The Home Valuation Code of Conduct (HVCC) which regulates appraisals was the result of an agreement reached in March, 2009 between the Attorney General of New York (Andrew Cuomo) and Fannie Mae and Freddie Mac in exchange for the Attorney General’s office terminating its investigation into issues of appraisal coercion.
It seemed like a great idea. HVCC addressed the need for sound appraisals produced free of any influence or coercion on the part of the lender or any other party involved with the purchase or refinance of a property. Another great idea from the government!
As usual, the devil’s in the details. And the details have created havoc for everybody in mortgage lending.
A year ago you might have approached me for a refinance of your $200,000 mortgage loan on your property that you thought was worth $300,000. The first thing I would have done is contact an honest and experienced appraiser and ask him or her to do a comparable search. If the appraiser called me back and said the local market would only support a value of $200,000, I would contact you and tell you that a refinance would not work. You would not be charged an appraisal fee.
In the same scenario today, I could not contact an appraiser. In fact I cannot even order an appraisal from the honest and experienced appraisers I know. I must order the appraisal through a third party AMC (Appraisal Management Company). And you have to pay for the appraisal upfront, regardless of whether or not the refinance is possible.
The HVCC has hurt appraisers by reducing their fees since 40% or more of their fees are handed over to the AMCs. It has also barred them from the business relationships and client relationships they developed over the years spent in their profession. Many experienced appraisers have already left the business and others are just hanging on for dear life.
It has hurt consumers by increasing the cost of purchasing or refinancing a home and by being forced to pay for an appraisal when a refinance was a lost cause to begin with.
The only entities who benefited from this whole fiasco are the AMCs and the people who own them.
So, thanks Attorney General Cuomo. You really thought this out. Incidentally, I hear that the Attorney General is up for re-election. I also heard that his opponent is looking for campaign donations.
Posted by Terry Brunner. Terry is a Senior Loan Officer with Horizon Financial. Terry can be reached toll free @ (877) 627-9211 x150 or email TBrunner@HorizonFinancial.org. Visit Horizon’s website at www.horizonfinancial.org
Securing an FHA mortgage in South Carolina is about to get more expensive.
In a statement issued Wednesday, the Federal Housing Authority outlined policy changes to its mortgage assistance program. The shift is meant to both reduce the government group’s portfolio risk while strengthening its overall financials.
For consumers, the changes mean higher costs. As listed in the official announcement, there are 3 major guideline updates for the FHA:
- Upfront mortgage insurance premiums are increasing to 2.25% from 1.75%
- Minimum downpayments for applicants with sub-580 FICOs are rising to 10%
- Seller concessions are being limited to 3%, down from today’s allowable 6%
Furthermore, the FHA has appealed to Congress to raise an FHA borrowers’ monthly mortgage insurance premiums. To read the FHA’s statement, it’s clear what the group is trying to balance. On one side, the FHA wants to provide affordable financing to families that need it. That’s its mission statement. On the other side, though, the FHA must manage the risk that comes with insuring lesser-quality loans. To that end, the FHA is stepping up its enforcement of “bad lenders” in hopes of stopping problems where they start.
Also in its new policies, the FHA is introducing a “termination clause”. If banks or loan officers that produce more than their fair share of bad loans, they lose their right to originate FHA mortgages. As a result, homebuyers in Simpsonville should expect tougher FHA underwriting in 2010. Not because the FHA says so, necessarily, but because banks don’t want to do “bad loans”. Lenders are incented to turn down at-risk applicants and, already, we’re seeing examples of this.
Despite FHA allowing 580 FICOs and lower, many banks have made 620 their minimum. Some have other guideline overlays, too. The FHA’s new guidelines don’t go into effect until spring. So, between now and then, the old guidelines will apply. Therefore, if you know you’re going to need an FHA home loan in the next few months, consider moving up your time-frame. If nothing else, you’ll save some money at closing.
Posted by Scott Fowler. Scott can be reached @ 864-527-8900 x 104 or SFowler@HorizonFinancial.org
Prices have risen more than 3% since May, according to S&P/Case-Shiller.
But most forecasts predict price declines in 2010, with possible losses ranging from anywhere from 3% on up. Fiserv Lending Solutions, a financial analytics firm, forecasts that prices will fall in all but 39 of the 381 markets it covers, with an average drop of 11.3%.
“We’ve seen recent price stabilization because of low mortgage interest rates and the impact of the first-time homebuyers tax credit,” said Pat Newport of IHS Global Research. “But there are really good reasons to think prices will now start going down.”
There are three main reasons for the reversal: a coming flood of foreclosures, rising interest rates and the eventual end of the tax credits.
For Gus Faucher, the director of macroeconomics for Moody’s Economy.com, the huge number of foreclosures that remain in the pipeline is the big problem.
Moody’s upped its estimate of defaults recently because of shortcomings of the government-led mortgage modification programs. Trial workouts are not being made permanent and completed modifications are redefaulting at high rates.
“There are going to be fewer [successful] modifications than we thought,” said Faucher.
Even so, he added, much of the price decline has already occurred and Moody’s forecast is for only another 8% drop. The worst-hit markets will be the ones suffering the most foreclosures, places like Arizona, California, Florida and Nevada. (See 7 tips for buying foreclosures)
Resetting option ARMs (adjustable rate mortgages) will also aggravate the foreclosure problem. These mortgages allow borrowers to pick their own payments, which can be so low they don’t even cover the interest. Balances swell.
For many of the more than 350,000 option-ARM borrowers, it’s time to pay the piper. Their loans will change into fully amortizing mortgages that will carry much higher monthly payments. A very large percentage of these homeowners will default, according to Shari Olefson, author of “Foreclosure Nation: Mortgaging the American Dream.”
“We’ve still only seen the tip of the foreclosure iceberg,” she said.
She also predicts more strategic defaults, people deliberately walking away from even fixed-rate mortgages as the value of their homes dips well below the amount they owe.
Olefson’s forecast is for price declines of 5% to 15%, depending on the area, with a national median price drop of about 10% for 2010.
Also affecting prices will be higher interest rates. Some analysts, according to Newport, think rates for a 30-year mortgage will pass 6% next year as the government curtails housing market support.
The Federal Reserve has helped keep rates low through purchases of mortgage-backed securities. But that program is winding down and will end in March.
“The government is throwing everything at the market but the kitchen sink,” said Peter Schiff, president of Euro pacific Capital. “It can’t prop up housing markets forever.”
Schiff is among the bigger bears. Though he gave no specific prediction, he thinks prices — already down 29% from the peak — are only halfway to the bottom.
As a tool for supporting housing markets and prices, the tax credit for homebuyers is a two-edged sword. It reduces taxes dollar-for-dollar by up to $8,000 for new homebuyers and $6,500 for buyers who already own a home and should support home prices. But it ends at the end of April.
Many buyers will push their deals forward to get in before the deadline and then demand for homes could sink afterward.
One of the few bulls out there is NAR, whose chief economist, Lawrence Yun, is counting on the tax credit to provide temporary support for housing markets until the economy recovers enough to start fueling sales. He predicts price improvement in 2010 of more than 3%.
“The headwind we face is rising mortgage interest rates,” Yun said, “but the compensating factors will be the homebuyers tax credit in the first half of the year and increased job creation in the second half.”
All of this means, now is the time to buy! To talk to a mortgage manager, call 864-979-1111 and ask for Gary Schoenholz (15 years of mortgage experience) or go to my website: www.GaryTheMortgageExpert.com.
After hitting an all-time low in early December, the average rate on a 30-year, fixed-rate mortgage rose to 5.05 percent this week and could climb to 6 percent by the end of 2010, if not sooner, according to giant mortgage financier Freddie Mac.
The results are noteworthy because rates have not topped 5 percent since the last week of October, when they reached 5.03 percent, based on the results of this closely watched survey, which polls lenders during the first three days of every week.
Many firms regularly track interest rates and come up with slightly different numbers because they survey different lenders at different times of the day or week. But several have reported the upward trend in recent weeks. They attribute it in part to the effects of the holiday season, when demand for buying and refinancing homes dies down and financial markets coast through the end of the year.
The key catalyst for interest rates going forward will be the end of a Federal Reserve program that buys a sizable chunk of mortgage-backed securities issued by firms such as Fannie Mae and Freddie Mac. That program succeeded in immediately pushing mortgage rates well below the 6 percent mark when it was announced last year.
But the Fed has committed to winding down the program by March. The central bank is betting that by gradually tapering its purchases, private buyers of mortgage-backed securities, who have largely been absent from the market, will return and rates won’t rise much.
But Amy Crews Cutts, deputy chief economist at Freddie Mac, said interest rates are bound to rise to 6 percent by the end of 2010 because private buyers will demand a higher rate of return on the securities than the Fed did. Lenders may have to raise the rates they charge to consumers in order to make that happen.
“Extraordinary resources have been put into keeping the rates down and supporting the mortgage markets and it’s hard to imagine that the rates can go much lower than they are,” Crews Cutts said. “Anything we get at or below 5 percent is a gift at this point.”
This week’s Freddie Mac survey found that the 5.05 percent average on 30-year fixed-rate loans (with an average 0.7 point) was up from 4.94 percent the previous week but down from 5.14 percent at the same time last year. The all-time weekly low since the firm started tracking the numbers in 1971 was in the first week of December, when rates fell to 4.71 percent.
Many borrowers have not been able to secure the best rates because they lack the stellar credit scores and hefty down payments that many lenders now demand. Some who have tried to refinance have not been able to qualify because their home prices have plummeted to the point where they now owe more on their mortgages than their homes are worth.
But anyone who can secure a loan should not wait much longer, especially if they are looking to refinance, McBride said. Homeowners are more sensitive to interest rates when they refinance than when they buy a home.
But the interest rate is less critical to people who want to buy a home, McBride said. In that case, price and affordability should trump interest rates.
The general rule of thumb is that your monthly mortgage payment (property taxes and insurance included) should not exceed 28 percent of gross pay. All your loans combined — mortgage, car, credit card, student debt — should not exceed 36 percent.
posted by Mike Owens Partner/Mortgage Planner with Horizon Financial, Inc. Reach Mike at MOwens@HorizonFinanical.org or at (864) 907-2678.
The U.S. unexpectedly lost 85,000 jobs in December and revisions showed payrolls increased the prior month for the first time in almost 2 years. Payrolls decreased last month after a November gain of 4,000, figures from the Labor Department showed today in Washington. The jobless rate held at 10%
The so called underemployment rate, which indicates part-time workers who would prefer a full-time position and people who want to work but have given up looking rose to 17.3% from 17.2%
Over the last 2 years the U.S. has seen 7.2 million job losses, this has been the biggest as a percentage of all jobs since World War II was ending in 1944-45.
Though most economist agree that we will see job gains in the coming months, most agree that it will be a slow increase and many predict that the unemployment rate towards the end of 2010 will still range between 9-10 percent.
Posted By Randy Ratchford. Randy can be reached toll free 877-627-9211 ext107 or by email RRatchford@HorizonFinancial.org
2010 is just a few days old and already the “experts” are making predictions for the year.
Housing calls and mortgage rate predictions run the gamut:
- Home prices will fall in 2010
- Home prices will rise in 2010
- Mortgage rates will rise in 2010
- Mortgage rates will rise by a lot in 2010
Given how varied their outlooks, it’s clear the professionals have no better view of the future than the amateurs. An expert can make an educated guess, but it’s a guess nonetheless. Last year, Wall Streeters predicted a 25% pullback in home prices. 12 months later, we know prices didn’t fall. Wall Street also predicted higher mortgage rates for 2009. That prediction was fulfilled.
There’s a lot of talk on CNBC and elsewhere about what’s coming in 2010. Before you take those predictions to the bank, just remember analysts do a much better job interpreting data from the past than projecting it into the future. The only thing that’s certain right now is mortgage rates are historically low, the government is giving tax credits to qualified buyers, and there’s a lot of good “deals” in housing.
Make the most of what’s out there today because it will take 12 months for us to look back and know which predictions were right and which were wrong. Until then, predictions are just opinions and guesses.