Fellow agent and blogger Danilo Bogdanovic just wrote a post on Agent Genius suggesting that perhaps the lack of inventory is actually a plot by the banks to all withhold their foreclosure inventory and thus drive up prices.

Danilo uses the word "Collusion". If you're a buyer right now you may find this persuasive. But I'm not convinced it's all an evil plot.

If the banks are fans of "Buy Low, Sell High" it makes sense for them to hold on to assets until prices improve. And, as inventory has gotten scarce prices are starting to improve.

A banker friend has also suggested that any publicly traded company would logically spread out losses so that they don't all show up on the balance sheet in the same quarter.

And, given what I've seen dealing up close and personal with banks on short sales and foreclosures for a couple of years now, I doubt most of them are capable of the planning that would be necessary for this level of collusion!

If you're a homeowner you're probably thinking this sounds like the best idea ever. If the banks put one or two foreclosures up for sale each year, your home might actually begin to appreciate again!

Either way, I suspect we're giving the banks way too much credit in thinking collusion is responsible for what we're seeing right now.

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 lots of little bits of information so thought I'd do a blog post today that just hits a few different topics.

As part of the stimulus package that both the House & Senate have now passed the loan limits for Fannie Mae and Freddie Mac have been increased. This has the potential of helping stabilize the housing market since those with an ARM on a house worth more than $417,000 may now be able to refinance more easily. That may mean fewer forclosures which may mean less downward price pressure. See this CNBC article for more information.

The Virginia Housing Development Authority (VHDA) has been a great source of mortgages for first time home buyers in Virginia. Unfortunately, they're not immune to what's been going on in the credit markets. They've suspended some of their programs and they will now only loan up to 97% of the value of the home. This will definitely hurt first time home buyers in Virginia and the sellers who hope to sell to them.

You've heard the old adage "work like you don't need the money". These days it's a tough one, but I'm proud to say I've run into a lot of my fellow real estate agents lately who are living this. (Trust me, most of them DO need the money!) These are the days I'm proud to say I'm a REALTOR.

The VA Senate finance committee approved SB768 on Wednesday. This reduces the cash proffers that builders must give to communities for roads, schools, hospitals etc. that are needed to support new development. This is an incredibly bad idea. Theoretically the idea is to reduce the cost of homeownership.  In reality it will force many communities to halt new development. This deserves its own blog post and I'll get to that down the road.

Happy Friday!

For some odd reason there seems to be a class of real estate pundits out there who believe that a potential recession is a good thing for the real estate market.

It's an odd line of thought. But I understand their logic. The belief is that if the economy continues to look like it's headed for recession the Fed will have no choice but to lower interest rates. Lower interest rates will get all those buyers who are currently sitting on the sidelines to jump in and buy a home. And, voila! the market improves.

There are some serious logical flaws in this argument. First of all, even with some data suggesting the possibility of recession, the Fed's in a tough spot. While they'd no doubt like to lower interest rates to bolster the economy, there are also plenty of worries about inflation. Oil hit $100/barrel this week. Rising oil prices impact the prices of almost everything in our economy. It's hard to see how continued high oil prices aren't inflationary. And, food prices are rising fairly rapidly. While this is not included in most official measurements of inflation, it is certainly something that will be watched by the Fed. So, maybe they cut interest rates. Maybe they hold steady. There's not enough data to provide an answer right now. And, the truth is you never know for sure until the Fed meets.

Secondly, as I've mentioned here before, a lowering of rates by the Fed is no guarantee of lower mortgage rates. Again, inflationary worries often have more of an impact on those rates.

Next, recessions are not good for real estate! People insecure about their financial prospects do not go buy new homes! If you're worried about losing your job you don't look to move up. You look to hold on to what you've got. Time to batten down the hatches!

And, lastly, there is no quick turn around for real estate. And, that's certainly true here locally. There are not enough buyers waiting on the sidelines to completely turn around this market in the short term. It took time for us to dig the hole we're in. It will take time to fill it back up! I'm hopeful we'll see a bottom in 2008. Anyone expecting much more than that has got some serious rose colored glasses!

As part of the contract on a home, there's a section of the offer where the buyer indicates whether their lender will provide a letter, after a certain number of days, certifying that the buyer is now fully qualified for a mortgage. The contract is very specific about this letter and what it needs to say. There are six mandatory items:

1. Purchaser is approved for the Specified Financing.

2. A Ratified Contract has been received.

3. A written application for the financing has been made.

4. Income, asset and liability documentation on Purchaser have been received.

5. Purchaser's credit has been reviewed, and

6. The application has been reviewed and meets underwriter and investor guidelines.

The buyer and seller negotiate how many days will be allowed for this letter to be received. 14 days is a number I see fairly often so we'll use that for our discussion here.

If, at the end of that 14 days, the letter is produced, and, if, subsequently, the lender does not honor the lender and does not fund the loan, the buyer is considered in default and may be at risk for losing their earnest money deposit. This is a good reason for choosing your lender carefully!

What I continue to see is this section of the contract completed indicating the letter will arrive in 14 days. And, the 14th day comes and goes with no letter.

The seller's options at that point are to continue to wait and hope they get a letter, or to void the contract. Let's face it, the chances of any seller voluntarily voiding a contract in this market are slim and none!

So, essentially, this is another toothless provision. And, the entity responsible for producing this letter in a timely fashion, suffers absolutely no consequences for failing to do so. The lender won't lose any earnest money. There's no penalty to them for failing to deliver on the promise that's been made on their behalf. Fair enough, since they didn't sign off on this. But then, why bother putting it in the contract.

This is a contract that was written for a hot seller's market. Provisions like this are essentially useless right now. And, agents need to be carefully explaining that to the sellers to make sure their expectations are realistic.

The truth with this, and any contract, is that the language is only binding to the extent that there's sufficient leverage to enforce it. This is a waste of paper and ink!

1. Does not tell the truth on the loan application
2. Submits incorrect information to the lender
3. Has recent late payments on credit report
4. Found out about additional debt after loan application
5. Borrower loses job
6. Co-borrower loses job
7. Income verification lower than what was stated on loan application
8. Overtime income not allowed by underwriter for qualifying.
9. Applicant makes large purchases on credit before closing
10. Illness, injury, divorce or other financial setback during escrow
11. Lacks motivation
12. Gift donor changes mind
13. Cannot locate divorce decree.
14. Cannot locate petition or discharge of bankruptcy.
15. Cannot locate tax returns.
16. Cannot locate bank statements.
17. Difficulty in obtaining verification of rent.
18. Interest rate increases and borrower no longer qualifies.
19. Loan program changes with higher rates, points and fees.
20. Child support not disclosed on application.
21. Borrower is a foreign national.
22. Bankruptcy within the last 2 years.
23. Mortgage payment is double the previous housing payment.
24. Borrower/co-borrower does not have steady 2-year employment history.
25. Borrower brings in handwritten pay stubs.
26. Borrower switches to job requiring probation period just before closing.
27. Borrower switches to job from salary to 100% commission income.
28. Borrower/co-borrower/seller dies.
29. Family members or friends do not like the home buyer chooses.
30. Buyer is too picky about property in price range they can afford.
31. Buyer feels the house is misrepresented.
32. Veterans DD214 form not available.
33. Buyer has spent money needed for down payment and closing costs and comes up short at closing.
34. Buyer does not properly "paper trail" additional money that comes from gifts, loans, etc.
35. Does not bring cashier´s check to title company for closing costs and down payment.

36. Loses motivation to sell (job transfer does not go through, reconciles marriage, etc.)
37. Cannot find a suitable replacement property.
38. Will not allow appraiser inside home.
39. Will not allow inspectors inside home in a timely manner.
40. Removes property from the premises the buyer believed was included.
41. Is unable to clear up liens against their property ? short on cash to close.
42. Did not own 100% of property as previously disclosed.
43. Thought getting partners signatures were "no problem" but they were.
44. Leaves town without giving anyone Power of Attorney.
45. Delays the projected move-out date.
46. Did not complete the repairs agreed to in contract.
47. Seller´s home goes into foreclosure during escrow.
48. Misrepresents information about home & neighborhood to the buyer.
49. Does not disclose all hidden or unknown defects and they are subsequently discovered.
50. Builder miscalculates completion date of new home.
51. Builder has too many cost overruns.
52. Final inspection on new home does not pass.
53. Seller does not appear for closing and won´t sign papers.

54. Have no client control over sellers.
55. Delays access to property for inspections and appraisals.
56. Unfamiliar with their client´s financial position ? do they have enough equity to sell, etc.
57. Does not get completed paperwork to the lender on time.
58. Inexperienced in this type of property transaction.
59. Takes unexpected time off during transaction and can´t be reached.
60. Jerks around other parties to the transaction ? has a huge ego.
61. Does not do sufficient homework on their clients or the property and wastes everyone´s time.

62. Engineer will not approve septic system or well.
63. Inspection report reveals substantial damage and seller is not willing to fix or repair.
64. Home was misrepresented as to size and condition.
65. Home is destroyed prior to closing.
66. Home not structurally sound.
67. Home is uninsurable for homeowners insurance.
68. Property incorrectly zoned.
69. Portion of home sits on neighbor´s property.
70. Unique home and comparable properties for appraisal difficult to find.

71. Fails to notify lender/agents of unsigned or unreturned documents.
72. Fails to obtain information from beneficiaries, lien holders, insurance companies, or lenders in a timely manner.
73. Lets principals leave town without getting all necessary signatures.
74. Loses or incorrectly prepares paperwork.
75. Does not pass on valuable information quickly enough.
76. Does not coordinate well, so that many items can be done simultaneously.
77. Does not bend the rules on small problems.
78. Does not find liens or any title problems until the last minute.

79. Is not local and misunderstands the market.
80. Is too busy to complete the appraisal on schedule.
81. No comparable sales are available.
82. Is not on the lender´s "approved list."
83. Makes important mistakes on appraisal and brings in value too low.
84. Lender requires a second or "review" appraisal.

85. Too "picky" with conditions and "scares" the buyer.
86. Infuriates the seller.
87. Home inspector not available when needed.
88. Inspection reports alarm buyer and sale is cancelled.