| Would you skip a mortgage payment if you thought it could help you with the bank? | July 26th, 2009 |
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I’m not surprised, although I think there’s a ‘back story’ here. Not all these owners are callous fools– some may be in tenuous economic positions. They can pay now, but are setting up their “Plan B” in the event they can’t afford their payments down the road. I also think some of those owners are making calculated moves towards negotiating a loan modification or short sale. In the Bay Area, this practice is probably more common, where sophisticated investors and owners are more adept at negotiating with their lenders. That said, I’m doing a deal right now (buyer-represented) with Sellers who can easily afford their monthly payments but are choosing to negotiate a short sale with their lender. It looks like Wells Fargo is going to let them walk, but only after they pay $15,000 to mitigate the lender’s losses. Add to that my own efforts towards a loan modification. After inviting me to apply for a ‘pre-emptive loan modification,’ Citibank has turned me down because I don’t make enough money. Evidently the bank would rather risk foreclosing on me than seemingly help me keep my home. Wacky reasoning, I know, but they tell me the Obama Administration has put restrictions on loan workouts, and I don’t meet Freddie Mac’s very conservative underwriting requirements. (Don’t worry– I won’t go homeless and can make the payments I have without too much trouble) So don’t think a loan modification or short sale is a slam dunk if you decide to go for it without demonstrating real hardship. Just sayin’. . . Read more. . .http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/07/12/REBF18JR7P.DTL |
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A new study reveals that 26 percent of mortgage defaults across the country are based on strategic economic decisions to bail out of loans by owners who actually have the money to make the payments but can’t stomach the negative equity they’re carrying.| Loan Modification Companies - Saviors or Scam Artists? | May 12th, 2009 |
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Recently one of my clients called me up to ask about a company that approached him for a loan modification. They said they did the modification for free, but charged a “forensic audit” fee of approximately $2,000. If the “audit” showed my client that he could be eligible for a loan modification, then they do the modification at no charge. The California Department of Real Estate’s has taken the position that these types of schemes do not pass muster just because there is purportedly no charge for the loan modification itself. The DRE position is that the “forensic audit” is merely an attempt to get around the prohibitions from taking advance fees on these transactions. You can tell the loan modification offer is illegal or a scam if there is: 1. Demand for payment up front (advance fee payment). While not unlawful if paid to licensed persons in the certain limited situations discussed above, the demand or request for advance payment should alert you to the possibility of fraud. 2. Promises or guarantees of success, such as “We Can Save Your Home. We Have Saved Thousands. Free Consultation. Money Back Guarantee”. No such guarantees are possible, and there are no assurances of a successful loan modification. 3. Too good to be true testimonials– such as “We Modified Terri G’s Adjustable Rate Loan, Which Had Spiked to 8 Percent, to a 3.5 Percent Fixed Rate Loan”. 4. Claims that a loan modification company is attorney-backed, attorney-affiliated, or attorney-based — especially where no lawyer or law firm is identified or mentioned. Many of these entities are simply using the name of an attorney (the name might be for show only, and/or there might not even be a lawyer involved) and scams skirting the law. |
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| Short Sale or Foreclosure - Who Owes the HOA Fees? | March 24th, 2009 |
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I recently had a client interested in a condo listed as a short sale. In addition to owing a first mortgage against the home, the owner had also failed to pay HOA fees for many months. I wondered if my clients would be responsible for the HOA fees after they took possession of the property. Shortly after hearing about this additional lien against the property, I got clarification on who owes HOA fees from our legal department. Here is what I learned: In a normal sale, the HOA’s late fees must be paid off at Close of Escrow. If the HOA has recorded a formal lien against the property, the buyer’s lender will almost always require it before making the loan. If the HOA has not recorded a lien, then the HOA still has an unsecured debt which they can attempt to collect against the prior owner – but not the new owner. In a short sale, if the HOA has recorded a lien, then it needs to be paid as a part of the short sale. Most banks will eat this cost and pay the HOA all the late fees. Some banks, however, will try to push this back on the seller to come up with the money. If this is the case, the buyer should be sure to wait until this issue is cleared up before allowing the property to close. In almost every case, if the HOA has recorded a lien and then the seller’s lender forecloses, the foreclosure will wipe out the HOA lien. Once the bank owns the property, the bank becomes responsible for payment of the HOA dues from the time they take title until the day they transfer title to the next buyer/owner. However, REO bank/owners are notorious for not paying HOA dues during the time they own the property. They pay up past dues at the time they sell the property to the new owner, but in the meantime many HOA’s are suffering cash flow problems. Occasionally an HOA, usually out of ignorance, may attempt to collect the unpaid dues from the new owner. If this occurs, the new owner may have to fight with the HOA to straighten out the record. If the HOA puts up a fight, the new owner may even have to hire a lawyer to clear up the matter. A good agent will check with the HOA about unpaid dues prior to close. And they will make sure that all unpaid fees and late charges are taken care of at close of escrow. |
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| Slight Egg on my Face | December 8th, 2008 |
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Today I got the real scoop on the 4.5% rate from Daniel Custer of Countrywide. Here is an excerpt from the email he sent: It is important to remember that there are no details to the Treasury plan as of yet. The Federal Government does not directly dictate home loan rates. Rates are determined by price movements of Mortgage Backed Securities (MBS), which compete for investor funds in the open market. The Treasury can buy mortgage bonds on the open market but remember that they are not the only entity buying and selling these instruments. The Treasury is in a very tough position in trying to manipulate home loan rates. Creating a new Federal mortgage program could be very risky. How would rates be set, who would qualify, and can the funds be used for purchases and refinances are just some of the questions being asked. The other critical concern is implementing such a program without destroying the current mortgage securities market. Doing so could have the unintended consequence of causing additional economic turmoil. Rates are not going to 4.5% with the wave of a wand by Hank Paulson or Ben Bernanke. As a matter of fact, the massive borrowing to fund the TARP program has a negative effect on rates. At this time, the announcement still leaves a lot of uncertainty. What we do know is that rates are at historic lows and house prices have moderated setting up a great scenario for people who need to refinance or are looking to buy a home. Waiting for rates to fall to 4.5% may leave people sorely disappointed. I have to add my two cents - if I were looking to refi and hoping for the 4.5% I’d still hang out a bit to see what happens. To keep abreast, I’d do some research online and try to guage what indicators might lead to the drop, then watch what happens verrrrry closely. Should the indicators not warrant the further wait 4 to 6 weeks out, but a refi still seemed like a good idea, I’d push ahead. |
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I heard rates for jumbo conforming were dropping to 4.5% and that a refi boom was on– so I’ve mentioned to a few people that now was the time to refinance or, if they were waiting for the right moment to buy that the moment had come.| It’s Not the Buyers, It’s the Banks! or Have You Seen the Little Piggies? | December 4th, 2008 |
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If You Want to Buy a House, First You Have to Get the Loan. . . This past Sunday’s Real Estate section of the Chronicle featured what I’ll call a ‘puff piece’ about how there’s plenty of money available to borrow provided you have: 1) sterling silver credit (over 720 is best); 2) pay stubs that show a healthy income; 3) a big fat down payment; 4) and at least six months of reserves in the bank. I’m finding that only a fraction of the people that want to buy in this market have that magic combination of all four. In my twenty-two years of selling real estate I have never seen such stringent underwriting standards. It’s frustrating because rates for smaller mortgages are fantastic right now and the cost of ownership for a first-time buyer can often equal what they might pay in rent. Yesterday, fixed rates below $625K were 5.625%. Today they went down further and hover below the 5% mark. ****************************** Which You May Have to Pay through the Nose for. . . Equally frustrating to the difficulty of getting a loan is how affordability drops for anyone who needs to borrow more than $625K. The other day I did some number crunching with the mortgage broker for some empty nester clients who need the security of a fixed rate mortgage (this next purchase will probably be the last house they ever buy). The kind of property they want to buy would cost $850,000. They have the 20% down payment, but the rates for the $680,000 loan they would need ran close to 7%. ****************************** But There Are Creative Options. . . One strategy we discussed for these buyers was pushing the rate lower by paying points to buy the rate down. A ‘point’ is 1% of the loan amount. For example, a borrower paying ‘two points’ on a $600,000 mortgage is paying $12,000 to push the rate lower. My understanding is that a single point paid up front can buy down the interest rate by anywhere from 1/8th to ¼ of a point—(mortgage brokers, please call me if I’m getting this part wrong). We also talked about asking the Seller to carry back a portion of the purchase price. On an $850,000 purchase with $170,000 down and a new loan of $625,000 this would require the Seller to carry a $65,000 second. Were I to try to put this deal together, I would start by asking the Seller to carry the note for 5 years at 5% interest only. Were I the Seller, I would seriously consider the offer. Five percent is a pretty healthy return on an investment these days. A third alternative is to ask the bank for a second loan, which is becoming the most common way buyers contend with the challenge of borrowing an amount higher than $625,000. Lender rates on small seconds run roughly 5% interest-only right now and can go for as long as 10 years. The rate adjusts monthly, but is tied to the prime rate index which has been very (very!) low for the past few years, and will probably remain so for quite awhile. *************************** Which May be the Way of the Future. . . One of my associates thinks that as buyers and agents get more sophisticated about ways to finance larger deals, the market will do a bounce-back. I don’t have a great crystal ball these days, but I enjoy her optimistic view, and she may be absolutely right. ********************************* The Bottom Line? Right now, I think banks are pigs. They received a big fat wad of cash from the government that they’re supposed to start lending to people, but instead they’re being little ‘oink-oinks.’ If they would stop hoarding and start lending, more buyers would get loans, demand would rise and we’d begin to see the real estate market get into a slightly higher gear and the little engines of our economy back on track. In the meantime stay tuned for the next episode of our country’s economic soap opera —a story that horrifies and fascinates me all at the same time. |
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I’m in a Grinch-like mood when it comes to financing these days so this posting is a bit of a rant. I’m sticking my neck out here by revealing in public what I’m saying in private. Feel free to offer feedback or comeuppance if you think I’m being too huffy. I also welcome comments from anyone who would like to correct my perceptions. The best place for all feedback is in the comments section below. | Rates Finally Drop For Jumbo Conforming Loan Limits | May 14th, 2008 |
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It’s taken three months, but lenders are finally offering favorable rates for these larger loans. Last week a mortgage broker I work with placed a $700,000 fixed loan at 5.875%. I got a quote from another loan professional at 5.625%. This makes a purchase of a home in San Francisco at our median price of around $750,000 far more affordable. This doesn’t mean these loans are easy to get– you still need to go ‘full-doc’ (meaning you need to have a job that provides 1040s and pay-stubs), and put at least 10% down. You also need good credit scores– some of my sources say a minimum 660 is required. Others say your scores need to be at least 700. Call me if you want to crunch the numbers on a purchase and figure out what you can afford. Getting prequalified and understanding how the numbers work on your monthly payment is a critical first step when shopping for a home. |
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Back in February I added a posting about how | Small Mortgage Update. . . | May 4th, 2008 |
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The Fed lowered the rates by .25 point yet again, which is not terribly exciting to buyers seeking a new loan or owners wishing to refi. While any kind of rate cut is a good thing, it rarely has an immediate impact on mortgage rates. Some good news is that lenders are loosening their requirements a bit and that 90% loans with decent rates are available from some lenders. We have a great lender now who can do 80% limited doc on interest only for 5 years to well over $1,000,000. So call us for specifics. I hope you are having fun out there, and we look forward to helping you and your clients, as always. Dorian can be reached at 415-544-2609. |
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Dorian Sarris of Americorp Funding delivers this update on the mortgage front:| The Mortgage Madness That Isn’t. . . | May 4th, 2008 |
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A little background for first-timers or those just sticking their baby toe into the real estate market: Back in the day when real estate prices skyrocketed and money grew on trees, many Adjustable Rate Mortgages (ARMs) started with absurdly low introductory rates that were scheduled to jump at the end of a one-or-two year introductory period. The new rates were generally tied to a Treasury or London Interbank (Libor) index, with the mortgage rate typically set at 2 to 6 percentage points above that index rate. Thereafter, the rate is scheduled to adjust annually. The good news is that Libor rates have been stable, thanks in part to the actions of the Federal Reserve to lower interest rates. For example: Let’s say a borrower in Spring 2006 obtained a mortgage indexed at five points above Libor (then at around 5 percent). That would have meant an indexed rate at that time of 10 percent. However, a two-year introductory rate capped the payment at 8 percent. As of last week, Libor was at 3.08 percent, which means this fictional mortgage would reset at 8.08 today – only a slight change for the borrower. You can read the full story in SFGate. |
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As ARMs reset, little of the expected chaos is coming to fruition. Worries that subprime mortgages would sideswipe borrowers with giant monthly payment increases have been reduced by Federal Reserve rate cuts and other steps to stimulate the nation’s credit markets. In fact, some borrowers with resets occurring today are finding their monthly payments staying much the same.| A Missive of Hope from one of the Bay Area’s Crummiest Real Estate Markets | May 2nd, 2008 |
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This email message was forwarded to me from Dan Baker of Countrywide (yes Countrywide was sold to BofA, but the complete transition hasn’t happened yet). It comes from Tony Machado of RC Appraisal. As many of you know I have been saying for quite a while now the housing market is showing some momentum in the right direction and the purchase market without a doubt is picking up. What I am tired of is listening to the Media who are constantly putting out a negative message. In my business alone more than 50% the assignments in Q-1-2008 have been purchase transactions. To give you a comparison, in Q-4-2007 purchase assignments were less than 10% of my business. Just this morning I completed a market analysis in Antioch showing that in 2007 based on the subject CMA (comparative market analysis) there were a total of 3 sales in all of 2007. In Q-1-2008 based on the same criteria there have been 9 sales which translates to a 300% increase! By the way a CMA analysis is based on just a 1 mile radius of the subject property and only criteria which fit the subject parameters. I could analyze the whole City but you get the point. I’m certain that Tony’s appraisals aren’t coming in nearly as high as they were before the mortgage (and market) meltdown of last summer, but higher sales activity translates into higher demand, which will ultimately draw down the oversupply. Low supply/high demand means a gradual increase in prices. Of course all this hinges on a decline in foreclosure sales so that less inventory come on. |
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| It’s Official– Conforming Loan Limits are up, Up, UP! | February 15th, 2008 |
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Hello My Favorite People!
Until now, conforming loan amounts were limited to $417,000—a negligible amount in San Francisco where the median home price is around $725,000 (this figure factors in TICs and condos along with single family homes). An 80% first mortgage on a purchase of this size would be at least $580,000 unless you had an unusually large down payment. A conforming loan is a fixed rate loan that is packaged for resale on the secondary mortgage market to Fannie Mae or Freddie Mac, two quasi-governmental agencies that buy mortgages from cooperating lenders. Both agencies set limits annually on the size loans they’ll buy. This guaranteed market for conforming loans leads banks to offer lower rates on them– usually they run about 1% lower. Adjustable rates on conforming loan amounts also run lower by about ½ a percent. Although the increase in the conforming rate is good news, it may take a bit of time before most lenders start offering lower rates on larger loan amounts. There’s a chance that some will start making larger loans at conforming loans right away, but most lenders offering the best rates will be more cautious as they wait for guidance from Fannie Mae/Freddie Mac on how the loans will be bought. And as always, the best loans go to the most qualified– conforming loans tend to have the most stringent criteria. If your credit is shaky or you have been job-hopping in recent years, you may have to pay a higher interest rate. |
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The big news this week is that conforming loan limits are up, Up, UP in San Francisco– President Bush signed the economic stimulus bill into law on Tuesday – and for us, the most important piece of the legislation is the increase in conforming loan amounts to $729,750. 
