Housing Market 2010: Consumer Outlook

With changes in the property market, consumers can look forward to the following housing market forecast for 2010

• Affordability

The primary thing to remember at the moment is that for the last 3 years or so housing prices have been inflated. With the latest bust in the housing bubble, homes now and for the next couple of years will be more affordable than ever. In addition to this, one should also keep in mind that low housing prices coupled with low interest rates of 5.15% percent or thereabout make this and the coming months the idea time to buy property.  It might also please buyers to know that interests rates are expected to stay low over the next few months.

While considering the above, there is a flag that you might need to watch out for.  Builders have belief that single-families will be re-entering the market soon. As a result of this they have been applying for permits to construct such dwellings. This is a sign that the housing market could be seeing stability sooner rather than later.

• A Buyers Market

If you have been waiting for an opportune moment to enter the housing market and purchase your first property, this may be your time. Remember that while prices are expected to stay low over the next year or so, these conditions will ease as the housing sector experiences improvements and prices will once again start to rise. Moreover the decision of the government to expand and extend the first home buyers tax credit to not only include more individuals at a higher salary bracket, but to also include individuals who have previously owned makes this the right time to enter the market. Another interesting fact is that while cash is king in the lower tier housing sector with the increased supply of middle to top end properties, if you can stick to your guns you might just be able to pick up a very good property at an absolute steal price.

• Sellers Beware

If you are a seller and are looking to list your property on the market and are not in a desperate situation, then it may be a good idea to hold off for a bit. With the increase in the number of buyers and the falling prices of houses in a same tier most good properties have lost their appeal and hence are no longer facing the prices they should have. This will also be re-asserted should you get a valuation or appraisal done on your property. Your property would either not have moved in value in comparison to when you bought it, or might have only slightly appreciated or in the worst case scenario would have depreciated in value. Hence it might be a good idea to hold off on selling your property at the moment.

Apart from homebuyers and sellers, we have some advice for owners as well. Let us not forget that nearly a quarter of the country is up to get their adjustable mortgage rates adjusted this year. If you feel that you are in a good position to refinance then this may just be the best time to refinance your mortgage and save yourself a rate increase.

This is what the housing sector could look forward to in the new year. On the whole the housing market outlook on the year 2010 remain positive and we hope that a lot of financial sectors including the housing sector will stay stable and start showing signs of sustainable growth.

References:

1. Make money in 2010 – Your home – CNN Money
2. US home builders expect sales improvement – All Business

Changes To The Homebuyers Credit

In an interesting move by the government to spur market sales the government has extended the homebuyer tax credit to existing homeowners as well. In order to qualify for the homebuyer credit, homeowners should have lived in their existing properties for a period of 5 years consecutively in the last 8 years. In addition to this, the grant for the first home buyers has also been revamped. To qualify now individuals should earn less than $125,000 and couples should have a combined income of less than $250,000. These amounts have been revised upwards from $75,000 and $150,000 respectively.

Homebuyer Credit Stimulus – What It Means

This brings us to the next topic of discussion, what of this information do you need to know:

1. Buyers Are Expected To Surge: If you are a seller who is waiting to sell his property but has been unable to owing to the slack demand in the market, this might be the right time. With the extension of the homebuyer tax credit, experts expect there to be a surge in the numbers of buyers in the market. In addition to this one must also keep in mind that the extension of the homebuyer credit grant in conjunction with the expansion to include existing home owners and low interest rates, makes this a largely buyers market.
2. Timing Is Important: While home buyers have up to April 2010 to make the homebuyer credutgrant, as long as it is under contract by then, only as long as they close it out by the end of June. However, while consumers think that this is a lot of time, in reality they should start shopping now if they feel they are eligible. In the housing world a couple of months is not enough of a window to close the deal. It would be beneficial to have the property under contract by the end of March 2010 so as to ensure you have enough time to close the property.
3. Slow Months: While the seller are headed into the months which are traditionally regarded as the slowest for the real estate industry, with the extension of the homebuyer tax credit and also it’s expansion, a lot of new buyers are going to rush into the market therefore making these slow months rather busy to ensure that they make the grant in time.

If however you are in the middle of negotiations or have recently signed a contract it may be beneficial to check your eligibility. As a first step contact your real estate agent or banker to ensure that you can take full advantage of the grant. This extra money will go a long way irrespective of if you are a first home buyer or a existing home owner.

In addition to this prospective home buyers should remember that they can take advantage of the tax credit as long as they have a contract by the end of April and close it out by the end of June. Hence it is very important that consumers time their purchase decisions and ensure that they have sufficient time to make the grant.

The Consumer FInancial Protection Agency – What It Means

This article is more in the wake of the fact that the financial industry and political spearheads are trying to fight the creation of the a new Consumer Financial Protection Agency.  The creation of this agency would mean that some of the following industries would come under regulations and scrutiny. Examples of these are:

• Credit Cards
• Store Cards
• Home Loans
• Financial Advisory Services
• Credit Bureaus
• Collection Agencies etc.

The creation of this agency would mean that there would be new consumer and user-safety guidelines introduced to better protect consumers from the clutches of predatory practices prevalent in the financial industry.

Financial Bully Info For Consumers

1. In a recent chain of events car dealerships have been placed beyond the scope of jurisdiction of the new Consumer Financial Protection Agency. This move comes of course for more obvious reasons. Come to think of it there are few other institutions on the planet, which would rip consumers off more than car dealerships.  In addition there is severe push to get rid of the new agency altogether as most financial institutions prefer the state of chaos and confusion where they have a firm grip over their customers and where customers have no one to take their appeals to.
2. With the relaxed lending practices NINJA loans became exceedingly popular and so did unregulated lending practices. This led to a severe economic downturn and even though the heads of several financial institutions met in the year 2006 they could not agree upon a set of regulations to filter applications and screen the approval process more carefully.
3. It was not until 2008 that the Federal Reserve Intervened to ban unfair lending practices, This of course came 14 years after it had been handed absolute power by the congress and 2 years into the subprime crisis.
4. At the moment predatory lending practices such as pay day loan institutions outnumber McDonald’s burger King and Wendy’s combined. No concrete action has yet been take to curb the geometric growth of these exploitive practices.

This brings to the point that some individuals may consider this as a mollycoddling approach. If you come to think of it the ones who are suffering the most are individuals  who do not make bad decisions and are individuals who have no agency to go to protect themselves.  However all this can change and consumer can voice their opinion. The entire copy of the 89 page bill by can be at the Wall Street Journal (1).

Remember it is your opinion and it should be voiced to ensure better consumer protection in the future.

References:

1. Obama’s Financial Reform Plan – Wall Street Journal
2. Fight the financial industry thugs – MSN Money
3. Consumer Financial Protection Agency – LA Times

Main Aim Of The Second Lien Program

The Parallel Second Lien Program is designed to work in tandem with the first lien program under the HAMP guidelines (Home Affordable Modification Program). Numerous borrowers who are at risk of being foreclosed upon already have second mortgages and are under stress. The Obama Government in order to rectify the situation has brought in to effect the Second Lien Program. Under the 2nd lien program once the first lien has been modified in accordance with the Home Affordable Modification, lenders who are partaking in the parallel second lien mortgage must automatically reduce the payments on the second mortgage to a pre-set protocol. In addition to this the lenders who have issued the second mortgage will have the option of extinguishing the second mortgage altogether. This lump sum payment will be a calculation based on a formula which has been devised by the US treasury. The aim as you can see in on the principal portion of the loan more than the interest.

Second Lien Loan Modifications

The government fully understands that even with a second lien mortgage, borrowers are at risk of losing their homes should they have an unaffordable second mortgage. In order to obliterate this risk the government has taken the following steps:

• Amortization Of Loans: The interest rate is kept at 1% for the first five years and is then increased to the same as that on the first mortgage following the loan modification. In addition to this second mortgage is so created that it matches the term of the first mortgage after it has been modifies while making room for principal forbearance in the same proportion as the first mortgage.
• Interest Only Loans: In the case of interest only loans, the interest is kept at 2% for the first 5 years and is then increased to match that of the first mortgage after it has been modified. Once again the interest only loan is amortized to suit the first mortgage and is expected to make room for principal forbearance the same as the first mortgage.

Second Lien Mortgage Features

Some of the other features of the parallel second lien program are mentioned below:

• The 2nd lien program also entails some thing known as incentive payments. Put simply this means that in addition to the fact that borrowers receive a loan modification they also receive incentive payments of $250 per year for the first five years which can be credited to their mortgage payments.
• Lender can extinguish the 2nd lien loan altogether by accepting a large lump sum payment which is calculated on the basis of the formula devised by the US treasury.

These are some of the features of the parallel second lien program as incorporated by the Obama government in accordance with the “Making Home Affordable Program”.

References:

1. Obama Administration Announces New Details on Making Home Affordable Program – U.S. Department of Treasury
2. Making Home Affordable Second Lien Program – My Dollar Plan
3. Obama mortgage plan has some issues – Market Watch, The Wall Street Journal

The number of US mortgages declined by 3.1 percent in comparison to the week ended 28th August. In addition to this the refinance index also took a dip or around 3.1 percent. However, the figures for mortgage  applications are still about 23 percent higher than they were a year ago. In addition to this the Mortgage Bankers Association saw a decline of about 8.6 percent in applications to either buy or refinance an existing home. In addition to this the rising numbers in foreclosures and the falling prices of homes make a complete housing sector recovery a little hard. Industry analyst further estimate that the US home prices may fall by another 10.5 percent and eventually hit bottom by the second quarter of 2010.

US Mortgage Applications – Good News

In spite of all this information, there is still good news out there in the market place which should be driving the sales of homes and hence mortgage applications up again. Some good news for consumers is as follows:

• Low Interest Rates : This has probably been the given driver of home sales in recent times. The 30-year home loan interest rate fell from 5.07 percent to a low of 5.04 percent. In addition to this the 15-year interest rate saw a decline from it’s 4.5% figure to 4.47%. In accordance with the statement made by a spokesperson of Freddie Mac these rates have been the lowest since the week ended 28th of May. Further to this the Federal Reserve has been assuring the industry that these rates will allowed to be low for a while. This in turn will greatly aid the first home buyers entering the market. The government at this stage does not look like they want to withdraw the stimulus package too early.

• First Home Owners Tax Credit: The government has given first home buyer entering the market a tax concession of 10% of the purchase price, which is capped at $8,000. Unlike previous tax concessions, this one is not repayable over a 15 year time frame. This is entirely a one off payment to first home buyers which is not to be paid back. This is expected to further boost the sales for homes and the number of mortgage applications as more and more first home buyers try and enter market prior to the end of the year and before the tax credit is withdrawn.

• End Of Recession Announcement: Earlier this month, the Federal Reserve Chairman, Ben Bernanke announced that the US recession might finally be over. The end of recession can only mean economic growth from here on in. In due course this will lead to rise in employment rates etc, there by bolstering the home purchases and the number of US mortgages again.

Even though we have seen a fall in the US mortgage applications, the industry on the whole remains optimistic. We should see a surge in the number of mortgage and refinance applications as consumers try and take advantage of the low interest rates and the first home owners tax concession.

References:

1. Mortgage Rates in U.S. Decline – Bloomberg
2. Mortgage Applications, Loan Rates Fall – Fox Business

FICO 08Credit Score System For Credit Cards

With the new FICO 08, if your credit card issuer slashes your credit card balance, this could affect your credit score. Recently it has become a norm with credit card issuers to slash balances of accounts that are not being used and are not profit generating.  This in turn reduces the difference between your overall limit and the amount of credit used. It is a known fact that the higher the difference between the two, the better the impact on your credit scoring, and the smaller the difference the worse the impact. FICO experts are of the opinion that the reduction of balance of one single account will not hamper your credit score, however, if several accounts start to get reduced, then that may be a cause of worry, as you may see a decline in your credit score.

Benefits of New Credit Rating System For Consumers

While the new FICO 08 credit scoring system is set to usher in new changes to credit scoring, there are a few victories for the consumers as well:

• Accounts In Collections: The new credit scoring system is set to be less harsh on consumers who have small unpaid amounts which are less than $100. While the previous FICO credit system was fairly harsh on these small collection amounts like unpaid parking tickets, small medical bills or library fines etc., the new scoring system introduced by Fair Isaac is set to make life a little easier for consumers.

• Major Credit Issues: FICO 08 apparently is not as penalising as it’s predecessor, when it comes down to consumers having repossession or charge-off against their name. The only criteria however is that all the current accounts of the clients should be up to date and in good standing.

• Authorised-Users: As you may already know, adding an authorised user to an individual’s credit card is a widely accepted way of being able to improve the other person’s credit score. While this has been widely exploited by credit repair companies, Fair Isaac have decided that that is no longer going to be the norm. While speculation still exists as to the outcome, it is believed that only a limited number of authorized users will be allowed on an account and after that point any further users will be disregarded.

There are some of the changes that consumers can expect with the introduction of the new FICO 08 credit scoring system by Fair Isaac.  While the three credit bureaus are introducing the new credit scoring system differently it will interesting to see as to what are the changes of the new credit scoring system on individual credit scores.

References:

1. New threads to credit scores – MSN Money
2. FICO credit system to change in 2009 – Credit.com
3. Bureaus Roll Out New Credit Score Formula for 2009 – All Financial Matters

The FHA capital reserve ratio is the amount of reserve funds the FHA holds over and above the projected losses over the next 30 years. While that sits currently at 4.4% of its insurance or $30 billion, the FHA is more concerned with long term survival. With changes to credit policies, the FHA also is making sure that they are able to provide affordable loans especially to the first home buyers in this tough economic climate as the US heads out from a recession to recovery phase.  Mr. Stevens clearly started that the FHA does not require tax payer assistance nor does it require any action on part of the congress, it is taking these steps to ensure the strength of the fund.

FHA Credit Polich Changes

Some of the changes to credit policies announced by the FHA are:

• Submission Of Audited Financial Statements By Mortgagees: In line with the new credit policy changes, supervised mortgagees will require to submit supervised financial statements to FHA. This is to ensure that these parties are able to meet their potential needs and are adequately capitalised.

• Streamline Refinances: With the introduction of the new changes to the FHA credit policy, the new Loan to Value ratio is going to be capped at 125 percent. In addition to this there will be need top show tangible benefits to the borrower as there will be new standards for income verification, repayment history and the collection of credit score. If the borrower wishes to add closing costs to the transaction there will be an appraisal required as this will also bring the streamline refinances in line with other FHA loan origination guidelines.

• Appraiser Independence: The FHA has taken steps to ensure the its valuation policies are in line with the Home Valuation Code of Conduct (HVCC). It has taken language out of the HVCC o ensure that it completely aligns itself with Government Sponsored Enterprises standards.

• Mortgagee Approval For Participation In Loan Origination: In order to participate in the FHA loan origination program, FHA has introduced the following changes:

1. Mortgagees with approval status must assume liability for all loans approved.
2. While mortgage broker will still be able to still, originate loans through approved mortgagees they will no  longer receive independent approval for origination eligibility from FHA.

These changes should align FHA with GSE’s and should potentially increase the  number of mortgage brokers.

• Net-Worth Requirements: The FHA plans on increasing the net-worth requirements for approved mortgagees from the $250,000 mark, which hasn’t changed since 1993, to $1 million. This mark may be increased in the future to ensue that FHA is in line with other GSE’s and their net-worth requirements and guidelines. This should help FHA mitigate losses and reduce the future risk on the fund.

These are some of the credit policy changes that can be anticipated from the FHA office come November and once its independent annual actuary is submitted to Congress.

References:

1. FHA Announces Credit Policy Changes – U.S. Department of Housing and Development
2. FHA Changes Credit Policy – Housing Wire