Lower credit scores mean higher rates for mortgage borrowers

Tribune - January 2008

Qualifying for a home loan just got trickier. With defaults and foreclosures still plaguing the mortgage industry, lenders are evaluating how risky potential borrowers are by heavily weighing credit scores. Misty Williams on Real Estate

Before the credit crunch, a credit score of 620 and above could get you the best interest rate.

But mortgage giants Fannie Mae and Freddie Mac recently established a tier system that penalizes borrowers with scores below 680 by increasing interest rates.

The past three years or so, mortgage companies haven't placed a large focus on credit scores, said Robin Simmons, assistant vice president of real estate lending at Desert Schools Federal Credit Union. Now, lenders are looking at their risks and the hits they've taken, Simmons said.

"(It's) probably the folks who can least afford it, unfortunately, who are going to be paying more for their mortgages," she said.

Under the system, a borrower with a score of less than 680 could see an interest rate increase ranging from 0.25 percent to 1 percent.

For example, someone with a score from 660 to 679 will have a rate increase of 0.25 percent. On a $300,000 loan, that borrower could pay $2,250 in upfront costs to buy down the interest rate.

If a person doesn't have enough money to buy down the rate increase, he might qualify for less home, said Jeff Underwood, a loan officer with AmeriFirst Financial in Mesa. A score lower than 680 can now also raise a borrower's mortgage insurance rate, Underwood said.

With the added emphasis on scores, experts say it's crucial for people to work on improving their credit rating.

One of the most important steps is making bill payments on time, Simmons said.

Being late on a mortgage payment even once can lower a borrower's score by 50 points, Underwood said.

People should also be selective about taking out new forms of credit, Simmons said. If they open up too many new credit card accounts, lenders may take it as a sign "that they might be a little bit strapped financially," she said.

Closing credit card accounts once paid off could also hurt a person's credit score, since it lowers the amount of available credit.

A potential home buyer should start the loan process at least six months ahead of time so the loan officer can assess hurdles, Underwood said. That extra time may allow a person to work on building credit.

People also need to maintain budgets, Underwood said. With automatic bill pay online, many people don't realize how much they're spending, he said.
And borrowers need to check their credit reports for any errors, Underwood said.

Borrowers can obtain free credit reports once a year from the three major credit reporting agencies - Equifax, Experian and TransUnion - by going to www.annualcreditreport.com.

No clear rule exists on how many months it could take to repair a person's credit, Simmons said. It's taking a chance to wait on buying a home because interest rates could rise or home prices could decline, hurting an owner's ability to refinance, she said. "There's not really any magic number we can tell people," she said.

Fed Rate-Cut Winners and Losers

January 2008

When the Federal Reserve meets and changes rates we all have questions: What does it mean to me? Will my mortgage rate go up or down? Is this a good time to refinance? Bankrate is here to help. We've looked at five categories -- mortgages, home equity loans, auto loans, credit cards and certificates of deposit -- to determine if the Fed's moves made you a winner or a loser. Here's a look at mortgages:

Winner: Borrowers with good credit

The surprise decision by the Federal Open Market Committee to cut the federal funds target by 75 basis points likely reflects growing fears that the U.S. economy is weakening. Ironically, such worries may be good for people hoping to see lower mortgage rates.

Mortgage rates often dip when investors fearing an economic slowdown grow more conservative and buy up Treasuries and bonds. This causes long-term rates -- and by extension, mortgage rates -- to fall, creating an opportunity to get better terms on a loan.

However, the nation's recent credit woes mean you probably need a sound credit history to take advantage of these better terms.

"If you are a high-quality credit household and you're looking to buy a house, prices have fallen in many markets," says Doug Duncan, chief economist for the Mortgage Bankers Association. "In addition to that, interest rates have come down.

"Those two things indicate that you're likely to get a more affordable mortgage and homes will be more affordable."

People with adjustable-rate mortgages can also refinance to a fixed-rate mortgage. This will lock in their payment for years to come, regardless of the future direction of mortgage rates.

Loser: Borrowers with bad credit

Falling mortgage rates are great for homebuyers and homeowners looking to refinance. But if you've had credit problems in the past, tightening lending standards means you're less likely to be approved for a loan, Duncan says.

Take action

Now is a good time to start shopping for a home. It's also a good time to refinance from an adjustable-rate mortgage to a fixed-rate.

"The takeaway for the average Joe is that it's one heck of a time to refinance," says Bob Walters, chief economist for Quicken Loans.

Meanwhile, if your credit is bad or your home is losing value, you likely will have more difficulty getting a loan. Still, it's worth calling around to find a lender who may be willing to work with you, Walters says.

Here's a look at auto loans:

Winner: Auto-loan borrower

Since the Federal Open Market Committee began cutting short-term interest rates in September 2007, not much has happened to auto loan interest rates. The standard five-year new-car loan rate fell 12 basis points over the intervening four months, which saw short-term interest rates slashed 100 basis points altogether, or a full percentage point.

The standard three-year used-car loan has moved even less, coming in 2 basis points less than the rate in September.

This 75 basis point cut to the federal funds target will lower rates overall, but the impact to auto loan rates will continue to be slight, says Jesse Toprak, executive director of industry analysis at Edmunds.com.

"I think the reason we aren't seeing a big impact in auto loans rates is because the correlation between auto loan rates and federal funds target rates isn't one to one as it used to be," he says. "They used to be short-term loans, but now we're getting to almost five and a half years, which stretches into mid-term length for loans, so short-term rates will have less of an impact."

Auto-loan shoppers should look for auto-loan interest rates to continue drifting gradually lower. In addition, predictions for soft auto sales mean manufacturers will continue to buy down interest rates to lure in buyers.

"Its going to be a tough marketplace in 2008. We predict that sales will be even lower in '08 than '07 so we're going to see even more zero percent APR offers," says Toprak.

"Third party rates are not going down as much, but there will always be good deals out there on some models."

Take action

With banks circling the wagons to protect liquidity and a constriction in credit markets, keeping a great credit score is even more important now than it was in the recent past. Check your credit report before shopping for a car and work to improve your credit score.

Here's a look at CD and money market accounts:

Loser: Certificate of deposit buyer

A 75-basis-point cut will be a bit painful for CD buyers, but we can't say it was unexpected. The stock markets have been screaming for this and more. It seems likely more cuts will come.

Nevertheless, at least until now, CD yields have held remarkably well despite the chipping away by the Federal Open Market Committee at short-term interest rates since last September. According to Bankrate surveys, a run-of-the-mill six-month CD yielded an average of 3.54 percent when the Fed began cutting the federal funds target rate. Today, that annual yield is down to about 3.36 percent.

A high-yield six-month CD during the same time frame has gone from 5.17 percent to 4.72 percent. Not bad considering the Fed lopped a full 1 percent off the federal funds rate before today's cut.

Fierce competition among banks for customers and deposits has helped keep CD rates propped up. So, why do we say CD buyers are losers? That may be a bit harsh, but CDs are a declining investment -- you're reinvesting at lower rates.

The truth is no one invests in CDs to get rich; they're looking to preserve their money and hoping to come out a bit ahead of inflation. So, in a market like this maybe CD buyers are winners.

Take action

No one has a crystal ball to tell us when the economy will begin to recover. The Fed could be in for a long cycle of cutting rates. Consider buying the longest maturities you can handle to lock in the best rates for the longest period of time.

Here's a look at credit cards:

Winner: Credit card debtor

In a surprise move, the Federal Open Market Committee reduced the federal funds target rate. It cut the target rate by 75 basis points, which brings the federal funds rate down from 4.25 percent to 3.5 percent. This reduction will trigger the prime, which is usually 3 percentage points higher, to drop from 7.25 percent to 6.5 percent.

Because most variable-rate credit cards are based on the prime rate, consumers with variable-rate cards may see their APRs decline. Cardholders may see some rate relief in their February payments, says Tony Plath, associate professor of finance at the University of North Carolina.

Plath says fixed-rate cardholders are not likely to see their APRs dip as a result of the FOMC's actions.

Another professor argues that credit cardholders may not see their rates decline because the banks have tightened their credit standards.

"The banks have suffered large increases in defaults, there have been large increases in foreclosures in the mortgage market and bank lending is more carefully scrutinized now by both the regulators and the banks themselves," says Harold A. Black, the James F. Smith Jr. Professor of Financial Institutions at the University of Tennessee, Knoxville.

"I actually think that even though under typical times the Fed lowering those short-term rates would eventually start to bring down credit card rates, it may not be as pronounced in this market simply because of what's going on as far as credit standards are concerned."

Take action

Regardless of whether this rate cut translates to a lower monthly payment for you, a credit card issuer can change your interest rate at any time, with 15 days advance written notice. Reduce your balances as much as possible or pay them off and you'll save more money than you would with a rate cut.

Fed Cuts Interest Rates by 75 Bps

Fed Cuts Interest Rate Amid Global Stock Sell-Off and Fears of Recession
AP - January 2008

WASHINGTON (AP) -- The Federal Reserve unexpectedly slashed a key interest rate by a bold three-fourths of a percentage point on Tuesday, responding to a global plunge in stock markets that heightened concerns about a recession. The Fed signaled that further rate cuts were likely.

The reduction in the federal funds rate from 4.25 percent down to 3.5 percent marked the biggest reduction in this target rate for overnight loans on records going back to 1990. It marked the first time that the Fed has changed the funds rate between meetings since 2001, when the central bank was battling the combined impacts of a recession and the terrorist attacks.

Federal Reserve Chairman Ben Bernanke and his colleagues approved the large rate cut after an emergency video conference on Monday night, a day when global markets had been pounded by rising concerns that weakness in the world's largest economy was spreading worldwide.

Despite the Fed's bold move, Wall Street plunged at the opening with the Dow Jones industrial average down 465 points before stocks began to rebound. The Dow finished the day off 128.11 points at 11,971.19. Analysts said the milder decline at the end of the day after such a rough start showed the Fed's effort to reassure Wall Street had an impact.

In a brief statement explaining its move, the Fed said that "appreciable downside risks to growth remain" and officials pledged to "act in a timely manner" to deal with the risks facing the economy. The action was approved on an 8-1 vote.

Analysts said the fact that the Fed did not wait until its meeting next week to cut rates underscored the seriousness of the situation.

"The world's stock markets are in meltdown so the Fed came in with an inter-meeting move to try to stop the panic," said Christopher Rupkey, senior economist at Bank of Tokyo-Mitsubishi.

The Bush administration, which had announced on Friday that President Bush supported a $150 billion economic stimulus package, said Tuesday that it was not ruling out doing more than the $150 billion proposal if necessary. Bush and Treasury Secretary Henry Paulson were conferring with congressional leaders at the White House on Tuesday, with all sides saying they want to reach agreement quickly.

The Fed was expected to cut rates further, possibly as soon as their next meeting on Jan. 29-30, if there are continued signs that the economy is weakening.

"This move by the Fed was essential," said Lyle Gramley, a former Fed governor who is now a senior analyst with the Stanford Financial Group in Washington. "Bernanke promised in a speech earlier this month to take substantive action in a timely and decisive manner."

Gramley said that Bernanke was now exercising the kind of forceful leadership the markets had been hoping to see since the credit crisis hit in August.

David Jones, chief economist at DMJ Advisors, said Fed officials have a range of options available at next week's meeting from a quarter-point move to a half-point move to holding rates steady but indicating the Fed is prepared to move again between meetings should conditions deteriorate further. Jones predicted the Fed would lower the funds rate to 3 percent by the end of March.

In addition to cutting the funds rate, the Fed said it was reducing its discount rate, the interest it charges to make direct loans to banks, by a similar three-quarters of a percentage point, pushing this rate down to 4 percent.

Commercial banks responded to the Fed's action on the funds rate by announcing similar cuts of three-quarter of a percent on its prime lending rate, the benchmark for millions of business and consumer loans. The action will mean the prime lending rate will drop from 7.25 percent down to 6.50 percent.

Global financial markets had plunged Monday as investors grew more concerned about the possibility that the United States, the world's largest economy, could be headed into a recession. Many markets suffered their biggest declines since the September 2001 terrorist attacks.

In its statement, the Fed said it had decided to cut the federal funds rate "in view of a weakening of the economic outlook and increasing downside risks to growth."

The central bank said that the strains in short-term credit markets have eased a bit, but "broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households. Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets."

Before Tuesday's move, the Fed had cut interest rates three times, beginning in September, the month after a severe credit crunch had roiled Wall Street and global financial markets. The Fed cut the funds rate by a half-point in September and then by smaller quarter-point moves in October and December.

"The committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risk," the Fed statement said.

The Fed's action was approved on an 8-1 vote with William Poole, president of the Fed's regional bank, dissenting. The statement said that Poole objected because he did not believe current conditions justified a rate move before the Fed's meeting next week.

Valley offers thousands of luxury homes

The Arizona Republic - January 2008

Metropolitan Phoenix, long known for its affordable new houses on the fringes, has become a magnet for affluent home buyers.

Nearly every suburb of the Valley, from rural Buckeye in the far southwest Valley to the farm community Queen Creek in the far southeast, posted sales of homes with seven-figure prices.

Paradise Valley, Scottsdale and the Biltmore and Arcadia neighborhoods of Phoenix continue to be the hot spots for the Valley's poshest homes. Nine out of metro Phoenix's 10 priciest homes are in Paradise Valley. The town hosts the most expensive dwelling: a $26 million estate with more than 31,000 square feet of space.

But as metro Phoenix grows, more deep-pocketed buyers are opting for other areas closer to their work, family, favorite golf course or mountain preserve.

A few years ago, more sales of million-dollar homes started showing up in the older central Valley neighborhoods, in the new high-rises in Phoenix and Tempe, in well-established West Valley neighborhoods of Litchfield Park and Glendale and next to the mountain preserve in Ahwatukee.

More recently, luxury-home builders have started constructing speculative million-dollar homes in farther out communities known more for semi-affordable luxury homes and good schools. Among them: Ocotillo in Chandler, Las Sendas in Mesa, Estrella in Goodyear, Verrado in Buckeye and Vistancia in Peoria.

Craig and Wendy Kasten recently bought a $1.1 million home in Gold Canyon's Superstition Mountain golf community. The couple, who live most of the year in Wisconsin, have been visiting the Valley in the spring for several years.

"We looked in Paradise Valley and north Scottsdale, but the homes were smaller and there was more traffic," Craig Kasten said. "We wanted the best house for our money."

The Valley's million-dollar-home market slowed in 2007, but seven-figure sales weren't down as much as the rest of the market.

Last year, 2,227 million-dollar homes sold across metro Phoenix, according to an Arizona Republic analysis of real-estate data from the Information Market. That compares with 2,505 in 2006, which is about an 11 percent drop.

Overall, home sales were down almost 30 percent Valley-wide.

Like the rest of the housing market, the number of listings of million-dollar homes is up.

There are 3,500 new and existing homes with price tags above $1 million for sale on the Arizona Multiple Listing Services Web site. In 2005, there were half that many pricey homes for sale Valley-wide.

Lawrence Yun, chief economist of the National Association of Realtors, said many people from pricier housing areas such as California and New York are buying million-dollar homes in Arizona because they are deals compared with the home prices they are used to.

Two-thirds of the Valley's ZIP codes with large residential sections had million-dollar home sales last year.

The adage that buyers get more house and land for their buck the farther they drive holds true for the luxury-housing market, as well.

A Mesa home listed for $1 million has 5,500 square feet, an acre lot, two master suites, a pool and spa, five baths and two offices. The least expensive home for sale in Paradise Valley was listed at $2 million. It has 3,500 square feet, three bathrooms and a pool.

Buyers looking for million-dollar homes can find them in most new suburbs. Besides getting bigger homes, some people who grew up in parts of the Valley and can afford million-dollar homes don't want to move away from their longtime neighborhoods.

"People who lived in Arrowhead on the west side and now can afford a million-dollar home are moving to Verrado, not necessarily Scottsdale," Baldwin said. "People from the old farming families in the southeast Valley are buying million-dollar homes in Chandler and Gilbert."

Only a few of the Valley's biggest suburbs didn't have million-dollar sales last year. But two of those - Laveen and New River - now have residential properties listed for more than $1 million.

Median of $232,000 signals market may have corrected

The Arizona Republic - January 2008

The median price of an existing metro-Phoenix home tumbled to $232,000 in December, an 11 percent drop from where prices were at the beginning of 2007.

Is it the market correction that real-estate analysts and economists have been expecting?

Market watchers have been saying that Valley home prices were inflated by 20 to 30 percent due to the boom.

December's median home price was the lowest since the spring of 2005. At the time, the speculator-driven housing boom was in full swing and so were bidding wars on Valley homes. The median price of an existing metro-Phoenix home in April 2005 was $221,000, according to the Realty Studies group at Arizona State University.

The Valley's median existing-home price hit a high of $267,000 in June 2006. December's median is a 13 percent drop from the peak.
Some say home prices have a little more to fall.

Based on the 6 to 10 percent Valley home prices climbed annually before the boom, $232,000 is pretty close to where the median home price would be without the boom.

The rest of the market

Experts from the many other parts of the market besides housing convened last week at the Institute of Real Estate Management/Certified Commercial Investment Member economic forecast for Phoenix.

"The mood about all of the market is cautious and guarded," said Stanley Paul Cook, the keynote speaker. Cook is a longtime real estate market watcher with Landiscor Aerial Information as well as an investor and developer.

"Vacancies across the board from office to apartments are going to rise this year, and sales prices on all those properties are bound to head down."
But he said everyone now is looking for the opportunities in a down market.

Kudos for planning

Phoenix's move to set aside 7,100 acres of open space more than three decades ago has garnered it an award from the American Planning Association.

The group is giving the city a 2008 National Planning Landmark award for its "Open Space Plan for the Phoenix Mountains."

Background comments about the award said the effort to set aside that desert land was "unprecedented" in the 1970s. Citizens led the move to preserve the land, and legislation had to be passed to fund the purchase of the preserve.

Today, the original 7,500-acre preserve, acquired for more than $70 million, includes Shaw Butte, North Mountain and Dreamy Draw Recreation Area.

Rates on 30-year mortgages break below 6 percent level

The Associated Press - January 2008

WASHINGTON - Rising worries about a weak economy pushed rates on 30-year mortgages below the 6 percent mark for only the second time in more than two years.

Freddie Mac, the mortgage company, reported Thursday that 30-year, fixed-rate mortgages averaged 5.87 percent this week.

That was down from 6.07 percent last week and was the lowest level for 30-year mortgages in more than two years. Only once during that time have rates fallen below 6 percent, dipping to 5.96 percent for one week in December.

Analysts attributed this week's decline to Friday's employment report, which showed the jobless rate jumping to 5 percent in December, up from 4.7 percent in November. It was the highest jobless mark in two years and the biggest one-month increase since the 2001 terrorist attacks.

The weak employment picture has heightened fears that the steep slump in housing and a credit crisis that hit in August could be pushing the country into a recession. However, economists believe that further rate cuts by the Federal Reserve and a possible economic stimulus package of tax cuts from the administration could still ward off a full-blown downturn.

Frank Nothaft, chief economist at Freddie Mac, said that because mortgage rates have dropped by more than a quarter-point in the past two weeks, there has been an increase in the number of people refinancing mortgages to more attractive rates, a development which should help spur the economy going forward.

Housing, which had enjoyed a five-year boom of soaring prices and record sales, has been in a severe slump, which economists predicted will continue into 2008 and perhaps 2009.

Other types of mortgages also showed declines this week.
Rates on 15-year mortgages, a popular choice for refinancing, dropped to 5.43 percent this week, down from 5.68 percent last week. Rates on five-year adjustable-rate mortgages declined to 5.63 percent, compared to 5.78 percent last week. Rates on one-year ARMs fell to 5.37 percent, down from 5.47 percent last week.

The mortgage rates do not include add-on fees known as points. Thirty-year, 15-year and one-year mortgages each carried a nationwide average fee of 0.4 point. Five-year mortgages had a fee of 0.5 point.

A year ago, 30-year mortgages stood at 6.21 percent. Rates on 15-year mortgages were at 5.96 percent, while five-year adjustable-rate mortgages averaged 6.03 percent and one-year ARMs were at 5.44 percent.

West Valley hit hardest by home price drops in 2007

The Arizona Republic - January 2008

Not surprisingly, median prices for existing homes fell throughout most of the Phoenix area from 2006 to 2007, especially in the West Valley, according to a report released today by Realty Studies at Arizona State University.

Avondale, El Mirage, and Goodyear saw declines of nine percent or more in median prices for the whole year.

Phoenix had no change, and Tempe, Chandler and Scottsdale had drops of three percent or less.

However, the numbers show the median prices for the whole year and don't show how prices have been dropping in recent months, which tends to be a slower time anyway.

Medians dropped from November to December in every community except Tempe and Goodyear, where they rose a little.

East Valley

Chandler
Median 2007: $290,000
Change from 2006: -2.7%

Gilbert
Median 2007: $295,000
Change from 2006: -9.8%

Mesa
Median 2007: $235,000
Change from 2006: -3.5%

Scottsdale
Median 2007: $579,000
Change from 2006: -2.7%

Tempe
Median 2007: $276,000
Change from 2006: -3%

Phoenix

Phoenix
Median 2007: $220,000
Change from 2006: 0%

West Valley

Avondale
Median 2007: $225,500
Change from 2006: -12%

Goodyear
Median 2007: $255,500
Change from 2006: -9%

Northwest Valley

El Mirage
Median 2007: $192,600
Change from 2006: -10%

Glendale
Median 2007: $237,500
Change from 2006: -5%

Peoria
Median 2007: $257,830
Change from 2006: -4.5%

Sun City
Median 2007: $195,000
Change from 2006: -7%

Sun City West
Median 2007: $220,000
Change from 2006: -8%

Surprise
Median 2007: $237,000\
Change from 2006: -5%

Source: Realty Studies, Arizona State University

Bad appraisals contribute to housing mess

The Arizona Republic - January 2008

Home buyers, sellers, real-estate agents and lenders all rely on comparable prices as the benchmark for an area's home values.

But in many Valley neighborhoods, those comps can't always be trusted. Bad appraisals are often to blame.

As the housing market corrects and prices return to normal levels, it's becoming apparent that inflated appraisals are behind many problems plaguing the Valley, say regulators, market watchers and many appraisers.

"Almost all the mortgage fraud and foreclosures in the Valley now can be linked to appraisals that were too high," said Drue Bates, who has been a Valley appraiser for 18 years. "When a home appraises for $400,000 but recent comps of similar houses on that block are $300,000, it's easy to see something is wrong."

Mortgage-fraud scams that have hit the Valley often rely on an inflated appraisal so the buyer can secure a loan for more than the actual sale price or value of the home. Home buyers in areas with inflated home values could have paid too much for their home and now owe more than it's worth. People "upside down in their homes" are now driving Valley foreclosures to record levels.

Heather Minton lost her home to foreclosure. A year after she bought her Pinal County home, it appraised for $200,000, about $75,000 more than she paid in 2004. So she applied for a home-equity loan based on her neighborhood's new, higher comps.

She fell behind on her payments and tried to sell last year. By then comps in her neighborhood showed her house was worth only $150,000, so Minton ended up losing it to foreclosure.

"We believed that we had that equity because that's what our new neighbors seemed to be paying," Minton said. "Our appraisal came in at $200,000. We got the loan."

Inflated appraisals are a national housing problem. But in metro Phoenix, the problem worsened during the housing boom when home prices in many neighborhoods were jumping 5 to 10 percent just about every month. Appraisers couldn't count on neighborhood comps to keep up with rising values. That opened the door for some inflated appraisals that continued even after the market slowed. During the boom and now the downturn, appraisers have been pressured to come up with high home valuations so borrowers can get their loans and sales can go through, housing analysts say.

Bates and other industry watchdogs say it's rarely the appraiser who is pushing for the inflated valuation on the property because they aren't the ones usually making the big money on the deal. But "appraisers who buckle to the pressure have to take some of the blame," he said.

Pressure for high prices

Most appraisers say they feel pushed to value homes high enough for a sale to go through.

A 2006 national industry survey found 75 percent of appraisers said they didn't get paid or get referrals if they refused to inflate a home's value.

An appraiser's job is to give lenders a neutral assessment based on comparable sales, market conditions and a detailed inspection of the home.
They serve as independent contractors who are hired after an offer has been made on a property. When a home is purchased or refinanced, an appraisal is required by the lender to ensure the home's value isn't less than the loan amount.

Deals fall through when homes are valued below negotiated sales prices. Lenders won't fund loans for more than appraised values. And now that the market is slowing, many mortgage firms are funding only 90 percent of the appraised value of homes in fringe areas of the Valley, where the number of foreclosures is highest. More lenders are also asking for multiple appraisals.

Deborah Pearson, executive director of the Arizona Board of Appraisal, which regulates appraisers, said she hears from many appraisers that they are under pressure to come in with high valuations.

Richard Hagar, a Seattle appraiser and national fraud expert, said there are definitely some unethical appraisers but it's usually a loan officer, investor or real-estate agent pushing for the higher valuation because they can make big commissions.

Most appraisers are paid a flat fee and rely on a high volume of business.

"Why would an appraiser risk a huge fine and jail time over a $400 fee?" said Hagar, who has spoken at several fraud seminars in Arizona during the past year. "Appraisers who do high valuations aren't usually doing it for a bribe. They're doing it to stay in business."

The problem is appraisers are often asked or encouraged to come up with certain values for homes. If they don't, Bates said, sometimes their fees aren't paid and they are blackballed in the real-estate industry.

"Pressure on appraisers to come up with valuations that make the deal work is an issue across the country," said Terry Duncan, president of the Appraisal Institute, a Chicago-based national industry and lobbying group. "I know of and have seen the loss of business and the exclusionary lists or blacklists of appraisers who have been unjustly targeted for no other reason than they refuse to go along with a predetermined value."

Fallout

Bad appraisals and the bad comps they set for neighborhoods hurt all homeowners.

James Lezea of Peoria thinks there has been a scam in his neighborhood involving appraisers being "paid" to come up with high prices.

"I know this home on my street isn't worth $350,000, but that's what it sold for," he said. "My old neighbor told me the appraiser was 'compensated' extra for making the deal work."

Now Lezea worries that comp is going to "raise a red flag" to anyone looking to buy in his neighborhood.

The Arizona Appraisal Board regulates the state's 3,000 appraisers. There were 125 complaints filed against appraisers during the first half of this fiscal year, compared with 209 in all of 2005-06.

During the past six months, one appraiser's license has been revoked. One license was revoked in the year before.

"Appraiser licensing does weed out some bad players," Bates said. "But there aren't a lot of licenses revoked."

Pearson said more licenses are going to be revoked this month.

Complaints against the mortgage industry soared in 2007, and a record number of licenses were pulled and fines were levied against Arizona mortgage firms. Complaints and license revocations also climbed against real-estate agents.

There's a national movement to crack down on bad appraisals.
Last fall, New York Attorney General Andrew Cuomo filed a fraud suit alleging that mortgage servicer First American Corp. let Washington Mutual pick the appraisers it wanted to work with, and those appraisers were the ones who were known to inflate values.

Last year, Ohio's attorney general sued 10 firms for appraisal fraud after he got copies of faxed "order forms" used by lenders and brokers to ask appraisers for a specific value on a given property.

Several states, including California and Colorado, have passed legislation to stop inflated appraisals.

"People in the Valley are in denial about how hard inflated appraisals have hurt the housing market," Bates said. "I am still seeing cash-back deals and inflated appraisals that are going to lead to bad loans. There needs to be more regulation in the mortgage business or it won't stop."

Foreclosure 'Rescue' Scams on the Rise

Are you facing the threat of losing your home? Be wary of individuals and companies offering to "help" you out of your difficult financial situation. Consumer advocates report an increase in complaints about foreclosure "rescue" scams. These scams specifically target homeowners who are in financial distress. Scam operators advertise over the Internet and in local publications, plaster posters on telephone poles and at bus stops, stick flyers in people's front doors or contact people whose homes are listed in public foreclosure notices. Sometimes they direct their appeals to specific religious or ethnic groups.

In one scenario the scam operator offers to "buy" the homeowner's property by paying off the amount that is overdue on the loan. He convinces the homeowner to move out and deed the property over to a third party. The homeowner is given the option of renting the property with the option to buy it back later. The rent payment on the home is often higher than the homeowner can afford. Often times, the original homeowner cannot make the rent payment and is evicted from their home. Or, if the homeowner expresses a desire to buy back the property, the scam operator usually sets the price of the home higher than the homeowner can afford.

The hapless homeowner can lose his equity and his home. Sometimes, the homeowner's troubles go even deeper. In many cases the initial mortgage has not been paid off and the deed was never transferred, as promised. Not only is the homeowner faced with eviction from the home, but they still owe for the original loan amount.

The Better Business Bureau advises consumers who are tempted by such offers to recognize that they are at real risk of losing money, equity, their home or all three. Carefully consider the following if your mortgage is in arrears or you are facing foreclosure:

Talk to your lender. Ask about how to restructure your loan payment or refinance. Some foreclosure "rescuers" will offer to "negotiate" with your lender or lawyer. Know that such an offer is likely to involve a significant fee. If you are hesitant to talk to your lender yourself, engage the assistance of a trusted family member.

If that proves to be unfeasible, try selling the house on your own to pay off the lender. Signing over a deed in no way releases you from your mortgage responsibilities!

Some schemers will offer to complete paperwork for you, or ask you to sign a stack of documents, supposedly to secure a new mortgage. Victims have later learned that they signed a quit-claim deed to their home.

Beware the personal approach. Some less-than-ethical businesses will stuff a handwritten note in your front door or mailbox that implies that "help" is available from someone you know or who has your interests in mind. Foreclosure scam artists know exactly what neighborhoods to blanket with their offers.

If a foreclosure "rescuer" instructs you not to contact your mortgage company or your attorney, beware. Your mortgage company is the very business that you should be in touch with! Furthermore, why would you agree to cease contact with your attorney when dealing with complicated financial matters that involve perhaps your biggest investment, your home?

You should never sign a contract under pressure and never sign away ownership of your property. Ask a trusted family member, your attorney or a financial professional to review any paperwork you may be asked to sign.
Before signing any deals with a potential buyer, contact your BBB to request a report on the company and check with your state Attorney General and state Real Estate Commission.

Short-sell strategy may fit mortgage crisis

The Arizona Republic - January 2008

Thanks to recently passed federal legislation, getting out from under mortgages with a short sale is easier in the troubled Southeast Valley real estate market.

In short sales, homeowners sell their houses for less than what they owe.
The lender often forgives the difference because it would get more from a short sale than a foreclosure, said Randy Kutz, co-owner of Phoenix Heritage Real Estate Group and Arizona Short Sale Experts.

Avoiding foreclosures helps homeowners, too.

Short sales do less harm to the seller's credit than a foreclosure. Short sellers can face an 80- to 100-point credit score hit, while people who lose their homes in foreclosure can see their credit docked 250 to 280 points. Other circumstances like late payments can also damage credit scores, Kutz said.

Before the recent passage of Mortgage Forgiveness Debt Relief Act, the amount forgiven in a short-sell was considered taxable income for the seller.

"It's going to help a lot of people," said Travis Hamel Olsen, president and principal of the National Short Sale Center in Scottsdale. "A lot of people were not doing a short sale because they were afraid they were going to get taxed on it."

Nick Martini of Mesa may be one Southeast Valley homeowner who gets a break from the new law. In 2005, Martini and his wife bought a house in Mesa and owe $315,000 on it now. The couple has completely remodeled the home's interior, but currently it would probably sell for $280,000, said Martini, 28.

The couple has an 80/20 mortgage, with the 20 percent portion adjusting each year, Martini said.

In November, Martini was laid off and said he is now working a lower-paying job.

And, his wife is five months pregnant with the couple's second child. They struggle to make their house payments now, he said.

"Come April, we're going to fall on our face," he said. "We'd like to keep our house. Basically, we need to make more money."

Should the Martinis short-sell their house, they won't be alone.
Kutz said his companies have 60 short-sale listings around the Valley, and they aren't going away anytime soon.

"I think the short-sale situation is going to be with us for five-plus years," he said.

Even if the Valley's housing inventory is reduced, Kutz said many portions of the region are down to 2004 prices.

Kutz said his team rarely sees short sales resulting from subprime mortgage problems. The sales can result from events including divorce, job losses, deportation and incarceration.

But Kutz said the majority of short sales he deals with result from people who bought or refinanced houses at the peak of the real estate market and now have to sell.

"It's a very tedious process. It's a very calculated process," Kutz said. "It's the brain surgery of real estate."

Short sales became a very active part of the Valley's real estate market in late 2006 and early in 2007, said Jay Butler , director of Realty Studies at Arizona State University. The sales can't be tracked.

Homeowners may have a difficult time evaluating people to work through a short sale with them, Butler said.

"Most of these short sale companies don't have much of a track record," he said. "That's sort of one of the side issues here."

When properties go into foreclosure, that information is public, said Brent Larsen, owner and operator of First Class Realty and National Short Sale Negotiators in Tempe. That means investors might knock on doors of homeowners facing foreclosure. Those homeowners need to be careful, Larsen said.

"You don't want to be in a contract you can't get out of," he said. "The seller can protect himself by understanding there are investors who want to help and those who don't."

Urban lifestyle big draw for luxury-condo buyers

The Arizona Republic - January 2008

What's the economic value of bars, restaurants and nightlife? Consider the case of downtown Scottsdale, where two luxury condominiums just sold for $2 million each in one of the worst real-estate markets in years.

Since 2002, about 1,200 of the more than 1,500 condo units that have been built in the area have sold, according to Keith Mishkin of Cambridge Properties. By contrast, downtown Phoenix has seen 587 units come on line since 2000, and 495 have sold, he pointed out.

"Scottsdale and Tempe at the moment are further along in creating a 24/7 lifestyle. They already had it and now it's about adding residential," Mishkin said, adding that Phoenix continues in more of a 12/5 environment.

Three main types of buyers moving into downtown Scottsdale - the busy young professional, the move-down buyer and the second-home buyer - are looking for a mature area with lots of shops, galleries and restaurants, said Bill Hammond, president and CEO of Scottsdale-based Signature Properties.

Prices range from about $500,000 to more than $4 million in downtown Scottsdale. The spread is $250,000 up to $4 million in Phoenix, Mishkin said.

"When people consider urban living," said David Roderique, Scottsdale economic vitality director, "they want a 24-hour experience, . . . lots of activities close by and not just big events."

He touts Scottsdale's small restaurants, nightclubs and stores as a bigger draw for downtown than big events like conventions and sporting events.
Mike Trailor built single-family homes for 30 years, but with his Safari Drive project on the northeast corner of Scottsdale and Camelback roads, the developer is entering the condo arena.

Trailor said his goal is "to be part of the answer" to sprawl and start developing urban-living projects. He chose to start in downtown Scottsdale because the amenities were already in place to draw buyers at price points to make such expensive projects feasible.

Even after the abnormal selling years of 2004 and 2005, Mishkin said today's market is still stronger then 2003.

"It's no longer 'Build it, they will come,' but it's 'Build the right product and they will definitely come,' " Mishkin said.

Existing home sales edge up 0.4 percent

AP - January 2008

Sales of previously owned homes nudged up in November, but that didn't improve the broader picture of a feeble housing market racked by record-high foreclosures and harder-to-get credit.

The National Association of Realtors reported Monday that sales of existing single-family homes, condominiums and townhouses rose 0.4 percent in November from October, to a seasonally adjusted annual rate of 5 million units. Even with the small increase, the pace of sales was still the second-lowest on record going back to 1999. The lowest pace — 4.98 million — was registered in October.

"There's little reason to pop open any champagne corks," said Michael Larson, a real-estate analyst at Weiss Research Inc.

To be sure, sales are down 20 percent from November 2006, underscoring the problems plaguing the housing sector.

Economists were calling for sales to either move up slightly or hold steady for November.

Home prices continued to sink.

The median price of a home sold last month was $210,200. That marked a 3.3 percent drop from a year ago. It was the fifth biggest annual decline on record. The median price is where half sell for more and half sell for less.

On Wall Street, the bump up in nationwide home sales failed to ease investors' fears about the economy's outlook. The Dow Jones industrials tumbled 101.05 points to close at 13,264.82. For the year, the Dow managed to post a respectable gain of 6.43 percent.

By region of the country, sales were mixed.

Existing home sales jumped 10.3 percent in November from October in the West. They were flat in the Midwest. However, they fell by 2 percent in the South and by 3.3 percent in the Northeast.

"There is no doubt that housing is weak and will be weak in 2008," said economist Ken Mayland, president of ClearView Economics.

The inventory of unsold homes in November was 4.27 million homes. At the current sales pace it would take 10.3 months to exhaust that overhang.
"Inventory is still high and further reduction in prices may be required in some areas to induce buyers back into the market," said the association's chief economist, Lawrence Yun.

A dip in 30-year mortgage rates in November probably helped give nationwide existing-home sales the small boost last month, the association suggested. Yun thought the small increase could be taken as a sign that the market might be stabilizing. That said, previous signs of stabilization earlier in the year have been dashed.

A credit crunch which took a turn for the worse in the summer has aggravated housing problems. It has made it more difficult for people to secure financing to buy a home.

The housing market has been suffering through a severe slump following five years of record-breaking activity from 2001 through 2005. Sales turned weak as did home prices. The boom-to-bust situation has increased dangers to the economy as a whole and has been especially hard on some homeowners.

Foreclosures have soared to record highs. A drop in home prices left some people stuck with balances on their home mortgages that eclipsed the worth of their home. Other home buyers were clobbered as low introductory rates on their mortgages jumped to much higher rates, which they couldn't afford.

"A significant number of mortgages reset in early 2008 will likely increase delinquencies and foreclosures driving prices lower and pushing buyers away," predicted Benjamin Reitzes, economic analyst at BMO Capital Markets Economics. "This could get even worse before it gets better."

The housing and mortgage meltdowns have raised the odds that the country will fall into a recession. And, the situation has given Democrats and Republicans_ including those who want to be the next president — plenty of opportunities to spread blame around.

The economy's growth is expected to have slowed sharply to a pace of just 1.5 percent or less in the final three months of this year. The big worry is that housing and credit troubles will force individuals to cut back on spending and businesses to cut back on hiring and capital investment, throwing the economy into a tailspin.

To help bolster the economy, the Federal Reserve has sliced a key interest rate three times this year. Many economists are predicting the Fed will lower rates again when it meets in late January. Yun said he preferred to see the Fed make one big rate reduction at that time, rather than make a series of modest, quarter-point cuts.

On Friday, the government reported that new-home sales plunged by 9 percent in November to a pace of 647,000, the lowest in more than 12 years.

The new-home numbers are thought to give a more current account of the health of the housing market because they are recorded when a contract is signed. The existing home figures lag behind because they are based on contract closings, many of which reflect deals negotiated months earlier.