Four Ways Government Shutdown Impacts New Mortgages

10-07

Mortgage rates are sliding as October gets rolling, but will rates – and the entire mortgage market – be sidelined by the U.S. federal government shutdown?

For the record, 30-year fixed mortgage rates fell to 4.32% for the week of September 26, 2013, down from 4.50% on September 19, according to data from Freddie Mac.

Under normal conditions, homebuyers would be leaping off the fence to grab lower mortgage rates, but with the shutdown, there’s enough uncertainty in the air to keep mortgage consumers on the sideline until Uncle Sam is open for business again.

Some of that uncertainty over the mortgage market and the government stoppage is linked to facts on the ground, and some is closer to fiction.

“Watching the markets, mortgage rates did waver a little but we didn’t see massive movement some expected,” says David Hall, President of Shore Mortgage, a Troy, Mich.-based mortgage services provider. “This shutdown does come at an especially bad time as new home sales and home construction are building back up. More uncertainty is not what we need.”

With that uncertainty as a backdrop, let’s clear the air and point to four ways the shutdown really does impact the mortgage market:

1) Lower rates may be due to the shutdown – By and large, mortgage rates move with the direction of the economy. If banks and mortgage lenders think the economy is slowing – as it likely will under a prolonged shutdown – they will lower rates to attract more business.

In fact, rates remain fairly unscathed at this point, although there is an upward bias,” says Bob Van Gilder, a mortgage broker at Finance One Mortgage. “There may be some bumps in the road as the I.R.S. and the Social Security Administration have limited services, which will affect the mortgage process. But if you are being offered a rate that is attractive to you take it. You can’t lose by being able to sleep at night.”

2) FHA loans will be affected – If you’re a consumer waiting on a Federal Housing Administration (FHA) loan, you could be out of luck for now. In fact, approved mortgages will certainly be slowed while the FHA is shut down, even as it provides other services to the public.

The reason is this. With any FHA loan, mortgage services firms have to order a FHA case number, prior to an appraisal on the home. With the FHA’s lights out, those case numbers can’t be processed. Expect that process to take longer with fewer hands on deck.

3) I.R.S. documents out of reach – Another consequence of the U.S. government shutdown is the inability of mortgage firms to verify a borrower’s income via his or her U.S. tax returns. By law, any mortgage loan approval is subject to the review by the mortgage lender of at least one year’s worth of federal tax returns, and must be verified by the I.R.S. through a 4506 Transcript. With I.R.S. staffers at home, that process is stalled as tax agency workers would be unable to verify tax return documents.

Some industry experts say the damage here may be minimal, depending on the size of the lender.

“One of the biggest impacts to the mortgage market is that the ability to obtain a 4506 and Social Security Number Verification has been halted,” says Jason Auerbach, an LPO manager at New York city-based First Choice Bank/Lending. “The 4506 IRS Transcript is verification from the IRS that the income documentation, specifically tax returns, provided by a client match with what they filed.” Auerbach adds that the 4506 mandate does not impact lenders who are selling loans directly to Fannie Mae so many of the large lenders will see little disruption. However, smaller lenders who sell adjustable rate mortgages to investors may have to halt that lending,” he says.

4) A weaker U.S. housing market – The U.S. Housing and Urban Development, which runs the Federal Housing Authority, only has 337 out of 8,709 managers and staffers on the job this week. The longer that HUD is blacked out, the more potential problems for the U.S. housing market.

“If the shutdown lasts and our commitment authority runs out, we do expect that potential homeowners will be impacted, as well as home sellers and the entire housing market. We could also see a decline in home sales during an extended shutdown period, reversing the trend toward a strengthening market that we’ve been experiencing,” HUD said in a recent report, entitled HUD 2013 Contingency Plan for Possible Lapse in Appropriations released last week.

HUD does report that essential services, like HUD homeless assistance grants, housing services for veterans and housing for disabled people and AIDs patients will continue running.

The birds-eye view?

The mortgage market should largely remain up and running during the government shutdown, and homebuyers may even get a bonus, if mortgage rates keep falling while government agencies are shuttered.

By no means it is a perfect scenario, but for homebuyer, sellers, and real estate professionals, it’s certainly a survivable one.

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Buyers Can Stand Out in a Multiple-Offer Market

10-04

With low inventory and high demand for premier properties, it’s hard to believe real estate’s near-death experience took place a mere five years ago.

“Even last year, would-be buyers were wondering whether the market had reached bottom. But with prices consistently rising, buyers worry if they don’t act now, the price on the next home will be considerably higher three months down the line,” says Myra Nourmand, a REALTOR® and author of “From Homemaker to Breadwinner” who specializes in high-end homes in Beverly Hills, Bel Air, Holmby Hills, Brentwood, Pacific Palisades and Malibu. According to Nourmand, listings between $2 to $10 million are selling fast. So in this seller’s market, how do buyers stand out from the competition? Nourmand suggests composing a buyer’s profile. The letter accompanies the buyer’s offer and comprises the following three parts.

1. Address Sellers’ Fears
“A seller’s biggest concern is whether the sale will close. The bottom line is that they want to be assured the transaction will be seamless and smooth,” says Nourmand. She recommends buyers demonstrate how they are best qualified to meet the sellers’ needs. Providing details about the buyer, such as his or her occupation, length of employment, place of business, years of marriage, and children’s ages reveal consistency and commitment. In addition, financial statements prove a buyer can afford the purchase.

2. Explain Why the Home Is a Perfect Match
Buying a home is as much a personal decision as it is a financial one. Thus, explaining the reasons a particular listing is a perfect fit for the buyer adds a face to the transaction. Nourmand describes how one of her buyers was an artist. “She saw the guesthouse at the end of the yard and immediately knew it would be the ideal place to work. Having an art studio made the listing into the home of her dreams, so we added that information to the letter.”

3. Highlight the Community’s Strengths
As the saying goes, “Real estate is about location, location, location.” Buyers should highlight the neighborhood’s appeal. For example, if the home is located close to work, buyers can describe how they look forward to experiencing a higher quality of life due to shorter commutes. In addition, if they have children, the letter can state how they anticipate sending their kids to high-quality local schools. Or, if buyers are empty nesters, they can explain how they look forward to walking to nearby restaurants and retail areas.

Nourmand recommends that agents compose the buyer’s letter on behalf of their clients. If you’re planning to place an offer on a home, write down how the listing appeals to you. “Describe what works. Imagine you were the seller and think about what you would like to hear. Then discuss with your agent the role a letter will play in the offer,” says Nourmand. With residential real estate in high-demand in markets showing a strong comeback, you must stand apart from your competitors. The buyer’s profile demonstrates your strong financial position and commitment to closing a deal as quickly and smoothly as possible.

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Apartment Market Tightens as Housing Costs Jump

10-03

Landlords passed along hefty rent increases to tenants this summer, an indication that rising home-buying costs are helping heat up demand for apartments.

The average monthly rent in the third quarter was $1,073, up 1% from the prior quarter, the largest quarterly gain in a year, according to a report to be released Tuesday by Reis Inc., a real-estate research firm. Compared with the third quarter a year ago, average monthly rent was up 3%. None of the 79 markets tracked by Reis saw rents fall.

The rental increases were stronger than industry watchers expected and represent a turnaround from the past several quarters when it appeared that rent growth was slowing, reflecting falling demand for apartments as more families decided to buy homes. But as mortgage rates jumped over the summer, following big increases in home prices, the rising cost of homeownership has priced many families out of the housing market.

“Rising mortgage rates are definitely a speed bump for new- and existing-home sales and that certainly benefits landlords,” said Ryan Severino, a Reis senior economist.

After listing a two-bedroom Atlanta unit for rent in July, Chad Corley received a significant number of inquiries, he said. Within a few days, three prospective tenants were vying for the unit listed at $1,600 a month. Atlanta saw its rents climb 2.9% from the prior year to an average of $809. Its vacancy rate is 6.2%.

New York City remained the nation’s most expensive market in the third quarter, with average rents climbing 2% from the prior year to an average $3,049. But cities in the West had the strongest rental growth, particularly in technology-centered cities. Seattle led the nation with a 7% rent gain when compared with a year earlier, for an average rent of $1,124; San Jose, Calif., saw rents climb 5.2% to an average of $1,686.

Some argue that rents can’t keep climbing at the current pace. In the past five years, rents have risen 7.6% nationally, according to Reis, and in excess of 10% in some markets. “You just can’t have double-digit rent growth every year or rents would be a million bucks,” said Bob Faith, founder of Greystar Real Estate Partners, a Charleston, S.C.-based company that owns and operates about 216,000 rental units nationwide.

But there’s another reason why some expect the rent increases to slow: a flood of new supply on the horizon. Some 170,000 new units could hit the country’s largest 54 metropolitan markets this year—about 120,000 have already been finished—followed by 190,000 in 2014 and 300,000 more units in 2015-16, according to Luis Mejia, director of multifamily research for CoStar Group, a real-estate data firm. “We see a lot of supply coming, no doubt about it,” he said. “But, younger people are renting longer than previous generations.…There is the notion that homeownership will come, but will come later in life, not as quickly as it was before the recession.”

Multifamily construction typically takes several years, so developers who haven’t yet broken ground are likely to be more cautious about what they’re building and where. “At this point in the apartment cycle, they need to evaluate their options” by gauging local demand and housing preferences, he said.

San Jose, New York, suburban Virginia, and Washington, D.C., each saw inventory of apartments increase by at least 0.9% during the third quarter, one of the largest since Reis began keeping track in 1980. The firm expects new supply to affect the vacancy rate, which could slowly drift upward beginning next year.

During the third quarter, the national vacancy rate—which hit 8% in the aftermath of the financial crisis—slipped to 4.2% from 4.3% in the prior quarter and 4.7% a year ago.

New Haven, Conn., and Syracuse, N.Y., had the nation’s lowest vacancy rates, 2% and 2.1%, respectively, likely buoyed by the return of college students during the third quarter, Reis said.

With few apartments available, the concessions—from free rent to gift cards—seen after the financial crisis are rare. Brokers say they’re urging would-be renters to make decisions quickly, have their checkbooks and other documents on hand and to at least offer the asking rent. “It’s not worth haggling over a few bucks,” said T.J. Rubin, managing broker of Fulton Grace Realty in Chicago.”We’ve had people lose out because they’ve hesitated and we’ve had people lose out because there are multiple offers.”

(Source: WSJ.com)

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Pay Off a Student Loan or Buy a Home?

10-02

In the past, one of the best ways to secure a place in the middle class was to get a college education, which would assure a better income and the ability to buy a home. Over the long term, your home would be the cornerstone of your personal wealth.

I still think this is true, but as the events of recent years have proven, it is not a given. So it is more important than ever before to learn what debt levels you can comfortably handle, and have the discipline not to exceed them.

The housing recession proved that home prices don’t always go up—though Dallas loan officer Richard Woodward contends homeownership is still a better long-term investment than renting because of tax benefits and historic appreciation. “Purchase a home with monthly payments similar to your rent expense and don’t overextend yourself,” he advises. “You will come out ahead in the end.”

Meanwhile, college is no longer a guaranteed golden ticket—the Consumer Financial Protection Bureau has noted that the growth of the country’s collective student-loan debt is far outpacing wage growth for graduates. Moreover, the cost of getting a degree is growing at an alarming rate: both the number of borrowers and the amount owed have both risen 70% since 2004, according to the Federal Reserve. The nonprofit One Wisconsin Institute, a liberal nonprofit research group, found that the average payoff time for a student loan was 21 years.

That’s a long time to wait to buy a home. So I suggest that you start saving what you can now, while still paying down your student debt faithfully to preserve your credit worthiness. Some ideas:

Look into consolidating your loans, says Don Frommeyer, president of the National Association of Mortgage Brokers, because lenders will be looking at your debt-to-income ratios. Depending on whether the loans are federal or private, they may get you a lower monthly payment (though at the cost of a longer repayment period).

Consider Federal Housing Administration loans, which require a down payment of only 3.5%. But understand that, as Mr. Frommeyer says “you must be able to pay the loan back, based on your current standing.”

Pay cash whenever possible to avoid taking on any new debt, especially expensive credit-card debt.

Do what you must to keep your housing costs low while you save for a down payment, even if that means taking on roommates or living with your parents.

Eliminate every discretionary expense that you can, from gym memberships to restaurant meals.

Investigate first-time home buyer subsidies for down payments and closing costs.


(Source: WSJ.com)

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FHA will keep lending during shutdown

10-01

Applications for all government-backed mortgages will continue to be processed during a government shutdown, according to the U.S. Department of Housing and Urban Development.

HUD originally said on Friday that it would stop working on applications for loans guaranteed by the Federal Housing Administration if the lights go out in Washington. But it reversed that position over the weekend.

“The HUD Contingency plan posted on Friday mistakenly included incorrect information about a potential shutdown’s impact on the FHA single-family loan program,” HUD said in a statement. “FHA will be able to endorse single family loans during the shutdown. A limited number of FHA staff will be available to underwrite and approve new loans.”

HUD said it will continue processing loans “in order to support the health and stability of the U.S. mortgage market.”

Loans backed by the FHA and the Veteran’s Administration, as well as rural development loans backed by the United States Department of Agriculture, accounted for 45% of all mortgages used to purchase homes issued in 2012, according to the Federal Reserve. The FHA alone insures about 60,000 loans a month.

Fannie Mae and Freddie Mac, the giant government-controlled mortgage companies, had already said that their operations would be unaffected by a shutdown. Those companies pay for their operations out of the fees that they charge lenders.

It’s not clear how the FHA will still be able to handle the large load of loan applications when, according to the new contingency plan, it is planning to furlough more than 96% of staff members.

“There will be a limited number of exempted FHA staff available to underwrite and approve single family home loans,” said Jereon Brown, Deputy Assistant Secretary for Public Affairs. “The underwriting and approval process will definitely be slower than normal.


(Source: CNN Money)

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