Mortgage Rate News

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The news that home prices rose in August is not keeping Goldman Sachs from predicting that there will be a 10% dip in the housing market next year. Indeed, the current rise in home prices is likely due to increased demand spurred by the first time home buyer tax credit — which is about to expire. Here is what BloggingStocks reports about the likelihood of a housing market dip in 2010:

Alec Phillips, the head of Goldman’s Washington office, said, “The risk of renewed home price declines remains significant.” His “working assumption” is a drop of between 5% and 10% by the middle of next year.

Ethan Harris and Drew Matus from Merrill Lynch concur, writing “We should expect subdued home price appreciation over the next few years.”

Concerns about a second real estate collapse have been circulating recently in response to the expiration of the first time home buyer tax credit. The bottom line is that things have been improving, but many worry that without government incentives to prop up the housing market, the current improvements to the real estate picture will be unsustainable.

And there is a point to that argument. After all, the labor market has yet to improve markedly, and consumer confidence is down. Without consumers feeling confident to buy, and without employment numbers to support home purchases, demand is likely to slump once government help is withdrawn. And once demand slumps, home prices are likely to drop as well.

At this point, it is an interesting situation. There is little that can be done to truly prop up the housing market without making it totally dependent on the government. In order for the housing market to recover naturally, things need to take their course. However, the government doesn’t really want that (no matter the party in charge), because a long recession means fewer votes.

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A controversy is brewing over the recent rule changes to the way appraisers are paid, and how they do their jobs. In order to help beat back mortgage fraud, appraisers could no longer be paid by the mortgage lenders and brokers that were trying to get approvals for loans. While forcing independence on appraisers could curtail mortgage fraud and control ballooning home prices in the future, there are also some consequences that have not been foreseen. For those looking to sell a home or refinance, it is often surprising to find out that home values are dropping.

ajc.com offers a look at how things are playing out in some areas, thanks to the new appraisal rules:

The code was intended to make home appraisals more reliable by making appraisers independent of mortgage brokers and real estate agents. Banks and appraisal management companies now assign jobs and forward fees to the appraisers, rather than the people who earn commissions on home or loan sales.

The aim: to reduce the pressure on appraisers to produce the sort of inflated home values that helped justify ever-bigger home prices and mortgage loans in once white-hot markets like metro Atlanta.

Instead, say critics like Alexander, who is president of the Georgia Association of Mortgage Brokers, the change has resulted in many faulty value estimates. Appraisers, who are generally earning lower fees in the new system, are often rushing through assignments and sometimes traveling far from their local territories to do valuations.

Unfortunately, lower fees mean that in some cases appraisers are not interested in doing thorough work. Another problem is that of appraisers from different areas. One way that you can get a closer appraisal to the going market value is to make sure that your appraiser is familiar with your real estate market, and that he or she will understand the nuances of the neighborhood and choose truly comparable homes to base the appraisal on.

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California is ready to enact tough laws aimed at restricting predatory lending practices. While over-reaching consumers certainly deserve some of the blame for the foreclosure crisis, some of the things mortgage lenders and brokers did in order to close deals were not above board. Many took advantage of their positions of trust to encourage borrowers to agree to mortgages that were not in their best interest. And while due diligence should be expected from borrowers, the fact of the matter is that there is a lot of paperwork, fine print and legalese to wade through. Even the best efforts can come up short.

In order to provide a little more protection to consumers, California Governor Arnold Schwarzenegger signed eight different laws. The Modesto Bee reports on some of the provisions in the laws:

• Loan modification firms cannot collect fees up front.
• Mortgage lenders must adhere to standardized licensing requirements.
• Reverse mortgages will have new consumer protections built in.
• Fraud in connection with a home mortgage loan application will be considered a felony.
• Mortgage documents must be available in other languages besides English.
• Buyers who purchase foreclosed homes will be able to choose their escrow and title companies.

Hopefully, the laws will discourage some of the deceptive practices that helped contribute to the foreclosure crisis. The new regulations should also hopefully cut down on scams perpetrated by loan modification and foreclosure prevention companies that take upfront fees and then do nothing. Additionally, it should give buyers a little more freedom and help as they choose companies of their choosing.

In the end, there needs to be a good balance between consumer protection and consumer responsibility. At first glance, it appears these laws should do that, providing consumer protections while at the same time not putting everything on mortgage lenders and brokers. It will be interesting to see if other states follow suit, adopting harsher laws aimed at curbing predatory lending practices.