Restrictions Are the Rule for All Sorts of Once-Easy Credit

Like a spreading infection, restrictions on credit are moving into new and more specialized niches of the mortgage market, including cash-out refinancings; loans with anything less than full documentation of borrower income, credit and assets; mortgages for certain second-home purchases; investment loan applications in which the buyer owns at least three other rental properties; mortgages to borrowers with “nontraditional” credit, such as “thin files” with scant information at the three national credit bureaus; short-term construction loans that convert to permanent mortgages; and adjustable-rate mortgages in which the first rate adjustment occurs within 60 months after closing. Private mortgage insurers, who provide loss coverage for lenders and investors on loans where downpayments are less than 20%, have begun rolling back a variety of products, especially in areas they define as distressed or declining. Genworth Financial, one of the largest insurers, told lenders that after May 5 it would no longer consider applications for second-home purchases in Florida. The policy is irrespective of borrowers’ credit scores, assets or other characteristics. (www.washingtonpost.com)
Washington Post (5/3/08); Kenneth R. Harney

[Return to top]

Home-Price Data Has Its Flaws

Top officials with the National Association of Realtors® (NAR) and Standard & Poor’s, which issues the S&P/Case-Shiller Home Price Index, have agreed that their monthly reports are giving imprecise readings of price changes due to rare market conditions that are skewing survey results. The 7.7% decline reported by NAR for March resulted largely from a market anomaly — a steep decline in costlier home sales due to tighter lending standards and high jumbo-mortgage rates, coupled with a foreclosure-driven spike in cheaper homes. “If there are a lot more homes sold on the low end and fewer on the high end, the median price is bound to drop dramatically," said Lawrence Yun, the association’s chief economist. “In normal times, a median price would reflect typical home owner equity changes, but these are not normal times. The jumbo (mortgage) market is frozen and the buying activity is more concentrated in lower-value homes.” The S&P/Case-Shiller Home index, which posted a 12.7% decline for February, is skewed for two reasons of its own — it tracks just 20 major markets, many among the hardest hit, and its “repeat sales” survey by design pulls in individual homes both bought and sold in the last few years. Many of those are now being dumped by distressed home owners and investors who bought at peak market prices and face higher mortgage-rate adjustments. The glaring discrepancy with the Case-Schiller index is that 17 of the 20 metro areas posted record annual declines, and yet 78% of the 330 metro regions that NAR tracks reported price increases in the latest period — and that despite the acknowledged downward bias in current price readings. (www.marketwatch.com)
MarketWatch (5/1/08); Chris Pummer

[Return to top]

The Condo Owner’s Dilemma

Three months after putting her trendy one-bedroom condo in the Washington, D.C. neighborhood of Adams Morgan on the market, Susannah Moss has yet to receive an offer. Now she wants to find a tenant for the apartment while she waits out the economy. But the condominium association allows only 20% of the units to be leased at any one time, so she is on a waiting list. If she tries to rent the unit without permission, she could face a $500-a-month fine. Among other things, the rental restriction is meant to guard against the condo being viewed as a risky investment by lenders who believe that buildings with a high concentration of rentals are harder to market to home buyers. Fannie Mae will not guarantee a loan for a condo in which renters make up more than 49% of the occupants. Rental caps are as low as 10% in some condo communities, said Jason Fisher, vice president of the board of directors of the Washington area chapter of the Community Associations Institute. At the same time, the Federal Housing Administration has proposed lowering its requirement that 51% of a condo building be owner-occupied to 33%, part of an overhaul and streamlining of its operation that is pending before Congress. Currently, about 2% of FHA loans are made for condos, and it can take three months for agency approval because of overlapping requirements, said Meg Burns, director of FHA single-family program development. (www.washingtonpost.com)
Washington Post (5/3/08); Renae Merle

[Return to top]

The Accidental Renters

Households who have lost their homes to foreclosure are scrambling to find a place to rent, with rental properties in short supply in many markets, pushing prices higher. Also, some landlords are imposing tougher credit requirements on people who have gone through foreclosure. A study by Harvard University’s Joint Center for Housing Studies shows that U.S. renter households increased by nearly one million last year — four times the pace of renter growth from 2003 to 2006 — to 35.1 million. Competition for rental properties has pushed up average rents to a record $775 a month, says the Harvard center. Since only about one-third of rental properties are single-family houses as opposed to apartments, it can be hard for foreclosed home owners to find an equivalent, affordable place to rent, says William Apgar, the center’s senior scholar. And though hundreds of thousands of houses and condos have gone back to the banks that lent money on them, few of these properties are being offered to tenants because lenders don’t want to be in the property-management business. Mark Verge, owner of WestsideRentals.com, an apartment-finding service in Santa Monica, Calif., says he’s getting 7,000 to 8,000 inquiries a month from would-be renters, up 15% compared with last year. Many are from people who are facing or have gone through foreclosure, he says. The problem could get worse. Foreclosure filings were reported on 649,917 properties in 2008’s first quarter, up 23% from the previous quarter and 116% from a year earlier, according to RealtyTrac. (www.marketwatch.com)
MarketWatch.com (5/1/08); June Fletcher, Wall Street Journal

[Return to top]

Teardown Diary: Keeping Home Construction Safe From Crime and Bumblebee Graffiti

Across the country, in residential construction alone, theft of materials and appliances, and the damage caused during the course of those crimes, ranges from $1 billion to $2 billion annually, according to NAHB. That’s enough to push the prices of new homes up 1% to 2% every year. The first line of defense is to get home owner’s insurance that covers construction. Sometimes contractors will pay for the Builder’s Risk insurance and sometimes it is split, with home owners covering theft of materials and the contractor covering anything that isn’t yet installed. Surveillance cameras on the construction site are another line of defense, but it can be expensive to maintain the computer storage needed for 24-hour surveillance, bad weather can ruin a shot and there’s little to stop a thief from just stealing the camera. Contractors can take many other security steps, according to a guide released by the U.S. Department of Justice’s Office of Community Oriented Policing Services. Options include limiting the number of projects each supervisor is responsible for; coordinating deliveries of materials and appliances so that they are delivered and installed close to the time that the items will be secured or the house will be occupied; screening subcontractors; and putting in fences. (online.wsj.com)
Wall Street Journal Online (5/7/08); Nancy Keates

[Return to top]

Five Questions With Brian Binash; He Sees Resilience in Houston Housing

The Houston housing market will probably register 30,000 starts this year, making 2008 one of the area’s five or six strongest for housing production, according to Brian Binash, president of the Greater Houston Builders Association and Wilshire Homes. In “the perceived heyday before the late 1970s, early 1980s, we were only doing 28,000 to 32,000 starts,” he said in an interview following his attendance at the NAHB spring board meeting in Washington, D.C. “We were doing 45,000 to 50,000 starts a few years ago, which was a lot. Some of that was fueled by some subprime home sales. Some of the people that would be in the marketplace today got in earlier because of that, but it’s not in the marketplace today. We don’t have the subprime issues anymore, but we’ve gone way too far the other way. The standards are too tight today.” Among the biggest challenges he faces this year as president of the builders association, he said, is “making sure we get the Houston story out front and center — not just what happened in Virginia or Boston or Detroit. Houston’s very different, and we want to make sure people understand that we are not experiencing the same problems. (www.chron.com)
Houston Chronicle (5/7/08); Nancy Sarnoff

[Return to top]