When I thought about this topic over the weekend, my first thought was “The End of Low Rates.”  Alas, the markets had another idea and fear in the stock market sent interest rates back down.   Rates had been rising in the last three weeks or so and showed little chance of reversing course.   Fears about the European crisis, however, seemed to be just the cure to keep them at bay.   And even though this week may see rates go even lower, in the very near future, rates are going to start going up for good.  Here are some reasons why:

• No QE3.   Over the past few years, the Federal Reserve has gone beyond it’s normal policy of rate manipuilation and proceeded a step further.   The process is called Qualitative Easing.  In short, the Fed releases more money into the economy to bolster its rate cuts.   The process has happen twice – and investors and pundits thought that another round was in store.   The Fed Chairman put that to rest last week.
• Europe.   Don’t be mistaken, the situation in the European economy may have more impact than our own situation.  The fact is that a large number of European countries are in a serious recession.  And countries like Greece and Ireland threaten to bring down even more countries.   So far, that has been avoided and if that remains the case, the pressure on rates will intensify.
• Inflation.  It’s a four letter word for economists.    Thus far, we have largely avoided most inflationary worries but that won’t last forever.   The Federal Reserve has cut rates to historic lows and pumped billions and billions into the economy.  Sooner or later inflation is going to come.  As inflation starts to spill out, rates will go up as a result.

Rates for the coming weeks should be relatively flat.  They may fall further or they may stay steady.   The stock market is in a slight correction and should keep rates in check.   So go out and get your loans locked. 

The early results are in from HARP- and whether it is a success or not is based on your definition of success.  From both personal and anecdotal evidence, it looks as though about 20% of eligible borrowers are going to see a benefit in the form of an actual loan approval.   In Florida, upwards of 2 million homeowners were deemed eligible for the program.   Those figures would seem to yield about 400,000 loans.   Here are some big factors in who is and who is not approved:

• Poor credit need not apply – it would seem that borrowers with scores under 680 are not receiving approvals from the automated approval system.  Also borrowers who have good scores but heavy credit use (lots of revolving debt) are finding it more difficult than expected to get approved.
• Condominiums are difficult- the biggest issue, it would seem, for approvals on condos is that the automated systems are unable to find a value for these units.  A core component of the system is the ability to waive the requirement for a traditional appraisal.  In truth, Fannie and Freddie are doing automated appraisals on these loans.  If the system is unable to generate a value, it is more unlikely the loan gets approved. 
• Shorter terms are best- many HARP applicants are finding their loan requests denied for 30 or even 25 years but getting an approval for 15 or 20 year terms.  
• Income and asset documentation.   The original announcements about the HARP led us all to believe that proof of income and assets would not be required.  We have not seen any approvals where this is the case.

The HARP program will not, it seems, be nearly as successful as we all had hoped.  And certainly 400,000 new loans in the state will help borrowers, lenders and others in the related industries.  It is 400,000 loans we never would have seen otherwise.  Time will tell, however, if Fannie Mae and Freddie Mac, along with investors will tweak the programs to allow for more approvals.

Rates remained steady last week but the signs are there- rates are going up.   We saw rates shoot up .375% to .5% in the last month and then settle back down.   The pressure remains and we need to watch them closely. 

It would probably not surprise anyone if I told them that the new HARP program is turning out to be quite a mess.   It was almost expected that a huge (almost monumental) change to a government sponsored loan program would start out bumpy.  Even people who doubted the program would work are probably shocked at how the program has rolled out.   In short, HARP is an almost complete disaster at this point.  The big problem is not, as it turns out, investors putting limits on the new loans (that is part of the problem).   The biggest issue is that Fannie Mae and Freddie Mac have placed so many limitations within the loan underwriting programs.  The problem has turned out to be long on promises and short actions.  Here are some details:

• 15 Year Terms NOT allowed if LTV is over 105%.  One of the biggest selling points was that borrowers who agreed to reduce their loan term would be incentivized with lower rates.   That is true- rates for 15 year terms are great.   But the software and guidelines do not allow anyone with a loan to value of over 105% to have a 15 year term.  And for those who want to go from 30 years to 20 or 25, a “payment shock” cap will not allow borrowers to increase their payment over 25%, even if it improves their position AND they can afford it.
• Bad Credit Need Not Apply.   Most investors are refusing to do loans for borrowers with credit scores less than 640.   As it turns out, that is really not necessary.   We are finding it nearly impossible to get an approval from Fannie/Freddie’s online system with credit scores under 680 and high loan to value.  In short, the system simply does not intend on approving borrowers with anything other than perfect credit.
• Limited Documentation simply is not true.  HARP announcements left  many to believe that income and asset documentation, as well as appraisals, would not be required.   We are finding that is far from the case.   Every approved file is requiring the verification of both income and assets.   And in some cases, the system is requiring a full approval for final approval. 

It is very important to note, all the problems I have listed above are coming straight from Fannie and Freddie.   Investors do have “overlays” but in many cases, it is Fannie or Freddie’s automated underwriting system that is making the determination not to approve a file.  For those who are able to get approved, rates are very good.  There will be a number of borrowers helped by this program but it will be far from the lofty goals.  In the coming months more investors should come online, which will help get more loans done.   At the end of the day, however, HARP is going to fall far short.

Rates are on the rise and are up almost .375% over their historic lows.   Don’t expect that to change.  The Federal Reserves easing policies could only keep rates low for so long.   There will continue to be pressure on rates in the coming months.

Orlando, Florida – Orlando mortgage lender FBC recently released The Florida Mortgage Report for February 2012. Below is a list of highlights:

• Sales prices for financed properties averaged $193,000.  This is up 7% from February 2011.
• Loan amounts averaged $165,000 for the month of February which is up $5000 from January 2012.
• Refinance transactions accounted for approximately 20% of all mortgage closings.  We anticipate this to increase dramatically with the release of HARP 2 and the waiving of appraisal requirements.
• Average mortgage payments continue to trend lower with rates and are averaging $1,100 per month.

“Overall market conditions are improving.  Rates continue to decrease which is leading to lower monthly mortgage payments and spurring more refinance activity. Home prices continue to slowly increase as inventory decreases as more purchasers enter the market.” stated Rob Nunziata, Co-CEO & President, FBC Mortgage, LLC.

Today was supposed to be a day where a lot of borrowers exhibited a big sigh of relief.  Fannie Mae and Freddie Mac released the updates to their computer systems on March 17th just as planned.   Like many other lenders nationwide, we were prepared to start processing HARP 2.0 loans.  Unfortunately, the process is turning out to be more frustrating than we had hoped.   The status is just about the same as it was last week – hurry up and wait.  The problems that came to light this weekend don’t mean the program is dead by any means, but the delays are going to be significant.  Obviously I can’t say exactly what the problem is but here are some theories as to what is going on. 

The biggest factor in the success or failure of HARP 2.0 rests with “reps and warrants.”   The idea is that any new loan that a lender does in HARP will not be held against that lender if the loan defaults.   As lenders and investors, we are “scored” on how our loans perform.  If we do a great number of loans that default, we may lose our ability to continue making loans.   Since new HARP loans were going to be made to borrowers who were significantly upside down in their homes, the risk factor was obviously higher.   The new program would exempt those loans from that issue and lenders would, in essence, be encouraged to make new loans under the program.   There have been and continue to be rumors that those reps and warrants were not as good as Fannie or Freddie had promised.   Obviously, lenders are wary of taking on any potential problem loans and that could be an issue for the delay.

Another potential reason was participation.   As of Friday of last week, only a handful of large investors had stepped forward to offer the program.   As with other lenders, we were looking at selling the majority of our loans to those investors.   There is a thought that those investors became concerned that they would receive too much business concentrated only in HARP loans.   Investors and lenders, large and small, are best served by having as much balance as possible in their loan portfolios.  Even if the investor did not have to worry about defaults (see above), they would still have to be concerned with volume of HARP loans coming into them at one time.  A number of investors had previously released guidelines and even hinted towards their rates- only to change or rescind those guidelines late Friday night.  

So what does this mean for HARP?   Well (don’t shoot the messenger here) but I think it may be up one more month or longer before we have rates and guidelines for the program.  That would put closings in late April or early May.   And while the wait should not kill anyone, mortgage rates as a whole are moving up.  On that subject, the last two weeks have been horrible for rates.   The hope was that we would see a pause this week or even a little downward movement.   It appears that is not going to happen however, as rates have repriced for the worse already today.   About one month ago, a 30-year fixed rate conventional loan was about 3.75% with no points.   4.125% or even 4.25% might not be out the question by the end of this week.   Yikes!

Orlando inventory down 31 percent; median price bounds 16 percent

The number of existing homes available for purchase in Orlando is continuing a steady decline that began in back in July 2010 at 16,563 and now rests at 9,253. In February 2012, total inventory was 31.36 percent less than it was in February 2011.

The inventories of single-family homes and condos are both down: single-family by 32.68 percent and condo by 18.46 percent.

The current inventory combined with the current pace of sales equates to a 4.99-month supply of homes in Orlando (down from a 6.21-month supply in February 2011 and down from a 5.35-month supply in January 2012).

“Economists consider a six-month supply of homes to be an indicator of a market that is balanced between buyers and sellers,” explains ORRA Chairman Stephen Baker, RE/MAX Central Realty. “A pace of 4.99 tilts the favor slightly toward sellers, and at the same time buyers are going to be challenged finding suitable homes because of the low inventory.”

Members of ORRA participated in 1,854 home sales in February 2012, a decrease of 14.56 percent compared to February 2011.

Nearly 40 (39.81) percent of February 2012 sales were normal; short sales made up 33.33 percent and foreclosure sales made up 26.86 percent. By comparison, in February 2011 normal sales accounted for 26.36 percent while short sales accounted for 23.73 percent and foreclosures accounted for 49.91 percent.

“Sellers of normal homes should take heart,” says Baker. “The sales of normal homes has really taken off; they are up 29.02 percent over this time last year and 17.14 percent over last month alone. This is an indicator that short sales and foreclosures are finally being flushed out of inventory and that more buyers are turning to normal homes.”

“Nevertheless,” continues Baker, “normal homes must be priced so that they are competitive with nearby foreclosure and short sales. REALTORS® — with their in-depth knowledge and access to current and historical local market data — are ideally suited to advise sellers on setting an appropriate price that will generate interest among buyers.”

The overall median price of Orlando homes has jumped 15.79 percent over February 2011’s median price of $95,000, to $110,000. In addition, that median price is 1.85 percent higher than that recorded in January.

The February 2012 median prices of both bank-owned sales and short sales increased in comparison to February 2011: bank-owned sales by 8.11 percent (from $74,000 to $80,000) and short sales by 5.26 percent (from $95,000 to $100,000). The median price of normal sales, however, decreased by 3.23 percent in February 2012 (from $155,000 to $150,000).

The average interest rate paid by Orlando homebuyers in February was 3.92 percent. This average interest rate is the lowest since ORRA began tracking the statistic in January of 1995. (The previous low was in December 2011, when it was 3.99 percent.) A year ago, homebuyers paid an average interest rate of 4.88 percent.

Homes of all types spent an average of 96 days on the market before coming under contract in February 2012, and the average home sold for 93.14 percent of its listing price. In February 2011 those numbers were 99 days and 94.57 percent, respectively.

Pendings

Pending sales – those under contract and awaiting closing – are currently at 9,348. The number of pending sales in February 2012 is 1.36 percent higher than it was in February 2011 (9,223) and 7.34 percent higher than it was in January 2012 (8,709).

Short sales, which take much longer to process from contract to close, made up 69.84 percent of pending sales in February 2012. “Normal” properties accounted for 17.02 percent of pendings, while bank-owned properties accounted for 13.14 percent.

Affordability

The uptick on median price has led to a decrease in Orlando’s affordability index: the February index of 271.61 percent is almost 2 percentage points lower than January 2012’s index of 273.32 percent. (An affordability index of 99 percent means that buyers earning the state-reported median income are 1 percent short of the income necessary to purchase a median-priced home. Conversely, an affordability index that is over 100 means that median-income earners make more than is necessary to qualify for a median-priced home.)

Buyers who earn the reported median income of $54,245 can qualify to purchase one of 5,382 homes in Orange and Seminole counties currently listed in the local multiple listing service for $298,770 or less. First-time homebuyer affordability in February dipped a fraction to 193.14 percent from last month’s 194.36 percent.

First-time buyers who earn the reported median income of $36,887 can qualify to purchase one of the 4,099 homes in Orange and Seminole counties currently listed in the local multiple listing service for $180,590 or less.

Condos and Town Homes/Duplexes/Villas

The sales of condos in the Orlando area decreased by 34.27 percent in February when compared to February of 2011 (326 to 496)).

The most (116) condos in a single price category that changed hands in February were yet again in the $1 – $50,000 price range and account for 35.58 percent of all condo sales.

Orlando homebuyers purchased 173 duplexes, town homes, and villas in February 2012, which is a 27.31 percent decrease compared to February 2011. Most (25) fell within the $120,000 – $140,000 price range; another 24 properties fell into the $100,000 – 120,000 price range.

MSA Numbers

Sales of existing homes within the entire Orlando MSA (Lake, Orange, Osceola, and Seminole counties) in February were down by 14.20 percent when compared to February of 2011. Throughout the MSA, 2,368 homes were sold in February 2012 compared with 2,760 in February 2011. To date, sales are down 15.32 percent for all counties combined.

Each individual county’s monthly sales comparisons are as follows:

Lake: 17.14 percent above February 2011 (369 homes sold in February 2012 compared to 315 in February 2011);
Orange: 15.54 percent below February 2011 (1,207 homes sold in February 2012 compared to 1,429 in February 2011);
Osceola: 27.77 percent below February 2011 (398 homes sold in February 2012 compared to 551 in February 2011); and
Seminole: 15.27 percent below February 2011 (394 sold in February 2012 compared to 465 in February 2011).

This representation is based in whole or in part on data supplied by the Orlando Regional REALTOR® Association and the My Florida Regional Multiple Listing Service. Neither the association nor MFRMLS guarantees or is in any way responsible for its accuracy. Data maintained by the association or MFRMLS may not reflect all real estate activity in the market. Due to late closings, an adjustment is necessary to record those closings posted after our reporting date.

ORRA REALTOR® sales, referred to as the core market, represent all sales by members of the Orlando Regional REALTOR® Association, not necessarily those sales strictly in Orange and Seminole counties. Note that statistics released each month may be revised in the future as new data is received.

Orlando MSA numbers reflect sales of homes located in Orange, Seminole, Osceola, and Lake counties by members of any REALTOR® association, not just members of ORRA.

If you read the newspaper or listen to television or radio, you would think the situation is dire.  And for a long time it has been.   Now, however, things are starting to change.   Borrowers who are underwater in their mortgage have real options in place to help them.  Here are some of the major ones:

• HARP – currently, about 70-80% of new mortgages are  owned by Fannie Mae or Freddie Mac.   For existing mortgages out there, no one is quite sure of the specific number.  There are alot of mortgages owned by the two giants that are eligible for HARP.   Estimates are at 2 million in Florida alone.  The programs are finally rolling out in the coming weeks and we should see loan closings starting in mid-to-late April.  The big issue with the program is that it probably won’t help borrowers with any combination of poor credit, investment properties and even condo’s.  The add-on to rates for those borrowers may less interest savings.
• FHA – this program will be similar to HARP and will roll out in mid-June.  The program addresses the biggest problem for current FHA borrowers- the rates for Mortgage Insurance (MI).  The issues with foreclosures have forced FHA to shore up its reserves against losses.  To do so, they have increased both the MI funding fee and MI monthly fee.  In many cases, borrowers can cut their rate 2% or more yet still not save any money due to MI increases.
• USDA & VA – USDA and VA borrowers have faced the same issues as FHA borrowers.  Increased costs to offset losses have made refinances more difficult.  The government is lowering borrowing costs to help aid refinances.
• Bank- Owned Loans - the Big Banks (Wells, B of A, Chase, Citi and GMAC) recently entered into a $25 billion settlement with the government.   This will only cover loans that they own which are primarily the leftovers from “Pay-Option” ARM’s.   The settlement will encourage loans owned by these banks to modify at lower rates.   The settlement also should help convince regional banks (SunTrust and Regions for example) to work with borrowers in loans that they own.  The idea was to get the “big guys” in line and everyone will follow.

Rates are not trending in the right direction right now.   Rates are up an average of .25% across the board and pricing pressures are increasing.   This may not be the end of low rates, but it is probably the beginning of the end for historic lows.

The combination of rates at or near historic lows and lower property values has enabled housing affordability to reach highs not seen in decades.   With the 30-year fixed rate loan hovering near 3.75% and median home prices off up to 50% from their highs in the mid-2000′s, there has never been a better time to purchase a home.   The market is already showing signs that it is at the bottom and not dropping any further.   The pressure on rates in the coming year, spurred by fears of inflation, may make this the best moment to jump into home ownership.

That’s the word out of Washington today.  President Obama has announced that he has authorized an FHA refinance program that seems very similar to HARP (which covered only Fannie and Freddie loans).  The biggest obstacle thus far has been the MIP (Mortgage Insurance Premium).   Changes over the years to the FHA loan program have raised both the monthly and up-front premium rates for MIP.   As such, borrowers found much, if not all, of their payment savings from reduced rates eaten up by these increases making refinancing pointless.  We expect to hear in the coming weeks how and when these changes will be implemented but this could affect millions more borrowers.

Just imagine that figure and try to understand how much money that really is.   The average, college-educated worker makes about $1.9 million in his or her lifetime.  $5 Trillion combines the average lifetime income of over 2.6 million people.  The $5 trillion figure is an estimate (yes just an estimate) of the amount of money the U.S. government will spend on interest on its’ debs in the next ten years.   Our debt is currently almost $16 Trillion.  This is one of the most important issues that we face as a country.   And no one is really working on a solution.   This is not to say that we are not hearing about the problem.   It is probably one of the top three issues in this current election cycle.  To understand what this figure means and how important it is, take a look at some other numbers:

• 14% of all government revenue will do towards the interest payments alone.
• Interest payments will be greater than medicare spending.
• Equal to half of all spending on social security
• Almost equal to the entire budget for national defense.

The sheer size of these interest payments and the debt itself should scare every American.   In order to simply pay this interest every year, the average tax payer would have to pay an additional $4000 each year.  This issue deserves more than yelling and screaming and political bickering.   We need to step forward and address the problem head on and set forth a comprehensive plan that addresses the problem.   Finger pointing and name calling simply won’t work.

Rates are steady but on shaky ground.   Economic news last week rattled the bond markets and pushed rates up by almost .25% across the board.   But by weeks end, pricing improved and ended the week unchanged overall.   A big potential problem – gas prices.   Higher oil and gas prices will curb consumer spending.   The higher the prices, the more spending will be affected.   A serious decrease in spending will not help our recovery.   Watch rates close…