Yuval Degani

Following a series of escalating battles between the giants of the housing loan market over billions in financial losses, Bank of America reported on February 23 that they will no longer sell new mortgages to Fannie Mae.

Real estate analysts believe this act underscores the increasing tensions between these two companies, currently locked in an extended legal battle. The main issue at hand? Bank of America is having to buy back numerous defaulted mortgages from Fannie Mae on account of the original loans did not abide by proper underwriting standards.

Guy Cecala, publisher of trade publication Inside Mortgage Finance, describes this as a big deal within mortgage circles. He goes on to say, “It would be fairly extreme for a small or midsized lender to do this, but for a major lender, it’s very extreme.”

Fannie Mae, a large government-sponsored mortgage finance enterprise, is responsible for packaging bank-provided mortgage loans into securities which are then sold to investors. Almost 40 percent of all U.S. mortgages are backed by Fannie Mae.

According to Inside Mortgage Finance, Bank of America was Fannie Mae’s third-largest lender last year – providing them with $37.7 billion in mortgages. Bank of America has adamantly promised that this decision will in no way negatively affect their customers’ business or the credit available to them.

To make up for the loss of their most sizeable backer, Bank of America has said they will look to other government-sponsored mortgage buyers, including Freddie Mac and Ginnie Mae. The company also believes they will find backing support in the private sector and, at the end of the day, they still have a considerable balance sheet at their disposal.

Lawrence Di Rita, a spokesperson for Bank of America, says, “We will rely on other sources of liquidity to continue to ensure we are lending to our customers and supporting the housing market recovery.” Di Rita also added that Bank of America will still participate in homeowner assistance, in part by employing the federal government’s loan modification program.

What does this mean for Chicago home owners and buyers? At this time, there is no clear indication if or how local markets maybe affected. It seems the current threat is to stakeholders in Bank of America, whose shares fell at one point by $5.

The Federal Housing Administration (FHA) has announced a new pilot program that aims to improve financing for projects included in the Low Income Housing Tax Credit (LIHTC) Program. Set to launch first in Chicago, Boston, Detroit and Los Angeles, the program initiative hopes to accelerate the approval process for purchasing or refinancing a multi-family LIHTC rental property.

By choosing to launch its program in real estate markets like Chicago, the FHA’s Office of Multi-Family Housing Programs trusts that it will significantly reduce the time it takes to review and approve financing for LIHTC-assisted transactions. Currently, these transactions take about one year; the FHA believes they can cut it to as little as 90 days in some cases.

Expediting the FHA review and approval time is imperative. Doing so will help align FHA-insured financing with more stringent LIHTC Program standards – like the necessity of meeting strict time deadlines. Failure to meet bond closing, or other performance deadlines, may result in forfeit of the credit allocation. At worst, it can affect a borrower’s ability to secure tax credits for future transactions.

Marie Head, Deputy Assistant Secretary for Multi-Family Housing with the U.S. Department of Housing and Urban Development (HUD), believes that success within each of the hub markets – hastening the approval process for low risk LIHTC – will lead to increased production of affordable rental projects throughout the U.S.

According to the Housing and Economic Recovery Act of 2008, the FHA has to streamline mortgage insurance applications for any project with equity from the LIHTC Program. Last year the FHA sanctioned almost $561 million in firm commitments for LIHTC projects – almost 35% more than in 2010. Supporters of the new initiative are confident that the pilot program will increase these numbers even more.

The first phase of the new pilot program provides permanent financing on low-risk transactions. This will allow the FHA to streamline its review process without increasing risk. Applications for permanent financing will be accepted for Chicago new construction properties that were recently occupied, for reasonable remodeling of properties with Section 8 rental assistance or for older, stabilized tax credit properties.

The Chicago real estate market is rising and with this new program, local housing will become readily available for all who need it. Because even the simplest Chicago property can be someone’s dream home.

This past November around 8,000 homes were sold in Illinois, which is a 14.2% increase from November 2010. As stated in a recent article in the Chicago Tribune, the market for Chicago homes in the nine-county Chicago Primary Metropolitan Statistical Area (PMSA) reported an even greater outcome: a 20.7% increase in sales.

The Illinois Association of Realtors announced the monthly improvement in statewide home sales, which includes condo units and single-family homes. The total number of closes rose to 7,954 for the month of November, up from 6,996 last year. Chicago home sales rose 20.4 percent from last year with 1,377 homes sold in the city. Sales in the Chicago area totaled 5,453 in November 2011 (up from 4,518 a year earlier).

Despite more robust sales figures, the median price reported across the state for November 2011 was down to $128,500 (11.4% less than in November 2010, when the price was $145,000). The median price of Chicago homes went down 14.3% from $182,500 in November 2010 to $160,000 this year.

In an interview in the Chicago Tribune, the President of the Chicago Association of REALTORS Bob Floss spoke about Chicago’s distressed homes market and how such properties are still responsible for lowering sale prices as buyers grab up deals. Floss said in the article, “Low interest rates and smart opportunities to buy make for favorable market conditions for both buyers and sellers looking to right-size to their lifestyle,"

The average interest rate for a fixed-rate mortgage lasting 30 years in the North Central region was 4.0% in November 2011. This is a very slight decrease from October when it was 4.07%. As Floss points out in the Tribune article, a recovery in the housing market is making itself known with the uptick in home sale activity, which he suspects will continue through 2012.

President of the Illinois Association of Realtors, Loretta Alonzo, stated in a release that was also reported in the Tribune, "As we move through the distressed properties, predominant in the Chicagoland market, and begin to see more positive reports on the jobs front we will be looking for some stabilization in home prices to coincide with the rising home sales."

The favorable trends occurring in both the Chicago PMSA and Illinois housing markets are largely attributed to the low housing inventory levels and high number of pending sales, according to Geoffrey J.D. Hewings, director of the Regional Economics Applications Laboratory of the University of Illinois, also quoted in the same Tribune article.

Most homebuyers have at least one thing in common. Whether they are picky or easygoing, whether they have a family or live alone, whether they want to pay in cash or get a mortgage—they almost all want to look at homes that are already move-in ready. So before even thinking about putting your Chicago home on the market, it is absolutely essential that you ensure it is in peak condition. With all the competition in the current real estate market, buyers are more likely to seriously consider your Chicago home for sale if it is in immaculate shape.

This means you have to consider the experience of buying your home from the buyer’s perspective. The first aspect to consider is how your Chicago home looks from the road—its “curb appeal.” If you were an interested buyer driving by your place, would you stop to see more or just keep on driving? For starters, the yard should be clean and tidy. Winter can be a tough time for lawns, but try to keep them as free of leaves and brown grass as possible. Set out some cold climate plants to bring added life to the landscape. Evergreens are probably your best bet.

If the exterior paint-job on your house is looking shabby, it’s a good idea to add a fresh coat. You might even take the opportunity to freshen up the look of your house by changing the paint color, especially if it has not been updated in some time. Consult a colorist or your real estate agent first, though, before doing anything drastic. Yes, you want something eye-catching, but you also want something that will appeal to the majority of buyers.

Anything in or around your home that needs maintenance should be immediately repaired—especially if it is visible from the street. Your home should appear well-maintained and tended to because buyers can form an opinion about the place within seconds of seeing it.

Chicago homeowners whose houses lack inherent architectural appeal can take several steps to increase the overall exterior appearance of their home. Adding shutters to the windows or an added structural flourish to the entryway can intrigue passersby and prompt them to want to come inside. It can also help to make the front door a bold, contrasting color to the rest of the house so it stands out.

When it comes to listing your Chicago home for sale, keep in mind the inestimable power of the Internet. A large majority of homebuyers (roughly 90%) use the Internet to search for homes. So make sure you have an agent who utilizes the web to market your home through as many online channels as possible. Also bear in mind that buyers like to see numerous pictures of properties when they are browsing online. So don’t be stingy with the photographs. A dozen or more images is ideal.

The National Association of Realtors (NAR) recently released their analysis of the condition of America’s real estate market for the month of October, and the numbers seem to be pointing in the right direction. Most significantly, their Pending Home Sales Index showed an impressive 10.4 percent increase in pending home sales in the U.S. last month—the largest growth in the index since last year’s October-to-November jump. This good news follows several straight months of marked index growth across the country, and may prove an omen of good fortune for America’s real estate market.

The NAR’s Pending Home Sales Index—measured on a monthly basis—compares current real estate figures to those in 2001, when the housing market was at a peak. An index of 100 represents the average contract activity for that year. The monthly index for October was 93.3, climbing 9.2 percent from last October’s recorded index.

In addition to an increase in the national index, the NAR reported that three out of the four U.S. regions experienced marked improvements in home sale contracts during the month of October. The Midwest experienced a particularly significant monthly growth of 24.1 percent, bringing its regional index up to 88.7. Only the West witnessed a marginal decrease in its index, though it still remains the region with the highest index rating. All four regions showed year-over-year growth in the month of October, especially the Midwest.

Also reported along with the Pending Home Sales Index was the NAR’s December 2011 U.S. economic forecast. The association projected the annual gross domestic product to rise by 1.7 percent by the end of the year, with a 2.5 percent growth the following year.

Existing-home sales should increase as well, according to the NAR’s figures. The organization predicted a 1.2 percent increase in 2011 and a 5.1 increase in 2012. Though the NAR forecasted a decrease in national home prices this year, it expects values to recover some 2.6 percent in 2012.

As for the unemployment rate, it should gradually increase over the next few years—from 9.6 in 2010 to 9 percent this year and 8.6 percent the following year.

See: real estate in Chicago