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Potential Borrowers Eager to Find Lenders with Superior Service

For information about exclusive California coastal real estateNewport Beach to La Jolla and Mission Beach homes–call Bob Cumming of Keystone Group Properties at 310-496-8122.

Potential Borrowers Eager to Find Lenders with Superior Service
By Lew Sichelman November 4, 2012

More than a third of potential borrowers would be willing to pay a higher rate if the mortgage came with superior service, according to a new survey.

The poll by the Carlisle & Gallagher Consulting Group didn’t say how much more the 34% were willing to pay. But it did find that the “pay mores” are a frustrated bunch.

More than half think the process is too slow. A third find it impossible to track the status of their loan application, an equal percentage say it is too difficult to talk with their lender, and a quarter don’t believe the advice they receive.

All this tells Tom Mataconis, vice president of consulting for the firm based in Charlotte, N.C., that banks must do a better job to win market share. But it doesn’t tell borrowers how they can determine which lenders offer the best service.

A starting point is to ask your real estate agent. Agents know which lenders keep their promises and close quickly without incident. After all, their livelihoods depend on it.

Also quiz friends, co-workers and relatives about their experiences.

Beyond that, prospective borrowers should look for several attributes that will help them find a responsive company or accessible loan officer.

Look for a consistent point of contact. Federal regulators have already settled on this as a requirement for loan servicers — the companies that collect payments, disburse funds to cover property taxes and homeowners insurance and otherwise administer loans — so why not one for borrowers?

“Many lenders have discovered that consumers appreciate a single contact, someone they can reach out to for help or support at any time,” says Andy Crisenbery of the mortgage technology company ELynx.

At the same time, you may not want to be bothered during certain periods of the day. If that’s the case, make certain your feelings are known, suggests David Lo, director of financial services at J.D. Power & Associates, the market research firm that judges customer satisfaction in various industries. If you want to be reached only by email or only by phone from 9 a.m. to 5 p.m., tell the lender.

Crisenbery also says you’ll have a better experience if the lender has a way to get the necessary loan papers to you as quickly as possible. If you are old-fashioned, that might be by fax or overnight delivery. But if you are more current, it could be via the Internet.

Many institutions are putting all the documents the borrower needs to review directly into an online portal, Crisenbery says.

His company offers a product called EDelivery, which delivers documents by email “almost instantaneously” and which requires several layers of authentication, making it more secure than regular email.

At a recent Mortgage Bankers Assn. conference in Chicago, an ELynx competitor called LenderMobile launched an app for iPads (and, soon, for Android devices) that enables customers to fill in the standard 1003 application form and otherwise check on the status of their loans, all from their mobile device.

The lender also can set up the app to notify customers when rates hit a desired target or change enough to meaningfully affect monthly cost, either up or down.

The app “puts the entire process in the borrower’s hands,” Vice President Lovina Worick says. “You can even take a picture of a required document and send it straight to the loan file.”

At the same show, Kofax debuted software that enables lenders to not only snap photos of W-2s and other support documents with their smart devices but also to extract data from the photos and use it to populate loan applications, all from the kitchen table.

You’ll also want to deal with a company that provides up-to-date status information. There’s nothing worse than chasing down an unresponsive loan officer to make sure this document or that report has been received, or to find out whether underwriting has looked at the application.

“One complaint borrowers have with the industry relates to the lack of timely status updates,” Crisenbery says. “By providing real-time updates, borrowers will know exactly what’s happening with their loans.”

Beyond technology, Lo at J.D. Power suggests picking a lender that promises to provide the closing documents before closing. That way, you’ll have plenty of time to find any discrepancies between the initial quote and what’s now on the closing sheet, and to have the loan officer explain the differences to your satisfaction.

Speaking of accurate closing costs, LendingTree, the online mortgage search engine, recently asked the 300 companies on its network what questions borrowers should be asking. The top answer: What are the total costs involved in the loan?

In that regard, shopping website MortgageMarvel.com guarantees that the charges quoted by one of its lenders will be within $50 of actual charges. If they’re not, it will pay borrowers up to $2,500.

“We believe it’s important for consumers to understand and know these costs as early as they can in the mortgage application process,” MortgageMarvel Chief Executive Rick Allen says. “We’ve worked hard to make sure the closing fees they see on our site are accurate, and we’re willing to stand behind them.”

Personal Finance: Is a Mortgage Refinance Right for You?

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.

Malibu CA Showcase of Luxury Homes

Housing on Mend but Full Recovery Is Far Off

For information about luxury homes in Los Angeles County, Orange County and San Diego County, call Bob Cumming of Keystone Group Properties at 310-496-8122. Keystone Group Properties services buyers and sellers of Southern California real estate La Jolla and Oceanside to San Juan Capistrano, Dana Point, Laguna Beach, Newport Beach homes and Santa Monica properties.

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]

Oceanside CA Luxury Homes for Sale

Shortage of California Homes Up for Sale

For information about Southern California luxury homes in Newport Beach, Manhattan Beach, Hermosa Beach, Dove Canyon, Ladera Ranch, Marina del Rey, San Juan Capistrano, Palos Verdes, Pacific Palisades, Mission Viejo, Rancho Margarita, San Clemente, Redondo Beach, Santa Monica, Venice, Malibu, Irvine, Bel Air, Beverly Hills, and Beverly Glen, call Bob Cumming of Keystone Group Properties at 310-496-8122.

Shortage of California Homes Up for Sale

By Kathleen Pender

For the first time in about five years, I got a call from a real estate agent Friday asking me if I was interested in selling my home.

Matt Hoffman of San Mateo says he has had two real estate people come by his home in the past month asking if he wanted to sell because if he did, they had buyers interested. “I said thanks but basically no,” says Hoffman.

After years of having too many homes and not enough buyers, agents in California now have the opposite problem – too many buyers and not enough homes for sale. Hence the cold calls from agents trying to unearth inventory.

The California Association of Realtors reported Monday that its statewide inventory of unsold homes index for existing, single-family detached homes fell to 3.2 months in August from 3.5 months in July and 5.2 months in August 2011. (The latter two numbers have been revised from previous reports.)

The index reflects the number of months needed to sell the supply of homes on the market at the current sales rate. A six- to seven-month supply is considered normal. When the number goes higher, inventory is plentiful and it’s considered a buyer’s market. When the number goes lower, the advantage goes to the seller.

Prices rise

Declining inventory helps explain why the statewide median price of an existing, single-family detached home rose to $343,820 in August, up 3 percent from July and up 15.5 percent from August 2011.

The inventory shortage “is all over the state,” says Leslie Appleton-Young, the association’s chief economist. But it’s especially severe in the Bay Area, where there wasn’t a bulge in construction during the housing bubble, there isn’t a lot of developable land and the economy is the strongest in the state, she adds.

In the Bay Area, the index was at 2.7 months in August versus 4.5 months a year ago. The lowest inventory level in the Bay Area was 0.9 month in December 2004 and the long-run average from 1992 to the present is 4.7 months, lower than the statewide long-run average of 6.5 months, Appleton-Young says.

Even the Inland Empire, scene of tremendous overbuilding, has seen a shortage develop – the region’s unsold homes index was 3.3 months in August compared with 4.5 months a year ago.

“There is no question there is a shortage of homes for sale even in places like Stockton, which not long ago had years of inventory,” says Sean O’Toole, chief executive of ForeclosureRadar.com. “Prices became very attractive in those (hard-hit) areas and provided a great return for investors and a great opportunity for first-time buyers. That inventory went away very quickly as people realized a bargain was to be had. There are not so many bargains at this point.”

Not flipping

Unlike investors who five or six years ago were buying distressed properties to flip for a quick profit, investors today “are coming in because rental yields are providing a nice rate of return,” says Lawrence Yun, chief economist with the National Association of Relators.

That means those homes probably won’t be coming on the market anytime soon.

Nationwide, the glut of homes has also evaporated. In July, there was a 6.4-month supply of homes compared with 9.3 months in July 2011. The current number is right around long-term average, but Yun says there are “acute shortages” in places such as California, Arizona Nevada and parts of Florida.

So what has become of the so-called shadow inventory of foreclosed or distressed properties that banks have supposedly been keeping off the market and could unleash at any time, causing another leg down in the housing market?

O’Toole says the shadow inventory is like a funnel. “It starts with people being underwater, some of them stop making payments, some of those end up in foreclosure.” The homes that end up in foreclosure eventually end up on the market.

Bel Air Luxury Homes

The New New-Home Market

For information about luxury real estate in Southern California, call Bob Cumming of Keystone Group Properties at 310-496-8122. Keystone Group Properties services buyers and sellers of distinctive Southern California homes along the West Coast and Beverly Hills.

The New New-Home Market

The bad news for buyers: The new market environment means less discounting, fewer incentives and, in some cases, longer waits for homes. But there are several steps you can take to be a better shopper—from choosing amenities judiciously to waiting until a home is partially built before pulling the trigger on a deal.

Low interest rates and improving economic conditions are persuading people like Jerold Hawkins to take the plunge. Mr. Hawkins, a software developer for the auto industry, and his wife, Katherine, a nurse, recently agreed to buy a new five-bedroom home in Rochester Hills, Mich., for $289,900. “I now have a really good job and so does my wife,” Mr. Hawkins says.

PulteGroup

A Pulte Homes “Ellsworth” house in the Grand Vista Estates development in Northville, Mich.

The auto industry’s recovery has spurred demand for new homes in the $180,000 to $500,000 price range in the Detroit area, says Dan Elsea, president of brokerage Real Estate One in Detroit. In the choicest neighborhoods, even homes built without a ready buyer often sell long before completion and with multiple offers, he says.

After the new-home market’s dismal performance of the past few years, any improvement is welcome. The median price plunged 22% from its peak of $262,600 in March 2007 to a low of $204,200 in October 2010, with some markets tumbling 50% or more. Just 306,000 new homes were sold last year, according to the U.S. Commerce Department, the lowest on record.

But the tide seems to be turning. New-home sales rose in July for the third time in four months. And with inventories at record lows, builders are trimming incentives and raising prices in markets such as Detroit, Houston, New York and Phoenix.

Overall, sales of new homes surged 22% from September through July, according to the National Association of Home Builders. The median price of new homes sold in July stood at $224,200, up 9.8% from their 2010 lows.

Workers in July frame the first home in a new community in Gilbert, Ariz. Prices and waiting times for new homes in the Phoenix area are starting to rise.
“We’re clearly in recovery,” says Douglas Yearley Jr., chief executive of luxury builder Toll Brothers TOL -1.60%in Horsham, Pa., which builds in 20 states nationwide. In August, Toll reported the most sustained demand in more than five years. Stronger markets include Connecticut, Massachusetts and New York, while Illinois and Las Vegas are softer, the company says.

Billie Armenta, a government employee, says she is surprised the $294,900 base price of her new home in Phoenix has risen by more than $33,000 since she and her husband, Ruben, a retiree, signed their contract in January. The couple had to wait six weeks for an appointment at the design center and nearly eight months for construction to be completed.

The much larger market for existing homes is perking up as well. Prices in June posted their first year-over-year increase in nearly two years, according to the S&P/Case-Shiller index of 20 major metropolitan areas. From September 2011 through July 2012, sales jumped 5%, according to the NAHB.

To be sure, the housing recovery is still in its infancy, with credit tight and sales and prices well below historical levels. Rising interest rates, an uptick in the supply of foreclosed homes or a weakening economy all could crimp sales.

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But after years of retrenching, builders have whittled down their stockpiles greatly, and are being cautious about bringing new homes to market. The inventory of unsold new homes now stands at 144,000, down from a peak of 575,000 in July 2006, the Commerce Department reports.
At the current sales pace, that’s a 4.9 month supply of new homes; six months is considered a balanced market, says NAHB chief economist David Crowe.

Big Changes

One of the biggest changes since the downturn is where new homes are being built. The new homes are located much more closely to job centers than they were five years ago, says John Burns of John Burns Real Estate Consulting in Irvine, Calif.

Some builders are rolling out features not likely to be found in the resale market. KB Home, KBH -5.49%which is based in Los Angeles and builds in 10 states and Washington, D.C., lets buyers choose whether the master bedroom is on the first or second floor. In Southern California, it has consulted with feng shui masters on home design.

PulteGroup, PHM -2.36%which is based in Bloomfield Hills, Mich., and builds in 29 states, offers the “Pulte Planning Center,” a secondary office space off the main living room that helps homeowners stay organized and monitor their children’s homework.

The New Home Co. in Aliso Viejo, Calif., offers a multigenerational home with a private living space for an older parent or child returning home after college. “We can take any walk-in pantry we have and turn it into a separate cooking facility,” says New Home Chief Executive H. Lawrence Webb. Lennar, LEN -1.45%meanwhile, offers a “Next Gen” home aimed at baby boomers with aging parents or boomerang kids.

Builders also are touting energy efficiency. Meritage Homes, MTH -3.67%which is based in Scottsdale, Ariz., and builds in seven states, lets buyers spend the credits they can apply to upgrades or financing on solar panels; in some model homes, an entire room is deconstructed to highlight energy-efficient features.

Another change: Homes are starting to get larger again, after falling during the housing downturn. Among new homes sold in the first half of 2012, the median square footage was 2,013, up from a recent low of 1,945 in 2009, according to Hanley Wood Market Intelligence.

Experts say larger homes are more attractive to the trade-up buyers who now dominate the new-home market. Steve Ruffner, president of KB Home, Southern California, says buyers can afford bigger homes because prices and interest rates have fallen.

Of course, what you will get for your money depends on local conditions. If you are thinking about a new home, here are some points to consider.

Don’t be fooled by the sticker price. “The base price always looks incredibly good,” says Lloyd Fox, a real-estate broker at Long Realty in Scottsdale, but upgrades typically add 10% to 15%, sometimes more.

Billie Armenta, the Phoenix home buyer, says the purchase price for her home rose by more than $55,000 to $350,000 once the fee for a choice lot, carpeting, higher-quality cabinets and other upgrades were figured in.

Expect to pay a premium. The median new home sold for 36% more than the median existing home last year, excluding distressed properties that were foreclosed on, according to Hanley Wood.

That spread is wider than in the recent past. The gap had narrowed to just 28% in 2009, when builders were scrambling to unload the last of the inventory built during the housing boom. Since 2005 the gap has averaged 34%.

Remember that location matters. Your ability to negotiate a good deal can vary even within the same locale. “We have some markets where we’re raising prices on every plan pretty significantly,” Standard Pacific chief financial officer Jeff McCall told investors in July. “And then 10 miles down the road we have stagnant pricing.”

Closer-in developments generally command a premium versus homes in outlying areas.

In Tucson, builders are offering discounts from the list price on homes built without a ready buyer in the Dove Mountain area, which was hard hit by the housing bust, says Laura Sayers, a vice president at Long Realty. Less than 10 miles away, in Oro Valley, demand for new homes is so strong there is a waiting list for new lots, she says.

Negotiate aggressively. Incentives are getting smaller, on average, but buyers in some markets still have a fair amount of bargaining power.

In the Tampa Bay, Fla., area, builders are buying down interest rates, paying closing costs and tossing in appliances, says Jaci Stone, an agent at Century 21 Beggins Realty, who had one builder kick in two months’ rent so a client could break a lease.

Hayley and Tyler Sutterby nabbed $20,000 in upgrades instead of the standard $8,000 package when they recently bought a four-bedroom home under construction in Lithia, Fla. The couple is spending the credits on higher quality cabinets and flooring, a tankless water heater and other energy-saving features, says Ms. Sutterby, who works in marketing for a cable company.

Be tactical. The closer a home is to completion, the fewer choices you get to make, but the more likely the builder is to make a deal. That’s because builders don’t want to end up saddled with finished homes.

So keep an eye out for homes that are near completion or are in inventory, says Ms. Stone, the Tampa agent, who adds that publicly traded builders are often more willing to make a deal at the end of the quarter or fiscal year.

Prepare to wait. When home prices were tumbling, buyers were regularly advised to sell their current homes before buying new ones—or risk being stuck with two mortgages. But with inventories at record lows, buyers might have to wait three to six months for their new home to be completed.

That can make timing tricky for move-up buyers. Martin Mitchell, vice chief executive of Mitchell & Best Homebuilders in Rockville, Md., suggests that buyers in stronger markets prepare their home for sale, but wait until construction is under way before bringing it to market. Another option: sell your home and rent it back for a few months.

Understand your financing options. Builders often will pay closing costs or provide other incentives if you get your mortgage from them. But the deals offered by builders aren’t always better than what you might get from another lender, says Greg McBride, a senior financial analyst at Bankrate.com.

Because their credit lines are limited, more builders are asking buyers to take out construction loans that roll into a standard mortgage once the home is completed instead of having the builder finance the construction from its own credit line, with the borrower taking out a mortgage when the sale closes. The bank makes payments to the builder, typically as construction goals are met, with the buyer generally paying interest only on the funds used.

Anyone considering this option, “should at least have some sense of what the permanent financing costs will be,” even if you can’t lock in a mortgage rate, to make sure payments are affordable, advises Keith Gumbinger, a vice president at mortgage-data provider HSH.com.

To reduce fees, arrange to close on both loans at the same time instead of closing first on the construction loan and then later on the mortgage

The Serial Refinancers

For information about coastal and luxury homes in Los Angeles, Orange and San Diego counties, call Bob Cumming of Keystone Group Properties at 310-496-8122.  Keystone Group Properties services buyers and sellers of Southern California coastal luxury homes from Malibu to La Jolla real estate and distinctive homes in Beverly Hills, Beverly Glen, and Bel Air.

The Serial Refinancers

Cheap Mortgages Have Sparked a Trend; Should You Join?

Homeowners eager to lock in lower monthly mortgage payments have discovered serial refinancing, a practice last in vogue during the housing boom.

To keep up with falling rates, almost 2.2 million homeowners have refinanced their mortgages at least twice since 2009, according to data compiled for The Wall Street Journal by SMR Research, a mortgage-research firm in Hackettstown, N.J.

From 2006 through 2008, some 3.5 million homeowners refinanced at least twice.

There is little incentive to stop refinancing. Rates are still hovering near record lows, and lenders increasingly are offering to waive some or all of the closing costs for the borrower, making refinancing effectively free—or at least very cheap.

Dean Spalding, a financial-services executive in Louisville, Ky., has refinanced his 15-year mortgage—which now has a balance of roughly $350,000—four times since 2009, including twice in the past 12 months. Over this period, his rate has dropped from 4.25% to 2.875%. After his last refi, he says his monthly mortgage payment dropped by about $150.

“It has been a no-brainer,” says Mr. Spalding, who used First Commonwealth Mortgage, a mortgage broker based in Louisville.

The last time homeowners were so eager to refinance, it was a more expensive proposition. At the height of the housing boom, 86% of borrowers who refinanced took out cash and ended up with a higher loan amount, according to Freddie Mac.

To do so, they typically agreed to pay thousands of dollars in closing costs and often a steep prepayment penalty, a fee levied on those who paid off a substantial portion or all of a mortgage typically in less than four years.

Those costs made refinancing prudent only for those who could get a significantly better rate—often two percentage points or more, financial advisers said—and expected to stay in their houses long enough for the monthly savings to offset the upfront costs.

Today, lenders say, some borrowers are refinancing when rates drop as little as three-eighths of a percentage point.

“The traditional rules of refinancing are no longer in play,” says Bruce Thielen, a vice president at NASB Financial.

So what is the catch? In exchange for waiving closing costs, lenders charge a slightly higher interest rate.

The numbers vary by lender and type of mortgage, but in order for 1% to 1.75% of the loan amount to be applied toward closing costs, a lender typically raises the rate by 0.25 percentage point or more, says Mark Goldman, a senior loan officer at C2 Financial, a mortgage brokerage based in San Diego.

This trade-off entices homeowners to refinance, bringing much-needed business to lenders at a time when a still-sluggish housing market has hurt the market for new mortgages.

For many borrowers, it means a lower rate than they’re currently paying and no closing costs. They no longer have to commit to a home for a specific period to recoup their expenses, which means they can sell if they need to, without having to eat the refinancing costs.

Wiping out these costs also encourages serial refinancers to come back to refinance again when rates drop by even a small amount, especially for borrowers with large mortgages, says John Shunnarah, CEO of First Commonwealth Mortgage, where he estimates 30% of clients have refinanced two or more times since 2009.

There are drawbacks to this strategy. For borrowers who plan to stay in their homes for a while, the higher rate can eventually outstrip the savings in closing costs, says Michael Moskowitz, president of Equity Now, a New York-based mortgage lender. In those cases, it would be better to pay the closing costs and get a lower rate.

To be sure, refinancing isn’t an option for every homeowner. Some borrowers with poor credit scores might not be able to obtain a rate that’s low enough to make refinancing viable. Homeowners who owe more on their mortgage than their home is worth can try the federal government’s Home Affordable Refinance Program if they qualify.

Potential refinancers who are unsure how long they will keep the new mortgage should favor the lender willing to waive the most in closing costs while raising their rate by the least amount, experts say. That will allow them to stay in the home for a longer period before the mortgage becomes more expensive than if they had chosen to pay the closing costs upfront and get a lower rate.

Separately, borrowers who select a 30-year term each time they refinance will be extending the total repayment period, says Keith Gumbinger, a vice president at HSH.com, a mortgage-info website. They might also pay more in interest overall.

For many homeowners, though, refinancing pays off. Anna Pembedjian, a public-policy adviser who lives in Glendale, Calif., refinanced her mortgage twice in the past three years. Her lender offered to waive about half of her closing costs both times, which she says made the decision an easy one.

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Fannie-Freddie Short-Sale Program May Hurt Sellers Credit Scores

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Fannie-Freddie Short-Sale Program May Hurt Sellers’ Credit Scores

Homeowners who qualify for the Fannie-Freddie short-sale program could see their credit scores fall, even when they’ve made timely payments on their loans.

By Kenneth R. Harney

WASHINGTON — With generous new guidelines from Fannie Mae and Freddie Mac likely to stimulate large numbers of short sales by underwater homeowners, what effect will the sales have on the sellers’ credit scores?

It’s a crucial question, because short sales typically cause FICO scores to plummet, sometimes 150 points or more. This, in turn, complicates sellers’ credit capabilities for years and makes additional borrowing — whether for auto loans, credit cards or new mortgages — tougher and more expensive.

The issue arises now because Fannie Mae and Freddie Mac — the dominant sources of home loan funds — recently outlined plans to approve short sales for underwater borrowers who are current on their loan payments, provided that they face an imminent hardship. Although the numbers of participants in the plan won’t be known for months, the two companies combined have about 3.7 million underwater mortgages in their portfolios on which borrowers are making their payments on time, according to federal regulators.

Short sales traditionally have been associated with extended periods of delinquency by borrowers. The technique itself — in which the lender agrees to accept less than what’s owed and the property is sold — usually has been employed as an alternative to foreclosure.

As a result, FICO credit scores — the major risk predictive tool used in the mortgage industry — have severely penalized borrowers who opt for short sales. VantageScore, the FICO rival created by the three national credit bureaus, also hits short sellers with triple-digit point losses.

In a recent blog post, Frederic Huynh, FICO’s senior scientist, said statistical reviews of short sellers by the company concluded that they “represent a high degree of risk” to lenders. More than 55% of short sellers in a sample of borrowers from 2007 to 2009 went on to later default on other credit accounts after completing the sale transaction. This ranks them in the same “heavyweight” risk class as people who have been foreclosed upon, filed for bankruptcy, or had a tax lien or collection account.

But hold on. Won’t underwater homeowners who qualify for the upcoming short-sale program be fundamentally different? Won’t they have solid mortgage payment histories despite being underwater? Why should they have to take the same heavy hits to their scores earned by people who didn’t pay their mortgage for months on end?
Good questions, but it appears that these sellers won’t get the break they deserve. The scoring system, credit experts say, isn’t set up to recognize — or properly report — short sales by on-time mortgage customers to the national credit bureaus. And the credit score companies aren’t planning to make any changes to the penalties their models assign to people who participate in short sales.

Anthony Sprauve, a spokesman for Fair Isaac Corp., developer of the FICO score, says that in general, when a loan is paid off for less than the full balance, it is “classified as a severe negative item” by the FICO scoring model. And “there are currently no plans to change,” he added.

Sarah Davies, senior vice president for research and analytics for VantageScore Solutions, said her company probably won’t modify its scoring algorithms either, despite the fact that the seller was not delinquent and came to a mutually satisfactory resolution with the lender.

Terry Clemans, executive director of the National Credit Reporting Assn., an industry trade group, says this is all inherently unfair for borrowers who have continued to make timely payments on their loans. Crushing them with deep credit score penalties “doesn’t reflect the fact that these people are actually excellent credit risks. They simply encountered an extraordinary situation” — namely, the national home value bust — which put them underwater.

A Fannie Mae spokesman, Andrew Wilson, said his company has no control over how short sales — whether of people who paid on time or those who didn’t — are scored. But when borrowers do a short sale rather than force the lender to foreclose, Fannie rewards them: They are potentially eligible for a new mortgage again within two years of a short sale. People who go to foreclosure, by contrast, may not be able to get a new Fannie loan for as long as seven years.

Bottom line: If you’re underwater and plan to use the new Fannie-Freddie short-sale program this year, don’t bank on any special favors when it comes to your credit score. It looks as if you’re going to take a big hit, despite all your on-time payments.

For-Sale Listings Drop Again, Led by California Cities

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For-Sale Listings Drop Again, Led by California Cities

Falling inventories are a leading driver behind the recent rally in home prices, and the declines point to continued price-strength in many parts of the Western U.S., which are also benefiting from strong investor demand.

Among the 15 cities with the largest year-over-year declines, some 13 were in California, led by Oakland, which posted a 58.4% decline. Other big declines came in Stockton (down 45%), Fresno (down 43.1%), Sacramento (down 42.4%), Riverside-San Bernardino (down 41.8%), Bakersfield (down 41.4%), and San Jose (down 41.1%).

Inventory declines have typically preceded stronger prices if demand stays the same, because more buyers are chasing fewer homes. But low inventory could also curb transaction volumes if buyers, frustrated by the lack of choice, sit on the sidelines.

The two metros outside of California with large declines were Atlanta and Seattle, where inventories fell by 41.1% and 37%, respectively.

Median asking prices, meanwhile, fell by 2.5% nationally from July and were nearly flat compared with one year ago. Asking prices were up from one year ago in 92 metros, flat in nine, and down from one year ago in 45.

The Realtor.com figures include sale listings from more than 900 multiple-listing services across the country.

Inventories tend to increase by around 2% in August over the past 28 years, according to Zelman & Associates, a research firm, as sellers make one last push before the beginning of the school year.

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Repeat Home Buyers a Rare Breed

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Repeat Home Buyers a Rare Breed

By Carolyn Said in the San Francisco Chronicle

After selling their San Ramon home, Erick and Nichole Ormsby recently moved into a bigger house in a better school district in Danville.

Such “move-up buyers” have long been the lifeblood of a vibrant real estate market, accounting for significant chunks of supply as they sell their homes, and demand as they buy larger ones.

But post-housing crash, they remain a rarity.

Even as the market begins to recover, the dearth of move-up buyers is one reason inventory continues to be scarce in the Bay Area and nationwide.

“In the grand scheme of things in housing market history, the repeat buyer – whether move-up, move-across or in the case of empty nesters, move-down – has provided a steady stream” of new listings, said mortgage analyst Mark Hanson. “Now the repeat buyer is down for the count.

“The majority of demand is coming from first-time buyers and investors, who don’t leave a unit of supply for someone else to buy.”

Millions of people who might otherwise be move-up buyers are stuck in place because their homes are underwater. Even people who are not fully underwater can’t move, Hanson said, since they need equity of 5 percent to pay real estate costs in a sale and then another 20 percent for a down payment.

“Households that owe more than 80 percent (of the home’s value) are ‘effectively underwater,’ ” he said. “In California, 53 percent of households with a mortgage are in that category. Nationwide, it is 49 percent of the mortgaged homes.”

He pegs the number of such “effectively underwater” homes nationwide at 25 million.

Fortunate – and rare

The Ormsby family was in the fortunate – and rare – situation of having equity in their home, which they’d owned for 13 years, as well as stable employment.
“We wanted a bigger yard for the kids (ages 5, 7 and 9) in a nice neighborhood that would work for us,” said Erick Ormsby, who is president of Alcosta Capital Management, an investment advisory in San Ramon.

“Interest rates are low, so that was a motivating factor to lock in a low rate now; we got 3.75 percent on a 30-year fixed mortgage. My concern is that the market is going to be getting a lot better and prices will be going up, so it would be harder and harder to get the kind of house we wanted.”

Underwater homes tend to be owned by younger people – the same ones who ordinarily would be seeking larger homes as their families grow, said Stan Humphries, chief economist of real estate site Zillow.com.

Less inventory

“With so many cohorts under 40 being underwater, it has gummed up the treadmill of the housing market. You expect new home buyers to get on the treadmill, accumulate equity, then take a step forward” to a larger house.

Negative equity also is disproportionately concentrated in lower-cost homes – the more affordable residences that first-time home buyers would like to bid on, if they were on the market.

At the same time, foreclosures have fallen, in part because of government programs designed to help people stay in their homes. That also means that fewer of the more-affordable homes are being listed for sale.

“In any given month, only a certain number of homes are trickling onto the market,” said Errol Samuelson, president of real estate listing site Realtor.com. “All these buyers are converging on those homes.”

Out of 146 markets Realtor.com tracks, all but two saw inventory shrink this year compared with the same time last year, he said.

Road to recovery

However, there are some upsides to the slow pace of new for-sale homes, he said.

“As homes become less underwater (and go on the market), it makes for an orderly recovery,” he said.

In fact, the real estate market continues to exhibit signs of stabilizing. On Tuesday, the authoritative Case-Shiller index showed home prices rising in all 20 markets it follows.

The tight inventory also contributes to rising prices, which helps wipe out negative equity and may lure some people to sell.

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Personal Finance: Is a Mortgage Refinance Right for You?

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Personal Finance: Is a Mortgage Refinance Right for You?

By Claudia Buck

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

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