Hard to see ‘green’ on resale homes

By KENNETH R. HARNEY Published Mar 22, 2013

When it comes to energy efficiency and “green” features in homes, there’s a chasmic disconnect in the marketplace among consumers, real estate appraisers and the nation’s realty sales system.

On the one hand, prospective buyers routinely tell researchers that they place high priority on energy-saving and environmentally friendly components in houses. The presence of high-efficiency systems in a home makes shoppers more interested in buying because they’ll save money in the long run.

On the other hand, the vast majority of multiple listing services (MLS) – the organizations that compile listings of local homes for sale – do not yet include so-called “green fields” in their data search forms to facilitate consumer shopping for homes with high-performance features. Plus most real estate appraisers do not yet have training in the valuation of green homes and often do not – or cannot – factor in the economic values of expensive but money-saving components such as solar photovoltaic panels.

Two new research studies document consumers’ strong appetites for energy efficiency and green features. A survey of 3,682 actual and prospective purchasers by the National Association of Home Builders found that 94 percent of respondents rated Energy Star appliances as among their top several “most wanted” items out of 120 they could choose from. Ninety-one percent said the same for new houses that came with Energy Star certifications on the total structure.

Energy Star is a federally backed set of energy-saving performance standards for a wide range of products including appliances, lighting, windows, doors, electronics, heating and cooling systems all the way up to and including newly built homes. The study also found that buyers would be willing to pay an additional average of $7,095 in the upfront cost of a house if that investment saved them $1,000 a year in utility expenses.

Meanwhile, a survey of buyers and sellers conducted by the National Association of Realtors found that 87 percent rated energy efficiency in heating and cooling as “very” or “somewhat” important to their choice of a home. Seventy one percent said the same for energy-efficient appliances. The newer the house, the more important were energy-saving and green components.

Now here’s the disconnect: While most new homes come with energy certifications and ratings, the overwhelming majority of resale homes do not. For shoppers and purchasers who prefer to save on energy outlays, there’s often little information in the formal listings search data on MLS systems to highlight houses with extensive green components.

Of the 860 multiple listing services nationwide, according to industry estimates, only about 210 have gone green – that is, included distinct sections of their standard listing formats for high-performance and sustainable features. Though there is an industry effort under way to “green the MLS” by including green fields as standard sections in MLS listings, adoption has been slow.

The lack of green fields, in turn, not only hampers buyers. Appraisers who search for “comps” – recently sold comparable houses – often are unable to readily distinguish those with significant energy efficiency investments from ordinary energy-guzzling homes. Worse yet, say industry critics such as Sandra K. Adomatis of Punta Gorda, Fla., most appraisers have no specific training in valuing high-performance or green features and tend to ignore them or undervalue them in their appraisal reports to lenders. This hurts sellers and buyers alike.

To help bridge the information gap, the country’s largest appraisal professional group, the Appraisal Institute, recently released an updated “green addendum” that realty agents and sellers can use to call attention to the energy saving features of homes, especially in areas where the local MLS provides no separate green fields. Appraisers can attach the addendum to their standard appraisal reports as a way to justify additional value assigned to the house because of the cost-saving improvements.

Of special note, given the fast-growing popularity of solar panels and arrays, is a special section within the addendum that provides the appraiser access to an online tool – a “PV value” calculator developed by Sandia Labs and Energy Sense Finance – that estimates the incremental value the photovoltaic installation adds to the property based on a discounted cash flow model.

Bottom line for sellers with significant energy conservation investments: Make sure your realty agent gets them highlighted in the MLS listing. And make sure that the appraiser who is sent to value your property uses the green addendum and has adequate training to do the job. Otherwise the money you spent may not get the fair treatment it deserves in the valuation.

The addendum is available at www.appraisalinstitute.org.

Look what’s in your house now

Mar 15, 2013 Kenneth R. Harney

WASHINGTON — Home equity is back! And it’s growing fast: According to the latest data from the Federal Reserve, Americans’ net equity holdings in their houses jumped by nearly half a trillion dollars during the last three months of 2012, and have increased by $1.7 trillion since the spring of 2011.

What does this mean to you personally? Depending on where you own your home, it could mean that finally — after years of struggling with an underwater mortgage — the market value of your property has risen enough to put you into positive equity territory. Or closer to break-even equity than you assumed. Zillow Real Estate Research estimates that nearly 2 million American owners exited negative equity status during 2012 alone.

It could also mean that should you wish to sell your house, you’re now in a better position to do so. And if your home is located in one of dozens of local markets that are experiencing severe shortages of listings for sale combined with strong demand from buyers, this spring could bring you a higher price than at any time in the past seven years.

Here’s what the Fed found in its “flow of funds” study released March 7:

Now it’s a renters’ market

Mar 8, 2013 by Kenneth R. Harney

WASHINGTON — Could rental houses owned and managed by deep-pocketed hedge funds and big investors be the post-bust steppingstones to homeownership for huge numbers of renters?

Could they also provide a form of safe harbor or sanctuary for thousands of families who were displaced by financial difficulties from their previous homes through foreclosures or short sales?

A new national study suggests that the answer to both questions is yes.

Over the past five years, according to Wall Street analysts’ estimates, between $7 billion and $9 billion worth of distressed single-family homes have been purchased and converted to rentals by institutional investors — hedge funds, private partnerships of high net-worth individuals and even pools of capital raised among investors in foreign countries.

Unlike traditional “mom and pop” rental home investors, these funds have been scooping up dozens, sometimes hundreds, of properties at a time through all-cash purchases of foreclosures, short sales and bulk packages. Some of the bulk acquisitions have come from the troubled-asset portfolios of financing giants Fannie Mae and Freddie Mac, others from banks that have taken over homes left by strategic defaulters.

Though single-family rental homes have long been a part of the American housing scene, the involvement of large-scale institutional investors is causing the category to explode. According to a new study conducted by pollster ORC International for Premier Property Management Group, a company that works with investors, roughly 52 percent of all rental units in the country are now single-family homes and house 27 percent of all renters.

Recent Census Bureau data cited in the study indicate that the number of single-family rentals grew by 21 percent between 2005 and 2010 — from the top of the boom through the depths of the bust and foreclosure crisis — compared with a 4 percent increase in total housing units.

What’s the significance of this rapid conversion of ownership units to rental? For one thing, according to Mark Fleming, chief economist for CoreLogic, a mortgage and real estate research firm, mass conversions are contributing to the severe declines in homes-for-sale inventories in markets where foreclosure rates were most pronounced during the bust. Lack of inventory, in turn, is pushing up prices of entry-level homes in those areas.

But the ORC-Premier study suggests that the new waves of single-family rentals may also be providing important pathways to homeownership, not only for first-timers but for those displaced by the housing bust. Fully 60 percent of rental home tenants say they plan to buy a house sometime in the next five years By contrast, only 44 percent of multifamily apartment building renters have similar plans.

According to the study, the high interest in ownership “reflects the new roles single-family rentals are fulfilling as a steppingstone to homeownership [both] for first-time buyers and as a sanctuary for large numbers of families displaced by foreclosure but who plan to buy again when they can afford to do so.”

The study found that, compared with apartment tenants, single-family renters made more money ($75,000 to $100,000 versus $50,000 to $75,000), have more children in their homes and are more concerned about local school quality and community facilities such as parks and recreational areas.

Asked by interviewers what impediments to purchasing a house they anticipate within the coming five years, nearly a third said they may not be able to qualify for a mortgage. The time frame coincides with the number of years that individuals with seriously damaged credit files — a foreclosure, bankruptcy, short sale and multiple defaults on other debt obligations — need to fully rehabilitate their credit and build back their credit scores to a level that will qualify them for a home loan on favorable terms.

Bottom line from the study: Single-family rentals are likely to remain a growing factor in the housing market, as incubators and safe havens for future purchasers. At the same time, though, they may — at least temporarily — depress the national homeownership rate, which stands at around 65 percent, down from 69 percent during the boom.

A foreclosure reversed, with help from CFPB

March 01, 2013 01:00PM

By Kenneth Harney

Jeanette Ogle, a 92-year-old widow with a reverse mortgage on her house, got a huge birthday surprise last week: She did not lose her home at a scheduled foreclosure auction that had drawn scrutiny from federal and state agencies and consumer advocates.

Because of obscure federal rules that critics say have snared unwitting elderly homeowners across the country, Ogle’s home in Lake Havasu City, Ariz., had been set for foreclosure on Feb. 27, her birthday. But after interventions on her behalf by the Federal Consumer Financial Protection Bureau, AARP and the Arizona Attorney General’s office, the auction was canceled.

In a letter to Ogle, the company that ordered the foreclosure, Reverse Mortgage Solutions of Spring, Texas, said it changed its plans and is now “committed to allow you to remain in [your] home” and will “take no action to displace you as long as the mortgage agreement . is not in default.”

According to government estimates, more than 9 percent of all federally insured reverse mortgages – the ones hawked on TV by Henry “the Fonz” Winkler, among others – were in default in 2012. This is especially significant because so many reverse mortgage borrowers, like Ogle, are in their 80s and 90s, living on Social Security, and may be unaware of certain fine-print details about their loans.

Reverse mortgages work just as the name implies: Rather than the borrower paying the lender, the lender provides money to the homeowner, secured by a mortgage on their property. Borrowers under the most popular form of reverse loan, insured by the Federal Housing Administration, must be 62 or older to qualify. As a general rule, the principal and interest balances owed do not become due and payable until the borrower moves out, sells the house, dies or fails to pay property taxes or hazard insurance premiums.

One technicality tucked away in FHA’s regulations can snag owners whose spouse dies after taking out the reverse mortgage. If the surviving spouse’s name does not appear on the mortgage documents, the outstanding debt balance becomes due and payable. If the surviving spouse can’t afford to buy the house to make the payoff, the property may be put up for foreclosure sale.

Ogle’s situation illustrates the problem: She did nothing wrong. Ogle and her late husband, John, who died in 2010, refinanced a reverse mortgage in 2007. Though Ogle believed her name remained on the mortgage documents and she was a co-borrower, a loan officer listed only John’s name. Ogle says she never agreed to her name being removed and suspects fraud.

When her husband passed away, the loan balance became due and payable. Bank of America – the servicer of the mortgage on behalf of Fannie Mae, the big national loan investor – informed Ogle of the FHA rule. She complained to the Arizona Attorney General’s office, which negotiated an agreement with Bank of America that it would not foreclose. Subsequently, however, when the servicing contract was transferred to Reverse Mortgage Solutions, that firm renewed the threat of foreclosure and set the date for the sale.

Reverse Mortgage Solutions refused to comment on the matter. Meanwhile, Ogle’s son, Bob, filed complaints with the CFPB and with the state attorney general, seeking their help in saving his mother’s home. He told me in an interview that “I don’t think my mother could survive a move, she just couldn’t handle [a foreclosure].” Fannie Mae, owner of the loan, expressed sympathy for her situation and promised not to evict her, but would not postpone the scheduled foreclosure.

Enter the CFPB. Though precisely how it brokered the final resolution of Ogle’s problem has not been made public, its intervention in the case appears to have been a catalyst. Bank of America, which had made a promise in 2010 to Ogle not to foreclose simply because her name was missing from the documents, purchased her loan from Fannie Mae and now owns it. The bank then canceled the Feb. 27 auction.

“We wanted to stay true to our commitment,” said Dan Frahm, a spokesman for Bank of America. “So we bought back the loan.”

Ogle’s reaction? “Oh, I’m on cloud nine,” she said. “I’m staying put in my house. I don’t have to move. And even though I’m 92, I’ve got all my marbles – so everybody should know I plan to be around for a while.”

First-time buyers aren’t contributing much to rebound in housing markets

By Kenneth R. Harney, Friday, February 22, 8:56 AM

Although the housing market is rebounding in many local markets, there is one important segment that is not: First-time buyers are missing in action; they represent a smaller proportion of overall sales activity than their historical norm.

Whereas first-timers typically account for roughly 40 percent of sales, lately they’ve been involved in anywhere from 30 to 35 percent, depending on the source of the data. Lawrence Yun, chief economist for the National Association of Realtors, estimates that there were 2.2 million fewer first-time purchasers in the United States between 2008 and 2012, a deficit of about 450,000 a year.

Recent surveys of Realtor members by Yun’s research team have found that first-time purchases slipped to just 30 percent during each of the past three months. Mortgage investment giant Freddie Mac reports that first-time purchasers accounted for just 35.9 percent of loans acquired by the firm in 2011. Last year, the Federal Reserve found that while about 17 percent of people age 29 to 34 took out a mortgage to purchase a first home between 1999 and 2001, the figure plunged to just 9 percent during the period from 2009 to 2011.

All of this represents a potentially significant issue for homeowners and sellers in the overall market. Without entry-level purchasers, the housing system doesn’t work well. If there’s no one to buy moderately priced starter homes, the owners of those houses can’t sell and move up.

So what’s the problem? Where are these first-timers who should be jumping in while mortgage interest rates are near all-time lows and prices in some markets are still at 2004-05 levels? Recent economic jolts – the recession and relatively high unemployment rates for younger workers – are crucial factors. Disproportionate numbers of 20- and-30-somethings have moved back home to live with their parents or they’re renting with others rather than purchasing a house.

Tougher underwriting and qualification requirements by the banks are also important contributors. Fed Chairman Ben S. Bernanke has said so, and President Obama singled out tight lending standards – even for borrowers with solid credit – as an issue in his State of the Union address.

On top of these burdens, though, there’s still another financial albatross: Massive student-debt levels and their toxic interaction with lenders’ stringent rules on “debt-to-income” ratios.

Student-loan debt loads have exploded in the past decade and now exceed $1 trillion, according to financial industry estimates. A Pew Research study last fall found that the average student-debt balance is $26,682, and that more than one in 10 graduates is carrying close to $62,000 in unpaid student loans. Both numbers are up sharply from just five years earlier.

Lenders and realty agents who work with first-time purchasers say the student debts that many prospective buyers bring to the table are often deal-killers.

“Even a $30,000 or $40,000 debt can mean you don’t make the cut,” said Paul Skeens, president of Colonial Mortgage Group in Waldorf. Lenders typically look at two debt-to-income measures to help gauge creditworthiness: the monthly costs of the proposed new mortgage compared with household income; and total recurring household debt (credit cards, auto payments, student loans and the new mortgage). If you have $3,000 a month in recurring debt payments and $6,000 a month in household income, you’ve got a total debt-to-income ratio of 50 percent.

Under current lending standards, a total debt ratio of 43 percent is about as high as an applicant for a conventional loan can go, absent strong compensating factors such as lots of money in the bank, something that most first-timers sorely lack.

FHA-insured mortgages offer a little more flexibility, says Skeens, who recommends them for buyers with student debts but usually after the applicants negotiate a deferral of those college payments if the balances are troublesome.

Paul Reid, an agent with online brokerage Redfin in Irvine, Calif., says it’s particularly tough for first-timers right now because even when they qualify for a mortgage, they often get outbid by investors who offer all-cash deals for starter homes. Reid tries to make first-timers more competitive by getting them fully underwritten in advance for a specific mortgage amount before they shop for a house and then keeping their offers as uncomplicated as possible so as not to put off sellers.

Good advice for first-timers carrying student debt: Check out FHA. Keep your offers simple. And work with an agent who knows how to navigate you through today’s perilous underwriting shoals.