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Joe Villaescusa | Real Estate on the Rebound

Five years after the housing market crashed and the collapse of Lehman Brothers, the well-known mortgage lender and investment bank, new regulations and an improving economy have helped the real estate market to slowly regain its footing, says Joe Villaescusa, owner of Century 21 All Stars in Pico Rivera, Calif.

California and several other states saw home prices tumble and foreclosed homes sold for small fractions of their worth after the 2007 housing market collapse. Other states where the unemployment rate didn’t take as large of a hit saw steady sales and price levels, Joe Villaescusa said.

Since 2007, the federal government has set new rules for monitoring the mortgage industry, some of which will go into effect in January 2014. There is still work to do for the real estate market’s complete recovery, but the number of homeowners who owe more than their properties are worth is declining and there are positive changes taking place.

There have been multiple changes over the past few years, in the market and in the lending world that have affected the market, Joe Villaescusa said. Some of those factors include increasing home prices, a drop in the number of foreclosure filings and changes to lending standards.

When it comes to home prices, last year real estate professionals saw record lows last year, just six years after the market peaked, Joe Villaescusa said. New home sales hit a high in June 2013, and home prices in many areas are up. In some areas, prices for homes on the market are up more than 10 percent over the June 2012 figures for some areas. Although new home sales are increasing, construction of new homes is down almost 50 percent from what the industry calls “normal levels.”

According to multiple sources, foreclosure filings have dropped more than 30 percent in the past year although the process of foreclosure is different from state to state. In some states, lenders must take a homeowner delinquent in their payments to court to initiate the foreclosure process and this can slow the process considerably.

Lending standards look more like what homebuyers saw in the 1970s, 1980s and even the 1990s, thanks in part to the rising prices, according to Joe Villaescusa. The minimum credit score required for lending is up from the historically acceptable 540, and some real estate professionals say that the credit and lending standards may still be too strict to bring about complete recovery.

Changes to Mortgage Standards Are Coming, Joe Villaescusa says

This month, the Consumer Financial Protection Bureau (CPFB) announced changes to mortgage rules meant to protect homebuyers and those who currently hold mortgages on their homes. Some of these changes are expected to take effect in 2014, but it’s important to understand them, Joe Villaescusa points out.

For several months, the CPFB has worked with individuals in the loan and mortgage industry to ensure that these changes are smooth for those it affects; the changes are meant to make the mortgage process easier and fairer for homeowners and homebuyers, according to Joe Villaescusa.

The clarifications and changes to rules implemented in 2013 are meant to explain what loan servicers can (and cannot do) in the first four months that a mortgage holder is delinquent on payments, to identify procedures for loan services who do not follow up with incomplete loss mitigation forms and to make it easier to get loans in rural and underserved areas. These changes should make it easier for potential homebuyers to purchase new homes, and for current mortgage holders to pay their bills, said Joe Villaescusa.

For example, the CPFB’s new rules say that loan servicers are not allowed to make the first notice or filing in the first four months of delinquency. They can, however, send notices required under state law that give information about available resources, including credit counseling. To facilitate loans in underserved areas, the bureau is considering changes to the definition of the term “rural” in this context; small creditors will be exempt from a ban on high-cost mortgages that include balloon payments, as long as those loans meet certain rules.

Other clarifications, meant to benefit potential homebuyers and consumers, include the definition of a loan originator, the fees and rules for employees of manufactured home sellers, as well as changes of rules for loan originators. Loan originators will be required to meet specific requirements to qualify for that title; they will also face restrictions on what they can and cannot do.

Time will tell how these changes will affect the real estate market in the long run, but these new rules are intended to strengthen protections for homebuyers who seek mortgages in order to complete their purchase. These protections may help the real estate market to strengthen, and according to Joe Villaescusa, sales could increase as potential homebuyers gain confidence in the financial market, which can in turn affect their ability to purchase or build a new home.