Competition For Apartments is Heating Up in South Florida

With vacancy rates dropping to their lowest levels since 2006, it’s getting harder to find a rental apartment in South Florida,

Broward County’s vacancy rate has dropped to 5.3% in May from 6.8% in May 2009, according to a report this week from Reinhold P. Wolff Economic Research in Oakland Park. Palm Beach County’s rate fell to 6.3% from 7.9%.

Not surprisingly, rental rates are on the rise. From February to May, the overall monthly rent for apartments increased 1.5% in Broward and 0.8% in Palm Beach County, the research firm said.

According to Keith White, president of Reinhold P. Wolff, a lack of new development is the main culprit for the tighter market. Furthermore, the number of foreclosed homeowners seeking rentals after losing their homes to lenders. "There's no question it's a factor," he stated. Even better news: White expects demand to exceed supply for the next three years!!!

Foreclosures Dominate Broward Home Sales in 1st Quarter

Today, RealtyTrac Inc. issued a statement saying that nearly half of the homes sold in Broward County during the first quarter of 2010 were in some stage of foreclosure.

The share of Broward sales that involved a home in distress was 44%, well above the national average of 31%.

Foreclosures — homes and condominiums in default, bank-owned or scheduled for auction — involved 26% of sales in Palm Beach County during the first quarter.

According to RealtyTrac, an Irvine, Calif.-based research firm, the average sale price of a foreclosed home in Broward was $123,270, while Palm Beach County's was $148,458. Buyers in each county paid 22% less for a home if it was in foreclosure.

James J. Saccacio, RealtyTrac's chief executive, stated:
"First-time homebuyers and investors continue to buy foreclosure properties in large numbers, and at substantial discounts. As lenders repossess homes in record numbers, they'll have to be careful to manage the inventory to prevent more dramatic price declines."

Following the historic run-up in housing prices from 2000 to 2005, Florida was one of the nation's hardest-hit markets for foreclosures. Broward consistently has one of the highest foreclosure rates among the state's 67 counties.

Foreclosure sales made up 39% of all transactions across Florida during the January-to-March period. In 2005, foreclosures represented less than 1% of all sales nationally.

Coral Springs real estate agent Beverly Rothstein said nearly all of her showings are homes owned by banks or those in which the owners have fallen behind on payments and need to sell. She states: "Most of them are in disrepair. It's always a pleasant surprise when you show a foreclosure that isn't completely trashed."

While longtime house hunters are fed up by the condition of foreclosed homes, Rothstein said her buyers are willing to renovate the properties if means they can get them for a steal.
She further goes on record stating: "If you want to make money in this market, you have to know the foreclosure business." 

Many buyers looking to qualify for the $8,000 and $6,500 tax credits dismissed foreclosures because they wanted to complete their purchases quickly, said Richard Barkett, chief executive of the Realtor Association of Greater Fort Lauderdale.

The expiration of the credits means that foreclosures will make up an even greater portion of overall home sales, he and other market observers say. That will drag down prices for all homes.

Moody's Economy.com predicts prices will hit bottom in Broward and Palm Beach counties in the third quarter of 2011. "But most of the declines will occur over the next six months," said Chris Lafakis, an economist for the West Chester, Pa., research firm.

Meanwhile, most sellers not in foreclosure don't understand that foreclosed homes are hurting prices of nearby properties, said Michael Citron, an agent in Parkland and Coconut Creek.

"They say, 'That other house is a foreclosure. Mine is better than that,'" Citron said. "When I sit down and explain that foreclosure values are becoming market values, they're disillusioned."

Starting in July, lenders and borrowers will be required to go to mediation before a foreclosure judgment can be issued. The American Arbitration Association will run Broward's mediation program, while the Palm Beach County Bar Association will manage Palm Beach County's program.

South Florida Home Prices Continue to Decline

According to the Standard & Poor's / Case-Shiller Home Price Index released today, home prices fell by 0.8% in South Florida from March to April.

The S&P data show the end of the home-buyer tax credits April 30 had the greatest effect on the Miami metro area -- Palm Beach, Broward and Miami-Dade counties . They were the only two regions in the 20-city index to post declines. On a year-to-year basis, South Florida prices fell by 0.5%.

The index is considered a strong measure of home prices because it examines price changes of the same property over time, instead of calculating a median price of homes sold during the month, as the Florida Realtors trade group does.

David Blitzer, chairman of the index committee at S&P stated:
"Figures from Florida Realtors show that prices have stabilized recently in South Florida.
Consistent and sustained boosts to economic growth from housing may have to wait until next year,”

Florida's Existing-Home & Condo Sales Continue to Surge in May!!!

According to the latest housing data released by Florida Realtors. Florida’s existing-home and condo sales increased once again in May, in what seems to be a never-ending trend,

A total of 16,745 single-family existing homes were sold in Florida last month, jumping 18% from the number of homes sold in May 2009. This marks the 21st consecutive month that sales activity has increased in the year-to-year comparison.

And existing-condo sales made an even more notable increase. Statewide, 6,779 units were sold in May, soaring 40% from the previous year’s sales figure. Growth in existing-home and condo sales was reported in 17 of Florida’s metropolitan statistical areas (MSAs). According to Florida Realtors report, a majority of the state’s MSAs have reported an increase in sales for 23 consecutive months.

Wendell Davis, 2010 president of Florida Realtors, said across the state, housing opportunities continue to be available at attractive prices while mortgage interest rates remain historically low. “Favorable conditions like this spark buyers’ interest,” she said. While sales of existing homes and condos increased last month, the prices of these properties continued to decrease. This drop in prices is likely a driving factor behind the surge in sales activity.

Florida’s median sales price for existing homes in May was $140,400, down 2% from one year earlier. During this same period, the statewide sales price for existing condos plummeted 13% to $98,700.

Fannie Mae is Cracking Down on Strategic Defaulters

Fed up with the growing trend of strategic defaulting, the government-run mortgage company Fannie Mae stated it will not back new loans for those borrowers for seven years.

Furthermore, Fannie also indicated it would instruct lenders to sue homeowners who abandon properties for the unpaid mortgage balances.

Fannie is hoping this new stance will discourage people from walking away.

Do you think this will be effective?

Home-Buyers Walk Away From Deals if They Can't Get Tax Credits

The Senate fell three votes short last week of passing legislation that would have given buyers until Sept. 30 to close on their deals. Now they’ll have to close by June 30 or lose the $8,000 and $6,500 tax rebates.

Real estate agents are now worried about home sales collapsing if buyers can't close in time to get their tax credits.

Douglas Rill, broker at Century 21 in West Palm Beach, states: “For some people, the $8,000 was the icing. For others, it’s the cake.”

For example, Jordan Rodack’s closing on a townhome near Boynton Beach has been delayed because he can’t get flood insurance. He states: "The $8,000 credit was the reason I got into the market. Without it, it will be troublesome to close on this house.”

Mortgage Rates Sink to Lowest Level on Record!!!

This week, mortgage rates fell to the lowest level on record, giving consumers added incentive to lock in low payments on home purchases and refinances.

Freddie Mac states the average rate for 30-year fixed loans sank to 4.69%, from 4.75% last week.

That's the lowest since Freddie Mac began tracking rates in 1971. The previous record of 4.71% was set in December 2009. Rates for 15-year and five year mortgages also hit lows.

Government States: Nearly 1,300 Prison Inmates Get Nine Million Dollars in Home-buyer Tax Credits

WASHINGTON (AP) — Living in prison didn't stop nearly 1,300 inmates from cashing in on a popular tax break for first-time homebuyers, a government investigator reported Wednesday. Their take: more than $9 million.

In all, more than 14,100 tax filers wrongly received at least $26.7 million in tax credits meant to boost the nation's slumping housing markets, said the report by J. Russell George, the Treasury Department's inspector general for tax administration.

A common scam had multiple taxpayers using the sale of a single home, with each claiming the credit. One home was used by 67 tax filers, the report said. In other cases, taxpayers got the credit for sales that happened before the tax break started.

"This is very troubling," George said. "Congress created and modified the homebuyer credit to stimulate the economy and help taxpayers achieve the American dream, not to line the pockets of wrongdoers."

The Internal Revenue Service says it is taking steps to get the money back. The agency noted that more than 2.6 million taxpayers claimed the tax credit through April — claiming $18.7 billion in credits — with only a tiny fraction going to prison inmates or other scofflaws.

The tax credit "has played a critical role in stabilizing the hard-hit housing market," Assistant Treasury Secretary Michael Mundaca said in a statement. "These fraudulent claims, which are being pursued to the fullest extent of the law, represent less than half a percent of the credits paid out under this program."

"As with all new and expanded programs, we are constantly working to improve implementation, and the IRS has already begun to take additional steps to prevent fraud in this program," Mundaca added.

The report blemishes an otherwise popular tax break that was sweetened once by President Barack Obama's economic recovery package and again when Congress extended it into the spring. The National Association of Realtors says the tax credit has generated 1 million new home sales that wouldn't have happened otherwise.

"Last year, we learned that children and persons who did not purchase homes were fraudulently claiming the first-time homebuyer credit," said Rep. John Lewis, D-Ga., chairman of the House Ways and Means oversight subcommittee. "Although I am pleased that the fraud identified earlier does not continue, I am concerned about prisoners claiming the credit."

Congress started the first-time homebuyer tax credit in 2008, providing couples up to $7,500 that had to be repaid, free of interest, over 15 years. The credit was essentially an interest-free loan.

Last year, Obama and Congress upgraded the credit significantly, increasing the top amount to $8,000 and ending the requirement that it be repaid.

The inspector general's report targets taxpayers who claimed the first-time homebuyers tax credit under these two programs. Since then, in November, Congress expanded the tax credit to existing homeowners, offering up to $6,500 to longtime owners who bought new homes.

The latest extension is about to expire. Homebuyers had to sign purchase agreements by April 30 and close by June 30, though there is a movement in Congress to extend the closing deadline until Sept. 30.

The IRS said it has aggressively enforced the tax credit, blocking nearly 400,000 questionable claims and opening more than 150 criminal investigations.

"These aggressive efforts have saved taxpayers more than $1 billion," the IRS said in its statement.

Nevertheless, 1,295 prison inmates were able to get $9.1 million in credits, including 241 who were serving life sentences, the IG's report said. None of the inmates filed joint returns, so the claims could not have been for purchases by spouses.

Many prisons provide inmate information to the IRS, but they are not required to do so, which makes reporting uneven, the report said.

The IRS is asking Congress for legislation ensuring the agency gets up-to-date inmate information, IRS spokesman Frank Keith said. In the meantime, the IRS plans to reach out to local, state and federal prison officials to start a task force to improve information-sharing on inmates.

"When IRS has reliable data, we do a very effective job of using it to ensure compliance," Keith said. "When IRS does not have reliable data, it is a much more difficult process for us."

The IG report estimates that 2,555 taxpayers wrongly received $17.6 million in tax credits for homes that were bought before the credit was enacted.

An estimated 10,282 taxpayers wrongly received credits for homes that were also used by other taxpayers to claim the credit. Investigators were unable to quantify the amount of money they received, "but all indications are that the total will be in the tens of millions of dollars," the IG's office said in a statement.

Investigators also found 87 IRS employees who may have improperly claimed the credit, though the review was ongoing.

New Home Sales Plummet as Tax Credit Expires

In May 2010, the expiring tax credits led to a record plunge in new home sales.

According to the Commerce Department, sales tumbled 33% to an annual pace of 300,000 from April.

The end of a tax incentive worth as much as $8,000 means the market will now be dependent on gains in employment, which are needed to lift incomes, brace confidence and contain foreclosures. A lack of inflation and concern over jobs and housing are among reasons Federal Reserve policy makers may reiterate a pledge to keep interest rates near zero.

Most analysts expected home sales to lose ground following the tax credits, but not by this much.

What do you think the rest of the year holds for home sales?

Steep Re-Default Rates on HAMP Modifications are Predicted

The government’s Home Affordable Modification Program (HAMP) has been panned by critics for what many say are substandard results, and a new report from Fitch Ratings indicates that even the small successes it’s made so far may soon be reversed.

The company says that within 12 months, 55% to 65% of the prime loans modified under the federal program will likely re-default. For modifications on subprime and Alt-A loans, the projection is higher – 65% to 75%.

The agency’s analyst stated in their report:
“Fitch continues to believe that, when properly done, modifications can benefit both homeowners and [residential mortgage] investors. However, modification performance or sustainability continues to be affected by the borrowers’ desire to keep their property, as well as having sufficient cash flow to make the modified payments.”

The ratings agency says it is encouraged by the prospects of the administration’s newest initiative, the principal write-down modification approach, since it attempts to address the borrower’s desire to stay in the home.

However, Fitch’s analysts note that the program, which isn’t expected to be ready for implementation until later this year, limits the principal write-down to no less than 115% of current value and also requires the borrower to perform under the terms of the modification for three years to receive the full benefit of the write-down.

According to Fitch’s report, approximately 15% of all non-GSE loans held in residential mortgage-backed securities (RMBS) by balance had received at least one modification as of May 2010, including almost 35% of RMBS subprime loans.

But even modified loans prove to need more restructuring, Fitch says. Its study shows that 15% of all modified mortgages in non-GSE securities have received at least one additional modification.

While modifications continue to be the primary strategy to work out problem loans, accounting for just under 70% of all loan workouts, the use of alternative methods to foreclosure, such as short sales and short payoffs, has increased materially since mid 2009, Fitch said.

Currently, 50% of prime and 35% of subprime and Alt-A distressed liquidation sales are not by REO sale, the ratings agency reports.

Of these loans liquidated by a short sale or payoff, Fitch found that 8% were located in 8% in Florida.

Fitch concludes:
“It is expected that, following guidelines from the Obama administration, the percentage of loans liquidated outside of REO sale will continue to increase.” 

Millions in Federal Foreclosure Aid to be Funneled to South Florida

As part of a federal plan to keep borrowers at risk of foreclosure in their homes, more than $73 million is expected to pour into Palm Beach and Broward counties this year. 

Florida is getting $418 million of the $2.1 billion the Obama administration pledged to 10 states hit hardest by the housing meltdown.

David Westcott, an executive with the Florida Housing Finance Corp. states:
"It sounds like a very large sum of money. But with the scope of the foreclosure crisis, unfortunately, it doesn't go very far."

Westcott's agency has proposed spending three-quarters of its allotment to temporarily cover the mortgage payments of 12,000 homeowners statewide. Almost 353,000 loans in Florida are 90 or more days past due.

The U.S. Treasury still must approve the plan, which could begin by the end of the year.

Florida Housing Finance would distribute $317.3 million to the state's 67 counties under its so-called Mortgage Intervention Strategy.

Broward County stands to receive $44.4 million, while $28.9 million is designated for Palm Beach County. Miami-Dade would get $50 million, the most of any county. On Friday, Florida Housing Finance said it will test the program in Lee County in southwest Florida before rolling it out to the rest of the state.

The money will cover as many as nine months of mortgage payments for single-family homeowners who are unemployed or in jobs with salaries below what they need for basic living expenses. The agency hopes to find lenders and investors willing to forgive up to nine more months to give homeowners additional time to get back on their feet financially.

Once homeowners find jobs and resume house payments, the state loans can be forgiven over five years if the debtors stay current on the payments and continue to live in the homes. Some of these borrowers also may qualify for a principal writedown of their mortgages.

The Mortgage Intervention Strategy is not designed for "underwater" Florida homeowners who can make their monthly payments.

These borrowers worry that negative equity will shackle them to the same homes for years.

However, Cecka Green, spokeswoman for Florida Housing Finance, said the jobless and underemployed have the more immediate concern of foreclosure. She states:  "We've been entrusted with this money to help the most vulnerable people." 

To get a loan, families can't make more than 140%t of the area's median income, which is $53,701 in Palm Beach County and $50,531 in Broward. That means a Palm Beach County family can't earn more than $75,181 and a Broward family can't make more than $70,743.

Once homeowners are able to apply for the program, local housing counselors will determine eligibility. They will consider such hardships as divorce and loss of income from a death or disability.

Mike Larson, a housing analyst with Weiss Research in Jupiter, said the mortgage program is a good way to help laid-off workers who likely can find similar jobs at close to the same salaries. He states:  "we're not talking about huge numbers [of homeowners helped], considering the scope of the problem." 

Ralph Stone, director of Broward County's Housing Finance and Community Development Division, said the money will be put to good use in Broward.

RealtyTrac Inc. said the county had the third-highest foreclosure rate in May across Florida, which posted the nation's third-highest foreclosure rate.

"Every bit helps," Stone said. "Twelve thousand is better than nothing."

Florida Housing Finance had proposed spending the other part of the $418 million on down payment assistance to buyers and on legal aid to homeowners facing foreclosure. But the Treasury rejected those programs.

State housing officials said they are exploring a plan for short sales as an option for troubled homeowners.

Fannie and Citi Offer Mortgage Relief to BP Oil Spill Victims

This past Wednesday, Fannie Mae issued an announcement suggesting its servicers immediately suspend or reduce mortgage payments for borrowers whose properties or income are negatively impacted by the Gulf oil spill.

GSE’s CEO, Michael J. Williams states: 

“We want to give homeowners every opportunity to weather this unprecedented disaster, including relief from their mortgage payment if that will help them get back on their feet and stay in their homes. Our policy is in place to support those who are experiencing a disaster-related hardship through no fault of their own and are acting in good faith to meet their mortgage obligation.”

Under Fannie Mae’s “Special Relief Measures” policy, servicers may suspend or reduce a borrower’s payments for up to 90 days while the servicer determines the extent of the impact the disaster is having on the condition of the property or on the borrower’s financial condition. At the conclusion of that assessment, servicers have the flexibility to evaluate the appropriate loss mitigation action on a case-by-case basis, including an additional three months of forbearance, a loan modification, or another customized solution.

Citigroup also announced a foreclosure suspension program for CitiMortgage-owned first mortgages in coastal areas of the Gulf. In addition, the company says evictions on its REO properties will cease during this time.

Citi issued a statement:

“While CitiMortgage does not own all of the loans it services, the company hopes to help as many borrowers as possible with this initiative” and “allow distressed homeowners to remain in their homes during these uncertain times as the Gulf communities respond to the oil spill and its economic repercussions.”

The company’s foreclosure moratorium for oil spill victims takes effect June 17 and goes through September 17. CitiMortgage borrowers occupying residences in ZIP codes within approximately 25 miles of affected coastal areas will be eligible for the program.

 Vikram Pandit, CEO of Citi states:

“By putting CitiMortgage foreclosures on hold, we aim to ease the burden on residents of the Gulf states so they can concentrate on the most urgent matters facing them. In the midst of this crisis, we will continue to explore ways to help people avoid foreclosure so they and their families can remain in their homes and have one less thing to worry about.”

New Report States Shadow Inventory Variants Could Trigger Regional Price Declines

According to a new report published by Standard & Poor’s Ratings Services, regional variations in the shadow inventories of distressed U.S. mortgages could be an indicator of the direction home prices will take.

The company’s analysts say differences in the backlog of distressed properties point to which markets will see home prices stabilize or even increase, and where additional declines may still be in store.

The volume of troubled residential properties has been growing in nearly every U.S. state since 2005, S&P said, and borrowers nationwide are now defaulting on their mortgages faster than existing defaults are being resolved through liquidation. These trends have given rise to a large “shadow inventory” of distressed properties.

S&P estimates that the shadow inventory backing just private-label residential mortgage-backed securities (RMBS) will take nearly three years to clear at the current resolution rate. The ratings agency defines shadow inventory as properties that are 90 or more days delinquent, in foreclosure, or REO, but that haven’t yet hit the market. S&P concludes that the original principal balance of this inventory overhang amounts to roughly $480 billion, or 30% of the entire private-label, non-GSE market.

Diane Westerback, a credit analyst with S&P states:
“Given this backlog, we believe that average home prices could fall again if demand doesn’t rise in step with the potential influx of supply.”

The report notes that although shadow inventories remain well above historical averages in most regions of the United States, inventory levels and trends among cities varies significantly.

Standard & Poor’s review of the 20 major metropolitan statistical areas (MSAs) included in the S&P/Case-Shiller Home Price Indices revealed that inventories appear to be falling from recent peaks in some areas while plateauing at historical highs or continuing to rise in others.

Westerback explained:
“For instance, we estimate that the shadow inventory in the New York City metro area will take the longest to clear – at 103 months – assuming the current liquidation rates. This is almost 3.5 times our estimate for the national average, at 34 months, and far exceeds the level for the Phoenix metro area, which has a projected 16 months of inventory to clear, the lowest of the 20 MSAs."

Standard & Poor’s analysis included all first-lien, prime, Alternative-A, and subprime mortgages that appear in non-agency RMBS transactions.

U.S. Senate Votes to Extend Deadline for Home Buyer's Tax Credit

The Senate voted 60-37 on Wednesday to extend until the end of September the deadline for completing home sales and still qualifying for a popular home buyer's tax credit.

Only buyers who signed contracts by April 30 could take advantage of the extension. Without it, buyers must close the deal by the end of June to get the $8,000 first-time credit or the $6,500 credit for certain people who already own homes.

The amendment was added to a bill that would extend the law that provides extra unemployment benefits.

NEW BANK OWNED LISTING: 1BR/1BA Condo in Delray Beach, FL, $143,000

For Sale: 1BR/1BA Condo in Delray Beach, FL, $143,000

Steps to Homeownership ~ Made Easy

1. Homebuyer obtains pre-qualification from Lender.
2. Homebuyer purchases desired home with assistance of Real Estate Agent.
3. Contract is accepted / Home is placed in escrow.
4. Loan application is submitted to lender.
5. Lender orders title & property appraisal.
6. Loan materials are reviewed & processed.
7. Loan submitted to underwriting for approval.
8. Closing agent coordinates insurance, prepares transfer of final materials.
9. Loan documents are signed.
10. The loan is funded & recorded.
11. Homebuyers get the keys to move into their new home.

NEW BANK OWNED LISTING: 1BR/1.5BA Condo in Delray Beach, FL, $14,900

For Sale: 1BR/1+1BA Condo in Delray Beach, FL, $14,900

Five Reasons Why You Still Need A Real Estate Agent

The proliferation of services that help home-buyers and sellers complete their own real estate transactions is relatively recent, and it may have you wondering whether using a real estate agent is becoming a relic of a bygone era. While doing the work yourself can save you the significant commission rates many real estate agents command, for many, flying solo may not be the way to go--and could end up being more costly than a realtor's commission in the long run. Buying or selling a home is a major financial (and emotional) undertaking. Find out why you shouldn't discard the notion of hiring an agent just yet.

Better Access/More Convenience

A real estate agent's full-time job is to act as a liaison between buyers and sellers. This means that he or she will have easy access to all other properties listed by other agents. Both the buyer's and seller's agent work full time as real estate agents and they know what needs to be done to get a deal together. For example, if you are looking to buy a home, a real estate agent will track down homes that meet your criteria, get in touch with sellers' agents and make appointments for you to view the homes. If you are buying on your own, you will have to play this telephone tag yourself. This may be especially difficult if you're shopping for homes that are for sale by owner.

Similarly, if you are looking to sell your home yourself, you will have to solicit calls from interested parties, answer questions and make appointments. Keep in mind that potential buyers are likely to move on if you tend to be busy or don't respond quickly enough. Alternatively, you may find yourself making an appointment and rushing home, only to find that no one shows up.

Negotiating Is Tricky Business

Many people don't like the idea of doing a real estate deal through an agent and feel that direct negotiation between buyers and sellers is more transparent and allows the parties to better look after their own best interests. This is probably true--assuming that both the buyer and seller in a given transaction are reasonable people who are able to get along. Unfortunately, this isn't always an easy relationship.

What if you, as a buyer, like a home but despise its wood-paneled walls, shag carpet and lurid orange kitchen? If you are working with an agent, you can express your contempt for the current owner's decorating skills and rant about how much it'll cost you to upgrade the home without insulting the owner. For all you know, the owner's late mother may have lovingly chosen the décor. Your real estate agent can convey your concerns to the sellers' agent. Acting as a messenger, the agent may be in a better position to negotiate a discount without ruffling the homeowner's feathers.

A real estate agent can also play the “bad guy” in a transaction, preventing the bad blood between a buyer and seller that can kill a deal. Keep in mind that a seller can reject a potential buyer's offer for any reason--including just because they hate his or her guts. An agent can help by speaking for you in tough transactions and smoothing things over to keep them from getting too personal. This can put you in a better position to get the house you want. The same is true for the seller, who can benefit from a hard-nosed real estate agent who will represent their interests without turning off potential buyers who want to niggle about the price.

Contracts Can Be Hard To Handle

If you decide to buy or sell a home, the offer to purchase contract is there to protect you and ensure that you are able to back out of the deal if certain conditions aren't met. For example, if you plan to buy a home with a mortgage but you fail to make financing one of the conditions of the sale--and you aren't approved for the mortgage--you can lose your deposit on the home and could even be sued by the seller for failing to fulfill your end of the contract. An experienced real estate agent deals with the same contracts and conditions on a regular basis, and is familiar with which conditions should be used, when they can safely be removed and how to use the contract to protect you, whether you're buying or selling your home.

Real Estate Agents Can't Lie

Well, OK, actually they can. But because they are licensed professionals there are more repercussions if they do than for a private buyer or seller. If you are working with a licensed real estate agent under an agency agreement, (i.e., a conventional, full-service commission agreement in which the agent agrees to represent you), your agent will be bound by common law (in most states) to a fiduciary relationship. In other words, the agent is bound by license law to act in their clients' best interest (not his or her own).

In addition, most realtors rely on referrals and repeat business to build the kind of clientèle base they'll need to survive in the business. This means that doing what's best for their clients should be as important to them as any individual sale.

Finally, if you do find that your agent has gotten away with lying to you, you will have more avenues for recourse, such as through your agent's broker, professional association (such as the National Association Of Realtors) or possibly even in court if you can prove that your agent has failed to uphold his fiduciary duties.

When a buyer and seller work together directly, they can (and should) seek legal counsel, but because each is expected to act in his or her best interest, there isn't much you can do if you find out later that you've been duped about multiple offers or the home's condition. And having a lawyer on retainer any time you want to talk about potentially buying or selling a house could cost far more than an agent's commissions by the time the transaction is complete.

Not Everyone Can Save Money

Many people eschew using a real estate agent to save money, but keep in mind that it is unlikely that both the buyer and seller will reap the benefits of not having to pay commissions. For example, if you are selling your home on your own, you will price it based on the sale prices of other comparable properties in your area. Many of these properties will be sold with the help of an agent. This means that the seller gets the keep the percentage of the home's sale price that might otherwise be paid to the real estate agent. However, buyers who are looking to purchase a home sold by owners may also believe they can save some money on the home by not having an agent involved. They might even expect it and make an offer accordingly. However, unless buyer and seller agree to split the savings, they can't both save the commission. 

The Bottom Line

While there are certainly people who are qualified to sell their own homes, taking a quick look at the long list of frequently asked questions on most “for sale by owner” websites suggests the process isn't as simple as many people assume. And when you get into a difficult situation, it can really pay to have a professional on your side.

Tax Credit Extension Would Help Short Sale Buyers

Frustrated home buyers trying to complete short sales or get flood insurance stand to benefit most from an extension, which has not yet passed Congress, but is being pushed by Senate Majority Leader Harry Reid, D-Nev.

Reid, who is up for re-election, said last week that buyers should have until the end of September to complete their deals because of delays beyond their control. As it is now, buyers who signed contracts by April 30 must close by the end of June to get the $8,000 first-time credit or the $6,500 credit for certain people who already own homes.

Only buyers who signed contracts by April 30 could take advantage of an extension. The Senate is expected to consider Reid's measure this week.

Short sales, in which sellers unload homes for less than they owe on their mortgages, often drag on for weeks or months while lenders consider whether to approve the deals. New federal guidelines introduced in April give lenders a 10-day window to respond to short sale offers, but some banks aren't complying, real estate agents and analysts say.

Reid's proposal would be a major benefit for buyers who need more time to let the process play out.

"I'm just twisting in the wind," said Smith. "I really hope this gets extended. It would take a lot of pressure off me."

His real estate agent, Ryan Love of Coldwell Banker, said they're waiting for a letter of approval from the lender.

"We keep getting the 'Oh, it's coming today or tomorrow' line," Love said.

Even people who aren't buying short sales are hoping for an extension.

Some deals are being delayed because buyers can't get flood insurance. Lawmakers let the National Flood Insurance Program expire three times this year. No new or renewal flood policies can be issued until Congress renews it.

Bill Mei, a loan officer for Element Funding in Pompano Beach, said the lack of flood insurance has killed one of his home sales and postponed two others. He's concerned about a few closings scheduled in the coming weeks.

"It's a big mess," he said.

The crush of buyers trying to complete sales by the end of June "is creating a clog in the system," said Walter Molony, a spokesman for the National Association of Realtors. "It's taking longer to close transactions."

The national Realtors' group estimates that 180,000 buyers are at risk of not closing in time to receive the credits.

Meanwhile, the pending expiration of the tax credits has home builders feeling less confident.

The National Association of Home Builders said Tuesday its index measuring member optimism dropped to 17 in June from 22 in May. The index had risen for two consecutive months.

Regional Housing Prices Increase as Consumer Confidence Rises

According to a study conducted by Fiserv, Inc, public optimism that a sustainable economic recovery is underway has driven up home prices in many regional markets.

Yesterday, the Wisconsin-based financial services firm released its analysis of home price trends covering 384 U.S. metro areas and based on the closely-watched Fiserv Case-Shiller Indexes.

The company’s analysts found that in the fourth quarter of 2009, U.S. home prices were trending up in 40% of the metros studied, including markets in California, Ohio, Michigan, and Washington, D.C.

David Stiff, Chief Economist at Fiserv, Inc states:

“More and more, consumers have confidence that buying a home doesn’t mean catching a falling knife. Very large price declines have also made housing much more affordable, drawing in both first-time homebuyers and investors.”

Despite the modest bounce-back from recent lows in a large number of regional markets, the U.S. housing market continued its price correction over the past year, with single-family home prices across the U.S. falling an average of 2.5% over the 12-month period ending December 31, 2009.

Fiserv says the drop in the national figure can be attributed to high levels of unemployment and the large number of distressed properties that remain in markets such as Florida, Arizona, and Nevada.

According to Fiserv’s assessment, at the end of 2009, the median U.S. home price was $170,300. The median monthly mortgage payment fell slightly to 14 percent of median family income, a decrease of 1 percent compared to the third quarter of last year.

California markets collapsed about one year before much of the rest of the country, and Fiserv says relative to bubble-era prices, here is where it has seen the greatest improvement in housing affordability.

As of the end of 2009, year-over-year prices were up in eight of 28 California metro areas. The strongest rebounds were in coastal markets, including the Bay Area, Los Angeles, Orange County, and San Diego, where there are decreasing levels of foreclosed homes. Markets in the interior have also experienced a price bounce, mainly due to strong investor demand, Fiserv said.

In Washington, D.C., home prices were up 5.2% year-over-year. Since the market bottom in early 2009, prices in this metro area have risen more than 9%, according to Fiserv’s analysis.

Fiserv says even Ohio and Michigan, two states hit hard by the recession and loss of manufacturing jobs, are seeing signs of stabilization, thanks to highly affordable housing conditions.

The company says other markets where investor purchases of foreclosed homes have dominated housing sales are also coming back into balance. These include metro areas such as Minneapolis, Detroit, and Memphis, Tennessee, where recent sales have included more non-distressed homes.

But even with clear signs of improvement in some touch-and-go markets, Stiff warns that renewed downward pressure on home prices is likely to show itself.

“The first-time homebuyer tax credit has expired, the Federal Reserve has stopped buying residential mortgage backed securities (MBS), and the projected number of foreclosures remains extremely high. As a result, markets with recent price increases may see small price declines before prices finally stabilize at the end of this year or early 2011.”

Fiserv forecasts that average single-family home prices will fall another 3.1% over the next 12 months.

Even steeper declines are expected in markets that have been hurt most by the housing crisis. From the fourth quarter of 2009 through the fourth quarter of 2010, Fiserv projects average home prices Florida are projected to drop 7.7%.

Will There be a Home Buyer Tax Credit Extension?

If you’re furiously trying to close on a home by June 30 to qualify for a federal tax credit, you may be getting more time.


Senate Majority Leader Harry Reid, D-Nev., is proposing to extend the deadline to Sept. 30. But it would apply only to buyers who signed contracts by April 30.

So that means you can’t qualify for the $8,000 or $6,500 credits by rushing out now, buying a home and completing the deal by Sept. 30.

As the Associated Press reports, Reid, in a re-election year, introduced the measure as an amendment to a bill that would extend unemployment benefits through the end of November. Sen. Johnny Isakson, R-Ga., and Christopher Dodd, D-Conn., also are sponsoring the proposal. The Senate is expected to consider it the week of June 14.

A spokesman for the National Association of Realtors told the AP that a “whole bunch” of loans won’t close on time without the extension. The Realtors' group said an extension would help people who are trying to buy short sales and buyers whose deals are delayed because of the expiration of the National Flood Insurance Program.

Underwater Mortgages Point to Declining Neighborhoods

According to the Federal Reserve Bank of New York, the dramatic increase in the number of “underwater” mortgages could lead to less stable neighborhoods over time.

Researchers argue that people who owe more than their properties are worth likely will become renters at some point and therefore shouldn’t count as homeowners.
The official homeownership rate in South Florida peaked at 71% and now stands at 67.1%. But back out all the underwater mortgages, and the rate according to the Case-Shiller Home Price Index plummets to 44.6%.

The 22.5% point gap is high, but other areas are worse. Las Vegas’ official homeownership rate of 58.6% plummets to a measly 14.7% when you consider underwater mortgages. Phoenix falls from 68.8% to 40.6%.

“A drop in the homeownership rate may create a large set of residents who are less invested in the long-run outlook for their homes and communities – an outcome that could lead to lower levels of home maintenance and civic participation, as well as more short-sighted decisions in local affairs,” researchers wrote.

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The Foreclosure Bomb is Still Exploding in Courts

You may have heard reports that the foreclosure crisis is stabilizing, but don’t tell that to the folks at any South Florida courthouse. The bomb is still exploding in courtrooms, in filings and in frustration.

Maybe fewer foreclosure notices are going out, but the thousands upon thousands that are working their way through the legal system are straining all the resources.

Miami-Dade Judge Jennifer Bailey, who lead a statewide task force on the foreclosure problem, compared it to a highway:

"There are those homes that are vacant, that the homeowners never could afford, homes where the owners have walked away. Those foreclosure cases should be zipping along in the fast lane to summary judgment."

And there are the other cases, where the homeowner is trying hard to hold on, that should be settled early and off the road altogether. In these, the homeowner tries to get a loan modification, but the lender starts foreclosure at the same time. Eventually, the lender may drop the case because it modifies the mortgage. But the legal system has to deal with the case anyway.

Other roadblocks: Disarray inside the lending institutions. And there are a limited number of law firms that are set up to handle foreclosures for the lenders. They are slammed with work.
Meanwhile, the Florida Attorney General’s office has investigations going on about some shoddy legal maneuvering on the part of some of the “foreclosure mills.”

May Foreclosures Decline in South Florida

Foreclosures declined in May across South Florida as lenders work through a backlog of distressed properties, RealtyTrac Inc. said Thursday.

Broward had 6,719 homeowners in some stage of foreclosure last month, down 6% from April and 41% from May 2009. Still, Broward had the third-highest foreclosure rate among Florida's 67 counties. Florida had the nation's third-highest foreclosure rate.

Palm Beach County had 2,977 homeowners in foreclosure, a decline of 2% from April and 21% from a year earlier.

Nationwide, foreclosures fell 3% from April and increased less than 1% from a year ago, according to RealtyTrac, an Irvine, California based tracking firm.

Some analysts say foreclosures are leveling off as lenders work with more homeowners to stay in their properties. Others insist that more foreclosures are in the pipeline, and banks are being careful not to release them to market all at once to prevent major price declines.

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Fannie & Freddie Jump on the Short Sale Train

Perhaps you have already heard about the new U.S. Treasury guidelines governing short sales that took effect April 5. Among other things, the new rules release sellers from future liability of debt and give lenders 10 days to respond to offers from buyers.

But until now, these guidelines did not include loans backed by Fannie Mae and Freddie Mac, which own more than half of the nation’s residential mortgages.

The short sale program is expected to get a lot more attention now that the two government-run mortgage companies are participating.

The companies issued their own sets of guidelines, which go into effect no later than Aug. 1 and generally are similar to the Treasury's. For Fannie's guidelines, click here. For Freddie's, click here.

Will New Law Reform Home Owners Associations?

Will Florida's recently passed condominium and homeowners association reform law will single-handedly clean up the economic crisis the state's shared communities are facing?

Wendy Murray, president of her neighborhood HOA - Villages of Renaissance Master Association, isn't betting on it, yet still hopes positive change has begun. States:

"The condo bill is not all-solving. However, it is better than nothing, which is what we received last year,"

Murray is referring to a similar sweeping Florida reform bill that previously failed to garner Gov. Charlie Crist's signature.

Crist signed the bill last week.

"Most of the changes help condominium associations," Murray said, citing new obligations placed on banks to possibly pay higher maintenance fee amounts for units in which title was taken through foreclosure. "However, HOAs were afforded the ability to lien for fines of $1,000 or more," Murray said, adding that she believes it provides the association a big stick when dealing with owners who fail to follow HOA rules.

Still, some owners and board members like Richard S. Herman say the Legislature should have paid more attention to owners who owe much more on their mortgage loans than their properties are now worth, thanks to South Florida's depressed real estate market.

"My concern is that these bills nibble at solutions without looking at truly solving issues," said Herman, a board member of the umbrella group Alliance of Delray Residential Associations, which represents local homeowner and condo associations. "The new bill does not clean up the financial crisis. It does not address the critical issue of underwater mortgage.

"When the 'bubble' burst and people could no longer meet their mortgage obligations, they just walked away. In the case of condominiums, the association still had contracts for services and maintenance and had recreation property that had to be kept up. There is now no income to the association for those abandoned units causing the remaining units to pay the entire burden."

In the coming weeks and months, there will be plenty for advocates and critics to argue about regarding the 103-page bill.

Highlights of the law:

Sprinklers: Alters current state mandates that require condo associations to retrofit fire sprinklers by 2014 and allow associations to opt out of the mandates with a majority membership vote. The measure also will allow an association to vote to postpone action again every five years.

Bulk Buyers: Current Florida law deems anyone who purchases more than seven units in a condominium of 70 units or more — or more than five in a condominium with less than 70 units — a "developer." As such, they take on the same legal and financial responsibilities reserved for developers who build condominiums, including being on the hook for construction warranties. The new law eliminates the developer title for bulk buyers.

Lender Laws: Requires lenders to pay 12 months worth of back fees — or 1 percent of the mortgage value — when they take title to a property through foreclosure or deed in lieu of foreclosure. Banks and lenders previously were required to pay up to six months of fees.

Rent Collections: Will allow associations to directly collect rent from tenants living in units of delinquent owners, something that now requires a court order called a blanket receivership.

Insurance Requirements: Will remove confusing provisions regarding individual unit policies, including those that provide associations the authority to purchase a policy on the behalf of an owner without insurance and requirements that association be named an additional insured/loss payee on a unit owner's policy.

Delinquent Owners: Condo owners behind in maintenance fees 90 days or more may now be banned from non-essential common areas, including community pools and club houses. Delinquent owners will also be disqualified from board elections or voting on matters that requirement a membership vote.

HOA Fines: The new law provides homeowner associations the right to place a lien on a home when an owner faces fines in excess of $1,000. Such liens are not allowed for condo associations.

Board Elections: Florida law requires association board candidates to sign a state form certifying they have read all condo laws. The law now will require such forms to be signed only by winning candidates after an election.

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Bank of America Will Pay $108 Million Settlement

Bank of America will pay $108 million to settle federal charges that Countrywide Financial Corp., which it acquired nearly two years ago, collected out-sized fees from about 200,000 borrowers facing foreclosure.

The Federal Trade Commission announced the settlement Monday and said the money will be used to reimburse borrowers.

Bank of America, which is the largest financial institution in Florida, bought Countrywide in July 2008, taking over its vast portfolio of prime and sub-prime loans in the state.

A spokeswoman for Bank of America couldn't provide details on how many of the 200,000 borrowers involved in the FTC case were in Florida.

But in October 2008, Florida Attorney General Bill McCollum reached a landmark settlement over what regulators in 10 states said were Countrywide's predatory lending practices. At that time, 57,000 mortgage holders in Florida were expected to benefit from almost $1 billion in mortgage relief from that suit.

FTC officials emphasized the actions in the case took place before the acquisition. Bank of America said it agreed to the settlement "to avoid the expense and distraction associated with litigating the case," which also resolves litigation by bankruptcy trustees. "The settlement allows us to put all of these matters behind us," the company said.

Countrywide at the time hit the borrowers who were behind on their mortgages with fees of several thousand dollars, the FTC said. The fees were for services such as property inspections and landscaping.

Countrywide created subsidiaries to hire vendors, which marked up the price for such services, the FTC said. The company "earned substantial profits by funneling default-related services through subsidiaries that it created solely to generate revenue," the agency said in a news release.

The agency also alleged that Countrywide made false claims to borrowers in bankruptcy about the amount owed or the size of their loans and failed to tell those borrowers about fees or other charges.

According to information from the FTC, borrowers who might benefit from the $108 million settlement will be notified by letter.

To learn more about the settlement, go to:
http://www.ftc.gov/countrywide.

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Q4: U.S. Banks' Foreclosure Holdings Increased 12.5%

Foreclosed property held by U.S. banks increased 12.5% to $41.5 billion during the first quarter of this year, according to a recent analysis by SNL Financial, a financial market research firm out of Charlottesville, Virginia.

The company says banks’ aggregate foreclosed inventory is up from $36.9 billion at year-end 2009, and $11.7 billion in the first quarter of 2008.

SNL data shows that other real estate owned, or OREO (which essentially means the same as REO and is defined as real property owned by a banking institution, most frequently the result of a borrower’s default and foreclosure), represented 0.3% of banks’ assets in the

first quarter of 2010, up from 0.1% in the comparable period of 2008.

According to SNL analyst Andrew Schukman, during the first three months of this year, one-to-four unit family properties in the process of foreclosure but not yet to OREO, or REO, status increased 9.1% to $78.6 billion. With these reossessions coming down the pipeline, Schukman says OREO as a percentage of banks’ assets will likely continue to grow as additional properties complete foreclosure.

While properties continue to grow on banks’ balance sheets, the type of real estate being reclaimed has changed. According to SNL data, construction and land development properties represented nearly 40% of total OREO in the United States as of March 31, up from 24.3% in the first quarter of 2008.

Meanwhile, one-to-four family OREO fell to 28.4 percent of total OREO as of March 31, compared to 44.5% in the first quarter of 2008.

Other types of OREO include commercial real estate, which made up 18% of OREO in the first quarter; foreclosed Ginnie Mae property, which comprised 6.4% multifamily, making up 6.1%; and farmland and foreign office, each comprising less than 1.0%.

Federal Housing Administration Plans to Slash Maximum Seller Concessions From 6% of the Home Price to 3%

One of the key attractions of FHA home mortgage financing is almost gone. Sellers and buyers who move fast can still make the most of it.

Sometime this summer, the Federal Housing Administration plans to slash maximum "seller concessions" from 6% of the home price to 3%. Seller concession rules allow buyers to look to the property seller to pay for a variety of services and taxes connected with the transaction — loan origination and local transfer fees, appraisals, inspections, closing and escrow costs among others — though not the down payment.

Say you're buying a $200,000 house. If you are using FHA financing under current rules, you can structure the contract so that the seller agrees to pay all closing costs and even some repairs the house needs at closing, up to 6% of the price or $12,000. On a $400,000 house, allowable concessions go to $24,000. That's huge, especially if you have to struggle to come up with a 3.5% down payment and you're not sure where you'll find the closing and repair money.

Contrast that with using Fannie Mae or Freddie Mac conventional financing, where seller concessions generally are limited to 3%. For many buyers, the extra negotiating flexibility built into the FHA program makes the choice between programs a no-brainer.

When FHA officials announced the policy change this year, they said the long-standing 6 percent maximum "exposes the FHA to excess risk by creating incentives to inflate appraised value." That would occur when sellers agree to pay buyers' closing and other expenses but merely tack those costs onto the final sale price of the house. Rather than agreeing to a $200,000 price as in the example above, with $12,000 worth of concessions, the final contract price of the house would instead be $212,000.

If an appraiser did not detect and report the price boost, the FHA would effectively be insuring a mortgage on a house worth less than the sales price. In fact, since the rules allowed a 6% seller concession and the down payment was just 3.5%, the FHA would be insuring an underwater loan from the start.

To limit further possible losses, FHA decided to cut the concessions limit in half. In its announcement, the agency said the change would occur in "early summer" after publication of a Federal Register notice and a public comment period. But Lemar C. Wooley, an FHA spokesman, confirmed May 19 that there had been no Federal Register announcement.

Since public comment periods frequently run for 60 days, followed by a review period, it appears that any start date for the concessions change has slipped to late summer at the earliest. Wooley said in an e-mail that "early summer may be stretching it, but I'm told that we do still expect it this summer."

Why does the timing matter? Whatever you might think of the FHA's existing seller concession rules, the fact remains: Concessions of 6% are still allowed, and will be until the FHA announces that they're not. Buyers and sellers who have a legitimate need to build concessions into their contracts can still do so, but they need to know that the clock is ticking.

Smart real estate agents and mortgage loan officers already are putting out the word: If a home sale deal needs the 6% FHA feature, get the contract put together as fast as possible. Abbie Higashi, national designated broker for ZipRealty Inc. of Emeryville, Calif., said she fully understood and supported the FHA move, but agents should "do the deals now" if more than 3% concessions would help the sale go through.

Paul Skeens, president of Colonial Mortgage Group in Waldorf, Md., said he was advising loan applicants to request a good-faith estimate upfront that provides for the seller to pay 100% of closing costs and prepaid fees "so that in cases where the buyer doesn't have much more than the down payment, that's the only cash they'll need to close" on an FHA loan before the policy change.

Skeens said he'd prefer that the FHA adopt a "sliding scale" approach to concessions, with higher concessions allowed on lower-priced homes, and the lowest concessions allowed on high-priced properties. Since closing and loan expenses generally represent a larger percentage of the total transaction on lower-priced houses, he believes that the new 3% rule across the board "will have a much heavier impact on the people FHA traditionally has served," who are buying modestly priced houses and have limited cash resources.

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Crist Signs Condo Bill Designed to Ease Foreclosure Crisis

Today, Gov. Charlie Crist signed into law a condominium reform bill that's expected to help associations devastated by financial problems.

The bill, SB 1196, requires lenders that foreclose on condo units to cover 12 months of unpaid homeowner association assessments or 1 percent of the original mortgage debt, whichever is less. Previously, lenders had to pay six months of assessments or 1 percent of mortgage debt.

The measure also makes it easier for condo boards to opt out of expensive fire sprinkler, smoke detector and elevator upgrades that must be completed by 2014. In addition, the bill adds protections for bulk buyers of condo units and suspends voting rights for condo owners who are 90 days delinquent.

As foreclosures mount, condo advocacy groups have been urging Florida lawmakers to shift more of the burden of unpaid assessments to lenders. The associations face budget shortfalls because of the increase in vacant units. The reduced revenue has resulted in the postponement of maintenance and other services.

"Any time you can get lenders to agree to pay more, it's a cause for celebration," said Donna DiMaggio Berger, a Fort Lauderdale lawyer who helped draft the bill.

Anthony DiMarco, executive vice president of government affairs for the Florida Bankers Association, said lenders will adapt to the new law. But he said it could negatively affect condo lending in the short term.

"It might," he said. "We're not sure. Anytime there is more cost, you have to underwrite the loan differently."

With no line-item veto, Crist vetoed the bill last year. He sided with fire marshals and others, who said the lack of sprinkler systems was a safety issue.

Berger said some condo associations now will be able to collect twice as much money from lenders as before. But other lawyers argue that most banks never will have to cover an entire year's worth of unpaid assessments.

SB 1196 was sponsored by Sens. Jeremy Ring, D-Margate, and Mike Fasano, R-New Port Richey, and Reps. Ellyn Bogdanoff, R-Fort Lauderdale, Maria Lorts Sachs, D- Delray Beach, and Matt Hudson, R-Naples.

The Florida Senate approved the bill 38-0 in April, while the House later voted in favor of it 107-4.

Also Tuesday, Crist signed a bill that requires property appraisers in Florida to declare homes with defective Chinese drywall worthless for tax purposes. The value of the land remains unaffected.

Boca Raton attorney Allison Grant, who has more than 500 Chinese drywall clients across Florida, said Florida property appraisers aren't consistent in addressing homes with the problem wallboard.

Palm Beach County Property Appraiser Gary Nikolits has reduced values of homes with Chinese drywall by 70%. Broward County Property Appraiser Lori Parrish has cut values by 50%.

"This is very good news," Grant said of the bill. "It gives us uniformity. This is what we need."

What In the World Is HAFA?

Gov. Crist Vetoes Sweeping Property Insurance Bill

Gov. Charlie Crist vetoed a broad property insurance bill, SB 2044, late Tuesday that would have made it easier for insurers to raise rates and reduce claims costs.

Crist, who is running for a U.S. Senate seat, said in a memo about the veto that he's concerned about the bill's potential impact on policyholders.

"I am most concerned about the expansion of the current expedited rate filing procedure for property insurers that makes it easier to increase Floridians' premiums. During these very difficult economic times, Florida consumers should not have to be concerned with an additional premium increase to their policy," he said. "Additionally, the bill makes troubling changes to the way mitigation discounts are applied. Specifically, responsible Floridians who have already made investments to harden their homes could be unfairly penalized."

But legislators and insurance industry officials backed the bill because they said it would strengthen property insurers battered in recent years by more frequent and severe non-catastrophe claims and higher discounts to policyholders who fortify their homes against hurricanes.

"This legislation would have been a step toward bringing private marketplace solutions to Florida. Without the bill, we continue to confront the problem of a huge and growing financial risk that Floridians face from the next storm," said William Stander, assistant vice president and regional manager of the Property Casualty Insurers Association of America.
Consumer advocates were divided on the bill and Florida Insurance Commissioner Kevin McCarty told Crist in a letter last month that he supports it because it would have helped lower claims costs for insurers; required home insurers to have $15 million in claims-paying reserves by mid-2020, up from $4 million now; and extended a provision requiring insurers to have approval from regulators for rate hikes before implementing them, instead of potentially providing refunds later.

The provisions that Crist said concerned him most would have:

• Allowed insurers to raise rates if they show the “mitigation” discounts were too high and to pass to customers the costs of advertising and agent commissions without interference from regulators.
• Expanded a provision last year allowing insurers to raise premiums by up to 10 percent a year for certain back up coverage costs without full oversight from regulators. The bill this year would have allowed inflation and other costs to be included in the provision.
• Other controversial provisions would have limited the time policyholders have to file a windstorm claims to three years after a hurricane, down from five years, and allowed insurers to withhold part of most claims until the homeowner has a contract to make repairs and “as the work is performed.”

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Demand for Home Mortgages Tumbles

Mortgage applications for home purchases plummeted last week in a worrisome sign that consumer interest may have fizzled with last months' expiration of an $8,000 homebuyer tax credit.

The Mortgage Bankers Association said Wednesday that mortgage loan applications for home purchases for the week ended May 14 fell 27% from a week earlier, to the lowest level of applications in 13 years. Applications have declined almost 20% during the past month.

"This was a big drop, there's no doubt about it," said Michael Fratantoni, the trade group's vice president of research and economics. "The whole housing mortgage sector is going to have a couple months of pullback. This will probably be wrung out of the system by late summer or early fall."

The decline in loan applications was the second indication this week that the housing market's momentum has slowed. On Tuesday, the Commerce Department reported that while housing starts rose in April, building permits, which indicate future activity, fell 11.5% to their lowest level since October.

To be eligible for the tax credit, consumers had to have a signed purchase contract by April 30 and a closed transaction by June 30.

"You lost that gift, and people like something for nothing," said Ken Perlmutter, president of Perl Mortgage in Chicago.

Perlmutter acknowledged a drop in application volume but said he isn't too fazed. He said he expects home sales to remain solid in coming months as buyers take advantage of low home prices and interest rates.

In March, sales of existing homes in the Chicago area rose 45% from the sales pace a year ago, the seventh consecutive month of improving sales. The Illinois Association of Realtors is expected to report April's home sales Monday.

"We've still got plenty of activity," said Pat Callan, a real estate agent at Realty Executives Premiere in Wheaton. "It's normal as opposed to frenzy. We're still getting listings, still writing contracts. Today we're writing business at a faster pace than in '09."

HAMP Modifications Only Have 50% Success Rate

The most recent Home Affordable Modification Program (HAMP) report released by the U.S. Treasury shows “extremely low conversion rates” from trial to permanent modifications, with success just a 50/50 gamble, according to commentary from Moody’s Investors Service.

As of the end of April, servicers participating in HAMP had converted almost 300,000 permanent modifications. However, they had also canceled 277,640 trial modifications. Moody’s says this represents approximately a 50% success rate. The report also shows 3,744 permanent modifications have been canceled.

According to Moody’s, the biggest culprits keeping conversions low are insufficient paperwork and negative equity.

“We believe the low conversion rate is a combination of two issues: borrowers failed to provide the documents they promised, and the rate reduction and principal forbearance used under HAMP were not enough to motivate severely underwater borrowers to start paying again,” Moody’s analysts wrote in their report.

The ratings agency says it expects recently announced program changes to produce higher conversion rates by allowing principal forgiveness. However this piece of the new HAMP directives are not expected to be ready for implementation before fall.

Moody’s notes that the lion’s share of HAMP modifications, 56%, has been on GSE-held loans, as expected. However, more than a third, 35%, occurred in the non-GSE or “private-label” sector.

“If servicers can increase modifications in the private-label sector and extend principal forgiveness under HAMP 2.0, default rates for mortgage loans backing private-label securities can be reduced significantly,” the analysts at Moody’s said.

“So far we assume that modifications will lower losses on pools backing private-label securities by approximately 5%,” they wrote in the report.

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