Monthly Archives: October 2012

Short-sale purchases can easily fall apart

As thousands of would-be buyers have discovered, short sales can be a long shot.

Though selling houses for less than the amount owed on the mortgage has become commonplace, accounting for the lion's share of transactions in many markets, such sales are fraught with complications that can short-circuit the deal.

Here, courtesy of members of the Phoenix-based National Assn. of Exclusive Buyer Agents (NAEBA), is a summary of the ways in which a short-sale purchase can be derailed:

• Often the house is not advertised as a short sale. That's like advertising a house that is not really for sale, because the seller does not have the authority to sell the house at the advertised price.

• The negotiating process is far different in that the seller may not care how much is being offered since he or she won't be taking any money from the sale. The seller may be so eager to get away from the underwater mortgage that he or she will accept just about any offer. But the bank has the final say-so.

• Many lenders will not even discuss a short sale with a seller until a purchase contract is in place. That means the buyer who makes the first offer is a guinea pig, because nobody knows whether the lender will even accept a short-sale offer.

Short sales are sometimes listed at a "ridiculously low price" just to get the ball rolling, the NAEBA warns. Similarly, a seller may agree to any offer, no matter how low and no matter whether it has a snowball's chance of being accepted by the bank, just so he or she can begin negotiations with the lender.

• A short sale is only one remedy lenders can pursue, and often others are taking place simultaneously. For example, a foreclosure can take place at any time and kill the transaction, even after the lender has approved it. According to NAEBA members, in the vast majority of cases, an approval from the lender is not fully binding, giving the lender a path to back away from any transaction.

Likewise, the seller and his lender may come to terms on a loan modification that allows the seller to keep the house. In these cases, the buyer and his or her agent — and sometimes even the seller's agent — may not have any knowledge that the seller is negotiating with the lender until their deal is done.

• Short sales can be long, drawn-out affairs. The timelines are shorter than they used to be, but it can still take months, especially if the seller doesn't have his paperwork in order. And at any time during the process, the lender is free to change the rules, forcing everyone to start over again.

• Once lenders approve the short sale, they often require the sale to close within a short period. Consequently, there is not enough time for the buyer to have the house examined by an independent home inspector. The necessary inspections can always be performed before the lender's approval. But the buyer loses that money if the lender rejects the deal.

Similarly, if the buyer gets tired of waiting and wants to move on, the buyer will lose any money he or she has spent on an appraisal, credit report and application fees paid to a lender.

Distributed by Universal Uclick for United Feature Syndicate.

The ‘Fiscal Cliff,’ QE3, and the Future of Interest Rates

Daily Real Estate News | Wednesday, October 24, 2012

Economists from the Mortgage Bankers Association sounded an optimistic note at a press conference yesterday afternoon during the organization's Conference & Expo in Chicago, with predictions that unemployment will go down, home purchase loan originations will go up, and mortgage rates will remain low in 2013. All of these point to a continued housing recovery, but they cautioned that major economic challenges loom that could bring about a reversal — particularly in interest rates.

"The most immediate threat is the fiscal cliff," said Jay Brinkmann, the MBA's chief economist and senior vice president of research and education, referring to the deep cuts in taxes and government program spending that will take place at the end of this year if some sort of financial compromise isn't reached by legislators on both sides of the aisle before then. The Congressional Budget Office estimates that U.S. gross domestic product will fall four percentage points in 2013 if an agreement isn't forthcoming, which would make it a recessionary year.

Mike Fratantoni, vice president of single-family research and policy development for the MBA, predicted there will be some sort of resolution. "It may not be clean, and it may not be timely," he added. Any major delays would likely lead to a spike in interest rates and, consequently, declines in home sales.

Over the long haul, interest rates will likely remain below historical lows because of the flight of global capital to the U.S. caused by the continuing European debt crisis and the Fed's rollout of another round of quantitative easing (often referred to as QE3). This Fed initiative — which will probably last at least a year and possibly as long as two — will involve the central bank purchasing tens of billions of dollars in mortgage-backed securities each month.

"[QE3] wasn't surprising," Fratantoni said. "The aggressiveness, the open-ended nature of it, and extreme focus on the mortgage market was a surprise."

However, if the Fed determines that they're crowding liquidity out of the market with QE3, they may shift to purchasing longer-term securities such as Treasuries, Brinkmann added.

—Brian Summerfield, REALTOR® Magazine

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Action on Loan Standards Needed More Than on Rates

U.S. Housing Starts Are Up 15% in September

U.S. home construction is making a comeback that could invigorate the economy's still-weak recovery.

Builders last month started construction on single-family houses and apartments at the fastest rate in more than four years, the Commerce Department said Wednesday. And they laid plans to build homes at an even faster pace in coming months — a signal of their confidence that the housing rebound will last.

The pace of construction has grown steadily in the past year, and analysts expect it to keep rising. The increase has been fueled by record-low mortgage rates, more stable home prices and a shortage of previously occupied homes for sale.

More new homes could accelerate growth and help boost hiring, especially in areas like construction, home improvement and retailing. More homeowners lead to more people buying home furnishings.

"I don't have that crystal ball, but I will say we're seeing the best sales we've seen in five years, and it sure feels good," Douglas Yearley, CEO of Toll Brothers Inc., said in an interview with The Associated Press. Toll builds luxury homes in 20 states.

The government's report Wednesday on home construction in September was filled with encouraging details.

Overall, the number of homes that were started increased 15 percent from August to a seasonally adjusted annual rate of 872,000. That's the fastest rate since July 2008.

Single-family homes, which made up more than two-thirds of the new construction, rose 11 percent to 603,000. That was also the quickest rate in four years. Apartment construction, which can be more volatile from month to month, rose 25.1 percent.

And applications for building permits, a sign of future construction, jumped nearly 12 percent to an annual rate of 894,000, another high point since July 2008.

The rate of new construction has surged more than 38 percent in the past 12 months.

Housing starts are now 82.5 percent above the annual rate of 478,000 in April 2009, the recession low. It's still well short of the 1.5 million annual rate that economists consider healthy. And it's far below the more than 2 million homes started in 2007 — the peak of the boom. But the steady upward trend appears likely to endure, analysts say.

"The housing market is improving, and there is no reason to think that this will not continue going forward," said Patrick Newport, U.S. economist at IHS Global Insight.

The surprisingly robust construction data helped push stocks modestly higher. And the prices of homebuilder stocks rose sharply.

The report came a day after the National Association of Home Builders said confidence among builders had reached a six-year high. The group's index has been rising over the past year.

Home buying is likely to expand now that the Federal Reserve is buying mortgage bonds to try to push record-low long-term mortgage rates even lower.

Newport said housing starts should climb to 950,000 next year and to 1.27 million in 2014. By 2015, he said construction should exceed 1.5 million.

Newport also predicts that housing will add about 0.25 percentage point to overall economic growth this year. If that forecast proves accurate, it would be the first year that housing has been a positive factor for economic growth in five years.

"The rest of the economy is still struggling, but housing is doing better because as the population grows, we need new houses to meet that demand," Newport said.

The seasonally adjusted annual rate of new-home sales was nearly 28 percent higher in August than in the same month last year. Even with those gains, sales remain far below historically normal levels. Economists say more jobs and higher pay are needed to help accelerate sales.

Though new homes represent less than 20 percent of housing sales, they exert an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to data from the home builders group.

"We've had huge pent-up demand now for five years where people just weren't buying houses, and they're coming back out," Yearley said. "It's been very encouraging."

Yearley expects much of Toll Brothers' construction in coming months to occur in its hottest markets. Those are mainly in the coastal corridor from Boston to Washington, where land for development is limited and there are many higher-income homebuyers.

The New York City metro area has been the company's strongest market. Toll Brothers is building its 16th high-rise there. It expects to put up more homes in Dallas, Houston, California and Florida, among other markets.

Still, while Toll is building more, it has yet to increase hiring much. In 2005, when the housing bubble was expanding, the company's payroll peaked at 7,000. As with other builders, its payroll shrank during the housing downturn, bottoming at 2,200 in 2009.

The company has so far brought back more than 500 former employees.

"We're not overhiring," Yearley said. "We're still at a sort of as-needed basis, which I think is very smart, considering what we've been through."

The overall construction industry shed jobs well after the recession officially ended in June 2009, according to government data. Employment fell from more than 6 million in June 2009 to 5.46 million in January 2011.

The industry has added few jobs since. Construction employment numbered just 5.52 million in September.

Paul Ashworth, an economist at Capital Economics, thinks housing will slowly recover over the next several years. Along with higher consumer spending, housing is modestly boosting economic growth. But it's also being offset by lower business investment in machinery and computers and declining exports.

If, as Ashworth expects, housing starts reach about 1.5 million by mid-2015, the industry would add about 1 million jobs by then, or about 30,000 a month.

Housing is "the one sector of the economy that's seeing any improvement," Ashworth said.


Veiga contributed from Los Angeles. Crutsinger and AP Economics Writer Christopher S. Rugaber contributed from Washington.

“When Can I Purchase Again After a Foreclosure or Short Sale?”

“When Can I Purchase Again After a Foreclosure or Short Sale?” is a question we hear everyday from buyers! As the housing downturn started 5 years ago, you will start to find that buyers who suffered a financial hardship in the recent past may be in a position to buy again soon. For example, the FHA only requires 3 years after a Short Sale or Foreclosure, VA is only 2 years! As Fannie, FHA & VA fund 95% of buyers these days, here are their time lines when a buyer is allowed to re-purchase again.