MAAR released the February Home Sales Report today showing an increase in sales from January but a decline from February 2008. Other data from February:
- Pending sales up 8.2% from January
- Inventory down slightly from January, down 15.3% from February 2008 and down 23.6% from the peak in July 2007
- Foreclosures up from January but down 14.5% from February 2008
Lower interest rates and the first-time buyer tax credit are likely behind the jump in pending sales and we hope to see that trend continue as we get into the typically busier spring an summer months. It also supports the anecdotal feedback we’ve heard from REALTORS® that they’re seeing more interest from buyers in recent weeks.
The continued decline in inventory is good news as well, though we’re still a bit removed from the more balanced inventory of 8,000 units that we’d like to see.
On February 18, President Obama unveiled the Homeowner Affordability and Stability Plan, the administration’s $75 billion effort to help up to 7 to 9 million families avoid foreclosure by refinancing or modifying their mortgages. Today we heard the asministration’s details on how the “Making Home Affordable” program will work.
While you can read the summary or the entire set of guidelines, the three key elements are:
- The Home Affordable Refinance Program. Under this program, eligible borrowers may refinance loans that Fannie Mae or Freddie Mac (the government sponsored enterprises, or GSEs) own or guarantee. The program can help homeowner-occupants who are current in making loan payments and have loan-to-value ratios (LTVs) above 80 percent but not more than 105 percent. Cash out refinancings are not permitted. The program ends in June 2010.
- The Home Affordable Modification Program. This is a $75 billion program with lender, servicer, investor, and borrower incentives to make it work. The program is limited to homeowner-occupants who are at risk of default or already in default and who have loans at or below the maximum GSE conforming loan limit of $729,750 (or higher for 2-, 3-, and 4-unit properties). Loan modifications under the program may be made until December 31, 2012.
- More Support for the GSEs. President Obama also announced more support for the GSEs, including doubling of potential Treasury investment from $100 billion to $200 billion for each GSE, to maintain their positive net worth. The plan also raises the cap on mortgages that the GSEs may hold in their portfolios by $50 billion to $900 billion.
The government has established the financialstability.gov site to help consumers navigate the different options and determine eligibility for any of them. You can also review the following resources that offer more specific details on each program.
Among the many details of the nearly $3.7 trillion 2010 budget President Obama unveiled yesterday is a proposal to modify the mortgage interest deduction (MID), a part of the tax code since 1913. Not long after the budget was unveiled, NAR responded voicing its strong opposition to any proposal that messes with the sacred MID.
In short, the budget proposes to reduce the amount of mortgage deductability for joint tax filers earning more than $250,000 annually ($200,000 for single filers). In opposing the proposal, NAR believes that the change could result in:
- a further erosion of home prices and home values;
- greater distress on the balance sheets of banks as the collateral value of mortgage-backed securities declines; and
- a second credit crisis emerging before the first one is resolved.
NAR has already sent a letter to President Obama and pledges to “use its formidable array of resources” against the enactment of the MID change as proposed; you should be hearing much more about this in the coming weeks.
Yesterday, President Obama unveiled the Homeowner Affordability and Stability Plan, the administration’s $75 billion effort to help up to 7 to 9 million families avoid foreclosure by refinancing their mortgages.
The key components of the plan are:
- Government Sponsored Enterprises (GSEs) Refinancing for Up to 4 to 5 Million Responsible Homeowners with GSE loans to Make Their Mortgages More Affordable
- A $75 Billion Homeowner Stability Initiative to Reach Up to 3 to 4 Million At-Risk Homeowners
- Supporting Low Mortgage Rates By Strengthening Confidence in Fannie Mae and Freddie Mac
NAR has developed a good summary of the plan to help REALTORS® understand how it is structured.
In this past weekend’s edition of The Wall Street Journal, opinion writer Ramsey Su argues that the government should not step in to prevent foreclosures, which he believes are the free market’s way of dealing with the current real estate crisis. By not allowing the market to deal with its own problems, Su argues that the government would be creating “a generation of mortgage slaves.”
What is the market telling us? Dataquick recently released December sales data for Southern California, once the hotbed of speculative excesses supported by nontraditional financing. Foreclosures now dominate sales. Prices are down. Sales volume is up. New home construction is down. These are beautiful textbook illustrations of supply and demand driving price and market equilibrium.
It seems Su is not alone in this opinion. In an interview with Memphis native Sarah Lacy on the Yahoo! Finance Tech Ticker yesterday, investor Paul Kedrosky agreed with Su and cited California as an example of free-market forces at work:
Kedrosky cites California as an example: Real estate prices fell so hard, so fast here that a lot of the foreclosure protection programs didn’t get a chance to work. And, as a result, prices have bottomed out and property is starting to move again.
So should the government work to prevent foreclosures, or will that just prolong the pain?
Yesterday’s Wall Street Journal included an article (Home Buyers Turn to USDA for Mortgages) about an obscure home-loan program offered through the U.S. Department of Agriculture. The program was created as a way to boost homeownership in rural areas, but is now being used by buyers in some areas outside of major cities that still qualify for the loan terms.
The article shares this story from a recent buyer:
When Erick Moore first read about the USDA’s Rural Development Guaranteed Loan program, he says he imagined it would be “restricted to some little farmhouse.” Instead, the 33-year-old computer programmer moved last month into a four-bedroom, three-bath home in Fuquay-Varina, N.C., 17 miles outside Raleigh. The house sits on nearly one acre and features a brick facade, 10-foot ceilings and hardwood floors.
“I couldn’t believe it until we closed,” says Mr. Moore, who paid only $1,200 out of pocket to move into the $228,000 home. The seller contributed $5,000 in closing costs, and Mr. Moore rolled the 2% fee charged by the USDA into the loan. Mr. Moore, who owned a home in St. Louis before he relocated to the Raleigh area last year, says a 60% drop in his stock portfolio made it difficult to come up with a down payment. He directed his Realtor to show him only homes that were eligible for the USDA program.
There are many areas within our area that would likely qualify for this program. To qualify, borrowers must meet specific income limits based on the number of people in the household the median income of the county where the borrower is buying the home. For most of the Memphis area, the income limit for a household of four individuals would be $70,750. Detailed income limits by state are here.
Despite the low- or no-down payment requirements of these loans, the USDA program has a default rate slightly better than that of loans guaranteed through the Federal Housing Administration. But unlike FHA the USDA loan programs rely on a fixed allocation of funds from Congress, and no additional loans can be made once that money is committed.
In today’s tighter credit market, the USDA program might be a viable and attractive alternative for some buyers.
On December 4, 2008, the Director of the Federal Housing Finance Agency, Jim Lockhart, wrote to NAR President Charles McMillan to follow up on the questions raised by REALTORS® at the Orlando meetings that he was unable to answer at the time. Director Lockhart is the conservator for Fannie Mae and Freddie Mac and the federal regulator of the two government sponsored enterprises (GSEs). In Orlando, Director Lockhart spoke at a standing-room-only session to 600 REALTORS® and then fielded questions for nearly an hour. He also attended the meeting of the Conventional Finance and Lending Committee to discuss GSE issues in a smaller setting.
Here are highlights of the Director’s responses to REALTOR® recommendations that the GSEs:
- Increase the 4-unit investor loan limit. Director Lockhart advised that one of the GSEs is considering raising the 4-loan limit on investor loans (both GSEs permit waivers). [Note: When one GSE makes a policy change, the other very often follows suit.]
- Adopt a process to appeal servicer decisions. Mr. Lockhart notes that the GSEs are working to streamline their loss mitigation procedures. On short sales, they are working on a number of initiatives. He did not indicate that the GSEs are developing an appeals process.
- Establish better foreclosure policies (including concern about banks refusing to work with borrowers until they are at least 90 days delinquent). Mr. Lockhart reviewed the streamlined loan modification program announced shortly after the Orlando meetings by FHFA, Treasury, HUD, and HOPE Now to reduce preventable foreclosures. He did not explain the logic of limiting the new program to borrowers at least 90 days delinquent, but he did refer to other initiatives targeted at borrowers at earlier stages of delinquencies or even those not yet delinquent.
- Reform owner-occupied condo rules. Mr. Lockhart made two points: (1) in an established project, the 51% owner occupancy requirement does not apply to any loan secured by an owner-occupant principal residence or second home, and (2) at least one of the GSEs is considering clarifying the 51% requirement to exclude bank-owned units from being counted as investor units.
- Apply the same underwriting standards to jumbo conforming loans (loans above $417,000 that may be purchased by the GSEs) (the member questioned the assumption that jumbo conforming loans are more risky. Mr. Lockhart believes that jumbo conforming loans are riskier because defaults involving larger loans result in higher losses. He also notes that most jumbos have been ARMS which are relatively riskier and may be hard to refinance.
Download the full letter.
As the overall economy continues to falter, the federal government is now looking at a plan to push down mortgage interest rates to below 5% - far lower than any rate seen ever. This proposal was detailed in yesterday’s Wall Street Journal, and is beyond the plan announced last week to buy up to $600 billion in debt issued or backed by Fannie Mae or Freddie Mac. The Journal reports:
Treasury views this plan as potentially halting the slide in home prices by enabling borrowers to afford bigger loans, thus increasing demand and pushing up home values. The lower interest rates would be available only to borrowers who are buying a home, not those refinancing a mortgage.
Borrowers would have to qualify for a mortgage guaranteed by Fannie, Freddie or the Federal Housing Administration. Those guarantees apply to loans where borrowers can document their income and afford their monthly payments, steering the government away from backing loans considered risky.
The National Association of REALTORS® (NAR) has expressed support for such action, and it is part of a Four-Point Plan NAR unveiled a few months ago to stimulate the housing market.
But the plan has critics, who question how effective such action will be considering that home prices continue to fall and that unemployment rates are expected to climb into 2009.
What do you think? Is this the right approach for the government to take, or will the results have little impact on the housing market?
On Monday, November 24 eight MAAR representatives attended a Partnership Ceremony at Southwind Elementary to officially announce our partnership.
Upon arrival we were escorted by students to the gym where the event was held. The entire 2nd Grade attended the assembly, and the ceremony was emceed by both Shian Mallory, a 4th Grader and Student Council President, and Principal Sue Jones. The National Anthem was belted out by 2nd Grader Derrick Holmes, followed by a slide show with “Highlights of Southwind,” which even included photos of their teachers at MAAR Trivia Night.
President John Snyder received a certificiate from the Shelby County Schools commemorating our partnership, and then received a plaque and framed photo with teachers’ signatures from Southwind Elementary.
Our MAAR delegation was then invited into the Science Lab where we enjoyed refreshments, looked at displays of Southwind activities, and mingled with PTA members. Southwind put on a very impressive program for us and we are honored that they put so much thought and effort into it. We are very much looking forward to working with them as their community partner and to making a difference in the lives of the children at Southwind Elementary.
MAAR’s 2nd Annual Trivia Night, held last Friday, November 14 at the Homebuilders Association building, was a smashing success! We had 21 teams- 5 more than last year- and raised about twice as much money as last year for our two partner schools.
The Springdale Elementary Principal JeVon Marshall stopped by, and they had a table competing. Southwind Elementary had two tables of teachers and even brought their Seahawk mascot.
The winning Trivia team included Pat Goldstein, Walt Fisher, David Crowder, Jerod Drewry and Gloria Chiang. The winning Costume team wore beach attire and decorated their table with an inflatable palm tree and beach chairs. Their team included Beth Riley, Bob Talley, Dennis & Cheryl Lyon, Randy Keith and Krista Houston.
Other team costume themes included western, 70’s, Elvis, Mexican Fiesta, grads and holiday. Everyone really went all-out!
Thank you to everyone who supported this fun event and helped us raise money for our wonderful partner schools. A special thanks also to Brother Ignatius Brown, our Trivia Guru, the Community Involvement Committee, and Steve and Cathy Anderson from Anderson AmeriSpec for sponsoring.