ploy won't solve all an association's money woes, but it will at least force a lender's hands after an association forecloses on an owner to collect unpaid assessments.

In too many cases, lenders are failing to foreclose on troubled assets, regardless of whether the owner is a troubled borrower or a secondary lien holder. Banks are either waiting for the market to clear so they can sell the distressed assets at a better price, or they don't want to pay the dues and/or assessments required from owners.

Whatever the reason, lenders that are stalling are leaving associations in the lurch. But with the Mortgage Terminator maneuver, associations can take the title to the property and then force the primary lien holder to initiate its own foreclosure proceeding or release its mortgage so the association can sell the unit to cover what it is owed.

Three times now, Florida courts have upheld the tactic, which finanlly gives homeowner associations a strategy that finally gives banks a legal ultimatum. For the full article, click here.

The Jumbo-Mortgage Comeback

Smaller and regional lenders are issuing more new jumbo loans and doing more refinancings, which could help bolster home sales in some areas.

Jumbo mortgages are mortgages deemed “too big” to be sold by lenders to government-supported agencies such as Fannie Mae and Freddie Mac.

The loan limit of a jumbo mortgage varies depending on location. In high-cost areas, including many areas in California, jumbo loans are generally considered those that exceed $729,750. In San Diego, the jumbo loan limit is capped at $697,000.

Some borrowers applying for jumbo mortgages are finding the processing time at larger lenders can be as long as four months, while some smaller institutions can process a jumbo mortgage as quickly as 30 to 60 days.

Additionally, borrowers seeking jumbo mortgages for condos or vacation properties also may be better served using a local lender or contacting a mortgage specialist, as many large lenders have reduced their lending activity.

With jumbo mortgages, borrowers still need excellent credit profiles and must provide complete documentation and verification of income. Down payments of 20 percent to 40 percent also tend to be required for a jumbo mortgage.

Home Buying Trifecta: Right Home, Right Price, Right Rate

The months ahead offer a prime opportunity to seek the home buying trifecta: finding the right home at the right price for the right mortgage rate. Here’s why:

- First, there is a wider variety of homes on the market now, including a mix of REOs, short sales, and

conventional or non-distressed homes for sale. This means that buyers have more to choose from than in the past two years.

- Second, home prices have stabilized or risen in most California markets for at least a year, but still remain well below the peak levels of the last decade. There was a 10-to-1 ratio between the California median price and the California median household income during the last peak. That ratio has fallen to 5-to-1, a level that has not been seen in at least 10 years.
 
- Third, mortgage rates are at their lowest levels in over 50 years, pushing the monthly payment down dramatically.  For example, if one buys a home at the September median price of $309,900, puts 20 percent down and obtains a 30-year mortgage at 4 percent, the monthly mortgage payment would be $1,330. If rates climb to 5 percent, the payment increases to $1,500, or an additional $2,040 per year. If rates climb to 6 percent, the monthly payment would be $1,670, or an additional $4,080 per year. The savings in just two years would exceed the value of the $8,000 tax credit.

Rates are at or near their lowest levels now, but will eventually rise as the economy gains strength. The supply of homes is better than last year, but data points to stable or modestly rising home prices over the near term. In the end, if a home buyer is in a position to buy a home that will meet their needs at a monthly payment it can afford, then they cannot lose.

Loan Scams - 6 Things You Should Know

Scams aren't always easy to spot – but it helps if you know what to look for. Here are six warning signs of a Foreclosure Scam:

1.A company/person asks for a fee in advance to work with your lender to modify, refinance or reinstate your mortgage. They may pocket your money and do nothing to help you save your home from foreclosure.

2.A company/person guarantees they can stop a foreclosure or get your loan modified. NO ONE can make this guarantee to stop foreclosure or modify your loan. Legitimate, trustworthy HUD-approved counseling agencies can assist you with options and facilitate communication with your mortgage company.

3.A company/person advises you to stop paying your mortgage company and pay them instead. Despite what a scammer will tell you, you should never send a mortgage payment to anyone other than your mortgage lender.

4.A company pressures you to sign over the deed to your home or sign any paperwork that you haven't read or you don't fully understand. A legitimate housing counselor should not and will not pressure you to sign a document of any kind.

5.A company claims to offer "government-approved" or "official government" loan modifications. These may be scam artists pretending to be legitimate organizations approved by, or affiliated with the government.

6.A company/person you don’t know asks you to release personal financial information. Check to be sure you are speaking with a legitimate company/person by contacting your mortgage lender directly.

Energy Tax Credits Expiring Soon

There are many reasons for green living. Energy-efficient and renewable products help homeowners save both energy and the environment.  Homeowners can save up to $1,500 in tax credits and rebates, but these credits are set to expire on December 31, 2010.

What does the tax credit cover? 

According to the National Association of Home Builders (NAHB), the tax credit for efficiency upgrades in existing homes (Internal Revenue Code Section 25C) is available for 30 percent of the cost, up to a $1,500 limit in 2009 and 2010, for the installation of certain types of insulation, windows, roofs, water heaters, heat pumps, air conditioners and furnaces.

Additionally, if you purchase an Energy Star product for your home, you may be eligible for a federal tax credit. An energy star washing machine can cut your energy costs by one third and cut your water costs by half.

There's also a tax credit with no upper limit for geothermal heat pumps, small residential wind turbines, and solar energy systems. This credit is good until December 31, 2016, and can be used for existing homes and new construction. Both principal residences and second homes qualify, but rental properties do not.

You can read more details on the kinds of products that qualify and instructions for obtaining the tax credits and rebates at nahb.org and energystar.gov.