Archive for the ‘General’ Category

Housing Crisis to End in 2012 as Banks Loosen Credit Standards

From DSnews.com, by Krista Franks.

Capital Economics expects the housing crisis to end this year, according to a report released Tuesday. One of the reasons: loosening credit. 

The analytics firm notes the average credit score required to attain a mortgage loan is 700. While this is higher than scores required prior to the crisis, it is constant with requirements one year ago.

Additionally, a Fed Senior Loan Officer Survey found credit requirements in the fourth quarter were consistent with the past three quarters.

However, other market indicators point not just to a stabilization of mortgage lending standards, but also a loosening of credit availability.

Banks are now lending amounts up to 3.5 times borrower earnings. This is up from a low during the crisis of 3.2 times borrower earnings.

Banks are also loosening loan-to-value ratios (LTV), which Capital Economics denotes “the clearest sign yet of an improvement in mortgage credit conditions.”

In contrast to a low of 74 percent reached in mid-2010, banks are now lending at 82 percent LTV.

While credit conditions may have loosened slightly, some potential homebuyers are still struggling with credit requirements. In fact, Capital Economics points out that in November 8 percent of contract cancellations were the result of a potential buyer not qualifying for a loan.

Additionally, Capital Economics says “any improvement in credit conditions won’t be significant enough to generation actual house price gains,” and potential ramifications from the euro-zone pose a threat to future credit availability.

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Monthly Payments for Home Buyers

staff photo of Lawrence Yun

Image via Wikipedia

 

Lawrence Yun, Chief Economist for the National Association of Realtors wrote the following column about our very low current interest rates, and therefore very low mortgage payments, on October 6th.    I wish to share his column with you: 

A home buyer purchasing a typical American home at the prevailing average mortgage rate  today would have a mortgage payment of  $698 a month. This figure is not much different from what a home buyer would have faced 30 years ago. In 1981, home prices were much lower but mortgage rates were reaching 18 percent. Today, home prices have come down by about 33 percent on average from the bubble years, but prices still remain comfortably higher than those of the 1980s. However, thanks to record low mortgage rates, the monthly payment obligations have been greatly reduced.

Compare the chart below on the 30 year payment growth of the overall consumer price index,  rent, food prices, gasoline prices, college tuition, and medical costs, versus the monthly mortgage payment. The rapid increases in college tuition bills may also imply too much demand, perhaps even a bubble in term of students not getting their money’s worth.  A recent spike  in college student loans is due primarily to weak job market conditions, but may also be due to ‘over investment’ in education in relation to the cost.

At the other end, one sees the slowest growth in monthly mortgage payments for homebuyers. It is not that this cost element rose slowly and steadily over time; rather, it is the result of volatile swings in home prices and mortgage rates. Compared with the other items, the value proposition for homebuying is blaring!

Very tight underwriting standards, unfortunately, are keeping some good, hard-working Americans from taking advantage of the super affordable conditions.

Please note that homeownership costs include not only principal and interest payments on a mortgage, but also property tax, insurance, and home maintenance costs, which probably rose in line with the overall consumer price index.

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How foreclosure impacts your credit score

People have been asking me lately how foreclosure, or short sale,  impacts credit score.  The article that follows, written by Les Christie, a staff writer for CNNMoney.com on 4/22/2010, addresses these issues.  I hope you find it helpful. 

NEW YORK (CNNMoney.com) — If you’re delinquent on your mortgage, your credit score will suffer. Everyone knows that. The question is, by how much?

 Until recently, those answers were hard to come by. Credit bureaus were uncommunicative about expressing, in points, just how much impact different foreclosure types of mortgage delinquencies have on scores.

 To come to these figures, Fair Isaac created two hypothetical consumers, one who starts out with a fair-to-middling score of 680 and the other with a very good one of 780. (FICO scores range from 300 to 850.)

 The hypothetical person with the 780 FICO has 10 credit accounts versus six for the 580, plus a longer credit history, lower utilization of total credit limit and no missed payments on any account. The other consumer has two slightly damaged accounts. Neither have any accounts in collection or adverse public records.

Recently, Fair Isaac, which developed FICO scores, pulled back the curtain a bit, revealing some estimates of point-score declines following mortgage delinquency problems.

 Here are the average hit your credit will take:

 30 days late: 40 – 110 points

 90 days late: 70 – 135 points

 Foreclosure, short sale or deed-in-lieu: 85 – 160

chart_credit_score.gif

See the chart above to see how each scenario affected each borrower. Notice that for both borrowers a single one-time black mark results in steep drops, but it is when they fall further behind that things get really harsh, according to Craig Watts, a spokesman for Fair Isaac.

 “The lending industry tends to regard an account differently when it has become 90 or more days late,” he said, “The likelihood that consumers will resume paying their overdue obligations drops off significantly after the delinquencies have reached 90 days.”

One reason credit companies were so closed-mouthed is that they often can’t definitively state how much each delinquencies will affect scores because there are too many variables.

Some borrowers will fall much more steeply than others for the same payment problem, according to Maxine Sweet, vice president for public education at Experian, one of the nation’s main credit bureaus.

“If you picture someone who has just one mortgage and one other credit account versus a mature credit user like me with 15 accounts, if they miss one payment that would impact their scores a lot more,” she said. “For me, one missed payment would just be a blip.”

The point loss also depends on the borrower’s starting point: People with very high credit scores have more to lose than low-score borrowers; the impact of a single blemish on an 800 score is more than on a 500.

Of course, it just gets worse when you face foreclosure.

Mortgage borrowers can lose their homes three basic ways: a foreclosure; a short sale, where the home is sold for less than than is owed and the bank (generally) forgives the difference; or a deed-in-lieu, in which the borrower gives back the property and the bank again forgives any unpaid balance.

Sweet said credit bureaus generally slash scores equally for those three resolutions to someone losing their home. The important factor, she said, is that “it’s reported that you paid less on a settled account.”

Some borrowers may think that because they never missed a payment, they can “walk away” from their homes with relatively little impact on scores. Not true. “When a deed-in-lieu or short sale is reported as a partial payment, it’s treated as a serious delinquency,” Watts said, “just like a foreclosure.”  Read the rest of this entry »

“Turn Your Kitchen Scraps Into Garden Treasure”

That was the headline on the front of the catalog I received today from a garden supply company.  And they’re right!  If you have a backyard, or even a small area where you can plant your favorite veggies, don’t shove those peelings, stems, or whatever raw, organic matter you don’t use, into the garbage disposer.  Save it for your garden. CSC_0450 I keep a container on my countertop near the sink, for vegetable peels and trimmings, as well as any produce that may have been forgotten about in the fridge’s veggie crisper. Each day or two I take those veggie scraps outside, and simply toss them into a portion of a raised bed (or garden area) that currently isn’t planted.  

Use a shovel once in a while to quickly turn those scraps under, or cover them with a little soil.  When you water the rest of your garden area, give those garden scraps some water too, and you’ll help those veggie clippings break down faster, making terrific compost for the following planting season.  You may begin to see beautiful healthy worms when you turn a shovelful of soil, and the worms also will assist in breaking down your kitchen scraps into nutrient-loaded compost.  Happy gardening!

I’m Pre-Approved! Where’s My House?

Mr. and Mrs. First-Time Homebuyer have been out looking at homes, and they found one they like in their price range.  Okay, let’s write a contract to purchase that home.  How exciting!  “Honey, where will we put the big screen TV?”  Several days go by, and still no word from their Realtor.  “She said she would call when she had news for us.  How can there be no news?” 

“That house was pretty trashed; who would want it besides us?  Who has the vision we have for making improvements to that house?”  Well, apparently a lot of people are thinking that same way.  Much of our current inventory, especially at entry-level price range, is distressed properties.  Many have gone through the foreclosure process, and the seller, most likely a lender, realizes that many of these homes have had walls put up or removed, garages may have been converted into living quarters.  Sometimes light fixtures, stoves, faucets, even copper piping may have been removed from the property. 

 That’s part of the reason these homes are now priced so attractively.  They may be listed at several hundred thousand dollars less than they sold for three or four years ago.  We live in an area where there is great value in the land, therefore it’s not unusual to have even dozens of offers on a bargain property when it comes onto the market.  (This is why it may take a while before your agent receives news on your offer back from the seller’s agent.)  Many of these homes are being snatched up by investors, paying cash.  My advice to you is, keep writing offers.  You will win a contract!  And when you do you truly will be a winner.  Economics is cyclical, prices most certainly will come back–and there is value in that land!

Yes, It’s Time To Buy!

There has always been much demand for real estate in the Bay Area. Lots of people live here, and most of us want a place of our own. That demand for homes pushed prices up. Then, when the economy fell apart, prices came down. Several factors were involved, which resulted in short sales and foreclosures, and then the large amount of foreclosures itself became a factor. For a while buyers just sat and watched, but when they saw others buying homes at greatly discounted prices, they have come back into this area/market, looking for bargains. This is a great time to buy, especially for people who couldn’t afford to buy here before. Not only have prices come down, but interest rates are at historic lows. An unbeatable combination!