Thursday, August 27, 2015

You're kidding, right? "housing affordability"

Note the title on a recent post:

"Affordability Remains Unshaken By Home Price Increases"

I'm scratching my head.  How can "affordability" remain the same when the following are true:
1. No real wage advance in the last 8 years.
2. Massive unemployment (that is, people who've stopped looking for work are a huge number); 
3. Continuous price increases since about 2009.
4. Interest rates that are about the same (4%) for the last few years.
My own calculations of affordability put it at about the same levels as just before the last housing crisis.  I don't know where they get their math, but it seems clear to me that affordability as an issue is coming to the front.  
Here's what we need to create truly affordable homes:
1. Better jobs. Nothing happens in real estate without money. Nothing. By "better jobs," I mean, MUCH better. It now takes an average salary of almost $50 per hour to buy a typical San Diego home. That's BEFORE benefits, medical and otherwise.
2. Better ability to save money. We are in a deflation/inflation situation, where the stuff we buy costs more every day, and what we get for what we spend is constantly declining.  The various think-tanks tell us that this is not true, but look in your wallet.  Do you see more or less money at the end of the month?
3. Interest rates that truly reflect the marketplace. You'll be surprised to know that I think interest rates should go UP.  The reason?  Part of the problem we face is that with interest rates where they are, bubbles occur in the financial arena.  At 6% (UGH!) they do not.  A rise in rates would cause a decline in price, but oh well.  A 3-4% rate just doesn't reflect what it costs a bank to do business, and the only way to make money in a scenario like this is through complex financial instruments. These are always worrisome, since much of what's done depends on smoke and mirrors, not honest interest rates.
If you want to read the original article that set me off on this rant, here it is: Good luck figuring out how they got their numbers.

Tuesday, August 25, 2015

PACE liens and the FHA (or what to do about solar...)

The federal government) (through FHA has finally spoken: liens that are identified as PACE liens may still be place on homes to assist in providing energy-efficient retrofits, but only under certain circumstances. PACE liens are an acronym for "Property Assessed Clean Energy Loans," meaning that they become part of the property's assessed tax structure, and pass to new owners when they buy the property.  However, the biggest problem has been that PACE liens were identified as "superpriority" liens, taking precedence over any new loan a purchaser might get. This was not acceptable to FANNIE MAE, FREDDIE MAC, or the FHA, because they state, right in their contracts, that their lien must retain first position, so that they can be sure to collect first. So far, the FHA has spoken most clearly here.  FANNIE and FREDDIE have taken the position that NO lien can be superpriority to their loans, so they have made it clear that they will not buy mortgage loans that are otherwise.  Since FANNIE and FREDDIE still make up over 95% of the secondary mortgage market this means no bank, loan broker, or mortgage holder will make a loan that permits another lien to assume superpriority status. Now the FHA comes with specific guidance for loans that are made for the purpose of energy retrofit (think Solar)
  1. Most importantly, the lienholders have to agree to subordinate their interest to any FHA loan. This is the key, since originally PACE loans were given what was known as "superpriority" status. This means that any lien recorded as a PACE lien could be collected before the FHA could get its money. Not so now.  It's unclear what happens if you obtained a PACE loan prior to this guidance, and I'm guessing that attorneys and courts will decide at least some of this.
  2. The PACE loans must be fully amortized (i. e., they pay off completely), and fixed rate (no adjustable rates).  These loans must be recorded, so that they can be tracked in the chain of title as being "on" the property. Finally, these loans must come with the standard federal consumer protections (and, of course, state protections as well).  
At present, this is "proposed guidance," but it's pretty certain that the final regulations will look very much like these.
This is good news, if you want to buy a home, and then make it energy efficient.  It's also good news for the next purchaser of that home, since he can now be confident that an FHA loan can be used to buy it.


Tuesday, August 4, 2015

Got PMI?

PMI, or Private Mortgage Insurance, is expensive. It insures part of the loan amount if you default, so that the lender is not out of luck if he makes a loan with little or no equity.  You have to pay PMI as a borrower if you get a loan that exceeds 80% of the value of the property when you buy your property.  However, the insurer is supposed to eliminate PMI once your equity increases to 22% of the property's current value. In areas where there is good appreciation, this can happen fairly quickly.  For example, if the property you bought for $300,000 increases in value to $400,000, you should be able to eliminate your PMI.  However, the insurance industry has been pretty reluctant to allow this, since they would like to keep collecting those premiums at least forever.
It's actually the law that they must do this, but I've personally had some difficulty getting them to eliminate their PMI charges. However, the CFPB has just issued guidance that shows when they are required to eliminate their PMI and its attendant charges.
Here's a some of the article quoted.  I've placed a link to the entire article.  You should contact your real estate agent if you think your property has risen in value enough (or if you've paid enough of it off) to eliminate your PMI.  He will help you to get comparable values for your property, which the insurer will require in order to eliminate this insurance charge.
Here's the quote:
"Private mortgage insurance is usually required by lender if the borrower's down payment is less than 20 percent of the sales price or appraised value of the home and are added to the borrower's monthly mortgage payment.
Congress passed the Homeowners Protection Act of 1998 to provide borrowers with cancellation and termination rights with their private mortgage insurance policy, the CFPB says. The law requires automatic termination of private mortgage insurance once the mortgage balance is reaches 78 percent of the original value of the property, among other criteria.
Private mortgage insurance is a huge cost to consumers, but the Homeowners Protection Act provides specific cancellation and termination rights to protect consumers from unnecessary costs. The CFPB advises that if a servicer does not cancel a borrower’s private mortgage insurance in a timely manner, it can lead to the borrower paying significant amounts of money on unnecessary premiums."

And here's the link to the article: CFPB Guidance on PMI.
You'll have to initiate the contact on your own, but the insurers now actually have to be reasonable.