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Posts Tagged ‘mortgages’

What’s the Future of Mortgages?

Posted in Finance, General Real Estate Market, tagged , , , on March 7, 2011 | Leave a Comment »

In the aftermath of the financial meltdown, much of which was brought on by mortgages that were too easy to get by people who were “iffy” at best regarding their ability to repay their mortgage, we are beginning to see discussions about how mortgages should be arranged and marketed in the future.  This is part of the “new normal” that we’re adjusting to in terms of expectations for housing prices and affordability in the future.  Most experts agree that the housing bubble created a situation that while exhilarating while it was happening, was not worth the hangover afterward.  So now, we’ve got to figure out how to remain sober with our mortgages in the future.

Part of the discussion is the role of government in encouraging home ownership.  For many years, going back to the fifties, we’ve used various government or government sponsored agencies to expand homeownership in the US.  These agencies include FHA, Fannie Mae and Freddie Mac.  It appears that during the bubble, these agencies got too energetic in their activities and took on too many poor quality mortgages bundled as investments, and when lending from non-governmental sources dried up, they were left as largely the only game in town, so now they hold way too many mortgages.  Many experts agree that we’ve got to reduce the role of these agencies, but the question is how to do it without having calamitous results.  Such things are debated by politicians, who are aided by their favorite economists.  Of course, we know that economists can’t agree on anything, so there’s no telling where all this might lead.

Wherever it leads, you can pretty much count on mortgages being more expensive in a variety of ways, and therefore available to fewer people buying houses priced lower than before.  There are lots of other ripple effects that come from that direction.  For examples of how our future mortgage market might look, all you have to do is travel north to our neighbors, the Canadians.  They didn’t really participate in our housing bubble, and their banks didn’t fail, as did ours.  How did they manage that?  The reasons are that their lenders didn’t bear nearly the risk that ours did. 

  • Most mortgages are amortized at 15, 20, or 25 years- not 30
  • Fixed rates run for up to 5 year intervals, then are adjusted for another 5 years- no 30 year fixed mortgages
  • Required down payments are generally higher that ours
  • The market includes stronger mortgage insurance requirements that provide real coverage and stability
  • Most borrowers remain responsible for any loan balance left after foreclosure sale if the sale doesn’t cover it (likely)
  • And for good measure, mortgage interest is not deductible from income tax

For more about the Canadian vs. US mortgage markets, check out THIS article from The American Enterprise Institute.  For interesting comments on the debate about government involvement in mortgages from two traditionally very different points of view, HERE is an article from Huffington Post, and HERE is an article from The Heritage Foundation.

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Coldwell Banker Proposes a Solution

Posted in Finance, General Real Estate Market, Real Estate, tagged , , , on January 7, 2011 | Leave a Comment »

Sometimes when we’re stewing in the big pot o’ problems, there just doesn’t seem to be a good solution.  That’s about the time that someone steps with an idea that makes you want to say,”why didn’t I think of that?”  Below you’ll see that Coldwell Banker Real Estate folks are trying to come up with some solutions that actually would work.

OP-ED PAGE – NEW YORK TIMES
“Home Team”
By ALEX PERRIELLO
Published: January 5, 2011
Three years after the mortgage crisis began, there are still 11 million to 15 million homeowners who owe more than their home is worth, meaning that about 25 percent of all mortgage holders are underwater. As a result, foreclosures continue to mount; many homeowners can’t make their payments and are tempted to simply walk away from their debt. Meanwhile, the lenders and investors who own the loans are unwilling to work out a deal if, as is usually the case, it means losing money.

Fortunately, there is a solution. Rather than be at odds, homeowners and investors should partner in long-term equity-sharing arrangements.

Here’s how it would work. Let’s say a homeowner purchased a house in 2004 for $300,000 with no money down, and the property is now worth $150,000 — a 50 percent drop in value.
In an equity-sharing arrangement, the lender would write a new loan for $150,000, retire the original $300,000 loan and, to make up for that loss, take a 50 percent deeded ownership interest in the property. The homeowner would also agree to split 50 percent of the net proceeds of any future sale of the property with the lender. The new arrangement would also include a buyout provision, so that if the homeowner ever wanted to take over the lender’s share, he would simply pay the lender a predetermined amount of cash.
Such a plan would be relatively easy to put in place, assuming the lender held the loan in its own portfolio. In most cases, however, lenders immediately sold their loans to investors and merely performed loan-servicing duties like collecting monthly payments and sending statements.

In those instances, the lender would have already made its money when the loan was originated, the proceeds from the new loan and the 50 percent deeded interest in the property would go to the investor, not the lender. The investor would also benefit from any future sale or when the homeowner exercised the buyout provision.

Equity-sharing would be a boon for everyone involved. Homeowners could stay in their houses and preserve their credit (assuming they stay current on the new loan). The neighborhood would avoid a foreclosure, which can depress property values. And the lender or investor could participate in the upside potential when the house eventually sells. Best of all, it wouldn’t cost taxpayers a dime.
A major reason the mortgage mess has gone on so long is that homeowners, lenders and investors assume their interests are at odds. An equity-sharing arrangement would bring all three onto the same side — and help solve America’s foreclosure crisis.
Alex Perriello is the president and chief executive of a real estate franchise organization.
A version of this op-ed appeared in print on January 6, 2011, on page A27 of the New York edition.

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Mortgage-oscopy

Posted in Finance, General Real Estate Market, Iredell County, Lake Norman, Mooresville, tagged on August 3, 2010 | Leave a Comment »

Last week we closed on a very nice home in Mooresville, NC for a great couple who vow that they don’t ever want to go through that again.  The “that” is the process they went through to get a mortgage.  These folks have excellent credit and income, yet the lender (who shall remain nameless) put them through a rather gruelling passage of questions and answers and producing documentation, sometimes the same documention more than once becuase the lender lost the first set.  Even though this loan was applied for in a no-rush situation, the lender was still dragging their feet a day after the original closing date.  The sale was finally recorded two days late, with the moving van sitting in the driveway waiting for the buyers to actually own the house.  FYI, when you buy a house, you don’t legally own it until the deed is recorded with the local Register of Deeds.  I’ve had to caution many buyers that closing dates routinely slip, usually because the lender doesn’t get the “loan package”, all the papers to sign and preparation instructions, to the attorney until they have every i dotted and t crossed.  For some reason, they often will assure you they have everything they need and then a day before come up with some additional information requirements.  Given that they used to provide loans on little more than a wink and a handshake, the pendulum has swung way far in the opposite direction.

I tend to think in analogies.  For this situation, I told my clients that nowadays, applying for and getting a mortgage is like getting a financial colonoscopy without benefit of anesthesia.  Hopefully, you’ll be pleased with the results, but you won’t enjoy the process!

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Shopping Estimates for Mortgages

Posted in Finance, General Real Estate Market, tagged , , on February 2, 2010 | Leave a Comment »

There are many good, honorable mortgage lenders out there.  I’ve worked with many who I trust to do absolutely the best they can for their clients and never worry about trying to get lending business by being less than honest.  However, as we’ve seen in reports over the last few years, there have been plenty of people trying to sell mortgages who did it without regard for the well-being of the borrower, and had no qualms about mis-stating details in their loans that would come back to bite the borrower.  The federal government has changed some of the rules that the lenders must follow in order to limit the damage a crooked lender can do.  Kenneth Harney, a nationally known housing columnist, recently reported evidence that lenders are possibly skirting a new law that requires lenders to give their quotes via a Good Faith Estimate (GFE) which at closing will be compared to the actual closing numbers.  Errors in estimates by the lender on the GFE larger than 10% must be paid by the lender.  Some lenders are concerned about their ability to accurately estimate all of the fees since they don’t control some of them.  Yet, I’ve found that when I put together estimates of closing costs for my clients, I can be quite accurate if the lender just gives me the numbers they control, and I add estimates based on experience for the others such as surveys and inspections. 

Harney goes on to say that some lenders are responding to quote requests with what they call “worksheets” and “loan scenario” forms that are not bound by the federal laws.  This is within the bounds of reason if you’re just getting rough estimates without having a specific property in mind.  Just be sure you understand that when you are getting mortgage quotes on a specific property you want to buy, then you should ask for a Good Faith Estimate.  That’s when the federal laws will kick in and protect you from a lender who tries to low-ball some of the numbers to make their quote look better than others.

The old saying still applies, “If it looks too good to be true, it probably is.”

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How Big a Down Payment?

Posted in Finance, General Real Estate Market, Lake Norman, tagged , , , , , on January 8, 2010 | Leave a Comment »

I recently talked to some out-of-town folks who are thinking of moving- selling their current home and buying another in the Lake Norman area.  During our discussion of how they might be able to follow through on that dream, one of them expressed concern about being able to put together enough cash for their down payment.  Now, lots of people have a similar concern, but I knew these folks were retired and likely had a fair amount available.  I suspected that they were going on what they and I have heard in interviews of experts on national media about the down payment required for non-FHA loans.  I’ve often heard that quoted as “well, we’re back to the old days when lenders required 20% down.”  I kept hearing that some time ago so I called three of my local lender rep friends about this.  They all said that for conventional loans, their lenders would accept as little as 5% with satisfactory credit.  I told this to my friend during our conversation, and she was very relieved, seeing her plan as being much more do-able given the lower cash requirements.

As with all things having to do with mortgage loans, I pointed out that things are changing every day in the mortgage business.  I told my friend that it is always best to start your research for buying a home with a call to a mortgage lender or two in order to see what’s going on in terms of down payment requirements, interest rates, ability to lock rates, and other details that are important to understanding what one can and can’t do in financing a home.  She agreed to do this.  I’m sure she’ll get some very useful information about her particular circumstances and needs.

More information equals fewer questions and less worry.

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No Point in Listing Too High

Posted in Finance, General Real Estate Market, Real Estate, tagged , , , , , , , , , on November 19, 2009 | Leave a Comment »

The good news is that there are buyers out there, especially since the passage of the expanded home buyer tax credit which now offers a tax credit for current homeowners who want to sell their home and buy another primary home (see details HERE).

The problem is that some of those people thinking of selling their home don’t understand how home purchases and mortgages work.  That causes them to be tempted to price their home too high when they list it.  I call this the “waiting for someone to show up with more money than brains” syndrome.  Fact is, that just will delay the sale of the property, if it sells at all.  If the case of the tax credit, not selling soon enough means you’ll lose the tax credit because of the time limits.  There are two  main reasons for this.

  1. Most buyers will be working with a “Buyer’s Agent,” an agent whose responsibility is to help the buyer find the best property at the best price.  No, they won’t try to jack up the sale price just to get a few more dollars in commission.  First, they have a fiduciary duty to their buyer client to help them get the best deal.  The second reason for this is tied to the point below.
  2. Unless a buyer is going to make the purchase with all cash, then there is a lender involved.  If you think about it, at closing, the lender owns most of the house, with the buyer having equity equal to their down payment.  The lender sends their appraiser (who actually works on behalf of the lender. not the buyer) to appraise the value of the house relative to the local market.  If the house does not appraise at a value at or above the contract price, then the lender will refuse the loan unless the buyer is willing to make up the difference.  The lender does not want to be stuck with a big loan on a property that was over-priced, in case the borrower defaults on the loan.  So, to go back to point #1, the buyer’s agent will advise the buyer not to agree to pay too much because the lender will refuse the loan in most cases.

So, like I said, there’s just no point in listing too high.  When agents are looking at sold properties on the MLS, we can see the entire history of a property’s listing.  It is not unusual to see properties that sold 10, 15, or 20% below their original listing price, and see that the seller kept dropping the price for a year or two, always being behind the curve of price changes, until they finally got desperate and set the price in line with the market, when it then sold.  Some of them waited too late and were forced into a short sale or foreclosure.

Pricing it right with the current market will get it done and cause much less stress on the seller.  By the way, I can help you set a proper listing price based on research I do on recent sales and current competition.

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Different Lenders, Different Results

Posted in Finance, Real Estate, tagged , , , on September 17, 2009 | Leave a Comment »

While working with some buyer clients this past week, we had conversations with a lender rep from a “big bank” and a lender rep who is with an independent broker.  I always suggest that my clients shop the market to ensure they are getting the best mortgage rates and expenses.  All borrowers have different situations so generalization is not very useful in picking lenders.  Buyers need to talk to several to find out who they are comfortable with and who’s specific business rules work best for the buyer.  In this case we found that for an FHA loan, the big bank got different credit scores than the mortgage broker when contacting the credit rating agencies (curious, don’t you think?).  We also found that the big bank would work with lower minimum credit scores compared to the mortgage broker. 

We at the office have been told by some of the closing attorneys that they are seeing evidence that “the powers that be” seem to be skewing the rules to favor the big banks over the brokers.  This experience seems to back that up, although it may be that the smaller funding sources for the brokers have concluded that they have to be more conservative right now to avoid exposure to more losses.  No doubt there are many different factors involved that are known only to those who are immersed in the lending world.

For me, I just want to help my buyers get a good loan at a good price and not be talked into something they’d regret later.  So the moral of this is that it pays to shop around, not only for best price and terms, but also because sometimes from one lender you get a NO, and from another you get a YES!

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Lender’s Limited Choice of Appraisers

Posted in Finance, General Real Estate Market, Real Estate, tagged , , on July 28, 2009 | 1 Comment »

Talking recently to Andrea Kindley of Starkey Mortgage (704.902.6371)about the slowdowns in loan processing due to the Home Valuation Code of Conduct that went into place on May 1, 2009, she said that some loans require the lender to go through a third party, called an Appraisal Management Company, to select an appraiser, and others do not.  “We lenders are required to use the HVCC Appraisal Desk on Conventional Loans but can still use FHA and VA Appraisers for Govt Loans, and we can also choose our own Appraisers on all Jumbo Loans,” she said.  The Home Valuation Code of Conduct was put into place to ensure that for covered loans, the appraiser will be totally objective in placing a value on the home.  HERE is a link to the Freddie Mac site that describes the HVCC.

In the meantime, due to continued complaints from REALTORS and others about the effect the HVCC has on getting our business done, the National Association of Realtors on July 23 issued this statement: 

“NAR and our 1.2 million members are pleased that the Federal Housing Finance Agency has instructed Fannie Mae and Freddie Mac to take action to clarify confusion over the new Home Valuation Code of Conduct for home appraisers implemented this past May.

“Our members were experiencing delayed and lost sales because of poor appraisals conducted often by inexperienced appraisers who were not familiar with the area. The ramifications were so great to our members and to the housing industry that I personally met with the New York Attorney General’s office and with the head of the FHFA to share our concerns.

“In those meetings I shared an NAR survey that found 76 percent of our members, representing both buyers and sellers, had experienced an increase in appraisal time since the new HVCC rules were enacted. Similarly, 71 percent of Realtors® noted an increase in the use of appraisers who were not from the local area. These factors often adversely affected the sale or the sales process, which occasionally resulted in the loss of a sale or a homeowner’s inability to refinance into today’s lower rates. I expressed our serious concern in the meetings.

“We took this information, and our concerns, to those organizations responsible for the changes and we are pleased that they listened. Today Fannie Mae and Freddie Mac issued clear guidance on two very important points that we raised in our meetings. First, the guidance states that lenders should use appraisers who have clear experience in the geographic area. Second, it clarifies that appraisers are not prohibited from talking to real estate agents.

“NAR has asked Congress and the FHFA to immediately implement an 18-month moratorium on the new HVCC rules to further address unintended consequences of this new rule. We will continue to push for this, but are pleased that this first step was taken today.”

Stay tuned to see if we can get things moving along a bit better.

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Realtors Are Gaining Confidence

Posted in Finance, General Real Estate Market, Iredell County, Lake Norman, tagged , , , on April 8, 2009 | Leave a Comment »

The National Association of Realtors (NAR) has released it’s February 2009 report on Realtor Confidence showing that Realtors across the country are beginning to see some evidence of a turnaround in the housing market, primarily in the south and west.  They generally show that the Realtor confidence ratings are higher than they were for January but lower than this time last year.  Some of the factors that one would expect to be driving this are the lower prices of houses, the very low interest rate, the beginning of the First Time Homebuyer Tax Credit.  This trend seems to be confirmed by a report released today from the Mortgage Bankers Association that the rate of home purchase applications is up- not just home loans, which can include refinancing, but actual home purchase loans.  See a link HERE on this news.

The fact of the matter is that like we’ve always said, real estate is local, so different areas will pull out of the slump at different times.  The thing most folks don’t think about, though, is that although real estate is local, people do move from region to region.  We’ve said before that lots of people who want to move to the Iredell County and Lake Norman areas currently live elsewhere, and are having trouble selling their homes (for what they want or need to get) in order to make the move.  Lots of them will not sell until they get over the pain (mourning) of not ever expecting to get what they could’ve gotten at the top of their local boom.  “Time heals all wounds”, and lots of those people have had a lot of time to get over their loss and do what needs to be done to move.  I think we’ll be seeing more of those sales as the year wears on, enabling people who want to move to go ahead and do it.

Since the south has had the largest up-tick in Realtor confidence of the four regions measured (Northeast, Midwest, South and West), I suspect we’re seeing the results of those who are finally moving on with their plans.  It doesn’t hurt that a cold, nasty winter is a pretty good motivator to move south!

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Shopping Mortgage Lenders II

Posted in Finance, Real Estate, tagged , , on March 21, 2009 | Leave a Comment »

I wrote on Friday about working with a client couple who were in the middle of finding a home and looking for a lender.  Well, the results are in!  We agreed on a contract Friday afternoon, and by Friday evening, my clients had talked again with the two lenders who had offered the best rate and loan cost.  The result was that one of the lenders decided they really wanted the business and cut their loan charges to rock bottom.  Competition between the lenders resulted in my clients being able to go to the closing table with a considerably smaller check than they had anticipated.  Understand however, that like all things, if it looks to good to be true, it likely is.  I’ve seen some low-ball lenders do a poor job of handling the details of a closing and threaten the closing happening according to the date on the contract.  Therefore, I only suggest to my buyers lenders who I know from experience with follow the loan process daily and assure that the closing schedule is met.

By the way, my clients happened to be looking at an absolutely wonderful time to buy a house.  The rates they were being quoted were in the 4.5% to 5% range.  The rates bounce around each day, so the only way to ensure a rate is to choose a lender and “lock” the rate.  My clients ended up at 4.75%, and boy were they happy!

Hey, I was happy, too!  That’s a great way to end a week.

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