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Are you planning on outliving your mortgage?

Written by Louise Bolger on . Posted in Business, Castles in the Sand, Feature.

In the olden days right after World War II when houses were coming out of the ground like spring flowers, homebuyers were typically in their 20s and fully intended to pay off their mortgages. Now, however, the median age of buyers has reached an all-time high of 40 and many will not likely outlive their mortgage.
The White House is working on a plan to introduce a 50-year mortgage to make it easier for Americans to afford homeownership. It’s true that a 50-year mortgage would likely make it easier for buyers to qualify for a home loan. In these high interest, low inventory times, it’s something that will have a lot of appeal to buyers who can’t find any other way to afford a home.
Based on a $400,000 purchase with 20% down and a 6.22% mortgage rate, Freddie Mac estimates the difference between a 30-year mortgage and a 50-year mortgage is about $200 a month. This lower monthly payment will qualify many buyers who otherwise wouldn’t qualify for a loan to finally get into their own home.
It’s one of those “looks great on paper” theories, but is full of danger and buyers who end up being financially overextended. Home mortgages are generally front-loaded with interest at the beginning of the loan term so building equity in the early years of ownership is difficult. Since 50-year mortgages will likely be offered at a higher interest to offset the credit risk to the lender, this will make building equity almost impossible.
For buyers who are still in their 20s and plan on living in a home for a long time, the case can be made that this is a good choice. But as stated, buyers are older now, jobs may not be forever, and marriages and partnerships come with a high rate of breakups. Nevertheless, a 50-year mortgage could be just the right option for buyers who are very confident in their life choices and are able to live conservatively to overcome future bumps in the road.
Last week, we published the October sales statistics, which were all positive numbers compared to last year. However, the numbers were skewed because of the negative effect of the hurricanes in 2024.
However, the national sales also rose to an eight-month high in October, helped by the small decline in interest rates. The national median existing home price in October rose to $415,200, a 2.1% increase from a year earlier, according to the National Association of Realtors (NAR). As a comparison, Manatee County’s median single-family home sale price this year was $481,000, an increase of 0.2% from last year. The NAR also reports that prices are falling in some southern and western markets, giving buyers more of a negotiating edge.
In spite of buyers having an increased level of comfort in the market, Redfin reports that there are more than a half-million more sellers than buyers in the national housing market in October. This is the biggest gap on record going back to 2013.
Many old homes in the Northeast have a “mortgage button” embedded in the newel post of their stairway. The tradition is that when the mortgage is fully paid, the wooden button is replaced with an ivory one so everyone coming into the home knows the home is mortgage free… a nice tradition that unfortunately we won’t be seeing much of in decades to come.

Are mortgage rates really going down?

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

Did we ever think this day would arrive? Those in the know kept saying rates will be better next year, and this is finally next year, and by golly, it appears they were right. Since nothing is ever that easy, there are discrepancies in rate predictions but generally the arrow is pointing down.

Forbes is predicting three rate cuts this year, assuming that inflation continues to slow. The National Association of Realtors’ Chief Economist Lawrence Yun says that because high budget deficits and inflation are still not at a comfortable level, mortgage rates will likely be in the 6% to 7% range for most of the year.

The Mortgage Bankers Association is forecasting 6.1% at the end of this year and 5.5% at the end of next year. Bank of America’s head of retail lending Matt Vernon is more cautious. He says rate cuts could breathe new life into the housing market but significant drops in mortgage rates might not happen in the early months of 2024. The Fannie Mae housing forecast is that the 30-year fixed rate mortgage will average 7% in the first quarter of this year and slowly decline over the year, landing at 5.5% in the fourth quarter. There certainly are more opinions but these are some of the top players in the industry and apparently, they all are looking to decline.

As of this writing, the average rates were 7.45% for a 30-year fixed rate and 6.68% for a 15-year fixed rate. Not bad, but we’re not there yet as you can see from the above opinions, however, there are ways to obtain a better rate now.

Boosting your credit score is a surefire way to pay a lower interest rate. Just a few points can help a lot and here are tips on how to achieve this: Make an extra payment on an existing mortgage or on credit card balances, spend less than 30% of the amount of credit offered to you on credit cards and pay off your balance each month in full.

You can also reduce your mortgage rate by paying points upfront on a new mortgage. Do the math and see if out-of-pocket money now to lower your long-term rate works for you. Finally, shop around and don’t take the first offer from a lender you call.

Let’s see what our January sales in Manatee County are, as reported by the Realtor Association of Sarasota and Manatee:

Single-family homes closed 10.9% more properties compared to January of last year. The median sale price was $525,000, up 3.8% and the average sale price was $735,836, up 13.1%. The median time to contract was 35 days this January compared to 32 days last January. New listings were up 32.3% from last January and the month’s supply of available properties was 3.9 months compared to 3.2 months last year.

Condos closed 8.8% more properties compared to January of last year. The median sale price was $357,990, up 3.8%, the same as single-family homes, and the average sale price was $441,573, up 12.6%. The median time to contract was 47 days this January compared to 26 last January. New listings were up 37.9%, and the monthly supply of available properties was 5.6 months compared to 3.2 months.

The increase in listings we’re seeing points to a more balanced market that favors buyers, along with the interest rate arrows pointing down. The weather arrows, however, are starting to point up, so go to the beach and let the real estate market find its own level.

Castles in the Sand

Property owners with equity may tend to overpay

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

Feeling pretty flush, are you? Most of us who have owned property for several years are pretty happy with the equity we have accumulated. But if you are selling and purchasing another property, be careful. That equity can slip through your fingers at lightning speed.

A recent study by UCLA Anderson School of Management discovered that for every dollar of equity gain that a seller receives, he or she overpays by 7.9 cents on the next home purchase.

There are a few theories about why this is happening, one of which is that with higher equity comes lower capital constraints, allowing buyers to consider larger homes they are willing to pay more for. Also, a buyer with a nice equity cushion can offer more and sometimes will pay more to avoid a time-consuming search for a new home or to place themselves at an advantage above other buyers. Either way, these actions are driving offers higher than they should be.

Naturally, overpaying contributes to escalating housing costs, compounding the effect of fewer homes on the market and pushing up selling prices. This is more bad news for buyers who are competing with high equity buyers who are cornering the market with a lot of equity and cash bidding up prices.

Buyers who overpay for a property are risking that the property values will stay high when the time comes to resell. If a buyer is in the property for the long haul, it might be a smart risk to take for a property you want. However, if a buyer is looking at a short-term purchase they could get caught in an unexpected downturn of the market.

With residential mortgage interest rates approaching 7.5%, not only are buyers caught in the vice, but banks are also starting to see their profit margin caught in the same vice. Applications for home purchase mortgages dropped to their lowest levels since 1995 a few weeks ago, according to the Mortgage Bankers Association. Buyers aren’t buying because of low inventory and high rates and potential sellers aren’t selling and giving up their ultra-low mortgages – a perfect storm in a not-so-perfect real estate market.

But there are still high-end buyers who are jumping into the real estate market. The only difference is the jumbo loans these buyers typically are looking for are not as available as they once were. A jumbo loan is a non-conforming loan that exceeds the conventional loan limit set by the government housing authorities. The limit is currently set at $726,200 or higher in some high-cost areas in the country. For instance, Hawaii would be considered a high-cost area. These loans typically were considered low-risk loans the banks kept on their books that attracted wealthy customers, many of whom used the same bank for additional business transactions.

These loans usually carried lower rates than regular mortgages. However, the lower preferential rates for jumbo loans have reversed in recent months and now the jumbos are also approaching 7.5%, forcing home buyers to reconsider their financial options or even whether it’s a good time to buy. Since we’re living in an area with many high-end properties for sale, these higher rates could influence our market.

Whether you’re buying a car or a pair of shoes, it’s the same. If you have more, you pay more and if you pay more, you borrow more. Americans love the best of the best. Be careful that the money doesn’t slip through your fingers.

Castles in the Sand

Do you need a mortgage button?

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

The tradition of a mortgage button is a little scrimshaw button mounted atop a stairway’s newel post, as a symbol the mortgage was paid off. This is something I saw for the first time on Nantucket Island where my uncle and his wife retired many years ago. Ever since then, I’ve been fascinated with the concept of a mortgage button. Now, however, paying off your mortgage may not be as impressive as in times gone by for every homeowner.

In today’s world, there are many forms of retirement, or not retiring at all. Because of Zoom, inflation and interest rates, many individuals who would have retired even 10 years ago are postponing retiring. If your choice is to retire, are you planning to pay off your home’s mortgage with other assets or will you keep your mortgage in place? Retiring with your home “free and clear” was a goal of previous generations and many homeowners still strive for this, but financial managers may want to have a further discussion about the real benefits.

Even if you decide to give up work or work part-time, many have calculated that carrying a mortgage is a better choice. This is especially true if you have a low-rate mortgage because of either owning your home only a few years or, like many people, having refinanced your existing mortgage when rates were ultra-low. According to the Federal Reserve, nearly 58% of those ages 65-74 had mortgages or home-equity lines of credit on a primary residence in 2019. This is up 22% from 1989 based on available statistics.

Even if you can afford to pay off your mortgage before retiring, does it make sense to deplete your cash or investments for this use? A financial advisor will look at all of your income and assets and make a recommendation designed specifically for you, including safe, low-risk investments.

In addition, your tax consultant needs to be in the loop since tax ramifications must be considered. Although the 2017 tax overhaul significantly raised the standard deduction, there are still homeowners who will benefit from a home mortgage interest deduction.

Finally, keeping a low-rate mortgage frees up equity that you otherwise would not have access to. After retirement or switching to part-time work, your family income is obviously reduced, which would make it difficult to qualify for a new mort-

gage or home equity loan should you need it for a health emergency or other reason. Or just having the money available for a new car, dream vacation or to help out a family member may be enough of a reason not to pay off your mortgage.

Paying off your mortgage and retiring with no debt certainly gives you peace of mind, and that’s something to be proud of and a reason to get a mortgage button. The mortgage button can also be called a brag button indicating there is no lien on the property. Part of the mortgage button’s myth or fact is also another little-known aspect that the mortgage, when paid off, is stored in the newel post at the base of the home’s stairway before the mortgage button is installed.

Historians have debated the truth about the mortgage button for over a century. As for me, it’s a great story, true or not, and a special memory from my first trip to a magical island. Happy holidays!

Castles in the Sand

Credit scores can spoil deals

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

You finally found the house, negotiated a price and the contract is signed. What can go wrong from this point? Plenty.

You may have read about a little glitch involving credit scores back in August. At that time, it was reported that Equifax, one of the three agencies that monitor credit scores, reported inaccurate credit scores for millions of would-be borrowers over a three-week period from March 17 to April 6. The problem was reported to lenders in May.

Equifax reported that some people who may have been applying for mortgages, auto loans and credit cards may have had their scores lowered or increased by 20 points or more. A 20-point error in a credit score could easily lead to mortgage applications being rejected. This is one of those unfortunate errors that affect borrowers who may have done their homework prior to making an offer on a home and who are sure what their credit score is and their ability to go forward with a real estate transaction.

Mortgage lenders typically pull credit reports from all three agencies: Experian, TransUnion and Equifax. The lenders take a look at all three scores and from there create a combined score, according to the executive chairman of Inside Mortgage Finance. This is when the lender is able to determine whether or not to approve the mortgage application and what interest rate to offer. Since only Equifax was affected, the impact may not have resulted in a lot of people being turned down for mortgages. However, it could have influenced the interest rate offered on a loan, resulting in higher mortgage payments.

If you think a recent loan may have been affected by this error in credit score reporting, the first thing is to contact the lender. They need to review the application process and determine if an Equifax credit score was used in the underwriting process and if the Equifax score was lower than the others used. From there, your lender will determine what exactly this means to the outcome of your loan.

This is a great lesson for anyone planning on applying for a loan in the coming months. It would be beneficial to set up alerts with each of the three credit reporting companies, so you know quickly if there is something unusual on your credit report. Ultimately it is your responsibility to pull credit reports on a regular basis and go over them with a fine point, looking for postings that do not apply to you. You always have the ability to challenge anything that looks like an error.

Equifax’s position is that there was no shift in the vast majority of scores during the three-week time frame. For those consumers who did experience a score shift, their initial analysis indicates that only a small number of them may have received a different credit decision. If you feel you need to make a correction on a credit report or score, contact the Consumer Financial Protection Bureau, which can provide you with a list of instructions and a sample letter that will assist you in filing a claim.

I can’t say enough times that the process of purchasing a home, frequently the biggest investment of a lifetime, has a lot of moving parts. It is up to you as the borrower to
be proactive every step along the way. As we’ve seen too many times, large financial institutions make mistakes, so keep checking your credit reports and scores, especially if you’re looking for a home.

It’s not over ‘til it’s over, and heaps can go wrong before it is.

Castles in the Sand

Surfside: More collateral damage

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

It’s not surprising that as time goes on, more and more of what I’ll call “collateral damage” surfaces related to the Surfside building collapse on the east coast. This time, it’s related to mortgage qualifying regulations.

Fannie Mae and Freddie Mac, the quasi-government agencies that set the standards for residential mortgage financing, are asking questions about the viability of condo buildings before approving financing. Specifically, they said they would stop buying mortgages from lenders in buildings with significant deferred maintenance or safety issues.

Fannie and Freddie have provided lenders with new in-depth questionnaires to be completed by condo management companies, associations or boards about the condition of the building where financing is being requested. The Catch-22 on this is that the individuals responsible for filling out the form aren’t sure of how – or are indeed qualified – to answer all the questions. Some of the questions really need to be answered by a structural engineer, or at the very least, a home inspector.

This is a huge potential problem for buyers requiring financing on a condo since the lenders are worried about their financial exposure related to the condition of the buildings they hold the mortgage on. This is already slowing up the loan approval process, particularly for condos in the more affordable price ranges. Of course, this could have a negative impact on the condo market for both condo values and the ability to sell.

Another aspect of this is how mortgage qualifying regulations will affect volunteer board members and management companies. The more complicated the process and the more likely the risk of liability the more difficult it will be for associations to recruit residents to serve on a condo board. In addition, management companies will have to ramp up their staff to understand and complete additional paperwork. This additional work will certainly be billed back to the associations.

Fannie and Freddie have taken the position that these measures are meant to protect residents from unsafe buildings and to ensure that aging condos are undergoing the necessary repairs and are funded to do so. They have indicated that they will work with associations to minimize disruptions related to the questionnaires, but how long that will take is anyone’s guess.

Fannie Mae and Freddie Mac have enormous power in the real estate market and although they do not set building codes, they do have the power of the purse when it comes to approving financing. Since they control approximately half of the country’s home loans, and between 7% and 9% of condo and co-op loans, we’re talking about what could be a big impact on the market.

Before you give up on a condo purchase that involves financing, most of what is stated above will not apply to the average condominium association. Buildings that obviously have major structural defects that have been put off and are underfunded will certainly have an issue, but the average building that has been maintained will likely be approved. It may take a little longer for the paperwork to be processed at the beginning, but the end result may actually be beneficial to buyers.

As I’ve said before, collateral damage as a result of the Surfside collapse will be around for a long time, but we’ll get through it.

Castles in the Sand

It’s worth the stretch

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

A very wise real estate broker I was fortunate to meet more than 40 years ago not only got me interested in selling real estate, but also gave me great advice about buying as much house as you can possibly afford. In a fundamental way, it changed my life, pushing me to buy a home I loved but thought I couldn’t afford.

Today’s millennials are facing the same decisions my husband and I made all those years ago. Should we take the leap into homeownership, spending more than we ever thought we would, or should we play it safe?

As difficult as it is for buyers to find a home in this market, if you do find one and it’s over the top of your price point, don’t discard it. My rule of thumb is if a lender thinks you’re qualified, believe them, even if your parents and friends think you’re nuts. Get into the game now and you’re set for the next 30 years and you won’t be at the mercy of landlords.

Generally, lenders are qualifying buyers based on between a quarter and a third of their monthly gross income on the monthly mortgage payment. That range increases to between 35% and 45% of your monthly gross income if you include maintenance, taxes and insurance. Credit scores are still very important in analyzing credit worthiness, so be ready in the event you have anything on your credit report that is incorrect or needs an explanation.

Finally, first-time buyers are frequently short on cash and may opt for a mortgage down payment of less than 20%. If you are considering this, don’t forget that you will be required to pay mortgage insurance, which will cost from $30 to $70 a month for every $100,000 borrowed. This insurance is for the protection of the lender should you default on the loan before there is a sufficient build-up of equity. It will stay in effect until you have paid enough of the principal to equal equity in the amount of 20% of the home’s value. Also, the mortgage insurance payment will count towards your monthly costs and will be included when qualifying for a mortgage.

Historically, mortgage rates are very low and housing costs are very high. But should buyers sit out the market waiting for prices to come down? Good luck with that; the only time home values went down was after the financial crisis, which was generated by risky mortgage lending and exotic mortgage programs, all of which have been corrected through legislation passed after the crisis.

Even if buyers end up with a mortgage payment they are not totally comfortable with, it’s likely they will grow into the payment. As younger buyers establish careers, the anticipation is their income is likely to rise over time, so while you’re stretching to make those early monthly payments, you’re building equity and long-term wealth. Young buyers also should not discount the psychological benefits of owning a home of your own – pride of ownership, family building and becoming part of a community have real-life benefits.

Playing it safe turned out not to be in my playbook, so thank you, June, for confirming what I already knew. As my mother always said, paying rent is throwing money away, another wise woman. Go for the stretch, you 30-year-olds; you’ll look back on it as one of life’s pivotal moments. Stay safe, we’re almost there.

Castles in the Sand

Mortgage protection in the time of COVID

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

As we keep moving along down this never-ending pandemic road, hardly a day goes by when there isn’t another major hit to our nervous system. Buried in all of this bad news and extraordinary events there have been a few government programs that are helpful to citizens and homeowners. Mortgage forbearance is one of those things, assuming you can work your way through the system.

The COVID-19 pandemic has made it harder for millions of homeowners to pay their mortgages. To reduce the risk of widespread foreclosures, Congress passed the Coronavirus Aid Relief and Economic Security Act (CARES) in March. The CARES Act gives some borrowers temporary protection from foreclosure both by establishing a foreclosure moratorium and offering homeowners forbearance of mortgage payments.

Forbearance allows homeowners to suspend their monthly payments for 180 days with another 180-day extension for qualified homeowners who are impacted directly by the virus. The Cares Act is now extending the foreclosure moratorium at least until the end of 2020. New mortgage servicing guidelines also contain other changes to existing foreclosure and forbearance practices.

Unfortunately, about a third of all borrowers are not covered by the act. Those covered must have home mortgages backed by Fannie Mae or Freddie Mac, the U.S. Department of Veterans Affairs (VA) or the Federal Housing Administration (FHA). Therefore, about 1 million homeowners have fallen through the safety net that the CARES Act provides.

According to the mortgage-data firm Black Knight Inc., about 1.06 million borrowers are past due by at least 30 days on their mortgages and are not in a forbearance program. Out of this number, about 680,000 borrowers have federally-guaranteed mortgages and would qualify under the CARES Act. The balance has loans that aren’t backed by a government program and do not qualify for forbearance, though many of the lenders are attempting to work with these homeowners.

Navigating the waters of mortgage lending is never easy and some qualified homeowners either aren’t aware of the forbearance program or just can’t face the complex nature of what needs to be done. And they’re sometimes right, contacting mortgage servicers, which is the first step alone, is a challenge. Frequently you can’t get through, calls are dropped and/or sent to voice mail and no response is forthcoming. And frequently, just like applying for an original loan, the lenders will keep asking for additional documents and the merry-go-round keeps going.

There are government agencies that have set up websites to help educate borrowers about their rights and procedures as well as consumer advocates and housing-policy experts looking into a national campaign to make borrowers aware of available benefits. However, more needs to be done to help homeowners before they fall into foreclosure or have accumulated so many back payments and fees that they will never catch up until the property is eventually sold, cutting into the equity that most Americans consider their biggest asset.

Even after a safe and effective vaccine is created and distributed, we’ll have years of financial hardship ahead of us, and for some homeowners and business owners, it could be devastating. Congress needs to take an additional look at the millions of homeowners both with government-backed loans and others who will need help. If nothing is done to help and advise these people, we could have a serious flood of foreclosures down the road, hurting both the real estate market and the financial markets.

Stay positive and stay safe.

Castles in the Sand

Are historic low interest rates a good thing?

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

I really hate to use this much-overused opening line from A Tale of Two Cities, but it works and I have no shame. “It was the best of times, it was the worst of times” perfectly describes the residential real estate mortgage market we find ourselves in as another by-product of the coronavirus pandemic.

It’s the best of times for individuals who have the ability to purchase homes since the rate for 30-year conventional home mortgages has fallen to the lowest point on record. In a year that already has massive “firsts” here’s another. About two weeks ago the average rate on a 30-year fixed-rate mortgage fell to 2.98%, per Freddie Mac. Rates are at the lowest level in almost 50 years of record keeping. This was the third consecutive week and the seventh time this year that rates on these loans have fallen.

At the beginning of the year before the pandemic hit, the 30-year mortgage was about 3.72%, an extremely good rate. Those of us who remember the early 1980s may remember a high of 18% residential home mortgage rates, an unthinkable number now. In addition, Jumbo loans, those typically larger than $510,400, are around 3.77% in most markets. However, lenders have placed more restrictions on these non-government-backed loans, considered to be risky compared to loans backed by Fannie Mae and Freddie Mac.

So why is this happening and why may it be considered “the worst of times?” Mortgage rates are influenced by the 10-year Treasury note since they compete for the same type of investor interested in stability. Because we’re in a very volatile financial time, investors are looking to protect their assets by buying long-term Treasury bonds, narrowing the gap between bonds and mortgage rates. Therefore, mortgage rates dropping like a rock may not be as great as it sounds for the economic health of the country.

Again, if you have the capacity to purchase at this time, the mortgage rates are fabulous. However, you will still have a rocky road ahead because of the lack of available inventory and increasing asking prices. Although mortgage applications were up 17% in June from a year earlier, according to the Mortgage Bankers Association, prices have also accelerated nationally by 4.7% from last June; at the same time the number of homes on the market fell 27.4% per Realtor.com. Some of this can be offset by the lower mortgage rates allowing buyers to qualify for a larger mortgage.

Overall, historically low interest rates may look like a good thing, but it can actually be an indicator that the real estate and financial markets are functioning at borderline crisis levels. Also, home purchasing is out of the question for many Americans who have lost their jobs and may not return for years. Even those who can afford to purchase may shy away from making a life-changing commitment during such unpredictable times.

In spite of everything I just said, Anna Maria Island is a specialized region and hopefully somewhat immune to big national swings. Real estate decisions always have to be viewed through the lens of the future, and unfortunately right now the immediate future is hard to predict. Best of times, worst of times, certainly difficult times. Stay safe.

Castles in the Sand

Changes in the pandemic age

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

If the pandemic taught us anything, it’s how quickly everything can change, and the real estate market is no exception. We went from a blow-out real estate market, overflowing restaurants, planning high school and college graduations to hoarding toilet paper, wearing face masks and checking daily infection counts in less than a month.

What’s ahead for the real estate market, both local and national, is anyone’s guess; unfortunately, there are likely dark clouds on the horizon. With businesses closed, employees laid off and people unable to move around the country, buyers and sellers may have to take a pause. Even with continuing historically low mortgage interest rates, if a buyer can’t qualify because of job loss, it will take a toll on the health of the markets. In addition, available inventory may eventually be impacted because homeowners don’t want strangers coming into their homes and will opt not to list properties for who knows how long.

Meanwhile, homeowners who have lost jobs are struggling with impending mortgage payments, flooding their mortgage companies with requests for help. In addition, they’re having trouble getting through waiting on the phone for hours to reach a real person who may be working from home and having their own personal and technical difficulties.

The stimulus legislation says homeowners hurt by the coronavirus or its fallout can ask their mortgage servicer for a so-called forbearance. This means their monthly payments are interrupted for up to six months and an additional six months can be requested after that. They don’t have to prove they have been hurt by the coronavirus since, if the loan is backed by the government, the mortgage servicer is generally expected to grant the request. Since about 70% of U.S. mortgages are backed or insured by a federal agency like Fannie Mae, Freddie Mac or FHA, this will be a non-issue for most borrowers.

What is not specified in the law is when borrowers have to make up the missed payments. Some homeowners are assuming that they don’t have to make up the payments ever, certainly incorrect. But even when they understand this, there’s still confusion as to how the funds will be made up. The Department of Housing and Urban Development told servicers that holders of FHA mortgages can compile the missed payments into a second, interest-free home loan for borrowers to pay off after the original mortgage.

However, for Fannie Mae and Freddie Mac loans, which represent about half of the country’s mortgage market, that offer was not made. Instead, federal regulators have instructed servicers to work with borrowers and to consider letting them tack their missed payments on to the end of their loan, but are not mandating it.

Lenders, like everyone else, are operating in the dark with no way of predicting the scope or duration of the pandemic and shutdown. Economist Mark Zandi with Moody’s says as many as 30% of Americans with home loans, about 15 million households, could stop paying their loans if the economy remains closed through the summer or beyond.

Are we in for a big wave of foreclosures similar to the housing bubble bursting in 2008? Let’s hope not, but since our real estate market was so strong and so much in demand, it’s not a bad calculation to assume it will be one of the first to come back even in a big downturn. Chin up and stay safe.

Castles in the Sand

The greying of the mortgage market

Written by Louise Bolger on . Posted in Business, Castles in the Sand.

As we age, there are physical restrictions on what we can achieve. Tennis may be more difficult, so we switch to pickleball; jogging is a knee killer but walking works; sleeping eight hours straight may be for teenagers but napping after lunch is one of life’s pleasures. Same with finance, adjustments may have to be made, but not totally discounted.

Federal law states under the Equal Credit Opportunity Act that discrimination in the mortgage market on the basis of age is forbidden. So, it basically doesn’t matter how old you are, in theory you can obtain a mortgage. However, the stumbling block is that most people when they’re retired have a reduction in their stream of income. This is particularly a problem for one spouse when the other passes away and their income is diminished because of reduced Social Security and/or pension income.

Nevertheless, there are programs available with more on the way where seniors can tap into their financial portfolios and combine that with other income to qualify. Typically, borrowers qualify based on monthly fixed income, pensions, Social Security, and dividend and interest withdrawals. If that isn’t enough, lenders are recommending setting up a monthly distribution from an IRA or 401(k) account. Fannie Mae rules only require lenders to calculate loans based on at least three years of monthly distributions from retirement accounts.

Finally, there is a method called “asset depreciation” that can be used to qualify, which does not require a monthly distribution but is based on a formula that assumes a monthly distribution. The formula varies with the lender but is based on a percentage of the borrower’s total portfolio being divided by the months in the term of the loan and qualifies borrowers on that basis.

The key to obtaining financing for older borrowers who may have assets but a lower income stream is to work with a mortgage broker experienced in loans for retirees. My guess is that should be a pretty easy thing to do in Florida, and these mortgage brokers may find individual lenders with programs more lenient for retirees.

Whatever your age all homeowners and future homeowners will be happy with the year-end real estate statistics from the Realtor Association of Sarasota and Manatee:

Single-family homes were up in all areas from last year. Closed sales were up 6.6%; median sale price was $316,000, up 5.2%; average sale price was $395,044, up 3.7%; month’s supply of available properties was 3.4 months, down 14.6% from last year. The year ended with 3.5% more pending sales than last year.

Condo sales were up in every area except the number of closed sales, which was down 6.1%. However, the year ended with 17.1% more pending sales for condos, so there is a lot in the pipeline that did not close in 2019. The other numbers are median sale price, $200,000, up 5%; average sale price was $241,331, up 3.4%; and the month’s supply of inventory was 3.6 months, down 10%.

Our biggest problem continues to be the lack of inventory, a seller’s market on steroids.

Age may be a state of mind, but a super good real estate market is a fact of life, and the fact is we’re in a real estate state of mind.