Innovative Program Protects Equity Against Market Fluctuations

(February 8, 2012,  Northfield, NJ) – Keller Williams Realty Atlantic Shore, a leading New Jersey real estate company, is now offering homeowners an opportunity to insure their family’s biggest investment through the Home Price Protection program from EquityLock Solutions.  The innovative program protects homeowners from possible home price index declines and it is now available through the experienced and professional agents with Keller Williams Realty Atlantic Shore.

“So many buyers have been waiting on the sidelines for the right time to get in,” said Bill Wagner, Operating Principal for Keller Williams Realty Atlantic Shore.  “This program from EquityLock is a guarantee that what buyers pay for their new home will be protected against any fluctuations in the local House Price Index.  That means they can buy with confidence and peace of mind.”

EquityLock Solutions, based in Denver, launched Home Price Protection nationwide in 2011.  The program is a contract giving homeowners a financial return if the local House Price Index, as reported by the Federal Housing Finance Agency, is lower at the time they sell their home than when they originally purchased their protection contract. The program is available to homeowners who are currently purchasing or who already own their home.  Keller Williams Realty is working with EquityLock to provide the program through several of its U.S. offices and agents.

“To turn our economy around, there are few things more important than restoring faith and confidence in homeownership. Keller Williams is constantly pursuing programs that benefit both our agents and consumers,” said Bill Wagner.  “EquityLock Solutions’ program can instill confidence, especially in a market like this. And this program, along with the advice and consultation of a trained and knowledgeable Keller Williams agent, will help homebuyers know their equity is protected.”

The price protection program covers the home for 15 years with a one-time premium.  The homeowner is eligible to make a claim after living in the protected home for 24 months and is protected up to 20 percent of the contract amount.  For more information, contact Mary Ann Wagner at 609-432-8025

Atlantic County officials have ordered a mandatory evacuation of all shore communities, effective 6 a.m. Friday.

A voluntary evacuation begins at 8 p.m. Thursday.

The evacuation was ordered by the Atlantic County Office of Emergency Preparedness.

Fannie Mae’s current role

This spring, we reported that eight bills had been introduced to wind down Fannie Mae and Freddie Mac while a bill was introduced this summer to merge the two government sponsored entities that together own or guarantee the majority of home loans in America.

President Obama himself has said that housing is the biggest drag on the economy but has not quite admitted the colossal failure that is the Housing Affordable Modification Program (HAMP) which is well known for spending taxpayer money with little return- few homeowners have actually received a modification, most end up in limbo and there are even claims of lost paperwork and stall tactics from servicers unwilling to properly execute the program. On top of the internal drama, the House approved cuts to the HAMP program, potentially ending the taxpayer involvement in the long run.

Fannie Mae has publicly proclaimed they will protect consumers while in the process of applying for HAMP or other federally funded loan modification programs.

Fannie Mae’s blatant rule breaking

Confidential records obtained by The Detroit Free Press reveal that Fannie Mae has gone against that promise by violating the government’s own rules to protect homeowners in process of applying for federally funded loan modifications. Banks were directed to foreclose on mortgages over 12 months delinquent, despite loan modification status. Free Press notes that other confidential documents they have obtained show “that Fannie Mae made clear to banks that Fannie expected a certain percentage of delinquent borrowers to lose their homes.”

The Free Press “obtained copies of more than 2,300 requests from various banks asking Fannie Mae for permission to delay foreclosure sales. These excerpts show two requests from Bank of America and Fannie Mae’s response, which reveals a directive to deny postponements when borrowers are more than 12 months delinquent, even when homeowners are negotiating loan modifications.”

Click to enlarge.

Fannie Mae spent $27,000 on a $3,000 debt

Fannie Mae has admitted in a confidential internal memo also obtained by The Free Press that they are willing to go to extreme lengths to foreclose on a home, in one case spending $27,000 to foreclose on a $3,000 debt.

To top it all off, Fannie Mae has warned lenders of the possibility “fining lenders for unauthorized foreclosure delays,” The Free Press notes.

Disastrous results

Homeowners are making decisions about their future based on rules that govern their protection during applying for a home loan modification through the government, which in itself is already an extremely daunting and nearly impossible task given HAMP’s horrific track record.

The housing sector continues to hemorrhage and any impediment to recover must be dealt with, but it is unclear how to deal with this monstrosity given that Capitol Hill is inconsistent with the future of Fannie specifically but inconsistent with housing regulation in general.

Many don’t realize seller contributions can be used in a variety of ways that can increase a buyer’s purchasing power or help them lower their monthly payments.

In the following scenarios, if a buyer with a 760 FICO score and 5% downpayment had opted for a 30-year fixed rate conventional loan with mortgage insurance (MI) and used the seller contribution to either buy down the interest rate or pay the MI premium in cash as a one-time fee at closing, they would have gained more than $50,000 in purchasing power for the exact same monthly payment.

Buying Down the Interest Rate
In this example, the buyer opts to use the seller contribution to buy down the interest rate to 4.75% and gains $55,105 in purchasing power.

Paying the MI Premium in Cash
In this example, the buyer opts to use the seller contribution to pay the MI premium in cash as a one-time fee at closing and gains $52,315 in purchasing power.

In this limited and very competitive market, it’s important to find a way to differentiate yourself. Being a knowledgeable resource for your buyers on all aspects of the home-buying process can help you accomplish that more successfully. Just by outlining the opportunities to better leverage seller contributions and pointing your buyer to their loan officer to discuss the options, you can increase your value, your sales and your referral business.

Brien McMahon is chief franchise officer of Radian Guaranty Inc. More information may be found at www.radian.biz.

RISMedia welcomes your questions and comments. Send your e-mail to: realestatemagazinefeedback@rismedia.com.

Have you heard about RISMedia’s Real Estate Information Network® (RREIN)? RREIN is an elite network of leading real estate companies dedicated to providing consumers and their agents with leading real estate information, and committed to the belief that Information Share Equals Market Share. Having only launched this past June 2010, the RREIN network is already comprised of 40 leading brokerages, which make up 575 offices, 30,000 agents, 167,000 closings and represents over $41 billion in transactions. How can RREIN help your recruiting efforts and differentiate your company today? For more information, email rrein@rismedia.com.

Americans continue to limit spending and the economy rose at a rate of 1.3% in the second quarter, according to the first Commerce Department estimate for gross domestic product for the period.

Analysts polled by Econoday expected GDP growth of 1.9% for the three months ended June 30 with a range of estimates from 1% to 2.1%. Economists surveyed by Reuters projected growth of 1.8%.

The Bureau of Economic Analysis also revised first-quarter GDP growth to a mere 0.4% from 1.9% previously reported.

Consumer spending rose at an annualized rate of just 0.1% during the second quarter, the weakest level in two years and down from 2.1% growth for the first quarter.

Paul Dales, senior U.S. economist at Capital Economics, said the revision to first-quarter GDP “is really eye-catching.”

“With a fiscal consolidation on the way, it is hard to see the economy getting much stronger,” Dales said. “In fact, if the debt ceiling is not raised by the end of Tuesday, we could well have another recession on our hands.”

The Commerce Department said rising second-quarter exports, nonresidential fixed investment, private inventory investment, and federal government spending were offset by lower state and local government spending. Meanwhile, imports increased.

Write to Jason Philyaw.

The U.S. homeownership rate in the second quarter dropped to its lowest level in 13 years, according to the Census Bureau, with analysts expecting even more drops ahead.

The homeownership rate fell to 65.9%, down one percentage point from a year ago. It’s the lowest level measured since the first quarter of 1998. Analysts at Capital Economics said this means the homeownership rate built during the housing boom has been “completely wiped out” by its bust.

“The poor economic climate, the double dip in house prices, the high number of foreclosures and tight credit conditions are all reasons why the homeownership rate will continue to fall,” analysts said.

The rate remained highest in the Midwest at 70%, followed by 68.2% in the South, 63% in the Northeast and 60.3% in the West. Since the second quarter of 2007, the homeownership rate in the West has dropped more than four full percentage points.

Homeownership for younger consumers has become even more sparse. According to the Census Bureau, the rate among Americans younger than 35 years old dropped to 37.5% from 39% one year ago. This, analysts said, is a sign credit has tightened for younger consumers. With unemployment elevated for this cohort, as well, the rate could continue to fall in coming quarters.

“With another 3 million foreclosures in the pipeline and no sign of a major improvement in credit conditions or the labor market, demand for owner-occupied housing is likely to remain weak for some years yet,” Capital Economics analysts said.

Write to Jon Prior.

Follow him on Twitter @JonAPrior.

Ocwen Financial Corp. (OCN: 12.98 -0.61%) launched a new modification program to reduce the principal on a mortgage for delinquent borrowers, while compelling them to share in the future appreciation of the home’s value with the investor.

Mortgage modifications will only be available for homeowners in negative equity.

Atlanta-based Ocwen holds a $74 billion servicing portfolio after acquiring Litton Loan Servicing and HomEq. Ocwen launched the Shared Appreciation Modification program as a pilot in August 2010, a program the company believes will make a major dent in the roughly 14 million mortgages currently in negative equity, according to Moody’s Analytics.

Through the program, Ocwen will write down qualified loans to 95% of the underlying property’s market value. The amount written down is forgiven in one-third increments over three years as long as the homeowner remains current. When the house is later sold or refinanced, the borrower will be required to share 25% of the appreciated value with the investor.

“Like all modifications, SAMs help homeowners avoid foreclosure. But they also restore equity. That’s a significant benefit to the customer and, we believe, the economy and housing market. Psychologically, it’s important too,” said Ocwen CEO Ronald Faris. “Our analytics tell us that an underwater mortgage is one-and-a-half to two-times more likely to default than one with at least some positive equity.”

SAM is one of the first principal reduction programs initiated by a private company without the prodding of a government agency. Other servicers have sporadically used Hardest Hit Fund and Home Affordable Modification Program dollars to write down principal, but only in select states.

Since August, Ocwen said 79% of the borrowers accepted the offer with a redefault rate of 2.6%. Ocwen said it has regulatory clearance to push the program into 33 states.

J.T. Smith, the chief investment officer for the boutique investment bank Aristar Funding Group said there are many still unknown parts of how Ocwen will structure the modifications such as tax liens and future title issues, but granting the borrower 75% of the appreciation is “very generous.”

“This program is a win for the borrower and very, very generous of Ocwen and investors,” Smith said. “Silent seconds are a more equitable solution, so Ocwen borrowers should take these modifications and run with it.”

Consumer organizations supported the program as well. Marcia Griffin, president of HomeFree-USA, a community-based homeownership development group, called the program “visionary.”

“The homeowner benefits from a stable housing situation and the investor is positioned to share in the future appreciation of the home’s value. In addition, communities nationwide will benefit from fewer foreclosures,” Griffin said.

John Taylor, CEO of the National Community Reinvestment Coalition, said other servicers should follow suit.

“This innovative modification program offers meaningful help for underwater borrowers. The simplicity and rationale of the SAM is striking: the homeowner maintains the equity that would otherwise be lost in the foreclosure process, and servicers and investors maintain a performing asset,” Taylor said.

A spokesman for Ocwen did not immediately disclose how many borrowers the program is expected to reach.

Write to Jon Prior.

Follow him on Twitter @JonAPrior.

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We hope that headline grabbed you. The reason we used it was to bring some perspective to the debate as to whether or not homeownership is a wise investment in today’s troubled market. A family should never look at the purchase of a home simply as a financial investment. It is so much more than that. But, even if we look at it as only an investment, we must look at it in the long term. Let’s use gold as an example.

Gold had dropped from over $400 an ounce to $250 an ounce (a 40% decline) from February 1996 to August 1999. People were so glad they hadn’t bought at $400 an ounce.

Lord William Rees-Mogg, the current Chairman of The Zurich Club, in 1997 said:

“No investment has been so thoroughly exploded as gold; most people think that there will no more be another gold boom than there will be another boom in tulip futures in The Netherlands.”

Everyone knows what happened next. The proclamation of gold’s death was rather premature. Gold rose from $250 an ounce to over $1,500 an ounce in the next twelve years.

If we look at real estate in the long term, we can see that it has been a great vehicle for building family wealth. The Federal Reserve’s Survey of Consumer Finances, conducted once every three years, provides a snapshot of family income and net worth. There survey has shown every time that homeowners’ net worth far exceeds that of renters. Here is the breakdown of the last several surveys:

• 1998 – Homeowner net worth exceed renters by 31%
• 2001 – Homeowner net worth exceed renters by 36%
• 2004 – Homeowner net worth exceed renters by 41%
• 2007 – Homeowner net worth exceed renters by 46%

The 2010 survey is not out yet but the National Association of Realtors’ has estimated that number to be approximately 41% in 2010. You may be thinking this is no longer the case based on the current fall in home values which have dropped back to 2000 – 2002 prices.

Harvard University just completed a study that showed:

“Even if homeowner wealth fell back to 1995 levels, it would still be 27.5 times the median for renters.”

Bottom Line

We are not predicting that real estate will see the same levels of appreciation that gold did. However, we do believe that the real estate market will rebound strongly.