Piedmont Real Estate Blog An ongoing dialog on real estate news, opinion and trends in Northern Virginia and the greater Piedmont area. Julie is an Associate Broker at Frankly Real Estate Inc, 6304 Crossroads Circle, Ste 102, Falls Church, VA 22044
The winds of change are blowing in the mortgage markets.
The White House came out with a proposal last week to gradually phase out Fannie Mae and Freddie Mac's role in the mortgage markets. The proposal covers everything from reducing loan limits on what Fannie and Freddie will support, raising fees on transactions done with their backing and, ultimately, moving to a private market system of backing mortgages.
This comes in a year where there has been widespread discussion about doing away with the mortgage interest deduction.
No decisions have been made on anything. And, given the political polarization in Washington, there's a decent chance there's no movement on any of these issues.
But I believe a larger conversation has been underway for awhile in this country on whether we want to continue to promote home ownership as aggressively as we have for the last 40 or 50 years.
The answer seems to already be "no". I think the question is how far do we move away from policies promoting home ownership and how far do we go towards a neutral stance.
I don't think this country will ever completely walk away from our belief in home ownership and the benefits it brings to communities.
I also believe it will never again be as cheap and easy to get a mortgage as it has been in our lifetimes.
I hope the debate is a civil, well-reasoned discussion about what's best for us all. (But it's hard to believe that's still possible!)
Although mortgage fraud is growing more slowly these days, it's still growing. And, that's definitely the case here in Virginia. We're number 10 on the list in terms of the most mortgage fraud in the country.
Be very careful who you choose to use for your mortgage.
There are lots of bad people out there doing bad things.
There's a reason I recommend using local, reputable lenders.
You can find your mortgage deal on the internet if you want. But don't forget if your lender commits mortgage fraud, the Feds are going to be looking at you too!
The only good news here is that Maryland beat us. It's one time you don't want to be number one!
This one has a happy outcome. It's very interesting that he sees the same incompetence that any real estate agent who's dealt with a bank is all to familiar with. In fact, much of the process is exactly like what happens in a short sale.
As the attorney says he has no particular expertise. What the family essentially paid him for was to spend all those hours on hold, to go through resending the paperwork over and over and for putting up with all the ridiculous exercises the bank comes up with. If you're paying someone to help with your loan modification, be aware of what you're paying for and what you're not!
There are a lot of homeowners locally who are deeply underwater on their mortgages. They owe more to the bank than what they could reasonably expect to sell their home for in this market. In my mind, this is the deep unresolved issue in our current housing market. I think this is a larger issue than foreclosures, long term.
The Washington Post did an article on the picture nationally. They're predicting that some markets may take a decade or more to regain the equity they had at the top of the market. And, they say some places may never see those values again.
I was particularly struck by this line in a paragraph about parts of Florida
There are going to be parts of Florida where homes shouldn't have been built [and]...that should have stayed farm land.
You could certainly say the same thing about parts of Culpeper and Fauquier county, not to mention places even further from DC and the Northern VA jobs.
It doesn't normally get the big headlines, but the Federal Reserve has been propping up the real estate market with cheap money for a couple years now.
Today's Washington Post says that's coming to an end. The Feds are going to stop keeping mortgage interest rates artificially low.
The question is, what happens next? A fixed 30 year mortgage can now be had for less than 5%. How many buyers get knocked out if that's 6%? How many if it's 7%?
Sooner or later this had to happen. The government can't and shouldn't (in my opinion) prop up this or any market forever. I hope it's done gradually and thoughtfully. And, I expect there to be some impact in fewer sales. But I don't believe interest rates will jump overnight. You'll hopefully see a gradual rise, giving people time to adjust.
The change is due to take place in two months. Does this news make you any more likely to move sooner on a home purchase in hopes of locking in lower rates? Or are you going to wait and hope that more expensive mortgages mean lower prices?
These loans require 0 down payment and the income limits are pretty generous. For example, in Culpeper County the income limit for a family of four is about $80K. These loans are not actually made by the USDA, but are guaranteed by them and you can use any lender who participates in this program.
I will admit to having mixed feelings about these loans. Does having the agriculture department involved in mortgages really make any sense?
However, as mortgage money got increasingly tight, alternatives were clearly needed. And, this is one more way the government is helping trying to keep the real estate industry moving.
But, for a program that is supposedly focused on building up rural communities, this doesn't seem to require that the house you buy is actually in a rural area. Charlottesville, Harrisonburg, Norfolk, etc. do not qualify, in my mind as rural communities. As someone who lives in a rural community and was born and raised in one, I take exception to money designed for these communities being used in what are clearly large urban areas.
I also continue to be dismayed at 0% down payment programs. I'm not saying there's never a loan that should be made with 0% down. But "no" should be the first answer and the burden of proof otherwise should definitely be on the borrower. Can someone who can't come up with any down payment at all really come up with the money that will surely be needed for home maintenance?
And, lastly, aside from my philosophical concerns, there's the practical worry. This program is not functioning well right now. USDA is now overwhelmed with these mortgages and getting paperwork through there is taking at least 30 days, even once appraisals, inspections, underwriting, etc. are all complete. There are a lot of transactions currently in limbo because of this backlog.
I hope no one working this program at USDA is planning on any time off over the holidays!
The key take away for me is that you should never assume that the answer is "no" until you've heard it multiple times.
If you're in danger of losing your home, fight and then fight some more! You never know when the person at the other end of the phone simply got it wrong or was too lazy to do the work to get it right.
Keep asking, escalate to a supervisor, ask for help from other organizations.
Once upon a time, if you could fog a mirror a lender would give you a pre-approval letter. Heck they'd probably even give you an approval letter. Now that letter wasn't worth the paper it was written on. But that didn't stop anyone.
No one is a fan of the real estate collapse, certainly not me. But I was very glad to see the end of worthless lender letters.
But...they're back! I've experienced this first hand myself and also started to hear the stories again from other agents.
So, if you're a buyer, be careful who you're doing business with! A lender who leaves you standing at the altar within a few days of closing can cost you serious money or even lose you the house you're trying to buy!
Call me if you want some help with a list of good, local lenders. (I have a strong preference for local so I can hunt them down if something goes wrong!)
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.
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:
Total Nitrates and Nitrites
Fecal or E Coli 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:
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 loans will require a THREE YEAR time frame with re-establishment of credit. NO WAIVERS FOR EXTENUATING CIRCUMSTANCES.
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:
Sr. Loan Officer
You can also reach Beth on her e-mail at firstname.lastname@example.org