FHA loans easier to get – but more in default

WASHINGTON – March 13, 2017 – Riskier borrowers are making up a growing share of new mortgages, pushing up delinquencies modestly and raising concerns about an eventual spike in defaults that could slow or derail the housing recovery.

The trend is centered around home loans guaranteed by the Federal Housing Administration (FHA) that typically require downpayments of just 3 percent to 5 percent and are often snapped up by first-time buyers. The FHA-backed loans are increasingly being offered by non-bank lenders with more lenient credit standards than banks.

The landscape is nothing like it was in the mid-2000s when subprime mortgages were approved without verifying buyers’ income or assets, sparking a housing bubble and then a crash. Still, for some analysts, the latest development is at least faintly reminiscent of the run-up to that crisis.

“We have a situation where home prices are high relative to average hourly earnings and we’re pushing 5 percent-down mortgages, and that’s a bad idea,” says Hans Nordby, chief economist of real estate research firm CoStar.

The share of FHA mortgage payments that were 30 to 59 days past due averaged 2.19 percent in the fourth quarter, up from about 2.07 percent the previous quarter and 2.13 percent a year earlier, according to research firm CoreLogic and FHA. That’s still down from 3.77 percent in early 2009, but it represents a noticeable uptick.

While that could simply represent monthly volatility, “the risk is that the performance will continue to deteriorate, and then you get foreclosures that put downward pressure on home prices,” says Sam Khater, CoreLogic’s deputy chief economist. Such a scenario likely would take a few years to play out.

The early signs of some minor turbulence in the mortgage market add to concerns generated by recent increases in delinquent subprime auto loans, personal loans and credit card debt as lenders target lower-income borrowers to grow revenue in the latter stages of the recovery.

FHA mortgages generally are granted to low- and moderate-income households who can’t afford a typical downpayment of about 20 percent. In exchange for shelling out as little as 3 percent, FHA buyers pay an upfront insurance premium equal to 1.75 percent of the loan and 0.85 percent annually.

FHA loans made up 22 percent of all mortgages for single-family home purchases in fiscal 2016, up from 17.8 percent in fiscal 2014 but below the 34.5 percent peak in 2010, FHA figures show. The share has climbed largely because of a reduction in the insurance premium and home price appreciation that has made larger downpayments less feasible for some, says Matthew Mish, executive director of global credit strategy for UBS. House prices have been increasing about 5 percent a year since 2014.

At the same time, the nation’s biggest banks, burned by the housing crisis and resulting regulatory scrutiny, largely have pulled out of the FHA market as the costs and risks to serve it grew. Non-bank lenders, which face less regulation from government agencies such as the FDIC, have filled the void.

Non-banks, including Quicken Loans and Freedom Mortgage, comprised 93 percent of FHA loan volume last year, up from 40 percent in 2009, according to Inside Mortgage Finance. Meanwhile, the average credit score of an FHA borrower has fallen modestly since 2013. Mish says non-banks generally have looser credit requirements, and lenders have further eased standards – such as the size of a monthly mortgage payment relative to income – as median U.S. wages stagnated even as home values marched higher.

Here’s the worry: If home prices peak and then dip, homeowners who put down just 5 percent and are less creditworthy than their predecessors and will owe more on their mortgages than their homes are worth. That would increase their incentive to default, especially if they have to move for a job or face an extraordinary expense, Khater says. Foreclosures would trigger price declines that ignite more defaults in a downward spiral.

In turn, funding for the non-bank lenders from banks and hedge funds likely would dry up, and FHA loans would be harder to get, dampening housing.

Guy Cecala, publisher of Inside Mortgage Finance, says such fears are unfounded, citing some complaints that FHA mortgage standards are too rigorous.

“The non-banks (bring) a welcome change,” he says. They must meet FHA standards, he says, and are overseen by the Consumer Financial Protection Bureau.

Bill Emerson, vice chairman of Quicken Loans, the top non-bank lender, says the credit standards of his firm and his peers are stringent by historical standards and seem looser only because banks tightened requirements after the housing crash.

“I don’t have any concerns about” a potential rise in bad loans, Emerson said.

Copyright 2017, USATODAY.com, USA TODAY, Paul Davidson

Wage growth now matches rental rate growth

WASHINGTON – July 22, 2016 – U.S. renters are seeing their housing costs rise at a much more manageable pace, as new construction has tempered years of runaway increases in rent.
Real estate data firm Zillow says that median rent rose a seasonally adjusted 2.6 percent in June from a year ago, matching the gains in average hourly wages. Rental costs have decelerated after consistently exceeding earnings growth in previous years, a sign that additional building is giving more options.
The median monthly rent nationwide was $1,409. Annual increases in rent surpassed 9 percent in both the Seattle and Portland, Oregon areas, although it has moderated in markets such as San Francisco, where yearly price growth went from double-digit gains to 7.4 percent.
Prices are rising above the national average in New York City and Los Angeles. But they’ve settled at less than 2 percent in Cincinnati and Cleveland, host of the Republican National Convention this week. Still, rental costs are much cheaper in both Ohio metro areas than the national average.
In Philadelphia, where the Democrats will hold their convention, median rent is more expensive and has been rising at a 2.5 percent to $1,582 a month.
Not all indicators show rent as moderating. The government’s consumer price index found that rents had jumped 3.8 per cent from a year ago. Shelter accounts for a third of all consumer expenses, according to the index.
Builders have been adding to the national supply of apartments. They completed 310,300 multi-family buildings last year, a 21.4 percent jump from 2014, according to the Commerce Department. Apartment construction through the first half of this year is running another 5.6 per cent ahead of the 2015 pace.
Copyright © 2016 The Canadian Press, Josh Boak. All rights reserved.

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Things first-time home buyers need to know

 

WOODLAND PARK, N.J. – July 22, 2016 – The economy is improving, interest rates are low and many consumers now find themselves in a great position financially to become a first-time homeowner. There’s a small problem though for some locations around the country – the booming real estate market is resulting in rising home prices and increased competition for the most desirable properties.
The S&P/Case-Shiller national home-price index recently estimated that 2016 prices are within four percent of the peak in 2006. In some areas, low inventories around the country are making the situation even more challenging.
These conditions are introducing first-time buyers to common challenges and frustrations while searching for their dream home. “Don’t get discouraged,” says Travis Peace, executive director of mortgage at USAA Bank. “Buying a home requires some fortitude and the process intimidates many – not just those doing it for the first time.”
As a result, Peace says it’s easy to concentrate too much on home buying “can’ts” rather than “can-dos,” and he offers this advice on how to overcome some common barriers.
“I Can’t” No. 1: I can’t figure out the home-buying process.
Peace notes that it’s essential to do research and to be equipped with basic information, but also be willing to ask for help when needed. For example, an experienced real estate agent can keep a buyer apprised of everything from area sales trends to the latest changes in state and federal laws that could impact a mortgage application.
“This is where experienced, licensed professionals can help,” Peace says. “Real estate agents can be an advocate for the buyer throughout the entire process.”
In addition, free tools like USAA’s Real Estate Rewards Network can connect buyers with an agent and even provide rewards based on the sale price of the home.
“I Can’t” No. 2: I can’t find the perfect home for my family.
Finding the perfect home may not be realistic, but shoppers can find the right home. Personal situations will dictate buyers’ ability to wait for a home in a particular neighborhood or design style to come on the market, but not everything has to be left to chance.
Peace says the key is to set realistic expectations and not fixate on negatives that can be changed. “Whether it’s the number of bedrooms or distance to work or school, it’s alright to have some non-negotiables. However, buyers should be willing to be flexible on things that can be relatively easy to change, like paint colors or landscaping.”
“I Can’t” No. 3: I can’t afford a 20 percent downpayment.
Putting 20 percent down on a home has become more of a guideline than a rule. Today, not being able to put 20 percent down does not mean buying a home is out of reach. Peace notes that depending on a buyer’s financial situation, there may be a responsible way to get into your new home without putting 20 percent down.
Government-sponsored loan programs from the Federal Housing Authority, Fannie Mae and Freddie Mac provide loan options that require downpayments as low as three percent. Veterans Affairs (VA) loans don’t require any downpayment. While those programs are often great options for consumers who qualify, Peace notes that buyers should keep an eye on their potential total monthly payment.
“Some of these loans include fees and private mortgage insurance (PMI) that could significantly impact your overall cost,” Peace says.
Even private lenders are offering more competitive loan options. For example, USAA Bank’s Conventional 97 loan allows borrowers to acquire a mortgage with only three percent down and the bank pays the PMI costs.
Scott McEniry, a USAA member, recently moved into his new home with the help of the Conventional 97 loan. “It felt like a lifeline had been thrown to me as suddenly a house purchase was within reach again,” McEniry says.
Whether a house-hunting novice or seasoned expert, Peace underscores that being informed, getting the right help and having a healthy dose of determination are the best ways to turn a dream home into a reality.
Copyright © 2016 Argus, North Jersey Media Group, Inc. All rights reserved

Fla. metros added to federal homebuyer program

WASHINGTON – Nov. 11, 2015 – The Federal Housing Finance Agency (FHFA) announced an expansion of the Neighborhood Stabilization Initiative (NSI) to 18 additional metropolitan areas around the country, including four in Florida: South Florida, the Orlando area, the Tampa area and Jacksonville.
Effective Dec. 1, local community organizations in the metro areas will be able to buy foreclosed properties owned by Fannie Mae or Freddie Mac before the general public has a chance.
FHFA, Fannie Mae and Freddie Mac jointly developed NSI through a partnership with Fannie Mae and Freddie Mac and the National Community Stabilization Trust (NCST). The pilot program launched initially in Detroit and was later extended to the Chicago metro area.
“The number of REO properties that Fannie Mae and Freddie Mac hold continues to decline nationwide, but there are still some communities in which the number of REO properties remains elevated,” says FHFA Director Melvin L. Watt. “Our goal is to take what we learned in Detroit and Chicago and apply it to these additional communities as quickly and efficiently as possible.”
Watt says “giving local community buyers an exclusive opportunity to purchase these properties at a discount, taking into account expenses saved through a quicker sale, is an effective way to give control back to local communities and residents who have a vested interest in stabilizing their neighborhoods.”
The 18 metropolitan areas designated for NSI expansion include:
Akron, Ohio

Atlanta-Sandy Springs-Roswell, Georgia

Baltimore-Columbia-Towson, Maryland

Chicago-Naperville-Elgin, Illinois

Cincinnati, Ohio

Cleveland-Elyria, Ohio

Columbus, Ohio

Dayton, Ohio

Detroit-Warren-Dearborn, Michigan

Jacksonville, Florida

Miami-Fort Lauderdale-West Palm Beach, Florida

New York-Newark-Jersey City, New York-Pennsylvania-New Jersey

Orlando-Kissimmee-Sanford, Florida

Philadelphia-Camden-Wilmington, Pennsylvania-New Jersey-Delaware

Pittsburgh, Pennsylvania

St. Louis, Missouri

Tampa-St. Petersburg-Clearwater, Florida

Toledo, Ohio

Community organizations in South Florida estimate that about 2,000 foreclosed homes could eventually end up in the program, which focuses on homes valued at $175,000 or less.
“It’s very difficult to compete with investors who get distressed properties,” Terri Murray with the nonprofit Neighborhood Renaissance told the Miami Herald. “The investors are profit-driven while we are mission driven. This program evens the playing field for us.”
© 2015 Florida Realtors®  

Too many potential buyers think they won’t qualify 

WASHINGTON – Nov. 4, 2015 – Most people don’t know that they can buy a home with only 3 percent down, Freddie Mac says. To boost homeownership, Freddie is partnering with faith-based organizations as a way to attract more potential borrowers to its 3 percent downpayment mortgage product.
In recent years, many faith-based groups switched their attention from homebuyer outreach programs to foreclosure prevention because the financial crisis took a toll on many existing homeowners. Freddie hopes that some of these groups will again start to focus their efforts on homeownership.
The initiative includes financial education seminars and counseling sessions hosted by faith-based bodies that will use materials provided by Freddie Mac.
The mortgage finance giant has also partnered with Quicken Loans, other lenders and non-profits to promote its 3 percent downpayment program.
Many consumers are qualified to own a home but may not realize that, says Chris Boyle, a senior vice president at Freddie Mac. “We do think there’s a market out there that is not coming to the fore, and millennials is one group,” according to Boyle.
Source: American Banker (11/03/15) Berry, Kate
© Copyright 2015 INFORMATION, INC. Bethesda, MD (301) 215-4688

Renters feel trapped amid higher costs, stiff competition

South Florida one of least affordable rental markets in country

Rent takes a bigger chunk of your paycheck in South Florida than almost anywhere in the nation, and the burden is getting heavier.

Renters here, on average, spend 44 percent of their incomes for a place to live, far more than the national average of 30 percent, according to new data from Zillow.com, a home listing service.

South Florida’s rent burden ranks third-highest in the country, on par with San Francisco, Zillow found. Only Los Angeles, where 48 percent of income goes to rent, and Sarasota (47 percent) rank higher.

Although rents have risen across the country, their bite in South Florida is growing more quickly. Ten years ago, renters here paid 34 percent of their income for rent, closer to the national average of 26 percent, according to Zillow, which derives its data from rental listings and sales of rental homes.

The rental burden in South Florida has climbed 29 percent since then, compared with 15 percent nationally.

“The renter feels trapped,” said Ken Johnson, areal estate economist and associate dean at Florida Atlantic University. “They don’t have a lot of choices, and they can’t easily get out to become a homeowner.”

Tina Honey, 48, is one of them.

Last November, Honey moved to an apartment in Delray Beach, renting a three-bedroom unit for $1,861 a month. When she received her renewal notice recently, it included a $112-a-month increase.

Honey wants to find another place by the end of September, when she has to give her landlord two months’ notice. But so far she hasn’t seen a comparable, cheaper apartment in her school district, where her 16-year-old son attends Spanish River High School.

“I just think the rentals down here are ridiculous,” said Honey, a project manager for Office Depot who grew up in Detroit. “There’s no rent control, so they can charge whatever they want. That’s crazy.”

Frank Medina, 55, moved out of his one-bedroom Wilton Manors apartment complex rather than pay an extra $300 a month that would have increased the rent to $1,900.

Medina now rents a two-bedroom duplex in Oakland Park for $1,200. He likes the setup but wishes he could afford to live closer to his job as a receptionist and administrative assistant for the Genovese Joblove & Battista law firm in downtown Fort Lauderdale. He said most of the new apartments cater to people making at least $50,000 a year. The shimmering new buildings have turned into “revolving-door rentals,” he said.

“They don’t care if you stay or not,” Medina said. “There’s no rent control here, so you’re at their mercy. It’s madness. Complete madness.”

In Broward County, the median rent has increased to $1,378 from $1,243 three years ago. But pay has not kept up. The county’s $61,800 median household income is the same as it was in 2011, according to the U.S. Department of Housing and Urban Development.

The situation is the same in Palm Beach County. The median rent has increased to $1,364 from $1,173 three years ago, but the county’s $63,300 median household income is unchanged from 2011.

Abby Blake is caught in the trap. She has struggled to find somewhere for less than $1,000 a month, the amount she can afford after her roommate decided to move out of their two-bedroom rental condominium west of Boca Raton. Blake can’t swing the $1,100 rent alone and needs to find a place before her lease expires Sept. 30.

If she doesn’t find another roommate, the 25-year-old publicist may have to get a part-time job or ask her family for help.

“It’s starting to freak me out a little bit,” she said.

Tracy Anton, a longtime renter in Hollywood, moved to a smaller apartment in her same complex because she couldn’t afford a $100 rent increase.

Anton, who once had a 30-year career in broadcast advertising, is now a senior citizen who lives on a fixed income that doesn’t come close to keeping pace with rising rents and assorted fees.

To make ends meet, she sells items on eBay. She recently sold part of her porcelain cat collection. Before that, she parted with cutlery, clothes and luggage.

“The stress level is always high,” Anton said. “These days, the renter is always waiting for the other shoe to drop.”

Buying is not much of an alternative in South Florida’s improving housing market.

Since 2011, when the market hit bottom, the median home price in Palm Beach County has climbed more than 30 percent, compared with 18 percent nationally, according to the Realtors Association of the Palm Beaches.

The median home price in Broward County has climbed nearly 50 percent.

And many of the homes for sale are beyond the reach of first-time buyers. Less than a third of single-family homes listed in Broward County are priced at $250,000 or below, the price that Realtors consider an entry-level home. In Palm Beach County, it’s less than a fourth.

“It’s become a very thin market in that price range,” said Diane Paez, a real estate agent who sells in both counties. “Buyers just have to kind of hang out and hope something changes.”

http://articles.sun-sentinel.com/2014-08-29/business/fl-rental-trap-zones-20140824_1_rent-control-rent-burden-median-household-income

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