Posts Tagged: ‘Housing’

Home Affordability Via Loan Rates

April 9, 2015 Posted by Andre Hemmersbach

Interest rates are the key factor in home affordability, not the home sales price. Home buyers mistakenly think that high real estate prices are keeping them from affording a mortgage payment, however, the biggest variable in home buyers affording a home are mortgage interest rates. (See chart below)

Given an annual income of $70,000 between a husband and wife, at the industry standard of 38% debt-to-income (DTI) ratio a couple could afford a mortgage loan of $525,700 at a rate of 3%. For every 1% increase in mortgage rates the borrower’s affordability drops another 10%. If rates were to merely raise 3% a borrower could not afford more than a home loan of $369,700.

Chart

Rate Affordability Chart

 

Please call me for a free consultation to see what size home loan you qualify for.

 

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

 

South Bay Sales Prices Take A Rest

November 8, 2013 Posted by Andre Hemmersbach

Per the Multiple Listing Service (MLS) data for the greater South Bay area, real estate prices seem to have taken a bit of a rest in the last few months as the median listing price and median sales price have dropped (See Chart Below). While certain high demand zip codes could still be experiencing sales price increases, multiple sources that measure housing values have been reporting that the rate of sale price increases have started to slow nationally. FHFA HPI

The frenzied atmosphere of this summer’s home buying season created conditions in which buyers had to make tough decisions on paying over value, waiving inspections, waiving appraisal contingencies and other contractual milestones that protect them from potentially harmful financial situations. For those who are still looking to purchase a home and were frustrated by the absolute chaos of multiple offer and “bidding war” situations during the summer months, may take hope in the recent slow down in activity.

Supply and demand is a basic driver of price in any free market and the lack of homes for sale has continued to be an issue (See Chart). Just a short 16 months ago a home owner wanting to sell his property had a tough time getting a fair price for his property because of the glut of foreclosures and short sales that were his competition. That is no longer a problem as distressed sales in the South Bay and the nation as a whole,  have dramatically decreased. According to most experts the supply of homes for sale will  probably not increase any time soon (Foreclosure Rates).

Demand from home buyers while still strong, seems to have slowed a fraction. To blame could be seasonal issues along with higher interest rates and sales prices. The latest Homeowners Affordability Index (HAI) report from the California Association of Realtors (CAR) showed that affordability in California has slipped every quarter since it’s high in the first quarter of 2012. Mortgage applications for purchases as reported by the Mortgage Bankers Association, a very reliable forward looking indicator for home sales has also fallen almost every week since the September 22, 2013 release.

Current conditions for buying a home appear as favorable now as they were in the 2nd quarter of 2012. Rates are still a extremely low historical levels and while we are still in a seller’s market buyers are not running over each other at the site of a new house on the market. At least until Spring buying season 2014, buyers should be able to make rational decisions based on real issues and not the “if I don’t get this one, I’ll miss the market” mentality.

Please let me know if i can be a resource you you or your acquaintances on any matters of real estate.

List Price vs Sales Price 11 1 2013

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!

Little Known Mortgage Underwriting Guideline Exception

August 1, 2013 Posted by Andre Hemmersbach

Over the last several years the news about lending and lending guidelines has for the most part been pretty negative so when there is something positive to highlight it makes my job a bit easier.

One of Fannie Mae’s (FNMA, the government institution that buys almost all the fixed rate mortgages made today) little known rules that could help certain individuals is how they look at borrowers who are purchasing, refinancing or doing a cash-out refinance for and elderly parent or disabled child.

If the elderly parent, or in the case of a disabled adult child, is unable to work or does not have sufficient income to qualify for a mortgage on his or her own FNMA will allow the borrower of the elderly parent or disabled child to purchase or refinance the home as the owner occupant at the owner occupant rates, loan to values and guidlelines even if they are not going to occupy the property.

There would be several additional documentation requirements but as a whole it pretty simple. More astonishing than the fact that FNMA allows this as an exception is that not all lenders follow the rule or even know about it.

If i can be a resource to you on any real estate matters please call me.