Rising Rents More Widespread
By Broderick Perkins
April 19, 2007
More first quarter rental data reveals the short-lived renters' revolt and an apartment oversupply depressed apartment occupancy rates late last year, but that one-two punch wasn't enough to knock out rising rents.
From year-over-year average rent hikes of 0.4 percent in Boise, ID, to 12.2 percent in San Jose, CA, all but one of the 29 metro markets tracked by Novato, CA-based RealFacts.com enjoyed annual rent increases.
The only exception was Colorado Springs, CO, where rents dropped an average 1.7 percent.
"Annual rent growth was almost uniformly up. The highest average monthly rent was in Los Angeles (CA) at $1,588, the lowest in Tulsa (OK) at $538, and Seattle became the first MSA (Metropolitan Statistical Area) outside California to post average monthly rent over $1,000 at $1,004," according to RealFacts.com.
RealFacts keeps tabs on more than 12,000 rental communities of 100 units or more in 15 states, most of them west of the Mississippi River, but also Florida and Illinois.
The firm also keeps tabs on rental units by category, from studios, one-, two- and three-bedroom apartments to three- and four-bedroom town homes.
In the hottest rent increase market of San Jose, CA, for instance, the greatest year-over-year average rent hike, 17.1 percent came from the studio category, followed by the 13.7 percent increase in one-bedroom, one-bath units and 12.7 percent in the junior one-bedroom units.
The nearly across-the-board rent increases in the data base came even as 12 of the 29 metros revealed year-over-year slips in occupancy rates.
The quarter-to-quarter occupancy rates revealed a stronger growth trend.
"Occupancy was mixed with 17 MSAs reporting quarterly increases, 11 decreases, and one showing no change. These results are a notable change from last quarter’s occupancy declines in every MSA," RealFacts reported.
The rental market tracker said all 29 metros reported over 90 percent occupancy for the first quarter, with seven markets over 95 percent, 17 between 92 percent and 95 percent and five markets below 92 percent.
Houston had the lowest occupancy rate at 90.6 percent and San Jose, boosted by the improving tech-based Silicon Valley economy, had both the largest rent increase and occupancy rate at 96.5 percent.
A month ago, larger apartment market analyst Marcus & Millichap projected in its 2007 National Apartment Report, that by year's end, vacancy rates should improve 20 basis points to 5.1 percent (putting occupancy rate at nearly 90 percent nationwide), compared with a decline of 40 basis points in 2006. Rents should rise by 4.8 percent.
The nation's apartment market got a boost beginning in 2005 as the high-flying owner-occupied housing market boom faded forcing shelter seekers into more affordable rentals. By 2006 rental rates were taking off.
Just as quickly, the rise in rents leveled off in late 2006 as renter-backlash to fast rising rents and condos coming to market as rentals combined to saturate the apartment market with inventory, according to reports from a variety of rental market monitors.
After the high-rent district of Los Angeles, the highest average rents were all posted in California -- Oxnard-Thousand Oaks-Ventura; San Jose-Sunnyvale-Santa Clara; San Francisco-Oakland-Fremont; and San Diego-Carlsbad-San Marcos -- all of which posted average rents of greater than $1,325 a month, according to RealFacts.com.
Copyright © 2007 Realty Times. All Rights Reserved.
Credit Grade Guide
This guide was designed to help you assess your possible credit rating and what type of terms you can expect from a lender. Please keep in mind this is only a general guide as some lenders place different grades based upon their own method of evaluation.
The following main factors determine your Credit Grade:
Credit
The credit is broken into three primary categories:
1. Mortgage Credit -- Your payment history on your existing, or previous mortgage. The past repayment history on mortgage debt can be a good indication of a borrowers attitude toward mortgage obligations. Payment history on mortgage debt is very important in determining your credit grade. Obviously this relates to people who have owned a home before.
2. Consumer Credit -- This category relates to installment and revolving credit. Installment credit encompasses longer term credit with structured payment plans, such as car loans or student loans. Revolving credit encompasses department store and bank credit cards. Generally, payments received 30 days past the due date are reflected in the credit report as late.
3. Public Records -- The third category relates to public records such as previous bankruptcies, collections, foreclosures and judgements. The A borrower cannot have any bankruptcy within past 2-10 years. The D borrower could currently be in bankruptcy or foreclosure.
The more serious the credit problems, the further the grade decreases (see below). As the grade on loans decreases, lenders generally assess higher rates and fees.
Debt Ratio
Besides credit considerations, lenders review the capacity of the borrowers to repay the mortgage obligation. Lenders calculate the debt ratio dividing the total monthly debts (the housing expenses for the proposed loan plus the borrower other monthly credit obligations) by the total monthly income. For example, if the total obligations of the borrower is $1,400 ($1,000 for housing expenses and $400 for other credit obligations), the debt ratio would be 35% ($1,400/$4,000 = 35%).
If a borrower has a low debt ratio, the grade will be higher. Conversely, if a borrower has a high debt ratio, the grade will be lower.
Max LTV
Loan-to-Value Ratio, or LTV as it is commonly referred to, is the ratio of loan amount to the appraised value (or the sales price, whichever is less) of a property. For example, a loan of $100,000 on a property valued at $200,000 is at an LTV of 50%. The higher the LTV, the stringent the lenders become on credit and debt ratio. The A borrower can get 100% LTV loan and in some cases even 125%. For the D borrower maximum loan-to-value ratio averages 65-75%.
Credit Score
Mortgage lenders and other creditors frequently use credit scores, known as FICO scores, to determine the credit risk. The higher the credit score, the better the credit risk.
FICO stands for Fair Isaac Company, the company that created the original scoring system. Each credit bureau has its own unique system that allows them to offer a score based solely on the contents of the credit bureau’s data about an individual. However, a numerical score at one bureau is the equivalent of the same numerical score at another. Thus, a score of 700 from Experian indicates the same creditworthiness as a score of 700 from Trans Union or Equifax, even though the calculations used to determine those scores are different at each bureau. The scores range from 375 to 900 points, and in general, a score of 650 or above indicates a very good credit history. Average FICO scores fall into the range between 620 and 650.It must however be noted that not all lenders give same value to a particular credit score. Besides, not all lenders use credit scoring system and even when they do they may not use credit scoring system for all their loan programs.
The interest rate a lender will charge depends on these four main factors. If all the factors are great, the loan is assigned A grade and therefore qualifies for the best interest rate. If even one of the factor is not up to par, the quality of the loan is downgraded to A-, B, C, or D paper. D papers refers to what is known as hard money loans which are mostly based on the equity in your home and not on your credit. A lender who is making a B, C or D paper loan is taking a higher risk since there is an increased likelihood of the loan defaulting. The lender is compensated for higher risk by charging the borrower a higher interest rate:
A- papers could have rates 1% - 1.75% higher than A papersB papers -- '' -- '' -- 0.25% - 0.75% higher than A- papersC papers -- '' -- '' -- 0.75% - 1.5% higher than B papersD papers -- '' -- '' -- 1% - 1.75% higher than C papers
The interest rates quoted for A-, B, C or D papers, like for adjustable programs, could vary vastly from lender to lender.
Below are typical of the requirements used by many lenders, but are not absolute grades - lenders typically have similar but somewhat different specifications.
How to Avoid ForeclosureThis booklet explains how property owners can avoidlosing their homes because of late payments.HUD
Q: What happens when I miss my mortgage payments?
Foreclosure may occur. It is the legal means that your lender can use to repossess (take over) your home. When this happens, you must move out of your house. Additionally, if your property is worth less than the total amount you owe on your mortgage loan, you could be pursued by your lender or the U.S. Department of Housing and Urban Development (HUD) for a deficiency judgment. If that happens, you not only lose your home, but there also would be an additional debt that you would owe to your lender or to HUD.
Foreclosure or a deficiency judgment could seriously affect your ability to qualify for credit in the future. So you should avoid it if all possible!
Q: What should I do?
Q: What are my alternatives?
Your options include the following:
Special Forbearance. Your lender may be able to arrange a repayment plan which would be based upon your financial situation and may even provide for a temporary reduction or suspension of your payments. You may qualify for this if you have recently experienced an involuntary reduction in income or an increase in living expenses. You must have also furnished information to your lender to show that you would be able to meet the requirements of the new payment plan.
Mortgage Modification. You may be able to refinance the debt and/or extend the term of your mortgage loan. This will help you catch up by possibly reducing the monthly payments to a more affordable level. You may qualify if you have recovered from a financial problem but your net income is less than it was before the default (failure to pay).
Partial Claim. Your lender may be able to work with you to obtain an interest- free loan from HUD to bring your mortgage current. You may qualify if: 1)your loan is at least 4 months delinquent, and no more than 12 months delinquent; 2)your mortgage is not in foreclosure; and 3) you are able to begin making full mortgage payments. When your lender files a Partial Claim, the U.S. Department of Housing and Urban Development will pay your lender the amount necessary to bring your mortgage current. You must execute a Promissory Note, and a Lien will be placed on your property until the Promissory Note is paid in full. The Promissory Note is interest-free, and will be due if you sell or leave your property, or when your mortgage matures.
Pre-foreclosure sale. This will allow you to sell your property and pay off your mortgage loan to avoid foreclosure and damage to your credit rating. You may qualify if:
1) the "as is" appraised value is at least 70% of the amount you owe and the sales price is 95% of the appraised value,2) the loan is at least 2 months delinquent prior to the pre- foreclosure sale closing date;3) you are able to sell your house within 3 to 5 months (depending on what your lender agrees to). An additional benefit to this option is the assistance you will receive with the Seller-paid closing costs.
Deed-in-lieu of foreclosure. As a last resort, you may be able to voluntarily "give back" your property to the lender. This won't save your house, but it will help your chances of getting another mortgage loan in the future. You can qualify if:
1) you are in default and don't qualify for any of the other options;2) your attempts at selling the house before foreclosure were unsuccessful;3) you don't have another FHA mortgage in default.
Q: How do I know if I qualify for any of these alternatives?
A housing counseling agency can help you determine which, if any, of these options may meet your needs. You should also discuss the situation with your lender.
Q: Should I be aware of anything else?
Yes. Beware of scams! Solutions that sound to simple or too good to be true usually are. If you're selling your home without professional guidance, beware of buyers who try to rush you through the process. Unfortunately, there are people who may try to take advantage of your financial difficulty. Be especially alert to the following:
Equity skimming. This type of scam involves a "buyer" approaching you and offering to get you out of financial trouble by promising to pay off your mortgage or give you a sum of money when the property is sold. The "buyer" may suggest that you move out quickly and deed the property to him or her. The "buyer" then collects rent for a time, does not make any mortgage payments, and allows the lender to foreclose. Remember that signing over your deed to someone else does not necessarily relieve you of your obligation on your loan.
Phony counseling agencies. Some groups calling themselves "counseling agencies" may approach you and offer to perform certain services for a fee. These could well be services you could do for yourself, for free, such as negotiating a new payment plan with your lender, or pursuing a pre-foreclosure sale. If you have any doubt about paying for such services call HUD-approved housing counseling agency. Do this before you pay anyone or sign anything.
Q: Are there any precautions I can take?
Here are several precautions that should help you avoid being "taken" by scam artist:
Q: What are the main points I should remember?
Are Home Equity Loans The Next Zombie Mortgages?
April 4, 2007
Some second mortgages may be joining the condemned ranks of subprime and nontraditional first mortgages in the pool of dead loans walking.
As if there wasn't enough horror in the mortgage sector of the housing market, the rate of delinquencies on home equity loans rose about 7 percent in the fourth quarter, compared the third quarter last year according to the American Bankers Association.
The percentage of home equity loans that faced delinquencies rose from 1.79 percent during the third quarter in 2006 to 1.92 percent during the last quarter.
Home equity loans' delinquency rate remains lower than it was this time last year, however, at that time, the delinquency rate was falling -- from 2.33 percent in the third quarter 2005 to 2.07 percent during the last quarter, according to the bankers association.
Meanwhile, home equity lines of credit (HELOC) held at 0.57 percent in the lowest delinquency rate category, the association reported. Last year at this time, home equity loans' delinquency rates were about the same, 0.51 percent in the fourth quarter 2005, up from 0.46 percent, during the third quarter.
What's the difference?
The difference may account for the year-end delinquency trend.
A home equity loan is a second mortgage that locks in the amount borrowed, the interest rate and the term, much like a conventional, conforming first mortgage, but at a greater cost. Bankrate said the rate for a $50,000 home equity loan for someone with a 700 to 719 credit score, averaged 7.36 percent nationwide on April 2. The average for first mortgages was more than a full percentage point less.
A HELOC is also a second mortgage, but it works more like a credit card. Home owners get a revolving line of credit with a credit limit for a given time period. During the term, home owners can withdraw money as needed, or not. They can also pay down or pay off the balance and continue to use the credit during the term, like a credit card. The average rate for the same $50,000 loan averaged 7.25 percent on April 2, according to Bankrate.
However, HELOCs' rate is variable, like an adjustable rate mortgage (ARM). The rate fluctuates and payments vary depending upon the rate. Home owners can choose to only pay the interest for a time or for the full term, typically five to 10 years. At the end of the term, home owners have options to pay it off, roll it over, or refinance it with the first mortgage, among other options.
Many home owners use HELOC's to tap equity for home improvements, and that sector of seconds also isn't suffering rising delinquency rates. During the last two quarters of 2006 property improvement loan delinquencies decreased from 1.68 percent to 1.29 percent, according to the bankers association.
Typically, using a HELOC until the job is done, home owners have the option of withdrawing cash only when and if it is needed. Home improvement or not the flexibility makes for more manageable payments and better budget watching.
While variable rates have risen on older HELOC's in recent years, home owners apparently have managed to keep current in that sector, more so than any other, according to the association.
Among those suffering second loan risk could be home buyers who were trying to cope with fast rising home prices during boom times and needed a set-amount of extra cash to pad their down payment and avoid mortgage insurance -- before it was tax deductible.
They frequently went with the fixed rate, fixed term second or equity mortgage in the form of a so-called piggy-back loan to come up with a larger down payment, which indicated they were already strapped for cash.
While the second may have been fixed, some likely chose to ease their financial burden with an ARM first and are beginning to really feel financially strapped. Perhaps just the burden of two fixed-rate mortgages with no flexibility weighs too much.
As long ago as the summer of 2005, "The Hidden Risks Of Piggyback Lending" by the PMI Mortgage Insurance Co. said 42 percent of home purchase dollars involved piggyback loans during the first half of 2004, more than double the level in 2001.
Certainly, the piggy-backs were squeezing the mortgage insurance business, but PMI wasn't the only critic of the loans.
Piggy-back seconds were also considered risky business along with other so-called nontraditional loans recently hit with stiffer federal guidelines in "Interagency Guidance on Nontraditional Mortgage Products" and "Credit Risk Management Guidance For Home Equity Lending".
Early this year, states, in lock step, began cracking down on the same group of loans written by lenders not federally regulated.
In any event, the tick up in home equity loan delinquencies is another ominous reminder for consumers who don't know what they are signing when they buy a home.
"It's not a surprise to see some increase in home equity loan delinquencies, given the weaknesses in the housing market," said James Chessen, ABA's chief economist.
The quarterly survey of more than 300 banks nationwide, reporting the percentage of consumer loans that are 30 days or more past due also comes with some advice.
The association suggests home owners review their finances every year and watch for the warning signs of overextended credit:
Home owners who do find themselves in trouble, should, at the first sign of trouble, before they become delinquent:
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