Walking Out of a Mortgage and Into Years of Hurt
On March 31, Fannie Mae sent out new guidelines to lenders prohibiting foreclosed borrowers from getting another mortgage through it for five years unless there are “documented extenuating circumstances,” in which case the mortgage prohibition is for three years. Even after five years, a borrower with a foreclosure in his file will be required to make at least a 10% downpayment and will need a FICO credit score of at least 680. And Freddie Mac, which counts foreclosures as major credit blots for seven years, is now aggressively pursuing some walkaway borrowers “to pursue our deficiency rights” where permitted under state law. A growing walkaway trend is particularly noteworthy in former boom markets such as California, Florida and Nevada, where many home owners find themselves owing more than the current market value of their houses. If they invested little or nothing in downpayments, some owners reason, continuing to make payments, even if they can afford to, may be throwing good money after bad, so they stop making payments and months later send the house keys back to their lender. (www.washingtonpost.com)
Washington Post (4/12/08); Kenneth R. Harney
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For First-Time Buyers, a Falling Market Has Opened a Window of Opportunity
Families buying their first home are among the few, happy beneficiaries of a housing slump that has sliced 11% off the median price of single-family homes in the Boston area since September 2005. Others finding a silver lining in the gloom are those for whom a house had seemed simply out of reach — often single mothers living off one paycheck — and those once limited to condominiums who now find that houses have dropped back into their price range. While the Boston-area housing market remains among the most expensive in the country, it is now relatively more affordable than it was earlier in the decade. Median home prices fell to $398,970 in 2007. That’s 4.2 times the median family income for the area of $94,169 — the lowest that this ratio, a common measure of housing affordability, has been since 2001, according to Moody’s Economy.com. Housing economists consider prices affordable at three times income. The current national average is 3.5 times income. (www.boston.com)
Boston Globe (4/13/08); Kimberly Blanton
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No-Downpayment Mortgages Gone for Good?
While Fannie Mae and Freddie Mac still have products that allow borrowers to finance 100% of their home purchases, at a higher cost, the major private mortgage insurance companies have recently backed off insuring these loans, said Bruce Brown, a certified mortgage planning specialist with First Security Mortgage Co., in Kansas City, Mo. Mortgage Guaranty Insurance Corp., for example, has changed its guidelines to exclude coverage of 100% mortgages. At a minimum, borrowers need a 3% downpayment and a credit score of at least 680 to be eligible for coverage. In selected markets, where home prices are declining, a 5% downpayment is the minimum. The conventional no-downpayments may have disappeared, but there are still ways to buy a home without a downpayment, said A.W. Pickel, CEO of LeaderOne Financial in Overland Park, Kan. A gift from a family member or a community grant can take the place of a downpayment, for example, he said. And downpayment assistance programs are available to those seeking loans backed by the FHA, he added. “You will see more unique products coming out,” he said, as companies get more creative and come up with solutions. (www.marketwatch.com)
MarketWatch (4/10/08); Amy Hoak
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Studies Show Housing Crisis Disproportionately Affects Women
Many thousands of single women in recent years have been home buyers in their own names. They have, on average, less income than single men, but they take greater financial risks, according to a study by Rachel Drew, research analyst at the Joint Center for Housing Studies at Harvard University. “They tend to buy smaller homes and condos, but they tend to stretch their incomes to do so,” she said. About 43% of single women were using more than 30% of their income each month on housing payments, she said, compared to just 30% of unmarried men and 25% of married couples. Moreover, a disproportionate number of the women received risky loans, said economist Eileen Applebaum of Rutgers University. “Women at every income level are a lot more likely than men to end up with subprime mortgages. In 2005, just before the housing boom crested, women received 37% of the higher-cost subprime loans, and just 28% of the prime loans, according to the National Community Reinvestment Coalition, a nonprofit community development organization. Women overall were 32% more likely to receive a subprime mortgage than men, according to a report by the Consumer Federation of America. (www.ajc.com)
Atlanta-Journal Constitution (4/11/08); Michael E. Kanell
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Sinking Housing Market Maroons Home Owners in Unfinished or Empty Projects
The two dozen or so residents of the New Jersey Shore development of Seapine Estates, near Atlantic City, are concerned because the community’s Pennsylvania developer went bankrupt last summer and halted work, leaving open foundations, unfinished homes and empty streets that have invited outsiders to dump trash, spray graffiti and race cars. Ken Bachman, 37, who lives on a half-empty street in Seapine, feels trapped. When he leaves the house every day, he has to look at an unsightly, unfinished home across the street. More than 200 houses had been planned in the development with prices starting around $300,000, but residents say it is only about one-fifth occupied. One-third of more than 200 cities surveyed have seen an increase in abandoned or vacant properties in their communities as well as other forms of blight, according to a report by the National League of Cities. Nearly 60% said that lenders have not offered to help cities deal with the fallout from foreclosures and other housing problems. “In most cases, cities are picking up the slack by maintaining the homes, mowing the lawns and making sure that neighborhoods with abandoned housing are safe,” said Christina McFarland, research manager at the league’s Center for Policy and Research. “It’s a strain on resources.” (www.iht.com)
International Herald-Tribune (4/14/08); Associated Press
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The Big Risk in the Foreclosure Fix
It’s not clear whether the Federal Housing Administration is up to the task of rescuing the battered housing markets. The agency currently backs $385 billion in mortgage loans, but that figure could double in the coming year if some of the leading proposals in the White House and Congress go through. “We are asking a lot of an agency, that prior to this year, had seen its market share shrink to almost nothing,” said Jaret Seiberg, senior vice president at the Stnaford Group, a Washington policy research firm. “Now we’re asking it to fill the gap left by not only subprime lenders, but to be the first choice [for many borrowers.] That is an enormous challenge.” Even FHA officials concede they don’t know if the agency can handle the increased role. The FHA has been a small lifeboat helping a select group of home buyers, but it could be overwhelmed by the rush of new borrowers trying to climb aboard. “That’s a pretty good analogy,” said Bill Glavin, special assistant to the FHA commissioner. “It’s pretty much uncharted water. We’ve never been asked to do these things before. We were already facing a lot of uncertainty, to be honest. It’s going to be a whole new FHA, and there are going to be risks that go with it.” (www.cnnmoney.com)
CNNMoney (4/10/08); Chris Isidore
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