Down Payments in Today’s Real-Estate Market

 The news media has been talking lately about how difficult it is to get home loans approved these days. I think there may be some misconceptions about available loans, down payments, etc. In the ‘old days’ – last year! – lenders were offering 0 % home loans. Some would even allow you to receive 3% of the sale price as a concession. In other words, you could come to the table with very little of your own money. Several lenders offered that product on investment properties as well. It is great for a market that continues to have appreciation and home values continue to go up but we found that when home values drop and people become upside down in their mortgages it is much, much easier to just walk away from those properties.

Years ago when the only down payment option was 40 or 50% down, the Federal Housing Association came into existence. They offered a product that enabled folks to buy their own homes – a 3% down loan  insured by the government with insurance added to it. Some people call it PMI (Private Mortgage Insurance); some call it MIP (Mortgage Insurance Premium). The reason it was there was insurance in case you foreclosed on the property. Should that occur, the lender then had an amount of money to help offset foreclosure expenses. The FHA is a good loan but I think we will find that the qualifications for an FHA loan will become even more strict. An FHA style loan by design is not a risk base on your credit score like a conventional loan. In other words, you can have a lower credit score and a fair amount of bumps and bruises and still be approved for an FHA loan. Well, that was true until the credit crunch. Then many guidelines came out and now some lenders have placed a minimum credit score on an FHA-style loan. About 8 months ago they began with a 580 credit score – if you had a 580 or above credit score and met all the other criteria, you could be approved for an FHA loan. Then lenders began to change the numbers – 580 became 620 then a 640 – so it is clear that several lenders are recognizing that those with lower credit scores have a higher risk of defaulting on their loans. The lenders are trying to control or lessen their losses by structuring things credit score driven which goes against the principle of how the FHA loan program came about. There has been talk that the FHA will make a change to a 5% down payment in the future instead of 3%.

The rest of the article here

New Good Faith Estimate

NEW GOOD FAITH ESTIMATE.  CHANGE FOR THE BETTER?  The government decided that a one-page Good Faith Estimate (GFE) was not adequate for the home buyer. Consequently, they have done a Real Estate Settlement & Procedures Act (RESPA) reform changing the original act that became law in 1974. This reform was supposedly done to benefit consumers (for a longer explanation of RESPA click here  The concern with the original GFE was that unethical loan officers and Mortgage Brokers were not completing the form properly. Leaving off known fees which the buyer in responsible for at closing. Anyone who has purchased a home knows that the GFE rarely matches the HUD-1 settlement.  Mortgage Brokers are able to produce a GFE however they see fit. At the beginning of my career as a Mortgage Broker I created a template for each loan transaction – a beginning point, if you will. This template is only as good as the figures that are plugged into it. Figures for lender’s fees, legal fees, title fees, state fees, county fees, survey fee, insurance, etc. are always subject to change. For this reason I update my template quarterly which enables me to be as accurate as possible. I strive to make my GFE as close to the HUD-1 settlement as possible. Legally, I was not required to update the template until January 1 of 2010 when the RESPA reform took effect.  The GFE you will now see is a binding contract between a Mortgage Broker and the client. In the old days (December, 2009!) an origination charge meant the fee paid to the Mortgage Broker for originating the loan. In January 2010 for the convenience of the consumer to shop the loan, several fees were bundled together. They are now broker originator fees, all lender fees and broker processing. Those new origination charges have zero tolerance and may not differ from the final HUD-1 settlement statement. For title fees and government recording charges, the creators of this bill recognized that there might be some variance in these fees and allowed a 10% difference at closing.  If there is a change- the Mortgage Broker pays!  To sum it up, this will be a most interesting first quarter. My prediction is that you will hear a great deal more about this both from the national and local media in the next few months as the first of these loans under the new RESPA reform begin to close. Questions?

Steve Harney, feature speaker

Last week I was able to attend a seminar featuring Steve Harney, one of the leading experts in the real estate industry. I was invited by one of my good friends – Sammy Garner. Sammy and I are in the same industry and have been friends for years. He was kind enough to not only invite me but to provide my ticket because he knew there would be information of value for us both. A secondary benefit of the seminar was the opportunity to sit at the table with a Plano real estate legend – Mike Brodie of Keller Williams. Mike is not only a speaker and seminar presenter on real estate issues; he is also one of the best producing realtors in the North Texas market. According to Mr. Harney, in 10 years there will be people sitting down and talking about the market of 2009…saying that ‘I could have done it….I should have done it’…talking about ‘if I had bought that house’….Basically he’s saying that prices are at their low and at some point they will begin to head back up, maybe not tomorrow, but pretty soon. He believes that there are many properties that are very distressed and that now is one of those times that people should buy so that in ten years they can be looking at the investment that they made instead of a missed opportunity. He said that in six months agents will be looking back at the help they had in selling houses from the tax break the government has given and from the low interest rates. It is an unbelievable time to be in real-estate and the agents in the business today should see an unbelievable year. In discussing foreclosures, Mr. Harney said that 20% of Texas homeowners’ value is under water. In other words, one in five Texans’ home value is below their mortgage amount. The percentage is even worse nationwide: in 35% of occupied homes the mortgage is now greater than the value. He spoke at length about foreclosures and said that he has found that 25% of the homes that have gone into foreclosure have been strategic foreclosures. In other words, these are people who have made their mortgage payments without a hitch for years but have recognized that they are now so upside down in their property that it becomes a good business decision to allow it to go into foreclosure. His studies are showing that the higher the person’s FICO score is, the more likely that they will make such a strategic move. Mr. Harney’s advice for Realtors was that they should strive to be the ‘expert’ in their market and be able to answer the questions about foreclosure, short sales, etc. Although it will be a challenge to predict the future of real estate, it is important for them to be the people with all the answers. Steve’s view is that Realtors and the housing industry will have the largest impact on the economy for 2010, let’s hope he is right!

What’s the Ideal Day to Close on Your New Home?

Do you think that the last day of the month is the best day to close on your home purchase?  It may not be true. Closing on the last day does not allow for any unforeseen circumstances.  What about selling a home in the morning and buying one that afternoon?  Very common but boy is that one a gamble.  Let me illustrate this by relating a true story.
 
A client of mine was closing the sale of their home at one Title Company in the morning. Immediately following that closing they were to go to a second title company to complete the purchase of their new home. A problem developed when the folks buying my client’s home could not get their loan papers to the title company on time. We were set for a Thursday closing. We moved it to Friday and still no papers. We moved it yet again to Monday but still no papers. We finally heard on Tuesday that the client was officially withdrawing their offer due to their inability to arrange financing. They went through three different lenders with no success (wish they would have called me).
 
What that did was leave my clients high and dry. Without the sale of their present home, they were unable to close on their new home and were forced to withdraw their contract.

So now you have a couple with three children and a fourth on the way in a house that is completely packed up ready to move. They must now unpack and prepare their house to be relisted for sale. They must also decide whether or not to go through with the purchase of that new home and try to handle two mortgage payments or to wait and see if their present home sells quickly and avoid the double mortgage.
 
Remember, I am a Mortgage Broker, not a Realtor, so I what I tell you is of my opinion and you should always trust the advice of your Agent!
 
What most lenders will tell you is that closing both homes on the same day is normal and it should always be done that way. I would like people to consider closing on the sale of their house on a Monday or Tuesday. Then negotiate a ‘lease back agreement’; this simply means that you would lease the home you just sold from the new owners for two days. You would then close on your new home on Wednesday or Thursday of the week before the end of the month. This gives you ample time for the proceeds of the sale to reach your bank; it also makes sure you have time to gather all of the documentation you need for the next closing. Should anything go wrong with the sale of your home, you now have a few day window to work out any problems. It also enables you to leave your home intact until the sale is final….then you can pack up your house.
 
Again, I am a Broker and am not paid to give you real-estate advice; a Realtor is, so this is just my opinion.

My State of the Industry Views

Many of you have watched me and my life changes over the years.  And I bet a few of you were surprised 8 years ago when I decided to change from fun loving bicycle guy to pencil pushing mortgage guy to 2 years ago opening my own Mortgage Company.  I sure was.  Over that time I have engrossed myself into this industry and it amazes me when I see huge changes like we have coming ahead of us.  Simply put- because of the actions of a few greedy individuals- the housing industry will change and not for the better.
 
There are 2 worlds in mortgage lending- Retail and Wholesale.  I am a Mortgage Broker and work out of the Wholesale channel.  We all deliver our loans to the same place for the most part in Retail and Wholesale- the large lenders that set their standards of underwriting and products via the guidelines of Fannie Mae and Freddy Mac.  Be it Wells Fargo, CitiMortgage, Chase or Bank of America- they all carry the same products and after closing, the loans, for the most part turn into a commodity that can be traded and sold without too much affect on us the home owners.
 
Since home values have dropped in many States- those commodities were not generating the same profit and when you don’t show a profit- folks start asking to see your books.  Hence- where we are today- bad books and deception.  Then came the finger pointing, “it wasn’t us, it was them.”  Sort of reminds me of Adam and Eve in the beginning- if only they would have 1. Stayed away from the darn tree and 2. Owned up for their actions instead of placing blame down the line.  Well- us Brokers are the ones that most have decided can’t defend themselves as well and therefore must be the root of all the problems we have.  Hard for me to understand that- if I am simply approving folks on guidelines for products that Fannie and Freddy created and that the Banks then underwrite and approve- how am I the bad guy again?
 
To save us- the Government has created many committees and they have started to put in place new laws and guidelines that Fannie and Freddy should follow and in turn- so must the Banks.  Potential borrowers are seeing new credit and appraisal actions start to take affect and both are stopping folks from that home loan transaction.
 
Credit:  The other day I was working up a refinance scenario for a friend of mine who we had just closed on their home loan a year ago- let’s call that Before Fallout, BF.  So a year ago this person with a credit score of near 689 was, in the Banks and Guidelines views- A Paper loan without any adjustments to their rate.  Today- After Fallout, AF- they are well below that A paper (with the same rate mind you as BF) and if the market rate for perfect credit was 4.875% that day- they would have gotten a 6.25% rate, after factoring in all the adjustments for risk.  Granted- we need to get the ropes pulled tight- but this is just silly.  It is them making up for past mistakes and looking to gain back as much income (risk) as they can and Mark my Words- this will hinder lending going forward.
 
Appraisals:  Soon I won’t be able to 1. Pick the appraiser to use on your transaction and 2. Have any communication with the appraiser that is picked.  The belief here is when Mortgage Brokers pick and speak with appraisers- we manipulate the market and push the values to what is most needed to make that loan work.  On my web site I list a few trusted appraisers that I have worked with for years, want a challenge? – call any of them and see if you can “manipulate” them into getting you the value you want for your home.  Can’t be done- these guys have licenses and risk all if even one appraisal comes back from a 3rd party reviewer and can either lose their license or go to jail.
 
I want this not to be a grim picture of the 2009 home buying and refinance season- just my views as to what I have been watching.  My belief is that many in power view Mortgage Brokers so poorly- they are looking for any and all ways to make us appear less attractive and to encourage the client straight to the Retail side of the banks.  Currently I am in a great place and have more business than I can keep up with and hope that those oh so powerful folks don’t look for more ways to change that.  Thanks for reading-

What Is The Deal With Interest Rates?

Questions keep coming in and I see them all over the many forms that make up the Net. You know from reading this Weekly that when the stock market is performing well, our interest rates tend to be higher. As most of you know, that market has not been great and traders have been investing in bonds hence lowering our mortgage interest rates. As you may have seen, these last 3 weeks have been very up and down. Now with the announcement of the government beginning to invest some of the bail out funds into the troubled mortgage markets, many believe we will stay low for a bit longer. What do you believe? Will we see lower still?

The Top 11 Reasons Your Seller Should List During the Holidays

(sent to me by Nick McCoy)
 
11. By selling now, you may have an opportunity to be a non-contingent buyer during the spring when many more houses are on the market for less money!
 
10. You can sell now for more money and we will provide a delayed closing or extended occupancy until early next year!
 
9. Even though your house will be on the market, you still have the option to restrict showings during the six or seven days around the Holidays!
 
8. January is traditionally the month for employees to begin new jobs. Since
transferees cannot wait until spring to buy, you need to be on the market during the Holidays to capture the market!
 
7. Some people must buy before the end of the year for tax reasons!
 
6. Buyers have more time to look for a home during the Holidays than they do during a working week!
 
5. Buyers are more emotional during the Holidays, so they are more likely to pay your price!
 
4. Houses show better when decorated for the Holidays!
 
3. Since the supply of listings will dramatically increase in January, there will be less demand for your particular home! Less demand means less money for you!
 
2. Serious buyers have fewer houses to choose from during the Holidays and less competition means more money for you!
 
And the number ONE reason why your Seller should list during the Holidays…
 
1. People who look for homes during the Holidays are more serious buyers!

21 Day Prayer

Lord, you are the ruler and sustainer of all things.  Thank you for blessing me with this home to keep me warm and dry for this time, but it is now time to sell.  I pray that you would provide a buyer who will enjoy it and be blessed by it.  This situation is in your hands and I commit to you my anxiety, fear, and desire for control.  Thank you for your loving care.  In the name of the Father, Son, and Holy Spirit.  Amen.

Let Me Help Sell Your House

No, I have not become a Realtor; it’s challenging enough keeping up to speed with all the changes in the mortgage business. One profession is enough for me.  But I am going to try and help you sell your home with a 21 day prayer cycle that I am starting today.  I had my friend and pastor, Seth Kellermann, write the prayer. 

Lord, you are the ruler and sustainer of all things.  Thank you for blessing me with this home to keep me warm and dry for this time, but it is now time to sell.  I pray that you would provide a buyer who will enjoy it and be blessed by it.  This situation is in your hands and I commit to you my anxiety, fear, and desire for control.  Thank you for your loving care.  In the name of the Father, Son, and Holy Spirit.  Amen. 

My goal is to have folks who have homes for sale send me over the address so that each morning I can say this prayer over those homes in hopes that greatness will come in the next few weeks.  Maybe you would even like to join me?  I won’t send you all the addresses but it would be great to know that you might be saying this prayer with me each day until December 14th.  I do have one favor: check out this home- it is a rental home my best friend has on the market and it inspired me to begin this 21 day prayer cycle.  One house at a time.

Building For Sale On Main Street

The Frisco Chamber of Commerce owns a beautiful building in downtown Frisco, built in 1922.  And that building could be yours.  It is listed by local agent great and City Councilman, Jeff Cheney.  This could be the perfect home for a business you want to open as Downtown Frisco really come alive.