HOME RESALES UP FIRST TIME IN SEVEN MONTHS

Median sales prices plunge record 8.2% in past year Boosted by a record decline in prices, the U.S. housing market showed signs of stability in February, with sales of existing homes rising modestly for the first time in seven months and inventories falling, the national Association of Realtors reported Monday. Resales of U.S. homes and condos rose 2.9% to a seasonally adjusted annual rate of 5.03 million, ahead of the 4.85 million pace expected by economists. It’s the strongest sales pace since October. Sales are down 23.8% compared with a year ago. The median sales price plunged to $195,900, down 8.2% from a year earlier, the largest price decline recorded since the Realtors began tracking both single-family homes and condos in 1999. Prices of single-family homes fell 8.7% in the past year, also the most since the records began in 1968. Sales rose in three of four regions, with the West still lagging. Sales rose 11.3% in the Northeast, 2.5% in the Midwest and 2.1% in the South. Sales fell 1.1% in the West. Median sales prices are down 13.4% in the West, largely because the market for jumbo loans above $417,000 remains frozen.

30- year loan rates rising

Why are interest rates on 30-year fixed-rate mortgages rising even as the Federal Reserve slashes interest rates and yields on Treasury bonds fall? The answer is that the mortgage market is short of roughly $1 trillion in capital. The modern mortgage market works with lots of leverage, or borrowed money. Investors, including hedge funds and mortgage real estate investment trusts, buy mortgage securities, but finance a lot of their purchases with this leverage. The Federal Reserve Board estimates that $11 trillion of outstanding U.S. mortgage debt is supported with roughly $587 billion of equity. That’s a leverage ratio of 19 to one. But last year’s subprime meltdown has undermined confidence in the home loans that back these mortgage securities. Now the banks that finance most of these leveraged mortgage investments have started to pull back and impose margin calls, demanding more cash or collateral to back their loans. This has sparked a de-leveraging cycle in which some highly leveraged mortgage investors have to sell assets to meet margin calls. Forced selling pushes prices lower, sparking more margin calls, which in turn produces more selling and even lower prices. When debt prices fall, yields rise and that’s what’s happening to mortgage securities – even those backed by government sponsored entities including Fannie Mae and Freddie Mac which are considered the safest. The immediate impact is that interest rates on 30-year fixed-rate mortgages will have to increase relative to Treasuries. That is why we are experiencing pressure on mortgage rates despite the downward movement on the 10-year bonds. Rates on 30-year fixed mortgages usually follow the movement of 10-year Treasury bonds, but this relationship has broken down as de-leveraging in the financial system takes hold.

Temporary Loan Limit increase

Washington, DC – The Office of Federal Housing Enterprise Oversight (OFHEO) today released the maximum conforming loan limits that will be in effect through year-end as a result of The Economic Stimulus Act of 2008. That legislation permits Fannie Mae and Freddie Mac to raise their conforming loan limits in certain high-cost areas. The new jumbo limits are a function of median home prices as estimated by the U.S. Department of Housing and Urban Development (HUD). The maximum for temporary jumbo conforming loan limits, which apply to loans originated in the period between July 1, 2007 and December 31, 2008, are as high as $729,750 for one-unit homes in the continental United States. Two, three and four-unit homes have higher limits as well. Alaska, Hawaii, Guam and the Virgin Islands also have higher maximum limits. There are two data sources reflecting the new maximum limits. The first, on OFHEO’s Web site, available at www.ofheo.gov/media/hpi/AREA_LIST.pdf, reports only those counties and Metropolitan Statistical Areas (MSAs) that are affected by the new loan limits. Data for all areas are available on the HUD Web site at https://entp.hud.gov/idapp/html/hicostlook.cfm. Seventy-one Metropolitan and Micropolitan Statistical Areas are affected including 245 counties and cities not in counties. In addition, there are 21 counties outside of Metropolitan or Micropolitan areas that show increases, plus Guam and four municipalities in the Marianas Islands. The newly increased limits range from $417,500 in Greeley, Colorado to the highest of $793,750 in Honolulu, Hawaii. In support of HUD’s calculation of county median home prices, OFHEO provided HUD rural house price indexes for 48 states. HUD used these indexes, which reflect price changes for homes outside of Metropolitan Statistical Areas, to estimate median prices in counties for which sales price data were sparse. OFHEO has made these indexes available at: /hpi_download.aspx.

Insuring a Home Properly

Replacement Cost vs. Market Value:Insuring a Home Properly
Ask an insurance agent, a mortgage broker, and a realtor "How muchinsurance should I have on my new home?" I will guarantee you will getthree different answers. The mortgage broker might say the loan amount, therealtor might say the market value, and the insurance agent, if he or she isdoing their job correctly, will say the replacement cost of the home. Sowho's correct?
In short, it has to be the replacement value for proper insurance protection. Homeowners want enough coverage to rebuild their home if a catastrophe happens. Let's take a look at how an insurance company comes up with this number.
Insurance companies use a computerized "replacement cost worksheet"using historical data of building costs in a given area. This data is compiled by independent companies who do actual surveys of building costs and provide it to insurance companies and others in the construction business.

One of the best known companies providing this information is Marshall & Swift. By plugging in the square footage, year built, number of baths, style of the home, and the home's other amenities into the worksheet, a replacement value is determined. The worksheet also considers the extra cost of rebuilding a home like demolition cost, debris removal, architectural plans, and even environmental costs. The replacement value may be more or less than the home's market value.

FANNIE, FREDDIE TO OVERHAUL APPRAISALS IN CUOMO DEAL

March 3 – Fannie Mae and Freddie Mac, the biggest sources of financing for U.S. home loans, reached an agreement with new York Attorney General Andrew Cuomo to buy mortgages only from lenders that adopt new standards intended to ensure independent home appraisals. The new rules announced today prohibit mortgage brokers from selecting appraisers and lenders from using in-house staff to do valuations for any home loans the government-chartered companies purchase. In most cases lenders will also be barred from using appraisal management firms they own or control. There are many significant provisions in the agreements that are designed to strengthen the independence of appraisers, including eliminating broker-ordered appraisals, prohibiting appraiser coercion, and reducing the use of appraisals prepared in-house or through captive appraisal management companies in underwriting mortgages. The agreements also enhance quality control in the appraisal process and establish a complaint hotline for consumers. The agreements include a Home Valuation Code of Conduct that the Enterprises will apply to lenders selling mortgages to Fannie Mae or Freddie Mac. The Code becomes effective on January 1, 2009.