Potential buyers have many issues to consider as they think about applying for a Florida home loan. As you weigh points, closing costs, down payments and interest rates, however, an unexpected financial wrench may be thrown into the process, as well.

Recently, the U.S. and Canadian governments reached an agreement on softwood lumber that, some critics contest, will make national and Florida mortgage costs more expensive for hundreds of thousands of prospective owners.

A trade group representing U.S. lumber companies, home builders, building supply retailing, and consumers is far from happy with the situation.

Using statistics from the U.S. Census Bureau, the American Consumers for Affordable Homes (ACAH) calculates that up to 300,000 households could be priced out of the housing market because of the duties that would be collected by the U.S. on lumber from Canada.

Simply put, ACAH states, those duties shouldn’t be collected. Washington hasn’t been able to make a compelling case for collecting the $1 billion worth of the duties before the World Trade Organization or through the NAFTA dispute process, according to ACAH spokesperson Susan Petniunas. It will negatively affect affordable housing.

“No rational Canadian company will ever use the NAFTA dispute process again if Canada agrees in this deal that it has given up its right to get all illegally collected duties back,” Petniunas said in a press release.

We know this sounds complicated, but it’s an issue - as stated above - that could directly affect numerous first-time home buyers. It’s just another reason to consult with a Florida home mortgage broker and make sure you’re aware of every detail on your home loan.

We can help.

We’ve talked at length about how the Florida housing market has banged its head on the ceiling… and how investors and homeowners alike now wonder how hard (and soon) it will crash down to the floor.

July home prices of previously owned properties rose at their slowest pace in more than 11 years. In the past 12 months they are still (just) up in nominal terms, but down in real terms. The number of home sales fell 11.2 percent and the stock of unsold homes reached its highest level since 1993.

According to The Economist, the softness is enough to stoke the worries that have been mounting about how badly the end of the housing bubble will hurt the rest of the economy.

Falling demand is not just taking its toll on people who own homes, but those who build them. In fact, it’s pounding the construction industry. Housing starts, fell by 2.5 percent in July and were 13.3 percent lower than a year earlier. Building permits for privately owned houses, meanwhile, were down by 20.8 percent, year over year.

• While the number of homeowners applying for mortgage refinance help has risen over the past five weeks, the demand for loans to buy new homes has fallen by nearly 25 percent in the past year.
• It is little wonder, then, that an index of home builder confidence has plunged by 56 percent since June 2005.

So far, the slump has been especially harsh at the high end, because rich buyers were at the forefront of the housing boom over the past few years. If most of the pain remains confined to those bits of the economy, we will probably emerge from the end of the boom in decent shape. What spooks us are the risks of slowing demand for homes that’s so drastic as to really alter consumer confidence.

The biggest worries involve the parts of America that have seen the biggest run-ups in prices. You got it. Right here. Now that Florida home mortgage demand has lessened considerably, the pace at which condos and single-family homes are selling is tortoise-like. And there’s no relief in sight for the rest of 2006, if not longer.

Stable is one thing. It’s not going to kill you if your home doesn’t make 20 percent a year in appreciation. But what if prices tank? How far might values fall? What if sales are abysmal for years on end? Since they (sales) are so dependent so much on the wider economy, especially incomes and Florida home mortgage loan rates, the opinions vary greatly on this subject.

Housing worriers chiefly ponder two important measures:

1. The ratio of home prices now equals 3.8 times the median income, which seems far too high by historical standards.
2. The difference between the rental market and home prices seems too low to offer property owners a decent return, suggesting (once again) that houses are badly overpriced.

Just about everyone expects prices to level off for a bit and slow the economy, but the high ratio of house prices to incomes is less alarming, some argue, because low Florida mortgage rates have held down the real cost of owning those homes.

That has not changed much, despite a long period of significant interest rate hikes over the past couple of years. American homeowners remain exposed to a sharp rise in long-term interest rates — say, if foreign investors in U.S. treasury bonds head for the exits — but otherwise are not obviously in trouble.

Also, although rents have failed to keep up pace with the rising price of equivalent houses, that comparison partly reflects a failure to adjust for the growing quality of the homes people in the U.S. have been buying. As real estate prices peak, moreover, Americans seem to be more willing to rent.

Another argument of optimists is that house-price weakness in Britain and Australia, two other countries that worried bubble watchers, has proved much less damaging than many expected. Barclays Capital in Londonpoints out that both countries’ economies performed snicely after house prices peaked — so much so that their central banks found it necessary to raise interest rates again.

Yet we have depended particularly heavily on buoyant purchase prices as a source of jobs, and also cash that can be extracted through equity withdrawals, for so long that the impact may be much more wide-ranging than people are prepared for. For now, even if prices do fall hard, forecasters do not think that will trigger a recession. Yet.

Everyone is certainly hoping, however, that we don’t have to find out.

Not EVERY corner of the country is in danger within today’s housing market. There are cities whose property values have actually risen significantly over the last few months.

Chief among them? A couple of sectors in the Sunshine State. Indeed, the Florida home mortgage industry is never truly in danger of dying because the waterfront land is simply too attractive to hopeful owners. In this case, the two towns leading the way are Orlando and Tampa Bay.

Business Week recently screened real estate markets around the nation, only considering cities that had a median home price higher than the national average of $227,500. The magazine wanted to avoid areas that were already undervalued. It found the average appreciation on home prices to be 3.7 percent.

Not so in the aforementioned cities, however. Both Orlando (17%) and Tampa Bay (18.8%) more than quadrupled the national appreciation average. People continue to move there and sellers continue to find the deals they were hoping for.

As Florida mortgage broker phones ring off the hook in those towns, other areas should soon follow. Many predict that the housing bubble will grow again into a boom down the line.

More subprime borrowers are defaulting in the early months of their home Florida home loans, a trend that has led to greater fear among investors and lenders of rising delinquencies and losses.

For more than a year, shareholders in mortgage lenders and investors have worried that the end of the housing boom, along with higher Florida home loan rates, would cause more borrowers to default on their mortgages, resulting in greater bank and investment losses.

But credit quality has held firm, thanks to a still-strong economy and a robust job market. However, in recent months, an increasing number of mortgage lenders catering to borrowers with bad credit are reporting a rise in delinquencies occurring as soon as six months after origination.

Nationally, about 3.5 subprime home loans out of every 10,000 originated between January and June realized a delinquency on their first monthly payment, LoanPerformance reports. By comparison, only one out of every 10,000 subprime loans granted last year had experienced missed payment in their first month.

LoanPerformance’s data also show that so far this year, there has been a 14 percent increase in the amount of subprime lending recipients who have registered at least one missed payment in the first three months after origination. With statistics like that, rising Florida foreclosure rates are seen as being right around the corner, in the eyes of many analysts.

“If those borrowers are finding themselves in trouble very early on, it may give lenders an indication that the underwriting criteria or quality control are not sufficiently tight,” said Damien Weldon of LoanPerformance.

Based on the year-to-date data, the company expects early payment defaults on subprime mortgages are expected to increase this year.

Those early defaults have forced lenders to buy back mortgages already sold to whole-loan acquirers, particularly investment banks that pool and package those loans into asset-backed securities and then sell them to large investors like insurance companies and hedge funds.

The buybacks, in turn, have led lenders to incur losses and set aside more capital in their reserve funds for potential home loan repurchases in the future.

Some investors and analysts view these blips as a sign of weak credit throughout the mortgage industry. With a growing inventory of unsold homes and slowing home prices, some fear that this pattern may only be beginning to manifest itself.

The secondary market, where lenders sell the new home loans they create to manage risk as well as to have more funds available for making mortgages, could also see more pressure from rising delinquencies. A potential decline in wholesale pricing would eat into lenders’ mortgage income.

The subprime mortgage market has grown substantially in recent years, with total subprime loans outstanding representing about 13 percent of total Florida mortgage loans outstanding.

Subprime borrowers, who pay higher rates than prime borrowers due to their weak FICO credit scores (typically lower than 640) or a lack of documentation (see no doc loans) tend to take on more debt and have less disposable income. A typical subprime mortgage represents 80 percent of the house value.

Such highly leveraged borrowers also have a greater tendency to refinance and take cash out when home prices rise. However, when home prices decline, as is now happening in much of the U.S., those borrowers may have fewer choices to tap into their homes’ equity to pay down debt, leading to more defaults on their Florida home loans.

Kyle Riva is pretty confident about the market for Las Ventanas, a 15-acre retail/residential development he’s planning in Boynton Beach.

How can he be so sure in a South Florida housing market flush with high-profile projects that have been repeatedly shelved, delayed and/or repriced in the past few months? Simple. Unlike those, Las Ventanas will offer its 494 residences as apartments for lease, not as condos for sale.

“The rental market continues to be very, very strong, and several of the rental communities that existed in Delray Beach and Boynton Beach have all been [condo conversions],” said Riva, president of Epoch Properties Inc., a developer of rental communities based in Winter Park, Fla. “We see a real need for rental units in the area.”

With the current shortage of affordable housing throughout Palm Beach County, so does Lisa Bright, executive director of the Boynton Beach Community Redevelopment Agency.

“Not only is it going to be a huge catalyzing project for that corner, but in Boynton, we don’t have any rentals,” she said.

Meanwhile, two pieces of prime, mixed-use Florida real estate, both touted for years as key pieces of the city’s downtown redevelopment, sit idle. One of them, 500 Ocean Plaza, this month asked the city for its second one-year extension for the site plan. Initially known as the Arches back in 2003, the proposed project has yet to begin sales or construction.

Similarly, Promenade hasn’t started building and late last year canceled sales contracts and raised prices, citing soaring construction costs, the City of Boynton Beach says.

While Epoch also has asked for a 12-month site-plan extension, Riva said he expects to begin building in 6-9 months if permits come through.

Las Ventanas will boast more than 43,000 square footage of ground-floor retail space at the corner of Woolbright and Federal Highway, with 70 loft apartments situated above that. There will also be 20 three-bedroom townhouses, two five-story towers with 404 apartments, three parking garages, three pools, a community clubhouse and a fitness center.

Rents are expected to range from $1,500-3,500 a month based on the size of the unit. Real estate analysts expect the project to do well, since condo conversions have shrunk the rental inventory so dramatically and the recent uptick in Florida home mortgage rates has made loans unaffordable for many looking to buy.

“We haven’t seen hardly any new rental projects to replace them because land prices were so high,” said Jack McCabe, CEO of McCabe Research & Consulting LLC.

Today, folks facing the quadruple-whammy of escalating expenses — higher Florida mortgage borrowing costs, insurance premiums, property taxes and gas prices — might find renting an attractive option. Even at $3,500 a month, the development’s three-story, three-bedroom townhomes may be more affordable to residents, compared to many for-sale products.

You’ve been approved for a Florida home loan. You’ve even found the house of your dreams. Now, you or your Florida mortgage broker have hired an appraiser to price that piece of property.

There’s just one problem: the home has been appraised for less than the purchase price; now the transaction can is in jeopardy. Be aware, however, that a low appraisal won’t necessarily stand in the way of the lender granting the loan … as long the borrower is making a large cash down payment.

Inside this Florida mortgage conundrum

For example, let’s say you agree to pay $1 million for a property - and you have $300,000 for a down payment. The appraiser puts a $950,000 value on the property, which is less than you’ve agreed to pay. You’re a well-qualified buyer, however, so the lender is willing to give you a Florida mortgage loan for 80 percent of the appraised value ($760,000, in this case).

With a $300,000 cash down payment, you only need a $700,000 mortgage. Therefore, the sale can proceed, unless you have a problem buying a property that appraised for less than you agreed to pay.

Of course, buyers would prefer to have the property they’re buying appraised for the purchase price. But in some cases a house fits the buyers’ needs so perfectly that a low appraisal is irrelevant to them as long as they have the cash to close the sale.

Here’s where a problem can arise …

What if a borrower doesn’t have the additional cash to put down to make up the difference between the appraised value and the purchase price? This often takes place when buyers are making a low cash down payment or are putting no cash down at all, such is the case with a no-money-down Florida mortgage.

What can you do in this situation? One possibility is to ask for a second appraisal. Make sure, of course, you insist on an appraiser who is experienced and knowledgeable in the area where the property is located.

Another option is to ask the sellers to renegotiate the purchase price. Although no seller wants to accept less than the negotiated price, this option may work if the seller’s prospects of getting a higher price are slim.

You may be able to ask for less, in this case, on your Florida home loan, while also agreeing on a lower offer. It may be the best thing to ever happen to your house buying process!

We often talk about the distinction between sellers and buyers. The former, of course, are trying to turn a profit on their property, while the latter are hoping for Florida mortgage loan approval in order to afford their dream house.

Sometimes, however, the two are one and the same. What if, for example, you’re trying to sell your old home while buying a new one? Consider a bridge loan for such a purpose.

What is a bridge Florida home loan?

A bridge loan, also known as a “swing loan,” is a short-term Florida mortgage that’s very similar to a Florida home equity loan. How come? Because you use the equity in your current home to put a down payment on the new home … while you try to sell the old one. Follow all that?

Typically, you receive a bridge loan for six months. Ideally, when the old house is sold, the proceeds pay off this resource and the Florida home mortgage from the old house; so that all you’re left with is the mortgage on the new house. However, the difference between a bridge loan and a home equity loan is that a bridge loan is used specifically to “bridge” the time period between selling the old house and closing on the new one.

If you don’t have a contract of sale on your initial property, you could still quality for a home equity line of credit, which is a second loan on your current house. You can use it to finance big ticket purchases like buying a new home, as in this case.

New kind of Florida home mortgage loan

However, a different type of loan is emerging that could help people in this situation. It’s a type of interest-only Florida home loan that includes a seller contribution. Here’s how it works:

- The seller of the home you’re buying contributes money from the proceeds of the sale of his house toward the deal. However, instead of contributing money toward closing costs or purchasing points, the seller agrees to pay up to six months of the your Florida mortgage interest. Because it’s an interest-only loan, you are only responsible for paying the property taxes and insurance.

The benefit to the seller is that he sells his home faster. But it’s even better for you, the buyer. why? Because this gives you time to sell your old house without making principal AND interest payments on two mortgages. Even if you don’t sell your home in six months, your interest-only payment will still be lower because you aren’t paying principal.

Most locals don’t think about the housing market beyond whether they can make their next Florida mortgage loan payment — or get approved for that first loan in the first place. Sure, some look into the future and see a weakening housing market… but we really don’t care. Or worry.

We have been told many, many times that normalization of the housing market will return and that stagnant sales and home prices pose no real problems for the rest of the economy. But, Britain’s Daily Reckoning cautions, we may be overlooking alarming signs with this attitude.

“Things do seem to be getting worse very quickly. Free-fall is a strong word, but I think it’s the right one to use here,” Paul Ashworth, Chief Economist at Capital Economics, said.

But most Americans fear not. They have been told that soft housing prices pose no problems for the overall economy, and have no reason to doubt that this is the case, no reason to squint and try to see further down the line. They dread neither slump nor boom, neither war nor peace. Everything will be managed by the authorities, they believe.

But there is no such thing as an expected emergency. You typically don’t think you’re going to lose money in an investment. No one plans on losing his life savings. It comes as a surprise, along with sudden death, financial turmoil, and far worse crises. Where will the surprise come from this time, and how will it impact the world economically?

We wonder this, because things that are expected present few opportunities and few catastrophes. When an older person dies, people gather at his/her burial site with a sense of relief. Finally, the heartbreak is over. Their life insurance is straightened out. The estate is distributed. The book is closed and put down. Time to move on.

But when a younger person dies, it is as if the printer of said book made a mistake. The story is unfinished. We turn the page and find nothing there.

The young man typically dies suddenly, leaving his widow and children grieving in the house. Neighbors discuss behind closed doors, taking what was once his, what might have been (local banks, meanwhile, wonder if the Florida mortgage they lent out will ever be repaid).

If there are going to be difficult years in America, however, Americans are not worrying. They recall the last “recession” in 2001, almost fondly. Even before they had forgone a single donut or eschewed one new pair of pants, the recession was over. And on its heels came the biggest boom in housing prices the world had ever seen.

Recession? The last one was no trouble in the end, just a minor inconvenience, if that. Why should they worry about another quote-unquote housing bubble this time around?

The expected slump poses no danger to them. But what if the slump is not as expected? What if the softening of home prices is not so benign? What if the roof really does cave in? Now that would come as a shock.

The Guardian took up the idea this week:

“The downturn in the U.S. housing market will force businesses to slash 73,000 jobs a month in the new year and could be more damaging to the world economy than the dot com crash, economists have warned. Fears are mounting that the ‘orderly’ housing slowdown predicted by the Federal Reserve will become a full-blown crash.”

The paper quotes Paul Ashworth:

“House prices have been appreciating at unprecedented double-digit rates in recent years, giving homeowners massive windfalls and supporting a wave of investment in new construction. However, the number of unsold new homes is now at a 10-year high.”

Ashworth believes that 30 percent of all the jobs created since the end of the last recession in 2001 — 1.4 million — have been in sectors related to the housing market boom, from mortgage lenders to construction workers and builders, to real estate agents to people working at home improvement stores. As the boom runs out of steam, up to 73,000 jobs a month will be lost, he estimates.

For a wealth-dependent U.S. economy, the bursting of another major asset bubble is likely to be a very big deal. With U.S. trade and other fiscal imbalances larger than five years ago, the fallout for the rest of the world could be more devastating than the aftermath of the dot com boom if home prices do indeed plummet.

What is unanticipated, but very possible, is a hard landing. Will it come? We don’t know. But at least we haven’t failed to anticipate it. Nor should you.

Borrowers can be a finicky bunch. Last week, we reported an increase in demand for Florida home loans. This week, however? The opposite scenario faces sellers across the state and nation.

According to The Mortgage Bankers Association, U.S. mortgage applications have fallen for the first time in four weeks. Moreover, demand for home purchase loans dropped to the lowest level in nearly three years. Individuals appear content to delay any requests for a Florida home mortgage until the market settles in their favor even more.

The trade group said its seasonally adjusted index of mortgage application activity, which includes both refinancing and purchasing loans, for the week ending August 25 decreased 0.9 percent to 556.5, from the previous week’s 561.5.

Florida mortgage rate report

Borrowing costs on 30-year fixed-rate Florida mortgages, excluding fees, averaged 6.39 percent, up 0.01 percentage point from the previous week when they sank to their lowest since March.

Interest rates, meanwhile, were above year-ago levels of 5.73 percent, but below a four-year high of 6.86 percent felt in June.

Fixed 15-year mortgage Florida home mortgage rates averaged 6.06 percent, up from 6.04 the previous week. Rates on one-year adjustable-rate mortgages (ARMs) increased to 5.97 percent from 5.91. The ARM share of activity increased to 26.8 percent of total applications from 26.4 percent the previous week.

The MBA’s survey covers about 50 percent of all U.S. retail residential mortgage loans. It’s helpful for brokers to get an idea of what the market looks like and to gauge their activity accordingly.

As has been widely documented, the South Florida housing market is in a fragile, shifting state. Hurricane Ernesto’s arrival this week? Not doing anyone any favors.

Across the state, home builders were forced to stop construction Tuesday and instead rush to secure job sites. Meanwhile, Ernesto is poised to delay end-of-the-month transactions, further dampening existing Florida home sales in August that were already were slow.

To make matters worse, home insurance companies, such as Citizens Property Insurance Corp., stopped issuing policies Monday after officials posted tropical storm warnings and hurricane watches for Palm Beach, Broward and Miami-Dade counties.

Eager buyers hoping to complete purchases so they could move in over Labor Day weekend how find themselves wondering if that’s doable.

“Everything grinds to a halt,” said David Dweck, president of the Boca Real Estate Investment Club and an agent in Palm Beach and Broward counties.

Although it looks as if Ernesto may prove to be little more than a minor inconvenience in the end, industry observers worry that a busy hurricane season for the third straight in a row could have a lasting effect on home buyers’ psyches when it comes to Florida real estate.

That’s the last thing struggling builders and concerned Florida mortgage lenders need, given what’s already transpired in 2006. Toll Brothers, a major builder in the region and beyond, is one of many companies that has already its warned investors that home sales have softened now that the recent five-year housing boom has ended.

“If there’s only minor damage, people may say, ‘No big deal,’” said Kiku Martinson, director of real estate for Campbell & Rosemurgy in Deerfield Beach. “But if there’s a lot of damage, they… may think twice.”

Since 2004, South Florida has been battered by hurricanes Frances, Jeanne, Katrina, Rita and Wilma. Some residents, especially retirees, say they’re ready to leave the area because of the increased threat of storms. Agents say buyers tell them they don’t want to commit until hurricane season ends November 30. This week is one thing, but three or four more Ernestos may adversely impact the immediate future of sales.

So far this year, Florida home loans have gotten more expensive, property taxes continue to rise amid new assessments and affordable housing fears are running rampant. Could Ernesto, or one of his counterparts, be the straw that breaks the real estate camel’s back? Mark Zandi of Economy.com, said even a relatively minor storm could influence buying decisions.

“In the long run, if you keep having storm after storm after storm, season after season, it will wear down on the desirability of the area. I don’t think it’s overwhelming yet, but it is a growing weight on demand,” he said.