A Special Offer from Dunwoody Mortgage

Thank you for completing our home buying educational series. To show our commitment to you, there is a special offer. Watch the video for more details.

 

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Dunwoody Mortgage Services – Who are we?

Dunwoody Mortgage Services is beginning an educational video series. Today, we’ll start with an introduction to the company.

 

To contact any of us at Dunwoody Mortgage Services, click here!

Why are we not having a faster housing recovery?

Earlier this week, we focused on why the economy was sluggishly turning around. In that post, we touched on how the economy is directly tied to the housing market. The better question to ask could be “why are we not having a faster housing recover?”

Lending guidelines are stricter now compared to five to six years ago. I think we all agree we needed to tighten lending guidelines, but many feel we have over corrected. The biggest problem I see that exists are although Fannie Mae, Freddie Mac and FHA have one set of requirements, many lenders will not lend on those standards because of the concern of a buy back.

A buy back is when a loan is deemed not to conform to the guidelines and the lender is required to purchase  the loan back from Fannie Mae, Freddie Mac, or FHA. This tends to be more prevalent when a loan defaults.

A good example… a lender makes a loan and the loan defaults 9 months later because the buyer loses his job. The agency that owns that loan will audit to see if anything is not correct in the loan package, and I mean anything. If any small thing is found, they will require the lender to purchase the loan back. This happens even if the mistake in the loan file (such as a typo or missed signature) does not correlate to the reason for default. This has caused many lenders to put additional requirements to help mitigate the risk. This creates a tight credit environment, even more so when you add all the government regulation into the mix.

Some feel that if buyers put 20% down to buy a home, it would eliminate foreclosures. The idea is if a buyer has that much “skin in the game,” they would not stop making their mortgage payment.

This is not true. VA loans are 100% financing. It has the lowest default of any loan program available. Perhaps we should take a closer look at the requirements of the VA loan and us this as our standard.

Another area of concern is indications from the government that they want to shut down Fannie Mae and Freddie Mac. Many bills have been introduced to privatize this part of the mortgage industry. It may sound good, but if the mortgage industry privatizes expect interest rates to be roughly 2% higher than government backs the mortgages.

It remains to be seen how this will all unfold, but hopefully the overregulation will come to an end soon.

Why is the economy now recovering faster?

Many ask themselves this question every day. It seems that the economy is starting to turn around but appears to be sluggish or slowly improving. I believe there are a few components that are causing a seemingly slow recovery.

 

1. The Government: Washington continues to battle over the debt limit, and fears of a fiscal cliff have hurt the growth of the economy. There is also a point when excessive regulation creates an environment for companies to keep excessive capital reserves. When things like this occur, it has an impact on the economy. The liquid requirements, stress tests, and capital requirements on banks have created less capital in the market to invest in business. Let’s face it, it is harder now than before to be an entrepreneur or live the American dream. Over regulation is as damaging as under regulation. Many feel we have gone from one extreme to the other.

 

2. Housing market: Our  country thrives during a strong housing market. It always has and always will. When new construction is booming everyone benefits. It has a trickledown effect on the economy that either directly or indirectly effects everyone in our country. While new home starts have been up in 2014, even that has slowed as we enter the second half of the year.

 

With the housing market impacting the economic recovery, maybe the better question to ask is “why are we not having a faster housing recovery?” That leads us into the third factor – lending guidelines – which will get its own post later this week.

Should we worry about a new housing bubble?

 The last 5 years in the Real Estate market have been a real roller coaster ride. We have all seen significant fluctuations of the valuation of our homes over the last 5 years. Many have seen their home values decrease as much as 30-40% and most have seen a complete rebound in the current market. Those who bought a home since 2008 have most likely seen a significant increase in the value of that property.

 It is currently still a seller’s market with limited property available to purchase. Many ask how could we go from a significant over supply in the market to an under supply in such a short period of time?

 We have approximately 500,000 homes in the United States destroyed each year. This could be from natural disasters, fire, and demolition. We need to build approximately 800,000 net new homes to keep up with the growing population. Net new homes is the difference between new homes minus destroyed homes. Here in lies the problem.

 Between the years mid 2008 through mid 2013, only approximately 600,000 total homes per year were built. Subtract the estimated 500,000 homes destroyed, and there was only a net gain of 100,000 new homes each year.

 You do not need a math or economics degree to see the significant shortage that was created over the last 5 years. Some economists have indicated the rapid rise in housing prices may create a housing bubble again. In order to have another housing bubble, we would have to go into another over supplied market. My opinion is we are still digging out from the market being under supplied and this rapid increase in pricing is mostly a correction to the over supplied market from 2008-2013.

 Are home values going higher? The current trend is yes, home values are rising. If you look at historical data, houses appreciate on average between 4.5-6% per year over the last 30 years. I give a range because there are many ways to manipulate the data and a range is usually the best way to look at the growth.

 This 4.5-6% appreciation exceeds the average increase in income or inflation. As we experienced in the last few years, we know it can be a bumpy ride. Remember that buying and owning a home is still one the of the best investments you can make even if the value does not go straight up each year.

Could the approaching Fiscal Cliffs affect the Recovery

Now that the election is over,  Wall Street and the media are starting to talk about the approaching fiscal cliffs and the impact they could have on the economy.

What fiscal cliffs are approaching?

– The current unemployment benefits and the payroll tax cut will expire soon, and not likely not get extended again.

– The Bush era tax cuts are also likely to expire this time around.

– The debt ceiling will need to be raised (again). If the Republicans and Democrats “play politics” and not compromise until the last minute, the ratings agencies may consider another down grade our debt rating.

– A pending increase on dividend and capital-gains taxes.

– The European debt crisis is once again in the news with the recent revision of their potential economic growth forecast. It has gone from a 1% grown estimate to virtually no growth estimate in Europe for 2013.

– Required defense spending cuts.

Could we go into another Recession?

We could but this time it will be much different. Our banking system is a lot stronger and real estate market has pretty much worked through a lot of inventory. Home values are starting to rise in most markets and a housing shortage seems very possible in a growing economy.

So what do I do?

Live within your means. If you do not own a home, buy a home as home values are lower and interest rates are at a near historic low. You will also gain a tax deduction from the interest on the home loan. If you own a home now, look to refinance and lower your monthly payment. Rates will rise if the United States credit rating is downgraded again, so low rates won’t be around forever.

Two things feel very certain.

1. Rates are at historic lows and you will most likely never see this again in your life.
2. The down side risk is very limited compared to the upside opportunity.

Whether you own a home now, looking to buy a new home, OR simply buy your first home, now is the time to take advantage of the lower home prices and historically low interest rates. If you are looking to buy or refinance a home in the state of Georgia, contact me and we can get started today.

Gas prices going up = Time to buy a house?

Why are gas prices increasing? While tensions with Iran are part of the equation, other factors are playing a bigger role in the increase of gas prices including the US economy is growing, unemployment is decreasing, and optimism that the European countries may have reached a solution in the debt crisis.

What does this mean? This could be a leading indicator the economy is getting ready to expand into a faster growth phase of the recovery. This would create price increases across the board since it seems that everything we buy either directly (or indirectly) uses gas.

Now to the point… higher gas prices is just another signal housing prices will begin to recover. This will only increase the cost of new construction and widen the gap between new construction and resale. The resale market should increase in value as the cost of new construction goes higher by creating a greater value proposition which should increase demand to this category. In addition, lower unemployment numbers will increase the number of people that can qualify to purchase a home.

Some will say, “wait, but what about the foreclosure inventory.” I agree! We have some inventory to work through, but the foreclosure rate is slowing. We are starting to work off the inventory. I would hate to see buyers miss the opportunity to purchase a home during a time when prices are the lowest in the last 10-15 years. We are at the bottom of the market. When the real estate market turns up, do not be surprised if you see a double digit increase in values that first year.

Residential Real Estate is turning the corner

As a follow up to my post last week, what does residential real estate do next?

Although we still have a lot of challenges ahead of us, the latest information supports last week’s blog. The residential real estate market is starting to recover. The chart below clearly shows we have peaked in the 4 major categories when tracking defaults and late payments on mortgages.

As supply of foreclosures continues to decrease, the inventory level will continue to fall. A strong buying season next spring and summer could spring board us to a manageable inventory levels and move us toward the price appreciation phase of the recovery.

The biggest challenge that still exists is the fact that one in four homeowners with a mortgage owe more than their homes are worth. We have a solution to this with HARP 2 – the updated program from Fannie Mae and Freddie Mac.

If this program is successful, many of these homes will qualify for a refinance. This would reduce monthly mortgage payments by as much as $75-$300 per month. This translates to more disposable income for millions of homeowners that can begin to filter into economy. This will only help spur the economy forward and will aid in its recovery. Stay tuned for the next follow up.

What does residential real estate do next?

I think we are all tired of hearing about residential real estate market and the drop in value of our homes. As many us feel no turnaround is in sight, what do we do next?

Nothing and focus on the future. Why?

Unless you are in a position where you must sell your home, you are only sitting on a paper loss. If you are planning on being in your home for many years to come, you will most likely return to profitability on your home over time.

As bad the real estate market seems, if you do not yet own a home, you should jump in soon. Homes are at an unbelievable value right now with the combination of historically low mortgage rates and the current value of homes. Anyone could look like a Donald Trump three years from now in this market (well, maybe not the hair part).

For those of us (like myself) who have lost significant equity in our homes, the end is closer than you think. Mortgages going 90 days late (or more) have dramatically slowed down. Thus, the future supply of the foreclosure pipeline is also going to slow down.

We all hear about the shadow inventory. These are homes that people have defaulted on their mortgage, but banks have yet to put those homes on the market or completed the foreclosure process. Banks will begin pushing this inventory into the market starting toward the end of this year and the beginning of next. It will take 6-9 months to get the remaining inventory sold. In theory, some markets may wind up with a housing shortage toward the end of 2012.

Once the shadow inventory is gone, combined with the reduced amount of new homes being built, we will have created the perfect storm for an escalation in home values. The suppression in home values won’t last forever. So look to the future, it will be bright and the housing nightmare will be gone.

Why the mortgage process seems so different

Many changes occurred in the mortgage industry over the last couple of years. In this post, I want to spend some time highlighting a few of the major changes.

– Non bank loan officers now must be license and bonded. They are required to take federal and state tests, have good credit and complete continuing education in order to keep the license. This is a very good improvement for our industry. Now the requirements to be a loan officer for a non-depository institution (in other words, a company that isn’t a bank) are the highest in the industry to both earn and maintain a license. This has caused a lot of loan officers to exit the industry or go to work for a bank.

The next time you apply for a loan, remember the loan officer that does not work for a bank is the only licensed professional in the mortgage industry which has passed a federal and state test, is bonded, passed a background check and is required to take continuing education courses.

–The new Good Faith Estimate has been enacted by HUD. The government attempted to create a process which is less confusing for the consumer and easier to understand the cost associated with the mortgage process. Things haven’t exactly gone to plan. In some ways, the new form is more confusing. The confusion mostly stems from increasing the size of the good faith estimate from a one-page form (which disclosed all the fees individually) to a three-page form (that only shows lump sum fees). Since the introduction of the new good faith estimate, some consumers feel it has created more confusion than clarity.

–Regulation Z has been enacted by the Federal Reserve. This regulation has had a lot of controversy around the requirements it imposes on the mortgage industry. There are many facets to Regulation Z, and it really deserves a post (or two) by itself. In short, the Federal Reserve claims these regulations will protect the consumer. However, many professional in the industry argue it creates greater confusion to the consumer and restricts competition. Traditionally, any restriction in competition usually leads to an increased cost placed on the consumer. Rather than trying to explain the details of this complicated rule, just know the consumer is always best protected by getting 2 or 3 quotes to insure they are getting a competitive rate.

These are the main events that have occurred in the last 18 months. More change is coming soon when the consumer protection bureau takes control in late July. This new government entity is a result of the Frank Dodd Act.  The mortgage industry has gone from limited government intervention to extreme intervention since the mortgage crisis. I am amazed that loan officers which do not work for a bank have been required to pass tests, required to take 20 hours of education, required bank ground checks, and continuing education, while loan officers that work for bank are not required to meet these guidelines. It is ironic that bank employees are given the least amount of training, regulation, and oversight with all the new guidelines.

The one thing to remember in all of this is to make sure you always get a quote from a non-bank loan officer when looking for a mortgage. The non-bank loan officers are now the most trained and educated in the entire mortgage industry.