Posted by: jimlyons | November 17, 2014

Pricing Mistakes Sellers Make

Thumbs-Down-HouseSelling your home can be one of the most daunting tasks home owners face and pricing your home properly is by far the biggest and most impactful decisions in that process. An overpriced home is one that is destined to linger for a prolonged period and then be subject to a much lower sales price than if it had been properly priced to begin with.
I often get the question from sellers that have overpriced homes about buyers that may have visited the home “if they think it’s overpriced, then why don’t they just make an offer”?
Great question and some of the answers are discussed in the body of this blog below-but in the simpliest terms, it’s just too difficult. When you think of a buyer having to obtain a loan, search for homes, juggle time between job, children and seeing property and then try and negotiate with a seller that clearly does not understand the market, it becomes a task most buyers just don’t want to deal with.
This blog might seem like a little bit of “tough love” for sellers but it needs to be said.

Home prices are starting to inch up again in most areas, which is encouraging sellers to believe that their homes will sell quickly and for more money. And that’s when they start making mistakes. Don’t be one of them.
Overpricing a home is the biggest mistake a seller can make. Asking a high price for your home says more about you than it does about your home. It may show you value your investment, that you have cared for the home and kept it updated and in good repair. But if the price is too high compared to other similar homes, it can make you appear unrealistic.
Buyers shop in a range that they’ve either been given by their lenders or one where they feel comfortable. If they’re searching on the MLS or a major search engine (Zillow, Trulia etc) they will typically look at homes they can afford and may miss seeing the page where your home is advertised because it’s out of their price range.
Overpriced-homeIt’s also psychologically easier for buyers to negotiate in their price target range. Buyers feel more comfortable asking for a little discount on a home within their reach than to ask you for a big discount on a more expensive home.
You won’t get the more affluent buyer either. Buyers who can afford to pay the price of your home will simply compare your home to others in the same range. They will quickly find out that other homes have better locations, more square footage and snazzier finishes than yours and for the same price.
You’ll find your home will get few showings and if you get any offers at all, they will be low. To get traffic to your home, you’ll have to lower the price. You may find that offers still aren’t coming, even though your home is now fairly priced for its location, amenities and condition.
Why wouldn’t buyers jump at a price reduction? First impressions count, and you didn’t make a good one. The first impression the market had of your home was that it’s overpriced. An overpriced home is a reflection of the seller, not of the home.
Other agents and their buyers don’t want to deal with a seller who is unrealistic. They may have already jumped to conclusions about you and your home that are more negative than you deserve. You’ve overpriced your home because you’re unreasonable, greedy, out of touch with current market conditions, or you’re heavily in debt, upside down on your mortgage, or otherwise in some sort of trouble.
A wounded seller tends to bring out the predator in buyers. Often, homes that have been repriced attract lower offers than other similar homes in the same price range. Buyers think you’re desperate, so they may offer less than market value hoping you’re strapped enough to take it.
It’s far better to make a good first impression on the market — that your home is offered at a fair price because you’re a reasonable seller who understands your home’s value and current market conditions.
Keep in mind that a home will never sell for more than a willing buyer will pay for it, or that a willing bank will finance. You’re always better off pricing your home so that you can get as close to 100% of your asking price as possible.
Only then, will your home sell quickly and for more money.
Thanks to Blanche Evans for her contribution to this blog.


Also See:

Bottom Line: Get in while the gettin’s good!

That’s one way to sum upwhat every homebuyer and seller should know about mortgage rates in 2014.

Of course, there’s a little more to it than that, so if you’re looking to get the best possible rate in 2014 you should be aware of where mortgages and interest rates stand and where experts think they’re going.

What’s happening now:
The good news is that rates are still attractive right now. In January, the average commitment rate on a 30-year, fixed-rate mortgage was 4.43 percent, according to Freddie Mac. That’s up from last year, but still lower than the annual average of every year from 2011 back to 1971. (Freddie Mac was chartered by Congress in 1970.)

Mortgage IIThe bad news? Rates will continue to rise. How high they rise depends on two things: the Federal Reserve and the economy. Here are a couple of ways those two factors are affecting rates.

The Fed is scaling back its economic stimulus program. It has reduced its bond purchasing program, which helped to keep mortgage rates low. As it continues to scale back on bonds, rates will likely increase.

Investors just aren’t that into mortgage notes. According to Reuters, “Upbeat trade data from China and an optimistic economic outlook from Federal Reserve Chair Janet Yellen whetted investors’ appetite for risk.”

So what does that have to do with mortgage rates? Confident investors don’t buy safe investments like mortgage notes — they bet on riskier (and more profitable) investments. That usually means that mortgage rates will go up.

Predictions for 2014:
It’s likely that mortgage rates will rise above 5 percent this year, according to the Mortgage Banker’s Association (MBA).

“We expect mortgage rates will increase above 5 percent in 2014 and then increase further to 5.5 percent by the end of 2015,” said Jay Brinkmann, MBA’s Chief Economist and Senior Vice President for Research and Education in a press release. “As a result, mortgage refinancing will continue to drop, and borrowers seeking to tap the equity in their homes will be more likely to rely on home equity seconds rather than cash-out refinances.”

What this means for homebuyers:
Increasing rates is no reason to lose your head, so don’t let it influence your buying decision. If you want to feel ecstatic about a 5 percent mortgage rate, just compare it to the average annual rate in 1981: a whopping 16.63 percent, according to Freddie Mac.

But if you’re currently in the market for a home, there are a few things you should do to get the best loan.

First, decide which type of loan works best for you. Is a 30-year, fixed rate the way to go? Would a 15-year note make more sense? “You have to decide up front, at the very beginning, which loan program works best for you,”writes David Reed President of CD Reed, Mortgage Bankers. “When loan officers can’t compete on a particular loan program or they find they can make more money on another loan, they’ll try to steer you away from your selected loan program. [But] you can’t compare one loan against an entirely different loan when you’re looking for the best rate. It is imperative that you truly compare apples and apples.”

Second, shop around for the best mortgage. But be sure to look beyond the mortgage rate when comparing different lenders’ programs. The lowest interest rate isn’t always the best deal, so you have to read the fine print to understand true cost of the loan. “What good is 6 percent compared to 6.125 percent if the lower rate costs you several thousand dollars?” asks Reed. “Not much.”

Finally, once you sign a contract on a house, lock in the rate as soon as you’re comfortable with it. Don’t wait to see if rates will drop, because there’s a good chance that they’ll go the other way.

For sellers, understanding how interest rates affect the audience that might be able to purchase your home can be key to a quick, successful transaction. Check out for more information on steps to selling your home.



Posted by: jimlyons | March 15, 2014

Pricing Your Home To Sell


Location may have the most effect on value but Price is without question the most important factor controlling the sale of real estate.  Anything will sell anytime, how long will it take depends on the price-so pricing your home to sell is key to getting the most for your property.

Think about it this way – you really want to buy a car for your collection and your favorite happens to be a 1969 Corvette Manta Ray.  So you hear about one for sale, in mint condition, across town but the only problem is the price, the owner is asking $150,000!  Well, although you really, really want a mint condition  Corvette, there is no way you will pay anywhere close to $150,000, in fact you know that the most a 1969 Manta Ray Corvette has ever sold for is about $115,000.

Because you are a bit obsessed with owning one of these cars you spend almost all of your free time, and some of the time you should be working, searching the internet for available cars.  Through this exhaustive search you have become somewhat of an expert on the values of 1969 Corvettes, especially in your town.  You happen to know that the particular model for sale across town is worth about $95,000…maybe $100,000.  In fact, if the asking price was $100,000 or even $110,000 you would’ve driven over there today with your checkbook and driven home in that 1969 Corvette!

So why don’t you go make an offer?  Well, let’s face it when you see a price that is so high compared to the actual value it makes you think that the seller is either difficult to deal with, is out of touch with reality or that he must not really want to sell the car, instead he is just fishing for the one fool in the world that will pay $150,000 for a car that is worth $95,000.  So you don’t even go look at it or call for more information…you just keep searching the various websites to find that car of your dreams.

Yes, you guessed it the Corvette in this example actually represents your home or other real estate you might be trying to sell.  (in fact it represents any item that can be bought and sold).

The concept of building “wiggle room” into the price. Bad Idea!

Most sellers think that it is necessary to “leave a little wiggle room” in the price.  They think this because they think that all buyers will make aggressively low offers…no matter what the asking price.  WRONG!!

Buyers pay the fair market value …in other words they will pay you what it is worth!  Your job is to find out what it is worth and price it at or near that value.

This is where Realtors, brokers and/or appraisers come into the picture.  The right way to price your property is to have a professional REALTOR/broker or appraiser prepare a CMA (Comparative Market Analysis) on your property.  A CMA involves finding recent sales of similar properties, adjusting for any differences, to arrive at a current market value of your property.  Once you have this value you should have your broker set the asking price no more than 2% to 4% higher than that current market value.

If you do this, your property will sell quickly for a price equal to exactly what it is worth, or higher!   Buyers as a general rule DO NOT make “low-ball” offers, there are some occasions when that happens but the vast majority of initial offers are 2% to 4% or less below asking price based on other sold properties in your immediate area.

If sellers price their property correctly the buyers will know it immediately because, just like in the Corvette example, buyers spend every spare moment searching the internet for a home, they have made themselves experts on the market value of the particular type of home in the particular area they desire.  For this reason the buyer also knows when a property is overpriced.  Most buyers will not even go look at a property that is overpriced, they say to themselves “why bother?” they assume that the seller is unreasonable and/or is not truly interested in selling the property.

Yesterday, I was showing a house to some buyers who were very motivated and had already decided on the neighborhood.  The house was well within their price range and met every one of their criteria.  As we stood in the kitchen discussing what price we should offer we found ourselves drawn to the fact that the house had been on and off of the market for the last two years!

The conversation immediately turned to “what is wrong with this house?”   It turns out that the house hasn’t sold because it was severely overpriced most of that 2 years, it happens to be well priced now but the stigma it carries because of the lengthy time on the market will likely result in it selling for less than it is really worth.

Moral of this whole story is – buyers will pay what it is worth – Seller’s job is to find out what it is worth and set the asking price 2%-4% higher than that number…then sit and wait for the offers to roll in.

Acknowledgement: Ashley Garner-Broker in Wilmington NC contributed to this blog content.
Posted by: jimlyons | November 21, 2013

The Cost of Buying A Home

House on Money PicBuying a home is still considered to be a lifetime accomplishment. How much cash you’re going to need upfront to do so is another story entirely. The funds needed to close the sale play an enormous role in your ability to get a home loan. If you’re serious about buying a home or will be in the future, how much of your income you should be saving to realistically seal the deal?
Short-Term Plan: Lenders look at your pretax income when determining how to qualify you for a mortgage loan. As a would-be homebuyer, you should plan on doing the same, using a percentage of your gross income for determining how much to save. Saving 20 percent of your income could catapult you into purchasing a home in the next 12 to 16 months, depending on your market. For example, if you’re earning $96,000 per year, that’s $19,200 saved after one year. $28,800 saved after a year and six months, which can be plenty of funds to make home-ownership a reality.
Longer Term Plan: At least 10 percent of your pretax income is a great place to start planning for future home-ownership. Using the same example of $96,000 of income, that’s $9,600 per year allocated for home savings. It would only take an extra year to come up with the same type of cash in the short-term plan’s one-year goal.Taking a percentage of your income is certainly no easy task. It requires diligence, attention to detail and financial discipline to consistently put that money in the bank despite other debts and household expenses.
Income Sources to Supplement Your Home Buying Plan: While the following are potential sources for a down payment, make sure you consult with a financial adviser before you tap into your nest egg to make sure it’s the best move for your needs. With that said, here are the options:• 401(k)s — If you have an employer match a percentage of your monthly contribution, this can aid you in purchasing a home faster, as the majority of 401(k) accounts have the ability to borrow for buying a home as a first-time buyer. For example, if you are receiving a 50 percent match of your monthly contributions your 401(k), you can kick-start the time it takes you to save the cash.• IRA — These accounts grow with the market and have the same concept as the 401(k), although without the matching. Such an account is a great place to accumulate money in an interest-bearing account that has provisions to purchase a first home.• CDs and money market accounts — These accounts also are a source to help you generate additional funds to save in addition to your monthly savings contribution. You can even set up electronic funds transfers from your paycheck to funnel into these other banking sources in the event saving that money on your own becomes too difficult.It All Comes Down to Your Home Price: When you buy a home for the first time, there’s the down payment, which is the difference between the purchase price and the loan amount. And then there are closing costs. Those two costs will equal the total cash needed to close. Closing costs are roughly 2-2.25 percent of the purchase price. So if you’re looking at a home for $500,000, plan on closing costs to be around $10,000. How much down payment is needed will vary, depending on the loan program.

Down Payment Requirements for Loans: How much cash you will need to purchase a house is dependent on the loan program, purchase price range and certainly your market area.

• Conventional financing – Needs a minimum down payment of 5 percent (varies on maximum loan size in your area).
• FHA financing — Needs a minimum down payment of 3.5 percent.
• USDA financing — Needs no down payment.
• VA financing — Needs no down payment.
• Home Path Financing — Needs 3 percent down payment.

How to Determine Your Costs Let’s look at a home priced at $500,000. Given certain criteria, $27,500 is what it would take to close the deal. Here’s the math:
• $500,000 purchase price.
• $10,000 closing costs (at 2-2.25 percent of the purchase price).
• $17,500 (a 3.5 percent FHA down payment).
• Giving you a total cash payment of $27,500 needed.

Mortgage Tips: Remember as you are diligently saving a portion of your income to make that home purchase happen: A lower down payment and lower total cash to close means a higher monthly mortgage payment. Conversely, a larger down payment gives you a lower mortgage payment. Also, the percentage of mortgage insurance lowers if a buyer uses more equity.

If you have been diligently saving for a house, and still have not been able to purchase a property and are diligently saving your money, talk to a lender about getting pre-approved. Perhaps it’s time to reevaluate how much percentage of your income is going to saving versus what homes are like in your area.

This example is just a quick look at what it might cost to get into a home. There are many other financial options-please contact me with any questions. Just enter your information in the pre-filled spaces in the form below.

Posted by: jimlyons | November 21, 2013

Hot Home Buyers in Winter Weather

winter_home_shutterstock_18597887-300x200Prospective homebuyers hoping to buy a home in the next four months say the lack of inventory is their biggest challenge, but many believe winter is a good time to buy because sellers are motivated to sell and more willing to negotiate.

That’s according to a survey of more than 1,300 visitors to conducted from Nov. 7-16, which found 45 percent of buyers in the market said there’s not enough inventory in their price range.

The survey also found that a surprising number of prospective homebuyers — 19 percent — are planning to do all-cash deals.

Of those planning to buy without taking out a mortgage:

  • 29 percent said they are downsizing to a smaller or less expensive home.
  • 26 percent are relocation buyers.
  • 11 percent are moving up to a bigger or more expensive home.
  • 11 percent are buying a vacation home.

But most of those surveyed said they’ll need a mortgage to finance their home purchase. Among that group, most did not have the 20 percent down payment that would allow them to qualify them for a conventional loan backed by Fannie Mae or Freddie Mac without having to also purchase mortgage insurance.

More than 1 in 10 of those surveyed (13 percent) said they were planning to put just 3.5 percent down (the minimum down payment on FHA-guaranteed loans). Only 22 percent said they’d be able to make a down payment of more than 20 percent, which would allow them to avoid purchasing mortgage insurance.

The reasons most often cited for buying a home in winter were:
A quarter of the winter homebuyers revealed they are in the market now because they were unable to find a home during this last homebuying season.” –Alison Schwartz
  • 26 percent said they believe that sellers are more motivated to sell and willing to negotiate.
  • 24 percent indicated that they think home prices will be better.
  • 24 percent revealed that they were unable to buy a house during spring or summer.
  • 20 percent shared that they think there will be less competition between buyers.

“This summer and spring homebuying season was particularly challenging for buyers, especially first-time homebuyers trying to compete with all-cash offers and bidding wars because of reduced inventory,” said Alison Schwartz, vice president of corporate communications at, in a statement. “In fact, a quarter of the winter homebuyers revealed they are in the market now because they were unable to find a home during this last homebuying season.”

While 28 percent said they were planning to buy because they are relocating, 19 percent were existing homewoners downsizing to a smaller or less expensive home, and 15 percent were move-up buyers. Nearly 1 in 5 of those surveyed (19 percent) said they were first-time homebuyers.

Tight inventories and rising home prices continued to hamper home purchases, with sales falling for the second month in a row in October, the National Association of Realtors reported today.

There were 2.13 million existing homes for sale at the end of October, NAR said, down 1.8 percent from September. But at October’s slower pace of sales, it would take five months for all those homes to sell, up from 4.9 months in September.

Housing analysts generally consider a six-month supply of existing homes for sale as an even matchup of supply and demand — anything less can indicate that demand has outstripped supply.

Although there continue to be “significant supply shortages,” inventories are “stabilizing” compared to the dramatic year-over-year declines seen earlier this year, said Tuesday in releasing another report analyzing October listings data.

NAR Chief Economist Lawrence Yun recently forecast that 2014 sales of existing homes will be flat due to factors including declining affordability, limited inventory and tight mortgage lending standards.

Yun expects inventory shortages will continue into the spring buying season, which could keep a lid on sales. NAR is forecasting that when all the numbers are in, 2013 sales of existing homes will finish up 10 percent from last year, at 5.13 million. But similar gains aren’t expected next year — NAR predicts existing-home sales will hold steady at 5.12 million in 2014.

Inman News Contributed to this Post.

Posted by: jimlyons | November 14, 2013

5 Year Home Value Outlook

Where Prices are Headed over the Next 5 Years

Home-Price-Expectation-275Today, many real estate conversations center on housing prices and where  they may be headed. That’s why the Home Price Expectation Survey  just may be the most accurate in projecting these numbers. Every  quarter, Pulsenomics surveys a nationwide panel of over one hundred  economists, real estate experts and investment & market strategists about  where prices are headed over the next five years. They then average the  projections of all 100+ experts into a single number.

The results of their latest survey

The latest survey was released last week. Here are the results:

  • Home values will appreciate by 4.3% in 2014.
  • The average annual appreciation will be 4.2% over the next 5 years
  • The cumulative appreciation will be 28% by 2018.
  • Even the experts making up the most bearish quartile of the survey still are projecting a cumulative appreciation of over 16.8% by 2018.

Individual opinions make headlines but regardless of what you believe this news certainly points to a much rosier outlook and a fairer depiction of future values.

Posted by: jimlyons | November 4, 2013

Homeowership Still Alive and Well!

Chicken Little is Wrong: Homeownership Still the American Dream

Chicken-Little After the harrowing challenges experienced by so many homeowners over the last few years,  many housing experts had predicted that the belief in homeownership as a major element  of the American Dream would soon die. There is now conclusive evidence that these experts  were wrong. As we reported back in September,The Joint Center of Housing Studies at Harvard  University completed a study which concluded:

 “The long term cultural preference for owning seems to have weathered the recent housing crisis.”

Now, a second source recently announced similar results. Fannie Mae just released  their National Housing Survey of Delinquent Mortgage Borrowers. The survey asked  questions about the value of homeownership to the most sensitive of all groups –  those delinquent on their mortgages. Here is what they found:

Of those delinquent borrowers:

  • 74% still see homeownership as better than renting when building up wealth
  • 71% still see homeownership as better than renting when saving for retirement
  • 73% still see homeownership as better than renting for overall financial stability
  • 80% still see homeownership as better than renting as an investment plan
  • 70% still see homeownership as better than renting for creating an overall tax strategy

Bottom Line

Homeownership has always been and will always be a crucial piece of the American Dream.

Posted by: jimlyons | October 24, 2013

10 Things Today’s Buyers Look for in a Home

10 Things Buyers Look for in A Home

While David Letterman’s Top 10 lists generally culminate in a No. 1 ranking, the following list includes in no particular order 10 things that are important to buyers today, especially Millennials who represent a significant buyer niche in today’s market.

  1. Quality of the neighborhood – The National Association of Realtor’s 2012 Profile of Buyers and Sellers revealed that neighborhoods are really important to buyers, but that neighborhood choice varies by household composition.
  2. Convenience to job – Commuting is a necessary evil, but homes that are close to work enhance work-life balance, a growing priority for many Americans, especially Millennials.
  3. Overall affordability of homes – With job markets tight and retirement funds depleted or eroded thanks to the great Recession, it has never been more important to keep housing related costs as low as possible, ideally no more than one third of your pre-tax income.
  4. Quality of schools – A recent survey by revealed that nearly 45 percent of today’s buyers are willing to pay a premium for quality schools
  5. Homes suited for the next 15 years – Just five years ago, buyers were looking to stay in their home about 10 years.  Today, buyers expect to stay closer to 15, so it’s important to find a home that can support lifestyles as they evolve through that time period.
  6. A mortgage – In today’s tight credit environment, getting a mortgage can be a challenge. Buyers should be willing to consider homes below what they may quality for in order to bump up the loan to value ratio.
  7. Energy efficiency – The National Association of Homebuilders surveyed buyers to see what was most important to them in new home construction and energy efficiency topped the list.  Four of the top most wanted features involve saving energy: 94 percent of home buyers want energy-star rated appliances, 91 percent want an energy-star rating for the whole home, 89 percent want energy-star rated windows, and 88 percent want ceiling fans.
  8. Open floor plans – Spaces that are great for entertaining mean quality time with friends and family, something especially important to Gen Y.
  9. High ceilings – Taller ceilings are not only aesthetically pleasing in that they impart a grandness to the home, they also promote greater air circulation and more natural light than lower ceilings.
  10. Technology – Can you run your home from a cell phone? Then market to a Millennial, who prizes a homes’ technological amenities prized over curb appeal.


Contributed by Melissa Campbell






Posted by: jimlyons | October 24, 2013

Selling Your Home is a Collaborative Effort


One of the hardest things for some sellers to do is to put their future in a real estate professional’s hands. They’ll list their home for sale, and then sabotage their agent and themselves by refusing to follow their advice.

While it’s scary to give up control over something as important as a home, these sellers don’t realize that they’ll have much more control over what happens by working with and not against their agent.


Your agent knows the market, how to negotiate, how to do all the steps of the transaction, understands contracts and disclosures, and how to solve problems that invariably show up in all transactions. Yet, some sellers just can’t bring themselves to turn things over to their agent, especially if they think they can do a better job themselves.

Are you undermining your agent? If you do any of the following or go against your agent’s advice – you might ruin your chances of selling your home quickly and for the best price:

  • Insist on a short listing period in an attempt to make the agent “work faster”
  • Insist your home is worth more than market comparables
  • Price your home according to your own financial needs, not what the home is actually worth
  • Refuse to make repairs or updates that would make the home easier to sell
  • Disclose some but not all of your home’s flaws to buyers
  • Decline inconvenient showings because the home isn’t show-ready
  • Stay home for showings so you can size up the buyers
  • Show your home to unrepresented buyers
  • Get huffy when others find flaws in your home’s condition or pricing
  • Stall negotiations over relatively minor points hoping the buyer will blink first

Just as your agent hasn’t been trained to do your job, you may not understand the nuances of your agent’s job – which is to sell your home quickly and safely, and for the highest price possible.

Your agent’s advice is based on hard-earned knowledge of human nature, typical housing problems, buyers’ preferences, market conditions, and which strategies work best in which situations.

The best way to control your home’s sale is to listen to your agent.

Contribution by  on Wednesday, 23 October 2013

Posted by: jimlyons | October 21, 2013

Down Payments Going to 30%

Mortgage IIFederal agencies haven’t been functioning much this month, but six of them are looking at a proposal that could squeeze huge numbers of buyers out of the mortgage market: a mandatory 30 percent down payment for borrowers who seek the best rates and terms.
The regulatory agencies have set an Oct. 30 deadline for public comments on a 505-page proposal that creates new rules for bond financing of loans for homes, autos and other assets.
Among the housing proposals is something known as “QRM-Plus.” It would require down payments of 30 percent or more, tough credit standards and a ban against placing second liens on properties at closing.
Although the proposal was floated as an alternative to a much less onerous standard preferred by a majority of the regulators, it is being taken seriously by housing, mortgage, civil rights and consumer groups, nearly 50 of which belong to a coalition opposing its adoption.
The six agencies include the Federal Reserve, the Federal Deposit Insurance Corp., the Federal Housing Finance Agency, the Department of Housing and Urban Development, the Office of the Comptroller of the Currency and the Securities and Exchange Commission.
Two years ago, the same regulators proposed a 20 percent minimum down payment plan for “qualified residential mortgages” (QRMs), a designation for the lowest-risk, highest-quality home loans for inclusion in mortgage bonds marketed by Wall Street. Loans that met the key criteria would be exempt from a requirement that bond issuers retain at least minimal monetary risk in the bonds they sell to investors. The proposal triggered such a vehement response from the public and from Capitol Hill lobbies that the agencies backed off and didn’t return with a revised plan until late this past summer.
Though the latest proposal indicates a preference by the agencies for a qualified mortgage standard with no specific down payment minimum, the mere inclusion of the 30 percent alternative raises the possibility that they could adopt something along these lines. Besides the 30 percent down payment minimum, the alternative plan would require eligible borrowers to have pristine, nearly fault-free credit histories.
Critics say imposing anything even close to these standards would force the vast majority of home buyers to pay higher rates and fees, or simply be turned down. The Mortgage Bankers Association of America, which strongly opposes the 30 percent plan, estimates that only 18 percent of people who purchased homes during 2012 would have been qualified for their mortgages under the alternative proposed by the regulators.
The 30 percent down concept would also have dramatically different impacts on different racial groups. Nearly three-quarters of African American buyers put down 10 percent or less for their mortgage, compared with 50 percent of all buyers, according to data from the 2009 American Housing Survey cited by the mortgage bankers group. Forty-four percent of Hispanic buyers put down less than 5 percent.
The plan also would strongly favor wealthier buyers over those with lower and moderate incomes, and it would create new hurdles for first-time purchasers, who often strain to put together even small down payments.
In a floor speech last week, Sen. Johnny Isakson (R-Ga.), who is active on housing issues and was one of the legislators who crafted the risk-retention provisions in the Dodd-Frank financial reform law that authorizes QRMs, called on regulators to reject the 30 percent alternative “because [it] would be even worse” than their original 20 percent plan. “It would,” he warned, “prevent even more Americans from being homeowners.”
Requiring such large upfront investments would also create severe affordability problems for buyers in higher-cost areas such as California, the Northeast and portions of the Mid-Atlantic states, including the Washington market. To finance a $500,000 house under the alternative plan floated by the regulators, you’d need to bring $150,000 cash to the table, a hefty chunk of money even in affluent communities.
David H. Stevens, president and chief executive of the Mortgage Bankers Association and a member of the coalition opposing the plan, says, “We plan to be very clear and very vocal” in fighting its final adoption.
What are the chances you’ll be forced to pay 30 percent down to get a good mortgage rate thanks to the federal regulators? The politics weigh heavily against it, but then again, the same regulators who got trashed by critics when they proposed a 20 percent minimum are back with a 30 percent plan. So you can’t totally rule it out.
By , Published: October 17 | Updated: Friday, October 18-Washington Post

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