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Lenders Granting More Second Mortgages as Home Values Rise

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Lenders Granting More Second Mortgages as Home Values Rise
An increase in second mortgages reflects major lenders’ growing confidence that the real estate market has finally made the turn to recovery.
By Kenneth R. Harney

WASHINGTON — If you have a pressing need to raise some cash, here’s some good news: Rising home values are encouraging lenders to revive a product that imploded during the housing bust years — second mortgages.

Researchers at Equifax, one of the three national credit bureaus, say total outstanding balances of second home mortgages at banks rose in the latest month for the first time in nearly five years. Though the blip was relatively small — about three-tenths of a percent — analysts say any increase in the amount of second mortgages is a bellwether event, indicating that major lenders are showing growing confidence that the real estate market has finally made the turn to recovery. The Federal Reserve recently reported that American homeowners’ equity stakes rose $406 billion in the second quarter, a 5.9% increase over the previous quarter and the highest it has been since 2008.

Second loans, which include fixed-payment mortgages as well as floating-rate home equity lines of credit, put the bank in second position in the event of a foreclosure. Say you have a house worth $250,000 with a $200,000 first mortgage and a $20,000 second mortgage. The proceeds of any foreclosure would initially be used to pay off the lender in the first position. Any remainder would pay off the holder of the second lien. Because lenders assume a “junior” position when they make a second loan, these mortgages are generally considered to be higher risk and carry higher interest rates and fees than a first.

Second loans can be used for a variety of purposes — paying for kids’ college tuition, injecting capital into a small business, financing a home improvement and paying off credit card debts are among the most popular.

Equifax, which receives information from virtually every major bank and mortgage lender, compiles data on a variety of loan products. In its latest National Consumer Credit Trends study, it found that home equity lending appears to be rebounding fastest in New Mexico and California, where outstanding balances jumped 2.3%, along with Nevada (2.1%), Colorado (2%) and Florida (1.6%).

Increases in equity lending, said Amy Crews Cutts, Equifax’s chief economist, “are really a healthy sign” for the economy overall because in the years after the housing bust, many banks had little confidence that home prices were stable enough to lend against in second position.

Now when Cutts speaks with bankers, she finds them “pretty willing to do [second] loans when their customers need them — they’re much more open” than they’ve been in years. Though underwriting standards are tougher than they once were, banks are lending again, and they are experiencing smaller losses. In the most recent study, Cutts said, second mortgage write-off rates fell to just 2.7%, the lowest they’ve been since February 2008.

Second loans are “an important element” in Bank of America’s “customer relationship strategy,” said Matt Potere, home equity executive for BofA. “We expect growth to occur as market conditions continue to improve.”

James Chessen, chief economist for the American Bankers Assn., agrees. “It’s good news that finally there’s some upward movement” in home equity lending, he said.

But Chessen isn’t yet convinced that this is a long-term trend, in large part because of slow job growth and uncertainty about the economy. Also, notwithstanding Equifax’s finding that bank equity loan write-offs are down, Chessen’s own surveys indicate that delinquencies on home equity loans rose from 4% to 4.09% in the latest quarter.

Rate quotes and terms on home equity loans appear to reflect some of that uncertainty. A look at quotes on Oct. 5 at Bankrate.com showed that depending on how banks perceive local markets, rates can vary significantly.

For example, in suburban Maryland just outside Washington, D.C., Bank of America offers a $75,000 second mortgage at 6.34%, assuming that the borrowers have FICO credit scores in the 700 to 850 range — good to excellent — and a total loan-to-value ratio no higher than 80%. In Hawthorne, by contrast, the same loan size and criteria come with a 7.24% rate.

So be aware that while lenders are more willing to extend home equity credit, rates can vary depending on the location of the house, the loan size and your credit score.

Foreclosure Victims Buying Homes Again

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Foreclosure Victims Buying Homes Again
By Pete Carey

Do you qualify? Getting an FHA loan after a foreclosure

LIVERMORE — R.C. and Stacy Davis lost their condominium to foreclosure in 2009, a bad break that seemed destined to keep them from buying another home for many years.

Yet on Wednesday — only three years after their foreclosure — the couple signed the papers to buy a four-bedroom house in Livermore.

Their avenue to homeownership? A loan backed by the Federal Housing Administration.

“We’re as happy as can be,” Stacy Davis said.

The ability to get an FHA loan so quickly after a foreclosure could be welcome news to thousands of people who lost their homes during the housing bust. In the coming 12 months, about 22,000 Bay Area foreclosures will hit the three-year mark.

Fannie Mae and Freddie Mac make people wait seven years after a foreclosure, the FHA will approve loans after three years, providing the buyer has established good credit and the ability to pay the mortgage.

“There’s definitely a movement of folks who have had a foreclosure to re-emerge and re-engage in the market,” said Dustin Hobbs of the California Mortgage Bankers Association. He said brokers around the state have picked up on the trend.

“It helps the housing market,” said Guy Schwartz of CMG Financial in San Ramon, which handled the Davis’ mortgage.

The FHA, which is self-supporting, provides mortgage insurance for loans with low down payments and more flexible household income requirements. The Davis loan came with a 3.5 percent down payment plus required monthly mortgage insurance and a 3.75 percent interest rate on a 30-year loan.

“A FHA loan is a good option for those who can qualify,” said Paul Leonard, California director of the Center for Responsible Lending. And there couldn’t be a better time to try, he said.

“We are at near substantial price corrections,” he noted. That, and low interest rates present “kind of a historic opportunity if people can qualify,” he said.
But it’s not clear whether there’s a flood or a trickle of new borrowers with foreclosures in their recent past.

The FHA said it doesn’t have data on how many of the loans it insures involve people who are buying homes after a foreclosure or short sale.

Wells Fargo, the country’s largest FHA loan originator and servicer, said it doesn’t break out those loans. In the first six months of this year, Wells Fargo has made more than $73 billion in FHA-backed loans compared with $47 billion last year, spokesman Jim Hines said.

Mason McDuffie Mortgage in San Ramon is working with foreclosure victims.

“We are making loans and have made loans to people who have corrected their credit,” said Bill Godfrey of Mason McDuffie. “It’s nice to see.”

The borrowers are “people who waited three years, have a job and qualify,” Godfrey said. “They have their credit, have a job and things are looking better.

They may not be perfect … but that’s part of the way to move forward. Clearly there is some thawing in that area.”

Some listing agents complain FHA loans take a lot more time and work. “It’s a hard transaction to complete,” said Bob Barrie of Keller Williams in San Jose.

Barrie said he is listing a home next week in Santa Clara, and if there are multiple offers, a buyer with an FHA loan will be at a disadvantage.

The Davis’ journey from foreclosure to new home began in 2005 when they bought a condo in Concord for $262,000 at the peak of the market.

The couple’s interest-only, 100 percent-financed loan was a classic bubble product that became a formula for foreclosure during the housing crash.

To make things worse, the condo was in a rough neighborhood, said Stacy Davis, who is a special-education teacher at Mission San Jose High School in Fremont. Her husband is a senior producer for the Golden State Warriors.

They tried to sell the condo after their daughter was born, but no one wanted to buy it, Stacy Davis said. “We decided we’re going to try to stick this out. We owned it and we would make it work.”

So they remodeled, put in a new kitchen and molding.

Meanwhile, the neighborhood deteriorated. Shopping carts piled up on the sidewalk, she said. Graffiti blossomed on walls.

After their son was born, they tried a short sale and found a buyer. “Within a week, an upstairs bathroom pipe busted open and flooded the whole place — the new kitchen, the molding, all destroyed. So the buyer backed out,” she said.

Their condo in ruins, they moved to a rented house in Dublin and the bank foreclosed. Their credit rating dropped to about 500, but they were able to build it back to about 700.

“Within a year we were getting credit card applications. We didn’t feel like it affected our lives at all,” she said.

The purchase of the house in Livermore completed, the Davis family will begin moving in early next month.

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Report 32 %of Homebuyers are First-Timers

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Report 32% of Homebuyers are First-Timers
Lily Leung

Nearly one in three homebuyers in September were first-timers to the housing market, reported the National Association of Realtors on Wednesday in its Realtors Confidence Index.

That’s up from 31 percent recorded in August and down from the historical norm of 40 percent, based on research from the trade group. The share of first-time buyers peaked in 2009, when it was 50 percent.

The change can be explained by the stricter guidelines to obtain mortgages, lengthy short sales and a high rate of investor purchases that often involve cash, the report said.

“Unsuccessful first-time buyers typically continue their property search, sometimes making a number of bids before securing a property,” it continued to state.

Related: 6 tips for first-time homebuyers

Common complaints from Realtors include: “Banks are not lending,” banks are “taking way too long to give approval,” and banks are “requesting more paperwork and records.”

Locally, it appears first-time homebuyer interest is strong, if a recent workshop hosted by the San Diego Association of Realtors is any indication. Nearly 150 people came out to the Oct. 20 event to learn about financing options, types of sales and tips to be a more appealing buyer.

Figures from the National Association of Realtors are based on more than 3,400 responses from surveyed Realtors from Sept. 24 to Oct. 1

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New Home Sales Hit 2-Year High

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New-Home Sales Hit 2-Year High
By Chris Isidore @CNNMoney 10/24/12

NEW YORK (CNNMoney) — In another sign of a housing market recovery, new-home sales rose in September to the highest level in more than two years, according to a government report released Wednesday.

Sales sold at an annual rate of 389,000 homes in the month, according to the Census Bureau report, up 5.7% from the 368,000 sales pace in August. The last time sales were at this pace, in April 2010, they were being helped by a short-term home buyer’s tax credit.

How to Spot a Recovering Market

If key local sales indicators beat the U.S. averages (as they do in the areas below), your market is probably picking up — and prices will soon follow.

Metro Area % w/Drop in List Price  – Days Listed On Zillow  –  Sale-to-List Price Ratio

San Jose, Cal.  –  16.5% –  51 –  1.01

Cheyenne, Wyo.  – 21.7% –  88 –  1.08

Clarksville, Tenn.  – 30.6% –  103 –  0.98

National Average  – 30.7% –  113 –  0.97

NOTE: Zillow, based on June 2012 data.

This time, the new home market has been showing steady signs of improvement. The pace of home building hit a four-year high in September, according to a separate government report. The year-over-year sales improvement in September reached 27.1%.

The improvement in the market is part of a broader recovery in real estate, helped by a number of factors all coming together.

Mortgage rates are near record lows, pushed down by the Federal Reserve’s decision to buy $40 billion in mortgages to spur greater economic growth. The low rates, coupled with years of weak home sales, have resulted in affordable housing prices. Recently, home prices have started to rise, which is attracting buyers who were waiting for prices to bottom out.

There has also been a drop in unemployment, a positive development for people looking for mortgage loans.

Foreclosures have fallen to a five-year low, reducing the supply of distressed homes available on the market.

Related: A new housing boom

“All the housing data has taken a turn for the better,” said Steven Ricchiuto, chief economist for MSUSA. “Clearly mortgage rates at such a low level and what appears to be an increase in banks’ willingness to make loans has boosted activity off the lows.”

New-home sales are an important component of the nation’s overall economic activity. Not only do they require people working in construction to build the homes, but they also spur the purchases of appliances, carpeting and other furnishings.

Investment guru Warren Buffett said in a television interview Wednesday that the recent recovery in housing is one of the factors making him more optimistic about the U.S. economy.

Related: Is buying rental property now a sure bet?

The median price of a new home sold during the month was $242,400, down 3.2% from the August reading but up 11.7% from a year earlier. The slight decline in the month-over-month price reading was partly due to most of the increased sales coming from the South, a region that has lower prices on average.

The upward pressure on prices over the last year has been helped by the tight supply of new homes on the market. The report showed inventories fell to 4.5 months, the tightest supply of homes since August 2005, near the height of the housing bubble.

Related: Housing is indeed heading higher

The actual number of homes available for sale was little changed, with the tighter supply coming from the stronger sales pace.

“Home builders had previously been content to cut the pace of starts back dramatically and well below the pace of sales, thereby letting the level of new-home inventory decline,” said Michael Gapen, economist with Barclays Capital. “That inventory levels have stabilized… suggests that home builders are becoming more comfortable carrying these inventory levels.”

Still the pace of new-home sales is still far below the levels seen during the housing bubble of the last decade, when they topped 1 million every year between 2003 and 2006. And Ricchiuto said it’ll take a much stronger labor market before he’s convinced that housing has turned the corner.

“We have seen false starts before,” he said.

Still the report lifted the stocks of many leading home builders, with DR Horton (DHI), KB Home (KBH) and Toll Brothers (TOL), PulteGroup (PHM) and Lennar (LEN) all rising more than 1% in morning trading. All five of those stocks are up between 70% to 178% so far this year.

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Home Prices Rise in 81% of U.S. Cities as Markets Recover

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Home Prices Rise in 81% of U.S. Cities as Markets Recover
By Prashant Gopal – Nov 7, 2012

Prices for single-family homes rose in 81 percent of U.S. cities as the property market extends a recovery from the worst crash since the 1930s.

The median sales price increased in the third quarter from a year earlier in 120 of 149 metropolitan areas measured, the National Association of Realtors said in a report today. In the second quarter, 110 areas had gains.

Investors, who make up the bulk of cash purchasers and compete with first-time buyers, accounted for 17 percent of all transactions, down from 20 percent a year earlier.

Investors, who make up the bulk of cash purchasers and compete with first-time buyers, accounted for 17 percent of all transactions, down from 20 percent a year earlier. Photographer: Daniel Acker/Bloomberg Values are climbing after a six-year slump as buyers compete for a shrinking supply of properties listed for sale. U.S. home prices jumped 5 percent in September from a year earlier, the biggest 12-month increase since July 2006, CoreLogic Inc., an Irvine, California-based real estate data provider, said yesterday.

“The housing recovery still faces a number of potential headwinds,” Paul Diggle, property economist for Capital Economics Ltd. in London, said in a note to clients after CoreLogic’s report was released. “But our central case is that tight supply conditions will mean that house prices will continue to rise steadily next year.”

At the end of the third quarter, 2.32 million existing homes were available for sale, 20 percent fewer than a year earlier, according to the Chicago-based Realtors group.

Short Sales

The national median price for an existing single-family home was $186,100 in the third quarter, up 7.6 percent from the same period last year, the Realtors said. Foreclosures and short sales, in which the price is less than the mortgage balance, accounted for 23 percent of third-quarter deals, down from 30 percent a year earlier.

The share of all-cash home purchases fell to 27 percent in the third quarter from 29 percent a year earlier. Investors, who make up the bulk of cash purchasers and compete with first-time buyers, accounted for 17 percent of all transactions, down from 20 percent a year earlier.

The best-performing metro area was Phoenix, where prices increased 35 percent from a year earlier. Prices rose 28 percent in the Cape Coral, Florida, area, and 27 percent in Akron, Ohio.

The Raleigh, North Carolina, area had the biggest decline, with the median selling price falling 16 percent in the quarter. It was followed by York, Pennsylvania, with an 9.4 percent decrease; and Binghamton, New York, with a 6.6 percent drop.

A survey by Fannie Mae, the nation’s biggest mortgage-finance company, showed Americans expect home prices to increase an average of 1.7 percent in the next 12 months. The share of respondents who said they expect home prices to decrease fell to 10 percent last month, down 13 percentage points from a year earlier and the lowest level since the monthly survey began in June 2010, Washington-based Fannie Mae said today.

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Borrowing to Build Your Own Home

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Borrowing to Build Your Own Home
By Lisa Provost, New York Times

Construction financing isn’t the type of loan one goes shopping for online; it is more likely to be found up the street. “The places that are offering construction financing are typically the credit unions and the regional banks,” said John Walsh, the president of Total Mortgage Services, a Milford, Conn., lender.

Local banks are more comfortable making home construction loans because they know the local market. But qualifying is more complicated than for a conventional mortgage. Borrowers have to do a lot more legwork ahead of time because, in addition to proving that they can afford the cost of the house, they must show that they have a viable project.

“People want to make sure they know what they need to do early in the process,” said Penn Johnson, the president of the Stamford Mortgage Company, a broker. “You can’t apply until after you have building plans, a construction contract and a cost estimate.”

The cost of the land may be figured into the construction loan amount, if the borrower doesn’t already own the lot.

“People either pay cash for the land, or they contract to pay cash for the land when the project’s completed, or they pay it out of the construction loan,” said Debi Orr, an agent with Keller Williams Realty in Ridgefield, Conn. But if they’re not paying at the outset, “they’re going to have to have a pretty solid down payment to qualify.”

The down payment is figured as a percentage of the total cost of the project (land and construction costs). In general, the loan-to-value restrictions are “pretty onerous,” requiring 20 to 30 percent down, said Mark Yecies, an owner of SunQuest Funding in Cranford, N.J.

Some lenders offer construction financing as a separate, short-term loan — usually no longer than a year. The borrower refinances into a permanent mortgage after the house is completed.

Increasingly, lenders are combining the two into a single 30-year loan, with a single closing, called construction-to-permanent financing. The streamlined loan process cuts down on closing costs, but some borrowers may prefer not to be locked in and to retain instead the flexibility to shop for mortgages.

That is because interest rates on construction-to-permanent loans are a little higher than on conventional mortgages.

“You might be paying an extra quarter to a half a percent above Fannie Mae” on such a loan, Mr. Johnson said, comparing that with “a 30-year fixed in the low 4 percent, and a 5-to-1 adjustable-rate mortgage at 3 percent.”

As funds are disbursed during construction, lenders charge the borrower only for interest on the amount owed. Yet the steep down-payment requirement for construction loans is limiting.

And those who hope just to buy land for a future home will find financing no easier. Lending for land alone, with no clear timeline for construction, is difficult to find, mortgage brokers say. Banks deem these loans to be very risky, “because there’s nothing really tying anybody to a piece of raw land,” said Mr. Walsh of Total Mortgage.

“If the borrower loses a job or runs into financial trouble,” he said, “the land will probably be one of the first things they stop paying on. Banks may compensate for that by asking for 50 percent down.”

In Scarsdale, New Rochelle and Mamaroneck, N.Y., builders are paying all cash for building lots, said Iris Kalt, an agent with Prudential Centennial Realty. Likewise, in Litchfield County, Conn., “the people that are buying the expensive pieces of land are usually buying them straight out,” said Kathleen Harrison, a principal of Fazzone & Harrison Realty in Sherman

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End Is Near for Certain Tax Exemptions

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End Is Near for Certain Tax Exemptions

Borrowers will have to count mortgage relief from lenders as income on their federal tax returns. That means, for example, a borrower would have to pay taxes on a $100,000 reduction in principal owed on a loan, or a $20,000 write-off in the amount owed after a short sale.

An extension of the tax exemption — established under the Mortgage Forgiveness Debt Relief Act of 2007 — is a strong possibility. But given that Congress will have to grapple with serious fiscal issues after the November elections, there is no guarantee the exemption will emerge from those negotiations intact.

“I’m optimistic in the sense that everyone agrees on the merits of the issue and that it’s good for the market,” said Jamie Gregory, the deputy chief lobbyist for the National Association of Realtors, which is pushing for the exemption’s renewal. “My only caution is the process.”

Goldie Sommer, a real estate lawyer in Fairfield, N.J., who specializes in short sales, says she, too, is hopeful that an extension will come through, but she is taking no chances. Her office staff is doing all it can to make it easier for lenders to sign off on short sales. That means submitting packages only when they include a signed contract and a good-faith deposit from the buyer.

Given that short sales handled by her office take, on average, two to three months to complete, deals being negotiated now are already bumping up against the

Dec. 31 exemption cutoff. “We’re trying to push the short sales now as fast as we can,” Ms. Sommer said, “or our clients will get stuck with a big fat tax bill.”

The Debt Relief Act exemption applies only to canceled mortgage debt used to buy, build or improve a primary residence, not a second home. The maximum exemption is $2 million.

In 2011, the estimated tax savings to borrowers from the exemption was at least $1 billion, according to calculations by the Realtors association.

Reinstating the tax would undercut the effect of the settlement reached earlier this year in the federal government’s investigation into banks’ epic mishandling of foreclosure documents. Under the terms of the settlement, five of the biggest mortgage lenders must put some $17 billion toward debt relief that enables borrowers to stay in their homes. Smaller portions are reserved for short sales and refinancing.

Borrowers in New York and New Jersey would feel considerable pain if the tax exemption expired, because both states have a backlog of foreclosures, said Michael Litzner, the owner/broker of Century 21 American Homes, which has offices on Long Island. The foreclosure process in these states is longer than in any other, according to RealtyTrac. New York has the longest timeline — 1,072 days as of the third quarter, compared with the national average of 382 days.

“There’s a tremendous shadow inventory that’s still looming out there that needs to be mitigated,” Mr. Litzner said. Still, borrowers ought not rush into a short sale decision solely because of the tax issue, said Jason Milligan, the owner of Milligan Realty, in Norwalk, Conn. They should look into whether it applies to their situation, and consider their options.

“For example,” he said, “if you can get another year living in the house for free, then it’s not going to matter so much. And if you’re going bankrupt, you might as well keep shelter over your head as long as you can until they throw you out on the street.”

Mr. Litzner says ending the exemption would be a “huge blow” to the economy. Without it, he predicted, “people will walk away from properties; you take it off the table and people lose the incentive to settle.”

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Restructured HARP Helping More Underwater Homeowners to Refinance

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Restructured HARP Helping More Underwater Homeowners to Refinance
By Hudson Sangree and Phillip Reese of the Sacramento Bee

In the Sacramento area, about 180,000 households, or roughly half of all homeowners with mortgages, owe more than their homes are worth.

Many are stuck paying higher interest rates than today’s ultra-low average of about 3.5 percent on a 30-year loan.

For these families, refinancing to a lower rate would free up cash in a tough economy and help them stay in their houses. Yet until recently, large numbers of homeowners were shut out from refinancing because they owed far more than their homes are worth.

Today, a reworked federal effort called the Home Affordable Refinance Program, or HARP, is helping thousands more refinance, even if they’re deeply underwater on their mortgages.

The HARP restructuring – known as HARP 2.0 – took effect late last year and opened the floodgates for those who had been blocked from refinancing under an earlier, more-restrictive version of the program.

Through July, about 75,000 California homeowners had refinanced under HARP – roughly 25,000 more than the number that refinanced under the program during all of 2011.

“A lot of those folks had already applied for HARP and been declined,” said Tai Mamea, vice president for mortgage lending at Chase bank. “Sometimes they’ve been waiting for years.”

Chase customers have saved an average of $300 a month by refinancing through HARP, often halving their interest rates, he said.

But HARP 2.0, as it’s known, isn’t the cure-all that some predicted. For some homeowners, frustrations and roadblocks remain.

“I’ve helped lots of families refinance with HARP,” said Brent Wilson, a loan strategist with Comstock Mortgage in Sacramento. “But I still see a huge void of folks upside-down on loans who can’t refinance with HARP.”

A major reason, he said, is that their loans aren’t backed by mortgage giants Freddie Mac or Fannie Mae, a requirement for HARP refinancing. Being up-to-date on mortgage payments is another prerequisite.

Others might have low credit scores or high debt-to-income ratios, or they may lack cash reserves. Depending on the rules of individual lenders, such factors can prevent homeowners from successfully refinancing under HARP, Wilson said.

“You still have to be able to qualify,” he said. “It’s not as clear-cut as some people make it sound.”

Still, federal officials cleared away one of the biggest hurdles, he said.

The original version of HARP, introduced in 2009, allowed a loan-to-value ratio up to 125 percent. To be eligible, homeowners could only owe 25 percent more than their homes were worth. In other words, they could only be slightly underwater.

Many in the Sacramento region have sunk much deeper. One out of five of the region’s homeowners owe at least twice what their home is worth, according to online real estate tracking firm Zillow.

It’s a situation that’s common in other areas of California and in regions of the country – including Florida, Arizona and parts of the Northeast – that experienced a spike in housing prices followed by a calamitous free fall.

That’s why federal authorities restructured HARP so that it lets homeowners refinance regardless of the difference between loan amounts and home values.
Some lenders, however, have their own criteria that they layer on top of the HARP rules, experts said. They can impose loan-to-value caps of 105 percent or 150 percent.

But HARP 2.0 also gives borrowers more freedom to shop around if their current loan servicer won’t help, and mortgage experts say trying different lenders can be a useful strategy.

Folsom resident Angela Sing found refinancing under HARP 2.0 maddening but ultimately rewarding after going to several different lenders.

Sing and her family owed $440,000 on a first and second mortgage from 2003, but their home is worth only about $290,000. Her primary loan was interest only with a 6.8 percent rate.

“We didn’t want to walk away,” Sing said. “We signed the original papers, and we wanted to take responsibility.”

Sing tried twice to refinance under the old HARP program without success.

When the program was overhauled, she was rejected by her lender. So she tried another lender, with similar results. Finally, she tried a third lender and was successful, though not without more setbacks.

At one point, her credit score fell by a few points, and she had to start the whole process over.

“It was incredibly frustrating,” she said.

Earlier this month, after weeks of repeatedly faxing her financial documents to her lender, she’s refinanced into a 30-year loan with a 4.25 percent interest rate that lowered her payments by about $250 a month.

“You really have got to be persistent,” she said.

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Wells Fargo Sends Refunds to Some FHA Mortgage Customers

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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.

After Housing Crash People Want New Styles of Houses

/in /by

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

After Housing Crash People Want New Styles of Houses
By Hudson Sangree

As the real estate market starts to recover from its epic crash, home builders, especially those in hard-hit California, are betting that many buyers will want new houses that are different from the big suburban tract homes that proliferated during the boom.

They’re building houses intended to use no more electricity than they produce, houses with separate quarters for aging parents, and houses that are more compact and closer to jobs, shopping and restaurants.

These models target first-time buyers, growing families and downsizing baby boomers — all expected to be among the next wave of homebuyers.
“Coming out of this downturn, people don’t want more of the same,” said Gordon Jones, Northern California president of home building giant Lennar Corp. “They’re saying, ‘We’re not going to make the same mistake again.’ ”

For Miami-based Lennar, that means multi-generational housing. The company’s NextGen model has an attached apartment — with kitchen, laundry, garage and outdoor courtyard — for older parents, adult children who need to move back home, or extended-stay guests.

Recent buyer Ryan Wallace said he and his wife opted for a NextGen house in El Dorado Hills, Calif., so his parents, who live in British Columbia, could come for longer visits to see their children and grandchildren in Northern California.

“It allows them to have their own space and space for us as well,” Wallace said.

Their move to more than doubled their living area to accommodate a growing family.

Kari Chicoine and her husband are heading in the opposite direction — downsizing after their children left for college. They’re moving from a 3,300-square-foot house in El Dorado Hills, Calif., on 1.3 acres to a roughly 2,000-square-foot home in Folsom with a small courtyard.

Their future house is part of the fastest-selling new home community in the region with 21 sales in 11 weeks, according to a recent report by the North State Building Industry Association.

The appeal of the project is that the airy, modern homes — with combined kitchen, dining and living areas — use space efficiently and require little maintenance, said Chicoine.

The couple plans to have a fireplace and fountain in the courtyard, she said.

“With the upkeep of 1.3 acres and cleaning, we never had time to do everything we wanted to do,” Chicoine said. In their future home, with no lawn to mow and fewer rooms, “We can put our effort into making it our little personal Shangri-La and have time to travel.”

The other important factors, she said, is that the development is adjacent to a system of bike trails that traverse the area, and it sits across the street from a large shopping center with dozens of stores and restaurants.

Kevin Carson, president of The New Home Co., said the developer polled focus groups and found that lowering utility bills through energy efficiency was a prime goal for homeowners in coming years. So were features such as more windows, downstairs bedrooms and proximity to jobs and shopping.

The New Home Co., a California startup that opened in 2010, is focused on meeting those needs, he said.

“Home building is a dated industry. It really hasn’t kept up with the times,” he said. “You can’t just keep building houses and expect to have neighborhoods.”

People will also opt for smaller homes in the future, he predicted. “The economic downturn changed the mentality. People are not biting off more home than they can afford,” he said.

Also on the horizon: urban infill projects that take energy efficiency to a new level.

In downtown Sacramento, Calif., developers are putting the finishing touches on a home that they say will be a net-zero-electricity house — meaning it uses no more electricity than it produces with roof-mounted solar panels.

It’s intended as a model for a larger project to be built on an industrial site on the edge of an older, leafy neighborhood.

The first phase will include about 200 homes — from studio apartments to stand-alone houses, said project manager Kevin Smith.

Super-insulating walls, energy-saving appliances and LED lighting are meant to give the development “green” cache. Recycled glass counters, high-tech wiring and highly efficient use of small spaces will add to the appeal, he said.

“It’s an infill product,” said Smith, “for smaller households of empty nesters and young urbanites.”

Pacific Beach/Mission Beach Showcase of Homes