More details have emerged regarding this particular piece of the stimulus package. I felt that some of the details were worth a correction on my part.
The affordable refinance program is only available to borrowers who have loans that are owned/securitized by Fannie and Freddie. This reduces the number available to utilize the program, in particular among minorities and low income households. Studies have found that minorities were much more likely to receive a sub prime loan, even if their credit qualified them for a prime one, than other groups. If the loan was such that is cannot be conforming, then it will not be purchased by Fannie or Freddie. As such a higher proportion of low income and minority borrowers will be excluded from the program. Indirectly the program states it will not work with any nonconforming loan, (since they are not purchased by Fannie and Freddie).
The loan modification program comes right out and says that nonconforming loans do not qualify....well...it says it in the Q&A for housing counselors (how many regular joes are going to dig that deep?). This means once again that a higher percentage of minority and low income borrowers will be excluded from utilizing the program due to higher incidents of nonconforming loans. This is a real shame, since the loan modification program targets loans before they go bad, a proactive move I approve of.
Not all of the news is bad news. One of my criticisms of the program hinged on the high dollar figure, Roughly three quarters of a million, that qualifying homes could have. By requiring qualified loans to be conforming this automatically adjusts by area, since conforming loans have a maximum limit set by FHA that varies from area to area. So, someone in Cache Valley with a $700,000 or even $400,000 home will not qualify. Their loan is above the limits, and is considered a "jumbo loan", therefore nonconforming and ineligible for either of the programs listed above. To see what the limits are for where you live look here.
So what do you think? Does the conforming limitation unfairly impact minorities and low income families who should have qualified for a prime loan but were sold a different product by their lender?
Showing posts with label meltdown. Show all posts
Showing posts with label meltdown. Show all posts
Friday, March 6, 2009
Saturday, January 31, 2009
Riding the waves till they break
As mentioned in my last post the Washington Post presented an excellent article highlighting some of the difficulties faced by families in the current market.
The article shares the story of Robin Bohnen, who purchased a 1.16 million dollar home in Riverside County, CA. The home came with a $6,400 monthly payment (thats right, she was paying $76,800 annually!), and Robin's income came primarily from her furniture store which rode the boom selling to new homeowners. With climbing equity in her home and great sales what could go wrong?
Now her sales have dried up and her family can no longer afford to make payments on the home. She can't sell it either though, since falling prices mean the mortgage loan is higher than the value of the home. When the wave broke on the housing market Robin and her family found themselves first swamped, and now thoroughly under water.
The article noted that one family in five is now upside down on their loan. Considering that our home ownership rate is in the high 60's percentage wise, that is a great many families who may have to find other accommodations.
It is important to point out that she was not a subprime borrower, but she certainly should never have obtained the loan she did. Robin and her husband opted for an interest only loan for the first five years and used a Stated Income (meaning they did not have to prove what they actually made) loan (known as as Alt A mortgage). While they had a hefty down payment (more than 200K, money pulled from their first home that never sold and is now also in foreclosure) with the loss of Robins furniture income and fewer sales commissions from her husbands job the payment became unaffordable. Now that the property has lost value as well, they cant sell it without taking 200K in losses.
In the meantime they have maxed out their credit cards trying to make ends meet and in Robin's county unemployment has soared to 10%, hampering her ability to obtain employment that will save her home.
The article pointed out that beginning in last October more prime loans were in default then subprime.
This doesn't mean that the prime loans were good, many families acquired regular loans that were unsustainable, but many of the loans we will see in default over the next year and a half will be Alt A, Interest only, and prime ARMs. The Washington Post was quick to point out that many of the loans issued were only appropriate for high asset high credit borrowers and were instead issued to mediocre credit asset poor borrowers in an effort to keep sales high. Robin and her husband acquired an
The article gave a couple more great examples of other families who got in over their heads and indicated that some opt for keeping their car over their home, thinking they can take a ding on their credit and buy again a few years later.
What do we do about it? Is if fair to force mortgage companies to refinance existing loans for the current value of the home (forcing them to take a huge loss)? Forget about fair, do we really think the banks can afford to do that?
Is it the governments responsibility to tell families what they can and cannot afford?
Take a look at the last couple of paragraphs in the article that share an exchange of views between Robin and Shane (her husband). What kind of impact are we seeing on the family? Should the government be looking into an increase in funding to family counseling agencies/providers or do you think these problems will go away when the hard times are over?
How do we help those who may have lost their home, maxed all of their lines of credit, lost their job (or have truncated employment), and now can't even afford a deposit on an apartment?
The article shares the story of Robin Bohnen, who purchased a 1.16 million dollar home in Riverside County, CA. The home came with a $6,400 monthly payment (thats right, she was paying $76,800 annually!), and Robin's income came primarily from her furniture store which rode the boom selling to new homeowners. With climbing equity in her home and great sales what could go wrong?
Now her sales have dried up and her family can no longer afford to make payments on the home. She can't sell it either though, since falling prices mean the mortgage loan is higher than the value of the home. When the wave broke on the housing market Robin and her family found themselves first swamped, and now thoroughly under water.
The article noted that one family in five is now upside down on their loan. Considering that our home ownership rate is in the high 60's percentage wise, that is a great many families who may have to find other accommodations.
It is important to point out that she was not a subprime borrower, but she certainly should never have obtained the loan she did. Robin and her husband opted for an interest only loan for the first five years and used a Stated Income (meaning they did not have to prove what they actually made) loan (known as as Alt A mortgage). While they had a hefty down payment (more than 200K, money pulled from their first home that never sold and is now also in foreclosure) with the loss of Robins furniture income and fewer sales commissions from her husbands job the payment became unaffordable. Now that the property has lost value as well, they cant sell it without taking 200K in losses.
In the meantime they have maxed out their credit cards trying to make ends meet and in Robin's county unemployment has soared to 10%, hampering her ability to obtain employment that will save her home.
The article pointed out that beginning in last October more prime loans were in default then subprime.
This doesn't mean that the prime loans were good, many families acquired regular loans that were unsustainable, but many of the loans we will see in default over the next year and a half will be Alt A, Interest only, and prime ARMs. The Washington Post was quick to point out that many of the loans issued were only appropriate for high asset high credit borrowers and were instead issued to mediocre credit asset poor borrowers in an effort to keep sales high. Robin and her husband acquired an
The article gave a couple more great examples of other families who got in over their heads and indicated that some opt for keeping their car over their home, thinking they can take a ding on their credit and buy again a few years later.
What do we do about it? Is if fair to force mortgage companies to refinance existing loans for the current value of the home (forcing them to take a huge loss)? Forget about fair, do we really think the banks can afford to do that?
Is it the governments responsibility to tell families what they can and cannot afford?
Take a look at the last couple of paragraphs in the article that share an exchange of views between Robin and Shane (her husband). What kind of impact are we seeing on the family? Should the government be looking into an increase in funding to family counseling agencies/providers or do you think these problems will go away when the hard times are over?
How do we help those who may have lost their home, maxed all of their lines of credit, lost their job (or have truncated employment), and now can't even afford a deposit on an apartment?
Wednesday, January 28, 2009
Give that home a snorkel.
I want to play a little game called spot the swimmers. Take a gander at this. Look at the average listing price, then look at the average home sales price. Some of the states really shine..... do you see it yet? Look at Wyoming, for example.
Avg List price: $610,035 Avg Sales Price $130,702
So, the average listing price is 4.67 times higher than the average sales price?!
Utah: Average List $486,538 Average Sale $129,000 3.77 times.
Idaho: Average List $357,490 Average Sale $85,000 4.2 times.
Anyone see a pattern?
Why is the average list price so high when the average sale price is so low?
What does this tell us about the type of homes that are having "problems" right now?
Well, there are a couple of possibilities here, so lets toss some around. Perhaps there are more homes for sale in big cities that had higher prices and are experiencing the largest decline in home values. With a few exceptions this seems to hold true.
There is another possibility here: that there is a higher concentration of expensive homes on the market across the state. I used a fairly crude method to test this. I jumped back to the trulia.com website and pulled up the data on Cache county , and compared this to the data on population pulled from this site on area codes and inputting those at the and the census bureau fact finder.
Then I put the numbers in a little chart so I could see the population of each zip code (this information is dated, last census was 9 years ago but no other data by zip code is available)compared to the average list price and number of homes that are on the market.
One quick thing I want to point out, the LOWER the per person number, the more homes are being sold in the area per person.
The zip code with the most homes for sale per person is 84325 with just over 1 home being sold for every 32 people compared to the overall average of one home per every 103 people in the zip code! It also has the third highest average sales price. The two zip codes with the highest average sales prices are just above and below the average per capita. The next 3 are all well below average (meaning more homes on the market than you would expect for their population). This is interesting to me, since it seems to imply that the wealthiest families (those in the 2 zip codes with the highest average home price)seem to have an average number of homes for sale. Just below that, in what could be termed wannabe wealthy zip codes we have a disproportionate number of homes for sale (especially in that number three slot). I have to wonder if this might hint at a group of people who got in over their heads. People who perhaps wanted to appear well to do, and are now reaping the consequences.
One thing is for sure, being upside down or "underwater" on their loans is something we are sure to see more of. The washington post indicated that 1 in every 5 homeowners now owes more on their loan than the home is actually worth . I plan on taking a closer look at that article more indepth on my next post. In the mean time I plan on waiting a month and then doing this little exercise again to see how home sales are doing for each zip code. (Note, this does not include homes that are for sale by owner, or by a builder who has not posted them on the MLS.)
While we wait, maybe we should invest in some fins and a snorkel?
Avg List price: $610,035 Avg Sales Price $130,702
So, the average listing price is 4.67 times higher than the average sales price?!
Utah: Average List $486,538 Average Sale $129,000 3.77 times.
Idaho: Average List $357,490 Average Sale $85,000 4.2 times.
Anyone see a pattern?
Why is the average list price so high when the average sale price is so low?
What does this tell us about the type of homes that are having "problems" right now?
Well, there are a couple of possibilities here, so lets toss some around. Perhaps there are more homes for sale in big cities that had higher prices and are experiencing the largest decline in home values. With a few exceptions this seems to hold true.
There is another possibility here: that there is a higher concentration of expensive homes on the market across the state. I used a fairly crude method to test this. I jumped back to the trulia.com website and pulled up the data on Cache county , and compared this to the data on population pulled from this site on area codes and inputting those at the and the census bureau fact finder.
Then I put the numbers in a little chart so I could see the population of each zip code (this information is dated, last census was 9 years ago but no other data by zip code is available)compared to the average list price and number of homes that are on the market.
One quick thing I want to point out, the LOWER the per person number, the more homes are being sold in the area per person.The zip code with the most homes for sale per person is 84325 with just over 1 home being sold for every 32 people compared to the overall average of one home per every 103 people in the zip code! It also has the third highest average sales price. The two zip codes with the highest average sales prices are just above and below the average per capita. The next 3 are all well below average (meaning more homes on the market than you would expect for their population). This is interesting to me, since it seems to imply that the wealthiest families (those in the 2 zip codes with the highest average home price)seem to have an average number of homes for sale. Just below that, in what could be termed wannabe wealthy zip codes we have a disproportionate number of homes for sale (especially in that number three slot). I have to wonder if this might hint at a group of people who got in over their heads. People who perhaps wanted to appear well to do, and are now reaping the consequences.
One thing is for sure, being upside down or "underwater" on their loans is something we are sure to see more of. The washington post indicated that 1 in every 5 homeowners now owes more on their loan than the home is actually worth . I plan on taking a closer look at that article more indepth on my next post. In the mean time I plan on waiting a month and then doing this little exercise again to see how home sales are doing for each zip code. (Note, this does not include homes that are for sale by owner, or by a builder who has not posted them on the MLS.)
While we wait, maybe we should invest in some fins and a snorkel?
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