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Declining Real Estate Market Policy Scrapped by Fannie Mae

The Pensacola Real Estate market was listed as a “declining market” by Fannie Mae.  Fortunately, Fannie Mae has decided to scrap the “declining markets” policy. This policy required loan underwriters to boost minimum down-payment requirements by 5 percent in areas where home prices are falling or difficult to determine. Pensacola Florida was considered one of those areas. The policy also applied if an appraiser determined a property was in a declining market.

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This is great news for potential home buyers in the Pensacola real estate market. Beginning in June 2008, Fannie Mae will instead require 3 percent down payments for conventional, conforming mortgages processed through its Desktop Underwriter automated underwriting system, and 5 percent minimum down payments for loans processed manually. Larger down payments may be required depending on occupancy, property and transaction types.

Last month, the National Association of Realtors (NAR) sent a letter to Fannie Mae complaining that entire metropolitan areas were being labeled as “declining markets”. Actual values in local neighborhoods were not being taken into account. The result of this policy was to discourage potential home buyers from entering the real estate market. The policy kept some would-be home buyers from taking action because they could not come up with the funds to make the increased down payment. Others avoided buying because they were afraid to do so if prices were still declining.

In the letter, NAR stated “In either case, the impact of the policy becomes a self-fulfilling prophecy that creates declining markets that did not exist before and intensifies the decline for markets that are declining and delays their recovery”

Note that the declining market policy was not considered a factor in getting an FHA loan, which is the loan most first time home buyers find the easiest to get in this market. Either way, I believe it is a good thing this policy was scrapped. Anything we can do to boost our local economy  and real estate market is a plus.

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

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Stop the Credit Card Offers and Protect Your Credit Score

One of the most important assets you have is a good credit score.  It becomes even more important if you plan on purchasing real estate in the near future, whether it be investment property or a new home for yourself. Anything you can do to protect and improve your credit score is important.

If you are like me, you receive several “pre-approved status” credit card offers monthly, along with the guaranteed rate insurance quotes. Did you know that these companies check your credit before sending you these offers?  Did you know that these credit checks affect your credit score? Granted, the affect is small, maybe 3-5 points for every inquiry, but every point can count when it comes to getting approved for a loan to purchase real estate.

You can stop these unwanted inquiries into your credit, and save time and paper by stopping the junk mail.  At the bottom of every credit card offer should be a little box with an Opt-Out notice. It used to be in tiny print, but now it should be very readable. 

There’s nothing new about consumer rights to notice and opt-out for prescreened credit and insurance offers. For years, consumers have received such offers with required notices and opt-out telephone numbers buried in fine print along with other mandatory legal notices. The result: Consumers seldom saw these notices and relatively few called the required opt-out number. Now the credit card and insurance companies are required to make this notice big and bold. The notice says

“You can choose to stop receiving “prescreened” offers of credit from this and other companies by calling toll-free 1-888-567-8688. See PRESCREEN & OPT-OUT NOTICE on other side for more information about prescreened offers.”

You can call, or you can Opt-out at this website:  https://www.optoutprescreen.com/ 

Opting out will also stop the annoying phone calls that you will be flooded with if you apply for a new mortgage or apply to refinance your existing home. Read more in my article  Stop The Credit Bureaus From Selling Your Private Information 

Related Articles on Pensacola Real Estate News 

What Is A FICO Score?

The New Credit Scoring System – How Will It Affect Your Credit Score?  

How Not To Lose Your Home Loan After You Are Already Approved  

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

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Pensacola Real Estate News: Did Speculators Accelerate Florida Housing Downturn?

Did speculators really accelerate the Florida real estate housing downturn, or am I just speculating?

Maybe a little of both. Here’s how it worked. The real estate market in Florida was booming. Home prices were rising quickly and everyone was looking to cash in on this housing boom.

In step the investors/speculators, from all over the country. Imagine that a speculator in the New England or New York area sees that they can buy a beautiful home in Florida for around 1/3 to 1/5 the price they would pay up in their area. They look at opportunities in Florida to purchase new homes prior to construction. They can get a 100% no money down loan on a $150,000 Florida home before it is built. By the time construction is completed, this same home is worth $250,000. Who can resist the allure of quick and easy money? And many speculators did just this, and made a lot of money.

Text-Who Can Resist Easy MoneyHowever, here is where a problem arose. In many cases, these speculators did not sell to buyers who were going to live in the home. They sold to investors (other speculators), who saw prices rising quickly and wanted to get in on the action. Now this second group of speculators are stuck with a whole bunch of vacant homes and condos that they cannot sell or rent. These homes sit empty all over Florida.

So what do these poor speculators do next? They try to get the bank to take some of the burden off their backs by requesting a short sale. This means they ask the bank to take less than is owed on the property instead of foreclosing. Now we see an even more serious problem emerging. Many of these speculators purchased the properties under the  pretense of these homes being their primary residences. At least that is what they told the banks who loaned the money. The banks were excited and loaned them money on the homes at 100% (i.e. no money down).

When the speculators ask the bank to accept a short sale, their lie is exposed. They never intended to live in the home, but they told the bank that it would be their primary residence, thus getting a lower interest rate and lower down payments. What they have actually ended up with is the potential for being prosecuted for a type of mortgage fraud known as Occupancy Fraud. Here is a definition of Occupancy Fraud from the wikipedia site for Mortgage Fraud:

Occupancy fraud: Frequently this is seen where the borrower wishes to obtain a mortgage to acquire an investment property, but instead the borrower claims on the loan application that they will occupy the property as their primary residence or second home. If undetected, the borrower typically obtains a lower interest rate than was warranted. Because lenders typically charge a higher interest rate for non-owner-occupied properties, which historically have higher delinquency rates, the lender receives insufficient return on capital and is over-exposed to loss relative to what was expected in the transaction.

Mortgage_Fraud_Handcuffs_Man_RS200Was Occupancy Fraud rampant in Pensacola? I don’t believe so. It was much more common in higher growth areas of Florida, such as central and south Florida. Of the 748 homes and condos on the market on Pensacola area beaches, only 131 are listed as vacant. This is actually a lower percentage of vacant homes on the market than other areas of Pensacola. For this reason, I don’t believe there was enough speculation in Pensacola to really affect the local real estate market. We are just riding with the downturn that is hitting the rest of the country.

Did speculators accelerate the housing downturn in Florida overall? I believe they played a large role in making it worse than it would be otherwise. We are obviously seeing a downturn all around the country. It is just in areas where over-speculation occurred that the housing downturn appears to be much worse.

Please feel free to share your opinions on this subject. I know many local Realtors read my posts and I’d love to know what you all think about this topic.

Here are some links to related articles on this subject:

The Florida Association of Realtors wrote an article that inspired this post.

Broker Bryant also wrote on this topic concerning his area of Florida.

And a wikipedia page on Mortgage Fraud.  Don’t do this. It isn’t worth it.

Take a look at Mobile Alabama, a city getting ready for a major upturn.

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

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Pensacola Real Estate News: The New Credit Scoring System – How It Will Affect Your Credit Scores?

If you are looking to buy a home and you need a loan, your credit scores are very likely to have an effect on your real estate purchase. The FICO scoring system is changing, and you should be aware of how this change may affect your credit score. If you are not familiar with FICO Credit scores, please see related articles at the bottom of this post.  

Credit_Card_On_Keyboard_RS250The Fair Isaac Corporation is the company that figures the credit scores for millions of Americans (and they won’t tell us exactly how they do it). In 2008, it is changing its credit scoring model. This change is predicted to do a better job predicting the likelihood of a borrower defaulting on a loan. The new model, dubbed FICO 08, will be more forgiving of occasional slips by consumers, but will take a harder line on repeat offenders.

Financial institutions use FICO scores to determine the granting and pricing of credit. Many other companies use FICO scores to determine your rates on insurance, deposits for utility services, etc. See my Related Posts references at the bottom of this article for more information on how credit scores can affect your financial picture.

Here are some important points about the FICO 08 model:

FICO 08 is predicted to reduce default loan rates between 5% and 15%. This is in response to lenders demanding better risk-management tools. Obviously the glut of foreclosures on the real estate market is behind this demand.

The new scoring system will look the same to consumers, with scoring between 300 and 850. The higher the score, the better your credit rating.

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The new FICO model will continue to look at the same factors, including consumers’ level of credit indebtedness and payment histories, length of credit histories, number of recent credit openings and inquiries, and the type of credit used, to determine scores. But the new model will take a more detailed look into the information in consumer’s credit files to do a better job of assessing “good risks” and “bad risks.”

Consumers who are low risk will score better with the new FICO version, and consumers who are high risk will score lower.

Borrowers who are at least 90 days behind on a payment are considered “seriously delinquent“. Sounds kind of like a really really bad kid who needs to be locked up. These types of delinquencies will have a much more negative impact on credit scores than with the previous FICO scoring system. 

The new model will give a higher score to a borrower in arrears if they also have a number of other credit accounts in good standing. Conversely, a person’s score could drop if he or she has multiple delinquent accounts, thus forcing them to take it in the arrears (sorry, couldn’t resist that one).

Here are a few predictions about the new FICO scoring system’s effect on your credit scores, based on expert opinion (not my opinion):

Overall, more consumers should see their FICO scores go up slightly than will see their scores drop, according to Fair Isaac., the company that won’t reveal how it actually calculates credit scores. We just have to guess based on expert opinions.

I guess it is time for me to get out some of those old credit cards that have been stored away for years, unused and unactivated. If Fair Issac is being fair and honest, that should bring up my credit score, assuming I pay on time.

Related Articles on Pensacola Real Estate News:

Your Credit Score – The Key To Building Your Future Wealth

What Is a FICO Score? 

How Not To Lose Your Home Loan After You Are Already Approved

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

 

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Pensacola Real Estate News: What is a FICO score?

A FICO score is a credit score developed by Fair Isaac & Company, Inc. Credit scoring is a method of determining the likelihood that credit users will pay their bills and not default on the loan. Credit scores range from 350 to 900, with a higher number being better. If you are looking to borrow money to buy real estate in Pensacola Florida, your credit scores will have an affect on how much you can borrow and what the interest rate will be. How_Credit_Scores_Computed_text

Fair Isaac began its pioneering work with credit scoring in the late 1950s and, since then, scoring has become accepted by lenders as a reliable means of credit evaluation.  A credit score attempts to condense a borrower’s credit history into a a single number.  Exactly how these scores are computed is a secret that Fair, Isaac & Co. and the credit bureaus do not reveal. Secrecy in determinining rankings didn’t start with Google search engine algorithms. However, we do know generally what type of activities raise and lower credit scores.

Credit scores are calculated by using scoring models and mathematical tables that assign points for different pieces of information which best predict future credit performance.  Developing these models involves years of studying how hundreds of thousands of people have used credit. 

There are three FICO scores computed by data provided by each of the three bureaus – Experian, TransUnion and Equifax.  Some lenders use one of these scores, most lenders may use the middle score and some will use whats called a blended score.  

 

Related Articles on Pensacola Real Estate News: 

 Your Credit Score – The Key To Building Your Future Wealth

The New Credit Scoring System – How Will It Affect Your Credit Scores? 

How Not To Lose Your Home Loan After You Are Already Approved

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

Posted by Karl Burger | Currently No Comments »

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