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Archive for the ‘Mortgage’ Category

Talking Real Estate With Seattle Rotary

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On October 13, I had the immense honor of addressing the Seattle Rotary Club as a part of their weekly luncheon program.  This club is the largest in the world with 675 members, as well as the fourth oldest, founded in 1909. The last time I spoke to this esteemed audience I discussed technology and its impact on the real estate business. This time, I was asked to address the state of the residential real estate market – past, present, and future. The club was kind enough to record my presentation – which I will post below (entire presentation is broken out into 3 parts). A special thanks to Phil Smart for his witty commentary at the end of the Q & A – leave it to Phil to end it all on a high (and humorous) note.

As always, thanks for reading,



Written by Lennox

October 17, 2010 at 10:39 pm

Funding For Guaranteed Home Loan Program Available 9-8-2010

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The following is very good news for homebuyers who qualify for the USDA’s loan program.

Rural Development’s interim systems enhancements will be complete on September 8, 2010, at which time the Agency will begin obligating Section 502 Single Family Housing Guaranteed Loans. See the link to the notice below for more details.

Single Family Housing Guaranteed Loan Program

Section 502 loans are primarily used to help low-income individuals or households purchase homes in rural areas. Funds can be used to build, repair, renovate or relocate a home, or to purchase and prepare sites, including providing water and sewage facilities.

Eligibility: Applicants for loans may have an income of up to 115% of the median income for the area. Area income limits for this program are here. Families must be without adequate housing, but be able to afford the mortgage payments, including taxes and insurance. In addition, applicants must have reasonable credit histories. Approved lenders under the Single Family Housing Guaranteed Loan program include:

  • Any State housing agency;
  • Lenders approved by:
    • HUD for submission of applications for Federal Housing Mortgage Insurance or as an issuer of Ginnie Mae mortgage backed securities;
    • the U.S. Veterans Administration as a qualified mortgagee;
    • Fannie Mae for participation in family mortgage loans;
    • Freddie Mac for participation in family mortgage loans;
  • Any FCS (Farm Credit System) institution with direct lending authority;
  • Any lender participating in other USDA Rural Development and/or Farm Service Agency guaranteed loan programs.

Terms: Loans are for 30 years. The promissory note interest rate is set by the lender. There is no required down payment. The lender must also determine repayment feasibility, using ratios of repayment (gross) income to PITI and to total family debt.

Standards: Under the Section 502 program, housing must be modest in size, design, and cost. Houses constructed, purchased, or rehabilitated must meet the voluntary national model building code adopted by the state and HCFP thermal and site standards. New Manufactured housing must be permanently installed and meet the HUD Manufactured Housing Construction and Safety Standards and HCFP thermal and site standards. Existing manufactured housing will not be guaranteed unless it is already financed with an HCFP direct or guaranteed loan or it is Real Estate Owned (REO) formerly secured by an HCFP direct or guaranteed loan.

Approval: Rural Development officials have the authority to approve most Section 502 loan guarantee requests.

For more information contact your lender – or visit www.responsemortgage.com to connect with someone from our mortgage partner.

Written by Lennox

September 7, 2010 at 11:12 pm

The Road To A Sustainable Housing Market

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The highly anticipated restoration of the USDA’s single-family rural housing program that guarantees home loans for rural buyers was passed by the Senate on July 28 and is on its way to President Obama’s desk for signature. With the support of its members, the National Association of REALTORS® has vigorously lobbied to restore funding for the rural program since last March, and hailed this development as a great victory for rural home buyers.

I couldn’t agree more.

But before I go into why I support this legislation, I’d like to provide a little background on the USDA’s Single-Family Housing Guaranteed Loan Program and why I believe it can serve as a successful model for a much needed urban down-payment assistance program.

According to Wikipedia, the United States Department of Agriculture was established by President Abraham Lincoln on May 15, 1862 in order to help out the United States economy. Through Federal funding, its purpose was the collection of agricultural statistics and other agricultural purposes; President Lincoln called it the “people’s department.” For many years, the Department of Agriculture was crucial to providing concerned persons with the assistance they needed to make it through difficult periods, such as the Great Depression; this included loans for rural landowners.

Fast forward 148 years and what we have now is a robust program that in 2009 provided over 140,000 loans and $16.6 billion in grants to achieve homeownership and improve housing in rural areas. They also funded $11.2 billion for direct and guaranteed single-family housing loans to provide additional credit for affordable home loans. USDA loans used to be considered “farmers’ loans” but that is no longer the case. Rural America is home to about 50 million people, but only 6.5 percent of the rural work-force is directly employed in farm production. This means that USDA must support not only the farms, but also the communities that surround and support them.

In 2009, the USDA enacted changes that provided assistance to millions of homebuyers who did not have the down-payment funds required by conventional loan programs. USDA loans currently stand alone as the only zero-money-down program available to borrowers who have not served in the military. And like their conventional counterparts, the USDA program adheres to strict underwriting standards, assessing each borrower’s credit, income, and cash flow. As a result, the agency’s portfolio of loans has a low default and delinquency rate of 1.72% (compared to a 2%- 5% default rate for conventional loans and 15% for subprime).

Earlier this year, the USDA exhausted its $13.1 billion funding, leaving many qualified homebuyers with few-to-no financing options and putting a squeeze on our nation’s economy. Thankfully, the Federal Government recognized this fact and responded by passing legislation that increases the Rural Housing Service (RHS) commitment authority allowing guaranteed loans. The RHS is expected to announce new guidelines shortly after the president signs the bill; one anticipated change is a higher “guarantee fee” of 3.5% that can be folded into the mortgage and will enable the program to be self-sufficient.  

Homeownership is historically an instrumental part of the U.S. economic engine, so it’s critical that we take measures to ensure that the housing market has a strong foundation for sustainability. I would argue that by creating a program similar to the USDA’s for city dwellers, there is the potential to bring in hundreds of thousands of homebuyers annually and billions of dollars in state and local taxes every year, as well as higher Federal Income Tax revenue (click here to read a detailed analysis).

The success of the USDA’s Single-Family Housing Guaranteed Loan Program proves that alternatives to conventional loan products can be successful and result in responsible, long-term homeownership with low delinquency rates.  Now is the time to expand the market and create a down payment assistance program for urban homebuyers who face similar challenges to their rural counterparts. Perhaps it could be called the United States Down Payment Assistance program—or USDPA. Has a certain ring to it, doesn’t it?

As always, thanks for reading.


Written by Lennox

August 3, 2010 at 3:03 pm

The Homebuyer Myth of “Skin in the Game”

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Last week, I posted a link to a proposal about a national first time homebuyer down payment assistance program. I’ve received many responses – including those who originally questioned it, but have since taken a further look and acknowledged its merits. And there are others who are still undecided. Ultimately, my goal is to stimulate conversation about ways that housing can support the U.S. economy while giving people the opportunity to realize the dream of homeownership.

Homeownership is historically an instrumental part of the U.S. economic engine, so it’s critical that we take measures to ensure that the housing market has a strong foundation for sustainability. What I would like to address today is some of the feedback that I’ve received from those who question the national down payment assistance program and suggest that it will put us right back where we were with the mortgage crisis.

There is a misconception that first time buyers who have “skin in the game”, meaning cash for a down payment, are less likely to default on a home loan than those without. The truth of the matter is that for decades the USDA has offered programs with 100% financing and the default rate on those loans is only 1.7%. The VA has a similar zero-down program and their default rate is 2.5%. FHA loans require a 3.5% down payment and their default rate is under 4%. According to the National Association of REALTORS, conventional loans, which require a 20% down payment, have between a 2% and 5% default rate depending on the specific loan type. The foreclosure rates tied to the subprime meltdown are nearly 15%.

Some first time homebuyers have saved the money needed for a down payment; others are fortunate enough to have family that is willing to gift them the funds. In both cases, most buyers are left with little savings following their home purchase; thus the emphasis on ensuring that buyers are well qualified. First time buyers that need down payment assistance are no different with the exception that over a 15 year period they will repay the DPA along with their mortgage. As such, those using down payment assistance typically purchase slightly less home than their counterparts in order to compensate for the DPA effect on financial ratios. The moral of the story is that we need to focus on the qualifications of first time homebuyers, not the source of their down payment.

The moral of the story is that we need to focus on the qualifications of first time homebuyers, not the source of their down payment.

One of the main arguments that I have heard in opposition to a national down payment assistance program is that it will lead to higher foreclosures because it does not require “skin in the game,” as mentioned earlier. I think that the USDA program alone proves that even with 100% financing, responsible, qualified homebuyers who use down payment assistance are no more likely to default on their mortgage than those who use conventional loan products. In fact, according to national statistics, in some cases they are less likely to do so.

It’s important for people to enter into homeownership with a clear understanding of the financial responsibilities that accompany this kind of purchase. Unlike the time of subprime mortgages, buyers need to be responsible, have stable employment, good credit, and a healthy debt-to-income ratio. Foreclosure rates go down even more if first time homebuyers have taken a course that educates them about the responsibilities of home ownership.

As I’ve said before, my proposal for a national down payment assistance program is not about getting people into homeownership at any cost. It’s about providing opportunities and educating people about the possibilities that exist for those who are qualified and considering buying a home for the first time.

As always, thanks for reading,


Written by Lennox

July 8, 2010 at 2:21 pm

Goodbye tax credit, hello purchase power

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Well, it was fun while it lasted. The -now expired- Federal Tax Credit provided people all over the U.S. with an extra compelling incentive to buy a home. This sales activity helped stimulate the housing market and the U.S. economy. So, the end result is that the tax credit did what it was designed to do. But all good things must come to an end, right? Well, kind of. The tax credit is no longer available, but interest rates have dropped, including on FHA loans which are down nearly half a point since May 1. That means buyers using an FHA loan to buy a $200,000 home will have nearly $9,000 more purchasing power.

The following illustrates this point:

5/1/2010 5/26/2010 Change
Interest Rate: 4.875% 4.500% -0.375%
Purchase Price: $200,000 $208,890 $8,890
Loan Amount: $193,000 $201,579 $8,579
Monthly Payment: $1,021 $1,021

Using this same scenario, buyers purchasing a $400,000 home using an FHA loan have close to $18,000 more purchasing power. In other words, for the same monthly payment, today’s buyer could purchase a home worth $18,000 more than they could have on May 1, 2010.

Who knows how long interest rates will remain this low, but for those looking to buy a home in the near future, this increase in purchase power could be their golden ticket. For specific guidelines and FHA loan limit amounts by state, please visit: http://www.fha.com/lending_limits.cfm

Lastly, here is a good article that recently ran in the Wall Street Journal about the dip in interest rates and what it means for homebuyers and the U.S. economy: Home Buyers Get Surprise Boost From Europe Crisis as Loans Drop to Below 5%

As always, thanks for reading,


Written by Lennox

May 26, 2010 at 2:35 pm

Mr. Scott Goes To Washington (D.C.)

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This week I am in Washington D.C. attending the National Association of REALTORS’ Midyear Legislative Meetings and today I had the privilege of speaking on a panel with an esteemed group of people that represent varying areas of the housing industry. In attendance was NAR’s current president, Vicki Cox Golder; Nicolas Retsinas, director of Harvard University’s Joint Center for Housing Studies; and Phyllis Caldwell, chief, U.S. Department of the Treasury’s Homeownership Preservation Office. Other panelists included Alfred DelliBovi, president and CEO, Federal Home Loan Bank of New York; and Jack Shakett, executive, Credit Loss Mitigation Strategies, Bank of America. It was a very informative discussion and we all walked away in agreement that restoring balance to our mortgage finance system is key to stabilizing the housing market. For more information see the press release below. You can also watch streaming video of the Town Hall Meeting online. As always, thanks for reading.

Improving Liquidity, Reducing Inventory Critical for Stabilization, Say Realtors®

Washington, May 11, 2010

Restoring balance in the U.S. mortgage finance system is essential to stabilizing the real estate market, according to Realtors®, public policy officials and others gathered at the “Realtor® Town Hall Meeting: Strengthening and Stabilizing the U.S. Mortgage System” session today. The session is part of a three-day summit during the Realtors® Midyear Legislative Meetings & Trade Expo here this week.

According to the 2010 NAR Member Profile, 34 percent of Realtors® reported that the most important factor in limiting their clients’ ability to buy a home was difficulty in obtaining a mortgage. Panelists and participants at the session agreed that fixing the current mortgage finance system will be necessary for a meaningful housing recovery.

“As the leading advocate for homeownership, the National Association of Realtors® works to make sure that everyone who wants to own a home and is able to afford one can do so,” said NAR President Vicki Cox Golder, owner of Vicki L. Cox & Associates in Tucson, Ariz. “A big part of that is ensuring access to safe, affordable mortgages.

Panelists offered their perspectives on the current state of the real estate market, mortgage financing, and what needs to happen to ensure a recovery. Veteran broadcast journalist Forest Sawyer moderated the session.

Panelists agreed that the balance of public-private involvement in the mortgage financing process is an issue that must be addressed.

“The best thing about the market today is that it’s not the market yesterday,” said Nicolas Retsinas, director of Harvard University’s Joint Center for Housing Studies. “But I’m not quite ready to say the market is recovering, because it’s still being supported by the government. In the first quarter of 2010, 90 percent of mortgages were backed by the government.”

Retsinas remarked that Realtors® have the opportunity to match up first-time buyers with distressed properties, but many Realtors® expressed frustration with the cumbersome foreclosure and short sales process.

Phyllis Caldwell, chief, U.S. Department of the Treasury’s Homeownership Preservation Office, agreed that this is an important issue. “What we’ve learned through the Home Affordable Modification Program is that modifications are very hard. Modifications may not be for everyone, and we’re looking at other ways we can help homeowners avoid foreclosure,” she said. Caldwell noted that, with labor mobility at an all-time low, more must be done to help people sell their homes in a short sale, if necessary, to allow them to move to areas where more jobs are available.

“Realtors® need to concentrate on policies that help the entire American economy grow,” said James Glassman, former undersecretary of state for Public Diplomacy. “If we want markets to work, we have to let them work. Once prices come down to the level they need to, buyers will return to the market.”

“The home buyer tax credit was a compelling call to action, and it did what it was supposed to do – it produced sales activity,” said J. Lennox Scott, chairman and CEO of John L. Scott Real Estate. “Now it’s time to determine what we need to do to ensure sustainability, moving forward. We need to bring integrity back to the mortgage business.”

Other panelists included Alfred DelliBovi, president and CEO, Federal Home Loan Bank of New York; and Jack Shakett, executive, Credit Loss Mitigation Strategies, Bank of America.

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.1 million members involved in all aspects of the residential and commercial real estate industries.

Information about NAR is available at www.realtor.org. News releases are posted in the Web site’s “News Media” section in the NAR Media Center.

Written by Lennox

May 11, 2010 at 11:03 pm

Beyond The Tax Credit – What Now?

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With the Federal Home Buyer Tax Credit behind us, now it’s time to focus on the next phase of the housing market. I’ve had numerous people ask me, “what now”? So, here are my thoughts in a nutshell. The tax credit was a compelling call for action for those who took advantage of it. It also played a critical role in stimulating economic recovery. But the tax credit didn’t define the entire housing market. Even without the tax credit, the home buyer purchase power advantage remains high thanks to historically low interest rates and lower adjusted home prices.

Now it’s time to turn our attention to interest rates. Rates are currently hovering around 5% for a 30-year fixed-rate mortgage. But many economists are predicting that they will steadily rise to 6.5% by the end of 2011. As a buyer, it’s important to understand the impact that this can have on housing affordability. 

To simplify the math, I will defer to the National Association of REALTORS®, who state that for every 1 percentage point rise in interest rates, 300,000 to 400,000 less home sales take place. The rule of thumb is that every 1 percentage point increase in mortgage rates reduces a buyer’s purchasing power by about 10 percent. Here’s an example the Associated Press put together that demonstrates this concept:

“Taking out a 30-year mortgage for $300,000 at a rate of 5 percent will cost you about $1,600 a month, not including taxes and insurance. But the same monthly payment at a rate of 6 percent will only get you a loan of $270,000.”

Using this same example, you can also deduce that with a 1 point rise in interest rates, a buyer’s purchasing power reduces by $30,000 on a $300,000 loan.

What we’re seeing now is a bifurcated market in which the more affordable housing markets are experiencing relatively low inventory levels and strong sales in areas close to the job centers and large-scale businesses. In the upper end markets there are higher levels of inventory due to fewer sales. In the coming year, the more affordable markets will continue gaining strength, the mid price ranges should remain fairly stable, and the upper end will likely experience some minor downward price adjustments.

Evidence that economic growth is heading in the right direction came out in a recent report by the Commerce Department which stated that the GDP increased by 3.2% in the first quarter, fueled mostly by growth in consumer spending. Furthermore, in early April, the Labor Department reported that nonfarm payrolls increased by 162,000, which is the largest gain in three years.

The home buyer tax credit brought many buyers forward that would’ve normally bought in the months ahead, so we can expect to see a temporary dip in sales along with increased inventory levels in all price ranges for the next few months. But barring any unforeseeable events, the health of the housing market can be expected to steadily improve as consumers continue to regain confidence in the U.S. economy and the American Dream.  

*More affordable refers to homes priced at – or below – the median home price in a given market.

Written by Lennox

May 3, 2010 at 4:04 pm

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