Archive for September, 2011

Are Fannie, Freddie, and the Banks Scaring People Away From Home Buying?

Monday, September 19th, 2011

Despite the fact that it is now cheaper to buy than to rent in many communities, home sales are still not up to normal levels.

Why? Because too many would-be buyers are afraid to become caught in another price crash. After home prices plummeted – sometimes as much as 66% – those buyers are afraid of being stuck with a home that is worth far less than they paid.

The threat is real.

While no one can cite a specific number of homes in shadow inventory, everyone knows they’re out there, and if the banks suddenly release large numbers of them into any given market, they’ll drive prices downward.

Right now, S&P estimates between 4 and 5 million homes are sitting in “shadow inventory” status. This includes homes which have already been repossessed, and homes that will in all probability be repossessed.

Fannie Mae, Freddie Mac, and the Federal Housing Administration own approximately 92,000 homes right now, and they want to get them out of inventory quickly, so they could be hitting the market before long.

However, those who want to own homes should ignore the threat posed by shadow inventory.

During the “boom” years home ownership came to be regarded as an investment – one that should grow each year. But for individuals and families who need a home, this is an attitude that can keep them throwing away money on rent for decades.

A home is a safe haven – a place that is your “castle,” your private retreat where you can do and say whatever you please. It’s the place where you gather your favorite things and enjoy your favorite people. It’s a place to put down roots and stay.

Unless you plan to relocate within the next few years, buying a home today is a smart move. Even if prices take another dip, rents will not. In fact, as more homeowners go into foreclosure, rents have been rising. It’s the law of supply and demand at work.

And right now, with prices down and interest rates hovering around 4%, it is time to get moving. An interest rate increase of just 1% will wipe out any savings you might see even if home prices fall another 11%. So buy what you can comfortably afford, put down roots, and quit worrying that your new home might be worth less next year.

Just like a family heirloom – if you don’t intend to sell it, it doesn’t really matter what your home is “worth” on a given day.

Chase, Bank of America, and 15 Other Banks Sued by FHFA

Thursday, September 8th, 2011

On September 2, FHFA filed lawsuits against JP Morgan Chase, Bank of America, 15 other banks, and 132 individuals.

The lawsuits, filed in the U.S. District Court for the Southern District of New York and a federal court in Connecticut, are civil suits requesting a jury trial. The plaintiffs seek a monetary judgment, although there are many in the real estate industry who would prefer to see criminal charges.

The subject of these lawsuits is alleged violations regarding the sale of residential mortgage-backed securities sold to the GSEs – Fannie Mae and Freddie Mac.

We find it interesting that at one time the Federal Government was urging banks to loosen their loan requirements so that “All Americans” could own a home. The banks did so, and placed thousands of families and individuals in homes with little to no down payment and low “teaser” interest rates that almost guaranteed failure when the loans re-set to normal interest rates.

Next, when the loans began to fail, the government declared the banks “too big to fail” and handed over bail-out money to keep them afloat.

Now those same banks are being sued. Why?

The reason given is their failure to follow underwriting guidelines with regard to the loan to value ratio of homes being financed, the occupancy stipulations, and the borrower’s ability to repay.

However, it also appears that these banks didn’t want investors to know the quality of the loans they were selling. According to charts published on the Mortgage News Daily website, the banks misrepresented the loans included in the packages they sold. Thus, the lawsuits allege fraud.

For instance, a look at 5 packages sold by Bank of America shows a gross misstatement of the number of loans with a loan to value ratio of over 100%. While they call it misrepresentation or carelessness – it seems difficult to “accidentally” enter “zero” when the actual number is anywhere from 14% to 20%. They also misrepresented the percentage of loans with a less than 80% loan to value. Since those are the loans that don’t carry mortgage insurance, wouldn’t it be easy to correctly calculate their numbers?

It will be interesting to track the results of these lawsuits. It will be more interesting to see what effect they might have on borrowers coming into the market, needing new mortgage loans. Let’s hope this doesn’t cause yet another problem for the housing industry.

Technologically Advanced Credit Card Theft

Thursday, September 8th, 2011

Before technology made things easier for credit card thieves, they dug through trash to get credit card statements and carbon copies with card imprints. Now they don’t have to get their hands dirty. Instead, they hack, phish, or skim their way to theft.

Earlier this year, thieves were able to get into the systems of Michaels Stores, Sony, Epsilon, Citibank, and even the security expert RSA. Sometimes they only got names and email addresses, but sometimes they got credit card numbers as well.

Here are 5 of the most common ways thieves use to access your information:

Secret Scanning: Crooks, moonlighting as bartenders, sales clerks, or waitresses use a small hand-held device to swipe and store your credit card information. The scanning device, about the size of an ice cube, fits easily into a pocket. All he or she has to do is have the card out of your line of sight for a few seconds

The fraudulent credit card reader: This one takes a bit of nerve, as well as acting ability.

Generally used in stores with limited staff, a team of thieves stage an “emergency” that takes the clerk away from the register. While the clerk is gone, one member of the team stays behind at the register and switches the credit card reader with a fraudulent reader. This one not only collects data for the store’s charges, it collects data for the thieves.

After several days, the team returns to the store, once again distracts the clerk, and switches the fraudulent reader for the original.

The Skimmer: Any credit card reader that’s unmanned for a portion of the day or night can be compromised by this one. It takes only a few minutes to set up and blends into its surroundings so well that only a trained eye is apt to spot it.

All that’s necessary is a few minutes to work unobserved and a place nearby where a crook and his or her laptop can hole up while the skimmer is working.

This is a small device that fits neatly over the slot at an ATM, a gas pump, or a vending machine. It emits a Bluetooth signal that can be picked up by the laptop and allows the crooks to capture credit card information from every consumer who inserts a card to make a purchase or withdraw funds.

The Hacker: This devious character preys on websites with low security. He installs a bit of software called malware that infiltrates a computer or a network. When you visit the site, it automatically and instantly downloads into your computer and allows the hacker to access your information.

The hacker can go almost anywhere – including the computer systems of banks and other businesses. From there, your personal information becomes his open book.
The Phiserman: Phishing also uses malware, but he sends it to you via email. Once you open the attachment, he’s in. From there he can access all your information. One form of malware, called spyware, allows the hacker to capture every keystroke you make – including your account numbers, PIN numbers, and passwords.

Because this hacker has access to your computer, he can send malware from your name to everyone in your address book – making his malicious message look as if it came from you.

What’s the point of all this? Money, of course. Depending upon the buyer and the information gathered, the thieves can get from $5 to $40 per compromised account.

How can you protect yourself?

  • Set up alerts so you know immediately if there’s unusual activity on your accounts.
  • If you must use public computers, don’t check your email.
  • Use a separate email address for all financial activity – and don’t have other mail sent to that address. You’ll instantly spot a phishing scheme coming to that address.
  • Don’t open unknown attachments. If something appears to be from a friend but doesn’t look like their normal correspondence, call or email them to ask if they sent it. Often, the answer is no.
  • Check your accounts online regularly. The sooner you catch fraudulent transactions, the sooner you can put a stop to further damage.
  • Only shop online with vendors you trust. Even they can be compromised, but they’re safer than dealing with unknown vendors.
  • If you find evidence that your accounts have been compromised, act quickly. Notify your financial institutions, law enforcement, and any one of the “big three” credit reporting agencies: Experian, Equifax, or TransUnion. They’ll set a fraud alert on your credit reports.

Can you absolutely avoid having your credit card information stolen? Not any more. Not if you use your cards. So be careful and be on the lookout for any suspicious activity.

Low Interest Rates and the Housing Market

Thursday, September 8th, 2011

In mid-August, Freddie Mac reported that the average 30 year fixed-rate home loan had dropped to 4.15%. That put interest rates at their lowest level on record since 1971. Some say they’re the lowest that they’ve been since the 1950′s.

So while home sales remain slower than normal, mortgage lenders are busy refinancing homes and lowering payments for thousands of homeowners. In fact, some lenders have raised their rates in order to slow the flood of refinance applications.

Others are encouraging their customers to get started. While interest rates are expected to remain low over the next two years, home prices could still see a drop. Thus a homeowner who has equity today could find themselves underwater by next year – and unable to refinance without bringing in cash.

In addition, this shaky economy could mean job loss or a drop in income. By next year, they might not qualify even at a low interest rate.

And of course, if they can refinance today, why should a homeowner pay an extra several hundred dollars per month in interest for even one more month?

Since home prices are back to 2002 levels in many parts of the country, home sales should be booming. So why aren’t more buyers jumping on this opportunity?

Buyers are still worried about the economy. If they purchase a home – even with a low payment – will they be able to pay for it later? Few today feel secure in thinking their jobs will still be there next year, or even next month.

Buyers wonder if prices and interest rates will drop even more. This shouldn’t be a concern for a consumer who wants to own a home and live in it for the next several years, but there are those who want to be sure to hit the “bottom of the market.”

Many would-be buyers simply don’t qualify. Banks are making it tougher to get a home loan even with good credit. And those who have gone through a foreclosure or short sale still have a few years to wait before they’ll be eligible for a new loan.

Appraisals are all over the board. When Federal regulations mandated that mortgage lenders must order appraisals through a third-party service, appraisals soon became the major hurdle to home buying or refinancing.

Appraisals are too often assigned to out-of-area appraisers who don’t know local values and have not viewed the homes used for comparables. Thus, their values seldom reflect the true market value of the homes in question, and that can bring the transaction to a halt.

When they come in too low on purchase, the loan is denied. When they come in too high on a short sale or a bank owned property, the asset manager refuses to allow the house to be sold for the fair market value.

What do we need to make the housing market rebound faster? Jobs – and some faith in the economy.

Economic Attitudes and Their Effect on Home Sales

Thursday, September 1st, 2011

The way consumers feel about the economy plays a large part in the housing recovery – or non-recovery, but overall concern doesn’t seem to quite as strong as one would expect at first glance.

A National Housing Survey conducted by Fannie Mae this summer found that up to 70% of the population believes that the U.S. economy is on the wrong track. This leads to pessimism, concern about job security, and reluctance to commit to debt.

But while we think recovery efforts are misguided, are the majority of us really that worried about our personal finances?

This past April – June, Fannie Mae conducted a telephone survey of over 3,000 people. That survey revealed that while the majority think the economy is going the wrong direction, only 26% were concerned about job security. Of this group, 65% still view this as a good time to buy a house. In contrast, of those who are not concerned about job security, 76% think now is a good time.

If you do the math, you’ll see that overall, 73% of Americans think now is a good time to buy a home.

So why are they waiting? Perhaps they believe they have plenty of time to wait and see what happens next. Only 26% expect home prices to rise over the next year, and few expect interest rates to rise.

In keeping with national statistics, 26% of respondents reported that their mortgage is underwater. 42% of those borrowers are stressed by their debt, and 9% have considered defaulting on their mortgage loan. Overall, only 4% of all mortgage borrowers say they’ve considered defaulting.

When discussing changes from last year, the numbers who reported higher debt (16%) vs. less debt (19%) and an improving financial condition (25%) vs. a worsening condition (26%) were surprisingly balanced.

Looking at the difference in overall financial condition between homeowners and renters, it is the renters who report the greatest improvement: 36% against only 18% of homeowners. Not surprisingly, homeowners who are underwater were more likely to report that their financial situation had deteriorated.

Pessimism seems to rule when it comes to the economy – only 39% of those interviewed expect their financial condition to improve over the next year. This may be why consumer spending almost ground to a halt during the second quarter of 2011. Consumers simply don’t want to take on more debt when they are unsure about having the money to pay those bills.

Renters of single family homes have slightly different opinions about the home ownership than those who dwell in multi-family housing. 74% of the single family renters believe that owning a home is more sensible than renting, while only 68% of the multi-family residents hold that belief.

However, well over half in both groups say they will continue to rent rather than buy the next time they move.

As you’ve seen, it’s not because they don’t believe in home ownership. It turns out that 70% are pessimistic about their ability to obtain a loan, so probably won’t even make the attempt. Respondents cited reasons including debt, down-payment, income, job security, and credit history as blocking their way to home ownership.

Disclaimer: This information has been compiled and provided by as an informational service to the public. While our goal is to provide information that will help consumers to manage their credit and debt, this information should not be considered legal advice. Such advice must be specific to the various circumstances of each person's situation, and the general information provided on these pages should not be used as a substitute for the advice of competent legal counsel.