Market Update For the week of March 16, 2009

Keeping you updated on the market!

For the week of March 16, 2009
 
Welcome to the Market Matters Advisory, your weekly guide to responding to the market.
 
No Job?  Can’t Refinance?  How to Talk to Your Bank
As unemployment rises in many states, more homeowners are finding it difficult to pay their mortgage each month.  Although most unemployed homeowners do not qualify for refinancing, as they do not meet the minimum qualifying requirements such as proof of income, there are steps they can take to improve their chances of a successful refinance.

MAKING SENSE OF THE STORY FOR CONSUMERS
 
·      The first, and probably most important step in the refinance process, is to find out which company services the loan.  The loan servicer may or not may not be the company where the mortgage payment is sent each month.  This step is crucial, because the loan servicer is generally the one that can modify the loan.  If the loan servicer is not able to provide assistance, the owner of the mortgage may be able to help.
 
·      Once a homeowner realizes he or she may no longer be able to pay the mortgage, the homeowner should contact the “loss mitigation department” of the lender.  The “loss mitigation department” is where the refinance and/or loan modification process begins.
 
·      After discussing options with the loss mitigation department, homeowners should write a forbearance letter, also known as a postponement of payment letter.  This letter is sent to the servicer or lender and details the homeowner’s current financial situation and hardship.
 
·      Many government agencies and nonprofit organizations provide free services to homeowners and will serve as an intermediary between the lender/servicer and the homeowner.  Some companies charge fees for the same services.  Housing analysts caution homeowners to conduct research and due diligence prior to paying a company for loan modification and/or refinance assistance.
 
Real Estate Market Update:
Have home prices bottomed out?

The latest housing data indicate home prices may be stabilizing, although butterflies over the economy could keep many potential homebuyers on the sidelines.

Home prices are closer to stabilizing today than at any time in the past nine years.
Based on the latest data, median selling prices for new and existing homes combined now equal 2.9 times median household incomes, nationwide. This is exactly the ratio that prevailed during the halcyon days of the 1980s, when sales and construction of housing were booming.
 
Three years ago, just before the housing bubble burst, this ratio was 4.5 times incomes.
Add in the fact that interest rates are much lower today than they were two decades ago and housing is even more affordable.

 
State housing agencies get caught in credit crunch
State housing-finance agencies operated by state governments that cater to first-time home buyers are curtailing their programs, while others such as the California Housing Finance Agency (CalHFA) have suspended their mortgage programs altogether.

MAKING SENSE OF THE STORY FOR CONSUMERS
 
·      Each state has a housing-finance agency, which either originates mortgage loans to state residents or guarantees loans made by lenders.  As a result of the credit crunch and other economic factors, many housing finance agencies have lost funding.
 
·      State housing finance agencies cater to moderate- and low-income borrowers; however, the borrower must have good credit and stable income to qualify for most state housing finance agency mortgages.  Default rates and foreclosures on housing finance agency loans are low compared with loans originated by traditional financial institutions.
 
·      To provide low cost loans with favorable interest rates to first-time home buyers, most state housing finance agencies sell a mix of tax-exempt and taxable bonds to investors.  The proceeds from the sales are then used to fund mortgages.  Typically, state housing finance agencies offer mortgage rates between 0.5 percent and 1 percent less than commercial lenders.
 
·      President Obama has pledged to work with Fannie Mae and Freddie Mac to support the state housing finance agencies, but has not provided any further details.
 
·      In some neighborhoods, many homes on the same street may be listed for sale.  Sometimes home buyers become wary of purchasing a home in these neighborhoods, as they may think that something is wrong with the area.  Homeowners in this situation are advised to “sell the whole neighborhood” and not just their own house.  Including relevant information in a brochure, such as an active community social calendar, friendly neighbors, and details about the nearby school district, may help to alleviate home buyers’ concerns.
 
·      Staging a home can help a house stand out from others in the neighborhood.  This can include cleaning and decluttering a home, removing family photos, or stylizing a home with up-to-date designs.  Some homeowners also may benefit from hiring a professional staging company.  Fees for home stagers vary according to the level of service needed.  Initial consultations, which generally include recommendations, can cost between $100 and $400, or even FREE.
 
According to studies done in 2007 and 2008 and released last month by the Real Estate Staging Association, a trade group, staging in a down market has a significant effect on the speed of sales. In the 2008 study, which looked at 60 properties, occupied homes that sat on the market unstaged an average of 57 days were then taken off the market, gussied up and relisted. On average, six days later, they sold — the difference amounting to 89 percent less time on the market. Of the 100 analyzed properties in 2007, when real estate was still selling briskly, it took a staged home 44 days to sell, versus 106 days for an unstaged home — or 46.6 percent less time.
 

Mortgage News:

This week’s C.A.R. Mortgage Update contains information about the effect of a reduction in the mortgage interest deduction and refinancing.
 
Obama’s plan to limit write-offs provokes push-back
The Obama administration’s first budget proposal included a provision to reduce the mortgage interest and local property tax deductions for those earning more than $250,000.
 
The CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) and the National Association of REALTORS® (NAR) are strongly opposed to this provision and are working to convince lawmakers to oppose it as well.

Although the government predicts it could save billions of dollars by reducing the deductions, it also will negatively impact the California housing market; further erode opportunities for homeownership in the state; and will contribute to further price declines and diminished equity for homeowners. 
 
Additionally, the devaluation would extend to lower- and middle-income homeowners and home buyers, who likely will start “pricing in” the lower tax benefits – discounting what they are willing to pay for a house given lower future deductions,” according to the Mortgage Bankers Association and NAR.
 
A waiting game for refinancing
Many mortgage professionals are advising clients not to wait to refinance.  Stricter loan underwriting standards and declining property values could result in some homeowners becoming ineligible for the Obama administration’s “Making Home Affordable Refinance” program.  As a result, many mortgage professionals are advising clients not to wait to refinance.
 
Refinances also are taking longer to complete.  Whereas a refinance used to take three to four weeks to process, it now is taking as long as six weeks.