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NAR – 20% downpayment and stringent regulations unfair

A proposed rule by federal regulators to impose a minimum 20% down payment, stringent debt-to-income ratio requirements and rigid credit standards will deny millions of Americans access to safe, low-cost mortgages, according to the National Association of Realtors (NAR).  In a comment letter, NAR expressed dissatisfaction over the unduly narrow definition of qualified residential mortgages (QRM) that would be exempt from risk retention requirements. Non-QRM mortgages will have higher interest rates and fees, making home ownership more expensive or unattainable for many of today’s aspiring home owners. NAR urged regulators to withdraw the proposed risk retention rule and go back to the drawing board.

NAR criticized the proposed rule’s 20% minimum down payment requirement, saying it ignores strong evidence that responsible lending standards and ensuring a borrower’s ability to repay have the greatest impact on reducing lender risk. The low foreclosure rate among Federal Housing Administration and Veterans Administration loans, which have the lowest down payment requirements and relatively low default rates, is further evidence that the key to safe lending is sound underwriting and documentation rather than high down payments.  Based on NAR estimates, it would take more than a decade for a family with a median household income to save enough for a 20% down payment. A 10% down payment would take a family more than eight years to save. The impact on minority and first-time home buyers would be even worse, said Phipps.

The comment letter offered a number of suggestions to regulators. Considering the significantly higher mortgage rates and fees for non-QRM loans, regulators should define QRM to include safe and sound mortgages, coupled with sound underwriting and full documentation of income and assets, and require risk retention only for those mortgages with risky product features like teaser rates and balloon payments, or weak underwriting.  NAR also recommends dropping the rule’s debt-to-income ratio requirement because the marginal reduction in defaults is not worth the negative impact on consumers.  NAR is also concerned that certain underwriting elements of the risk retention proposal would further reduce access to credit for the commercial and multifamily real estate industry, which could curtail the nation’s economic recovery.

There is broad opposition to the regulators’ proposed QRM rule among banking, housing and consumer advocacy groups, who have joined forces and forged the Coalition for Sensible Housing Policy, which includes 46 organizations and is focused on drawing attention to the proposed regulation.

Consumer spending down

The Commerce Department said consumer spending slipped 0.2%, the first drop since September 2009, after edging up 0.1% in May.  Economists polled by Reuters had expected spending, which accounts for about 70% of U.S. economic activity, to rise 0.2%.  When adjusted for inflation, spending was flat in June after easing 0.1% the prior month. The decline came even as gasoline prices retreated from their peak just above $4 a gallon in early May and suggested the much-anticipated bounce back growth in the third quarter would lack vigor.  Consumer spending barely grew in the second quarter, inching up at an annual rate of only 0.1%—the weakest pace since the end of the 2007-09 recession. Spending increased at a 2.1% rate in the first quarter.  The weak spending in June reflected tepid income growth after employment growth ground to a near halt in June, with nonfarm payrolls rising only 18,000. Income ticked up 0.1%, the smallest increase since November, after rising 0.2% in May.  Disposable income ticked up 0.1%, also the smallest increase since November. But when adjusted for inflation, disposable income rose 0.3%. With real disposable income outpacing spending, savings rose to $620.6 billion from $581.7 billion in May.

Texas housing market trending at 2009 levels

Real estate markets nationwide reported steep drops after the federal homebuyer tax credit expired last year, but Texas sales continue to track alongside 2009 levels, according to the Texas Quarterly Housing Report.  While the Lone Star State’s second-quarter sales fell 12% from a year earlier, Texas’ total sales volume of 58,795 homes was inline with 2009 levels, suggesting the market is maintaining a steady pace with or without federal stimulus.  “Texas has dominated national headlines for economic strength, which makes it clear the recovery continues in our state,” said Jim Gaines, an economist with the Real Estate Center at Texas A&M University, which publishes the report.  “Given the impact of last year’s tax credits, I’m not surprised to see fewer sales this quarter compared to last year,” Gaines said. “If anything, I’m surprised to see that sales volumes didn’t lag further behind 2010.”

The median sales price in Texas hit $150,400 in the second quarter, up 1% from a year ago. The average price rose 4.6% to $201,288, suggesting strength in the high-end market. In both areas, Texas is an outlier since many other markets have experienced drops in both average and median price.  “The increase in the average price of Texas homes indicates more activity among higher priced homes,” Gaines said. “Buyers of higher priced homes have been less impacted by tightened mortgage lending standards and real estate has been an attractive investment vehicle due to instability in other investments, such as securities.”

Debt deal reached

Congressional leaders voiced confidence the Senate will vote today to ratify a U.S. debt- limit compromise that will avert a default even as it defers decisions on the nation’s finances to a bipartisan panel and may only modestly reduce deficits while slowing economic growth.  The House voted 269-161 yesterday to approve the measure, which raises the national debt ceiling enough to fund the government until 2013 and threatens automatic spending cuts to enforce a goal of cutting $2.4 trillion over the next decade.  That goal falls short of the long-term deficit savings that President Barack Obama and Republican leaders initially sought. The political obstacles to reaching even the lower target are formidable, though the measure’s sanctions improve prospects “a bit,” said Peter Orszag, Obama’s former budget director.  A $917 billion down payment in discretionary spending reductions contained in the measure is back-loaded so more than two-thirds of the cuts come after 2016. The spending reduction next year is $21 billion, less than two-tenths of a percent of U.S. gross domestic product.

Senate holds mortgage hearing

The Senate Banking Committee will hold a hearing Tuesday to develop a new national mortgage servicing standard.  In January, federal regulators announced a new initiative to develop a set of servicing standards following weaknesses in the process that arose last year.  The industry immediately began pushing for a unified approach, and regulators are at work with the 50 state AGs to align new requirements, especially for servicing nonperforming loans.

Already, Congress is hearing from those who would like to be exempted from guidelines they see as too burdensome, especially for smaller institutions.  B. Dan Berger, the executive vice preside of the National Association of Credit Unions, sent a letter to Senate committee leaders Monday asking for an exemption.  “In short, credit unions have not participated in the practices that have led to discussions about the worthiness of national mortgage servicing standards and should not be unjustly punished for the shortcomings of institutions that have,” Berger said. “While it is important that the bad actors who failed thousands of their borrowers are held accountable, we would oppose extending any new compliance burden stemming from national mortgage servicing standards onto good actors such as credit unions.”

A review of more roughly 2,800 foreclosure files at the 14 largest mortgage servicers last year led regulators to conclude that although the issues were indeed widespread, the largest institutions showed the most signs of activities such as robo-signing, dual-track foreclosures and unnecessarily delayed modifications.  Sen. Olympia Snow (R-Maine) and Sen. Jeff Merkley (D-Ore.) introduced legislation in May that would establish federal standards for mortgage servicers, but it was attached as an amendment to another bill and has yet to make it out of committee.  Testifying before the committee Tuesday will be representatives from the Hope Now alliance of industry servicers, investors and counselors and a member of the Independent Community Bankers of America.  No one from the major mortgage servicers will be taking questions at the hearing.

See you at the top!
Chris McLaughlin

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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 150 high-value, high-profit
properties

* Owner of one of Florida’s largest Real Estate firms,
running 4 different offices, supporting over
420 agents, uniquely positioning him to help
thousands of investors make money in the
biggest market opportunity ever!

* In 2010, Chris’ 4 Central Florida real estate offices
closed 2,786 sides for a closed sales volume of
$392,912,927!

* 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
* Join my Facebook Fan Page: http://www.mclaughlinchris.com

We knew it was coming, but the negative news from retailers today weighed on the markets, sending stocks tumbling for the second day, with the Dow Jones Industrial Average dropping 443.48 to 8,695.79.  Department stores like Penney reported a 13% drop in same store sales, Macy’s dropped 6.3%, and Target Corp. slid 4.8%.  But the luxury stores were hit the most, with Saks Inc. declining 16.6% and Nordstrom slipping 15.7%.

There was one bright spot for most US consumers, especially Realtors who drive clients around: crude oil plunged 7% amid concern of a global economic slowdown.   U.S. crude prices dropped $4.53 to $60.77 a barrel, well below the high of $147 a barrel reached in July.  The decline, while bad news for oil companies, will mean further relief at the pump for many Americans and a possible uptick in sales for large SUVs.

Now, on to our real estate investor section…

Top 5 Growth Markets for Short Sale Investors

Ever wonder where people are moving? According to recent data published by the US Census, the top projected growth markets for the nation between now and 2030 are as follows:

1.     Arizona

2.     California

3.     Florida

4.     Nevada

5.     Texas

The first thing any short sale investor should notice is that “Growth” is ranked – not total population. Growth represents the percentage of population increase rather than existing population. This is an important concept when it comes to the purchase of any real estate investment because growth is equal to demand. The greater the demand the greater future appreciation and future value of the land and property. When deciding where to buy your next short sale investment property select a combination of affordability and growth potential for a win-win combination.

If growth markets are where the future values lies then it should come as no surprise that dying markets should be avoided at all cost. According to the same data, there are three areas actually losing people even while the rest of the nation shows an increase in population due to birth rates, longer life-span and immigration.

Think twice before investing in real estate in these states; you need to be cautious as there are more people leaving the area than coming in. Less people means less demand and less demand will eventually lead to lower prices and little to no future appreciation. To add insult to injury, property taxes are likely to increase on those remaining property owners in an attempt to provide basic services with declining revenue base. Dying markets include:

1.     Washington DC  (although this could be reversed with a new Administration coming to DC)

2.     North Dakota

3.     West Virginia

While selecting a growing or contracting market is one piece of the puzzle when it comes to making an informed real estate investment decision, it’s not the only one. Price, location, return and more are each important aspects to consider before purchasing any short sale property.

See you at the top!

Chris McLaughlin, J.D., M.B.A.
web: http://www.shortsalesriches.com/welcome.html
e-mail: info@shortsalesriches.com

Phone: (800) 452-7627

P.S.:  Want to learn how a 27 year old kid makes six figures a month flipping short sales?  Join us TONIGHT, Thursday, at 9 PM EDT and 6 PM PST by registering for our fr’ee webinar:

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