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Creative Financing: Help During the Housing Downturn

17-Dec-08

With home prices falling in many parts of the country, sales slower than normal in other parts and mortgage standards higher than any time since the late ’80s, buyers and sellers can both benefit from creative financing - owner finance, lease options, lesser known grant and loan programs, and more. Buyers stand to benefit by taking advantage of bargains in the market that may be gone when mortgage markets start functioning better and federal money starts inflating home prices again. Sellers who offer creative financing in this market will really stand out to buyers who need to purchase and are cut off by a bad mortgage market; trying to sell in this market means going all out with your marketing and creative financing can be a part of that.

Both buyers and sellers need two things:

  • Agents experienced with creative finance. This almost always means agents with experience before 2001 when the “subprime” loan market made much creative financing obsolete - for a few years.
  • Good information.

Over the next few weeks I’ll be updating this site to provide these two things. I’m reposting here my old “Low Down and No Down Real Estate!” guide updated with current information. I’m inviting real estate agents with creative financing experience to contact me for inclusion in a referral database and buyers to contact me for referral to an agent near you. Finally, I’ll be linking to the best literature available elsewhere on the topic to help with the details of your transactions.

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Mortgage rates drop, housing news mixed this week

12-Dec-08

This week brought more muddled news for the housing market. Both Freddie Mac and the Mortgage Bankers Association reported drops in Fixed Rate Mortgage (FRM) rates and increases in Adjustable Rate Mortgage (ARM) rates this week. Last Friday, the Mortgage Bankers Assocation reported mortgage delinquency rates at an all time high, two days after reporting an all time increase in mortgage applications; this week, the MBA reported a small drop in mortgage applications. The National Assocation of Realtors reported a small monthly drop in the Pending Home Sales Index on Tuesday, but the previous month’s index was revised upward and the index came in well above Wall Street economist’s expectations.

NAR chief economist Lawrence Yun noted that the index has remained fairly stable for the last year, spiking upward when mortgage rates improved in August:

We did see a spike in August when mortgage conditions temporarily improved, which underscores two things – there is a pent-up demand, and access to safe, affordable mortgages will bring more buyers into the market

The large pent up demand has been noted here frequently.

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Freddie Mac Conforming Rates At a Glance

  • 30-year FRM: 5.47%, 0.7 point
  • 15-year FRM: 5.2%, 0.7 point
  • 5-year hybrid ARM: 5.82%, 0.6 point
  • 1-year ARM: 5.09%, 0.4 point

Average Mortgage Rates from the Mortgage Bankers Association

30-year FRM: 5.45%, 1.23 points*
15-year FRM: 5.09%, 1.26 points
1-year ARM: 6.76%, 0.26 points

* Points reported by Mortgage Bankers Association in this survey include origination fees as well as traditional discount points. Average rates are based on an 80% LTV loan. This means a loan amount no more than 80% of the property value as determined by the lower of the purchase price or appraised value. Typically this means a 20% down payment, though an 80% loan can also be achieved with a second mortgage carried by the seller or a third party lender for the difference between the actual down payment and 20%.

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The best sign yet - Record jump in mortgage applications

05-Dec-08

The Mortgage Bankers Association reported a record weekly increase in mortgage applications as rates fell on long term Fixed Rate Mortgages (FRM) last week. Freddie Mac reported rates down for the week ending December 3, as well, though the rates were higher than the MBAA reported rates from the week ending November 28, possibly indicating a minor increase in rates early this week. (The rates are not the same because the MBAA rates include jumbo mortgages and others that don’t conform to Freddie Mac standards. This usually means MBAA reports higher rates.)

According to Freddie Mac’s chief economist Frank Nothaft:

This week’s decline was the largest since the week of November 27th, 1981, and 30-year FRM rates are now almost a full percentage point lower since the last week in October.

As noted here before, there have been signals that there was plenty of pent-up demand in the housing market waiting for rates to drop or some signals of stability in the market. The big increase in rates confirms that again. According to Orawin Velz, Associate Vice President of Economic Forecasting of the Mortgage Bankers Association many buyers had been sidelined since rates rebounded after falling in August:

Many borrowers missed an opportunity to take advantage when rates dropped sharply for a brief period when the GSEs were placed under conservatorship. When rates plummeted following the Fed’s announcement that it would buy GSE debt and MBS, many of those on the sidelines decided to quickly jump in and take advantage of lower rates before they began to rebound.

Freddie Mac Conforming Rates At a Glance

  • 30-year FRM: 5.53%, 0.7 point
  • 15-year FRM: 5.33%, 0.7 point
  • 5-year hybrid ARM: 5.77%, 0.6 point
  • 1-year ARM: 5.02%, 0.5 point

Mortgage Bankers Association Average Mortgage Rates

  • 30-year FRM: 5.47%, 1.16 points*
  • 15-year FRM: 5.13%, 1.28 points
  • 1-year ARM: 6.61%, 0.52 points

* Points reported by Mortgage Bankers Association in this survey include origination fees as well as traditional discount points. Average rates are based on an 80% LTV loan. This means a loan amount no more than 80% of the property value as determined by the lower of the purchase price or appraised value. Typically this means a 20% down payment, though an 80% loan can also be achieved with a second mortgage carried by the seller or a third party lender for the difference between the actual down payment and 20%.

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Foreclosure freezes announced amid mixed housing news

20-Nov-08

The housing news this week has been a mixed bag, with good news on interest rates and a decline in new housing starts offset by a drop in new mortgage applications and with Freddie Mac and Fannie Mae following the lead of Citigroup, JP Morgan Chase and Bank of America in announcing a foreclosure freeze.

Thursday Freddie Mac and Fannie Mae followed the lead of many large private lenders and announced a 6-week moratorium on foreclosures and evictions of occupied homes, which will provide some temporary relief to the fire sale mentality in some districts. The move is practical as well as humanitarian as it will provide an opportunity for some of these homeowners to qualify for housing bailout refinance loans and for the lender’s workout departments to help avert some foreclosures in other ways. For more information about workout options and avoiding foreclosure see this page.

The Mortgage Bankers Association reported Fixed Rate Mortgage (FRM) rates down and 1-year Adjustable Rate Mortgage (ARM) rates up for the week ending November 14 and Freddie Mac reported rates down across the board for the week ending November 20. The Mortgage Bankers Association also reported a 12.6% drop in new applications for home purchase mortgages. Refinance applications rose 2.6%.

Housing starts fell last month as builder sentiment hit another record low with Wells Fargo/National Association of Homebuilders reporting its Housing Market Index at 9. The index of sales expectations held steady.

Freddie Mac attributed the drop in interest rates to continued signs of economic weakness, which reduce bond market inflation fears, and noted that:

the Federal Reserve during its October 28-29 committee meeting lowered its economic growth forecasts for 2008 and 2009, according to its minutes released this week.

Possibly one of the best signs for the mortgage market and, eventually by extension, the housing market has been the recent narrowing of the gap between the Freddie Mac conforming 1-year ARMs and the Mortgage Bankers Association’s 1-year ARM average, which includes jumbos and other non-conforming mortgages. The MBAA rate had been reported above 7% even as the longer term rates were under 6%. Though the rate is still higher than the long term rates, there’s been a significant drop that indicates some improvement in the market for these loans.

Mortgage Bankers Association Average Mortgage Rates At a Glance

30-year FRM: 6.16%, 1.24 points*
15-year FRM: 5.87%, 1.24 points
1-year ARM: 6.80%, 0.63 points

Freddie Mac Conforming Rates At a Glance

  • 30-year FRM: 6.04%, 0.7 point
  • 15-year FRM: 5.73%, 0.7 point
  • 5-year hybrid ARM: 5.87%, 0.6 point
  • 1-year ARM: 5.29%, 0.5 point

* Points reported by Mortgage Bankers Association in this survey include origination fees as well as traditional discount points. Average rates are based on an 80% LTV loan. This means a loan amount no more than 80% of the property value as determined by the lower of the purchase price or appraised value. Typically this means a 20% down payment, though an 80% loan can also be achieved with a second mortgage carried by the seller or a third party lender for the difference between the actual down payment and 20%.

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Mortgage applications rebound, slowing economy brings rates down

14-Nov-08

Both the Mortgage Bankers Association and Freddie Mac reported a drop in Fixed Rate Mortgage (FRM) rates in their latest surveys, with Freddie Mac reporting an increase in 1-year Adjustable Rate Mortgage (ARM) rates and the Mortgage Bankers Association reporting a drop. The Mortgage Bankers Association also reported that new mortgage applications rose last week, 9% for purchases and 16% for refinances.

Freddie Mac’s chief economist attributed the drop in rates to signs that the overall economy is weakening and noted that

the actions of the Fed in recent weeks to assist commercial paper markets appear to be thawing part of the credit freeze that has gripped capital markets in the U.S., giving banks some breathing room. This is the second week that rates have come down for fixed-rate mortgages

Average Mortgage Rates from the Mortgage Bankers Association

30-year FRM: 6.24%, 1.17 points*
15-year FRM: 5.9%, 1.12 points
1-year ARM: 6.77%, 0.43 points

Average Mortgage Rates from Freddie Mac

30-year FRM: 6.14%, 0.7 points
15-year FRM: 5.81%, 0.7 points
5-year Treasury Indexed hybrid ARM: 5.98%, 0.6 points
1-year ARM: 5.33%, 0.5 points

* Points reported by Mortgage Bankers Association in this survey include origination fees as well as traditional discount points. Average rates are based on an 80% LTV loan. This means a loan amount no more than 80% of the property value as determined by the lower of the purchase price or appraised value. Typically this means a 20% down payment, though an 80% loan can also be achieved with a second mortgage carried by the seller or a third party lender for the difference between the actual down payment and 20%.

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