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Pending home sales moved higher in April

Increase was still off more than 13 percent from year-earlier period

updated 7:58 a.m. PT, Mon., June. 9, 2008

NEW YORK - Pending home sales unexpectedly increased in April to the highest reading since October, an industry group said Monday, but they remain more than 13 percent below a year ago.

The National Association of Realtors’ seasonally adjusted index of pending sales for existing homes rose to 88.2 from a March reading of 83.0, the lowest since the index was started in 2001. The index stood at 101.5 in April 2007.

Wall Street economists polled by Thomson/IFR had predicted the index would remain steady at 83.

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A reading of 100 is equal to the average level of sales activity in 2001.

The April index in the West climbed 8.3 percent from March and is 4 percent higher than a year ago. In the Midwest, the index jumped 13 percent, but is still lower than in 2007. The South posted a 4.6 percent gain, while the Northeast index declined 1.9 percent.

NAR Chief Economist Lawrence Yun noted that pending sales contracts have ticked up in areas with the largest price declines such as Detroit and Las Vegas.

“Bargain hunters have entered the market en masse,” he said. “Sharp price reductions are leading to a quicker discovery of price equilibrium points.”

Yun forecasts that the median price of an existing home will drop 8.4 percent in the first half of the year before stabilizing. In 2009, prices will rise 4.4 percent to $213,900, he predicts.

Existing home sales this year are expected to total 5.40 million and then increase to 5.74 million next year, Yun said.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Historic

Five-Year Mortgage Rate Freeze Looms

Bush Mortgage Plan Will Freeze Certain Subprime Interest Rates for 5 Years

WASHINGTON (AP) -- The Bush administration has hammered out an agreement with industry to freeze interest rates for certain subprime mortgages for five years in an effort to combat a soaring tide of foreclosures, congressional aides said Wednesday.

These aides, who spoke on condition of anonymity because the details have not yet been released, said the five-year moratorium represented a compromise between desires by banking regulators for a longer time frame of as much as seven years and industry arguments that the freeze should only last one to two years.

Another person familiar with the matter said the rate-freeze plan would apply to borrowers with loans made at the start of 2005 through July 30 of this year with rates that are scheduled to rise between Jan. 1, 2008, and July 31, 2010.

The administration said that President Bush will speak on the agreement at the White House on Thursday and the Treasury Department announced that Treasury Secretary Henry Paulson and Housing and Urban Development Secretary Alphonso Jackson would hold a joint news conference Thursday afternoon with officials of the mortgage industry.

Treasury also announced that there would be a technical briefing to explain more of the details of the proposal.

Paulson, who has been leading the effort to craft a plan, said on Monday that the program would only be available for owner-occupied homes -- as a way to make sure that the break is not granted to real estate speculators.

The plan emerged from talks between Paulson and other banking regulators and banks, mortgage investors and consumer groups trying to address an avalanche of foreclosures that are feared as an estimated 2 million subprime mortgages reset from lower introductory rates to higher rates.

The higher rates in many cases will boost monthly payments by as much as 30 percent, making it extremely difficult for many people to keep current with their loans.

The plan is aimed at homeowners who are making payments on time at lower introductory mortgage rates but cannot afford a higher adjusted rate.

Through October, there were about 1.8 million foreclosure filings nationwide, compared with about 1.3 million in all of 2006, according to Irvine, Calif-based RealtyTrac Inc. With home loan defaults still rising, the trend is expected to worsen next year.

The plan represents an about-face for Paulson, who until recently had insisted that the mortgage crisis could be handled on a case-by-case basis. However, he and other administration officials became convinced that the tide of foreclosures threatened by the mortgage resets represented such a severe threat that a more sweeping approach was needed along the lines of a plan put forward in October by Sheila Bair, head of the Federal Deposit Insurance Corp.

Paulson and other federal regulators began holding talks with some of the country's biggest mortgage lenders, mortgage service companies, investors who hold mortgage-backed securities and nonprofit groups that provide counseling for at-risk homeowners.

Under the typical subprime loan, those offered to borrowers with spotty credit histories, the rates for the first two years were at levels around 7 percent to 9 percent. But after two years, those rates were scheduled to reset to levels around 9 percent to 11 percent.

For a typical $1,200 monthly mortgage payment, the reset could add another $350 to the monthly payment, greatly raising the risks of loan defaults by homeowners struggling with the current payment.

The wave of mortgage foreclosures threatened to make the most severe slump in housing even worse by dumping more foreclosed properties onto an already glutted market, further depressing home prices and shaking consumer confidence.

The deepening housing slump has already roiled financial markets, starting in August, as investors grew increasingly concerned about billions of dollars of losses being suffered by banks, hedge funds and other investors.

The administration plan is designed to deal with the crisis by allowing subprime borrowers who are living in their homes and are current on their payments to avoid a costly reset for five years. The hope is that by that time the housing downturn will have stabilized, clearing out the glut of unsold homes and halting the steep slide in prices that is occurring in many parts of the country.

With sales and prices once again rising, the expectation is that homeowners will be able to renegotiate their current adjustable rate mortgages into a more affordable fixed-rate plan.

The housing crisis has become an issue in the presidential race with Democrats Hillary Rodham Clinton and John Edwards putting forward their own proposals this week that would go further than the administration.

Mark Zandi, chief economist for Moody's Economy.com, said while the administration plan is a good first step, eventually the government will have to go further because of the size of the problem and the threat to the economy.

"This is the most serious housing downturn we have seen in the post World War II period," he said. "It is a threat to the broader economy. The risks of a recession are very high."

     Almost everyone has herd that the mortgage industry is experiencing a credit crunch and that the last two months the Federal Reserves has lowered both its fund rate and the discount rate. The fund rate is where banks can go to the discount window of the Federal Reserve. They can and did interject money into the system this past two months. They offer this to banks to allow more money into the banking system, and lowering the funds rate allows them to borrow this money at cheaper rates. They want to encourage banks who are temporarily experiencing liquidity problems to borrow. This will allow the banks to continue to offer money to the commercial makets ie the secondary market where mortgages are sold. The second is the discount rate. This is what really helps the consumer, however it helps only those loans which are tied to the prime rate. These loans are mostly credit card debt and equity lines of credit. This is considered lowering short term rates, and mortgages are considered long term instruments. Adjustable mortgages are tied to instruments like the Libor, treasury, and others. These are what make adjustable mortgages rates to change, not the prime rate. What this means is that the discount rate doesn't lower mortgage rates for the most part. It is possible that the Fed's could lower short term rates, ie. the discount rate, and the long term rate on mortgages increases. Mortgage rates are more closely inline with the 10 year bond, and the bond markets closely watch commodities like oil etc. along with the US dollar. The bond market looks at these to determine inflation worries. When the economy starts to decline, the Federal Reserve lowers rates to head off a recession, and to make sure there is enough liquidity in the market for banks to loan out money. If the economy slows enough, and the Fed's lower several times, this may eventually bring down long term rates ie. mortgage instruments, as long has inflation worries are in check. 

     What I try to do is monitor the dynamic market forces, as to better suggest to my clients wether or not to refinance, or when is a good time to lock in a rate when they are purchasing a home. I would be happy to discuss this with anyone who would like further discussion. I know this is a brief explanation and there are more variables, but this is a starting point. Please feel free to contact me with questions.

     On my web I also have industry experts give there opinions. I have the daily rate lock advisor which gives a daily market update as to help you make a decision on when to lock. I offer this to may clients, and realtors at no charge. You may visit my web each day to get an informed market update.

Jim Sroka

www.homeloanez.com

     With all of the volatility on the mortgage industry, there are things that an agent and buyer can do to protect themselves. Mortgage Companies are having more trouble taking there loans and selling them on the secondary market. The word sub-prime is used often and is synonymous with "toxic waste" to wall street, who buys loans on the secondary market. This has affected all types of buyers, even with perfect credit. This is primarily loans that are over $417,000, as these loans are sold and backed by FANNIE MAE and FREDDIE MAC, or any sub-prime lenders.  I have heard the lenders are canceling there loan commitments at the last minute leaving the buyer with no loan and no options for a loan.

     During this tumultuous mortgage crisis, I advise the buyer not to remove there loan contingency until at least to when there loan docs are drawn. I understand this makes it extremely uncomfortable for the sellers, as they are making decisions on possible purchasing a new home for themselves. Like the buyers on there home, they too should not remove there loan contingency. Additionally, the buyer and agent needs a lender who will effectively communicate and update all parties in the transaction. The buyer, and seller need to know what type of loan and how this type of loan may affect their sale or purchase. The buyer needs to ask for a loan commitment from the lender. To do this, the buyer needs to expedite the paperwork and get it to there lender as quickly as possible. This will help there lender get the loan to underwriter quicker. I believe shorter escrows will also help in the volatile mortgage market.

     Jim Sroka

     Mortgage Loan Consultant