© spectrumblue – Fotolia.com

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.

As Zillow puts it, Zillow Mortgage Marketplace for iPad has reinvented mortgage shopping by providing easy-to-use mortgage calculators and lively charts and graphics that make for an engaging and comprehensive experience for everyone in the market for a new home loan. Easily find out what you can afford or whether refinancing your existing home loan is the right financial decision for you all at the tap of a finger. Functions for the Zillow Mortgage Marketplace App for iPad include:

• The ability to calculate the feasibility, and customized monthly mortgage payments and refinancing costs depending on your unique situation

• The ability to shop current mortgage rates and anonymously request a loan request or more information

• Compare personalized mortgage quotes from various home loan lenders

• Easy-access to over 20,000 home loan lender ratings and reviews from real-time customers

• The ability to connect with preferred Zillow lenders who have the capability to pre-approve you before your home search even begins.

For more information on the Zillow Mortgage Marketplace App for iPad or other great Zillow real estate Apps, visit Zillow.com, or better yet, simply download it today!

Encouraging news for US real estate © CaptainScott – Fotolia.com

First, the national median price of existing homes rose in July with five back-to-back months of year-over-year increases. The number of existing single-family homes, townhouses, condos, and co-ops grew 2.3 percent from 4.37 million in June to 4.47 million in July. When comparing this July to last July, the increase is 10.4 percent.

“Mortgage interest rates have been at record lows this year while rents have been rising at faster rates, said Lawrence Yun, NAR chief economist.  “Combined, these factors are helping to unleash a pent-up demand,” he said.  “However, the market is constrained by unnecessarily tight lending standards and shrinking inventory supplies, so housing could easily be much stronger without these abnormal frictions.”

Equally encouraging is the fact that houses are selling more quickly. In July 2011, the median time for a U.S. house to sit on the market was 98 days. For July this year, it’s about a month less at 69 days.

“Our current forecast is for the median existing home price to rise 4.5 to 5 percent this year and about 5 percent in 2013, which is somewhat stronger than historic norms because of the inventory shortfall that is most pronounced in the low price ranges,” Yun said.

Reports are also strong from the hardest-hit states like California, Nevada, Arizona and Florida, where home values took severe nosedives over the past five years.

For example, the California Association of Realtors reports the statewide median price of a single-family home in July 2012 shot up 12.7 percent over July 2011.

“The strong performance in the median price over the past few months reflects a sales shift away from homes in the lower price ranges of the market due to stark inventory toward sales of homes priced above $500,000,” said C.A.R. Vice President and Chief Economist Leslie Appleton-Young. “As an example, in July, sales of homes priced below $200,000 declined 9.4 percent from the previous year, and homes priced above $500,000 climbed 27.7 percent from a year ago.”

The Home Depot corroborates the upswing. Sales at the country’s largest home-improvement retailer jumped 12 percent in the second quarter of 2012 (April, May and June). Sales of paint, bathroom accessories and kitchen installations contributed to the boost.

Michele Dawson is a freelance writer based in Phoenix, Arizona. She spent seven years as a newspaper reporter and has written for various magazines and web sites specializing in real estate and home improvement, including Realty Times, SmartHomeowner, California Builder, and the Sacramento Business Journal.

The government now has a monopoly on real estate © alswart – Fotolia.com

In a video piece posted on Mortgage News Daily, Diana Olick relates the numbers as they now apply to the mortgage industry, 4 years after the industry melted-down under the weight of over valued, over financed home mortgages. A scenario that years of poorly constructed government policy helped to create in the first place.

Consider the following from Olick’s report: In 2007 private investment capital totaled about $2.2 TRILLION dollars, or about 70% of the capital in the mortgage market, with Fannie and Freddie at 27% and FHA at 3%. But today, Fannie, Freddie and FHA control 90% of the mortgage market, and according to the American Enterprise Institute, FHA is insuring 90% of all new mortgages. What this means in practical terms is that government is developing a near monopoly on consumer debt.

The government would have us believe that they are doing everything they can to bring private capital back into the mortgage market, but clearly, this is not the case. The American Enterprise Institute is referring to this new state of affairs in the housing industry as the “Government Mortgage Complex“.

Unlike 2008, another housing collapse or severe downturn would mean that the brunt of the losses would be borne by the U.S. taxpayers, who’ve already coughed up hundreds of billions of dollars to help save the very entities that are now running the show.

Investors have left the market partly because of the extremely low return on investment for the risk that is involved. With interest rates below 4%, the private sector simply does not want to accept the risk for the potential reward. Government run entities on the other hand, unlike private companies, don’t risk their own capital, they just pass that risk along to the taxpayers.

U.S. monetary policy is one of the factors driving this trend. In the past, the low interest rate policies of the FED helped revive the economy by encouraging home sales, but this time the policy has not worked the way it has in the past.

If the market were not being purposely manipulated to keep interest rates low, it is likely that interest rates would exceed 7%. This would certainly attract more private capital to the mortgage market, which is what is needed to make mortgages more widely available and loosen qualifying criteria to standards in line with the risk/reward ratio. It would also help millions of Americans earn desperately needed income on savings and investments.

But U.S. monetary policy will continue to suppress interest rates as long as possible, as rising interest rates would increase costs on the 15 trillion dollar public debt. This could lead to a U.S. default if rates were to rise above 7%. So for now the government mortgage complex will maintain it’s choke hold on the mortgage market, making it harder for anyone to get a mortgage if they can’t jump through the hoops demanded by the bureaucracy.

In a recent case a wealthy investor friend of mine, with lots of income from cash flowing investments failed to qualify for a new mortgage with Wells Fargo, even after offering to put 50% down. The new rules for determining net income from investment cash flow were so convoluted that someone with a net worth of over a million dollars could not qualify for a $300,000 mortgage, even with $150K down! 6 months ago, my doctor told me that she could not qualify for a mortgage at a local bank. The self-employed and those most able to handle the responsibilities of ownership have been severely impacted by the government controlled mortgage industry that continues to offer the most flexibility to those who can least afford to own a home.

As a practical matter, the government may have the ability to fund the mortgage market, but the goverment does not have the expertise necessary to properly evaluate and monitor risks in mortgage lending. It also competes against the private sector by offering lower interest rates on loans with very high loan-to-value ratios, a practice which helped create the existing crisis.

It reminds me of a paraphrase of an old saying…”Any government big enough to fund the entire housing market, is a government big enough to destroy it“.

“Spotlight on the Government’s Growing Monopoly of Consumer Lending and Private Debt: Outstanding consumer debt totals over $12 trillion, constituting 44 percent of all outstanding private debt (both consumer and business). Home mortgages ($9.8 trillion) and student loans ($0.9 trillion) comprise the two largest asset classes within the consumer debt sector.

In 2011, the Government Mortgage Complex accounted for 88 percent of all first-mortgage originations in the United States, with the government also controlling an estimated 90 percent of the student loan market. The government’s growing dominance in the home mortgage and student loan categories is cause for concern, posing a threat to private investors, borrowers, and taxpayers.”

Since the 2008 melt-down, government backed loans have become the dominant player in the housing market. This fact creates a much higher level of risk for the U.S. housing market going forward, as it becomes more and more dependent on government borrowing and public debt.

The Government Now Has A Monopoly On The Mortgage Market

This is the mother of all moral hazard. It’s doing much more of the same thing that got us into the housing bubble originally. Only this time, we’re using government borrowing to fund the mortgage market, instead of private sector investment.

When the government pumps large amounts of money into lending for home mortgages, it’s risking borrowed money, on higher-risk, “low down payment” loans. This in-turn tends to drive home prices higher by making money easier to borrow than it might be in the private sector. If prices begin to rise the tendency is to make more loans at higher and higher prices. After a few years you have a true bubble that is totally dependent on the ability of the government to continue funding it. The government either borrows more and more money, or it may choose to print more dollars. In either case, it’s a model that destined to fail at some point.

Government funded mortgage lending costs borrowers a lot of extra money. In fact, given the low down payments involved, plus the fees added to the cost of these loans, borrowers are much more likely to end up “under water” or in default on these loans.

There are lots of important points that are made in the FHA Watch about the insolvency of FHA, with their government accounting schemes that would be illegal in the private sector. It’s FHA Insurance that backs the vast majority of these mortgages.

FHA pays off on claims filed by lenders who have a mortgage loan that goes into foreclosure. When the lender files a claim for FHA insurance, it’s the taxpayers who actually pay the claim. Since 2008, FHA’s total delinquency rate has grown to almost 16%. That’s compared to the historical pre-boom norm of about 3.5%.

This amounts to billions in potential future losses and new public sector risk, being created on a monthly basis. In short, we are propping up the housing market with money the government has mostly borrowed. This also diverts billions in funds that would otherwise be available for lending in the private sector.

In effect the government’s attempts to prop-up the housing market could be our un-doing, because of the risk that’s being taken on – financing high risk loans with borrowed funds.

The government expansion into mortgage lending has been dramatic. On January 1, 2008, government lending stood at 40% of all mortgages. Today it’s 88% of all new mortgages. In just 5 years, private sector investment has been all but replaced with a government controlled mortgage market for the vast majority of potential home buyers.

A government big enough to fund the entire mortgage market is a government that will either totally control the housing sector or totally destroy it, or both.
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Donna S. Robinson is a 16 year veteran of the real estate industry. She offers real estate investment consulting, analysis and training for real estate investors. Her website is www.RealtyBizConsulting.com

For many borrowers, having a down payment isn't enough © Scanrail - Fotolia.com

The report was compiled by the Federal Reserve, following a survey of major lenders in the US, and found that banks were much less likely to grant a mortgage to borrowers than they were back in 2006, before the market crashed, reported the New York Times.

Looking at the example of a borrower with a FICO credit score of 620 and a 10% down payment, the report found that the majority of banks were unlikely to issue a mortgage to any individual in this situation.

For borrowers with a FICO score of 680, the report states that moderate net fraction of banks were less likely now than in 2006 to issue a mortgage, irrespective of any down payment.

Furthermore, the report states that even borrowers with a FICO score of 720 could struggle to get accepted for a loan, as, compared to 2006, “a modest net fraction of banks were less likely to originate loans to borrowers with a FICO score of 720 and a 10 percent down payment.”

However, survey respondents did indicate that the likelihood of a loan being issued in the case of a 720 FICO score would increase if the borrower was able to put up a deposit of 20% or more.

The report underlines the general perception that while mortgages continue to be offered at record low rates, numerous home buyers cannot get accepted for one, and even those who do find they cannot qualify for the lowest rates.

In its analysis of the report, the New York Times explained that borrowers with a FICO score of 720 would likely receive a loan at 3.70% interest, for a standard $300,000 fixed rate mortgage over 30-years. Meanwhile, a borrower with a FICO score of 620 would likely be offered a 5.07% mortgage interest rate, which amounts to an extra $242 a month on their mortgage repayment.

© Daniel Ernst - Fotolia.com

The new home owners grab their keys and excitedly move in. But there is more to this story, and it’s the part that few first time buyers ever really understand. It’s about what really happens when you buy a home using a typical mortgage loan.

A buyer will sign a lot of documents during the closing, and the attorney presiding over the closing explains each one briefly to the buyer. But the closing attorney (or title company) is usually working on behalf of the lender. While they will tell the buyer what they are signing, in general terms only, they will not explain the details of what impact these documents will have on the buyer. Buyer’s don’t usually bring their own attorney to a closing, so they shrug off those general details and sign away.

In Georgia, the closing attorneys often say: “If you don’t pay, you don’t stay“, when explaining the documents as the buyer signs the stack of “loan papers”. But what the buyer is actually doing is signing the deed to their new home back over to the lender, as collateral for their loan.

In states that practice “non-judicial” foreclosure, including Georgia, Arizona, California, Michigan, Nevada and about 25 others, the buyer actually signs their deed to the property over to the mortgage company, who then agrees to give that ownership back when the buyer meets the terms of the note. The primary action the buyer is engaging in is”mortgaging the property”. A Security Deed means that a buyer is granting property title to the lender. It also comes with a “Power of Attorney” the buyer must sign, granting the lender the right to repossess the property if the buyer becomes in default of the loan contract, simply by advertising their “intent to foreclose”, for 30 days in the local newspaper.

In non-judicial foreclosure states, a foreclosure can be completed from start to finish in a 30 day window. Generally it’s about two months from foreclosure notice, to actual courthouse auction.

And then there’s that note you signed, with the payment terms such as the amount of the monthly payment and the interest rate. But what really happens with the interest on that home loan you just got?

Let’s say your credit is average. Chances are your interest rate will be around 5%. Not quite the really low advertised rate, but lower than they’ve been historically. Anyway, buyers don’t give a lot of thought to how those interest rates are actually calculated or how they get paid out. It’s all in the “amortization schedule” you should receive with your closing documents, but that’s just a big string of numbers; who wants to read that anyway?

For example, let’s say you are borrowing $150,000, at 5% interest for 30 years, after paying 5% down, on an FHA insured loan, which allows for your lower down payment amount. Your principal and interest payment will be $805.23 per month.

You will also have an additional amount added to your mortgage payment to cover your property taxes and your insurance. These will vary significantly depending on the location of the home, and the type of property you have. But for this example, let’s say that they total $1,500 per year for property taxes, and $700 per year for homeowners insurance. Add them together – $2,200 and divide by 12 months = $183.33

So, your Principal, Interest, Taxes and Insurance payment, (your PITI) will be $988.56 per month. For 30 years. And don’t forget that FHA funding fee, to help cover the cost of FHA insurance claims. It’s been raised in 2012 due to higher default rates, so, you’ll pay an up front fee to FHA, and roughly $20 per month for our $150K loan. That comes to about $240 per year for Private Mortgage Insurance.

The real reason most folks are underwater on a home they’ve owned for 10 years or even longer, is the fact that interest on your loan is collected on the front end. When you first start paying on your loan, your payment will be allocated mostly to interest for the lender. Only a very small portion will be used to pay down your actual loan. This is called “amortization” and it’s the big reason why someone can pay on a home for years and still owe much more than the home is worth.

With mortgage amortization you’ll pay on a 30 year mortgage for about 18 to 20 years before you actually begin paying more in loan principal, than you are paying in interest. For almost 20 years, the lender collects interest first, leaving you to pay down your loan from year 20 to year 30.

If you had bought your home in December of 2000, with the first payment of $805.23 for principal and interest, you’d pay $625 for interest, and $180.23 paid towards the loan balance itself. By 2010 you would have paid over $63,000 in interest, about $25,000 on your loan balance, FHA fees of $2400, along with taxes and insurance payments totaling about $22,000.

During that time you paid an estimated $112,400 in mortgage payments. You paid down a total of $25,000 on your loan balance, leaving you owing a loan balance of $125,000. And to boot, by the time you had paid that much, the market had tanked, and your home has dropped from a value of $150,000 down to about $100,000, or less.

This is the primary reason why so many homeowners are in trouble. Mortgage Amortization insures that the lender will collect the vast majority of their interest first. This is because that 5% interest rate on your mortgage is calculated as 5% of the ENTIRE balance for each year. If you owe $150,000 in year one you’ll pay about $7449 in year one, just for interest. If your interest rate were to jump a mere 1%, in the above example, it would add another $33,000 in interest to the cost of your loan.

The idea is that you are paying your interest rate on the entire balance, every single year, so the interest expense for the first twenty years is likely to be more than the entire amount you originally borrowed.

With interest rates below 5% for the best credit, and housing prices in some areas actually lower than the cost to build new, today’s housing market is an incredible value for those who are able to take advantage of it.

But because of the way that loan amortization works, the smart approach is to plan to prepay at least $100 each month on your mortgage principal from the very first mortgage payment. Prepayments must be applied to the loan principal, and will allow you to save tens of thousands of dollars in interest.

You’ll save tons of cash, pay much less for your loan, and you’ll pay down your loan much faster. And best of all, you’ll keep more of your own money, by giving less of it to the bankers. You can win the home ownership game and win big now that you know the mortgage secrets that they hope you don’t know. ***
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 Donna S. Robinson is a 16 year veteran of the real estate industry and a staff writer for Realty Biz News. Get free real estate investing lessons, and receive notices on hot investment properties by joining her email list on her website at www.RealtyBizConsulting.com  

First time buyers © Monart Design - Fotolia.com

Read on to learn 10 basic things you should know before buying a home.

1. Find out how much you can afford.

Many experts recommend buying a house that costs no more than two-and-one-half times your annual income. Banks offer favorable rates if your mortgage, property taxes and insurance equal no more than 28 percent of your income. Online calculators will show how debts, income and expenses affect the amount of house you can afford.

2. Address any problems with your credit rating.

Buyers with high credit scores will get the lowest interest rates. Lenders usually consult the three major credit bureaus when evaluating your credit history. Get a free copy of all three reports at AnnualCreditReport.com, and dispute any inaccurate information.

3. Know the difference between fixed- and adjustable-rate mortgages.

Most first-time buyers opt for a fixed-rate mortgage, which has an interest rate that stays constant for the term of the loan. An adjustable-rate mortgage, or ARM, offers lower rates during the early portion of the loan. While an ARM lets you take advantage of falling rates, it also exposes you to higher payments when interest rates rise.

4. Realize that prequalification is only the first step.

Prequalification means that you are qualified for to be approved for a mortgage. Preapproval is a more rigorous process that will make sellers and real estate agents take you seriously.

5. Understand that you may qualify for a mortgage with a small down payment.

A smaller down payment and good credit rating will qualify you for a mortgage in many markets. Banks often extend mortgages to buyers who can put down only 5 or 10 percent.

6. Learn about private mortgage insurance.

You must buy this insurance when you make a down payment of less than 20 percent. Find out how much this insurance will cost and whether additional fees are required. Ask your lender what conditions must be met before you can stop making insurance payments.

7. Shore up your savings account.

Your lender will like to see four or five months’ worth of mortgage payments in your savings account. The money will come in handy if you are hit with large repair bills.

8. Consider paying points.

You may have the option to pay extra points in exchange for a lower interest rate. Experts recommend that you pay the points if you plan to own your home for at least three to five years.

9. Negotiate for a more favorable rate.

Understand that mortgage rates are negotiable. If you have assets and good credit, you are in a good position to bargain for a better rate.

10. Look carefully at closing costs.

Examine the Good Faith Estimate put together by your mortgage provider to help you predict closing expenses. Ask about fees that seem unusual.

London real estate prices set to rise © fazon - Fotolia.com

Cluttons is expecting growth rates for prime real estate property in London to remain well above the national average, as housing prices grew by around 9% last year and have continued to increase this year. This is largely due to a lack of supply as more homeowners are choosing to take a longer term view. There has also been an increase in the number of Greek and Italian home buyers seeking the security provided by London property. The lack of supply is pushing housing prices up by as much as 10% over the asking prices, and is even affecting properties in the secondary market. Until recently these properties had languished on the market for long periods of time, but are now achieving prices of up to 5% more than the asking price.

In spite of the optimistic outlook for London property, Cluttons residential property forecasts for the first quarter of 2012 paints a mixed picture for the rest of the country. Recent economic news has been more optimistic due to an increase in retail sales and business output, while the government balance of payments surplus  currently has a four-year high. These factors have helped improve business and consumer confidence, and inflation is also falling. GDP is expected to increase by 0.7% this year, with much of the growth expected to be seen during the latter half, but the economy is still fragile due to continuing difficulties in Europe.

In recent years the UK housing market has been protected by a lack of supply, in spite of weak demand and low consumer confidence. It’s also been helped by historically low base mortgage rates which have remained at 0.5% for three years. However unemployment is predicted to reach 9.4% this year, and could have the knock-on effect of suppressing overall housing sales and increasing the number of distress sales.

This is one of the factors on which Cluttons is basing its predictions of price falls during this year. From next year onwards, it is predicting annual growth rates of 2% until 2016, but does point out there will be significant regional variations, with larger price gains expected to be seen in the south-east.

Federal Reserve has done all it can to help, but even that wasn't enough © Aaron Kohr - Fotolia.com

Officials from the Fed, along with several economists and representatives from a number of foreign central banks, recently met at the US Monetary Policy Forum to discuss the continued effect the housing crisis is having on the US economy. The general consensus from the meeting was that there was little more the Fed could do to help, reported CNN Money.

History shows that during hard times, the Fed can lend assistance to the housing market by reducing interest rates and consequently, lower mortgage rates to help borrowers. However, this unprecedented housing crisis has already seen interest rates reduced to near zero, and mortgage rates are lower than they’ve ever been before – but even that isn’t enough to pick things up.

Friday’s meeting discussed the possibility of reducing interest rates even further, through something called quantitative easing – which involves unconventional methods such as asset purchases – but it was thought that such a move would have little impact as most borrowers able to qualify for the lower interest rates have already refinanced their mortgages.

Michael Feroli, an economist with JPMorgan Chase, told CNN Money that the problem was pretty much out of the Fed’s hands.

“Housing cannot be easily addressed by monetary policy,” insisted Feroli.

James Bullard of the St. Louis Fed agreed, adding that “To the extent that you would have policies that are going to help the housing market, they’re not going to come from monetary policy makers.”