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Paying a mortgage remained cheaper than paying rent in most parts of the U.S. This past third quarter, although buyers who make a low downpayment may end up spending more to own than to rent in some areas, per a new ZiLLOW report  of housing costs.

Renters earning the U.S. Median of $53,620 spent 29.9 percent of their income to rent in the third quarter. Buyers who earn the U.S. Median and buy a home costing the Zillow-estimated U.S. Median of $176,500 spent 15.3 percent of their income on the mortgage.

The share of income spent on rent rose from its past second-quarter estimate of 29.5 percent, while the share of income to pay a mortgage stayed the same.

In its analysis, Zillow extracted out first-time buyers who might put down a downpayment as low as 5 percent. Those buyers will spend a little more, about 17 percent, per month…

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The outlook for 2012 continues to be filled with uncertainty. The market has been permanently transformed over the last few years, but will that be enough to move things forward or will it continue to stay stuck in the mud? There are several key factors which will decide the fate of Lenders as well as the direction that the Real Estate industry moves in 2012.

One major issue that will likely affect the real estate market in 2012 is the potential settlement between Servicers and state Attorneys General. The terms set out by the AG’s could free up the inventory currently slowly making its way through the pipeline. Another potential issue could be the rollout of a very lenient modification program which could most likely increase mortgage defaults because current borrowers would deliberately miss payments, hoping to qualify for debt reductions. The modification requirements could add up to 280 days to the time it takes Lenders to seize properties and increase the inventory of foreclosed homes. The costs of the delays, overhead requirements, advances and principal write-downs could be passed onto consumers. This would slow foreclosure timelines to a trickle, overflow local judicial systems and extend the recovery time for the economy as a whole.

We expect to see short sales continue to take center stage in 2012. Currently short sales have accounted for a larger percent of Lender workouts and we expect to see those levels rise in 2012. While Loan Modifications volumes have declined in 2011, performance has steadily improved over time.

Overall, the outlook for 2012 has one clear message: Be prepared for the unexpected. 2012 could be the year where the floodgates open up and volumes of foreclosures and REO begin to flow. However, the uncertainty of a Servicer settlement with the AG’s and the uncertainty of new government intervention could extend today’s current environment. If you are looking to buy or sell and need more info about s specific neighborhood feel free to call us at 714-366-6117 or visit http://www.TheAragoneTeam.com

We are here to help!

              by Brian O’Reilly
Sep 26 2011, 11:12AM

In a recently published study by the Federal Reserve they confirm what millions of American homeowners know first hand and what most professionals in the housing finance industry have known for over a year:  namely, that millions of  American homes are unable to be refinanced – despite historically low interest rates – due largely to the fact that many of these homes are either underwater (meaning the current loans balance exceeds the current property value) or the home’s owners fail to qualify for refinance loans due to tighter credit standards. The Fed’s study would suggest that at least two million American homes are eligible for refinance but for these conditions.

Despite this reality, Washington seems unable to come up with a solution. Prior efforts such as HARP (Home Affordable Refinance Program), though well intentioned, quite frankly have failed.  The failure is due in no small part to the fact that the eligibility criteria designed by regulators have been too narrowly defined to accommodate a housing market where values continue to decline and an economy that remains weak at best.

And though efforts are currently underway to design and implement a new refinance program, it is likely that this effort to will fail.  Why? Because Washington wants to put strict conditions on who will qualify for a refinance loan for fear of being accused of encouraging “moral hazard” where certain unworthy home owners benefit from the redesigned refinance program. The details of the “new” refinance program have not yet been published and no deadlines have yet been set for its implementation. As a result, millions of American home owners – most of whom are current on their mortgages, by the way – continue to twist in the wind as interest rates hit new lows nearly every day.

By contrast, I believe it is possible to implement a meaningful refinance program by year-end that is simple to implement, rewards every American that remains current on their mortgage, poses very little risk to encouraging moral hazard, and, most importantly, will inject billions of dollars of free cash flow into our struggling economy.

Here’s how it would work:

  • Mortgage borrowers current on their mortgage for the past 12 months and whose new payment would be at least $50 dollars per month less than their current payment qualify. Period!
  • To be clear, this would apply to borrowers who are owner occupants and investors alike. Moreover, the program would apply to borrowers’ with first and second mortgages as well. If the new payment is less than the combined old payments, they get rolled up and refinanced into a new loan under this program. It’s that simple.

Detractors will surely say “… Oh my God, it can’t be that simple, what about loan-to-value ratios, what about credit scores, what about current employment and income, what about investors who lied on their prior loan applications, what about…, what about …”  To those detractors I say, who cares?  If the goal is to enable American homeowners to take advantage of current interest rates, reduce their current payments and therefore free up cash for use in other parts of the American economy, then why not let them refinance.

For God’s sake, let’s be honest, if someone is managing to make their mortgage payment today at a higher rate – regardless of loan to value, regardless of whether they are employed or have a nickel of savings – then the odds are pretty darn high that they will continue to make their payment if the payment drops.

Of course, nothing is ever this simple, and lenders in today’s business environment  – where their business decisions are being scrutinized at every turn – likely would be very reluctant to originate loans under this limited guideline for fear that in the future some regulator or politician would challenge their lending decision as somehow imprudent.  They also would likely reasonably fear holding these loans on their balance sheets given the implications of such loans to their future financial condition and regulatory capital requirements, among other things.

And undoubtedly, operational bottlenecks from overtaxed servicing and origination platforms will be an issue for the implementation of any sort of plan. However, innovative private sector service providers and solutions exist today to help unburden those organizations and streamline this proposed refinance process.  In fact, under one such solution, the process could be as simple as to only require that borrowers execute a new note or a rider to their existing note.

Even under the most streamlined scenario, however, to make this work – and it can work, the following also would be required:

  1. This limited guideline would need to be memorialized into a new loan program and published by FHA or Fannie and Freddie (or both);
  2. The program should be available only for a limited period  – say for the next twelve (12) months – in recognition of the fact that lenders are already backlogged with refinance requests;
  3. The guideline would need to make clear that the lenders’ only repurchase – or rep and warrant obligation to FHA, Fannie or Freddie – would involve the determination of whether the borrower had been current the past 12 months and whether the new loan payment was lower than the old loan(s). Likewise, large lenders could not impose more onerous rep and warrant standards on smaller lenders originating these loans and from whom they might buy these refinance loans.
  4. Regulators would need to affirm that lenders’ capital or reserve requirements would not need to be increased in any way to account for the unique underwriting characteristics of the loans originated under this program.
  5. A new liquidity mechanism would need to be developed so these loans could be sold by the lenders originating them. For this, we believe that Ginnie Mae should create a new Ginnie III security designed specifically for these loans.  By doing this, the securities would enjoy the full faith and credit of the US Government and would be readily purchased by investors, including foreign ones.

The benefits of such a program if successfully implemented could be significant both to the housing industry and the American economy:

First, for homeowners whose monthly payments would be reduced, that lower payment would function like an immediate tax cut – Americans’ spending power would improve immediately – but with no negative implications to the federal budget;

Second, investors (bondholders), who have interests in the loans being paid off by these refinance loans, would be satisfied at par (or 100%) – though perhaps earlier than they might have otherwise.  However, that is a far better outcome than a situation involving government-sanctioned principal reductions – which in my opinion is nothing less than a government-sanctioned abrogation of contract – and the greatest example of moral hazard – and to be avoided at all costs.

And on that point, let me say, that there should be no government-sanctioned principal reductions under any circumstances. That should be avoided under all circumstances – even where a default and foreclosure would result.

Third, the cost to the government would be virtually zero. Costs would be conditional and would be recognized by the government if and only if borrowers whose loans were refinanced under the program defaulted. To be clear, that is a risk the government already has through its support of Fannie, Freddie, FHA and Ginnie Mae. Surely, it makes sense to reduce that risk by lowering millions of borrowers’ mortgage costs thereby reducing their likelihood of default.

Fourth, and most importantly, but perhaps most intangible, this program would revitalize consumer confidence at a time when it most needs encouragement. It would reward those homeowners who, despite all of their challenges and difficulties, have found a way to keep making their mortgage payments.

If these aren’t the people we should be helping, I don’t know who is.

The Aragone Team is committed to helping people stay n their homes.Feel free to visit http://www.TheAragoneTeam.com and request a free market  analysis or call us at 714-366-6117 .

http://www.HousingWire.com

The elevated conforming loan limit for mortgages guaranteed or insured by the government will expire on Oct. 1, according to three congressional staffers, but another chance to extend them will come later this year.

Congress raised the limit to as high as $729,750 in 2008 as the private market froze and financing for larger mortgages became unavailable. On Oct. 1, the limits will expire and drop to $625,500 in the most expensive areas, mostly affecting the West and East Coasts. According to Standard & Poor’s, there are around 110,000 nonconforming mortgages in the nation between $625,000 and $729,000 — about 2% of total jumbos.

Two bills to extend the limits, one introduced in the House and another in the Senate, were never voted on. A spokesman for Rep. John Campbell (R-Calif.), who co-sponsored the House bill, said an extension did not make it into a short-term spending bill the House will vote on next week.

“We are focusing all of our effort and attention on making sure that a temporary extension of the current conforming loan limits is included in an omnibus spending bill that it appears the House and Senate will consider late this year,” Campbell’s spokesman said.

Another staffer confirmed top leadership in the House had been trying to work the conforming loan limits into the spending bill ahead of the Oct. 1 deadline. Such a route had to come from the House, the staffer said. Yet another told HousingWire the odds of getting an extension after the limits expire were very long.

Industry trade groups pushed hard this past week, urging lawmakers to extend the limits at a time when the housing market is still fragile.

The Obama administration said in its white paper released in February that the first step toward winding down Fannie Mae and Freddie Mac would be to allow the loan limits to expire in October, allowing private capital to move back in.

Jaret Seiberg, a research analyst at the Washington think tank MF Global, said in a note that the expiration allows the largest banks to restart their securitization businesses.

“The real issue is whether investor demand has returned for private-label RMBS. We believe regulators have some doubts, but would like banks to test the waters,” Seiberg said.

Seiberg did say many borrowers could be forced to come up with higher down payments, and smaller banks will shy away from originating jumbo loans. Some analysts expect house prices to fall even further without the government support at the highest end of the market.

“We expect to see significant negative consequences for the struggling housing market as a result of the limit drop after Oct. 1,” Campbell’s office said. “Therefore, it will be even more pressing and pertinent that Congress acts quickly to reverse the limit reduction at the next opportunity.”

Gov. signs SB 458 into law 
For release:
July 15, 2011
CALIFORNIA ASSOCIATION OF REALTORS® applauds Gov. Brown on signing SB 458 into law
LOS ANGELES (July 15) – The CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) applauds Gov. Jerry Brown on signing SB 458 (Corbett) into law. SB 458 extends the protections of SB 931 (2010), to ensure that any lender that agrees to a short sale must accept the agreed upon short sale payment as payment in full of the outstanding balance of all loans.
Under previous law (SB 931 of 2010), a first mortgage holder could accept an agreed-upon short sale payment as full payment for the outstanding balance of the loan, but unfortunately, the rule did not apply to junior lien holders. SB 458 extends the protections of SB 931 to junior liens.
“The signing of this bill is a victory for California homeowners who have been forced to short sell their home only to find that the lender will pursue them after the short sale closes, and demand an additional payment to subsidize the difference,” said C.A.R. President Beth L. Peerce. “SB 458 brings closure and certainty to the short sale process and ensures that once a lender has agreed to accept a short sale payment on a property, all lienholders – those in first position and in junior positions – will consider the outstanding balance as paid in full and the homeowner will not be held responsible for any additional payments on the property.”
SB 458 contains an urgency clause making it effective upon signing.
Leading the way…® in California real estate for more than 100 years, the CALIFORNIA ASSOCIATION OF REALTORS® (www.car.org) is one of the largest state trade organizations in the United States, with nearly 160,000 members dedicated to the advancement of professionalism in real estate. C.A.R. is headquartered in Los Angeles.
For more information about Short Sales or to request a private consultation email me at Paula@PaulaAragone.com

By Realtor.org

Home sales are expected to stay on an uptrend through 2012, although the performance will be uneven with mortgage constraints weighing on the market, according to experts at a residential real estate forum today at the Realtors® Midyear Legislative Meetings & Trade Expo here.

Lawrence Yun, NAR chief economist, said existing-home sales have been underperforming by historical standards and will rise gradually but unevenly. “If we just hold at the first-quarter sales pace of 5.1 million, sales this year would rise 4 percent, but the remainder of the year looks better,” Yun said. “We expect 5.3 million existing-home sales this year, up from 4.9 million in 2010, with additional gains in 2012 to about 5.6 million – that’s a sustainable level given the size of our population.”

Mortgage interest rates should rise gradually to 5.5 percent by the end of the year and average 6.0 percent in 2012 – still relatively affordable by historic standards.

“A huge volume of cash sales, supported by the recovery in the stock market, show that smart money is chasing real estate. This implies that there could be a sizeable pent-up demand if mortgages become more readily accessible for qualified buyers,” Yun said. “The problem isn’t with interest rates, but with the continuation of unnecessarily tight credit standards that are keeping many creditworthy buyers from getting a loan despite extraordinarily low default rates over the past two years.”

Yun said that if credit requirements returned to normal, safe standards, home sales would be 15 to 20 percent higher. He added that some parents are buying homes with cash for their children, and offering them loans which provide better returns than bank accounts or CDs.

Yun projects the Gross Domestic Product to grow 2.5 percent this year and 2.7 percent in 2012, adding 1.5 million to 2 million jobs yearly over the next two years. The unemployment rate should decline to 8.8 percent by the end of 2011 and average 8.6 percent next year, returning to a normal level of 6 percent around 2015.

Housing starts are forecast to rise but remain below long-term trends, reaching 603,000 in 2011, up from 595,000 last year, and continue growing to 908,000 in 2012. New-home sales are seen at a record low 320,000 this year, rising to 487,000 in 2012. “A recovery in new homes will be slow because of the extra price discount in the existing home market,” Yun noted. In March, the typical new single-family home cost $53,300 more than an existing home.
Inflation appears to be relatively modest for now, with the Consumer Price Index rising 2.9 percent this year. “We’ll be closely watching the impact of fuel costs on consumer spending and inflation – that would slow economic growth, job creation and home sales,” Yun said.

Apartment rents are trending up, and are likely to rise at faster rates as vacancies decline. Following the correction in home prices, it has now become more affordable to buy in most of the country. “Twice as many renters had enough income to buy a home in 2010 in comparison with 2005, so we have a much larger pool of financially qualified renters,” Yun said. “Rising rents and excellent housing affordability conditions will encourage potential buyers who’ve been on the sidelines.”

Yun expects the median existing-home price to remain near $170,000 over the next two years, which would mark four consecutive years of essentially no meaningful price change.

Frank Nothaft, chief economist at Freddie Mac, holds similar views on the outlook. “Economic activity will accelerate this year – there will be no double dip in the economy,” he said. Nothaft is more optimistic on job growth, expecting 2.0 million to 2.5 million jobs created in 2011 with unemployment dropping to 8.4 percent by the end of the year.

Nothaft expects the 30-year fixed-rate mortgage to trend up to 5.25 percent by the end of the year, and for home sales to rise 5 percent. “National home price indices are close to a bottom and prices are likely to bottom sometime this year,” he said.

Refinancing activity in 2011 will be only half of what it was last year. “As a result, banks may become more willing to lend to home buyers,” Nothaft said.

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.1 million members involved in all aspects of the residential and commercial real estate industries.

For more information about your particular neighborhood trends visit us at www.TheAragoneTeam.com

The Obama administration is ramping up talks on how to revive the housing market, which is weighing on the economic recovery—and possibly the president’s re-election in 2012.

Last year, advisers considered several housing-policy prescriptions but rejected them in favor of letting the market sort things out. Since then, weak demand and a stream of foreclosed properties have put renewed pressure on home prices, prompting concern within the White House.

Policy ideas include having taxpayer-owned mortgage giants Fannie Mae and Freddie Mac relax their rules for loans to investors, allowing those buyers to vacuum up excess housing inventory. In certain markets, Fannie and Freddie could hold some foreclosed homes off the market and rent them out to ease the property glut.

Officials also could sweeten incentives for banks to reduce loan balances for borrowers who are underwater, or owe more than their homes are worth.

Home-buyer tax credits worth up to $8,000 in 2009 and 2010 gave a short-term boost to home sales, but demand plunged after they expired. Foreclosures have put pressure on prices and damped residential construction, traditionally an engine of job growth during economic expansions.Discussions are in early stages, and there isn’t consensus around particular ideas. A spokeswoman said the president and his advisers “are always looking at new ways” to strengthen the housing market but wouldn’t disclose details. “While we continue to consider the options available to us, it would be inaccurate to say we are proposing any of these particular ideas at this time,” White House spokeswoman Amy Brundage said.

“As conditions change, some options that were below the line the way the market was 18 months ago might be above the line today,” said Peter P. Swire, who teaches law at Ohio State University and until last year was a top housing adviser to the White House.

Most of the administration’s housing efforts have focused on helping borrowers refinance or modify their loans to avoid foreclosure. But some economists say too many borrowers won’t be saved through loan workouts and that the administration must do more to soak up the flood of foreclosures by boosting housing demand.

President Obama’s signature loan-modification program, announced during his first month in office, has lowered payments for around 600,000 borrowers. Meanwhile, around four million borrowers are in foreclosure or have missed three or more consecutive mortgage payments. While mortgage-delinquency rates have fallen, millions more remain at risk of defaulting if they experience a payment shock because they owe more than their homes are worth.

More recent housing relief has targeted unemployed borrowers. Last week, officials said unemployed borrowers with loans backed by the Federal Housing Administration could miss up to 12 months of payments while they look for new jobs. A separate $1 billion program is set to begin providing interest-free loans of up to $50,000 for temporarily jobless borrowers this month.

Unlikely to get Congress to provide additional funds, the administration is left to examine options that it can implement without congressional consent. Fannie and Freddie, the so-called government-sponsored enterprises or GSEs, could be one policy lever. “There are a number of things that we can look at on the GSE side,” said Austan Goolsbee, departing chairman of the Council of Economic Advisers.

Last year, officials considered a range of policies that included allowing borrowers with loans backed by Fannie and Freddie to refinance more easily by relaxing fees that lenders are charged for riskier borrowers.

Others outside the administration have pushed for federal entities to lend more freely to mom-and-pop investors or to create public-private initiatives that would allow institutional investors to buy more foreclosed properties. “Because we have limited credit availability, we need investors to help soak up the supply,” said Ivy Zelman, chief executive of housing-research firm Zelman & Associates.

Fannie and Freddie also could rent, instead of sell, some of their huge inventory of foreclosed homes, which could take some pressure off prices. The firms owned about 218,000 properties at the end of March, and sold around 100,000 during the first quarter, or more than one-third of all foreclosed property sales, according to analysts at Barclays Capital. The firms could take back as many as 700,000 homes over the next year, according to estimates by economists at Goldman Sachs.

That idea has generated interest among some housing officials but could meet resistance from Fannie and Freddie’s independent federal regulator. Renting out homes hasn’t been tried on a wide scale and is “riddled with risk,” said Ed Delgado, a former Wells Fargo executive who leads the Five Star Institute, a mortgage-industry group. “Essentially you’re converting the [firms] from providing liquidity to a glorified national landlord for distressed assets.”

All these options could boost lending and attack the overhang of foreclosures, but would put more risk on federal agencies and Fannie and Freddie. The mortgage giants have cost taxpayers $138 billion and counting.

They also would require the blessing of the Federal Housing Finance Agency, which is charged with limiting losses at Fannie and Freddie. The FHFA last year refused to go along with an Obama administration initiative to reduce loan balances for certain borrowers who were current on their mortgages but heavily underwater. The agency has typically resisted programs which produce substantial, upfront losses designed to offset potentially larger but harder to quantify long-term losses.

The same skepticism that prompted advisers last year to push for giving the market room to heal on its own could prevail once again. Simply focusing on the broader economy is “one of the best things we can do for the housing market,” Mr. Goolsbee said.

Still, the high-level housing discussions are significant because Mr. Obama hasn’t put much emphasis on his housing policies over the past year. The administration has taken fire from both sides over its housing-relief plans, with Democrats saying the administration has let banks off too easily while Republicans have said the programs wasted money. The housing market could be a top election issue for voters in swing states such as Florida, Ohio, and Nevada.