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Delinquencies on jumbo loans continue to rise
Jumbo mortgages are those with an initial principal amount of over $417,000 (in most areas of the U.S. or over $729,750 in certain specified areas), a limit set by Fannie Mae and Freddie Mac. Fitch Ratings, a credit rating agency, says the performance of prime jumbo loan performance in the residential mortgage-backed securities (RMBS) category dropped again in January as serious delinquencies (60+ days past due) rose for the 32nd consecutive month and edged closer to 10%. Prime jumbo loan delinquencies have been rising since the second quarter of 2007. In 2009, the delinquency rate nearly tripled during the year. The serious delinquencies rose to 9.6% in January from 9.2% in December.
“The new year has brought no relief from declining jumbo loan performance,” said Fitch managing director Vincent Barberio. “The trend line for delinquencies indicates the 10% level could be reached as early as next month.” California, which has a 44% share of the total jumbo market, saw the delinquency rate rising to 11.3% in January from 10.8% in December. Delinquency rates rose in 4 other states – New York, Florida, Virginia, and New Jersey — which along with California constitute the top 5 states in market share. The jumbo market in the country is valued at $376 billion and dropping. Grant Bailey, a senior director for the RMBS group at Fitch, said: “In the 05, 06, 07 vintages, close to 50% of borrowers are underwater. That keeps a negative pressure on borrowers and, therefore, we keep a negative outlook on delinquencies.”
Mortgage rate continues to remain below 5%
A survey released by Freddie Mac says interest rates on 30-year fixed-rate mortgage averaged 4.95% for the week ending March 11, down from the previous week’s 4.97%. “During a light week of mixed economic reports, mortgage rates eased somewhat,” said Frank Nothaft, Freddie Mac vice president and chief economist. Analysts believe mortgage rates will rise as the year progresses. I still think rates are going up as the rest of the year goes on,” said George Mokrzan, senior economist at Huntington National Bank. “The odds, at this point, point to an improving economy and with that rising interest rates in general.” Homeowners seem to be adopting a wait and watch approach as home inventory rises. Diane Saatchi, senior vice president at Saunders & Associates, said: “Prices will not tick up until buyers agree to pay above six month-ago prices, and it will happen, but meanwhile sellers who want to sell now, need to give in to the market, not their hopes.” The 15-year fixed-rate mortgage averaged 4.32% in the latest week, down from 4.33% the prior week.
Home price decline slows down
Real estate website Trulia.com says homeowners cut prices for about 19% of listings as of March 01, down by 10% from the previous month. This is the first time price reduction levels have dropped below 20% in almost a year. “Consumer engagement on Trulia remains at an all time high, but home sales have dropped nationally during the past few months because there has been a lower sense of urgency to ‘buy now’,” said Pete Flint, Trulia co-founder and CEO. “As we get closer to the government incentives running out, we expect price reductions to increase as sellers begin to feel the pressure to lure buyers in, in advance of the tax credit expiration.” The average discount for a median house was 11% from the original value. The latest data confirms the downward trend in listing price reductions from the beginning of this year. Trulia.com says homes priced at $1 million and above were discounted at an average rate of 14% on the original list price. Trulia collects data from brokers and agents, third-party providers and multiple-listing services. Undeveloped land and foreclosed properties are excluded from the survey.
Green homes do not find favor with appraisers
Homeowners looking to buy green homes are finding it difficult to convince appraisers to consider the value of energy efficiency equipment while processing the loan application. Lower appraisal value means higher down payment for borrowers. Analysts say this could have a negative impact on equipment manufacturers. “We can’t get lenders to appreciate the value, and if we can’t get the values recognized, manufacturers can’t justify moving these products forward,” said Bill Nolan, a home building consultant. Appraisers say they cannot do much to help. If an equipment costs $50,000 at the time of installation and fetches only $25,000 on resale, the appraisal cannot reflect the full $50,000 value. “It doesn’t do a lot of good to simply add value based on cost,” said David Snook, an appraiser who serves on the real property committee on education for the American Society of Appraisers. “The question is ‘How much will the market pay on resale?’” Homeowners say there is a dearth of appraisers who fully understand how going green adds value. Analysts believe the market participants will appreciate the need for going green in the medium to long-term. “As more American homeowners green their homes, there will be more and more of a premium paid for green homes,” said Ben Kaufman, founder of GreenWorks Realty. “I can imagine a miles-per-gallon type sticker on homes for sale and the marketplace will absolutely favor fuel-efficient homes.”
Retail sales rise unexpectedly in February
According to data released by the Commerce Department, retail sales rose 0.3% in February; this is the fourth gain in the last 5 months. Retail sales excluding autos rose 0.8%. The rise well exceeded estimates made by analysts who expected the winter storms to have a negative impact on retail sales and estimated a drop of 0.2% in retail sales. “The storms were apparently not quite as disruptive as anticipated,” said Adam York, an economist at Wells Fargo Securities. Analysts say consumer spending, which is critical to economic recovery, is showing encouraging signs. “As we start adding jobs in the spring, employees will gain income and hours and retail sales should follow,” said York. Ten of 13 major categories reported an increase in sales in February. Sectors that reported sales increases included restaurants and bars, 0.9%; electronic and appliance stores, 3.7%; food and beverage stores, 1.3%; clothing stores, 0.6%; general merchandise stores, 1.0%; sporting goods, hobby, book and music stores, 1.2%; building material and garden supplies dealers, 0.5% and furniture retailers, 0.7%. Retail sales data are an important indicator of consumer spending, which constitutes 70% of the U.S. economy.
Now on to our real estate investing educational section…
Friday File – 15 Minute Resolution & $50,000
Ever wish you had an extra $5,000, $15,000 or even $50,000 available? It’s not as difficult as you might imagine. Whether using the funds toward a down payment or making necessary repairs, an extra $15,000 or $20,000 tucked away for a rainy day comes in handy for any short sale investor.
This week’s 15 minute short sale resolution will show you how to create an emergency “slush fund” that is able to provide an additional $1k to $25k without the need to work a second (or third) job or other drastic measures. Like most tools, there is a cost for the convenience so it’s not necessarily something you will use every day…just keep this in the sideline for those “must have” deals.
- Collect your driver license and bank account information.
- Sit down at the computer and sign-up for a borrower account with one of the peer-to-peer lending sites; www.Prosper.com and www.LendingClub.com are perhaps the most well known and widely used. Typically new borrowers have better luck getting access to quick funding with a larger pool of potential lenders.
- Start Small! Take out a small loan at first then pay it back promptly to begin building a better reputation and payment history. This will allow you to borrow larger sums at better interest rates later.
- Set-up an automatic repayment schedule with your bank. Automate the repayment schedule so it’s never late and doesn’t require any additional time out of your schedule.
- Repeat the process. Once you have built up a sufficient reputation and are able to borrow up to $25,000 at one peer to peer lending site, repeat the process at another. Remember, start slowly with a small loan, repay it then move on to a larger loan in order to build a solid reputation. Eventually you find it relatively simple to borrow up to $25,000 per site whenever desired.
Peer to peer lending is a simple yet effective way to obtain a “signature loan” without the headache and hassle of going to a big bank or trying to save substantial sums that could be used to finance your next short sale property. Despite the relatively higher interest rates, p2p lending provides a fantastic option for short sale investors in need of fast cash. Take 15 minutes to set up the initial account and chances are you will be pleasantly surprised how fast you can have access to serious sums of cash by the end of this year!
For those searching for other funding mechanisms, be sure to join our webinar or sign-up for additional information.
See you at the top!
Chris McLaughlin
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Copyright Loss Mitigation Institute LLC 2009.
All Rights Reserved.
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About the author:
Chris McLaughlin is widely known as America’s top
Real Estate Attorney and Investment Consultant.
* As the top Florida foreclosure and pre-
foreclosure expert, he oversees more than
100 short sale & REO closings each month
* Long-time authority on real estate investing
and rapid reselling of distressed homes. Owns
portfolio of nearly 100 high-value, high-profit
properties
* Owner of one of Florida’s largest Real Estate firms,
running 4 different offices, supporting over
400 agents, uniquely positioning him to help
thousands of investors make money in the
biggest market opportunity ever!
* Highly sought-after speaker, consultant, and
seminar leader for current trends and hot topics
in Real Estate Investing, Entrepreneurship, and
Wealth Building
* Follow me on Twitter: http://twitter.com/mclaughlinchris
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