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Banks again pitching home equity loans

by David DiGioia

Banks, eager to speed up their sluggish revenue growth, are returning to a business that lost appeal during the housing downturn: home equity lending.

Consumers are hearing the pitches in direct mail, in their inboxes, and in their bank branches. Lenders say the competition to capture home equity business is heating up – and they’re looking to sweeten the deals with flexible terms.

Banks see home equity as a growing market, with home prices rising in Charlotte and elsewhere. Some borrowers who once owed more than their homes were worth now find they have equity for the first time in years.

“Not a lot of people had equity in their homes,” said Kelly Kockos, Wells Fargo’s home equity head. “We have stepped up our outreach when the market started to improve.”

In home equity lending, homeowners may borrow a fixed amount of money based on how much equity they have in their property. Borrowers may choose a home equity loan or a home equity line of credit. The funds are often used for home improvements, though borrowers may use them for other purposes.

Consumer advocates caution borrowers that failure to repay could result in the loss of their home, which is used as collateral. That’s why it’s important to make sure you have enough monthly income for the additional payments, they say.

Banks say they are being cautious about home equity lending and making sure customers can afford to borrow.

The push comes as banks feel pressure from investors to grow their revenues, which suffered from a decline in the mortgage refinance business and other factors. Last year’s rise in interest rates dried up demand from borrowers to refinance their mortgages. That cost banks millions of dollars in mortgage income.

Requirements more stringent

While banks are hungry to increase their home equity business, they are also cautioning borrowers that receiving approval is harder than it was during the boom times. Interested borrowers are facing more stringent requirements from lenders.

“We’ve ended up with a new world where home equity underwriting is significantly tougher than it was pre-crisis,” said Guy Cecala, CEO of Inside Mortgage Finance, a mortgage industry publication.

Nationally, the median price for existing homes rose in 2013 by 11.5 percent, to $197,100, from $176,800 in 2012, according to the National Association of Realtors. In the Charlotte metro area, the median sales price in December was up 8.7 percent from a year ago, to $172,500, theCharlotte Regional Realtor Association said.

recent report by real estate website Zillow predicts that U.S. home prices will rise by 4.3 percent on average this year.

Popular during the boom

Banks profited from home equity lending during the boom times as home prices skyrocketed. Critics said property owners were treating their homes like automated teller machines, spending the funds on vacations and other luxuries.

Consumer advocates say, in general, that it’s better not to borrow against a home’s equity for luxury items that won’t provide a return. Home repairs that could boost a property’s value are a more prudent use of home equity borrowing, they say.

According to Inside Mortgage Finance, new home equity loans were a record $430 billion in 2006. In 2013, new loans most likely did not top $60 billion, Cecala said.

Demand for the second mortgages fell in the downturn, as about 30 percent of the equity in U.S. homes was obliterated, he said.

Even with the housing recovery, Cecala said, “we’ve regained relatively little” of the lost equity. “The current pool of home equity borrowers is a fraction of what it was.”

But banks want to position themselves for the growth they are seeing. Charlotte’s Bank of America recorded $1.9 billion in home equity originations in the fourth quarter, up from $1 billion a year ago.

“Banks are looking for ways to lend money,” Cecala said. “The housing market has gotten to the point where the stars are in alignment, so it’s the first time since 2007 that the banking industry may be in a position to grow their home equity loan business.”

Strong credit score required

Matt Potere, head of home equity for Bank of America, said the bank wants to make sure its customers are “responsibly” borrowing against the equity in their homes.

Potere, who is based in Charlotte, said a good candidate must not only have equity but also a strong credit score, somewhere in the high 700s. The borrower must also have enough income to make payments, he said.

Kockos, the home equity executive for San Francisco’s Wells Fargo, said the bank also wants to lend responsibly and is making sure that borrowers not only are able to repay but also understand the repayment period.

In November, Wells Fargo stopped offering interest-only payments for its home equity lines of credit, Kockos said. The bank believes it’s better for consumers to pay down principal and interest at the same time, she said.

Bank of America and Wells Fargo cap home equity lending at 85 percent of the equity in a property. Industry insiders say borrowing limits were higher before the downturn.

At the same time that banks are trying to increase home equity lending, some customers who took out home equity lines of credit 10 years ago are reaching the predetermined transition point from interest-only payments to interest and principal. That means their payments go up. Last fall, the Office of the Comptroller of the Currency, a bank regulator, warned about about the risk of delinquencies and urged banks to take early action to work with borrowers who might not be able to handle the higher payments.

Bank of America and Wells Fargo said they have been reaching out to borrowers before their loans reset to discuss their options.

Marketing push

During the downturn, Wells Fargo stopped advertising home equity products, Kockos said. This month, the bank sent its customers a mailing about the products, she said.

Bank of America is including new advertisements in customers’ mortgage statements and emails to potential borrowers.

“It’s your equity,” reads one Bank of America ad. “Make it work for you.”

Big banks used to dominate the home-equity lending market, said Cecala, of Inside Mortgage Finance. Credit unions and others have emerged as formidable competitors, he said. Many borrowers, meanwhile, are reluctant to take on more debt after going through the recession. Because of all that, lenders are offering deals.

“What I’ve seen is (lenders) offering them very low rates if they immediately draw down a balance on it,” Cecala said. “They’re also offering more flexibility” in terms.

Such deals might not always work. Mark Vitner, an economist for Wells Fargo, said banks are having a hard time getting wary consumers to borrow in general.

“Loan growth has been reviving over the last year,” he said. “But loan growth has been pretty sluggish.

“One of the challenges in consumer lending is that consumers are still worried about their job and income prospects.”

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By Deon Roberts

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New Federal Rule Gives Home Buyers Better Access to Appraisals!

by David DiGioia

The rule will give buyers the time and ammunition they need to challenge appraisals that they suspect contain errors.

WASHINGTON — A new federal rule could give millions of home buyers insights they've never had before about a crucial element of their mortgage application: the appraisal, including the electronic cross-checks and reviews now used by lenders to determine the amount of the loan they'll approve.
The new rule will also give buyers the time and ammunition they need to challenge appraisals that they suspect contain errors. Starting this weekend, lenders nationwide will be required to inform mortgage applicants that they can receive a free copy of whatever appraisals, reviews, computer valuations and other data are used in the transaction. They will be entitled to see this material promptly after the appraisal report is completed, or three days before their loan closes, whichever is earlier. The lender will have to inform them of their new rights within three business days after receipt of their mortgage application.
This contrasts with the current system, in which lenders don't have to provide you with a copy of the appraisal unless you request it. The additional valuation data — which may include follow-up review appraisals by a second appraiser, multiple "automated" valuations and "broker price opinions" provided at low cost by realty agents — currently are not subject to disclosure, even though they may have played a role in the final decision on your loan.

Now everything will be mandatory. You have to be given any significant information that was integral to the valuation of the property, even if you had no idea it existed and didn't ask to see it.
The new rule implements changes to the Equal Credit Opportunity Act made by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. It will be overseen by the Consumer Financial Protection Bureau. Unlike earlier rules, the disclosure requirements will be limited to mortgages that are first liens on a home, including reverse mortgages and construction loans. If you're applying for a second mortgage or second-lien home equity credit line, the bank will not have to provide you appraisal materials, although you are still free to ask.

So what might this mean to you in practical terms? Potentially plenty. Say your appraiser works for a management firm that uses low-cost, inexperienced appraisers. By chance it turns out that your appraiser lives 80 miles away and is not familiar with local real estate trends. Then the valuation comes in low because the appraiser used inappropriate "comparable" properties, including a house that sold at a depressed price because the owners were in financial distress.

Under the new rule, your lender will have to send you a copy of the full appraisal report soon after receiving and reviewing it, including exhibits and attachments. Alerted early on, you, your realty agent and other advisors should have time to spot errors and then challenge the validity of the appraisal and demand corrections.
Among the questions you might ask: Why did the appraiser select one or more comparables that bear minimal resemblance — lot size, square footage of the house, age, location, view, interior improvements — to the house you're buying? Why were the physical dimensions of the property inaccurately measured? Why did the appraiser add no extra valuation credit for the solar panels on the roof and the extensive energy-conserving equipment throughout the house? Why didn't an underwriter or review appraiser hired by the lender flag foul-ups like these?

For their part, experienced appraisers generally welcome the new mandatory transparency for consumers. Some of them have fought for years against lender over-reliance on poorly trained appraisers who receive only a modest portion of the $450 to $500 that lenders charge consumers at settlement. The rest goes to the management company and some portion may be pocketed by the lender itself.
"I am thrilled," says Pat Turner, a senior residential appraiser in the Richmond, Va., area. "Let everyone see the clear distinction of time, effort, expertise and accuracy of a truly professional appraisal."
But there's some potential quicksand for unwary borrowers. The rule allows you to waive your right to receive your appraisal materials early on and instead get them on the day of the closing.
That's not a smart move. Why give up your guaranteed opportunity to carefully review the appraisal shortly after it's completed — when you can do something about errors — rather than rush through it during a paper blitz when your eyes are glazed over?

January 19, 20145:00 a.m.

Distributed by Washington Post Writers Group.

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Predictions for the 2014 Housing Market?

by David DeGioia and Todd Hill


With 2014 having finally come around, we’re poised at the start of what could be another healthy year for the housing market.

While many of us were naturally attuned to questions of a slowdown, or dangerous escalation in prices, it seems that the housing market has weathered its recovery with stability for the time being.

That being said, it remains to determine how the recovery will manifest through the next twelve months. Assuming the housing market continues to grow until the close of 2014, there are certain potential trends that could unfold. A recent article published by USA Today lays out a series of predictions for this year’s housing market, with some of them a continuation of prior trends, while others are potentially new developments.

Continuing Trends

The USA Today piece predicts that new home construction will continue with relative strength throughout this year. The story rightfully notes that new home construction has lagged behind other areas of the property sector, but lays out that home starts could strengthen to the point where they become a driving factor in the recovery. The USA Today post goes as far as to predict that new construction may be main driving force of recovery, especially considering price gains may shrink.

As an inverse, it seems that home sales have started to slow and may continue to do so throughout the rest of this year. As the USA Today report notes, they were down for the first time year-over-year last November, which was the first time this had occurred in 29 months. This trend could continue well through this New Year, with elevated interest rates set to encourage a pattern of more cautious buying. All in all, home buying levels will likely normalize, with purchase rates likely to mimic those recorded throughout 2007. This is far from a depressed rate, but a far cry from the inflated rate we saw after the close of the recession.

New Developments

While certain trends will carry over from 2013, some new developments could well unfold in the New Year as well. Rising mortgage rates could have unpredictable impacts on purchase rates and the general optimism of new buyers. While the elevation in mortgage rates that came about at the end of 2013 helped diminish the potential for local micro-bubbles, they could rise to the point where otherwise responsible purchasers are eked out of the buyer’s market.

The USA Today reports this could hinge sharply on the Federal Reserve closing its bond-buying program. This will occur in tandem with an accompanying rise in mortgage rates, which will make opening longer-term mortgages especially unappealing. Federally-imposed lending standards will also become stricter, resulting in previously acceptable mortgages becoming legally unfeasible.

While complex, this development isn’t entirely bleak. Homeowners could favor lower-priced housing, and plan more conservatively than they might have otherwise. This could decrease purchase rates, but it could also go the distance towards discourage buys that could result in long-term instances of unmanageable equity.

Predictions for the 2014 Housing Market? by

Charlotte home prices post biggest annual gain since 1987!

by David DiGioia

Charlotte-area home prices in October posted their biggest annual gain in 26 years, according to a report Tuesday. But the big increases could slow as investors become less active in the market and year-over-year comparisons become more difficult, Realtors and economists said.

The region’s home prices climbed 8.8 percent from a year ago, according to the latest numbers from the Standard & Poor’s Case-Shiller index. That’s the biggest annual increase since the city joined the widely watched index in 1987.

On a monthly basis, Charlotte home prices increased 0.6 percent from September, reversing a trend from the previous month. Charlotte was the only city to post a decline from August to September, as prices fell 0.2 percent.

The Charlotte region has posted year-over-year price increases since March 2012, making October its 20th consecutive month of annual gains.

“After a protracted period of challenging real estate markets, it’s not unusual to have a significant rebound,” said Eric Locher, the 2013 president of the Charlotte Regional Realtor Association.

“It’s also not unusual to have a little bit of slowing down in that rebound. So we will probably see going forward smaller increases, but we anticipate that ’14 will continue to be a good year.”

Nationally, home prices posted their biggest annual gains since February 2006, as a composite index of 20 cities and a separate index of 10 cities rose 13.6 percent from a year ago. The increase marked the 17th straight month that both indices rose.

But on a monthly basis, the two benchmarks climbed only 0.2 percent.

In October, 10 of the 20 U.S. cities posted monthly gains, while nine showed declines and New York remained flat. Charlotte and Miami were the only two cities to show an acceleration in their month-to-month gains.

David Blitzer, chairman of the Index Committee at S&P Dow Jones Indices, said many cities have been showing very high rates of annual change in the past six months, so it’s not a surprise to see Charlotte hit new heights. But he added that monthly price increases have been slowing since the spring.

“My sense across all the cities and nationally is it’s going to begin to ease back and taper off,” Blitzer said in an interview. “We wouldn’t want to try to sustain this forever. We tried that once, and it didn’t work out too well.”

Improvements in the housing market have been driven by the Federal Reserve’s bond-buying program, which aimed to keep mortgage rates low, and by overall improvement in the economy, Blitzer said. The Fed’s recent decision to slow its bond purchases – and the impact on mortgage rates and the economy – will be a key factor for the housing market going forward, he said.

“Nationally, I think home prices will continue to rise but at a more modest pace,” he said. “Next New Year’s, we’ll probably be looking at something in single digits – 5, 6, 7, 8 percent – but still going up.”

The housing market is positioned much better to handle a slowdown in prices than after the last boom, he added, because homeowners have used much less debt to buy their houses.

“Even if the prices suddenly turn bad – and I certainly don’t think they will – the overall economic damage this time would be a lot more bearable than it was,” Blitzer said.

Investor purchases slowing

The Charlotte real estate market began to turn around in 2013, but some Realtors are now starting to report a slowdown in price appreciation, said Mark Vitner, an economist in Charlotte for Wells Fargo Securities.

Price increases should start to tail off because comparisons to the previous year won’t be as favorable as they were earlier this year, he said. The first half of 2013 was also the peak period for outside investors buying up homes in the region, he said.

In July, an Observer investigation found that Wall Street-backed investment groups had emerged as a new breed of homebuyer in Charlotte, snapping up homes in middle-class neighborhoods across the city to turn them into rentals.

“When we get into early 2014, the year-to-year price appreciation will probably slow down to 5 or 6 percent,” Vitner said.

In the coming year, the housing market will have less support from the Fed, and investors will likely become a smaller percentage of buyers, Vitner said. The market is still missing traditional first-time home buyers and “trade-up” buyers who have found it more difficult to move because they lack sufficient equity in their current homes.

“In 2014,” he said, “the housing market is really going to have to find a way to stand on its own.”

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Contact Information

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David DiGioia
Realty Executives Unlimited
17718 Kings Point Dr, Suite B
Cornelius NC 28031
Fax: (866)476-8652