New rules for jumbo loans, qualified residential mortgages could make homebuying more costly in 2014

On Jan. 1, 2014, a new provision in the Dodd-Frank Wall Street Reform and Consumer Protection Act goes into effect. The “qualified residential mortgage,” or QRM, may have far-reaching effects that will lessen the number of people who ultimately can obtain home loans.

Most agents and brokers have no idea what QRM is or how it will impact their businesses. Briefly, QRM was designed to set the bar for residential mortgages and to minimize the risk that borrowers may default. It requires that debt ratios be limited to 43 percent and loan fees limited to 3 percent, and interest-only loans and negative amortization are not allowed in most cases.

The Dodd-Frank bill also requires the lender to retain 5 percent of any mortgages they make. In other words, if they make a $100,000 loan they must retain $5,000 to secure the loan. QRM loans are exempt from the risk retention rules. This means that the lender can sell the loan on the secondary market without having to retain the 5 percent. The effect of these provisions is already being felt in the lending industry. Citibank has restricted its lending to those areas where it has a banking presence. Compliance departments have tripled in size at many large lenders. Community banks and credit unions are being choked by the regulations and often lack the resources to meet the new compliance requirements.

“Community banks and credit unions have historically had a much lower default rate as compared with other lenders. The reason is that they know their customers,” said Mark Bigelow, national sales manager at Towne Mortgage Co. and AmeriCU Mortgage. “Community bank loans have often been based on a handshake. In terms of credit union loans, people feel they are hurting themselves and other members if they default.”

Bigelow went on to explain what makes the Jan. 1, 2014, provisions so difficult for lenders: “In the past, loans have been turned down primarily due to credit issues. For the first time in history, lending decisions may be made based upon compliance issues rather than just credit issues.” Here’s why: Imagine that you made a mistake on a purchase agreement. The buyer and seller want to change the agreement to correct the mistake, except the law prohibits you from doing so.

If a lender makes a mistake with any part of the compliance, here’s what happens:

1. The lender now has to pay all of the borrower’s closing costs.

2. Even if the mortgage agent made the mistake, the mortgage agent must still be paid.

3. The lender cannot deduct any costs or losses resulting from the mistake.

4. The lender still has to close the loan.

 

These provisions will be particularly difficult for online mortgage sites such as LendingTree, Quicken and Zillow. In addition to the issues cited above, jumbo loans currently fall outside the QRM provisions. This creates tremendous uncertainty as to what will be required of lenders who want to sell jumbo loans on the secondary market. The result will most likely be that be even fewer jumbo loans will be available.

What this means for agents, brokers and their clients:

1. There will be fewer loan choices as community banks and credit unions are squeezed out of the market making it even harder for many borrowers to qualify.

2. The loan process will also probably take longer due to the increased compliance.

3. It will probably be much more difficult and costly to obtain a loan in the future.

 

Lenders generally want to issue loans that meet QRM criteria. It gives them an exception to a rule they find troubling. It allows them to sell a higher percentage of their mortgages into the secondary market, thereby reducing their long-term risks. As a result, the majority of lenders will impose these guidelines upon their customers. These rules will essentially set the bar for mortgage lending standards in the U.S. Borrowers who fail to meet these criteria will have a harder time finding a loan compared to borrowers who do meet the criteria. They might end up paying a higher interest rate as well. Lenders claim that risk retention increases their operating costs, so they will likely charge more for loans that are subject to risk retention. Financial analysts from J.P. Morgan Securities have estimated that borrowers might pay up to three percentage points more for loans that are subject to risk retention (i.e., loans that don’t meet the definition of a qualified residential mortgage). So here’s the bottom line: Encourage anyone who is on the fence about selling or buying to do so before the end of the year. Otherwise, they may be caught up in maelstrom of new regulations that can sink their sale and that might also sink the real estate recovery.

Source: Inman News

 

Housing Recovery Takes Off in Q2

After a somewhat slow first quarter, the national housing recovery took the pace up a few notches in Q2, Zillow reported.

According to the company’s second-quarter Real Estate Market Reports, the U.S. Zillow Home Value Index (HVI) rose to $161,100 as of the end of June—up 2.4 percent quarter-over-quarter and 5.8 percent year-over-year.

The second quarter’s increase was the largest annual gain since August 2006 and the largest quarterly gain since the fourth quarter of 2005—as well as the second-largest quarterly gain since 2004. National home values rose only 0.25 percent during the first quarter.

While home value appreciation accelerated in Q2, it also spread to more areas across the country, reaching markets in the Northeast, Midwest, and Southwest that had previously had trouble keeping pace.

All of the top 30 largest metros covered by Zillow saw annual appreciation as of the end of the second quarter, and Zillow believes all are coming back from their respective troughs.

Metros with the largest annual gains in Q2 included Sacramento (29.5 percent), Las Vegas (29.4 percent), and San Francisco (25.5 percent).

While some areas—particularly those where annual appreciation is approaching 30 percent—may seem like they’re experiencing a bubble, Zillow senior economist Svenja Gudell explained that kind of market behavior won’t last.

“Investors are starting to pull out of some markets and regular buyers are coming back, and more inventory is slowly but surely coming on line, both of which will contribute to slowdowns in appreciation,” Gudell explained. “Additionally, in some overheated markets, rapid home value increases coupled with rising mortgage rates will lead to housing prices and financing costs outpacing local income growth, which will also contribute to a moderation of the market.”

Over the next 12 months, Zillow expects home values to rise another 5 percent. Of the 30 largest markets, 29 are expected to see appreciation, with New York being the only exception.

In the rental market, national rents fell quarter-over-quarter by 0.5 percent to $1,282—the first quarterly decline after nine consecutive quarters of rents either increasing or remaining flat. Year-over-year, national rents were up 1.6 percent as of the end of the second quarter.

If you’re looking for representation for residential or commercial real estate, please contact me at (310)402-8181 or jkryukova@gmail.com

 

Source: DS News

Majority of metro housing markets improving, trade group says…

Most of the nation’s metropolitan housing markets can be classified as improving, according to a trade group, pointing to a broad-based housing recovery.

The National Assn. of Home Builders said Monday that 255 metro housing markets are improving, a pullback from 263 in June, but the sixth consecutive month that at least 70% of metros tracked by the association earned the improving label.

The association lists a market as improving when it shows increases in housing permits, employment and home prices for at least six months running.  The home builder group dropped 14 markets from its list in July and added six. 

“The relative stability of the [index] is representative of the broad recovery underway, which is much more extensive than what we were looking at one year ago,” NAHB Chairman Rick Judson said in a statement.

The number of improving markets has more than tripled since July 2012, and 49 states and the District of Columbia now have an improving local market. 

 

If you’re looking for real estate assistance please feel free to contact me direct.

 

Julie Kryukova

(310)402-8181

Jkryukova@gmail.com

 

 

 

Source: LA Times

Home price rise continues to pick up speed

The pace of home price increases continued to accelerate in February, according to a reading Tuesday that showed the biggest gain since near the height of the housing bubble.

The S&P Case-Shiller index of home prices in 20 major markets posted a 9.3% rise over the last 12 months. That’s up from the 8.1% rise in January. It was the biggest 12-month gain in the index since May 2006, which was just one month after the index showed record-high home prices.

The index showed a 12-month decline in prices almost every month over a five-year period through May 2012. But every month since then has shown a gain in home prices, and each month’s gain has been stronger than the one that came before.

“Despite some recent mixed economic reports for March, housing continues to be one of the brighter spots in the economy,” said David Blitzer, chairman of the index committee at S&P Dow Jones Indices.

Stan Humphries, chief economist for home price tracker Zillow, said there are signs in themarket that the pace of increase started to slow in March.

“Regardless what data you look at, home values are clearly rising at an unsustainable pace,” he said. He said the increases in the index need to be taken with a grain of salt, being distorted by the shift in transactions to private home sales rather than the foreclosure sales that had been dominating the market.

The housing recovery has been driven by a number of factors, including near record-low mortgage rates, a drop in foreclosures and reduced unemployment, all of which have helped lift both new-home sales as well as sales of previously owned homes. The rising home prices has helped bring back some buyers who had been reluctant to buy while prices were falling.

Mike Larson, real estate analyst at Weiss Research, said he’s concerned that much of the increase is being driven by investors flooding into some markets to buy homes in order to rent them out, outbidding the potential homeowners who want to live in a home.

“Prices are not at bubblicious levels, but you’re talking about a trend that can be destabilizing,” he said.

Mark Vitner, senior economist with Wells Fargo Securities, said part of the reason for the sharp rise in prices is the comparison to depressed prices a year earlier. He said comparisons will become more difficult later this year. and the pace of increase should slow.

Home price increases boost the overall economy. Besides the jobs created by a pick-up in construction and home sales, rising prices mean fewer homeowners are underwater on their mortgages, owing more than the home is worth. That allows more homeowners to refinance, saving money they can spend on other things.

The Case-Shiller index showed the improvement in home prices is broad based, as every market posted an increase for the second straight month. The biggest increases came in Phoenix, a market hit hard by the bursting of the housing bubble, where prices were 23% higher than a year earlier.

But prices were up more than 10% in half of the markets — San Francisco, Las Vegas, Atlanta, Detroit, Los Angeles, Minneapolis, Miami, San Diego and Tampa all posted double-digit percentage gains, and Denver just missed that mark. New York posted the smallest gain, with only a 1.9% rise in prices.

Dean Baker, co-director of the Center for Economic and Policy Research, said some neighborhoods in Phoenix are actually seeing a 40% increase in prices over the last year, driven once again by property speculators. He said in many markets that were most hurt by the bursting of the housing bubble, there is a danger of new bubbles forming.

“The end of this round of speculation is not likely to be much prettier for the areas affected than the end of the last round,” he said.

Even with the strong improvement in prices over the last 12 months, the index is still down 28% from the 2006 peak. 

Home prices show biggest jump in 6 years in October!

Home prices increased 6.3% in October from a year earlier, the biggest year-over-year gain since 2006, according to Irvine research firm CoreLogic.

Prices dipped 0.2% in October from September, but such a drop was expected at the end of the home-selling season, the firm said Tuesday.

October marked the eighth straight month of year-over-year prices increases and added to recent evidence of growing strength in the housing market. CoreLogic reported Monday that foreclosures were down 17%
in October from a year earlier.

“The housing recovery that started earlier in 2012 continues to gain momentum,” said Mark Fleming, CoreLogic’s
chief economist. “The recovery is geographically broad-based with almost all markets experiencing some appreciation.”

Home prices increased 21.3% in Arizona, the most of any state. California saw a 9% increase. Prices increased
from October 2011 in all but five states — Alabama, Delaware, Illinois, New Jersey and Rhode Island.

The Phoenix-Mesa-Glendale area in Arizona had the largest year-over-year price increase of any metro area, at 24.5%. The Riverside-San Bernardino-Ontario metro area was second at 7.3%. And the Los Angeles area was fourth at 6.4%.

Excluding foreclosures and other distressed sales, home prices nationally increased 5.8% in October from a year
earlier. Those prices were up 0.5% from September, the eighth straight monthly gain.

 

Source: LA Times