Home Mortgage and Refi harder to get

Home Buyers and Refinance: US Home buyers and refinance applicants will soon find mortgages harder to set

Fannie Mae gets tough with home loan borrowers through mortgage lenders

Fannie Mae is the largest source of money for the U.S mortgage industry and has warned mortgage lenders it will be raising some of its qualification standards for people buying homes, whether first homes or second home buyers, and also for those seeking mortgage refinance.
The changes to Fannie Mae Mortgage standards include lowering Loan to Value Ratios.

In the past mortgage borrowers could buy homes with no money down in some cases, but typically a 3% deposit [down payment] would get home buyers over the line.
Starting from October 2012, the changes to lowering loan to value ratios for some adjustable-rate mortgages to 90 percent, down from a maximum of 97 percent.
Mortgage applicants also require a better credit history than previously, with an increased credit scores requirements for certain loans.

Low doc home loans for the self-employed tightened

Fannie Mae also will start demanding more tax returns from self-employed borrowers. Many are expecting that many borrowers in self employment will suddenly find many mortgage avenues closed to them, and this may make some homes harder to sell.

Tougher Guidelines for Mortgage lenders

Fannie Mae (FNMA) and its smaller Government Sponsored Enterprise mortgage intermediary Freddie Mac, guarantees mortgage-backed securities financing of two-thirds of all new loans, so more misery for the housing market is likely to continue for some time

Fannie Mae told Mortgage Lenders that the adjustments were part of regular reviews of data and loan performance.

Both Fannie Mae and Freddie Mac will need to provide annual reports on actions they are taking “to reduce taxpayer exposure to mortgage credit risk.”

The requirement is part of changes to the companies’ bailouts agreements the Treasury Department announced Aug. 17.

Credit Scores Fannie Mae’s tightened standards include an increase of minimum credit scores for adjustable-rate mortgages needing to be at least 640, up from a previous minimum of 620, [on a scale ranging from 300 to 850, with 850 being clear credit], and removing flexibility to move on this with mitigating circumstances. The concept of benchmarking will also be eliminated. Instead, 36 percent will be the “stated maximum,” [This ratio can be as high as 45 percent if the borrowers meet credit score or cash reserve thresholds.]

This “provides more transparent requirements with regard to how compensating factors must be applied,” Fannie Mae said. Borrowers without credit histories will only be able to apply for single family homes they intend to live in [owner occupied] Appraisals to be more thorough Another thing that has changed with that Fannie Mae will require a full inspection to appraise the value of the property. [No more drive by, or kerb-side appraisals will be accepted.]

Sworn Appraisals will mean valuers will be liable for overstating values and this has also been a problem in Australia in the past.

Duplexes get relaxed LVR

An exception to loan tightening rules is duplex dwelling unit blocks upping the LVR to 85%.

Fannie Mae is also loosening some standards with the loan-to-value ratio allowed for some fixed-rate loans on two-unit properties will increase to 85 percent, from 80 percent. Down payment requirements [deposits] also will fall for certain co-op loans.

Australia is watching these mortgage tightening

These developments are being watched in Australia, with several similar recommendations being made by the RBA and other Peak finance groups concerning Low doc loans and Loan to value ratios and even interest only home loans.

Source: Mr Mortgage.com.au

Australia’s Housing Shortage: Morgan Stanley suggests its an urban myth?

Morgan Stanley recently released research that pointed to Australia having a glut of housing, rather than the much touted housing shortage. Who is right?

I have heard about this housing shortage since 2003 and wondered where all the tent cities were being erected in Australia to justify these claims. And maybe teenagers couch surfing were adding to the confusion.

Housing Shortage, Fact or Myth: Australia goes from an estimated 228,000 housing shortfall to a 341,000 home glut!

So how did we get this 569,000 housing turnaround whist building around 140,000 homes a year, and demolishing many older homes?

The inconvenient truth? The estimated 228,000-home shortfall, cited by everyone from the construction industry to economists at the major banks as evidence for why prices remain so high, may, in fact, be an excess of 341,000 homes, according to Morgan Stanley.

Where are all of Australia’s Tent Cities?

Have you ever wondered how these all the people are living whilst we catch up building that 228,000 new homes to fill the housing void? And where are the tent cities that must be sprouting like mushrooms in our Capital Cities. I see them is the US all the time. 228,000 homes short would mean 750,000 people living on the streets? Or maybe we count couch surfers? and teenagers that have a tiff with Mum and dad and decide to camp out in the car when surf’s up?

Vacant homes

Asians and in particular the Chinese love to buy residential real estate in Australia, but many of them don’t care for the rent as, and the upkeep that they invite when used by tenants. So there are over 100,000 homes built where nobody is living in them. Ditto for long-term holiday travellers. Many of these homes are never rented out to tenants.

Then there are the homes build in places nobody wants to be anymore. Country towns that become ghost towns. Ever heard of homes for $1 or free building blocks in these towns? I used to know a farmer who kept buying neigbouring properties for the land. He never used the homes. He had several vacant.

Spin pays the bills and sells homes

Whether the new housing figures are accurate will only become clear in time, as house prices either level off because real estate is scarce, or prices fall and attract more scrutiny about the fundamentals of the market.

The absence of robust and consistent house price data

There is no clear, undisputed authority of information in this area crucial to the economy. But house price movements should let us know what impact elevated or falling property prices have on other aspects of the economy because we don’t have a long history of clean, robust and comparable data to rely on.

In the US, the S&P Case-Schiller index, which measures changes in prices of the same properties over time, and that is only 25 years old. So where do investment gurus pull 100 year figures from?

Long range price growth figures: Where do they come from? Advertised asking prices or real sold prices, including demolished homes.

The problem I have with any long-range figures is that they only rate the homes that are still standing,and over 100 years maybe more than half the housing stock may be demolished. So counting just the best ones that are left is a hardly a way to determine the appreciation of housing generally. Its taking a generalisation and making it a specific. But what about the home that was bought, and later demolished. Surely its now worthless and represents a loss of capital? When these homes are included in the overall picture, actual returns surely lower.

In Australia, Residex’s repeat sales index goes back to 1991, in the middle of a Sydney house price correction on the back 17% pa interest rates, and just before the two-decade run-up of housing values began. So these figures and a deliberate distortion of the true picture in my view. Prior to that Sydney home prices collapsed near 50%.

In a similar distortion we have all seen share market growth starting from after the 1987 Share Market crash.

One thing for certain is that it is unwise to expect the “boom conditions” to persist indefinitely. That is an interesting term. I thought the boom finished in 2010?

In 2010, Reserve Bank governor Glenn Stevens appeared on breakfast TV to warn viewers it was a mistake to ”assume a risk-less, no-brainer, and even guaranteed way to prosperity is just to leverage property”.

Well surprisingly since that time, Most of Australia’s new jobs generated have been full-time, and wages are growing too, and whilst I too believe that rental property is still a good route to wealth, we need to be told the full facts and the real figures so we can make informed decisions. Is that too much to ask?

Source: Mr Mortgage

All Ponzi Schemes must end: Australia’s 2002 to 2010 Real Estate Ponzi Scheme won’t die easy

The US housing Market crashed in 2008, after its Real Estate Ponzi Scheme defied gravity for four years.

But someone imported the Ponzi scheme virus into Australia, and this one won’t die as quickly or as suddenly in the US. It’s yet to diagnosed, let alone cured, but die it will. And the longer it takes the greater the fall.

How to go bankrupt without even trying.

How do you go bankrupt without trying. By buying a home and paying too much.

How do you go belly up by really trying. Easy. Buy an investment property using the equity of your home, and cross colateralise the two loans. That way yo go broke and you lose your home at the same time. Nice one.

Is the Titanic about to sink in Australia?

I believe that who buy homes under the current price of land, will most probably go under with it, like the Titanic going down and sucking everyone near it down to the icy depths that is financial ruin. Will we see tent cities like in the US? I don’t thing so. We have a decent Government in Australia that puts people before the Almighty dollar.

Australia’s reality check

But street dwellers, soup kitchens and “couch surfing” friends and relatives that lose their homes are real possibilities for people who have paid too much for their homes.  That’s why the Labor Government and the RBA have got it right, in the primary focus of keeping people in Work, and in their homes. And in putting downward pressure on home prices, because they are still too high in Australia.

America’s Shame

America’s shame is that the fact they did neither, and the well concealed shambles that was the US mortgage Industry, became Barack Obama’s surprise package gifted to him by a Wally called George Bush. And now the rhetoric that we are going to build up America to be great again, sounds like the echoes we get from our right wing politicians. Small government, slash spending, stop the entitlement mentality, build up the military, work hard, pray hard and you will be rich. Yeah we have that BS going round here too!

Someone needs to point out that the 1950’s will not be returning anytime soon to these Polly Wally heads. And like praying for rain in a drought, or for the rain to stop in a flood, it’s a folly that some of our leaders actually believe.

First a little background about the Author

I have sold new homes and house project contracts for builders in the 1980’s, the 1990’s, and the first and second decades of this century. In between I have done mortgage finance. I have seen the booms and the busts.
The last month I left AV Jennings in 1985, I sold 7 homes in Adelaide, Australia. All sales stuck.
The typical house and land package in those days was $40,000, 3 bedroom, 2 car garage and two bath.
The land component was around $8,000.
When I bought my block to build on in Ormeau, QLD, in 2002 the blocks were all around $70,000. [640 sq metres] I got mine at $60,000 in a repo sale. Someone had put a thousand dollars sown, but never made a payment.

How the Great Australian Ponzi Scheme was created, fueled & sustained

The GST was introduced in mid 2000, and that killed home sales.  I understood the GST [Goods and Services Tax of 10%], never applied to land or land development. The Howard Governments answer? Free entitlements that will make it drop dead easy to sell houses. No deposit homes became an open secret, and so the Ponzi Scheme started.
Yet eight years later land prices had risen four times. And no one has ever asked why?
The cost of building a home [the home construction element] has not even doubled, in spite of shouldering the GST plus all the extras builders have had to add to meet new Government standards for power, and water saving standards.

How the Banks poured petrol on a blazing house Market

The banks became the big winners out of this Ponzi scheme, because they “sold assets” that will be returning them income for the next 25 years. How? By making credit easy. Way too easy, and financing borrowers on the basis of repayments based on un-sustainably low-interest rates.

How the Land developers kept the Ponzi growing

When I came up to Queensland I quickly worked out what developers were up to. The persuasion model is called scarcity.
I wanted to build a home, and looked at land. The land salesperson would show me three lots. I knew they had 50 lots to sell, but they never disclosed it. I wanted to see every block so I could determine what was best for me to buy, not what was most convenient for the developer to sell me.

My real estate career that never was

I even got sucked into the Ponzi scheme and got a Rea estate sales licence in 2003, with my local real estate agent offering me a position. There was an US real estate agent working there at the time, and he pulled out a real estate book to show me land prices over there. There were lakeside land lots at $35,000, yet here we were paying $250,000 for that type of land here, and he was asking why? Well that’s when I realised that we had all been sucked in, and that was the end of my stint at Real estate. I knew it would end in tears.

Soon the real estate industry shrunk by 20%, and it has recently shrunk by 40% according to a couple of mortgage mangers I spoke to last week. They are saying that mortgage brokers have shrunk by 40% in Australia, and that it could be 50%.

Creating an illusion of scarcity to keep the buyer stampede going.

Since 2005 we have heard an urban myth, That there was a chronic shortage of homes in Australia. Its been echoed by the Howard Government, the HIA, land developers and real estate agents. But house builds kept falling and prices started to fall for the first time in a long time. If you believed that one you got sucked into the Ponzi scheme between 2006 and 2009, you bought at the very top of the market.

In 2009 I was working for a builder and one developer who had 50 lots ready to go, would only allow me to package 5 house and land packages. We were willing to market 50 house and land packages, and make  full colour brochures as free fliers, but no. They only wanted me to do 5, because they wanted the land to appear scarce when it wasn’t.
Slowing the builders and the home buyers down has meant that prices have risen to levels that people can’t afford. A Ponzi scheme hatched by land developers. Supported by builders.
It gets worse. Local and State Governments have become dependent on super high charges and stamp duty, and they are still going broke, because everyone in the system wants to be paid more, because they have extracted more.
The result in my view is that they have effectively shifted the future infrastructure costs onto new home buyers, and home buyers are mortgaged to the hilt. That is, a lot of their mortgage is paying for State Infrastructure over the next 30 years. Nice one.
The HIA remained silent whilst this scam was being perpetrated on home buyers, but the damage was invisible to those home buyers when prices in the Ponzi scheme rose to make it look like you could actually make money by paying silly prices for land. That’s how all Ponzi Schemes are validated. They actually do give a return initially. Then even when prices are falling people keep pouring into the Ponzi, like lemmings queueing up to run over the cliff into the sea.

In the 1990’s when interest rates were 12% we could still sell house contracts. Because land prices were reasonable. This is where your low-interest rate is good for business theory collapses.

The contradiction of Joe Hockey and the Liberals. The needy versus the Greedy

Australian business is broadly represented by the Liberal Party in Australia, And they say they are for free enterprise and free markets, and cutting out entitlements for the needy. but the reality is they want to prop up an unsustainable real estate model, with Government subsidies for buyers, handouts to business and lower than normal interest rates, because they  don’t want to face reality.

That land prices are the problem, not interest rates! Land Prices need to be halved in Australia in my view.

Another story. I went to see a property developer last year and asked about land to do house and land packaging on, and we got talking about an adjacent development.
He laughed. He said that his group offered $2.4 million for the land, and yet a major developer bought it for $44 million. He said that these guys had rocks in their heads.
Now those lots are being developed, and guess what? The lots are so small that they all have to have two storey homes built on them, and this is virtually in the scrub.
So a builder has to contend with extra costs of building a two storey home of the same size [$20,000?] and the safety and time issues adding to the expense.

The customer has to contend with living in sardine city, in the bush, and in this case without a view. And having the inconvenience of stairs, and the loss of useful space that stairs take up. Yet we live in a land full of vacant areas.

By contrast land prices in the US are lower, and they have 15 times the population in a country around the same size. Why have you allowed land developers to make you bow and scrape to them, when they are doing you over up your rear?

Do the math. If interest rates were 15% houses would be more affordable than they are now, if land prices were halved. They are only where they are, because you have let them get there without a complaint.

How Land Prices are ruining building innovation.

Last year I went to see a manufacturer of a building system using insulated panels. I went to see his show home just coming out of the ground, and I asked why he was building it behind a railway station in an obscure location?
His answer was that he could get a 700 sq metre block there for $240,000, but a 300 sq metre lot at North Lakes was $330,000 and he did not want to build a two storey home.

The story of the magic pudding

Now I happen to have met Joe Emanuel, the man who bought Mango Hill from the APM when they were pine forest plantations. At one time Joe told me that he was Australia’s greatest ever land owner! A portfolio that he soon lost because of Tax issues.

He told me that he paid $3,000,000 for the whole of Mango Hill. The pine forest that became North Lakes development. He then got into trouble with the ATO and Lend Lease got it for a song. Now Stockland have it and they are selling it back at $3,000,000 an acre! Can you see anything wrong with this? Is land to be treated like a Magic Pudding that grows and grows?

The solution

The only way builders will control their destinies is to have at least some control of the land component of the house and land package.

Banks need to be controlled in having greater deposit requirements, and stricter lending requirements, to ensure that the Ponzi dies, and does not spring back to life. If we do this then houses become affordable and builders will find it easier to sell homes at a fair price & make a good living.

Interest rates are not the problem. They caused the problem. Its time to wake up and small the coffee.

Rick Adlam, Mr Mortgage