There's a new roadblock on the way to getting to settlement these days.
The number of people refinancing has skyrocketed. And, as a result banks and some of the people they rely on are overwhelmed. Appraisers are overbooked. Lenders are pushing out settlement dates to be sure they can get everything through underwriting.
There are still settlements happening in 30 days, but it's getting a lot tougher.
Interest rates won't stay at this rate forever. In fact, interest rates in the mortgage markets will jump before a lot of other interest rates do. Mortgage interest rates are very sensitive to inflation worries. With all the money being pumped into the economy, I suspect this is a pretty small window of opportunity before rates start to move back up.
But for right now, if you're buying a house talk to your lender about whether 30 days is doable. And, if you're a seller, don't be surprised to see delays on the way to settlement.
There are too many things I want to talk about today so I'll throw a little of everything out for your consideration.
The Wall Street Journal has an article this week about a plan they are proposing to help stabilize housing prices by granting resident status to foreigners who buy homes here. It suggests that they would have to own the properties for five years and couldn't rent them out during that time. It's an interesting idea. How would you monitor whether or not they were rented? There are lots of details that would have to be worked out but I'm always happy to see people getting creative!
Kudos to Hazel Homes. Clients bought a home from them this week and they were a pleasure to work with from start to finish. They went above and beyond to make sure they exceeded my clients' expectations. They asked for the full home inspection report and proceeded to work to rectify every item on there, no matter how small and insignificant. Trust me, that is not standard and they deserve recognition for their excellence! If you're looking for new construction in Culpeper I'd highly recommend them!
And, a plague on the houses of dishonest lenders. In a separate transaction I have clients who have been working with a lender for two months who's lied throughout the process. The loan he guaranteed was "ready to close" is now dead and my clients are scrambling to find other financing. After everything that's happened around lending in the last few years, it's unconscionable that there's still no accountability for lenders.
Mortgage rates dropped significantly after yesterday's announcement by the Fed of additional intervention to get credit flowing. 30 year fixed rates can now easily be found under 5%. Add that to the $8000 tax credit and a lot of prospective buyers should be excited about what they can afford right now.
The details are out on the government's latest attempt to help stem the tide of foreclosures:
I especially like the CNBC hosts' comments at the beginning about losing a few states to get rid of the whole mess. I think they're seriously delusional. I know that would be news to people in Culpeper Virginia.
This plan will help some more people. That's good news. Whether it will help enough remains to be seen.
George Soros has proposed a plan to clean up the mortgage markets, rescue the financial system and, theoretically, get money moving again.
The plan requires the elimination of Fannie Mae & Freddie Mac. It requires that banks hold much of the risk and do all of the servicing of their own mortgages.
And it would tie mortgages to bonds in a way that would keep a homeowner from ever deeply underwater on his mortgage.
This plan is based on a Danish model that's already up and working and seems to be functioning very well.
Take a look at the details for yourself. Do you think such a plan would work here? Is it worth a try?
I hope the Obama administration will take a closer look.
We've heard a lot of talk lately about financial institutions that are "too big to fail". I don't know how the rest of the country looks, but here, in Virginia, that's not how things seem to have worked.
The clients who had the best mortgage experiences and who are less likely to be in trouble are those who did business with small local banks. A lot of these banks lost a fair amount of mortgage business during the crazy years to fly by night outfits who promised the moon. These were the guys quoting ridiculous rates and finding a way to get a mortgage for anyone who could fog a mirror. The small guys who did this aren't around any longer.
But there were plenty of big financial institutions who couldn't resist the lure of all that money and jumped right into the mud. Countrywide is one that comes to mind. While the company name still exists, it's only because they were rescued by a savvier financial institution that took fewer risks.
From a real estate agent's point of view there were always a lot of advantages to a local institution. They were accountable for the loans they made. If something went wrong during the mortgage process it was a lot harder for them to duck me! I could walk into their office and ask what the heck was going on!
Small, local banks also take risks, but they're a different sort of risk. It's the "George Bailey" school of risk-taking. Yes, they look at credit scores. But some of these smaller, local institutions will also look at the individual and know that risk is also about integrity.
When this current financial crisis is over and someone writes the book on what happened with banks, there's going to be a recognition that our small, local banks made better decision and suffered less.
Maybe "too big to fail" should instead be, "too big to save"?
There are new requirements in place for FHA and Rural Development loans. Since FHA loans in particular are very popular in this market, and since these requirements effect rural properties that have been vacant at least 30 days, this will have a significant impact locally.
Effective immediately, if properties have been vacant for 30 days, well and septic certification tests will need to be done. And, while some of this testing is already fairly standard in contracts, the testing required here is expanded.
Well tests must now cover:
Lead
Nitrate, Nitrite
Total Nitrates and Nitrites
Fecal or E Coli Coliform
Total Coliform
The survey must show that the well is 50 feet from the septic and 100 feet from the drainfield. Wells should be no more than 10 feet from the property line.
These are not bad requirements and I've believed for quite awhile that well testing should be more extensive than the basic Coliform Bacteria testing that's the standard currently.
So, this seems like a good thing for buyers. Another reason to like FHA these days.
I know I've missed Halloween, but if you're still in the mood for something scary, this article definitely fits the bill.
If you don't have time for the full article basically it says we're approaching a record 20% of all homeowners underwater on their mortgages nationally.
Headed into a recession, that's pretty scary. If you lose your job and need to sell your home, what do you do? If you get transferred by your employer and need to sell your home, what do you do?
There is a downward spiral here that someone has to find a way to stop. More foreclosures lead to lower prices which lead to more homeowners under water on their mortgages which leads to more foreclosures when "stuff" happens.
Today's election, whatever the result will not fix everything. But it'll be interesting to see what, if anything, government tries to do on this front in the next few months.
A long, long time ago in what surely must have been an alternative universe, a government official told us that the mortgage crisis was self-contained. At the time it struck me as odd. It seemed to indicate a belief that the housing market was its own little corner of the economy, without much impact on the rest of our economy or our lives.
I haven't heard anyone use that phrase in awhile.
Now that we're facing a $700 billion bail out of the financial industry, here's the real problem with those earlier statements. First of all, they show a shocking lack of understanding of the importance of real estate in our economy. (By people who are paid a lot to know better!)
Second, the phrase, and the accompanying blather, was used to justify why there was no need to help out struggling home owners who were losing their homes to foreclosure.
And, so the hole got bigger, more people lost their homes. And, what do you know, it turns out that when enough people lose their homes, banks lose money! If enough homes get lost and enough banks get hurt, then there is reason for the government to step in and help.
I'm going to suggest that if the government had been willing to back stop struggling homeowners two years ago, we'd never been looking at this absurd $700 billion price tag now.
If I sound disgusted today, I am. The people who should have known better sat on their hands and watched this unfold. And, even now, as the bail out is being debated, there's a huge amount of push back about helping homeowners. Mind you this is the case even though I've heard several interviews with financial efforts admitting that foreclosures are really the root of the whole problem. So, we're going to put up $700 billion without addressing the root cause. Does this make sense to anyone?
Someone's going to have to help me make sense of this one! Feel free to share your wisdom!
I've waited a few days to talk about the Fannie Mae and Freddie Mac bailout. There are two reasons for that. First of all, I don't think we yet know what the effects are really going to be. Secondly, I'd posted when the legislation was passed in July that I was uncomfortable with the idea but didn't have a better one.
Clearly the markets told us yesterday that they think this is a swell idea. And, from their perspective you can certainly see why. Risks for investors have been reduced. Instead, risks for taxpayers have increased. (Hmmm, aren't investors also taxpayers?)
As a taxpayer, I remain skeptical about this use of my money.
As someone who makes a living in the real estate industry, it gladdened my heart to see mortgage interest rates drop a full half percent yesterday.
Long term, the model of Fannie Mae and Freddie Mac doesn't seem to have served us well. Whether some tinkering with the mechanisms can fix it or whether it needs to be scrapped completely will be debated over the next year.
The other debate will be over whether we, as a society, want to make home ownership a high priority. I suspect most are still in favor of this, even given our current difficulties. But I think a lively debate over how we allocate resources and what we believe in, is always a good thing!
As I continue to hit my head against the wall, the wall now known as banks, it's good to see it's not just me! Another blogger tells a story of the frustration out there.
And, in a related development, apparently an asset manager for a major bank was on a news program this week saying that the banks are deliberately slowing things down. This gentleman said that the purpose of doing this was to spread out the losses over time so that their numbers don't look as bad.
Well, it's the first rational explanation I've heard for the banks behavior. But I'd argue that it's only rational on its surfact. As soon as you begin to think about this a little more deeply you have to question that strategy.
Pricing will not, can not, recover until the foreclosure and short sale inventory gets cleared out. The longer that takes, the more prices fall. So, the properties that the bank moves to the back of their list will simply be worth a whole lot less, thus increasing their losses. Yes, they may be more spread out, but if the bottom line impact is worse, what have they gained?
With more and more families locally going through foreclosures or short sales, the question is going to become, when can they get another mortgage?
Well, we finally have some guidelines from Fannie Mae, Freddie Mac, FHA and VA. Courtesy of Beth Goodwin at First County Mortgage, here's what they look like:
SHORTSALES/FORECLOSURES
Guidelines for future mortgage approvals
CONVENTIONAL (Fannie and Freddie)
When the applicant’s previous credit history includes a foreclosure-related action, a FIVE YEAR elapsed time period must have occurred. In addition, the new conventional loan will require a 10% down payment and a minimum FICO of 680. Additional re-established credit requirements will apply as well (Call for specifics). SHORTSALES have a TWO year time period with no exceptions for extenuating circumstances.
FHA
FHA loans will require a THREE YEAR time frame with re-establishment of credit. NO WAIVERS FOR EXTENUATING CIRCUMSTANCES.
VA
The Veteran’s Administration will follow their Chapter 7 Bankruptcy guidelines that state that with a TWO YEAR time elapsement and with re-established credit, they will consider guaranteeing a VA loan. HOWEVER, if the foreclosed/short sale loan was also VA, the veteran may not have full entitlement!!!
The conventional loan programs MAY consider a shorter time frame with “extenuating” circumstances, such as death of the main wage earner but does NOT consider divorce, mishandling of debt, transfer of job or current market conditions to be “extenuating”
FOR MORE INFORMATION CONTACT:
BETH GOODWIN
Sr. Loan Officer
540-226-2402
You can also reach Beth on her e-mail at beth.goodwin@firstcountymortgage.com
One thing everyone should get from these articles, if you're facing foreclosure and want to save your home, talk to an attorney! You may have more options than you think.
IndyMac was seized by federal regulators last weekend. They've just announced that they're stopping foreclosure on all their mortgages. This article in the Wall Street Journal details the takeover and this freeze.
Maybe we should be rooting for more banks to fail! If foreclosures fell significantly I suspect we'd see stabilization of home prices much more quickly.
If you're in trouble on your mortgage, start rooting for your bank to fail!
That statement definitely applies to Fannie Mae and Freddie Mac. Unless you've been under a rock the last week, you've heard about the trouble they're in.
Fannie and Freddie are a big part of why your local bank can offer mortgages. The bank loans you the money to buy your house. But it's going to be a long, long time before they get that back. And, it doesn't take too many mortgage loans before they're out of money to loans. So Fannie and Freddie buy mortgages from your bank. Your bank then has money to make another loan. This keeps a lot more money available for buying houses. It also keeps mortgage rates lower.
I don't think anyone feels good about the steps the government is taking to shore up these two behemoths. This is not how the free market is supposed to work.
But Fannie and Freddie have never really been pure capitalism at work. They are an odd blend of a corporation and the government entity.
Something had to be done now to keep the real estate and financial markets from further imploding. But I think there needs to be a short term strategy, meant to keep the markets calm and functioning and a longer term strategy that looks at the functions performed by these two entities and how those functions are best performed.
My belief is that if Freddie & Fannie weren't allowed to buy any more mortgages, eventually, another entity (and hopefully 3 or 4) would be created to fill that void. So, long term, how do you begin to ease Fannie & Freddie out of the business or at least into a smaller role.
The biggest problem here may be the shareholders of these two corporations. But, given what their stock prices are doing, it shouldn't be long before they are easy pickings for an enterprise that's truly commercial.
Now, does the political will and the creativity exist to envision something different than our current mess?
I saw this article on Friday, but I hate to go into the weekend on a bad news note! So, I saved it for Monday! Just what you needed, right?!
There are still buyers out there. There will always be buyers out there!
The pool is small and you're going to have to knock yourself out to get them to your house. And, if they're not coming to your house, it's over priced!
And, this article from the New York Times will probably interest buyers and sellers. The numbers here are national. (Our local numbers are worse.) But I think the letter to sellers is a good idea. Sellers, given the inventory in Culpeper, Rappahannock, Fauquier and Warren counties, I don't think I'd try the letter to the buyer. They really do have all the cards right now!
This Wall Street Journal article was too interesting to leave for another day. If you're interested in buying a short sale, or contemplating a short sale on your own property, you should definitely read this.
This is an interesting map tool showing various non-prime mortgage stats in a US map format. You can choose the kind of information you want, enter the zip code you're interested in and see the detailed info.
The map is courtesy of the Federal Reserve Bank of NY. Given that, I tend to think the information is pretty reliable.
The good news is that we don't appear to be in particularly bad shape. I looked at some of the hardest hit zip codes around, including Prince William and Culpeper, and didn't see anything that looked particularly ugly.
I've been watching a house in Warrenton that appears to have been taken back by the bank, owners are long gone, and yet it's never been put up for sale, or even auction. I've been wondering about what's going on and this may provide an answer.
I'm going to attempt to investigate this particular property further.
If this is happening, think about the potential revenue implications for the local jurisdictions! Prince William thinks they have a revenue shortfall now!
Meanwhile, does anyone else have any anecdotal evidence that this is happening?
RSS Blog Feed