The legislation makes the USDA’s Single-Family Housing Guaranteed Loan Program self-sufficient, the National Association of Realtors reports. Borrowers will have to pay a higher “guarantee fee” of 3.5%–essentially upfront mortgage insurance–but the fee can be folded into the mortgage.

Buyers won’t mind paying a bit more in fees, says Sue Botelho, a senior mortgage advisor with Waterstone Mortgage Corp. in Ft. Walton Beach, Fla. “It’s great news,” she said. “It’s a huge part of my business. I am thrilled.”

Also happy is LGI Homes, a Texas builder that caters to USDA buyers. Chief Executive Eric Lipar estimates he’s lost 100 sales in the last few months.

“Once funding’s officially in place, we’ve got customers waiting,” he said.

The USDA wasn’t immediately available for comment.

As we’ve reported, the program offering no-money-down loans in certain parts of the country for low- and middle-income borrowers, exhausted its $13.1 billion funding earlier this year, leaving some would-be buyers fearful their financing would fall through. USDA loans were particularly popular this year as first-time buyers tapped the government’s federal home buyer tax credit. They have until Sept. 30 to close.

Despite the last-minute save for USDA borrowers, industry watchers haven’t stopped criticizing zero-down deals-given the role they played in the housing crash. The USDA program is considered safer because up to 90% of the purchase amount is guaranteed, meaning the agency will pay should the borrower default.

The USDA has previously said that last fiscal year’s foreclosure rate was 1.72%, well below the Federal Housing Administration’s 3.32%. Borrowers also can’t make more than 115% of a county’s median income, preventing McMansion-sized loans: The average USDA loan is $112,000.

The strong guidelines weed out potentially troublesome borrowers, Ms. Botelho said. “When they approve a loan, it’s a very, very good loan,” she said.

The financial turmoil in Europe is providing an unexpected windfall for American home buyers, as international money seeking a safe haven is flowing into the U.S., pushing domestic mortgage rates to the lowest levels of the year and back near 50-year lows.

Instead, many in the industry now say rates could drift as low as 4.5% this summer from 4.86% now, instead of rising to 6% as some economists projected, making for significantly lower payments for Americans buying homes or refinancing their mortgages.

Refinance business “exploded” last week, says Jeff Lazerson, chief executive of Mortgage Grader, a brokerage in Laguna Niguel, Calif. “It’s schizophrenic. We all had this expectation of higher interest rates and no more refinances.” He says he helped a borrower lock in a 30-year loan with a 4.25% fixed rate last week, the lowest in his 24 years in the business.

Economists largely attribute the decline in mortgage rates to the European debt crisis and new concerns about the global economy, which unleashed a massive wave of cash into U.S. bonds from investors around the world.

This buying pushed down yields on Treasury bonds. Because mortgage rates are closely pegged to yields on 10-year Treasury notes, which fell to 3.2% Friday, the decline in Treasurys pulled down mortgage yields. Typically, mortgage yields remain around 1.5 percentage points above yields on 10-year Treasury notes.

Falling mortgage rates can give a powerful lift to the housing market. A general rule of thumb holds that every one percentage point decline in mortgage rates is the equivalent of roughly a 10% reduction in the home price for the buyer. So, if the current rates hold, say economists, that could help stabilize prices and allow current homeowners to sell existing homes without substantial price cuts.

More than 90% of consumers believe that the home buyer tax credits have helped both first-time home buyers and the U.S. housing market overall.  Among consumers actually shopping for homes, 65% believe that the end of the tax credits will have little or no effect on their interest in purchasing a home.

While consumers remain unsure about the direction of the housing market, the survey reveals that they are optimistic about real estate values with 46% of consumers expecting real estate prices in their area to increase over the next year. Just 12% expect prices will decline. Over the next five years, 79% expect real estate prices to increase, with 20% expecting prices to increase substantially.

“The survey underscores the key role the federal home buyer tax credits played in stimulating residential real estate market activity and the U.S. economy,” said James Mallozzi, chairman and chief executive officer of Prudential Real Estate and Relocation Services, Inc. “It also shows that most consumers believe the market has hit bottom and are more optimistic about the future.”

Survey respondents identified concerns about rising mortgage interest rates and unemployment as the most important factors affecting their decision to purchase a home, along with more stringent lending criteria and fewer mortgage-backed securities purchased by the Federal Reserve. The expiration of the tax credits placed lowest on their list of concerns. Among those who have recently purchased a home, 61% cited low mortgage interest rates as “very important” to their decisions – an amount greater than either the tax credit or even cheaper prices. The 66% expecting interest rates to rise underscores potential headwinds for the market.

“The tax credits clearly helped stimulate the market when consumer confidence was low and housing inventory was high,” said Earl Lee, president, Prudential Real Estate and Relocation Services, Inc. “While the tax credit expiration is a concern for many, the bigger issues now are the availability and cost of financing as well as if they will have a job.”

Despite the significant downturn in the real estate market, the survey underscores that the dream of homeownership and the perception that owning a home is a good investment remain intact. Among current renters, 75% still believe owning their home is a better long-term choice for their needs than renting.

The majority of consumers also believe that homeownership is a better investment than individual stocks or bonds (75%), mutual funds (72%), or savings accounts (74%).

“The real estate market is precariously balanced. Consumers are clearly motivated to take advantage of the opportunities the current low interest rates and prices afford,” Lee notes. “While the market is picking up in terms of sales and confidence, and the majority still believe that owning a home is a good investment, the outlook for the market remains highly dependent upon the direction of the economy overall.”

Short sales are a valuable tool for struggling homeowners. But they’ve been notoriously difficult to complete, with buyers and sellers often playing a long waiting game before hearing back from lenders.

Now, however, a new government program plus some lender initiatives may make for shorter wait times and a smoother process. “Any structure is better than what we’ve had,” says Kathryn Bovard, a broker/manager for Prudential Americana Group in the Las Vegas area.

Elwood Smith

Short sales are useful for borrowers who are underwater on their mortgage, owing more on the home than it’s currently worth. In a short sale, the homeowner’s lender accepts less than what the borrower owes on the mortgage in order to complete the sale. Both parties thus avoid the foreclosure process.

Foreclosure Alternatives

The government’s Home Affordable Foreclosure Alternatives (HAFA) program goes into effect April 5.

“It’s an extension of [the Home Affordable Modification Program] to provide a default solution before it gets to the worst,” says Arvin Wijay, chief executive of Retreat Capital, a provider of products and services that facilitate short-sale management and loan modifications. If the borrower doesn’t qualify for a modification, loan servicers will then assess the possibility of a short sale through the HAFA program.

Here are some ways HAFA is expected to improve the traditional short-sale process:

• Borrowers will receive pre-approved short-sale terms before listing the property, including either a list price approved by the servicer or the acceptable sale proceeds, according to the U.S. Treasury Department. That way, sellers know what lenders will accept before listing the property.
• There’s a set timeline, with deadlines for lenders and sellers to keep the short-sale process moving.
• At the completion of a sale, borrowers may get up to $1,500 for relocation expenses and servicers may receive compensation of up to $1,000. Up to $3,000 of proceeds are available to distribute to subordinate lien holders, making it possible to compensate second-mortgage lenders.

Still, some in the industry are skeptical that the new program will be a great help to people.

“The homeowner should be encouraged that the government is doing something,” but people should not expect it “to change the world overnight,” says Fred Weaver, co-owner of Group 46:10, a team of agents who focus on short sales as part of Keller Williams Arizona Realty, in Tempe, Ariz.

Successful implementation also depends on servicers’ staff. “Some servicers are good at finding the right people, and have the right technology,” says Mr. Wijay. Some, he says, are not.

In the past, it was common for one mortgage-servicer employee to be responsible for managing hundreds of short-sale applications. But the method with which short sales are approved is starting to improve at some firms, and some banks have made staffing adjustments to better handle the volume.

“Banks are trying to put programs in place to facilitate more short sales in a shorter period of time,” says Mr. Weaver.

Some of the most recent efforts have allowed borrowers and real-estate agents to use an Internet portal to help improve communication, allowing them to submit paperwork electronically instead of faxing it, a practice that’s under way at GMAC Mortgage and Bank of America, according to Mr. Weaver. And lenders including Wells Fargo have committed to increasing their staff to deal with short sales, Ms. Bovard says.

Lenders “have finally gotten on board with the fact that short sales will be a large part of the market over the next 24 to 36 months,” says Ms. Bovard.

While the popularity of short sales differs by market, in the Las Vegas brokerage that Ms. Bovard runs, 70% of pending sales are now short sales, she says.

According to the latest Campbell/Inside Mortgage Finance survey of real-estate market conditions, short sales were the most popular category of sales for distressed properties. In January, short sales accounted for 15.9% of home-purchase transactions, compared with 13.4% of sales that were damaged bank-owned properties and 13.8% of sales that were move-in-ready bank-owned properties.

Short sales typically sell for 91% of their listing price, according to the survey results. Move-in-ready bank-owned properties typically sell for 99% of their listing price.

Words of Advice

For homeowners considering a short sale, Ms. Bovard says it’s important they speak to their trusted advisers, including their attorney and tax accountant, as well as a real-estate agent who has a short-sale designation.

When looking for a real-estate agent, says Kevin Kauffman, co-owner of Group 46:10, homeowners should ask about the agent’s track record with short sales: “How many have you closed? The follow-up question: How many did you fail on — how many went into foreclosure?”

Also, ask questions about the agent’s strategy in getting the job done, he says.

For buyers, a lot of patience is required to finish one of these deals, says Ms. Bovard. “It’s a long, involved process. But the payoff is getting a tremendous value.”

Overall property sales reached 528 in the Sarasota market in February 2010, up nearly 49 percent over February 2009, and pending sales were also strong at 967 – the second highest total in the past four years. The statistics continue to reflect a recovering Sarasota market, as median sale prices also rebounded for condos in February and remained stable for single family homes.
 
February sales of 379 single family homes and 149 condominiums was a major improvement over February 2009, which saw only 354 overall sales (260 homes and 94 condos). Pending sales, at 967, were about 19 percent higher than last month’s 815, and more than 23 percent higher than the 782 reported in February 2009. The statistic is a strong indicator for the next two or three months of sales, as pending sales are an indicator of current buyer activity, and likely reflects the rush of buyers to qualify for homebuyer tax credits before the April 30th expiration.
 
Median sale prices in the Sarasota real estate market rose in February 2010 for condos, while slipping slightly for single family homes. The median sale price for a single family home was $150,000, down 4 percent from January’s $156,250, but up 5.6 percent over last February’s figure of $142,000. For condos, the median price rose to $169,000 from last month’s level of $165,000, a 2.4 percent increase. Last year at this time, condo median sale price was $198,000. For the last 12 months combined, the median sale price for single family homes was $160,000, while the median sale price for condos was $185,000.
 
Distressed property sales represented 47 percent of the overall market in February 2010, nearly the same as the previous month’s figure of 48 percent. The high percentage of short sales and bank-owned foreclosure sales in the Sarasota market continues to be the single biggest factor holding back the overall median sale prices.
 
Normal arm’s length property sales continue to show median sale prices roughly 150 percent higher than distressed property sale prices.

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.

First it was the sub-prime market and now experts agree, adjustable rate mortgages combined with rising unemployment and falling property values could create another economic storm capable of ravaging the weak economic recovery.  Here’s a quick breakdown of the ARM Storm-Tracker for those savvy short sale investors to begin their planning:

Resetting Rates:  Current interest rates are at or near historic lows with 30 year fixed-rate mortgages below 5 percent while ARM’s are likely to readjust and drive the cost of monthly mortgage payments to double their former payments.  Unfortunately, many current ARM holders do not qualify for refinancing due to changes in employment status, high loan to value ratios and increased debt to income percentages.

Evaporating Equity:  Not only did millions of Americans take out Adjustable rate mortgages, but they built additions and over-improved their homes based upon loans.  As home values fell, so did the equity reserves required to refinance their ARM mortgages.  Whether it was a first mortgage with minimal down payment or a second (and even third) mortgage, lower property values have all but erased excess equity from a large number of buyers.

Cheaper to Walk:  Many homeowners are finding it less expensive to simply walk away from rapidly rising mortgage, rent for awhile then repurchase.  According to industry experts, a significant number of homeowners are capable of making the mortgage payment but simply don’t desire to do so given the cost of purchasing the same home after foreclosure.  Current homeowners are eligible for FHA loans in as few as three years after default – creating an inverse incentive to continuing paying on a property worth tens (or even hundreds) of thousands dollars less than the existing mortgage.

Renting, an Increased Option:  Throughout the nation lenders are getting creative in order to reduce the inflow of defaulting properties on their portfolio; one of the more popular options among existing homeowners is the ability to rent your current property for a specified period of time.

ReFi with an ARM?  It’s true, the FHA has a 3.87% five year adjustable rate mortgage option designed to help keep payments affordable. Unfortunately, it may simply delay the pain until interest rates continue to rise later.  However, with a 2 percent cap on each adjustment/rate increase, it could conceivably buy time for those in unusual short term situations such as temporary illness, job loss of other large expenses.  It also has the benefit of “buying time” for the banks and lenders who are in no hurry to acquire even more properties given the current backlog of non-performing properties in their portfolio.

What is a savvy short sale investor to do?  Get ready for the coming wave of ARM properties to hit the market.  Be sure your credit is in place and position yourself to solve problems for both homeowners and lenders in need of a new start.

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.

Big nationwide auctions have recently made headlines, but what is actually better for the average short sale investor…REO or bank/courthouse auctions?  Let’s take a few minutes to examine the pros and cons for each.

 Title – Purchasing a property via bank or courthouse auction frequently entails a commitment to all outstanding debts including unexpected liens and other judgments in addition to those for which the auction is taking place.  However, by purchasing a bank-owned REO property you will typically have assurance of clear title or at least a complete awareness of other fees or liens due.

 Occupants – Property sold at auction frequently has tenants or prior owners still in place, causing new owners to engage in immediate legal action in order to take possession.  Bank-owned properties have often evicted former occupants thereby eliminating the need for out of pocket legal expenses.  Just keep in mind, this is changing, and some short sale investors have encountered squatters as well.  On the other hand, depending upon you plans for the property, having paying tenants may be a strong positive.

 Finance Terms – Auctions require advance funding to be in place while bank owned properties may actually offer added terms or beneficial interest rates in order to move a non-performing property off their portfolio.  Since it can cost a lot of money for a bank to keep a property on their books, one way they entice others to purchase is by negotiating the terms of the finance offers.  This is especially true in areas where lenders may be limited by the number of homes they can release on the market (ie, federal regulations prohibit “dumping” in certain neighborhoods – often the same ones where many non-performing loans were originally written).  By offering highly favorable financial terms, banks are able to shift properties off their books without continuing to drive down prices.

 Bottom line – Short sales are perhaps the best bargain of all, but don’t underestimate the value in bank-owned properties, which can usually be closed quickly, whereas short sales generally take 3-5 months to close.   Auctions are a lot of fun but not always indicative of the best value especially for those just starting out or who only intend to purchase one or two properties.

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.”