The US Number One Lender Raises Loan Requirements

In a dramatic  announcement–an announcement that was impossible to locate on the FHA official website, but was widely reported in major media outlets– the nation’s leading mortgage lender significantly tightened lending standards.

The measures were necessary as members of Congress and others grow increasingly concerned about the long-term solvency of the agency, given the current mortgage default rate.

For a more complete explanation of these changes, please consult with a professional mortgage specialist.

On Tuesday, January 19, Reuters reported in part, below:

WASHINGTON, Jan 19 (Reuters) – The U.S. Federal Housing Administration said on Tuesday it will raise the minimum down payment required to secure an FHA-backed mortgage for less creditworthy borrowers as part of a series of steps to shore up the agency’s finances.

The FHA said borrowers with credit rating scores below 580 would be required to make a down payment of at least 10 percent, while the rate for higher-ranked borrowers would stay at 3.5 percent.

It also said it would increase the up-front mortgage insurance premium, which is paid by the borrower when the loan is made, to 2.25 percent from 1.75 percent.

The FHA also said it was cutting the amount of aid sellers could provide buyers to 3 percent of the purchase price from 6 percent, a move it said could help lessen incentives to inflate appraised home values.

The FHA said in November that its capital reserves had dwindled to just 0.53 percent of the value of the thousands of home mortgages it insures, well below the 2 percent required by law and down sharply from 3 percent in 2008.

To help rebuild reserves, the agency said it would seek congressional approval to allow it to raise annual mortgage insurance premiums — which are paid out by the borrower over the life of the loan — above the 0.55 percent maximum.  If approved, this would allow it to shift some of the increase in the up-front premium to the annual premium.

Applications for FHA-guaranteed mortgages exceeded an annual rate of 3 million in October, nearly triple the level in 2007. In 2006, when subprime and other Wall Street programs were at full speed, the annual rate for applications was less than 600,000.

Geoffrey Gyrisco 608-354-9456

Loans, Lead & Historic Properties

Attended training at the Realtors Association and discovered that buying historic and vintage properties potentially has become a lot more complicated in the past couple of months.  With conventional financing limited to those with substantial down payments and strong credit, many buyers are turning to FHA and Rural Development Loans (formerly Farmers Home Administration loans).  However, in order to issue a loan, FHA and Rural Development, require that all utilities be in working order, FHA requires at least 2 years of useful life remain on the roof, and both require that any peeling or chipping lead paint be corrected not only on the house but all outbuildings on the property, even on farm properties.  This can be a major barrier to obtaining a federal loan for properties requiring significant rehab.

However, such properties may be eligible for HUD Section 203(k)  Loans, (For Details on 203 Loans click here) whereby funds to accomplish the rehab work are escrowed at closing.  Keller Williams Realty is forming a national partnership with Home Depot to provide a team of federally certified building contractors to facilitate the work under such loans.  Nevertheless, this program is truly complex and is not suitable for everyone.

This market and the use of such complex programs requires a strong Realtor-Lender team such as we have with Waterstone Mortgage Corporation.   More than ever, this market requires a professional realtor who keeps up-to-date on the weekly developments, and can see all the way through the purchase process—from the initial identification of needs and desires, property search, financing, to occupancy and any needed rehab work— and be the champion of your vision.

Waterstone Mortgage Reports Great Rates

Despite the the looming threat of serious inflation and rising mortgage rates, as of early October,  Waterstone Mortgage was able to provide the lowest rates we have seen since Dwight D. Eisenhower was president.  It is important to note that the actual rates available to a particular borrower are based on a complex grid, including credit scores among other factors.

FHA ($180,000 and up, lower loan amounts adjust slightly):

4.5 – 1.5 Points

5.0 – No Points

5.25 – I pay $1,000 of closing costs

5.5% -I pay all closing costs

Same rates for VA

Conventional

5 year arm, 740 score, 20% equity, no escrow:

3.5% – 1 Point

4.0% – No Points

Rural Development, Zero Down Purchase, No Monthly MI:

5.5 – No Points

5.0 – 1 Point

Waiting for Spring to Buy or Sell is a Huge Gamble

Those waiting for spring to put their property on the market or make a purchase are making a huge gamble.  Currently 90% of all home loans have federal backing of one sort or another.  Furthermore, the Federal Reserve Board has been buying up $1.25 Trillion in Mortgage Backed Securities, holding down interest rates, making home loans especially affordable,  and providing liquidity in the home loan market.

The key point is that this program will end at the end of the first quarter of 2010.  Once the $1.25 Trillion is gone at the end of March, home loan rates could rise and liquidity in the home loan marketplace could be reduced.   Rising home loan rates will reduce what buyers  can afford to to pay and thus drive home prices even lower.  It could make it more difficult for buyers to get any affordable loan.

While some Fed officials have argued in favor of expanding the size of the MBS purchase program to stimulate the housing market and the overall economy, the most recent comments suggest it is unlikely that the Fed will change its announced position and increase the scope of its MBS purchases, unless the economic outlook deteriorates significantly.

Luxury Homes Face Short Sale and Foreclosure

The following article by Laurie Moore-Moore looks at the issue on the national level.  The same situation applies in Dane County.  See additional information below. Geoffrey Gyrisco

“Growing Number of “Distressed” Luxury Loans Means Sellers Need Your Short Sale Expertise

Published on Monday, September 14, 2009, 1:06 PM Last Update: 22 hour(s) ago by Laurie Moore-Moore

Category: All Articles » REO’s and Foreclosures

The recession has created “a perfect storm” for many luxury homeowners.  An increasing number are in default. Many are “underwater,”  in financial distress, and need to sell.  As a result, luxury home short sales are an important (and growing) opportunity for upper-tier agents.

Upscale property is not immune to the current housing crunch. Limited loan availability, higher interest rates for jumbo loans than for conforming loans, and stringent loan qualifying requirements caused sales of luxury properties to slow starting in the fourth quarter of last year.  The trend has continued.  As a result, the national inventory level of homes priced above $750,000 rose from 18 months worth in 2007 to 41 months worth by this summer. The National Association of Realtors also reported that as of October 2008, the foreclosure rate on jumbo loans was more than double the foreclosure rate on conforming loans.  As a result, expect to see growing numbers of luxury homeowners in default.  These consumers not only need your help, they represent an important opportunity.”  Laurie Moore-Moore

Geoffrey Gyrisco:  In Dane County, for sales closed between January and August 31 of this year, those properties under $150,000–of which there are far more on the market than just a couple years ago–were selling briskly.  Also selling well were those priced at $150,000-250,000.   At about the $325,000 price point, there is considerable market resistance and  sales activity declines sharply.  For properties priced at $750,000 and above, only 20 sales closed between January 1 and August 31 of 2009 leaving 178 on the market in September.  Jumbo mortgages are hard to obtain; those moving from pricey market such as California may be arriving in Madison after taking a loss on their home instead of several hundred thousand dollars in their pocket as they did several years ago; and other investments held by many high net-worth persons have also dramatically declined in value.

So if you want a luxury home and have the resources to buy one, the market situation is excellent.

Lead, Loans & Historic Properties

Attended training at the Realtors Association and discovered that buying historic and vintage properties potentially has become a lot more complicated in the past couple of months.  With conventional financing limited to those with substantial down payments and strong credit, many buyers are turning to FHA and Rural Development Loans (formerly Farmers Home Administration loans).  However, in order to issue a loan, FHA and Rural Development, require that all utilities be in working order, FHA requires at least 2 years of useful life remain on the roof, and both require that any peeling or chipping lead paint be corrected not only on the house but all outbuildings on the property, even on farm properties.  This can be a major barrier to obtaining a federal loan for properties requiring significant rehab.

However, such properties may be eligible for HUD Section 203(k)  Loans, (For Details on 203 Loans click here) whereby funds to accomplish the rehab work are escrowed at closing.  Keller Williams Realty is forming a national partnership with Home Depot to provide a team of federally certified building contractors to facilitate the work under such loans.  Nevertheless, this program is truly complex and is not suitable for everyone.

This market and the use of such complex programs requires a strong Realtor-Lender team such as we have with Waterstone Mortgage Corporation.   More than ever, this market requires a professional realtor who keeps up-to-date on the weekly developments, and can see all the way through the purchase process—from the initial identification of needs and desires, property search, financing, to occupancy and any needed rehab work— and be the champion of your vision.

Waterstone Mortgage Reports Great Rates

Despite the the looming threat of serious inflation and rising mortgage rates, as of early October,  Waterstone Mortgage was able to provide the lowest rates we have seen since Dwight D. Eisenhower was president.  It is important to note that the actual rates available to a particular borrower are based on a complex grid, including credit scores among other factors.

FHA ($180,000 and up, lower loan amounts adjust slightly):

4.5 – 1.5 Points

5.0 – No Points

5.25 – I pay $1,000 of closing costs

5.5% -I pay all closing costs

Same rates for VA

Conventional

5 year arm, 740 score, 20% equity, no escrow:

3.5% – 1 Point

4.0% – No Points

Rural Development, Zero Down Purchase, No Monthly MI:

5.5 – No Points

5.0 – 1 Point

Homebuyer Tax Credit to be Extended

Not only are home prices down, the federal government is about to throw in $6,500 to make a purchase an even better deal.

The intent is to stimulate sales of higher priced homes as well as entry level properties.  It also could help sellers in getting a slightly higher price for their homes.  However, further extensions of this tax credit are not likely, so those delaying a home purchase may lose out on a great source of financial assistance.

STEPHEN OHLEMACHER (AP) reports:

WASHINGTON — First-time homebuyers have been getting tax credits of up to $8,000 since January as part of the economic stimulus package enacted earlier this year. With the program scheduled to expire at the end of November, the Senate voted Wednesday, November 4 to extend and expand the tax credit to include many buyers who already own homes. The House is scheduled to vote on the bill Thursday, November 6.

Buyers who have owned their current homes at least five years would be eligible for tax credits of up to $6,500. First-time homebuyers — or anyone who hasn’t owned a home (including condo or co-op unit) in the last three years — would still get up to $8,000. To qualify, buyers in both groups have to sign a purchase agreement by April 30, 2010, and close by June 30.

“This is probably the last extension,” said Sen. Johnny Isakson, R-Ga., a former real estate executive who championed the credits.

The homebuyers’ tax credit is one of two tax breaks totaling more than $21 billion that the Senate included in a bill extending unemployment benefits for those without a job for more than a year. The other would let companies now losing money recoup taxes they paid on profits earned in the previous five years.

The real estate industry has been pushing to extend and expand the housing tax credit. About 1.4 million first-time homebuyers have qualified for the credit through August. The National Association of Realtors estimates that 350,000 of them would not have purchased their homes without the credit.

Extending and expanding the tax credit for homebuyers is projected to cost the government about $10.8 billion in lost taxes. The measure passed the Senate by a 98-0 vote.

Expanding the tax credit for money-losing companies is projected to cost $10.4 billion.

The tax break would help industries suffering losses in 2008 or 2009, including retailers, homebuilders and newspapers. The new tax break would be available to companies of any size, providing a quick source of cash.

The tax breaks would be paid for largely by delaying a tax break for multinational companies that pay foreign taxes. It was passed in 2004 and originally was to have taken effect this year, but would now be delayed until 2018.

Home Buyer Tax Credit Expanded & Extended Briefly

The first time home buyers tax credit has been expanded and extended.  Those who have not owned a home (including condo or co-op unit) in the past three years are eligible for the $8,000 tax credit and those who have lived in their current home for five years and are purchasing a new home are eligible for a $6,500 credit.  In both cases, a purchase contract must be in place by April 30, 2010 and the purchase closed by June 30, 2010.  Provisions take effect immediately and affect sales in process. 

There is a lot of fine print, some of which is provided below.  For details on how it may apply to you, please consult a professional tax specialist.

The following information has been provided by the National Association of Realtors and Keller Williams Realty.

Homebuyers $8,000 Tax Credit Extended through April 30, 2010

On November 6, 2009, President Obama signed into law an extension of the $8,000 first-time homebuyers tax credit until April 30, 2010. Binding contracts for the purchase of a principal residence signed by April 30 must close by June 30 to qualify in order for the first-time homebuyer to qualify for the credit. For qualifying purchases in 2010, taxpayers will have the option of claiming the credit on either their 2009 or 2010 return. 

The new law added several new provisions that apply to persons purchasing homes on or after November 7, 2009:

• Homebuyers with higher incomes can now qualify for the credit for homes purchased after November 6, 2009. Income limits have been increased to $125,000 for individuals and $225,000 for couples filing jointly. These income limits were formerly $75,000 and $150,000, respectively. The credit phases out for individual taxpayers with a modified adjusted gross income between $125,000 and $145,000 or between $225,000 and $245,000 for joint filers.
• The new law adds a $6,500 credit for long-time homeowners who want to trade up, that is, current home owners who have lived in their home for five of the past eight years and who buy a replacement principal residence by April 30, 2010.
• Qualifying home purchase prices must not exceed $800,000.
• The extended tax credit for first-time home buyers remains at $8,000 and requires that the buyer have not owned a home in the past three years, as before.
• Purchasers claiming the credit will need to attach documentation of the transaction to their tax returns in order to help combat the tax credit fraud that has been experienced by the IRS to date.

National Association of REALTORS® Government Affairs Division 500 New Jersey Avenue, NW, Washington DC, 20001

Here are some of the most frequently asked questions on the changes to the Homebuyer Tax Credit

Question: Existing homeowner credit: Must the new house cost more than the old house?

Answer: No. Thus, for example, individuals who move from a high cost area to a lower cost area who meet all eligibility requirements will qualify for the $6500 credit.

Question: I am an existing homeowner. On October 25, 2009, I signed a contract to purchase a new home. I have lived in my current home for more than 5 consecutive years and am within the new income limits. I will go to settlement on November 20. If President Obama has signed the bill by the time I go to settlement, will I qualify for the new $6500 tax credit?

Answer: Yes. The existing homeowner credit goes into effect for purchases after the date of enactment (when the bill is signed). There is no reference to the date of contract for the new credit. The provision looks solely to the date of purchase, which is generally the date of settlement.

Question: I am a first time homebuyer but was not within the prior income limits at the time I entered into my contract to purchase on October 30, 2009. I will be covered,

however, by the new income limits. If the new rules have been signed into law by the time I go to settlement, will I be eligible for a credit?

Answer: Yes. The new income limitations go into effect as soon as the President has signed the bill.  The income limit and other eligibility rules will look to your status as of the date of purchase, which is the settlement date. So if the new rules have been signed when you go to settlement, you should be eligible for the credit (or a portion of the credit if you’re within the phase-out range).

Question: I am an eligible existing homeowner. I have a fair amount of equity in my home. I have found a home with a nonnegotiable price of $825,000. Will I be able to use any of the $6500 tax credit?

Answer: No. The $800,000 cap on the cost of the purchased home is firm at $800,000. Any amount above $800,000 makes the home ineligible for any portion of the credit. The $800,000 is an absolute ceiling.

Question: I owned my home for 10 years, but sold it two years ago year and have been renting since. If I purchase a home, will I be eligible for the $6500 tax credit if I meet all the other eligibility tests?

Answer: Yes. Because you lived in the home for more than 5 consecutive years of the previous 8, you will qualify for the $6500 credit. For example, Say John and his wife bought a home in 2000 and lived there until 2008 when he got a divorce. Whether John has been renting or bought in the interim, he WOULD INDEED be eligible for the credit because he owned a home and occupied it as his principal residence for 5 consecutive years out of the last 8 years. The keyword here is “consecutive.” As long as he lived in that house for 5 years straight what he did since 3 years doesn’t impact eligibility.

Question: I am an eligible first-time homebuyer. I entered into a contract to purchase on November 1, 2009. Do I have to go to closing before December 1? How does the extension date affect me?

Answer: You do not have to close before December 1. Once the legislation has been signed, it will be as if the Nov 30 date had never existed. Therefore, so long as the contract settles before April 30 (or July 1, worst case), the purchaser will be eligible for the credit.

Home Buyer Tax Credit Extended and Expanded

	Current	New
Effective Date	·        January 1, 2009	·        November 7, 2009
Deadline	·        Close on or before  November 30, 2009	·       Contract signed before May 1, 2010, must close before July 1, 2010·       Members of the uniformed services, foreign services, and intelligence employees who served an extended service of 90 days will have until April 30, 2011 and June 30, 2011.
Amount	·        First-Timers: maximum of $8,000  or 10% of sales price·        Prior Owners: $0	·        First-Timers: Unchanged·        Prior Owners: $6,500 if lived in prior home for at least 5 years of past 8 years
Income Limit	·        Individual: $75,000·        Couple: $150,000	·        Individual: $125,000·        Couple: $225,000
Other   Restrictions	·       Home must be primary residence for at least 3 years. If home is sold or buyer moves before 3 years, must re-pay full amount of credit.	·       Buyer must be at least 18 years old and not classified as a dependent for tax purposes·        Home must cost less than $800,000·       New Home must be primary residence for at least 3 years following purchase. If home is sold or buyer moves, before 3 years, must re-pay full amount of credit. Exception for military, foreign services, or intelligence with extended 90 days service overseas.
How to claim	·       If purchased in 2009, by amending 2009 tax return or claiming on 2010 tax return	·       If purchased in 2010, by amending 2010 tax return or claiming on 2011 tax return

New Wisconsin Historic Preservation Tax Credits Sliced Out of Bill

Wisconsin Senate Bill 55 of 2009 would have provided for substantially enhanced historic preservation tax credits. However, they have been stripped from the bill in committee.   Such credits recently have been increased in other states as a means of jump-starting the economy by putting construction workers back to work while providing long-term environmental and social benefits to communities.  Major players in the rehabilitation of historic properties work in many states and are likely to take their redevelopment talents and financial investments elsewhere for a greater return.

Senate Bill 55 still includes some minor provisions for improving historic preservation in Wisconsin.  These include enhanced advance planning of WisDOT projects in historic towns, locating state offices in traditional downtowns, requiring that the State Historic Building Code “be liberally interpreted,” and allowing for lower traditional lower handrails on historic properties.

For details see Senate bill 55.

Keller Williams Grows During Great Recession

While other firms have lost agents, Keller Williams has continued to grow during the Great Recession, becoming the nation’s third largest real estate franchise.  During the first nine months the number of Keller Williams agents has grown by 5 percent, compared to a 1.3 percent drop in the National Association of Realtors.  Our local Keller Williams office has shown similar strength.

If you have not heard of the company until recently, there is a reason.  Fifteen years ago, Keller Williams was a regional Texas firm This growth is a reflection of the company’s fundamental values of integrity and win-win transactions, the service we provide our clients, and the support we receive as agents.

Madison’s Historic Preseration Ordinance Upheld

One of the most unfortunate aspects of the recent debate over the Hammes Co.’s complex proposal to redevelop and enlarge the Edgewater Hotel has been the one-sided,  ideologically-driven coverage by the Wisconsin State Journal.  The many competing public policy decisions deserved far better public presentation.  The Madison City Council recently backed the city’s Historic Preservation Commission and rejected the motion to over-ride the commission’s denial of the Hammes Co.’s current proposal.

The citizen experts on Historic Preservation Commission spent seven hours carefully reviewing the Hammes Co. proposal to reconstruct and enlarge the Edgewater Hotel in the Mansion Hill Historic District.  They made their decision in accordance with the law they are required to follow, that the huge building was not compatible with the small scale of the buildings with which it is “visually related” and not compatible with the scale of the historic properties of the Mansion Hill Historic District.  To have decided otherwise would have been a violation of  the equal protection clauses of the state and federal constitutions,  granting permission to those with huge budgets to build large very buildings in the historic district while denying permission to those  with modest budgets to build small structures.

Madison certainly needs more jobs–even temporary construction jobs and hotel service jobs–and would benefit from better public access to the lakes from downtown.  There were many big questions about the design of the project, about how much additional access to the lake it truly granted, whether the pier shown in the drawings could be built legally and many more.

Another big question for city council is whether this project merits a $16 million TIF tax subsidy, the largest in the city’s history.  Also do we really need to subsidize more hotel rooms?  The Alexander Co. is building a hotel much closer to the Convention Center at its Capitol West project and Bruce Bosben of Apex is proposing to build a hotel only two blocks from the Convention Center with no subsidy.  Meanwhile the current downtown hotels are barely surviving with an occupancy rate of only 50%.  Yes, someday we may need more hotel rooms, but now?

Uncovered A Gem, Price Reduced

Attending a Christmas party, I came across this handsome Queen Anne –Colonial Revival home, in the University Heights Historic District.  The property has  exceptional interior integrity with all its layout and original trim intact. The kitchen has been updated in a manner consistent with the historic character of the home.  Four bedrooms, one and half baths, with a finished attic for bedroom or office.  For modern living it has a garage plus additional off-street parking.  Convenient to the UW and all the amenities of lower Monroe Street.  1708 Regent, recently reduced to $279,900, courtesy Bunbury & Associates.

10 Inexpensive Ways to Wow Buyers

Now is the time for home owners contemplating a spring sale to spruce up their properties in anticipation of what Mike Larson of Weiss Research calls a potentially vibrant home-selling season.

“If you have been beating your head against a wall, this is going to feel a lot better,” he says.

“I am amazed again and again.  People decide in the first 60 seconds that they are in a home if they are going to buy it,” according to Geoffrey Gyrisco.  “First impressions really count.”

Here are 10 cheap ways to make a property more attractive to shoppers:

1. Improve first impressions. Touch up the paint on the front door and other areas that buyers see first.

2. Clean up the landscaping. Trim the hedges and trees and plant some annuals in the flowerbeds.

3. Paint the interior. A coat of light yellow or cream with contrasting white woodwork looks fresh and clean.

4. Refurbish the floors. Buff the hardwoods. Hardwoods are hot in vintage and historic homes. Otherwise install new carpets – or at least get them professionally cleaned.

5. Take care of the big problems. If the house needs a roof or the front stoop is crumbling, get them fixed.

6. Buy warranties. Putting appliances under warranty gives homebuyers a secure feeling.

7. Improve energy efficiency. New efficient furnace or improved insulation tells a potential buyer the seller is on top of things plus they come with tax benefits.

8. Replace light fixtures. Updated fixtures, especially at the entrance way and in the foyer, create a good first impression.

9. Buy a stove. Home owners whose kitchen isn’t top of the line can jazz it up for a few hundred dollars by buying a new stove, which gives the room a fresh feel.

10. Tidy up the bathrooms. Get rid of mildew, replace caulking, and clean or replace stained sinks.

Revised based on an article in U.S. News & World Report, Luke Mullins (01/21/2010)

FHA Announces Yet More Changes to Mortgage Requirments

Today most mortgages are US government backed loans, and the FHA is constantly revising its requirements.  Thus it is critical to have a lender like Waterstone Mortgage who monitors and implements the daily changes or a home purchase or sale is likely not to close.  Here are the latest requirements as summarized by Waterstone.

1. Mortgage insurance premium (MIP) increase and adjustments to upfront/annual MIP relationship
• Raise upfront MIP by 50bps to 2.25%
Policy change through Mortgagee Letter – effective in Spring
• Pursue legislative authority to increase the statutory cap on the annual MIP. Upon receiving legislative approval, the upfront/annual premium structure will be adjusted, with some of the upfront premium being shifted to the annual premium. This shift will allow for an increase to the capital reserve with less impact to the consumer.
2. New downpayment / credit score requirements
• Loans to borrowers with a FICO of 579 or lower will require a minimum 10% downpayment
• Loans to borrowers with a FICO of 580 or above will require current minimum 3.5% downpayment
• Policy change through Federal Register Notice with comment period
3. Reduce allowable seller concessions from 6% to 3%
• Conform with industry standards and reduce potential value inflation
• Policy change through Federal Register Notice with comment period
4. Increase enforcement on FHA lenders
• Publicly report lender performance rankings to complement
currently available Neighborhood Watch data
Operational change; does not require new regulatory action
• Enhance monitoring of lender performance and compliance with FHA guidelines and standards.
Implement Credit Watch termination at lender underwriting ID in addition to originating ID
Mortgagee Letter – effective immediately
• Implement statutory authority through regulation of section 256 of the National Housing Act to enforce indemnification provisions for lender’s using delegated insuring process
Policy specifications through regulation with comment period
• Pursue legislative authority to increase enforcement on FHA lenders. Specific authority includes:
Amendment of section 256 of the National Housing Act to apply indemnification provisions to all Direct Endorsement lenders. This would require all approved mortgagees to assume liability for all of the loans that they originate and underwrite
Legislative authority permitting HUD maximum flexibility to establish separate “areas” for purposes of review and termination under the Credit Watch initiative. This would provide authority to withdraw originating and underwriting approval for a lender nationwide on the basis of the performance of its regional branches
Previously Announced Policy Changes
Effective January 1, 2010
HUD announced a series of initial policy changes on September 18, 2009 as a first round of risk management.
Changes implemented via mortgagee letter, with an implementation date of January 1, 2010:
1. Modifications to streamline refinance documentation requirements
2. New appraisal standards – implementation date has been extended to February 15, 2010 to enable system changes
3. Submission of audited financial statements required for supervised lenders
30-day notice and comment period ended on December 30, 2009 (Comments currently under review to develop final rule.)
4. Increase net worth requirements for approved mortgagees from $250,000 to $1 million within one year and $2.5 million within three years
5. Eliminate independent FHA approval of mortgage brokers who originate but do not fund loans
FHA Policy Changes Announced January 20, 2010
Joe Long
Loan Officer
office: 608-662-9585
jlong@waterstonemortgage.com
www.refinancemadison.com
waterstone mortgage is a wholly owned subsidiary of waterstone
bank ssb (nasdaq: wsbf)

Mortgage Rates Continue to Fall; Raise Hopes for Spring Housing Market

As reported in the Washington Post, rates for 30-year home loans fell below 5 percent this week. The average rate on a 30-year, fixed-rate mortgage was 4.99 percent, down from 5.06 percent a week earlier .  The average rate on 15-year, fixed-rate mortgages fell to 4.4 percent, down from 4.45 percent last week.

The drop comes after interest rates fell in the bond market this week as concerns about the economy increased demand for the safety of government bonds, which is closely tied to mortgage rates.

The average rate on 15-year, fixed-rate mortgages fell to 4.4 percent, down from 4.45 percent last week. according to Freddie Mac.

Falling mortgage rates might help bolster the nation’s housing market as borrowing becomes less expensive for consumers. The decline in home-loan rates boosted the number of mortgage applications by more than 9 percent last week, according to data from the Mortgage Bankers Association.

Morgan Greenseth on the Future of Shopping Malls

As retail vacancies grow ever more conspicious, even around Madison, Wisconsin, a provocative essay by Morgan Greenseth, “The Future of  Shopping Malls: An Image Essay” is worth visiting.  She begins:

“Mall culture in the United States — at least as we know it — is coming to an end. This trend is likely to continue, as the U.S. economic downturn causes people to reduce their trips to stores and to shop less, forcing more shops to close and leaving malls deserted.

According to an article that ran in The Economist at the end of 2007:

In the past half century … [malls] have transformed shopping habits, urban economies and teenage speech. America now has some 1,100 enclosed shopping malls, according to the International Council of Shopping Centres. Clones have appeared from Chennai to Martinique. Yet the mall’s story is far from triumphal. Invented by a European socialist who hated cars and came to deride his own creation, it has a murky future. While malls continue to multiply outside America, they are gradually dying in the country that pioneered them.”

For the complete article with numerous illustrations click here.

Donovan Rypkema Questions Thoughtless LEED Certification and Density

The nation’s leading historic preservation economist, Donovan Rypkema, has questioned the unthinking drive for LEED certification and density in down-towns at the expense of historic buildings.  Too often architects are advocating LEED certified buildings as better for the environment than an existing historic building when a rational analysis of the energy embodied in an existing historic structure would lead to its preservation.  Similarly planners and developers are pushing downtown density at the expense of historic properties, livability and sustainability.  Here is a great 3 minute hard hitting video clip. To those of us living in Madison, the situation described by Rypkema sounds all too familiar.

FHA, Nation’s Largest Mortgage Lender Provides Details on Major Changes

Now we have the details on the major changes being made by the FHA in its lending practices.  These can have a huge impact, as the FHA by default has become the nation’s number one mortgage lender.

FHA Policy Changes Announced January 20, 2010
1. Mortgage insurance premium (MIP) increase and adjustments to upfront/annual MIP relationship
o Raise upfront MIP by 50bps to 2.25%
 Policy change through Mortgagee Letter – effective in spring
o Pursue legislative authority to increase the statutory cap on the annual MIP. Upon receiving legislative approval, the upfront/annual premium structure will be adjusted, with some of the upfront premium being shifted to the annual premium. This shift will allow for an increase to the capital reserve with less impact to the consumer.
2. New downpayment / credit score requirements
o Loans to borrowers with a FICO of 579 or lower will require a minimum 10% downpayment
o Loans to borrowers with a FICO of 580 or above will require current minimum 3.5% downpayment
o Policy change through Federal Register Notice with comment period
3. Reduce allowable seller concessions from 6% to 3%
o Conform with industry standards and reduce potential value inflation
o Policy change through Federal Register Notice with comment period
4. Increase enforcement on FHA lenders
o Publicly report lender performance rankings to complement currently available Neighborhood Watch data
 Operational change; does not require new regulatory action
o Enhance monitoring of lender performance and compliance with FHA guidelines and standards.
 Implement Credit Watch termination at lender underwriting ID in addition to originating ID
 Mortgagee Letter – effective immediately
o Implement statutory authority through regulation of section 256 of the National Housing Act to enforce indemnification provisions for lender’s using delegated insuring process
 Policy specifications through regulation with comment period
o Pursue legislative authority to increase enforcement on FHA lenders. Specific authority includes:
 Amendment of section 256 of the National Housing Act to apply indemnification provisions to all Direct Endorsement lenders. This would require all approved mortgagees to assume liability for all of the loans that they originate and underwrite
 Legislative authority permitting HUD maximum flexibility to establish separate “areas” for purposes of review and termination under the Credit Watch initiative. This would provide authority to withdraw originating and underwriting approval for a lender nationwide on the basis of the performance of its regional branches
Previously Announced Policy Changes Effective January 1, 2010
HUD announced a series of initial policy changes on September 18, 2009 as a first round of risk management.
Changes implemented via mortgagee letter, with an implementation date of January 1, 2010:
1. Modifications to streamline refinance documentation requirements
2. New appraisal standards – implementation date has been extended to February 15, 2010 to enable system changes
3. Submission of audited financial statements required for supervised lenders
30-day notice and comment period ended on December 30, 2009 (Comments currently under review to develop final rule.)
4. Increase net worth requirements for approved mortgagees from $250,000 to $1 million within one year and $2.5 million within three years
5. Eliminate independent FHA approval of mortgage brokers who originate but do not fund loans

Rush to Take Advantage of Low Mortgage Rates &

Looking at the national real estate market, Chris McLaughlin reported today that “borrowers are rushing to take advantage of low borrowing costs and other incentives while they last. The Mortgage Bankers Association (MBA) released its Weekly Mortgage Applications Survey for the week ending January 15, 2010.  The Market Composite Index increased 9.1 percent on a seasonally adjusted basis from one week earlier, and decreased 52.3 percent compared with the same week one year earlier.  The Refinance Index increased 10.7 percent from the previous week and the seasonally adjusted Purchase Index increased 4.4 percent from one week earlier.  The unadjusted Purchase Index increased 9.8 compared with the previous week and was 19.1 percent lower than the same week one year ago.”

“The refinance share of mortgage activity increased to 71.7 percent of total applications from 71.5 percent the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 4.1 percent from 4.0 percent of total applications from the previous week. Average 30-year mortgage rates dropped to 5 percent last week, and it’s still before the deadline to take advantage of the government’s extended and expanded federal tax credit.  Despite these lures to buyers, the fallout from unemployment, underemployment and the ongoing sale of foreclosure properties continue to keep many potential buyers out of the market, and [nationally] housing is unlikely to gain much traction until these barriers start to fall.”

Donovan Rypkema & Economic Impacts of Historic Preservation

The following is taken from the Conneticut Trust for Historic Preservation.  Other state such, as Missouri, are facing up-hill battles to defend their state tax credits for historic property rehabilitation in the face of massive state budget deficits.

What Is Preservation Worth? The Need for Studying Economic Impacts

When the Connecticut General Assembly held hearings in December on Governor Rell’s deficit mitigation plan, Helen Higgins, the Connecticut Trust’s executive director, and John Simone, President of the Connecticut Main Street Center, both got legislators’ attention by testifying about the effectiveness of preservation programs as job creators. While figures from Rhode Island and other nearby states helped them make their point, information specifically about Connecticut would have been much more persuasive.

As the economic crisis continues and Connecticut, like many other states, faces the prospect of drastic budget cuts to remain solvent, historic preservation is receiving extra scrutiny. Quoting Santayana (“Those who cannot remember the past are condemned to repeat it.”) isn’t enough. Talking about character and quality of life isn’t enough. The challenge, increasingly, is to demonstrate that preservation offers measurable economic benefits.

What preservationists need to remember, and all too often don’t, says economist Donovan Rypkema, is that historic buildings are real estate. They cost money to acquire, maintain, and operate, and the people who provide that money expect some return on that money. In a few cases the return may be related to mission or the satisfaction of doing good, but for most buildings the return must be financial. Owners and developers want to be sure that investing in historic buildings will make money for them, and legislators looking at funding for preservation want to be sure that doing so will create jobs or increase tax revenues or provide a catalyst for additional development.

Rypkema, a Washington D.C.-based real estate and economic development consultant, is the nation’s leading expert on the economics of historic preservation. Since 1983 he has provided ongoing consulting services to the National Trust for Historic Preservation and the National Main Street Center and he has conducted statewide studies of the economic impact of historic preservation in Virginia, Kentucky, North Carolina, Indiana, New York, and Maryland, as well as a citywide study in Philadelphia. Rypkema’s book, The Economics of Historic Preservation: A Community Leader’s Guide (2^nd edition 2005), is the basic work on the subject.

Fortunately, the Connecticut Main Street Center and the Connecticut Commission on Culture & Tourism (CCT) brought Rypkema to Hartford just two days after the legislative hearing to present a workshop called “Measuring Economic (and other) Impacts.”

The workshop was planned to lay the ground for a major study of the economic impact of historic preservation in Connecticut, which the CCT hopes to commission within the next year. Preservationists have long called for such a study to help them make the case for preservation activities in Connecticut and to support efforts to increase funding for preservation programs. Similar studies from other places have been helpful, but none have carried the weight of a Connecticut-specific study.

At the workshop, Rypkema primarily discussed the various factors that go into undertaking an economic impact study. He outlined the “measurables” as well as non-market approaches and innovative international approaches. For an audience made up largely of historians and old-building fans, the material was difficult but exciting. Rypkema showed that in many states and cities, preservation does indeed provide a return on investment, that rehabbing old buildings not only makes sense culturally, it also makes sense economically.

The CCT study will look at investment generated in Connecticut by the federal rehabilitation tax credit and the three state rehabilitation tax credits (see CPN November/December 2008). It will measure such results as jobs created and number of housing units created; in addition, a new formula developed in Maryland will be used to calculate the “positive environmental impact” such as open space and farms not developed as a result of historic buildings’ being put back into use. Preservationists expect the results to provide useful arguments for supporting the tax credits as well as preservation programs supported by the Community Investment Act.

The CCT must submit its proposal for the study to the Office of Policy and Management for approval. Once it is approved and the contracts are signed, it should take between 90 and 120 days to complete the study.

Measurables for Historic Preservation

What would an economic impact study of preservation activity measure? Donovan Rypkema offered a long list of potential areas in which preservation can make a difference.

Major measurables

• Jobs and household income
• Heritage tourism
• Downtown revitalization
• Property values

Minor measurables

• Museums and historic sites
• Preservation organizations
• Arts and crafts
• Movie industry

Program measurables

• State tax credits
• State grant/loan programs
• ISTEA/TEA-21 (transportation enhancement funding)
• Other

Contributory measurables

• Small business incubation
• Affordable housing

Neighborhood measurables

• Economic integration
• Neighborhood growth
• Home ownership
• Historic district as community “mirror”

Environmental measurables

• Smart growth goals
• Compact development/density
• Landfill
• Embodied energy

Intangibles

• Quality of life
• Sense of community
• Other

Save Those Historic Windows & Save Energy

“Consider it this way: If you had a beautiful piece of art that was custom designed, crafted by hand, made from native old-growth wood, and imbued with clues to its age and crafting traditions, would you throw the authentic piece in the dumpster if a simulated plastic version suddenly became available?

Seems ridiculous, right? However, this is precisely what people all over the country are doing when they rip out their historic wood windows and replace them with new windows.”

For an extensive guide to historic windows and many aspects of energy efficiency in older buildings, visit www.Preservationnation.org/weatherization.

Another great resource, relevant to Wisconsin is the Michigan State Historic Preservation Office blog site.