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The Mortgage Bankers Association (MBA) reported last week that it’s expecting 30-year fixed rates to rise to an average 4.1% later this year, and then further still to 4.5% by 2014, compared to the 3.7% average we’re at now. Due to this, the dollar value of home refinancings is expected to drop to $818 billion in 2013, and then $350 billion the year after, down from a high of around $12 trillion last year.

These are big changes, but they will be unlikely to impact much on home sales our new housing starts over the next year, reports Investor.com.

“Interest rates are so low right now that a modest increase wouldn’t have much effect on sales,” said the NAR’s Walter Molony.

No reason for concern

The main concerns for economists, should rates go up as expected, are that those homeowners who did refinance over the last couple of years are unlikely to want to move-up and buy themselves a bigger home, simply because they won’t want to risk paying higher rates again.

However, Investor.com says that this is unlikely to have a major impact on housing, with the biggest concern being a loosening of credit standards instead. Molony points out that many people want to buy but simply cannot qualify for a mortgage right now – should banks return to ‘normal’ standards, we could see sales boosted by as much as 10% to 15%.

Overall, the MBA’s forecast for the year ahead is optimistic at best, with housing starts expected to increase by 18% in 2013 compared to the year before (909,00 new starts), while new home sales should rise by 12% (407,000 sales). Existing homes meanwhile, can expect to see a 3.7% leap in sales, with median prices rising by 4.9% across the nation.

Current real estate conditions across the country – home prices are down by more than a third from their highest levels – are highly appealing to investors as multiple property buying is fast becoming en vogue.

Ordinarily, investors are individuals or corporations who buy only a small number of homes, however as technological advances provide the ability to streamline many operations, thereby cutting down on personnel needed to maintain control of a large portfolio, it’s likely we will see more large investors materialize.

The lure of profit is difficult to pass up, and with more than 650,000 foreclosed properties in the possession of lenders, as reported by RealtyTrac, another 710,000 in the foreclosure process, and a reported 3.25 million delinquent borrowers according to the Mortgage Bankers Association, that profit is quite substantial.

The “mega investors” believe that rental returns will provide better returns than treasury securities or even stock dividends. Economists believe that these kinds of investors could help stabilize areas hardest hit by the housing crash. Diane Swonk, chief economist at Mesirow Financial stated that, “If you have a lot of foreclosures in one community you will improve everybody’s home values if you take them off the market.”

With financial backing by GI Partners, a private equity firm in Silicon Valley, Waypoint’s plan to purchase from 10 to 15 thousand homes by the end of this year is well underway. This is a huge volume of property that certainly could put distressed areas into the black, however critics of this trend fear that such large portfolios of homes will be too difficult to properly manage.

Waypoint executives, however, are confident that the technology systems and workflow procedures they have in place will allow them to not only purchase profitable properties, but maintain them as well.

Despite offering a potential rescue for certain markets, such as foreclosed and distressed homes, is it possible for large investors like Waypoint maintain a “human touch” despite, or in conjunction with their advanced technological methodology?

What do you think?

MIT grad enters service sector - courtesy © jokatoons - Fotolia.com

Whether or not Obama’s plans for rescuing the real estate industry are valid or not, it is logical that a 30 year mortgage below 4% is far better than one at over 5. On a really personal level, homeowners in jeopardy desperately need a break – some say the average owner could save as much as $300 a month with creative refinancing. Banks, as you might imagine, are not throwing their doors open to help most.

According to a recent Mortgage Bankers Association survey, it looks too like mortgage holders may have given up hope. Applications for these types of loans have dropped substantially of late. Even homeowners who might have otherwise qualified for tight loan restrictions, now seem frustrated. But, is the real estate situation the prime destabilizing fixture preventing recovery, as Obama suggests? Hardly.

Worker performs key weld in auto plant - courtesy © varlamov - Fotolia.com

While pundits of globalization, even the New York Times, argue still the “service sector” call to new age productivity. America is at its core a place and people that make a living making things. Without marching off into a new era of industrialization evils, the United States simply has to reclaim some overseas job loss. Regaining ALL, would suit the purposes of the people better probably, but logic dictates that broke people cannot buy homes. And service sector jobs simply do not evoke visions of the American Dream.

Face facts understanding that most nail pounding construction workers probably don’t own their own homes either. Master carpenters and superintendents (yes my brother was one and owns a little house), maybe – immigrant plywood toting laborers?

Christina Romer, over at the NYT’s might be better advised to suggest service sector jobs moving offshore, and Americans building things like cars, boats, and airplanes. McDonald’s, Burger King, Wal-Mart, and Dunkin Doughnuts employees will then be places for college students to work out spare book fees, and the real economy may take shape again. By way of shooting down what appears an “elitist” attitude to these issues, let me quote from Romer’s article directly:

“…our earnings from exporting architectural plans for a building in Shanghai are as real as those from exporting cars to Canada.”

Romer’s fequenting to halls of academia at MIT, and outside President Obama’s office as Chairperson of the Council of Economic Advisers, obviously never led her to the part of America where people actually break a sweat. If I ever read a more obtuse statement, I am not sure I can recall. MIT grads might easily export their architectural draftsmanship and creativity to some far off land, but average America does not attend school in Massachusetts, at Cal Berkeley, or even William & Mary. Romer goes on to suggest the effects of more manufacturing in the US would prove negligible to overall employment – the economy.

I’ll leave off painting Ms. Romer further, The Curmudgeon does a superb Picasso number here detailing her as a political economic theorist along with those who exercise her train of thought and practice. Meanwhile, Floyd Norris, also at the New York Times, talks about Manufacturing as one bright ray of hope in America. For the first time, in a very long time, the Labor Department speaks of the sector adding jobs, at a time when the country needs them most.

Still, Manufacturing in the US, where employment is concerned, is 40% behind where it was before 1980. Still reading Norris’ article will go along way to finishing off Romer’s marginalizing Manufacturing as a significant remedy economically. America is still, a massive force here worldwide, exports being in excess of $1 trillion a year. As for mad economic scientists? 7 hard days of work, especially in a steel mill, would serve each-and-every-one-of-them well. Detached scientific theory is as out of place in a crisis as anything.

Mad scientist image courtesy © Yael Weiss – Fotolia.com

For buyers the feeling is good, but for sellers...

While buyers have every reason to feel optimistic about housing in 2012 (after all, now is a great time to buy), the sentiment of sellers has fallen to a record low, according to a new report in Housing Wire.

The Mortgage Bankers Association apparently believes that home sellers are unhappy, as they are unable to get the kind of price they would like for their properties.

According to the MBA, a significant gap is growing between the estimations of buyers and sellers that is unlikely to narrow for some time.

From 1992 until 2005, seller sentiment hovered fairly high at between 40% and 60%, reports Housing Wire. However, seller sentiment crashed along with the rest of real estate, falling to just 7.6% by the end of 2005. On the other hand, buyer sentiment has stayed at a high level in spite of the poor economy and high unemployment levels. Even now, almost 80% of US households believe now is a good time to buy property.

With home values dropping in recent years, the majority of sellers are unwilling to budge on their own home’s valuation to reflect the current market price. The reason? Because numerous sellers are underwater on their mortgages. Almost 20% of mortgage holders across the US are thought to be underwater, owing more to their lenders than the value of their home. In addition, many sellers are beginning to realize that there are benefits to be had in holding out for a better price, writes Gary Engelhardt, an economics professor who authored the MBA report.

Engelhardt predicted that these factors could hold prices high enough to create a big gap between seller’s and buyer’s sentiments, which could be further exacerbated by the continuing low level of unemployment.

Image © Still Representation – Fotolia.com

Appraisals are hurting real estate markets © James Martin - Fotolia.com

Mortgage lenders these days are apparently demanding even more thorough appraisals than before, and this in turn leads appraisers feeling they are required to pull sales, which may or may not included short sales and sales of foreclosed homes. It used to be that appraisers could cite just two or three recently sold properties, but nowadays mortgage lenders are asking for two or three times as many, according to the Mortgage Bankers Association president, Dave Stevens.

The problem according to Stevens is that appraisers often feel forced to value homes at lower prices than what the already accepted offer is. This is happening more and more frequently, claims SmartMoney, and the result is that either the seller must reduce his or her asking price, or the buyer has to shell out more than the appraised value.

According to data provided by the NAR, for the three months up until October 1^st, 13% of real estate professionals claim that they had to renegotiate contracts following a low appraisal.

SmartMoney notes that buyers are recommended to insert a clause into any contract they make, stating that they will be able to receive their down payment back if they are unable to obtain financing, or if the appraised value of the home is less than what is indicated in the contract.

The refinance index saw an increase of 7.8%, while the real gauge for mortgage requests, the purchase index, jumped up by 5.1%.

Mortgage applications rise by over 7%. Image courtesy of http://www.londonideabank.com

According to MBA research and economics vice president Michael Fratantoni:

“Treasury rates plummeted more than 20 basis points last week as all eyes were focused on the debt ceiling negotiations in Washington, and economic data depicted much slower than anticipated economic growth,”

He went on to point out that mortgage rates had also dropped, with 15-year mortgage rates reaching their lowest point.

“The volume of refinance applications also rose,” he added, “but while the rates for 30-year mortgages are once again below 4.5%, the refinance index is still down 30% from the previous year’s level.”

The Mortgage Bankers Association

The MBA defined the current purchase index as “weak by historical standards”, as borrowers are still heavily restricted by a weak job market and negative equity, it explained.

According to them, the seasonally adjusted market index’s four week moving average is up 2.8%, while the seasonally adjusted purchase index rose by 4.2%. Meanwhile, the portion of mortgage applications tied to refinancing also grew, from 69.6% a week before to 70.1% at the end of last week. The share of mortgages tied to the adjustable-rate also rose, from 6.1% to 6.6%.

Many mortgage lenders are still practising "robo-signing", say Reuters. Image courtesy of Take Your Home Back

Their investigation has found that many loan providers are continuing to file foreclosure documents that have been improperly read or checked. It has found at least half a dozen so-called robo-signers who have signed thousands of mortgage assignments in recent months.

These are the documents which prove who owns a mortgage once it is sold by the original lender. These robo-signers have already been identified in court rulings and depositions as having signed foreclosure documents without reading or checking them. Apparently they are still continuing with this practice.

Apparently recent federal settlements haven’t deterred lenders, as the majority of those facing foreclosure are delinquent borrowers. Experts are advising homeowners to contest incorrectly filed foreclosure papers  to protect their rights.

Judges are more likely to dismiss foreclosures based on incorrect paperwork as a violation of the homeowner's property rights. Image courtesy of Cardinal Point Reva

Just four short months ago the federal bank regulators signed settlements with 14 loan services, who as part of the settlement had to promise internal investigations would be carried out and that they would stop the filing of false documents. Unfortunately the Reuters investigation has found that at least five of the companies involved have filed foreclosure papers which may be incorrect.

These companies include Bank of America, HSBC Bank USA and Wells Fargo. According to the banks they stopped this practice last fall and they deny filing any false documents since this time. The banks believe that their foreclosures are legitimate, although they concur there may be a small number of cases that are coming in for criticism due to misinterpretation of the law.

While most bankers and judges believe that people should pay their loans or face losing their property, increasingly judges are ruling that foreclosure based on flawed or incorrectly filed evidence violates long-standing laws protecting people’s property rights.

US mortgage debts are on the way down to more manageable levels. Courtesy of Commercial Second-Mortgage

Apparently, there are a number of contributing factors to the reduction of the US’s yearly mortgage debt, such as refinancing of mortgages, lower interest rates and homeowners choosing to default so they can reduce the amount they owe.

The amount of mortgage debt shaved in the last year, $100 billion, is equal to the amount that the US government pays in unemployment benefits every year.

Mortgage interest payments have also been trimmed down to just $67 billion annually, says the Bureau of Economic Analysis (BEA), which amounts to a reduction of almost 11% since 2008. The total amount of mortgage debt also hit its peak this year; $11 trillion, which has since been slashed down to only $10.3 trillion.

Lower interest rates are one reason for the reduced US mortgage debt. Courtesy of Secondhome-Mortgage

According to Micheal Frantantoni, a Mortgage Bankers Association economist, “Homeowners are bringing their debts down by putting cash on the table, which allows them to qualify for the lowest rates.”

“This is a big change from what we saw in the housing bubble, when buyers were taking out mortgages that left them with money to spare.”

Still, while the US overall is seeing its mortgage debt situation improving, things are not looking so bright for many American homeowners. Nearly 9% of borrowers still face huge problems meeting their mortgage debts and cannot meet payments, while another 4.6% remain threatened with foreclosure.

Home ownership isn't so tempting now. Image courtesy of Inside Real Estate

Pauli, 31, a property manager, recently signed a new one year lease on the home she rents in Fair Oaks, Cal. turned down the chance to buy.

“It’s simply not worth it,” she explained. “I’ve seen people whose homes have had their value sliced in half, and I’ve seen a few people lose their homes too”.

With the housing collapse now into its fifth year, there is a big drop in the number of people who consider a home a safe investment. At the end of last year, only 64% of respondents thought so compared with 83% in 2003.

Buying risk. Image courtesy of Short Sale Foreclosure Blog

According to Michael Lea, a San Diego State University finance professor, the whole magnitude of the housing collapse has changed the way many people view ownership permanently.

“Even though the economy is getting better, many people have simply lost confidence in it now, and won’t ever buy a home,” he theorized.

It seems that a lot of people have finally realized that no matter what the situation is, investing in a home is not risk-free. As Michelle Meyer, an economist with the Bank of America Merrill Lynch Global Research organization says, “We all know someone who has got into trouble with their mortgage, or someone who cannot sell their home.”

At the end of last year, more than 11 million homes in the U.S. were valued at less than their mortgages, while another 2.4 million borrowers are on less than 5% equity, meaning any more prices drops will put them underwater. Altogether, this amounts to 28% of mortgaged residences in the country.

Home ownership is going down. Image

The future doesn’t look that great either, according to one survey, which showed the number of Americans planning to buy a home tumbling by 23% in the last month, says the research firm Conference Board.

Not everyone agrees though. The Mortgage Bankers Association told us that it expects buying activity to pick up again once the job market improves. “This will lead to a greater willingness to purchase,” they said recently.

One reason for this confidence is that borrowing costs are cheaper than most people can remember. According to Freddie Mac, a financier based in Virginia, a 30 year mortgage in the U.S. right now is just 4.84%, just up from 4.69% in 2010, which was the lowest rate since 1972.

Homes are not selling. Image courtesy of Live Trading News

Borrowing costs are expected to shoot back up again, starting now, and so now is an amazing time to buy property, says Robert Stein of First Trust Portfolios LP. He thinks that a lot of people will kick themselves if they don’t buy now while the time is right.

However, it seems that cheap financing alone is not enough to nudge buyers into action. As Federal Reserve Chairman Ben Bernanke points out, “Many lenders are being more selective about who they loan money to.”

“Mortagages are difficult to obtain right now, and many people are still worried about further declines in property prices,” explained Bernanke.

Making matters worse, the rules may be tightended up even more if Fedearl Regulators get their way. Among the new rules they are proposing is that bond issuers and banks will have to keep a stake in any mortgages they provide security on, if the borrower has a poor credit history, or cannot afford a 20% down payment.

Interest rates are at record lows. Image courtesy of Bankaim

That means that anyone not meeting the new criteria would be faced with paying higher interest rates.

The fact that the present administration are also considering phasing out Fannie Mae and Freddie Mac presents a risk of further increasing home ownership costs. The two companies have historically held interest rates in check, and so their elimination could see things spiral out of control, thinks Richard De Kaser, from the Boston-based Parthenon Group.

Current home ownership statistics probably spell out the true situation better than anyone else can explain things. The latest figures from the Census Department show that the rate of home owners in the U.S. has dropped to its lowest level in a decade, just 66.5%.

Professor Michael Lea. Image courtesy of San Diego Metro

This rate is expected to drop even further, according to Prof. Lea in San Diego. He said he expects the rate will drop by at least another point in the next year or two.

“While many people may still aspire to home ownership, they will also be a lot more realistic,” says the professor.

Not so in the case of our California renter Ms. Pauli though. Paying just $1,500 a month for a three bedroom home, compared with the $2,800 average payments that her neighbors who bought their homes pre-2007, has showed her that buying is just not worth the risk.

“Even with housing prices so low right now, I just can’t see myself buying,” she told us. “I prefer being able to sleep at night rather than worrying about the price of my home.”