Good news for mortgage applicants and renters

As we move into October, interest rates on 30-year, fixed-rate mortgages continue to decline. During the last week in September, the average rate lowered from 6.36 percent to 6.18 percent, according to the Mortgage Bankers Association. The 15-year fixed-rate mortgage is now offered at 5.81 percent, down from 6.04 percent. This may be a temporary low rate, but is certainly welcome news to many applicants who have been waiting for a lower rate.

Also, the Department of Housing and Urban Development (HUD) has decided not to increase the mortgage insurance premiums that multifamily developers pay for several key programs that support new construction or substantial renovation of affordable multifamily rental properties, as proposed. Those premiums will now stay at the same levels in FY 2007 as was set for this year. This will help in creating a larger inventory of much needed rental units.

Exotic Mortgages Confuse Consumers

Many consumers are confused about currently offered non-traditional or “exotic” home mortgages. That's the consensus of comments made recently at a hearing on these mortgages at the Senate Banking Committee. Sometimes termed “alternative mortgages,” they allow marginally qualified borrowers to have an option of payments, including interest-only and even lower payments resulting in negative amortization. These plans have the potential for creating serious future financial problems for the borrower.

Federal banking regulators will soon release guidance to lenders that will require greater disclosures to borrowers and recommend tighter credit standards for such loans. “The exotic loans have mushroomed in the past few years, especially in states with soaring home values,” said a spokesperson for the Federal Deposit Insurance Corp. “Borrowers may not be sufficiently well-informed about the risks with these mortgages.

A federal regulatory guidance bulletin, issued on Sept. 29, instructed lenders offering Interest-only and payment-option ARM loans to qualify borrowers at the fully indexed rate with potential negative amortization added to the loan amount.

On the positive side, here's what Robert Broeksmit, president of B.F. Saul Mortgage Company, says about these mortgages: “The term non-traditional mortgage products encompass a variety of financing options developed by an industry to increase the ability of borrowers to manage their own money and wealth. Borrowers have used these products to tap their homes' increased equity to meet an array of needs ranging from education to health care to home improvement, and to purchase homes in markets where homes are appreciating. While these products have often been characterized as `new,' many of them actually predate long term fixed-rate mortgages.”

Young Home Buyers on Increase

Young home buyers are becoming more numerous. An increasing proportion of buyers are in their 20s. They are much more likely to buy a home than were their older brothers and sisters, as well as their Baby Boomer parents, and in many cases they are not waiting for marriage or even a long-term relationship before becoming homeowners.

That trend was revealed in a recent report from the National Association of Realtors. “The next generation of homeowners is beginning to exert its influence on the housing market,” said Thomas Stevens, NAR's president. “Many younger buyers have seen the wealth-building effects of home ownership in their parents and understand the value of housing as a good long-term investment.”

The percentage of first-time home buyers under age 25 has been increasing in response to historically low interest rates and continued confidence in the long-term housing market, according to NAR. Owning a home is no more burdensome than renting, and in the long term it's the better investment. The motivation to own a home has never been stronger than it is today, and now the number of young people acting on that desire is notably increasing.

New-home sales finally on rise

Sales of newly constructed single-family homes increased by 4.1 percent in August, following a substantial downward trend over the past three months. “The sales increase for August, as reported by the government, was somewhat surprising,” said David Pressly, president of the National Association of Home Builders. “Many builders still have large inventories of unsold homes, and we expect to see aggressive use of sales incentives over the balance of this year. The near-term prospects for mortgage interest rates also will be supportive of housing demand going forward.”

Minority home mortgage applications up

Minority home buyers made up the fastest growing segment of all new home purchase mortgages last year, it was announced at the recent Mortgage Lending Industry Diversity and Emerging Markets Conference in Washington , D.C. The growth in African American, Hispanic and Asian home buyers are now outpacing white growth, it was reported.

“We are now witnessing the positive effects of the growth in immigrant households who want to own a piece of the American Dream,” said Michael Taliefero, manager director of Compliance Tech. “While immigration is part of the story, the lower home ownership rates among African Americans and Hispanics represent pent up mortgage demand that is now starting to be filled.”

To help the growing number of minority mortgage borrowers, Freddie Mac and Fannie Mae have teamed up to make available Spanish translations of the Fannie Mae/Freddie Mac Uniform Instruments to help lenders and others in the residential mortgage industry better serve Spanish-language consumers in becoming homeowners. The collaborative effort is aimed at helping to close the Hispanic and overall minority home ownership gap.

Housing downswing will not produce a recession

The current housing downswing is not likely to lead to economic calamity, it was reported by the National Association of Home Builders. That's largely because interest rates are still historically low, the overall economy still is moving ahead, and builders are stepping up efforts to get their unsold inventories under control.

NAHB is now forecasting an 11.5 percent decline in housing starts this year, followed by another 11.7 percent drop next year. Housing should hit bottom by the middle of next year, and will be approaching a demographically-based trend production level of about 2 million units in 2008. That includes manufactured homes.

Home Value Estimating Web Sites Questioned

An increasing number of homeowners are accessing Web sites that offer estimates of current values for individual homes – sites such as Zillow.com. But how reliable are these sites? Home sellers use the sites to help them establish an asking price when preparing to sell their property. Buyers access the sites to give them peace of mind, assuring them they are not offering too much for a home, or to help determine how much to offer for a home.

The advantage of using the sites is it's quick and easy. The reliability of its accuracy is questionable. Many home sellers claim the estimated amounts are much too low, considering all factors in their local market. And this could impair the owner's ability to obtain a fair market price for their home, they claim.

“Any time the value of real estate is used to make a significant financial decision, a professional appraiser is needed,” said Frank Baldassarre, senior vice president of Fox Chase Bank. “Determining the value of property depends on more than just comparable sales and listings in an area. That is what most Web site use. Each property has unique characteristics that only an independent appraisal can account for when determining an equitable price or value,” he said.

In some cases, the use of value estimating Web sites, coupled with a local study of recent sales prices of comparable properties in the area (data that can be provided by a Realtor), might be enough to help determine a realistic asking price. But if you want a credible valuation report that will be accepted by potential buyers, it's best to use a seasoned professional appraiser. It could be well worth the appraiser's fee.

Pricing a Home for Effective Marketing

When placing a home on the market, establishing the right asking price is a key to success in today's changing marketplace. Last year, we experienced the most active seller's market situation in history, with some home receiving multiple offers and selling for more than the asking price. Today, even though the market is still very strong historically, there are many more homes on the market and fewer prospective buyers who are serious about purchasing a home.

Some buyers are holding off a needed home purchase, waiting to see if prices will decline in their local market, and they are indeed dropping slightly nationally. However, mortgage rates are still at historically low levels and other factors point to a continuing strong real estate market.

In this scenario, home sellers need to adjust their strategies to meet today's marketing factors. The primary reason some homes remain on the market for a very long time is that their asking price is too high. When prospective buyers look at available homes on Web sites or offered to them by brokers, they will quickly reject it if the price is obviously too high. They will turn to other more realistically priced homes, and there are plenty of those in today's inventory of available properties. Many home sellers just can't seem to face the fact that their home might not bring the price it could have a year ago. At least the value has not gone up at a double-digit rate as has been the case in the recent past.

When a home is over-priced when it's first placed on the market, it can be stigmatized as an over-priced property in the minds of active buyers and brokers. This can be a marketing problem even after reducing the price. It's better to be realistic in the initial pricing of the home.

The Realtor-bank war continues

The National Association of Realtors again addressed a House panel on Sept. 27, objecting to what they call the inappropriate expansion of banking powers being permitted by the Office of the Comptroller of the Currency, an agency within the Department of the Treasury. NAR contends that the OCC's rulings expand congressionally established bank authority, in essence creating a new law without public or congressional participation. The expanded powers could create stiff competition for many Realtors.

“The OCC's actions set in motion a process that could result in increased risk to national banks and threaten the safety and soundness of the nation's banking system,” said NAR president Tom Stevens. “We remain concerned about the OCC's real estate decisions and strongly believe these rulings will inevitably lead to an irreparable breach in the wall separating banking and commerce.”

Jim Woodard writes a nationally syndicated newspaper column on real estate news and trends, carried in about 230 U.S. newspapers – along with freelance features.  Reproduction of this report, in part or entirety, is prohibited without the express permission of the author. E-mail: storyjim@aol.com.