BluefoxToday blog : July 2009

HomeSteps, the real estate sales arm of Freddie Mac, just introduced a new program in an attempt to thin its inventory of agency-owned homes, in other words homes it has foreclosed on. In this demanding housing environment it predictably has quite a few of them available for purchase and has decided to do something meaningful about it.

HomeSteps has dubbed the campaign SmartBuy. Someone at Freddie Mac must be really good at coming up with catchy names. Anyhow, it runs from July 17 to October 31, 2009, unless extended. It's good for single-family homes only from HomeSteps inventory and it must be the buyer's primary residence.  

Freddie Mac has included two nice incentives in the SmartBuy sales promotion. The first one is the 2-year comprehensive home warranty that covers the usual items that we see in other warranties. It never hurts to have one in the early years when budgets can be tight and making mortgage payments could become a challenge in case something major breaks down. If the homeowner wishes to continue the coverage after that, he can do so on his own.

In the second one Freddie Mac offers to pay up to 3.5% of the contract price in buyer's closing costs. That's not bad, either.

For additional info visit HomeSteps or dial 800-972-7555.

Las Vegas housing market, for instance, is awash in foreclosure listings and to get an edge here something like this will help out. And of course, the properties for sale ought to be priced right. Moreover, it's an indication that Freddie Mac, among all the other lenders with a mountain of non-performing real estate, is really starting to work on lowering its REO, real estate owned, database.

Las Vegas housing market alone would be a big beneficiary if it did happen. Southern Nevada has already seen solid gains this year in sales thanks in large part to the first-time buyer tax credit of $8,000. This incentive is set to come to an end December 1.

NAR, or National Association of Realtors, and the mortgage industry are currently working on Congress to keep it going well into 2010. It has such a good track record, so why not. They have two other worthwhile ideas in mind as well.

The tax credit ceiling ought to be hiked to $15,000 is one of them. If it were to go that high, it would really give the real estate market some kick. Of course this would cost the U.S. Treasury another chunk of money, so there could be some resistance to it. But on the other hand, it might be better spent this way than hand anything more to banks that have largely been using bailout cash for just about everything else but help the housing industry. In other words, make mortgage funding more available to borrowers.

The other is to allow every homebuyer under this tax credit umbrella. Not just first-time buyers. There is no doubt that this would give the housing market another serious injection of valuable medication.

The real estate market is a key element in the entire economy that is still wobbling along. In light of that, it's predictable that some sort of a stimulus effort will be enacted before too long and hopefully it includes some good news for the housing sector.

Relief Refinance Mortgage by Freddie Mac falls under this banner. It's now official that the previous limit of 105% has been pushed up to 125% loan-to-value, or LTV, something that Washington had been tossing around for a bit. "This is a change that will put affordable refinancing opportunities within reach of performing borrowers who have suffered the effects of local home price erosion," explained a Freddie Mac wool suit. Qualifying homeowners are current on their payments and have a mortgage owned or guaranteed by the agency.

Freddie Mac's Relief Refinance Mortgagehas some nice features, too. It lets borrowers finance closing and financing costs and prepaids/escrows up to $5,000, or 4% of the mortgage balance being refinanced, whichever is less. In addition, MI, or mortgage insurance, is not needed if the underlying note does not have one. If there is an MI on the existing mortgage, the new one must keep the same coverage.

Las Vegas homeowners could benefit from Relief Refinance Mortgage. Many who bought property in the last five-six years with little or nothing down are generally upside down and as long as they are not too much so, they could be eligible here. Let's say that a home is presently worth $250,000, then under the old rule of 105% LTV the refinance could go to $262,500, or $12,500 over the actual value. In the new scenario at 125% LTV the refinance amount could reach up to $312,500, or $62,500 over the home's value. This is more like it. The new, higher limit will make a real difference.

HARP makes now more sense in those areas, including Southern Nevada, that were hammered the worst during this real estate calamity. It gives borrowers another useful option to consider when dealing with difficulties in meeting their mortgage obligations.

This outcome hasn't been discussed much before but now it's out there for everyone to see. Namely that if a homeowner in distress is successful in using the Home Affordable Modification Program, kicked off in March, to lower his mortgage payments, his FICO score is likely to take a hit. FICO is the commonly-used barometer to assess a consumer's credit standing.

That's because many mortgage lenders report the modification to FICO as such. This means that the original terms of the loan were changed, often for less than the full amount, and any time that happens FICO's existing formula regards that as a negative. The score can drop 100 points and more. A perilous dive.

Under current train of thought, the negative impact is entirely reasonable. By how many points it should impact the score is debatable, however. In this deep recession borrowers that are proactive and seek to work things out before falling behind in their payments ought not to pay a heavy price for it. They are trying to achieve a win-win outcome for everyone. It clearly seems excessive to see FICOs tumble 100 or more points.

Not only that, but consumers that have done this have also generally been unaware of the blow to their credit scores. They only find out about it later when requesting a fresh report. Either the disclosure hasn't been there at all, or was buried somewhere in fine print, the usual industry practice. This can predictably slow down foreclosure prevention efforts to the detriment of the entire economy. That, for the most part due to FICO using an outdated scoring model. It should be quickly revisited to reflect the presently difficult real estate market.  

FHA barely had any market share in Southern Nevada a few years ago because the conventional product was generally offering home loans with better terms. And then comes the mother of all housing slumps that manhandles the conventional mortgage segment and gives FHA another chance to show what it can do. And it's rising to the occasion.

Much of the real estate activity in Las Vegas is now at the lower end of the market where prices are truly affordable, be it a single-family home or a condo or a townhouse. Values have been mercilessly rolled back to the levels of the late 1990s. This has presented the first-time home buyer, someone who hasn't owned a home in the past three years, an opportunity of a lifetime and they are taking advantage of it.

Here is where FHA steps forward. It offers loan programs with more flexible underwriting criteria, that is credit and income guidelines, than its counterpart, the conventional product does. Eligibility is possible with less than perfect credit. A borrower can get a loan for as little as 3.5% down, a nice inducement for a first-time buyer. And to make it even more palatable, the funds can be gifted by a family member, a friend or an employer. FHA allows up to 6% seller contributions toward closing costs, another possible money saver. Basically, these two features alone could lead into home ownership without any money down. Not bad. Moreover, the much talked-about $8,000 tax credit needs to be included in this equation, giving it even more kick.

FHA, however, is not limited to first-time or low income buyers. Currently the loan limit here in Las Vegas, Clark County, is $400,000 and in today's adjusted price structure that covers a surprisingly large portion of the real estate marketplace. Keep in mind that FHA home loans are government-insured. In any case, the HUD agency is nicely filling the void left by the struggling conventional sector.

Las Vegas housing market is gradually changing for the better. The key word is gradually. There have been subtle hints about it in the past few months and more are trickling in.   

As stated by GLVAR, the Greater Las Vegas Association of Realtors, a total of 3,785 single-family homes were closed in June, climbing a respectable 16.3% from May. What's even better is that this is a 70% improvement from the same month last year. REOs still dominate but it doesn't matter as long as the market remains active. Strict conventional mortgage guidelines kept these numbers from going even higher, although FHA loans have tiptoed into the void with their low down payment requirements and more accommodating underwriting criteria.  

More good news follow. Inventory of resales on the MLS dropped to 20,613, over 500 units less than in May and a solid 11.9% dive from June of 2008. This is the third consecutive decrease and it is slowly approaching somewhat of a target for Las Vegas industry observers, the 20,000 home figure. Despite still being historically high, at least it is now trending lower.

The third key indicator, the price, also offers hope for brighter days ahead. The single-family median price stood at $140,000, unchanged from May. It's too early to draw hard conclusions about that, whether the jaw-dropping slide has come to an end or not, but for now it's good to see it firm up. As a reminder of what has happened in Las Vegas real estate over the past year, this price level is a steep 37.8% lower from twelve months ago.

Overall, the housing market here is still on IR, injured reserve, but seems to be on the mend, cautiously, and looks to be activated in the months ahead.

It was expected. Southern Nevada housing market has been buffeted by gale-force winds, brought to its knees by rampant overbuilding, unchecked speculation, foreclosed mortgages and weakened economy. That includes the luxury high-rise condominium segment that was once flying as high as the International Space Station. As predicted, prices in condos have retreated by long strides as well, not just in small steps.

The elegant and massive CityCenter project on the Strip, an $8.4 billion gig, has been sucked into the same spine-tingling spiral. It has three residence destinations to offer; Veer Towers, The Residences at Mandarin Oriental, Las Vegas, and Vdara Condo Hotel, totaling about 2,440 units. Buyers have so far dished out $313 million in down payments on roughly 1,500 of them. Now some of them are requesting the developer, MGM Mirage, adjust the price levels down to reflect today's sagging real estate market. So far the answer has been "Not so fast."

It looks like there aren't too many of the buyers behind the reduction request. Not yet anyway. In that light CityCenter can take its time in deciding what to do. If, however, more of them join in, then things can turn hairy.

Should that happen, one solution could be to keep the original price intact but offer the purchaser another unit in the complex to go with the original one. Like two for one deal. Predictably the luxury condominium sector in Las Vegas will remain soft for the foreseeable future, so this way MGM Mirage can at least move the inventory. There are currently around 1,000 unsold residences, after all. And the buyer now owns two units, free to be as creative with them as he pleases.

What about a lease-option? In this scenario the existing deposit stays, the buyer signs a lease for a set amount of years and has the right to close whenever he sees fit before its expiration. This would benefit both in many ways and avoid any nasty and costly court battles.

Despite the market being what it is, there are avenues that can be win-win for both sides.

Complaints against it are growing. Known as the Home Valuation Code of Conduct, or HVCC, it is only some two months old and is now being attacked from several directions. It is the required appraisal system for Fannie Mae and Freddie Mac, the giant government-sponsored mortgage investors. Just about everybody is upset about it - home builders, mortgage lenders, real estate agents and even consumers - because of low appraisals it is producing are killing deals. 

Under the new setup, designed to keep the process more honest and accurate, so-called appraisal-management companies are now sending their experts out to do the work. In the old days it was the mortgage lender who ordered an appraisal. What is often happening today, though, is that appraisers are venturing into areas they know very little about and therefore their evaluations can be way off the mark. And usually it is on the low side, to be safe. Lack of local knowledge is essential for accuracy and obviously the revamped system is doing just the opposite. Critics here have a legitimate beef.

The other major gripe, especially from the National Association of Home Builders, or NAHB, is that appraisers are using foreclosures, bank REOs and short sales as comps in their reports, thus distorting true values. This is a tough one.

Let's take Las Vegas as an example. Resale prices have plunged here to the levels of the late 1990s due to distressed property sales. This has created a wide gap between existing home prices and new home prices, putting the latter at a great disadvantage. Yet, the marketplace is all powerful and what it says should stand. In truth, it's hard to argue against using foreclosures as comps.

The housing industry is up in arms and calling for an 18-month moratorium on HVCC. This new code was sort of rushed through without too much debate and now it seems to be heading toward at least some revision by Congress. Stay tuned.