A great time to buy or refinance

November 25, 2011
| By Pete Daly |
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With home mortgage interest rates at record lows, it should be a great time to buy. And the fact that the Obama administration is trying to help strapped homeowners refinance also should add to the mortgage business.

In Kent County, however, the total number of mortgages of all types filed by the Register of Deeds has been lower this year than last year. The total number from June through October this year was 8,757; the same period last year saw 10,172 mortgages registered.

“The big thing that people are excited about now is obviously interest rates,” said Todd Neckers, a Grand Rapids attorney. “‘It’s a great time to buy’ is what all those signs said that were in front of every house for sale, for months and months and months.”

Neckers said banks are “raising their standards on who qualifies for a mortgage” to protect themselves against more foreclosures.

Nyal Deems would definitely agree. A partner at Varnum Law in Grand Rapids, Deems works in the firm’s real estate practice group. The former mayor of East Grand Rapids, Deems recently served as the president of the American College of Mortgage Attorneys and is also a member of the American College of Real Estate Lawyers. He was recently named Grand Rapids Real Estate Lawyer of the Year by U.S. News-Best Lawyers.

Deems often attends legal conferences around the nation involving real estate financing.

“The general comments are the same,” he said. “We are still in a recession. Lending is largely unavailable for real estate matters. The lenders, of course, express that they’re ready to make loans, they’re looking for people. … But the reality is, they aren’t. Not because their statement is false, but just because they have tightened up on their requirements so much that it is very hard to get a loan.”

Deems said individuals seeking mortgages now are “going to be asked to submit a lot more information on their income in recent years,” more than was asked of applicants before the subprime mortgage market melted down and helped trigger the recession. Lenders now want “some concept of (the applicant’s) potential” to keep making the mortgage payments.

The appraisal of the home also will probably receive more scrutiny than it used to, he added.

Before the recession, he said, home appraisals seemed as though they were “being printed off a machine somewhere,” adding he was aware of cases in which appraisers who had made an appraisal “never even made a site visit to the property.”

Deems said there was a general expectation, before the housing market failed, that “everything only goes up (in value) and will keep getting better, and you don’t have to worry too much” about buying a house.

“So now we’ve had the pendulum swing over — probably too far — the other way,” he said.

Meanwhile, there is over-capacity — “an awful lot of unsold (homes) in the marketplace, just from foreclosures,” said Deems, noting that these are not just in blue collar neighborhoods.

Another factor that keeps more houses on the market longer is that “nobody wants to accept how far their (home) values have fallen.” People who believe their home is worth perhaps $300,000 “won’t sell it for $200,000. So they keep sitting on it,” said Deems.

Property tax assessors often tend to be reluctant to reduce the value of houses very much, in Deems’ opinion. “I think you’ll find most houses still just overpriced, and I think they’re over-assessed in terms of property value,” said Deems. “I know a lot of people who are trying to sell their house at a third less than what it is assessed at, but the assessor is only giving them a 5 percent reduction in their assessed value.”

Deems said he believes that records on sales indicate that “the sale prices are not down 5 percent from what people thought their property was worth; they’re down more like 20, 30, 40 percent. And I think that’s true of commercial, as well.

“For all this cheap money, it has not resurrected the home marketplace. And why? Because we have all these other factors — all these people unemployed and these people whose incomes were cut. And even if their income isn’t cut, now they are paying twice as much for health insurance than they were before. They also have the scare factor all over — that this isn’t a rosy, increasing market (for home values).”

In October, the Obama administration announced further changes in the Home Affordable Refinance Program to make more people eligible. The program is just for mortgages backed by Fannie Mae or Freddie Mac.

Cynthia Lowman, of United Bank Mortgage Corp., is president of the West Michigan Mortgage Lenders Association. She said many people don’t even realize they qualify because their mortgage — unbeknownst to them — is now backed by Fannie or Freddie. (Those websites can indicate whether a specific mortgage is covered or not.)

A post on the White House blog (whitehouse.gov/blog) noted that the median home price in the U.S. in 2006 was $227,100. By May 2011, it was down to $158,700. At least 5 million Americans have lost their homes to foreclosure, and one in every three home sales is either a short sale or a foreclosed property. Nearly 11 million Americans owe more on their property than it is worth.

The blog article states that many Americans are “not eligible to refinance because the decline in home prices have made their property worth less than what they owe. … All of these factors have contributed to a climate where new homes are being built at the lowest rate since World War II and where homeowners feel trapped by financial circumstances outside their control. Those two things together are holding back the recovery.”

The new rules announced Oct. 24 open HARP to nearly anyone with a mortgage backed by Fannie Mae or Freddie Mac — even if their outstanding loan is far more than their home’s current value, according to the blog posting. However, the applicants must be current on their payments, have had no late payments in the last six months, and have not made more than one late payment in the past year.

Some of the costs and fees that were dissuading people from taking advantage of the HARP will be waived.

“Millions of individuals could see up to $2,500 in savings every year,” states the blog.

Lowman said United Bank has used the HARP program “fairly extensively” with the bank’s current borrowers, as well as with some borrowers whose mortgage is with another lender but is backed by Fannie or Freddie.

Another advantage of the new HARP is that it no longer requires the mortgage holder to be occupying the property; it used to have to be the borrower’s primary residence.

The HARP program does not require a formal appraisal, which saves the mortgage holder some money — and, of course, interest rates are much lower now.

However, Lowman said United Bank has not seen a lot of refinances in which the borrower still owed more than 100 percent of the home’s value. She said that seems to indicate they probably could have refinanced without the HARP incentive.

The revamped HARP also is intended to increase competition among the lenders in a refinance, but Lowman said she isn’t convinced that it will make lenders in general “any more excited about doing this program.”

The first day for the revised HARP is Jan. 3.

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