Major mortgage organizations are extending a helping hand to victims of Hurricane Katrina. For example, Freddie Mac has extended its mortgage relief policies for borrowers affected by the infamous hurricane in locations declared Major Disaster Areas by President Bush. Freddie Mac also announced it is donating $50,000 to the American Red Cross to support hurricane relief efforts. In addition, the Freddie Mac Foundation is matching Freddie Mac employee donations to relief efforts and will double the match if donations support Habitat for Humanity’s hurricane relief efforts.
“Our goal is to help families affected by Hurricane Katrina to keep their homes,” said Richard F. Syron, Freddie Mac Chairman and CEO. “We also want to ensure that families who are displaced from their homes receive the assistance they need.”
Freddie Mac’s disaster relief policies, along with those of other mortgage organizations, provide a number of ways for mortgage servicers to provide borrowers with relief that can help protect their credit ratings and financial interests in their homes. A mortgage servicer is the company to which borrowers send their monthly mortgage payments.
On August 31, it was announced that Fannie Mae is also helping with mortgage relief provisions for borrowers in Mississippi, Louisiana, Alabama, Florida and other states facing hardships as a result of damage caused by Hurricane Katrina. With Fannie Mae’s disaster relief provisions, lenders help borrowers in several ways, including suspending mortgage payments for up to three months, reducing the payments for up to 18 months, or in more severe cases, creating longer loan payback plans. Such assistance is provided on a case-by-case basis, and is designed to meet the individual needs of borrowers.
Also on August 31, the National Association of Realtors announced they would respond to the devastation from Hurricane Katrina by donating large sums of money to support relief efforts.
Current Factors Impacting Real Estate, Mortgages
Positive economic factors over the past month, including low mortgage interest rates, can explain much of the recent increase in home prices and much of the differentials in home value appreciation, it was determined in a recent detailed study of the housing and mortgage markets by the Mortgage Bankers Association.
It was also noted in the study report that investor activity has increased in certain housing markets, especially in coastal areas. And innovative new mortgage products are enabling more consumers to become homeowners. “Mortgage lenders have provided a wealth of new products to meet the affordability requirement, cash flow needs and risk tolerances of a range of borrowers,” the report stated.
It was also noted that borrowers were inclined to increase their risk exposure by choosing a product with low initial payments but greater variability in payments over time. Regulators are doing their jobs by monitoring factors that may potentially present undue risks. “Policymakers should recognize that there are a number of factors that reduce risk to the housing and mortgage markets. A strong economy, growing household worth, a strong banking sector and well-functioning financial markets all work to mitigate risk,” the MBA report said.
Nontraditional Mortgages Gaining Popularity
Applications for “nontraditional” mortgages are on the increase. These loans include such features as interest-only for a specified number of years, “option” adjustable-rate mortgages (ARMs) offering a variety of monthly payment options, and hybrid loans with a fixed-rate for a number of years (usually five) then converting to an ARM.
Nontraditional mortgages accounted for nearly 25 percent of all residential loan production over the past year, according to a Federal Reserve Board survey. More than half of the banks surveyed increased their originations of nontraditional loans over the past year, with larger banks being the most aggressive, the survey report noted.
Nontraditional loan production rose at 21 of the 31 large banks surveyed, compared with only six of the 18 smaller banks. Loan officers at six large banks reported that nontraditional mortgages constituted up to 50 percent of their loan production, while only two smaller banks matched that level of production. Two larger banks reported that nontraditional mortgages represented from 51 to 75 percent of their loan production. It should be noted that the option ARM loans are very attractive to many consumers but carry special risks for both lenders and borrowers. They are now being reviewed by several federal agencies.
Commercial/Multifamily Mortgages Set Record
Commercial and multifamily mortgage originations set a new record during the second quarter of this year. The $44.4 billion in loan originations reported for the second quarter was 25 percent higher than the second quarter of last year and 41 percent higher than the first quarter of this year, according to a report from the Mortgage Bankers Association.
“Capital continues to flow into the commercial and multifamily real estate markets,” said the MBA’s chief economist. “So far, no significant obstacles to that flow have appeared, whether in the form of higher interest rates, declining loan performance or declining property performance.”
Condo Sales / Mortgages Up
Applications for mortgages to finance the purchase of condominiums and town homes are on the increase. Real estate analysts are debating the reason for the surge in condo sales and prices, according to a recent report in Wall Street Journal. Some question whether demographics or speculation is driving the trend. Others attribute the condo boom to demand among single professionals, divorcees, single parents, retirees, and others in search of a low-maintenance lifestyle.
Condos are to the real estate boom what stocks were to the 1990s bull market, it was noted a Money Magazine report. Condo prices have soared 80 percent in the past five years, making the same period’s 40 percent rise for single-family homes look almost pokey. Mix it all together rising prices and sales, record levels of sales and the continuing availability of low-rate mortgage financing and you get a condo market that’s strong and growing.
About 255,000 new condos will be built next year, to be added to the 270,000 that’s projected for this year, according to the National Association of Home Builders. To date, about 802,000 condos have been built since year 2000.
Results of High-Tech Study Revealed
The long awaited results of a Commercial Technology Survey, conducted by the Mortgage Bankers Association, was announced on August 31. It’s the first time MBA. It primarily wanted a comprehensive study of the use of information technology in the commercial and multifamily mortgage industry. A key objective was to establish an industry baseline to measure the degree to which specific information and its correlated mortgage processes and functions are computer-based. The survey is the first in a series of studies by MBA on the industry’s use of technology.
The use of electronic channels to transmit loan information offers a number of potential benefits to the industry, the study revealed. Such channels increased efficiency, reduced processing time, and decreased expenses for the storage and shipment of paper. The results of the survey show what technological leaps industry professionals have already taken and in what areas electronic usage is still lagging. The survey is comprised of one general set of questions for all participants and three sector-specific sets of questions one for originators, one for lenders and one for servicers.
Aerial Photography a Hot Marketing Tool
New high-tech advances continue to create new and highly effective tools for real estate professionals. One of the newest hot-button tools is called “Aerial Mapping Technology.” It allows brokers or their agents to quickly access a birds-eye view, via aerial photography, of listed properties and their neighborhoods. It’s all accomplished on the broker’s personal computer, using newly developed software programs.
Several computer programming firms have introduced the software to generate selected aerial photo views, including Google (Google Earth) and GlobeXplorer (ImageBuilder). Google now offers a basic program that can be downloaded without charge. These photo images are particularly helpful in marketing commercial properties, but they are now being used extensively by progressive brokers when selling homes. It allows brokers to focus-in on neighborhoods where a property is being offered, showing its proximity to shopping and recreational centers, parks, and other desirable points of interest.
For commercial property offerings, it can graphically show its closeness to major highways/freeways, residential communities, restaurants, proposed new developments, etc. The firm “a la mode, inc,” a developer of desktop and Web tools for the real estate and mortgage industries, recently included Google Earth in its package of software offerings. It’s already being used by 61 percent of the firm’s broker clients, it was reported. The big marketing advantage is that the images are actual photographs, not graphic art pieces designed to sell a property. It’s a credible image.
Refi Applications Still Rising
Despite slightly rising mortgage interest rates generally (or perhaps because of rising rates), there has been an increase in the number of applications for refinance mortgages, according to the Mortgage Bankers Association. However, the pace of new applications dropped a bit during the last couple of weeks in August, while interest rates dipped a bit. The general trend is for homeowners to refi their mortgage now before rates inevitably increase.
“The overall number of applications is up 10.6 percent over this time last year while the dollar volume of application is up by 26 percent,” said Michael Cevarr with MBA. “The increase is true for both purchase and refinance applications, no doubt reflecting the increase in home values over the past year.”
Realtors’ Income Increases with Age
A recent report from the National Association of Realtors reveals that a Realtor’s income generally goes up with every year he or she is in business. Realtors who have been in business for six to ten years earn a median annual income of $58,700 up by 18 percent from year 2002. Those who have been in business for two years or less earn only $12,850. Realtors with at least 26 years experience earn $92,600 up 37 percent from 2002.
The median income of real estate brokers in 2002 was $52,800, while sales agents earned a median of $37,600. The median gross income of all Realtors has declined 5.6 percent since 2002 to $49,300. The typical broker sells two of their own listings and six listings of another broker in a year. The median number of a broker’s transaction sides (listings and sales) is 12 per year.
A Cooling Message from Greenspan
The real estate market will probably slow down in future months, with possible declines in home values and consumer spending. That’s the view of Federal Reserve Chairman Alan Greenspan. He said the housing cool-off doesn’t have to be wrenching if the nation preserves its economic flexibility. “The housing boom will inevitably simmer down. As part of that process, house turnover will decline from currently historic levels, while home-price increases will slow and some prices could even decrease,” he said.
There are potential benefits from a housing slowdown, he noted. As prices correct and owners can’t pull as much equity from their homes, personal savings should rise and the enormous trade deficit — which has been closely linked to home equity cash-outs — should decline, Greenspan said. Also, a slowing in the housing market might mean that the Fed, which has been raising interest rates since June 2004 to forestall potential inflation, might not have to push them as far or fast.
More Students Preparing for Real Estate Careers
Commercial real estate is a particularly hot subject choice by enrolling students at today’s colleges, universities and business schools. Classes in real estate development, management and investment all are becoming more popular as the technology sector matures and financial markets offer smaller returns.
Most of the real estate programs concentrate on the commercial segment the area that is more complex and typically has more profit potential. The hottest jobs are with private equity companies that invest in office parks, condominium complexes, and multi-use projects.
Realtor Sues His MLS
There’s nothing illegal or anti-competitive about a multiple listing service (MLS) that’s owned and operated by a regional association of Realtors (affiliated with the National Association of Realtors). That’s true even if they limit their MLS members to those who belong to the association of Realtors. That’s the recent finding of a federal judge in Wisconsin, responding to a broker who filed suit against the MLS and its association of Realtors.
The broker wanted to remain a MLS member but terminate his membership in the local association and NAR. The judge found that the plaintiff had failed to offer evidence that any organization that competes with Realtor groups is damaged by the purported tie between participation in the MLS and being a Realtor (a registered term owned by NAR).
Markets with Overvalued Homes
Homes in more than 50 metro areas in the United States, representing 31 percent of the nation’s housing market, are now “overvalued” and face a substantial risk of price declines, according to a study by National City Corporation based in Cleveland. The study looked at the top 299 real estate markets, representing 80 percent of single-family homes, over the past 20 years. It concluded that 53 metro areas may face price corrections.
Markets with valuation premiums above 30 percent (above what is considered normal) were deemed at risk for price corrections. The study, by National City chief economist Richard DeKaser, found Santa Barbara, California, to be the nation’s most overheated market. This is a city where the median home value is now about $1.2 million.
Jim Woodard writes a nationally syndicated newspaper column on real estate news and trends, carried in about 230 U.S. newspapers – along with freelance features. Reproduction of this report, in part or entirety, is prohibited without the express permission of the author. E-mail: storyjim@aol.com. Web site: www.jimwoodard.net