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By Kim, June 24, 2010

Buyers should take this seriously – once you have applied for a mortgage and received preapproval, don’t open new credit cards or buy anything substantial using credit until after your settlement!

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By Kim, June 18, 2010

A “reverse mortgage” allows you to trade equity in your home for cash, access to cash through an equity line of credit, or a monthly income, that you never have to pay back. You can use your current home or buy a new home or even a vacation home using a reverse mortgage.

Got your attention?

The catch—you have to be 62 or older. But hang on, kids, there are potential advantages for you too, if you’re on the good side of, ahem, those “mature individuals distinguished by their vast experience.”

Reverse mortgages, or as FHA calls them, Home Equity Conversion Mortgages (HECM), have been available for seniors for many years. The basic deal was that they use the equity in their primary residence as a source of cash, they can live in the home as long as they want without paying anything back, and the mortgage is paid off when the home is sold, with the owners or the estate getting the difference. If there isn’t enough money from the sale for the payoff, FHA eats the difference, not the estate or heirs.

Now comes the HECM for Purchase Program. The FHA developed the program because it saw that seniors were selling their homes, buying smaller, more affordable homes and then taking out reverse mortgages on the new properties. That meant they were paying closing costs twice—first on the purchase closing, and a mortgage if they needed one, and then again when they switched to a reverse mortgage. But the new program allows seniors to buy a home directly with a reverse mortgage—paying closing costs only once. A sale of an existing home is not necessary and is not part of the transaction.

The program allows seniors to use a reverse mortgage to buy a home or a small multifamily residence, and allows them to convert some of the equity in their existing home to cash. They never have to make a single payment. Instead, they can collect monthly payments out of the equity on a tax-free basis as long as the home serves as their principal residence. If they do not sell their previous home, they could get additional income out of renting that property. Under the plan, you can choose to take the money either in monthly payments, as a lump sum, a combination of the two or even in a line of credit that you can access whenever you need cash.

This year, seniors can access up to $625,500. In 2011, unless Congress changes its mind, the amount reverts to $417,000. Most reverse mortgages range from 35 percent to 55 percent of the home’s equity.

You must agree to pay your taxes and make any necessary home repairs. No credit check or income verification is required. To qualify for the reverse mortgage, a senior, age 62 or older, must:

• Agree to live in the reverse-mortgaged house as a primary residence.
• Own the home outright or have enough equity to pay off any existing mortgages and equity lines with the proceeds from the reverse mortgage. Those with more equity may be able to access even more cash.
• Not be delinquent on any federal debt.
• Participate in a consumer information session given by an HUD-approved counseling agency or HECM counselor.

Generally, three factors will affect the amount you can borrow:

• The value of your equity (the higher the better).
• Your age (the older the better).
• Interest rates (the lower the better).

Here are some hypothetical examples of how it can work:

1. Problem—you want to buy a new one-level home for $450,000 with no mortgage payment. You cans sell your colonial in Springfield with net proceeds of $300,000. Solution—you take out a reverse mortgage on the new home for $275,000, paying $150,000 of your cash for the balance. Instead of a $150,000 mortgage to pay, and no cash, you have $150,000 in cash left to invest, and no mortgage payment!
2. Problem—you own your Springfield home worth $500,000 and want to keep it as your principal residence. You have no mortgage, or a small one. You would like to buy a $300,000 vacation condo in Ocean City, but on your teeny retirement income you can’t afford a regular mortgage on either the condo or your main home. Solution—you take out a reverse mortgage on your main home for $250,000, paying $50,000 cash from other sources for the balance. You just bought your vacation condo for $50,000, and no mortgage payment!
3. Problem—you want to keep your current home, but it needs remodeling and updating to fit your changing needs. Solution—use your equity to take out a reverse mortgage for remodeling. No mortgage payments.
4. Kids, pay attention here! Problem—you want to help your son and his family buy a new home. You could take some cash out of the equity in your own home—but you can’t afford the additional mortgage payments. Solution—use your equity to take out a reverse mortgage to gift their down payment.

One added cost to a reverse mortgage is an extra insurance premium, usually more than a conventional mortgage, which has to be paid by the homeowner to insure the lender against the possibility the homeowner lives longer than anticipated. The insurance guarantees you will never pay more than a stated amount despite increased borrowing costs over time. You can finance this premium into the mortgage itself.

Interest rates on reverse mortgages today are similar to conventional mortgages. Fixed rates I’ve seen quoted by Wells Fargo recently are 5.4% fixed, or 2.5% adjustable (monthly adjustment tied to LIBOR). Of course, since you aren’t paying it, how much can it matter?

Here is the link to the HUD/FHA site for all the straight info.

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By Kim, May 12, 2010

Another long (but worthwhile) excerpt from Dave Barry’s Homes and Other Black Holes ©1988. Illustrations by Jeff MacNelly.

If you want to come out a winner in the negotiations for your new house, you have to be tough. “This is not a time for human decency,” are the words of Wayne Savage, the internationally renowned lecturer and author of the best-selling book on negotiating strategy, Leave Them Bleeding in the Dirt, which retails for $178.63 and not a penny less. Which is why you need to know:

How To Negotiate Like A Real Slimeball

A fine example of the kind of negotiating approach you should take can be found in the excellent corporate training film The Godfather, where, as part of his negotiations with a movie producer, Marlon Brando gains a subtle psychological advantage by arranging to have the producer wake up in bed next to the head of a deceased horse.

This is not to suggest that to get a good price on a house, you need to go around decapitating domesticated animals. No indeed; wild animals are more than adequate for most residential transactions. But the point is, you have to be firm.

At the outset of your negotiations, it is very important to create the impression that your really don’t want to buy the house at all, that in fact you hate the house, and the mere thought of it makes you physically ill. Your opening offer should convey this. It should be worded as follows: “We don’t want your house, so we will give you X number of dollars for it, including all major appliances and the children.” (Note that you should not name a specific amount. You should actually use the term “X number of dollars,” so as to avoid tipping your hand.) The broker will take your offer to the seller, who at this point has a number of options, such as:

1. He can accept your offer.
2. He can reject your offer.
3. He can give back the dinette set, the pool table, and the Epcot Center vacation in exchange for whatever is behind curtain number two.

Another possibility is that he will make a counteroffer, which your broker will bring back for you to consider. “We don’t want to sell the house,” it might say. “We only put it on the market because we joy having total strangers come around and test-flush all our toilets. But we are willing to let it go for Y number of dollars, plus you can have little Deirdre, provided you raise her in a religious environment. We get the microwave.”

And then you send the broker back with another offer, and they send you another counteroffer, and so on until the broker, his fingers bloodied from typing up the various negotiating positions, drops dead in the street from exhaustion, which is the signal for the buyer and seller to settle on a price equal to the original asking price minus about five percent. This is the price that everyone always winds up at, and if we all just agreed on it at the beginning, there would be a lot less hassle and inconvenience in the form of dead brokers. But we have to ask ourselves if this would really be such a desirable outcome.

In any event, now that you and the seller have set a price, you need to sign the agreement of sale, which should be worded in standard legal terminology, as follows:

WHEREAS the Seller wants to sell, and the Buyer wants to buy, and they think they got a price that’s not too low or too high; and the Buyer gave the Seller a down payment to hold, now he’ll try to get a mortgage ‘fore they BOTH grow old; and the Seller’s gonna see if he got termites in his place ’cause if he does, the Buyer’s gonna tear it right up in his face; but if everything’s cool and nobody’s late, then the deal will go down on the Settlement Date.

CHORUS

Oooh baby baby

We gon’ have a transaction tonight

Of course I realize you probably don’t understand some of this “legal jargon,” but this is only because you are stupid. This is why it’s important to ask several lawyers to give you contradictory advice before you sign anything, including get-well cards.

Meanwhile, however, it is time to go around to some banks and see if you can find one foolish enough to lend you some money.

Are You Financially Fit?

The first thing you need to do is perform a detailed financial analysis of home much money you have versus how much you’re going to need to buy your house. The way you do this is to draw up what professional accountants call a “Balance Sheet,” which should look like this:

Money You Have

• Savings Account:  $927.62
• Checking Account:  Conceivably as much as $83.15, provided that the check you wrote to Mr. Muffler has not been cashed yet.
• Other Assets:  Primarily canned goods and undeveloped photographs of the airplane wing take during your trip to Disney World:  $44.02

Total:  $1,054.79

Money You Need to Buy a House

• Cost to pay random lawyers for God knows what (see “The Ritual Closing Ceremony”):  $6,765.90
• Cost to have various inspectors come around and hold clipboards and shine flashlights at things but fail to notice any sign that the heating system is going to explode moments after you take possession of your new home:  $1,250.00
• Taxes:  $3,856.90
• Additional taxes that nobody ever mentioned to you:  $4,847.89
• Taxes that are just now being rushed into law and will only to your specific house purchase:  $5,563.92
• “Points,” which is technically defined as “money that for some reason you have to give the bank, even though you are the one trying to buy the goddamn house, and no matter how many time you ask, you will never be given an intelligible explanation for this”:  $8,745.00
• Other (phone deposit, cost of actual house, etc.):  $126,436.06

Total:  $157,465.67

So we can see from this financial analysis that your are definitely going to need the bank to give you a lot of money in the form of a mortgage. The bank is willing to do this because, the way mortgages are set up, no matter how many payments you make, you still owe the bank all the money you ever borrowed. Really. This explains why, in all your wide circle of friends, you don’t know a single person who ever came close to paying off a mortgage.

It may seem as though the banks are taking unfair advantage of consumers here, but they really have no choice. A few years ago, they lent billions and billions of dollars to the Third World, which had promised to spend the money on factories and heavy machinery, but which in fact lost it gambling on rooster fights. And since the banks can’t very well march down to the Southern Hemisphere and repossess, for example, Brazil, you can understand why they have no choice but to get the money from average everyday unarmed consumers such as yourself.

All mortgages work basically the same way:  you sign a bunch of papers, then you make large monthly payments until the Second Coming. Nevertheless, the top Consumer Money Geeks all recommend that you “shop around” for your mortgage, because there are a number of different kinds available. Some of the more popular ones are:

• The Fixed-Rate Mortgage
• The Variable-Rate Mortgage
• The Mortgage Whose Rate Is Based On What Order The Teams Finish In The National League East
• The Mortgage with a Real Low Rate That Is Advertised in Huge Print in the Newspaper But Nobody Ever Actually Gets It
• The Balloon Mortgage
• The Party Hat Mortgage
• The Mortgage That is Really the Expired Warranty for a 1966 Sears Washing Machine
• The Mortgage of the Living Dead

Here’s an important piece of advice to bear in mind when you’re shopping around for a mortgage:  Don’t be intimidated. Sure the bank is a great big, rich, powerful financial institution and you are a small, worthless piece of scum. But that doesn’t mean you should walk into the bank with your hat in your hand, like some kind of beggar! Not at all! You should crawl into the bank!

Ha ha! Just kidding, of course. You have nothing to worry about. All the bank will ask you to supply the home phone number of everybody you have ever known, even casually, since the fourth grade. Then you’ll have an interview with the Loan Officer, who’ll ask a few standard screening questions, such as:  To get this mortgage, are you willing to lick the gum wads off my shoe bottoms?”

Assuming that you come up with the correct answers (“yes”) to these questions, your mortgage application will be sent on to the Committee to Hold Up All Mortgage Applications for Several Months. This will give you time to practice signing checks in preparation for

The Ritual Closing Ceremony

This is an important and highly traditional part of the home-buying process, the last major hurdle you must clear before you become on Official Homeowner. It is comparable to the initiation ceremonies at major college fraternities, where, to prove he is worthy of the privileges and responsibilities of membership, the pledge must perform some feat such attending a Papal Mass wearing only a softball glove.

Essentially, what you must do in the Ritual Closing Ceremony, is go into a small room and write large checks to total strangers. According to tradition, anybody may ask you for a check, for any amount, and you may not refuse. Once you get started handing out money, the good news will travel quickly through the real estate community via joyful shouts: “A Closing Ceremony is taking place!” Soon there will be a huge horde of people—lawyers, bankers, brokers, insurance people, termite inspectors, caterers, photographers, people you used to know in high school—crowding in the closing room and spilling out into the street. You may be forced to hurl batches of signed blank checks out the window, just to make sure that everyone is accommodated in the traditional way.

Another ritual task you must perform during the Closing Ceremony is frown with feigned comprehension at various unintelligible documents that will be placed in front of you by random individuals wearing suits:

RANDOM INDIVIDUAL:  Now, as you can see, this is the Declaration of your Net Interest Accrual Payments of Debenture.

YOU (frowning):  Yes.

RANDOM INDIVIDUAL:  And this is the Notification of you Pro Rata indemnities of Assumption.

YOU:  Certainly.

RANDOM INDIVIDUAL:  And this is the digestive system of a badger.

YOU:  Of course.

Once the various officials present are satisfied that you truly wish to become a homeowner and have no checks left, they will award you a mortgage, which will spell out your new duties and obligations in standard legal terminology:

Mortgage

Hear ye, hear ye, everybody listen up because the MORTGAGOR, hereinafter referred to as the MORTGAGEE, has, by duly picking up this piece of paper and putting his JOHN HANCOCK thereontofore, committed himself and his family and his distant relatives and unborn children and domesticated animals body and soul to the terms and conditions of this MORTGAGE, whether these terms and conditions are actually stated right here in print on the MORTGAGE or exist only in the form of vague concepts in the minds of LAWYERS working for the BANK, to wit:

1.  The money has to BE THERE on the first of the month, rain or shine.

2.  If the money is not THERE, the BANK is going to get VERY ANGRY.

3.  The BANK is going to want to GET EVEN.

4.  The BANK is going to make SOMEBODY wish he was naked and tied down spread-eagled on an anthill with ants eating his EYEBALLS because that would be a lot more pleasant than what the BANK has in mind IF THE MONEY IS NOT THERE.

5.  Specifically, the BANK is going to get a pair of NUMBER SIX KNITTING NEEDLES and heat them up to 11,000 DEGREES FAHRENHEIT, and then the BANK is going to  . . .

And so it continues, in technical legalistic detail. It’s really nothing to concern yourself about. The important thing is:  at last you’re a homeowner. Now you can immerse yourself in the many rewarding and traditional activities that new homeowners engage in, such as trying to figure out how to make the mortgage payment and, simultaneously, not starve to death.

Coming soon, our final excerpt from Homes and Other Black Holes – Getting Some Fool To Buy Your House.

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By Kim, March 15, 2010

Recently a question about credit and mortgages came my way:

Kim,

Recently two friends of mine bought a condo and ended up with a less than stellar mortgage because their credit records aren’t very strong. I want to make sure that I’m in a strong position when I finally get to go house hunting for myself. I have two credit cards, no debt (credit card, student loan, etc) and a graduate student sized Roth IRA. I know that you’re not a mortgage broker, but based on your experience in the real estate business, I was wondering if you had any advice!

Your best bet is to consult with a good mortgage lender, who will have tons of experience with folks just like you. Your best bet for finding such a mortgage lender is recommendations from friends with recent experience, your Realtor (like me, if you are in Northern Virginia), or perhaps your credit union. Don’t use online services like Lending Tree.

Having said that, let me tell you what I know. Firstly, I suggest you check your credit record for free through the following official US Government-mandated link—www.annualcreditreport.com—which will send you to each of the three credit agencies, who will try to sell you your credit score in various subtle ways. Be careful what buttons you click on. A great history and explanation of credit scores can be found here.

If you actually want to check your credit score, you might try an estimator such as this one, or you could pay to get your score from one or more of the three agencies or from Fair Isaac at myfico.com for about $15. Again, be careful not to sign up for monthly monitoring unless that’s what you really want.

Regarding mortgages and credit, the minimum score most lenders will consider is 620. Better rates can be had at around 680, and the best rates are found with a score of 740 or above. I would say that someone in the position of my questioner would be in the range of 700-750, depending on the length of credit history and what they’ve done in the last couple of years.

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By Kim, January 21, 2010

In an effort to stabilize home values and improve conditions in communities where foreclosure activity is high, HUD and FHA announced a policy change that will expand access to FHA mortgage insurance and allow for the quick resale of foreclosed properties. This is great news for both buyers and sellers.

The policy change will permit buyers to use FHA-insured financing to purchase HUD-owned properties, bank-owned properties, or properties resold through private sales (known as “flips“). This will allow homes to resell as quickly as possible, helping to stabilize real estate prices and to revitalize neighborhoods and communities. FHA borrowers have often been shut out from buying affordable properties. This action will enable more buyers, and especially first-time buyers, to take advantage of this opportunity.

As a result of the tightened credit market, FHA-insured mortgage financing is often the only means of financing available to potential homebuyers. But with certain exceptions, FHA has prohibited insuring a mortgage on a home owned by the seller for less than 90 days. Often, and especially in Northern Virginia, these are homes acquired by investors through auctions, bank resales, or “short sales,” that have been upgraded and repaired with the intention of making the investors a profit on the resale.

FHA found that acquiring, rehabilitating and reselling these properties to prospective homeowners often takes less than 90 days. Prohibiting the use of FHA mortgage insurance for a subsequent resale within 90 days of acquisition adversely impacts the willingness of the sellers/investors to allow contracts from potential FHA buyers because they must consider holding costs and the risk of vandalism associated with allowing a property to sit vacant over a 90-day period of time.

The waiver begins February 1, 2010 and is effective for one year, unless otherwise extended or withdrawn by the FHA Commissioner. To protect FHA borrowers against predatory practices where non-rehabilitated properties are quickly resold at inflated prices to unsuspecting borrowers, this waiver is limited to those sales meeting the following general conditions:

• All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction.
• In cases in which the sales price of the property is 20 percent or more above the seller’s acquisition cost, the waiver will only apply if the lender can document the improvements and repairs justifying the selling price.

Update – May 20, 2010:  The 20% rule noted above is being treated liberally, according to my lending sources. Rather than requiring the seller to “document the improvements and repairs justifying the selling price” with receipts, lenders are more simply requiring a second independent appraisal, also allowed under FHA rules.

Other details of this new policy are in the text of the waiver, available on HUD’s website.

This is likely to further increase the use of FHA over conventional mortgages with less than 20% down, because most lenders still have the “flip rule” on their own minimum down-payment programs.

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By Kim, January 21, 2010

1,349 homes sold in December 2009, an 11% decrease from December 2008 home sales of 1,510. I believe this was the result of two specific circumstances: (1) there was a huge push for buyers to complete their purchases by November 30 under the $8,000 tax credit act (which was extended at a very late date to the end of April 2010) and (2) the available homes for sale (“inventory”) is astonishingly low.

Active listings decreased by over 29% from last year, with 5,421 active listings as of December 31, compared with 7,688 homes available in December 2008. In fact, it’s the lowest end-December inventory we’ve seen since December 2004′s ridiculous 1,645. And I suspect, with the tax credit extended (and a new credit available for move-up buyers), we are going to see hot sales and low inventory numbers for the next 4 months at least. If interest rates (see historical chart) stay under 6%, buyers are going to be facing even more multiple-offer situations than we have now, which would be saying something.

The average days on market for homes in December 2009 decreased by 38% to 57 days, compared with 92 days a year ago. No surprise there. And 58% of homes sold in under 30 days.

Sales prices rose compared with last year. The average sales price in December increased by about 12% to $474,104, and the median price also rose in December to $385,000, an increase of 13% from last December’s $340,000.

I cannot emphasize this strongly enough – those who need or want to sell must get their homes ready and on the market no later than March.

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By Kim, May 18, 2009

Saturday’s Washington Post Real Estate section featured an article by Ken Harney entitled, “New Appraisal Rules Come With Costs,” in which he posits the following scenarios:

• The real estate appraisal that used to cost you $325 now costs $450, even though the appraiser doing the work is getting only $175 or $200.
• Your appraisal-related charges may now be subject to add-on fees – such as $50 to $100 extra in “no show” penalties if you get stuck in traffic and miss your appointment with the appraiser, or an extra $50 to $150 if the property is worth more than $500,000.
• Your mortgage loan officer requires you to pay for the appraisal upfront with a credit or debit card, rather than including the fee with the usual lender origination costs at settlement. Your card may be charged more than the anticipated cost of the appraisal – leaving debit-card holders in a potential overdraft situation.
• The person conducting your appraisal may be new to the field – willing to work for a cut rate – and may not be as familiar with local value trends and pricing adjustments as an appraiser with more experience.
• If your mortgage application is denied by one lender, you could be forced to pay for a second full appraisal because the new lender may not accept the first one.

The “new appraisal rules,” which go by the name Home Valuation Code of Conduct, were imposed May 1 by Fannie Mae and Freddie Mac, and are intended to improve the accuracy of appraisals by eliminating pressure on appraisers from loan officers. The code pushes most large lenders to use third-party “appraisal management companies” that contract with networks of independent appraisers around the country who thus are not in direct contact with retail loan officers or mortgage brokers. The Code came about as a result of an agreement made between the Federal Housing Finance Agency and the New York State Attorney General. The intent of the agreement was made to enhance the independence of appraisers. The most relevant part of the code seems to be the following:

The lender or any third party specifically authorized by the lender (including, but not limited to, appraisal companies, appraisal management companies, and correspondent lenders) shall be responsible for selecting, retaining, and providing for payment of all compensation to the appraiser. The lender will not accept any appraisal report completed by an appraiser selected, retained, or compensated in any manner by any other third party (including mortgage brokers and real estate agents)

It used to be that a mortgage professional – whether working for a specific lender or as a broker – might have a “stable” of appraisers he or she could call on to provide services. Most of them just wanted a reliably thorough and competent job. However, and this is the reason for the new rules, some only wanted appraisers who were willing to find the right “comps” to hit a specific valuation necessary for the loan to go through. Under pressure to produce that number or perish, many appraisers buckled.

But are the new rules helpful or harmful to the more ethical mortgage lenders and brokers out there? Are they seeing big increases in appraisal costs? How about appraisal quality, now that they can’t choose one of their go-to guys? I asked several of the mortgage professionals I work with every day in Northern Virginia to give me their impressions about whether they find the scenarios suggested in Harney’s article to be happening here:.

We’ve actually been working under these rules for many years . . . All appraisals have been ordered through a 3rd party management company, and while we did have some communication with the appraiser (although not encouraged), we cannot any longer . . .

This is actually a good thing that is happening. Too many times appraisers have been bullied by agents, mortgage lenders and borrowers for not having the same opinion. This [code] will take that opportunity away. This does NOT mean that you can’t call the appraiser, still meet them at the home, etc . . . this is so that lenders cannot contact the appraisers directly – even for a status, as this is seen as undue pressure. These appraisers are professionally trained, educated and have to uphold ethical standards just like all of us; yet no one challenges our decisions like these people.

[The fees and time requirements] are the same, for now. I bet the appraisal costs will go up, and they should. The appraisers can’t live on a “cut” and they have been required to do so many more compliance checks etc . . [Turnaround times] are longer due to volume.

This won’t change the quality . . . if anything the quality will improve because the lenders and agents are now separated from any undue influence.

Jennifer Duplessis, Prosperity Mortgage

Interesting article and I am happy to say we have not had the issues mentioned. [Local] appraisers have only added $25.00 to their fees due to some additional addendums that required extra research. Appraisal fees have ranged from $350 to $375 and now are $375.00 to $400.00 for under $1 million sale price, and they have always charged more for above $1 million – that is not new. Yes, loan officers are no longer allowed to directly pick the appraiser – it is an automated random selection of a pool of known appraisers in our local area.

I think the worst [problem] is the extreme pressure the appraisers are [receiving from the lenders] to include the foreclosures and short sales when determining values. During the recession In the early 90’s foreclosures and short sales were considered distress sales and discarded as [comparable to a] homeowner selling their property. In my opinion, this change in [guideline] has escalated the erosion of home prices. They should have allowed for an adjustment upward on the distress sale, but they did not, they are requiring the appraisers to use them thus providing for lower and lower values – how unfair to the normal seller is that?

Shirley Jones, First Savings Mortgage

I haven't experienced any true horror stories yet, but the new system will definitely change things. I think the appraisers will feel empowered to bring in property values at whatever they feel the value is, regardless of what it may mean for the transaction. The old system had a conflict of interest where (I believe) appraisers didn't want to ruin too many deals with a low appraisals since they were hurting their referral sources (potentially their future income) by bringing in the low appraisal. This new system will potentially change that, which ultimately will be a good thing, but could be painful. I think that will be the biggest change. I believe we will see more low appraisals (meaning appraisal comes in below contract price).

In the past we could choose appraisers and go with ones that we felt were "good appraisers." We now have less of a say. It also adds a layer to the process which usually means more time. I do agree with what the article said about the costs of the appraisals being higher. Mortgage brokers definitely kept costs down with the old system. Appraisals have gone up by about $100 over the past year I believe. I haven't noticed a big difference in the quality of appraisal, but it is still early in the process.

Overall I don't love the new system but the old system definitely had it's flaws also. I'm not sure I would want to go back to the old system even if we could.

Kevin Haddon, Wells Fargo Home Mortgage

So on balance, it seems, in the Northern Virginia area the new rules are seen in an overall positive light by people who I believe to be in a position to know. Yes, costs my have increased slightly, and there may be a somewhat longer turnaround – especially as the system gets established – but I think the horror story scenarios drawn by critics are not reflected in the actuality. I do agree with Shirley's view about separating the distress sales from the normal sales – it's unreasonable, but it's not a part of the new rules, just a lender-imposed requirement. Appraisers should be able to reflect adjustments for condition, given the lousy condition of most foreclosures, but it's unlikely to fill the gaps.

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By Kim, April 2, 2009

Here’s an article from this morning’s Washington Post:

Lenders Struggle to Find Cash to Quench Growing Demand for Refinancing

By Dina ElBoghdady
Washington Post Staff Writer
Thursday, April 2, 2009; A15

Now that mortgage refinancing is popular again, one big concern is that there won’t be enough money to keep up with the demand.

Mortgage bankers say the money they borrow to finance home loans — called warehouse lines of credit — has dried up and that borrowers may pay the price in artificially inflated interest rates and maddening delays in loan closings.

Interest rates are at record lows. The average on a 30-year, fixed-rate mortgage fell to 4.61 percent for the week ended March 27, according to a survey released yesterday by the Mortgage Bankers Association. But many capital-starved bankers said rates could be 0.25 to 0.75 percentage points lower if they had better access to warehouse lines.

These credit lines provide bankers who are not licensed to take deposits with the money they need to close a mortgage. The bankers then pay down the credit line after the mortgage is sold to Fannie Mae, Freddie Mac or other investors.

But the amount of available credit has plummeted to about $25 billion from $200 billion a year ago, according to the mortgage bankers group. Many of the large financial institutions that extend credit to the bankers have left the business, imposed tough restrictions or capped existing lines as they try to shore up their own capital. In the past few weeks, National City Bank, J.P. Morgan Chase and Guaranty Bank have announced plans to end warehouse lending.

Mortgage bankers say the supply of money available to them is shrinking just as demand for loans is taking off, blunting the Obama administration’s efforts to loosen consumer lending. Last week, loan applications were up 3 percent from the previous week and almost 69 percent compared with the previous year, the mortgage bankers’ survey found.

“When demand outstrips supply, lenders manage that by raising rates” or slowing the pace of lending, said John Courson, chief executive of the mortgage bankers group. “The end result is that borrowers are not enjoying the full benefit of these lower rates.”

Mahesh Swaminathan, an analyst at Credit Suisse, said he agrees that lending volume might be higher and loans might be processed more quickly if there were no credit-line problems. “But at the same time, it is not the case that activity is stalling because of that,” Swaminathan said.

The new mortgage securities backed by Fannie Mae, Freddie Mac and Ginnie Mae totaled $172 billion in March and could reach nearly $200 billion by June, he said. That’s more than the monthly high of $190 billion in 2003, suggesting that lending activity is robust, driven mostly by refinancing.

Still, some borrowers are watching their mortgage deals fall apart at the last minute. For instance, Greystone Financial’s sole warehouse line was pulled in February. The Las Vegas company has shut down its operations in the District and 17 states, including Maryland and Virginia.

“We had 500 loans in the pipeline, and we had 30 loans that were signed and ready to go, but we could not fund them,” said Michael Sweeney, Greystone’s chief executive. “It caused a tremendous amount of headaches for the buyers, and we’re not sure how much longer we can continue doing business this way.”

The Warehouse Lending Project, a coalition of independent mortgage bankers, and the mortgage bankers association are working with the regulator that oversees Fannie Mae and Freddie Mac to devise a plan to bolster warehouse lending.

That regulator, the Federal Housing Finance Agency, said in a statement that it is aware of the effects of the decline in warehouse lending and that it has met with industry and administration officials to “try to develop solutions.”

The warehouse-lending coalition estimates that non-depository banks supply roughly 40 percent of loans and contends that the mortgage market would suffer if they went out of business.

“Think about it: If all of a sudden there was a big demand for gasoline and 40 percent of the gas stations went out of business, you’d have chaos and disruption and higher prices. That’s the situation we’re drifting toward in the lending arena,” said Glen Corso, a principal at the Warehouse Lending Project.

I think the situation for the lenders I work with – such as Wells Fargo, Prosperity, and First Savings – is better than for most mortgage brokers because they rely on their own funding rather than on “warehouse” lines of credit. But the overall tightness could still serve to increase rates.

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By Kim, March 22, 2009

Info from this week’s Mortgage Market Guide:

Last week, the Fed used their regularly scheduled meeting to make a blockbuster announcement.

Over the course of 2009, the Fed will purchase an additional $750 billion of mortgage-backed securities, as well as $300 billion in long-term Treasuries, primarily to help shore up the housing market and keep home loan rates low. On the announcement, bonds exploded higher, leaving bond prices within whiskers of the best levels ever.

How does this really impact home loan rates?

While the Fed’s actions may keep mortgage rates from moving higher, they may not cause them to move dramatically lower. The Fed’s actions create demand for mortgage-backed securities, which should help keep the ceiling on home loan rates from moving much higher in the foreseeable future. That’s good news for homebuyers who are seeing the bargains out there and understand that now is the time to act.

But – and this is very important – what actually happens to mortgage rates depends on which bond coupons the Fed purchases. If they purchase higher rate coupons – as they have done so far this year – their continued purchasing will likely keep a lid on rates, but not necessarily push them significantly lower. Additionally, due to many understaffed lenders and investors currently working at maximum capacity, we could once again see that improvements in pricing may not all be passed through to borrowers.

Another factor that could impact whether mortgage rates see significant improvement are concerns of future inflation brought on by all the recent aggressive moves by the Fed. While we know there is little inflation at the present time, chatter about future inflation could have a negative impact on home loan rates, or at least stifle any improvements.

Although the media is already spinning it differently, this is not a time to stay on the fence, hoping and waiting for lower rates. Home loan rates remain within inches of all-time historic lows, but may not necessarily move significantly lower, so waiting could be a risky move.

Also, an update on Mark-to-Market – the accounting rule which has had a devastating impact on the financial markets: The Financial Accounting Standards Board (FASB) agreed that it will propose to allow companies to use more “leeway” in applying the accounting rules they use to value their assets, and planned a final vote for April 2. If this rule change is approved, it could result in better first-quarter financial statements for companies that have been affected by this rule. Stocks have been moving higher lately in the hopes that Mark-to-Market will be fixed, and a resolution could help stocks further improve.

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By Kim, March 20, 2009

Reductions in Northern Virginia home prices, and unprecedented low interest rates for mortgages, have combined to offer tremendous opportunities for renters to become homeowners. The prospect of making the change may be exciting, but also overwhelming.

Here are a few common mistakes to avoid:

Not understanding the home buying process. Educate yourself. Find a homebuyer seminar that you can attend, or research online. The U.S. Department of Housing and Urban Development has an entire section devoted to first-time homebuyers, information on mortgage programs, downloadable tools such as a “wish list” and home-shopping checklist, tips on selecting a real estate professional, and so on. Another good source is a solid lender such as Wells Fargo or  Prosperity Mortgage whose websites offer consumers a variety of tools and resources on purchasing a home.

Not asking questions. There are many intricacies to the home buying process, and even though you can gain a basic knowledge on your own, you will still have questions. Be sure to tell your real estate professional that you are new to the process. Choose an agent (like me!) who is willing to spend time with you and walk you through the entire process. A good agent will expect you to have questions at each step – from house-hunting, to making an offer, to the closing (such as, “What the heck is a closing?”). This is one of the largest financial transactions of your life, so you want to have a clear understanding of what’s going on at all times.

Looking outside your price range. Before beginning your home search, get pre-approved by a mortgage professional - preferably one you know or one recommended by your agent – to get an idea of how much you may be able to borrow. Use this information as a starting point in determining your price range. Then take into consideration other factors that will affect your monthly budget once you are a homeowner, such as property taxes, homeowners insurance, utilities, and maintenance. Don’t go out looking at homes before you have a firm idea of your range.

Buying on impulse. Don’t feel pressured into making an offer on the first home you see. Buyers, especially first-timers, may be impressed by the first two or three homes they view. Look at a good selection, then narrow the prospects to a select few and return for a closer look. When you decide to make an offer, work with your agent to get all of your questions answered first. But don’t wait too long to make an offer. The longer you wait, the greater the chance other prospective buyers may place offers, making it harder for you to negotiate a good deal.

Not planning ahead. Think about personal changes you are planning in the next five years. For instance, are you starting a family, and if so, is the home large enough and will it continue to be? If you think you’ll be relocating in a few years, you’ll probably want to pay closer attention to potential appreciation and resale value. If two incomes are needed to qualify for financing or to make your payments, do your plans include the ability to sustain those incomes?

Failure to consider location. Don’t just focus on the house. Examine the community. Does it suit your lifestyle? Is the area safe, well-maintained, close to work, stores and schools? Find out about zoning and whether new construction is planned on vacant land in the immediate area. Also consider the potential market for resale in the future. Your agent can also help with that.

Above all, remember knowledge is key. No question is silly. Your agent and your mortgage professional are invaluable assets throughout the process, and they want you to succeed. Making smart home buying decisions will make the home-buying process less scary and your first home purchase a rewarding experience.