Florida’s existing home sales rose in January 2010, marking 17 months that sales activity has increased in the year-to-year comparison, according to the latest housing data released by Florida Realtors.

Existing home sales increased 24% last month with a total of 10,465 homes sold statewide compared to 8,444 homes sold in January 2009, according to Florida Realtors. January’s statewide sales of existing condos rose 81% compared to the previous year’s sales figure.

Sixteen of Florida’s metropolitan statistical areas (MSAs) reported increased existing home sales in January; all MSAs had higher condo sales. A majority of the state’s MSAs have reported increased sales for 19 consecutive months.

“Now is the time for anyone thinking of buying a home in Florida to make that decision,” said 2010 Florida Realtors President Wendell Davis. “Markets across the state are seeing increased sales, yet conditions remain very favorable with still-low mortgage rates, a range of housing inventory and attractive prices. As an added incentive, buyers need to accelerate their plans because a purchase contract must be in place by the end of April to take advantage of the extended and expanded federal tax credit. To find out more, consult a Realtor about options, qualification criteria and opportunities in your local housing market.”

Florida’s median sales price for existing homes last month was $130,900; a year ago, it was $139,400 for a 6% decrease. Analysts with the National Association of Realtors (NAR) note that sales of foreclosures and other distressed properties continue to downwardly distort the median price because they generally sell at a discount relative to traditional homes. The median is the midpoint; half the homes sold for more, half for less.

FHA Announces Significant Policy Changes:

The Federal Housing Administration (FHA) insures about 30% percent of new loans, and its health is vital for the overall housing market.  But as foreclosures have risen, the government agency has seen its losses rise as well, and its reserves sink below the minimum level required by Congress.  According to the Mortgage Bankers Association (MBA) more than 18% percent of FHA borrowers are at least one payment behind or in foreclosure, compared with 14 percent for all loans.  In addition, some unscrupulous operators have shifted their business to the FHA after the subprime business went bust.

Last week, the FHA served subpoenas on 15 mortgage companies with suspiciously high default rates for FHA loans, part of a broad crackdown on dubious lenders.  To address the problems, the FHA announced policy changes designed to more revenue into the agency, while at the same time keeping loans available.  The changes include:  (1) homebuyers will Pay an upfront mortgage insurance premium of 2.25 % percent of the  total loan amount, up from the current level of 1.75% percent.  FHA officials also plan to ask Congress to increase the maximum annual premium that FHA can charge.  Borrowers will still be able to wrap these fees into the total amount borrowed;  (2) homebuyers will need a credit score of at least 580 to qualify.  Borrowers with a score lower than 580 will need a down-payment of at least 10% percent.

Right Time to Buy Real Estate

Brett Arends of the Wall Street Journal has an interesting argument he pulled together using the latest Case-Shiller data, and double checked against Census data.  In short, now is a good time to buy a home.  Real estate has now fallen 30% from its 2005 peak, at the same time as mortgage rates have also plummeted. In 2006 you had to pay an average of about 6.4% on a 30-year fixed loan, according to the Federal Reserve. Right now you can get deals for about 5%.  On average, buying a home now is as cheap as it was in the mid-1990s, when houses were an absolute steal. But what about waves of mortgage resets coming in the next two years? What about all the unemployment? And the foreclosures? 

Arends says these are all valid arguments for refusing to buy homes when they are expensive, or even averagely priced. But the whole point about markets is that they adjust. Prices are now cheap. They reflect this bad news, and more. If you have a stable income, and you can get a 30-year mortgage at 5% or so, and you are willing to drive a hard bargain on a home in this market, this is your time.  Arends continues:  “Over and over again, history suggests that the best investments are the ones no one wants–gold when it was $260 an ounce, Amazon.com when it fell below $10 in 2002, Hong Kong shares during the SARS “crisis” in 2003, and so on. If an investment feels comfortable, it should make you nervous. If it makes you really nervous, that’s probably good.”

Despite the constant doom and gloom reports surrounding real estate, there are actually plenty of good reasons remaining to invest in real estate. In fact, not all the news is nearly as dreary as one might expect but it isn’t found on the common media outlets.

5. Low Interest Rates. With mortgage rates remaining near historic lows, it remains a good time to purchase a property. Plain and simple, low prices and low interest rates have combined to create one of the best buying opportunities in years. As 2009 draws to an end, make it a priority to try your hand with at least one short sale investment…it could be the beginning of a new year filled with wealth, health and prosperity for a fraction of the cost!

FHA to toughen rules for borrowers: 

The Federal Housing Administration is proposing to increase the up-front cash paid by borrowers as part of an effort to shore up the agency’s finances, which have been staggered by rising defaults in its flagship mortgage insurance program, according to FHA officials.

The changes also include raising minimum credit scores for borrowers who receive FHA-backed mortgages and limiting the amount of money sellers can kick in, including paying closing costs or giving free upgrades.

These measures are designed to increase the amount borrowers invest in the homes they buy, thereby making it less attractive for them to default on loans and walk away from properties, as many people have done during the current housing crisis.

Housing and Urban Development Secretary Shaun Donovan is scheduled to announce the agency’s policy changes when he testifies Wednesday before the House Financial Services Committee.

The FHA has played a critical role in propping up the housing market by insuring lenders against default after the mortgage market unraveled. Currently, the agency backs about 30 percent of all loans for home purchases and 20 percent of refinancings. In the past, the FHA has resisted raising down payments or insurance premiums for fear of shutting out qualified borrowers and stunting the housing market’s slow but steady recovery.

But Donovan plans to tell the House committee that the exploding volume of loans the FHA is now handling requires stricter risk controls than the previous administration had in place, according to a copy of his prepared testimony. A recent audit shows that the FHA’s financial cushion already has eroded below the level required by law.

“We’ve learned from recent history that the market is fragile, and we have to plan for the unexpected,” Donovan’s prepared statement says. “That uncertainty is complicated by an organization we inherited that, to be honest, was simply not properly managing or monitoring its risk.”
By requiring that borrowers bring more cash to the table, the agency is seeking to ensure they have “more skin in the game and a stronger equity position in their loans,” Donovan says. But he does not specify the size of the proposed increase. FHA officials said they have yet to determine how much cash will be required.

“There are several ways to accomplish this, and so we are currently analyzing various options to determine which is the most effective and consistent with our mission,” Donovan says.

Up-front cash can include down payments as well as other payments. For now, FHA borrowers can put down as little as 3.5 percent, a level that many FHA critics say is too low. One lawmaker has introduced legislation that would boost the minimum down payment to 5 percent.
As for seller concessions, the agency now allows sellers to kick in 6 percent of the home’s value. Donovan said he wants the maximum permissible level to be lowered to 3 percent, in line with industry norms.

Agency staff are reviewing whether to increase the monthly insurance premiums charged to borrowers, officials said. These payments come on top of insurance paid up front.

The current up-front premium is set at 1.75 percent of the value of the loan. FHA may decide that an increase in that premium is needed also, officials said.

To protect itself against the riskiest borrowers, the agency has decided “for the time being” to raise its minimum credit score requirements for new borrowers. Again, FHA staff are still analyzing what the new threshold should be, Donovan’s prepared testimony says.

The minimum credit score requirement is now so low — 500 out of a possible 850 — that it’s basically irrelevant. Many lenders that make FHA-insured loans impose much tougher restrictions. The concern is that if FHA does not toughen up, abusive lenders will get away with financing risky, poor credit borrowers already rejected by more reputable lenders.

Most of the new initiatives do not require congressional approval. Many have previously been suggested by critics and even supporters of the agency.
These measures are meant to build on other actions the FHA has taken to curb its risk and beef up its eroding cash reserves.

An audit released last month found that the agency’s cash reserves have shrunk to a level far below what is required by law, and the agency could need taxpayer funding if worst-case scenarios play out.

The audit, designed to measure the agency’s financial health, examined the excess cash the agency must set aside to deal with unexpected losses and found that those reserves were at about $3.6 billion as of Sept. 30, a drop from the $12.9 billion available a year earlier. The current total represents 0.53 percent of all outstanding single-family-home loans insured by the FHA, well below the 2 percent threshold set by law. This is the first time reserves have fallen under that level since 1994.

To stop the financial erosion, the FHA has focused in part on weeding out abusive lenders. This year, the agency has suspended business with seven lenders, including the now-defunct Taylor, Bean and Whitaker. It has withdrawn FHA-approval for 270 others, including Lend America. On its Web site Tuesday, Lend America said it has ceased its loan origination and operations, effective immediately.

The FHA is currently working on a new rule that would require banks it does business with to have up to $2.5 million in capital that they can use to repay the agency for losses if they were involved in fraud. Now, they are required to hold only $250,000.

By Dina ElBoghdady
Washington Post Staff Writer
Wednesday, December 2, 2009

How To Pick The Perfect Loan in Today’s Market

A lot has been written about interest rates and credit scores but few people focus on how to pick the perfect loan. While it might not sound like the most exciting part of purchasing a short sale property, it is one of the most important decisions you are ever likely to make.  As millions of Americans have already learned, obtaining the wrong loan can be a very costly decision. Fortunately, it’s relatively simple to secure a great loan that works well for your individual situation once you are aware of all your options. Follow these quick steps to help find your perfect loan:

1. Determine your down payment. The larger your down payment the more options you will have available but always leave a little additional cash for emergencies and other needs.

•    0-5 Percent Down Payment: VA loans for veterans or Vendee loans for foreclosures.

•    3.5 – 5 Percent Down: FHA or HUD loan for purchase of primary residence only.

•    5 to 10 Percent Down: Conventional Loan with strong credit score.

•    20 Percent Down: Conventional Loan without PMI or inferior credit score.

•    20 to 30 Percent Down: Investment loans, vacation or second homes.

2. Determine the best term.  Right now fixed rate loans are at or near historic lows so if you intend to hold the property for any length of time, it’s a good idea to take a serious look at 15 to 30 year terms. Interest only and ARM (Adjustable Rate Mortgages) remain a solid investment for those who understand the pros and cons.

•    30 Year Term:  Select a 30 year term if you intend to remain in the property for many years, plan to turn it into a rental property at a later date, are on a limited fixed income or are expecting to be on a fixed income in the future and want minimum payments with maximum flexibility. Remember, you can always pay more on the loan should you desire.

•    15 Year Term:  Select a 15 year term if you want to obtain the lowest possible interest rate with steady fixed payments, become debt-free as soon as possible, save tens of thousands of dollars over the life of the loan and you have ample yet steady income.

•    Interest Only:  Select an interest only loan if you want to lock in a great price on a property, want to get started in real estate investments with a modest amount out of pocket, expect to have dramatically higher income within a few years (for example, you are in college, paying off significant debt or will have a spouse/other return to work) or are buying in an area experiencing rapid appreciation.

•    ARM/Option ARM’s:  Select an adjustable rate mortgage if you plan to use the property for cash flow then sell, need the minimum payment for a  short period of time then expect to have significantly more cash in the future and/or wish to use an alternative to a Jumbo Loan.