New loan rules were made law last year and will take effect on January 10, 2014. The Consumer Financial Protection Bureau is a federal agency created in 2011 as part of the Dodd–Frank Wall Street Reform and Consumer Protection Act in response to the financial crisis that evolved starting in 2007. As a result, new loan borrowers are going to be subjected to what many think will be onerous and perhaps unnecessary new loan guidelines which may affect the housing market sales volume in the future. And, as of right now, not all future guidelines are yet known and may not be completely settled on until the end of 2013.
The CFPB has jurisdiction over banks, credit unions, mortgage servicing operations, payday lenders, and more.
Buyers who are obtaining financing should start learning what this means for home purchases. The link goes to a 6-page brochure outlining essential facts about new loan rules established so far.
The lender must now perform an ability to repay (ATR) as part of the loan approval process, by looking at your assets and coming to the determination you have the ability to repay. Next, the borrower hoping to qualify for a Qualified Mortgage (QM) -- those loans with the best rate and terms -- may not get a loan with interest only feature, negative amortization, generally no balloon payments, or loan terms longer than 30 years. A thirty-year loan, by the way, was considered radical back during the Great Depression when up until that time it was standard for banks to be able to call their loans after 5 years, or continue them as they saw first for another 5 years. There can be no excess upfront points or fees. Yes, a borrower could still obtain a mortgage out of these guidelines, but the lender on those loans, but a lender who makes follows QM guidelines gets certain legal protections if the borrower defaults on the loan.
What's the big deal about these loans? Well, for a while, governmental agencies wanted only 20% down loans to qualify, but that proposal was defeated. More recently, there are six governmental agencies backing a new proposal that 30% down loans will be able to obtain a QM. See Kenneth Harney's article: http://www.latimes.com/business/realestate/la-fi-harney-20131020,0,6931943.story#axzz2j4RPAzgO
One of the results of stricter guidelines already is a much higher percentage of FHA loans in the marketplace compared to past history. What the future will be is not known, but naysayers believe that requiring 30% down payments for non-FHA loans will definitely impact housing sales.
The Mortgage Bankers Assn. of America (which strongly opposes the 30% plan) estimates that only 18% of people who purchased homes during 2012 would have been qualified for their mortgages under the alternative proposed by the regulators.
10/25/2013
What Will Homes Cost in California for 2014?
Every year about this time, the California Association of REALTORS holds its annual conference, this year at the Long Beach Convention Center. It also marks the time at which the housing predictions for the next year are made. As with most predictions, it's not etched in real estate concrete, but may be a good indicator based on the current year.
At the right is the nitty-gritty slide (no. 114 out of 127) which is arrived at in the presentation by CAR's chief economist after her complete review of the entire state and it's housing market indicators. So where are we possibly, for next year? Possibly a 6% increase in the median price of a single family home, far less than the current 2013 increase of 28%.
What are factors impacting buyers and sellers? Interest rates--they have been going up. Lending guidelines--they have been changing and more is to come on January 1, 2014. Disposable income for 2014 may increase, the CA unemployment rate may decrease to under 9%, while population growth may remain steady. Distressed sales have increased with more standard sales in the majority in many areas (80% of sales). A further complication has been the short inventory supply due to little new construction in several years (and never reaching the level last seen in 1988), and many sellers being underwater, with 1-2 months inventory in many areas including some parts of Long Beach. The 6 months supply of inventory norm has not been seen in a very long time, a situation that has generated multiple offers (highest in last 15 years) with cash buyers coming out the winner in an average of 30% in California--as the median price increases, cash buyers have slowed in 2013, however.
While many sellers may breathe easier as equity comes back into their market value, both buyers and sellers will have to deal with rising interest rates, and the results of current governmental agency discussions about loan qualifications. Did you know that recently a proposal was put on the table that only people with 30% down payment could get the best interest rates? This type of strain has made FHA the loan choice of over 60% of California buyers, increasing the reliance on government lending instead of an independent market place.
Sellers are now coming to a better time and place to sell, but unrealistic prices must be curbed--cash buyers do sometimes obtain appraisals to make sure they're not overpaying. Buyers must be more prepared than ever to search out financing in advance, save money for down payment, reduce debt, and take care of their credit scores if they really really want to buy (what's so fun about paying $2500/month in rent with no tax deduction?)
For more information, go to www.juliahuntsman.com if you want to request a no obligation summary of what your home is worth!
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| 2014 CA Outlook Chart |
At the right is the nitty-gritty slide (no. 114 out of 127) which is arrived at in the presentation by CAR's chief economist after her complete review of the entire state and it's housing market indicators. So where are we possibly, for next year? Possibly a 6% increase in the median price of a single family home, far less than the current 2013 increase of 28%.
What are factors impacting buyers and sellers? Interest rates--they have been going up. Lending guidelines--they have been changing and more is to come on January 1, 2014. Disposable income for 2014 may increase, the CA unemployment rate may decrease to under 9%, while population growth may remain steady. Distressed sales have increased with more standard sales in the majority in many areas (80% of sales). A further complication has been the short inventory supply due to little new construction in several years (and never reaching the level last seen in 1988), and many sellers being underwater, with 1-2 months inventory in many areas including some parts of Long Beach. The 6 months supply of inventory norm has not been seen in a very long time, a situation that has generated multiple offers (highest in last 15 years) with cash buyers coming out the winner in an average of 30% in California--as the median price increases, cash buyers have slowed in 2013, however.
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| Income Needed As Rates Rise |
Sellers are now coming to a better time and place to sell, but unrealistic prices must be curbed--cash buyers do sometimes obtain appraisals to make sure they're not overpaying. Buyers must be more prepared than ever to search out financing in advance, save money for down payment, reduce debt, and take care of their credit scores if they really really want to buy (what's so fun about paying $2500/month in rent with no tax deduction?)
For more information, go to www.juliahuntsman.com if you want to request a no obligation summary of what your home is worth!
10/03/2013
What the Government Shutdown Might Mean for Real Estate in Southern California
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| CLOSED |
But, though the loan may be processed, getting the FHA loan funded (meaning you're up to the last few days of your escrow period and ready to close) is another story. To close an FHA loan, an IRS tax transcript (the 4506-T Form which is filed with the IRS to get your income tax information) and the Social Security Administration's verification for that buyer are needed. The IRS is currently closed and Social Security is closed to new business. The two closures will not affect anyone who received these items prior to the shutdown date, but to open a new loan and get it funded and closed will probably not happen during the shutdown. (NOTE: A particular FHA lender source may be willing to not require the 4506-T form itself, and be willing to close a loan without it, but not common.) And, FHA may not have the ability to continue any loans beyond another two months in the future if the shutdown continues. But we're not there yet.
But with FHA currently providing the majority (approximately 80%) of California buyers with their home purchase loans, there will be probably an impact to at least some parts of the California and Long Beach area real estate market, and certainly to many prospective California buyers.
Fannie Mae and Freddie Mac loans will not be affected because they are funded by fees from lenders, not by government appropriations. Freddie Mac stated it will not require the 4506-T Form to be processed by the IRS, but that the information be provided as part of the loan.
VA loans are supposed to continue at this point, but there could be some delays with those loans.
While "economists" believe that there will be minimal impact overall, this shutdown could go on into the upcoming debt ceiling issue, and as certain legislators continue to balk, so probably the rate of home purchases. "Research firm Capital Economics predicted that the effect of a shutdown would be minimal provided that it doesn’t presage a fight over the upcoming debt ceiling increase." See more at DSNews .
9/20/2013
What Does Homeowner Insurance Cover, or Not Cover?
What does your homeowners insurance cover?
The short answer is: A basic homeowners insurance policy (called HO-1 in insurance lingo) covers your home and possessions if they’re damaged or destroyed by these things:
Fire
Lightning
Windstorm (unless you live in a hurricane zone)
Hail (not available everywhere)
Explosion
Riots
Civil commotion
Aircraft (and things falling from aircraft)
Vehicles (and things thrown from vehicles)
Smoke
Vandalism (although some policies exclude this)
Malicious mischief
Theft
Volcanic eruption.
But many states don’t allow this basic policy to be sold. Instead, you have to buy an upgraded policy that covers more perils.
Upgraded Homeowners Insurance
That upgraded policy (called HO-2) adds protection to your home and possessions from even more perils. You get protection from everything on the HO-1 list (above) plus:
The short answer is: A basic homeowners insurance policy (called HO-1 in insurance lingo) covers your home and possessions if they’re damaged or destroyed by these things:
Fire
Lightning
Windstorm (unless you live in a hurricane zone)
Hail (not available everywhere)Explosion
Riots
Civil commotion
Aircraft (and things falling from aircraft)
Vehicles (and things thrown from vehicles)
Smoke
Vandalism (although some policies exclude this)
Malicious mischief
Theft
Volcanic eruption.
But many states don’t allow this basic policy to be sold. Instead, you have to buy an upgraded policy that covers more perils.
Upgraded Homeowners Insurance
That upgraded policy (called HO-2) adds protection to your home and possessions from even more perils. You get protection from everything on the HO-1 list (above) plus:
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