San Diego Real Estate and Mortgage Report – Q4 2010

Welcome to the San Diego real estate report for the fourth quarter of 2010. This guide is intended to educate San Diego home buyers on mortgage trends, housing statistics, and other pertinent information. In this report, we will talk about current mortgage rates in San Diego, the local foreclosure scene, home prices and more.

san diego skyline

Disclaimer: Our real estate report for San Diego was published on October 18, 2010. Please note that the mortgage rates and other information contained in this report may have changed by the time you read it. We recommend that you seek out the most current information about the San Diego housing and mortgage market, especially if you are planning to buy a home there.

San Diego Mortgage Rates

At the time this report was published, the average mortgage rates in San Diego were as follows:

  • 30-year fixed – 4.19%
  • 15-year fixed – 3.62%
  • 5/1 ARM loan – 3.47%
  • 1-year ARM loan – 3.43%

The mortgage rates listed above are only averages. They are based on information reported by Freddie Mac for the time frame of this report.

When shopping for mortgage rates in San Diego, keep in mind that the rate you get has a lot to do with your own qualifications. You might qualify for a lower or higher interest rate than those listed above, based on your qualifications. One of the most important factors is your credit score. Lenders will use your credit score and loan-to-value ratio to determine the interest rate on your loan.

You may also have to pay points at closing, in order to qualify for the types of mortgage rates listed above. This is where the borrower prepays a certain amount of money up front, in order to lower the interest rate over the term of the loan. Depending on the difference in the long-term rate, this could work out in your favor.

Foreclosure Homes

As one of the hardest-hit states during the housing meltdown, California has a large inventory of foreclosure homes. The same goes for San Diego and surrounding areas. At the time this report was published, we found the following data relating to San Diego foreclosure homes. Data was supplied by

  • Pre-foreclosure homes * – 2,451
  • Auctions – 3,547
  • Bank owned homes – 3,910

* Pre-foreclosure means the homeowner is delinquent on the mortgage payments, but the bank has not yet foreclosed.

If you are thinking about buying a foreclosure property in San Diego, you need to educate yourself about the process. There are different stages of foreclosure, and the buying process is different for each of them. For example, if you want to buy a pre-foreclosure home through a short-sale process, your offer will be reviewed by the homeowner and the lender alike. On the contrary, if you are buying a bank-owned home in San Diego, you will submit your offer directly to the lender. You should also educate yourself about the foreclosure laws in San Diego, and find a real estate agent who is familiar with the process.

Home Prices And Pricing Trends

According to data reported by, the median sales price for San Diego homes (July 2010 – September 2010) was $322,500. Sales prices in San Diego have dropped nearly 35% over the last five years, but they seem to be stabilizing at present. The average listing price for the same period was significantly higher, suggesting that homeowners are overpricing their homes when listing them for sale.

According to, home prices in San Diego have increased by more than 8%, year over year. Their data reflects home sales and prices up to August of 2010. This is one of the few positive signs since the San Diego real estate market collapsed several years ago.

San Diego Real Estate Trends

Here are some of the things that are making news right now, with regard to the San Diego real estate market.

As you’ve probably heard, there has been a partial moratorium on foreclosures in the area. In fact, Bank of America recently halted foreclosures in all 50 states. We feel this stoppage will be temporary in nature, and that foreclosures will resume their normal pace in the near future.

Still, any slowdown in foreclosure activity means there will be an increase in inventory. If homeowners in the San Diego area are defaulting at the same rate, but the banks are foreclosing at a slower pace than before, there will eventually be a larger inventory of San Diego foreclosure homes. This would likely have a negative impact on home prices in the San Diego area. Some people are even predicting an average price reduction of 20% or more over the next year. This has yet to be seen, but there will almost certainly be a price drop of some kind. It’s something to keep your eye on, if you are planning to buy San Diego real estate in the near future.

We have also seen a rise in FHA home loans in San Diego. It’s no secret that the FHA has increased its market share since the housing bust. Borrowers who get turned down for a conventional mortgage loan can often get approved for an FHA loan. We also conducted a survey on the Home Buying Institute website recently, wherein the vast majority of respondents said they were planning to use an FHA home loan. This was a national survey, and was therefore not specific to the San Diego real estate scene. But the message is clear. FHA loans are more popular than ever.

If you wish to pursue this type of mortgage financing, you will need to apply through an FHA-approved lender in the San Diego area. You can find a list of these lenders on the HUD website.

Lastly, we would warn home buyers in the San Diego area that many homeowners are overpricing their homes. The reason for this is fairly obvious. Home prices in the San Diego area have dropped considerably in recent years. So many homeowners find themselves in a negative equity situation, where they owe more than their homes are currently worth. This is referred to as being upside down or underwater in the loan — two phrases you’ve probably heard a lot lately.

What does this mean to a home buyer? It means you need to scrutinize the asking price like never before. There is a very good chance the home you are considering is overpriced. So you need to look at comparable sales in the area to get a feel for what the market is doing. The value of a home is not determined by what the homeowner needs to get out of the deal. Nor is it determined by what the homeowner paid for the home when they first bought it. The value of a home is based on current market trends, and nothing else. Keep this in mind as you shop for homes in the San Diego real estate market.

Closing Quote

We like to close our real estate reports with an insightful comment relevant to the local market. We scour the Internet for such comments, and we choose one or two of the most useful comments to share with you. Here are some timely quotes about the San Diego real estate and mortgage scene:

  • “Lynn Reaser, an economist at Point Loma Nazarene University, said the latest figures provide further reassurance in a housing market that has experienced wide fluctuations in the last few years…” –San Diego Union-Tribune
  • “Demand builds back for housing in better neighborhoods: more buyers with cash want to take advantage of market bottom near Pacific coastlines … Public-company homebuilders buy relatively cheap residential land to prepare for an eventual upturn.” -Urban Land Institute’s Emerging Trends report

We hope you have found this San Diego mortgage and real estate report helpful. If you would like to learn more about any of the topics discussed in this guide, you can use the search tool located at the top of our main website. We have thousands of articles related to home buying, mortgages, and other topics discussed in this report.

Archive: 2013 Housing Market Predictions & Forecasts

Update: A new version of this story was published in October 2013 and includes predictions for the U.S. housing market in 2014. The story below has been retained as a historical archive.

Welcome to the housing predictions library, brought to you by the Home Buying Institute. On this page, you’ll find the world’s largest collection of real estate forecasts and predictions for 2013 and beyond. This page is updated often, as new information and insight becomes available.

Outlook for 2013: Expert Quotes and Commentary

The housing predictions below have been organized in reverse-chronological order. You’ll find the most recent commentary at the top of the page.

  • JPMorgan ChaseJPMorgan Chase, the second-largest mortgage lender in the United States, recently predicted that U.S. home prices would rise by 3.4% in 2013. That was on the low end. In a more bullish scenario, they said prices could rise by as much as 9.7%. This was originally reported by Al Yoon at the Wall Street Journal. –Prediction made in December 2012
  • freddieOn December 6, the economists at Freddie Mac released their U.S. Economic and Housing Market Outlook report for 2013. They zeroed in on mortgage rates and home prices in particular. They expect loan rates to remain near historic lows for the first half of 2013, and to rise gradually beyond that. The average rate for a 30-year fixed mortgage will likely remain below 4% for the entire year, according to their forecast. Meanwhile U.S. home prices could rise by 2% to 3% over the next 12 months. –Prediction made in December 2012
  • zillowStan Humphries, the chief economist at Zillow, is no stranger to this list. He often shares his outlook on housing-related conditions. Here’s his latest forecast: U.S. house prices will rise 1.7% over the next twelve months. Of course, this is an averaged forecast for the entire country. Some metro-level markets, like those in California, will likely see much higher appreciation. –Prediction made in October 2012
  • forbesBill Conerly, an economist and writer for Forbes, expects to see moderate improvements in the U.S. housing market through 2013. This tracks closely with our own outlook. But he is quick to point out that many homeowners are still underwater, meaning they owe more on their mortgages than their homes are currently worth. Over the past year, housing demand has outgrown construction, Conerly points out. This will continue to drive prices upward through 2013.  –Prediction made in October 2012

Archive: Housing Predictions for 2012

  • S&P IndexOn January 31, 2012, the monthly Case-Shiller / S&P Home Price Index was released. With evidence of a price decline in most metro areas, it put a damper on some of the new-year optimism we have been seeing. Unlike a lot of folks, Karl Case does not feel that the housing market is fully on the road to recovery. Shortly after the report came out, he did an interview with Tom Keene on Bloomberg’s “Surveillance” radio show. He said the “seeds of the recovery were being planted,” but there was still a rocky road ahead of us. –Prediction made in January 2012
  • zillowDr. Stan Humphries from the real estate information service Zillow anticipates additional price declines in 2012, followed by a long period where prices will remain flat. He calls it a “transitional year,” suggesting the worst may be behind us. He tempers his optimism with the reality that supply and demand is still imbalanced in many housing markets across the country, largely due to foreclosures. –Prediction made in January 2012
  • Schwab LogoLiz Ann Sonders, the chief investment strategist with investing firm Charles Schwab, expects the U.S. housing market to hit bottom in 2012. And since housing has been one of the most persistent drags on the economy, any improvement in this sector could give a moderate boost to the economy as a whole. –Prediction made in January 2012
  • PIMCONationally speaking, U.S. home prices may drop another 6% – 8% before they hit bottom. This forecast comes from Scott Simon, head of the mortgage-backed securities team at Pacific Investment Management Company (PIMCO). One of the biggest problems, according to Simon, is that current government policy has made it harder to obtain government-backed mortgages such as the FHA loan. He also said the banks are being too tight with credit, a complaint that seems to be coming from many sources these days.  –Prediction made in November 2011
  • Federal ReserveThe Federal Reserve is taking certain actions to keep mortgage rates low through 2012. One of their efforts (a new program known as “Operation Twist”) involves continued investment in long-term government bonds. According to the Fed’s policy statement: “This program should put downward pressure on longer-term interest rates.” Translation: There is a good chance we could continue to see low mortgage rates in 2012, as we have seen through most of 2011.
  • Clear CapitalClear Capital, a company that provides property-value data to mortgage companies, feels that housing prices could decline by another 3.2% through the first quarter of 2012. According to Dr. Alex Villacorta, Director of Research and Analytics at Clear Capital, the housing market lacks the fundamentals needed to stabilize prices. Mortgage rates are low and affordability is high. But jobless rates and consumer uncertainty will reduce the likelihood of price gains. –Prediction made in October 2011
  • freddieFrank Nothaft, chief economist for the government-backed mortgage giant Freddie Mac, forecasts that home prices in most of the U.S. will hit bottom in early 2012. He also expects home sales to rise by 5% next year, compared to 2011. He doesn’t expect a significant rise in prices, though — more like a long, flat bottom. Unemployment, uncertainty and excess inventory will continue to put downward pressure on home prices throughout 2012. –Prediction made in October 2011
  • Merril LynchEthan Harris, an economist and author who works for Merrill Lynch, doesn’t expect much growth in the housing sector in 2012. In fact, he doesn’t anticipate any significant growth in that area until 2013, at the earliest. He shared these thoughts during an interview on Bloomberg Television. According to Bloomberg, Harris is one of the most accurate forecasters on the economy. Harris pointed to unemployment, which is still hovering above 9%, as one of the biggest problems for the housing market. –Prediction made in September 2011
  • RBC Capital MarketsDuring an interview with Bloomberg Television, housing analyst Robert Wetenhall predicted that home prices could fall by 5% – 15% in 2012. Wetenhall works for RBC Capital Markets, an investment banking firm headquartered in Canada. Like many people, Wetenhall, points to foreclosure inventories as one of the biggest problems for the housing market in 2012 and beyond. He referred to it as a “multi-year” problem. He added that without a housing solution, we will not have a broader economic solution. –Prediction made in September 2011
  • MacroMarkets LLCOn September 21, 2011, MacroMarkets LLC published the results of its home price expectations survey for that month. The survey is sent to 111 economists, investment analysts and housing experts. The September survey showed that most of the respondents had a pessimistic outlook regarding home prices. According to the survey, most of the experts predict that home prices will only rise by 1.1% through 2015. Thus, their price expectations for 2012 are mostly flat. –Prediction made in September 2011
  • Mortgage Bankers AssociationOn September 12, 2011, the Mortgage Bankers Association (MBA) said they do not expect any major improvements in the U.S. economy over the next year and a half. They expect to see mortgage rates of around 4.5% for much of next year. The group anticipates a rise in home-buying activity in 2012, as well. Their mortgage-rate predictions reflect many of the other forecasts we have seen in our research — most people expect rates to stay low through the first part of 2012. –Prediction made in September 2011
  • Politico LogoJosh Boak, an economics reporter for Politico, feels that the housing market won’t see any significant recovery for several more years. At least, that’s what he wrote in a feature story about the challenges President Obama faces in 2012. To be more accurate, Mr. Boak (a former reporter for the Chicago Tribune) was summarizing remarks made by former Fed chairman Alan Greenspan. Mr. Boak rightfully points out that low mortgage rates have not been enough to spur the ailing housing market. –Prediction made in September 2011

Archive: Forecasts Made for 2011

  • Mortgage Bankers AssociationOn January 26, 2011, the Mortgage Bankers Association (MBA) said they expect the average interest rate on 30-year fixed-rate mortgages to reach 5.3 percent later this year. In 2010, the average rate in this category was 4.7 percent. The MBA also said the number of refinance loans could drop by as much as 66 percent. Home purchase loans on the other hand are expected to rise in 2011, albeit slightly. –Prediction made in January 2011
  • RealtyTrac LogoRick Sharga of RealtyTrac has appeared on the housing predict-o-meter before. Now he’s back with another grim forecast. Mr. Sharga and the folks at RealtyTrac expect the number of U.S. homes receiving a foreclosure filing will climb by about 20 percent in 2011. This is staggering, when you consider the number of foreclosures over last year. He also feels that foreclosures will peak in 2011. –Prediction made in January 2010
  • University of ChicagoCasey Mulligan, an economics professor at the University of Chicago, disagrees with the rising number of analysts who are predicting a double-dip in home prices for 2011: “Predicting the future is difficult, but the … data so far do not seem to suggest that home values will be significantly different this year [in 2011] than they were in 2010.” –Prediction made in January 2011
  • Wells Fargo logoAccording to Mark Vitner, a senior economist at Wells Fargo Securities: “Housing is going to remain dead in the water through the middle of [2011] … As foreclosures come back on the market, that will put downward pressure on prices.” Foreclosures “coming back” is a reference to the current slowdown in foreclosure processing, which began with the robo-signing scandal. –Prediction made in December 2010
  • Federal ReserveOn December 14, 2010, members of a Federal Reserve committee met to discuss the current and future state of the economy. According to the minutes from that meeting, the committee feels the U.S. housing market will weaken further in 2011. Low demand and high inventory were cited as the primary causes. Some participants noted that the “overhang of foreclosed homes” would contribute to further price declines in many areas. –Prediction made in December 2010
  • On December 8, 2010, Oliver Chang and other financial analysts from Morgan Stanley released a report with their thoughts on the housing market. According to the report, the analysts expect home prices in the U.S. to fall as much as 11 percent by 2012. The reasons cited? Supply and demand, of course. “We see the trough occurring in 2012 instead of our previous call of 2011,” said Chang. –Prediction made in December 2010
  • Trulia LogoPete Flint, chief executive of, feels that rising mortgage rates will reduce housing demand in 2011. “Nationally, prices will decline between 5 percent and 7 percent,” Flint said, “with most of the decline occurring in the first half of next year [2001].” –Prediction made in December 2010
  • RealtyTrac LogoRick Sharga, Senior VP of the foreclosure-tracking company RealtyTrac, sees a rise in the number of pre-foreclosure homes over the next few months. He predicts that many of these homeowners will simply walk away from their homes. “Even with today’s low interest rates,” Sharga said, “you’re looking at an average of $1,000 or more in mortgage payments on loans that are overvalued by about 30 percent. That is where you will see a high level of walkaways.” –Prediction made in December 2010
  • freddieFreddie Mac appeared on our housing market predict-o-meter back in October. Here’s another set of predictions, this time from their chief economist Frank Nothaft. This commentary comes from the Freddie Mac blog, where Mr. Nothaft recently shared his thoughts on the type of housing market we’ll see in 2011. He feels that fixed mortgage rates will remain below 5 percent next year, while the 5/1 ARM will remain below 4 percent. He also forecasts a rise in purchase loans and a decline in refis. –Prediction made in December 2010
  • In an interview with Steve Bergsman from Inman News, Scott Sambucci said he expects home prices to fall another 7 – 9 percent in 2011. Mr. Sambucci is the director of business development at Altos Research, a company that provides data-analysis services to the real estate industry. Sambucci also writes many of the posts on the company’s “How’s the Market” blog. –Prediction made in December 2010
  • Fannie MaeIn late November, Fannie Mae released its housing forecast for that month. The report also included a forecast for home sales through 2011 and beyond. When you compare their 2011 end-of-year predictions to actual sales numbers from the beginning of 2010, you basically have a flat line. This suggests another sluggish year for the housing market. –Prediction made in November 2010
  • Economic analysts from Standard and Poor’s have made the prediction that home prices will drop another 7 – 10 percent in 2011. Here again, the usual suspects are cited as being the cause for the potential declines — unemployment and inventory. S&P credit analyst Erkan Erturk said that the price declines at least seem to be slowing, when compared to the last two or three years. –Prediction made in November 2010
  • fiservFiserv, an information-management company in the financial sector, recently revised its home-price projections for 2011. In February 2010, they were fairly optimistic about the housing market, predicting national price gains of about 4% through the end of 2011. Their latest prediction is for a 7.1% drop in prices through the summer of 2011. According to David Stiff, the chief economist at Fiserv: “Some of the largest declines in prices will occur in markets that had strong spring and summer 2010 price increases.” –Prediction made in November 2010
  • Moody's AnalyticsMark Zandi, the often-quoted chief economist from Moody’s Analytics, recently predicted another 8% drop in home prices through the third quarter of 2011. “There’ll be no vicious, self-reinforcing spiral down,” he said. “[But] more home price declines are coming.” If Zandi’s prediction holds true, it will signify a 34% drop in home values from the height of the housing bubble. –Prediction made in November 2010
  • Mortgage Bankers AssociationOn October 26, 2010, the Mortgage Bankers Association released its mortgage finance forecast for 2011. If their predictions are accurate, mortgage rates will slowly rise between now and the end of 2011. For example, consider the benchmark 30-year fixed-rate mortgage. The current average rate in this category (as of October 21, 2010) is 4.21 percent. The MBA is predicting that these rates will gradually rise through 2011, exceeding 5 percent by the end of that year. –Prediction made in October 2010
  • BloombergNicolas Retsinas, the director of Harvard University’s Joint Center for Housing, recently discussed the future of the housing market on Bloomberg Television. Among other things, Mr. Retsinas said: “I don’t suspect we’re going to see any increases in the mortgage rate in the near future. What I worry about is that when interest rates do finally turn, they may go up quickly.” –Prediction made in October 2010
  • Wall Street JournalOn the Wall Street Journal website, Nick Timiraos wrote that many economists are revising their predictions about the housing market. The now-defunct tax credit for first-time home buyers created a temporary burst of activity. This led to predictions for a housing bottom in 2010. But now, says Timiraos, “some economists don’t see a recovery until late next year or early 2012.” –Prediction made in October 2010
  • forbesOn October 19, 2010, John Mauldin wrote an interesting post to his blog on Mr. Mauldin revised an earlier prediction he made about nationwide housing bottoms — and not for the better. “I wrote three years ago that it could be well into 2011 before we get to a bottom,” he said. “That may have been optimistic.” He agrees with Gary Shilling that home prices might fall another 20%, before we find a true bottom. –Prediction made in October 2010
  • freddieIn October 2010, Freddie Mac published an economic forecast that included various housing predictions. Among other things, the company feels that mortgage rates will stay below 5% for the next year or so (until the end of 2011). They are predicting that average rates on 30-year fixed mortgage loans will remain around 4.4 percent through the last quarter of 2010, rise to 4.5 percent during the first quarter of 2011, and inch upward toward 5.0 percent by the end of 2011.  –Prediction made in October 2010
  • nabeIn October 2010, the National Association of Business Economics (NABE) released the results of a survey of economists. Among other things, the survey pointed toward a significant increase in housing starts in 2011. According to the report, home prices have already hit bottom in most of the U.S. But home price increases in 2011 will probably still fall short of inflation. –Prediction made in October 2010
  • zillowStan Humphries, chief economist at Zillow, believes that most real estate markets in the U.S. will hit bottom in the third quarter of 2010. He also believes that the bottom will be “long and flat,” as opposed to a quick rebound. “Think about it less in terms of a bottom than as second phase of the housing market,” he added. –Prediction made in June 2010
  • berkshireWarren Buffett, one of the most successful investors in the United States, predicted that the real estate slump will be behind us by 2011. In his annual letter to shareholders of Berkshire Hathaway, Buffet wrote that “Within a year or so, residential housing problems should largely be behind us.”. –Prediction made in February 2010
  • timeAn article in Time magazine pointed out that many housing-market experts believe prices will bottom out in 2010. But it may be 2013 before the market noticeably rebounds. That same article quoted David Goldberg, an analyst with UBS, who said: “Some markets still have further [down] to go, but we’re definitely in the latter innings of the downturn.” –Prediction made in January 2010

Disclaimer: The housing market predictions listed above are provided “as-is” with no warranties or guarantees of any kind. We have compiled this information for educational purposes only. We are making no predictions of our own regarding the economy.

Are We Overreacting To the Foreclosure Freeze?

Do a search on Google News for “Bank of America,” and you will see hundreds of news stories about their foreclosure freeze. Bank of America recently announced they are halting foreclosures nationwide, pending a review of their foreclosure procedures.

GMAC Mortgage and JPMorgan Chase have previously implemented a freeze in the 23 states where foreclosures are controlled by the courts (so-called “judicial foreclosure” states). But Bank of America is going further by freezing foreclosure in all 50 states.

Wells Fargo recently said they are planning to move forward with all legitimate foreclosures, despite one of their former employees making similar claims about “robo-signing” documents.

All of this comes in the wake of whistleblower testimonies and governmental scrutiny regarding foreclosure procedures. Some former employees of Bank of America (and other lenders) have said that they signed off on dozens or hundreds of foreclosure documents a day, without much scrutiny or verification.

But it’s the Bank of America foreclosure freeze that really has the media in a tizzy. I even saw one headline that said Bank of America’s foreclosure freeze could cause another housing crisis.

Which begs the question … aren’t we overreacting a bit?

Here’s the logic behind the doom-and-gloom headlines. Halting foreclosures will prolong the high level of foreclosure homes we have right now. This in turn will delay recovery and stability in the housing market. It will also prevent home prices from normalizing.

But let’s look at this from a different angle. It’s in the best interest of these banks to perform their internal reviews as quickly as possible. After all, those foreclosure homes are non-performing assets. They lose more money the longer they hang onto them. So you can bet that whatever actions they take will be swift.

Bank of America CEO Brian Moynihan recently downplayed the events: “We haven’t found any foreclosure problems,” he said. “What we’re trying to do is clear the air and say we’ll go back and check our work one more time.”

Many people claim that a temporary foreclosure freeze will drive home prices down. “The moratoriums … can be incredibly destructive to the fragile recovery of the housing and housing finance markets,” said Anthony Sanders, a finance professor at George Mason University. “Consumers looking to get back into housing are even more fearful than before. This can lead to further house price declines.”

There are plenty of folks in the media who echo Mr. Sanders sentiments.

Declining home prices. What’s wrong with that? Home prices are still inflated in many parts of the country. They still need to come down to more realistic levels, if we’re ever going to see the market pick up.

But let’s get back to the drama at hand. Many in the media are blowing this whole thing out of proportion: Foreclosures have been halted. The market will come to a screeching halt. Home prices will plummet. We may see another housing crisis. This might trigger a double-dip recession. So on and so forth.

Here’s my prediction. A month or two from now, no one will even remember the Bank of America foreclosure freeze. It will be business as usual in the world of home foreclosures, auctions, and resales. And then we can go back to worrying about larger concerns. Like unemployment.

New FHA Credit Score Requirements Take Effect This Week

FHA logoWe have previously written about some new credit score requirements for FHA home loans. These changes went into effect yesterday, October 4. Here is a summary of what has changed.

  • In order to be eligible for an FHA home loan, borrowers must have a FICO credit score of 500 or above. Borrowers with credit scores below 500 are not eligible for the program. *
  • Borrowers with a credit score of 580 or above can qualify for the 3.5% down-payment option. In other words, they can put as little as 3.5% down when using an FHA loan.
  • Borrowers with a credit score between 500 and 579 will have to put at least 10% down when using an FHA loan.

* While this is now an official FHA credit requirement, it doesn’t really change much. People with FICO scores below 500 probably would not have qualified for an FHA loan in the past, either. This just makes it official.

According to the Department of Housing and Urban Development (HUD): “This [change] allows the FHA to better balance its risk and continue to provide access for those borrowers who have historically performed well.”

There are other benefits to maintaining a high credit score. In addition to qualifying for the lower down-payment option, you’ll also qualify for a lower interest rate. Credit scores are one of the top three factors mortgage lenders use to assign interest rates. If your FICO score is north of 700, you may qualify for the best rates the lender has to offer. Of course, you might have to pay half a point or more at closing. But the cumulative savings over time will typically justify the extra up-front cost.

Fannie Mae Wants to Help With Your Closing Costs – If You Buy a Foreclosure

Last week, Fannie Mae announced some new incentives for home buyers. Qualified buyers who purchase one of their distressed homes (i.e., foreclosures) could receive up to 3.5 percent of the final sales price to put toward closing costs. Example: If I purchased a Fannie Mae foreclosure home for $250,000, I would be eligible for up to $8,750 worth of closing cost assistance.

On average, closing costs add up to 3% – 5% of the loan amount. So this new incentive could cover all or most of the home buyer’s closing costs. That’s nothing to sneeze at.

In order to qualify for this incentive, you must purchase a home that’s listed on This is Fannie Mae’s website for distressed / foreclosed properties. You must also be an “owner occupant,” which means you are buying the home to live in it. Real estate investors need not apply.

To be eligible, purchase offers must be submitted on or after September 23, 2010, and must close by December 31, 2010. Additionally, the sale must close within 60 days of the offer acceptance.

The incentive program is Fannie Mae’s latest effort to get a growing number of foreclosure homes off its books.

Additional Incentives Through

In addition to the closing costs contribution, home buyers can qualify for attractive financing terms when buying a home through Many of the foreclosed homes listed on the website are eligible for HomePath Mortgage Financing. The perks of this program include smaller down payments and easier qualification, when compared to a traditional mortgage loan.

Qualified borrowers can put as little as 3% down when buying a foreclosed home through, and they may see their mortgage insurance and appraisal fees waved, as well.

How to Buy a Fannie Mae Foreclosure Home

So how do you go about buying a foreclosed home through the Fannie Mae website? Fannie Mae works with local real estate agents to list their REO properties. So if you find a home you like on the website, you should make note of the agent’s name and contact info. You can then ask the agent to show you the property.

The HomePath website also provides a state-by-state list of mortgage lenders that participate in their financing program.

When you’re ready to make an offer on a home, you will need to include the following items (at a minimum):

  1. A standard real estate contract for the state where you are buying.
  2. A Fannie Mae real estate purchase addendum.
  3. Earnest money. This will be deposited with the title or escrow company, and applied toward the down payment and closing costs at the closing.
  4. Proof of funds (if you’re paying cash for the home), or a copy of your pre-approval letter (if you’re getting a mortgage loan).

This is a simplified version of the process. If you want to learn more about buying Fannie Mae foreclosures, refer to the website. They have a variety of resources for home buyers. You might also want to speak to a HUD-approved housing counselor, or a real estate agent who is familiar with this process.

Survey Reveals Biggest Fears Among Home Buyers

Napa, CA – U.S. Housing News — A recent survey by the Home Buying Institute revealed the greatest fears and concerns among home buyers. On the top of the list: an overwhelming mortgage payment.

We asked thousands of home buyers what their biggest fears were, with regard to the home-buying process. The majority of respondents said they were afraid of having a mortgage payment that’s too big for them. These results seem to suggest that many home buyers don’t set a budget for themselves, before talking to lenders.

Survey details: This survey was presented to more than 7,000 readers, through the Home Buying Institute website. The survey started with a simple question: “What is your biggest fear about buying a home?” Respondents were able to choose one of seven responses, which covered most concerns of the average home buyer. Of the home buyers who responded, most said they were afraid of taking on too much of a mortgage payment. Many were also concerned about overpaying for a home.

Home Buyer Fears
Chart: Home buyers are afraid of overwhelming mortgage payments. Image permission

As shown above, the responses broke down as such:

  • 36.4% said they were afraid of ending up with a mortgage payment that’s too big.
  • 22.7% feared they might pay more for a home than it’s worth.
  • 15.9% were afraid of losing their jobs after taking on a mortgage loan.
  • 10.2% were concerned about buying a home with major structural problems.
  • 4.5% were afraid of choosing the wrong type of mortgage loan.
  • 4.5% feared another housing bubble-and-bust cycle, like the one we just went through.

Addressing Home Buyer Fears

Brandon Cornett, publisher of the Home Buying Institute, explained his company’s motivations for running the survey. “More than anything, we wanted to identify the knowledge gaps among our readers. By understanding what scares home buyers the most, we are better able to publish meaningful content. We can write articles and tutorials that address these fears.”

If you’re afraid of having a mortgage payment that’s too large:

Home buyers who are concerned about an over-sized mortgage payment should establish a budget for themselves. By reviewing your monthly income and debt expenses, you can set a monthly limit for your housing costs. It’s important to do this before you apply for a mortgage loan. Believe it or not, you can be approved for a mortgage amount that exceeds your comfort level. So do the math for yourself. Find out what you can comfortably afford to spend each month. You can learn more about mortgage affordability here and here.

If you’re afraid of paying more than the home is worth:

Home buyers should know it’s called an “asking price” for a reason. Just because a home is listed for a certain amount doesn’t mean it’s worth that much. Our research shows that many homes are initially listed above their market values. Call it wishful thinking on the seller’s part. As a home buyer, the last thing you want to do is overpay for a house. It erodes your equity from day one. But this situation can easily be avoided. You should base your offer on recent sales in the area.

If you’re afraid of losing a job (and your ability to make payments):

Double-income couples need to consider the impact of one spouse losing a job. If you can’t cover the mortgage payments on a single income for a few months, you may be buying too much house. Make sure you have an emergency fund to protect you in such scenarios. This means having enough money in your savings account to cover up to six months worth of mortgage payments. It’s a slow job market, after all. The emergency fund is even more important for single-income families.

If you’re afraid of buying a home with major flaws:

Every home buyer should pay for a home inspection. It only costs a few hundred dollars, and it gives you the peace of mind of knowing what lies beneath. A home inspector will slap on a pair of coveralls and get into the guts of the house. He will examine the foundation, the attic, the roof, and all of the installed systems (plumbing, electrical, HVAC, etc.). If there’s a major problem with the house, a professional home inspector will find it. You can learn more about home inspections in this FAQ article.

If you’re afraid of choosing the wrong type of mortgage loan:

Research is the key to success here. You should start by learning the key differences between adjustable and fixed-rate mortgages. This is where a lot of first-time buyers get into trouble, choosing the riskier ARM loan for a long-term stay. You should also consider the pros and cons of FHA home loans, one of the most popular financing methods today. You can learn more about the different types of mortgage loans on this page.

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You Are More Likely to Default on an ARM Loan – Here’s Proof

mortgage defaultWe have often warned first-time home buyers about the risks associated with adjustable-rate mortgages. Now we have some new data to back it up. A recent report released by the Federal Housing Finance Agency (FHFA) reveals that home buyers who use ARM loans to purchase a house are more likely to default than those who use fixed-rate mortgages.

A mini-glossary is in order:

  • Adjustable-rate mortgage: Known as an ARM loan for short, this type of mortgage has an interest rate that adjusts (changes) periodically. This means the size of the monthly payment changes as well.
  • Fixed-rate mortgage: This type of mortgage loan keeps the same interest rate over the entire life of the loan. Thus, the monthly payment never changes.
  • Default: When you fail to make your mortgage payments, you are defaulting on the loan. Defaults frequently (but not always) lead to foreclosure.

According to the data released by the FHFA last week, you are more likely to default with an ARM loan as compared to a fixed-rate mortgage. The report showed data pertaining to single-family mortgage loans acquired by Fannie Mae and Freddie Mac, from 2001 to 2008.

Fannie and Freddie are government-sponsored enterprises that are currently controlled by the federal government (following the mortgage and housing collapse). These organizations purchase mortgage loans from direct lenders and sell them to investors. An “enterprise-acquired mortgage” is a loan that was purchased by one of the two government-supported enterprises.

Default Data – Fixed vs. Adjustable Mortgages

Here’s how the data stacked up for enterprise-acquired mortgages between 2001 and 2008:

  • Approximately 5% of the fixed-rate mortgages acquired by Fannie Mae and Freddie Mac were over 90 days delinquent at some point before the end of 2009.
  • Approximately 10% of the adjustable-rate mortgages acquired by Fannie and Freddie were more than 90 days delinquent in the same period.

This data supports something we have been saying for years. You are more likely to fall behind on your mortgage payments if you use an adjustable-rate mortgage. “Adjustable” is the key part of that phrase. When you choose an ARM loan, you can be certain that the interest rate (and the size of your monthly payment) will change at some point. If you stay in the home beyond the first adjustment period, you will have two choices. You can try to refinance the mortgage, or you can simply deal with the rate change.

Can’t I Just Refinance Before the Adjustment Period?

Sometimes yes, sometimes no. If your home depreciates below a certain point … or if your credit score drops considerably … or if your income declines for some reason, you might not be able to refinance the loan. That’s a lot of “if” clauses. Right now, millions of homeowners are stuck in the first scenario. Their homes have depreciated to the point they cannot refinance. These are the underwater / upside down homeowners you’ve heard so much about lately.

When an ARM Loan Makes Sense

On the other hand, an ARM loan can be a smart strategy in certain scenarios. If you know for sure you’ll only be in the home for a few years, you could use an adjustable mortgage to secure a lower rate. If you sell the home before the first adjustment period, you will avoid the uncertainty.

The key is to understand how these loans work, and how they match up to your long-term plans.

Learn more: How an adjustable mortgage works

You can use the links above to learn more about the adjustable-rate mortgage loan. You can also find a wealth of advice on the Federal Reserve’s website, if you’re interested.

Upside Down Mortgage Help for Homeowners

upside down houseAs of August 2010, when this article was published, approximately 11 million homeowners were upside down in their mortgage loans. Much of this results from the housing crisis that came to a head in 2008. In the wake of that financial crisis, property values began dropping all across the country. In places like California, Arizona and Florida, they dropped considerably.

This leaves many homeowners scratching their heads over what to do next. What can you do about an upside down mortgage loan? Can you sell or refinance the home when you’re in this boat? Is there any help for upside down homeowners? These are the questions we will address below.

A Resource for Upside Down Homeowners

As the number of upside down homeowners has grown, so too have the number of programs available to them. But this creates a dilemma. With so many program updates and announcements, the average consumer is left feeling overwhelmed and confused. There is help for homeowners with upside down mortgage loans — it’s just hard to find the right path. Our goal is to compile information and resources related to upside down mortgage loans. We will update this page as needed, to ensure it stays current.

The Upside Down Mortgage, Defined

What is an upside down mortgage loan? Here’s a simple definition: If you owe more on your mortgage than your home is currently worth, you are upside down in the loan.

Here’s an example. If my home is worth $185,000 in the current market, but I owe $195,000 on my mortgage loan, I am upside down. My loan balance exceeds the value of my property. This is also referred to as being underwater in the loan. The two terms are interchangeable.

Why Is This a Problem?

Upside down homeowners have a hard time selling or refinancing their homes. If you sell the house for less than what you owe to the lender, you’ll probably have to pay the difference out of pocket. On the refinancing side, the lack of equity makes it hard to qualify for a mortgage refinance loan. Upside mortgage loans can create a situation where the homeowner is “stuck” — can’t sell the house, can’t refinance the loan.

When homeowners plan to stay in the home for a long time, being upside down is less of a concern. They can simply stay put, continue making their mortgage payments, and hope that their property values rise again in the future. But for those who want to sell or refinance their homes, an upside down mortgage will put up a financial roadblock.

Refinancing Options Through the FHA

Underwater homeowners are often unable to refinance their homes. They lack the equity that most lenders require. But there is help for upside down homeowners who want to refinance.

In May 2010, the Department of Housing and Urban Development (HUD) announced changes to the FHA’s loan-backing program that would make refinancing possible for underwater homeowners. This new program will be rolled out in the fall of 2010. To qualify, homeowners must (1) have a loan that is not currently insured by the FHA, (2) be current on their mortgage payments, and (3) be upside down in their mortgage loan. TARP funds are being used to give incentives to lenders, encouraging them to participate in the program.

This program is being referred to as the FHA short refi for underwater homeowners, and you can learn more about it through the links below:

Other Programs to Help Homeowners

If your mortgage loan is currently owned or guaranteed by Freddie Mac or Fannie Mae, you may have additional options for underwater refinancing. This would be through the federal government’s Making Home Affordable program. Here again, you need to be current on your mortgage payments to pursue this option.

You can learn more through the links below:

Upside Down Mortgages in the News

It is our goal to make this resource page as useful as possible. So we will be tracking the various programs and topics mentioned above. Here is some recent (2010) news regarding upside down mortgages and help for homeowners.

Mortgage Refinance Online is Increasingly Popular With Homeowners

Napa, CA – U.S. Housing News — Consumers today are more comfortable using online mortgage applications, as evidenced by a recent survey of homeowners. In 2007, only 37% of respondents said they would apply for a mortgage refinance online. In 2010, 59% said they would apply online.

The Home Buying Institute recently conducted a survey among homeowners who were planning to refinance their homes. We asked them about mortgage refinance online. Specifically, we wanted to know how many people were planning to apply for a loan online, as opposed to doing it in person. More than half of the respondents (59%) said they would to use the Internet to apply for a mortgage refinance loan.

This is a significant increase over a similar survey we ran three years ago. In the summer of 2007, we conducted a survey that asked the very same question: Would you apply for a mortgage refinance loan online? Back then, only 37% of respondents said they were comfortable with online applications — compared to the 59% from this year’s survey. Three years ago, the majority of respondents were reluctant to start the process online. But times have changed.

There are several reasons for the rising popularity of online mortgage applications:

  1. People are more comfortable using the Internet to apply for loans.
  2. There are more websites that allow homeowners to apply for refinancing online.
  3. Most likely, it is a combination of these two factors.

Regardless of the reasons, online mortgage refinance is clearly becoming more popular among homeowners. But how does the process really work? How much of it can be handled online? Is it a real application, or just a lead-generation tool. Here’s what you should know about online mortgage applications.

Online Mortgage Refinance Tips

Applying for a mortgage refinance online is fairly simple. You visit the website of your choice, and then you fill in the appropriate information. After that, somebody from the bank or lender’s office will contact you for more information. But there are several things you need to know before you start applying for loans online. Follow these tips for success:

  • Check your credit score. If you want to secure a low rate on the new loan, you’ll need to have good credit. The higher your FICO score, the lower the rate you can get. We recommend checking your credit at least three months before you pursue a mortgage refinance online, if at all possible. It takes time to boost a FICO score, so find out where you stand today.
  • Use reputable websites. When you apply for refinancing online, you need to be careful which sites you use. We have seen websites that asked for sensitive information like Social Security Numbers, but didn’t even have a basic security system in place. You can reduce the chance of identity theft by using reputable websites owned by banks or lenders you know.
  • Gather your documents. When you apply for a mortgage refinance online, you’re really just starting the application process. You won’t be approved based on the online application alone. You’ll have to follow up with some additional documents. If you start rounding up these items up now, you’ll have a smoother application process. Here’s a partial list of documents to get you started. Ask the lender what else they might need.
  • Consider your equity. Property values have dropped in most parts of the country, resulting from the housing bust that began in 2008. As a result, millions of homeowners are upside down in their mortgage loans. Many more have seen their equity shrink considerably. If you don’t have enough equity, you won’t be able to refinance. You don’t necessarily have to get the house appraised — the lender is going to do that anyway. Just file this away in the back of your mind.

Applying for a mortgage refinance online is a great way to get the ball rolling. It’s also a good way to shop for interest rates, closing costs and loan terms. But you need to be prepared for the process. You can learn more about this subject from the refinancing section of our website.

Fannie Mae and Freddie Mac – Past, Present and Future

Mortgage buyers Fannie Mae and Freddie Mac could be restructured in the near future. We just don’t know how. There are currently dozens of proposals on the table, and a meeting of the minds recently concluded in Washington. Still, the question remains: What should we do with Fannie Mae and Freddie Mac?

These two organizations affect every home buyer in the country. But many people don’t even know what Fannie and Freddie do. Sure, they’ve heard their names thrown around — it’s hard to read a newspaper without hearing about them. But they still remain a mystery to the average American. So we thought it was time to create a retrospective. We call it Fannie Mae and Freddie Mac – Past, Present and Future.

Housing History: The Birth of Fannie and Freddie

fannie mae logoHistory gives us a certain perspective we would otherwise lack. So let’s take a walk down memory lane.

The year was 1938. The United States economy was in terrible shape, in the wake of the Great Depression. Housing was unaffordable for many Americans. So Congress created an organization to make home ownership easier to reach. That organization was the Federal National Mortgage Association — Fannie Mae for short.

The rise of Fannie Mae created what is now known as the secondary mortgage market. Back then (and still today), Fannie Mae purchased mortgage loans from lenders. This increased liquidity within the mortgage market, and made lenders willing to give more loans to more people.

Fannie Mae enjoyed three decades of being a government-sponsored monopoly. It was the only organization that bought (and sold) loans from banks and lenders. In 1968, Lyndon B. Johnson privatized Fannie Mae to get it off the “government books.”
freddie mac logo
So now you had a private company that received federal support and monopolized a certain area of the American economy. Talk about Frankenstein’s monster!

To “solve” this dilemma, the government created a competitor for Fannie Mae. Thus, the Federal Home Loan Mortgage Corporation — a.k.a. Freddie Mac — was born in 1970.

Fast Forward: Fannie Mae and Freddie Mac Today

For years, Freddie Mac and Fannie Mae were private corporations that enjoyed tremendous profits (from buying, bundling and selling mortgage loans). But that status quo changed in 2008, at the height of the mortgage and credit crisis.

Today, Fannie and Freddie are being managed by the Federal Housing Finance Agency, or FHFA. They were seized by the government in 2008, and placed into a “conservatorship” status. This means that Uncle Sam took over the management (and much of the cost) of running the two organizations. Furthermore, the federal government has pledged unlimited Treasury support to keep Fannie and Freddie afloat.

Freddie recently asked for an additional $1.8 billion in August 2010. Including this request, the two government-sponsored enterprises have soaked up more than $148 billion in government aid since April 2009. They are still posting losses, too, mostly resulting from mortgage defaults. So the government will likely spend more money on Fannie Mae and Freddie Mac in the near future. How much more remains to be seen.

What Does the Future Hold?

The Obama administration is currently seeking proposals on how to restructure Freddie Mac and Fannie Mae. Meanwhile, many people are arguing that we should pull the plug instead. In August 2010, a high-level conference was held in Washington D.C. to discuss the different options for reshaping Fannie and Freddie. There are many ideas on the table, but no singular direction at the moment.

  • On the one side, you have supporters who stress the importance of governmental guarantees on home loans. Their argument is that, without Fannie Mae and Freddie Mac, fewer Americans would be able to buy homes. They say that mortgage rates would be higher, as well.
  • On the other side, you have the opponents who feel that Fannie and Freddie are part of the problem — not the solution. The Home Buying Institute falls into this camp. We feel that these organizations encourage reckless lending, by removing the long-term financial burden from lenders.

Regardless of which camp you fall into, we can all agree on one thing. The system is broken. We cannot afford to spend billions of dollars a year to keep Freddie Mac and Fannie Mae on life support.