Subprime mortgages are loans made to borrowers who are considered to be higher credit risks because of past payment problems. Since these loans are so profitable, the market has grown at a 39% annual rate from $120 billion in 2001 to $625 billion in 2005. But if a borrower can’t pay back the loan, the costs of this rapid growth become apparent. Up until 2005, if a borrower could not pay back the mortgage, the borrower could sell the house and use the proceeds to pay the mortgage company.

In October, borrowers were 60 days or more behind in payments on 3.9% of the subprime home loans packaged into mortgage securities this year — nearly twice the delinquency rate on new subprime loans recorded in 2005. And UBS expects 2006 to be “one of the worst ever for subprime loans” with 80,000 subprime borrowers behind on their payments. The way this happened with subprime mortgages is similar to what is going on now in lending to private equity buyouts. In subprime mortgages, the initial success during the real estate boom caused lenders to relax their standards and loosen their requirements for documentation. In 2003 and 2004, defaults were unusually low and investors who bought the mortgages did well and wanted more. (more…)

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Democrats plan to use their new majority status in Congress to expand the mortgage market for tens of thousands of home buyers in Massachusetts and other states where high housing prices are limiting use of federally regulated mortgage programs, according to Capitol Hill lawmakers. Representative Barney Frank, a Newton Democrat set to become the chairman of the House Financial Services Committee in January, said he will aggressively push legislation to ease current restrictions on the amount of a mortgage that can be held by Fannie Mae and Freddie Mac, two private mortgage companies chartered by the federal government.

Current law sets a limit — currently at $417,000 — on the maximum amount of a housing loan held by Fannie Mae and Freddie Mac. But because home prices in Massachusetts are comparatively high, relatively few buyers can benefit from the programs, housing advocates said. Frank said he will use his power as chairman to seek a change in the law to correlate the mortgage cap to the price of housing in an area, instead of a flat limit that now applies to all areas of the country. The current rules “keep them from doing luxury housing in Nebraska,” but severely limit opportunities for what would be considered middle-income homebuyers in Massachusetts, Frank said. (more…)

search for : mortgage market, Representative Barney Frank, House Financial Services Committee

To hear many reports from my media colleagues, there’s no reason to buy real estate today because the “bottom’s fallen out,” the “balloon burst,” etc. With the real estate market down (number of sales AND dollar volume), you might as well put your money somewhere else — how about the stock market or in bonds? Following this philosophy, then whenever any investment tool drops in value — dump it. Stocks, bonds, real estate, mutual funds — it doesn’t matter which vehicle, park it, get out and hitch a ride on the fastest moving investment possible … right? Actually, for the real estate investor who does his homework, money can be made in any market. You just have to decide on your profit methodology: cash flow or asset growth. Both are available in today’s market, and the savvy investor must be sure to conduct due diligence on the bottom line.

Most real estate assets grow consistently year after year. What the last few years created in the short-term, however, is what it usually takes years to create — thousands of dollars in equity growth. The usual way this growth occurs is by using other people’s money (OPM) to grow your equity along with the usual appreciation. OPM is one of the most powerful investment tools out there. Most people use OPM to purchase real estate (the mortgage) with a little bit of their own money (down payment). Each month after you buy a house, there’s the monthly mortgage payment. Thus, your second use of OPM is the rental payments you receive from your tenants. Now, you’re growing that equity month by month, plus paying the interest, fees, etc., with the funds provided to you from the tenants. (more…)

search for : real estate, balloon burst, real estate investor, other people’s money, OPM, monthly mortgage paymen

If you are a serious home buyer, the absolute best time of the year to buy is between Thanksgiving Day and New Year’s Day, even extending through Super Bowl Sunday in many cities. The reasons are (1) few home buyers are in the market during the holiday season so competition is low and (2) house and condo sellers who have their homes listed for sale now are usually highly motivated to sell and will listen to any reasonable purchase offer.

Thousands of home sales take place during this “slow season.” New-home builders are anxious to close sales by Dec. 31, 2006, so they are offering amazing sales incentives such as (1) no mortgage payments for several months, (2) free upgrades, (3) no closing costs, (4) 100 percent mortgage financing, and (5) even reduced sales prices. But sales incentives for buyers of resale homes are different. Motivated sellers (and their anxious listing agents) are willing to listen to all reasonable purchase offers. Buyer negotiation strategies include asking for the seller to pay the mortgage loan fee and/or nonrecurring closing costs. In other words, it’s a great time to be a home buyer. (more…)

search for : Super Bowl Sunday, highly motivated to sell, mortgage payments, 00 percent mortgage financing, Buyer negotiation strategies, mortgage loan fee

Control. Cost-efficiencies. Choice. These are three of many reasons why radiant heat is gaining in popularity with today’s time-strapped, environmentally-conscious, value-driven homeowners. For builders, radiant heat can help drive higher profits and bring back to market Gen X and Gen Y buyers who purchase products and services that afford them control, cost- efficiencies and choice.

“Electric radiant floor heat is more efficient than forced air or convection heat for two reasons: first, because comfort can be achieved at a lower set point on the thermostat, typically 65 to 67 degrees F for electric radiant heat as opposed to 71 to 74 degrees F for forced or hot air heat; and, second because electric radiant heat does not heat the air, but rather it heats objects, including human beings, in the same manner that the sun warms objects behind a window on a cold winter day,” explained Steven D. Bench, Managing Member, Heatizon Systems. “While it is true that hot air rises it is also true that heat has a propensity to go to cold. The hot air produced by a forced air convection heating system carries the heat with it towards the ceiling where it is not needed, resulting in wasted energy and a higher set point at the thermostat to achieve comfort.” (more…)

search for : homeowner, Electric radiant floor heat

We have been trying to sell our condominium unit for several months, and finally our real estate agent presented us with a contract. Although the price was lower than we were hoping to get, we decided to accept that offer. In reliance on that transaction, we entered into a contract to buy another property. Our buyer had a contingency for a home inspection, which was done to his satisfaction. He specifically advised our agent that he was removing the contingency.

Your agent must immediately advise the buyer about his bounced check and give him five business days to make it good. The agent should advise that buyer that if this is not done, he will be in default and that you will sell the property to the third party. If that third party offer is acceptable, you should sign it, but make it clear that this is a backup contract. You — or your agent — should advise the third party of all of the facts, since full disclosure will avoid any future litigation. You should consider using this language: BACK UP CONTRACT: This contract is a first back-up to a contract dated ______. This contract shall become the primary contract immediately upon delivery of notice from the Seller that the other contract is void. The rights and obligations of the parties under the primary contract are superior to the rights and obligations of this back-up contract. (more…)

search for : condominium, home inspection

One of the many unsavory features of the home loan market is that borrowers, when they close on their loans, sometimes find their settlement costs substantially higher than the earlier estimates given to them in the Good Faith Estimate of Settlement (GFE). Lenders are required by law to provide the GFE to borrowers within three days of receipt of a loan application, but the GFE is sometimes used in bad faith. Some lenders as a matter of course raise their fees or add new ones as a loan moves toward closing. This is especially easy to do on purchase transactions when borrowers pass a point where there isn’t time to begin again with another loan provider. Some lenders low-ball third-party fees as an inducement to borrowers who believe they can shop total fees, then raise them at closing.

The MBA also proposes a limit on deviations between the third-party charges including title costs contained in the GFE and those paid by the borrower at closing. They would cap the deviation on the total of such charges at 10 percent. This would curb some of the worst low-balling, but it would not do anything to reduce third-party charges, which are far higher than they would be if they were sold in competitive markets. I will have an article about this next week. (more…)

search for : home loan, settlement costs, Good Faith Estimate of Settlement

I’ve already given my husband Gerry a Christmas present: He can finally decorate the outside of our house however he likes. That’s because this year I’ve finally given up my losing battle against gaudy holiday decorations. Back in 1992, when Gerry and I spent our first Christmas in our new house, I knew exactly how I wanted to decorate for the holidays. I went out and spent about $150 to buy strings of white lights for the bushes and the railings along the front porch, and electric candles and wreaths for the front windows. I wanted to surprise Gerry, so I decorated the house myself.

By the time we finished decorating last year, our home looked like it had a split personality. My delicate white lights and wreaths were fighting for attention with Gerry’s blinking, multicolored carnival. What’s more, by my count we’d spent nearly $600 to create this unfortunate mish-mash. Defeated, I decided this year to give in to Gerry’s longing for fun holiday decorations, and left the white lights and candles in their boxes. Last weekend we spent another $24 to replace the strings of white lights with multicolored ones. After we finished hanging up the decorations, Gerry said triumphantly, “There, doesn’t that look better than the plain white lights?” And I have to admit, our home does look better with one personality instead of two — even if that personality is a bit loud for me. (more…)

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New York, if nowhere else, still makes the Port City seem like a bargain. Even a one-bathroom fixer-upper back in Mamaroneck, a New York City suburb, would have run a half-million dollars, said Jennifer Hughes, a recent Wilmington arrival. Instead, she and her husband bade farewell to their two-bedroom apartment there for milder climes and a chance to raise their three kids in a house.

Last week, the National Association of Realtors reported a 1.2 percent drop in home prices during the third quarter of the year. But in the Wilmington area, including New Hanover and parts of Pender and Brunswick counties, the median home price was $205,000 in October, a record high for the month, though down from the all-time high of $224,000 in July. The median is the midpoint on a list. The number of homes sold, however, was down nearly 17 percent for the month from last year and 18 percent from October 2004. “I haven’t done the volume I did last year, but I did better than any year previous,” said Martie Rice, a Realtor in Wilmington since 1993. “People who first experienced the market in mid-2004 to the one of 2005 experienced such a fluke, it’s hard for them to compare.” (more…)

search for : Port City, New York City

There is a difference between insulating a building and sealing it, so the contractor is correct in that regard. However, I sense he is also making some misleading and overblown claims about his product. With standard blown-in fiberglass attic insulation, bits of fiberglass are blown into place with air. The loft of the fiberglass/air combination creates millions of tiny air pockets, which in turn slows down the movement of heated air from the house and helps keep that heat from being lost and therefore wasted.

R-value, which indicates how well a material resists the passage of heat through it, is a consistent, calculated value. So when the building codes require R-38, that means R-38, whether it’s from fiberglass, foam boards, sprayed foam, or any other material or combination of materials. And while the foam does offer some definite sealant properties that will contribute to a warmer home, that certainly does not account for an additional R-14 in insulating value. I would suggest that you contact whichever local utility company supplies the fuel you use as your primary heating source – electricity, gas, etc. They can provide you with a wealth of information about weatherization and insulation, and can assist you further with what will work best for your home and who the reputable local insulation contractors are. (more…)

search for : insulating, fiberglass attic insulation, R-value, weatherization