My Blog

Enter the Fall: Where to From Here?

11/30/2015

Originally posted on October 5, 2014

From January to its peak in August, the inventory increased without pause. Expect the inventory of available homes to continue to drop for the remainder of the year as fewer homeowners attempt to sell in the fall market. Also expect demand to continue to drop as we move deeper into the fall market towards “The Season of Distractions.” This chart shows the effects of demand dropping a little faster than inventory: an increase in expected time on the market except for a drop in November just before the Christmas season.

Price Drops and Rate Hikes

11/30/2015

Originally posted on October 3, 2014

A 1% increase/decrease in interest rates has the same effect as a 10% increase/decrease in prices. We know interest rates will be rising, eventually by a full percentage point. For monthly payments to stay the same home prices will need to drop 10% at the same time. That’s asking a little much, don’t you think? I believe both rates and prices will rise over the long run. So, the buyer who opts to take advantage of today’s interest rates and prices will look like a genius just a few short years from now!

Study Up on the Credit Score Game

11/30/2015

Originally posted on September 27, 2014

Nabil Captan is a nationally recognized credit scoring expert, educator, author and producer. In today’s post, he explains how what you don’t know about your credit score could end up costing you.  Are you considering buying a home in the next 12 months? Get prepared! Stop looking at houses and start looking into your financial profile so you have enough time to clean things up and look your best when you seek loan pre-approval. It’s all about proper preparation!

Informed consumers considering a home purchase today want to do the right thing and plan ahead. Many do not seek immediate professional guidance from a Realtor or a mortgage loan officer. Instead, they hunt for hours online, looking at numerous websites for available homes for sale. They also consult websites to find the best interest rate and terms for future monthly mortgage payments. Many consumers feel betrayed, cheated and at times embarrassed to learn that the credit scores they counted on, to get that specific interest rate for their loan, are not used by mortgage lenders.

When shopping for a good mortgage interest rate, consumers also need to know their credit score, and utilize an online mortgage calculator to compute future monthly mortgage payments. A Google search for “credit score” will yield hundreds of results. The consumer accepts the provider’s terms and conditions to get a free credit score. Terrific! Unaware that in exchange they just received a meaningless credit score that lenders never use. They also handed over their Non-Public Personal Information (NPPI) to that credit score provider for life.

Before we go any further, let’s look at available credit scoring products available to consumers today:

  • FICO credit score from Fair Isaac Corporation/myfico.com, range 300 to 850
  • Plus Score from Experian, range 320 to 830
  • Trans Risk Score from TransUnion, range 300 to 850
  • Equifax Credit Score from Equifax, range 300 to 850
  • Vantage Score from all three bureaus, two ranges, 300 to 850 and 501-990

What is a FICO Score?

In 1958, Bill Fair and Earl Isaac, a mathematician and engineer, formed a company in San Rafael, California. They created tools to help risk managers make a better decision when taking financial risk. Today, 90 percent of all lenders use the FICO score, first created in 1989 by Fair Isaac, and it’s the only score Fannie Mae and Freddie Mac, the Federal Housing Agency and Veterans Affairs will accept in underwriting loans they guarantee.

What is a Consumer Score?

The three credit bureaus, in their understanding of the credit scoring model created by FICO, decided to create their own scoring models, and in 2004 – 2006 they unveiled the “consumer” scores: Plus Score, Trans Risk Score, Equifax Credit Score, and Vantage Score. However, these are not genuine FICO scores, and mortgage lenders don’t use them. Consider this comparison: Would you buy a watch that gives the approximate time of day?

The three credit bureaus work with major financial institutions, professional organizations, comparison sites, personal finance businesses, clubs such as Costco, AAA, Sam’s Club, and many data-mining brokers to bombard consumers in the race of the free credit score mania, all with the enticement of a “consumer” score that is not used by lenders, in hopes of obtaining subscriptions or fees from consumers. Fees that are totally unnecessary!

Know Your Score

Gaining access to one’s own credit report and credit score prior to loan approval with no strings attached could be helpful, and at all times beneficial. With little effort, inaccuracy of information can be instantly corrected at the credit bureau level, and with a few simple steps, credit scores could be enhanced. For example, paying down revolving account balances before a creditor’s statement-ending date (the creditor later updates account information with the credit bureaus), thus reducing revolving account balances at a particular point in time, will positively add more points to a score. It’s priceless.

More Information

Consumers have a legal right to access their annual credit report at no charge once a year from annualcreditreport.com, a site sponsored by the three major credit bureaus: Experian, Equifax and TransUnion.

These reports provide all the basic consumer data, but do not reveal a credit score. If you have a need for the FICO credit score that is actually used by mortgage lenders, myfico.com is the website to visit. For $19.95 per bureau, consumers can purchase a customized credit report with a genuine FICO score.

Additional websites to visit: the Federal Trade Commission (ftc.gov) and the Consumer Financial Protection Bureau (cfpb.gov) for true answers to questions about any financial concepts, financial products, dispute and complaint submissions, and much more.

Today’s homebuyer has instant access to answers. To be relevant in today’s market, real estate professionals need to know the absolute correct response to basic credit questions. It’s important.

Copyright 2014 Nabil Captan, Captan & Company. All rights reserved.

The New Rules of Borrowing

11/30/2015

Originally posted on September 13, 2014

From The Wall Street Journal, via Associated Press

(Subsequently edited by Dick Crawford)

The basics: Banks need to make more loans; jumbo loan rates have come down more than .5% this year; the ARM is making a come back; you need a good credit profile to play.

Forget what you knew about getting a home loan. The credit game is changing. Taking a big mortgage to buy a large house may no longer mean a higher interest rate.

Rates on many consumer loans have come down this year as more lenders compete to win over borrowers. What’s more, some riskier loans are starting to make more financial sense.

Large mortgages, known as jumbos, have carried lower average fixed interest rates than smaller home loans for five consecutive weeks through Sept. 5—an anomaly and the longest such stretch for 30-year mortgages since at least 1986, according to mortgage-info data from website HSH.com.

The caveat, but no surprise: you often need top credit scores to get the best deals.

“If you have very good credit and you’re able to [take] on debt, this is the time to borrow,” says Joseph Pucella, a vice president and senior credit officer at Moody’s Investors Service, a credit-ratings firm based in New York. “Rates are very low still and the banks are competing for that type of customer, so you’ve got more options.”

The deals are being offered as banks, hungry for revenue, try to drum up business. The loans are mostly targeted at borrowers with high credit scores, in most cases at least a 720 FICO score on a scale that runs from 300 to 850. Applicants often need to clear several additional hurdles, such as providing income documentation and maintaining a low overall debt load.

Borrowers are jumping at the opportunity. Excluding home loans, $390.9 billion in consumer loans—including student loans, car loans and personal loans—was originated in the first five months of 2014, according to the latest data from credit-reporting firm Equifax. That is up 11% from the first five months a year before and the highest for that period since 2007, when lending standards were looser.

For home buyers, it can pay to go big. In a twist on long-standing practices, interest rates on mortgages for pricier homes are now cheaper than mortgages that accompany lower-priced properties.

That’s because interest rates on regular mortgages are largely set by the investors who buy the loans, such as Fannie Mae and Freddie Mac, and the costs associated with these loans have increased. Jumbo mortgages, by contrast, are mostly held by the banks that make the loans, and lenders have lowered those rates to attract desirable borrowers.

Rates on 30-year fixed-rate jumbo mortgages—those that exceed $417,000 in most parts of the U.S. or $625,500 in pricier markets like New York and San Francisco—averaged 4.14% during the week ended Sept. 5, compared with 4.18% for smaller 30-year fixed mortgages, according to HSH.com. These rates have fallen by more than half a percentage point since the beginning of 2014.

With real-estate values spiking in many markets, the decline in jumbo rates could help ease the sting of higher prices.

Another option for home shoppers: an adjustable-rate mortgage. Most ARMs have a fixed interest rate for a set number of years before they begin to adjust annually.

The risk: Once the loan’s interest rate adjusts, borrowers could end up with much larger monthly payments and have a difficult time holding on to their house, depending on where interest rates stand. ARM rates are typically pegged to the London interbank offered rate, and can rise or decline. Most ARM rates can rise by a maximum of five or six percentage points over the life of the loan.

ARMs with a 30-year repayment period and a fixed rate for the first 10 years offer a more conservative option: Their average rate of 3.79% for the week ended Sept. 5 is 0.39 point cheaper than that of 30-year fixed-rate mortgages, according to HSH.com.

Many borrowers won’t need the loans for more than this fixed period. The typical seller in 2013 owned his home for nine years, according to the National Association of Realtors.

Consider a 30-year ARM of $400,000 with a fixed rate of 3.79% for the first 10 years. A borrower will pay about $136,267 in interest charges over the first 10 years—some $14,941 less than what a borrower with a 30-year fixed-rate mortgage would pay in interest over the first 10 years assuming a 4.18% interest rate.

Bob Griendling and his wife took out an ARM with a 3.5% fixed rate for 10 years in April when they purchased a home in St. Petersburg, Fla. “[It] was a damn good deal for 10 years, knowing we had the wherewithal to pay it off if we had to,” says the 66-year-old retiree.

Borrowers who are considering an ARM should look for one with a fixed rate at least as long as the period they are planning to keep the home. They should also put aside some of the savings they realize from the lower initial monthly payments. That extra cash could come in handy in case they need to stay in the property longer and their monthly payment rises.

About That FHA Prepayment Penalty . . .

11/30/2015

Originally posted on September 12, 2014

News that FHA will eliminate a prepayment penalty starting next year has been widely reported. It’s a move NAR has been seeking for some time because it will relieve borrowers of a financial hit that’s entirely out of their control and also bring the agency’s policies in line with other federal agencies that backstop mortgages. Perhaps most importantly, it will align the agency’s policies with the qualified mortgage rule (QRM), which defines what the federal government considers a safe home mortgage loan.

What’s being eliminated is an interest-rate charge. For FHA borrowers who pay off their mortgage before the end of the month, the lender is allowed to charge to the borrower the interest rate costs on the loan from the day the loan is retired until the last day of the month. So, if a borrower paid off the loan on Sept. 10, the penalty would be 20 days of interest payments. That can be hundreds of dollars. Once the change takes effect, on Jan. 21, 2015, lenders will no longer be able to apply that interest charge to the borrower.

 

(Originally posted September 11, 2014 in “Breaking News” blog of The National Association of Realtors

by Robert Freedman)

7 Ways to Protect Important Documents

11/30/2015

Originally posted on September 5, 2014

We live in a digital world, but that doesn’t mean paper has disappeared. Social security cards, birth certificates, wills and other important physical documents still need to be protected. Not sure which documents are the “important” ones? Experts recommend safekeeping insurance policies, passports, family photos and othe indispensable records.

Here are some options for safekeeping:

Keep It Together — Store important documents in a portable, lockable home safe—preferably fire and water resistant—that can be easily located in an emergency.

Fire Prevention — Fireproof boxes are a great backup plan. But preventing house fires in the first place can bring peace of mind to every homeowner.

Burglarproof Your Home — Make sure all windows and doors are locked when you leave. A dog’s bark (large or small!) is an excellent deterrent. Security systems and surveillance cameras, along with a warning sign, can deter would-be criminals.

Offsite Storage — Keep copies of important documents at your attorney’s office or with a trusted relative. Keep in mind a bank safe-deposit box may not always be the best option.

Create Digital Backups — Scan everything. A CD, flash drive or an external hard drive can be kept in a separate location, or you can use an online storage service that can be accessed from any computer.

Get Rid of It Identity theft is a concern for many consumers. One way to protect yourself is to shred documents you no longer need. Old bank statements, credit card offers and pay stubs are great candidates for the crosscut shredder.

(From Sierra Pacific Mortgage, Irvine CA)

Are Pre-Listing Home Inspections a Good Idea?

11/30/2015

Originally posted on August 31, 2014

(For the record: I strongly believe in pre-listing inspections and nearly always suggest they be pursued. Why would you want to leave the door open to confrontation during escrow? Why not attract the best buyer for the property and ensure they have no reason to cancel later?

In Orange County we experience minimal damage from bad weather and high humidity because the opposite usually blesses our life. Yes, we have earthquakes, but that damage is pretty easy to spot without an inspector!

I believe a pre-listing inspection is an excellent first step in creating confidence and encouraging healthy communication with the buyer. The seller is handing the buyer a professional inspection report with a list of the items fixed and declaring the seller has no intention to make additional repairs. The buyer knows exactly where he stands and knows his own inspector won’t find much else, so he has every reason to make a solid offer. The buyers like a short honey-do list and the feeling they can move in right away. The chances of a request for repair later drops like a rock. Long live pre-listing inspections ~ there is no better way to close an escrow than with no repair requests and buyers thrilled with the condition of the home!   D.C.)

By Natalie Eisen, Working RE Magazine

Real estate agents generally agree that a home inspection is essential for the buyer. But should the seller take the time and money to have their home inspected before a buyer enters the picture? Some agents believe this can present risks and be a waste of money for the seller, while others argue that a pre-listing inspection is vital to the seller going into a home sale.

Although the decision about whether or not to have a pre-listing inspection ultimately falls on the seller, real estate agents should note both sides of the argument and decide for themselves which side they fall on.

Some agents think it’s usually not in the best interest of the homeowner to do a pre-listing inspection. They see it as a big benefit to the buyer and nothing more than a game of chance for the seller. Agents should be cautious and think about what is best for the seller and how the seller will benefit.

Full-disclosure laws dictate the inspection report must be revealed to the buyer. So, because there is no way to tell for sure what the buyer is capable or willing to repair, they feel a list of everything needing repair is a surefire way to scare off potential buyers.

“In some situations, pre-inspections can cause disputes,” says Toni Weidman, a Realtor from Florida. “Several pre-inspectors have found some things wrong, and the sellers went to the trouble and expense of having those items repaired. The seller thinks that is the end of it. Then along comes a buyer who has his own inspector and found several more items. Now, of course, the buyer wants them fixed. The seller is saying no, he’s not paying for any more fixes. He had a pre-inspection done, and the repairs were made. He may think the buyer is trying to rip him off.” Weidman says that cases like these are the reason not to complete a pre-listing inspection. “Why not wait to have the inspection done and covered by the contract?” Weidman asks. “Isn’t that what the contract is for?”

Others disagree. “The questions is, why should a seller pay for the expense of a home inspection when any smart buyer is probably going to hire their own inspector anyway?” asks Russell Spornberger, a Georgia home inspector. “Preparation is the answer: ‘forewarned is forearmed’.” Spornberger says that having a pre-listing inspection can arm the seller with information they may not have had about their home. Few sellers, he says, will take the time to climb onto the roof or take a look at their electric panel. “By doing a pre-listing inspection,” he says, “a seller can learn the true condition of their home from an objective observer. Using the pre-listing inspection, and without the pressure of a pending sale, the seller, working with his or her listing agent, can develop a strategy that will ensure the house will be sold quickly and smoothly.”

“A pre-inspection catches what the buyer may find during their own inspection,” says Athina Boukas, broker and Realtor in North Carolina. Boukas is strongly in favor of pre-listing inspections, saying that they have many advantages: for example, the pre-listing inspection report can be presented to a potential buyer in order to reveal all information about the home immediately and start off with full confidence. “It is less likely that the buyer will renegotiate the offer after their own inspection,” Boukas adds, “because it is less likely they will find a surprise or a new deal breaker.”

Home Flipping Wanes: Fewer Bargains

11/30/2015

Originally posted on August 21, 2014

Bloomberg News

Home flipping, in which a buyer resells a property quickly for a profit, is on the decline as U.S. residential price gains slow and foreclosures dwindle.

Almost 31,000 single-family houses were flipped in the second quarter, representing 4.6 percent of U.S. home sales, RealtyTrac said in a report today. That’s down from 6.2 percent a year earlier and the smallest share since the first three months of 2012, when prices bottomed after the crash, according to the Irvine, California-based data company, which defines a flip as a property sold within 12 months of purchase.

Real estate investors are making smaller profits and finding fewer opportunities for deals after a two-year surge in property values that’s now slowing. The median existing-home price climbed 4.9 percent in July from a year earlier, compared with a 13.1 percent jump in the same month of 2013, the National Association of Realtors said yesterday. Distressed homes accounted for the lowest share of sales since at least 2008.

“The flippers’ formula is to buy a property that they can add value to at a discount and sell at a premium,” Daren Blomquist, vice president at RealtyTrac, said in a telephone interview. “Now, home-price appreciation has slowed dramatically in many of the flipping meccas and the availability of discounted distressed properties has dried up.”

The average gross profit per home flip in the second quarter was $46,000, or 21 percent of the return on the original investment, down from a peak of 31 percent a year earlier, RealtyTrac said.

The metro areas with the most flips were Phoenix, Los Angeles and Miami. Flips in Phoenix and Los Angeles represented a smaller share of transactions compared with a year earlier, while Miami had an increase, according to RealtyTrac. Pittsburgh; New Orleans; Baltimore; Virginia Beach, Virginia; and Daytona Beach, Florida provided the best returns, the company said.

The share of high-end flips is increasing as fewer distressed properties become available. Homes with a sale price of $750,000 or higher represented 4.1 percent of properties quickly sold during the quarter, up from 3.4 percent from a year earlier. Sales of $750,000 to $1 million provided the best return, at an average 41 percent, RealtyTrac said.

Short Sales Declining Rapidly

11/30/2015

Originally posted on August 20, 2014

(For the record: As equity builds in southern California and particularly Orange County, short sales and bank-owned properties comprise an even smaller slice of the market. D.C.)

From the National Association of Realtors

The short sale share of home sales has declined significantly in the past year, with distressed property activity shifting to sales of bank-owned (REO) properties, according to the latest Campbell/Inside Mortgage Finance HousingPulse Tracking Survey.

Short sales accounted for 4.4% of home sales in July, based on a three-month moving average, down from an 8.7% share in July 2013 and a peak of 16.8% in February 2012.

The decline appears to have been prompted by the tax burden faced by sellers on short sales. Congress allowed the Mortgage Debt Forgiveness Act to expire at the end of 2013, and while the act has been extended in previous years, it’s unclear if Congress will apply the tax relief to short sales completed in 2014.

The move-in-ready REO share of home sales has increased in recent months, reversing a long trend in the distressed-property sector. Move-in-ready REOs accounted for 11.7% of home sales in July, up from a 9.4% share in January.

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