Tumbling Homeownership Marks a Return to Normal

 By Chris Farrel

For anyone who owns a home, the past six years have seemed anything but normal. Nationally, home prices are down some 35 percent in that time, and in some cities the drop was almost double that figure. Even with some recent signs of improvement, the housing market is likely to bounce along the bottom for a long time.

Yet in one sense, we’re returning to normal. The homeownership rate in the first quarter of 2012 fell to 65.4 percent. It is now at 1997 levels, 3.6 percentage points below the peak reached in the bubble years—and coming closer to what you might call a natural rate for the U.S. economy.

The share of U.S. dwelling units occupied by owners was remarkably stable from 1900 through 1940, in the mid-40 percent range. Then it jumped to 55 percent in 1950, and to the 60-plus percent level starting in the 1960s. World War II veterans and their families bought homes, and policy legislators encouraged this by actively promoting housing, lavishing such tax breaks on owners as the mortgage interest deduction. The homeownership rate was relatively stable again from 1970 (62.9 percent) to 1990 (64.2 percent).

The embrace of housing ran even deeper. Giant subsidized institutions such as Fannie Mae (FNMA), Freddie Mac (FMCC), Ginnie Mae, and the Federal Home Loan Banks supported home buying. The mortgage industry giants helped create and expand the securitized mortgage market, building an enormous money pipeline between homeowners and the global capital markets. Washington made ownership even more attractive in 1997 by eliminating capital gains on the first $500,000 in profit at sale for joint filers, and $250,000 for single filers. Regulators in the early 2000s cheered the democratization of credit as bankers and their Wall Street partners ginned up all kinds of loans targeted at low-income borrowers, from no-doc mortgages to option ARMs.

As we all know, the ranks of homeowners swelled in the 2000s. Money flooded the market until the rate peaked at 69.4 percent in 2004. The bubble burst two years later. “The way we got to nearly 70 percent was to call a lot of people who had no equity in their homes ‘homeowners,’” says Richard Green, director of the Lusk Center for Real Estate at the University of Southern California.

Homeownership still has its attractions. America is aging, and older folks like the relative security that comes from owning. A home offers roots in a community. Owners also don’t have to worry about landlords raising the rent on them. A home becomes more affordable for many aging Americans as their incomes and wealth increase. For example, even after the dreadful experience of the past several years, the homeownership rate for those 65 and older was 80.9 percent in the first quarter of 2012, essentially unchanged from the 80.8 percent level for the same time period in 2005. In sharp contrast, the rate of those 35 and under was 37.9 percent in the first three months of 2012, down from 43.3 percent seven years earlier.

Fundamental social and economic trends suggest we won’t go back to the near 70 percent homeownership rate. Badly burned bankers and their regulators are more conservative in their practices. Families have changed in ways that will dampen the desirability of owning. Couples are getting married later. Far more important, the average worker has less job security today. Everyone feels they live on a high-wire act as corporations routinely downsize, right-size, reengineer, and overhaul their operations. And that was before the high unemployment rates of the worst labor market since the Great Depression. Laid-off workers have learned the hard way that they need to have the kind of financial freedom that comes from renting.

“We have encouraged people to buy homes, even though we don’t have great job security in the U.S.,” says Dean Baker, economist and co-founder of the Center for Economic and Policy Research in Washington, D.C. “Given what we know about job insecurity you wouldn’t expect a high homeownership rate.” Adds Green: “In the end, a 64 percent to 65 percent homeownership rate is likely where we will be for some time to come.”

Of course, there’s nothing new about changing family structure and rising job insecurity. Washington and the banking industry were simply having too much fun and profit to pay attention. We’ve all learned the hard way that owning any asset—home, stock, or other—is riskier than promoters believed or ever let on.

Fannie and Freddie Set Timeline Requirements for Short Sales

By: Carrie Bay

Beginning June 15, real estate agents working with distressed homeowners whose loans are backed by Fannie Mae and Freddie Mac should expect to receive a decision on a short sale offer within 30-60 days.

The GSEs issued new guidelines Tuesday that fall under the Servicing Alignment Initiative rolled out last fall and aim to bring greater transparency to the short sale process and expedite decisions related to these pre-foreclosure sales.

Not only is a short sale an effective foreclosure alternative when home retention is no longer an option, but it keeps homes occupied and helps to maintain stable communities, according to the Federal Housing Finance Agency (FHFA).

Addressing real estate practitioners’ No. 1 complaint about short sales, FHFA directed Fannie Mae and Freddie Mac to establish a new uniform set of minimum response times that servicers must follow in order to facilitate more efficient short sale transactions.

The GSEs’ new short sale timelines require servicers to make a decision within 30 days of receiving either an offer on a property under the companies’ traditional short sale programs or a completed Borrower Response Package (BRP) requesting short sale consideration, whether it’s through the federal government’s Home Affordable Foreclosure Alternative (HAFA) program or a GSE program.

If more than 30 days are needed, servicers must provide the borrower with weekly status updates and come to a decision no later than 60 days from the date the BRP or offer was received.

According to the GSEs, this 30-day add-on will provide some leeway for servicers who may need more time to obtain a broker price opinion (BPO) or a private mortgage insurer’s approval for a short sale. All decisions must be made within 60 days.

In the event a servicer makes a counteroffer, the borrower is expected to respond within five business days. The servicer must then respond within 10 business days of receiving the borrower’s response.

The GSEs plan to use the new short sale timelines to evaluate servicer compliance with the Servicing Alignment Initiative.

Edward DeMarco, acting director of the FHFA, says the GSEs new borrower communication and timeline requirements for short sales “set minimum standards and provide clear expectations regarding these important foreclosure alternatives.”

GSE servicers must comply with the new minimum communication time frames for all short sale evaluations conducted on or after June 15, 2012, although servicers are encouraged to begin implementing the new requirements sooner.

“I applaud Fannie and Freddie for finally coming out with real guidance with real world timelines for their servicers,” commented Anthony Lamacchia, broker/owner of McGeough Lamacchia Realty Inc., which specializes in short sales. “There is no question that this will help short sales and the market as a whole.”

Last year Freddie Mac completed 45,623 short sales, a 140 percent increase since 2009. Fannie Mae’s short sale completions shot up by 101 percent over the same period, totaling around 79,800 in 2011.

6 tips for a painless closing. Closing on a house can be joyful or horrific. Follow this advice for a smooth settlement.

By Polyana da Costa 


You finally found the house of your dreams. You signed a contract and got approved for a mortgage. You've even hired the movers. Now comes the most important part: the closing.

In an ideal world, closing should be a mere formality, where homebuyer and seller sign on the dotted lines, exchange checks for the keys and shake hands. But this isn't an ideal world, which means that if you and the professionals you hired don't prepare, your closing could be a disaster.

Here are six tips for ensuring your closing goes smoothly.

1. Ask questions
Knowing what to expect and communicating with all parties involved in the deal are key to a successful closing, says Neil Garfinkel, a real-estate attorney at Abrams Garfinkel Margolis Bergson LLP in New York.

A week before closing, "talk to the people who are representing you, and tell them you'd like to spend a couple of minutes to discuss what to expect," Garfinkel says.

Don't be afraid to bother your loan officer or your real-estate agent, says Jeff Richardson, a real-estate agent at Alliance Bay Realty in Newark, Calif.

"Stay on them," he says. "Ask them 'Do you have everything you need?' Don't assume everyone knows what they are doing."


2. Anticipate human error
Richardson says he recently represented a buyer whose closing failed because of missing loan documents. The buyer was a co-signer on his brother's mortgage, and the lender had requested 12 canceled checks showing that the brother, not the buyer, was paying the old mortgage. The buyer could come up with only eight checks, and the loan officer said that would be enough. That was weeks before closing.

"I kept saying that wasn't going to work," says Richardson, who also has worked as a mortgage broker. "The requirement is 12 checks. How can eight checks be sufficient?"   Three days before closing, the lender said it couldn't issue the loan without the 12 checks, and the deal was canceled.

"Sometimes people don't know as well," Richardson says. "I asked his loan officer, 'How can you give someone an approval letter when you don't have all the documentation?' And his answer was, 'Well, now I learned it.'"

3. Review loan documents in advance
One way to ensure all is going as planned is to tell the lender that you want to review the documents before closing, or ask your attorney to do so.

By law, you have the right to review the closing-settlement statement, or the HUD-1 form, at least 24 hours before closing. Compare that form to the good-faith estimate you received when you applied for the loan.
"You should have everything you are going to sign before you sign it," Richardson says. "A lot of people don't do that. When they get to closing, they are nervous, and they just want to sign and get the keys. That's how people get in trouble."

4. Take a check
Another reason to review the loan documents in advance is so you know how much money you must bring to closing. And yes, you will need a check at closing, most likely a certified one.

Many buyers are so anxious and excited that they forget they need to stop at the bank to get the check.
Using a wire transfer is an option, but it may delay the closing, says Rafael Castellanos, a managing partner at Expert Title Insurance Agency in New York.

"Some people think a wire transfer is faster, but the closing won't happen until they have actual confirmation that the wire hit," Castellanos says. "Depending on the time the transfer was made, it could be a huge problem."

The buyer must also bring photo identification and a copy of the homeowners-insurance policy, as well as the good-faith estimate, the HUD-1 statement or both, in case there are discrepancies.

5. Take the day off
A smooth closing may take less than 30 minutes, but you won't know for sure if your closing will go as planned until it's done.

"There may be delays, especially if you are closing at the end of the month," says Rob Nunziata, president of FBC Mortgage in Orlando, Fla. "Sometimes, people have to sit there for hours and say, 'I've got to get back to work.'"

Trying to close during your lunch break is a bad idea, Castellanos says.
"Imagine you get these delays, and you are on your lunch hour," Castellanos says. "Now you're hungry, you're frustrated and you're late. That's a pretty bad combination."

6. Expect the unexpected — including typos
You're at the closing table. You're told everything is good to go. All you need to do is sign.

You must double-check the numbers on the mortgage note you are signing, even if you have received the HUD-1 form before closing.

"One of the biggest holdups in closing is when the mortgage documents are incorrect," Castellanos says. "Sometimes, you have to correct the interest rate, or the amount is wrong and you need to fix it."
Because of a simple typo, your loan documents may need to be sent back to the lender to be redone.
To prepare for these unexpected delays, borrowers should try to schedule their closings for earlier in the day. And don't wait until the last day on the contract to close.
"You shouldn't get to that line, especially when you are buying a foreclosure or short sale," Richardson says.