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Thousands of homes Foreclosed; Can you afford a Risky Loan?

The adjustable rate mortgage has been around for a number of years and it has helped a number of people afford the purchase of their first home. However, in the late 90’s and early part of the 2000’s some people took advantage of the low rates offered by ARMS and got in over their head. Before buying a home people should really look at all the factors involved with an adjustable rate loan and make sure it is right for them.

Fixed Period Varies

The vast majority of current ARM’s offer a well-defined period in which the interest rate is fixed. The defined period typically lasts from 3 to 7 years and can be as long as 10 years. After this defined period the interest rate will adjust based on the index used to calculate the interest rate.

Some people have well defined plans and can use the fixed period for meeting their goals. For instance, a military couple that has an assignment to a particular area could purchase a home using a 5 year ARM and use the time to live in the home with no worries about a change in interest rate.

However, people that are just looking at the low rates of the ARM’s and “hoping” that their income will rise in future years are taking a big gamble.

Rates Will Rise

Years ago when the ARM was first introduced it was always explained the same way. When the market took a dip the interest rate would lower accordingly and the opposite would happen when the market improved. However, the last few years have seen nothing but historically low rates. Getting an adjustable rate loan now ensures one thing; the interest rate will rise once the fixed period ends. The current rates cannot get much lower.

Thankfully, an adjustable rate mortgage will have some safeguards to protect borrowers. The amount of increase for the rate is usually capped each year as well as a cap for the duration of the loan. For instance, most ARM’s will not adjust more than 1% in one year and no more than 5% or 7% over the course of the loan. However, a 5% increase in rate on a $250,000 loan can increase a loan payment by over $700. Keep in mind that when the interest rate adjusts the new payment is factored over the remaining loan term. This can drive up the payment as well.

Plan Accordingly

All of this information points to one simple fact. People considering an adjustable rate loan need to plan accordingly. You should have some type of exit strategy in mind, whether it is selling or refinancing or paying off the loan in order to avoid some potentially hazardous conditions in the near future.

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I was reading about short sales, as I do every Sunday morning on a great site for short sale information Short Sale Superstars. There was a discussion about a Bank of America Short Sale that had been approved, and then denied after the approval, a few days before closing. The reason:

The seller was a real estate broker and the listing agent works for the seller. The buyer used the listing agent to represent her.

Surprise Surprise, B of A said this is not an Arm's Length Transaction and rescinded the approval.

There are multiple things wrong with transaction so let me see if I can organize the problems coherently.

1. All short sales must be an Arm's Length Transaction and an affidavit needs to be signed by all parties saying they are not related to each other in any way. The listing agent works for the seller so that is not arms length.

2. The seller may be offered a closing incentive by the bank, but is not allowed to receive any money from the buyer. Since the buyer is using the the listing agent who works for the seller and would have received commission for the sale, a portion of which would go to the broker, then the seller is getting money from the buyer.

3. Again, since the listing agent works for the seller and would get commission from the sale, a portion of which would go to the broker, the seller would be receiving money from the sale outside of the closing incentive.

4. The buyer has agreed to a dual agency and is entitled to the information that the listing agent works for the seller and that this can cause potential problems with The Arm's Length Transaction.

I do not know if the seller was trying to pull something over on the bank, or if he was just not familiar with short sales but this was totally avoidable.

Buyers: get your own agent to represent you.

Sellers: If you are a broker, get a different company to represent you. If you are an agent, get another agent to represent you, not your broker, and ask the bank if it is ok to be represented by someone else in your campany first, not after you are about to close.

If you have any questions about buying or selling a short sale in Santa Clara or San Mateo County please feel free to contact me.

Marcy Moyer

Keller Williams Realty

www.marcymoyer.com

marcy@marcymoyer.com

650-619-9285

D.R.E. 01191194

30-year fixed-rate mortgage: Averaged 4.95 percent with an average 0.6 point for the week ending February 24, 2011, down from last week when it averaged 5.0 percent. Last year at this time, the 30-year FRM averaged 5.05 percent. .

The 15-year fixed-rate mortgage: Average 0.7 point, down from last week when it averaged 4.27 percent. A year ago at this time, the 15-year FRM averaged 4.40 percent.

Five-year indexed hybrid adjustable-rate mortgages ARMs: Averaged 3.8 percent this week, with an average 0.6 point, down from last week when it averaged 3.87 percent. A year ago, the 5-year ARM averaged 4.16 percent.

One-year Treasury-indexed ARMs: Averaged 3.40 percent this week with an average 0.6 point, up from last week when it averaged 3.39 percent. At this time last year, the 1-year ARM averaged 4.15 percent.

Freddie Sayz
Attributed to Frank Nothaft, vice president and chief economist, Freddie Mac

Fixed mortgage rates eased again this holiday week amid mixed inflation data reports. Although the core consumer price index for January rose slightly above the market consensus, house prices fell 4.1 percent in the fourth quarter of 2010 compared to the same period in 2009, according to the S&P/Case-Shiller National Index In addition, the level of the index was the lowest since the fourth quarter of 2002

Low mortgage rates and home prices are sustaining affordability in the housing market. Existing home sales rose for the third consecutive month in January and were at the strongest pace in eight months, the National Association of Realtors reported; only the Northeast region experienced a slowdown in sales

30-year fixed-rate mortgage: Averaged 5.0 percent with an average 0.7 point for the week ending February 17, 2011, down from last week when it averaged 5.05 percent. Last year at this time, the 30-year FRM averaged 4.93 percent.

The 15-year fixed-rate mortgage: Averaged 4.27 percent with an average 0.7 point, down from last week when it averaged 4.29 percent. A year ago at this time, the 15-year FRM averaged 4.33 percent.

Five-year indexed hybrid adjustable-rate mortgages ARMs: Averaged 3.87 percent this week, with an average 0.6 point, down from last week when it averaged 3.92 percent. A year ago, the 5-year ARM averaged 4.12 percent.

One-year Treasury-indexed ARMs: Averaged 3.39 percent this week with an average 0.6 point, up from last week when it averaged 3.35 percent. At this time last year, the 1-year ARM averaged 4.23 percent.

Freddie Sayz

Attributed to Frank Nothaft, vice president and chief economist, Freddie Mac

Fixed mortgage rates eased slightly this week and continue to be very affordable. Prior to 2009, interest rates for 30-year fixed-rate mortgages had never been at 5 percent since our survey began in April 1971. In both 1981 and 1982, the rates were over three times as high as they are today.

The housing market is struggling to regain traction despite still historically low rates. New construction on one-family homes dipped slightly in January to an annualized pace of 413,000 units, which was the fewest number since May 2009. In addition, homebuilder confidence didnt improve for the third consecutive month in February.

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30-year fixed-rate mortgage: Averaged 5.05 percent with an average 0.7 point for the week ending February 10, 2011, up from last week when it averaged 4.81 percent. Last year at this time, the 30-year FRM averaged 4.97 percent.

The 15-year fixed-rate mortgage: Averaged 4.29 percent with an average 0.7 point, up from last week when it averaged 4.08 percent. A year ago at this time, the 15-year FRM averaged 4.34 percent.

Five-year indexed hybrid adjustable-rate mortgages ARMs: Averaged 3.92 percent this week, with an average 0.6 point, up from last week when it averaged 3.69 percent. A year ago, the 5-year ARM averaged 4.19 percent

One-year Treasury-indexed ARMs: Averaged 3.35 percent this week with an average 0.6 point, up from last week when it averaged 3.26 percent. At this time last year, the 1-year ARM averaged 4.33 percent.

Freddie Sayz

Attributed to Frank Nothaft, vice president and chief economist, Freddie Mac

Long-term bond yields jumped on positive economic data reports, which placed upward pressure on mortgage rates this week.

For all of 2010, nonfarm productivity rose 3.6 percent, the most since 2002, while Januarys unemployment ate unexpectedly fell from 9.4 percent to 9.0 percent. Moreover, the service industry expanded in January at the fastest pace since August 2005. As a result, interest rates on a 30-year fixed-rate mortgage rose to the highest level since the last week in April 2010

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30-year fixed-rate mortgage: Averaged 4.80 percent with an average 0.7 point for the week ending January 27, 2011, up from last week when it averaged 4.74 percent. Last year at this time, the 30-year FRM averaged 4.98 percent.

The 15-year fixed-rate mortgage: A veraged 4.09 percent with an average 0.7 point, up from last week when it averaged 4.05 percent. A year ago at this time, the 15-year FRM averaged 4.39 percent.

Five-year indexed hybrid adjustable-rate mortgages ARMs: A veraged 3.70 percent this week, with an average 0.7 point, up from last week when it averaged 3.69 percent. A year ago, the 5-year ARM averaged 4.25 percent.

One-year Treasury-indexed ARMs: A veraged 3.26 percent this week with an average 0.6 point, up from last week when it averaged 3.25 percent. At this time last year, the 1-year ARM averaged 4.29 percent. 

Freddie Sayz

Attributed to Frank Nothaft, vice president and chief economist, Freddie Mac.

Mortgage rates followed bond yields a little higher this week amid positive data reports from  The Conference Board that suggest the economy is strengthening. The index of leading indicators rose 1.0 percent in December, nearly twice that of the market consensus forecast and represented the sixth consecutive monthly increase, according to the Board. They also reported a stronger gain in consumer confidence for January, rising to an eight-month high. In addition, the share of households who said jobs were plentiful rose to the highest level since May 2009.

Consumer demand in the housing market is also showing some positive gains. Sales of  existing homes  rose in December to the strongest pace since May and sales of  new homes jumped to the highest since April. At their current sales rate, the expected time on the market fell from 9.5 to 8.l months for existing houses and fell from 8.4 to 6.9 months for new home

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Mortgage Bankers Association for the week of 01/12/2010

Market Composite Index: (loan application volume) increased 2.2 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 47.5 percent compared with the previous week

Refinance Index: increased 4.9 percent from the previous week. The seasonally adjusted Purchase Index decreased 3.7 percent from one week earlier

Purchase Index: increased 41.9 percent compared with the previous week and was 10.5 percent lower than the same week one year ago. The four week moving average for the seasonally adjusted Market Index is down 5.3 percent. The four week moving average is down 1.0 percent for the seasonally adjusted Purchase Index, while this average is down 7.5 percent for the Refinance Index.

Refinance Share of Mortgage Activity: increased to 72.1 percent of total applications from 71.0 percent the previous week

Arm Share: decreased to 4.9 percent from 5.0 percent of total applications in the previous week.

MBA outlook: (Excerpted from mbaa.org)

The financial markets response to the announcement of QE2 on November 3 has likely been a disappointment to the Fed. Equity prices have risen, but long-term rates have backed up considerably, with the yield on the 10-year Treasury pushing up past 3%. And turmoil in Europe has led to an increase in the value of the dollar in exchange markets, not the decline that had been expected in response to QE2. Had the Feds proposal for renewed large-scale asset purchases been well received, Fed officials might now be considering increasing the announced rate of purchases to $100 billion per month or more. But dong so under present circumstances would likely evoke a political firestorm.

The percentage of loans on which foreclosure actions were started during the third quarter was 1.34 percent, up 23 basis points from last quarter and down eight basis points from one year ago. The percentage of loans in the foreclosure process at the end of the third quarter was 4.39 percent, down 18 basis points from the second quarter of 2010 and down eight basis points from one year ago. The seriously delinquent rate, the percentage of loans that are 90 days or more past due or in the process of foreclosure, was 8.70 percent, a decrease of 41 basis points from last quarter, and a decrease of 15 basis points from the third quarter of last year.

We expect that mortgage originations will decrease to $967 billion in 2011, the lowest level of originations since 1997. This is a decline from $1.5 trillion in 2010 and a little under $2.0 trillion in 2009. Purchase originations should increase to $615 billion in 2011 up from $473 billion in 2010. Refinance originations, primarily impacted by the level of mortgage rates, are expected to drop sharply in 2011 to $352 billion and fall further in 2012 to $237 billion. We expect that the refinance share of originations should fall from 69 percent in 2010 to 36 percent in 2011, and then 24 percent in 2012 as rates climb above the 6 percent mark.

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30-year fixed-rate mortgage: Averaged 4.71 percent with an average 0.8 point for the week ending January 13, 2011, down from last week when it averaged 4.77 percent. Last year at this time, the 30-year FRM averaged 5.06 percent.

The 15-year fixed-rate mortgage: Averaged 4.08 percent with an average 0.7 point, down from last week when it averaged 4.13 percent. A year ago at this time, the 15-year FRM averaged 4.45 percent

Five-year indexed hybrid adjustable-rate mortgages ARMs: Averaged 3.72 percent this week, with an average 0.7 point, down from last week when it averaged 3.75 percent. A year ago, the 5-year ARM averaged 4.32 percent.

One-year Treasury-indexed ARMs: Averaged 3.23 percent this week with an average 0.6 point, down from last week when it averaged 3.24 percent. At this time last year, the 1-year ARM averaged 4.39 percent

Freddie Sayz
Attributed to Frank Nothaft, vice president and chief economist, Freddie Mac.

Bond yields drifted lower following the release of the December employment report , which was weaker than the market consensus forecast and implied that the labor market is still in a sluggish recovery. Fixed mortgage rates followed bond yields lower for a second consecutive week, bringing them to a four-week low.

In its January 12th regional economic review, the Federal Reserve noted that activity in residential real estate and new home construction remained slow across all Districts over the last two months of 2010 due to concerns about the pace of economic recovery, especially in employment. In addition, the outlooks for residential real estate were mixed, with contacts in most Districts described as expecting continued weak conditions

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Arms Length Transactions in Silicon Valley Short Sales Is It Too Onerous?

When a seller sells their home as a short sale, most lenders  will make everyone, the buyer, the seller, and the agents sign and notarize an Arms Length Transaction document. This states that the sellers and buyers do not know each other, are not related, and the seller will never again, EVER, live in the house , or ever make any profit off of the sale of the home. They can never rent the house or ever buy it back from the new owner.

The intention of this rule is obvious. The banks do not want to sell a home for less money than is owed on it and then have the seller get the benefit of being able to own the home for less money than they originally promised to pay for the home. I am not going to take sides here on whether the seller or the bank has the moral high ground on this. I am just going to say that the banks have made a decision that it is in their best interest not to reduce principal on most loans, but allow a short sale with new owners instead.

In addition to not being able to buy back the house for less money, or have a friend or relative buy the house for less money, the seller is also not allowed to rent the house, ever. This is where I start to have a problem. Some  banks have been allowing foreclosed owners to stay in the homes as renters which makes a lot of sense. The house does not get stripped or destroyed and the renter has a relationship with the house which will help preserve the home’s value.  So why can’t a seller rent from the new owner in a short sale? Many of these sellers do not have money to move and except for HAFA short sales or an occasional generous bank they are not given moving expenses.  It may be hard to find a place to rent after having some credit hits from missed mortgage payments or high credit card bills due to trying to keep up with the mortgage. It seems like an onerous rule to me, and one that does not directly benefit the bank anyway. Why should the bank care who the next owner rents to, especially if the original bank no longer owns or services the note?

And most importantly, what is wrong with a little humanity? Why can’t families stay in their familiar surroundings, keep their children in the same schools, have the same neighbors? Isn’t is enough punishment to lose your home, your equity, and your savings?

What do you think?

Marcy Moyer

Keller Williams Realty

www.marcymoyer.com

marcy@marcymoyer.com

650-619-9285

D.R.E. 01191194

Mortgage Bankers Association for the week of 01/12/2010

Market Composite Index: (loan application volume) increased 2.2 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 47.5 percent compared with the previous week

Refinance Index: increased 4.9 percent from the previous week. The seasonally adjusted Purchase Index decreased 3.7 percent from one week earlier

Purchase Index: increased 41.9 percent compared with the previous week and was 10.5 percent lower than the same week one year ago. The four week moving average for the seasonally adjusted Market Index is down 5.3 percent. The four week moving average is down 1.0 percent for the seasonally adjusted Purchase Index, while this average is down 7.5 percent for the Refinance Index.

Refinance Share of Mortgage Activity: increased to 72.1 percent of total applications from 71.0 percent the previous week

Arm Share: decreased to 4.9 percent from 5.0 percent of total applications in the previous week.

MBA outlook: (Excerpted from mbaa.org)

The financial markets response to the announcement of QE2 on November 3 has likely been a disappointment to the Fed. Equity prices have risen, but long-term rates have backed up considerably, with the yield on the 10-year Treasury pushing up past 3%. And turmoil in Europe has led to an increase in the value of the dollar in exchange markets, not the decline that had been expected in response to QE2. Had the Feds proposal for renewed large-scale asset purchases been well received, Fed officials might now be considering increasing the announced rate of purchases to $100 billion per month or more. But dong so under present circumstances would likely evoke a political firestorm.

The percentage of loans on which foreclosure actions were started during the third quarter was 1.34 percent, up 23 basis points from last quarter and down eight basis points from one year ago. The percentage of loans in the foreclosure process at the end of the third quarter was 4.39 percent, down 18 basis points from the second quarter of 2010 and down eight basis points from one year ago. The seriously delinquent rate, the percentage of loans that are 90 days or more past due or in the process of foreclosure, was 8.70 percent, a decrease of 41 basis points from last quarter, and a decrease of 15 basis points from the third quarter of last year.

We expect that mortgage originations will decrease to $967 billion in 2011, the lowest level of originations since 1997. This is a decline from $1.5 trillion in 2010 and a little under $2.0 trillion in 2009. Purchase originations should increase to $615 billion in 2011 up from $473 billion in 2010. Refinance originations, primarily impacted by the level of mortgage rates, are expected to drop sharply in 2011 to $352 billion and fall further in 2012 to $237 billion. We expect that the refinance share of originations should fall from 69 percent in 2010 to 36 percent in 2011, and then 24 percent in 2012 as rates climb above the 6 percent mark.

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30-year fixed-rate mortgage: Averaged 4.86 percent with an average 0.8 point for the week ending December 30, 2010, up from last week when it averaged 4.81 percent. Last year at this time, the 30-year FRM averaged 5.14 percent.

The 15-year fixed-rate mortgage: Averaged 4.20 percent with an average 0.8 point, up from last week when it averaged 4.15 percent. A year ago at this time, the 15-year FRM averaged 4.54 percent.

Five-year indexed hybrid adjustable-rate mortgages ARMs: Averaged 3.77 percent this week, with an average 0.7 point, up from last week when it averaged 3.75 percent. A year ago, the 5-year ARM averaged 4.44 percent.

One-year Treasury-indexed ARMs: Averaged 3.26 percent this week with an average 0.6 point, down from last week when it averaged 3.40 percent. At this time last year, the 1-year ARM averaged 4.33 percent

Freddie Sayz

Attributed to Frank Nothaft, vice president and chief economist, Freddie Mac.

Interest rates on fixed mortgages and the 5 year Hybrid ARM rose slightly over the holiday week, but were still below the years highs set in the first half of 2010. For the year as a whole, 30 year fixed mortgage rates averaged just below 4.7 percent, which represented the lowest annual average since 1955 when secondary market yields on FHA mortgages were above 4.6 percent and the average price of a home was $22,000. Recent news on housing markets has been mixed. The S&P/Case-Shiller house price index fell 0.99 percent in October, in line with other reports showing a softening in house prices since mid year. Home sales continue to recover in the months following the expiration of the Home buyer Tax Credit, however, with sales of new and existing homes up 5.5 percent and 5.6 percent, respectively, in November

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Mortgage Bankers Association for the week of 12/8/2010

Market Composite Index:(loan application volume) decreased 0.9 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 22.8 percent compared with the previous week, which included the Thanksgiving Holiday

Refinance Index: decreased 1.4 percent from the previous week. This is the fourth weekly decrease for the Refinance Index which reached its lowest level since June 2010

Purchase Index: increased 1.8 percent from one week earlier. This is the third weekly increase for the Purchase Index which reached its highest level since early May 2010. The unadjusted Purchase Index increased 21.3 percent compared with the previous week and was 12.0 percent lower than the same week one year ago.

Refinance Share of Mortgage Activity: increased to 75.2 percent of total applications from 74.9 percent the previous week

Arm Share: decreased to 5.6 percent from 5.7 percent of total applications from the previous week.

MBA outlook: (Excerpted from mbaa.org) The delinquency rate for mortgage loans on one-to-four-unit residential properties decreased to a seasonally adjusted rate of 9.13 percent of all loans outstanding as of the end of the third quarter of 2010, a decrease of 72 basis points from the second quarter of 2010, and a decrease of 51 basis points from one year ago, according to the Mortgage Bankers Association’s (MBA) National Delinquency Survey. The percentage of loans on which foreclosure actions were started during the third quarter was 1.34 percent, up 23 basis points from last quarter and down eight basis points from one year ago. The percentage of loans in the foreclosure process at the end of the third quarter was 4.39 percent, down 18 basis points from the second quarter of 2010 and down eight basis points from one year ago. The seriously delinquent rate, the percentage of loans that are 90 days or more past due or in the process of foreclosure, was 8.70 percent, a decrease of 41 basis points from last quarter, and a decrease of 15 basis points from the third quarter of last year. We expect that mortgage originations will decrease to $1.4 trillion in 2010 from a downwardly revised $2.0 trillion in 2009, previously estimated at $2.1 trillion. Total originations will then fall to $996 billion in 2011, the lowest level of originations since 1997. Purchase activity in 2010 will see a significant drop from 2009, although it was given a brief boost in the spring by the tax credit program, but start to recover in 2011. Refinance activity is currently being buoyed by mortgage rates that remain close to historical lows, but will fall in 2011 and 2012 as rates start to increase. Purchase originations will fall to $480 billion from $665 billion in 2009 and refinance originations will decrease to about $921 billion in 2010 from $1.3 trillion in 2009. We expect that the refinance share of originations should fall from 66 percent in 2010 to 37 percent in 2011, and then 26 percent in 2012.

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30-year fixed-rate mortgage: Averaged 4.61 percent with an average 0.7 point for the week ending December 9, 2010, up from last week when it averaged 4.46 percent. Last year at this time, the 30-year FRM averaged 4.81 percent.

The 15-year fixed-rate mortgage: Averaged 3.96 percent with an average 0.7 point, up from last week when it averaged 3.81 percent. A year ago at this time, the 15-year FRM averaged 4.32 percent.

Five-year indexed hybrid adjustable-rate mortgages ARMs: Averaged 3.60 percent this week, with an average 0.6 point, up from last week when it averaged 3.49 percent. A year ago, the 5-year ARM averaged 4.26 percent.

One-year Treasury-indexed ARMs: Averaged 3.27 percent this week with an average 0.6 point, up from last week when it averaged 3.25 percent. At this time last year, the 1-year ARM averaged 4.24 percent.

Freddie Sayz Attributed to Frank Nothaft, vice president and chief economist, Freddie Mac. After Europe made strides in its debt situation, investors left the security of U.S. Treasury debt causing bond yields to rise and mortgage rates along with them. Interest rates for 30 year fixed mortgages are now almost a half percentage point higher than the record low set in mid November, which for a $200,000 conventional loan amounts to $50 more in monthly payments. Housing demand appears to be picking up recently. Existing pending sales jumped 10.4 percent in October to the strongest pace since April, according to the National Association of Realtors. More recently, mortgage applications for home purchases rose for the three consecutive weeks ending on December 3rd, representing a 17.7 percent increase and the strongest pace since the week of May 7th, based on figures released by the Mortgage Bankers Association Maximizing The Rent

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