Category: ‘The Housing Market’

Payment Increases on Equity Lines

August 14, 2014 Posted by Andre Hemmersbach

During the last five years millions of homeowners have taken advantage of the government’s Home Affordable Modification Program (HAMP) or in the case of mortgages that did not fall under HAMP,  lenders’ proprietary modification programs. These Loan Modification programs (Loan Mods) were initiated to offer relief to desperate homeowners who were facing foreclosure due to various circumstances through temporary rate reductions or interest rate abatements. The key term in the above statement is “temporary”!  Loan Mods along with Home Equity Lines Of Credit (HELOC), a mortgage that is similar to a credit card, will see upward rate and payment adjustments, sending some homeowners back to the brink of financial crisis. (More on HELOCs later.)

To qualify for a Loan Modification borrowers were asked to submit an income and asset package to the lender proving a hardship and current stable income. If the borrower qualified, the lender dropped the interest rate as much as 3 or 4 percentage points and renegotiated a monthly mortgage payment that would represent about 45% of the borrower’s monthly gross income. Via the modification agreement, the borrower usually promised to return to the original rate and terms of the mortgage through 1% annual increases after a five year period.

The Real Estate Bubble burst in late 2008 and the loan modification programs started to gain momentum in 2009 and hit full stride in 2010 through 2012, therefore the first round of the notices for payment increases via the loan modification agreements are starting to be sent out.

Borrowers facing this issue today may have some additional alternatives that were not available to them back in the middle of the recession. At least in Southern California, equity positions have seen healthy gains and the job/income outlook have improved slightly. Options homeowners may consider are: refinancing to current low mortgage rates (albeit at higher rates than their modified rate but lower than their final rate), making the new higher payments via their modification agreement, selling their home to downsize or rent.

As a whole, HELOCs mortgage payments will also be increasing. The basic issue is that the 10 year interest only introductory period, typical in these mortgage products, is now coming due. Homeowner’s with balances on their HELOC will on the 10th anniversary move to a fully amortized 20 year loan and experience a fairly large payment increase. I have previously blogged about the dangers of HELOCs and you can read the remainder of the article at https://cahomehunters.com/real-estate-time-bomb/.

Bottom-line…. homeowners with these types of mortgage products who do not have the ability to afford the payment increases, may have to make some difficult decisions in the near future.

If I can be of assistance in giving you or a friend advice or direction with these type of products please let me know, as I would be happy to help them.

Also see: http://newsroom.transunion.com/press-releases/transunion-study-identifies-framework-for-managing-1136135#.U-0un_ldV8E

http://www.usatoday.com/story/money/business/2014/01/29/rate-increases-for-hamp-loan-modifications-2009/4964701/

http://www.pwc.com/us/en/consumer-finance/publications/avoiding-default-risk-mortgage-modification-resets.jhtml

 

Real Estate Values in 2014

December 20, 2013 Posted by Andre Hemmersbach

Being in the Real Estate industry gives me access to various   tools, reports and statistics that most individuals cannot find. That being said you can find a chart or statistic to make a case for or against almost anything. The big question on many of my client’s mind is where Real Estate prices go from here. Our friends at John Burns Real Estate Consulting do a marvelous job of sifting through the numbers on a state by state and county by county level to come up with relevant, timely and meaningful predictions about matters in real estate.

I found the recent information prepared by JBREC to be extremely interesting as it charts the historical ratio between the median housing payments to income.   A shorter way of describing this chart is an affordability ratio. As home payments get more expensive via higher rates, median home prices or a drop in income it is reasonable to expect a reversal in demand. The historical mean of the average housing payment to income ratio is close to 32.5%. The current ratio through October 2013 is 28.4% based on a 4.1% 30 year fixed rate.

MedianHousingPayment_to_IncomeRatios

If this chart holds true we would need another 13% increase in the national sales price or mortgage rates to go to 6% before we hit the historical mean of 32.5% in affordability.

Please call me to discuss your plans in purchasing a home or Real Estate investment in 2014. Unless you are paying cash, getting all your ducks in a row early will save you time, money and headaches!

The Federal Reserve’s Monumental Task

August 9, 2013 Posted by Andre Hemmersbach

Through financial news reports and various investment magazines I have been made aware of a coming moment in time somewhere in the future when the Federal Reserve will have to make an important decision to do something about their Quantitative Easing Program. Well many believe we are on the eve of this great day in the upcoming September 18th Fed meeting. Just the mere mention of slowing the program down by Federal Reserve Chairman Ben Bernanke has sent the fixed income market into turmoil since May 22nd. The program’s name itself “Quantitative Easing”, sounds safe enough and does not conjure up any visions of impending doom but the manner in which the Fed “unwinds” the program could have major ramifications. Because the Fed indirectly controls interest rates for credit cards, cars, business and home loans it also has a big influence on the well being of our and the world economies. The link below will take you to a speech given by President Richard W. Fisher of the Federal Reserve Bank of Dallas and voting member of the Federal Reserve of the United States, that in my opinion is the best and most simple explanation of what the Fed has done and now must do. It clearly explains and depicts with charts the monumental task that faces the Federal Reserve over the next few months and years.

http://www.dallasfed.org/news/speeches/fisher/2013/fs130805.cfm

If I can be resource to you, your family or friends on any matters of Real Estate, I would be honored to help. I can be reached in my office at 310 540-1330.

Have a great week!

South Bay Home Prices Higher and Inventories Still Low

July 26, 2013 Posted by Andre Hemmersbach

Sales prices in the Greater South Bay area have continued to move higher as inventories are still very low. These trends however, are rearward looking events and represent contracts that were written before the mortgage rate increases from 45 days ago. Of real interest are what the numbers will look like in August and September after homebuyers have had some time to digest and concider the higher mortgage rates and the higher monthly housing payments that corresponds with those higher rates.

Robert Dixon of RE/MAX Estate Properties in Palos Verdes thinks that the higher mortgage rates are not going to affect property prices in any substantive way. The number of borrowers who are deciding they have missed the oppurtunity to buy their first home are equal to the number of fence sitters that finally have decided “we better move now, before rates move even higher.” Robert does feel that the higher mortgage rates in conjuction with the traditional end of the summer buying season approaching will bring back a more normalized negotiation environment between buyers and sellers. “The last several months have seen a frenzy of buyers who are climbing over each other to have their offers accepted.”

Greater South Bay Listings vs Sales Prices

Greater South Bay LIstings vs Sales Prices

By Andre Hemmersbach

Mortgage Rate Update

June 3, 2013 Posted by Andre Hemmersbach

I thought it would be timely to send you a financial chart that quickly shows you how much rates have moved over the last 4 weeks. The move has been pretty dramatic and started with some good job numbers in the begging of May.  The real catalyst however has been Fed Chairman Ben Bernanke’s comments regarding the Federal Reserve’s continued commitment to purchase Mortgage Backed Securities (MBS) in the wake of the stronger economic outlook. Low Mortgage Rates have been artificially supported by the Federal Reserve through heavy purchasing programs which have now come into question. The chart below shows bond prices, which are inverse of rates (red days means higher rates, green days means lower rates).

Please call me if you need further explanation of the current rate environment or need an update on how this affects your specific qualifications or payment amounts. 

MBS Chart

MBS Chart