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Yes You Can Own A Texas Home!

Housing Rebound? Let's See

The news is so up and down these days!  Here’s a quick breakdown of the recent housing news and what it means for you…
The National Association of Realtors home resales figures for October showed, as expected, a real boost from the First Time Homebuyer credit as people rushed to get to the closing table under the uncertainty of whether the federal tax credit would be extended. (It was.)  Existing home sales surged 10.1 percent to 6.10 million units, seasonally adjusted, compared to the 4.94 unit level recorded in October 2008.  This was the highest activity level in resales since February 2007.
Lawrence Yun, NAR chief economist, warned that the heavier than expected October sales will probably spell declines during the month of December.  Some potential home buyers will take a break for the holidays, while others will gather their resources for a spring onslaught of the housing market before the homebuyer tax credit program expires in the spring.
NAR also reported that certain areas have received such a strong surge of buyers that multiple bids are frequently coming in.  Some of these hot markets include metro Washington, D.C., parts of Florida, and the Southwest.  First Time Buyer inventory is becoming tight in many cases, however, because many retail buyers are still reluctant to run the risk of waiting for a Short Sale.  Just be sure that your first time buyers are qualified and that your will not need to seek loans to wait out FHA or other seasoning requirements for your Buyer’s loan.
Unsold inventory is down 14.9 percent from a year ago.  The average days on market has dropped from 8 months in September to 7 months in October for MLS listed properties. The median residential home price is now $173,100, which is down 7.1 percent from a year ago.  Distressed property makes up 30 percent of the market. 
These indicators are showing that in many markets, you should be focusing on newer homes.  People are going to be a little more wary of buying an older house when there could be a newer one coming on the market due to a foreclosure or short sale for the same price or even slightly less.  Of course if you are in a market full of older homes, this isn’t as big of a factor.  Areas like south Florida and Las Vegas where new housing exploded between 2000-2007, you’re going to want to avoid the older homes.
Many experts believe the housing market is not out of the woods and that there will be a double-dip in the housing recession.  Prices are expected to continue to fall in many markets by another 5 to 10 percent by spring.   Harvard economist, Howard Glaeser, for example, believes that cities in the cold, industrial Northeast and Midwest will never fully recover from the housing crisis; the Sunbelt will gradually sop up the oversupply of homes because these areas of the country are still going to continue to grow. (See “Will Your Hometown Be a Boomtown Again?” in Money Magazine (November 25, 2009).) 
Reason for pessimism is seen in the foreclosure statistics.  The Mortgage Bankers Association said last week that a record-high 14 percent of homeowners with a mortgage were either behind on payments or in foreclosure at the end of September. Driven by rising unemployment, fixed-rate loans made to borrowers with good credit accounted for nearly 33 percent of new foreclosures last quarter. That compares with 21 percent a year ago.
The Wall Street Journal points out that it is new construction and new home sales that are tied to measures of economic health in the GDP calculation, not home resale.  Thanksgiving week the Commerce Department reported that new home construction dropped 10.6% in October to 529,000 units on an annualized basis, the lowest level since April. This poor showing in the new housing market caused many economists to lower their estimates of the 4th quarter's GDP to around 3% instead of 3.5%.  This is just another indication that the economy is still weak and that we cannot count on a steady improvement in the resale housing market necessarily.  There are plenty of bumps, twists and turns in the road ahead.  And that means there are plenty of opportunities coming up!
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Five Great Things About Homeownership

If you've been on the fence about homeownership, now is the time to take a leap! Don't let the negative press deter you from one of life's greatest joys. Take a look at five short and sweet reasons that homeownership is great! 1.
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Morgan Stanley: U.S. Becoming ‘Rentership’ Society

Morgan Stanley: U.S. Becoming ‘Rentership’ Society

On October 31, 2011, in Breaking News, Mortgage Financing, by Robert Freedman

By Robert Freedman, Senior Editor, REALTOR® Magazine

Well, there’s at least one big Wall Street banker that’s betting on the United States becoming a “rentership” society: Morgan Stanley.

The company released a report just a few weeks ago saying now is a great time for institutional investors to snap up distressed single-family homes and turn them into long-term rental units. The company says the properties don’t compete with the classic apartment rental property, so investors don’t have to worry about cannibalizing their multifamily rental investment portfolios to take advantage of the huge opportunities in single-family rental property ownership. What’s more, Morgan Stanley doesn’t see this shift to rentership as a temporary waypoint while the country sorts out its housing problems; it sees this as a fundamental shift in how the United States will define itself into the future.

“America is moving away from a home ownership society and towards a rentership society,” the company says in its report.

To emphasize the point, one of the report’s authors, Oliver Chang of Morgan Stanley’s Housing and Securitized Products Strategy division, said in a video interview (above, after a 30-second commercial), “This is really the first time in history where there’s an opportunity for institutions to own single-family rental properties as part of a larger asset allocation strategy.”

The reason for the shift to rentals, according to the company?

  • Home price declines: not only are millions of homes available to investors at deeply discounted pricing but the low prices are changing consumer attitudes on housing as an investment
  • Hurdles to buying: down payment requirements, higher FICO score thresholds, and income verification are making it harder for households to even consider buying
  • Costs of ownership: without home price inflation, costs like property taxes, home owner association dues, maintenance and repair make ownership less attractive
  • Demographic effects: Gen Y growth is heading up while baby boomer households are downsizing
  • Unemployment, labor insecurity and mobility: long unemployment durations make labor mobility (and thus renting) more important

Morgan Stanley says the U.S. home ownership rate, which has fallen to about 64 percent from close to 68 percent at its peak, is really closer to 60 percent when you factor in home owners who’ve stopped paying on their mortgage and only remain in their house because the bank hasn’t finished processing their foreclosure yet.  Once these cases make it through the system, they’ll move to the renter side of the equation.

When they do move to the other side of the equation, they’ll become renters of single-family houses, not of multifamily apartment units. That’s because these households, which tend to be a little older and often with children, want a single-family house in the suburbs, not a unit in an apartment building in the city. So, these households will be providing a big share of the demand for single-family rental houses into the future without necessarily adding demand to apartment rentals in the city.

To be sure, many of these households might like to buy again rather than rent given the historically low interest rates and deeply discounted home prices, but the reality is that many of these households simply can’t pass the credit score threshold. Financing is hard to get for the most creditworthy households today, so for credit-impaired households, renting is the only option.

Morgan Stanley projects some 7.5 million more foreclosures over the next five years, what it calls “liquidated” houses, providing a golden opportunity for institutional investors to snap up properties for their portfolio and get into the long-term single-family rental business.

If the company is right, then this is a great opportunity if you work with institutional buyers of real estate, whether on the buying, selling, or property management side. You have tons of inventory coming onto the market to sell to big buyers who will turn these into long-term rentals.

But you might also challenge the company’s basic premise. Is the American Dream really transitioning into a “New Pragmatism,” as the company calls it, under which rental housing is the way of the future?

The fact is, if lenders simply dialed back their underwriting requirements to the sound policies they used before the housing boom, home sales would pick up, inventories would shrink, prices would start heading up in more than a few markets, and that 7.5 million in foreclosed houses Morgan Stanley predicts over the next five years will be a smaller number. And those that want to rent can rent and those that want to buy can buy rather than having to rethink their priorities in a new rentership society.

In any case, a survey that just came out today from Meredith Corp., one of the biggest magazine publishers in the country, finds that home ownership remains all-important to most households. Some of its findings:

  • 86 % of homeowners polled still feel owning a home was a good investment.  
  • 85 % say they feel, “owning a home is one of their proudest accomplishments.”
  • Of Americans that don’t currently own a home, 69 % agree, “No matter what happens in the U.S. housing market, owning a home is still an important goal in my life.”

Go to that Meredith home ownership survey now.

The Morgan Stanley report is called “Housing 2.0: The New Rental Paradigm,” and it’s dated Oct. 27, 2011.


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Lender's Begin to Loosen Purse Strings

Here's the first of the good news as reported by Ken Harvey of Inman News.

Anybody working to get buyers into houses, especially first-timers who don't have much down payment cash on hand: The door to an FHA-insured mortgage just opened a little wider.

With no fanfare or public announcements, two of the largest FHA-approved lenders have backed off their controversial "overlay" requirements on FICO scores (lender overlays are qualification requirements that can be more stringent than FHA's own requirements)

Both Wells Fargo and Quicken Loans confirmed to me last week that they will now lend to applicants with 580 FICOs and 3.5 percent down payments.

Their revised standards conform in most respects to FHA's own minimums, and open the agency's financing to large numbers of buyers whose credit scores have sagged during the recession. Wells Fargo is the largest originator of FHA-insured mortgages; Quicken ranks third, according to industry data.

Along with most other major lenders, both companies previously had insisted on minimum FICOs of 620 for otherwise qualified borrowers seeking 3.5 percent down payment loans. If your score came in even slightly lower, they wouldn't even look at your application. An estimated one third of Americans now have FICO scores below 620, according to one consumer group's estimate.

The lending industry's rationale for imposing a higher bar than FHA's own: They need an extra cushion of protection against potential defaults by borrowers with subpar credit scores. Many of those defaults, they said, could prompt indemnification demands by the Federal Housing Administration -- essentially punitive repayments for insured loans that go belly up.

Michael D. Berman, chairman of the Mortgage Bankers Association, said last week that lenders have adopted FICO score minimums and other overlays that add to the costs of getting a loan because they "are just afraid. We are not going to play out on the edge if we're going to get stuck" with buybacks or indemnification demands." Similarly, FHA lenders want to avoid the costs of servicing nonperforming defaulted mortgages.

FHA commissioner David Stevens says he understands the lenders' concerns, but that many applicants with 580 scores have solid incomes and generally good credit histories. Their current scores are depressed, he argues, because "they went through the recession and suffered some damage, such as short-term loss of income," which caused them to be late on some payments.

If lenders look hard at the causes of their problems and underwrite carefully, such borrowers "do not present excessive risks of default," he says, which is why FHA set the FICO score bar for 3.5 percent down payment loans at 580.

The mortgage industry's overlay policies have prompted criticism from Realtors, builders and consumer groups. The National Community Reinvestment Coalition filed complaints against 23 lenders -- Wells and Quicken were not among the targets -- charging that setting tougher credit standards than required by FHA discriminates against minorities and violates federal fair lending and equal opportunity statutes.

Wells' newly revised policy actually dips the FICO score cutoff line well below 580 -- all the way down to deep subprime 500 -- but also sets strict underwriting hoops and snares to weed out unqualified applicants.

For example, borrowers with scores between 500-579 will need a 10 percent down payment from their personal resources. They will not be able to use gift money from relatives, friends or a charitable down payment assistance program to meet the 10 percent upfront equity test.

Home buyers with scores of 580-599 will need 5 percent down payments, and will be prohibited from supplementing their own cash with gifts. Borrowers with FICOs above 600 will qualify for 3.5 percent down payment FHA deals, but will be allowed to use gift money.

Contributions from home sellers to defray buyers' closing or loan origination costs will be limited to 3 percent. Debt-to-income ratios will be tight: 31 percent for monthly housing-related expenses, and 43 percent for total household debt service. The expanded program will only be available through Wells' retail lending channel, not through third-party brokers or correspondent lenders.

Tom Goyda, a Wells vice president and spokesman, told me that "these requirements are designed to ensure that we lend to customers who we believe will be able to manage their finances, given the anticipated ongoing challenges in the economy." Bob Walters, Quicken's vice president for capital markets and chief economist, said his firm will now accept FICO scores down to 580, but no lower. Quicken also insists on key underwriting restrictions on debt-to-income ratios and limits on gift funds.

Walters would not disclose the specifics, but said they are "very close" to Wells' 31 percent and 43 percent requirements, and that all borrowers with low FICOs must be able to demonstrate that their down payments are from their own funds.

In a phone interview last week, FHA's Stevens told me that the Wells approach "is well thought out and could serve as a model" for other large lenders to consider in the coming weeks.

He would not identify other major companies that may abandon their 620-640 FICO minimums, but said he hopes that many more will take a hard look and follow suit.

"The idea is not to have habitual late-payers" get FHA-insured mortgages to purchase houses, Stevens said, but rather to provide homeownership opportunities to genuinely qualified buyers who simply have temporarily depressed credit scores.

"Anybody who is lending" during the current environment of falling home prices and high unemployment "has to be extremely careful about making policy changes that add to their risks, but we also need not to exclude qualified families from access to homeownership," Stevens said.

If the mortgage industry adopts the Wells and Quicken guidelines in some form, tens of thousands of consumers -- along with the real estate professionals assisting them -- could be beneficiaries in the weeks immediately ahead.

But keep this in mind: You may need to reach out to loan officers to inquire about any policy changes. So far, nobody's been on the rooftops shouting about the good news. 


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