Yesterday, the Federal Reserve Bank reduced interest rates another 3/4 point and Fannie Mae and Freddie Mac had their capital surplus requirements reduced, giving them the ability to raise hundreds of billions for mortgages. While this is welcome news to the beleaguered real estate market, other actions taken by Fannie and Freddie over the past months will continue to act as impediments to getting that home loan or refinancing an existing loan.
We have mentioned in previous articles of the "declining market" polices issued by Fannie, coupled with more stringent appraisal requirements will have the effect of reducing loan-to-value on homes in many markets throughout the country.
Further, Fannie and Freddie implementation of "risk based pricing," had the effect of increasing the amount of down payment required for a mortgage loan and/or increasing the interest rate on mortgages for home buyers with credit scores of approximately 700 or less.
If your client is ready to purchase or refinance, get them preapproved for a mortgage. At least then you will know what loan programs, down payments and interest rates they qualify for.
Predicting the future direction of interest rates is highly risky. By historical standards, mortgage interest rates should be lower than they are; but, they are not. They continue to fluctuate, often numerous times during the same day. Loan programs offered by Lenders continue to decrease. Waiting for that further interest rate reduction might not be the most prudent thing to do.
Wednesday, March 19, 2008
Tuesday, March 18, 2008
Let's Talk about the Solution for a Change
Have you ever noticed how events tend to be portrayed in a negative light? Why can’t we look to the brighter side?
A case in point is the “subprime crisis” or the “mortgage crisis.” Why does it have to be a crisis? Is it serious? Yes. Does it have wide-ranging implications? Yes. Are a lot of people affected by financing issues? Yes. Is it solvable? I think so.
“Crisis” is such a strong emotional word – almost a defeatist term. Something so bad, so oppressive that we are doomed. It’s not insurmountable, and it’s not permanent. We can work through it. It’s a challenge, a large speed bump – but it’s doable.
“Challenge” mobilizes and motivates us for a solution. “Crisis” perpetuates the issue at hand.
Instead of just talking and talking about the issue, let's get creative in looking for an answer and start talking about the solution!
* For more information about my consulting services visit my website stevehoffacker.com or for sales tips visit my blog homesalesinsights.com.
A case in point is the “subprime crisis” or the “mortgage crisis.” Why does it have to be a crisis? Is it serious? Yes. Does it have wide-ranging implications? Yes. Are a lot of people affected by financing issues? Yes. Is it solvable? I think so.
“Crisis” is such a strong emotional word – almost a defeatist term. Something so bad, so oppressive that we are doomed. It’s not insurmountable, and it’s not permanent. We can work through it. It’s a challenge, a large speed bump – but it’s doable.
“Challenge” mobilizes and motivates us for a solution. “Crisis” perpetuates the issue at hand.
Instead of just talking and talking about the issue, let's get creative in looking for an answer and start talking about the solution!
* For more information about my consulting services visit my website stevehoffacker.com or for sales tips visit my blog homesalesinsights.com.
Friday, March 14, 2008
Fannie and Freddie Trumped by N.Y. Attorney General
In an unprecedented announcement, the New York Attorney General reached agreement with Fannie Mae and Freddie Mac regarding "appraisals." The background of what led to this agreement is interesting. The Attorney General had filed a lawsuit in November 2007, against a major Savings and Loan company and an appraisal company for allegedly agreeing to inflate appraisals on homes. The appraisal company caved in to pressure from the Lender to secure future business. The lawsuit is pending.
At a high level, the agreement establishes a code of conduct governing appraisal selection, compensation, independence among other reforms. Secondly, it will require Lenders to represent that appraisals related to mortgage loans that they sell to Fannie or Freddie must conform to the Code or they will not be purchased. January 1, 2009 is the effective date for the implementation. The agreement also requires the formation of the "Independent Valuation Protection Institute" to oversee the agreement as well as monitor abuses.
Some of the major Code provisions are:
-Require the complete independence of Appraisers /Appraisal Companies from Lenders.
-Lenders cannot use an Appraisal company that they own or control.
-An independent appraiser cannot be employed by a Lender or affiliate.
-Production departments of Lenders cannot select and appraiser.
-A Lender cannot influence an appraiser in any way.
-Lenders are prohibited from using "in-house" staff appraisers to conduct initial appraisals.
-Mortgage Brokers and Real Estate agents are not allowed to select, retain or compensate an appraiser.
There are numerous other provisions that deal with code of conduct, reporting and monitoring of the Code by all Parties.
While this agreement does not become effective until January 1, 2009, we should assume that some Lenders will start implementing these changes sooner and not all at the same time. You should assume that the implementation will add confusion to the process as well as add time to getting loans processed.
At a high level, the agreement establishes a code of conduct governing appraisal selection, compensation, independence among other reforms. Secondly, it will require Lenders to represent that appraisals related to mortgage loans that they sell to Fannie or Freddie must conform to the Code or they will not be purchased. January 1, 2009 is the effective date for the implementation. The agreement also requires the formation of the "Independent Valuation Protection Institute" to oversee the agreement as well as monitor abuses.
Some of the major Code provisions are:
-Require the complete independence of Appraisers /Appraisal Companies from Lenders.
-Lenders cannot use an Appraisal company that they own or control.
-An independent appraiser cannot be employed by a Lender or affiliate.
-Production departments of Lenders cannot select and appraiser.
-A Lender cannot influence an appraiser in any way.
-Lenders are prohibited from using "in-house" staff appraisers to conduct initial appraisals.
-Mortgage Brokers and Real Estate agents are not allowed to select, retain or compensate an appraiser.
There are numerous other provisions that deal with code of conduct, reporting and monitoring of the Code by all Parties.
While this agreement does not become effective until January 1, 2009, we should assume that some Lenders will start implementing these changes sooner and not all at the same time. You should assume that the implementation will add confusion to the process as well as add time to getting loans processed.
Monday, March 10, 2008
EDUCATING CONSUMERS - A NEW WORLD ORDER FOR REAL ESTATE PROFESSIONALS
Whether it is politics, the economy, international affairs or our personal daily activities, "CHANGE" is the operative word.
In real estate, many of the norms and rules that we have operated under have fundamentally changed. In our previous articles, we discussed how our principle financial institutions affecting real estate, Fannie Mae and Freddie Mac, are tightening their guidelines on credit scores, appraisals and loan-to-value on properties in markets that they have identified as high risk. Their obvious goal is to minimize exposure to further losses.
My purpose for mentioning this is that many real estate markets are in a prolonged down cycle and we need to make sure that our sales approach with prospective clients take all these issues into account. It is a new world order for many Real Estate professionals and educating or qualifying buyers and sellers has renewed importance.
SELLERS
In many locations throughout the U.S., home values have declined and have not stabilized. Sellers need to have a realistic expectation of the value of their home.
The first issue to be addressed is how much equity they have in their home. Their equity may be the determining factor to their ability to sell their home. This is where the appraisal becomes important to the process. There is incredible pressure coming from both the Federal and State governments to ensure the independence of the appraisal process. The cumulative effect of this pressure will be to reduce the appraised value of many properties in "high risk" markets.
When developing your Comparative Market Analysis, be certain to follow the minimum requirements that have been implemented by Fannie Mae. We outlined these guidelines in our first article, "The Importance of the Appraisal in a Declining Market."
Finally, when writing the sales contract, you need to consider writing a 60 or 90 contract expiration date into the agreement. In today’s market, you need to assume that Murphy’s Law will come into play. In addition to the guidelines that can extend the time to gain loan approval, Lenders have reduced staffing in their underwriting departments adding time to the approval process. This extended time in the sales contract is equally important to the buyer.
BUYERS
Buyers, also, need to understand the changes to the home buying process. While many potential buyers are waiting for the real estate market to bottom out before purchasing a home, they need to understand that the guidelines being instituted may result in many loan programs that they may qualify for today, may not be available tomorrow.
Qualifying the borrower should be done early in the process. We are not referring to the "pre qualification" letter of the past based on buyer supplied information. Client information needs to be validated. Ascertaining the buyer’s credit score(s), determining their income, assets and employment, are critical to determining what price home they can qualify for as well as what loan programs.
In spite of the various restrictions or limitations to loan programs that we have discussed, there are exceptions to the guidelines that may open up other loan opportunities to consider.
VETERAN LOANS (VA)
Individuals who have served or are active in the military (including National Guard) are not subject to these credit score or other guidelines. A VA loan is a 100% financing program with attractive interest rates and the opportunity for the buyer to pay little or no closing costs.
FEDERAL HOUSING ADMINISTRATION LOANS (FHA)
Each day, we read more pronouncements from our Federal Banking regulators and Congress recommending an increase in the role of FHA to underwrite loans that Fannie and Freddie cannot. Principle benefits of an FHA loan are the flexible underwriting guidelines and availability to those borrowers with less than a 620 credit score.
PORTFOLIO LOAN PRODUCTS
These are mortgage loan programs offered by a bank or private investor. Since there are no rules or encumbrances governing the Lender, each loan is evaluated on its own merits. These unique loans would be funded by the bank / investor and not sold to Fannie or Freddie.
With each of these options, you need to discuss which may apply to your client. Let your Mortgage professional research what option best suits their needs.
Our intent in identifying these issues and options was not to be all inclusive or suggest that other options might not be available. The rules are changing daily. Interest rates and loan programs often change numerous times during the day.
The fact is that the home buying process has gotten considerably more complex with a declining number of financing options available from a decreasing number of Lenders.
As a Real Estate professional, you need a team of experts, from yourself to a Mortgage professional to an Appraiser, to properly support your sales efforts.
In real estate, many of the norms and rules that we have operated under have fundamentally changed. In our previous articles, we discussed how our principle financial institutions affecting real estate, Fannie Mae and Freddie Mac, are tightening their guidelines on credit scores, appraisals and loan-to-value on properties in markets that they have identified as high risk. Their obvious goal is to minimize exposure to further losses.
My purpose for mentioning this is that many real estate markets are in a prolonged down cycle and we need to make sure that our sales approach with prospective clients take all these issues into account. It is a new world order for many Real Estate professionals and educating or qualifying buyers and sellers has renewed importance.
SELLERS
In many locations throughout the U.S., home values have declined and have not stabilized. Sellers need to have a realistic expectation of the value of their home.
The first issue to be addressed is how much equity they have in their home. Their equity may be the determining factor to their ability to sell their home. This is where the appraisal becomes important to the process. There is incredible pressure coming from both the Federal and State governments to ensure the independence of the appraisal process. The cumulative effect of this pressure will be to reduce the appraised value of many properties in "high risk" markets.
When developing your Comparative Market Analysis, be certain to follow the minimum requirements that have been implemented by Fannie Mae. We outlined these guidelines in our first article, "The Importance of the Appraisal in a Declining Market."
Finally, when writing the sales contract, you need to consider writing a 60 or 90 contract expiration date into the agreement. In today’s market, you need to assume that Murphy’s Law will come into play. In addition to the guidelines that can extend the time to gain loan approval, Lenders have reduced staffing in their underwriting departments adding time to the approval process. This extended time in the sales contract is equally important to the buyer.
BUYERS
Buyers, also, need to understand the changes to the home buying process. While many potential buyers are waiting for the real estate market to bottom out before purchasing a home, they need to understand that the guidelines being instituted may result in many loan programs that they may qualify for today, may not be available tomorrow.
Qualifying the borrower should be done early in the process. We are not referring to the "pre qualification" letter of the past based on buyer supplied information. Client information needs to be validated. Ascertaining the buyer’s credit score(s), determining their income, assets and employment, are critical to determining what price home they can qualify for as well as what loan programs.
In spite of the various restrictions or limitations to loan programs that we have discussed, there are exceptions to the guidelines that may open up other loan opportunities to consider.
VETERAN LOANS (VA)
Individuals who have served or are active in the military (including National Guard) are not subject to these credit score or other guidelines. A VA loan is a 100% financing program with attractive interest rates and the opportunity for the buyer to pay little or no closing costs.
FEDERAL HOUSING ADMINISTRATION LOANS (FHA)
Each day, we read more pronouncements from our Federal Banking regulators and Congress recommending an increase in the role of FHA to underwrite loans that Fannie and Freddie cannot. Principle benefits of an FHA loan are the flexible underwriting guidelines and availability to those borrowers with less than a 620 credit score.
PORTFOLIO LOAN PRODUCTS
These are mortgage loan programs offered by a bank or private investor. Since there are no rules or encumbrances governing the Lender, each loan is evaluated on its own merits. These unique loans would be funded by the bank / investor and not sold to Fannie or Freddie.
With each of these options, you need to discuss which may apply to your client. Let your Mortgage professional research what option best suits their needs.
Our intent in identifying these issues and options was not to be all inclusive or suggest that other options might not be available. The rules are changing daily. Interest rates and loan programs often change numerous times during the day.
The fact is that the home buying process has gotten considerably more complex with a declining number of financing options available from a decreasing number of Lenders.
As a Real Estate professional, you need a team of experts, from yourself to a Mortgage professional to an Appraiser, to properly support your sales efforts.
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