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By Kim, January 21, 2010

The Federal Housing Administration (FHA) just announced a set of policy changes to strengthen the FHA’s capital reserves, which have declined to dangerous levels. FHA will take the following steps: increase the mortgage insurance premium (MIP); update the combination of FICO scores and down payments for new borrowers; reduce maximum seller concessions to 3%, from the currently allowed 6%; and implement measures to enhance enforcement of FHA policies on lenders.

The changes directly impacting home buyers and sellers using the FHA program include:

• The mortgage insurance premiums (MIP) will be increased to build up capital reserves.
  • The first step will be to raise the up-front MIP by 0.5% to 2.25% and request legislative authority to increase the maximum annual MIP that the FHA can charge. If this authority is granted, then the second step will be to shift some of the premium increase from the up-front MIP to the annual MIP. This shift will allow for the capital reserves to increase with less impact to the consumer, because the annual MIP is paid over the life of the loan instead of at the time of closing. The initial up-front increase will go into effect on April 5, 2010.

• Update the combination of FICO scores and down payments for new borrowers.
  • New borrowers will now be required to have a minimum FICO score of 580 to qualify for FHA’s 3.5% down payment program. New borrowers with less than a 580 FICO score will be required to put down at least 10%. This allows the FHA to better balance its risk and continue to provide access for those borrowers who have historically performed well. This change will be posted in the Federal Register in February and, after a notice and comment period, would go into effect in the early summer.

• Reduce allowable seller concessions from 6% to 3%
  • The current level exposes the FHA to excessive risk by creating incentives to inflate the appraised value of the home. Private lending standards have limited seller concessions to 3% for many years. This change will be posted in the Federal Register in February, and after a notice and comment period, would go into effect in the early summer.

The increased enforcement on FHA lenders includes, for example, publicly reporting lender performance rankings, enhanced monitoring of lender compliance with FHA guidelines and standards, and enhancing  the enforcement of indemnification provisions. This would require all approved lenders to assume liability for all of the loans that they originate and underwrite.

What does all this mean for homebuyers? Well, first off, if you don’t want to pay the higher mortgage insurance premium, buy before April 5! Check with your lender, but my understanding is you have to have a property identified before a FHA case number can be assigned, and that’s the critical action to beat the April 5 deadline. As for the FICO score minimum of 580 to get the 3.5% down payment, most FHA lenders already require scores of 600 to 620. And, allowable concessions from the seller being reduced to 3% really just reflects the realities of the Northern Virginia market – sellers are not going to accept such an offer, because they know that the appraisal will be too low to support the higher sales price they would have to get to compensate for it. And if you need a low down payment, you probably don’t have the cash to waive the appraisal.

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By Kim, January 21, 2010

In an effort to stabilize home values and improve conditions in communities where foreclosure activity is high, HUD and FHA announced a policy change that will expand access to FHA mortgage insurance and allow for the quick resale of foreclosed properties. This is great news for both buyers and sellers.

The policy change will permit buyers to use FHA-insured financing to purchase HUD-owned properties, bank-owned properties, or properties resold through private sales (known as “flips“). This will allow homes to resell as quickly as possible, helping to stabilize real estate prices and to revitalize neighborhoods and communities. FHA borrowers have often been shut out from buying affordable properties. This action will enable more buyers, and especially first-time buyers, to take advantage of this opportunity.

As a result of the tightened credit market, FHA-insured mortgage financing is often the only means of financing available to potential homebuyers. But with certain exceptions, FHA has prohibited insuring a mortgage on a home owned by the seller for less than 90 days. Often, and especially in Northern Virginia, these are homes acquired by investors through auctions, bank resales, or “short sales,” that have been upgraded and repaired with the intention of making the investors a profit on the resale.

FHA found that acquiring, rehabilitating and reselling these properties to prospective homeowners often takes less than 90 days. Prohibiting the use of FHA mortgage insurance for a subsequent resale within 90 days of acquisition adversely impacts the willingness of the sellers/investors to allow contracts from potential FHA buyers because they must consider holding costs and the risk of vandalism associated with allowing a property to sit vacant over a 90-day period of time.

The waiver begins February 1, 2010 and is effective for one year, unless otherwise extended or withdrawn by the FHA Commissioner. To protect FHA borrowers against predatory practices where non-rehabilitated properties are quickly resold at inflated prices to unsuspecting borrowers, this waiver is limited to those sales meeting the following general conditions:

• All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction.
• In cases in which the sales price of the property is 20 percent or more above the seller’s acquisition cost, the waiver will only apply if the lender can document the improvements and repairs justifying the selling price.

Other details of this new policy are in the text of the waiver, available on HUD’s website.

This is likely to further increase the use of FHA over conventional mortgages with less than 20% down, because most lenders still have the “flip rule” on their own minimum down-payment programs.

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By Kim, January 21, 2010

1,349 homes sold in December 2009, an 11% decrease from December 2008 home sales of 1,510. I believe this was the result of two specific circumstances: (1) there was a huge push for buyers to complete their purchases by November 30 under the $8,000 tax credit act (which was extended at a very late date to the end of April 2010) and (2) the available homes for sale (“inventory”) is astonishingly low.

Active listings decreased by over 29% from last year, with 5,421 active listings as of December 31, compared with 7,688 homes available in December 2008. In fact, it’s the lowest end-December inventory we’ve seen since December 2004’s ridiculous 1,645. And I suspect, with the tax credit extended (and a new credit available for move-up buyers), we are going to see hot sales and low inventory numbers for the next 4 months at least. If interest rates (see historical chart) stay under 6%, buyers are going to be facing even more multiple-offer situations than we have now, which would be saying something.

The average days on market for homes in December 2009 decreased by 38% to 57 days, compared with 92 days a year ago. No surprise there. And 58% of homes sold in under 30 days.

Sales prices rose compared with last year. The average sales price in December increased by about 12% to $474,104, and the median price also rose in December to $385,000, an increase of 13% from last December’s $340,000.

I cannot emphasize this strongly enough – those who need or want to sell must get their homes ready and on the market no later than March.

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By Kim, December 14, 2009

Sales continued to be brisk in the Northern Virginia housing market in November. The problem is that inventory – the number of homes available to sell – continues to decline as sellers aren’t getting the word that it’s time. Inventory is down to less than 4 months’ worth of sales. I only can see it getting even shorter as we hit the holidays and cold months (brrrr!) – but will there be an explosion in March/April as the tax credits reach their inevitable end?

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By Kim, November 5, 2009

Congress just passed – and President Obama is expected to sign immediately – the tax credit extension and expansion to higher income levels, and further enhanced the credit by allowing a credit of up to $6,500 to buyers who have owned a home for 5 of the past 8 years. Here is a chart reflecting the old and extended/enhanced provisions:

The National Association of Realtors also provided the following Q and A about the extended and enhanced tax credit:

Q.  Existing homeowner credit:  Must the new house cost more than the old house?
A.  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.

Q.  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?
A.  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.

Q.  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?
A.  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).

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

Q. 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?
A.  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.

Q.  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?
A.  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.

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By Kim, September 18, 2009

Notice anything different?

Over the past week I have moved from my old wordpress.com blog site to a new platform where I can (a) use my domain kimhannemann.com (formerly a rather bad template site) and (b) incorporate a great search tool called RealBird and other new features.

I’m still in the process of working all of this out, but I think you will find the changes worthwhile.

Let me know if you like or dislike anything about the new site.

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By Kim, May 18, 2009

Saturday’s Washington Post Real Estate section featured an article by Ken Harney entitled, “New Appraisal Rules Come With Costs,” in which he posits the following scenarios:

• The real estate appraisal that used to cost you $325 now costs $450, even though the appraiser doing the work is getting only $175 or $200.
• Your appraisal-related charges may now be subject to add-on fees – such as $50 to $100 extra in “no show” penalties if you get stuck in traffic and miss your appointment with the appraiser, or an extra $50 to $150 if the property is worth more than $500,000.
• Your mortgage loan officer requires you to pay for the appraisal upfront with a credit or debit card, rather than including the fee with the usual lender origination costs at settlement. Your card may be charged more than the anticipated cost of the appraisal – leaving debit-card holders in a potential overdraft situation.
• The person conducting your appraisal may be new to the field – willing to work for a cut rate – and may not be as familiar with local value trends and pricing adjustments as an appraiser with more experience.
• If your mortgage application is denied by one lender, you could be forced to pay for a second full appraisal because the new lender may not accept the first one.

The “new appraisal rules,” which go by the name Home Valuation Code of Conduct, were imposed May 1 by Fannie Mae and Freddie Mac, and are intended to improve the accuracy of appraisals by eliminating pressure on appraisers from loan officers. The code pushes most large lenders to use third-party “appraisal management companies” that contract with networks of independent appraisers around the country who thus are not in direct contact with retail loan officers or mortgage brokers. The Code came about as a result of an agreement made between the Federal Housing Finance Agency and the New York State Attorney General. The intent of the agreement was made to enhance the independence of appraisers. The most relevant part of the code seems to be the following:

The lender or any third party specifically authorized by the lender (including, but not limited to, appraisal companies, appraisal management companies, and correspondent lenders) shall be responsible for selecting, retaining, and providing for payment of all compensation to the appraiser. The lender will not accept any appraisal report completed by an appraiser selected, retained, or compensated in any manner by any other third party (including mortgage brokers and real estate agents)

It used to be that a mortgage professional – whether working for a specific lender or as a broker – might have a “stable” of appraisers he or she could call on to provide services. Most of them just wanted a reliably thorough and competent job. However, and this is the reason for the new rules, some only wanted appraisers who were willing to find the right “comps” to hit a specific valuation necessary for the loan to go through. Under pressure to produce that number or perish, many appraisers buckled.

But are the new rules helpful or harmful to the more ethical mortgage lenders and brokers out there? Are they seeing big increases in appraisal costs? How about appraisal quality, now that they can’t choose one of their go-to guys? I asked several of the mortgage professionals I work with every day in Northern Virginia to give me their impressions about whether they find the scenarios suggested in Harney’s article to be happening here:.

We’ve actually been working under these rules for many years . . . All appraisals have been ordered through a 3rd party management company, and while we did have some communication with the appraiser (although not encouraged), we cannot any longer . . .

This is actually a good thing that is happening. Too many times appraisers have been bullied by agents, mortgage lenders and borrowers for not having the same opinion. This [code] will take that opportunity away. This does NOT mean that you can’t call the appraiser, still meet them at the home, etc . . . this is so that lenders cannot contact the appraisers directly – even for a status, as this is seen as undue pressure. These appraisers are professionally trained, educated and have to uphold ethical standards just like all of us; yet no one challenges our decisions like these people.

[The fees and time requirements] are the same, for now. I bet the appraisal costs will go up, and they should. The appraisers can’t live on a “cut” and they have been required to do so many more compliance checks etc . . [Turnaround times] are longer due to volume.

This won’t change the quality . . . if anything the quality will improve because the lenders and agents are now separated from any undue influence.

Jennifer Duplessis, Prosperity Mortgage

Interesting article and I am happy to say we have not had the issues mentioned. [Local] appraisers have only added $25.00 to their fees due to some additional addendums that required extra research. Appraisal fees have ranged from $350 to $375 and now are $375.00 to $400.00 for under $1 million sale price, and they have always charged more for above $1 million – that is not new. Yes, loan officers are no longer allowed to directly pick the appraiser – it is an automated random selection of a pool of known appraisers in our local area.

I think the worst [problem] is the extreme pressure the appraisers are [receiving from the lenders] to include the foreclosures and short sales when determining values. During the recession In the early 90’s foreclosures and short sales were considered distress sales and discarded as [comparable to a] homeowner selling their property. In my opinion, this change in [guideline] has escalated the erosion of home prices. They should have allowed for an adjustment upward on the distress sale, but they did not, they are requiring the appraisers to use them thus providing for lower and lower values – how unfair to the normal seller is that?

Shirley Jones, First Savings Mortgage

I haven't experienced any true horror stories yet, but the new system will definitely change things. I think the appraisers will feel empowered to bring in property values at whatever they feel the value is, regardless of what it may mean for the transaction. The old system had a conflict of interest where (I believe) appraisers didn't want to ruin too many deals with a low appraisals since they were hurting their referral sources (potentially their future income) by bringing in the low appraisal. This new system will potentially change that, which ultimately will be a good thing, but could be painful. I think that will be the biggest change. I believe we will see more low appraisals (meaning appraisal comes in below contract price).

In the past we could choose appraisers and go with ones that we felt were "good appraisers." We now have less of a say. It also adds a layer to the process which usually means more time. I do agree with what the article said about the costs of the appraisals being higher. Mortgage brokers definitely kept costs down with the old system. Appraisals have gone up by about $100 over the past year I believe. I haven't noticed a big difference in the quality of appraisal, but it is still early in the process.

Overall I don't love the new system but the old system definitely had it's flaws also. I'm not sure I would want to go back to the old system even if we could.

Kevin Haddon, Wells Fargo Home Mortgage

So on balance, it seems, in the Northern Virginia area the new rules are seen in an overall positive light by people who I believe to be in a position to know. Yes, costs my have increased slightly, and there may be a somewhat longer turnaround – especially as the system gets established – but I think the horror story scenarios drawn by critics are not reflected in the actuality. I do agree with Shirley's view about separating the distress sales from the normal sales – it's unreasonable, but it's not a part of the new rules, just a lender-imposed requirement. Appraisers should be able to reflect adjustments for condition, given the lousy condition of most foreclosures, but it's unlikely to fill the gaps.

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By Kim, May 15, 2009

April 2009 home sales activity for Fairfax and Arlington counties and the cities of Alexandria, Fairfax and Falls Church and the towns of Clifton, Herndon and Vienna:

• A total of 1,544 homes sold in April 2009, an increase of 6% over April 2008, and the ninth consecutive month of higher year-over-year sales. Terrific, but look at this – pending home sales, based on signed contracts, are 2,692, up 25% from last year! Pending sales have been up double-digits year-over-year for 13 consecutive months.
  
• Active listings – homes on the market – decreased by 23% from last year, with 8,234 active listings at end-April. Fewer homes on the market usually means prices are poised to start rising. The supply of homes remains in the less-than-six-months “seller’s market” range.
• Another sign of strong activity – the average days on market (DOM) for homes in April 2009 decreased by 15% to 85 days, compared with 100 days in April 2008.
• Sales prices continue to remain lower than those realized last year. The average sales price in April fell 16% percent from April 2008 to $405,514, while the median price was $356,750, a decline of 14%. The average and median sale prices are again both higher than last month, however.
• Agents continue to see a lot of multiple-offer situations on attractive well-priced homes in good condition, particularly in price ranges under $475,000. If you are looking for such a home, be prepared to act decisively.

It’s Good To Have A Friend In The Business®

If you would like to discuss real estate questions, sell or buy a home in Northern Virginia – including Alexandria, Annandale, Arlington, Burke, Centreville, Chantilly, Clifton, Fairfax, Fairfax Station, Falls Church, Kingstowne, Lorton, McLean, Reston, Springfield, or Vienna – contact Kim today.

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By Kim, April 15, 2009

March 2009 home sales activity for Fairfax and Arlington counties and the cities of Alexandria, Fairfax and Falls Church and the towns of Clifton, Herndon and Vienna (this sounds like a weather alert, doesn’t it?):

A total of 1,384 homes sold in March 2009, an increase of 11% over March 2008. That’s great, but look at this – pending home sales, based on signed contracts, are 2,306, up a fantastic 33% from last year!

Active listings – homes on the market – decreased by 20% from last year, with 8,069 active listings in March, compared with 10,123 homes available in March 2008. Fewer homes on the market usually means prices are poised to start rising. The supply of homes has again fallen into the under-six-months “seller’s market” range.

Another sign of strong activity – the average days on market (DOM) for homes in March 2009 decreased by 18% to 89 days, compared with 109 days in March 2008.

Sales prices continue to remain lower than those realized last year. The average sales price in March fell 17% percent from March 2008 to $395,512, while the median price was $335,000, also a decline of 17%. Interestingly, though, the average and median sale prices are both about 5% higher than last month.

Agents are reporting a considerable number of multiple-offer situations on foreclosures, and on attractive well-priced homes in good condition, particularly in price ranges under $425,000. If you are looking for such a home, be prepared to act decisively – and, if the home is right for you, don’t let yourself be outbid.

It’s Good To Have A Friend In The Business®

If you would like to discuss real estate questions, sell or buy a home in Northern Virginia – including Alexandria, Annandale, Arlington, Burke, Centreville, Chantilly, Clifton, Fairfax, Fairfax Station, Falls Church, Kingstowne, Lorton, McLean, Reston, Springfield, or Vienna – contact Kim today.

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By Kim, March 15, 2009

February 2009 home sales activity for Fairfax and Arlington counties, the cities of Alexandria, Fairfax and Falls Church and the towns of Vienna, Herndon and Clifton:

A total of 1,067 homes sold in February 2009, a 10 % increase above February 2008 home sales of 969.

Active listings decreased by 18 % from last year, with 7,811 active listings in February, compared with 9,497 homes available in February 2008. The average days on market (DOM) for homes in February 2009  to 109 days, compared with 116 days in February 2008.

The average sales price in February fell by 21 % from February 2008, to $380,077, compared with last February’s average of $479,320. The median sales price of homes sold in Northern Virginia in February was $318,000, which is a decline of 23 % compared with February 2008’s median price of $410,500.

The February pending home sales data, based on signed contracts, is bucking the national trend – 1,817 contracts are pending compared to February 2008 when 1,526 were pending, an increase of 19 %.