The real estate blog.

CNNMoney has been running a series on American’s facing financial ruin because of the ongoing problems in the economy. Honestly, some of the stories make it hard to feel sorry for people involved. Comments from readers reflect that.

Consider the story of Patricia Guerrero who had to go to the food bank on Good Friday to get food for her family. Her husband left her and she lost her job as a mortgage loan processor. Now we don’t know the full story, but one fact immediately leaped out at me - she was on the brink of financial disaster after only two months. One of those months was covered by their tax refund, the other’s obligations were met from savings. Guerrero has a $2500 a month mortgage payment and admitted she had to take off her Tiffany bracelet and leave her Coach purse in the car when she entered the food bank. This doesn’t help her pity case one bit and commenters lambasted her.
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The real estate downturn has hit employees of the industry very hard. During the boom years everybody wanted to be a real estate agent and the numbers in those ranks soared. Now that the easy money is gone, so are the new agents. It’s probably good for everyone involved.

Mortgage brokers are facing a similar dilemma. Not only has demand decreased, but so have offerings. I used to receive half a dozen rate sheets in my email each day. Now I receive one. Many wholesale lenders have gone out of business, while others have eliminated their wholesale broker divisions entirely.

Regardless, the housing crisis has triggered a huge shift in the industry’s dynamics. Big banks, such as Bank of America Corp. and National City Corp., have stopped making loans through brokers entirely,
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This burning question comes from reader Susan -

I was wondering if you could explain the best way to buy a foreclosed property. How to I find them? Is it usually best to purchase it from a bank? Or a pre-foreclosure? Do the homes go to auction? Maybe you could do a post on this topic. Do you suggest buying foreclosed properties?

Thanks for the question Susan. Given the state of the real estate and mortgage markets in the U.S. and the increased rate of foreclosures, this is quite the timely question.

Let’s recap real briefly what the stages of foreclosure are and then examine where the opportunities for investment lie in each stage. While every state has different laws and time periods associated with foreclosures, there are in general three main steps:
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One thing’s for sure, FHA won’t become the new subprime. While the information you’re about to receive isn’t FHA policy, it will impact FHA loans in Utah and throughout the nation.

I obtained an update from an FHA lender yesterday citing new credit requirements for underwriting and new costs.

Middle FICO scores:

601-619 = .5% hit to price.
Less than 600 = 3% hit to price.
No credit score = 1% hit to price.

Additionally, manual underwriting requires a score of 580. However, automated approvals can be any score. Technically, there is no minimum.

It’s important to remember this is the policy of one lender, so if you’re on the cusp and you need a loan, be sure to check with other lenders. Unfortunately, most lenders are headed in this direction.
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Home sales were reported as being up for the month of February by the National Association of Realtors. This was a surprise to many economists who expected yet another decline in purchasing volume. Sales in Utah reflected the national numbers as well.

Alas, this report was yet another don’t believe the headlines, believe the numbers type of story. To get the true picture, I had to go to multiple sources.

Let’s start with the national picture. CNNMoney reported Home sales rise slightly on biggest-ever price drop.

The National Association of Realtors reported that sales by homeowners rose 2.9% in February to a seasonally adjusted annual pace of 5.03 million, up from January’s reading of 4.89 million. It was the first month-over-month rise of the annualized pace since July.
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Contagion is probably the best word to describe the far reaching effects of the housing downturn. Private mortgage insurance seems to be the latest portion of the mortgage business tightening standards and the fallout will remove conventional 100% financing programs from the marketplace.

I was first made aware of the problem when working with a client. The loan rep claimed Freddie’s expanded approval program, which offers 100% LTV, no longer has mortgage insurance available, which essentially removes that option from borrowers. This is not a Freddie Mac policy, but a condition of the marketplace. As a result, a program exists nobody can qualify for. This will soon be eliminated.

The same representative explained other approval levels should see the same thing happen. What
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I’m not sure what the right word is…irony…stupidity, but Congress’ action to help the housing market may actually hurt it.

What am I talking about? The higher temporary loan limits passed in the stimulus package. We’ve wondered for some time what the true cost to these higher limits would be and this week we got more answers.

I reported last week that conforming jumbo rates would increase .25% for fixed rate loans, while ARMs would see a .75% hit to rate. This week, we’ve learned FHA’s increased loan limits would see a 2.5% hit to price. That’s a pretty big hit to absorb at one time.

I’ll go into some further detail of the implications of this higher pricing in a future post, but my gut reaction is higher loan limits won’t help as much as Congress originally hoped or intended.
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The Federal Reserve Board chopped rates a whopping .75% yesterday. In a widely expected move, short term interest rates now sit at 2.25%. The discount rate, a previously rarely used credit facility allowing direct borrowing from the Fed, was cut to 2.5%. Wall Street responded positively with the Dow sharply up 420 points.

Yet this cheaper money will probably not benefit housing. Why? On the same day the Fed was cutting, a major investor was tightening FHA standards. I found out Chase has eliminated FHA loans below 580 and tacked on a hefty 3% hit to price for those with credit scores of 580-599. A 2.5% hit to price is being tacked on to the newly created Jumbo FHA loans.

While these price ads and credit tightening are not across the board FHA policies, the fact a big mortgage
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It’s been a busy week in the real estate world. New bailout proposals surfaced. New loan limit limitations became clearer. Mortgage rates were on a roller coaster. I haven’t commented on any of it. I’ve been busy too, but I’ll have a bunch of new stuff this weekend.

Today, I’m going to take a page from the MSM and talk about the most important thing to happen in real estate this week. Michael Jackson saved Neverland Ranch from foreclosure. Though from the looks of it, there’s not too much to be saved.

Jackson hasn’t lived there since 2005, so some may question the financial prudence of saving a $24.5 million estate, one hasn’t set foot in for three years. I suppose Jackson’s action shows there is still some shame in being foreclosed on, despite other homeowners ruthlessly walking away.
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Since it became apparent loan limits would change, the unanswered questions have been, “What will it cost?” and “Are there strings attached?” A day after the new loan limits were announced, the strings were revealed as well.

What:

First of all, these new loans have a name. It’s jumbo conforming. My “mid jumbo” nomenclature didn’t make the cut. Neither did Tanta’s “loans formerly known as jumbo.”

It also appears the product offering is going to be pretty narrow. A 30 year and 15 year fixed will be available April 1st, with 5/1 ARM coming May 1st.

How:

Because of the speed this program has been rolled out, there will be no automatic underwriting. A human being will review every purchase and refinance made under this program.

Loan to values:
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