Thursday, January 20, 2011
An Inverted Yield Curve
| An Inverted Yield Curve: |
| The U.S. economy, interest rates, and the housing market are frequent topics on the nightly news. Viewers are told about leading economic indicators, how the stock market has performed, and whether the Federal Reserve is planning on changing interest rates. What isn't explained is how these items are interrelated and how they may impact which home loan is best for you.The Federal Reserve attempts to keep the U.S. economy healthy through its use of monetary policy. As fears of inflation increase, the Fed will raise certain short-term interest rates such as the federal funds rate, which is the interest rate banks pay each other for overnight loans. Such an increase causes a ripple effect, with banks raising their prime lending rate. This, in turn, causes an increase in adjustable rate mortgage (ARM) rates and the indices they're tied to, such as the 12-Month Treasury Average (MTA), the 11th District Cost of Funds Index (COFI), and the 1-Month London Inter Bank Offered Rate (LIBOR).Under normal circumstances, long-term interest rates would also increase even though they are determined by market trading of bonds and mortgage-backed securities rather than monetary policy. However, in certain instances, the market responds in an unexpected manner.Long-term interest rates are driven by a desire to place money in a steady vehicle that will provide a decent rate of return. When the stock market is underperforming, many corporate and individual investors will sell stocks, and invest their money in bonds. Typically, the longer the holding period of a bond, the higher the yield it will offer. This makes sense because the longer an investor's money is tied up in that investment, the more they should receive for it. However, when there is an increased demand for bonds, the law of supply and demand comes into play. As the demand for bonds increases, the need to attract investors decreases, so the yield offered on those bonds declines.When the Federal Reserve pursues an aggressive policy and raises short-term interest rates repeatedly over an extended period, and the bond and mortgage-backed securities markets are booming so their yields are lower, an unusual situation arises. Short-term interest rates are high while long-term interest rates remain lower. This leads to a shift in the usual yield-versus-term paradigm, known as an inverted yield curve.So what does this mean to a consumer who is trying to determine what type of mortgage would be best under these economic conditions? It means that the cost of an adjustable rate mortgage is not significantly lower than that of a 15- or 30-year fixed mortgage. Rather than taking out (or keeping) an ARM, which is variable and will increase if short-term interest rates keep rising, it may be better to pursue a 15-year or 30-year fixed rate mortgage.Because economic conditions are constantly changing, it's important to consult with a mortgage professional who is knowledgeable about the markets and how they impact the different loan programs available. This will ensure that homeowners obtain the best mortgage available despite market fluctuations. |
Wednesday, January 19, 2011
FHA extends suspension of 'anti-flipping' rule for another year
| FHA extends suspension of 'anti-flipping' rule for another year |
The rule was intended to prevent speculators from defrauding the government, but it also stifled the purchase and renovation of foreclosed homes by legitimate investors.
By Kenneth R. Harney, LA Times
January 16, 2011
Reporting from Washington
For years the federal government prohibited the use of Federal Housing Administration mortgage financing by buyers purchasing homes from sellers who had owned the property for less than 90 days. The idea was to prevent speculators from defrauding the government through quick flips of houses — often involving straw buyers and corrupt appraisers — at wildly inflated prices.
One side effect of that policy had been to stifle purchase-and-renovate projects by legitimate, small-scale investors who buy houses after foreclosure or loan defaults and then resell them in substantially improved condition. In many parts of the country, first-time and moderate-income buyers often sought to buy these fixed-up houses using FHA-insured mortgages with 3.5% down payments, but were prevented from doing so by the "anti-flipping" rule.
This left large numbers of foreclosed, vacant houses sitting unsold and deteriorating, with negative effects on the values of neighboring properties.
Last January, FHA Commissioner David H. Stevens announced a one-year suspension of that rule, permitting qualified buyers to obtain FHA mortgages on properties that were acquired by rehabbers less than 90 days before. The plan, set to expire at the end of this month, came with safeguards for purchasers, including inspections and multiple appraisals in some cases to document the amounts spent by investors on the improvements.
Vicki Bott, deputy assistant secretary for single-family housing at the FHA, confirmed in an interview that the agency expects to continue the policy for another year. Not only have first-time buyers responded overwhelmingly to the opportunity to buy "turnkey" renovated homes with low down payments, she said, but they have performed well on their mortgage obligations.
"Obviously we have concerns about flipping in general," Bott said, but the FHA has seen none of the fraud problems, defaults and re-foreclosures that cost the agency millions in insurance payouts in earlier years.
Investor Paul Wylie, who with a group of partners and contractors specializes in acquiring, renovating and reselling foreclosed and distressed houses in the Los Angeles area, says the government's policy "has been a very positive approach" because "it recognizes the role that [private investors] can play in helping the housing market get back on its feet."
In the L.A. market, Wylie said, FHA financing accounts for 40% of all home purchases and 60% of purchases in predominantly Latino and African American communities.
Buying foreclosed houses "comes with a lot of risk factors," Wylie said. "There's no title insurance. We don't have a good idea of the extent of the defects" inside properties that have been sitting vacant or vandalized for months. Some houses come with delinquent property taxes, which Wylie's group typically must pay.
Then again, the profit opportunities can be significant as well. Most of the Wylie group's houses sell for more than 20% higher prices than Wylie paid at acquisition — a quick turnaround gain that potentially works for buyers, sellers, neighborhoods and, yes, the FHA itself.
Wednesday, January 12, 2011
Can you help my daughter?
This is a marathon that my daughter is running to raise money for Lupus (which my wife/her mother suffers from).
Here is her message and the link to her secure website where you can donate if you are able to.
“DEAR FAMILY AND FRIENDS,
I am running the LA Marathon in March for Lupus LA. Below is my fundraising link!
https://www.active.com/donate/teamlupusla/BBeisner
Please help me raise money for Lupus LA, use the above link to donate. The website is secure, fast and easy to use. At the website you will be able to choose an amount to donate and receive email confirmation of your donation. Thanks in advance for your help.”
If you received this message more than once, I do apologize.
Thank you!
Duane
| ||||||||
Best of Success,
Duane Beisner
Broker Associate with over 25 years sales experience!
Office: 800-291-9957 ext. 212
email: duane.beisner@era.com
Please click on this link to view NOVEMBER - 2010 Newsletter Housing Trends eNewsletter: http://duanebeisner.housingtrendsenewsletter.com/
Please "Google" me... Also, I invite you to be a part of my social network...
Please click here and then click on the "Like" button at the top of the page on my Real Estate Facebook page
Visit my website REJedi.com in order to view All of the Properties For Sale,
24 Hours a Day, 7 Days a Week! at
Check out my Posterous blog and please subscribe at the bottom of the page!
And check out other Blog on Duane's World!
Please follow me on Twitter!
Send me an invitation at my LinkedIn profile:
Please connect with me on Plaxo:
Please befriend me at:
Watch some of my favorite videos and subscribe to my channel at:
Monday, January 10, 2011
Treasury Eases HAFA Guidelines as Group Urges Action
|
|
By: Joy Leopold 01/07/2011
Perhaps as a response to reports and complaints that the government-sponsored Home Affordable Foreclosure Alternatives (HAFA) program was not working as efficiently as hoped, the Treasury Department has released updated guidelines for the program.
In mid-December, the California Association of Realtors (CAR) submitted a letter to the Treasury and other governmental agencies on behalf of its members, outlining specific problems with and suggested solutions for HAFA.
The letter, which spanned four pages, outlined issues Realtors were having with the program, including the failure of lenders to comply with HAFA timelines and general rules, and the lack of uniformity in guidelines for all HAFA programs. Additionally the letter suggested raising the monetary incentive for servicers, investors and subordinate lien holders, citing the low payout as a common reason that HAFA short sales are rejected.
The letter also recommended that HAFA short sales be the required short sale method for servicers, in order to make all short sale processes equal and uniform.
The directive published two weeks later by the Obama administration becomes effective February 1, 2011, although servicers are encouraged to implement the changes immediately.
The new rules do address some of the issues outlined in the CAR letter, as well as many other matters.
Under the new guidelines, servicers are no longer limited by the 6 percent cap with respect to payments to the subordinate lien holders.
Additionally, servicers are now required to complete and send to the borrower a Short Sale Agreement (SSA) no later than 30 calendar days from the date the borrower responds to the HAFA solicitation. If the borrower requests HAFA consideration, the servicer must respond within 30 days.
In addition to these rules, servicers are no longer required to verify a borrower’s financial information to determine a borrower’s HAFA eligibility, nor is it necessary to determine if the borrower’s total monthly mortgage payment is more than 31 percent of his monthly gross income.
Friday, January 7, 2011
When will housing come back in California? Five experts offer their views
When will housing come back in California? Five experts offer their views
Foreclosures in the state are still high. Sales of new homes are at historic lows. And millions of homeowners are underwater on their mortgages. So what’s the outlook for 2011 and beyond?
By Alejandro Lazo, Los Angeles Times
January 1, 2011
As housing recoveries go, this one is in need of a cure.
Homeownership — and the buying and selling of residences — is an economic keystone that carries overwhelming weight in Californians’ personal sense of financial well-being.
But the momentum of the state’s housing rebound has faltered, with sales falling and prices softening despite bargain-basement interest rates. Foreclosures in California are still high. Sales of new homes are at historic lows. The construction sector is in the doldrums. And millions of the state’s homeowners owe more on their mortgages than their properties are worth.
Real estate historically has helped give a boost to economies exiting a recession, but the severity of this bust is nearly unprecedented: Californians have lost $1.73 trillion worth of equity in their homes since prices peaked in 2007, according to Moody’s Economy.com.
Although California’s housing market free-fall ended in spring 2009, the weakness after the expiration of federal tax credits for buyers last year has called into question the sustainability of the recovery.
The Times asked five California experts for their take on the state of real estate and what they think is needed to get the housing market moving again. They range from the pessimism of a foreclosure specialist to the decidedly more upbeat view of a Realtor association economist.
• Richard Green, director of the USC Lusk Center for Real Estate, predicts home prices will remain flat in 2011.
California’s recovery will hinge on location, said Green, who held professorships at several universities and worked as a principal economist at Freddie Mac before becoming director of the Lusk center.
“Draw a line from El Centro up to Sacramento and think of all the towns up and down that line. Unless we have hyperinflation in general in the economy — prices going up a lot — I would guess that in my lifetime we will not see a return to the prices that we had at the peak,” Green said.
“Now, places like La Jolla, Malibu, Laguna, Huntington Beach, Atherton, Palo Alto, the city of San Francisco, Marin County, those are places where within the next five years I could easily imagine prices returning to their peak.”
“The markets in the Central Valley were much more bubbly than the markets on the coast,” he said. “You have very few people who make a lot of money in these places.”
“Whereas a place like Silicon Valley, or a place like West Los Angeles, there is a critical mass of very high-income people.… That means you have a large number of people who can afford to spend in the neighborhood of $1 million on a house, and these are desirable places.”
“The more a property is a commodity that you can easily substitute for something else, the less the chance it will ever come back to its peak. The rarer a property is, the more likely it’s going to come back quickly.”
• Leslie Appleton-Young, chief economist for the California Assn. of Realtors, predicts home prices will rise 2% in 2011.
There are few professionals who would like more to see the housing market bounce back to the heady days of old than Realtors. Real estate agents made a killing when the housing market soared and then took a pounding when it tanked.
During the boom years, Appleton-Young said, she espoused the theory that rising prices mattered more than making solid loans. That theory appeared correct as long as values kept rising.
“What happened this time was prices plummeted and everyone was in trouble,” she said.
These days, the economist sees little chance of the market returning to its previous heights anytime soon.
“We are in a very slow-moving recovery with prices stabilized at the moderate and low end,” Appleton-Young said. “We are still seeing price attrition and price softening at the upper ends of the market.”
2011 will be lackluster, she said, but that does not mean California is not improving.
“We are almost two years into a price recovery. The problem is not to look at 2007 as the normal market that you are moving back up to, because it wasn’t a normal market. We are back in an underwriting environment that actually makes sense.”
“You are seeing prices recovering throughout the state,” she added. “It is just going to take time.”
• Bruce Norris, president of Norris Group in Riverside, expects home prices to fall 5% in 2011.
The real estate slump has been good to Norris, an investor in foreclosed homes. But he believes the market is being artificially boosted by government programs and is set to fall further this year.
“We are in an artificial recovery,” Norris said. “It’s government controlled and manipulated. We have extremely favorable interest rates that we really should not have, based on our debt. We have supported real estate with tax rebates, and we have prevented inventory from showing up by allowing people to be two and three years behind on their mortgages.”
Foreclosed homes, in particular, are being kept off the market through loan modification attempts and other policies.
“You’ve had a slew of programs trying to prevent inventory from showing up, and that prevents reality from happening,” Norris said. “It’s definitely standing in the way of the natural process.”
What does the housing market need most?
“Demand for houses,” Norris said. “Somebody able to qualify for a loan and actually being able to get it. And that’s why it is not going to happen.”
• Emile Haddad, chief executive of FivePoint Communities Inc., expects home prices to “stabilize” in 2011 but declined to make a specific price prediction.
Determining whether the housing market is on steady footing is essential to developers such as Haddad, the former chief investment officer for Lennar Corp. Haddad, along with Lennar, is now part owner of FivePoint, which is managing the development of the Valencia community in Los Angeles County and other high-profile projects. He believes a recovery has yet to take hold in California.
“We are bumping along the bottom,” Haddad said. “And that is a good thing, because that is the first thing that you need in order to start seeing a housing recovery. You need to have a period where values are not going down and the trend is moving in a different direction.”
California’s coastal markets will come back once the job market returns, he said, lifting consumer confidence. But California’s inland areas are more likely to lag behind, and builders will have to reconsider the kind of product they offer in such places.
“In the Central Valley, values have changed a lot,” Haddad said. “You are not going to be able to really have enough depth in the market to sell large, expensive homes, because the ceiling of value is way down.”
“If you pick on a market like Orange County,” he said, “it is still a place that once people feel confident…. I believe people will be out buying homes.”
Affordability is working in the market’s favor.
“We have a mortgage environment that is more favorable — the rates are down — but people are not able to get mortgages, and that is not helping. The most important thing we need is jobs and job creation.”
“Affordability is something I look at, and obviously that is a very attractive metric right now…. There is a value proposition out there right now that is very attractive, that we haven’t seen in four decades.”
• Christopher Thornberg, founding principal of Beacon Economics, predicts home prices will remain flat in 2011.
Once a senior economist for the UCLA Anderson Forecast, Thornberg was one of the first to predict the housing crash, pointing to prices that were way out of line with what people earned.
In that vein, he views the plunge in home values as its own recovery of sorts “because that is when prices went from stupid-high levels to levels that made sense again,” Thornberg said. “Now we are in a post-recovery recovery, if you will.”
“This is not the bust. A bust implies that prices have fallen to levels that are too low. And I would argue that prices today are relatively high. It’s interest rates that have given us this degree of affordability, and from that perspective that is why I don’t expect prices to come down.”
Since helping found Beacon in 2006, Thornberg has become chief economist for state Controller John Chiang and chair of the Controller’s Council of Economic Advisors. He serves on the advisory board of New York hedge fund Paulson & Co. He has been a forceful critic of the Obama administration’s policy attempts to right the market.
“The administration has tried, through a variety of policy methods, to try and spike the market,” he said.
Subscribe to:
Posts (Atom)
