Last week, the Mortgage Bankers Association released a report on mortgage delinquencies for the second quarter of this year. They were down overall by 0.21%. This is good news for homeowners across the country. When fewer homes are going up for foreclosure, home values will have a chance to recoup some of their losses. This should allow even more consumers the opportunity to refinance. It will be interesting to see how interest rates are affected if delinquencies continue to decline.
Looking at the Past
Compared to the same period last year, delinquencies are still up over 0.6% across the nation. This tells us that the foreclosure problem is still far from over.
Looking Towards the Future
One stat that caught my eye was the number of homes that began foreclosure actions in the past quarter. At 1.11%, it is 0.12% lower than the first quarter of 2010, and 0.24% lower than this period in 2009. That fewer homes are entering into this phase of the delinquency process recently is a good sign for consumers. With both delinquency and foreclosure on the decline and refinancing applications increasing weekly, the future of the housing market may not be as bleak as you think.
If you are thinking of homeownership, but aren’t sure where to start, I would recommend you check your Mortgage Grade first and find out where you stand. This way, you will know if you are ready to be a homeowner in today’s housing market.
Mortgage Grade Team Blog
With all the buzz around refinancing these days, there are a lot of Americans scanning the mortgage markets looking for a great deal. One of the terms that they will come across as they do this is the prime rate of a lender. The prime rate is an index used by banks and lenders to set the rate for various short-term loan products.
How do they come up with a Prime Rate?
The Board at the Federal Reserve is responsible for setting the target federal funds rate. For most lenders, this serves as a benchmark for their offered prime rate. On average, the prime rate tends to be about 3% higher than that rate set by the Fed, but on any given day it can vary slightly. This is why they always seem to change. It is also important to note that the Wall Street Journal also publishes prime rates and is considered to be an authority. The WSJ polls 10 of the largest major banks and updates its published prime rate when 7 of these 10 banks change their rates.
Having several different sources for the prime rate means that there is going to be some inconsistencies when it comes to the exact rate you are offered. Of course, it is more likely that your personal mortgage situation will have a much larger impact on the rate a lender offers you than exactly what the prime rate is. This is why it is important to know everything about your personal mortgage situation before you try and apply for a mortgage or refinance.
Mortgage Grade Team Blog
Among the culprits responsible for causing the housing crisis we are still involved in is us, the consumer. While many will blame lenders for offering poor mortgage products to investors and consumers alike, there is still some responsibility for each one of us to know we should not be signing for a loan we cannot afford. This is exactly the point of Federal Reserve Bank of Chicago’s President, Charles Evans.
Evans recently spoke at a community breakfast for the INHP (Indianapolis Neighborhood Housing Partnership), saying, “In this case it seems that many borrowers made poor choices.” He goes on to say that while financial reform and increased lender strictness may solve some of the problem, only more educated consumers will be the answer.
Does Financial Education Help?
In truth, the results found by the Chicago Federal Reserve have been both positive and negative. While some of the coaching programs seemed to be getting results, others were not. Also, they found that continuing assistance programs increased the likelihood of success among applicants.
The problem with the programs that worked is that they would be the hardest to implement on a large scale. Not only the cost, but also the level of personal involvement, is very high, thus making them a difficult solution for the country. I think, however, that Evans is right. If we all knew more about mortgages and financial matters, I think fewer of us would get stuck with a bad loan product.
Mortgage Grade Team Blog
Buying a home for the first time is a difficult experience for a lot of people because there is so much to learn. The entire experience is new and the pressure can sometimes be huge. If you have a specific question about home buying, I recommend you ask Mortgage Professor, Jack Guttentag.
The best way to understand the home buying process is simply by going through it:
- Think of Affordability: The first step in the home buying process is knowing how much house you can actually afford. Come up with a total number which will have to include closing costs, fees, taxes… everything.
- Look at Loans: Once you know what you can spend, you can look to be approved for a loan that you can afford. This will tell you exactly how much you will have to spend on your home. The easiest way to canvas many loan providers and find out what all your mortgage options are is by checking your Mortgage Grade. If you haven’t already, I recommend you do so at this stage.
- Look at Homes: After you know how much house and which loans you qualify for, the home search can begin. I am sure you’ve already started this phase of home buying as most people like to begin with it.
- The Offer: Once you’ve found your home all that’s left is coming to a suitable price. You know your limits as well as your needs. I recommend including a home inspection as part of the offer. Once your offer is accepted, a date for closing will be set. Make sure that any loan offer that you have been given does not expire before you close on your home.
- The Close: Shopping for homeownership insurance, signing the papers, and paying the final costs are all parts of closing a home loan. Make sure you read everything and understand what you are paying and for how long. If you aren’t sure about anything, ASK!
Mortgage Grade Team Blog
A recent study on American counties was done with some interesting findings. The study looked at mortgage defaulters by political district to see if there was any difference in the number of delinquencies between camps. Overall the report, conducted by Deutsche Bank, showed that over 9% of mortgages surveyed were at least 90 days overdue or already in foreclosure. This number is more than twice of what it was at the time of the last election.
But there was a winner…
Though the Democratic districts counted for over 75 more of the areas surveyed, they were found to have a 1.2% higher rate of serious delinquency than Republican districts on average.
Sort of…
Both parties, however, retained an equal number of districts of both much higher and much lower rates of delinquency than those averages. Unlike the politics, it would appear that defaulting on a mortgage is a bipartisan affair.
The lowest rate of delinquency of any district was found in North Dakota where the rate was less than 2%. Five Florida districts all topped the charts for the highest delinquency rates with the 25th and 17th Districts posting serious delinquency rates of over 30%.
Tracking these delinquencies is important in assessing the future of the housing market. A higher rate of delinquency will likely mean more foreclosures on the way and continued pressure for home values to stay low. As summer begins to draw to an end, watching home values is going to become more and more important, especially if you want to buy, sell, or refinance.
Mortgage Grade Team Blog
The National Association of Home Builders (NAHB) has released a survey on home buying in America. This study tracks home values and housing affordability across the country. Knowing where the cheapest (and most expensive) places are for home buying is important if consumers want to make the right choices about where to buy in today’s housing market.
So, where is the cheapest place in America to buy a home?
The winner, with a median home price of $88,000 and an affordability rating of 97.2% is Syracuse, New York. With unemployment well under the national average and the median income of residents of Syracuse over $60,000, it really is the cheapest place in America to buy a home. Indianapolis, Detroit, Youngtown, and Buffalo all rounded out the top five. Each has an affordability rating of over 90%.
What about the most expensive cities?
Well, not surprisingly New York City was given the lowest marks for affordability in the country. With the average home price over $400,000 and average incomes at just over $65,000 the affordability index for New York City is less that 20%. San Francisco, Santa Ana, Los Angeles, and Honolulu were also near the bottom of the list, all with affordability ratings in the 30% range.
And the country overall?
Overall, the affordability index for the country as a whole moved up slightly. 72.3% of all homes are affordable to those who make an average of $64,400. It has only been in the last year that homes have been this affordable. Typically, the index sits at around two thirds (or 67%) of homes which are affordable to most Americans. If you’re considering buying a home, start by knowing your Mortgage Grade.
Mortgage Grade Team Blog
Investing in real estate isn’t an easy game these days. There are a lot of poor properties posing as great investments. Mix that with low interest rates and still low home values and you get a recipe for a buying disaster. Avoiding mistakes when buying a second home or investment property in today’s housing market can be done. Here’s how:
- Choose the Right Area: If you want to buy a good investment property that is going to make you money quickly, you need to be looking in the right areas. If you are buying a second home or vacation home, the area you want may already be defined. Checking home values in the area you want to buy will help you determine if there is any advantage to buying today or waiting.
- Choose the Right Home: In a world full of foreclosures, short sales, and homeowners looking to dump their poor investments, choosing the right home is very important. When it comes to foreclosures, you may not even be able to view the home prior to bidding. Doing your research before the bidding date, asking for an appraisal during a regular home sale, and asking around the neighborhood of your potential new investment is a great way to avoid these problems.
- Personal Preparation: If you want to make a move on a second home, it is important that your personal finances are also in order. If you realize part way through the home sale that the cash you need is not available, it can derail the entire sale. I’ve found that the best way to get prepared for buying a second home is by first finding out your Mortgage Grade.
Mortgage Grade Team Blog
One way to track the housing market is by looking at the number of new housing projects that start up each month. This allows us to track new growth and can help determine the stability of the housing market as a whole. Last week, the Department of Housing and Urban Development released a report on new residential construction start ups for July.
It is not surprising that with a mounting number of foreclosures, new constructions starts and completions took a dive last month. What I found surprising is where there was improvement and where new construction lost ground.
The Northeastern states faired the best in July, but were the biggest losers in the month prior. The Midwest followed suit showing an increase in housing starts of over 10%, unlike in June where starts were down over 6%. The South on the other hand, did not fare as well. In June they were a top performer, but in July they fell into the negatives.
What does this mean for consumers?
When new houses are built, the local economy usually benefits. A housing start translates into more money for local consumers. It also means more competition if you are looking to sell. Buyers should look for areas where housing starts are increasing, whereas sellers can benefit from fewer new homes on the market.
Overall housing starts are up from last month, but lower than the numbers from this time last year. This coupled with a sharp drop in new housing permits means that less new homes will be had in the coming months. Fewer homes on the market could mean an easier time for those looking to sell.
Mortgage Grade Team Blog
When it comes to looking for a mortgage, you have to know what you’re doing. If you are a first-time mortgage shopper, you may not even know the steps to the process. I can tell you that the first step is always going to be deciding if you are ready for homeownership. If you have more questions about the process of shopping for a mortgage, I recommend you ask the Mortgage Professor, Jack Guttentag.
For those who already understand the process, shopping for a mortgage is a really about getting the best deal. There are a few things you can do to make sure this happens:
- Know Yourself: Understanding your personal financial situation is the first step to shopping for a mortgage. You need to know where you stand. This means assessing income, debt, and credit scores.
- Know Your Options: After you know where you stand financially, you will be able to get a good idea of which types of loans are available to you. The best deals will be had by consumers with excellent credit and cash to pay for title insurance, closing fees, as well as the down payment, and who will be using the home as a primary residence. If you aren’t sure what options are available to you, start by checking your Mortgage Grade.
- Know Your Timeline: Shopping for a mortgage is about knowing what you want from homeownership. If you plan on living in the house for a lifetime, a longer term may allow you more financial freedom today. If your home is an investment in the future or your career is likely to make you move, opting to select a shorter term is likely to save you more in the long run.
Mortgage Grade Team Blog
As more and more of the large lenders continue to clear out old housing inventory, the number of foreclosure actions in July increased over June this year. The 4% increase is still well under the amount of foreclosure filings for the same time in 2009. The figures for this past month suggest that fewer than 1 in 400 homes foreclosed across the country.
Defaulted housing inventory is tracked in 3 stages: Notice of Default (NOD), Notice of Sale or Auction, and Real Estate Owned Properties or REOs. This allows us not only to track foreclosure progress, but also the actual number of foreclosures that completed in July. This number (92,858) was almost 10% higher than that of July 2009. This is still, however, below the peak for foreclosures completed which occurred in May for 2010.
So what does it mean for consumers?
A higher number of completed foreclosures matched with a lower number of new NODs tell us that the wave of foreclosures may be starting to slow down. This will mean that local housing markets will stop increasing inventory, which will have a positive effect on home prices. Once home prices go up, it is likely that many will be able to refinance and free up capital in some way. When consumers have more money to spend the economy is boosted. As this shift occurs it will become increasingly important to stay on top of your mortgage situation.
Mortgage Grade Team Blog