Understanding the Annual Percentage Rate

Understanding the Annual Percentage Rate Written by David Reed Posted On Thursday, 01 October 2020 05:00 The Annual Percentage Rate, or APR, is a tool consumers can use to compare rates from one lender to the next. While the note rate on a mortgage, the rate used to calculate the monthly payment, is certainly important, just as important is the APR. Unfortunately, it’s a misunderstood number by many and even individual loan officers have trouble explaining what the APR is and what it isn’t. The APR is prominently displayed with a lender’s Cost Estimate, so much so that consumers who first review the loan disclosures think the APR is the note rate. Unless the loan officer clearly explains what the APR is at the outset, confusion can set in and it’s also very possible the consumer thinks it’s a ‘bait and switch’ strategy. Someone can get a rate quote for, say, 3.00% and after disclosures are provided to the consumers, the APR might read 3.15%. It’s the note rate that determines the monthly payment, along with the loan term and loan amount. The APR is designed to let consumers easily compare loan offerings from one lender to the next. Yet the APR sometimes confuses more than explains. Simply put, the APR is the cost of money borrowed expressed as an annual rate. Used properly, consumers can properly compare. A lender with higher loan costs will show a larger disparity between the note rate and APR. For instance, three lenders show a note rate of 3.00%. Lender A also shows an APR of 3.10%. Lender B 3.15% and Lender C 3.19%. In this example, Lender A appears to have the better offering because the difference between the note rate and APR is relatively small compared to Lenders B and C. The APR includes different loan fees, but the APR can also change based upon which day of the month the loan closes. How so? The APR also includes prepaid interest charges. Prepaid interest is the per diem amount from the day the loan closes to the first of the following month. If the loan closes on the 20th of the month, that would then mean 10 days of prepaid interest. Lenders will collect this amount along with other loan fees at the settlement table. If the loan closes on the 30th of the month, there would be just one day of prepaid interest. This is in essence the very first mortgage payment. Interest on mortgage loans is calculated in arrears. It’s the opposite of rent. A rental payment is made to pay for the month you’re about to live in whereas a mortgage payment calculates accumulated interest from the previous month. The mortgage payment on the 1st of the month is for accumulated interest from the previous month. Closing on the last day of the month the APR will be lower with just one day of interest included compared to 10. When comparing lenders, the closing costs are just as important as the rate. Someone can offer a 30 year fixed rate at 3.00% and $1,000 in fees. Another lender might also offer a 30 year fixed rate at 3.00% but with $5,000 in fees. In this way, it’s pretty clear which lender is quoting the more competitive loan terms. When explained in this manner, the differences in note rate and APR are made clear. Don’t let a loan officer tell you that the APR isn’t important. And as far as the monthly payment is concerned, that would be correct. What is important is to get a snapshot of lender fees along with the note rate. The APR does just that.

All About Lender Fees

Written by David Reed Posted On Friday, 11 September 2020 05:00 All About Lender Fees During a phone conversation with a mortgage loan officer for the first time, invariably the question of fees comes up. Yes, rates are at the top of the ‘curious list’ but so too are lender fees. In addition to the interest rate, lenders can charge loan fees to help offset the cost of origination, processing and other items. But let’s take a closer look at these fees, what they are and what you can do to help minimize or otherwise offset lender fees altogether. First, not all lenders charge the same set of fees. There are no guidelines that lenders must follow with regard to the type of fee charged. Lenders come up with their own. Yet there are some common ones that lenders do charge on each and every mortgage loan. Further, lenders aren’t allowed to charge one borrower one type of fee and not charge it to another. That is in the same set of circumstances. Doing so could be considered discrimination by giving one client a break and not the other, or all for that matter. One of the more common fees is called the Processing Fee. This fee is collected to pay for the overhead generated when processing the mortgage application. From the initial submission to ordering closing papers, all loans go through a process which can include several steps. Processing is performed by the Loan Processor within the mortgage company. Mortgage brokers also have loan processors and they too can charge fees. As long as the fees are universal and not selective. Once you’ve submitted your application, it’s the loan processor who you’ll interact with the most. Origination fee is also a common one. An origination fee is listed as a percentage of the loan amount. If the loan amount is $200,000 and the origination fee is 1%, that works out to $2,000. Origination fees are also charged to offset the costs of originating, or finding and bringing the loan in-house, the application. Another nearly universal charge is a Document Preparation fee. As the name implies, the amount is used to offset the personnel cost of preparing and delivering your closing papers to the settlement agent. Documents are drawn after the loan has been completely approved by the lender’s underwriter. An appraisal fee is typically collected upfront when the loan application is first submitted. This fee is collected by the lender but is not paid to the lender. Instead, the lender uses this amount to order the property appraisal from an Appraisal Management Company, or AMC. Appraisal charges can vary based upon different factors but primarily due to the property type, proximity and sales price. The underwriter is the individual within the mortgage company that makes sure the documented loan file meets the guidelines for the selected loan program. An underwriting fee is often charged to pay for the lender’s underwriter. Loan documents cannot be ordered without them being completely approved by the underwriter. A Funding Fee is a fee reserved for VA loans. A funding fee is also expressed as a percentage of the loan amount and is used to finance the VA’s loan guarantee. With a VA loan, should the loan ever go into default, the lender is compensated for the loss. This compensation is financed with the funding fee. With a purchase transaction, these fees must be paid for at settlement and out of pocket (with the exception of the funding fee). When refinancing, these same fees can be present but given sufficient equity they can be rolled into the loan amount instead of paying at the settlement table. Finally, one quick note about how to offset some of these fees. A “no closing cost” loan doesn’t literally mean there are no loan costs, but the lender adjusts the interest rate upward and provides a lender credit at your closing.

Easing The Crunch: The Push To Square Low Housing Supply With High Consumer Demand

Written by Barbara Pronin Posted On Friday, 11 September 2020 05:00 Easing The Crunch: The Push To Square Low Housing Supply With High Consumer Demand With Labor Day in the rearview mirror and winter holidays ahead, the typical drop in housing demand this year is barely a blip on the radar screen. “The market here is still crazy busy,” said Nelson Zide, executive vice president, ERA Key Realty Services, Framingham, Mass. “We continue to see buyers clamoring for homes, and for second homes, and anything decent under $1million is snapped up within days or hours. One home here listed at $525,000 drew 55 offers in a weekend.” The problem, said Zide, is supply. “In my 40 years in the real estate industry, this is the worst I’ve ever seen it.” The situation is not much different on the other side of the country in Nevada, California and Arizona where, according to Mark Stark, CEO, Berkshire Hathaway HomeServices Nevada Properties, prices are continually being pushed up by unrelenting low supply. “In the entry level space,” said Stark, “we have approximately a two- to three-week supply. In other price ranges, there is perhaps as six-week supply, and in highly desirable Orange County, California, a three week to 30-day supply.” In Michigan, noted, Dan Elsea, president, Real Estate One in Detroit, the 2.5-month supply that existed pre-pandemic has shrunk to half of that in homes priced under $500,000. “Prices here are rising dramatically, as much as a full five percent over a year ago,” Elsea said. “And that number may be low, as today’s closings reflect purchase contracts that were opened just post-shutdown.” And in Colorado Springs, zig-zagging across the nation in a random spot check, “there are 1,100 active single-family homes for sale right now, which is less than half the supply we had a year ago,” said Joe Clement, CEO, RE/MAX Properties. That summer’s busy buying season has extended into the fall is not surprising. “Because of the pandemic, the season got a very late start,” Clement noted, “and changing lifestyles prompted by the shutdown, plus the availability of rock-bottom interest rates, are keeping demand high into the fall. We have not seen any slowdown here, nor do we expect one for a while.” But the supply of inventory in most regions of the country, which was sluggish in most markets even pre-pandemic, has been unable to meet the demand. “Early in the COVID-19 crisis, many sellers pulled back, or held back, fearful of strangers walking through their homes,” said Zide. “To an extent, there is still some of that, in spite of the strict safety protocols we have in place. But the larger concern for many potential sellers is where they will move if they sell.” Seniors ready to downsize are online just like the rest of us, Zide added. They know full well that if they sell the large, family home they’ve been living in for decades, they will be in competition for the few available smaller properties “They’re not going to assisted living at this point,” he said, “and they don’t want to compete in the heavily-contested low- to -mid-range space. So, unless they are moving in with their kids, they are in no hurry to sell.” New construction would help. “But builders are just now getting back into play,” said Elsea. “Land is expensive and financing is tough, especially for new construction in the more affordable, mid-range space.” In fact, according to Robert Dietz, senior vice president and chief economist for the National Association of Home Builders, builder confidence is at 35-year high as developers note the lean resale inventory and see a growing demand for new homes. “The big challenge is lumber,” said Dietz. “The hot housing market, insufficient domestic production, and tariffs on Canadian imports have resulted in a 160 percent increase in lumber prices since mid-April.” That is adding about $16,000 per new single-family home, he said. “But building is slowly picking up after recession-lows in the spring,” he noted. “The number of single-family homes in various stages of construction in July was just three percent lower than it was last July, while construction of multi-family residences has increased by almost 10 percent year over year.” If new construction is slow to meet the need, how do we bring more sellers into the market? “Realtors need to do more work behind the scenes,” said Clement. “Our job is to work harder with pocket listings - that is, when we know a seller would list a home if he or she could find the right home to move to, we need to be working our databases, our sphere of influence, looking to find that right home.” What are the chances that demand will exceed supply well into the new year? “We don’t know what we don’t know,” said Stark. “Unemployment is a big factor, especially in regions like ours, where the hospitality industry has been so hard-hit. What will happen when/if eviction protections end? What will happen in terms of the pandemic itself? There are many unknowns to factor in.” What we do know, said Zide, is that consumers may need to look further afield to find suitable properties - further from the city center, for example, or at properties that are on busier streets, or that need a little TLC. “We are not in recession-mode,” Zide said. “We are in a pandemic. Concessions will need to be made until the housing supply catches up to the need.”

How to Handle Bidding Wars Legally

Ultra-competitive housing markets have fueled bidding wars as buyers frantically compete for a limited number of homes for-sale. Real estate professionals are finding themselves helping their home-buying clients navigate multiple offer situations. But they must be careful to avoid misunderstandings and reduce the risk of discrimination in the process, too. “Real estate professionals can help avoid complaints and fair housing issues while helping both the buyer and seller understand their options,” Deanne Rymarowicz, associate counsel at NAR, says in a new “Window to the Law” video posted at NAR.realtor. Rymarowicz highlights three principles for real estate professionals to follow when navigating multiple offer situations: Be mindful of your legal and ethical duties. Your state likely has laws and regulations regarding timeframes for presenting offers and what needs to be disclosed to the other party in a multiple offer situation. Some states, for example, prohibit revealing the terms of a buyer’s offer without the buyer’s consent. The REALTOR® Code of Ethics also speaks to handling multiple offer situations, such as requiring that REALTORS® “protect and promote the interest of their client” in multiple offer situations. Watch for potential fair housing red flags. “Buyer love letters”—letters, videos, and photos given to the seller from the buyer expressing their desire for a home—could possibly lead to some fair housing violations. “These ‘love letters’ often innocently include personal information that reveals a prohibited basis for discrimination, such as ‘we can see our family celebrating Christmas around the fireplace’ or the ‘wide hallways will accommodate my wheelchair,” Rymarowicz says in the video. Fair housing centers on eliminating discriminating and “love letters” could potentially cause an implicit bias. “Accepting an offer based on anything other than the price, terms, and merits of the offer might violate fair housing law,” Rymarowicz says. Let the client make the decision. Educate your client about multiple offers and strategies for responses. “You may even offer suggestion and advice based on your knowledge and experience,” Rymarowicz says. But ultimately, “it’s up to the client to decide what offers and counteroffers to negotiate, reject, and ultimately accept.” Source: REALTOR® Magazine Daily News

Bubble? What Bubble? Will Today’s Buying Fever Stand Up?

Written by Barbara Pronin Posted On Friday, 04 September 2020 05:00 In the spring of this year, when a global pandemic kicked the legs out from under what began as a strong 2020 housing market, some pundits argued that home prices would plunge as demand went through the floor. But a strange thing happened in the midst of job uncertainty, increasing unemployment, and pandemic concern: as spring turned to summer, people working from home and examining their space began to vie for very limited inventory. “Vacant properties, in particular, became the hottest thing on the planet,” said Robert Bailey, who with his brother, Paul, leads Bailey Properties in Santa Cruz, Calif. “Overall, our sales in July were 23 percent over June, while listing were down 49 percent from the previous year. Multiple offers and bidding escalated to a buyer frenzy.” Appraisers were looking in the rear-view mirror, Bailey said, while buyers were looking out the windshield, sending prices up along with demand in this gateway to Silicon Valley, where tech workers are virtually assured of job stability. Discovery that you didn’t need to go to the office anymore went viral among workers everywhere, especially among the more affluent, noted Jennifer Ames, Licensed Partner with Engel and Volkers in Chicago. “It was almost like being let out of restraints,” Ames said. “Buyers could indulge their desire for more space, more amenities, or greener pastures - and they did so in droves in a rush to find their dream home amid a very tight supply of inventory.” Fueled by pent-up demand and rock bottom interest rates, home sales soared. “We posted the best July in the history of our company,” said Shane McCullar, CEO, Keller Williams Realty Metro Center, Alexandria, Va., gateway to the D.C. metro area. “Houses listed between $500,000 and $1.3 million were selling faster than in the mid-level range. In all, Keller Williams Realty International paid out over $1 billion in commissions.” In fact, according to a mid-July report from the Mortgage Brokers Association, (MBA) mortgage applications nationwide increased 54.1 percent in June of this year compared to a year ago. At present, as school begins in some form or another in every state of the union, and we head toward the natural drop in demand that accompanies every year-end, some of the same pundits who did not foresee the hyperactive summer market are beginning to use the ‘B’word - B as in Bubble - and even the dreaded ‘C’ word, as in Crash. But little is as it was leading up to the last downturn. “For one thing,” Ames said, “there is little of the home-flipping or speculative investing that marked the 2008 market. Sales today are primarily driven by lifestyle and changing family needs.” Additionally, she noted, lenders are much more conservative. “Mortgage lenders who were approving subprime loans for homebuyers with little or no qualifications then are now checking and re-checking employment status and financial circumstances right up until closing,’ Ames said. To make an obvious comparison, noted McCullar, the surplus of inventory that existed before the last downturn is now an under-supply, and the out-of-control price appreciation that marked the last downturn is today at a far more moderate level. “Also,” said Bailey, “where too many homeowners ten or twelve years ago were using the equity in their homes like an ATM machine, today’s homeowners have on average of 33 percent equity in their homes, and their mortgages are at a fixed rate. The economy as a whole, despite rising unemployment, is stronger in many ways than it was then.” In fact, according to the New York Federal Reserve, household debt in the first quarter of 2008 sat at $12 trillion. In the first quarter of 2020, that number was $14 trillion - and incomes, among those who are employed, are slightly higher now than in 2008. As airlines, hotels, and restaurants - and their furloughed or laid off workers - struggle to stay afloat, it remains to be seen whether record unemployment will slow the fevered housing market. “I think we will see a slight decline in sales between now and the end of the year,” said Ames. “But that’s part of the natural cycle. I fully expect a strong market going into 2021.” Interest rates remain low, and prices are not rising at alarming rates, noted McCullar. “And as more sellers realize how much their homes are worth, and become more confident about the sanitary protocols used in showing their homes, more properties will be come onto the market.” Bailey agrees. “Many of the ‘Greatest Generation,’ and most boomers, are still in the homes they bought decades ago,” he said. “But life goes on, and more will be downsizing or changing their living situation. In California, there is legislation supported by the California Association of Realtors which will allow homeowners 55 or older to transfer their property tax base when they move. That should help ease our inventory crunch.” There will be distractions, all the Realtors we talked to agreed - the political climate and the election in November, for one thing. But overall, there is consensus that housing demand will remain high well into 2021. “This is not the new normal,” said Bailey. “It’s the new now. I’m bullish on where the market is going.”

Mortgages, Divorce and Separation

Written by David Reed Posted On Friday, 04 September 2020 05:00 Okay, so let’s say a couple meet, start dating and later on down the road they decide it’s best to tie the knot and live happily ever after. Yet unfortunately, many such unions don’t make it all the way. Sometimes the couple decides to maybe take a breather from the partnership and live separately. Just to think things through with a clear head. When this decision is made, many times they decide to separate before nulling the marriage entirely. As in most such situations, there’s a lot more that needs to be addressed, especially as it relates to money. If there’s a mortgage involved, there can be a difference between what the couple decides and what the mortgage lender thinks. It’s important to mention at this point that this isn’t considered legal advice, just how mortgage companies are involved. First, note here there is a legal definition of a separation. A couple who independently decide to take up different residences doesn’t let one party off the hook for the mortgage payment. After all, if it took two incomes to qualify for the existing mortgage, a lender will want to know if anything substantial changes. They both signed the note at the outset and they both obligate themselves to pay the mortgage each and every month. Many such situations have one spouse staying in the purchased home while the other moves out and finds another place to live. It may also be that one party declares responsibility for the mortgage payment. So far, this is nothing more than an agreed-to arrangement. But that can present a problem for the individual moving out of the home and looking to buy another. It’s quite possible that when trying to qualify for a mortgage to buy another property, that person can’t qualify because of the outstanding mortgage payment. Even if the couple decides between themselves who is paying for the mortgage and who is not, the lender is not involved in those discussions. An in-person agreement does not remove one party’s responsibility for making the mortgage payment each month. A legal separation might carry a bit more weight. A legal separation spells out in the court documents who is responsible for what. The document is signed by a judge and recorded in public records. If the document states one party is going to be making the payments, that might help offset the debt. But probably not. The lender doesn’t really care if the marriage is on the rocks. It cares that its mortgage might be on the rocks. The obligation will typically still remain on both parties’ credit report, even if the separation agreement spells out who is paying for what. A divorce works in a similar manner. The divorce decree also spells out who gets what asset and who is responsible for a variety of matters accumulated over time. If one party assumes the mortgage, the lender can remove the monthly debt from one party but in order to completely remove one party from the transaction, not only will the occupying spouse need to refinance the existing mortgage into his or her name, but also to quit claim ownership from one party to the next. Both the mortgage and title need to be taken into consideration. Still, the lender will have a say. Some lenders want to see the monthly payments be made in a timely manner over a specific period, say for twelve months. Once it’s been demonstrated the payments have been made, there can be a case for removing the non-occupying person from any future obligation. If a marriage doesn’t work out, getting one party off the note legally is a process, not just a marital agreement.

Supply and Demand in Todays Real Estate Market

Is Today’s Hot Market Sustainable? It’s All About Supply And Demand Written by Barbara Pronin Posted On Friday, 21 August 2020 05:00 Print Email Is Today’s Hot Market Sustainable? It’s All About Supply And Demand As we turn the corner from summer toward fall, still in the midst of the greatest health crisis Americans have seen in a century, the real estate market in most areas of the country remains at a white-hot sizzle. “It’s totally crazy,” said Joan Docktor, president, Berkshire Hathaway HomeServices Fox & Roach Realtors, serving Pennsylvania, Delaware and New Jersey. “In all my years in residential real estate, I have never seen anything like this - multiple offers, bidding wars. One $1million home in the Philadelphia suburbs sold in three days, after several offers, at $40,000 over the asking price.” It is not surprising, she said, with only 1.3-months of available inventory and demand far outpacing supply, as consumers re-evaluating their lifestyles rush to leave the city for the suburbs and/or snap up second or vacation homes. “Especially as more people determine they can work from home, they are ready to pull up stakes and give up everything they know for a slower-paced life in a pleasant setting.” she said. Demand along the Jersey shore is especially strong, she noted, driving up prices by s much as 11 percent over the year ago period. “Buyers are paying cash, removing inspection requirements, using escalation clauses, said Docktor. “Sellers need to rely on spreadsheets to help them sort out the offers.” Compounding the normal demand in Arizona, noted Matt Deuitch, designated broker, DPR Realty in Scottsdale, is a surging in-migration from consumers keen to leave behind the high prices and high-octane lives in states like California, New York and New Jersey. “People are retiring early as a result of the pandemic, or moving their families because they can,” Deuitch said. “With inventory at next to nothing here, and interest rates still at rock bottom, buyers are bidding high and removing every possible contingency to compete for the limited supply.” Consumers are doing their homework, noted Joan Kuptz, broker/owner of RE/MAX Advantage in Henderson, Nev., a suburb of Las Vegas. “They see that Nevada has no state taxes and is a relatively cheap state to live in,” she said. “As a result, in-migration here is increasing mightily, primarily from California, Florida, and Texas, according to a study based on driver’s license requests” With a scant 1.4-month supply of available homes, Kuptz said, it is inevitable that a home priced at under $300,000 or $350,000 may draw as many as 20 offers in 24 hours. “To give you an idea how many buyers are coming in just from the Silicon Valley area of California,” said Kuptz, “the cost to rent a U-Haul from Las Vegas to Oakland is $124 - but the cost to rent one from Oakland to Las Vegas can be well over $2,000.” The elephant in the room, as calendar pages turn, is whether - and how long - this hot market environment is sustainable. “One factor is inventory,” said Kuptz. “Many homeowners have been refinancing to take advantage of low rates, but Fannie Mae and Freddie Mac will be adding a 50-basis point fee to most mortgage refinances beginning in September. That may encourage more people to put their homes on the market, which could help ease the crunch.” The state of new construction is another issue. “Construction basically came to a standstill mid-COVID,” noted Deuitch,” putting pressure on current housing inventory. But it’s slowly beginning to ramp up. We’re seeing some construction now on the outskirts of Tucson, where starter homes may sell for as little $250,000.” There is the normal slowdown leading up the holidays. “The season started late and picked up steam fast,” Deuitch noted. “There is no way to know how long pent-up demand will last.” Yet another factor is unemployment. “Unemployment has hit the hospitality industry hard,” noted Kruptz. “Here in Las Vegas, for example, a couple of casino/hotels have opened, but some may never re-open. What that will mean for the overall economy still remains to be seen.” Financial factors weigh heavily, agreed Docktor. “It’s difficult to predict,” she said, “if unemployment remains high and renter’s protections are not renewed, how much renter displacement might impact the housing picture - or, for that matter, how much a second stimulus package might help.” And, of course, there is the pandemic itself. “This health crisis has indelibly changed our way of thinking, touching every aspect of our lives,” Docktor said. “How soon there is an effective vaccine, when more Americans feel safe and stable, all of this will factor in.” Still, said Deuitch, there is reason to believe the housing market will remain strong. “There is no housing bubble this time around,” he said. “There is no easy money.” In fact, he said, credit has tightened as lenders check and re-check a borrower’s employment status right up until closing. “Barring some huge calamity,” Deuitch said, “like continuing surges of the coronavirus or a new economic catastrophe, I think we will continue to see a healthy real estate market for at least the foreseeable future.”

Using "Other Income" to Qualify for a Home Loan

Using “Other” Income to Qualify Written by David Reed Posted On Friday, 21 August 2020 05:00 Print Email Using “Other” Income to Qualify Lending guidelines are pretty firm when it comes to validating income. One of the primary duties a lender performs when evaluating a loan application is whether or not the borrowers can comfortably afford the new monthly payments. This is done by way of comparing monthly income with monthly debt to arrive at a debt ratio. Verifying income for most applicants is mostly straightforward. To verify monthly income, applicants simply need to provide copies of the most recent paycheck stubs covering a 30 day period. At the same time, lenders want to see at least two years of this income being paid on a regular basis. This is accomplished by providing the last two years of W2 forms. For those who are self-employed, the last two years of tax returns as well as a year-to-date profit and loss statements are needed. The loan application has a section that asks for monthly income from a variety of different sources. Is the income from a regular paycheck. This is referred to on the loan application as “base” income. Is there bonus income that might be used? Bonus income can be used to help qualify but only if the income has been shown to be paid before, has a history and the lender can determine if the income is likely to continue. A quarterly performance bonus comes to mind, for example. An annual bonus, maybe not. The bonus income should be viewed as being able to be used to service monthly debt and expenses. A Christmas bonus may not be around any longer come July. But a bonus received every 90 days might. There is also a space for overtime income. For those paid hourly, overtime income, income beyond a 40 hour week, can be used to help qualify. But again, like bonus income, there needs to be a two year history as well as the expectation overtime income will continue into the future. This is easily verified with paycheck stubs and W2 forms. Commissions can also be counted as income using the same guidelines. A two year history and a determination the additional income is likely to continue. Dividends and interest income can be used as can income from rental property. But there’s another space on the application labeled “Other.” For any income outside of the above mentioned categories, it falls into the “other” slot. Someone receiving support payments can put this amount in the category if the applicant chooses to use support payments to help qualify. For support payments, a copy of the divorce decree needs to be reviewed showing how much the support payments are to be as well as how long the payments will continue. If it is determined the support payments will last for at least another two years, it can be counted as qualifying income. Any other income can be listed on the application with supporting documentation. The income must be verified as having a history and the lender determines the income is likely to continue into the future. How far into the future? Most programs don’t have a definite time frame but many lenders like to see a three year window. There’s no way to truly make that determination but showing a two year history can make the cased that the income is likely to continue well into the future.

Your Financial Future...Economic 101

Your Financial Future...Economic 101 Featured Editor's Blog Written by Saul Klein Posted On Wednesday, 19 August 2020 20:10 font size Print Email Your Financial Future...Economic 101 Gold??? Stock Market??? Real Estate??? Ask Warren Buffet. He just made a huge bet on gold. I have been a student and teacher of the economy and economic principles since the late 1970s, when we were looking at what we believed were enormous deficits, coming inflation, and a great recession. Remember Howard Ruff and his book "How to Prosper During the Coming Bad Years?" It was a best seller in 1979/80. Ruff believed that the United States was headed for a hyperinflationary economic depression and that there was a danger that both government and private pension plans were about to collapse. His ideas were based in part on the continued growth of the National Debt and the year after year budget deficits. His predictions did not materialize the way he believed they would. So, should we worry about our current state of the economy? If the market crashes, how much time will it take to come back? Depending on your age, this is an extremely important consideration. The current national debt dwarfs the 1970s and 80s numbers. If we thought it was bad then, it must be disastrous today. Yet we made it through that period, partly because of ERTA, the Economic Recovery Tax Act, and the resilience of our economy. With all of the uncertainty today, where is the economy heading up to and after the election? In what assets should be you investing? Will new taxes and more regulation affect your investments? With all of the capital being pumped out by our government, what about inflation? Are you concerned? During times of uncertainty, gold has served as a safe haven. Gold is now at a high, but will it go higher? Ask Warren Buffet. I read the following in the Wall Street Journal Yesterday. This is news: Last Friday, Berkshire Hathaway (Warren Buffet) disclosed that it held a $565 million Stake in Barrick Gold Corp, the world’s second largest gold miner at the end of the second quarter, making it Barrick's 11th largest shareholder. This comes while Berkshire unloaded billions of dollars in bank stocks such as Wells Fargo and JP Morgan Chase. How much gold do you own, and how do you hold it? In what assets are your retirement plans invested? These are important considerations during these uncertain times. Some are saying that there is potential for a 25% drop in the stock market before the end of the year. The stock market dropped dramatically a few months ago because of the pandemic, lockdowns, and unemployment. It has since made a stunning comeback. Will it keep going? During times of high inflation, which we might see return because of the government rescue plans pumping trillions of dollars into the economy, "equity assets" typically do well. What about real estate as an investment? I have always been an advocate of real estate ownership, but I have some doubts as my state, California, moves forward with new debt, new regulations, and perhaps new property tax increases. I am not making predictions, but I am looking closely at my portfolio, and making what I believe to be proper adjustments. I may be leaving some "money on the table," but as the old saying goes: "Pigs get fed, hogs get slaughtered."

Terri Sits Down With The Three Powerhouse Founders Of WomanUP!® To Discuss The 2020 WomanUP!® Virtual Experience - Registration Now Open!

Now Open! Women in Real Estate Written by Terri Murphy Posted On Wednesday, 19 August 2020 20:52 font size Print Email Terri Sits Down With The Three Powerhouse Founders Of WomanUP!® To Discuss The 2020 WomanUP!® Virtual Experience - Registration Now Open! Lead by real estate moguls Leslie Appleton-Young, Sara Sutachan and Debra Trappen, WomanUP!® exists to support the journey of women to the very top of their careers. Their three-part mission is to "identify, develop, and connect women in this industry. We identify the tools and strategies you need to make bold moves in real estate. We provide you with resources and events to develop your skills as a leader. We create opportunities to connect with other amazing leaders in the national brokerage community." Terri Murphy sits down with the three powerhouse leaders of WomanUP! to discuss their upcoming event, the 2020 WomanUP! Virutal Experience taking place on September 1st-3rd. The event promises "the signature solo talks, group conversations, and social gatherings you have enjoyed since 2017 - and translating them to a unique virtual experience." Watch the full interview below: REGISTRATION IS NOW OPEN! Click here to visit the WomanUP!® website and to register for the 3-day virtual event. Check out the promotional video for the 2020 WomanUP!® Virtual Experience: About the Women of WomanUP!® Leslie Appleton Young HeadshotLeslie Appleton-Young is Senior Vice President and Chief Economist for the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.). Appleton-Young directs the activities of the Association's Member Information Team. She is the co-creator of WomanUP!®, C.A.R.'s Women's Initiative designed to close the gender gap in the leadership of real estate firms. In a male-dominated sector of the real estate industry, Leslie is passionate about empowering women to see their potential and the possibilities available to them - even when they can't see them yet. When she is not overseeing the analysis of housing market and brokerage industry trends, broker relations, and membership development activities or sharing her wisdom from stage across the country, you will find her mentoring the next generation, traveling with her loved ones, or riding her heart out at the local SoulCycle! Sara SutachanSara Sutachan is the Vice President of industry and broker relations, membership development and strategic initiatives for the California Association of REALTORS®. She is the co-creator of WomanUP!®, C.A.R.'s Women's Initiative designed to close the gender gap in the leadership of real estate firms. In her passion to affect change in this arena, Sara is dedicated to the empowerment of women through research, professional development, events, mentoring, and creating a community of advocates and support. Sara is also responsible for identifying, building, maintaining, and reaching out to California Brokers in order to gain insights and spot emerging trends in the industry. In this role, she helps the Association establish vision, identify new and emerging opportunities and relationships and is responsible for implementing key strategic initiatives. When Sara is not strategizing or implementing new ideas, sharing her knowledge from stage, or co-hosting the C.A.R. Leaders and Legends podcast, you will find her out adventuring and enjoying life with her two amazing children and loved ones! Debra Trappen sqDebra Trappen is an empowerment coach, women's initiatives consultant, author, podcaster, and sought-after keynote speaker at debratrappen.com. She is our Chief Strategist and Lioness Leader here at WomanUP!®. ​Her days are divinely filled with events and projects allowing her to fire up and serve growth-minded leaders – with a passion for sparking women building their slice of the kingdom from the couch, carpool, cubicle, or corner office. ​Debra's heart's desire is for every person to define and design their best life and thrive living it out loud, on purpose, and on their own terms. During her 17+ years in the real estate space, she has shared her truth, wrapped in grace with sides of sass, moxie, and fire with hundreds of thousands of entrepreneurs in 60+ cities across the globe through her keynote talks, books, ecourses, workshops, and affirmations. When she is not idea-storming her next adventure, reading-writing-recording in her Fire Up! studio, or sprinkling moxie from the stage – you will find her walking her pups, editing photos on her iPhone, watching Sci-Fi and 80’s flicks, or wine tasting with her husband and besties! Are you ready to engage, elevate, and empower yourself to live your best life? She dares you!

Ask the HOA Expert: How Many Meetings Should We Have?

Written by Richard Thompson Posted On Thursday, 20 August 2020 05:00 Print Email Ask the HOA Expert: How Many Meetings Should We Have? Question: I am an owner in a rather small condominium complex. The Board of Directors is made up of five individuals. We have now learned that two of the officers of the board, the president and vice-president, are planning to rent their units and live elsewhere, one of them to another state. My question is, without living here, can these individuals remain on the Board? Answer: There are two issues. The board is composed of directors, some who are officers. As directors, they are entitled to remain on the board although doing so may not be practical or fair to those members that voted them in. Not living at or in close proximity to the HOA clearly compromises a director's ability to attend meetings and be directly informed of the physical condition of the property. A director that also serves as an officer has even a higher responsibility to those that elected them since the officers direct the day to day business of the HOA. Having a local President, in particular, is extremely important. However, officers are selected by the board itself so this can be changed when circumstances dictate. If the two top officers are no longer local, I recommend that other directors assume these duties. It makes sense that the non-local directors tender their resignations if they are no longer able to attend the board meetings. That said, the board has no authority to remove directors, even for just cause. They were elected by the members and can only be removed from the board by the members. Question: Our new board is preparing our Annual Calendar. How many board meetings a year should we hold? Answer: The answer is directly related to whether your HOA is professionally managed or not and the extent of the common elements. HOAs that are professionally managed can usually operate with four board meetings a year. The manager is given authority by the board to execute normal HOA business within the parameters of the approved budget. If a situation falls outside these boundaries, the Board President has the authority to approve the additional work. If the Board President feels the situation dictates a board decision, she can call a special board meeting. If the HOA is self-managed, the board usually meets at least every two months or even monthly if the common elements are extensive. Keep in mind that board meetings are for the benefit of the general membership as well who have the right to attend and petition the board. Board meetings should be scheduled a year in advance in a location that is guest friendly. Scheduling months in advance ensures that there will be no scheduling conflicts. For more Ask the HOA Expert, see Regenesis.net .

The Effects from Covid on Reverse Mortgages

 Written by Edward Brown & Mary Jo Lafaye               Posted On Monday, 17 August 2020 05:00

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With the Covid crisis still looming, much attention has been focused on conventional loans where monthly mortgage payments are required. Recently, laws have been passed on both local and national levels to ensure homeowners are not evicted for non-payment on FHA loans.

Relatively little attention has been geared toward reverse mortgages during the Covid virus. Why is that? At first glance, the simple answer is that no monthly payments are required for reverse mortgages; thus, there is no risk for a foreclosure for non-payment of a mortgage. However, one needs to go deeper to understand that there could be a potential risk to the homeowner of losing their house in certain circumstances but for the foreclosure moratorium.

Under normal circumstances, the borrower on a reverse mortgage does not have to worry about foreclosure by the lender because no monthly payments are required; the loan balance just keeps increasing as interest accrues over time and is only required to be paid back upon the death of the last remaining borrower, move out by the borrower, or death of the non-borrowing spouse if the borrowing spouse predeceased them. The borrower’s only requirement for yearly payments are real estate taxes and insurance, HOA dues if applicable, plus maintenance and utilities. If the borrower fails to pay these, technically, they are in default and the loan may be called. This could lead to a foreclosure. In addition, the house may not be left vacant or abandoned.

For those borrowers who take a lump sum reverse mortgage and whose income is estimated to be too low to maintain the real estate taxes and insurance, they may be required to have a Life Expectancy Set Aside [LESA]. LESA is similar to an escrow account that is set aside for future real estate taxes and insurance and is based on the life expectancy of the borrower. These future expenses are deducted from the lump sum provided by the reverse mortgage company and held by them. The funds in the LESA become part of the loan balance once the lender disburses them to pay the property charges on behalf of the borrower. Thus, those borrowers who have LESA, for all intents and purposes, would not typically face foreclosure during their expected lifetime. 

Many conventional borrowers have requested deferments from their lending institution as they fell on hard times with the loss of income during Covid. The need for deferment requests are all but eliminated for reverse mortgages.

There has been a tremendous push toward applying for reverse mortgages by homeowners. There are many reasons for this; historically low interest rates mean that a borrower can obtain a much larger reverse mortgage, as the interest that gets added to the mortgage every year is less than in a high interest rate environment. Thus, the lower the interest rate, the better it is for the homeowner and, consequently, the less risk for the mortgage company.

In addition, many older homeowners have lost their job during the virus, and their largest retirement asset, by far, is their home equity from which they can draw upon. These same homeowners not only may not qualify for a HELOC [Home Equity Line of Credit], they may not want them after considering the benefits of a reverse mortgage (HECM) vs. a HELOC. For one, HELOCs require monthly mortgage payments. In addition, unlike reverse mortgage (HECM), the bank can freeze [or reduce] the HELOC line and not allow access to it. This puts the homeowner in a precarious position of having debt against their property [as the HELOC is recorded against the property for the maximum potential draw of the line] without any benefit. Such was the case during The Great Recession in the mid-late 2000s when $6 billion of HELOC credit was frozen in June of 2008, and the freezing continued for some time. Why? The answer lies in the fact that the fastest way for a bank to shore up its balance sheet is to freeze HELOCs, so they do not have to set aside reserves. During The Great Recession, banks were facing write downs and write offs of loans as the loans that they had previously written took a downturn when borrowers, during the credit crisis, were unable to pay their mortgage. When a bank makes loans, they use depositors’ funds. The government requires reserves [loan loss reserves] be set aside to ensure the return of those depositors’ funds. If a bank has existing loans outstanding, they cannot just call in those loans [unless borrowers default]; however, a HELOC is a “potential loan” as the loan technically only exists as the borrower draws upon it. In this situation, if they freeze [or reduce] the line, the bank has not lent the money yet and can stop it before the borrower accesses the money that was available to them.

Most major banks have seriously curtailed the issuance of HELOCs during the current Covid crisis, and those that continue to offer HELOC’s have imposed stringent qualifications to borrowers.

Many borrowers are realizing reverse mortgages offer advantages over HELOCs in this regard. There are limited income and credit qualifications to obtain a reverse mortgage. Reverse mortgage (HECM) lines of credit cannot be frozen or reduced, and, since there are no monthly mortgage payments, the risk of foreclosure [even after the moratorium] is slim.

A new situation has arisen due to Covid and that has to do with nursing homes. Once considered an alternative to in-home care [which is usually two to three times the cost of a nursing home], many stories have been published about the increase in deaths surrounding Covid and older Americans in care facilities. Most people would like to be in their own home instead of a care facility given the choice, but, unfortunately, many people cannot afford the [around the clock] care required to stay home and be cared for. Loved ones, especially during the virus, are looking for a way to keep their elders in the safety of their own home and receiving the quality and quantity of care they needed. Many are looking toward a reverse mortgage to fill this need. Many people have enough equity in their homes, especially as real estate has tremendously rebounded since The Great Recession, to allow them a large enough reverse mortgage to afford the costs associated with in-home care.

The National Reverse Mortgage Lenders Association [NRMLA] reports that there have been significant increases in draws [on the HECM reverse mortgage line of credit]. Those retirees who lost their part time jobs and need to make ends meet, helping family affected by Covid, and those who are just generally concerned about their future finances. NRMLA states there has been a 55% increase in the number of draws and 14% in the size of the draws. In fact, they notice that some borrowers who had never previously drawn on their line of credit are fully drawing the line now.

As Covid gets more impactful on the economy and on peoples’ lives in general, we should expect reverse mortgages to grow, and now seems to be the most opportune time to obtain one – before interest rates increase. 

Real Estate Economy Watch - Struggling Homeowners Face A New Refinancing Fee 16 August 2020 05:00

 Written by Steve Cook Posted On Sunday, 16 August 2020 05:00

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Whoever said timing is everything sure doesn’t run the Federal Housing Finance Agency, the folks who oversee Fannie Mae and Freddie Mac.  

Beginning this month, the seven million homeowners who put their homes in forbearance last spring will have to decide whether to remain in forbearance for another six months. By doing so, they could accrue an additional six months of mortgage debt that they will have to repay.  If they leave forbearance, they must make their monthly mortgage payments plus repay the six months’ worth of payments they missed.   Should they leave now, they could face this miserable economy with a much better chance of losing their home through foreclosure or be forced to sell their home and return to renting. (See “Pay me now or pay me later”}

Rates are lower now than six months ago

Refinancing may be the perfect solution for these hurting homeowners. 

With rates at record low rates below 3.00 percent for the first time in decades, homeowners with good credit, decent income, and some equity in their homes might be able to pay off what they owe.  They might be able to create a fresh start for themselves by refinancing their mortgages. They cannot refinance as long as they are in forbearance.

At 3.00 percent, a homeowner refinancing a $200,000 mortgage would pay $843 a month today, monthly payment $53 lower than the $893 they would pay if they refinanced in late March when homeowners suffering financially from the pandemic could first apply for forbearance. These super low rates ignited a refinancing boom and are probably the reason that some 2 million struggling owners chose to leave forbearance early over the past five months. 

With the deadline on forbearance just days away for many homeowners, Mark Calabria, the head of FHFA, suddenly announced last week that a new adverse-market refinance fee of 0.5 percent would go into effect September 1. The Mortgage Bankers Association estimated the “market fee” could effectively raise costs for the average consumer looking to refinance by $1,400.

Showing the proverbial middle finger

Within hours, the housing industry erupted in anger.  Twenty housing organizations, including the National Association of Realtors and the National Association of Home Builders, urged Calabria to change his mind.  

• “Since the onset of COVID-19, and despite heroic efforts by the Fed and Congress with the most extraordinary intervention, the FHFA has simply shown the proverbial middle finger to the housing finance system, to consumers, and especially to nonbank lenders who have been critical to credit availability in creating homeownership, wrote former FHA Commissioner Dave Stevens,
• “The cost of the Calabria Refinance Tax will fall most heavily on low-income households, which tend to see inferior execution in good times but suffer the most when issuers are making choices about which loans to close and which loans to discard. That is the true cost of the Calabria Tax on mortgage refinance,” wrote Christopher Whalen, chairman of Whalen Global Advisors, in National Mortgage News.
• “Rates are higher for refinances,” noted Matthew Graham, COO of Mortgage News Daily, quoted on CNBC. “FHFA sees that and concludes lenders have money to give on refis. It’s a tax based on jealousy, greed, and probably more than a little bit of disdain.”

The White House is Reviewing it

Calabria’s fee was not only poorly timed for hurting homeowners who are struggling to refinance during the pandemic, but it also raised eyebrows at the Trump White House as the November elections near.

“The White House has serious concerns with this action, and is reviewing it,” a senior White House official said in a written statement. “It appears only to help Fannie and Freddie and not the American consumer,” reported the Wall Street Journal last Friday.

Top Tips For Buying A Home Sight Unseen

 

      Written by Jaymi Naciri   If you’re thinking about buying a house right now, you’re probably wondering how to go about it. The truth is, you CAN do in-person tours, depending on local regulations in the area in which you are buying. But many people are buying home Posted On Sunday, 16 August 2020 05:00

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If you’re thinking about buying a house right now, you’re probably wondering how to go about it. The truth is, you CAN do in-person tours, depending on local regulations in the area in which you are buying. But many people are buying homes right now without stepping foot inside until AFTER the deal is done.  

“While sight unseen deals have always existed, mainly among foreign buyers, investors and home shoppers who are moving long-distance, such arrangements might spike in popularity, especially as the coronavirus lingers on with predictions for a second wave of infections,” said WTOP. “According to a survey by home repair company Helitech that outlines the effects the coronavirus has wielded on housing, one in three respondents said they would consider purchasing a residence sight unseen.”

A survey from 2018 showed that about 20 percent of homebuyers had made an offer on a home without seeing it first. A more recent, COVID-19-influenced survey found that 45% of homebuyers in the last year had made an offer without seeing the property in person. Realtor.com found that “24% of 1,300 consumers surveyed said they’d be willing to buy a home without first seeing it in person.

If you’re considering purchasing a home sight unseen, these tips will help. 

Hire the right agent

If you’re buying a house without touring it first, you have to depend on your agent to be your eyes and ears. It’s crucial that you go with a local expert, especially if you aren’t super familiar with the area. 

“Hire an agent who’s well-versed in the area and working with long distance clientele,” said HomeLight. “Having an excellent agent by your side is critical in any home buying situation. But when you buy sight unseen, you’re putting another layer of trust in this person.”

Take advantage of technology

Check out a 3D home tour on Zillow lately? You’re not alone; they’re up by more than 600% since the pandemic hit. Listings that have this functionality are likely to rise to the top because they give you more of a feel for the home. But whether you’re looking at a carousel of images or a 3D tour, don’t forget to ask your agent to go a step further.   

“Once you know which homes you’re most interested in, have your agent book some showings and take you along on the tour using FaceTime,” said HomeLight. “Sounds simple, but what’s great about FaceTime is that you can get a better idea of the flow of the house and ask your agent questions in real time as they walk through each room to really get a feel for a property.”

Ask for a floorplan

You’re more likely to find home listings that include a floorplan image today, given the whole social distanced thing. If you don’t see one, it doesn’t hurt to ask. Yes, a video tour of the homes you’re interested in will give you the best feel for how the homes live,  but being able to refer to the floorplan to ensure it meets your needs will be invaluable.

“The layout of a home is fundamental. For example, having a dining room attached to a kitchen versus on the other side of the house can change things,” said Great Colorado Homes. “Having a printed floor plan can reveal what the day-to-day activities in a home might look like. If you can get your hands on a floor plan of the home that you're interested in, it will help you understand the house better. The more info you have, the fewer surprises you're likely to experience.”

Order an appraisal and a home inspection

Even in cases where they’re not required, you don’t want to skip these steps. Especially when you can’t or don’t want to tour a home yourself, having expert documentation regarding the value and condition of the home is more important than ever. 

Your Referrals Promote Our Donations to Ventura County Rescue Mission & Lighthouse for Women and Children

Your Referrals Promote Our Donations to Ventura County Rescue Mission   &   Lighthouse for Women and Children 

 

I am committed to helping the Ventura County Rescue Mission or Lighthouse for Women, every time we close a referral real estate sale. We just made our first $500 donation to Ventura County Rescue Mission. Your referrals will now directly help those folks who through no fault of their own, lost their jobs, homes and means of survival. More to come! 

Mark Thorngren - Realty One Group Summit

2185 Ventura Blvd, Camarillo, Ca 93010

(805) 443-3366 or mark@markthornren.com or https://markthorngren.myrealtyonegroup.com/

 

Ventura County Rescue Mission

https://vcrescuemission.org 

 

Lighthouse for Women and Children

https://vcrescuemission.org/lighthouse/ 

 

 

Volunteer at: 

http://www.volunteerventuracounty.org/agency/detail/?agency_id=53778

 

 

All the best! 

 

Mark Thorngren

 

 

 

The Senior Equation: Boomer Choices Loom Large In Pandemic Real Estate Market

 

Written by Barbara Pronin 

Posted On Friday, 14 August 2020 05:00

Accounting for some 40 percent of the population, baby boomers have for most of their lives directly influenced American life and culture, driving everything from the rise of rock music to the strength of political activism. 

Today, the oldest in this ‘gray tsunami,’ as the aging generation has been called, are well into their seventies, long past the traditional retirement age and - in a time when the coronavirus pandemic is whipping the real estate market into a frenzy - still a force to be reckoned with. 

“The pandemic has inspired older adults to re-evaluate their living situations,” noted senior real estate specialist Linette Edwards, co-founder of Abio Properties, a Northern California brokerage, and founder of senior transitional services company Encircle Life. “For some, the health crisis is providing the impetus to retire early and move to their dream destination while the market is hot.”

A case in point, Edwards said, is her client, Kevin Van Voorhis, 65, a commercial real estate broker who moved up his plans to retire to Puerto Vallarta, Mexico when the pandemic cooled investor thirst for office buildings and shopping malls.

“I’ve been through downturns before,” said Van Voorhis. “After more than 40 years in the business, I decided not to wait out another one.”

Instead, he said, he packed up earlier than planned and moved into the ocean-view Puerto Vallarta home he had purchased four years ago with an eye toward eventual retirement, leaving Edwards to supervise some remodeling in his Walnut Creek home before listing it.

“I know I’ll get top dollar for my home by selling in today’s market,” Van Voorhis said. “That, and a less expensive Mexican lifestyle will help ensure a comfortable retirement for however many years I have left.”

But a number of aging boomers are staying put.

“For many seniors, there is no urgency to move,” said Charlene Morrissey, a relocation specialist with Century 21 North East in Danvers, Mass. “They may be thinking about downsizing or moving to a better climate, but they are unsure where they would go if they sell the family home.”

For one thing, Morrissey said, they know that housing inventory is scarce.

“They worry that if they sell their home, they may not be able to find what they want,” she said. “It doesn’t help that, in many cases, they can’t view properties in person, and they are not ready to rely on a virtual home tour to make a decision - and, of course, if they were considering assisted living or a retirement community, they are holding back because they don’t want to share public spaces or live in a setting with a dense population in the midst of a health crisis.”

Additionally, she noted, since aging baby boomers tend to ‘sell large’ and ‘buy small’, some fear they will find themselves competing with millennials or other first-time buyers who are looking for the same smaller living spaces. 

Whatever their reason for not moving, observed Morrissey, their reluctance to put their homes on the market is putting pressure on already anemic listings situation.

Edwards, whose transition services company is designed to provide ‘concierge assistance’ for seniors, suggests one option that is gaining in popularity.

“In a time when families are moving their elderly out of assisted living situations for health reasons, and multi-generational living is gaining in appeal, there is a renewed interest in building ‘granny flats,’” she said. 

Known more formally as Accessory Dwelling Units (ADUs,) these secondary ‘granny flats’ or ‘mother-in-law quarters’ share the same lot on which a primary home is built, said Edwards. 

“Some seniors are downsizing into ADUs they build on their own properties, then renting out the main house to bring in additional retirement income,” she said. “Or, if they don’t need the income, they may invite their grown children or grandchildren to live in the main house.” 

Either way, she pointed out, the ADU provides an efficient way for seniors to maintain independent living with family nearby while at the same time helping to ease the housing crunch.

By traditional thinking, noted Morrissey, people buy a house, have a family, buy a larger house, and then downsize in one manner or another once the kids are gone. 

But these are not traditional times, and boomers - the oldest of whom will turn 75 in the next year or so - are turning tradition on its ear in the same way as they rebelled against the establishment in the 1960s. 

Some, like Van Voorhis, see the pandemic as an opportunity to move on. But many boomers are deciding to age in place until such time as they no longer can - and until this group is ready to move, the senior equation will figure heavily into the state of the market.

Forebearance and Our Real Estate Market

      Real Estate Economy Watch - Forbearances: Pay Me Now Or Pay Me Later?

Written by Steve Cook Posted On Friday, 14 August 2020 05:00

In late April, Congress passed the CARES Act, which included relief for homeowners suffering financially from the novel coronavirus.  With memories still fresh of the housing crash and that depressed housing markets with a tsunami of foreclosures prices for a decade ten years, policymakers devised a way to provide homeowners time to recover financially by temporarily halting their monthly mortgage payments.

Beginning May 27, homeowners who are suffering financially from the pandemic can ask for a six- or twelve-month period of forbearance.  When the period of forbearance ends, borrowers must work out a plan with their lenders to repay the missed monthly payments all at once.  These plans may include refinancing to take advantage of lower mortgage rates and accumulated equity, modifying the terms of the existing mortgage or selling.  The CARES Act also placed a moratorium on all foreclosures until August 31.

The CARES Act covers only homes that are owned or insured by the federal government. These include Fannie Mae, Freddie Mac, Ginnie Mae, FHA, USDA and V.A., and account for about 70 percent of all mortgages. Lenders or investors own the other 30 percent.  The government asked that owners of these privately owned mortgages create forbearance programs for the borrowers.

For obvious reasons, forbearances mandated by the CARES Act have not been popular among lenders. Under pressure from the government, most private lenders have agreed to forbearances, but for shorter periods and with no commitment to extend them.  To reduce the perceived risk in their portfolios, they took steps to reduce exposure to risk by quietly raising loan limits on new loans.  Most private lenders who recently began offering the low-down-payment business halted their programs and lowered the standard for load-to-value ratios.

So far, so good

To date, the forbearance programs under the CARE Act are working, but the hard part is yet to come. 

Some borrowers are voluntarily leaving forbearance months early, and applications for forbearance have steadily declined. About 7 percent of U.S. mortgages were in forbearance in the first week of August, down from 9 percent in May, and one month or more before the six months when the first mortgage forbearances expire.

Instead of increasing, mortgage defaults have declined, a sign that the forbearance program is keeping foreclosures down, which is a primary objective of the CARES Act. CoreLogic reported that in April, early-stage delinquencies reached their highest level in 21 years. Still, loans in forbearance are counted as delinquent, and the rise in early delinquencies reflected mortgages going into forbearance under the CARES Act.

Strong prices have pushed up home equity through the second quarter, reducing the number of underwater mortgages and increasing the number of equity-rich mortgages — those with combined loan-to-value ratios of 50% or less — from 14.5 million to 15.2 million over the past year.  

Half a million foreclosures?

In late July, the data analytics firm Attom Data Solutions made a remarkable and sobering forecast.   

"Amid projections that high unemployment connected to the pandemic will worsen, an analysis by ATTOM Data Solutions shows that anywhere from about 225,000 to 500,000 homeowners across the country could face possible foreclosure throughout the rest of 2021 because of delinquent loan payments."

Though large enough to rattle housing markets, even ATTOM's worst predictions are milder than when 4 to 6 million homes foreclosed upon from 2008 through late 2011.

^{ATTOM's worst-case scenario has foreclosures reaching 500,000 next year}

Another analysis by Fitch Ratings, which rates mortgage-backed securities, argues that homeowners today have a cushion of equity to protect them from foreclosure that they lacked at the outbreak of the Great Recession.

"As of April 30, nearly 80 percent of mortgage borrowers in forbearance had at least 20 percent equity in their homes, according to Black Knight, providing a buffer against financial hardship or job loss and an incentive to continue to make payments following forbearance. Only 10 percent of the number of loans in forbearance had a combined LTV of 90 percent or higher, taking into account post-loan origination home price growth and any second-lien debt."

Sooner or later, the piper must be paid

With so many unknowns, even forecasts for the third and fourth quarters of this year are problematic.

America has failed to bring the COVID-19 crisis under control. We have made progress containing the virus only through lockdowns, which devastated the economy.  Real relief awaits finding a successful vaccine and vaccinating enough people to stop the spread. That's probably 9 to 12 months away,

During the pandemic, the U.S. economy has declined faster than at any time since the Great Depression.  Housing markets have yet to feel the full impact of unemployment and underemployment.  Artificially low inventories and demand is driven by the coming of age of the largest and third-largest generations in history have kept prices rising―for now.  

Forbearances and the moratorium on defaults are giving homeowners some breathing room to weather the current crisis, but they are delaying, not solving the problem. Small businesses and unemployed people still in crisis.  Over time, forbearances could seriously damage our housing finance industry.

Beginning in August, when the first forbearances under the CARES Act expire, large numbers of homeowners will start to pay their monthly mortgages again plus, at some point, the payments they missed.  The piper must be paid.

To add to the uncertainty, we are three months away from a presidential and congressional election whose outcome could lead to a complete change in national pandemic, economic, and housing policies.