First Timers Give Way to Bidders Coming Out of Foreclosure

The all-cash buying real estate trend has not let up at all in early 2014. In fact, most states have seen an increase in cash purchases—a stunning trend when you consider how popular cash buyers were last year and the fact that many institutional buyers are starting to drop out.

Part of the reason why the momentum has been sustained and even strengthened in some regions is because new types of all-cash buyers are emerging and brokers are embracing it. In some instances, brokers are being proactive and pursuing this type of purchase through aggressive marketing and strategic partnerships.

Joseph Rand, managing partner and general counsel of Better Homes and Gardens Rand Realty, oversees a large real estate firm in the New York City suburbs. With about $1.5 billion in annual sales, the company has an alliance with OwnAmerica, a North Carolina-based organization run by his brother Greg, which represents hedge funds and investor syndicates that look for buying opportunities that are turned into profitable rental properties.

According to Rand, the institutional investors came into the areas that were hardest hit by the housing market crash. “They’re investing in the South and Southwest, where you have home prices well below where they were at the height of the market,” he explains.

The Northeast, however, has had fewer professional investors because of the region’s pro-tenant policies and the fact that prices never came down that much to begin with, says Rand, adding that an average single-family home costs $800,000 in Westchester County, N.Y., and $400,000 in Rockland County, N.Y.

As the institutional investors start to subside, Rand has noted a surge in several types of so-called “regular investment buyers”—all of whom tend to pay in cash:

  • People of means who are buying without selling. “They don’t need the money out of their home to buy their next home,” explains Rand. “For them, it’s a buying opportunity and not a selling opportunity.”
  • People of reasonable means who have done well in the stock market (In May, the five-year bull market on Wall Street has set several new all-time highs). “They have millions of dollars to play with on the street,” says Rand. “That’s taking up a much larger part of the trend.”
  • People who were foreclosed on during the height of the crisis who stopped paying their mortgage and used the past half-decade to save money for an all-cash purchase today. “We have created hundreds of thousands of people who can’t get a loan (because of a foreclosure),” says Rand. “They cannot get a mortgage but they can buy all-cash.”

In New York, there has been a huge spike in all-cash deals. In the first quarter of 2014, 58.9 percent of all home purchases in the state were done without a mortgage, according to RealtyTrac. In the first quarter of 2013, only 27.2 percent of the purchases in New York were made that way.

Nationwide, RealtyTrac reported that 42.7 percent of the deals in the first quarter of 2014 were all cash; 37.8 percent of the deals in the fourth quarter of 2013 were all cash; and 19.1 percent of the deals in the first quarter of 2013 were all cash.

A shrinking portion of that is coming from institutions. According to RealtyTrac, institutional investors—entities that have purchased at least 10 properties in a calendar year—accounted for 5.6 percent of all U.S. residential sales in the first quarter, down from 6.8 percent in the fourth quarter of 2013 and down from 7.0 percent in the first quarter of 2013 to the lowest level since the first quarter of 2012.

Among metropolitan statistical areas with a population of at least 500,000, those with the top five highest percentages of cash sales were all in Florida.

  • Cape Coral-Fort Myers (73.6 percent)
  • Miami (67.1 percent)
  • Sarasota (65.1 percent)
  • Palm Bay (64.1 percent)
  • Lakeland (61.8 percent)

Other major metro areas with more than 50 percent all-cash sales included:

  • New York (57.0 percent)
  • Columbia, S.C., (56.1 percent)
  • Memphis (54.9 percent)
  • Detroit (53.5 percent)
  • Atlanta (53.2 percent)
  • Las Vegas (52.2 percent)

Competition among Lenders Good for Potential Buyers

The future of expanded credit availability has strong ties to a healthy housing recovery—and that future lies in the hands of private lenders.

The lending pendulum was pulled into careless territory nearly 10 years ago, and since the bust it has swung in the opposite direction. It’s now hovering in an ultra-conservative space where well-off buyers with the highest credit ratings and largest down payments are most likely to get financing, while others with stable employment but modest incomes are missing out on the opportunity to own a home.

Even White House and Federal Reserve policymakers have warned that lending standards are too restrictive and could continue to stifle progress made over the past few years.

Refinancing, which kept the lending world busy in recent years, dropped by 50 percent between December and April, according to the Mortgage Bankers Association. Lenders would benefit by making up for that loss with purchase loans, but first they’d have to relax borrowing requirements. And that would benefit consumers, home sellers and their communities.

In some cases, it appears the lending pendulum is returning to the center—where lenders are starting to vie for the consumers with slightly lower credit scores (in the high 600s and lower 700s) and with smaller down payments.

To remain competitive, more lenders have to tap into a wider customer base. Some recently started lowering required minimum down payments to as little as 3 percent, and they’re allowing borrowers to use gifts from family and friends.

These more reasonable standards should allow lenders to originate more loans and help fuel the ongoing economic recovery. As lenders continue to compete for business, more buyers will be able to enter the marketplace.

A look back to 2001 shows the need for balance. That year, about a quarter of new borrowers had credit scores above 760. Last year, 40 percent of new borrowers had the same credit scores, according to the Wall Street Journal. In 2001, 13 percent of borrowers had scores below 620. And last year, borrowers with those credit scores made up less than 0.2 percent of new mortgages.

Should we expect to see loan standards loosen up to pre-crisis lows? No.

But if they don’t loosen more, they will further challenge the recovery process.

Experts agree that tight lending standards—those that favor investors, the wealthy and borrowers with pristine credit—have significantly suppressed home purchases.

There are 1.2 million “missing” loans for every year that credit is limited, according to a March study by Urban Institute. Its analysis showed a disproportionate effect on African-Americans and Hispanics.

As the market recalibrates, lenders have to focus on the housing market at large, not just those who provide more than 20 percent down with near-perfect credit scores.

Credit availability and competitive lending are obviously the keys to continued recovery in the housing market. As eligibility requirements approach a more moderate threshold, a ripple effect will ensue. More buyers will be approved, and those who own homes will be more motivated to put their homes on the market.

As we start the busiest home-buying season, there are signs that equilibrium is on the horizon. Confidence and activity will follow—slowly and surely.

FHA Offers First Time Home Buyers Discounted Loans for Taking Class

Home loans are about to go on the discount rack for first-time buyers willing to spend a few hours learning the ropes of home-ownership, from applying for a mortgage to choosing a contractor for a kitchen remodel.

The Homeowners Armed with Knowledge program, or HAWK, was announced by the Federal Housing Administration last month as a way for homebuyers to cut their mortgage insurance premium costs by attending housing counseling classes. The idea is that the more borrowers understand about home-ownership, the less likely they are to default on their loans, reducing the risk for FHA.

After two years with no delinquent payments, the homeowner qualifies for another discount.

Borrowers who take the classes, which include several courses before and after closing, can save an average of $325 a year, or nearly $10,000 over the life of the loan.

“It may not seem like it, but $10,000 is a lot of savings for a $30,000-a-year household,” said Kimber White, state government affairs chairman for the Florida Association of Mortgage Professionals. “It can make the difference between qualifying or not qualifying to buy a home.”

A public comment period on the program will end in mid-August, and White believes borrowers will be able to begin applying by year’s end.

FHA doesn’t write loans, it insures them, and typically targets under-served populations. Borrowers can get an FHA-backed loan with as little as a 3.5 percent down payment and a credit score of 560. Conventional loans can require 20 percent down and a minimum credit score of 620, White said.

Credit scores from the Fair Isaac Corporation, or FICO, range from 300 to 850. The average FICO credit score in Florida is about 635, according to a survey by CreditKarma.com of its customers.

“Most people who are buying a home don’t know anything,” White said. “They have a little bit of money in the bank and a decent credit score and want a house.”

Under the program, borrowers who take the housing counseling class before signing a contract to buy a home, and who complete additional counseling before finalizing the sale, can earn a 50 basis-point reduction in upfront mortgage insurance and a 10 basis-point reduction in the annual premium cost. Upfront mortgage insurance premiums are 1.75 percent of the total loan amount, while annual monthly premium costs are 1.35 percent.

An additional 15 basis-point reduction will be awarded after two years with no delinquencies.

“If you talk about the long-term impact and how much it will save homeowners, this will absolutely help,” said Kevin Maher, who teaches first-time home buyer classes and is the community outreach director for West Palm Beach, Fla.-based DebtHelper.com. “I think this will bring more people to the home buyer classes, which will help them make better decisions.”

The classes will be taught by agencies approved by the U.S. Department of Housing and Urban Development. To find housing counseling agencies in your area, go to HUD.gov.

Will A Short Sale On A Second Home Hurt Me?

Recently the staff at USHUD.com was asked an excellent question, a couple came to us looking for information because they were looking to sell their current home and purchase a new one, the problem was a few years earlier they went into default  on their mortgage for a second home.

They informed us they are current on their mortgage for their primary home, and they have paid all of their credit card debt, the question was “Will I have a problem getting a new mortgage with 20 percent to 30 percent down? We both have good incomes.”

Our staff sat down and mulled it over for a while and the answer we came up with was, we don’t know if it for sure will or not, just that it could.

There could possible be unresolved problems since the short sale of the second home, the first is the effect the sale had on your credit report, this is reported to all major credit bureaus and will be a significant deterrent for any bank approached for lending you the money. Now, the more time that has elapsed since the short sale, the better, generally it takes about 7 years from the date of default.

Another issue is that if you do not live in a non-recourse state (AK, AZ, CA, CT, ID, MN, NC, ND, TX, UT or WA) you could hear from collectors for the remaining balance on the mortgage that went into default. And chances are regardless you still owe income taxes on the amount of the loan that was forgiven. Unfortunately since it was a second home it is not eligible to qualify for the Mortgage Forgiveness Debt Relief Act, which expired December 2013.

Our recommendation is to make sure you can qualify for a mortgage you can afford before trying to sell your current home because aside from the already mentioned problems, it is possible you will not qualify for a FHA, Fannie Mae or Freddie Mac mortgage on any terms. With a FHA mortgage, you must wait three years from the date of the short sale, where for a Fannie Mae/Freddie Mac loan, you must wait two years with a 20% down payment or four years with a 10% down payment, and many private lenders also follow the Fannie Mae and Freddie Mac rules for extending mortgages after a short sale.

It’s good that you’ve paid all your credit card debt. Assuming you have also paid your other credit accounts on time and as agreed, your credit may have recovered to a minimum level needed to qualify for a mortgage. If you haven’t already, purchase your three credit scores to get an idea of how much damage you have still to repair.

Where in the world can you find foreclosures?

USHUD.com is without a doubt the best place to find foreclosure information. The reasons are pretty simple. USHUD.com is 100% free to the public. We all realize that the height of the foreclosures caused by the mortgage meltdown has slowed to a crawl. This is good for the economy and in a sort of counter intuitive way has increased the value of advertising foreclosures as they are more rare and are felt to be of higher value now more than ever.

When the foreclosure market jumped from 5% to 15% it got pretty hectic for anyone chasing down foreclosures as there were so many that it also created a depression in the market that actually worked against the value of the foreclosures as well as the surrounding homes that were not foreclosed on. Looked more like a gaping hole in space than a depression or indentation. Now that the foreclosures are more in line with the historical averages the value of each foreclosure has increased as has the information about the foreclosures themselves.

This is all a bit too much for the average home buyer to take in but they don’t really care either. The average home buyer wants to buy a foreclosure in the effort to save money on the purchase of a home. They don’t really care about the color of the carpet as they realize that most times it will be soured or in the best case may not be to the buyers taste.

USHUD.com is the largest foreclosure site in the country. We provide the most comprehensive list of actual foreclosures. There is a very large difference between actual foreclosures and pre-foreclosures and this difference is that foreclosures are on the market while pre-foreclosures are not on the market and possibly never will be. Falling in love with a home that is not on the market and may not be for years to come is a quick and easy way to bring on a frustration level that is not easy to overcome for the buyer or the real estate agent.

Fixed Mortgage Rates Near Seven Month Low

Recently Freddie Mac released the results of its PMMS (Primary Mortgage Market Survey). It showed the average fixed mortgage rates moving lower, fixed mortgage rates hit new lows for this year (2014).

Frank Nothaft, vice president and chief economist for Freddie Mac had this to say “Mortgage rates continued to decline this week as industrial production slipped by 0.6 percent in April, below the market consensus forecast. Meanwhile, housing starts jumped 13 percent in April to a seasonally adjusted annual rate of 1,072,000 units, well above expectations. Permits rose to a seasonally adjusted annual rate of 1,080,000 in April, also above expectations.”

The 15-year FRM (Fixed-Rate Mortgage) this week averaged 3.25 percent with an average 0.5 point, down from the previous week when it averaged 3.29 percent. A year ago at this time, the 15-year FRM averaged 2.77 percent.

The 30-year FRM averaged 4.14 percent with an average 0.6 point for the week ending May 22, 2014, down from the previous week when it averaged 4.20 percent. A year ago at this time, the 30-year FRM averaged 3.59 percent.

For more information, visit FreddieMac.com.