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O.C. home sales decelerate in January

February 18, 2014 By Roy Hernandez

BY JEFF COLLINS / STAFF WRITER
Published: Feb. 12, 2014
Updated: Feb. 13, 2014 7:08 a.m.

Orange County home sales continued to swoon last month in the face of elevated prices and higher interest rates.

Housing market tracker DataQuick Information Systems reported Wednesday that sales closed on 2,205 houses, condos and newly built homes in January, down 9.3 percent year-over-year to the lowest number in almost two years.

But the median price – or price at the midpoint of all sales – hovered at $550,000, due in part to an increase in sales of larger and more expensive homes, market observers said.

Last month’s median home price was the third highest for a January in records dating back to 1988, DataQuick figures show.

“We have slowed down a little in the number of sales we’re seeing, (but) not necessarily in prices,” said Kim Rossi of Berkshire Hathaway Home Services in Monarch Beach.

“Last year, the market was unbelievable,” added Keller Williams Realty agent Reza Shirangi of Mission Viejo. “Then as interest rates rose from 3.5 percent to 4.5 percent (last summer), literally for three to four weeks, the market just stopped.”

Regionwide, median home prices increased 18.4 percent last month, to $380,000 in six Southern California counties, DataQuick reported. Southern California home sales dropped 9.9 percent, to 16,058 deals.

“Southland home sales have fallen on a year-over-year basis for four consecutive months now and remain well below average,” said DataQuick President John Walsh. “We’re still putting a lot of the blame on the low inventory. But mortgage availability, the rise in interest rates and higher home prices matter, too.”

Although home prices remain 15 percent below the all-time high of $645,000 reached in June 2007, Orange County’s housing market has recovered 65 percent of the ground lost in the housing crash.

January tends to be the slowest month of the year, reflecting deals signed during the slow Thanksgiving to New Year’s holiday season.

Orange County had 5,087 homes for sale on Jan. 30, less than half the multiple listing service average, according to Steve Thomas of ReportsOnHousing.com.

That compares with 3,276 homes for sale the same time last year – an inventory shortage that created “a flash market” in the first six months of 2013, said Mac Mackenzie, a Coldwell Banker agent in Irvine.

“It was a false market set up for success,” Mackenzie said. “It’s now a whole new ballgame. … We’re seeing a solid market, but nowhere near where it was last year.”

Price reductions began to appear in late summer, Mackenzie said, and homes priced overzealously have sat on the market without a buyer. For example, Mackenzie said he sold a home in Irvine’s Turtle Rock area in January 2013 for $1.45 million. Six months later, an identical home on a larger lot sold for $1.25 million.

A change in the mix of home sales has kept the median price artificially high, said Chris Pollinger, senior vice president of sales for Irvine-based First Team Real Estate.

DataQuick figures show, for example, that sales for $500,000 or less fell 32 percent in January. Sales for $700,000 and above rose 28 percent.

“The cheap seats are all taken,” Pollinger said. “We’re seeing a little bit more action at the high end. That’s why your prices are up a bit more.”

Sales drops also reflect decreased demand for existing homes, while new home sales have doubled in the past year.

Berkshire Hathaway’s Rossi noted that there are about 50 new home projects actively selling in Orange County, including the 2,380-home Baker Ranch development in Lake Forest. A spokeswoman for the developer said 9,000 to 10,000 home shoppers turned out for Baker Ranch’s grand opening last weekend.

“We need to educate our sellers who they are competing with,” she said. “They’re not just competing with the neighbor down the street. Now is the time to spruce up.”

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6 Things Sellers need to know before they list FOR SALE

January 29, 2014 By Roy Hernandez Leave a Comment

The information contains an agent perspective, but nonetheless it’s good content for all those folks looking to sell in 2014.

In a market where home inventory is low and demand is soaring, your sellers may think that their home will move in mere minutes–and at a price that defies even the loftiest expectations. When left untethered, these dreams of big prices and warp speed sales can spell disaster–and major disappointment–for you and your clients.

Don’t worry! You’re not doomed to this fate. With a few smart, premeditated steps you can head-off seller miseducation and common misconceptions and start your client on the path to a successful sale from the get-go. Here are six scripts and simple talking points that your sellers need to know before their home hits the market.

1. Staging matters–big time!

Every agent knows the old adage, “Homes that don’t show well don’t close well.” But still, time and time again we see sellers rail against the time and cost associated with staging a home. Afterall, if they love their home as it is, why shouldn’t everyone else? This is a situation where sometimes showing trumps telling. If you have a particularly stageing-averse client, take them on a two-home showing; one where the home is staged and one where the home is not.

Be sensitive, but firm. Their decor may be a beautiful expression of their personality, but sometimes less is more. You can also download and share Trulia’s 10 Hardcore Staging Tips for Sellers so that they can reference it before every open house.

2. The market sets the price, not the owner.

It’s understandable that many home sellers think that their home is above the price that the market dictates. Sentimental value often translates into an inflated sense of the home’s worth, but when it comes price, the winning opinion is always the market’s opinion. You know it’s impossible to effectively price a home without taking into account the competition. Unfortunately, too many sellers don’t.

First, it’s essential to determine how much the seller thinks their home is worth. If their expectation is wildly inappropriate, it may be worth taking the clients to see a home that is on the market and priced at their expectation. Then, take the seller to a comparable home that is priced similarly to where you feel their home should be priced. Take the time to both educate them on the competition and give them expert home pricing tips to help them understand your pricing strategy.

Need more resources:

Download and share Trulia’s home pricing tips handout
Send the seller their Trulia home estimate report, which uses market data to create a customize report.

3. Small renovations may mean big bucks later

In many cases, the cost of a home repair is less expensive than a potential buyer perceives the cost of the repair to be. If buyers over estimate the cost of fixing the problem, it may negatively impact the offer amount and end up costing the seller more in the long run. Be upfront with your seller clients when you spot unsightly blemishes that could cost your clients the deal.

Before you list and start marketing the property, counsel your sellers on the improvements you know will make a difference when it comes to price. If you need a starter list of simple ways to boost a home’s value and its showing potential, download our guide on the 10 ways to boost your home’s value.

4. Incentives can help close the deal faster.

Offering practical incentives might not sound sexy, but those that fill legitimate buyer needs have the power to differentiate a listing from the competition and attract just the right attention needed to get the home sold for the right price.

Talk to your sellers early about how they might be prepared to sweeten the deal if the right offers don’t come rolling in. Talking incentives early and building them into the marketing plan can arm both agent and seller with the ammunition to jump potential marketing hurdles and beat out the competition for a fast sale.

If you need help deciding what incentives help sell homes check out this popular home seller handout on the Top 4 Incentives that Sell Homes.

5. Serious buyers never stop the hunt.

Too many sellers see the winter months as the slow season. The reality is, there are plenty of upsides to listing and marketing a home when everyone else is taking a break.

Check out and share our free agent download 5 Unexpected Upsides to Off-Season House Hunting to show your clients that holding off on listing could ultimately make selling harder than it has to be.

6. Real estate is a local business.

The last few years have turned real estate headlines into high-profile news. Home prices are on the rise. In fact, last month home prices were up 11.9% over the year past. While this is great news for the country as a whole, be sure to remind your sellers that real estate is a local industry and that asking price isn’t everything.

To do this, consider posting your own local market updates on your personal real estate blog. In addition, check out and use these tips for showing your clients the difference between asking and listing price in your local market. For many sellers, seeing the numbers is just the ammo they need to agree to the right price.

30-year rate climbs to 4.47 percent

December 23, 2013 By Roy Hernandez

From OC Register December 19th, 2013.

RATE NEWS

From Freddie Mac’s weekly survey the 30-year fixed rate climbed to 4.47 percent and .7 point from last week’s 4.42 percent and .7 point. The 15-year fixed rose to 3.51 percent and .6 point from last week’s 3.43 percent and .7 point.

BOTTOM LINE: In the past year—assuming a well-qualified borrower received the average 30-year conforming fixed rate on $417,000 — you would have saved $263 had you funded your loan a year ago on the previous rate of 3.37 percent and payment of $1,842 compared to today’s 4.42 rate and payment of $2,105. Today’s 15-year fixed rate of 3.51 percent and monthly payment of $2,983 is $173 higher than last year’s payment of $2,810 on the previous rate of 2.65 percent.�

APPLICATION NEWS

The Mortgage Bankers Association weekly survey reports a 6 percent drop in loan applications compared to last week. Purchase loans now represent 34 percent of all applications. The Federal Housing Finance Agency announced (Fannie’s and Freddie’s regulator) announced shockingly large increases to loan level pricing adjustments as well as a separate guarantee fee increase. Simply stated, these loan point taxes could increase your loan costs in certain instances by .85 point to 1.6 points. Ouch!

WHAT I SEE: From rate sheets hitting my desk that are not part of Freddie Mac’s survey: Locally, not-so-well qualified, self-employed borrowers can get their income cleared on conforming and jumbo loans with a letter from their CPA and a current P & L on conforming and jumbo loans. Well-qualified borrowers can get a 30-year fixed rate at 4.25 percent and 1 point or 4.625 percent and zero cost. Or take a 15-year fixed at 3.25 percent and 1 point or 3.625 percent and zero cost. The 5/1 ARM for conforming or jumbo is very attractive at 3.5 percent, no-cost and some borrower rebate money on higher loan amounts.

WHAT I THINK: My 2014 top 10 predictions, in consultation with my crystal ball, are now etched in stone, with numbers 1 through 5 posted today. I’ll reveal 6-10 next week.

1) Home prices in Orange and Los Angeles Counties will drop between 6 and 8 percent in 2014. This will be due to a continuum of the current housing sales slowdown (that’s code for the housing economy is rapidly flattening), very untimely higher taxes on mortgages in the form of loan level pricing adjustments and guarantee fees and higher FHA mortgage insurance charges (that were introduced in 2013), as well as the tighter underwriting standards that start January10, aka the Qualified Mortgage and Ability-to-Repay rules.

2) Interest rates will rise in the first half of the year, touching 5 percent. The second half of the year will see a nosedive with 30-year fixed rates dropping to 3.25 percent to provide housing CPR and regain a market pulse.

3) In a new twist, lenders will be mandated by their regulators to do property occupancy inspections to be certain the home is really being rented (as rental properties are exempt from the new Qualified Mortgage rules).

4) Loosey-goosey underwriting programs will creep back in on particular programs that will include cruddy credit, very high ratios and tax preparer letters instead of IRS income proof. This is akin to the fast and loose stated income world of old.

5) Home equity lines-of-credit (HELOCs) will be rampant next year. In addition to traditional usage as a second lien, they will be marketed for owner-occupied first trust deed purchases and refinance loans, as well as rental financing, as that is another program exempt from Qualified Mortgage and Ability to Repay rules.

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Home sales slow as frenzy cools

December 17, 2013 By Roy Hernandez

Home sales flagged last month in Orange County and throughout Southern California in the face of higher home prices, slightly higher interest rates and fewer investors, new housing figures show.

Still, those higher home prices had a beneficial effect. A separate report shows that 67,500 fewer Orange County homes were under water by the end of September.

Article Tab: image1-Home sales slow as frenzy cools

Orange County home sellers closed 2,632 transactions in November, down 8.6 percent from the year before, DataQuick Information Systems reported Monday. That’s 12 percent slower than in October, compared with an average October-to-November drop of 8 percent.

The median home price – or price at the midpoint of all sales – was $560,000, up 24.4 percent from November 2012 levels. Last month’s median matched a post-recession high first hit in August.

The pattern was similar throughout the region: Overall Southern California home sales fell 10.4 percent, while the median price rose 19.9 percent, to $385,000.

Type	Nov. Price	1 yr ch	Nov. Sales	1 yr ch
Resale houses	$610,000	16.2%	1,591	-13.6%
Resale condos	$373,000	21.3%	668	-19.4%
All new homes	$714,500	17.9%	373	78.5%
All homes	$560,000	24.4%	2,632	-8.6%

Local housing professionals warned, however, that last month’s price gains were due in part to a switch to pricier home sales.

With fewer foreclosures and short sales, transactions less than $500,000 fell from 66 percent of all Orange County deals in November 2011 to 40 percent last month, DataQuick figures show.Meanwhile, the share of Orange County homes selling for $700,000 or more doubled in two years, from 16 percent to 32 percent of the market.

“It’s hard to find anything under $500,000 for a single-family detached home,” observed Donna Sullivan of Coldwell Banker Residential Brokerage in Capistrano Beach. High-priced homes are “pretty much all that’s available.”

Sales of older, existing homes fell, while sales of higher-priced new homes rocketed upward 78.5 percent in Orange County, to 373 units – the most new homes moved for any month since December 2007.

“The part of the market that’s really moving right now is the high end. The low end is unavailable,” said Long Beach broker Geoff McIntosh, treasurer of the California Association of Realtors.

Price appreciation, McIntosh said, ranges from 3 percent to 4 percent in some neighborhoods to 8 percent or 9 percent in others.

Market watchers noted that the November data reflects deals being signed in September and October, when a traditional seasonal slowdown was being affected by the Washington drama over the government shutdown.

“November sales were pretty underwhelming,” said DataQuick President John Walsh. “The exact cause is tough to pinpoint, but we see likely culprits: The inventory of homes for sale still falls short of demand. Also, any pullback in homebuying during the early-October fiasco in Washington, D.C., would have undermined November closings.”

By JEFF COLLINS / ORANGE COUNTY REGISTER
Published: Dec. 16, 2013 Updated: Dec. 17, 2013 6:18 a.m.[gravityform id=”13″ name=”Have a question or comment?”]

Update on mortgage cancellation debt, short sales, IRS, and FTB liabilities

December 5, 2013 By Roy Hernandez

12/4/13. The good news just keeps continuing. Letter from California Assosiation of Realtors:

As we anticipated, C.A.R. today received a letter from the California Franchise Tax Board (FTB), obtained by the State Board of Equalization, clarifying that California families who have lost their home in a short sale are not subject to state income tax liability on debt forgiveness “phantom income” they never received in a short sale.

Last month, in a letter to California Sen. Barbara Boxer, the Internal Revenue Service (IRS) recognized that the debt written off in a short sale does not constitute recourse debt under California law, and thus does not create so-called “cancellation of debt” income to the underwater home seller for federal income tax purposes. Following the IRS’s clarification, C.A.R. sought a similar ruling by the California FTB. Now with the FTB’s clarification, underwater home sellers also are assured that they are not subject to state income tax liability, rescuing tens of thousands of distressed home sellers from California tax liability for debt written off by lenders in short sales.

We are pleased with the recent clarifications issued by the IRS and the California Franchise Tax Board, which protect distressed homeowners from debt relief income tax associated with a short sale in California. We would like to thank Sen. Boxer and BOE member George Runner for their leadership in obtaining this guidance from the IRS and FTB. Distressed California homeowners can now avoid foreclosure or bankruptcy and can opt for a short sale instead, without incurring federal and state tax liability, even after the Mortgage Forgiveness Debt Relief Act of 2007 expires at the end of this year.

Sincerely,

Kevin Brown
2014 President
CALIFORNIA ASSOCIATION OF REALTORS®

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Citibank offering 3% conventional loan with NO PMI

November 20, 2013 By Roy Hernandez Leave a Comment

Here are some of the programs that Citibank has to offer :

On time Closing Guarantee, if we don’t close on time, we will give $1500 credit to the buyer
3% conventional loan with NO PMI ( first time home buyer)
Govt loan FHA/VA
Conventional loan
Jumbo Loans : CitiQuick loans qualify for limited doc, rate protection up to 3yrs, if rate drops by 0.25%, we lower it at no cost to the borrower. Asset based cash flow, we can use borrowers asset to derive income to help qualify for a loan

And much more…..
Click here for PDF flyer

Contact Roy Hernandez for more details!

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Great news from IRS for sellers that short sell

November 15, 2013 By Roy Hernandez Leave a Comment

November 15, 2013

Dear Roy,

As the new president of the CALIFORNIA ASSOCIATION OF REALTORS®, I’m pleased to be the first to inform you of some very good news.

We have been working with California Sen. Barbara Boxer to protect distressed homeowners from debt relief income tax associated with a short sale in California. As part of this effort, Sen. Boxer requested the Internal Revenue Service (IRS) to provide guidance on whether mortgage debt forgiveness in a lender-approved short sale would be taxable income under federal law, given California’s recent non-recourse laws for short sales, which were hard fought victories by C.A.R.

The IRS has clarified in a letter that California’s troubled homeowners who sell their homes in a short sale are not subject to federal income tax liability on “phantom income” they never received. The IRS recognizes that the debt written off in a short sale does not constitute recourse debt under California law, and thus does not create so-called “cancellation of debt” income to the underwater home seller for federal income tax purposes. This clarification rescues tens of thousands of distressed home sellers from personal liability upon expiration of the Mortgage Forgiveness Debt Relief Act of 2007 on Dec. 31, 2013.

C.A.R. is seeking a similar ruling from the California Franchise Tax Board (FTB), which has been awaiting the IRS action; we anticipate the FTB will act promptly. Short sales may raise other tax issues and, as always, you should advise your clients to speak with their tax professional regarding the tax consequences of a short sale.

C.A.R.’s Legal Department has prepared a Realegal to further explain the IRS’s clarification.

I know you join me in expressing our thanks, as well as those of our troubled homeowners, to Sen. Boxer for her leadership on this issue. I will keep you informed and provide additional details as I have them.

Sincerely,

Kevin Brown
2014 President
CALIFORNIA ASSOCIATION OF REALTORS®

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New FHA guidelines coming: Purchase 1 year after “Economic Event”

November 15, 2013 By Roy Hernandez Leave a Comment

Read the full article HERE

The financial crisis took its toll on Wall Street and Main Street alike. Mistakes were made and bills went unpaid on both sides of the fence, but Main Street sees Wall Street bailouts and asks “where’s my bailout?” Specifically with respect to the housing market, borrowers who have had bankruptcies, foreclosures, deeds-in-lieu, short-sales, or other adverse credit have heretofore been unable to quickly reestablish themselves as worthy borrowers. That’s changing.

Late last week, The Department of Housing and Urban Development on Thursday unveiled a new set of guidelines under the FHA program specifically geared toward homeowners and prospective homeowners adversely impacted by the Great Recession. The “Back to Work” program, as it’s called, doesn’t constitute a free pass for those who would otherwise be unable to qualify for financing, but it does reopen the housing market to a great many borrowers who would otherwise have been waiting for 3-7 years to tick off the clock–depending on their initial credit issue–before being able to qualify for a mortgage. In FHA’s words:

“As a result of the recent recession many borrowers who experienced unemployment or other severe reductions in income, were unable to make their monthly mortgage payments, and ultimately lost their homes to a pre-foreclosure sale, deed-in-lieu, or foreclosure. Some borrowers were forced to file for bankruptcy to discharge or restructure their debts. Because of these recent recession-related periods of financial difficulty, borrowers’ credit has been negatively affected. FHA recognizes the hardships faced by these borrowers, and realizes that their credit histories may not fully reflect their true ability or propensity to repay a mortgage.”

The program will require prospective borrowers to thoroughly document the nature of the “Economic Event,” that it resulted in derogatory credit, and that there has been a satisfactory recovery from the Event per the new guidelines.

Lenders will consider the Economic Event to have caused the derogatory credit if:

The prospective borrowers had satisfactory credit prior to the event onset
The prospective borrowers’ derogatory credit occurred after the onset of the event
The prospective borrowers have reestablished satisfactory credit for at least 12 months since the the end of the event

Lenders will consider borrowers to have reestablished satisfactory credit if:

The borrower has no late housing or installment debt payments for the past 12 months
Open mortgage accounts are current and have been paid on time for the past 12 months
Borrowers have adhered to the agreement of any open modification plan for the past 12 months
Complete a course of Housing Counseling in person, via telephone, via internet, or other methods approved by HUD (who provides a list of Counseling agencies).

For the purposes of this program, an “Economic Event” is defined as “any occurrence beyond the borrower’s control that results in loss of employment, loss of income, or a combination of both, which causes a reduction in the borrower’s household income of twenty (20) percent or more for a period of at least six (6) months. The Onset of an Economic Event is the month of loss of employment/income.” Lenders will verify the reduction in income or loss of employment with at least one of the following:

A written termination notice
Other publicly available documentation of the business closure
Documentation of the receipt of Unemployment Income

Additionally, lenders have to verify a 20 percent loss of income due to the Economic Event by documenting borrowers’ income prior to the event. This requirement can be satisfied either with a written “Verification of Employment” form with income details provided by the employer or signed tax returns (or W-2s).

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U.S. Home Value Appreciation to Slow in 2014

November 12, 2013 By Roy Hernandez Leave a Comment

Pace of Annual Appreciation to Fall to 4.3 Percent in 2014, 3.4 Percent by 2018; Panelists Say Federal Government Should Back 35 Percent of Mortgages, According to Zillow Home Price Expectations Survey

SEATTLE, Nov. 7, 2013 /PRNewswire/ — More than 100 forecasters said they expect the U.S. home values, as measured by the Zillow® Home Value Indexⁱ, to end 2013 up an average of 6.7 percent year-over-year, according to the latest Zillow Home Price Expectations Survey, before slowing over the next five years. Most panelists also said they would like to see the federal government maintain a considerable role in the mortgage market.

The survey of 108 economists, real estate experts and investment and market strategists was sponsored by leading real estate information marketplace Zillow, Inc. and is conducted quarterly by Pulsenomics LLC.

While appreciation is expected to remain strong through the remainder of this year, the pace of home value growth is predicted to slow considerably through 2018. Panelists said they expect appreciation rates to slow to roughly 4.3 percent next year, on average, eventually falling to 3.4 percent by 2018.

Based on current expectations for home value appreciation over the next five years, panelists predicted that overall U.S. home values could exceed their May 2007 peak by the first quarter of 2018, and may cross the $200,000 threshold by the end of 2018.

“The housing market has seen a period of unsustainable, breakneck appreciation, and some cooling off is both welcome and expected,” said Zillow Chief Economist Dr. Stan Humphries. “Rising mortgage rates, diminished investor demand and slowly rising inventory will all contribute to the slowdown of appreciation.”

The most optimistic quartileⁱⁱ of panelists predicted an 8.3 percent annual increase in home values this year, on average, while the most pessimistic quartileⁱⁱⁱ predicted an average increase of 5.6 percent. Expectations among the optimists fell from 9.3 percent in the last survey, but rose from 5.1 percent among the pessimists. The most optimistic panelists predicted home values would rise roughly 12.5 percent above their 2007 peaks by the end of 2018, on average, while the most pessimistic said they expected home values to remain about 6.2 percent below 2007 peaks.

Diminished, But Still ‘Significant’ Role For Federal Gov’t in Mortgages

A number of public and private plans for overhauling the nation’s mortgage finance system and reforming government-sponsored entities Fannie Mae and Freddie Mac have been proposed, all of which seek to reduce and redefine the government’s role in the mortgage market to some degree. As these policy conversations begin, panelists were asked how involved they think the federal government should be in any re-imagined mortgage system. Among those panelists expressing an opinion, the majority (58.4 percent) said the federal government’s involvement in the conforming mortgage market should be “somewhat significant,” “significant” or “very significant.” Only 8 percent of respondents said the federal government should have a “non-existent” role in the conforming market.

Panelists were also asked to define an appropriate level of government-backing for mortgage loans going forward. Among those panelists expressing an opinion about what maximum percentage of all new mortgages should be backed by the federal government, the median response was 35 percent, roughly the level seen in 2006 at the height of the housing bubble.

“Policy discussions centered on reforming the nation’s housing finance system have only just begun, and it will be very interesting to see what comes out of these debates and how the market will react to new proposals,” Humphries said. “How much mortgages will end up costing average consumers, and the continued availability of traditional mortgage products like the 30-year fixed rate mortgage, are among the critical issues currently at stake for consumers in these debates.”

“Currently, the federal government backs roughly 90 percent of all new mortgage originations in the U.S. in some form,” said Pulsenomics® Founder Terry Loebs. “In 2000, prior to the bubble, the government backed about 50 percent of new mortgages. These benchmarks and survey data are another reminder of the challenges that lie ahead in reforming U.S. housing institutions.”

Banks offering mortgages with only 5% down payments

November 8, 2013 By Roy Hernandez Leave a Comment

NEW YORK (CNNMoney)

Good news for homebuyers who don’t have a lot of cash on hand: Banks are offering loans with down payments of just 5%.

After the housing bubble burst, buyers needed to come to the table with as much as 20% down or they had to turn to the Federal Housing Administration for a low down-payment loan.

But now banks like TD Bank, Bank of America (BAC, Fortune 500), and Wells Fargo (WFC, Fortune 500) are loosening the purse strings, offering loans with down payments that are as low as 5%.

TD Bank’s “Right Step” mortgage, for example, allows borrowers to secure a loan with a 5% down payment. It also allows them to receive as much as 2% of the sale price as a gift from a relative or other third party, so they would really only need 3% down.

Why the change of heart? Market opportunity for one thing.

FHA dominated the market for low down payment loans during the housing bust. Taking on all those risky loans, however, depleted the agency’s reserves and has forced it to increase costs.

Over the past couple of years, the FHA has been raising premiums. And this year, it started requiring borrowers to buy private mortgage insurance for the life of the loan — an expensive proposition that has sent many prospective borrowers looking elsewhere.

While the loans were far too risky for private lenders to take on before, rising home prices have made them less of a gamble. Plus, the banks think they can offer a better deal than FHA.

“As the FHA selectively reduced market share by increasing premiums, we introduced a substitute for FHA loans,” said Malcom Hollensteiner, the director of retail lending sales for TD Bank.

While the private lenders that are offering the 5%-down loans are also requiring borrowers to buy private mortgage insurance, they are only requiring them to do so until they build up 20% equity in the home.

The difference can really add up. Paying an insurance premium over the life of a $200,000, 30-year fixed-rate loan from FHA that carries an effective mortgage rate of 4.4% (5.75% when you tack on the insurance premium), can add up to nearly $60,000 over the life of the loan.

Of course, homeowners can always refinance to end their FHA insurance, but rates are so low that by the time an FHA borrower is able to refinance to a lower rate, it may not be worth it.