By Linda Stern | May 5, 2010

Housing indicators all are pointing to a recovery in the housing market, but buyers shouldn’t have to worry about massive bidding wars breaking out anytime soon. The combination of relatively low mortgage rates, still sticky real estate prices, and a hidden inventory of homes not yet on the market could make the rest of this year an opportune time to buy a home. On Tuesday, the National Association of Realtors reported higher than expected sales in March, but simultaneously revised their sales predictions down for the rest of the year. The group now expects that bigger boost in home sales to wait until 2011.

Home sales rose 5.3 percent in March, beating analysts expectations significantly.  Earlier, the Commerce Department had reported that new home sales, which make up a small percentage of the entire housing market, had surged 27 percent from February to March, and were up 23 percent from a year ago. And in March, the median existing single family home cost $170,700, up from February’s $163,900. But prices are still well below last summer’s levels, when the median home cost $181,900.

Of course, that $8,000 homebuyers tax credit, which expired last week, propelled those March sales, particularly after a bad-weather February. (Buyers who signed contracts by April 30 have until June 30 to close on their deal to qualify for the credit.) “In the months immediately following the expiration of the tax credit, we expect measurably lower sales,” said Lawrence Yun, chief economist of the National Association of Realtors. His group now expects existing home sales to be up 4.3 percent in 2010 and 5.1 percent in 2011. A month ago, they had expected 2010 sales to be up 6.5 percent and 2011 sales to be up 3.7 percent.

This year, the early signs of recovery can be expected to bring many more homes to market, keeping prices from leaping. At the same time, the continued weakness in the economy is keeping mortgage interest rates near all-time lows.

The bottom line for buyers? More choices, cheap mortgages, and the rest of the year to take your time shopping for the just-right house. And here’s a bonus: That federal homebuyer’s credit might have expired, but some places — Washington, D.C. and the whole state of California, for starters — offer their own credits for homebuyers. Shop carefully and strategically, and you can still get paid to buy that home.

Photo courtesy of thetruthaboutmortgage.com

On November 6, 2009, President Obama signed a bill to extend the tax credit for first-time homebuyers (FTHBs) through June 30, 2010. The bill also opens up opportunities for others who are not buying a home for the first time.To learn what the new tax credit means to you, take a look at the concise overview below.

ho Gets What?

First-Time Homebuyers (FTHBs): First-time homebuyers (that is, people who have not owned a home within the last three years) may be eligible for the tax credit. The credit for FTHBs is 10% of the purchase price of the home, with a maximum available credit of $8,000Single taxpayers and married couples filing a joint return may qualify for the full tax credit amount.Current Owners: The tax credit program now gives those who already own a residence some additional reasons to move to a new home. This incentive comes in the form of a tax credit of up to $6,500 for qualified purchasers who have owned and occupied a primary residence for a period of five consecutive years during the last eight years.Single taxpayers and married couples filing a joint return may qualify for the full tax credit amount.

What are the New Deadlines?

In order to qualify for the credit, all contracts need to be in effect no later than April 30, 2010 and close no later than June 30, 2010.

What are the Income Caps?

The amount of income someone can earn and qualify for the full amount of the credit has been increased.Single tax filers who earn up to $125,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, single filers who earn $145,000 and above are ineligibleJoint filers who earn up to $225,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, joint filers who earn $245,000 and above are ineligible.

What is the Maximum Purchase Price?

Qualifying buyers may purchase a property with a maximum sale price of $800,000.What is a Tax Credit?A tax credit is a direct reduction in tax liability owed by an individual to the Internal Revenue Service (IRS). In the event no taxes are owed, the IRS will issue a check for the amount of the tax credit an individual is owed. Unlike the tax credit that existed in 2008, this credit does not require repayment unless the home, at any time in the first 36 months of ownership, is no longer an individual’s primary residence.

How Much are First-Time Homebuyers (FTHB) Eligible to Receive?

An eligible homebuyer may request from the IRS a tax credit of up to $8,000 or 10% of the purchase price for a home. If the amount of the home purchased is $75,000, the maximum amount the credit can be is $7,500. If the amount of the home purchased is $100,000, the amount of the credit may not exceed $8,000.

Who is Eligible fort FTHB Tax Credit?

Anyone who has not owned a primary residence in the previous 36 months, prior to closing and the transfer of title, is eligible.This applies both to single taxpayers and married couples. In the case where there is a married couple, if either spouse has owned a primary residence in the last 36 months, neither would qualify. In the case where an individual has owned property that has not been a primary residence, such as a second home or investment property, that individual would be eligible.As mentioned above, the tax credit has been expanded so that existing homeowners who have owned and occupied a primary residence for a period of five consecutive years during the last eight years are now eligible for a tax credit of up to $6,500.

How Much are Current Home Owners Eligible to Receive?

The tax credit program includes a tax credit of up to $6,500 for qualified purchasers who have owned and occupied a primary residence for a period of five consecutive years during the last eight years.

Can Homebuyers Claim the Tax Credit in Advance of Purchasing a Property?

No. The IRS has recently begun prosecuting people who have claimed credits where a purchase had not taken place.

Can a Taxpayer Claim a Credit if the Property is Purchased from a Seller with Seller Financing and the Seller Retains Title to the Property?

Yes. In situations where the buyer purchases the property, even though the seller retains legal title, the taxpayer may file for the credit. Some examples of this would include a land contract or a contract for deed.According to the IRS, factors that would demonstrate the ownership of the property would include:1. Right of possession,2. Right to obtain legal title upon full payment of the purchase price,3. Right to construct improvements,4. Obligation to pay property taxes,5. Risk of loss,6. Responsibility to insure the property, and7. Duty to maintain the property.

Are There Other Restrictions to Taking the FTHB Credit?

Yes. According to the IRS, if any of the following describe a homebuyer’s situation, a credit would not be due:

• They buy the home from a close relative. This includes a spouse, parent, grandparent, child or grandchild. (Please see the question below for details regarding purchases from “step-relatives.”)
• They do not use the home as your principal residence.
• They sell their home before the end of the year.
• They are a nonresident alien.
• They are, or were, eligible to claim the District of Columbia first-time homebuyer credit for any taxable year. (This does not apply for a home purchased in 2009.)
• Their home financing comes from tax-exempt mortgage revenue bonds. (This does not apply for a home purchased in 2009.)
• They owned a principal residence at any time during the three years prior to the date of purchase of your new home. For example, if you bought a home on July 1, 2008, you cannot take the credit for that home if you owned, or had an ownership interest in, another principal residence at any time from July 2, 2005, through July 1, 2008.

Can Homebuyers Purchase a Home from a Step-Relative and Still be Eligible for the Credit?

Yes. As long as the person they buy the home from is not a direct blood relative, the purchase would be allowed.

If a Parent (Who Will Not Live In The Property) Cosigns for a Mortgage, Will Their Child Still be Eligible for the Credit?

Yes, provided that the child meets the other requirements for the tax credit.

Revised FHA Appraisal Guidelines in Effect
for Appraisals Done after April 1, 2009

Last Updated March 26, 2009

I wanted to reach out to you to keep you informed of some revised federal guidelines that outline 10 things that appraisers must do or provide for all FHA appraisals done after April 1, 2009:

1. The Market Conditions Addendum (Fannie Form 1004MC/Freddie Form 71).

2. At least 2 comparable sales within 90 days of appraisal date.

3. A minimum of 2 active listings or pending sales in addition to the 3 closed comparables.

4. Bracketed listings using both dwelling size and sales price when possible.

5. Adjust active listings to reflect the List To Sales Price Ratio.

6. Adjust pending sales to reflect contract sales price when possible.

7. Include original list price and any revised list prices.

8. Reconciliation of adjusted values of active or pending sales with adjusted values of closed comparable sales.

9. Absorption Rate Analysis.

10. Known or reported sales concessions on active and pending sales.

FHA also is restating its warning that…”Direct Endorsement Lenders are reminded that if the appraiser they selected provides a poor or fraudulent appraisal that leads FHA to insure a mortgage at an inflated amount, the lender is held responsible equally with the appraiser for the integrity, accuracy and thoroughness of an appraisal submitted to FHA.”

If the above appraisal guidelines look foreign to you, that’s okay, because this update is intended for Appraisers and Underwriters. I sent this to you so you can take the following actions below to make yourself an FHA resource in your market.

Different Ways to Buy Foreclosures - you can buy foreclosures a number of different ways. Below are the 3 most common with some perspective on my experience with 30+ years in the real estate business.

Buying directly from the homeowner - You can purchase foreclosures directly from the homeowner prior to it going to sale and back to the bank to be sold as a “Bank Owned” property. I am not a fan of this option for one simple reason. Homeowners are being taken advantage of and deeding their homes over to crooks who promise to bring their mortgage payments current and never do anything. This is the option that all of the late night infomercials are always talking about. It’s unfortunate that when someone is in a difficult situation that these crooks come out of the woods to steal equity away and convince homeowners to deed the property to them. If they really did what they say they will do then great, but it’s too often I hear horror stories about homeowners that were taken advantage of. What typically happens is a number of different things, including renting out the home to collect rent payments for 6-12 months while never make any single mortgage payment. The end result in many of these scams is that homeowners are sold on the idea that they will avoid a foreclosure showing up on their credit. If you have equity in your home then you should try to sell it with a local real estate agent. Your lender will give you some time to sell the property if you show them you are making an effort to sell it.

Buying at a real estate auction - not a big fan! These homes that are being sold at auction are homes that didn’t sell via OPTION 3 of this article. They were listed with local real estate agents as “Bank Owned” homes and as a result of them not selling in a timely manner the bank turns them over to an auction company for sale. Would you go purchase a foreclosure amongst hundreds, if not thousands of other buyers when you could have purchased it a month earlier with no other competition? Auctions are not my favorite, you are in a room with people that do not take the time to research the property and they are sold on this slogan. “Buy this previous valued home of $450,000 with a starting bid of $275,000!!!” I have news for you, take the time and go to one of these auctions and you will see that by the time it actually sells you really aren’t getting a good deal compared to the foreclosures available for sale in the local MLS.

Buying from a local Realtor - my favorite option because it makes the most sense. You find a local real estate agent who specializes in selling bank owned real estate. I would recommend that you do a Google search for “bank owned real estate for sale CITY NAME” and you should come up with some options. Buying from a local real estate company will allow you time to do your inspections on the home you are buying; you will get a clear title with title insurance. If you purchase your home listed with a real estate company that is “Bank Owned” you do not have to worry about the title history because you will be provided with a title insurance policy when you close escrow. You will have typically a 30 day escrow which will allow you to purchase with financing.

Other things to understand about buying foreclosures - One big misconception is that you deal directly with the bank. Let me tell you that it doesn’t happen. Banks don’t sell real estate. They find local real estate agents who know the local market and pay them a commission to get the property sold. Don’t waste your time trying to work out a great deal directly with the bank or insist that your low offer at 50% of the listing price should be considered. Banks want to sell these foreclosures but they are not stupid.

Things to do after you purchase a foreclosure property - Get the locks changed as quickly as possible, many banks use the same key cut for all of their listings because they have so many vendors to deal with they have the locksmith re-key all of their foreclosures with the same cut key. You should really invest $100 to have your new home re-keyed.

If you would like any San Diego Foreclosure Information please feel free to contact us.

une 9 (Bloomberg) — The number of Americans signing contracts to buy existing homes unexpectedly rose in April as the first nationwide decline in prices since the 1930s lured buyers back into the market, a private report showed.

The index of pending home resales rose 6.3 percent to 88.2, the highest level in six months, following a 1 percent drop in March, the National Association of Realtors said today in Washington.

The drop in property values may be starting to lure some buyers who are able to qualify for loans, signaling purchases will improve in 2009. Still, stricter lending rules, the recent increase in mortgage rates and continued pressure on prices from mounting foreclosures will probably keep some buyers away for much of the year.

“There are some signs that sales are close to a bottom, although the level of inventories is so high that there is going to be continued pressure on prices and housing starts,” said James O’Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut, who had the highest forecast in the Bloomberg News survey. “We’ll need to see more than this report to suggest housing is really rebounding.”

Economists projected the index would fall 0.4 percent, according to the median forecast in a Bloomberg News survey of 32 economists. Estimates ranged from a drop of 1.5 percent to a 1 percent gain.

Stocks Rise

Stocks extended gains following the report and Treasury securities dropped. The Standard & Poor’s 500 index rose 0.6 percent to 1,368.4 at 10:27 a.m. in New York. The yield on the benchmark 10-year note rose to 4.02 percent from 3.91 percent at the end of the day on June 6.

Pending resales were still down 13 percent from April 2007, today’s report showed.

The measure increased 13 percent in the Midwest and 8.3 percent in the West. They rose 4.6 percent in the South and decreased 1.9 percent in the Northeast.

“Bargain hunters entered the market en masse, especially in areas that have experienced double-digit price declines, but it’s unclear if they are investors or owner occupants,” Lawrence Yun, the real-estate agents group’s chief economist, said in a statement.

Yun also said the drop in consumer confidence and stricter lending rules make the immediate outlook “unclear.”

The pending resales measure is considered a leading indicator because it tracks contract signings. The existing-home sales report reflects closings, which typically occur a month or two later.

Record Low

The Realtors group will release its May existing home sales report on June 26. Purchases in April dropped to a 4.89 million annual pace, matching the weakest rate since records began. It would take an all-time high of 11.2 months to sell all the houses on the market at the current sales pace.

The lack of demand is rippling through the economy. Sherwin-Williams Co., the largest U.S. paint retailer, slashed its 2008 profit forecast last week because of the decline in the domestic housing market and rising costs for petroleum-derived raw materials.

“The market is deteriorating dramatically,” its Chief Financial Officer Sean Hennessy said on a June 3 call with analysts and investors. Chief Executive Officer Christopher M. Connor during the call also said demand probably won’t improve for the rest of the year.

Other measures have showed sales may continue to decline. The Mortgage Bankers Association’s index of applications for loans to purchase homes has fallen 13 percent since the beginning of May, ending the month at the lowest level in five years.

Price Declines

Values were down 3.1 percent in the first quarter compared with the same period last year, the second quarterly decline after 13 years of increases, the Office of Federal Housing Enterprise Oversight said May 22.

“What people are most scared of is looking like a schmuck,” Toll Brothers Holdings Inc. Chief Executive Officer Robert Toll said at a conference in New York last week. “What do I want to buy a home for and next year be looking at 10 percent less asset?”

Toll predicted the housing slump may last another two to three years. On June 3, the company reported its third straight quarterly loss.

More Foreclosures

The number of Americans in danger of losing their homes to foreclosure rose to the highest in almost 30 years in the first quarter, the Mortgage Bankers Association said June 5. The total inventory of homes in foreclosure increased to 2.47 percent and the delinquency rate, or loans with one or more payments overdue, grew to 6.35 percent. These were the highest since 1979.

Still, the decline in prices is making homes more affordable. The Realtors group’s affordability index stood at 129.8 in April. A reading of 100 indicates a family with the median income could afford a median-priced house at current interest rates.

The collapse of the subprime mortgage market has led the world’s biggest banks and brokerages to report more than $386 billion in losses and writedowns.

Banks will probably report “weak earnings” and write down more assets while operating with insufficient reserves to cover bad loans, Federal Reserve Vice Chairman Donald Kohn said to the Senate Banking Committee June 5.

The economic slump may increase problem loans for consumers, credit-card holders and corporations, Kohn. He also said losses for homebuilders and developers are “bound to increase further.”

To contact the reporter on this story: Courtney Schlisserman in Washington at cschlisserma@bloomberg.net

The Federal Reserve has cut interest rates six straight times since September 2007. Most analysts are predicting that the Fed will cut rates even further when it meets at the end of this month. And yet, despite a full 3% in interest rate cuts during this time, mortgage rates are significantly higher now than they were just three months ago. How is that possible? Don’t rate cuts equal lower mortgage rates? Read on as the team at YOU Magazine goes behind the headlines to show you how these Fed cuts do and don’t affect your mortgage.

Here’s the straight story: Mortgage interest rates are dictated by one thing and one thing only — the performance of mortgage-backed securities. Despite what you may have heard in the media, interest rate cuts from the Federal Reserve have no direct effect on long-term mortgage rates.

The True Role of the Federal Reserve
The Federal Reserve, our nation’s central banking system, was put in place to help avoid major financial collapses like the Depression. The Fed has two specific duties: to keep inflation in check and regulate the nation’s financial institutions. And while it has some regulatory power over how the mortgage industry operates, in its 95-year history, the Federal Reserve has never once set or reset mortgage interest rates. It simply has no authority to do so.

But, to control inflation, the Fed has several tools at its disposal, including the ability to adjust the Discount Rate and the Fed Funds Rate, which are very different from mortgage interest rates. By increasing or decreasing these interest rates, the Fed can manage inflation and economic growth according to its financial policy. While movement in these interest rates does affect the Prime Interest Rate – which directly affect things like credit cards, home equity lines of credit (HELOCs), and adjustable-rate mortgages – long-term mortgage rates do not always follow suit.

In the following chart, mortgage rates are shown to have actually increased from March 2007 to March 2008, even though the Federal Reserve cut interests rates six consecutive times, slashing three full percentage points in the process.

What Really Moves Mortgage Rates?
Mortgage rates are set daily by individual lending institutions and are based solely on the trading activity of mortgage-backed securities (MBS), a type of bond that investors trade daily.

Without getting too technical, MBS are bonds that represent mortgages currently in place. For instance, let’s say you have a 30-year fixed rate mortgage of $200,000 at an interest rate of 6%. That loan isn’t worth anything right now, but over a 30-year period, it represents a profit of 6% or up to $12,000 every year for the bank that owns the loan, provided you make all of your payments.

However, instead of waiting 30 years to collect on that profit, your loan is “sold” to a bank where it is bundled together with other similar loans. It’s like winning the lottery and choosing the cash value prize instead of accepting full payments that are spread over 20 years. Of course, you get less money than the total value of the prize if you choose the cash upfront, but you don’t have to wait twenty years to collect it all.

This group of bundled loans then, just like a public company, is split into smaller units or bonds and sold just like stocks in a company to investors. These bonds, secured or backed by the profits from the loans, are called mortgage-backed securities. And just like stocks, investors like you and me can buy and sell them every day.

And it’s the performance of these specific bonds that lending institutions use to set mortgage rates.

The real dynamic at the heart of interest rate movement, then, is the complex relationship between stocks and bonds, supply and demand, inflation, news that moves markets, the economy, employment levels, political events, gross domestic product, and any number of other factors.

And while there exist a number of somewhat reliable economic indicators, if anyone tells you that he or she has the secret formula for predicting these movements exactly, it’s just not true. There is no magic formula, no index, no rate cuts or Fed activities that work 100% of the time.

The best you can hope for is an experienced mortgage professional who truly understands mortgage-backed securities and how they trade. He or she can utilize specific market knowledge and experience to take advantage of daily fluctuations and lock in a rate that could save you thousands of dollars throughout the life of your loan.

If you’re waiting for the Federal Reserve – or worse, the media – to create refinance or new home buying opportunities for you, don’t count on it. Call an experienced mortgage professional and get the facts.

The headlines report that Half-priced homes are attracting a bevy of buyers. But, you don’t want to sell your home. However, the balance of your mortgage is greater than the value of your home. What to do?The first question to be answered is how much more is that balance: 5%, 10%, 20%… It may boil down to strictly a financial decision on whether it is a prudent move to stay in or move out of your home, and let the chips fall where they may. Today’s Economic Update will present those two alternatives with the steps for you to follow. If you want to stay in your home1. Review the loan documents you signed when you purchased or refinanced your home to ensure that the lender dotted all the “i’s” and crossed all the “t’s” from a compliance perspective. If there were errors (e.g. 3 day right of recession, lack of other disclosures…) then the lender will be at your mercy to negotiate a change in the terms of your loan to your benefit. 2. Refinance. The FHA is now offering the FHASecure loan program. Even if you are delinquent in your current mortgage payments, you may be able to refinance 97% of your home’s value under this government insured loan program. And, if your current mortgage balance is greater than 97% of your home’s value, the lender may forgive the difference. Call me for more information, to see if this refinance option is doable for you.3. Modifying the terms of your loan. The cost to a lender to foreclose on your loan can be 20%-25% of the principal balance. Use this to your advantage. If there were no errors in your loan documents and you cannot refinance your mortgage, then you should write a compelling letter to your lender explaining why you cannot continue to make the mortgage payment. Sit down, face-to-face, with your lender to come to a mutual agreement in modifying the terms (monthly payment) of your mortgage. You would be surprised at how receptive your lender will be. In addition to avoiding the costs of foreclosure, with the unfortunately large number of potential foreclosure lenders are facing at this time, they are in a much more favorable mood to negotiate with you. If you are behind on your mortgage payments, you should ask the lender for some forbearance on the amount past due (add the delinquent payment amount to the mortgage balance). However, you still want to pursue a loan modification to reduce the monthly payment, so as you do not continue to get behind (forbearance is a one-time option). If your decision is not to stay in your home, then your choices are:1. A Deed in lieu of Foreclosure. Asking the lender to take the home (the security of the mortgage), and release you from the mortgage obligation. 2. A short sale. Trying to sell your home by taking an offer on it for less than the mortgage balance. When you receive an offer on your home the real estate agent would open negotiations with the lender to persuade them to accept this lower purchase amount. This will take some time (60+ days) to complete. 3. Foreclosure. If you cannot afford to make the mortgage payments any longer and a notice of default is issued, then the lender may elect to foreclose on your home and take it from you. I know none of these options sound simple. If you are having problems with your current mortgage then the first thing you should do is contact a HUD Approved Housing Counselor (1-888-995-HOPE). There is a unique office set up in San Diego to help distressed homeowners. It is the Housing Opportunities Collaborative (www.housingcollaborative.org) where I attending a seminar just last week. Don’t be shy to call me or them for assistance.