Friday, July 27, 2012

Is the 30 Year Fixed Headed to 3 Percent?

Mortgage interest rates hit a new record low last week, and they appear to be on the same trajectory this week.
The yield on the ten-year Treasury note touched a new low Monday, 1.396 percent, before coming up slightly, and mortgage rates track that yield. Money flooded into Treasuries amid new concern surrounding debt in Greece and Spain.
 
“Now it’s like 1.4 [percent] is commonplace, and we’re probably going to see one and a quarter before too long,” said Holly Liss, ABN Amro’s Global Future’s Director in an interview on CNBC’s "Squawk on the Street."
 
Mortgage rates are a full percentage point below where they were one year ago, and that recently sparked yet another spike in mortgage refinance applications, according to the Mortgage Bankers Association. It did not, however, do the same for applications to purchase a home.

“If the 30 year fixed were to drop to 3 percent, that would open up yet another wave of refi’s, perhaps more than the industry can handle,” says mortgage lender Craig Strent of a Maryland-based  Home Lender. “Certainly a 3 percent 30-year fixed would make home buying more affordable for some people that may not qualify at 3.5 percent, but if people are not entering the market at 3.5 percent, which is already insanely low, then they may not enter at 3 percent, as they may simply prefer to rent or may not have the down payment needed to buy.” 

Strent is reluctant to predict where the 30-year fixed will end up, but Dan Green, loan officer and mortgage blogger with Waterstone Mortgage in Cincinnati expects the rate to hit 3 percent.
“There’s a case for them to be at 3 percent now. It’s just that lenders are overworked with new applications, so there’s little reason to get price competitive,” says Green. He agrees that 3 percent would just push more borrowers to refinance, even if they already did so recently. By: Diana Olick CNBC Real Estate Reporter

The views, opinions, positions or strategies expressed by the authors and those providing comments or external internet links are theirs alone, and do not necessarily reflect the views, opinions, positions or strategies of First Capital, we make no representations as to accuracy, completeness, current, suitability, or validity of this information and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use. Any information provided does not constitute an offer or a solicitation to lend. Providing information to purchase does not guarantee a loan approval. All registered trademarks, copyright, images, or other items used are property of their respective owner and are used for editorial purposes only.
First Capital Mortgage is a subsidiary of PHH Home Loans LLC, a direct lender, Dept. of Corporations file #413-0713 NMLS#4256

Visit FirstCapital Online or call: 310-458-0010

CALL TO INVESTORS - Renter Nation Rages On?

Originally Published: Friday, 27 Jul 2012 By: Diana Olick CNBC Real Estate Reporter
The supply of empty homes for rent is falling, and the nation’s homeownership rate is hovering near a fifteen year low.

How can that be when the housing market is finally turning around and more homes are selling?
The answer is simple: Investors.

The nation’s home ownership rate ticked up a statistically insignificant basis point, from 65.5 percent in the first quarter of this year to 65.6 percent in the second quarter, according to the U.S. Census Bureau. Q1 was the lowest home ownership rate since 1997 and is down from the peak of 69.4 percent in 2004.

Given that home sales improved significantly during the first half of this year, you would think that home ownership rate should have surged higher, but the rate is calculated using only owner-occupied homes. If an investor buys one home or 100 homes, those homes are not even put into the calculation because they owner doesn’t live in the homes. Realtors estimate around 20 percent of homes sales are currently to investors, but given bulk deals offered by the government and banks on foreclosed properties, that percentage is likely higher.

“The very modest increase in the homeownership rate in Q2 does not persuade us to alter our view that the share of the population who own their home will fall further over the next couple of years,” writes Paul Diggle of Capital Economics. “Meanwhile, supply conditions in the rental market are tightening, with a falling proportion of single and multi-family rental homes vacant.”
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Rental vacancies in fact fell to their lowest rate since 2001. That is why so many investors are rushing in to buy distressed properties. The rental market his hot and getting hotter. Average asking rent rose 5 percent from a year ago, though they are down slightly from the previous quarter.
 
Since the peak of home ownership in 2004, six and a half million additional U.S. households are renting, which calculated is equivalent to 90 percent of the increase in total household numbers over that time. It's estimated that home ownership will fall to 64 percent over the next two years.

An investor-driven recovery in home sales is certainly positive and is helping to clear the huge backlog of distressed properties on the low end; investors are necessary now, but until real owner-occupants, including the all-important first-time home buyer, return, a robust recovery in all price tiers of the market will remain out of reach.

The views, opinions, positions or strategies expressed by the authors and those providing comments or external internet links are theirs alone, and do not necessarily reflect the views, opinions, positions or strategies of First Capital, we make no representations as to accuracy, completeness, current, suitability, or validity of this information and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use. Any information provided does not constitute an offer or a solicitation to lend. Providing information to purchase does not guarantee a loan approval. All registered trademarks, copyright, images, or other items used are property of their respective owner and are used for editorial purposes only.
First Capital Mortgage is a subsidiary of PHH Home Loans LLC, a direct lender, Dept. of Corporations file #413-0713 NMLS#4256

Visit FirstCapital Online or call: 310-458-0010

Thursday, July 26, 2012

U.S. Mortgage Rates Fall With 30-Year at a Record-Low 3.49%

U.S. mortgage rates dropped, with 30-year loans reaching a record low for a sixth straight week, amid signs the housing recovery is slowing.

The average rate for a 30-year fixed mortgage fell to 3.49 percent in the week ended today, the lowest in Freddie Mac records dating to 1971, from 3.53 percent. The average 15-yearrate declined to 2.8 percent, also a new low, from 2.83 percent, the McLean, Virginia-based mortgage-finance company said today in a statement.

Sluggish employment growth and tight lending standards are limiting a recovery in the housing market even as mortgage rates continue to fall, according to Celia Chen, an economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. Contracts to buy previously owned homes dropped 1.4 percent last month from a revised 5.4 percent gain in May that was less than initially reported, data from the National Association of Realtors showed today.

“It’s essential that the job market continues to add jobs,” Chen said. “If things don’t improve at least a little, yes, we do risk squashing this housing recovery.”

Private-sector employers added 84,000 jobs in June, the weakest in 10 months, and the unemployment rate stuck at 8.2 percent, U.S. Labor Department figures showed.
Purchases of new U.S. homes dropped in June from a two-year high, the Commerce Department reported yesterday. Sales of existing residences also declined, to an eight-month low, the National Association of Realtors reported.

Mortgage applications in the U.S. climbed last week as low borrowing costs spurred refinancing. An index of applications for refinancing increased 1.8 percent in the week ended July 20 from the previous week, the Washington-based Mortgage Bankers Association said yesterday. The group’s purchase gauge dropped 3.2 percent.

The views, opinions, positions or strategies expressed by the authors and those providing comments or external internet links are theirs alone, and do not necessarily reflect the views, opinions, positions or strategies of First Capital, we make no representations as to accuracy, completeness, current, suitability, or validity of this information and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use. Any information provided does not constitute an offer or a solicitation to lend. Providing information to purchase does not guarantee a loan approval. All registered trademarks, copyright, images, or other items used are property of their respective owner and are used for editorial purposes only.
First Capital Mortgage is a subsidiary of PHH Home Loans LLC, a direct lender, Dept. of Corporations file #413-0713 NMLS#4256

Visit FirstCapital Online or call: 310-458-0010

I Want To Be A Real Estate Investor. How Do I Start?

I’m Not A Flipper — I’m 20-Something and Want To Be A Real Estate Investor — How Do I Start?

I get asked that question almost weekly, usually by the 20-something generation. Their relative profiles are fairly similar with a few obvious exceptions. They’re pretty smart. Most of ‘em have degrees of one sort or another. They make decent money — generally speaking, in the $40-60,000 a year range. They’re evenly split between married and single. To their credit, and my undying appreciation, their ‘spidey sense’ tells ‘em the get rich quick with other people’s money nonsense involves somebody on the losing end, financially. They just wanna know how they can begin the journey to earning their piece of the financial pie.

Fair enough — here’s what I’ve been tellin’ beginners for years.
Instead of using my home market, San Diego, I’ll use a market more in line with values experienced by most regions. Though the concept works just fine, thank you, in San Diego, most prefer to use the numbers the majority of the country is used to. Let’s talk about the concept. But first here are the factors usually involved in the front end of the process.
1. You don’t currently own squat, unless you count the used car you drive to work and the payments taggin’ along with ya.
2. You’ve either already saved some money towards this end, or can in a reasonable time, say 6-18 months.
3. Your credit is either fine now, or you can make it so, and sooner rather than later.
4. Ditto with too much auto and plastic debt.
Here’s the end game in a nutshell, so if you’re not interested, you can move on. 
You’ll find a 2-4 unit property in an area in which you’d feel comfortable living, cuz you will be. You’ll be renting the other unit(s) to others. This will not only get you started, but will give you the mostly irritating experience real estate investors need to succeed in the long run. You’ll be buying this property using either FHA or VA financing. I guess in some cases HomePath would work, but I’m not all that familiar with their operation. The down payment and closing costs will end up in the $8-15,000 range.
The numbers
Let’s use the price and rent from a recently closed transaction. Price: $262,500  Rent: $1,350 each side — it’s a duplex. The location is good enough that I’d put my own mom to live there, alone. She’s 81, and I wouldn’t be where I am today but for her. So I care. Here’s how your FHA loan might roll out.

LTV: (loan to value) 96.5% or $253,300 (rounded).

Payments: This will include three separate factors. 1) Principal & interest 2) Taxes and insurance and 3) Mortgage insurance

Principal and interest at today’s rate of around 3.75%, would be approximately $1,173 a month.

Taxes and insurance will vary a great deal from market to market of course. Let’s cut it down the middle and say your annual tax bill will be around $4,000. In San Diego it’d be about that or a tad less. In other places a lot more, blah blah blah. Insurance will run around $1,200, more or less depending upon the state and the carrier, your mileage will indeed vary. So, let’s pick a monthly number and call the monthly tax and insurance portion of your monthly loan payment, roughly $435.

Mortgage insurance will run around 1.25% the last time I checked with the FHA lender. Add another $265 or so to the monthly payment.

We’ve arrived at your monthly loan payment which, in addition to principal, interest, taxes and insurance, will include mortgage insurance. It all comes to a pretty grand total of about $1,875 a month, rounded up a couple bucks.

I know what you’re thinkin’ ’bout now, which isn’t what’s gonna happen. “Let’s see, if our monthly payment including taxes and insurance, etc. is $1,875, and our tenant is giving us $1,350, we’re freakin’ awesome! That’s just $525 a month to us. Why doesn’t everyone do this?!”

You’ll VERY likely be paying for their water and sewer. You can probably, in most markets, have your tenants pay for trash pickup. But how ’bout landscape upkeep? Who’s gonna mow the grass if there’s a lawn? Oh, that includes the backyard too, right? Right. Also, the tenants will probably pay for their own power and gas.

That is, if there are separate meters. Most 2-4 unit properties do sport separate gas and electric meters, but not all by any stretch. Sure, your rent would likely reflect no G&E bill, but that almost always goes against the landlord when the dead presidents start their monthly escape from your wallet. When tenants don’t pay for something, they tend to, um, use it like somebody else is. Make a note.

Figuring your monthly real world net
This isn’t rocket science, but the rose colored glasses need to be set aside when figuring your actual bottom line. Let me first give the same talk here that I give in person or on the phone to investors. There are two bottom line numbers when you’ve invested, as it relates to cash flow. There are the spreadsheet numbers, over which you sweat blood. Then there are Murphy’s numbers, and he doesn’t sweat at all. He just cackles. Go ahead and do the spreadsheet. Get the numbers as painstakingly accurate as humanly possible. Get every operating expense down to the penny. Then pat yourself on the back, and set it aside for future comic relief. That’s experience talkin’ to ya there.

The spreadsheet says that your annual NOI (net operating income) will be around $20,000. But that figure assumes both sides are rented, which ain’t the plan. Your real spreadsheet NOI should approximate $3,240 or so — $270 monthly. That’s after all operating expenses (including taxes and insurance, so remember not to shock yourself by double counting them when computing your monthly bottom line), a vacancy rate, and exiting your unit’s rent.

Your principal, interest, and mortgage insurance payments amount to $1,173 + $265 = $1,438 a month. Subtract the (spreadsheet monthly NOI) $270 from that, and you’ll get $1,178. That’s what the spreadsheet says, more or less, will be your before tax (as in April 15th) monthly cost of living. When we compare that figure to having opted to buy a traditional detached home, you’re probably saving in the neighborhood of $400-900 a month. Figure $1,500 PITI + $265 for mortgage insurance = $1,765 monthly. That doesn’t include those pesky utilities, water/trash, gas & electric. We’ll lump those together and add $200 more to your monthly nut. That brings the traditional detached home to just under $2,000 a month, pretax, using the same price and loan.
The difference is simple. You’d save around $800 monthly, +/- by opting for the duplex. That’s almost $10,000 yearly.

Now for the reality check
Throw the spreadsheet numbers out. Instead of applying the vacancy rate and operating expenses on which you worked so hard for accuracy, simply divide the gross schedule rents for BOTH sides by two. Then, decide that’s your real NOI. Might it be even less? You bet. Murphy knows where all of us live. Sooner or later it’ll be your turn in his barrel, cuz that’s the way it works in real life. Not to worry, cuz you’ll still come out ahead with the duplex approach.

Understand that real estate income properties don’t pledge allegiance to the spreadsheet. I know, it’s crazy.

After tax
The traditional detached homebuyer will benefit from $13,400 a year in tax shelter, ballpark. That’s interest paid and taxes the first year of ownership. If their marginal income tax rate, state/fed, is around 30% or so, that results in a direct tax savings of roughly $4,000 for the year. They get to take interest/taxes dollar for dollar against their job (ordinary) income.
The duplex buyer who lives in one side would (assuming sides are perfectly equal) be allowed half the interest and taxes as direct write-off on their income. In other words, $6,700 a year, or about $2,000 in tax savings. But wait! There’s more!

They get to take the half that’s rented, and depreciate it. Depreciation is a ‘paper’ loss that you didn’t experience. In this case it’ll be, more or less, around $3,800 annually. Again, unlike the interest and taxes you deducted on the ‘owner occupied’ side, this is a phantom loss. You still get the tax shelter from it though, which is almost always way cool. This property’s depreciation would generate an additional tax saving of $1,140 yearly. When combined with the tax savings garnered from your ‘homeowner’ side, $2,000, your total annual tax savings the first year comes to give or take $3,140. In other words, the guy across the street who brags about the superior tax savings generated from his traditional detached home, gets pretty quiet when you show him your monthly before tax cost of living.
He’s ahead about $860 a year in tax savings. However, before taxes you lived for nearly $10,000 less than he did. Even if you ignored your spreadsheet’s numbers, your Murphy numbers still beat him by $7,000 a year before income taxes.
This doesn’t take into account the strategies which would accrue to having opted for a 2-4 unit property vs traditional home. When you ultimately wanna sell and move, you can neatly separate the two ‘entities’, AND their equities. But that’s another post altogether.

The only factor that really counts in this decision
What it comes down to is your personal comfort zone. Are you ok being a landlord, with your tenant next door? Are the long term benefits worth it to you? There are no right or wrong answers here. If you’re not comfortable, and it’s not due to false information, there’s likely little that could change your mind, right? I know that’s how I am. Don’t violate your comfort zone. Life is way too short for that kinda stress. But if you are comfortable with this approach, it can put your future financial plans ahead of the normal chronology — and usually impressively so.

The views, opinions, positions or strategies expressed by the authors and those providing comments or external internet links are theirs alone, and do not necessarily reflect the views, opinions, positions or strategies of First Capital, we make no representations as to accuracy, completeness, current, suitability, or validity of this information and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use. Any information provided does not constitute an offer or a solicitation to lend. Providing information to purchase does not guarantee a loan approval. All registered trademarks, copyright, images, or other items used are property of their respective owner and are used for editorial purposes only.
First Capital Mortgage is a subsidiary of PHH Home Loans LLC, a direct lender, Dept. of Corporations file #413-0713 NMLS#4256

Visit FirstCapital Online or call: 310-458-0010

Wednesday, July 25, 2012

Foreclosures down, short sales up. Are banks getting smart?

Foreclosures are down to their lowest levels in nearly five years. One reason: Lenders are increasingly using short sales, instead.

The number of foreclosures in April fell to their lowest level since 2007 – and one reason is that lenders are getting smart.

Instead of foreclosing on people, a costly and lengthy process, they're increasingly using short sales to move people out of homes they can no longer afford. Short sales are not only faster than foreclosures, they often turn out to be cheaper. By forgiving part of the loan up front (a loss they would take anyway during foreclosure, lenders can get possession of a house faster and sell it before it has had time to deteriorate.  Homeowners get to shed their mortgage debt faster – and with less damage to their credit rating.

Short sales began outpacing foreclosures in some states late last year. Six states saw more preforeclosure sales – typically, short sales – than foreclosures in the fourth quarter, according to RealtyTrac, an online marketplace for foreclosure properties based in Irvine, Calif. In preliminary first quarter data for 2012, that total jumped to 12 states, including traditionally big foreclosure states like California and Arizona, RealtyTrac reported Thursday.

"I think we will see more states with short sales outnumbering foreclosure sales in the coming months," says Daren Blomquist, RealtyTrac vice president, in an e-mail. " In addition to the government incentives they can get for a short sale through the HAFA [Home Affordable Foreclosure Alternatives] program, lenders are realizing they can often recover more of their losses through a short sale than through foreclosure, and also that they can avoid any accusations of improper foreclosure procedures."

Bank of America, for example, announced this week that it will offer its short-sale incentive program, piloted in Florida, nationwide. Under the program, delinquent homeowners can get up to $30,000 in relocation expenses once they complete a short sale.

One challenge with short sales is that they're complicated. They involve negotiations among three parties (the bank, the seller, and the buyer) over what price the house will sell for and what loss the homeowner and the bank will take. These talks can drag on for months, with the buyer eventually walking away for lack of a clear decision.
Next month, mortgage-backers Fannie Mae and Freddie Mac aim to speed up the process with new guidelines that will require lenders to make a decision within 30 days of receiving a short-sale offer.

Accepting an offer is no trifling matter, because homeowners in a short sale typically owe more on the home than the home will sell for. Banks are likely to lose that difference whether they agree to a short sale or foreclose.

"Short sales are a more efficient way for the market to absorb the distressed properties and that should help pave a quicker path to market recovery," Mr. Blomquist says.

Still, they're a drag on the market, he points out. On average, short sale homes sell for 21 percent less than nondistressed properties. They're just not as much of a drag as foreclosure homes, which typically sell at a 34 percent discount. 
By Business editor

The views, opinions, positions or strategies expressed by the authors and those providing comments or external internet links are theirs alone, and do not necessarily reflect the views, opinions, positions or strategies of First Capital, we make no representations as to accuracy, completeness, current, suitability, or validity of this information and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use. Any information provided does not constitute an offer or a solicitation to lend. Providing information to purchase does not guarantee a loan approval. All registered trademarks, copyright, images, or other items used are property of their respective owner and are used for editorial purposes only.
First Capital Mortgage is a subsidiary of PHH Home Loans LLC, a direct lender, Dept. of Corporations file #413-0713 NMLS#4256

Visit FirstCapital Online or call: 310-458-0010