When it comes to that credit approval waiting for the offer to be accepted, what was good last month may not be good today.  Guideline’s and lenders interpretation of same are very tight and getting tighter.  Consider this, Chase and Wells Fargo are steering very clear of any mortgage transaction that is remotely close to the outer edges of “the guidelines” because they are fearful of massive buybacks.

What are the red flags you need to be aware of with any transaction?

• The credit score – this is not new but lenders want scores well above 700.  If the usable score (lowest mid-score of all borrower’s) is below this number then everything else better be ship shape
• DTI- this is Debt to Income ratio.  The maximum ratio is 43.99% for conventional loans with extra latitude for FHA loans.  VA uses a residual income approach.  On each loan the key component is how income is calculated.  In many transactions I have seen this year; the adjustments to income can seem draconian.  Think worst case scenario and adjust downward from there until your banker issues that credit approval.
• Housing to Income Ratio – the same approach to income but the preferred ratio is 28%.  You need every other part of the credit package to be solid to venture above this.
• Income – what used to work may not work anymore. The self-employed seem to be the hardest hit and this has always been the case. However, a downward blip on last year’s income can send lenders running because of the “ability to repay” component of a Qualified Mortgage.  There really is no guidance on what “ability to repay” means and this is why big banks are running for fear of buybacks.

What does this mean for you?  Make certain you understand all of the components of your credit approval whether the buyer’s agent or the buyer.  Once your credit approval is in place, put your financial picture in stasis until the transaction is closed.

Where is the best place to seek a credit approval?  I am partial to the small, independent mortgage company with a local presence and a record of longevity.  Unlike big banks, they only have one way to make money and that is closing loans.

The cost of originating a loan literally jumped from one quarter to the next, caused primarily by coping with compliance. What does this mean for the consumer?

Certainly, increased costs will be covered by higher fees and/or higher rates. Expect cash strapped first time buyers to be insistent on closing costs being paid by sellers. Will this put a strain on valuation when it is time to appraise?  Right now, this is not likely with the shortage of inventory. However, when things cool down (they always do) expect real challenges getting top value for a seller while the buyer seeks the concessions they need to close.

Nationally, we are in a housing recovery but from my view, it is tenuous.   In our region, the market is strong and will likely stay that way, unless rates take a ridiculous and unexpected jump.

What does this mean for you?  I recommend making hay while the sun shines.

I was speaking with one of my colleague’s and he was frustrated. He had taken a loan application on the 30^th of April and had docs to escrow on the 15^th of May for signing and funding on the 16^th . It was business as usual with the typical dynamics in play such as the borrower wiring funds, moving trucks ready to unload and the sellers expectations met. You can imagine his consternation when the buyer of his clients’ home in Spokane had a glitch at closing. The funds to close his local transaction were coming from the sale of the Spokane home. Uh oh!

Ever diligent, he was immediately in touch with the Spokane selling agent and then the mortgage loan officer in charge of the buyer’s financing in Spokane. The good news was it truly was a glitch and the Spokane loan closed a few business days later and in turn, my colleague’s transaction funded. As you can imagine, it was not without furrowed brows and stress on this side of the mountains. But what if there is a real problem that could have been foreseen?

This situation is not rare and it raises the question, how far do you go as the listing agent to represent your seller’s interest when you have an otherwise good (or only) offer contingent on the buyer’s home selling? And what if that contingency was one of two or three? When I spoke with one agent, she was adamant she would quiz the listing and selling agents as well as the loan officer on each of the other contingencies until she was satisfied all of the transactions would close. Other agents were less strident about how to manage the situation, and understandably so. My question is this, as a listing agent or an agent representing a buyer in a contingency chain; would it not be better for the licensed loan originator to manage due diligence for you? They are the lending professional and know the right questions to ask without triggering a situation where the other borrower’s financial privacy could be compromised. And they can give you the assurance you need by backing up what they learned with credit approvals and relevant information about the other transactions.

By all means you should expect the mortgage banker on each link of these contingencies to be cooperative and as transparent as is legally allowed. For the lender, a chain of contingencies can present a challenge with verifying funds to close, qualifying their borrower and the actual credit approval. Real mortgage pros will talk to each other, share information appropriately and will be responsible for their part in this chain. Whether you do it yourself as an agent or rely on your chosen mortgage professional, it is a due diligence component that should always be followed.

I would love to learn what you think about this. Click on the link above this post to leave your comments.

The Mortgage Industry Is struggling; National Mortgage News reported today profitability of the industry for Q4 2013 was down 7% from a year ago. Increased competition, as well as increased compliance costs were the big reasons for the large drop in profit per loan originated in the fourth quarter. The average profit of $150 per loan is the lowest since the Mortgage Bankers Association started keeping track in 2008. The MBA reports the average is down from $743 in the third quarter and $2,256 in the fourth quarter of 2012. This is a drastic decline by anyone’s measure.

What does this mean for you? At the moment, no real impact. You can expect major cost cutting from all lenders, re; layoffs and office closures.  In the future, fewer choices as company’s disappear or consolidate could put pressure on rates, regardless of easing or the economy.

Home Sales Continue To Slide; NAR reported pending home sales were down 0.8% as expected. This is the lowest level of pending sales since Oct 2008. Pending sales have been declining for 8 consecutive months. Many believe this national trend was magnified by the harsh winter. I think this is so. However, residential real estate is local and national trends don’t mean a thing in your local market.

What do you do if you are on the fence about whether to list, buy, remodel, expand or do nothing? Consult your local real estate professional. If they are pro’s they will know what is going on n your local market and can give great advice you can trust.

Bin Laden is dead, and we are coming up on ten years of engagement in Afghanistan with no clear solution in sight. I believe we need to try something different.

This is my solution for bringing peace to Afghanistan:

• Divide the country into the Southern 2/3^rd and the Northern 1/3,
• Round up all the men, every one;
• Move the men to the northern third, assure them they are still in charge as they presumed and name their country  Af-Man-Is-Tan;
• Send the women and children to the southern 2/3rds,  put the women in charge and call it New Afghanistan – it will be a Taliban free country;
• Build a wall, fortress style, between the two countries just like the Great Wall of China but call it the Great Wall of Change, US troops and their allies will secure the wall, built as a fortress to keep them as safe as possible;
• Mandate a free market for New Afghanistan and Af-Man-Is-Tan and the means to create, acquire and finance private property;
• With the women in charge of New Afghanistan we will sell them the resources to create their own government, economy and culture – they are in charge of everything;
• Do the same for the men;

After functional government and economic infrastructure has been established in New Afghanistan the men will be allowed to petition for integration into New Afghanistan.  The women will decide who is allowed to immigrate based on their own rules, created and enforced by them.  The same will be true for women wishing to immigrate to Af-Man-Is-Tan. While it is obvious why men would want to immigrate to New Afghanistan, you can be certain there will be women who will petition to immigrate to Af-Man-Is-Tan.  Think Tina Turner as Aunt Entity in “Mad Max Beyond Thunderdome.”

My theory is this – the women will create a balanced, productive society and I doubt Af-Man-Is-
Tan will survive.  I predict Af-Man-Is-Stan will quickly embrace traditional ways and devolve into a nation of warring tribes.

There are undoubtedly thousands of good Afghan men who could go into their wilderness with a pocket knife and a magnifying glass and create a shopping mall.  But the women will more quickly organize, work cooperatively, build a better shopping mall and everything will be on sale!

Does this sound stupid?  Maybe not.  The British, Russians and now us (so far) have failed miserably in the region.  I say we put the women in charge and get out of their way.

I call it Lysistrata 2011

PS  I read this to a very dear friend of great intellect and she asked, why can’t we do this in our country.  I quickly replied, ‘no!”  The overwhelming majority of men in this country are good, mean well and in no way, shape or form do they resemble the Taliban.

PPS  Who would I send as envoy’s from the United States to assist New Afghanistan in their new venture? May I suggest a team from the Women’s Council of the National Association of Realtors.  They know how to get thing done and they have a great national leader in Margo Willis.

There is a phenomenon happening here in Seattle that is likely being repeated around the country.   The median price of a home sold is about 10% BELOW what the median income in the region would predict.

I believe this clearly shows the general population is holding back on buying.  In my mind this means normal market forces (or pent up demand) will have a significant impact on the lowest priced homes in the area.  As buyers grow weary of recession fatigue and start to move forward, the lower priced homes will be the first to see a surge in price.  I don’t believe this will cause the price point for the higher priced homes to follow.  Why?  Many of the homes available to first time home buyers are foreclosures or short sales, meaning the sellers are not using proceeds to buy a larger or more expensive home.   The residential housing market is a bottom up game and until the lower priced inventory is absorbed, the rest of the market will drift along.

What does this mean for the first time homebuyer?  It could mean that those who get in now, in front of a possible surge could be the first ones out and buying into the “move up” housing market before it too starts to surge.

Is this a lock? No.  But the sweet spot is here and who knows how long it will last. It rarely hurts to take advantage of the sweet spot.

For the record, I am routinely quoting loans with Note rates below 5% that qualify for a lender credit at this time.  That too is a sweet spot.

FHA Lifts Anti-Flipping Ban – According to National Mortgage News, effective February 1 FHA is temporarily lifting their “anti-flipping” rule that prohibits FHA financing on purchase transactions where the seller has owned the property for only 90 days. HUD found this policy blocked potential FHA borrowers from taking advantage of quick resales of real estate owned. Savvy REO sellers are reticent to sell to FHA borrowers because of holding cost and vandalism risk during the 90-day holding period. FHA is lifting the 90-day rule for one year. All sales must be arms-length transactions with no evidence of flipping in the previous 12 months. If the resale price is 20% higher than the REO sales price, the lender has to provide supporting documentation and a second appraisal in some cases.

Big Banks’ Big Las Vegas Adventure – Bank of America expects to release about 6,000 foreclosed properties into the Nevada housing market in 2010, or about 500 a month, according to a report in the The Las Vegas Review-Journal. The homes are part of a “phantom inventory” of foreclosed units being held by banks as they work through loan modifications and negotiate short sales.

What do you think this will do to home prices in Las Vegas?

Countrywide, it is estimated B of A will be taking back at least 11,000 homes per month the early part of this year with predictions of over 40,000 homes taken back in  November and a similar number in December.

What does this mean for you? Expect home prices in the hardest hit regions to stay where they are or take another dip.  It could many years for all foreclosed  and distressed property to be absorbed and residential real estate values to return to something more normal.

Bottom line, now is a good time to buy a house.

Does anyone besides me see a correlation between Big Banks’ REO dilemma and the lifting of the FHA ban on flipping?

Banks’ Buybacks of Loans up 373%

According to National Mortgage News banks had to buy back $7.1 billion in defaulted single-family loans in the third quarter to reimburse mortgage investors, up from $1.9 billion in the previous quarter. JPMorgan Chase and Bank of America led the field followed by Citibank, National City, Wells Fargo and SunTrust.

What does this mean for you?  Further tightening of underwriting standards and larger down payment requirements are coming.  The next wave of changes hits in mid-December.

Average 30-Year Freddie Mac Rate Matches Record Low

The average Freddie Mac rate for a 30-year fixed-rate mortgage has matched a record low last seen earlier this year.   Borrower’s who qualify can get 30-year, fixed rate conforming loans with note rates in the mid 4’s.

New Home Sales Bump Up– Big Deal

New home sales rebounded 6.2% in October after a slight 2.4% dip in the previous month, while the inventory of newly constructed homes plunged to a 38-year low. The U.S. Census Bureau found that the new home inventory fell to a 6.2-month supply during the month, down from a 12-month supply in January.  Still, according to the chart below from realestatedecline.com new home sales are seriously below annual averages for the last ten years.

According to National Mortgage News, real estate analyst Mike Larson of Weiss Research says this is a sign builders need to start swinging their hammers.  Mike Larson is wrong unless you believe more bankrupt builders and banks in trouble are a good thing.  Until this economy creates jobs and the current and hidden inventory of existing homes held by banks are moved off their balance sheets, builders need to be hyper-cautious.  Actually, builders don’t need to be hyper cautious because banks are not lending.

How does a builder create a small fortune in housing in this market?  Start with a large one……

 According to the Assoiciated Press there are two versions of an extension of the First-Time Homebuyer’s Tax Credit being circulating in the Senate. Both versions are targeted to be put in place by an amendment to the larger bill extending unemployment benefits. One version extends the credit through the end of March, 2010, allows move-up homebuyers to also get a credit and contracts written by the end of March have 90 days to close. It seems somebody in the senate actually understands the current state of affairs in the housing industry. The other version apparently keeps the current credit in place but drops the maximum credit by $2,000 each quarter with full expiration at the end of 2010. According to AP, both versions face a key vote next Tuesday. Google “first time homebuyer’s tax credit” and the search should bring up the most recent stories.