Friday, May 20, 2011

Foreclosure rate retreats from record high | Inman News

MBA: Improvement in performance of 2005-07 loans
By Inman News
Inman News™

Date: Thursday, May 19, 2011

The percentage of homeowners with mortgages who were in foreclosure or seriously delinquent fell during the first three months of the year, and improvement in the performance of loans taken out from 2005-07 suggests a sustainable trend, the Mortgage Bankers Association said today in releasing its quarterly National Delinquency Survey.

The serious delinquency rate -- the percentage of loans in foreclosure or delinquent by 90 days or more -- was 8.1 percent during the first quarter, down from 8.6 percent during the last three months of 2010 and 9.54 percent a year ago.
The percentage of mortgages in foreclosure was 4.52 percent, down from a record high of 4.64 percent in the fourth quarter, and the percentage of loans behind by 90 days or more dropped for the fifth consecutive quarter, to 3.58 percent.
"Of particular importance is that the drop in the percentage of loans 90 days or more past due was driven by improving numbers for loans originated between 2005 and 2007," said MBA chief economist Jay Brinkmann, in a statement.
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Tuesday, May 17, 2011

Even the Naysayers Are Saying To Buy Now!

Business School professors Eli Beracha ofEast Carolina University and Ken H. Johnson of Florida International Universityhave done extensive research on which makes more sense financially: to rent or own a home. They published, Lessons from Over 30 Years of Buy versus Rent Decisions: Is the American Dream Always Wise? In their paper, the professors do not dispute the social benefits of homeownership:
“Home ownership is touted as the “American Dream”. It is credited with enhancing wealth, increasing civic pride, improving self-esteem, crime prevention, child development, and better educational outcomes, among other benefits. This paper does not dispute any of these claims.”
What the professors were proposing is that homeownership is not a better investment strategy than renting. The first of the two major findings was:
“After setting the holding period to the average American’s tenure in a residence, renting (not buying) proves to be the superior investment strategy over most of the study period… Individuals, on average, were better off in economic terms to have rented for most of the years in the study period. This first result is strongly dependent upon fiscally disciplined individuals that, without fail,reinvest any residual savings from renting.”
Historically, people do not actually reinvest savings “without fail”. Check here for the findings of a recent study from The Joint Center for Housing Studies at Harvard.
The second major finding says it all. According to both professors Beracha and Johnson, NOW IS THE TIME TO BUY!
“(F)undamental drivers now appear to be in place that favor homeownership over renting in the near term future…
The second finding might seem unwise to many given the recent crash in the real estate markets around the country. However, rent-to-price ratios now seem to be in place along with other fundamental drivers that favor ownership over renting.”
They conclude their research paper with this sentence:
“Conditions (historically low mortgage rates and relatively low rent-to-price ratios) now seem in place to favor future purchases.”

Bottom Line

Two researchers set out to prove that homeownership is not a good financial decision. After completing that research, they have determined that now is the time to buy. What more needs to be said?

Even the Naysayers Are Saying To Buy Now!

Qualified Residential Mortgage Harms Home Buyers With Good Credit and Housing Recovery

In the midst of a very fragile housing recovery, the government is throwing a devastating, unnecessary and very expensive wrench into the American dream. First time homebuyers will have to choose between higher rates today or a 9-14 year delay while they save up the necessary down payment. And 25 million current homeowners would be locked out of lower refinancing rates because they lack the required 25 percent equity in their homes.
High down payment and equity requirements will not have a meaningful impact on default rates. They will, however, require millions of consumers, who are at low risk of default, to either put off buying a home or pay unnecessarily high rates. The government is penalizing responsible consumers, making homeownership more expensive or simply out of reach for millions. Regulators need to develop a final rule that encourages good lending and borrowing without punishing credit-worthy consumers.
As part of the financial reform legislation, Congress designed a clear framework for improving the quality of mortgage lending and restoring private capital to the housing market.  To discourage excessive risk taking, Congress required securitizers to retain five percent of the credit risk on loans packaged and sold as mortgage securities.  However, because across-the-board risk retention would impose significant costs on responsible, creditworthy borrowers, legislators also created an exemption for “Qualified Residential Mortgages,” defined to include mortgages with product features and sound underwriting standards that have been proven to reduce default.
Unfortunately, regulators have drafted proposed Qualified Residential Mortgage (QRM) rules that upset the important balance contemplated by Congress.  Rather than creating a system of penalties to discourage bad lending and incentives for appropriate lending, regulators have developed a rule that is too narrowly drawn.  Of particular concern are the provisions of the proposal mandating high down payments.  Other aspects of the proposal – such as the proposed debt-to-income ratios and credit standards – will also raise unnecessary barriers for creditworthy borrowers seeking the lower rates and preferred product features of the QRM.  
The proposed QRM exemption requires a high down payment – proposed at 20 percent, with even higher levels of minimum equity required for refinancing – despite the fact that Congress considered and rejected establishing high minimum down payments because they are not a significant factor in reducing defaults compared to other underwriting and product features.  In fact, the three sponsors of the QRM provision have sent letters to the regulators saying that they intentionally did not include down payment requirements in the QRM.
Requiring down payments of 20 percent or more is deemed by some as “getting back to basics.” However, well-underwritten low down payment home loans have been a significant and safe part of the mortgage finance system for decades.   The proposed QRM exemption ignores these data and imposes minimum down payments of 20 percent, and equity requirements for refinancing borrowers of 25 percent or 30 percent.  
As a result, responsible consumers who maintain good credit and seek safe loan products will be forced into more expensive mortgages under the terms of the proposed rule simply because they do not have 20 percent or more in down payment or equity.  In other words, the proposal unfortunately penalizes qualified, low-risk borrowers. The QRM should be redesigned to align with Congressional intent: encourage sound lending behaviors that reduce future defaults without harming responsible borrowers and lenders.