one more thing

The Federal Housing Administration (FHA) is channeling their inner Steve Jobs with their continued amending/changing of loan guidelines.  In case you don’t know, here is how Steve operates… even though it appears he is wrapping up the annual “state of Apple” speech, he often comes back up on stage to say ”one more thing” and proceeds to introduce a new product offered by Apple.

So, while FHA continues to make adjustments to guidelines, this may be a growing trend – for now, here’s “one more thing” — the FHA releases plans for tighter loan guidelines – definitely not as much fun as new iPhone!  Here is a look at some of the recent changes (to take affect in the Spring):

• a 580+ credit score required in order to qualify for the minimum down payment of a 3.5%
• credit scores lower than 580 will require a 10% down payment
• the up front mortgage insurance premium (UFMIP) will increase from 1.75% of the loan amount to 2.25% of the loan amount (this fee is generally financed in to the loan amount)
• seller contributions to closing costs and prepaids will be reduced from 6% of the purchase price to 3% of the purchase price

It important to know how these changes will impact borrowers (usually first time home buyers).  Let’s take a look at each of the changes and their potential impact:

• CREDIT SCORES – While the FHA itself has not required credit scores, banks have required a minimum credit score of at least 620 for some time now.  The 620 requirement by banks will probably not change, so the FHA 580 credit score requirement will not apply in most cases.
• UP FRONT MORTGAGE INSURANCE – The up front mortgage insurance premium has been required in some form for as long as FHA loans have existed.  The up front premium is charged to the borrower BUT is rolled into the loan amount – meaning the borrower is not paying the fee out of their own pocket at closing.  Ultimately this will only slightly increase the monthly payment of borrowers (and reduce the maximum purchase price).
• SELLER CONTRIBUTIONS – If a borrower only has enough for the minimum down payment on an FHA loan, the seller usually pays the closing costs and prepaids on the borrower’s behalf.  Under the old guidelines, a 6% contribution of the purchase price would easily cover all closing costs and prepaids on the loan.  However, 3% of the purchase price may not cover everything and borrowers will need to find other sources (gift from a relative, “low” or “no closing cost loan”, etc.) to cover additional funds due at closing.

In the grand scheme of things, these changes should not have a dramatic affect on borrowers qualifying for FHA loans. It will primarily reduce the amount of house a borrower can afford to buy.

That said, planning ahead becomes more and more important.  Gone are the days of easy financing and no planning needed.  Anyone looking to buy a home using the tax credits (for first time home buyers OR move-up buyers), need to talk to a professional and make sure everything is in order now instead of waiting until the tax credit deadline and realizing (when it may be too late) that there is a potential problem!

What is going on in the mortgage industry?

As many of you are aware the lending/mortgage industry has been going through a tremendous amount of change over the last year.  The changes have greatly affected all aspects of the mortgage industry and additional regulation is going to occur over the next 12 months.  Here is a brief recap of the last 15 months:

-          Fannie Mae and Freddie Mac tightened underwriting guidelines and increased fees (which increases interest rates for consumers) based on property type, credit score, loan type, and loan to value ratios.

-          Home Valuation Code of Conduct (HVCC) went in affect which requires a third party management company to manage the appraisal process.  This has actually increased the cost of the price of the appraisal to the consumer and has made it more difficult to get a house to appraise for a refinance or purchase.

-          Mortgage Disclosure Improvement Act (MDIA) went into affect and requires additional disclosure and an increased waiting period when a consumer wants to purchase a home or the loan scenario changes.

-          Safe Act will be implemented over the next few months by Federal and State mortgage agencies.  This will require loan originators to take 20 hours of education, pass a federal test, pass a state test, pass federal background check, and have good credit.  It is estimated this act could eliminate 25-40% of the mortgage originators in the industry.

-          FHA eliminated down payment assistance and requires home owners to put 3.5% down to purchase a home through the Federal Housing Authority.

-          The Real Estate Settlement Procedure Act (RESPA) will change at the beginning of 2010.  The government changed the act in hopes to make it less confusing for the consumer.  The changes include a new good faith estimate turning a one page document into a 3 page document.  The hopes by the government are the 3 page document will be less confusing then the current 1 page document (more on this topic from “the mortgage blog” coming this week!).

-          Congress just passed a new bill called the Consumer Financial Protection Agency which still has to pass the senate.  This bill will eliminate some of the changes discussed above but result in other changes which will require more regulation for this industry.

So what does all this mean?  Well, the pendulum has swung — we have gone from limited regulation to over regulation in a matter of 24 months.  Most in the industry are uncertain if the changes are good or bad for the industry.  I am certain in the future, it will be a smaller industry, with less competition, higher credit standards, and higher costs to the consumer.  So if you know somebody in the mortgage industry, give them a hug or a referral they sure could use it!  Better yet, if you are in Georgia, give us a call (hug is very optional).

This IS it . . . and I am letting you know.

Certainly by now, you have heard that a few people have refinanced their mortgages, taken advantage of the lowest mortgage rates in history and are currently saving hundreds of dollars per month (thousands of dollars per year, thousands and thousands over the life of the loan, etc).   What you may not realize is that now could be your best time to take advantage of crazy-low interest rates because it may be your best chance to qualify.  That’s right . . . if you wait any longer to refinance your mortgage, you may not qualify!

And here are four reasons why:

1. Program guidelines are changing.  As an example, in the past few days, the guidelines for an FHA streamline refinance have changed essentially taking the “streamline” out of the process.  A FHA to FHA refinance used to be a mortgage-history only qualifying loan (no employment, no income and no assets required).  Now, these types of loans require proof of employment, proof of assets and a minimum credit score requirement (in addition to a 12 month perfect mortgage history payment).

2. Your home value is changing.  As more borrowers find themselves in trouble financially and more homes go in to foreclosure and as those homes are sold by banks, the comparable sales for your neighborhood will likely go down.  And because the loan-to-value (the proportion of your loan balance in relation to your property value) drives the PMI (private mortgage insurance), helps determine your available interest rate, and is factored in by 2nd mortgage companies processing subordination requests, every dollar in an appraisal counts.  Some homeowners may not qualify for financing at all depending on how far their property value may have dropped.

3. Your credit score is changing.  More and more credit companies are lowering credit limits on credit card accounts and home equity lines of credit.  As this happens, the proportion of your credit balance to available high credit increases (your card balance is now closer to the high credit, or closer to being at the maximum limit).  This proportion is used in the calculation of a credit score and as the balance moves over 30%, 50% and 75%, your credit score increases each time.  So even your balances stay the same, a dropping high credit, could translate in to a dropping credit score . . . and a lower credit score = a higher interest rate.

4. Interest rates will be changing.  Mortgage rates are historically low for one reason and one reason only.  The US Government is buying mortgage-backed securities (MBS).  The US Treasury has been purchasing $14 to $20 billion dollars per WEEK in mortgage backed securities in order to drive mortgage rates down.  This trend is set to continue with a gradual reduction until the scheduled end date of March 2010.  Once they withdraw from the MBS market, most assume that mortgage rates will go back to their previous levels of 5.75% to 6.25%.  Others, more fearful of inflation (the enemy of long-term mortgage debt) think mortgage rates may go even higher than that after March 2010.

This week mortgage rates came very close to their lows for the year.  If you have been “thinking” about refinancing your mortgage, but have not yet taken advantage of (literally) the lowest rates in history, now is the time.  So if you are thinking, “If this is it . . . pleeeease let me know . . . “  — this IS it, and I am letting you know.  Thanks Huey.

P/S — I know the music video would have been better, but it is “unable to be embedded”.  So if you are in need of seeing the video, check it out here.  : )

Mortgage and Real Estate Out of Order: No sense makes

Putting the cart before the horse, getting ahead of yourself, whatever you want to call it, going through the mortgage and real estate process in the wrong order can be confusing, frustrating, disappointing, and it could cost you hours of time and hundreds or even thousands of dollars.

Unfortunately, a lot of  times, the order of activities goes something like this: 1. Become interested in purchasing a home; 2. Go online and do some research; 3.  Find a few houses that seem to be a good fit; 4.  Contact a Real Estate agent for more information; 5.  Contact a mortgage provider to get details on available loan programs, interest rates, monthly payment scenarios, etc.  Some extraordinarily out-of-order buyers may even squeeze in an additional step between numbers four and five: 4b. Go and view homes that seem to be a good fit.

In the scenario above, the cart is certainly before the horse (finding the house before finding the mortgage).  In fact, not only is the cart before the horse, but the potential buyer has put the cart (the house) before the horse (mortgage) not even knowing yet if they can even ride a horse (qualify for a mortgage).  In other words, they have found the house and are hoping they can make the mortgage fit.  These simple steps, when done out of order, make it difficult to move down in price-range without being terribly frustrated.

I tell all my potential clients, if you are looking to purchase a home in the next 12 months, you need to talk to a mortgage professional.  It is never too early to review your credit, your loan qualifications and your target price range.  If you start looking at homes that are out of your price-range, you will only be disappointed later (I can almost guarantee you will like more expensive homes MORE than less expensive homes.  You may not like the mortgage payment, hence the frustration).  

Here are a few “Well, I haven’t called a mortgage person yet, because . . .” myths debunked:

1.  “I don’t want anyone to pull my credit because it will hurt my credit score.”

The credit score model does lower your score based on inquiries, but only if you have an “excessive number of inquiries” within the past 12 months.  An excessive number of inquiries is a sign that a consumer may be desperate for credit, or may be applying for multiple credit accounts at the same time – both risks and red flags (hence the lowering of the credit score).  One inquiry on your credit report six to twelve months before you are going to purchase a home gives your mortgage professional the information he or she needs to help give you advice on ways that could potentially help you increase your credit score by 50 to 100 points.  And with your available interest rate being tied directly to your credit score, the difference in 20 points on your credit score, could mean the difference between 5.0% and 5.5% = about $75 per month on a $250,000 mortgage = almost a $1,000 per year.

2.  ”I know I am fine.  The last time I checked my credit is was like 700-something.”

I hear this statement made a few times each month, and the reality is that it’s true about half of the time.   Your credit score is generated each time your credit report is pulled.  And because the most recent account information (account balances, late payments, etc) has the greatest impact on your score, if you haven’t seen your credit report in the last 60-90 days, your credit score from a few of months ago is not accurate.  Also, because mortgage rates and available loan programs vary for credit scores of 620, 640, 660, 680, 700, 720 and 740, in order to give accurate information for your options, even if your score really is 700-something, your mortgage provider actually needs to know if your score is 719 or 720, or 739 or 740.

3.  “I am just thinking about buying . . . not really ready to take the next step.”

Some people say this because they are concerned that the pre-qualification process (reviewing your mortgage options) takes too much time or that it costs something.  Some have even told me that they didn’t want to “waste” someone’s time so early in the preliminary stages of only “thinking about” possibly purchasing a home.  Here is my response to those concerns:  the pre-qualification process should take 20-30 minutes over the phone; it shouldn’t cost you anything; and talking with a prospective new client is actually the exact OPPOSITE of a waste of time.  It’s one of the most productive things I could possibly hope to do during the day!

So if you are thinking about purchasing a home (yes, even just thinking about it) save yourself some frustration and go through the process in the correct order.  Getting the details of your mortgage options first — and how to improve your ability to get a mortgage and a better interest rate on your mortgage — will allow you to take the next steps with confidence and peace of mind (searching for homes in the right price-range).  Starting the process in the wrong order could very well have you falling in love with a house you can’t purchase (a cart you can’t horse? a horse you can’t cart??  That’s enough of that analogy.  You understand, right?).

Atlanta Real Estate Recap-September 2009

The positive upward trends reported for the last couple of moths have come to an end.  September numbers do not give us a lot to be excited about. Overall we experienced a 16.8% decline in closed sales for all single family dwellings.  This includes attached and detached units.  The total number of closings for September was 4,280; which is 864 less than in 2008 and 330 less than in 2007.

Closings on detached single family units came in at 3,583.  This was decline of 18% compared to the same period in 2008.  This trend is expected to continue.  Attached single family units recorded a decline of almost 10% compared with September 2008. 

The average sales prices for single family attached homes increased by $1,800 to $142,940, from a recession low in April of this year.  This may well be short lived though.  Recently failed Corus Bank was heavily invested in single family attached construction here in Atlanta when it went under.  Nearly 1,500 newly constructed condos will be offered for sale by a yet to be named investor to be selected by the FIC to dispose of the units.  GOOD NEWS FOR CONDO BUYERS.  Not good news for condo sellers.

Single family detached homes recorded an average sales price of $203,440, which is $5,000 below same month numbers for 2008, and $57,000 below same month numbers for 2007. 

Additionally we continue to see near record numbers for days on market.  Some good news in inventory levels. Our current inventory levels for all single family units are at 47,000 units for sale.  This is the lowest inventory level since January 2006, and 23,000 lower than our all time high in July 2007 of 70,000 units.

We continue to see many pending sales fail to close.  Many factors may contribute to this, such as lack of liquidity resulting in borrowers being unable to secure financing, and property conditions causing many would-be buyers to terminate contracts.  With all the bad news, INTEREST RATES REMAIN LOW and there are GREAT VALUES out there.

It’s Official

The new bill extending the first time home buyers tax credit passed through both the House and the Senate.  The last stop is President Obama’s desk.  Once signed, the law goes into affect.

Several aspects of the bill are the same, but there are some new twists this time around.

• First time home buyer tax credit of $8,000 extends through April 30, 2010. Home must be under contract by that date and closed on or before June 30, 2010.
• As before, first time home buyers are individuals who have never owned a home OR have not owned a home in 3+ years.
• A “moving up” tax credit of $6,500 is available for current home owners buying a new home.  To qualify, home owners moving up must have lived in their current residence for 5+ years.
• Income levels for a single purchaser are limited to $125,000 adjust gross income (up from $75,000) and $225,000 for couples (up from $150,000).
• Home buyers with adjusted gross income above those levels can still qualify for the tax credit, but the amount of the credit diminishes as you move above the income limits.
• In order to cut down on fraud, home buyers must be at least 18 years old and must submit a copy of the HUD-1 settlement statement from closing.

There you have it.  New life in the tax credit and let a new countdown begin… only 175 days left before you must have a home under contract to qualify for either of the tax credits.

The end is near

5 Minutes to Midnight

I’ll admit that the doomsday clock at about 5 minutes to midnight (meaning the end of the world is upon us) is a little over dramatic – even for me. The point I’m trying to make is simply this… time is running out on the $8,000 tax credit and low interest rates.

Let me explain…

$8,000 tax credit expires on November 30, 2009 - As of this post, there are only 30 business days remaining before the deadline (remember we lose a couple of days because of Thanksgiving). While it may seem like there are 6 weeks to go, there are only 30 working days left.

There is talk of extending the credit and some people are being creative in trying to define what part of the buying process needs to be completed by the 30th… Bottom line, if you want to be sure to get the tax credit, a first time home buyer’s purchase must be closed on or before November 30th.

Historically low interest rates - Last November, the Federal Reserve announced a plan to purchase up to $1.25 Trillion in mortgage back security bonds. This would increase their value and push interest rates down (as bond prices go up, interest rates go down – and vice-versa).

Shortly after the announcement, interest rates dropped about a half of a percentage point — on just the announcement of the plan!!! Once the Feds actually began buying bonds, rates dropped into the 4’s.

Those days are coming to an end as the Feds begin (over the past couple of weeks) to scale back the purchasing of bonds. They plan to be out of the bond buying business at the start of the new year.

What does this mean for interest rates? Well, the past couple of weeks have seen the market trend in the wrong direction pushing mortgage rates slightly higher. One can only expect this trend to continue as the Feds move away from buying bonds.

All hope is not lost. At this moment, it is not too late. If you haven’t taken advantage of these historically low rates to purchase a home or refinance your existing home (if you current rate is over 6%, we need to talk), rates are still historically low. Also, there is enough time to still buy a home and qualify for the tax credit if you start today. Let’s get started by calling or emailing me!

Managing Your Mortgage

When was the last time you reviewed your overall financial picture?  Or reviewed your most recent retirement statement?  Or rearranged your holdings in your investment account?  If you are like most people, despite your best intentions to not look at the (likely) damage done to your finances over the past year or two, you review where you are, because it is the only way to really asses your situation.  Without reviewing things, good or bad, you won’t know where you are, and you won’t know how to get wherever it is you want to get (retirement, debt-free, more cash in reserves, funds for college, weddings, etc, etc.)

While most people spend time each month or each week reviewing their budget and their personal finances, most don’t take the time to review their biggest investment – their home (and the means of purchasing that investment = their mortgage, their biggest debt).  A monthly statement from the loan servicer is a good reminder of some of the highlights of your mortgage: current loan balance, interest rate, monthly payment, escrow balance, escrow disbursements; but it doesn’t really provide the information you need to manage your mortgage well.  It tells you where you are, but it doesn’t tell you where you are going (or if there is a better way to get where you are going).

In addition to watching your finances on a regular basis, you probably use some automated systems to help you manage your finances – online bill-pay, automatic draft from your bank account, and maybe stock buy-sell orders.  Why not take some time to set up something similar for your mortgage?

In order to help my past clients, friends and new referrals manage their mortgage, I offer a refinance monitoring service through myRateTrack.com.  This service is free to use and is exactly specific to each individual customer.  Once an individual’s loan information is setup in the system, he or she will automatically receive a RateTrack refinance report itemizing refinance options available based on that customer’s current mortgage balance and monthly payment and that day’s available rates and closing costs (view sample RateTrack report).  The report is emailed automatically each month and is also available instantly by logging in to the website.  This RateTrack report allows individuals to monitor available refinance options and helps to answer the two main questions that my clients have.  Question number one, “Could I save money (would it make sense) for me to refinance my mortgage?”  And question number two, “If it does make sense, should I call Jeffrey?” 

The system also allows each client to enter a Target Refinance Rate in the system, so if and when that interest rate is available, they receive an email alert letting them know it’s time to take action (the answer to question two, part B, “Should I call Jeffrey today?!?”

To sign up for a myRateTrack.com account, simply visit www.myRateTrack.com and use the PROMO code = themortgageblog to access the site for free and to be entered in to my database of clients and referrals.  You will need some general information about your current mortgage (original loan amount, closing date, interest rate, loan type, ARM information), but you do NOT have to enter personal information such as income, assets, or social security number.  Once you are signed up, the system will alert me, I can review your mortgage and make sure you have the information you need to set an appropriate target rate and are on track to managing your mortgage well.

Strategies for Writing Offers in Light of HVCC

With the ongoing challenges presented by the current economy and the new rules associated with the HVCC Guidelines, the strategies used to insure that your interests as a buyer are protected are essential.  One special area of consideration in Georgia is the “Due Diligence Period”.

Prior to the recent decline in real estate values the biggest challenge faced by most buyers was resolving with the sellers any items that came up on the inspections performed.   This was due in part to the fact that loans were readily available for practically any buyer with no money down and very little qualifying.  And, to the fact that prices were pushed up due to overly relaxed lending guidelines which encouraged buyers to pay more for homes because they could finance the entire purchase price.   Consequently there was generally no need to be concerned about getting a loan or the home appraising.  This has all changed.

In the current market although inspections continue to be a major concern when purchasing a foreclosure they may be less critical on homes that have been reasonably maintained and are owner-occupied.  Replacing inspection issues as the major concerns for buyers is the appraisal followed by their ability to secure financing. With this in mind here are a couple of suggestions.

1.  Consider providing at least 40-45 days to close.  This will provide enough time to conclude the appraisal process, complete inspections, and provide enough time for final conditions to be met in order to satisfy underwriting requirements.

2.  Consider including an appraisal contingency in your offer and consider having the appraisal done prior to having the inspection done.  This will limit your out of pocket expense to the cost of the appraisal (usually $350-400).  This also provides you the opportunity to address what could potentially be the largest financial hurdle to clear in the entire process.  Three recent experiences involved sellers faced with having to reduce their price by $25,000; while another seller was required to reduce the price $14,000, while still another needed to reduce it by $12,000.  In these cases as in many others buyers are being asked to contribute to the failure of the property to appraise for the purchase price by paying more that it appraised for or by reducing seller contributions to closing cost.  When these amounts are considered they have the potential of affecting the transactions by thousands of dollars which is typically more than the financial impact of resolving inspection issues.  By addressing this issue early in the “Due Diligence Period” you will address the most critical issue before incurring additional costs associated with inspections.

3. Consider doing your inspections after the appraisal contingency has been satisfied.  By approaching the “Due Diligence Period” in this manner it provides you the buyer the opportunity to address inspection items after you and the sellers have amended the purchase price to the appraised value; if there is a difference between the two. 

4.  Consider splitting the earnest money into two or more separate payments.  For example if the earnest money is $5,000 you might make $2,000 payable upon reaching a binding agreement.  The balance of $3,000 might be remitted in two payments of $1,500 each, one occurring at the time the appraisal contingency is satisfied and the other occurring at the time the inspection issues are resolved.  This will serve as an encouragement to keep the seller involved in the process.

Please remember if you are represented by an agent to discuss your strategy prior to making an offer.  If not you may find yourself putting lots of time, energy and expense into a transaction that may not work.

Now? Yes. Why? Because I said so.

As you probably know, a good portion of my business comes from friends and family and referrals from friends and family.  I realize that some people think that “you just don’t mix business and family” to which I wonder, mainly, how messed up is your family that you can’t trust them to take great care of you in business (shouldn’t they take BETTER care of you, because you are family)??? 

Anyways, my brother and I had been talking about their mortgage over the course of last year and during the holidays, the topic came up again.  We all agreed that it was something that they ”needed” to look in to.  My sister-in-law and I got together over the phone a week or so later and crunched some numbers, went through the specifics, and talked about rates, the refinance process, current trends, and the best-guess future of mortgage rates.  After our conversation (the “looking in to” part), we decided that refinancing the mortgage was the right thing to do.  But when?

This scenario is not uncommon.  First, people realize that the need to look in to refinancing.  Second, people realize that they really should do something (to save money, consolidate a 1st and 2nd mortgage, to protect themselves from the future adjustement of an ARM).  But the next step is generally where people get stuck.  They know they should do something, but they aren’t sure when they should do that certain something.  Will mortgage rates go even lower?  Should I wait a little longer and ride out my adjustable rate mortgage?  Should I make a few more phone calls and get a few more estimates?  Should I wait to talk to my dad this weekend and see what his advice is?  Or see if my aunt’s boyfriend who use to be in the mortgage business has any ideas?  Or wait until the guy on the radio mentions that it is a good idea . . . the reasons for waiting are endless (and often times fruitless as well).

With family, here is the great thing — since we had already decided it was a wise decision to refinance, and because we had already gone through the details (costs, savings, etc), a week or two later, when mortgage rates dipped to their lowest point in history, I called him — not to “review his current refinance options” (although we could have certainly done that), and not to “remind him how a refinance and a historically low interest rate would prevent his LIBOR based ARM from increasing his payment in the years to come” (although we could have revisited the historical trend of the LIBOR index and talked about payments at an adjusted rate of 6.75% or 7.5%) – I called him to TELL him it was time to lock-in his rate.  “Hey, you need to lock-in your rate, TODAY.  We can get paperwork over the next few days, but today is the day to lock-in.  If rates go lower, it won’t be by much.  You need to lock-in.”

He took my advice.  And he has an amazingly low rate on his mortgage (fixed forever) to prove it.

Today (October 1st, 2009), I would love to be able to pick up the phone and say the same thing to you.  But since we aren’t family, this blog post will have to suffice.  If it makes sense for you to refinance and if you are able to refinance, it’s time to lock-in and move forward.  You need to lock-in.  Why? 

The long answer:  the lowest rates in history; mortgage rates have inched down over the past 7-10 days; Feds are easing purchase of mbs which should make rates slowly go back towards 6.0% between now and March 2010; employment figures are coming out tomorrow and the market seems to have a way of spinning bad news in to good news which is bad for motgage rates; you’d be crazy to wait in hopes of inching out another 0.125% in rate at best because the market has proven that we are at or close to the bottom, with the potential for things to go up 0.5% or more without warning).

The short answer:  because I said so.  : )