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Month: August 2009 (page 3 of 3)

August 4, 2009

Should Realtors “Interview” Lenders?

by

Mortgage Officer

Author website

I got what I thought was a very interesting and thoughtful e-mail last week from Jessica Horton, a Realtor down in Georgia, who I’ve gotten to know.   She and I have chatted a bit both online and over the phone about the markets, the dynamics of today’s lending rules and the ins and outs of structuring deals.   Oh, and we are both authors on the Bloodhound Blog.

I’ve taken Jessica’s e-mail and my response and turned them into a post.    I’ve eliminated a few minor conversational tidbits but I’ve left the majority of our e-mail conversation intact.

Why am I reposting this?

For three main reasons:

  1. I’ve been in the mortgage business for 21 years now and I have never seen as challenging of an environment as we have now.   Yeah, we’ve had ups and downs and economic slow times, but a combination of falling property values, rising unemployment and tightening underwriting guidelines have made this the most challenging market I’ve ever been in.
  2. The days of assuming that any lender can get a loan done and that anyone can get a mortgage are over and they aren’t coming back any time soon.
  3. I found it very refreshing that a Realtor is taking a good hard look at who they want to recommend to their clients and not looking at it only from the standpoint of “who’s going to buy me lunch.”

I found it very refreshing that Jessica was talking to a number (I don’t know how many) lenders and was attempting to understand better how they work and what their processes and procedures are for making sure that things go smoothly.    With the HVCC and the new MDIA and the pending changes from Fannie Mae and Freddie Mac, the rate a lender offers will always be important, but their ability to get things done is more important than it has ever been.

Take a few minutes and read through the exchange.   Jessica’s questions are in “normal” print and my answers are in bold and italics.

Tom

Jessica,

See below.   Thanks for giving me this opportunity.

Tom Vanderwell

From: Jessica Wynn Horton [mailto:jessicahorton30292@gmail.com]
Sent: Wednesday, July 29, 2009 1:58 PM
To: Tom Vanderwell at Straight Read more

August 1, 2009

Realtors in the Coffee Shop and Everywhere

by

Realtor, Attorney

Author website

Time for a little fun, and time to laugh a little at my own profession and at myself. Okay, I’m in a coffee shop. I’m doing some work on my laptop, checking and answering emails, and writing some articles. So imagine the humor in the following scenario. I’m a Sequim Real Estate agent writing on my real estate blog when a customer walks into the coffee shop. Now I rarely pay attention to what other people say, but if they speak loudly and the words catch my ear, I can’t help it.

I hear one of the employees serving coffee say to a customer, “Oh, you’re a Realtor?” The reply was from an older woman whose health did not look good, and carried little enthusiasm, “Yes, I work for [so and so broker],” to which the young female employee loudly and enthusiastically replied, “I’m a real estate agent too!”

I laugh to myself, because one of my observations is that every Tom, Jane, and Mary got a real estate license because it seemed like an easy way to make money. Does anyone not have a license?

I look around the coffee shop. There’s an old man with thick spectacles sitting two tables away, apparently reading the classifieds. He doesn’t move at all for minutes. Has he died? No, he turns to the next page. I wonder. Is he a Realtor?

A woman and a girl about 13 years old are sitting across the room at a little round table. Is the little girl a Realtor? No, I remember you have to be an adult to get a license. I think.

Two bicycle riders stagger into the shop, all sweaty and obviously hot and tired. Are they Realtors? Could be, but I hear no dialogue on real estate issues emanating from their mouths. But I do pick up some phrases, like “It’s hell out there,” and “a person could die in stuff like this,” and “I don’t know if I can make it.” Wait a Read more

August 1, 2009

Reversing a Trend Or Back To The Future?

by

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

If you’re considering a reverse mortgage, get it now. The reverse mortgage market is going to blow up as big as the sub-prime market did.  This time, like last, it’s those “durned borrowers” acting differently than the rockets scientists predicted they would.  In the sub-prime market, it was assumed that people would honor the old paradigm:  mortgage payment, car payment, then consumer credit.  Sub-prime borrowers sacrificed the house payment, in order to keep their credit cards active, and the world turned upside-down.

The reverse mortgage borrower is about to screw things up royally; he’s going to live longer than expected….and like sub-prime, that risk is not priced into the current market.

A reverse mortgage is basically a negative amortization, no-payment required loan.  Actuaries consider the borrower’s life expectancy,  discount a reasonable return on the future loan balance, and loan the borrower whatever is remaining.  When the borrower dies, the loan balance can be paid off so that the heirs can “reclaim” the asset or the house is sold.  The deal goes sour when the now 65-year old lives past his expected death date.   Consider that baby-boomers are the healthiest (and largest)  generation; they could add 4-5 years to that life expectancy.

The loans are still being underwritten as if the oldest baby-boomers were just 56 years old.  Throw in the fact that a tremendous amount of home equity evaporated, since, 2007, and you have a recipe for disaster. While you remember the wreckage an uptick in defaults had, on a levered sub-prime secondary market, imagine how those measly four years could cause the Great Recession of 2030, complete with bailouts.

The warehouse lenders know it, too. Ask reverse mortgage originators why a seemingly healthy market turned ill this year and you’ll hear them blame the liquidity crisis.  Reverse mortgage originators will cry that the sub-prime collapse caused warehouse lenders to adopt a bunker mentality, which is killing a healthy mortgage product.  They’ll tell you that their product has NOTHING to do with sub-prime and they’re correct.  Reverse mortgages and sub-prime loans have only one thing in common;

they were both priced on faulty risk Read more

August 1, 2009

Banks Have All The Money – Money Is The Root Of All Evil – Therefore Banks Are Evil

by

Associate Broker

Author website

Another “Don’t Ya Just Love Working For Free” Story

In the minefield of residential real estate lies the ubiquitous short sale. Fundamentally, all  short sales have a commonality – the market value of the property does not exceed the disposition costs plus mortgage liens and other encumbrances. A short sale requires a successful negotiation with the lien holders – and the operative word here, boys and girls, is successful.

It was the summer of 2007, I found a nice big lake lot for my clients. After many years struggling to advance in their careers, they finally reached the point where they could build their dream home. Their kids were now adults, and it was time for them to begin to enjoy the fruits of their labor.

With a builder in mind, they set out to acquire this lot and begin construction on a 3500 sf 5 bedroom 4.5 bath home. The bank had many requirements, including a set of plans and specifications, as well as a variety of documents from the builder.

The bank – that shall remain unnamed – would only finance 70% of the appraised estimated value of the completed property. Not an uncommon practice – as it gave the bank a level of protection in the event that the future wouldn’t turn out as planned… and we all now know what happened to the residential real estate market since the summer of 2007.

The house was slated to be completed in April of 2008 – a goal that seemed more than attainable. Eight months to build a  home like this would be considered child’s play for any builder. Unfortunately for all the parties involved – that wasn’t the case.

The builder was having problems with his other projects – so much so that he was having great difficulty even getting started on this project. The owners threatened to pull  him off of the project if he didn’t get started – so after several months with nothing taking place on site, the construction began.

Although the house was making progress – and the builder assured the owners that the house would  be complete by the one-year Read more

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