What's In The News

One of the lessons of the current mortgage crisis has been that home ownership probably isn’t for everyone. At Home-Account we work tirelessly for the interests of homeowners and would-be homeowners, but that doesn’t mean we’ve never seen a buyer or a mortgage we didn’t like. Our objective is home OWNERSHIP – actually owning your home outright. And toward that goal we try to encourage our subscribers to work toward legitimate loan qualification, which means buying a home you can actually pay for. The recent mortgage bubble, in contrast, was often based on lenders giving mortgages to people who shouldn’t have qualified and honestly couldn’t afford the houses they were buying. The fact that the system encouraged that was because lenders were paid fees for closing loans and loans were securitized in such a way that the inevitable default was someone else’s problem. Though it turned out, of course, to be a problem for us all.

The goal of responsible home ownership then requires us to point out that there is a move afoot to return, somewhat, to the bad old days of subprime mortgages. Specifically there is a bill in Congress – H.R. 600 – which will allow seller-funded down payments for FHA mortgages. Couched as allowing friends or relatives or foundations or charities to GIVE FHA mortgage applicants the 3.5 percent minimum FHA down payment, in practical terms it allows the seller to do so, too.

Under H.R 600 it is possible under certain circumstances to get an FHA mortgage for no money down. This technique has been used before and it usually comes down to the purchase price being inflated by the amount of the down payment, which is then transferred from the seller to the buyer. This is not good.

The point of having a down payment is for buyers to be at risk a bit – to have some skin in the game — which ought to encourage them to be reliable mortgage payers. That’s our goal here at Home-Account, too – to help our subscribers to be reliable mortgage payers. But giving sellers a way to finance the down payment is for the most part a return to the slippery slope of subprime lending and will hurt us all in the long run.

H.R. 600, as it is presently written, is a bad bill and should be defeated.

Yogi Berra said, “It’s not over ‘til it’s over,” but there’s a hint at least in recent housing numbers to suggest we’ll have a real bottom to the real estate market later this year.

It all comes down to supply and demand, with supply being the number of new and existing homes for sale and demand being the number of sales actually completed. Families are started even in a recession so housing units are continually being absorbed. Unfortunately the housing bubble created too many new housing units causing the market to collapse. The question this week is when will that collapse end, housing prices will firm, and existing homeowners can start to recover from their underwater mortgages? Based on housing inventory numbers from the National Association of Realtors we have another six months or so to go.

That’s how long it will take, at current building and sales levels for the inexorable population increase to absorb enough excess housing inventories to return us to historic norms. What even allows us to get back to those norms is the steep decline in builders of new homes, many of which are no longer in business.

The number of new and existing houses on the market historically is enough to last 3-4 months, which is to say at current sales rates without replacing any of those homes all would be sold in 3-4 months. But right now housing inventories stand at 9.7 months. With only a marginal influx of new homes the difference between 9.7 and 3.5 (6.2 months) is the best predictor of when the market will hit BOTTOM, after which prices will finally start to increase on a national basis.

Does this mean yu should wait six months to buy a house?  NO!  It means this is an ideal time to be shopping for a house because it is a buyer’s market.  But the perfect house is hard to find.  When you find yours, BUY IT!

There has never been a better time than now to refinance your mortgage – IF you can be approved. Thanks to the Fed, rates have been driven to record lows, though not as low as they appear given the number of rate add-ons dictated by new rules from Fannie Mae and Freddie Mac. The mortgage industry is finally getting in-gear for the refi boom, though approval rates are still in the 30-40 percent range, which is not good. Workouts are required in many cases and the system is still not in place to generate or monitor them. Also there is about to be a fight in Congress about restructuring the mortgage industry that may well lead to some playing of “chicken” in the market that will hurt consumers. So while in the long run things are improving, in the short run we all need a friend in the mortgage business more than ever. We all need Home-Account.

Mortgage rates are still near historic lows yet hardly any applicants actually qualify for those rates due to a variety of additional points and fees that we’ve covered in this space before.  This effect is masked, to some extent, by the fact that these additional costs are generally NOT mentioned in the weekly report of average mortgage rates issued every Thursday by Freddie Mac.  Those rates — as low as 4.48 percent in the last report for a 15-year fixed mortgage — generally show just the core rate and not the various adders.  So you can have great credit and qualify for that 4.48 rate, but actually GETTING it is something else altogether.

There is also a fight brewing between the government, banks, and mortgage security holders over provisions in new legislation that would immunize loan servicers from lawsuits by investors in mortgage-backed securities.  The government wants to encourage loan modifications, allowing these to happen almost automatically in cases of bankruptcy, where they were traditionally not allowed.  To date all mortgage modification programs have been aimed mainly at those current on their loans which includes an entire class of homeowners who don’t really need loan modifications to stay in their homes.  So the government is doing the right thing, so to speak, but with typical governmental lack of finesse.

The banks hated this idea until they figured out that it would allow them to reconfigure $441 billion in second mortgages THEY hold.  Citibank was the first to see this logic.  So the banks can improve their positions as loan holders, can improve their positions as loan servicers, but of course the mortgage security investors hate this and the government sits in between.  The result of this conflict will only be more delay and confusion in the marketplace, neither of which is good for homeowners.  Sorry.