23 July 2010 –Rates began the week coming off the lowest mortgage rates we have seen to date, so things could not have gotten much better. Economic news was generally favorable with good earnings data for many companies across several industries, which helped equities markets. This had an adverse effect on mortgage rates to the frustration of any fence-sitters out there who were hoping for that elusive sub-4% 30-year fixed rate mortgage. Luckily the was a counter-balance in the form of comments by Fed Chairman Bernanke that there were no plans for further stimulus and that inflation could be an issue at some point in the future. This threw a bit of water on Wall Street’s scorching hot gains and reduced any rate increases to a couple basis points.

LOCK OR FLOAT

For those floating a mortgage rate in a current transaction or considering applying for a loan, vigilance and realistic expectations are key. Although we will see rates bounce back and forth around a low mean, I would recommend anyone waiting to act. When rates do finally go up for good, it will likely happen fairly rapidly. It is my firm belief that regret over getting 0.125% above the actual bottom is better than regret over 0.5% above the actual bottom.

At least fake that you like the other side of your negotiation.

Today’s chaotic market presents pricing, communication, marketing and mortgage challenges that vary with each transaction, each listing, and each buyer. However, one often overlooked component common to every transaction is the lost art of negotiating. I call it a “lost art” because many sellers focus solely on marketing and advertising when choosing an agent, and buyers focus heavily on finding the perfect finishes in the perfect house. These, however, are only small components of the selling and buying processes, and the number of sales that fall apart during negotiations has risen drastically in today’s market.

Sellers are still offended by very low offers and sometimes refuse to open discussions with the buyers. Buyers continue to believe that every list price is outrageous, and that every seller is desperate to sell. Sellers who won’t actively engage the buyer presenting a low offer reduce the value of effective negotiating to zero. Buyers who stop talking when a seller makes a weak counter offer do the same. However, the deal is not dead until each party has given their absolute bottom line.

Aggressive, fact-based negotiating is the key to keeping communications open and bridging the buyer-seller gap. Information and experience are critical to successful negotiations. On both the buy and sell sides it is the agent’s job to provide useful data and a meaningful analysis upon which to base discussions. The CMA, or competitive market analysis, is prepared by both the buyer’s and seller’s agents as the basis for determining a fair market value for the property.

While data is critical, negotiating is still an art, not a science. Experience is the only way to master the art, if that is even possible. Predicting the other side’s next move, target sales/purchase price, and other triggers is at best an educated guessing game, since each transaction, participant, and situation is completely unique. However, guessing is far more effective when it based on a useful data and extensive experience earned from hundreds of prior negotiations.

While it is impossible to accurately outline the flow of each real estate negotiation, there are a few points that are worth mentioning:

1. Engage every buyer or seller despite the unattractiveness of their current position. It is only their final position that counts. Negotiate until you know that final position.
2. While extremely difficult, try to keep emotions out of the discussions. Emotions only taint the discussions. You do not have to like the buyer or seller, but you will get further if you play nice, or at least fake it for the sake of the negotiation.
3. You must give a little to get a little. Offending the other side may irreparably damage discussions, causing the other side to back into a corner. Getting them out of the corner is more difficult than giving a little.
4. Know your data. Fact-based positions are hard to dispute. Do not be afraid to provide your CMA to the other side if it bolsters your position. Comps are public information, but each party may be looking at different comparable properties for different reasons. Make your reasons clear and listen to the reasoning of the other side. You can always dispute their data if it is incorrect.
5. Find an agent you trust. Negotiations will happen between the agents, with your input and direction, but not directly between buyers and sellers. Do not take offense if your agent initiates discussions with questions about your position and approach unless they seem to be just trying to “get the deal done.” He/she may pose questions that help him better present your position to the other side. Conversely, do not be afraid to question your agent’s approach if you do not feel right about it. While they are the voice, you are still the buyer/seller. They are ultimately there to advise you, not make decisions for you.

So what is the bottom line? Negotiations are a critical factor in the real estate buying and selling process. Find an agent with proven experience, either through a referral or by interviewing him/ her extensively. Ask them how many of their transactions have fallen apart during negotiations, how many times their buyers’ homes have appraised for more than the purchase price, and their years of experience. Discuss their offer/negotiating approach, and switch agents if you become uncomfortable during the listing or search process, before negotiations begin.

16 July 2010 –I must admit that sometimes I feel like the guy at the craps table betting against the come. The one who revels in repeated cold streaks as he scrapes stacks of chips from the table while everyone else loses. When I feel this guilt, however, I just remember that the scourge of the craps table is simply making the most out of a bad situation. That said, this was another rough week for the economy, but a good week for mortgage rates.

The week began a bit precariously with some initial good earnings announcements driving mortgage rate trends upward. By Thursday, however, rates retreated after some less than encouraging news from the Fed on the health of the economy and further bad news on employment. Mortgage rates are now, once again, ridiculously low, breathing new life into aspirations of homeowners and homebuyers to get the lowest rate possible.

Condominium Financing

The condominium is a great type of property. It provides the joy of ownership with minimum amount of maintenance, but it is also a type of property that strikes a bit trepidation into the heart of lenders. Think of it as the difference between running the 100-meter hurdles versus a simple 100-meter dash. You get to the end of both races, but one definitely has more complexities.

New Development Condo Buildings Differ from Existing Condos

When you are looking at condominiums, you need to understand that there are inherent difference between new condo developments and existing ones. New developments are, in the eyes of a lender, more risky than pre-existing ones. The guidelines for these are even more stringent and your lender may be hamstrung in the programs they can offer. There are very specific guidelines as to the required number of units sold, the number units completed and the degree of completion on the common areas. These items will also be reflected on the condo questionnaire, so you need not worry about assembling the data. You do need to understand, however, that choosing a new development may reduce some of your options or possibly even render the unit more expensive if you end up needing a niche program that allows for greater variance on guideline requirements.

The Neighbors

It is very important to know who lives in the building and who owns the other units. This goes well beyond affecting your quality of life after moving in. It actually has a great deal of impact during the financing of the property. Your lender will require that a condominium questionnaire be completed in conjunction with the transaction. This will allow them to assess whether or not the building is Fannie Mae or FHA approved, whether there is any litigation associated with the building, the number of units that are rented, how many are delinquent on association dues, how many units are in foreclosure and even how many units are owned by a single entity. All these statistics map onto the guidelines that the building must meet for a loan approval. While not your responsibility, the information is incredibly important to the lender. Your lender should request this be completed prior to going to contract as it allows them to know if they can lend on the property. Without this information, your lender could be setting you up for failure during the loan process.

A Poorly Maintained Building Can Cost You

I am going to go out on a limb and suggest that you would not likely buy a car that had a large amount of deferred maintenance on it. If in fact you were going to buy the car, you would consider the cost of the fixing any deferred maintenance issues into your purchase price. Condominiums have very real parallels to the aforementioned analogy. Because the building or common areas are jointly owned, the individual units pay into a treasury for repair and upkeep. There are times, such as a bad economy, where the maintenance is deferred until it is less of a hardship and these deferred maintenance items can build up. From a financing standpoint, you want to make sure that you are not setting yourself up for a slew of special assessments to be levied against your unit after you move in.

The Condo Declarations, Rules & Regulations Matter

When you buy a unit in a building, you and your lender are now a party to all of the joint ownership aspects of the building. Rules can be as benign as what you can hang on your outside door and as major as whether or not you can rent the unit. Additionally, issues like right of first refusal on the part of the condominium association can actually kill a deal if the lender’s guidelines do not allow this. By understanding and addressing these possible obstacles early, you and your lender can better understand whether or not the loan can actually be done.

Condo Loans Can Cost More

Lenders make their decision based on risk. In their eyes, condos represent more risk than single-family homes and therefore require more stringent approval criteria. As a result, everything from the loan size to the allowable qualifying ratios for buying a house may not be allowable for a condo. Even if allowable, the cost of the loan, i.e. rate and fees, for you will sometimes be higher as the lender needs to account for the added risk with a greater return on their money.

All in all, this article should not quell your desire to own a condominium. As I said at the beginning of this article, a condominium is a great option for home ownership. It offers a great many advantages to owning a single-family home, but with these advantages comes constraints. Like the athlete I alluded to in the opening, you just need to identify and overcome the hurdles to cross the finish line and reach your goal.

We would like to thank Rehab Real Estate for sharing his photo for this story through the Creative Commons license

9 July 2010 – This was a short week in the markets following the Independence Day weekend. Mortgage rates were, for the most part, unchanged with a minor increase over the past several days due to a rally in equities predicated on positive jobs and retail sales figures. Additionally, there has been an optimistic atmosphere on Wall Street on belief that earnings will be better in the next round of reporting and that many European banks would pass their upcoming stress tests. I have moved my recommendation to locking any loans closing in less than 15 days, but I am still recommending floating for loans further out on expectations that we are far from turning the corner on our economic woes.

I do wish that the picture was more positive on the mortgage front. Although mortgage rates remain extremely low, applications for purchase transactions have dropped significantly in the wake of the expired Homebuyer Tax Credit. Refinances have increased, but home values, depressed by an anemic housing market, have represented a difficult obstacle in many cases. I would say that this market still represents a great opportunity for the qualified buyer or the homeowner with significant equity to make the environment work in their favor.

July 2nd, 2010
It’s beginning to feel like Groundhog Day in the mortgage world. Unbelievably, rates have continued to drop. Once again the equities markets have under-performed and the resulting flight to quality is fueling demand for U.S. Treasuries and, in turn, mortgage backed securities. Record or near record lows have been the norm for a few weeks.

The main consideration going forward is one of timing. These rates cannot and will not last forever. Most industry professionals are forecasting a spike or steady rise in rates once greed replaces fear in the markets. I am advising most of my past and present clients to take advantage of the current environment while they still have the opportunity.

On a good note, Congress finally decided to act on the Homebuyer Tax Credit. The extension passed late Wednesday, the same day it expired. Buyers who fit the criteria and who signed a contract prior to April 30th now have until September to close their deals. This will not do anything to drive new purchases, but in this market, you take what you can get.

Comparing Apples to Apples

I recently spoke with a long-time client who is considering refinancing their home to take advantage of today’s low interest rates. The client had called her mortgage banker to start the process. Her northwest Chicago home was purchased in May of 2004 for $590,000, not quite at the peak of the market, and several years before the crash. During the conversation, the banker did a “valuation” of the home using a very popular consumer-friendly website, and determined that the home had lost $250,000, or roughly 43% of the 2004 purchase price. While my client had anticipated a drop, she panicked at the $250,000 quote and immediately called me for confirmation. After an evaluation of MLS data, I estimated the value of this home at a minimum of $550,000, or 93% of the 2004 purchase price.

On-line Valuation Services are Riddled with Problems

The problems with the mortgage banker’s so-called “valuation” are numerous. Many of the consumer-friendly websites, whose names are commonly thrown around as solid sources of accurate information, use mysterious valuation formulas based on comps chosen solely by the computer. There is no human evaluation of the information before a number is spit out to the homeowner. If you use these sites for valuation purposes, keep in mind that when reviewing the comps, you may find homes that are geographically close to yours, but physically very different, including size, style, and condition. If the $250,000 drop quoted by the mortgage banker was even close to accurate, my clients’ home, which was completely gutted to the studs and rebuilt in 2004, would be priced less than a currently listed home with one-half the square footage and finishes original to its 1952 construction date.

Inaccurate Information can Hurt Your Relationship

While we all know that home values have decreased in many areas, a 43% drop should have immediately raised the “common sense” red flag for the mortgage banker. As a member of the Chicago real estate community, he/she should have enough expertise to know that there are very few neighborhoods in the city where prices have dropped that drastically. The mortgage banker acted irresponsibly, and did not properly service his/her client. Note that the number quoted by the banker could just as easily have indicated a $250,000 INCREASE in price, also completely inaccurate, depending on the home and the location. This usually occurs when the subject home is the smallest in the neighborhood.

What is the Bottom Line?

The bottom line? There is absolutely no substitution for human participation in the real estate valuation process. No website or system currently available is robust enough to account for all factors affecting a home’s value. Buyers will be evaluating the value of your home using their agents’ input, and sellers must do the same to get an accurate estimate. The MLS is the most comprehensive source of sales information, and is generally available only to real estate agents and appraisers. Appraisers are bound by very stringent state laws in creating their reports, and usually cost $200-$300 per appraisal. Real estate agents will generally provide what we call a CMA, or Competitive Market Analysis, free of charge. We are hoping to get your business, of course. However, a good agent will provide you this report with no pressure and plenty of supporting analysis.

We would like to thank Dillinger for kindly sharing today’s photo via the Creative Commons License.

25 June 2010 – During my time in Colorado, I used to do a lot of skiing and, while it has been many years since strapping two boards to my feet and zipping down a hill, I felt the same sensation this week as rates plummeted to extreme lows. Starting the week generally flat, rates nosedived after very disappointing housing data. Additionally, the Federal Reserve communicated that they will keep rates at record lows for an extended period of time based on the belief that “financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad.”

HOUSING CREDIT EXTENSION STILL HANGS IN THE BALANCE

Rates aside, I did want to take a moment to address some misinformation about the Federal Homebuyer’s Tax Credit. This was a major engine of growth for home sales in prior months and it expires the end of the month. This program drove many buyers into the market, but the pressure is on to close these deals. While there has been talk about extending this credit and Congress is almost unanimously behind an extension, partisan bickering has prevented official approval of an extension. June 30th is the date and any information as to a September 30th date is purely speculative. Let’s hope they do the right thing in the next week or even bring this catalyst of growth back later in the year for another go.

18 June 2010 – All in all, this was a truly uneventful week for mortgage rates. This, however, was a good thing. Rates began the week higher than last week and, for most of the week, there was a substantial stock rally that could have been problematic for rate watchers. Luckily, rates remained flat and actually improved by the end of the week. I am recommending that my clients LOCK in the short-term as there is substantial volatility, but in the long-term, I am recommending that they FLOAT as economic data is pointing toward an end to the current equities rally.

HOMEBUYER’S TAX CREDIT STILL UNRESOLVED

In housing, the big news is about the Federal Homebuyer’s Tax Credit and the looming deadline. At present, there has currently been no definitive announcements as to an extension. While there does seem to be consensus among lawmakers that an extension is necessary, it may come after the expiration. While this would grandfather in the loans that close after the current June 30th deadline, I know of very few buyers that are willing to take the risk by extending their closings. Based on this, lenders are scrambling to meet the demand for end of June closings resulting from the “pig in a python” effect the credit created. Let’s hope that common sense prevails with an 11th hour extension.

Luxury Real Estate

Despite speculation that the luxury residential market in the city of Chicago, $1,000,000+, will experience a slight down-turn as consumers sit-back and wait to see what happens with the stock market, the statistics paint a different picture. This information was taken from the Multiple Listing Service showcasing that the first-half of June could turn-out to be an equally strong month for luxury sales despite the ups-and-downs of the S&P, NASDAQ and DOW.

Statistics Show an Upswing

JANUARY — 39 Properties went under contract – 34 have closed so far
FEBRUARY — 43 Properties went under contract – 32 have closed so far
MARCH — 79 Properties went under contract – 63 have closed so far
APRIL — 50 Properties went under contract – 30 deals have closed so far
MAY — 64 Properties went under contract – 21 deals have closed so far
JUNE – 34 Properties went under contract

Consumers Still Participating

With interest rates still historically low and opportunities to purchase a luxury home at what we hope is the “bottom of the market,” consumers have the confidence to continue participating in this real estate marketplace.

We would like to thank Antoine Nicholas for sharing today’s photo via the Creative Commons License.

Lenders Must Pass Exams

It should be no surprise that the collapse of the housing market drew the attention of regulators to professionalize the lending industry. Let me go on record as saying that this is not a bad thing for the consumer. Like Wyatt Earp cleaning up the streets of Tombstone, the government has created new requirements to ensure that the lender you choose is qualified and to force out lenders who were incompetent, dishonest or both.

New Requirements

The new requirements entail education, testing and criminal background checks that must be completed by the end of June and each loan officer will have an individual number that will follow them throughout their career. This will be monitored by the National Mortgage Licensing System and will allow for tracking of complaints, defaulted loans and other important statistics. Those loan originators that do not adhere to the law can have their licenses revoked.

Requirements for Larger Financial Institutions

Large financial institutions, such as banks, and their loan officers are exempt from the requirement. This exemption can be good and bad at the same time. The loan officers from these institutions do fall under the larger regulatory umbrella of the bank and the institution is responsible for ensuring that their originators receive the ethics, loan and compliance training, as well that their employees are of the moral fiber necessary to do their job. This should give some solace to you, as these entities need to meet banking compliance requirements of which mortgages are subset.  But without seeing the NMLS number, however, you have no guarantees as to the specific training or as to the background of the individual with whom you are dealing.

Look for the NMLS Number

I bring this to your attention now, because you should be vigilant to make sure that your lender is qualified to service you and your needs. As of the time I am writing this post, the overall pass rate for existing mortgage loan originators was roughly 67%, so you can see how important this is to make sure yours lender is qualified. If you decide to go with a bank, you have the good faith of the institution that all of their employees are compliant. If you go with a mortgage banker or broker, you need to look for their NMLS number. It is required on all advertising and official correspondence with you.  For example, I put mine in my signature block to make it easy for my clients to see. If you do not see it or your lender dodges your questions regarding their licensing, I recommend looking for a different lender.

Thank you to [j]t’s for the photo, which he graciously offered via the Creative Commons License.

11 June 2010 – Rates were on the rise toward the end of this week after starting at 2010 lows. Still reeling from last week’s jobs reports that showed a heavy concentration in temporary 2010 Census jobs, the equities markets suffered early Monday. The ensuing flight to quality that continued through Wednesday kept rates very low. By Thursday, however, favorable news provided the catalyst for investors to move back into equities, which bumped rates up a bit.

Mortgage data was, on the whole, negative. Mortgage applications dropped in both purchase and refinance transaction. The first statistic was not a surprise, but the second sent a strong message that most of the refinances that can happen already have happened. While demand to refinance is still high, low appraisals and borrower issues make many of them impossible.

Other housing data provided some good news. Defaults showed a month over month decrease and a small increase year over year. This is widely accepted as a sign that banks are beginning to work through their inventory of repossessed properties. While veiled in the seemingly negative concept of foreclosure, this was actually a sign that defaults are leveling off and that a sustainable housing recovery may be possible.

The Perfect Time to Lock

So, now hopefully you have enough understanding of the market conditions that contribute to mortgage pricing and securing a good rate. Stocks are down and investors are fleeing to the safety of the bond market, which has driven down mortgage lending rates.  When this happens everything points to a lock. Keep in mind the timing.  Will locking in a rate now give you enough time to close your loan?  Because mortgage rate locks are not valid for an indefinite period of time, herein lies the second and equally important aspect of locking your loan.

Mortgage Rate Lock Period

Loosely defined, a lock period is the amount of time the lender guarantees your rate after which you are subject to market conditions or the requirement for an extension. The periods available range from 15 to 360-days and are typically broken down into 15 or 30-day increments. As the length of the lock period lengthens, the lender, who has now committed funds to you, loses the opportunity to lend the money at a higher rate if the market moves in their favor. This opportunity cost to the lender affects the available rate to you, the consumer, in the form of a higher rate or an upfront cost to secure the rate. For example, on a given day, a 30-day lock may be 5%, while a 60-day lock may be 5.25%. Lock periods in excess of 60-days are considered long-term locks and bear a higher rate and a lock fee.

How Long to Lock a Mortgage Rate

The answer to this is simple. You need enough time in your lock to close your loan. A 30-day lock may be priced extremely well on a given day. If, however, your closing is not for another 53-days you will not have enough time and you need to look at the 60-day lock for that day. I recommend taking the date required by your contract and adding a week as a starting point. Next just count back to the day upon which you are evaluating pricing. The resulting number is the minimum lock length that you need.

Putting it all Together

As you can, the choice of when to lock is a somewhat delicate balancing act. On one hand, you need to look at the external factors and determine whether or not they are right. On the other hand, you need consider the internal aspects of your deal and the date by which you need to close. Add to this your personal tolerance for risk and the acceptable cost to secure a rate and you have the formula. Each person’s solution is different and only you can decide, but hopefully with a little knowledge you can, at the very least, make the most educated choice possible.

We would like to thank mortgage_foreclosure_solutions for kindly sharing today’s photo via the Creative Commons License.

Speeding up the Process

Fannie Mae has made an announcement regarding all loans held in their portfolio. The program is set to take place August 1st, 2010. It is called the Fannie Mae’s Home Affordable Foreclosure Alternatives Program or HAFA for short. HAFA is part of HAMP or Home Affordable Modification Program and provides financial incentives to servicers and borrowers who utilize a short sale or a deed-in-lieu of foreclosure to avoid a foreclosure on an eligible loan under HAMP.

Guidelines Must be Implemented

All servicers must implement Fannie Mae’s HAFA for all conventional mortgage loans that are held in Fannie Mae’s portfolio. Servicers are encouraged to offer HAFA for eligible mortgage loans that are part of a regular servicing option MBS pool or part of a shared-risk special servicing option MBS pool for which the servicer’s shared risk liability has not expired. If a servicer decides to use HAFA for such mortgage loans, the servicer must follow the Treasury’s HAFA Program, obtain any necessary third-party approvals, and comply with the reporting requirements of this Announcement. Fannie Mae is not responsible for any losses or expenses the servicer incurs and will not pay borrower or servicer incentive fees for those mortgage loans which are not considered Fannie Mae HAFA mortgage loans.

August 1st is the Deadline

Servicers are encouraged to adapt their processes to implement these Fannie Mae HAFA policies and procedures immediately; however, servicers are required to implement these policies and procedures no later than August 1, 2010, for borrowers who become eligible for HAFA on or after that date.

Hopefully this new policy will speed up the process of short sales and foreclosures. Many buyer’s have walked away from deals due to the lengthy and frustrating process.

We would like to thank Dan DeChiaro for kindly sharing today’s photo via the Creative Commons License.

4 June 2010 – Coming out of the Memorial Day weekend, mortgages were, for the most part, flat this week. There was no shortage of economic data, however, with reports on mortgage applications from the Mortgage Bankers Association and pending home sales from the National Association of Realtors. Additionally, the Labor Department issued job growth and unemployment statistics.

Mortgage data was a mixed bag, which actually matched expectations. Applications for purchase mortgages were off by 4.1%, but the recent drop in rates bolstered refinance applications by 2.4%. In short, rates are still good, but buyers are looking for bargains. The now expired Federal Homebuyer’s Tax Credit had provided a catalyst for buyers to make the decision to pull the purchase trigger, but without the perceived bargain, demand has stalled. Pending sales of homes followed the same expected trend. As many forecasted last month, the last minute efforts by buyers to take advantage of the National Homebuyer’s Tax Credit boosted the May pending home sales by 6%. The main take away to current buyers is that rates are still low and there is a supply of home that have not yet gone under contract.

Outside of the housing market, eyes were on the continued anemic labor market. While jobs were created, the increase of 55,000 lagged behind the expected 75,000. New claims for unemployment benefits dropped by 10,000, which represented a positive signal as conventional wisdom had pointed to half that number. This data coupled with a mixed bag of reports on retail sales pushed stocks mildly lower, but not enough to influence mortgage rates. So, from a historical perspective, rates are still extremely attractive.

1 June 2010 – The Federal Homebuyer’s Tax Credit has been extended for servicemen and women, as well as federal employees who served abroad in 2009. As with the Federal Homebuyer’s Tax Credit that just expired for the general public, this represents a way to save between $6,500 and $8,000 on the purchase of a primary residence. The extension is for one year and ends for military and federal employees who served abroad for at least 90 days from January 1, 2009 to May 1, 2010, as well as their spouses. The same income and purchase price caps exist, so you should consult with your lender, realtor and tax professional before determining your eligibility. With mortgage rates at some of the lowest points in decades and a buyer’s market, this represents an amazing opportunity for you to save on the purchase of a new home.

June 1, 2010
As of today, Fannie Mae will now be requiring all loan applicants to run a second credit report right before closing on a real estate transaction. Not only will the credit report be required with the original loan application, at closing Fannie Mae will now require a second report to be generated. If the credit score is one point lower than the original score the loan will not be funded.  The loan will then go back to underwriting for further scrutiny. This is serious business for those purchasing a new home and are planning on moving in with new furniture. With this new policy it would be wise not to use any form of credit. For example, do not head out to Costco and run up a large bill and put it on your credit card prior to closing. A larger charge on a credit card can drop your credit score.