Ability to Repay and Qualified Mortgage Rules May Affect You in 2014

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.

What Will Homes Cost in California for 2014?





2014 CA Outlook Chart

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.

Income Needed As Rates Rise

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!

What the Government Shutdown Might Mean for Real Estate in Southern California

CLOSED

As of last weekend, HUD (U.S. Dept. of Housing and Urban Development) reversed its original position about loans and stated that applications for all government-backed mortgages will continue to be processed during a government shutdown, which for many California buyers means FHA loans.

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 .

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:

New California Bill Will Cost Property Owners Addtional Recording Fees

Since the downfall in the economy and the upswing in distressed property sales, sellers of short sale properties were not taxed by the federal government on what was called "unearned income".  Thus, if the loan balance before the sale was $200,000, but the owner could only sell at $150,000 as the current market value, there was no IRS tax on the difference and mortgage debt was forgiven.  California's Franchise Tax Board followed the IRS provision, so there was no California tax either.

But that state provision was due to expire and the bill to renew that provision, SB 30, has been up for vote by the Assembly and the Senate. However, a surprise amendment last May added Senate Bill 391 (California Homes and Jobs Act of 2013), and now is tied to the first bill and which includes a provision that requires a $75.00 recording tax to all recorded documents, which could be as many as 28 different types of documents, on a property.  The idea behind SB 391 is to fund a low-income housing trust with these $75 fees.  Bear in mind, not only the California Association of Realtors objected to this, but also the county recorders, assessors and title industry opposed this bill.

If the current impasse isn't overcome in the next few days, homeowners who sold a short sale this year might end up with a big tax bill.

Some people think that only "irresponsible" people are involved with short sales (really? what about if you just lost value in your home because the market went down?), however as one person recently pointed out:  "Why should just one subset of society, those that happen to need to record a document, be on the hook for funding subsidized housing?"  So true, jskdn, who wrote to The Sacramento Bee. 

27388.1.

 (a) (1) Commencing January 1, 2014, and except as provided in paragraph (2), in addition to any other recording fees specified in this code, a fee of seventy-five dollars ($75) shall be paid at the time of recording of every real estate instrument, paper, or notice required or permitted by law to be recorded except those expressly exempted from payment of recording fees. “Real estate instrument, paper, or notice” means a document relating to real property, including, but not limited to, the following: deed, grant deed, trustee’s deed, deed of trust, reconveyance, quit claim deed, fictitious deed of trust, assignment of deed of trust, request for notice of default, abstract of judgment, subordination agreement, declaration of homestead, abandonment of homestead, notice of default, release or discharge, easement, notice of trustee sale, notice of completion, UCC financing statement, mechanic’s lien, maps, and covenants, conditions, and restrictions.

Don't panic yet, home sales are excluded (normally there's about two recorded documents on a home sale).  But to return to the low-income housing trust fund, Dan Walter of The Sacramento Bee states: "One of the rare times the supermajority functioned was last spring when the Senate voted 27-0 for Senate Bill 391, which would impose fees on real estate transaction documents to raise money for low-income housing, at least $300 million a year."   This is another great example of how real estate is seen as the mother's milk for every funding idea/tax/fee that comes along.  $300 million to be gained from recording fees?  I wish there was an explanation for that projected amount of income. 

Did someone count 4,000,000 documents recorded statewide last year?

Read more here: http://www.sacbee.com/2013/09/06/5711663/dan-walters-posion-pill-would.html#mi_rss=Dan%20Walters#storylink=cpy

Top Five Reasons Investors Bought

What do you think of when you hear the word "investor"?  A large entity such as a corporation or company where individual names and identities are not easily known or seen? But according to a recent California survey, three-fourths of all investors are "mom and pop" type of investors who own from 1 to 10 properties, and the preferred type of property purchase is most often a single family home. Low yields on alternative investments is one reason for the demand for real estate investments.  These investors are looking for profit potential, as the median purchase price was under $300,000, which was the most frequent reason, with location being the least frequent reason for buying.  (Often, when first time investors say they want to buy an investment property, they frequently object to the location.  There might be a good reason for doing so, but selecting a location based on personal identification with a certain area is perhaps a sign the "investor" is looking for a place to move into some day.)

The five top reasons for an investor purchase in this survey were:
1.  Profit potential
2.  Good price
3.  Low interest rates
4.  Personal
5.  Location

The majority of these investors were interested in long-term potential of about six years, and over two-thirds in the survey rented out their properties after purchase.  About 25% of investors fixed and re-sold their purchases for profit, or "flipped" them, a phenomenon seen frequently in the less expensive housing markets in some cities.

The top countries of origin for foreign investors--27% of the total--were China, India and Mexico.  For all investors, the median rate of return was about 14% and the majority self-managed their properties.

Most investors found their properties through the MLS, so for an opportunity to find a property by working with a local real estate agent who knows the local market and can help you "pencil out" your investment figures, contact me via phone or e-mail! 562-896-2609.

Long Beach Area Sellers Have An Optimal Time to Move, Now

 

For the first time in years, sellers have an optimal time to sell, because more people are looking for a better place to live.  Interest rates are still lower, and prices are too (yet rising in areas as well).  Rising prices in some areas have lifted some sellers out of negative equity, or very close to it, so that they now may feel they can move on. 

 

It's an optimal time, take advantage of it now.

 

New Listing: Downtown Long Beach Condo in The Sovereign.

 Here is a vintage one-bedroom/one-bath corner unit in downtown Long Beach, in the vintage 1920's building, The Sovereign.

This is a fifth floor corner unit, not on the market for several years. This is a lovely and interesting building from an earlier era in Long Beach--it has a beautiful lobby and a top floor atrium with ocean views.

Priced under $130,000, with HOA dues of about $301/month.  Occupant must find their own parking, but their are nearby reasonably priced options.  This is ideal for an investor buyer, please call for more information.


For more information, see this link:

http://mrmlsmatrix.com/Matrix/Listings/ZHUNTJUL246/MyResiListings.mls

Julia Huntsman
REALTOR/Broker
#01188996
562-896-2609

NOTE:  Property is sold.

California County Tax Assessors Are Sending Notices About Property Tax Increases

Do you know about the increase of impending property tax assessments?

A precedent setting California court case allows county assessors to recapture tax cuts as real estate values recover their losses.

Citing a practice called “value restoration” or recapture”, County Assessor's offices throughout the state are sending out notices this week.

County Assessor's offices say they can raise taxes by more than Proposition 13's two percent limit when home prices rebound for properties that had prior assessment reduction; plus two percent each  year for every year they‘ve owned the property.

Many homeowners who got tax cuts during the recession will see their taxable values rise as much as seventeen percent this year.

The California Supreme Court affirmed assessors' right to do this after Seal Beach lawyer Robert Pool lost his court fight to block the Los Angeles County Assessor (and all California assessors) from recapturing lost assessment values after the 1990s housing market crash.

This week 31,803 Orange County homeowners face that same shock via a “blue notice” in the mail.

The Assessor's Office must notify property owners by mail by July 20th. 

Property owners have until Sept. 16, 2013 to file an appeal with the Clerk of the Board of Supervisors. 

C.A.R. Mid-Year Market-Update July 2013

Here is the California Association of REALTORS mid-year market update, it's quick and easy to follow, by analyst Leslie Appleton-Young. While one projection by CAR anticipates a slowing in home price increases, this presentation also points up the continuing lack of home inventory. With the increase in prices since one year ago, investors are having a harder time finding bargains, and we are seeing a majority of sales as "standard" transactions, with short sales being 25% or less of the market statewide.  Where will the home increase be in 2014? With supply and demand coming to closer balance (inventory increased about 2 percent between April and May), CAR's projection is a four percent annual increase in 2014. 

This is a good quick summary and easy to follow: