Housing Market Declining and Improving At the Same Time?

The construction industry is not doing well, but does that mean the market is down?

Alright, it’s 10am CST. I have already read five conflicting headlines with respect to the housing market today:

1. “Housing Starts Hurt by Steep Drop in Apartment Building” – NYTimes

2. “Sales Drop 10%, But Home Depot Tops Forecasts” – NYTimes

3. “Builder Sentiment High on Affordability” – HousingWire.com

4. “Housing Starts Declined in April” – Wall Street Journal

5. “Signs of Optimism — Home Prices Rise” – Union-Tribune

So which is it?

These headlines, all from reputed publications, perhaps indicate the extent to which the market is saturated with housing news, as well as the vast amount of confusion in regards to which the direction the housing market is actually heading in. While it would certainly be easy to write about any one of these pieces, doing so would only steer your opinion in whatever direction the story I discussed took.

The data can be used to defend any viewpoint: Home Depot is doing well, Lowes is doing poorly. Housing starts for apartment buildings are on the decline. Housing starts for single family homes are stable. Housing prices are rising in some areas. The market still has not rebounded in others. The question is, which indicator do you deem to be the most important?

Or should we simply be acknowledging that it is too early to predict the rise or fall of the housing market with any certainty?

This Week’s Reverse Mortgage Rates: May 19, 2009

This week’s reverse mortgage rates are below. These rates are effective for the week beginning May 19, 2009.

APR:

HECM 300: 3.52

HECM 325: 3.77

HECM 350: 4.02

HECM LIBOR 250: 2.828

HECM LIBOR 275: 3.078

HECM LIBOR 300: 3.328

Expected Rates:

HECM 300: 6.39

HECM 325: 6.64

HECM 350: 6.89

HECM LIBOR 250: 5.26

HECM LIBOR 275: 6.01

HECM LIBOR 300: 6.26

Minorities Disproportionately Affected By NY Foreclosures

The NYTimes published a very interesting article this weekend documenting how minorities have been disporportionately affected by foreclosures in NY. The article points to systematic abuses within the system that appear to be partly responsible for the split along racial lines, and can hopefully be prevented in the future.

85% of the worst hit neighborhoods in the New York Metropolitan Area are predominantly black or hispanic. These neighborhoods are areas where the foreclosure rate is at least double the regional average. However, perhaps more surprising and troubling is that the crisis is affecting the African American middle class more than the lower classes. Black households making over $68,000 a year annually are more than five times as likely to hold a subprime mortgage than whites of similar or even lower incomes. These mortgages are the ones most affected when the housing bubble burst.

Furthermore, the African American lending universe is generally constituted of about a dozen banks and lenders, constituting half the loans given to black middle income borrowers in 2005 and 2006. The terms of these loans were generally less favorable and more risky, with costs that can vary by thousands of dollars depending on the variability of the interest rate. Furthermore, 33% of the subprime loans given out to borrowers in 2007 went to borrowers with credit scores that should have been high enough to qualify them for a conventional loan. There is normally a three percent interest rate difference between subprime and conventional loans, which can add up to a difference of tens of thousands of dollars for the consumer. The NYTimes points to a $272,000 difference in the interest on a $350,000 loan. They also mention well-off African Americans with nine to eleven percent annual interest rates on their mortgages, rates that are surprisingly high for the group.

Now in NY, whole neighborhoods are under assault. Fears of disinvestment are climbing, as homes once owned are becoming rental properties and vacancies increase.

What strikes me so strongly about this story is that it seems like a strong case of discrimination. While part of the problem stems from members of the African American community not trusting traditional banks in the wake of decades of discrimination, pushing them to subprime lenders, part of the problem is that it appears that these populations were particularly targeted with unfavorable terms and loans. Now, we are seeing the consequences and these are the neighborhoods that will be most affected. There is a direct correlation between the increase in the number of foreclosures and an increase in violent crime, making the situation only more dire.

These lenders need to be held responsible, hopefully many of these borrowers will be able to get their mortgages refinanced, and hopefully the city and the country will take steps to ensure that this kind of racial discrimination in the loan market does not continue.

Seniors Over 65 Least Affected by the Recession

more seniors are in the workforce

According to a poll released by the Pew Research Center today, Americans over the age of 65 are suffering the least during the recession. Fewer seniors reported trouble making rent or mortgage payments or being forced to cut back on household expenses. In addition, only 7 percent reported trouble finding health care (a third of the percentage of younger adults), and only 23 percent reported losing more than 20 percent of their investments last year, well below the numbers of those younger.

Finally, the number of seniors with jobs increased by 3.9 percent. While the rise in the number of seniors in the workforce may indicate that some were forced back to work, at least they were able to find jobs. In fact, in the current economic climate, the younger the worker is, the least likely they are to be laid off.

Some analysts appear unsurprised that seniors have fared well. Their lifestyles are often already scaled back, and their investments are generally more conservative than their younger counterparts. Nonetheless, it is good news.

Housing-Rescue Plan to Make Short Sales Easier

Obama unveils the first part of his housing rescue plan in February.

The additions to Obama’s housing plan that were laid out on Thursday are designed to make it easier for homeowners to sell houses that are worth less than their mortgages. The initiative will help incentivize short sales as well as “deed in lieu” transactions. These proposals will hopefully help assist borrowers who cannot be helped by a loan modification.

“The government will pay mortgage-servicing companies up to $1,000 and borrowers up to $1,500 for successful short sales or “deeds in lieu” transactions.”(WSJ) The government will also spend up to $1,000 to help get the holders of second mortgages to release their liens so the short sales or “deeds in lieu” transaction can be completed. In addition, additional payments will be provided to lenders, servicers, and investors in areas where home prices have been dropping to assist with loan modifications. These funds will hopefully help make investors feel more comfortable modifying loans, rather than being overly concerned that they will face additional losses if the modified loans redefault.

So far 75% of loans are currently being covered by the plan, including those by Bank of America, Citigroup, J.P. Morgan Chase and Wells Fargo. Other companies are evaluating whether they wish to participate.

Given that short sales have accounted for 15-20% of existing home sales this year according to the National Association of Realtors, this new program should provide benefits to investors, lenders, servicers and borrowers looking to sell homes or find other ways out of underwater mortgages and tough financial situations. Hopefully it will help make short sales easier to complete and make foreclosure easier to avoid.

If the popularity of the loan modification plan unveiled by the administration nearly three months ago is any indication, this program should be a huge success.

The plan also has positive ramifications for the reverse mortgage industry due to the new HECM for Purchase program. Negotiating a short sale is often part of the process of a reverse mortgage when the borrower is trying to avoid a foreclosure or underwater on their previous mortgage. Hopefully, this plan will make reverse mortgages that fall into this category easier to obtain as well.

Grandma’s House and Reverse Mortgages

A house currently on the market in my grandma's neighborhood

A house near Grandma's house

My grandmother enjoys telling the story of how I helped them find their new home. I was about 10 at the time, and they were looking at a house in an area of Riverdale called Fieldston, near what would become my high school. I don’t remember all the details, but when I saw the house, I told them that they should buy it and then the whole family could move in. I found rooms for my cousins, my aunts and uncles, my parents, and my brother and I. The house is not that large, but again, I was 10. And it was cozy and gorgeous.

As the years passed, I have a lot of great memories of my time spent there. I remember watching the Clinton impeachment trial from the study and my first experience with the Romance channel. There were family gatherings, tea, chamber music and split pea soup. And I remember, more than 12 years later, going back for the reception after my grandfather’s funeral.

It’s amazing how a place can have so many memmories, and a memoir, essay, or post could probably be written about each of them. And when I first heard about reverse mortgages, it was my grandmother’s house that I thought of first. Because so many of the stories in our family are tied to places, like The House in Stockbridge and The House on River Road, and, as I grow up, those are the stories I want to tell my children. Those are the homes I want to show them, so I can say “Look, this is where I grew up.”

I am young. I have very little idea of anyone’s financial situations and could never dream of making a reverse mortgage calculation. And, due to my love of the house and its high property value, I don’t know what I’d choose to do were I the one mulling over the reverse mortgage option. But any time I see a photo of a “grandma’s house,” I’m glad a program like this exists that can help keep grandparents in their homes should they choose to stay there.

Median Housing Price Falls in the First Quarter

The median price for a home in the US fell to $169,000 in the first quarter, according to a report released by the National Association of Realtors. The number represents a 14% drop from a year earlier. Median prices in metropolitan areas ranged from a low of $30,300 in Saginaw, MI to 570,000 in Honolulu, HI. The median price has been pulled down due to a number of factors including the surge of first-time homebuyers into the market and the large number of foreclosures being sold.

While it is very tempting to see these statistics as quite negative, they also come with some positives. Yes, it is disconcerting to see the value of homes decline. Yesterday we discussed the large number of people who are underwater on their mortgages, and declining home values will only serve to exacerbate the problem. However, the influx of new buyers into the market is a positive sign for the industry. New buyers will likely remain in the market, turning people who used to rent into prospective buyers and sellers. The ultimate increase of prospective buyers should increase the demand within the market, leading to a stronger market in the long run.

16 Fees You May Be Charged in a Reverse Mortgage

Reverse Mortgages are sometimes stereotyped as being high in fees. While the cost of getting a reverse mortgage is generally the same as that of getting a traditional mortgage on a new home, some of the fee names may seem unfamiliar. For more information on fees, please see fees. In the meantime, a laundry list of some common fee names is below:

1. Appraisal Fee

2. HECM Counseling Fee

3. FHA Reverse Mortgage Insurance

4. Loan Origination Fee

5. Title Settlement Fee

6. Title Insurance

7. Title Exam

8. Recording Fees

9. Wire Fee

10. Title Delivery

11. Flood Cert

12. Credit Report

13. Doc Prep Fee

14. Title Notary Fees

15. Flood Insurance (if you live in a flood zone)

16. Any Repair Cost

This Week’s Reverse Mortgage Rates: May 12, 2009

This week’s reverse mortgage rates are below. The rates go into effect on May 12, 2009. The rates indicate that the CMT is higher than it was last week, while the LIBOR has fallen.

HECM 300: 3.53

HECM 325: 3.78

HECM 350: 4.03

HECM Libor 225: 2.618

HECM Libor 250: 2.868

HECM Libor 275: 3.118

HECM Libor 300: 3.368