Unique Homes & Land

The Federal Reserve Board on Monday issued final rules for mortgage brokers and the companies that employ them, and mortgage loan officers employed by depository institutions and other lenders. The rules, which go into effect April 1, 2011, are designed to protect mortgage borrowers from unfair, abusive, or deceptive lending practices.

Currently, lenders commonly pay loan originators more compensation if the borrower accepts an interest rate higher than the rate required by the lender (referred to as a “yield spread premium”). The new rule reverses that practice. Loan originators can continue to receive compensation based on a percentage of the loan amount.

The final rule also prohibits a loan originator who receives compensation directly from the consumer from also receiving compensation from the lender or another party. The new rule seeks to ensure that consumers who agree to pay the originator directly do not also pay the originator indirectly through a higher interest rate.
Additionally, the new rule prohibits loan originators from directing or “steering” a consumer to accept a mortgage loan that is not in the consumer’s interest in order to increase the originator’s compensation. The rule will preserve consumer choice by ensuring that consumers can choose from loan options that include loans with the lowest rate and loans with the least amount of points and origination fees, rather than loans that maximize the originator’s compensation.

-California Association of Realtors

As you can see the market for single family homes here in Santa Cruz County has been stable for a year.  The price dips and spikes you see relect seasonal changes and happen year after year.

The Senate passed the financial regulation bill today, which will impact home buyers and lending guidelines.  Chief among the changes impacting consumers is the creation a consumer bureau at the Federal Reserve and the requirement that lenders ensure a borrower is able to repay a home loan by verifying income, employment, and credit history.

MAKING SENSE OF THE STORY

Under the financial regulation bill, at least two categories of mortgages likely will see a dramatic decrease in their availability: interest-only loans and stated-income loans.  Both loan types likely would fall short of the government’s definition of “qualified” mortgages and therefore be avoided by many in the lending community.

Many real estate analysts credit interest-only loans and stated-income loans as contributing factors to the decline of the housing market.  With interest-only loans, borrowers pay none of the loan principal for a fixed period, typically 10 years, after which time they must make higher payments for the remaining 20 years of the loan.  Unlike other loan products, stated-income loans do not require borrowers to verify their actual income.  Only a few lenders continue to offer these loans, and typically only to borrowers with deep cash reserves and large down payments.

The bill also severely limits the industry practice known as “yield spread premiums,” which in many cases incentivized mortgage brokers and loan officers to sell higher-interest loans to borrowers.  The reform bill will no longer allow commissions earned by mortgage brokers and loan officers to be linked to the interest rate, but rather the loan amount.  Once the bill takes effect, the total commission and additional fees charged by lenders and others in the mortgage process will be limited to a maximum of 3 percent of the loan amount, not including the real estate commission.

California Association of Realtors, New York Times.

Interest in purchasing real estate as an investment has more than tripled in the past year, according to a survey conducted by Move, Inc. Nearly 17 percent of potential home buyers said they plan to purchase a home in the near future as an investment compared with 5.6 percent in March 2009, according to the survey.

The survey also found more than 10 percent of Americans planning to purchase investment property in the near future said they will pay for the property using 100 percent cash, and 12.8 percent will use cash for more than 50 percent of the purchase price and finance the remainder. Nearly half reported they will buy the property with less than 50 percent cash down and finance the remainder. Nearly half of the potential real estate investors said they plan to own the property for six or more years; 16 percent expect to hold the property between two and five years; while 10.6 percent plan to own the property between six and 24 months.
While interest by potential home buyers in purchasing a foreclosure to live in has declined 31.1 percent in the past five months to 26.5 percent, the survey found interest in purchasing a foreclosure as an investment is on the rise, with interest in purchasing a foreclosure as an investment to fix it up and resell rising 42 percent in March.

-California Association of Realtors

Californians have a brief window of opportunity to receive up to $18,000 in combined federal and state homebuyer tax credits.  To take advantage of both tax credits, a first-time homebuyer must enter into a purchase contract for a principal residence before May 1, 2010, and close escrow between May 1, 2010 and June 30, 2010, inclusive.  Buyers who are not first-time homebuyers may use the same time frames to receive up to $16,500 in combined tax credits if they are long-time residents of their existing homes as permitted under federal law, and they purchase properties that have never been previously occupied as provided under California law.

Under the federal law slated to soon expire, a first-time homebuyer may receive up to $8,000 in tax credits, and a long-time resident may receive up to $6,500, for certain purchase contracts entered into by April 30, 2010 that close escrow by June 30, 2010.  Additionally, under a newly enacted California law, a homebuyer may receive up to $10,000 in tax credits as a first-time homebuyer or buyer of a property that has never been occupied.  The new California law applies to certain purchases that close escrow on or after May 1, 2010 (see Cal. Rev. & Tax Code section 17059.1(a)(4)).  California law generally allows buyers of never-occupied properties to reserve their credits before closing escrow, but buyers seeking to combine the federal and state tax credits will not be able to satisfy the timing requirements for such reservations (see Cal. Rev. & Tax Code section 17059.1(c)(1)(A)).  Other terms and restrictions apply to both tax credits. 

-California Association of Realtors

C.A.R. reports entry-level housing affordability remained at 64 percent in the fourth quarter of 2009

Quick Facts:
.  C.A.R. First-time Buyer Housing Affordability Index stood at 64 percent in the fourth quarter of 2009
   compared with 61 percent (revised) in the fourth quarter of 2008
.  The median price of an entry-level home in California was $257,940 in the fourth quarter of 2009
.  The estimated monthly payment including taxes and insurance was $1,470 in the fourth quarter of 2009
.  The minimum household income needed to purchase an entry-level home in California in the fourth
   quarter of 2009 was $44,100.

LOS ANGELES (Feb. 12) The percentage of households that could afford to buy an entry-level home in California remained at 64 percent in the fourth quarter of 2009, compared with 61 percent (revised) for the same period a year ago, according to a report released today by the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.).

C.A.R.’s First-time Buyer Housing Affordability Index (FTB-HAI) measures the percentage of households that can afford to purchase an entry-level home in California. C.A.R. also reports first-time buyer indexes for regions and select counties within the state. The Index is the most fundamental measure of housing well-being for first-time buyers in the state.

The minimum household income needed to purchase an entry-level home at $257,940 in California in the fourth quarter of 2009 was $44,100, based on an adjustable interest rate of 4.5 percent and assuming a 10 percent down payment. First-time buyers typically purchase a home equal to 85 percent of the prevailing median price. The monthly payment including taxes and insurance was $1,470 for the fourth quarter of 2009.

At $44,100, the minimum qualifying income was 4 percent lower than a year earlier when households needed $45,900 to qualify for a loan on an entry-level home. Home prices remained below peak levels, resulting in an improvement in housing affordability compared with the previous year.

At 84 percent, the High Desert region was the most affordable area in the state. The San Luis Obispo County region was the least affordable in the state at 48 percent, followed by the San Francisco Bay region and Santa Barbara area both at 50 percent.

Leading the way…® in California real estate for more than 100 years, the CALIFORNIA ASSOCIATION OF REALTORS® (www.car.org) is one of the largest state trade organizations in the United States with more than 167,000 members dedicated to the advancement of professionalism in real estate. C.A.R. is headquartered in Los Angeles.

C.A.R. First-time Buyer Housing Affordability Index

* — percentage of California households that can afford to purchase an entry-level home
r – revised
Source:  CALIFORNIA ASSOCIATION OF REALTORS^®

Source:  CALIFORNIA ASSOCIATION OF REALTORS^®

The Federal Reserve has been purchasing mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac since early last year.  The purchase program has helped maintain low interest rates for borrowers.  As planned, the Fed this week announced it will stop purchasing these securities at the end of this month.  Many analysts anticipate this will result in a slight rise in rates by year’s end.

• Interest rates have hovered at or near historic lows for much of the past 18 months, resulting in lower payments for many borrowers.  With the Fed discontinuing its purchase program, some analysts believe a rise in interest rates could range from 0.25 percent to as much as 1 percent by the end of 2010.
• The federal tax credit for home buyers also is scheduled to end April 30.  The tax credit combined with the expectation interest rates will increase has created a sense of urgency for many home buyers.  In fact, 23 percent of California home buyers purchased a home in 2009 due to the perception that interest rates will rise and they would be priced out of the market, according to C.A.R.’s 2009 Survey of California Home Buyers.

Rising interest rates will have an effect on home buyers.  For example, a qualified couple with a combined pretax income of $100,000 per year and debt obligations (excluding mortgage) of $500 who receive a mortgage rate of 5 percent could qualify for a loan of up to $590,000, assuming a 20 percent down payment.  If the interest rate were to rise to 6 percent, as analysts at Barclays Capital predict, the same couple could only qualify for a mortgage of $540,000.

-California Association of Realtors

There is a lot of optimism in the air as we move into our selling season even though there is likely going to be a interest rate jump in April and home buyer tax credit expiration soon after.  The likely hike in rates will be because Fannie Mae and Freddie Mac will stop purchasing mortgage backed securities next month.  Also in the news is a lot of talk about what affect the next wave of foreclosures will have on prices… a wave we’ve been hearing about since last May but hasn’t showed up yet.

Santa Cruz statistics… yes January and February saw a 10% knock off the median home price for Santa Cruz county.  A similar dip happened last year when the market hit “a” bottom.  That just shows you how strong of a seasonal component we have here to our prices in Santa Cruz.