HUD Secretary Shaun Donovan testified today before the House Committee on Financial Services to explain the new measures that will implemented in order to better promote the Federal Housing Administration’s solvency (FHA) moving forward.

Earlier this year, we warned that the  FHA could be the  next taxpayer bailout, and we also noted that the FHA could quickly turn into the next subprime lender. Yet, today on Capitol Hill, Secretary  Donovan said the FHA is neither. These new measures, according to Donovan, “will be focusing primarily on three areas: enforcement, improving the quality and sustainability of new loans insured by FHA, and increasing FHA capital.”

While we’ve been expecting tighter lending standards at the FHA for quite some time now (due predominantly to their vastly increased market share), Donovan’s testimony was unfortunately vague, and lacked specific details.

Here’s what he did say:

1. Lender Scorecards: The FHA will develop “Lender Scorecards” to “summarize the performance of lenders who do business with the FHA.” For months now, HUD has cracked down on unscrupulous FHA lenders in order to preserve the quality of underwriting on their books. We presume that this is merely another step in that direction.

2. Reduce Seller Concessions: The FHA is pushing to reduce the amount of seller concessions from six percent to three percent (a number more in line with industry standards). “The current level exposes the FHA to excess risk by creating incentives to inflate appraised value,” said Donovan.

3. Raise FICO Requirement: The FHA has already increased the credit score requirement for their streamline refi program, and now seem poised to increase the requirement for new loans as well. However, Donovan made no mention of what the actual score would be. At the end of September, Fannie increased their minimum credit score requirement to 620. Look for FHA do raise it to something similar.

4. More Skin in the Game: “We have made the decision to exercise our authority to increase the up-front cash that a borrower has to bring to the table in an FHA-backed loan – to make sure that FHA borrowers have more ’skin in the game’ and a stronger equity position in their loans,” said Donovan. He goes on to say that there are several ways to accomplish this and that the decision of how to accomplish this hasn’t yet been made. The only solution we can come up with is increasing down payment requirements, from today’s 3.5% to perhaps 4%.

5. Mortgage Insurance Premiums: Finally, the FHA is considering increasing their mortgage insurance premiums. “To protect against future uncertainty in market conditions, we are requesting authority from Congress to raise annual premiums, as this is one of the most effective means of raising capital for the fund with the least impact per borrower.”

Despite vague details, it’s an encouraging sign that the FHA recognizes the risks that are in front of them, and they’re striving to improve their situation without taxpayer dollars. However, these changes are likely to mean increased costs for borrowers. More details to come — stay tuned…

Sales for the last 30 days show that 94% of all Maricopa County sales are under $400,000.

Below is the breakdown of Months of Supply by area. 

Scottsdale 9.5,

Ahwatukee 4.7, Apache Junction 5.5, Camelback Corridor 8.5, Cave Creek 10.3, East Valley 4.2, Fountain Hills 9.8, Goodyear Litchfield, Avondale 3.1, Northwest 4.5, Peoria and Glendale 3.0, Paradise Valley 18.8.

Every Seller Needs To Know, What Sells a house?

There are four varibles that sell a house.

1.  Price    2.  Terms     3.  Condition     4.  Location

All four of the variables go together to create the “perfect sale.”  Each aspect must be taken into consideration if you want a property to sell.

1.  Price fixes everything!  Don’t let anyone tell you different.  When the buyer perceives there is a value because of the price, they will buy the home.

The other three varibles always can effect the price.

There are circumstances where a buyer has lost the ability to qualify for a traditional loan because of a foreclosure or bankruptcy and the buyer needs owner financing.  With Owner carry Terms that particular buyer may be willing to pay more because they have ownership with possibly a small down payment. 

Conversely, if the Condition is bad the price will have to be reduced to reflect a value in the home where a buyer will have to come in and do repairs or cosmetic updates.

Location is the toughest variable in the sale to compensate for.  Most people have heard about in Real Estate the terms Location, Location, Location. If the location is bad.. ONLY price will sell the property possibly combined with terms so exciting that a buyer will not be able to pass up the deal. 

2.  Terms.  If the Terms are attractive, sometimes a seller can get more money for the home.  For example: a home with a value of $325,000 listed with owner carry terms of $25,000 down and no bank qualifing might be able to sell at $350,000 because of the terms. 

Under any owner carry situation, it is important the seller speak with their accountant and attorney before accepting any contract and agreement to finance.   The seller should be completely aware of the liability and consequences in owner financing. This is just an example how price can increase with the right terms.

3.  Condition is a key factor in selling a home.  When the property is in top condition, looking like a show home the seller may get top market value for the property. In times where homes are selling at a slow pace, in order to procur a sale, the home should be the BEST property at the Lowest price to get to the closing table.

Taking a seller on a preview tour of the homes in the area similar to their property can save months of discouragement with a home not selling.  When a seller can see the competition and accepts the fact their home needs to be the Best house at the lowest price to sell, the home will sell and the seller will see what they are up against in comparison.

Carpet or paint allowance does NOT work in selling a home.  If the home needs carpet, put it in.  If the home needs painting, get it painted.  Many times this can cost a seller $5,000 to $8,000 to do those upgrades.  Investing, yes, investing is the correct term, for getting the house sold. The money invested will come back in the form or a quick sale at full market value.

A picture is worth a thousand words so think about how the property looks and even take some pictures to see what a buyer is looking at.  Sellers should look at the pictures like they were a buyer and ask, “would I buy this house in this condition for this price?”  Are the kitchen counters cluttered?  Are the closets a mess?  What does the front door look like and the yard when people drive up to the house? 

A seller has 8 seconds for a buyer looking at a home to decide if they really like the house and if it will go on the A list.  The buyer starts the decision making process when driving up to the home while looking at the surrounding properties and the entrance to the home. 

There are many agents are trained in “staging” a home and there are “staging services” which help a seller to understand what needs to be done to create a “marketable product.” Listen to these people if you want to get the house sold.

The seller needs to separate from the house and see it as an investment or product that needs to be sold. The seller needs to take all the emotions out of the happy memories in the home if they are serious about selling.

4.  Location is the only variable which cannot be changed.  A bad location, is a bad location so only price and terms are going to help this situation. 

It does not matter that the same model home across the street sold for thousands more, because it was ACROSS THE STREET and did not back to the highway.  A seller needs to get a reality check on location and think about when they purchased.  If the seller got a good deal when they bought because it had a bad location then they have to give the new buyer the same good deal to sell. 

Sellers should take all the emotion out of the business of selling a home and treat the transaction as an investment decision. 

If the goal is to get the home sold then listen to the professionals and let them do their job. 

As Donald Trump would say, “It’s only business.”

As we head into October the $8,000 first time home buyer tax credit nears its deadline of November30th. Meaning that buyers have very little time to left to purchase a home and close on the home to take advantage of the credit. However, multiple campaigns have begun from lawmakers to introduce a six month to one year extension of the $8,000 first-time homebuyer’s tax credit. 

In addition to lawmakers, we have see realtors, bankers and homebuilders joining in the push, starting a campaign that encourages Congress to extend the program for one year with the tag line: “Don’t Let America’s Real Estate Recovery Expire.”

Specifically from the White House, spokesman Robert Gibbs told reporters that President Barack Obama’s economic team is looking at the tax credit and “evaluating the impact” on new home sales.

“Through that evaluation we’ll come to something to give the president a recommendation,” Gibbs said.

One more popular version of the legislation would extend the program through the end of 2010, almost double the credit to $15,000 and remove restrictions that prohibit individuals who already own homes or earn $75,000 — $150,000 for couples — from getting the tax break. The bill, first introduced in June, failed in a 47-50 Senate vote in August. And it seems that with the current budget deficit that this specific version of the legislation may not pass. However, additional is mounting to extend the tax form in its current state for a longer period.

That is because the home buyer tax credit has received much praise for increased home sales and even some increased average housing prices seen over the summer season, as indicated by Realtors and Commerce Department data and the S&P/Case-Shiller index respectively.

Whether or not the tax credit will be extended is obviously still very much so up in the air. As additional information develops we will pass along the information. In the mean time, with many new home buyers trying to take advantage before the credit goes away, October could be a very busy month for new homes sales.

Last month’s dramatic drop in building permits for homes across metropolitan Phoenix may look like one more piece of bad news for the already struggling real-estate market. But actually it’s a good sign, as long as new-home sales are holding steady. And they are.

When it comes to real estate, foreclosures aren’t the only big story in the news. Builders and sellers are reportedly offering huge savings and massive incentives in order to pull in buyers and compete in today’s marketplace.

But, be wary. While there are many sweet deals to be found in today’s market, there are also scams, lemons, and unreliable builders, sellers, and industry professionals. Make sure that any deals or incentives you’re receiving or providing make sense for your own financial goals and needs. For home buyers and home sellers, this means working with knowledgeable, experienced real estate agents and mortgage professionals you can trust.

Canadian luxury home activity gives new meaning to global warming - this part of the world is enjoying a hot upper tier market. 

The first seven months of this year have seen Canadian luxury home market sales jump in major markets from Victoria to Toronto.  “The consumer appetite for luxury property has been insatiable,” says Michael Polzler, Executive Vice President and Regional Director, RE/MAX Ontario-Atlantic Canada. “Unabated demand throughout the year has created tight market conditions in a number of blue chip neighborhoods.  Limited availability of product has, in turn, placed mounting pressure on housing values.  As a result, the million dollar home no longer holds the same cachet it once did and in larger markets such as Vancouver, Calgary, and Toronto, it’s simply a starting price.“ 

The table below reflects the strength of the upper tier housing market in six major Canadian cities.

Renewed credit panic hits markets. 

All U.S. interest rates have broken lower. The mortgage-defining 10-year T-note is trading at 4.4 percent, down from 4.7 percent last week, but mortgages will be slow to follow. Even agency loans are stuck in credit fear, but are likely to approach 6 percent soon.

Fed-defining short-term rates have dived almost a half-percent, a sure sign of renewed credit panic. A Fed cut on Halloween, doubtful on Monday, is now a sure thing.

What happened so fast?

(As I recite developing misery, a note on morale to people near real estate markets, civilians and pros: Bad news is the only way for us to get the lower rates that our markets need. As Mom said, keep your eye on the doughnut, not the hole.)

The market sea-change has been driven by a change in awareness, not data. A one-week pop in new claims for unemployment insurance may turn into a trend, but is not yet; and anyone surprised by the new report of plunging in sales of new homes has been vacationing on another planet.

Since the August Crunch, global markets have been lost in the exuberance of cash pouring in from oil and trade, behaving like a bunch of teenage boys with elevated expectations for Saturday’s dates, misunderstanding the real distance of hand from promised land. American economy weak, its rates going down … Sell dollars! Buy euros! Rupees! Buy oil! Gold! Commodity anything! We don’t need America to buy exports — the world has de-coupled! Buy stocks, stocks, stocks, here there everywhere!

Finally, two months after the initial grip of the Crunch, the word is out: There is no relaxation at all. We are in a two-part systemic event: Several trillion dollars’ worth of trash lies where it was, value and ultimate disposition unknown; and worse, the impaired holders have dramatically reduced extension of new credit.

Reported losses at financial institutions, at first thought to be overstated (”kitchen sink” write-offs) are not. More will come. The institutional embarrassment is a greater impediment to new credit than the numbers: The losses are formal confessions by management and directors of personal incompetence. That’ll make you risk-averse.

PMI and MGIC, mortgage insurers who avoided the worst of the mortgage party by shrinking their market share — that’s what they said — announced huge losses.

The best black comedy: Citi led a parade of giant banks to the Treasury, trying for official blessing to keep $400 billion in off-balance-sheet trash from being forced back on (where it belongs) or into disorderly liquidation (Eeeeek! Might find out what it’s really worth!). Why Treasury Secretary Henry Paulson let them in the building is beyond me. He loaned them a conference room and bought sandwiches (day-old, I hope), and the bankers left without even a lipstick-on-a-pig deal among themselves.

Federal Reserve Chair Ben Bernanke delivered his best speech in office, a somber affair acknowledging the reinforcing-spiral risk in a credit meltdown, using the same phrase as Vice-Chair Donald Kohn last week: “… Tighter credit could presage a broader weakening in economic conditions that would be difficult to arrest.”

After the speech, in Q&A, asked about the structured-finance deals presently evaporating, he said this: “I’d like to know what those damn things are worth.” The next day, John Mack, CEO of Morgan, volunteered, “It will take at least a year” to come up with proper valuations.

We don’t have a year without new credit, and there is no way to restore the supply of new credit without recognition and breakup of the dead-loss clog. I’m sure Mack would like to defer loss recognition indefinitely, but his remark indicates abject failure as a public steward, joined by his senior colleagues on The Street.

For all the awareness displayed this week by Bernanke and Paulson, they have not presented a single useful idea. Gentlemen, it is time to grasp the nettle: Force the sale or adequate capitalization of this stuff; if the losses are too big for markets or capital to absorb, get on with loss isolation by government guarantee.

Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at lbarnes@boulderwest.com.

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