If you can pull it off, buy a house

NEW YORK – Aug. 13, 2012 – Investment opinions are like, um, noses: Everyone has one. Buy stocks, sell bonds? Go long steel and short copper? Buy sheep, sell deer?

It’s pretty easy to see both sides of an investment argument. But it’s hard to argue against buying a house now, assuming you can get a loan.

The housing cycle is a long one, in part because buying a house moves at a glacial pace, at least compared with the time it takes to buy a stock or bond. If you’re not pre-approved for a mortgage, you have to submit to a credit check, which, these days, is only slightly less intrusive than a CIA background check. You have to get the home inspected. You have to figure out the various fees your bank charges, including the one marked “Just because we can.”

How long is a housing cycle? Pretty long. A relatively modest housing bubble, by today’s standards, occurred in Boston in the late 1980s. Average home prices, adjusted for inflation, hit $310,000 in October 1987. Home prices didn’t hit that level again until May of 2000. Someone who bought at the high had a long wait to get even – particularly in light of the broker’s commission.

Home prices bottomed, however, in March 1993 – roughly six years after the top. History doesn’t repeat itself precisely, but it’s interesting to note that the top of the last housing bubble was six years ago, in 2006.

Why be bullish on housing?

Prices. You can always buy low and watch prices go lower. But by many measures, home prices are still cheap. The median single-family home price – half higher, half lower – hit its nadir in January, dropping to $154,600, the lowest since October 2001, according to the National Association of Realtors. That’s down from a high of $230,900 in July 2006.

Existing-home prices rose in June to a median $190,100, up 8 percent from June 2011. Those are still 2003 levels.

Supply. The good news is that the enormous supply on the market is shrinking. It takes a wearisome amount of time for supply to shrink, in part because there are people who have wanted to sell their homes for many years, but haven’t been able to get the price they want. As prices rise, more homes come on the market.

Nevertheless, Ned Davis Research, a respected institutional research firm, estimates that excess supply of houses on the market should be eliminated by the end of 2013. When excess supply dries up, people start building more new houses, which has the virtuous effect of reducing the unemployment rate and increasing the economy generally.

Mortgage rates. The average 30-year fixed-rate mortgage rate is 3.59 percent, according to mortgage giant Freddie Mac. That’s above the all-time low of 3.49 percent the week of July 26, but close enough. It’s conceivable that at some point in the next 30 years, your interest rate would be less than the rate of inflation.

Assuming you financed 80 percent of the median single-family home, or $152,080, your mortgage payment would be about $691, excluding taxes and other irritations. About $5,589 of your first year’s payments would be tax-deductible mortgage interest.

Thanks mainly to low home prices and interest rates, the NAR’s housing affordability index rose to its highest level on record. (The higher the index, the more affordable the average home. The index also takes into account average family income, which has been falling since 2008.)

What could go wrong? All sorts of things. You may not be able get a loan. Bankers are insisting on checking things that seemed far too troublesome during the housing bubble, like whether you have a decent credit rating, a down payment, or a job.

The other problem is that houses are leveraged investments – that is, you borrow money to buy them. Let’s consider the example above, where someone buys a $190,100 house and finances $152,080.

Your investment is $38,020. Let’s say that the worst happens: Home prices fall, and you have to sell the house for $175,000.

Unfortunately, the bank won’t split the loss with you. You’ll get back $22,920 from the sale, and wave goodbye to $15,100 of your downpayment. That’s a 40 percent loss, even though your house has fallen 8 percent in value.

There are other risks with homeownership, ranging from termites to ghosts in the hall closet. But if you’re planning to live in your home for a long time, you have the money, and you can get financing, it’s a fine time to buy.

Chase makes loan modifications easier

NEW YORK – Aug. 13, 2012 – JPMorgan Chase is reducing home loan interest rates and cutting mortgage debt balances with nothing more than a homeowner’s signature, and sometimes even that isn’t required

No more faxing documents over and over again or waiting months for an answer.

The plan, which is ramping up nationally for eligible Chase-owned loans, is so easy that some homeowners think it’s a hoax.

When a client of Wellington foreclosure defense attorney Malcom Harrison got a letter from Chase offering to cut his interest rate and loan debt without a lengthy paperwork exchange, he brought it to the office to see if it was authentic.

“He asked if it was for real or a joke,” Harrison said. “After some checking and phone calls, we verified it was for real.”

Nearly 8 percent of Chase’s home loans are in Florida.

Chase’s program has two main components. Homeowners whose mortgage payments are seriously delinquent may get a letter offering them a lower interest rate, principal reduction or both, and all they have to do is sign and return the offer.

It’s even easier for homeowners who owe more on their mortgage than their home is worth but have been current on their payments for at least a year. Chase will reduce the interest rate on its own, sending the homeowner their new lower payment amount with no effort needed on their part.

The average savings is $300-a-month for homeowners current on payments.

“Chase is taking a proactive approach to helping homeowners,” a statement from the lender said. “We are sending modification offers, many of which include principal forgiveness, to thousands of families that are struggling with their mortgage payments.”

Chase is part of the 49-state attorneys general settlement announced in February, which requires it to provide about $4.2 billion in mortgage relief to homeowners. Nationally, the $25 billion deal with Chase, Wells Fargo, Citigroup, Bank of America and Ally Financial could provide up to $40 billion in cash, refinances and principal write-downs to homeowners.

Harrison said the settlement is one motivator, but that lenders are also realizing it’s better to have a functioning loan than another foreclosure on their books.

Chase gave another client of Harrison’s a $152,000 debt reduction on his mortgage and lowered his interest rate to 3 percent.

“I think they are becoming more realistic about the real estate and job market,” Harrison said. “At the end of the day it’s always, always better to have a performing loan.”

Danville Braves Zach Jadofsky update

Just to update you on how Zach has done this year with the Danville Braves. After 11 appearences and 18.1 innings with 3 weeks left in the Appalachian League Zach has a Team Leading and miniscue ERA of only 1.47 and a WHIP of onloy .87!!! W@W this has been an awesome season for him so far.....and the Braves are just 4 games back and in the playoffs if it were to end today.. Kepp it up son. Love You

New Rules for loan servicers

Loan servicers face strict federal rules

WASHINGTON – Aug. 10, 2012 – The government’s consumer lending watchdog proposed new rules Friday aimed at protecting homeowners from unexpected costs and shoddy service by companies that collect their monthly mortgage payments.

Mortgage servicing companies would be required to provide clear monthly billing statements, warn borrowers before interest rate hikes and actively help them avoid foreclosure under the proposal by the Consumer Financial Protection Bureau. The rules also require companies to credit people’s payments promptly, swiftly correct errors and keep better internal records.

“The major failures in this industry demonstrate that all servicers need to meet basic standards of good customer service,” CFPB Director Richard Cordray said in a call with reporters. He said the proposal reflects “two basic, common-sense standards – no surprises and no runarounds.”

Mortgage servicers are central players in the nationwide housing crisis because they are responsible for foreclosing on homes when people fail to make payments. They have faced withering criticism for practices including charging excessive fees, foreclosing without completing the required paperwork and failing to help people stay in their homes by changing their loan terms.

Under the rules, companies would be required to provide billing statements that explain how much of a payment is going to pay down principal, how much to interest and how much to fees. If an interest rate is set to adjust, the borrower would receive an early estimate of the new payment amount. That would allow people to consider refinancing if they don’t like the new rates.

The rules also help guarantee that borrowers aren’t forced to pay excessively premiums on homeowners’ insurance that servicers require them to carry. In the past, servicers tacked on insurance when they believed someone’s coverage had lapsed. The premiums could be several times bigger than on a typical policy.

The rules would require servicers to notify borrowers twice before charging them for insurance. They would have to cancel the insurance within 15 days if borrowers proved that they already had coverage.

The new agency has focused on mortgage servicers in part because borrowers can’t shop around and choose a mortgage servicer. Instead, servicers buy the right to collect payments from the original lenders. Servicing rights can be lucrative because they permit servicers to collect fees, for example on late payments.

Under the new proposal, companies would be required to connect delinquent borrowers with staff who are dedicated to helping them avoid foreclosure.

The rules have been a priority for the new agency, which was created under a 2010 law that overhauled financial oversight. The same law required the CFPB to set new standards for many corners of the mortgage industry.

The proposal is open for public comment until Oct. 9. The agency will finalize the rules in January 2013.

The agency posted a complete outline of the new rules on its website.