More Perfect Unions

More Perfect Unions

Brokerage firms weigh the benefits of acquisitions and contractions

By Marcie Geffner

It’s no secret that a sharp decline in home sales has triggered a wave of consolidation that has swept through California’s real estate brokerage companies. With statewide sales at just 366,720 in April, there simply isn’t enough demand to keep nearly 175,000 REALTORS® busy.

The closure of realty companies and offices may sound like more bad news for an industry that’s already under siege, but consolidation isn’t all bad. Some practitioners have greeted an office closure as an incentive to reinvent their business.

Chuck Knapp, owner and general manager of Century 21 Desert Rock in Hesperia, is a case in point. The firm, which has 55 full-time agents, closed one of its three offices in February. The office was closed because the outlying locale hadn’t experienced the sales growth Knapp and his wife, broker/owner Hanna Knapp, had expected three years earlier.

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Borrowers look for mortgage modification

By Marcie Geffner •

Homeowners who can't afford their mortgage payments can get a better deal from their lender. But the process is complicated and potentially onerous, and concessions are offered only to borrowers who earn neither too much nor too little income to meet the lender's guidelines.

"If they can afford to pay, they should pay. If they can't afford to pay, we need to make sure they have a fighting chance to make the new payments and pay back the loan over the long term," says Thomas Kelly, a spokesman for J.P. Morgan Chase, which also owns the Washington Mutual, or WaMu, and EMC brands.

Payment must be affordable, but also pay off loan

An "affordable" payment typically is defined as a targeted percentage of the borrower's monthly gross income. Thirty-eight percent is common, though some lenders use a lower or higher figure, usually between 31 percent and 41 percent. The new payment must be sufficient to pay off the loan, sometimes with the term extended to 40 years or some of the principal deferred until the loan is refinanced or the home is sold.

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Death by a thousand price cuts

By Marcie Geffner •

It's the worst-case scenario for home sellers: To endure price cut after price cut until their houses become stigmatized and hungry buyers smell blood. But how can you avoid this unpleasant scenario in today's troubled housing markets? The answer, experts suggest, is to put your home on the market at the right price, and if it doesn't sell quickly, cut the price deep and fast, so you won't be caught in a downward spiral of price reductions.

Not surprisingly, few sellers want to hear that advice. They'd rather price their homes aggressively and then hope buyers will take the bait. But testing the market simply isn't a good strategy with home prices depressed, sales at a slower pace in many markets and buyers on the hunt for good deals, says Mark Reitman, Chicago sales manager for real estate brokerage Redfin in Schaumburg, Ill.

Buyers today are "looking at every aspect in so much more detail and trying to find out how they can get a lower price," he says.

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Mortgage rates near record lows

Low mortgage rates entice home buyers and spur refinancing.

By Marcie Geffner -

It's true: Interest rates on home loans have fallen to new lows for this year. In fact, rates have declined so dramatically that many homeowners are taking advantage of the opportunity to lock in a low fixed rate on a new mortgage.

“Today’s rates are some of the best we’ve seen all year, so for those borrowers looking to purchase a home or refinance a mortgage, now is the time to take action,” says LendingTree Chief Economist Cameron Findlay.

Rates have dropped largely due to the federal government's latest billion-dollar initiatives to support small-business and consumer lending. The government's programs were intended to lower the cost and increase the availability of home mortgages. So far, they appeared to have worked brilliantly, at least as far as mortgage interest rates are concerned.

Treasury Secretary Henry Paulson, who announced the government's initiatives last week, said in a statement that nothing was more important to a housing recovery than the availability of home loans.

How you can benefit from low mortgage rates

Low mortgage rates can benefit both home buyers and homeowners, especially if they have at least moderately good credit and a small down payment or some equity in their home.

● Home buyers can take advantage of low mortgage rates to qualify for a mortgage, make lower monthly payments or borrow more money.

● Homeowners who refinance can lower their monthly payments or trade out of an adjustable-rate mortgage (ARM) into a loan with a fixed rate. Rates on 30-year fixed-rate loans have fallen as low as 5.5 percent for some borrowers.

“For those who have an adjustable-rate mortgage and a reset in the near future, now would be a great time to lock in a fixed-rate loan. Peace of mind and lower monthly payments should be great incentives to help these borrowers make the switch and find a loan they can afford," Findlay explains.

Interest rates change daily and it's impossible to predict how long today's low rates may last. That means borrowers who've waited to buy a home or refinance might not want to wait any longer.

“Last week's drop in rates is proving to be a great opportunity for consumers who were on the fence,” says Findlay. “Shop around and make sure you do your homework. If you are a borrower in good standing who wants to refinance, the ball's in your court.”

© 2008 LendingTree, LLC. This story, "Mortgage rates near record lows," is reprinted by the author with written permission of LendingTree, LLC.

New program streamlines mortgage modifications

New mortgage modification program offers a faster, simpler way for homeowners to get more affordable mortgage payments.

By Marcie Geffner -

The federal government has introduced a new mortgage modification program to simplify and streamline the process of modifying some homeowners’ mortgages so they will be able to afford their monthly mortgage payments.

The new program is "a bold attempt to move quickly in defining a nationwide program that can quickly and easily reach many of these troubled borrowers, thereby stabilizing those families and the communities and neighborhoods in which they live," said James B. Lockhart, director of the Federal Housing Finance Agency (FHFA), a regulatory arm of the federal government, in Washington, D.C.

This new mortgage modification program might be a good fit for you if:

● your mortgage is owned or guaranteed by Fannie Mae or Freddie Mac;

● you’ve missed at least three mortgage payments;

● your home is your primary residence;

● you haven't filed for bankruptcy;

● you've experienced a hardship or change in your financial circumstances; and

● you want to keep your home.

The streamlined mortgage modification program uses a simplified "fast-track" method to modify your mortgage so your monthly payments won't be more than 38 percent of your gross monthly income. Your payment could be reduced by lowering your interest rate, lengthening the term of your loan or deferring payment of interest or part of your loan balance. The total amount that you owe on your mortgage won't be reduced through this modification program.

You don't need to have a high credit score or equity in your home to qualify for the streamlined mortgage modification program.

To find out whether this mortgage modification program will fit your situation, call your loan servicer and be prepared to provide information about your monthly income. The telephone number for your loan servicer should be on your monthly mortgage statement.

If the streamlined mortgage modification program doesn't fit your situation, your loan servicer may try to find another way to make your mortgage payments more affordable for you through a customized process.

The program was put together by Fannie Mae, Freddie Mac, Hope Now, the U.S. Treasury, the Federal Housing Administration, the FHFA and a group of loan servicers. Guidelines for servicers to implement the program are expected to be available by Dec. 15, 2008.

© 2008 LendingTree, LLC. This story, "New program streamlines mortgage modifications," is reprinted by the author with written permission of LendingTree, LLC.

Avoiding negative equity

By Marcie Geffner -

If you're thinking about buying a home, you may be concerned about the prospect of negative equity.

Also referred to as being "underwater" or "upside-down," negative equity occurs when you owe more on your mortgage than your home is worth. While this situation isn't desirable, there are strategies you can use to try to avoid it when you buy a home.

Technically, negative equity is when your loan balance is more than the current value of your home. For example, if you owed $130,000 on your mortgage, but your home was worth only $120,000, you would owe $10,000 more than your home's value. That $10,000 would be negative equity.

Negative equity isn't new. On the contrary, housing markets and home prices historically have been cyclical over long periods of time, and homeowners collectively have experienced negative equity throughout these cycles. When house prices rise, equity naturally expands; and when house prices fall, equity naturally shrinks. That's the nature of housing markets, and given that nature, temporary dips in equity can be expected to occur.

Negative equity has been more common in the current housing cycle because many people bought their home with a small or zero down payment or an interest-only or payment-option mortgage. In fact, more than 7.5 million U.S. homeowners were underwater on their mortgage and another 2.1 million had less than 5 percent equity in their home at the end of September 2008, according to a study by First American Corelogic, a real estate research firm.

Negative equity, or being underwater on your mortgage is a potentially dangerous financial situation because you may have greater difficulty refinancing your mortgage or selling your home.

Yet there are strategies that can help you maximize your equity and make it more likely that you’ll be able to avoid being underwater on your mortgage.

Here are five strategies to consider when buying a home:

● Shop for a home that's a good value for your area, so you'll be less likely to end up underwater if home values fall further.

● Make a hefty down payment, so you'll be starting out as a homeowner with an equity cushion in case home prices fall.

● Choose a traditional fixed-rate or adjustable-rate mortgage, so you'll be adding to your equity every time you make your monthly mortgage payment.

● If you opt for an interest-only or payment-option loan, pay more than the minimum payment each month, so you might be able to build some equity over time and avoid having negative equity.

● Take a long-term view of homeownership. The longer you plan to own your home, the better positioned you'll be to ride out any dips in home values and the possibility of having negative equity.

© 2008 LendingTree, LLC. This story, "Avoiding negative equity," is reprinted by the author with written permission of LendingTree.