Distressed Sales Interfere with Accurate Appraisals: NAR

10/10/2012 By: Esther Cho 

Inflated appraisals were identified as one of the causes of the housing bubble, and now undervalued appraisals are viewed as a reason for a stalled recovery.

In a September National Association of Realtors (NAR) survey related to home appraisals over the past three months, 11 percent of Realtors said a contract was cancelled because a home was appraised at a value below the negotiated price.
Another 9 percent said a contract was delayed, and 15 percent said a contract was renegotiated to a lower sale price.
A much larger majority, 65 percent, reported no contract problems stemming from home appraisals.
One reason for the low values, according to the NAR, is because some appraisers are not taking into account the difference between distressed and non-distressed homes when making comparisons.
“Some appraisers are using foreclosures, short sales and run-down properties as comparable homes, and are not making adjustments for market conditions or the condition of the property,” the group stated in a release.
Compared to traditional sales, a foreclosure sells for a 20 percent discount on average and a short sale for a 15 percent discount.

NAR acknowledged issues appraisers deal with, noting “appraisers have faced undue pressure – whether from a lender or an AMC – to complete appraisals using distressed sales as comps, to complete an appraisal in an unacceptably short time frame, and to complete a scope of work that is not justified by the fee being offered.”
NAR further added some appraisers have to use eight to 10 comparable sales when previously, three comparable homes were sufficient and the norm.
When using a high number of comps, discounted, distressed homes end up in the equation. NAR explained this can lead to traditional homes in good condition being compared to distressed homes without appropriate adjustments.
However, with the distressed market share decreasing, the impact of distressed inventory on appraisals should also subside.
According to the NAR, distressed sales accounted for about one-third of all sales in 2011, and by 2013, the association expects to see the share of distressed sales fall to 10 to 15 percent.
Even if the issue of distressed properties starts diminishing, there are still other issues in the appraisal industry NAR addressed, including out-of-town appraisers who are not familiar with the area or local market conditions, slow turnaround times, and inconsistencies and fluctuations in appraised values.
NAR President Moe Veissi, broker-owner of Veissi & Associates Inc., in Miami, explained the NAR’s position on the issue.
“Our long-standing policy is that all appraisals should be done by licensed or certified professionals with local expertise, which also is what Fannie Mae and Freddie Mac recommend, but clearly this isn’t practiced universally,” he said.
“In the meantime, buyers, sellers and real estate agents need to be aware that there are problems with some real estate appraisals, but also be aware of their rights to communicate with appraisers and lenders about errors or concerns with individual valuations,” he added. “In some cases, a second appraisal may be justified.

Mortgage Rates Find New Bottom for 2nd Straight Week

10/04/2012 By: Krista Franks Brock 

For the second week in a row, mortgage rates hit new record lows, and for the first time since mid-October 2009, the 15-year fixed-rate mortgage is lower than the 5-year adjustable-rate mortgage (ARM).

The average 30-year fixed-rate mortgage for the week ending October 4 was 3.36 percent (0.6 point), down from last week’s average of 3.40 percent, according to Freddie Mac. Bankrate also recorded a fall in the 30-year fixed-rate mortgage but recorded an average rate a little higher at 3.52 percent (0.44 point).

The 15-year fixed-rate mortgage fell to an average of 2.69 percent (0.5 point), down from 2.73 percent the previous week, according to Freddie Mac. Again, Bankrate recorded a slightly higher average, albeit a record-low for its index. The 15-year fixed-rate mortgage averaged 2.84 percent, according to Bankrate.
The 5-year Treasury-indexed hybrid ARM was the only rate to rise over the last week, up to 2.72 percent (0.6 point) from 2.71 percent the previous week, according to Freddie Mac.
The 1-year Treasury-indexed ARM fell from 2.60 percent to 2.57 percent (0.4 point).
Frank Nothaft, VP and chief economist at Freddie Mac, attributes the falling rates to “mortgage securities purchases by the Federal Reserve and indicators of a weakening economy,” such as slow personal income growth in August–just 0.1 percent–a 2.6 percent decline in pending home sales, and last quarter’s downwardly revised Gross Domestic Product.
According to Bankrate, the “historically low rates led to a surge in refinances last week.”
Looking forward, Bankrate suggests it’s unlikely rates will rise “anytime soon.”

NAR: Tight Lending Standards Stunting Home Sales and Employment

09/17/2012 By: Ryan Schuette 

If Realtors have anything to say about tight lending standards, the observation would be such standards are preventing more home sales and holding back job creation.

The Washington, D.C.-based National Association of Realtors recently reached their conclusions in a survey conducted with real estate agents.
“Sensible lending standards would permit 500,000 to 700,000 additional home sales in the coming year,” NAR chief economist Lawrence Yun said in a statement. “The economic activity created through these additional home sales would add 250,000 to 350,000 jobs in related trades and services almost immediately, and without a cost impact.”
The findings? Lenders take too long with applications, requiring excessive information and preferring only interested homebuyers with high credit scores.
Survey respondents reported that 53 percent of loans went to borrowers with credit scores above 740 in August, a sharp contrast when compared with the fact that 41 percent of homeowners with the same credit held these mortgages from 2001 to 2004.

According to NAR, about three-fourths of loans bought by Fannie Mae and Freddie Mac went to borrowers with credit scores of 740 or above.
The trade group observed that loan applications backed by the Federal Housing Administration showed an average FICO score of 669 in May, significantly higher than 656 for loans originated in 2001.
Yun intimated that reportedly tight lending standards could hurt existing-home sales, which typically range from 5 million to 5.5 million in better times.
“Sales this year are projected to rise 8 to 10 percent. Although welcoming, this still represents a sub-par performance of about 4.6 million sales,” Yun said.
“These findings show we need to return to the sound underwriting standards that existed before the aberrations of the housing boom and bust cycle, and thoroughly re-examine current and impending regulatory rules that may cause excessively tight standards,” he added.
While looser lending standards can threaten default rates, NAR brought attention to improving loan performance in recent years.
Yun pointed out that since 2009, the 12-month default rates have been abnormally low, with Fannie Mae default rates averaging 0.2 percent and Freddie Mac rates averaging 0.1 percent. NAR stated this is notable considering higher unemployment in the timeframe.
In 2007, the twelve-month default rates peaked to 3.0 percent for Fannie Mae loans and 2.5 percent for Freddie Mac loans, according to NAR.

Freddie Mac: 95% of Refinanced Borrowers Opted for Fixed-Rate Loans

08/14/2012 By: Esther Cho 

For borrowers who refinanced in the second quarter, fixed-rate mortgages dominated consumer preferences.

Among those who refinanced in Q2, more than 95 percent opted for a fixed-rate mortgage, according to the Freddie Mac Quarterly Product Transition report.
For those who had a hybrid ARM, 81 percent transitioned into a fixed-rate loan during the second quarter; the percentage represents the highest share in two years. In contrast, for those with a 15-year fixed rate loan, 2 percent transitioned into a hybrid ARM.

Also, 30 percent of those who refinanced in the second quarter shortened their loan term. However, those who refinanced under HARP tended to choose long-term, fixed-rate mortgages.
Twenty-five percent of HARP borrowers opted for shortened terms versus the 30 percent who did not refinance through HARP.
Frank Nothaft, Freddie Mac VP and chief economist, explained the benefits of a shorter term loan.
“Compared to a 30-year fixed-rate mortgage, the interest rate on a 15-year fixed was about three-quarters of a percentage point lower during the second quarter,” said Nothaft. “For borrowers motivated to refinance by low fixed-rates, they could obtain even lower rates by shortening their term. Further, a shorter-term, fully amortizing loan reduces the loan balance faster and builds home equity sooner.”
The report also revealed different preferences between those who did and did not refinance under HARP. For HARP borrowers who originally had an ARM loan, 95 percent transitioned into a fixed-rate mortgage. For those who did not refinance under HARP and had an ARM loan, about half opted for another hybrid ARM.

Low Inventory Adding to Home Prices and Decreasing Days Listed: Redfin

08/10/2012 By: Esther Cho 

As homeowners hold back from selling, home prices are benefiting, according to a report from Redfin, which tracked home prices in 19 U.S. markets.

While prices remained flat month-over-month (-0.1 percent) from June to July, Redfin found prices rose 3.2 percent from July 2011 to July 2012.
However, the number of homes for sale fell 28.1 percent during the same one-year period and also declined 5 percent from June.

According to Redfin, the biggest challenge the housing market is facing is selection, and the problem will persist until the end of the year.
Among 19 markets measured by Redfin, 16 saw yearly price gains, with Phoenix seeing the biggest gain at 28.7 percent.
San Jose and Denver also had noteworthy gains at 11.9 percent and 8.5 percent, respectively. On the other hand, markets that saw yearly decreases included Long Island (-6.6 percent) and Chicago (-3.1 percent).
On a monthly basis, Phoenix actually saw prices dip 2.1 percent. Out of the 19 metros, eight others also saw month-over-month losses, including San Francisco (-2.5 percent), Washington D.C. (-1.9 percent), and Chicago (-1.9 percent). San Jose and Portland had the biggest monthly price gains, 4 percent and 2.1 percent, respectively.
With inventory low, Redfin found the percentage of new listings that were taken off the market within a matter of weeks remained high. For single-family homes, 27.8 percent were under contract within 3.5 weeks from their debut day in July.
Redfin also stated low inventory led to a slowdown in home sales, with July seeing a decline of 12.4 percent from June, but still up 6.8 percent from a year ago

Mortgage Rates Lifted by Encouraging Employment News

08/09/2012 By: Tory Barringer 

Strong employment reports boosted mortgage rates back up for the second week in a row, Freddie Mac reported Thursday.

The GSE’s Primary Mortgage Market Survey shows the 30-year fixed averaging 3.59 percent (0.6 point) for the week ending August 9, an increase from 3.55 percent the previous week.
The 15-year fixed also posted gains, averaging 2.84 percent (0.6 point) for the week, up from 2.83 percent a week ago.
The 5-year adjustable-rate mortgage (ARM) followed, increasing to 2.77 percent (0.6 point) from 2.75 percent the week before. The 1-year ARM actually continued to drop, however, falling to 2.65 percent (0.4 point) from 2.70 percent previously.

Frank Nothaft, VP and chief economist at Freddie Mac, said the week’s positive employment news may be a sign of more growth to come.
“Fixed mortgage rates inched up again this week following stronger-than-expected employment reports. The economy added 163,000 jobs in July, well above the market consensus forecast of 100,000 and the largest increase since February,” Nothaft said. “In addition, the number of announced corporate layoffs fell 45 percent in July compared to last July and was the third time this year that announced layoffs were less than the same month in 2011, according to The Challenger Report. This suggests further net gains in employment are likely in the near future.”
Bankrate reported marginal gains in mortgage rates. The 30-year fixed increased to 3.81 percent (from 3.77 percent last week), while the 15-year fixed inched up to 3.00 percent (from 2.99 percent). Meanwhile the 5/1-year ARM stayed flat at 2.91 percent.
“With investors no longer feeling as if the sky is falling, at least temporarily, fixed mortgage rates did move a tad higher. Mortgage rates are closely related to yields on long-term government bonds. Should the better economic news continue, it would keep further Fed stimulus at bay, and likely push up rates a bit more, so stay tuned,” Bankrate said.

To Rent or Own: How Consumers Decide Between the Two

08/03/2012 By: Esther Cho

In a study to examine what factors would drive a person to rent or own in their next move, Fannie Mae found that a mix of demographics and attitudinal drivers were key, while negative housing events appears to do little to thwart would-be buyers.

The study categorized respondents into three groups: renters, those with a mortgage, and outright homeowners.
After gathering demographics for the three groups, the study found that renters tended to be younger and fall into the low income category. For the survey, 46 percent of renters were in the 18 to 34 age group, and 43 percent of renters had an annual income under $25,000. Renters also tended to be single (41 percent) and employed part-time (47 percent).
Homeowners with a mortgage, on the other hand, were more likely to be in the 35-49 age group (41 percent), married (77 percent), and employed full-time (64 percent). They also tended to have a higher income, with 23 percent earning more than $100,000 and 39 percent earning between $50,000 to $100,000 thousand.
Those who were outright owners of their home tended to be 65 and older (46 percent) and retired (49 percent).
The study explained that traditionally, research has focused almost exclusively on demographic factors when trying to dissect the own-rent decision process.

But, based on the survey, attitudes toward housing and finances also had a significant influence on individual decisions to rent or own. The groups most affected by attitudinal drivers were renters and those with a mortgage.
The housing attitude that was found to be the most influential is the belief that “owning or renting makes more sense financially over the long term.” This is what drove all three groups to behave accordingly, depending on their situation.
One attitude that affected renters and discouraged them from buying was concern with affordability and housing maintenance.
An individual’s existing homeownership experience, whether it was positive or negative, was a primary driver of the own-rent intention for a mortgage owner, but not for those who owned their home outright. According to Fannie Mae, the results suggest that once consumers buy a home and have a positive ownership experience, they want to continue being a homeowner rather than consider renting.
For renters and those with a mortgage, the belief in homeownership and aspirations to own a home one day was important in determining whether one expected to own or rent in the future.
For outright owners, demographics, rather than attitudes, determined housing choice preference. According to the study, this is probably due to the fact that the upside financial possibilities are less likely, considering most outright owners are retired and past their income peak.
The study also found that troubles in the housing market over the years did not prevent people from aspiring to buy. Even factors such as exposure to mortgage default, perceived home value appreciation/depreciation, and self-reported underwater status were not significant in predicting intentions to own or rent.
The study analyzed full year 2011 data from the Fannie Mae National Housing Survey and incorporated 12,014 individuals.