• Aug. 2, 2009 - The A-Z of Buying a Home (Part 2)
The A-Z of Buying a Home (Part 2)
by Alan Donald, BuyHomesInCharleston.com
OK - so you've hired a REALTOR, discussed your needs and buying criteria and got preapproved by a lender. Now it's time to go see homes! Although it is a relatively small city, the Charleston Metro Area is very large, with hundreds of neighborhoods, areas and subdivisions each with a different style, construction, lot size and price point.
Step 4 - The Home Search
The home search is a collaborative effort between you and your REALTOR. If you are comfortable "sharing the news", make sure that you mention to everyone in your sphere of influence that you are looking to buy a home. It is impossible to know where your best option is going to come from - there are many sources of information at your disposal - including:
The Internet (Your REALTOR's website, the MLS, REALTOR.com, Craigslist, Facebook, etc.)
Your REALTOR
Driving Around Neighborhoods (Yard Signs on Listings, For Sale By Owner)
Friends/Colleagues/Family hearsay
Newspaper/Real Estate Magazines
In a "Buyer's Market" such as the one we experienced in 2008, there are so many "suitable choices" out there that your home search may become overwhelming UNLESS you have a system in place. I recommend that my clients use the "helicopter approach", starting from up above in the sky to the landing zone (from general to specific).
You should first try to narrow down your search (using your "Needs" and "Wants" criteria) to 2-3 general areas (for example "within JB Edwards Elementary or Mount Pleasant Academy school catchment areas") , then down to 2-4 neighborhoods within those areas (i.e. Old Village, I'On, Molasses Creek Plantation) and then down to specific sub-sections and maybe even streets you prefer. If you are able to do this, the process to choosing a specific home will be fairly simple.
Step 5 - Negotiating a Contract
You found a home you love! Now your REALTOR will help you structure an offer, looking at the listing history, the sales comparables in the area, and general market conditions. You will have to write a check for the EARNEST MONEY (normally 1% of the purchase price), and determine the TERMS of the contract (including but not limited to purchase price, closing date, conditions, contingencies and concessions). Your REALTOR will send the offer to the LISTING AGENT (who represents the Seller) and you will have to wait for a reply from the Seller. The offer can result in:
ACCEPTANCE: The Sellers accept your terms and conditions - once the contract is signed and delivered back to you, it becomes RATIFIED. Now it is ENFORCEABLE - both for the Seller's and for YOUR protection.
REJECTION: The Sellers reject your offer and accepts someone else's (typical in multiple contract situations).
COUNTER-OFFER: The Sellers acknowledge your offer but changes terms according to what they want. At this point you can either walk away (no expense, no responsibility), accept the Seller's counteroffer, or submit your own (second) counteroffer. This process can go on indefinitely until the "meeting of the minds" is attained. Sometimes it is just impossible and you may have to move on.
To negotiate a contract smartly, it is best to have the most information you can. Your REALTOR can many times get you:
Market comparables ("comps") showing how much similar homes in the area have sold for
How much did the Sellers pay for the home, when they purchased it, and what mortgages they have registered on it.
Other choices in the area of similar size, age, characteristics.
The Sellers' reason for selling, motivation and perceived urgency
• Jul. 23, 2009 - The A-Z Guide for First-Time Home Buyers (Part 1)
This guide for first-time home buyers is intended to provide general information to help buyers be aware of the buying process, and to dispel any myths about buying a home. Please discuss your particular situation with the appropriate professionals before making any decisions.
So, You want to Buy a Home?
Since buying a home is a BIG financial commitment, many first-home buyers (and some repeat buyers) feel very intimidated by the whole process, which, in itself is rather uncomplicated, but it involves a lot of small steps, that, if not done right, can produce expensive mistakes.
In my 12 years in Real Estate I have dealt with many types of buyers and different scenarios, so I have developed a "method" to reduce stress and ensure success. Here's a brief synopsis of my recommended "Buying Process".
STEP 1 - Hire a REALTOR to Represent You
In SC, buyers can hire their own Buyer's Agent, normally at no cost to them. Once you hire a REALTOR as your Buyer's Agent, this person has a FIDUCIARY responsibility to represent you and protect your best interests. Buying a home is a "joint project" between you and your REALTOR. Make sure you establish a mutually agreeable communication pattern and that you have clear expectations of each other's responsibilities.
STEP 2 - Show Me the Money
Whether you are single and about to buy a home on your own, or (even more so) a couple with kids, money is always one of the crucial factors to explore upfront. Ask yourself these questions:
What's the total monthly payment that you would feel comfortable with, without stretching your finances or cramping your style?
Do you have an "emergency fund" in case there's a hiccup (loss of income, emergency, etc.)?
How much money do you have to put down toward the purchase?
Now, it's time to get PRE-APPROVED. Contact a local lender and they will be able to walk you through an application. The lending officer will review your INCOME, EXPENSES, ASSETS and LIABILITIES, plus your CREDIT SCORE. Based on a formula that takes into consideration several factors, the lender will tell you HOW MUCH is the maximum purchase price and loan amount you can have, the amount you must have ready for your down payment and your estimated MONTHLY PAYMENT.
Ask for a written PRE-APPROVAL letter and how long it is valid for. Keep in mind that (especially in this market) such a letter is often required by Sellers, and will give more weight to any offer you make.
STEP 3 - Define Your Needs and Wants
Some buyers do not have a clear picture of what they want, and in a "buyer's market", where there are literally thousands of available homes, they can get confused and frustrated quite easily. I recommend that you write down your needs and wants, and rank them in priority, for example:
MY/OUR BUYING CRITERIA
NEED (must have): Min. 3-bedrooms, "excellent" rated schools, 2,000 sq. ft., under $200,000, within a 45-minute drive to/from work.
WANT (would like to have): Community pool, bonus (FROG) room, 2-car garage.
NOTE: If there is more than one decision maker, make sure you all agree on at least the NEEDS column. It is important that you share these criteria and priorities with your REALTOR, to help him/her give you better selection of properties and provide better advice.
Next: Searching for a home and negotiating a contract....
• Feb. 12, 2009 - Buyer Activity on the Rise in Mt Pleasant
Showings are up substantially in Mt Pleasant, SC, indicating an early Spring buying season. Homeowners thinking of placing their homes on the market would be well advised to act sooner, rather than later, to take advantage of this new "wave" of active buyers.
With the many changes in the mortgage lending environment, many of my buyer clients are confused and don’t know what to do anymore. I read an interesting article about new mortage lending “rules” on CNNMoney.com about this and wanted to share my opinion:
On buying “points” to reduce the interest rate - many lenders offer the possibility of buying a certain amount of “points” upfront (this is the same concept as prepaying some of your interest charges) to lower their interest rate. This can be a good idea, but sometimes it is not. the time horizon you expect to remain in the home; the cost of buying points (1 point = 1% of the mortage value) ; and the amount you would save per month by buying points (principal and interest). Look at these numbers and calculate how long your break-even point is. ($$ Cost of Points/Monthly Savings = No. of Months to break even). If your break-even period is longer than the time you expect to own this home, it is not a good idea to buy points.
On making a large Down Payment - 100% LTV (loan-to-value) loans are history. So you need at least 3.5% downpayment if you qualify for an FHA loan. But if you have the money, should you put down say 20%, 30% or 50% of the value? There are several factors to consider:
Mortage Insurance (PMI/MI) - unless you put down at least 20% of the value of the home, the lender is going to want you to pay PMI. This is really a waste of money, since it only protects the lender. If you have the money to make a 20% downpayment, it is probably a good idea to do so.
Time horizon you expect to remain in the home. The longer you expect to live there, the less you should be concerned about market corrections “wiping out” your equity. In the long run, real estate will appreciate (supply & demand - more people, same amount of land). If you are thinking short term (i.e. less than 5 years), I would recommend making a lower down payment to prevent losing your equity in a severe market downturn.
Your ”comfort zone” with the monthly mortgage payments. If you have a large downpayment and what you really want is a low monthly payment, making a large downpayment is probably a good idea.
Alternative uses for your money (opportunity cost). Could you invest that money elsewhere and make it produce more for you?
• Dec. 18, 2008 - BEHIND IN MORTGAGE PAYMENTS? WHAT ARE YOUR OPTIONS?
ARE YOU BEHIND IN YOUR MORTGAGE PAYMENTS? DO YOU NEED TO SELL YOUR HOME? DO YOU OWE THE BANK MORE THAN YOU CAN GET FOR YOUR HOME?
What are your OPTIONS?
Many people are not aware that they have a few options to explore when they are facing these situations. Some people just give up and abandon the house for the bank to take it over. Before you do this, it is important to explore other options that may affect your credit and personal finances less than foreclosure.
The first thing you have to find out is who owns your loan note (it may be different from the lender who sold you the loan and/or different from the company who services the loan). Once you find out who is holding your loan, you may want to call their LOSS MITIGATION DEPARTMENT, which specializes in dealing with these matters.
Notes: I am assuming that when you took the loan you were properly informed of the conditions, and that your lender performed all required disclosures as required by the Truth In Lending Act (if you feel you were not informed properly, or believe there was fraud involved in your loan, you have legal recourses you can pursue). Also, some of these options may have tax implications for you. If the lender accepts a short sale, the amount of principal they “forgive” may be counted as income for your tax return. It is essential to consult with your CPA and attorney before taking final action.
Option 1: LOAN FORBEARANCE Depending on your circumstances, a “temporary fix” option you might wish to consider as a way to prevent foreclosure is mortgage forbearance. This option is commonly used for temporary financial hardship situations such as short periods of unemployment or poor health. Mortgage forbearance enables you to temporarily stop making your mortgage payments. However, interest on your loan continues to accumulate and is added to the remaining principal balance of the loan. You are generally also asked to sign a forbearance agreement that states when the lender will require you to pay the amount you owe. Once the forbearance period comes to an end, you are once again obliged to make full payments on your home loan.
Option 2: LOAN MODIFICATION If your mortgage interest has readjusted upward (as in an ARM) and you cannot afford the new payment, or you are having trouble paying your mortgage and you are in a high-interest loan and cannot refinance, your lender may consider changing the terms of your loan to help you. Some of the factors that your lender will consider are: Nature of the hardship that is causing your mortgage payment problems; the amount of equity you have in the property; your ability to pay the mortgage; the amount owed on the mortgage; and mainly, what is financially better for them – whether to foreclose or pursue a loan workout with you or modify your loan.
Option 3: DEED EN LIEU OF FORECLOSUREThis option basically provides a “free out of jail card” for the homeowner, who agrees to give the property back to the lender if the lender agrees to forgive the debt that was secured with the real estate. Deed-en-lieu-of-foreclosure is only approved by lenders in certain hardship circumstances (conditions vary according to each lender). Both sides have to enter the transaction voluntarily and in good faith. The property needs to be transferred at a fair market value.
Option 4: SHORT SALE In a declining real estate market, it is quite common for homeowners to owe more on their home than what they can net from sale at a “fair market price”, especially if they haven’t lived long in their home. In many cases you can still sell your home, provided that the lender(s) and other lienholders approve a short sale, where they are paid less than they are owed. Any other liens affecting the property (including mechanics’ liens, tax liens and any judgments against you, the owner) will have to be cleared to be able to “short-sell” the property.
Option 5: RE-FINANCE If you are in a situation where your loan is at a high interest rate, you may wish to consider re-financing (with the same or with a different lender) to lower your monthly payments. However, in the last two years the guidelines for re-financing have changed, making it impossible for some homeowners to re-finance their mortgage. The main recent changes affecting your ability to re-finance are: Declining home values; reduced loan-to-value and debt-to-income ratios; your payment capability and your credit score.
Option 6: FORECLOSURE Foreclosure is a legal process whereby the lender(s) exercise their right to take possession of your home and kick you out for not honoring your commitment to pay the loan(s). This is a slow process (in SC it can take from 6+ months) and it is expensive for the lender. It also affects the homeowner’s credit substantially and for a long period of time. If you fail to pay your loan on time, you will first receive written notices that you are in default and warning you to pay or face foreclosure. After a few months (depending on the lender), they will issue a notice of their intention to foreclose. The case will be handed over to an attorney, who will file suit to foreclose and will file a lis pendens notice at the County Courthouse. Once the court rules the property will be sold to the highest bidder at public auction on the courthouse steps. If you are still living in the house, the new owner will file a motion to evict you.
Option 7: BANKRUPTCYIn some particular cases, the only option that may make sense to you will be to file bankruptcy. The latest changes to the bankruptcy law make it a bit harder for some to file bankruptcy. Some filers with higher incomes won't be allowed to use Chapter 7, but will instead have to repay some of their debt under Chapter 13. You will have to get credit counseling before you can file a bankruptcy case. And, because the law imposes new requirements on lawyers, it may be tougher to find a bankruptcy attorney.
Alan Donald is a bilingual REALTOR® with Keller Williams Realty in Charleston, SC.You can ask him questions by sending him an email to adonald@kwcharleston.com or by visiting his website at www.BuyHomesInCharleston.com .
It is very important for home buyers or for those who want to re-finance to be aware that in these volatile financial markets we are living in, interest rates on mortgages can fluctuate substantially in a matter of hours! I have heard many stories from mortgage lenders about how they were able to lock a fantastic interest rate for a loan using a 2-3 hour "window of opportunity" that disappeared afterward, or others that missed out because they floated the loan (to "float" means to let the interest rate fluctuate with the market). Understanding how "locking-in" a rate works may help you evaluate your options and could result in thousands of dollars in savings!
So, what is a "lock"? A lock is a GUARANTEE from a lender that if you close your loan within a stipulated time (usually 30 days), the note on your loan (i.e. the nominal interest rate) will be set at a specific interest rate.
When you ask a lender for a quote (also called a "Good Faith Estimate" or GFE), you can ask how long the rate is good for. Bear in mind that until you lock the interest rate, it can (and probably will) change. If you think you need more time to close the transaction, ask the lender for an adjusted rate quote. If you are afraid that interest rates may rise, lock your rate now (rate locks are recommended when interest rates are on the rise, to avoid ending up with higher monthly payment than anticipated). Floating the loan in a volatile market is a gamble - you may win if rates drop, but you may also lose if they go up.
What many people don't know is that long-term mortgage rates don't depend on the inter-bank rates set by the Federal Reserve Bank. This rate normally affects only short-term lending (such as credit cards, car loans, home equity lines, etc.). Long-term rates depend on the behavior of the financial (stock & bond) markets. Thus, if bonds are in high demand, mortgage rates drop.
Professional mortgage representatives are constantly checking the financial markets and related news releases to be able to predict future movements in interest rates. Ask your lender to keep an eye out for a favorable rate to lock in your loan! This is one of the reasons why it is very important to pick a very sharp and experienced mortgage representative (if you ever have the need for one, I can recommend several...)
• Nov. 22, 2008 - Commercial Real Estate - Also Going South?
Today I was reading an update on Commercial Real Estate (CRE) - it seems that CRE is following the path that Residential Real Estate took two years ago!
Donald Trump just asked for more time to pay his $770 million in construction loans on his Chicago Tower, and many commercial developers are having a hard time making their construction loan payments, because absorption has been slower than what they anticipated on their business plans.
When the economy slows down = fewer jobs = less need for space. I think that to add insult to injury, we'll see many banks suffering from defaults in their commercial loan portfolio next year...this is probably not good news for anyone!
On the positive side, the uncertainties of Wall Street may force investors to re-think investing in real estate. At least in bricks and mortar you have a more predictable outcome for the long-term!
• Oct. 31, 2008 - Reverse Mortgages Program Changed
The Daily Real Estate News reported today that the limit for FHA-backed reverse mortgages (or Home Equity Conversion Mortgages - HECMs) had been increased to $417,000.
This new regulation also places a 2% cap on origination fees for the first $200K of the loan amount, or a 1% cap for higher amounts, with a $6,000 limit (adjustable for inflation).
Senior citizens will be allowed to use HECMs to purchase a new property, and lenders will no longer be allowed to sell annuities and other financial products along with the mortgage.
I think this will increase the flexibility for those seniors (like my own parents) who are “house-rich” but “cash poor”. Good move!!
• Sep. 19, 2008 - What's Happening in the Mortgage Market?
WHAT’S HAPPENING TO THE MORTGAGE MARKETS? (Sept. 18, 2008)
On the positive side, Freddie Mac reported that 30-year fixed rate mortgages fell this week for the 5th consecutive week. According to the Mortgage Bankers Association (MBA), lenders saw a 58 % surge in mortgage applications since August 15th, led by a 122 % surge in re-financing applications. Fixed-rate mortgages are currently the predominant choice (95 % of all new applications) among home buyers. Applications for adjustable rate mortgages (ARMs) have fallen by almost 50 % since the end of last year.
After the government takeover of Freddie and Fannie last week, rates came down substantially (by almost 1%). We are now experiencing very low 30-yr rates (similar to 4 years ago). Definitely a great relief for potential buyers, and a great opportunity for refinancing higher interest loans.
On the other hand, there are a multitude of negative factors affecting the eligibility of buyers to get a loan. The Downpayment Assistance Programs (DAPs), that allowed 100% financing, are disappearing as of October 1st. Mortgage insurance rates are going to be drive (upward, I imagine) by credit scores. And lender underwriters went from one extreme (you just had to fog a mirror to get 100% financing three years ago), to the other (demanding an overwhelming amount of information and questioning issues that verge on the ridiculous for event low LTV loans).
So, on one hand we have great interest rates that should drive demand for housing up. On the other hand, it is difficult to qualify for those loans.
Where are we going? This is my crystal ball: I believe lenders will finally realize that they are in the business of lending money, not just in the business of avoiding losses. If they make it very difficult for buyers, their lending business will die. So they will probably start to relax their guidelines and requirements a little next year. I also believe that inflationary pressures are evident, and when inflation goes up, it affects negatively the stock and the bond markets, so I believe we’ll see mortgage rates creeping back up after the presidential election.
The next six months will be a great window of opportunity for buyers and investors who wish to buy inexpensive properties and get low interest rates. Beyond six months, it is hard to say… In the long term (4+ years), I believe real estate will prove that it is still one of the best and most stable investments around (look at the S&P 500 roller-coaster this week!)
Although it has been heralded as a piece of "life-saving" legislation for the housing market, The Housing and Economic Recovery Act of 2008 that will kick in on October 1st contains some important provisions that will affect our industry adversely:
It eliminates DAP (downpayment assistance programs) that allowed buyers to borrow 100% of the purchase price. While this makes sense from a risk-based analysis point of view (these types of loans defaulted at a much higher rate than loans where the buyer actually puts in a downpayment out of their own money) it does not stimulate the housing industry, restricting first-home buyers, who are the ones supportuing the whole housing "food chain". No one disputes that homeowners have more to lose if they have a downpayment, so maybe they will "try harder" to make ends meet when the going gets tough. But a responsible, stable income buyer will be a better credit risk than an irresponsible buyer with a downpayment.
Comment: I believe that this provision will affect the demand from first-home buyers substantially. In this economic climate it is very difficult for a person with moderate to low income to save any substantial amount for a downpayment. A more equitable and fair way of determining default risk and access to use these types of programs would be by looking at the buyer's ability to pay (income & employment history) and financial responsibility track record (i.e. credit scores).
It amends Section 121 of the Internal Revenue Code (which is the exclusion that allows homeowners to sell their qualifying primary residence and exclude up to $250,000 ($500,000 for a couple) of capital gain from capital gains tax. Many savvy investors were combining this exclusion with the 1031 exchange provisions to build up equity via several 1031 exchange transactions, and then convert this investment property to a primary residence to take advantage of the capital gain break. With this amendment, Section 121 no longer permits homeowners to take advantage of the full tax-free exclusion on the sale of a home that was their primary residence if there was a non-qualified use of the property (i.e. investment) prior to being held as primary residence.
Comment: I believe this amendment is just closing a loophole that only savvy investors with high net worth were using, so I am OK with it. However, it will restrict the demand for investment property transacted with investors looking to maximize their tax-free equity, and the sale of homes via 1031 exchanges.
It provides up to $7,500 in tax credits for first home buyers (or individuals who have not owned a home in the last 3 years). While this is being publicized as a "great thing" for our industry, this amount is only an interest-free loan for a 15-year period.
My opinion: People with irresponsible credit behavior will be lured into home ownership by the shine of this tax credit (we are already seeing many volume builders advertising this credit) , will spend the $7,500 on consumer goods when they receive it, and increase their indebtness to the point of default. I believe it is our duty as REALTORS to point out to our clients that they will have to pay this amount back, and strongly suggest that they use the $7,500 instead to pay off high interest credit lines, or principal off their mortgage to shorten the life of the loan, build equity and have some forced savings.
Every now and then nature reminds us that we are small and cannot control everything about our planet.
We used to live in San Francisco, CA, where everyone is very aware of earthquake and forest fires. Although here in Charleston we are also located on top of a fault line, no one seems to worry about earthquakes, maybe because the last major quake happened in 1886 (although in 1995 there was a minor one). Here, hurricanes are THE big deal.
Every year, from May to November, the “Hurricane Season Soap” keeps us glued to the TV set and frazzled! Here it comes! It’s going to be a direct hit! It turned toward Florida! It’s turning again toward us! Now it IS coming! It’s a Category 1, 2, 3…Will we have to evacuate? Do we have to cover the windows with plywood?
I find that native Charlestonians don’t worry too much about a hurricane until they are sure the danger is imminent. However, for those of us who are not used to living on this area of the country, Hurricane Season is a stressful time…
Mind you, I think hurricanes are better than earthquakes: At least you can anticipate them and prepare for them. And it is always better to be prepared than taken by surprise. Here are some preparation guidelines that may be useful to get prepared:
Clean debris and leaves from your roof, gutters, yard and street drainages. Nail and seal loose shingles and caulk all windows, doors and siding to prevent flooding and water penetration. Remember that your homeowners insurance policy does not cover flood damages (did you remember to buy flood insurance?)
Trim all bushes and trees that are close to your house to prevent damage from abrasion. Look carefully at all your trees, cut dry-loose limbs. If a tree doesn’t look healthy it is best to cut it down (remember you may need a permit from the city/county to cut a tree of a certain size)
Bring inside all objects that could move with strong winds: Planters, bicycles, chairs, tables, BBQ, trampolines, etc. Park your car in the garage.
Prepare for the possibility of a heavy tropical storm or a mandatory evacuation. Prepare all your important documents and store them in a waterproof container, including your insurance policies for your home. Take some cash out of the bank in case ATMs are out of service. Buy enough non-perishable food and water to last 3 or 4 days. Have enough flashlights, batteries gas stoves and a radio to be able to survive without electricity.
Have an emergency plan in case of a mandatory evacuation. Where are you going? Which way are you taking? Try to avoid leaving at the last minute, together with 90% of the city.
Let’s hope that no hurricane heads our way, but in case it does, it is better to be prepared! Here are some online resources that can help you get prepared:
Alan Donald is a bilingual Realtor® with Keller Williams Realty. You can visit his website BuyHomesInCharleston.com or ask him questions by email at adonald@kwcharleston.com or by leaving a voice mail at (843) 416-1434.
• Jul. 27, 2008 - Fed Comes Short in Regulating Mortgage Brokers
New Fed rules miss one key lending abuse
Mortgage brokers often receive kickbacks from lenders in return for steering consumers into more expensive loans - a problem that the Federal Reserve failed to address.
NEW YORK (CNNMoney.com) -- Mortgage brokers and loan officers are getting paid fat fees by lenders to put unsuspecting borrowers into expensive loans. And the new lending rules issued last week by the Federal Reserve do nothing to stop this abusive practice.
The Department of Housing and Urban Development estimates that this practice cost borrowers $16 billion in 2007 alone.
"This remains a serious problem," said Howell Jackson, a professor at Harvard Law School who has testified before Congress on the subject. "It increases the cost of borrowing for lots of people, especially in the subprime space where borrowers are less experienced."
At issue is the so-called yield spread premium: The difference between the lowest interest rate that a borrower qualifies for and the actual rate that a lender charges.
The larger the yield spread, the more a loan originator earns, and that can tempt them to steer borrowers to bad loan.
Say a couple buys a new house and qualifies for a 6.5% rate on a 30-year fixed mortgage. A greedy broker or loan officer might put the couple in a 7% loan so that he earns a bigger payday, or even a 7.25% loan. Loan originators usually earn about 1% of the loan value for every extra quarter point of interest they charge borrowers. So if they put naive home buyers into high-cost loans, such as hybrid adjustable rate mortgages or option arms, they could make 5% or more on a loan.
Most home buyers never realize that they are paying any additional costs. Federal rules dictate that brokers can disclose these fees with just a footnote in the closing papers that's easily overlooked. Loan officers, who work directly for lenders, are not required to disclose it at all.
"In subprime loans, brokers could easily make an extra 2 percentage points," said Jackson. "On $500,000 loans, that's well in excess of $10,000, as much as a 10-fold increase over what most people would consider fair compensation."
Why the abuse will continue
When the Fed first floated its new lending regulations last year, it did include a proposal to limit the practice of lender payoffs to brokers,but that didn't make it into the final set of regulations. The rules that were passed limit prepayment penalties, require proof of assets and income, and require that lenders consider whether borrowers can afford a loan before it's issued.
The Fed said it dropped the Yield Spread Premium rule because consumer testing indicated that people were confused by it. Disclosing broker fees led many to assume that it's less expensive to go directly to a lender for a loan, which isn't necessarily true.
Not surprisingly, mortgage brokers opposed the rule, pointing out that it would have required them, but not lenders, to disclose their total compensation in a written agreement before their fees were be rolled into the loan. Right now fees aren't fully disclosed until the closing.
Besides, said Marc Savitt, president of the National Association of Mortgage Brokers, this kind of abuse is a thing of the past. The now moribund housing market has spawned cutthroat competition, sobrokers have had to slash their fees and improve loan terms to win clients over.
What's next
Still, the Fed plans to address the problem. A spokesman says it will focus its efforts on improving fee disclosures so that consumers will more readily understand what they are paying and why.
There's also legislation sponsored House Financial Services Chairman Barney Frank, D-Mass., that would ban lenders from paying fees to broker based on loan terms. The bill passed the House last year as part of an anti-predatory lending act, but it has since languished in the Senate.
Additionally, the Department of Housing and Urban Development is working on its own version of a rule to govern Yield Spread Premiums, according to HUD spokesman Brian Sullivan.
"Mortgage rules are 30 years old," he said, "and don't reflect the way people finance their homes today."
HUD's rule would require lenders and brokers to fully disclose payments made by lenders to brokers, and that such payments somehow translate into lower costs for consumers. But it's drawing opposition. The agency is now taking comments on the proposed regulation, and has received 12,000 so far.
"We're getting a rash of pushback from industry sources who would prefer we do nothing," said Sullivan.
States are also taking action. North Carolina recently banned Yield Spread Premiums tied to sub prime mortgages, joining about 10 or 12 other states in curbing their use, according to the Center for Responsible Lending.
"The states will always be in the best position to act more quickly to help homeowners in their own backyards," said CRL president, Michael Calhoun.
Earlier this year, Massachusetts attorney general Martha Coakley issued regulations that outlawed commissions tied to putting borrowers into expensive loans.
For its part, Minnesota passed a new state law requiring that brokers act in the best interests of their clients, much as an attorney or financial advisor must do. Other states will likely follow suit.
"These types of abuses have the potential to emerge again if we don't take some legislative steps," said Howell Jackson.
Many people believe that once you sign a contract to buy a home, all business everything is pretty much done. The truth is that many deals are derailed before the closing, mostly due to factors that surface during the due diligence process the buyer (or the bank) perform.
This process includes:
Home Inspection - this can reveal structural deficiencies, defects in the air conditioning/heating system, leaks, problems with the electrical or plumbing systems, etc. Unless the home is being offered "as is", generally the seller will have to provide a home that is free of leaks, structurally sound and without safety problems with the electrical or plumbing systems. All repairs are then negotiated with the seller after the inspections are complete. Note: The home inspector may recommend that you hire more specialized inspectors to look at specific issues such as mold, radon gas, structural integrity or electrical issues, as needed.
Termite, Pest and Moisture Inspection - in most cases it is required that the home be free of active termites and that all termite or moisture damages be repaired and a "clear" CL-100 certificate be issued prior to closing. Traditionally the seller pays for this inspection, however, I recommend that my buyer clients hire and pay for this inspection to have their choice of inspector and make sure they are looking after their interests. If the inspector determines that repairs are needed, he may recommend using a qualified, specialized contractor to do the required repairs, treat the home and provide a termite bond to guarantee a clear CL-100.
Title Search - the closing attorney will perform a title search using public records to make sure that the seller on the contract actually owns the house and is able to sell it, and to determine if there are any mortgages, liens or judgments against the property or the seller.
Survey - the buyer can also request the closing attorney to order a survey showing the property boundaries, that the structures are within those boundaries and that there are no encroachments. It also will show any right-of-way and utility easements on the property. If requested, the surveyor will also shoot the elevation and the flood zone of the property, which will be used for purchasing flood insurance.
Mortgage Balance - The closing attorney will contact the existing mortgagees to get a "payoff balance" figure as of the date of closing, so he can discharge these mortgages before transferring title.
Other Due Diligence - the buyer has the right and the responsibility to perform all the due diligence to verify all the information about the home. Other common due diligence steps may include:
Find out taxes owing
Verifying which public schools are assigned to the area
Verifying zoning and permitted uses for the home
Reading the Community Covenants and Restrictions
Verifying HOA transfer fees, if applicable
It is important to point out that these investigations must be done before purchasing the home, you do not want to have nasty surprises afterward! Your REALTOR® can help you in most instances.
INSURANCE AND ITS ROLE IN HOME OWNERSHIP
By Alan Donald
Buying insurance makes gives you mixed feelings - one hopes to never have to use it, but will be very glad when you have to! Insurance policies protect the user against different kinds of risk inherent to home ownership.
Here are some types of insurance and their differences:
Homeoners (or Hazard) Insurance. This is the most common type of insurance, which protects homeowners against partial or total loss in case of events such as fire, earthquake, hurricane, theft, liability and loss of personal property. This policy generally covers only the replacement value for the structure of the home (given that land is not insurable), plus the cost of replacing the lost contents. It is important to update the replacement cost for the structure from time to time, especially if construction costs rise. This policy is purchased annually - generally the bank pays for it at the beginning of the year and charges the owner 1/12 of its estimated cost as part of the escrow funds charged with the mortgage payment.
Wind & Hail Insurance: Supplements the homeowners policy in case that it does not cover wind and hail. This coverage must be purchased separately (the bank will require it) if the home is in the designated "wind pool" areas. It is purchased annually and it does not cover damages by flooding.
Flood Insurance: Covers damage by floods, tidal waves, etc. It is supplied by the federal government through FEMA and covers the first $250,000 of value of the home. Supplemental flood insurance can be purchased separately. It is purchased annually and it is required by lenders if the home is in a "flood zone".
Title Insurance: It is purchased once (at closing) and covers the homeowners against claims against the title of the property or boundary defects, liens or judgments that were not discovered by the title search or were not properly recorded at the time of closing.
Home Warranty: This is an optional policy that protects the homeowners against failure of the mechanical systems of the home: Heating and air conditioning, stove, oven, microwave, washer, dryer, dishwasher, ceiling fans, etc. It is purchased annually.
• Jun. 23, 2008 - HOW DO YOU DEFINE EXCELLENT SERVICE?
For every business (especially for those of us in professional services) client satisfaction guarantees future success.
Happy clients bring more clients, and a great reputation in the marketplace (especially in a small market like Charleston's) is a very desirable asset. It is essential to have business strategies and practices that result in repeat business and word-of-mouth referrals from our client base.
So, how does one make sure that clients are happy? Obviously, we need to provide them with "outstanding service". The problem is that not everyone is on the same page when it comes to defining "outstanding service". In order to avoid disappointing clients, I recommend following these guidelines:
Clarify mutual expectations from the beginning. Ask your clients what they expect from your service, as well as letting them know what you expect from them. This way everyone will know what to expect, and you can EXCEED your clients' expectations.
Educate your clients. Explain the whole process from A to Z and identify the most common potential problems, so that they don't get surprised if they happen.
Keep in constant communication. The worst you can do when there is a problem is to avoid communicating with your clients, thinking the problem may just go away, or that you may be able to solve it without their involvement. It is much better to let them know what the problem is, why it is happening, and how you are working to resolve it.
Assume responsibility. If there is an unforeseen event that affects the process, assume responsibility (even if it is someone else's fault) and try to provide proactive solutions.
Be honest. Your clients will appreciate your honesty, even if the news that you bring are not favorable to them.
Show genuine interest for your clients. Give them personalized attention and be sensitive to their personal situation. This will set you apart from other service providers and will provide the "personal touch" that will remain in your clients' memories looking forward.
• Feb. 29, 2008 - Interesting Article on Mortgage Industry
I received this very interesting article from a friend of mine at Bank of New York:
Wall Street Throws A Tantrum
In these turbulent times, traders are the tykes screaming and yelling and writhing on the floor until they get what they want.
By Daniel Gross
NEWSWEEK
Updated: 12:29 PM ET Feb 2, 2008
Monetary policy, the management of global companies and the workings of Wall Street are indisputably the realms of the mature: one searches the gallery of Federal Reserve chairman portraits in vain for a full head of hair. At the World Economic Forum in Davos, I realized I hadn't seen so much silver hair since the 5 p.m. early-bird special dinner at Le Rivage in Boca Raton, Fla. The presence of all these wizened professionals should instill a good deal of confidence. When you're trying to bring a massive tanker to port amid stormy seas, the last thing you want to see is a 12-year-old apprentice steering the tugboat.
Yet in these turbulent times, Wall Street traders are the infants and toddlers. They're the tykes who stage public tantrums, screaming and yelling and writhing on the floor until they get what they want. Since the markets began to buckle last summer, what traders want is interest-rate cuts and other government measures to bail out banks from reckless and disastrous lending and investment decisions. In response, Federal Reserve chairman Ben Bernanke has done what any exhausted parent does when a child screams for three hours
straight: he gives in. In the past two weeks, the Fed cut interest rates sharply twice, taking the Federal Funds rate down from 4.25 percent to 3 percent.
Of course, "giving in to a tantruming child just reinforces the demand," says Dr. Wendy Mogel, a clinical psychologist in Los Angeles and author of the wildly popular parenting tome "The Blessing of a Skinned Knee." And each time you cave to a screaming child, it buys you less quiet. The Federal Reserve's latest attempt to calm the market's tantrums—the half-point interest-rate cut on Wednesday—bought about 90 minutes of market silence. Within hours, as poor economic news continued to materialize, the clamor for further rate cuts began to rise. Mogel puts it in starkly financial terms: "Indulge tantrums and you get short-term gains and long-term loss."
If traders are the toddlers, investment bankers—and the CEOs they report to—are the tweens of the system, plagued by attention-deficit disorder. As we speak, your typical Wall Street managing director is glancing at CNBC in his office, intermittently checking six computer screens, thumbing out e-mails on his BlackBerry, barking out orders to a personal assistant—all the while furiously working out on the elliptical machine. Merrill Lynch, Morgan Stanley and Bear, Stearns take great pains to distinguish themselves from one another. But they all lurch together from hot financial trend to hot financial trend the way tweens ditch yesterday's pop stars for today's (goodbye, Britney; hello, Hannah Montana).
Like proto-teens, bankers are incapable of exercising independent judgment. Which is why every bank—from the staid Swiss to the sharp trading houses on Wall Street—got caught up in the subprime debacle. Alan Hilfer, a child psychologist at Maimonides Medical Center in Brooklyn, N.Y., notes that investment bankers behave like kids in a candy store. "The candy is money. And when they see an opportunity to get more of what they want, they go after it without considering the consequences." The financial system has an upset stomach today precisely because every large financial institution gorged on subprime candy.
If Park Avenue bank headquarters are like middle school, Davos, which attracts truly senior bankers and financial statesmen, is like high school. It' got the jocks (the heads of state and CEOs), the cheerleaders (journalists), the cool guy in the garage band whom all the girls love (Bono) and a lot of math and science geeks (Bill Gates, economists, technology evangelists). As in high school, the culmination of the year is the big dance (the Google party). Two weeks have passed, but I still can't shake the vision of talking head David Gergen's getting down—it's available on YouTube if you dare.
There's a final, telling way in which the markets exhibit childlike behavior. Children typically display an unwillingness to reckon with the fallout of their own actions. They look to parents to pick them up when they fall, and spare them from the consequences of their own behavior. And parents will go to great lengths to insulate their offspring from the jolts the world can deliver.
The same might be said about Washington's current economic ministrations. The nation is now nursing a seriously skinned knee because of reckless behavior in housing and credit. But rather than force consumers, borrowers and bankers to face the consequences of their own actions, Washington is functioning as a helicopter parent. Harvard economist Ricardo Hausmann, who characterized America as "whiner of first resort,"
believes the rush to stimulus is being led more by a concern for Wall Street than a concern for Main Street. Rather than take their lumps after several years of exceptional returns, the banks are furiously lobbying for help. They're getting it.
Instead of looking to the Federal Reserve or Congress to bail them out, the people who dominate the global economy should engage in some introspection—to evaluate what they did wrong and how they could avoid screwing up in the future. As Wendy Mogel puts it:
"Good judgment comes from experience and experience comes from bad judgment."
• Dec. 11, 2007 - Charleston Home Prices Following National Trends
The Post & Courier reported today that the median home price for the Charleston Metro Area declined by 2.3% in November to $200,000, and sales volume was 19% lower than November 2006.
This is not surprising given the high inventory levels that we have in most areas. Sellers still had 2005 price levels in mind for the last 12 months, and were "holding off" on price reduction, hoping to sell during the Summer season. These sellers are now convinced that they need to adjust their prices to the current market reality.
It is interesting to note that different areas of the city behave differently: On Daniel Island there is about 2 years' worth of available inventory, while in Goose Creek there is only 4-5 months' inventory. And it follows that price decreases are directly related to the amount of inventory and the absorption of each area. Daniel Island and other high-priced areas have seen the largest price declines in the last 12 months. However, one has to keep in mind that these same areas were the ones that experienced the largest price increases in the preceding boom market!
It is hard to give timing advice to buyers who are waiting for the market to settle. Similarly to picking the bottom of the stock market, it is hard to predict the bottom of the propety market. I tell my clients that, as long as they have a long horizon in mind, real estate is still a safe investment, with the added benefits of getting the use and the tax deductions.
Speculation and flipping are better left to professionals who do that for a living (many of them got burned in the last year)...in the end this market correction will make housing more affordable for first-home buyers, which are the foundation of the buying chain.
• Dec. 11, 2007 - Outdated Features That Turn Buyers Off
I read this article published in Realtor Magazine that has some interesting turnoffs for buyers:
Daily Real Estate News | December 4, 2007
Homes Features That Are Big Buyer Turnoffs
Old homes can be quaint, but there's a difference between old and outdated. Unless home owners periodically invest in upgrades, their homes will fall so far below the standards of current buyers that they become obsolete and hard to sell.
What's obsolete? Here's a list of relics, many of them courtesy of Nick Kuhn, an associate with McEnearney Associates in Washington DC.
A house with only one full bathroom. Even a house with one full bath and a toilet/sink powder room is going to turn buyers off.
A house without air conditioning.
Electrical systems protected by a fuse box instead of a circuit breaker.
Spiral staircases. They're relatively rare, and for good reason - they're often unsafe.
Basements with only an outside entrance. Home owners expect convenient access to that valuable space.
Ceilings that look like they've been stuccoed, dropped ceilings with fluorescent lights, and dark beams cutting across the ceiling.
The split-level floor plan. Want to go from kitchen to family room? Go down half a flight of stairs. From living room to bedroom? Up half a flight. Most folks would rather not.
----------------------------------
In addition to these, I can add a few, based on my own experience:
Blown ceilings (at least in Charleston every buyer wants smooth ceilings)
• Dec. 5, 2007 - New Home Builders Giving Great Incentives in Charleston. SC
These days my "in-box" fills up every day with "Special Offers" from builders and developers giving away freebies, increased commissions and buyer incentives. Some are offering to pay closing costs, upgrades, extra rooms, etc. Others are thinking a little outside the box: One recently offered a 2-year membership to Freedom Boat Club to whomever bought one of their new townhomes in Johns Island!
Although these incentives may work to lure home buyers, I always recommend to my clients that they view them with some skepticism. It is also important to find out:
Have the developers increased their prices recently, just before "giving away" the discounts? (i.e. is it a "perceived" sale and not a real one)
Have they been successful selling the subdivision, or are there any other issues that are important to know? (i.e. are there any widespread construction quality problems, problems with utilities or pending assessments on the HOA, etc.)
Is the developer is a publicly traded company (these companies are driven by quarterly results and are able to effect larger discounts to get inventory off their books just in time for reporting to shareholders)
Are the offers "gimmicks" or items of real value?
At the nominal contract price, is it likely that the home will appraise given recent comparable sales activity? Is it good value?
Is it a "spec" home - is it already completed or about to be completed? Builders are more negotiable on "spec" homes than on new construction, given they need to reduce their carrying costs and want to get them off their books.
Don't get me wrong, there are REAL BARGAINS out there (just recently a 2,600 sq. ft. brand new home in Summerville was being offered for $72 per square foot - you probably could not BUILD it for that price, without even counting the cost of the land!
Many national and local builders want to see their inventory homes off their books before the end of the year. Smart buyers are jumping at this chance!
A discussion forum for real estate topics relating to Charleston, SC. Provides information and resources for buyers thinking of moving to the Southeast, or for real estate agents from other areas of the country who are looking for a referral Realtor to the Charleston-Mt. Pleasant, SC area.
This guide for first-time home buyers is intended to provide general information to help buyers be aware of the buying process, and to dispel any myths about buying a home. Please discuss your particular situation with the appropriate professionals before making any decisions.
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