Short Sales Lead The Way to Recovery
By Mary Drefs, GRI, CRS, CDPE
At a recent forum regarding distressed homes in the Phoenix area, bank excecutives and housing market experts agreed that short sales would continue to climb and Phoenix and foreclosures would continue to fall. This trend should lead to a rise in the median home value as soon as 2012.
Lenders are now favoring short sales because they realize that the loss to the bank is less with a short sale than the loss in a foreclosure. The average price per square foot in Phoenix sold in a short sale is $71 per foot. The average price per square foot of a lender owned home is $60 per foot. Lenders also revealed that the shadow inventory that could drive real estate values down, is actually in check.
The number of pending foreclosures in metro Phoenix is half of what is was last year, according to Information Market. The number of bank owned homes for sale is almost a fourth of what it was a year ago, according to the Cromford Report. Because Phoenix has seen a record number of short sale closings in the past 3 months, the number of houses listed as short sales in down 72% from October 2010.
According to Tom Ruff, a housing analyst for the Information Market, "The foreclosure crisis appears to be finally behind us. The shift to short sales is a great sign the housing market is moving toward a recovery. I am just not sure why it took lenders so long to see short sales are better for everyone."
Wednesday, November 9, 2011
Thursday, November 3, 2011
4 Big Lenders Support HARP 2
Bank of America, Chase, Citigroup and Wells Fargo have expressed interest in participating in the HARP 2 Program announced by President Obama.
See yesterday's blog for the details of program.
HARP 2 will best help homeowners who have a high adjustable rate mortgage or an interest only loans. These loans will be replaced with low interest fixed rate loans, ultimately reducing the monthly payments.
HARP 2 will not help the unemployed or those who have missed a mortgage payment in the past year.
See yesterday's blog for the details of program.
HARP 2 will best help homeowners who have a high adjustable rate mortgage or an interest only loans. These loans will be replaced with low interest fixed rate loans, ultimately reducing the monthly payments.
HARP 2 will not help the unemployed or those who have missed a mortgage payment in the past year.
Wednesday, November 2, 2011
HARP 2 recently announced by Obama
Those Americans who will be helped by HARP 2 are:
1)borrowers whose loans were backed by Fannie Mae, Freddie Mac or the FHA 2) who are current on their mortgage
3) who have made the last 6 payments
4) who have not missed a payment in the last year
5) who can prove adequate employment or other income
6) and those borrowers who have been caught in the Catch 22 of not being able to refinance their loan because they owe more than the house is worth.
The previous HARP said these borrowers could only be 125% or less underwater. The new HARP 2 says it does not matter how underwater the borrower is. They must, however, meet all the criteria above.
Harp 2 basically addresses those borrowers who were strategically defaulting on their loans. Meaning, the borrower does have the means to keep paying the mortgage, but chooses not to because they believe they will never gain any equity on the property. They would rather cut their losses and begin again. Now, instead of conducting a short sale, these borrowers MAY be able to refinance IF their lender cooperates with the program.
Harp 2 does NOT address the millions of Americans who have lost their jobs or are now underemployed and are seeing their savings dwindle. Consequently, with HARP 2, we will not see a slowdown in the number of foreclosures and short sales in 2012. Harp 2 reaches those who are employed and not satisfied with their current interest rate and those who plan on living in their homes long enough to absorb the costs of refinancing...basically a few Middle Americans.
If you have questions regarding short sales, give Mary a call at 623-694-0354.
1)borrowers whose loans were backed by Fannie Mae, Freddie Mac or the FHA 2) who are current on their mortgage
3) who have made the last 6 payments
4) who have not missed a payment in the last year
5) who can prove adequate employment or other income
6) and those borrowers who have been caught in the Catch 22 of not being able to refinance their loan because they owe more than the house is worth.
The previous HARP said these borrowers could only be 125% or less underwater. The new HARP 2 says it does not matter how underwater the borrower is. They must, however, meet all the criteria above.
Harp 2 basically addresses those borrowers who were strategically defaulting on their loans. Meaning, the borrower does have the means to keep paying the mortgage, but chooses not to because they believe they will never gain any equity on the property. They would rather cut their losses and begin again. Now, instead of conducting a short sale, these borrowers MAY be able to refinance IF their lender cooperates with the program.
Harp 2 does NOT address the millions of Americans who have lost their jobs or are now underemployed and are seeing their savings dwindle. Consequently, with HARP 2, we will not see a slowdown in the number of foreclosures and short sales in 2012. Harp 2 reaches those who are employed and not satisfied with their current interest rate and those who plan on living in their homes long enough to absorb the costs of refinancing...basically a few Middle Americans.
If you have questions regarding short sales, give Mary a call at 623-694-0354.
Tuesday, November 1, 2011
The Better Your Credit Score, the Better Your Mortgage Rate
The higher your credit score, the lower your mortgage rate will be.
What Is A Credit Score?
History has shown that the best way to predict a person’s behavior over the near-term future is to look at that person’s behavior in the recent past. It’s a concept similar to the First Rule of Physics — an object in motion tends to stay in motion.
We can apply this theory to consumer credit, too. A person who has recently paid his bills on-time should continue to pay his bills on-time in the near-future.
This is the basis of credit scoring; using your past to predict your future.
To mortgage lenders, your credit score represents your likelihood of making on-time mortgage payments for the next 90 days. “90 days” matters because, after 90 days without payments, a homeowner falls into default.
Higher credit scores correlate with lower default risk which explains why people with high credit scores tend to receive lower mortgage rates than people with low credit scores. This is true across all loan types, including conventional, jumbo, and FHA mortgages.
Like most else in finance, those with the lowest risks get to pay the lowest rates.
Lenders Use The FICO Scoring Model, Exclusively
There are three main credit bureaus in the United States. They are Equifax, Experian and TransUnion. Each offers a bevy of credit-scoring products, available for purchase on their respective websites. Prices range from “free” to several hundred dollars.
None, however, are particularly relevant in the home-buying process. This is because the nation’s mortgage lenders rely on a different credit model — the FICO model.
FICO is named for the Fair Isaac Corporation. It was “invented” in the 1950s and has become the mortgage industry standard for credit ratings. Today, FICO scores are omnipresent to the point that people generically refer to all credit scores as “FICO scores”.
FICO scores range from 300-850.
Credit Scores Change Mortgage Rates
Your FICO score has always influenced the mortgage rate for which you’re eligible. In 2008, though, it began to change your loan fees.
In response to major mortgage market losses, in April 2008, both Fannie Mae and Freddie Mac introduced something called Loan-Level Pricing Adjustments (LLPA). Loan-level pricing adjustments are “discount points” added to a mortgage rate, based on a specific borrower’s risk to the lender.
A discount point is a loan fee, paid at the time of closing. 1 discount point is equal to 1 percent of your loan size.
Example : A $300,000 mortgage that’s assessed 1 discount point will have $3,000 in extra fees due at closing.
Fannie Mae and Freddie Mac know that low credit scores correlate to high default rates so, like an insurance policy, they assigned the highest costs to the highest-risk borrowers.
Assuming a 20% downpayment, look at how discount points change based on credit score. Fees get massive for FICOs under 700.
•740+ FICO : There are no discount points required. This loan is “low risk”.
•720-739 FICO : 0.250 discount points are charged to the borrower, or $250 per $100,000 borrowed
•700-719 FICO : 0.750 discount points are charged to the borrower, or $750 per $100,000 borrowed
•680-699 FICO : 1.500 discount points are charged to the borrower, or $1,500 per $100,000 borrowed
•660-679 FICO : 2.500 discount points are charged to the borrower, or $2,500 per $100,000 borrowed
Now, not many new home buyers just have that kind of extra cash just laying around. Therefore, as an alternative to paying discount points with cash, many choose to “roll up” the fees into their respective mortgage rates. In general, 1.000 discount point can be “traded in” for a 0.250 increase to your mortgage rate.
Example : A consumer with a 680 FICO score is required to pay 1.500 discount points at closing, or can alternatively accept a mortgage rate increase of 0.375%.
This is why it’s important to keep your credit score high. There are real dollar costs for having scores under 740.
Courtesy of Dan Green of Waterstone Mortgage and Trulia.com
What Is A Credit Score?
History has shown that the best way to predict a person’s behavior over the near-term future is to look at that person’s behavior in the recent past. It’s a concept similar to the First Rule of Physics — an object in motion tends to stay in motion.
We can apply this theory to consumer credit, too. A person who has recently paid his bills on-time should continue to pay his bills on-time in the near-future.
This is the basis of credit scoring; using your past to predict your future.
To mortgage lenders, your credit score represents your likelihood of making on-time mortgage payments for the next 90 days. “90 days” matters because, after 90 days without payments, a homeowner falls into default.
Higher credit scores correlate with lower default risk which explains why people with high credit scores tend to receive lower mortgage rates than people with low credit scores. This is true across all loan types, including conventional, jumbo, and FHA mortgages.
Like most else in finance, those with the lowest risks get to pay the lowest rates.
Lenders Use The FICO Scoring Model, Exclusively
There are three main credit bureaus in the United States. They are Equifax, Experian and TransUnion. Each offers a bevy of credit-scoring products, available for purchase on their respective websites. Prices range from “free” to several hundred dollars.
None, however, are particularly relevant in the home-buying process. This is because the nation’s mortgage lenders rely on a different credit model — the FICO model.
FICO is named for the Fair Isaac Corporation. It was “invented” in the 1950s and has become the mortgage industry standard for credit ratings. Today, FICO scores are omnipresent to the point that people generically refer to all credit scores as “FICO scores”.
FICO scores range from 300-850.
Credit Scores Change Mortgage Rates
Your FICO score has always influenced the mortgage rate for which you’re eligible. In 2008, though, it began to change your loan fees.
In response to major mortgage market losses, in April 2008, both Fannie Mae and Freddie Mac introduced something called Loan-Level Pricing Adjustments (LLPA). Loan-level pricing adjustments are “discount points” added to a mortgage rate, based on a specific borrower’s risk to the lender.
A discount point is a loan fee, paid at the time of closing. 1 discount point is equal to 1 percent of your loan size.
Example : A $300,000 mortgage that’s assessed 1 discount point will have $3,000 in extra fees due at closing.
Fannie Mae and Freddie Mac know that low credit scores correlate to high default rates so, like an insurance policy, they assigned the highest costs to the highest-risk borrowers.
Assuming a 20% downpayment, look at how discount points change based on credit score. Fees get massive for FICOs under 700.
•740+ FICO : There are no discount points required. This loan is “low risk”.
•720-739 FICO : 0.250 discount points are charged to the borrower, or $250 per $100,000 borrowed
•700-719 FICO : 0.750 discount points are charged to the borrower, or $750 per $100,000 borrowed
•680-699 FICO : 1.500 discount points are charged to the borrower, or $1,500 per $100,000 borrowed
•660-679 FICO : 2.500 discount points are charged to the borrower, or $2,500 per $100,000 borrowed
Now, not many new home buyers just have that kind of extra cash just laying around. Therefore, as an alternative to paying discount points with cash, many choose to “roll up” the fees into their respective mortgage rates. In general, 1.000 discount point can be “traded in” for a 0.250 increase to your mortgage rate.
Example : A consumer with a 680 FICO score is required to pay 1.500 discount points at closing, or can alternatively accept a mortgage rate increase of 0.375%.
This is why it’s important to keep your credit score high. There are real dollar costs for having scores under 740.
Courtesy of Dan Green of Waterstone Mortgage and Trulia.com
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