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Rebounding Valuations of Los Angeles Real Estate

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Rebounding Valuations of Los Angeles Real Estate

In the Greater Los Angeles real estate market, rebounding prices for commercial buildings and beach homes are worthy of mention.  We see why.  Low interest rates and huge amounts of cash shifting around are fueling higher prices and increased sales volume.  Banks have opened up their lending restrictions.  And comparing the ROI in real estate to a 2.2%-yield Treasury note, it is obvious Adams.

People who lost money in certain sectors of the investment markets have now become comfortable buying real estate.  They are pouring their dollars into favorable locations – like Los Angeles.  Two booming sectors here include commercial and luxury real estate.

Los Angeles Office Building Sales

Los Angeles Real EstateU.S. sales of commercial office building space during 2Q late 36% year-over-year to $225.1 billion.  Domestic and international investors have pushed the value of commercial real estate in Los Angeles to the highest level since 2009. Investors are buying up office buildings in major cities around the globe as well. Valuations are based on Price per Square Foot as published by Real Capital Analytics.

L.A. Beach Town Prices for Southern California Homes

At the same time, residential Los Angeles real estate in its Southern California beach towns is some of the Least Affordable in America. Among western Los Angeles beach real estate, Realtor.com lists Malibu homes as those with the nation’s top Median List Price at $3.6 million.  Pacific Palisades came in as No.6, Newport Coast at No.8, and Corona Del Mar, California, at No.10.

A limited supply of Los Angeles beach homes creates bidding wars and rising prices. Some of the most expensive Beach properties in the nation are right here in Orange County. Along the waterfront, multiple deals for homes selling for more than $10 million.  And buyers are not just from the United States. The National Association of Realtors ® reports that Chinese investors channeled approximately $10 billion into California real estate in 2014.

Who Knows How Long the Rebound Goes?

No one knows the exact impact of the expected certain rise in interest rates will have on the Southern California markets. Landlords may raise rents. Property values may fall.  Lenders could face serious consequences if borrowers start struggling to make payments.

Real Estate Agent Los Angeles

For information about current values for Southern California luxury residential beach homes and commercial Los Angeles real estate for sale, call Bob Cumming of Keystone Group Properties at 310-496-8122.

Number of Low-Price Homes Plummets in State

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For information about coastal and luxury real estate in Los Angeles, Orange County, and San Diego homes, call Bob Cumming of Keystone Group Properties at 310-496-8122.  Keystone Group Properties services buyers and sellers of exclusive properties throughout Southern California

Number of Low-Price Homes Plummets in State

By Alejandro Lazo, Los Angeles Times

Properties priced below $313,200 are increasingly scarce as investor groups crowd out first-time buyers. As foreclosures drop, some parts of the Inland Empire have only one month’s home supply.

Competition for lower-priced homes in California is so hot that the number of cheaper homes available for sale has sunk more than 40% in the last year, pushing out many would-be buyers.

Homes that sold for $313,200 or less were the most competitive type of home nationally, but nowhere did inventory in that price range drop more than in the Golden State, according to a report released Thursday by real estate website Zillow.

In some parts of the Inland Empire, the supply of homes on the market is down to about a month’s worth, real estate agents say. Economists typically consider a six-month supply to be a healthy market.

The decline in homes for sale is frustrating many people interested in jumping into the housing market — home shoppers tantalized by the drop in prices and record-low mortgage interest rates.

Larry Rogers of Riverside, for instance, began the year with what he felt was a solid path toward retirement: buy two homes in the Inland Empire, pay them off before his golden years and live, in part, off the rental income. With a contractor’s license, a well-established business, plenty of cash and a high credit score, financing a home is not a problem, he said. The problem is finding one.

Rogers said he has gone into escrow twice and lost out both times, as other buyers have been willing to pay more. He has been shocked by competing investors paying $75,000 to $100,000 more than what he has estimated some homes to be worth.

“The big speculators have pooled all their money; they invest and they bid them up,” he said. “It’s crazy. Some of them, they pay pretty close to what it’s actually probably worth fixed up, but then by the time they put money into it, they are going to be $50,000 to $60,000 over.”

Behind the inventory squeeze is a sharp decline in the number of foreclosed homes on the market.

Foreclosure filings fell in September to the lowest level in more than five years, according to a report by RealtyTrac released Thursday. Substantial decreases in California and some other states hard hit by the collapse of the housing bubble helped reduce filings to 180,427 last month, down 7% from August and 16% from a year earlier. The last time filings were that low was in July 2007.

Demand in the West for homes has heated up, according to the Federal Reserve’s beige book of economic activity for the 12th District in San Francisco.
“Although still well below its historical average, the sales pace for new and existing homes picked up further in many areas,” the Central Bank reported.

“Contacts noted that pent-up demand may spur additional gains in coming months. Contacts reported a decrease in the inventory of available homes and a noticeable increase in construction activity.”

According to the Zillow report, Central Valley markets have seen the biggest drops in the supply of lower-cost homes, with inventory down 59.7% in Fresno and 55.4% in Sacramento. San Francisco’s supply fell 53.2%. In Los Angeles, supply was down 45.1%. Nationally, the bottom tier of homes for sale has had a decline of about 15.3%.

Principal Relief for Stressed Homeowners

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For information about Southern California real estate in Malibu,  and exclusive Beverly Glen CA homes, call Bob Cumming of Keystone Group Properties at 310-496-8122.

Principal Relief for Stressed Homeowners
By Kathleen Pender

A limited number of underwater homeowners in California will soon be able to get principal reductions of up to $100,000 apiece on Fannie Mae and Freddie Mac loans through the federally funded Keep Your Home California program.

The federal agency that oversees Fannie and Freddie has steadfastly refused to allow permanent principal reduction on loans they own or guarantee on the grounds it would cost taxpayers money. But in mid-September, Fannie and Freddie told servicers they could immediately begin accepting money for principal reductions from programs financed by the U.S. Treasury’s Hardest Hit Fund, including Keep Your Home California.

Fannie’s and Freddie’s willingness to accept money from Hardest Hit Funds does not signal a change of heart on the part of their regulator, the Federal Housing Finance Agency. Lest anyone get the wrong idea, Freddie says it will allow funds to be used for “principal curtailment.”

“We don’t consider it (principal reduction) in a way that is commonly understood. We are not writing off some percentage of the amount owed. We are simply accepting funds … through this program to allow it to be applied to unpaid principal or arrearage,” Freddie Mac spokesman Brad German says.

Fannie Mae spokesman Andrew Wilson says, “This in fact for us is not a principal reduction. It’s a principal payment. It’s as if your grandmother wanted to give you $50,000 to apply to your mortgage. In this case, the grandmother, as it were, was the Hardest Hit Fund.”

Taxpayer funded

That may be, but the money is still coming from taxpayers. The fund was set up in 2010 to provide $17 billion in homeowner assistance to 18 states hardest hit by the housing crisis.

The California Housing Finance Agency set up four programs under the Keep Your Home name to distribute California’s share – $1.9 billion. It allocated $772 million to principal reduction – enough to help an estimated 9,000 borrowers.

It could shift money from the other three Keep Your Home programs to provide more principal reductions, program director Diane Richardson says. The other programs make mortgage payments on behalf of unemployed and delinquent borrowers and provide transition assistance to homeowners who are going through a foreclosure or short sale.

To qualify for principal reduction in California, homeowners must live in the home, owe more than it is worth, be of low-to-moderate income, and be delinquent or have some hardship that puts them in imminent risk of default.

The balance on the first mortgage cannot exceed $729,750. Other rules apply, but there is no asset limitation. The maximum reduction is $100,000 per homeowner.

For eligible homeowners, the program will reduce mortgage payments to less than 38 percent of household income by reducing principal to between 105 and 140 percent of the home’s value.

The goal is to provide a sustainable mortgage payment, not to provide instant equity. For that reason, the principal reduction is structured as a loan that is forgiven after five years.

Five-year plan

If a homeowner gets $100,000 in principal reduction and within five years sells the home for a profit or refinances and takes cash out, the profit or cash-out – up to $100,000 – must be used to repay the loan. After five years, there is no repayment requirement.

Under the original rules, servicers had to reduce principal by $1 for every $1 in principal reduction provided by the program, but few write-downs got done.

In May, the program eliminated the matching requirement and since then more servicers have taken part. To date, 2,511 homeowners have received principal reductions totaling $185.6 million – or roughly $74,000 apiece.

Fannie and Freddie say the elimination of the matching requirement allowed them to participate in the principal reduction program, but servicers are still gearing up to accept the payments.

“GMAC is on board, they are processing manually,” Richardson says. “I think BofA will be on board in early November.” She says the other large servicers have agreed verbally to accept the payments but couldn’t say when.

Bank of America’s program

BofA “is preparing to launch a new Hardest Hit Fund recast program for underwater customers in November,” BofA spokesman Rick Simon says. “This program provides a one-time contribution through the Hardest Hit Fund to eligible customers to reduce their loan balance.

“Monthly payments are recalculated based on the new lower balance. There is no change to the mortgage rate or term.” He says Fannie and Freddie loans will be eligible for the recast program, but state housing finance agencies will control eligibility, application and approval.

Wells Fargo spokesman Tom Goyda says, “We continue to work through the details of how Keep Your Home California funds would be applied to the principal on loans controlled by Fannie Mae and Freddie Mac, but are not yet able to do principal reduction modifications on Fannie and Freddie loans through the program.

“We have participated in a Nevada program that allowed borrowers to apply some of that state’s Hardest Hit Funds to reduce the balance of a loan as part of a Harp refinance.”

The Federal Housing Finance Agency says it has not changed its stance against permanent principal reductions. “Under the California program, the Hardest Hit Funds are paying off some amount of the outstanding loan balance; Fannie Mae and Freddie Mac are not reducing principal and are not sustaining any losses,” agency spokeswoman Corinne Russell says.

In contrast, principal reductions under the Home Affordable Mortgage Program “would have resulted in substantial losses to both companies, both in the form of reduced principal and also from the infrastructure and systems costs.”

California Home Prices Rise while Overall Sales Fall

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Keystone Group Properties services buyers and sellers of coastal Southern California real estate in Los Angeles.   We also offer Beverly Hills real estate and homes in La Jolla.  For information, call Bob Cumming of Keystone Group Properties at 310-496-8122.

California Home Prices Rise while Overall Sales Fall

SAN DIEGO — California home prices rose in September to a four-year high as the supply of properties for sale remained tight, according to surveys released Monday.

The median price for new and existing houses and condominiums in California reached $287,000, up 15.3 percent from $249,000 in September 2011, DataQuick said. The median rose $6,000 from August to reach its highest level since $301,000 in August 2008.

There were 34,453 homes sold in September, down 2.7 percent from 35,404 last year, DataQuick said. There were fewer business days this September compared with last year, explaining at least part of the first annual decline in 14 months.

The California Association of Realtors reported that buyers faced slimmer pickings.

The broker association’s index of unsold inventory stood at a 3.7 months in September, down from 5.3 months a year earlier. The figure represents how long it would take to sell all existing single-family homes in California at the current sales clip. Supply in a normal market is considered to be six to seven months.

The supply of foreclosed properties continued to dwindle, helping lift the overall sales price because they tend to sell at steep discounts. DataQuick said 17.7 percent of existing homes sold in September were in foreclosure during the previous year, down from 33.8 percent during the same period last year and 58.5 percent in February 2009.

The September surveys show sales were strongest in more expensive coastal areas, while inland regions like the Central Valley and Southern California’s Inland Empire lagged.

The median price for new and existing houses and condominiums in the San Francisco Bay area reached $429,000, up 17.5 percent from $365,000 last year, DataQuick reported. The median price rose $19,000 from August to its highest level since $447,000 in August 2008.

There were 6,850 homes sold in the nine-county Bay area last month, up 1.5 percent from 6,749 last year.

Only 13.9 percent of Bay area homes sold last month had been foreclosed upon in the previous year, down from 25.4 percent a year earlier and 52 percent in February 2009.

DataQuick reported Friday that the median price for new and existing houses and condominiums in Southern California reached $315,000, up 12.5 percent from $280,000 in September 2011. The median rose $6,000 during the month to its highest level since $330,000 in August 2008.

There were 17,859 homes sold last month in the six-county region, a 1.6 percent drop than the same month last year.

Associated Press

Laguna Niguel CA homes for sale

Home Prices Rise for Fifth Month in a Row

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Home Prices Rise for Fifth Month in a Row

NEW YORK (CNNMoney) — The housing market picked up more momentum in August, as the average home price for 20 major cities jumped 0.9%, according to the S&P/Case-Shiller home price index.

The increase marked the fifth consecutive month of gains for the index with all but one city, Seattle, recording month-over-month price increases.
“The sustained good news in home prices over the past five months makes us optimistic for continued recovery in the housing market,” said David Blitzer, spokesman for S&P.

The Case-Shiller report is one of many gauges of housing market health that has turned upbeat in recent months. New and existing home sales have been stronger, inventory of homes for sale has fallen and developers have stepped up building activity.

Slow improvement in the national economy has also boosted the housing market, as have record low mortgage rates. The rates for a 30-year loan have stayed below 3.7% since May. Combined with home prices that are still about a third less than they were when they hit their peak, these record-low rates have made home buying very affordable.

Related: Obama’s housing scorecard

Of the cities S&P’s index covers, Phoenix has roared back the fastest, with a whopping 18.8% year-over-year gain in August. That marks the fourth month in a row of double-digit price hikes. Detroit prices rose 7.6% over the past 12 months and Miami’s grew 6.7%.

Mike Larson, a financial analyst with Weiss Research, remains cautious about the outsized gains in Phoenix and some Florida markets. Much of the return represents “a resurgence in investor demand,” he said. Investors now represent about 27% of the home purchases in the market, according to data from the National Association of Realtors.

La Jolla CA homes for sale

 

Wells Fargo Sends Refunds to Some FHA Mortgage Customers

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For information about luxury coastal properties in Southern California Los Angeles real estate, Orange County beach homes and great properties in Beverly Hills,  call Bob Cumming of Keystone Group Properties at 310-496-8122.

Wells Fargo Sends Refunds to Some FHA Mortgage Customers

The bank says the customers paid unnecessary fees for their loans. If customers cash the checks, they can’t later sue Wells Fargo. Your take? There’s a catch: If you cash the unsolicited check, you can’t sue later.

Thousands of Wells Fargo & Co. home loan customers recently received a surprise in the mail: refund checks from the big bank, along with letters saying they had paid unnecessary fees for their mortgages.

The unsolicited offers of thousands of dollars arrived with a catch — if the borrowers cash the checks, they can’t later sue the No. 1 U.S. home lender. The San Francisco bank said in the letters that borrowers were put into more expensive loans when they could have qualified for cheaper ones.

Analysts said the letters sent to potentially 10,000 Wells Fargo borrowers were a way for the bank to sidestep further litigation over “steering” customers into unfavorable loans — allegations that the government has made about certain Wells Fargo operations in the past.

It’s one in a long series of legal troubles for major mortgage lenders, the five largest of which agreed in February to a $25-billion settlement of accusations that they “robo-signed” foreclosure affidavits and otherwise abused distressed borrowers. Mortgage investors have barraged them with lawsuits over defaulted loans, and the government also recently filed separate complaints against banks including Wells Fargo, JPMorgan Chase & Co. and Bank of America Corp.

“It sounds like they either found some problems themselves or the regulators discovered them and told them to get things fixed,” said Paul J. Miller, an analyst who follows Wells Fargo for Friedman, Billings, Ramsey & Co.

Wells Fargo’s mailed refunds involve government-backed FHA mortgages made from 2009 through 2011. These loans are often made to borrowers with shaky credit or those who can’t come up with the 20% down payments required for conventional loans.

Though they require as little as 3.5% down, the FHA loans are also more expensive because they require borrowers to pay steep insurance payments to protect against a default. However, in this case, the borrowers actually had the down payments or home equity needed to get a conventional loan, bank officials said.

Wells Fargo spokeswoman Vickee Adams said the problematic FHA loans turned up as the bank reviewed operations at two mortgage channels it has closed down: a subprime lending arm, Wells Fargo Financial, and a wholesale arm that made loans through independent brokers.

The bank previously paid a combined $260 million to settle Federal Reserve and Justice Department allegations that its lending, pay and sales quota practices in the home lending business caused borrowers to be placed into higher-cost mortgages. It didn’t admit wrongdoing.

The loans were written as Wells Fargo surged to become the No. 1 originator of loans insured by the FHA. A bank mortgage spokesman said 528,000 Wells borrowers received FHA loans during the years 2009 through 2011, of which fewer than 2%, or 10,560, were offered refunds. He wouldn’t say exactly how many refunds the bank has offered.

Mortgage professionals say banks often make more money packaging FHA loans into mortgage bonds than they do on traditional loans because of the government guarantee. And at the time in question, loan officers often made higher commissions on FHA loans.

The refunds came to light when the Los Angeles Times obtained a copy of one of the letters. The bank never announced them publicly.

Pomona resident Eric Murrillo-Angelo received a $6,676.89 check last month in a letter saying he “may have qualified for a conventional conforming mortgage” instead of the FHA loan he got in March 2010.

“I was really excited,” he said, “although maybe a little leery at first.”

Wells Fargo said a traditional loan would have had about the same interest rate as the FHA loan, but Murrillo-Angelo would not have been charged insurance premiums and higher appraisal and processing fees.

The refund included $4,847.50 for an upfront premium, $1,154.20 in annual premiums and $355 in increased closing costs, plus interest.

“You should understand that by cashing the enclosed check, you agree to release Wells Fargo … from any and all claims relating to Wells Fargo’s origination of a more expensive mortgage loan than the loan for which you may have qualified,” a bold-faced paragraph read.

After thinking the offer over for about a week, Murillo-Angelo cashed the check.

Loan officers were able to earn a commission of about 2.5% of the loan amount for FHA-backed mortgages in 2009, 2010 and part of 2011, said Fred Arnold, past president of the California Assn. of Mortgage Professionals. That compares with 1.75% commissions for conventional loans, he said.

For example, a $350,000 FHA mortgage would yield an $8,750 commission compared with $6,125 for a conventional loan.

“That meant that some unethical loan officers could potentially steer borrowers to the wrong loan,” said Arnold, who noted that regulatory reforms that took effect in 2011 make it impossible to pay a loan officer more for originating one type of loan rather than another.

A Wells Fargo spokeswoman declined to comment directly about the firm’s compensation practices. She instead provided a general statement of the bank’s policies: “We work hard to offer the appropriate loan options so that every borrower receives the appropriate loan based on his or her credit characteristics and personal circumstances and our compensation reflects that commitment,” the statement said.

Meanwhile, the bank — along with others on Wall Street — packaged its loans into mortgage-backed securities for sale to investors. Loans that met certain standards received a guarantee from government-supported housing agencies Fannie Mae and Freddie Mac.

FHA loans, however, received a higher premium when packaged into bonds. They receive a guarantee by the Government National Mortgage Assn., the federal agency known as Ginnie Mae. These securities are a notch safer for investors than Fannie or Freddie bonds, and that made them more appealing for big institutional investors like sovereign wealth funds or mutual funds.

Although the federal government has not pursued criminal prosecutions of bankers at the heart of the mortgage operations that collapsed in 2007, it has stepped up civil lawsuits against the largest originators and securitizers of home loans during the boom.

This month’s federal suit against Wells Fargo was filed by the U.S. attorney’s office in Manhattan, which has brought six mortgage-fraud lawsuits against big banks in the last 18 months. The latest, filed Wednesday, seeks more than $1 billion from Bank of America for allegedly flawed loans that its Countrywide Financial Corp. unit sold to Fannie and Freddie.

By E. Scott Reckard, Los Angeles Times, October 26, 2012, 6:09 p.m.

Possible End of Mortgage Tax Deduction Worries Homeowners

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For information about buying and selling luxury real estate in Los Angeles County, coastal Orange County homes, and La Jolla real estate, call Bob Cumming of Keystone Group Properties at 310-496-8122. Keystone Group Properties services Southern California luxury real estate market.

Possible End of Mortgage Tax Deduction Worries Homeowners
By Jack Katzanek

Tax reform has been a frequent campaign issue this year, with tax cuts enacted under former President George W. Bush scheduled to expire at the end of this year.

Among the many changes discussed is one beloved by homeowners across the country — the mortgage interest deduction.

If homeowners were no longer allowed to deduct the interest they paid on a mortgage — the only significant deduction for many — it might convince thousands that their best move is to walk away from their homes, experts say. It could also curtail discretionary spending and hurt the retail sector of the economy.

No one knows how large a role tax deductions on mortgage interest will play in the Washington debate as Congress tries to deal with spending and taxes. Experts predict it would be unlikely that any new policy would wipe out the deduction entirely in one year. The more likely scenario would be a phased-in program that starts with expensive houses.

According to a recent Pew Research Center study, the best definition of middle income is about $68,000 for a family of four. Most at that level might contribute something to their church or write a modest check to the Red Cross but are not likely to accumulate enough charitable contributions to make a big difference at tax time.

“I don’t know why they took away the other deductions, like the car notes and the credit cards,” Ronald Newton, a 72-year-old retired shipyard foreman in Menifee, Calif., said, referring to tax code revisions made in the mid-1980s. “About the only thing I have left is my mortgage.”

According to the congressional Joint Committee on Taxation, an estimated 40 million homeowners take the mortgage interest deduction every year, and the average savings is about $600. The mortgage deduction shrinks the federal government’s coffers by $82 billion a year.

Richard Green, director of the Lusk Center for Real Estate at the University of Southern California, testified last year before the U.S. Senate Banking Committee that the deduction, which has been around for almost 100 years, is outdated and does not encourage homeownership.

What it does is encourage debt and spur consumers to purchase bigger houses than they would otherwise. Green told senators a tax credit for buyers would go further in getting first-time buyers into homes.

Research economist John Husing said that many people are still making regular payments on a house purchased for well more than it is worth now and have little cash left over after writing that check.

“If you take away the mortgage interest deduction you’d take away part of their income, and we’re not talking about very wealthy people,” Husing said.
Taking a deduction for mortgage interest is considered an important part of many taxpayers’ financial plan, said Jamil Dada, vice president for investments at Provident Financial Holdings in Riverside, Calif. Frequently he advises clients not to pay down extra mortgage debt and use excess cash to take care of other payments.

The reason, Dada said, is that credit cards and other debt are not tax-deductible.

“It’s more beneficial to have cash flow,” Dada said.

Dada, a ranking official of the National Association of Workforce Boards, said it is unlikely the deduction would be eliminated outright because hitting middle-class taxpayers that hard would be politically dangerous.

Green said his guess is that Congress would look at mortgages worth $1 million first and possibly drop that level down over a period of years.
“It’s one thing to look at an ideal policy, and another to get there,” Green said.

Santa Monica CA Showcase of Homes

 

Two-Thirds of Americans with Mortgages Pay 5% Interest or Higher

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For information about coastal real estate in Los Angeles County, Orange County, homes in La Jolla and Mission Beach, call Bob Cumming of Keystone Group Properties at 310-496-8122.  Keystone Group Properties services buyers and sellers of Southern California luxury homes–Malibu to Newport Beach, San Juan Capistrano to distinctive Beverly Hills, Beverly Glen and Bel Air properties.

Two-thirds of Americans with Mortgages Pay 5% Interest or Higher

By Alejandro Lazo, Los Angeles Times

Record-low interest rates are out of reach for many homeowners, and a big reason is that millions are underwater. Obama and others are trying to assist them.

U.S. interest rates are at rock-bottom levels, but that’s not helping most Americans with mortgages. And those high-cost loans remain a big drag on the economy, experts say.

Roughly 69% of American homeowners with mortgages at the end of the second quarter had rates of 5% or higher and about 33% of them had rates above 6%, according to detailed mortgage data provided to The Times by Santa Ana research firm CoreLogic.

Meanwhile, the average 30-year fixed-rate mortgage has been below 4% every week but one this year, and the average 15-year fixed-rate mortgage, popular among buyers looking to refinance, has been below 3% since the last week in May, according to Freddie Mac.

Several factors may be keeping homeowners from securing lower mortgage rates, economists said, including battered credit, insufficient income, stricter lending standards and the costs of refinancing.

But a major aftershock from the housing crisis itself also remains a big stumbling block: the significant chunk of homeowners who are underwater and unable to get new loans.

For underwater borrowers — those who owe more than their homes would bring if sold — the CoreLogic data showed that 84% had loans with interest rates above 5%. Half of underwater borrowers had interest rates above 6% at the end of the second quarter.

Economists and policymakers see a big opportunity, arguing that getting borrowers into lower-cost loans would be an effective way of stimulating the economy — freeing up some income for those who are probably struggling the most to pay their mortgages. Refinancing could also help underwater borrowers by allowing them to plow more cash back into their homes and reduce principal.

To that end, the Federal Reserve last week unveiled big new steps to further push down mortgage interest rates and spur the housing market.

Under the Fed’s stimulus plan, the central bank will buy $40 billion a month in mortgage-backed securities, with Chairman Ben S. Bernanke saying the intent is to “increase downward pressure on interest rates,” particularly mortgage rates, which should encourage more home sales and refinancing.
But economists said those actions are likely to be limited as long as low rates remain out of reach for many homeowners.

“The constraint that is keeping people out of the housing market is absence of equity,” said Richard Green, director of the USC Lusk Center for Real Estate.
“The drop in house prices means that many borrowers are underwater on their houses,” he said, “and high unemployment has prevented potential first-time buyers from accumulating down payments.”

The vast majority of borrowers with negative equity, about 84.9%, continued to pay their mortgages in the second quarter, CoreLogic reported last week.
Nevertheless, underwater loans remain an obstinate barrier to economic growth because people who remain stuck in their homes are often unable to pursue new jobs and other opportunities elsewhere. These borrowers are also higher risks for foreclosure.

Helping spur mass refinancing with new government policies would not only help underwater households but also get the economy moving again, economists say.

“It has very strong macroeconomic effects,” said Joseph E. Stiglitz, a Nobel Prize-winning economist and professor at Columbia University. “The irony is the people who need the help the most have not been helped — the people who are underwater.”

Changes this year to the Home Affordable Refinance Program for underwater borrowers with Fannie Mae and Freddie Mac loans have led to a 95% increase in participation in the program through the first half of the year.

Stiglitz is supporting legislation by Sen. Jeff Merkley (D-Ore.) that would expand refinancing to borrowers who have privately owned mortgages.
Other Senate bills also aimed at expanding refinancing opportunities and reducing costs are being sponsored by Sens. Dianne Feinstein (D-Calif.), Barbara Boxer (D-Calif.) and Robert Menendez (D-N.J.).

These bills are a priority for the Obama administration, but it’s not clear whether the legislation will go anywhere in a divided Congress less than two months before the presidential election.

Although refinancing may be out of reach for many borrowers, the big banks are making big profits from refinancing the mortgages of those who do qualify.

The mortgage industry consolidated after the housing bust, and the banks left standing are charging higher interest rates than possible if the market were more competitive, given how low borrowing costs for banks are, experts said.

“The new reality in the mortgage market is that not only is there more demand for mortgages out there, but also the new reality is that lenders are making at least half, if not a third of the mortgages they made during the mortgage boom,” said Guy Cecala, publisher of Inside Mortgage Finance. “They need to make more money on each loan.”

Personal Finance: Is a Mortgage Refinance Right for You?

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For information about luxury Los Angeles real estate and coastal Orange County and San Diego beach homes, call Bob Cumming of Keystone Group Properties at 310-496-8122. Keystone Group Properties services distinguished buyers and sellers of Southern California real estate Newport Beach, Manhattan Beach, and Hermosa Beach, to Dove Canyon, Ladera Ranch, San Juan Capistrano, La Jolla, and Redondo Beach, Marina del Rey, Santa Monica, Venice, Malibu, Irvine as well as exclusive Beverly Hills properties.

Personal Finance: Is a mortgage refinance right for you?

By Claudia Buck Published Sunday, Aug. 26, 2012

They’re knocking on the lender’s door. As mortgage rates have tumbled to all-time lows, demand for refinancing has fired up homeowners nationwide.
And it’s not just those drowning in underwater mortgages. With rates for 30-year mortgages hovering below 4 percent since last October, all kinds of homeowners are trying to get their monthly mortgages reduced, say lenders and mortgage experts.

“It’s huge. It’s buried our staff and every other lender in town,” said O.J. Vallejo, mortgage consultant with First Priority Financial in Sacramento, who said his three-person staff has been working six days a week the last four months.

Nationally, refinance volume “has been running at a three-year high in recent weeks, as mortgage rates remained extremely low,” Mike Fratantoni, vice president of research for the Washington, D.C.-based National Mortgage Bankers Association, said in an email. “With refinances, the No. 1 driver is interest rates.

Along with months of record-breaking low interest rates, other factors are driving the refinancing boom: a competitive lending market and changes in some federal refinancing programs for struggling homeowners.

It’s prompted many established homeowners with old-school, high-interest mortgages to decide it’s time to refi.

Neil and Louise Mueller, longtime Land Park residents, were encouraged by their financial planner to look into refinancing their mortgage last spring.

“It was almost too easy,” said Louise, an American River College counselor, who said the process, including a home appraisal, took about three weeks.
The result: Their 30-year, fixed-rate mortgage dropped from 5.12 percent to 3.87 percent, which lowered their monthly payment by about $100. They also pulled out about $11,000 for savings and for a family cruise overseas with their two adult children.

Why refi?

Generally the primary reasons for refinancing a mortgage are to:

  • Lower monthly mortgage payments.
  • Eliminate the unpredictability of an adjustable-rate mortgage by switching to a fixed rate.
  • Free up home equity cash for home improvements, college costs or other expenses.
  • Shorten the loan term, say from a 30- to a 15-year mortgage, which can save thousands in interest payments.

Saving money is usually the biggest incentive.

Calling the low rates “historic,” John Winters, a wealth adviser with Morgan Stanley Smith Barney in Sacramento, said he recently advised all his clients to consider a refi. Especially for those “finding it difficult to live with” the anemic returns on low-interest CDs and bonds, freeing up monthly income by refinancing can make sense, he said.

Should you refi?

It’s a personal calculation that varies. Generally, you look at how long you plan to be in your current home and whether the upfront costs outweigh the monthly savings.

“If you’re not going to be in your home another one or two years, you’re not going to recoup the closing costs,” said Greg McBride, senior financial analyst with Bankrate.com.

“Everybody’s situation is different,” said mortgage consultant Vallejo. “There’s no right or wrong answer. The only answer is what works for your family.”

Some couples who refinance are looking ahead to retirement.

“Paying off the mortgage is now back in vogue,” Vallejo said, especially for those in their late 40s or 50s, who want to be mortgage-free at retirement age.
That doesn’t necessarily mean they’ll lower their monthly payment by refinancing. For example, a couple with a $250,000, 30-year loan at 5.25 percent three years ago would have been paying about $1,380 a month. If they refinanced their current balance to a 20-year, 3.5 percent loan today, their payments would increase slightly, to $1,405.

“Their payment goes up $25, but they just took seven years off their mortgage,” said Vallejo. “That’s almost $116,000 in interest. That’s huge.”
On the other hand, younger homeowners with kids might choose a 30-year mortgage when they refinance because they need the lower monthly cash flow to save for college or pay off debt. Or those with adjustable mortgages due to reset to higher rates may want to lock in single-digit rates.

What you’ll pay

The mortgage rate you’ll be offered depends on numerous factors, including: your credit score, loan amount, loan-to-value ratio (how much you owe compared to the home’s appraised value), length of your loan term and type of home (rates on condos, rentals and vacation homes are typically higher.)
Lots of mortgage ads promise “no-cost” loans. According to some lenders, that’s a misnomer.

“It really means ‘no cash out of pocket,’ ” said Vallejo. “There’s no free lunch; somebody is paying for it.”

Typically, in a no-cost loan, all closing costs and pre-paid items (such as appraisal fees and credit checks) are paid by the lender and built into the interest rate.

Shop around

It pays to compare quotes from several lenders because they offer different rates and fees. Start with your current lender or sit down with a local loan originator. You can also do refinance comparisons online, using mortgage calculators at sites like Bankrate.com or those of individual banks and lenders.

If you’re a struggling homeowner, ask your lender about changes in the federal Home Affordable Refinance Program and FHA refinance programs that have made refinancing options more plentiful.

Bankrate.com’s McBride said the refinance market is particularly “compelling” in California, where home prices have bottomed out and there are lots of competitive lenders.

But don’t focus solely on interest rates, said McBride. When comparing refinance quotes, look at appraisal fees, title searches and closing costs. And be sure you’re comparing the same loan terms, not a 15- and a 30-year, for instance.

Good standing

Be sure the lender is in good standing.

Tom Pool, spokesman for the state Department of Real Estate, said state and federal licensing standards for mortgage originators are much stricter than they used to be, which “has weeded out most of the bad actors.”

Nevertheless, you can check a company’s or individual’s licensing status at the state Department of Corporations (www.corp.ca.gov) or the Department of Real Estate (www.dre.ca.gov).

Pool also recommends online searches at sites like the Better Business Bureau (necal.bbb.org) to see if the lender has been linked to bad practices or scams.

Too late?

Even though interest rates have inched upward in the last month, you’re probably not too late.

“It’s not worth losing any sleep over,” said Bankrate’s McBride. “Given the European debt crisis, (interest rates) can’t rise appreciably.”
On the other hand, the national mortgage bankers group predicts mortgage interest rates will “drift slowly higher” next year, leading to significant declines in refinance activity.

Above all, make sure a refinance is right for your situation.

“It’s a significant financial transaction,” said Edward Achtner, an Oakland-based regional sales executive for Bank of America. “If buying a home is the largest transaction a consumer embarks upon, a refinance is a close second. Do the research, evaluate the different options. Take your time and do not be pressured into making any decisions.”

Editor’s note: This story was changed Aug. 29 to correct the length of the Muellers’ mortgage.

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Housing on Mend but Full Recovery Is Far Off

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Housing on Mend, but Full Recovery Is Far Off

Today’s rising prices have less to do with surging demand—though hard-hit markets in Arizona, California, and Florida have seen significant investor appetite for distressed homes—than with declines in the number of properties for sale.

Inventories of “existing” homes—that is, ones that haven’t just been built—are at eight-year lows. New-home inventories are lower than at any time since the U.S. census began tracking them in 1963. In some cities, there are one-third fewer homes listed for sale than a year ago.

Here’s why prices are rising: There are more buyers chasing fewer homes, and—critically—fewer distressed homes, such as foreclosures. Low inventory is one sign that housing markets may have reached a turning point because many want to buy at the bottom but few want to sell.

There are several factors behind the low inventory. Banks have slowed their pace of foreclosures. Investors have snapped up discounted properties that they can convert into rentals. Home builders, struggling for several years to compete on price with foreclosed properties, have added little in the way of new supply.

For now, price gains are concentrated at the low end of the market, where inventory declines have been most dramatic. “The market is really drying up in these seemingly distressed markets really quickly,” said Michael Sklarz, president of research firm Collateral Analytics. “They really are scratching for properties to sell.”

Low inventory is benefiting home builders, as buyers grow frustrated by bidding wars sparked by a shortage of move-in-ready housing. “People can’t find inventory that they want, so they say, ‘I’m just going to buy the house down the block that’s brand new. I don’t have to go through the whole torture,’ ” Mr. Sklarz said.

Housing’s progress is good news for the economy. Residential investment has now contributed to U.S. economic output for the past five quarters, which hasn’t happened since 2005. In other words, housing is no longer a drag, though it is packing far less of a punch than it normally does at this point in the economic cycle. Rising prices also could help turn around consumers’ fragile psychology, an unpredictable but important factor that can fuel more sales.
than their homes are worth, and even more—about 45% of all homeowners with a mortgage, according to data firm CoreLogic Inc.—have less than 20% in equity. That means they don’t have enough money to make a large down payment and pay their real-estate agent’s commission to buy a comparable house.

Large price declines have left cities without what historically has been the most active segment of the home-buying market: families looking to trade up and retirees seeking to downsize. That leaves many markets relying on investors and first-time buyers, who are most sensitive to rising prices and mortgage rates. Ironically, prices are rising fastest in markets that have the most underwater borrowers because so few homes are for sale.

While low inventories have helped firm up prices, they could also soon lead to year-over-year declines in sales volumes because there aren’t enough homes on the market to sustain the current sales pace.

Consider Phoenix. Home prices through June were up by 17% over the past year, the best increase among the nation’s big cities. But home sales in July fell 8% from a year ago, amid a drop in supply of more than 25%, according to a report from Mike Orr of Arizona State University.

Jon Mirmelli, a local real-estate investor, said, “Buyers aren’t happy with what they see, and they’re staying on the sidelines.”

There are other reasons for caution. Banks are still stingy with credit. Many would-be buyers have too much debt to qualify for a mortgage.

A large overhang of distressed mortgages ultimately could drive more homeowners to sell or push banks to accelerate foreclosures. This “shadow inventory” looks as if it won’t be dumped on the market in a way that would trigger deep price declines, but it would probably keep a lid on any swift gains.

Jobs and wages also aren’t growing fast enough to sustain big rises in home prices. Recent gains may be less indicative of a strong recovery and instead point to how prices in some markets “overcorrected,” bringing in investors who will step back as prices firm up.

Others worry that mortgage rates, which are down by a full percentage point from one year ago, are temporarily boosting sales and that housing demand will slump once rates rise. Compared with a year ago, mortgage rates allow borrowers to take out about 12% more in debt without increasing their monthly payment.

The changing debate over housing underscores the sector’s tentative progress. Earlier this year, the question was whether housing would hit bottom this year or next. Now, it is “about how strong any recovery will be, how long it will last, and whether it will reach every neighborhood in America,” said Glenn Kelman, chief executive of Redfin, a real-estate brokerage.

An important test comes later this year. In each of the past three years, prices rose in the summer but gave up all those gains and more in the winter, when sales traditionally slow. This year could be different because the supply of homes isn’t piling up.

Absent a shock to the economy, housing is on the mend. But it will be a long time before it returns to normal.

Write to Nick Timiraos at [email protected]

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