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How the Pensacola Real Estate Mortgage Market Has Changed

In this article, I will take a look at the changes in mortgages used to purchase Pensacola real estate over the past several years.

Mortgages_Nov2009

In looking at the table above, it is pretty clear that the use of conventional mortgages for real estate purchases is declining in favor of FHA and Veteran’s Administration (VA) mortgages. It is no surprise that conventional mortgages are not as popular as they were only 2 years ago. The standard for a conventional mortgage is a 20% down payment. In previous years, many conventional mortgages were being issued with 10% down or no money down at all. Often the mortgage would require 20% down, and the borrower would borrow the 20% down payment in the form of a 2nd mortgage.

Notice in the table that the use of FHA mortgages have more than doubled in the past 2 years. VA loans have tripled! I believe that the increase in VA loans is unique to markets where there is a strong military presence, such as the Pensacola real estate market. Without our local military bases, the Pensacola area would be an economic disaster area. Thank goodness for our local veterans and active duty military who are buying Pensacola homes for sale and staying in Pensacola.

Most of the Pensacola military personnel who work out  of the Pensacola Naval Air station choose to live in Southwest Pensacola, in subdivisions such as South Bay, Coral Creek, and Emerald Shores. These beautiful neighborhoods provide fast easy access to Pensacola NAS and Corry Field.

Data for the table was provided by the Pensacola Association of Realtors, and is deemed reliable, but not guaranteed.

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Report Says Consumers Need To Better Understand Their Credit Scores

Americans can save billions of dollars annually on credit card and other interest payments by raising their credit scores, but many consumers still don’t know enough about the complex numerical values that represent their credit risk.
According to the consumer group Consumer Federation Of America, public awareness of credit scores has improved but is still poor.

Credit CardAlthough awareness of credit scores has increased in the past year, it remains poor, the Consumer Federation of America and Seattle-based bank Washington Mutual Inc. found in an annual survey released Thursday.

Given the participation of Washington Mutual, also knowns as WaMu, you would think they really care about the consumer and want to save you money.

One of my favorite bloggers, Karen George, has a different take on WaMu. If you are considering doing business with them, I would read her articles Once Again, WaMu Screws Me and Preditory Banking On A Smaller Friendlier Scale  

To learn more about exactly what a credit score is, refer to my article “What Is A FICO Score “.

FICO scores are used by banks and insurance companies to determine rates for mortgage loans, credit cards, auto loans and other financing. Utilities, landlords and employers also check credit scores. Lower credit scores can cost you in many ways.

To learn more about how you can increase your overall wealth by improving your credit score, check out Your Credit Score – The Key To Building Your Future Wealth .  

One way to raise a credit score is to avoid charging above the maximum limit on a credit card, or coming close to the limit, the study said.

However, many credit card issuers have recently cut limits on many cards to reduce their credit risks. These reductions can hurt credit scores because they are based partly on the amount a consumer has on a card compared to its overall limit.

For example, if you have charged $4,000 on a card with a $10,000 limit, the “utilization rate” is 40 percent. But if a card issuer reduces the limit to $5,000, that bumps your utilization rate up to 80 percent. Bad for you, but good for them. Isn’t that just business in America these days.

The Consumer Federation recommends credit card users keep the utilization rates below 50 percent, said Stephen Brobeck, executive director of the group.

To improve their credit scores, consumers should also avoid opening multiple new accounts quickly, and pay off debt rather than moving it around, the study said.

Look for upcoming articles on Pensacola Real Estate News regarding ways to improve your credit scores.

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PMI Companies Hit Hard By the Real Estate Market Downturn

A lot of companies are being hit hard by the real estate market downturn. Included in that group are the Private Mortgage Insurance (PMI) companies. If you are not familiar with the term PMI, here are a couple of short definitions:

“PMI protects the lender against a loss if a borrower defaults on the loan. It is usually required for loans in which the down payment is less than 20 percent of the sales price or, in a refinancing, when the amount financed is greater than 80 percent of the appraised value.”

“PMI consists of insurance policies written by private companies insuring lenders against loss resulting from defaults on mortgages.”

Note that in both definitions I have emphasized that PMI insures the lender against loss. It is not insurance that protects the buyer/home owner. However, it is the buyer/homeowner who foots the bill for PMI, not the lender. This is why I believe PMI is one of the biggest ripoffs in the real estate industry.

Basically, the home buyer is paying an extra monthly premium for insurance that provides them no protection whatsoever. However, very few buyers have the required 20% down payment needed to avoid paying PMI, thus making PMI a necessary evil.

In this slow real estate market awash in foreclosures, banks are losing a lot of money, and they are turning to their PMI policies to collect some of their losses from the PMI companies. This has put the PMI companies in a precarious position.

Mortgage insurer PMI Group Inc. said it lost $274 million in the first quarter, compared with a $102 million profit a year ago. Whenever there’s a default and foreclosure, PMI has to shell out claims to investors that hold the mortgages.Quote_PMI_Ripoff

Higher claim rates were driven by home-price declines and the reduced availability of certain loan products, which made it harder for troubled borrowers to refinance, the company said. Average claim size has grown in part because of higher loan sizes and coverage levels, and because declining home prices limit loss mitigation opportunities.

What does this mean for buyers in the Pensacola real estate market? It means that if buyers have less than 20% of the sales price of a home to put down, it will be harder to get a loan to purchase the home. In these cases, my advice is to go for an FHA loan. Yes, you will still pay PMI, but it appears to be the best alternative in this market.

Click on Pensacola Real Estate News for a list of articles indexed by category.

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Real Estate “Buy and Bail” – Financial Smarts or Mortgage Fraud

A new real estate strategy is emerging in real estate markets hardest hit by falling  home prices and rising foreclosures. This strategy has been called “Buy and Bail”. The Wall Street Journal article Some Buy a New Home To Bail On The Old gives a good description of the Buy and Bail process. Fortunately, the Pensacola Real Estate market was not hit as hard as other Florida markets by the recent drastic price declines in property values.

Buy and Bail is a very simple strategy, but also very sketchy. Basically, a homeowner who paid a lot for a home when the market was at peak levels now decides to buy another home at a much lower market value and walk away from the original home, leaving the lender holding the bag.

Here is a brief example of the process. Foreclosure_next_Exit_Sign

Bill borrowed money to buy a $400,000 home at the heightof the market. That home is now worth only $200,000 fair market value.

Bill feels cheated by this down real estate market and wants out of the $400,000 mortgage.

Bill has good credit and some cash reserves.

Bill buys a comparable home for only $200,000 in the down real estate market.

Bill walks away from the home with $400,000 mortgage and leaves the bank to foreclose on the property.

Bill’s credit is damaged, and the bank stands to lose over $200,000 on the deal.

Mortgage Fraud?

Many lenders and real estate agents call this mortgage fraud. The homeowners are taking advantage of mortgage-lending practices that allow them to buy a new primary residence before their existing residence has been sold.

In some cases real estate agents and brokers are actually participating in this process. They are coaching homeowners through the buy-and-bail process.  “It’s just a business decision,” says Linda Caoili, a Sacramento real-estate agent who has worked with people who are considering walking away from their mortgages. “If you’re upside-down $250,000, why would you keep it? It just doesn’t make sense.”

In this situation, some homeowners opt to ‘buy and bail’. These owners are using their good credit rating to buy a second home at a lower price, assuring the lender they’ll rent out their first home. Then they just walk away from the first home, and leave the lender holding the bag.

To be sure, walking away from a mortgage, even if legal, has plenty of drawbacks:

Borrowers lose the ability to take out unsecured loans, since foreclosures can stay on a credit report for seven years.

In some states, lenders can sue for assets, including a new house.

Here Comes Uncle Sam

Now the government intends to step in and put an end to “buy and bail”. Under revised Fannie Mae guidelines, loan applicants who claim they will rent out their first home will have to produce supporting evidence, including an executed lease agreement. Borrowers also will have to prove that they can pay the mortgage, property taxes and insurance for both residences. The guidelines will make an exception only for borrowers who have at least 30 percent equity in their current home.
Fannie Mae, the government-sponsored mortgage underwriter, recently revised the amount of time borrowers with a foreclosure must wait to receive a home loan to five years from four. Proposed Fannie Mae guidelines, which could take effect later this month, also would require those borrowers to make a 10% down payment and meet a minimum credit score after the five-year period.

Note that the buy and bail strategy is not common in the Pensacola real estate market. Home values have not dropped as drastically as in other areas of the country where this technique is more used.

How much is it worth to lose your good credit rating?

Click on Pensacola Real Estate News for a the most popular articles indexed by category.

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Free Legal Advice For Florida Real Estate Owners Facing Foreclosure

Thanks to the the Florida Bar and Florida Legal Services, Florida homeowners facing foreclosure can now get access to a lawyer and free legal advice.

With the surge in real estate foreclosures, especially in Florida, this program comes none too soon.

Real Estate LawAccording to Florida Legal Services Inc., 77,000 state homeowners are in foreclosure, making Florida second in the Real Estate Lawnation only to California. And many other homeowners are at least 30 days past due on their mortgage payment.  Fortunately for the Pensacola real estate market, we are not seeing the high foreclosure rates that other parts of the state are seeing.

Florida Legal Services and the Florida Bar Association have partnered in establishing a toll-free hotline that consumers can call.

They’ll be asked some initial questions about their situation to ensure accurate placement, and then be sent to a free attorney.

The attorney will then negotiate with the lender on behalf of the client to keep the home from being foreclosed.

Here is the toll free number:  (866) 607-2187

Hours to call are Monday through Friday from 8:00 AM to 4:00 PM.

More than 10,000 Florida attorneys have volunteered their services in the program, according to Florida Legal Services Inc. Remember that next time you feel the need to tell a bad lawyer joke.

Related Articles On Pensacola Real Estate News:

Real Estate Short Sales – Is It Worth It?

Did Speculators Accelerate The Florida Housing Downturn?

Click on Pensacola Real Estate News for a list of articles indexed by category.

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