Pittsburgh Real Estate Blog | Pittsburgh Homes R Us

In my last post, I covered the Hope for Homeowners Act of 2008.

As an alternative to this FHA program, homeowners may want to check into a lender-direct loan modification instead. Here’s why:

* Under the HOPE for Homeowners program, a new loan is originated and the interest rate on the new loan is likely to be at current market rates. Under a direct-lender loan modification, the homeowner may be able to negotiate a below-market rate.

* The FHA program requires that the new loan be a minimum 30-year term. Under a direct-modification, the lender may offer a shorter term for the loan.

* On the new FHA loan, the homeowner is required to pay a 3.0% up-front mortgage insurance premium as well as a 1.5% monthly premium.  There may be no insurance or other premiums required for a direct lender modification.

* In addition to the mortgage insurance premium, under the FHA program the homeowner will have to pay customary closing costs which could be as much as 3.0% of the loan amount. Closing costs for a direct lender modification may be less.

* A second mortgage cannot be placed on the new mortgage for a five-year period after the FHA HOPE for Homeowners loan is originated.

* The equity gained on the home in the future is shared with the FHA. The shared equity starts at 100% to FHA during the first year and remains at a minimum of 50% to FHA from five years from origination throughout the duration of the mortgage. If or when property values increase, the homeowner could lose a substantial amount of the profit when the home is sold, depending on the value of the home and the appreciation amount.

So, a lender-direct loan modification may, or possibly may not, be a better deal for the homeowner. As in any financial situation, consumers should weigh all options and seek advice from competent experts.

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The Hope for Homeowners Act of 2008, was passed by Congress earlier this year and signed into law on July 30, 2008. Below are some questions and answers about the act and how it may apply to you. This information was adapted from a FAQ published by the Nevada Housing Division.

Q: What does the legislation do?
A: It will allow those who qualify to cancel their old mortgage loans and replace them with 30-year fixed-rate loans for up to 90 percent of the home’s current value. The FHA will insure a total of $300 billion of the loans over a three-year period. But the decision on whether to write such a loan remains up to banks, which would have to be willing to take a loss on the existing loans in exchange for avoiding an often-costly foreclosure.

Q: Who is eligible?
A: Eligible borrowers must have spent more than 31 percent of their monthly incomes on their mortgages as of March 1, 2008. The troubled loan must have originated within the time period of January 1, 2002 through December 31, 2007 and be the borrower’s primary residence. The borrower’s income must be verified. Also, you cannot own a second home.

Q: When does the program start?
A: The program takes effect Oct. 1, 2008 and runs through September 2011, although the FHA isn’t likely to have it operating at full capacity until next year.

Q: Since lenders can pick and choose which loans to refinance, how can consumers determine if theirs will be selected?
A: Check with the bank or financial company servicing your mortgage, but it may be weeks before they make decisions concerning the new guidelines and assess individual loans. Even then, keep expectations limited.

“Servicers are going to be reluctant to take the government up on their offer,” predicted Mark Zandi, chief economist at Moody’s Economy.com. “The earliest they’ll start taking them up on it is early next year. And even then it’s likely to be modest.”

Q: Is there anything a homeowner can do to improve chances of benefiting from the program, such as crunching numbers to make a case for the bank?
A: Not really. The best step is to keep up your payments as best you can.

Q: Doesn’t this provide an incentive to NOT pay your mortgage, if you’re barely keeping ahead of bills and are underwater on your house, so you can qualify?
A: No. If your situation deteriorates enough the bank may reject any possible new loan.

“Turning yourself into a financial basket case is not going to work,” said Dan Seiver, a finance professor at San Diego State University. “If you turn into a complete deadbeat, the servicer is going to just foreclose and dump it.”

Q: What should I be doing now besides trying to keep up with payments?
A: You can talk to a local credit counselor and call the toll-free hot line of the Hope Now alliance - an industry group trying to coordinate a response to the mortgage crisis — at 1-888-995-HOPE. It is available 24 hours a day to provide mortgage counseling in multiple languages.

Mary Thomason, director of resource development for The Impact Group of Atlanta, a housing counseling group, also suggests tracking expenses and income closely in order to be able to forecast your cash flow for the next six months and give yourself better control of your finances.

Q: If the banks and lenders refuse to write these loans, then what?
A: Public and political pressure may prompt them to participate. If not, and more people continue to lose their homes, Zandi says the next White House administration may subject them to additional regulations or investigations if they remain unwilling to take on the risks.

Q: What happens if I’m able to sell my home after I refinance?
A: If you sell during the next five years, you must agree to share 50 percent of any profits from the resale with the government. Additionally, homeowners can only retain equity gains based on a sliding scale. The homeowner would have zero equity from a sale in the first year, with the amount rising 10 percent in each succeeding year and capping at 50 percent from a sale in year five and thereafter. The equity must be repaid because the maximum amount on the new loans will be capped at 90 percent of the current market value, which automatically gives the previously troubled homeowner 10 percent equity in the home.

For more information, check out HUD’s web site at http://www.hud.gov/fha/home080730.cfm and http://portal.hud.gov/portal/page?_pageid=73,3923287&_dad=portal&_schema=PORTAL.
 

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The statistics are in for the Pittsburgh housing market for the month of September. Once again, these stats were taken from the West Penn MultiList and reflect sales for single-family homes only.

As you will see from the numbers, nothing too earth shaking occurred during the month of September, compared to last year.

Sales volumes remain down for most areas but the changes are not significant. Average sale price in general is holding steady, with some areas slightly down and a few slightly up.

For this month I added a new stat - average days on market for sales closing during the month of September. This number has risen slightly in most areas but not significantly so.

So, the magic question once again - what is the housing market outlook for the Pittsburgh area for the next 12 months?

Honestly, I have no idea.

What seems to be clear is that (as I’ve mentioned before) Pittsburgh didn’t have a "housing bubble" like many other areas in the country. Thus, no wild numbers to report.

On the other hand, we do not live in a vacuum.

Apparently, we’re going to get some relief from the government in the form of the controversial "bailout," which the President signed just a few hours ago.

There are also other relief programs that are already in place - one of which, the Hope for Homeowner’s Act of 2008, I will be discussing in an upcoming blog.

All this may help in the short term. However, the area of continuing concern is the fact that the federal government is now more than $10 trillion in debt. And the government continues to monetize that debt by printing more money to pay for more things. As more money is injected into the system, the value of the dollar will continue to fall.

That is, and should rightly be, our real long-term economic concern.

It’s a shame that almost no one is talking about it - certainly not the Presidential or Vice Presidential candidates.

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In case you missed it, part of the Fannie Mae/Freddie Mac bailout included some measures that will affect buyers and homeowners.

• A $7,500 tax credit for first-time homebuyers - note that this is based on 10% of the sale price, up to a maximum credit of $7,500.  However, don’t get too excited - this money is more of a loan, in that it will have to be paid back over the course of 15 years. But at least it’s interest-free. This will apply to home purchases made between April 9, 2008 and July 1, 2009.
• A tax deduction for homeowners who don’t itemize deductions on their income tax returns - estimated deductions will be between $500 and $1,000.
• Higher limits on mortgages insured through Fannie Mae and Freddie Mac - up to $625,000 beginning January 1, 2009. The current temporary limit of $729,750 will stay in effect until the end of this year.
• Mortgage refinancing for distressed homeowners - allows homeowners facing foreclosure to apply for lower fixed-rate mortgages backed by the FHA. However, the original lenders would have to agree to potentially take a loss on their loans.

On the darker side of all this are provisions in the 600+ page bill that will require the fingerprinting of mortgage loan originators (broadly interpreted to include anyone who takes a mortgage loan application) and the requirement for payment systems nation-wide to report online transactions to the IRS. This includes eBay’s PayPal, Amazon.com, and Google Checkout, as well as the major credit card companies.

Some bloggers (you can Google the topics) are questioning these provisions, especially wondering what that last one is doing in a housing bill.

Based on some research I did, it does not appear that either of these provisions will be removed from the bill when it is finally signed by President Bush.

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With the Pittsburgh housing market remaining competitive for sellers (at least for now), it would be a good idea to take a quick look at some relatively simple and cost-effective approaches to increasing the value and desirability of your home.

Here are some areas you should keep in mind:

1. Curb Appeal - obviously, it’s the first thing buyers see when they take that walk up to the front door. And since it doesn’t take much time for a first impression to register, this is an important area to focus on.

The condition of the landscaping, paint, soffit and fascia, siding, window frames, even the house number, can point to either neglect  or a home that has been well-maintained. Repair, paint or replace any broken screen doors.

2. Interior Colors - some say paint everything white. But that can be a turn-off as well. Soft colors, such as pale greens, can be attractive to a buyer’s eyes. Avoid dark colors - lighter colors can make a home look larger. Needless to say, stay away from the pink, orange and purple rooms. Bold colors are risky.

Wallpaper is not very popular either - although if it’s high quality and the pattern is tasteful, it could pass.

3. Upgrade the kitchen and bath - probably the two most important rooms in the home. If something looks dated, consider replacing it. Make sure both rooms are pristine for showings.

4. Hardwood floors - because it’s costly and time-consuming to refinish floors, try "screening." The process involves scraping off the old finish to prepare it for applying a new finish. Do a Google search or click here to download a pdf file for an explanation of the procedure.

5. Closets - cluttered closets give the appearance of messiness and neglect. They can also give the impression that a decent size closet is smaller than it is.

6. Window treatments - plenty of light and the view are most important when it comes to windows. For example, dark drapes will darken a room and should be replaced.

7. Pre-inspection - as a seller, a home pre-inspection will give you a head start on finding out what needs repair before the buyer finds it. If you can get most, if not all, of the problems repaired (at least the major ones) you’ll be better off.

Make sure you provide a list of recent repairs, along with receipts, to prospective buyers. Chances are you’ll get a higher price for your home or it will sell faster, or both. You’ll also avoid much of the sticky home inpsection negotiations - which can result in buyers walking away from the sale.

As a final suggestion: The web site for HGTV is a good place to start for getting ideas on how you can improve the image of your home.

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Homeowners are getting pretty savvy these days. But just in case you haven’t thought about this, here’s a tip to save money on your mortgage payments.

Owners tend to pay the minimum payment on their mortgage each month. However, if you can afford to pay just a little extra toward the principal amount (amount due on the loan itself, and not the interest, property taxes or insurance), it will make a big difference.

For example, you borrowed $100,000 at 6% interest over 30 years and your monthly payment on that is $599.55. Over the term of the loan your total interest payments will be approximately $115,838.

If you add just $50 per month to pay off the principal, you’ll save almost $32,500 in interest payments. That’s a pretty hefty chunk of change.

In addition, you’ll have your loan paid off about 3-1/2 years early.

Of course, the more you can pay each month, the more you’ll save. But even if you can’t pay an extra $50 every month, any extra amount paid at any time will lower your interest costs in the long run.

Make sure that when you pay something extra that you specify that the amount is applied to the principal only. Most lenders will allow you to do this but you you should check with the lender if your mortgage statement does not specify that you can.

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As home energy costs continue to rise and our environment continues to get more polluted, many Pittsburgh homeowners  are looking for ways to cut costs and be part of the solution. With the government move to outlaw our old friend, the incandescent light blub, there has been much talk about one of the alternatives – compact fluorescent lighting (CFL).

Being an environmentally-conscious kind of guy, I bought a bunch of these bulbs a while ago. Soon after, I heard about a woman in Maine who accidently broke one in her home and supposedly paid $2000 to clean up the mess. What was this about?

Turns out, CFLs contain mercury, a very toxic substance. You’ve undoubtedly heard about the concerns of mercury contamination in the some of the food we eat – especially certain kinds of fish. So, it makes sense that bringing this substance into our homes may be a valid cause for concern.

As for the clean-up costs for that breakage - apparently the EPA was called in and told the woman how to deal with the situation. Some folks called the EPA reaction overkill and said it was based on the usual government bureaucratic mindset, which typically costs everyone a lot more than it should.

If you surf the web for this topic you’ll find a range of opinions on this safety issue. Some say that the amount of mercury in these bulbs is far less than what you’d find in a thermometer and is of little concern. Others are a bit more alarmist.

Obviously, each person will have to decide for themselves whether or not to use these bulbs in their homes. I, for one, am skeptical of CFLs. Even if they don’t break in our homes, even if they are as safe as some are claiming, it is still very clear that these products need to be treated as toxic waste and disposed of appropriately - not just tossed in with the day’s trash. The packaging on the product alerts the consumer that this is the case.

How many people will pay attention to this - or just be too lazy (like I am at times) or forget to recycle them?

There are other considerations related to using these bulbs. The best article I have found so far addresses some of these issues. You can read it here. You may find it’s a bit technical in places but very informative – the writer sounds like he knows what he’s talking about. Still, readers should do their due diligence and check for other opinions.

One of the other alternative to CFLs is LED (light-emitting diode) light bulbs. These are safe, last longer, and are more efficient, thus using less energy than CFLs. Unfortunately, the cost for these bulbs is pretty high right now - you can expect to pay $40 + per bulb, depending on the lumens and application. I suspect (or hope) that the price will come down over time. I have not used or seen one of these bulbs in action so I can’t comment on the quality of the light.

By the way, I ended up returning all the CFL bulbs I bought. I had not been aware of or paid attention to the mercury content when I purchased them. The notice on the packaging that the bulbs contained mercury was pretty small.

I don’t know yet what I’ll do when the time comes that we can’t buy the old fashioned incandescents. Maybe by that time I’ll believe that CFLs are okay. Maybe I’ll use oil lamps.

In any case, to paraphrase a saying: when light bulbs are against the law, only outlaws will have light bulbs.

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With all the talk of the economy in a nose dive and the real estate market hurting, it might be a good idea for me to comment on these issues.

I wish I had a crystal ball to see into the future but I don’t, and I don’t believe very many people do. The government has done fairly well pulling rabbits out of its hat when they need to, but it’s hard to say when their supply of rabbits will run dry.

It’s still a good time to buy real estate in Pittsburgh. While home sales are down and foreclosure rates have risen, property continues to appreciate throughout the area. The Pittsburgh real estate market has been fairly conservative over the years so we have not seen the kinds of problems with over-valuation that other areas in the country (most notably California and Florida) have seen.

Lenders are applying more scrutiny to transactions – a buyer needs more documentation concerning income and financial resources than before, and underwriters are taking a closer look at mortgage loans and taking more time to look at appraisals. If your credit history is strong you should not have a problem securing a loan.

For sellers – well, it’s a buyer’s market. If you need or want to sell, it’s difficult to determine when the market will improve. Most economic pundits are predicting that the current real estate market will remain weak at least through the end of this year and possibly into 2009.

However, if your home is priced right, it should still sell in a reasonable amount of time. The mantra of real estate has been, “Location, location, location.” But price is still the major factor in determining how quickly a property will sell.

Homes that are overpriced or priced at the high end of the valuation range will tend to sit on the market. And the longer a property sits on the market, the more difficult it becomes to sell.

Right now, the absorption rate in Allegheny County and Westmoreland County is averaging around 4 months. This means that there is approximately a 4-month supply of homes on the market – which is still pretty good for sellers.

First quarter sales for 2008 are about 11% lower than what they were for the same period in 2007. But keep in mind that the first quarter of almost every year is slow and the market should pick up as the weather continues to warm.

For some tips on what homeowners can do to attract qualified buyers, read my article on the Localism web site.

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