A New Year Wish

The best thing that I can say about 2008 is that it's over.
We know that there is no magic wand that will instantly right all the wrongs done to the economy and to the real estate market, but let's hope that the new year will be the beginning of positive steps in that direction.
Wishing all of you a happy, healthy and prosperous 2009.

Should I Refinance Now?

Several of my clients have asked me if this is the right time to refinance their homes, now that interest rates are approaching an all time low.
Refinancing often requires fees for title insurance, a new appraisal, document processing, and a fee for the mortgage broker or lender. While it may appear the refinance is free, the costs often are added to the total loan amount or the borrower is charged a higher rate. Because there are fees typically associated with a refinance, many financial industry specialists recommend borrowers not refinance unless they plan to occupy the house for at least two years. Although there will be a reduction in the monthly payment, it can take a few years to break even on the refinance.
Remember, loan options are more limited today than a few years ago. Generally, the best rates are offered on traditional loans, such as 15-year and 30-year, fixed-rate mortgages, and loans for borrowers with at least 20 percent for a down payment for buyers or existing home equity for those seeking to refinance.
Some subprime loans made during the boom carry prepayment penalties–a fee or percentage the homeowner pays the lender in the event the mortgage is paid early, but lenders may waive prepayment penalties and allow the borrower to refinance with another lender if doing so prevents foreclosure.

When a Computer Dies...

I've just returned from a visit with my sister and her family in Florida. Last year when I stayed in the West Palm Beach area with them, I was able to access the web on their 10 year old Compaq and use dial-up to write about the state of Florida Real Estate on this blog. However, this was the year the poor old thing finally succumbed to hardening of the hard drive, or whatever virus old computers die of, and went dark for the last time.
On Christmas Eve, we went shopping for a shiny new HP desktop model, and I installed it for them. I just received my first email, informing me that they now have their high speed cable connection.
I'm pleased to be home and back on my DSL network.
Happy New Year to all my readers.

The Self-Employed Can't Get Mortgages

The government's recent moves to help the mortgage market have made it easier for many people with decent credit scores to get a loan. But for many self-employed people -- even those with perfect credit -- the mortgage freeze has yet to thaw.
We certainly expected to see a reversal of the loose lending practices that led to the current economic situation, but some economists say lending standards have become overly restrictive, helping push down home prices even further.
The volume of jumbo loans fell by more than 70%. "Underwriting criteria have swung from foolish ease to tighter than any in modern times," says Lou Barnes, a mortgage banker in Boulder, Colo.
The changes are increasingly frustrating a group of borrowers whom banks once coveted: affluent self-employed professionals such as doctors, lawyers, accountants and small-business owners.
An example:
Hubert Noguera, a 38-year-old medical-device engineer who also owns a small business, is one of them. He can't get approved for a loan, even though he has a strong 800 credit score and is prepared to make a 40% down payment on a house near San Francisco in the $800,000-to-$900,000 range. Mr. Noguera says he has assets worth three times the $500,000 loan he's requesting and is in the process of selling his share of a recently inherited residence in Saratoga, Calif., worth $1.1 million.
Banks have turned down the loan because the amount he's requesting appears high relative to the portion of his income that he can fully document -- and they won't consider his other income, says his mortgage broker, Connie Madrid.
The chief problem for self-employed people is that they don't have W-2 forms from an employer to document their full wages. For proof of income, they must rely solely on their income-tax returns. But income for the self-employed is often understated for tax purposes, in part because they tend to take large business-related deductions. Self-employed borrowers who don't take any big deductions won't likely face the same difficulty getting a loan.
In the past, most self-employed people took out "stated-income loans," which don't require borrowers to fully document their income. Such borrowers typically made substantial down payments, had strong credit profiles and paid a slight premium -- around 0.25 percentage point -- on their interest rates. Defaults were low.
That changed as the loans grew in popularity during the housing boom and expanded beyond their traditional market of affluent professionals. Stated-income loans eventually became disparaged as "liar's loans" because borrowers' incomes were frequently exaggerated. Many banks have eliminated stated-income loans entirely, and Freddie Mac -- which, with Fannie Mae, is one of two government-held buyers of mortgages -- will end its stated-income lending program designed for self-employed borrowers next month.

Some Positive Thoughts

The key to remember is that while there is a lot of bad news in the economic sector right now, housing does remain a critical component to an American’s livelihood.
Though many people think that things are all bad, regardless of the state of the economy, people will always need to buy and sell homes. Births, deaths, marriages, divorces, job relocations and other important life changes trigger the buying and selling of real property. These life changes don’t stop because the economy slows down. Real estate will continue to be bought and sold.
It is not simply an investment. Real estate is where we live and raise our families. If we were able to jump ahead 10 years from now, we'd be looking at this market as a thing of the past—a time when we all probably should have been buying a lot more real estate.

What are the Most Cost Effective Remodeling Projects?

Exterior remodeling projects return the most money as a percentage of cost, according to the 2008 Remodeling Cost vs. Value Report. On a national level, wood deck additions and all types of siding replacements -- upscale fiber cement, mid range vinyl, and upscale foam-backed vinyl -- returned more than 80 percent of project costs upon resale.
The 2008 Remodeling Cost vs. Value Report compares construction costs with resale values for 30 mid range and upscale remodeling projects comprising additions, remodels and replacements in 79 markets across the country.The report is produced by Hanley Wood, LLC in cooperation with "REALTOR®" magazine.
In addition to wood decks and siding, window replacements and kitchen remodels also returned a relatively high percentage of remodeling costs. A mid range bathroom remodel was estimated to return 74.4 percent on resale, comparable to a mid range attic-to-bedroom conversion, at 73.6 percent of costs recouped, and a mid range basement remodel, at 72.7 percent of costs recouped. As in last year's report, the least profitable remodeling projects in terms of resale value were home office remodels, sunroom additions, and back-up power generators, returning only 54.4 percent, 56.6 percent, and 57.1 percent, respectively, of project costs.

Does Helping Borrowers With Delinquent Loans Make a Difference?

New data shows that more than half of loans modified in the first quarter of 2008 fell delinquent within six months.
"After three months, nearly 36 percent of the borrowers had re-defaulted by being more than 30 days past due. After six months, the rate was nearly 53 percent, and after eight months, 58 percent," said U.S. Comptroller of the Currency John C. Dugan. A report scheduled to be published later this month will show continued increasing delinquencies and foreclosures in process for all first-lien mortgages held by the largest national banks and federally-regulated thrifts, Dugan said.
New foreclosures decreased by 2.6 percent from the second quarter, but these statistics are not a good sign.