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Category: Lending (page 36 of 56)

July 25, 2009

Why should you enlist a buyer’s agent to help you buy a home? Because you’ll get a much better deal — even if you pay full price

by

Suburban Phoenix Real Estate Broker

Author website

This from my Arizona Republic real estate column (permanent link):

Are home-buyers best served by the vigilant efforts of an experienced buyer’s agent? Consider a transaction we have in play right now.

The buyers are a young couple, about to be married. They have about $10,000 in cash.

With a conventional loan, they could put 20% down on a dismal starter home. Or, with Private Mortgage Insurance, they could put 10% down on a nicer home.

But with an FHA loan, $10,000 is 3.5% down on a $285,000 home. We can argue the wisdom of making so small a down payment, but the FHA loan program is the path to homeownership for millions of Americans.

And $285,000 is too much house for our buyers. They found a nice lender-owned two-story home in the suburbs selling for $169,000. The down payment on that home would be $5,915. But the closing costs would probably run to another $5,000 — which comes to more money than they have.

They qualify for the $8,000 first-time home-buyer tax credit, but they won’t get that until they file their tax return. They also qualify for a state-funded grant program that will contribute up to 22% of the purchase price — but which can’t be used for the down payment or the closing costs.

Here’s the deal we put together. We offered $175,000, $6,000 over list price. In exchange, we asked the seller to contribute 4% of the full purchase price to defray the buyer’s closing costs.

The down payment will be $6,125, leaving the buyers $3,875 in cash to pay for the endless expenses of moving into a new home.

And there will be about $2,000 left over after the closing costs are paid. This will be used to buy down the interest rate. The buyers will end up with just over 25% equity in the property for a cash outlay of $6,125 — all at a very low monthly payment. And they’ll still have their $8,000 tax credit to look forward to.

This is the kind of outcome a skilled buyer’s agent can achieve.

 
Steal this book: So far I’ve written two columns on this theme. If Read more

July 20, 2009

Consider a Seller-Paid Rate Buy-Down Rather Than Price Reduction

by

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

Author website

Listing agents, considering offers might advise their sellers to counter-offer with a mortgage rate buy-down strategy rather than to reduce the sales price.

rate-buydown

We like to help our agents with charts from our Mortgage Lens program.  The chart helps to illustrate the power of leverage, to both the seller and buyer, and gives us a shot at the loan business.

(N.B.- The chart shown doesn’t match the scenario below)

Here’s a scenario designed to meet both the buyers’ and sellers’ objectives:

The property is listed at $300,000; an offer comes in at $283,000.  One of the most important benefits of the lower price, to the buyer, is the lower mortgage payment.  An 80% loan on $300,000 (at 5.25%) would yield a P&I mortgage payment of $1,325.  Lowering the price to $283,000, would lower the loan to $224,000 and the payment to $1250/month.

Consider a mortgage rate buy-down as the counter-offer. For two discount points (about $4800), the seller could reduce the rate to 4.75% and the payment to $1251.  The buyer gets the payment he wants and the mortgage rate buy-down strategy saves the seller some $12,200.

July 14, 2009

On Mortgages and Moral Compunction

by

Real Estate Renaissance Man

Author website

What would it take for you to walk away from your mortgage?

Kenneth Harney, in his column Nation’s Housing, reports on an interesting study recently done by the University of Chicago’s Booth School of Business and Northwestern University’s Kellogg School of Management.  This study took a look at homeowner’s attitudes toward mortgage defaults, specifically what’s come to be called “strategic” walkaways or decisions to bail on a mortgage due to purely economic reasons.  The study found that “26% of the record number of home mortgage defaults across the country” were strategic – the homeowner had the ability to pay the mortgage but chose not to because the debt was greater than the asset.  In other words, one in four of the current foreclosures is not due to hardship, but rather a lack of compunction.

My partner and mortgage rate expert, Brian Brady, has for some time now railed against the disappearance of moral compunction with regard to mortgages.  His contention, as I understand it, is that moral compunction was  priced into the model by lenders.  There has historically been a stigma attached to not paying one’s debts, especially one’s home mortgage debt.  This may or may not be true; I am no expert on the history of mortgage defaults in our nation, but it is certainly compelling.  If accurate, the obvious question then becomes: to what degree did moral compunction affect rates and if it is indeed gone, how much higher will rates go?

There is no real mystery to how mortgage rates are priced.  Mathematicians create models of mortgage “behavior” based on the 4 C’s: Capacity, Capital, Collateral and Credit.  Of these four, Credit is really what we’re talking about here.  Your income, your assets and the property’s value are theoretically objective but your credit… well, it’s not really credit that’s being measured here is it?  It’s your Character; your likelihood to honor your debts, although lenders don’t like to say that because it has a snooty, superiority quality.  Make no mistake though, character is most definitely being evaluated during the loan process.   So the question seems to be: How do these Read more

June 10, 2009

What If The Real Estate INDUSTRY Didn’t Control The Real Estate Market?

by

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

Author website

I have the heart of a trader.  If you read Mortgage Rates Report, you know that I’m fascinated with the forces that make markets move up, down or not at all.  One of the things I’ve noticed, since I started writing on Bloodhound Blog, is that the real estate industry is:

That lopsided opacity was the real reason for the eventual implosion of the real estate market. We hid market information from the buyers while the Baby Boomers moved through the home ownership life cycle.   A huge generation, yearning for “The American Dream of Homeownership”, assured strong demand for houses in the post-World War Two housing boom.  Banks were all too happy to hand out money, even when forced to lend by the Government.  Lew Ranieri saw a 25-year boom ahead and found a way to create a shadow banking system that could “bury bad loans”.  Any agent dealing with a short sale understands the problem of buried loans because she’s heard:

“Well, we aren’t quite sure WHO owns this loan”

Kind of sounds like the forensic audit of Bernie Madoff’s books, doesn’t it?  That’s what you hear when the jig is up on a Ponzi scheme:  confusion, wagon-circling, and practiced deflection.  It eventually catches up with the schemers.  I’m firmly in the camp that no matter how many incentives we offer to stave off the inevitable forced sales, or to provide a middle-class tax cut, or to bribe the next generation of buyers, the simple fact remains that we have more houses than we need in this country…and the people just ain’t buying like they used to.

It’s partly the National Association of REALTORs fault.  They’ve hoarded supply data and intentionally suppressed demand data since inception.  Suppressing the demand data resulted in a valuation system that relied on false positives (comparable sales) as a standard that contributed to the Ponzi-like atmosphere in the real estate market.   Think about it.  When we ask agents about rising demand, they point to dwindling supply as a measure of it.  Read more

June 8, 2009

The mortgage situation for nonresident buyers

by

International Tax Lawyer

Author website

Tom Vanderwall chimes in here on BHB regularly and helpfully about the mortgage situation. I look forward to his interpretation of the spins we get from DJ Bernake and crew.

I handle foreign real estate transactions and here’s what I’m seeing right now. What follows is all buyer-side stuff, because of course they’re the ones looking for financing.

War story. (In progress).

I have a buyer from the Middle East. Extremely solid person, extremely *ahem* solid balance sheet. Wants to buy a house in the $5 million range. No one that I have found (and I have tried mortgage brokers from Florida to California) can put an offer on the table for a sane mortgage. Even at 50% loan-to-value.

He banks with one of the brand name international banks and ordinarily you’d think that they would do something for him, if only to protect their customer relationship. (Considering the other business the bank gets from him and the family business, you’d think . . . .) But no.

So we keep looking. Most likely solution is either an all cash purchase or my buyer will do a margin loan against an investment account outside the U.S.

War story. (In progress).

Family from outside the U.S. is busily buying up rental properties by the handful somewhere in a State that isn’t touched by ocean. Let’s just leave it vague like that. Putting in enough money so the properties will be cash flow positive. Can’t get a single lender interested in taking a look at the portfolio of properties. At any “reasonably close to market” terms.

Again they will leverage offshore assets, borrowing short term. They’re buying all cash, basically lending to themselves (via a nifty “Bank of Me” structure I set up for them), and hoping that in 6 – 12 months they can find a bank that is willing to look at lending against 25 properties all cash flow positive.

War story. (In progress).

Right now. East Coast. Condo purchase, around a quarter million. Same thing.

War story. (In progress). Read more

June 6, 2009

Are Our Customers EnTitle-ed To Better Fees?

by

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

Author website

Admit it.  You’ve wondered if there was a lot of fat in title policies, didn’t you?  I mean, how many claims does a title company REALLY get in this “nobody trusts anyone” market?  We order a title commitment and the title company:

  • performs a detailed search of the property’s chain-of-title
  • mitigates most any risk
  • insures the title and earns an insurance premium.

One would think that this highly-regulated, extremely commoditized business would file premiums within cents of each other, right?

I received a direct mail piece from EnTitle Direct today.  They are a national title insurance company (the old Guardian Title):

ENTITLE DIRECT is the only title insurance company that markets and sells directly to consumers at 35% savings. We combine 30 years of experience and stability with a consumer-friendly approach and provide you with significant savings on title insurance, the ability to control your own closing, and transparency throughout the closing process.

I was curious so I got a quote for a $400,000 refinance transaction:

  • $500.00 escrow fee (about $100 more than the local folks)
  • $357.50 for a title policy (endorsements not included)

I ran the CLTA Title Wizard to comparison shop.  Local escrow fees are about $400.00 so the locals are winning, at this point.  Let’s see what the locals offer for title policy premiums:

  • Commonwealth $1, 045
  • Ticor $1,045
  • Placer $675
  • Orange Coast $625
  • Stewart $675
  • Provident $800
  • Old Republic $800
  • Chicago $1045
  • FATCO at $605

What am I missing here, gang?

I think someone may have just figured this game out.  Any comments or experiences with EnTitle Direct are appreciated.

PS:  EnTitle Direct claims to be a member of the Read more

June 6, 2009

Why Real Estate Agents Should Stop Playing Loan Officer

by

Las Vegas Mortgage Blogger

Author website

I wasted a few hours this week cleaning up the messes that real estate agents created for their first time home-buyers.

End result – loan officer still looks like a jerk, but now the borrowers are really confused about who to trust.

I’m going to combine about five separate scenarios and conversations that I had this week into one rant just to get my point across.

First of all, the mortgage industry is changing very rapidly.

True  mortgage professionals are paying attention to things like:  HVCC, concerns of HR1728, Mortgage Insurance companies changing their guidelines, Fannie’s new condo rules, FHA fico score requirements, Loan Level Price Adjustments, new FHA appraisal guidelines, adjusting interest rates in an unstable market, and a constant stream of mortgage Twitter chatter that only adds to the noise.

For those of us primarily working with FHA First-Time Home Buyers, we’re also keeping tabs on the $8000 Tax Credit being used as a down payment, as well as how long the Fed plans on purchasing Mortgage Backed Securities to keep rates lower.

Just as real estate agents are learning about short sales, bank owned properties, and transparency, mortgage originators have a full-time job keeping up with industry news so that we can lead our clients down the right path.

I don’t think that I need to throw another 9 links in this post to demonstrate that there are a lot of things real estate agents and loan officers need to understand before we can express with confidence to our clients that we truly have a handle on their unique scenario.

Imagine what the effect would be on a first-time home buyer if puked all of this overwhelming information on a them in the first 10 minutes of the initial phone call?

I had to do this all week just so that the agents and borrowers would understand why I wasn’t able to issue a quick pre-approval letter and GFE simply based on a 15 min phone call and credit score.

We’re in a tough market, and I totally empathize with the hard working agents who are competing for new business by giving the highest levels of service possible.

However, Read more

June 1, 2009

Mortgage Market Update – what difference does GM make?

by

Mortgage Officer

Author website

Well, here we are on the morning many people thought would never come.    Many people said they never expected that GM would actually go under.   Well, under they are with approximately $178 Billion in liabilities and only $82 Billion in assets (and I think the $82 Billion includes the money that you and I gave them.)

So what difference does that make for the mortgage market?  A couple of things:

  • It’s not a positive thing for the housing market because it “solidifies” what we all knew anyway.   There are going to be additional job losses and as we all know, additional job losses equates to additional mortgage delinquencies and housing losses which is bad for the mortgage backed securities market.
  • I don’t know the exact amount but there is a LOT of money out there in GM bonds.   Those bonds are now essentially worthless (from what I understand, they were “exchanged” for stock – stock that’s currently trading at 75 cents per share).   This is spooking the entire bond market and pushing rates higher.
  • The government announced that as the “only one who would lend to GM right now” (not exactly what they said, but close) they are putting an additional $30,000,000,000 into GM.    This makes the GM bailout the largest individual company bailout and increases the risk by the government going further in debt thereby pushing up on rates.

So, GM, the one company that was supposedly too big to fail, failed and failing isn’t a good thing for the mortgage rate market.

What else is happening?

  • The ISM (Industrial Supply Management Index) showed that manufacturing is still contracting but once again it’s the “less bad” type of thing.   It was slowing but not as rapidly in May as it did in April.
  • Personal income rose and personal spending fell in May.   That means that we all made a little bit more and guess what, we didn’t go out and spend it!   For the long term health of the market, this is actually a good thing that we aren’t “over consuming” but short term, it’s quite painful because so much of our economy is based on consumers Read more
May 28, 2009

Lower June, 2009 Mortgage Rates Rely On Central Bank Action

by

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

Author website

May Day in the mortgage rates market is over.  The market got spooked by triangulated opinions about the viability of the US Treasury as a going concern.  In response, mortgage traders sold off mortgage-backed securities, some 3-4%, in 4 days, to drive mortgage rates from 4.75%  to the 5.375% current level.

Tom Vanderwell thinks mortgage rates could bounce as high as 5.75%, in the next 30 days unless there is MASSIVE intervention by the Fed.

MOTIVE: It helps to understand that Ben Bernanke is a disciple of financial activism as a means to combat a potential economic depression.  Aware of his activist philosophy, scrutiny of the April, 2009 FOMC minutes would lead you to believe that the Fed is targeting retail mortgage rates to be under 5%.  Mortgage rates north of that number are counter-productive to the fiscal policy designed to deleverage the average American.

MEANS: The Fed has another $700 billion at the ready to stabilize the mortgage-backed securities market and artificially lower retail mortgage rates to under 5%.

METHOD: The Fed would have you believe that not only are they going to purchase those MBS for the consumers but for the viability of the Central Bank (this is spin, plain and simple).  In short, the Fed is saying  “the financial institutions are so healthy that we must direct our attention to the consumer if WE are to remain a going concern”.  I’m exaggerating a tad but that’s the Fed “spin” to justify the massive intervention I expect.

My opinion about the Fed’s actions are irrelevent to the near-term home buyer and mortgage shopper; my analysis is not.  Expect the Fed to drive mortgage rates lower into June.

May 27, 2009

What Happened, What Does it Mean, and Where Do We Go From Here?

by

Mortgage Officer

Author website

Wow!  What a day in the mortgage and bond markets today.   I think it’s a good thing to say that while a lot of us saw this coming, very few of us expected that it would happen today.    Let’s walk through what happened, what it means and where we go from here.

What happened? A couple of things happened that caused the bond market to go into a free fall (okay more than a couple):

  • Several analysts and rating agencies have raised significant questions about whether both the United Kingdom and the United States will be able to continue to pay their debts as the staggering amounts that they are borrowing to keep their financial systems afloat are well, truly staggering.
  • As GM inches/races/inches (depending on the moment) towards bankruptcy, it is becoming obvious that the US Government is going to have to shell out a LOT more money to keep GM somewhat afloat (another approximately $50,000,000,000 – but who’s counting?)
  • Although the headline number looks good, as we discussed earlier, the existing home sales for April were less than spectacular.
  • Case Shiller came out with their housing price value reports and they showed a pretty nasty case of the housing price drops.   That means that the collateral for mortgage backed securities is dropping in value making them less desirable.
  • A number of reports have come out recently that showed that the performance of mortgage backed securities is continuing to suffer and mortgage delinquencies are continuing to rise.   We talked about one of those reports here, and another one of them here.
  • Oil prices have been going up and the people in OPEC who control a lot of that are talking $75 to $80 a barrel while we’re only at $63 right now.   Increasing the risk of inflation puts pressure on rates.
  • The Federal government, through their manipulation of the long term Treasury and mortgage backed securities markets (also known as buying the market), had been keeping mortgage rates artificially lower than what the economic, financial and mortgage portfolio conditions would typically warrant.
  • Oh and there’s this little thing called North Korea firing test missiles and Iran running ships in Read more
May 22, 2009

The End of No-Cost Mortgage Loans and Other HR 1728 Concerns

by

Las Vegas Mortgage Blogger

Author website

The H.R. 1728: Mortgage Reform and Anti-Predatory Lending Act is a problem that all mortgage and real estate professionals need to pay attention to.

My first rule of blogging has always been to avoid political discussions, especially if I’m not an expert on every angle of the topic.

So, with my second post to the BHB, I’m breaking all of my rules…. I guess this means that I’m starting to get the hang of things around here.

The difference with this post is that I’m putting my self-consciousness and ego aside for a moment.  I believe that there is way too much at stake for me to wait around until I’m comfortable putting my neck on the line.  I’m taking Greg’s 70% approach and running with it

If I’m wrong or barking up the wrong tree, I humbly respect that the Hounds of this community will set me straight.  Matter of fact, I’ll do my best to encourage any type of discussion, rant, or other demonstration of disgust, as long as it helps us get closer to the truth behind HR 1728.

Here’s the deal, friends – HR 1728 has passed the House, which means it still has to go before the Senate and then pass Obamanomics before it becomes a law.

I’ve spent a significant amount of time reading, researching and writing about how mortgage originators can battleback against this new Mortgage Reform bill.

I’m either missing a beat, presenting the wrong info, or not yelling loud enough, because it doesn’t seem like there is much talk online about how this new Anti-Predatory Lending bill will impact our industry.

Obviously, HVCC is getting some reaction, probably because people are already feeling the pain in their wallets.

However, a lot of us may have to turn to online gaming and selling weed to make a living if H.R. 1728 makes it through the Senate without our voices being heard.

What are the main bullets of HR 1728 that I care about?

  • Mortgage brokers lose the ability to use their YSP (Yield Spread Premium) to offer No-Cost mortgage loans.  Banks, on the other hand, still don’t have to disclose their same (SRP).
May 20, 2009

$8,000 Tax Credit Advance Friend or Foe?

by

Realtor, Newlywed

Author website

I have been following the $8,000 Federal Tax Credit with great interest this year. Currently it is the most talked about topic that I am discussing with potential home buyers. There is a lot of interest in receiving $8,000 when a first time buyer files their taxes for 2009. Now that many states (Washington being one of them) are discussing ways to use the $8,000 tax credit as a way to help first time home buyers get into their homes through bridge loans the discussions have really become spirited. When HUD announced that they would allow the $8,000 tax credit as collateral for “bridge loans” to cover the down payment on FHA insured mortgages the pot literally boiled over with opinions.

Currently it seems on a daily basis that the $8,000 tax credit advance is in the news for one thing or another. Yesterday the Arizona Republic announced that the tax credit would be ineligible for down payment. Later in the afternoon the Seattle Post Intelligencer announced that the Feds still plan to allow use of tax credit for down payments.  Today the Arizona Republic reports the HUD bridge loan program hasn’t been killed. So what exactly is going on with the $8,000 tax credit advance? It would appear that nobody even HUD and FHA really know. I am sure that by the time I actually publish this post there will be something new to report.

What I want to know is what the readers of Bloodhound Blog think of the $8,000 tax credit and in particular what you think of allowing the tax credit to be used towards a buyer’s down payment?

I will go on record that I feel that this makes sense in some particular situations and with some additional requirements on the borrowers.

  • Potential home buyer has the income to cover the complete cost of home ownership out of their current income. The ratios must be well within the FHA guidelines.
  • The credit score of the home buyer is greater than 675. There is no need to allow marginal credit worthy buyer’s even easier access to borrowing money that they Read more
May 15, 2009

Unchained Freedom “Friends Keep Friends In The Business”

by

Las Vegas Mortgage Blogger

Author website

As I was driving back to Las Vegas after a full week of hanging out with the Bloodhound crew at Unchained, my mind was racing to get a grasp on all of the new real estate marketing possibilities that I could achieve by the end of the year.

The confidence I gained through the relationships built at Unchained was all I needed to fully execute my online marketing plans.

I believe that everyone is an expert at something, and we all have a ton to learn from each other.

The Scenius sessions at Unchained were a great example of this concept:

  • After a full day of building blogs, Eric Blackwell, Ryan Hartman and I stayed up until 3 am discussing some SEO strategery for Battleback.com.
  • Greg showed me how simple it would be to syndicate my mortgage content on all of my real estate agents’ blogs with just a little bit of technical savvy.
  • Brad Coy and Brian Brady helped me figure out how to easily integrate a Twitter or Facebook presence into my weekly relationship building routines without having to spend too much time being social.
  • Al Lorenz and I talked about the benefits of owning the social media platforms that our clients and referral partners participate on.
  • Sean Purcell’s brainstorming session over a $100 casino chip got me excited about top of mind sales and branding tools.
  • Kerry Melcher’s “Small Town Phoenix Living” reminded me of how important it is to connect with the emotional needs that may impact our clients’ decisions to do business with us.
  • Scott Cowan and I compared our local markets and shared similar opinions about how much online social networking really matters in the long run.
  • Scott Schang and Mark Green opened my eyes to the power of holding online webinars for the purpose of building a loyal database.

I could go on and on about all of the great conversations that I had at Unchained.

My main objective for that week was to fill in a few technical gaps with my blogging skills.  As Greg has mentioned many times, real estate professionals have a publishing problem.

There are so many ideas that I haven’t been able to Read more

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