An excerpt from Realty Check on cnbc.com:
“March could be the month where we begin to see the return to the kind of levels of foreclosure activity we would expect given the underlying conditions,” says RealtyTrac’s Rick Sharga. “We actually did start to see increased levels of foreclosures in the non-judicial states in particular California was up, Nevada was up by about 35%. Even some of the states like Florida that had foreclosure activity pretty much seize up show a little bit of forward movement in foreclosures. So the dam might be starting to burst.”
Diana: It’s a slow burst, which means that instead of a big spike, we are going to see foreclosures plateau at a high level for a prolonged period of time. That will only put more downward pressure on home prices everywhere. About three quarters of the top 200 markets in the nation saw their foreclosure activity rise at the end of 2010, year-over-year, so this is not just relegated to the troubled states we’re always talking about, like California, Florida, Arizona and Nevada.
You can argue all you want about new regulations to safeguard the market in the future and pricey penalties to pay for the wrongs of the past, but as foreclosure activity begins to percolate back up again against the backdrop of a still very weak housing market, the industry needs to focus on the present and what exactly they can do to jumpstart home sales and loosen up credit.
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Foreclosures in San Diego County are down over the last few weeks, and cancellations went ballistic. Because she doesn’t offer any ideas to jumpstart home sales and loosen up credit, let’s give her a hand.
How to Jumpstart Home Sales:
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Publicize the Mortgage Underwriting Guidelines. If people knew the rules, they’d be more interested in trying them on for size.
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Publish hyper-local sales data. With precise, relevent data, both buyers and sellers will make better decisions.
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Educate sellers about pricing. They are winging it – give them a hand!
How to Loosen Up Credit
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Have the cost of mortgage insurance be based on credit score/loan quality.
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Have a no-doc EZ-qualifier loan with ample down payment. Whether it’s 30%, 40% or 50% down payments, have something available at regular interest rates for those with high credit scores only.
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Publicize the local grants available, and other first-time homebuyer programs.
If they used a few million dollars from the latest servicer penalty to effectively advertise all of the above, we might get somewhere!
Your suggestions don’t make sense…
1. Probably not a factor. People sell based on price, but buy largely on monthy payments, and mortgage insurance is pretty low in the cost structure anyway (100bp on a 5.5% loan of 500K is an extra $300/month).
2. Whiskey Tango Foxtrot? If you can afford a 30-50% down loan, you will have enough documentation that banks will fall all over you to give you the rest at 5.5%. Unless you’re a drug dealer, that is.
3. A lot of those programs are a bad idea and don’t make much difference: its “Free Cheeze” for those who’d buy anyway, but not very good at attracting non-buyers to become buyers, because hey, $10K may sound like a lot but when you’re putting yourself on the hook for $1K-2K more in cash-flow cost/month over renting, $10K is a bit in the noise…
A far better way to think of it: We are now back to the standard that a loan should be to someone who’s going to be able to pay it back. Get Used to It ™.
Why do we need no document loans? That’s what got us into trouble in the first place. If we have them, there will be pressure to lower the down payment requirement and we will eventually be back in the soup again. People who can put 30 to 50 percent should have ample documentation available to back up their loan request any way.
With an aging baby boomer population and former college students for the past 10-20 years still paying off their debt, I see no reason to loosen credit for the sake of the housing market.
Buying a home is not the end all be all and I think this reality is starting to sink in especially in San Diego. If you dont meet the requirements, you dont get the credit, simple. A bank shouldn’t be loose because you are a nice person or that you have “tried” to make things better. Its money. You either prove you can do it or you cant for a loan.
We actually might have some younger folks actually learning how to save money.
“Why do we need no document loans? That’s what got us into trouble in the first place.”
Why do we need loans at all?
Since I’m so cynical, I expect that no document loans are very rarely appropriate for people, but, quite popular with mortgage brokers because they’re probably fast, easy and lucrative to originate.
OT ~ Breaking News ~ “IRS Paid $513 Million in Shady Homebuyer Tax Credits Inspector General Says”:
http://www.latimes.com/business/la-fi-tax-credit-20110415,0,4550587.story
Jim,
Is this TV huff & puff, are is this stuff happening?
http://www.huffingtonpost.com/2011/04/10/foreclosure-investors_n_847265.html
Good morning Nicholas, busting chops at 5:36am!
Recently, I had a guy try to get a mortgage from Wells Fargo Bank.
He had reported one-time losses on his 2009 tax returns (that were explanable) that caused his taxable income that year to be close to zero.
He was trying to borrow 75% of the purchase price, and had more than that on account with Wells Fargo Bank.
They would only give him 25% of the purchase price, because they did the standard two-year income divided by 24 months to calculate his ratios.
He had excellent credit, 20-year self-employed job history – which if they would have only allowed his 2008 income he’d qualify, but nooooo – and HAD MORE MONEY ON ACCOUNT THAN HE WANTED TO BORROW.
Loan denied.
If you were going to loosen credit, there’s an example that you might let slide.
When we hear so much about credit being tight, I thought it would make for an interesting post to examine changes that might be palatable.
I am fine leaving the underwriting guidleines the way they are currently.
P.S. I did get him the 75% LTV mortgage (there is one bank) but it would be useful if more had some portfolio-mortgage capacity.
Consultant,
I don’t know what Sharga is talking about when he says “loans are notoriously hard to come by”, and flippers flipping to other flippers.
But yes many homeowners in default who think they are in line for a loan mod are getting the dreaded knock on the door.
I’ll check the video later.
If Wells won’t deal, go with someone else. That level of assets (able to do a cash deal but not, 25%+ down) should be easy to find someone willing to go for that offer.
And no doc loans are not the solution for that case: MORE-doc loans are, since if you looked at 3 years income rather than 2 he qualifies trivially, plus assets.
And have your client do a big “F-U” to Wells-Fargo and transfer his accounts out.
(And anyway, if the client has enough assets to buy with cash, why not just buy with cash? “Cash buyer” seems to get a good 2-5% discount on purchase, plus with current investments SO cruddy right now, what can you find thats 5.5%+ ROI right now?)
3.) Publicize the local grants available, and other first-time homebuyer programs.
Soooo, what are those grants and other first-time home buyer programs you are talking about, JtR?
Personally I wish banks employed experience loan officers and properly vetted every loan applicant. Far too many banks are relying on plugging a few critical numbers into a computer and getting a yes/no answer out of it. Every loan situation is different and yet we rely on a fairly dumb computer algorithm to be an oracle on loans.
should be easy to find someone willing to go for that offer.
Call every bank in town, and you won’t find any that’ll do that loan.
Being a cash buyer puts you in the front of the line in bidding wars. Discounts may or may not apply.
and for those of you who don’t know Jim, he is the hardest working realtor in San Diego.
Hi JtR@7: With as strong of a buyer as your client is, it’s entirely possible that the automated underwriting/DU/computer-generated approval for a conventional FNMA loan would have asked for only *one* year’s tax returns (I’ve closed loans on that basis). It’s not automatic to require 2 years’ taxes and average the income, if DU lets you go with one. Wonder what his 2010’s looked like.
But, yeah, it’s mostly fear-based underwriting and documentation these days.
chrisanthemama
portland, or
It was non-conforming.