Mortgage Forbearance – Will it hurt?

The Coronavirus Aid, Relief and Economic Security (CARES) Act signed into law on March 27, 2020 is a wide-ranging piece of legislation aimed at providing financial aid to individuals and businesses impacted by the COVID-19 pandemic.

For example, consumers with a Federally backed mortgage loan may obtain a forbearance from their mortgage servicer upon request and with the borrower’s attestation of a financial hardship stemming from COVID-19. And even if accommodations are not required under the CARES Act or other applicable law, the Consumer Financial Protection Bureau along with many Federal and State agencies have encouraged financial institutions to work constructively with borrowers who are unable to meet their financial obligations due to the effects of the current pandemic. But how does this impact the borrower’s consumer credit rating?

Without question, credit scores and related information are critical to consumers and have an enormous reach as evidenced by the over 200 million American consumers who have credit files and trade lines. This information often determines who obtains credit, insurance, housing, and at what price, and even in some instances who obtains employment. However, the COVID-19 pandemic is posing financial challenges to consumers, leaving them with questions about their credit when working with lenders and creditors to obtain various forms of payment flexibility and forbearance.

The COVID-19 pandemic is posing financial challenges to consumers, leaving them with questions about their credit when working with lenders and creditors to obtain various forms of payment flexibility and forbearance.

Included in the CARES Act is a section that amends the Fair Credit Reporting Act (FCRA), a law enacted to promote the accuracy, fairness and privacy of consumer information contained in the possession of consumer reporting agencies. On June 16, 2020, the Consumer Financial Protection Bureau issued guidance specifically addressing consumer credit reporting related to the CARES Act and COVID-19 pandemic, including answers to commonly asked questions.

Perhaps the first question borrowers ask when entering into a forbearance agreement is how the agreement will impact their credit score. Consumers should therefore be pleased to learn that if their credit obligation or account was current before the accommodation[1], during the accommodation the creditor must continue to report the borrower’s credit obligation/account as current even if payments are not being made. If the credit obligation or account was delinquent before the accommodation, during the accommodation the creditor cannot advance the delinquent status. So if at the time of the forbearance the borrower’s account was 30 days past due, during the accommodation the creditor cannot report the account as 60 days past due, 90 days past due, etc.

Of equal importance is the fact that the consumer reporting protections afforded by the CARES Act continue to apply to the time period that was covered by the accommodation even after the accommodation ends. If payments were not required during the accommodation period, a creditor cannot report a consumer as delinquent at the end of the accommodation period, provided that the consumer was current before the accommodation began. Similarly, a creditor cannot advance the delinquency of a consumer based on the time period covered by the accommodation even after the accommodation period has concluded.

Fortunately, the Consumer Financial Protection Bureau has recognized the serious impact COVID-19 is having on the financial well-being of many consumers. As a result, the Bureau has taken prudent measures to encourage creditors to offer various forms of payment flexibility. It has also enacted laws to ensure that such accommodations do not unfairly punish borrowers who face circumstances that require them to take advantage of approved payment relief measures.

[1] An “accommodation” includes any payment assistance or relief granted to a consumer who is affected by the COVID-19 pandemic during the period from January 31, 2020, until 120 days after the termination of the COVID-19 national emergency declared by the President on March 13, 2020 under the National Emergencies Act.

This article is of a general nature and reflects only the opinion of the author at the time it was drafted. It is not intended as definitive legal advice, and you should not act upon it without seeking independent legal counsel.

Scott Drucker | AAR Online https://www.aaronline.com/2020/06/17/will-mortgage-forbearance-ruin-my-credit
A licensed Arizona attorney, Scott is General Counsel & Assistant CEO for the Arizona REALTORS® serving as the primary legal advisor to the association.

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Chandler Housing Market Tough on Buyers

Chandler housing market worsens for buyers

By PAUL MARYNIAK, Arizonan Executive Editor

As Chandler and the rest of the East Valley stand at the beginning of the spring home-buying season, the inventory of available houses is continuing to dwindle at a staggering rate, according to the website that closely analyzes the metro Phoenix housing market.

“Although there a few exceptions, the collapse in available supply in most ZIP codes is nothing short of staggering,” the Cromford Report said last week.

Indeed, three Chandler ZIP codes are among 25 in the Valley that have lost two-thirds of their normal housing inventory in the last 12 months, the report said.

Inventory of available homes in Chandler 85224 had plummeted 73 percent while the decline in active listings in Chandler ZIPs 85225 and 85286 was 73 percent and 67 percent, respectively. Some of Chandler’s neighbors aren’t doing any better, it added, citing Tempe 85282 and 85283, where inventory was down 70 percent from a year ago.

“The current situation is even more remarkable than last month,” the Cromford Report said last month, reporting that active listings in February totaled less than 12,000 homes – down 35.1 percent from February 2019 and down 1.4 percent from January 2020.

Cromford said its analysis of available housing on the market shows the inventory shortage is particularly severe Chandler – where the lack of inventory has made it

“The lack of supply was described as shocking at the start of 2020, so I am starting to run out of adjectives to adequately describe the current state of supply. It is almost (but not quite) unheard of to see supply drop between January 1 and February 1,” it added.

In virtually every city in the Valley, the website said, the market continued to increase its favorability toward sellers – at buyers’ expense.

Moreover, demand is increasing – a harbinger of even worse news for homebuyers in the coming months, Cromford said.

“Trying to buy when supply is so low can be a frustrating affair,” it said.

“This is a truly extraordinary state of affairs reflecting above average demand meeting severely restricted supply,” it said, adding:

“Economics 101 teaches us that lower supply and higher demand is a recipe for higher prices. So far, the reaction of pricing has been muted. However, you should not expect it to stay that way.

“The spring selling season has just started and by the time we get to June a significant upward adjustment in pricing is likely.”

Supply of homes between $100,000 and $225,000 has fallen disastrously, according to Cromford’s data, which show declines of well over 40 percent from a year ago.

To illustrate the inventory crisis, Cromford picked Chandler, where there are only about 200 active listings.

“The average for Chandler over the last 20 years is 1,019,” it said, calling it a record low.

It also forecast a worsening situation for buyers, noting:

“Mortgages are becoming easier to qualify for in many different ways, so demand is likely to increase. Yet there is no sign of more supply coming along to satisfy it. In this situation the market is likely to become both frenzied and frustrating.”

One of the ways the website uses to illustrate supply and demand is an index based on trends in pending, active and sold listings compared with historical data over the previous four years.

Values below 100 indicate a buyer’s market, while those are favorable to sellers.

Avondale topped that list with a seller-friendly reading at 421, followed, in order, by Chandler (358), Gilbert (350), Glendale (300) and Mesa (287) to round up the five Valley markets where buyers can expect little inventory – and even less room to haggle over price.

“Once again we have 16 out of 17 cities still improving for sellers, despite the extreme advantage that sellers have enjoyed for many months,” Cromford said of its latest market index readings.

“Scottsdale is the only exception and even here the move in favor of buyers is very modest,” it added.

“Selling a home around $200,000 to $300,000 is easier than falling off a log,” it said. “Successfully buying a home at this price is a major challenge.”

The Cromford Report’s data for the West Valley show buyers are paying a premium to snap homes off the market in relatively short periods of time.

For example, in Chandler ZIP code 85248, 198 homes sold in the last 90 days for an average price of $441,480, according to Cromford’s data. The average time those homes were on the market was 61 days.

In 85248, the story was almost identical. In the last 90 days, 221 homes were sold for an average price of $452,057 and their average time on the market also was two months.

In 85286, the average sale price was $447,621 for the 173 homes that were sold in the last 90 days. Their average time on the market: 56 days.

Chandler housing market worsens for buyers

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6 Things That Turn Home Buyers Off

…and What Sellers Can Do To Prevent It!

We’ve talked about surprising home features buyers LOVE, and about why buyers aren’t biting on today’s market, despite it being highly affordable.  But we haven’t talked much about the characteristics of sellers, listings and homes that turn buyers all the way off.  Well, not until now!

Here are 6 big-time homebuyer turn-offs that make buyers cringe at the thought of your home, and action steps you can take to prevent your home from being an offender:

  1. Stalker-ish sellers. I know you think you’re being helpful, walking the buyer through your home and pointing out the wagon-wheel light fixture you made with your own two hands, the custom mural of a stingray you paid top dollar to have painted across your living room wall and the way the sounds of happy schoolchildren running across the front yard of your corner lot to get to the school in the next block lifts your spirits.  However, the buyers might be trying really hard to ignore, minimize or figure out how to undo the very features of your home you hold dear.  They also may want or need to have personal space and conversations with their mate or their agent while they’re viewing your home – you being there, especially walking right alongside them while they’re in your home, prevents them from being comfortable about doing this, or discussing all the things they would change if the home were theirs. In my experience, the more nitpicky a buyer gets about a house and the more detailed their list of things they would change, the more serious they are about considering making an offer on this place.What’s a Seller to do? Back off. Let your home be shown vacant, or leave the house when people come to see it.  If you need to be there, at least walk outside or go sit at the coffee shop down the way while prospective buyers view your home.  If the buyers have questions, their people will contact your people.
  2. Shabby, dirty, crowded and/or smelly houses.  You already know this one. Yet, buyers constantly marvel. The buyers who come to see your home are making the decision whether to choose your home for the biggest purchase they’ve ever made during the worst economic conditions most of them have ever experienced.  Your job is to get your home noticed – favorably – above the sea of other homes on the market, many of which are priced very, very low.What’s a Seller to do?  Other than listing your home at a competitive price, the only tool within your control for differentiating your home from all the foreclosures and short sales is to show it in tip-top shape. Pre-pack your place up, getting rid of as many of your personal effects as possible. Do not show it without it being completely cleaned up: no laundry or dishes piled up, countertops freshly washed, smelly dogs (I have a couple who smell on occasion – no judgment – but don’t show your house with pet odors) or litter boxes cleaned and/or out of the house.
  3. Irrational seller expectations (i.e., overpricing). Buying a house on today’s market is hard work!  On top of all the research and analysis about the market and situating their own lives to be sure they’ll be able to afford the place for 5, 7, 10 years – or longer, buyers have to work overtime to separate the real estate wheat from the chaff, get educated about short sales and foreclosures and often put in many, many offers before they get even a single one accepted.  The last thing they want to add to their task lists is trying to argue a seller out of unreasonable expectations or pricing.  And, in fact, there are so many other homes on the market, buyers don’t have to do this.  When they see a home whose seller is clearly clueless about their home’s value and has priced it sky-high, most often they won’t bother even looking at it.  If they love it, they’ll wait for it to sit on the market for awhile, hoping the market will “educate you” into desperation, priming the pump for a later, lowball offer.What’s a Seller to do? Get real. Get out there and look at the other properties that are for sale in your area and price range. Get multiple agents’ take on what your home should be listed at, and don’t take it personally if their recommendation is low. If your home has much less curb appeal or space or is much less upgraded than the house across the way, don’t list it at the same price and expect it to sell. If you owe more than your home is realistically worth, you may need to reexamine whether you really want or need to sell, or consider a short sale, if you simply have to sell.  Don’t be tempted into testing your market with an obviously too-high price, unless you’re prepared to have your home lag on the market and get lowball offers.
  4. Feeling misled. Here’s the deal.  You will never trick someone into buying your home. If the listing pics are photo-edited within an inch of their lives, or your home is described as an “approved” short sale when, in fact, the bank approved another offer, now withdrawn, but will require a new offer to go through any sort of approval process (even a truncated one), buyers will learn this information at some point.  If your neighborhood is described as funky and vibrant, as code for the fact that your house is under the train tracks and you live in between a wrecking yard and a biker bar, prospects will figure this out.  If the detailed information about your home, neighborhood or even transactional position (e.g., short sale status, seller financing, etc.) is misrepresented, the sheer misrepresentation will turn otherwise interested buyers off.  If you authorize your agent to “verbally approve” the buyer’s offer, don’t go back the next day demanding an extra $5,000. In cases where the buyer feels misled, whether or not that was your intention, running through the buyer’s mind is this question: If they can’t trust you to be honest about this, how can they trust you to be honest about everything else?What’s a Seller to do? Buyers rely on sellers to be upfront and honest – so be both.  If your home has features or aspects that are often perceived negatively, your home’s listing probably shouldn’t lead with them (like the ad I recently saw with the intro line: “this place is a mess!”), but neither should you go out of your way to slant or skew or spin the facts which will be obvious to anyone who visits your home.  Make sure you know what the listing of your home reads like, before it’s published to the web, and that a prospective buyer will not feel misled by it.
  5. New, ugly home improvements.  Many a buyer has walked into a house that has clearly been remodeled and upgraded in anticipation of the sale, only to have their heart sink with the further realization that the brand-spanking-new kitchen features a countertop made, not of Carerra marble, but brand-new, pink tiles with a kitty cat in the middle of each one (I saw this once, people – no joke).  Or the pristine, just-installed floors feature carpet in a creamy shade of blue – the buyer’s least favorite color.  New home improvements that run totally counter to a buyer’s aesthetics are a big turn-off, because in today’s era of Conspicuous Frugality, buyers just can’t cotton to ripping out expensive, brand new, perfectly functioning things just on the basis of style – especially since they’ll feel like they paid for these things in the price of the home.What’s a Seller to do? Check in with a local broker or agent before you make a big investment in a pre-sale remodel.  They can give you a reality check about the likely return on your investment, and help you prioritize about which projects to do (or not).  Instead of spending $40,000 on a new, less-than-attractive kitchen, they might encourage you to update appliances, have the cabinets painted and spend a few grand on your curb appeal.  Many times, they will also help you do the work of selecting neutral finishes that will work for the largest possible range of buyer tastes.
  6. CRAZY listing photos (or no photos at all).  Online, we’ve seen listing photos that have dumpsters parked in front of the house, piles of laundry all over the “hardwood” floors touted in the listing description, and once, even the family dog doing his or her business in the lovely green front yard.  Listing pictures that have put your home in anything but its best, accurate light are a very quick way to ensure that you turn off a huge number of buyers from even coming to see your house!   The only bigger buyer turn-off than these bizarre listing pics are listings that have no photos at all; most buyers on today’s market see a listing with no pictures and click right on past it, without giving the place a second glance.

What’s a Seller to do?  Check your home’s listing online to make sure that the pics represent your home well.  If not, ask your agent to grab some new shots and get them online.

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What Affects Mortgage Rates?

Your mortgage rate depends on your own financial portfolio and the home you plan to buy. But that’s not all. Mortgage rates also reflect movements in the U.S. housing market and the global economy — which is why they’re in constant flux.

  • Economy – The global financial picture drives all interest rates, including mortgage rates
  • Lender pipeline – The amount of business a lender is currently processing can impact their rates
  • Property location – State laws can drive up lender costs or keep them down
  • Home use – Primary residence, vacation home, or rental?
  • Property type – Single-family, multi-family, condo, mobile, co-op, etc.
  • Loan-to-value – Borrowing less (and putting more down) gets you a better rate
  • Credit score – Better credit means a lower interest rate
  • Loan features – Term, documentation, rate adjustment, interest-only payments, etc.
  • Points – Paying more up front for “discount points” lowers your rate
  • Loan amount – Very high or very low loan amounts can mean higher rates

The lowest advertised mortgage rate will probably apply to you if you have a low loan-to-value ratio and great credit. Everyone else will be subject to risk-based pricing adjustments.

You’ll only know what your rate is by getting a custom mortgage quote from a lender based on your unique borrower profile. And, typically better personal service from a local mortgage broker that will give you personal service with local interest in the community – they have more to lose if they do a bad job!!!

Taking control of mortgage rate factors

You can’t control many of the things that impact your mortgage rate. (Unless, maybe, you’re the president of the Federal Reserve or POTUS.)

The good news is that the variables you can control have the most impact on your rate. They are:

  • Property type — If deciding between two homes, incorporate the relative cost of financing when comparing them
  • Loan-to-value (LTV) — Putting more money down improves your chances of loan approval, cuts your loan fees and gets you a lower mortgage insurance rate (if applicable)
  • Credit score — It may be worth it to put off buying a home and concentrate on raising your FICO score for a lower rate
  • Loan features — Choosing a loan with a shorter fixed-rate period, or one with a 15-year amortization instead of a 30-year term can save you a lot in interest
  • Points — You can buy a lower interest rate by paying more up front, if you have expendable cash on hand
  • Loan amount — It might be smarter to get a conforming first mortgage with a purchase-money second mortgage than taking out a more-expensive jumbo home loan

By understanding the factors you can and can’t control, you can get your best mortgage rate when you buy or refinance a home.

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HUD FHA Condo Financing

HUD Announces New FHA Condo Financing Rules!

The U.S. Department of Housing and Urban Development is expected to release updated guidance tomorrow on FHA-insured condominium financing. The new rules should benefit your real estate clients and customers by allowing more buyers to obtain low down-payment mortgages on affordable housing options.

Specifically, the new rules will:

  • Extend FHA certifications on condo developments from two years to three years, reducing the compliance burden on condo boards.
  • Allow for single-unit mortgage approvals—often known as spot approvals—which will enable FHA insurance of individual condo units, even if the property does not have FHA approval.
  • Secure additional flexibility in the ratio of investors to owner-occupants allowed for FHA financing in a condo building.

The full guidance will go into effect in mid-October, 60 days from publication.

“Condominiums are often the most affordable option for first time home buyers, small families, and those in urban areas,” said NAR President John Smaby, in a statement issued to the media Wednesday morning. “We are thrilled that (HUD) Secretary (Ben) Carson has taken this much-needed step to put the American dream within reach for thousands of additional families.”

Since 2008, NAR has championed policy changes in condo lending. NAR has sought rules that would allow the owner-occupancy level to be determined on a case-by-case basis and that would extend the approval period for project certification to five years.

NAR’s existing-home sales report for June showed condominium and co-op sales at a seasonally adjusted annual rate of 580,000 units, a decline of 3.3% from May and 6.5% from June 2018. With more than 8.7 million condo units nationwide, only 17,792 FHA condo loans have been originated in the past year.

“This ruling, which culminates years of collaboration between HUD and NAR, will help reverse recent declines in condo sales and ensure the FHA is fulfilling its primary mission to the American people,” Smaby said.

The full rule for single-family condo financing is scheduled to be published in the Federal Register on Aug. 15, 2019, and available online at https://federalregister.gov/d/2019-17213, and on govinfo.gov.

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Housing Affordability

The Ultimate Truth About Housing Affordability

There have been many headlines decrying an “affordability crisis” in the residential real estate market. While it is true that buying a home is less affordable than it had been over the last ten years, we need to understand why and what that means.

On a monthly basis, the National Association of Realtors (NAR), produces a Housing Affordability Index. According to NAR, the index…

“…measures whether or not a typical family earns enough income to qualify for a mortgage loan on a typical home at the national and regional levels based on the most recent price and income data.”

Their methodology states:

“To interpret the indices, a value of 100 means that a family with the median income has exactly enough income to qualify for a mortgage on a median-priced home. An index above 100 signifies that family earning the median income has more than enough income to qualify for a mortgage loan on a median-priced home, assuming a 20 percent down payment.”

So, the higher the index, the more affordable it is to purchase a home. Here is a graph of the index going back to 1990:

The Ultimate Truth about Housing Affordability | Keeping Current Matters

It is true that the index is lower today than any year from 2009 to 2017. However, we must realize the main reason homes were more affordable. That period of time immediately followed a housing crash and there were large numbers of distressed properties (foreclosures and short sales). Those properties were sold at large discounts.

Today, the index is higher than any year from 1990 to 2008. Based on historic home affordability data, that means homes are more affordable right now than any other time besides the time following the housing crisis.

With mortgage rates remaining low and wages finally increasing, we can see that it is MORE AFFORDABLE to purchase a home today than it was last year!

Bottom Line

With wages increasing, price appreciation moderating, and mortgage rates remaining near all-time lows, purchasing a home is a great move based on historic affordability numbers.

Courtesy NAR & Keeping Current Matters

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