Real Estate News

South Carolina Real Estate Investor Wins $4 Million in Television Lawsuit

By Matthew Belloni

LOS ANGELES (Hollywood Reporter) – The South Carolina real estate broker who starred in the first season of A&E’s “Flip This House” has won another legal round against the network.

The Fourth Circuit Court of Appeals has sided with Richard C. Davis, who originally sued for half the revenue from the hit reality show in 2006.

His suit for breach of contract and fraud claimed he had agreed orally with the network to share net revenue 50-50 in exchange for developing and appearing on the show. Davis, a real estate broker with a specialty in house-flipping, claimed he brought A&E the idea for the show, which became popular when it premiered in 2006 at the height of the real estate bubble.

In 2008, a federal jury in Charleston, S.C., found that Davis had created an oral contract with A&E executive Charles Nordlander, even though the terms were not formally memorialized in a written deal. It awarded Davis $4 million in damages for his share of revenue from the first of the series’ four seasons. (Davis starred on the initial cycle but left amid the dispute over his compensation, eventually producing a similar show, “The Real Estate Pros,” for A&E rival TLC.)

At the time of the jury decision, A&E said it intended to “follow the appropriate procedures to have the verdict reversed.” But the Fourth Circuit on Monday upheld the jury verdict enforcing the oral agreement between Davis and A&E.

A&E did not respond to a request for comment.

Copyright © 2011, Reuters

Tips For Women Who Are Beginners In Real Estate Investing

The internet is a good place for them to turn.

Women who want to begin investing in real estate can learn some of the basics of investing in real estate by reading educational materials online, and they can develop a familiarity with the topic by reading about current events and trends in the real estate market.

Lack of knowledge is not the only thing that keeps some women from becoming real estate investors; fear is also a contributing factor, Charita Cadenhead, founder of Bham WIire (Birmingham Women Investing in Real Estate), a group for women interested in real estate investing, said. “They’re afraid of losing money, they’re afraid of not making the right decisions…and credit issues are also involved.” In addition, Cadenhead said, “they don’t know how to get started.”

Real estate investment clubs

Providing women with industry contacts and education, real estate investment clubs are a good place to start. Dawn Jordan-Wells, a broker/associate for Hodge Homes, said she recommended that women interested in investing in real estate do a simple internet search for “real estate investing” to find local investment groups to start attending.

“Finding other women to network with was beneficial,” Jordan-Wells said.

Real estate investment clubs exist in many incarnations; some are larger and more formal than others. The National Real Estate Investment Association (NREIA) has about 40,000 members in its 230 Real Estate Investment Association (REIA) chapters nationwide, according to its website.
REIAs can expand an investor’s knowledge and networkWomen interested in investing in real estate, and those who are already doing so, “should get into a REIA so they can get a pulse on the market,” Lisa Moren-Bromma, author of Wise Women Invest in Real Estate and Real Estate Investing for the Utterly Confused and president of The Entrust Group, said. Additional benefits of joining a REIA, according to Moren-Bromma, include access to educational offerings and details about legislation that could impact real estate investors. By joining a REIA, real estate investors “are going to have up-to-date information, not just on the markets, but also on the law.”

Cadenhead said women interested in investing in real estate should “join those clubs [and] sit in on some of the meetings. They have great guest speakers.”

Those new to real estate investing should exercise caution, however, and carefully evaluate what guest speakers say rather than simply taking their words at face value. In some cases, speakers at local REIAs try to sell something to the audience, Moren-Bromma said; new members should “just be aware. Be there to learn, and to network with other people who have been doing this a while,” she said.

“I would urge women to be extremely careful in [whom] they elect to give their money to,” she said.

In addition to REIA chapters, there are also smaller and less formal investment groups. Jordan-Wells said the website MeetUp.com has allowed her to meet and interact with other investors and those who are interested in investing. She posted an event on the website last August, and now attendance at her monthly meetings about investing has increased from an average of five people to an average of 15 people, she said.

“I’m hoping to grow that,” she said. The attendees are mostly women, Jordan-Wells said, and “we just share information and we’re more comfortable because, you know, we have that common bond.”

Cadenhead also used MeetUp.com to reach out to women in the real estate investment world, and Bham WIire has grown from that, she said.

In addition to investment clubs specifically pertaining to real estate, “I would strongly recommend also looking for support from a general business perspective at NAWBO, the National Association of Women Business Owners,” Moren-Bromma said. “They’ll get a lot of support from a business owner’s perspective and from women in their own area.”

Networking

No matter what type of real estate or general investment clubs women seeking to become real estate investors choose to join, such groups can provide them with crucial opportunities for networking, education and support.

“The greatest key is knowledge,” Cadenhead said, and women new to real estate investing can benefit from “being around other people who do invest to learn the process from those people.”

Learning from and working with other women who are experienced real estate investors can also be a good way to gain confidence. Moren-Bromma said she recommended that beginning investors “work with somebody with some experience in real estate investing—get your feet wet a little bit before you go out on your own.”
Learning from more experienced investors builds confidence for many womenAt real estate investment clubs, “there are real estate agents and other investors there for them to network with, there are lenders, there are contractors,” Cadenhead said.

“Everybody who’s related to the real estate industry can be found right there…so they can form their own network there to get them ready for real estate investing,” Moren-Bromma said. After joining a group, women should “put a business plan, or a marketing plan, or a road map together—their checklist of things that they need to do in order to become successful,” she said.

Moren-Bromma also said she recommended that women put together a team of experts to work with when investing. “You have your financial team: your accountant , your attorney, a property manager if you’re buying to hold property for the long term…people that can assist you and be part of your team so that when you go out to identify and find a deal, nothing is going to stand in the way if the deal makes sense. You’ve got your people, your money—all your ducks in a row.”

“If a woman does that, she’s going to be very successful in real estate.”

Strategies for women

Considering the credit crunch underway across the country, combined with the potential recession, many women who are interested in becoming real estate investors hesitate because they are nervous about money. More precisely, they are worried about not having enough money to be able to invest in real estate.

“I think [women] think that they need to have a lot of capital up front,” Jordan-Wells said. “Or their credit may be bad and they don’t think they can get started because of that, either.”

Cadenhead said that investors will need some money up front. “It’s going to take a little money to get started,” she said. “Six to eight months ago, an investor could buy a property with no money down and get it financed for 100 percent. With all the foreclosures  going on across the country, that kind of put a thorn in that, and so now [real estate investors need] to come up with money,” Cadenhead said. “Whether that’s 10 percent or 20 percent, a lot of them just don’t have it.”

Fortunately, for women just starting out, “There’s a lot of different creative strategies, like lease options, that they could do to get into a property,” Moren-Bromma said.

Buying pre-foreclosures or foreclosures is another strategy that may suit women in particular well for a variety of reasons. While foreclosure properties tend to be more affordable, they typically must be purchased with cash up front. Pre-foreclosures would be a better option for people without a lot of cash on hand.

Another reason is that, because in many cases women are more nurturing than men, a woman “may be able to talk with homeowners who are in [pre-foreclosure] and get them to let [her] purchase a house below market [price] compared to a man approaching them to do that,” Jordan-Wells said.

Cadenhead also said the foreclosure market is a place in which many women investing in real estate could find their niche. “I think women will play a major role in their commitment to revitalize areas hardest hit by foreclosures,” she said. “Members of my group, Bham WIire, have made a commitment to buying and rehabbing houses in these areas and then sharing equity with properties that they sell. And by doing this, homes become more affordable….We take a little less profit for it, but something has got to stimulate home sales again, particularly in these areas.”
Women can utilize their strengths in forming relationships in businessSuch a strategy allows the investors to profit not just from the revitalization of a particular property, but from the revitalization of a particular area. Such dedication to a community can improve an area’s economic outlook. Cadenhead said this type of investment is well suited to women because “a great advantage that women hold over men is compassion, and empathy .”

Outlook

“[Women] are relationship people,” Cadenhead said. “We’re good at establishing a relationship, we’re good at earning trust, and so people want to do business with us. It becomes a lot easier for us to develop a good reputation for delivering a quality product. This is a tremendous advantage [for] women, particularly when it comes to rehabbing property.”

Jordan-Wells said she recommended that women who lack experience with do-it-yourself home projects attend classes, such as those offered by hardware and home improvement stores, to learn the basics. Then, if someday they are looking at investing in a property that may require some work, they can make the right decisions about the deal. Do-it-yourself skills could be particularly useful for women who want to rehab  properties.

Negotiating can be another important skill for women to concentrate on learning. “[Women should] learn better negotiation skills,” Cadenhead said. “Acquire that skill and take control.”

Cadenhead said she doesn’t think that women are at any inherent disadvantage when it comes to investing in real estate. “I think the major disadvantage is probably internal,” she said. “Women only feel that they lack the power and authority. They feel like they can’t do it because investing is a male-dominated field.”

Moren-Bromma also said that women investing in real estate are not less likely to be successful solely because they are women. “It’s not that it’s difficult, it’s that women tend not to have the confidence,” she said. “Somebody who’s persistent and somebody who believes in themselves, whether male or female, will do just fine.”

Woman gets 12 years, ordered to pay $31 million in restitution in fraud case

 

By Steve Kanigher

A federal judge in Las Vegas sentenced former Global Express Capital owner Connie Farris to 12 years in prison and ordered her to pay more than $31 million in restitution in a massive mail fraud scheme that victimized hundreds of investors, Nevada’s U.S. Attorney Daniel Bogden said.

The sentence, handed down Friday by U.S. District Judge Roger Hunt, came after Farris, 66, had been convicted in November of 39 counts of mail fraud. The scheme involved investors who gave her millions of dollars for loans they thought were secured by real estate in Nevada, California and Utah.

Farris, a resident of Grover Beach, Calif., was permitted to self-report to prison by July 15.

Farris owned several companies from 2001 through 2003 that purportedly loaned money to real estate developers for the purchase of undeveloped land. The companies operated as one business, Global Express.

Global Express solicited investors through word of mouth and also through newspaper advertisements. The advertisements usually stated that Global Express was seeking investors for first deeds of trust and that they would receive interest at the rate of 14 percent annually.

Farris received millions of dollars from investors for what they thought were projects in Bishop and Rancho Mirage, Calif., Las Vegas and St. George, Utah. Farris and Global Express did not fund or close on any of those real estate loans. Farris and the business also had no interest in the properties and the investors’ funds were not secured with a deed of trust. To avoid being caught, Farris lulled investors into a false sense of security through monthly interest checks and other materials related to their investments.

The case was investigated by the FBI and prosecuted by Assistant U.S. Attorneys Brian Pugh and Pat Walsh.

Better days are ahead for Hampton Roads’ economy, ODU economists say

But there’s still a ways to go before the region and the nation regain all the jobs lost during the recession, the economists said during their annual economic forecast. About 300 people attended the event at the Norfolk Waterside Marriott.

Hampton Roads’ gross regional product is anticipated to grow by 3.1 percent — nearly its half-century average of 3.2 percent — but a slower pace than the 3.4 percent growth expected nationally. Driving the growth will be a 3 percent increase in Department of Defense spending, port activity, health services and tourism spending, economics professor Vinod Agarwal said.

Job growth will be slow, as employers have learned to do more with less, Agarwal said. In 2011, the region will likely gain 9,600 jobs, mostly in professional and business services, education, leisure and hospitality and health care services. The unemployment rate will linger at about 7 percent.

In Hampton Roads, private-sector earnings, including wages, salaries and fringe benefits, jumped by nearly 50 percent between 2000 and 2009, outpacing the 30 percent increase across the U.S.

Hampton Roads military saw a 75 percent increase.

Retail sales fell by 8.6 percent between 2007 and 2009 and continued to decline for the first seven months of 2010. But growth the second half of the year more than offset the losses. Taxable sales will likely increase 2.5 percent this year, Agarwal said.

Hotel room revenue, reflecting tourism and business travel, was up 1 percent for 2010. It’s expected to tick up 2.4 percent for 2011.

The value of single-family housing permits is projected to increase 2 percent. Building surged in early 2010 due to federal home-buying tax credits, but has since trailed off due to an oversupply of residential inventory. Existing-home sales dropped to their lowest point in at least 10 years, while inventory is at its highest level in at least 15 years.

That vast inventory, coupled with tight home loan requirements and foreclosures, will likely depress prices 3 percent to 5 percent through 2011. They’ve already fallen about 15.6 percent since peaking in 2007, Agarwal said.

The price decline is a correction of the escalating home prices of the mid-2000s.

“If there’s excess supply, prices have nowhere to go but down. How long it’ll take, nobody knows,” Agarwal said.

Comparing the cost of renting to the cost of a mortgage, buying a house is more affordable today than it has been in years, he said.

“It is time to buy,” Agarwal said.

General cargo tonnage at the region’s ports is expected to grow by 3.2 percent. The port will become more competitive when vying for Midwest ocean cargo due to Norfolk Southern’s new Heartland Corridor, which became fully operational in September. It cuts about a day and a half off the trip to Chicago. Plus, the Virginia Port Authority’s leasing of the Portsmouth APM terminal will improve its competitive position. The new facility is roughly 10 percent more efficient in cargo movement.

Nationally, about 2 million jobs will be created this year, but the unemployment rate is expected to stay high, reflecting the high number of discouraged workers who have stopped looking for work, economist Gilbert Yochum said.

As real estate values take a hit, so will local government budgets. Local government job losses will continue for a year or two after real estate prices bottom out, Yochum said.

He predicts foreclosures peaked last year, will remain high this year and begin to decline in 2012. That will keep banks from lending.

“They’re using their extra money to pay off the bad loans,” Yochum said. “We’re in a stasis situation paying off this bad stuff that’s literally choking the financial situation.”

Corporate profits are at all-time highs. Businesses are spurring growth in the economy with investments in software and equipment.

“The economy is turning around, but not like a speed boat,” Yochum said. “More like an ocean liner.”

HUD PROPOSES NEW RULE TO ENSURE EQUAL ACCESS TO HOUSING

HUD No. 11-006
Brian Sullivan
(202) 708-0685

WASHINGTON – The U.S. Department of Housing and Urban Development today proposed new regulations intended to ensure that its core housing programs are open to all eligible persons, regardless of sexual orientation or gender identity.  View the proposed rule announced today.

“This is a fundamental issue of fairness,” said HUD Secretary Shaun Donovan.  “We have a responsibility to make certain that public programs are open to all Americans.  With this proposed rule, we will make clear that a person’s eligibility for federal housing programs is, and should be, based on their need and not on their sexual orientation or gender identity.”

 HUD is seeking public comment on a number of proposed areas including:

• Prohibiting lenders from using sexual orientation or gender identity as a basis to determine a borrower’s eligibility for FHA-insured mortgage financing.  FHA’s current regulations provide that a mortgage lender’s determination of the adequacy of a borrower’s income “shall be made in a uniform manner without regard to” specified prohibited grounds.  The proposed rule would add actual or perceived sexual orientation and gender identity to the prohibited grounds to ensure FHA-approved lenders do not deny or otherwise alter the terms of mortgages on the basis of irrelevant criteria.
   
• Clarifying that all otherwise eligible families, regardless of marital status, sexual orientation, or gender identity, have the opportunity to participate in HUD programs.  In the majority of HUD’s rental and homeownership programs the term “family” already has a broad scope, and includes a single person and families with or without children.  HUD’s proposed rule clarifies that families, otherwise eligible for HUD programs, may not be excluded because one or more members of the family may be an LGBT individual, have an LGBT relationship, or be perceived to be such an individual or in such relationship.
   
• Prohibiting owners and operators of HUD-assisted housing, or housing whose financing is insured by HUD, from inquiring about the sexual orientation or gender identity of an applicant for, or occupant of, the dwelling, whether renter- or owner-occupied.  HUD is proposing to institute this policy in its rental assistance and homeownership programs, which include the Federal Housing Administration (FHA) mortgage insurance programs, community development programs, and public and assisted housing programs.

Other actions:

HUD is conducting the first-ever national study of discrimination against members of the LGBT community in the rental and sale of housing.  Every ten years, HUD does a study of the impact of housing discrimination on the basis of race and color.  HUD undertook this important research in 1977, 1989 and 2000 and is currently undertaking this study again. It is believed that LGBT individuals and families may remain silent because in many local jurisdictions, they may have little or no legal recourse. While there are no national assessments of LGBT housing discrimination, there are state and local studies that have shown evidence of this sort of bias. For example, a 2007 report by Michigan’s Fair Housing Centers found that nearly 30 percent of same-sex couples were treated differently when attempting to buy or rent a home.

HUD currently requires its recipients of discretionary funds to comply with local and state non-discrimination laws that cover sexual orientation or gender identity.  In July, the Department issued new guidance that treats discrimination based on gender nonconformity or sex stereotyping as sex discrimination under the Fair Housing Act, and instructs HUD staff to inform individuals filing complaints about state and local agencies that have LGBT-inclusive nondiscrimination laws.

The Fair Housing Act prohibits discrimination in rental, sales and lending on the basis of race, color, national origin, religion, sex, disability and familial status. Approximately 20 states, and the District of Columbia, and more than 150 cities, towns and counties across the nation have additional protections that specifically prohibit such discrimination against LGBT individuals. Under guidance announced last year, HUD will, as appropriate, retain its jurisdiction over complaints filed by LGBT individuals or families but also jointly investigate or refer matters to those state, district and local governments with other legal protections.

Bank of America halts foreclosure sales

Bank of America is halting foreclosure sales in all 50 states as part of a widening investigation into flaws in the process, the company announced Friday.

The bank said the foreclosure process on delinquent borrowers will continue, but it will not proceed to judgment or a foreclosure sale.

 Bank of America services 14 million loans. More than 14 percent of those loans are past due or already in foreclosure.

http://www.washingtontimes.com/news/2010/oct/8/bank-america-halts-foreclosure-sales-50-states/

Need a Mortgage? Don’t Get Pregnant

Expectant parents shopping for a home are not the only ones concerned about the date of the baby’s arrival.

Mortgage lenders are taking a harder look at prospective borrowers whose income has temporarily fallen while they are on leave, including new parents at home taking care of a baby. Even if a parent plans on returning to work within weeks, some lenders are balking at approving the loans.

“If you are not back at work, it’s a huge problem,” said Rick Cason, owner of Integrity Mortgage, a mortgage firm in Orlando, Fla. “Banks only deal in guaranteed income these days. It makes sense, but the guidelines are sometimes actually harsher than they need to be.”

Back in the slapdash days of easy credit, lenders were more likely to overlook the fact that a parent was out on maternity or paternity leave. But now that lenders have become more conservative, they are requiring new parents to jump through more hoops to prove their income will be enough to cover the mortgage.

So before some prospective parents start spending their Sundays at open houses, they should be prepared to deal with some complications. They may have to delay the purchase, deal with the banks’ bureaucracy (and requests for extra paperwork) or buy a home they can afford on one salary.

“Maternity leave or any other leave of absence often prevents a person from obtaining a mortgage,” said John Councilman, president of AMC Mortgage in Fallston, Md. “There are some who long for the days when such strict proof of income was not required.”

The lenders’ new attitude can be traced, in part, to new loan quality-control measures that went into effect earlier this year. Fannie Mae and Freddie Mac, the two quasi-governmental mortgage giants that buy the bulk of conventional loans from lenders, have not changed their rules for qualifying for a mortgage. But the system of checks and balances has been tightened, making lenders increasingly skittish.

Fannie, for instance, now requires lenders to recheck a borrower’s financial situation right before the loan closes. That includes calling an employer to verify employment. Before, lenders required only a statement in writing. Fannie’s new rules went into effect on June 1. Freddie’s similar rule took effect in January.

Both Fannie and Freddie have always required that borrowers have enough income to pay for the loan on closing day — and the lender must document that the income is likely to continue for at least three years.

But here is how some lenders are interpreting the guidelines for, say, a new mother receiving short-term disability insurance for a couple of months (new mothers may receive disability payments while on maternity leave, though the amount and length depend on state law and company policies).

Since the disability payments will not continue for three years, these lenders will not count it as qualifying income, brokers said, and will require the new mother to reapply for the mortgage once she returns to work. (The same logic may apply to an injured employee receiving worker’s compensation.)

That is what happened to Elizabeth Budde, a 33-year-old oncologist who lives in Kenmore, Wash. She nearly lost her mortgage after a loan officer learned she was home with her newborn.

With stellar credit and a solid job, Dr. Budde said she had been notified via e-mail that she was approved for a loan on June 15. But that note prompted an automatic, “out of the office” e-mail reply from Dr. Budde’s work account, which said she was out on maternity leave.

The next day, Dr. Budde received a second e-mail message from the lender, this time denying her loan approval. Since “maternity leave is classified as paid via short-term or temporary disability income,” the e-mail message said, it could not be used because it would not continue for three years.

The message also said the lender could not consider her regular, salaried income because she was not on the job. “I was really shocked,” Dr. Budde said. “At the time, they didn’t know how I was getting paid for my leave.”

The lender suggested that she get a co-signer — her husband is a graduate student, so his income was not enough to qualify — or reapply after she returned to work. But with the help of a representative from her real estate brokerage firm, Redfin, Dr. Budde was finally able to explain that she was receiving her full salary during her time off since she was using accumulated sick and vacation days. Once she provided a letter from her employer, proving her case, she was able to requalify.

“The reason we were buying the house was because we were having a baby,” said Dr. Budde, who is now living in the three-bedroom home, bought for $300,000. “And now we got punished for having a baby.”

Janis Smith, a spokeswoman for Fannie Mae, said there was nothing in its guidelines that would prohibit a borrower on maternity or paternity leave from qualifying for a mortgage, as long as the borrower had proof at the time of the closing that his or her income would be adequate upon returning to work. Letters from a doctor (with a return date) and the employer (stating the return date and salary) should be enough, she added.

Loans backed by the Federal Housing Administration follow a similar protocol. Brad German, a spokesman for Freddie, said its guidelines required underwriters to make sure the borrower’s income was stable and could be expected to continue for at least three years.

But, brokers said, many lenders are clearly reading those guidelines through an increasingly conservative lens. “Lenders are picking and choosing what part of the Freddie and Fannie guidelines they want to use and how they will interpret them because one bad loan could put a company out of business,” said Jeffrey J. Jaye, president of the Upfront Mortgage Brokers Association, a trade group for brokers who disclose their fees upfront.

For some lenders, that may mean approving a loan only after the borrower is back at work “There is no real assurance that the new mom will come back to work after she has the baby,” said Marc Savitt, president of the Mortgage Center, a brokerage in Martinsburg, W.Va. “It’s just prudent underwriting to go ahead and approve the loan, but she has to be back before closing.” (Lenders cannot ask a woman if she is pregnant, brokers said, but they can ask borrowers if they expect their employment or income situation to change.)

Indeed, if Fannie or Freddie learn that a loan does not meet its underwriting requirements, it can require the lender to repurchase the loan. Both companies are performing more quality control checks on the loans they buy or package and sell as securities. And, perhaps not surprisingly, the number of repurchase requests has risen sharply.

The companies said they required lenders to buy back a total of $3.1 billion in loans in the first quarter, up 64 percent from the same period last year.

“While repurchase requests have always happened in the past, it’s never been to the degree that is happening now,” said Kevin Iverson, president of the Reed Mortgage Corporation in Denver, acknowledging that the repurchasing is obviously driven by the high level of defaults. “The end result is lenders are running a bit scared. So when in doubt, they just reject the loan.”

Dave Varni, a real estate agent with McGuire Real Estate in San Francisco, recently learned about lenders’ nervousness about borrowers on leave while working with a couple expecting a baby within weeks. They wanted to make an offer on a home, but they needed both of their salaries to qualify. Ultimately, a mortgage broker told Mr. Varni that the expectant mother would not be considered “employed” when it was time to close the loan, which would probably disqualify her.

“It was eye-opening to me and my clients,” said Mr. Varni, who said the broker explained that lenders were skittish about lending to a new parent who might decide to stay home. “We are going to assess our situation and may have to shift our search to something where he could qualify by himself.”

House Passes FHA Reform Act to ‘Rebuild the American Dream of Homeownership’

Published on: Monday, June 14, 2010

Written by: Diana Golobay

The House of Representatives today passed House Resolution (HR) 5074, the FHA Reform Act, which establishes a handful of new Federal Housing Administration (FHA) regulations and authorities.

The FHA insures approved lenders against default-related losses on qualifying mortgages.

In addition to strengthening the FHA’s capital base by raising mortgage insurance premiums, the bill aims to crack down on FHA-approved lenders. For example, the bill grants FHA the authority to terminate a lender’s approval on a national basis due to the performance of regional branches.

Representatives passed the bill in a 406-to-4 vote with only one Democrat and three Republicans voting against the bill.

The final version of the bill includes “reforms that will rebuild the American dream of homeownership and reduce federal spending by $2.5bn,” House Democrats said in a statement, adding that the bill “protects Americans from mortgage fraud and holds the FHA accountable by improving its internal reporting systems and providing greater transparency to the public and Congress.”

Industry groups are already embracing the bill’s aims to maintain the availability of financing in the mortgage market.

“The reforms contained in this bill will help stabilize FHA’s finances by allowing the agency to raise its annual premiums and better take corrective action against lenders who are putting the program at risk,” said Mortgage Bankers Association (MBA) chairman Robert Story Jr, in an e-mail.

“Importantly, the bill also contains provisions to increase FHA’s multifamily loan limits for elevator buildings and in extremely high cost areas,” Story added. “One of MBA’s top legislative priorities, increasing the multifamily limits in this way will help lenders finance the construction and refurbishment of much-needed affordable rental housing in many urban areas of this country.”

This article has been republished from HousingWire. You can also view this article at HousingWire, a mortgage and real estate news site.

Credit Scores Not Always On The Number

By Eileen Ambrose, Tribune Newspapers

Everyone’s got your number — a credit score, that is — and as a savvy consumer, you might want to find out exactly what they’ve got.

This three-digit number tries to predict whether you are a credit risk and can dictate the terms you get on credit cards, mortgage loans and insurance premiums. Once secret, scores are now widely pitched by companies, often for a price.

But the score you buy might not be anywhere close to the one your lender or creditor uses. Even a small difference could keep you from getting the terms you expected.

“They show you a score but don’t tell you it’s not the one that’s used by the lender, or not even used by a majority of lenders,” said Evan Hendricks, author of “Credit Scores & Credit Reports.” “That ain’t right.”

Scores and credit reports wield increasing influence on our financial lives. That’s why Congress has been looking into how they are created and used.

There’s also been a push on Capitol Hill to make credit scores more accessible. A provision in the House financial reform bill would allow consumers to buy the scores used by creditors. And next year, federal regulations take effect that could make free scores available to consumers applying for credit.

Credit scores remained a mystery until about a decade ago, when legislative pressure forced mortgage companies and credit bureaus to share scores with consumers.

Now they flood the marketplace. Fees run about $15 for a score and credit report, or $15 to $40 a month for a service that provides scores, reports and other features.

FICO is the oldest and most widely used score by creditors and lenders.

The three major credit bureaus, Experian, Equifax and TransUnion, created the VantageScore four years ago. Consumer advocates say it’s not broadly used by creditors, though TransUnion spokesman Steven Katz said many of the top financial institutions and credit card issuers use it.

There also are knockoffs, or so-called FAKO scores, that are purely educational and sold only to consumers.

Creditors select the score they want to use. It could be one that’s tailored for a specific product, such as autos or credit cards and not sold to the public. Or they can supplement a score with their own model.

Mortgage brokers find the scores a consumer buys can be 30 to 100 points higher than the FICO they use, said Liz Pulliam Weston, author of “Your Credit Score.” That can mean “not only don’t you have a good score, but you’re subprime,” she said.

Some creditors adjust every 20 points, Hendricks said. If you buy a score that says you’re a 740, but the lender is looking at one that pegs you at 720, the interest rate could be a quarter-point higher than you expected, Hendricks said.

If you’re just curious, try one of the free credit scores through Quizzle.com, CreditKarma.com and Credit.com.

But if you plan to refinance or make a big purchase using credit, buy your score at least three months in advance so you have time to improve it. (To boost a score, pay bills on time, avoid new lines of credit and reduce credit card balances.)

Buy the FICO score because it’s likely closest to the one your lender will use, credit experts say. Go to myFICO.com to get scores based on a TransUnion or Equifax report for $15.95 each. (Consumers no longer can buy a FICO score based on an Experian report, though lenders can get this.)

Get both FICOs in case the results vary significantly, a sign that one report holds more negative information than the other, Hendricks said.

“We focus so much on the credit score, we forget the score is driven by the report,” said John Ulzheimer, president of consumer education for Credit.com.

Foreclosures hit record highs

Real Estate News & Commentary by Chris McLaughlin

According to the Mortgage Bankers Association’s (MBA) National Delinquency Survey, the delinquency rate for mortgage loans on one-to-four-unit residential properties rose to a seasonally adjusted rate of 9.64% of all loans outstanding as of the end of the third quarter of 2009, up 40 basis points from the second quarter of 2009, and up 265 basis points from one year ago.  The non-seasonally adjusted delinquency rate increased 108 basis points from 8.86% in the second quarter of 2009 to 9.94% this quarter.   The delinquency rate includes loans that are at least one payment past due but does not include loans somewhere in the process of foreclosure.  The percentage of loans in the foreclosure process at the end of the third quarter was 4.47%, an increase of 17 basis points from the second quarter of 2009 and 150 basis points from one year ago. The combined percentage of loans in foreclosure or at least one payment past due was 14.41% on a non-seasonally adjusted basis, the highest ever recorded in the MBA delinquency survey.  The percentage of loans on which foreclosure actions were started during the third quarter was 1.42%, up six basis points from last quarter and up 35 basis points from one year ago.  The percentages of loans 90 days or more past due, loans in foreclosure, and foreclosures started all set new record highs.  The percentage of loans 30 days past due is still below the record set in the second quarter of 1985. 

Why are foreclosures up?

Jay Brinkmann, MBA’s Chief Economist, says it’s jobs.  “Despite the recession ending in mid-summer, the decline in mortgage performance continues.  Job losses continue to increase and drive up delinquencies and foreclosures because mortgages are paid with paychecks, not percentage point increases in GDP.  Over the last year, we have seen the ranks of the unemployed increase by about 5.5 million people, increasing the number of seriously delinquent loans by almost 2 million loans and increasing the rate of new foreclosures from 1.07% to 1.42%.”  Brinkmann says it’s prime and FHA mortgages that are taking the worst beating.  “Prime fixed-rate loans continue to represent the largest share of foreclosures started and the biggest driver of the increase in foreclosures.  33% of foreclosures started in the third quarter were on prime fixed-rate and loans and those loans were 44% of the quarterly increase in foreclosures.  The foreclosure numbers for prime fixed-rate loans will get worse because those loans represented 54% of the quarterly increase in loans 90 days or more past due but not yet in foreclosure.  The performance of prime adjustable rate loans, which include pay-option ARMs in the MBA survey, continue to deteriorate with the foreclosure rate on those loans for the first time exceeding the rate for subprime fixed-rate loans.  In contrast, both subprime fixed-rate and subprime adjustable rate loans saw decreases in foreclosures.”

Taxes anyone?

More than half of the $9 trillion in debt that Uncle Sam is expected to build up over the next decade will be interest. Charles Konigsberg, chief budget counsel of the Concord Coalition, a deficit watchdog group, puts it another way:  in 2015 alone, the estimated interest due – $533 billion – is equal to a third of the federal income taxes expected to be paid that year.  The money was borrowed at very low rates, but interest rates will rise when the economy improves, and at that point the country’s interest payments could jack up very fast.  “When interest rates rise even a small amount, the interest payments go up a lot because of the size of the debt,” Konigsberg said.  To help mitigate the potential risk of rising rates, the Treasury has said it would start increasing the average maturity of the new debt it issues so the debt it refinances in the next couple of years will be locked in at lower rates for longer periods of time.  And the Obama administration has promised to produce a deficit-reduction plan that would aim to bring down annual deficits to roughly 3% of GDP over the next several years, below the 4% to 5% currently projected.  If that happens, the $4.8 trillion in interest payments that CBO estimates for the next decade could go down if interest rates don’t increase as much as CBO expects.  The trouble is that this administration and Congress are showing no signs of slowing down the spending…shoveling billions into the maw of increasingly unpopular healthcare “reform.”  That could mean the president’s 2011 budget proposals would have to make a lot of unpopular changes like tax hikes to get closer to the 3% goal.

Credit availability the big question in commercial real estate

According to the National Association of Realtors (NAR), credit availability is the big unknown that will determine how soon commercial markets recover.  The Commercial Leading Indicator for Brokerage Activity rose 0.9% to an index of 102.4 in the third quarter from 101.5 in the second quarter, but is 11.1% below a reading of 115.3 in the third quarter of 2008. The index in the second quarter was at the lowest level since the first quarter of 1994; NAR’s track of the commercial leading indicator dates back to 1990.  Lawrence Yun, NAR chief economist, said some initial movements earlier this week in commercial mortgage-backed securities are encouraging. “The first commercial mortgage bond deal in over a year shows the Federal Reserve’s efforts to sell securities through the TALF program can be fruitful, but the level of activity is well below what is required to resuscitate the commercial market. Credit availability needs to significantly rebound for any hope of a meaningful commercial recovery in 2010.”  Yun said the modest index recovery follows steep declines in the past several quarters. “Gains in industrial production, durable goods shipments and retail sales; a rebound in the NAREIT price index; and improving figures on first-time unemployment claims were stabilizing factors,” he said. “Negative impacts include falling private sector income and fewer jobs involving commercial real estate. The office and industrial markets are the sectors most negatively impacted by the economic downturn.”

The real jobless rate

The real number dwarfs the statistic most people pay attention to—the U-3 rate—which most recently showed unemployment at 10.2% for October.  According to the government’s broadest measure of unemployment, some 17.5% are either without a job entirely or underemployed. The so-called U-6 number is at the highest rate since becoming an official labor statistic in 1994, and means that 1 in 5 Americans is either out of work or under-employed.  With such a large portion of Americans experiencing employment struggles, economists worry that an extended period of slow or flat growth lies ahead.  “To me there’s no easy solution here,” says Michael Pento, chief economist at Delta Global Advisors. “Unless you create another bubble in which the economy can create jobs, then you’re not going to have growth. That’s the sad truth.”  Pento warns that forecasts of a double-dip (“W”) or a straight up (“V”) recovery both could be too optimistic given the jobs situation.  Instead, he believes the economy could flatline (or “L”) for an extended period as small businesses struggle to grow and consequently rehire the workers that have been furloughed as the U-3 unemployment rate has doubled since March 2008.  As that trend has happened, the U-6 rate has expanded at an even more dramatic pace. Economists cite several reasons for the phenomenon, including  the collapse of real estate and associated jobs, and expanded unemployment benefits (which make it easier to be unemployed).   ”If full employment is 4 percent, people are wondering how we’re going to get from 10 (percent) to 4. Well, try getting from 17 to 4. We may not get back to full employment for a decade,” Mahn says. “As an investor, that causes me to look for different places now. Maybe you can’t just put money in US large caps and ride out this recovery.”

Mortgage rates at record lows

Freddie Mac’s weekly survey of average interest rates put the 30-year fixed-rate mortgage (FRM) at 4.83% with an average 0.7 points for the week ending Nov. 12, down from the average rate of 4.91% the previous week. That’s a mere 5 basis points shy of Freddie Mac’s record low of 30-year FRM rates, reached twice in April this year. Last year, the rate was 6.04%.  Freddie Mac put the 15-year FRM at 4.32% with an average 0.6 points, down from last week’s 4.4% and the lowest rate for the product since Freddie Mac began its 15-year FRM survey in 1991. A year ago, the average rate for the loan was 5.73%.  Bankrate.com’s survey of large US banks and thrifts put the 30-year FRM at 5.06%, the lowest in the survey’s 24-year history and down 13 basis points from the previous week. The previous low on the Bankrate survey was 5.13% in April. Bankrate.com put the average rate for a 15-year FRM at 4.48%, down 13 basis points from the previous week.  “Low fixed rates throughout the third quarter prompted an estimated $1.1 trillion in refinancing activity, saving homeowners about $10 billion in aggregate monthly payments over the first 12 months of their new loan,” said Freddie Mac vice president and chief economist Frank Nothaft. “Moreover, for the fourth consecutive quarter, more than 95% of prime borrowers who originally had an ARM selected a conventional fixed-rate mortgage in the third quarter of this year.”