Is The National Association Of Realtors Hurting The Real Estate Market? by Brett Reichel, Brettreichel.com


Yesterday, a fairly sophisticated home buyer called me about a pre-approval.  He and his wife own a home, and a vacation home.  This is a successful business couple who are doing well in the residential construction market despite the current economy.  He indicated that they wanted to buy a new primary residence.  His question to me was “We can get together about 10% down.  Can we even buy a new home with less than 20% down?”

It’s no wonder they are confused.  Every other article where leadership of the National Association of Realtors is quoted, every press release they issue usually has the quote that “tight lender guidelines are hurting the real estate market”  or “buyers need to have 20% down and be perfect to accomplish a purchase” or some words like that. 

Unfortunately, these types of statements are blatantly untrue in most markets, and are very damaging to the real estate market at large and to home buyers and sellers everywhere. 

It’s true that lenders are giving loan applications MUCH greater scrutiny than they have in any time since 1998.  Rampant mortgage fraud on the part of borrowers, Realtors, lenders, and mortgage originators have required lenders to check and recheck everything represented in a loan application.  Unfortunatley, until we get everyone to realize that the “silly bank rules” they are breaking consititutes a federal crime we are stuck with the extra scrutiny.  Fortunately, the new national loan originator licensing and registration systems should make loan officers everywhere realize the seriousness of this issue and root out fraud before it get’s to the point of a loan being funded.  The safety of our banking and financial systems is too important to allow the kinds of games that have been played over the last few years. 

The National Association of Realtors is right about appraisals.  Appraisals remain a very serious issue.  Pressure from Fannie Mae and Freddie Mac on lenders results in pressures by lending institutions on appraisers to bring in appraisals very conservatively.  It’s common for appraisers to use inappropriate appraisal practice due to the Fannie Mae/Freddie Mac form1004mc, which results in innacurate appraisal (see previous posts).

It’s also true that underwriting guidelines are stricter than they were during the golden age of loose underwriting (1998 thru 2008).  What people don’t realize that underwriting guidelines are easier now than they’ve been in any previous time frame.  In fact, it’s a great time to buy for many folks who have been priced out of markets previously.

How can I make that type of claim?  Because I remember the “bad old days”…..Prior to 1997-1998, debt-to-income ratio’s were much stricter than they are now.   A debt-to-income ratio compares your total debt to your total income.  In the old days, if you put 5% down on a conventional loan, you couldn’t have more than 36% of your total income go towards your debt.  Now?  If you’ve been reasonably careful with your credit, have decent job stability, and a little savings left over for emergency it’s pretty easy to get to a ratio of 41%!  With only 5% down!  On FHA loans, it’s really easy to go to 45% DTI with only 3.5% down!   In fact, there are times that we go even higher.

Is that obvious in the mass media?  No.  They paint a dire picture based, in part, on the statements of NAR. 

So, if you are a Realtor, press NAR to paint a more positve picture of financing.  Nothing that is “puffed up”, just reality.  If you are a buyer, don’t be fooled by what you read in the mainstream press.  Talk to a good, local, independent mortgage banker.  They’ll give you a clear path to home ownership and join the ranks of homeowners!

 

 

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Did you order the appraisal yet? – The Ideal Home Loan Process


Awhile ago I produced a video about some conversations between certain Realtors and my team.

I also wrote a nice long post about the subject, and Realtor professionalism in general, on my site.

I like to go back and watch the video from time to time because it makes me laugh, and that is a rare commodity in today’s Real Estate market. While I was watching it, I thought I would share with the audience here what I consider to be the ideal home loan process, and exactly how the appraisal fits in to that timeline.

1) Pre-application Consultation – Ideally, home loan applicants would sit down with a competent, licensed Mortgage Professional 6 months before they intend to enter the market. Many people have unique circumstances regarding credit, income, employment, etc., and 6 months is usually enough time to work through issues to present the best possible loan file to underwriting.

2) Gathering of Essentials – Before you apply, you should gather your last 30 days paystubs, 2 most recent bank statements, last 2 years Federal tax returns with w2s & 1099s, & most recent retirement statements. And, if applicable, any divorce decrees, award letters, child support orders, and last 2 years business tax returns for self-employed/business owners.

3) Fill out a Loan Application – When it’s time to fill out a loan application, do so with somebody you trust and get along with. You will be speaking with your loan officer a lot over the course of the coming weeks, so you might as well make sure that those conversations are with somebody you like and who is professional. They should clearly explain your loan terms, and all of the disclosures that need your signature so that you feel comfortable with the agreement you are entering into.

4) Behind the Scenes – This is where the real work starts. Your Loan Officer and his/her team will be verifying and documenting your income and assets, dissecting your credit report, pre-approving you through automated underwriting, ordering a preliminary title report and title insurance, and many other things that are just as exciting as they sound, but necessary. This prepares your file to be ideally what we call a “one touch” file in…

5) Underwriting – Despite the possibility of unexpected snafus, underwriting can still be a fairly smooth process if you have chosen the right Loan Officer to work with. Depending on underwriting turntimes, in a couple of days you should have a conditional approval. Think of this as the “to-do” list that you and your Loan Officer must complete before your loan documents can be drawn up.

6) Conditions – You will work with your Loan Officer to get all of the “to-dos” done and submitted to the underwriter. Once you are sure that all conditions can be satisfied, this is when you would order the…

7) APPRAISAL! – Your Loan Officer will order your appraisal through an Appraisal Management Company. Depending on the company used, and the demand for appraisals, this process will take a few days to a week. It has to be completed within 10 days, but it usually doesn’t take that long. Assuming the appraisal comes in at an acceptable value, the next step is to order the…

8 ) DOCS! HOORAY!! – The docs, or loan documents, are the paperwork you sign at closing. These include the final application, disclosures, the note, and sometimes your last 2 years tax returns need to be signed (if you e-filed the previous 2 years). Next step is…

9) FUNDING!!! – There will be some “prior-to-funding” conditions, but most of the time its standard escrow items. The escrow company sends all of the documents you signed at closing to the lender, and the lender reviews those documents for accuracy and completeness. If everything is ship-shape (which it should be if you are working with the right people), then you can…

10) MOVE IN!!!!! – Time to pay for pizza and beer in an attempt to trick your friends into helping you move.

And there you have it, the ideal home loan process. Each individual loan carries its own set of circumstances, so it isn’t out of the realm of possibility that your process might deviate from these 10 steps. However, if you select the right person to work with, you should have a good idea of what you are up against from the beginning.

Jason Hillard - @homeloan_ninja

Jason Hillard

If you have any questions about Real Estate financing in Oregon or Washington, or the home loan process in general, feel free to shoot me an email at obi-wan_shinobi@homeloanninjas.com or check out the wealth of information at http://www.homeloanninjas.com/! I started the site because I continue to be appalled by the complete lack of reliable information about home loans in the mainstream media. I sincerely hope it is a true resource that helps to educate everyone to become a better home loan consumer.

Real Estate Buyers: Protect Us From Ourselves, by Tara-Nicholle Nelson, Inman.com


Over the last seven weeks we’ve taken a tour through the psyche of real estate consumers — a group that includes each of us, really, who pays for a place to live.

We have explored how the various investor desires, motivations and values illuminated in Meir Statman’s new business classic-to-be, “What Investors Really Want: Discover What Drives Investor Behavior and Make Smarter Financial Decisions,” play out in our real-life real estate decisions.

We’ve seen that just as stock market investors want to win and not lose, want status, and exercise the highly fallible — though sometimes useful — form of psychological bookkeeping known as mental accounting, so do buyers, sellers, homeowners and sometimes even renters.

For the most part, we’ve explored the substance of what we want, rather than the process of how we want it. But there are real desires we, the human race, have when it comes to the “how” around our financial decisions, real estate and otherwise; Statman calls some of them out when he declares that investors really “want education, advice and protection.”

Statman compiles meaty evidentiary proof of this declaration from facts like:

  • the massive investor interest in culling investment information from the Internet;
  • the fact that financial literacy is a prerequisite for achieving the prosperity most of us crave;
  • the cyclical ebb and flow of cravings for the government’s protection of us — largely from ourselves — via regulation of how deeply we can leverage our own interests and how much advantage can be taken by financial predators; and
  • the vast desire investors have for financial advice, including the paid advice of professional advisers, but especially the free sort they trade with each other on personal finance blogs and Internet forums.

The world of real estate has not only gone through these same trends, but I submit that the pudding in which lives the proof that consumers want information and education, advice and protection is thicker when it comes to real estate than in virtually any other sector.

To wit: the evolution of real estate on the Web. Once upon a time, homebuyers had to consult an agent, who had to consult a paper book that was delivered only to agents, just to find out which homes were for sale, their prices and other details.

In response to an ever-escalating consumer clamor for this information, multiple sites now make every detail about a home — from whether or not it’s for sale; to its price; to its number of bedrooms, bathrooms and square feet; to when it was last sold and for how much; to what it’s supposedly worth — available to anyone, anytime, anywhere, all in a couple of clicks.

Anyone can see a ground-level street view of the vast majority of homes in America, what people think of the neighborhood, even whether a home’s owners are behind on their mortgage or have received a foreclosure notice: click, click, click.

Wanna see pics of Nicolas Cage‘s house? Click here. Heard a “Real Housewife” was in foreclosure and just need to know? Click. Their gilt Rococoed, leopard-printed, McMansioned domestic world is your virtual, visual oyster (for better or for worse).

And virtually all the same sites that have made this information available in response to popular demand also feed consumer cravings for education and advice.

Most offer basic briefings on various real estate issues; virtually all of them offer education/advice hybrids by offering connections to real estate brokers and agents and discussion communities in which anyone can ask a question and get a first, second and 44th opinion from local agents not-so-covertly vying for (a) the asker’s business, and/or (b) the opportunity to exhibit local knowledge and professional expertise — not just to the asker, but to prospective clients searching for them or the subject matter on the Web in perpetuity.

(And, lest I forget, those who ask their urgent real estate questions on these communities will frequently get an answer or so from another consumer — usually a cranky, anonymous one whose advice generally runs along one of three veins: (a) agents and mortgage brokers suck, (b) homeownership sucks, and/or (c) the government sucks. Not so nuanced, and not so helpful, but a clear case in point that some consumers not only want advice — they also want to give it.)

Even offline, it’s not at all bizarre for today’s home sellers to interview three or four prospective listing agents to gather advice and opinions, and every buyer’s broker has heard a client recount the real estate advice they have been given by their hairdresser, veterinarian, barista or ob-gyn.

Education, information, advice — consumer cravings for these are clear — but protection is a little more complicated. In “What Investors Really Want,” Statman writes: “Our desire for paternalistic protection from ourselves and others increases when we experience the sad consequences of our own behavior or the behavior of others.”

It is on this topic that Statman makes one of only a handful of “What Investors Really Want” references to real estate, making the hindsight observation that regulation limiting homeowners’ ability to leverage their own homes might have made sense, given the woeful consequences of overleveraging (i.e., the foreclosure crisis which is currently at four years and running).

Translation: We don’t want the government to limit our ability to mortgage our homes when values are skyrocketing, because we want to be able to max out the house we can buy for the money.

But when those adjustable-rate mortgages (ARMs) start adjusting, our maxed-out neighbors start walking away and the resulting foreclosures cause property values to plummet, while our craving for government protection from predatory lenders, liar’s loans and confusing boilerplate loan docs takes a steep uptick.

Do real estate consumers crave information, education and advice just as much — maybe even more — than traded-asset investors? Absolutely. And just like stock investors, housing consumers also want government protection from lenders, mortgage brokers, agents and themselves, after their own decisions have spanked them with the consequences of a largely unregulated mortgage market. What remains to be seen is how long the desire for protection will last.

I suspect it will last as long as home values are low and rates of foreclosure and negative equity are high. But I hope that the lessons from this national tragedy — massive losses in wealth, jobs and families’ homes and health — including the need for more intense mortgage market regulation, do not disappear when property values start to make a comeback.

Tara-Nicholle Nelson is author of “The Savvy Woman’s Homebuying Handbook” and “Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions.” Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.

OregonRealEstateWanted.com A Sucess Story for Buyers, by Fred Stewart, Stewart Group Realty Inc.


I think the success of the OregonRealEstateWanted.com site is due to the massive amount people that are involved in the Oregon Real Estate market right now. The difference between their involvement today compared to 5 years ago is there are more people looking to sell real estate than there are looking to buy. Buyers have so many opportunities to consider that it is sometimes difficult for them to settle on exactly the right property to fit within their dreams and goals. Sellers have a problem making sure their property is exposed to buyers that could be a good fit for their opportunity. There is just so much to look at that often times their buyer has chosen something else before they even had a chance to consider their property.

The issue might be how opportunities are presented to buyers and where they come from. In some cases the best way for an opportunity to be identified is after the seller has had a chance to learn what the buyer is looking for and if they see a fit with the real estate they are selling. Only then does the seller reach out to the buyer to explore any advantage in developing a deal. In this context the buyer is looking at properties from a wide range of areas with in the market. As real estate brokers and private property owners alike may present opportunities. In some cases deals have been developed on properties that were not formally on the market.
The next steps for OregonRealEstateWanted.com are to list people looking to lease or rent commercial and residential real estate. The plan is to start listing people that are looking for lease hold or month to month rental relationships on the site by June 1st., 2011..

If you are looking to buy real estate fin the Oregon market to live in or as an investment. Contact Fred Stewart of Stewart Group Realty for a private one on one consultation and possible listing on the site. All information shared with Mr. Stewart is confidential and there is no charge unless the real estate you are looking for is found.

Oregon Real Estate Wanted.com
http://oregonrealestatewanted.com

Fred Stewart
Stewart Group Realty Inc.
info@sgrealty.us
503-289-4970

Why Are Appraisals So Bad?, by Brett Reichel, Brettreichel.com


Ok – so….blinding flash of the obvious here….Appraisals are serious problems for real estate transactions right now. Lawrence Yuen, the Chief Economist from the National Association of Realtors said this week “Home sales are being constrained by the twin problems of unnecessarily tight credit and a measurable level of contract cancellations from some appraisals not supporting prices negotiated between buyers and sellers”.

Many of you have experienced first hand the effects of a low real estate appraisal. Maybe you were denied the ability to refinance to a lower interest rate or worse yet, maybe you had a sale blow up on a home you were trying to purchase. Or, if you are a Realtor or lender, you’ve had clients you can’t help due to a low appraisal.

The appraisers say, that they are just reading the market. To a degree, that’s true. Nearly no one’s house is worth what it used to be, and with the market making that move downward, clearly there are going to be lower appraisals (another blinding flash of the obvious).

Mortgage guys(used in a gender neutral way here) and Realtors will blame the Home Valuation Code of Conduct (the HVCC, which has been recently replaced by a new law with similar restrictions). It’s true the HVCC has created some issues.

Personally, I can live with an accurate appraisal, even if it doesn’t give me my desired outcome. That’s life, appraisals should be as accurate as possible, and lenders need a good report to base their analysis of the collateral on. But, we aren’t getting accurate appraisals. Why?

Here are a few reasons:

First – the HVCC created a monster by leading most lenders to decide to order their appraisals through appraisal management companies. Many appraisal management companies require cheap and quick appraisals. The biggest national appraisal management companies that the “big 4″ lenders require the market to use, order appraisals from wherever they can get the cheapest fee’s and the quickest turn-around times. Little consideration is given to the qualifications of the appraiser, other than appropriate licensing, certification, insurance, and bonding. Sometimes, this means an apprasier is coming from two or three hours away from the subject property!

Why is this an issue? Because all real estate is local. Identical houses just blocks apart, sometimes across the street, can have significant differences in value because of market perceptions. Differences in schools, addresses, and many other factors create value differences in markets. If you are from two hours away, you probably don’t know all these nuances. It’s easy to miss that a buyer will pay $25,000 more for a house within certain elementary school boundaries, and that the boundary can be in the middle of the street. If the appraiser isn’t extremely familiar with the market they shouldn’t do the appraisal there, or they should learn and quantify these differences really quickly and complete an accurate report.

Second – appraisers have a tendency to forget markets are driven by psychology. In the stock market, the “efficient market theory” has been proven to be inaccurate. Psychology affects an illiquid investment like real estate even more. Too many appraisers approach appraisal from a technical viewpoint that ignores market psychology. The reason we need good appraisers is to quantify these nuances that make differences in value that a computer can’t pick up on. That’s why lenders rely less and less on “Automated Value Models” run through computers, and instead rely on an expert in the local market.

Third – seasonality is an issue. Most markets have seasons where houses don’t sell as readily. Maybe it’s too much snow, maybe too much heat, maybe it’s the holidays, but really these seasons affect sales prices, and this too should be quantified and reflected in reports.

Fourth – lender meddling is another issue. FannieMae and FreddieMac (the agencies)force repurchases of loans on to the big lenders, who force them on smaller lenders. Repurchasing loans creates huge losses for lenders. The agencies use flimsy excuses, like claiming valid appraisals are invalid, to force these repurchases, and scare the other lenders to death. Thus lenders get more conservative and pressure appraisers to bring appraisals in lower through their underwriting practices. The agencies create additional pressure on the appraiser through the use of the Form 1004 MC, which was created to analyze market conditions, but is really an ill-conceived form that can lead to poor analysis of the market by both underwriters and appraisers.

Fifth, incompetence is all too common in the appraisal profession. A recent appraisal report done in a suburb of Seattle indicated that the appraiser depreciated the value of the house at 1/2% a month because median prices dropped in that Multiple Listing Service area by 6% over the last twelve months. On the surface this would appear to be an appropriate decision. But, median prices are not the best indicator of values. Appraisers and underwriters will not accept median prices to determine appreciation, why would they be appropriate in a declining market? In fact, many appraisal text books identify this practice as wrong. We see this poor reasoning time and time again in appraisal reports and it is invalid analysis.

What do we do about this? Apply pressure to get accurate appraisal reports! Your loan officer might not be able to do much, but maybe someone higher up can. Make sure your complaints are based on sound data, and not just your emotional involvement in the transaction. If you are in the real estate or lending industry, learn more about appraisals so that you can know what to look for and give your clients better advice. In any event, we need to continue calling attention to this ongoing problem.

Brett Reichel’s Blog http://brettreichel.com

Five Questions to Ask a Home Inspector, by V.C. Higuera


Before finalizing a real estate deal and moving into a new home, some mortgage lenders suggest home buyers have the property inspected. Home inspection prices vary. Therefore, many  buyers skip the inspection and move into the property with “blind faith.”  buyers skip the inspection and move into the property with “blind faith.”

However, a home inspection is extremely valuable. Simply looking at a home from outside does not reveal its deepest and darkest secrets such as mold, termites, or rotten wood. Home maintenance is expensive. If a home needs several thousands of dollars in repairs, wouldn’t you want to know? In many cases, you can negotiate that the seller pay for repairs, or reduce the sale price.

Here are five important questions to ask a home inspector.

1. How Long Have You Been an Inspector?

Since home buyers are able to choose their own home inspector, it helps to find a qualified inspector. A good inspector knows where to look, and how to identify potential problems. Some inspectors do not provide a thorough analysis of the property, or sugar coat problems.

2. Do You Offer Repairs?

Some home inspection companies can complete the home repairs. Once the inspection concludes, ask the inspector for a rough estimate. Next, your real estate agent will show the estimate to the seller’s agent. Since many home contracts are contingent on a satisfactory home inspection, sellers are usually willing to pay for all repairs, especially if they need to move quickly. If the seller cannot or refuses to pay the repair costs, don’t feel obligated to purchase the home.

3. How Long is the Home Inspection?

The home inspection time varies depending on the size of the property. An average sized single family home may take two or three hours. A townhouse or condominium might take 1 ½ hours, whereas a large home could take up to five hours.

4. How Much Does an Inspection Costs?

Before making an offer on a property, buyers should take into account the cost of a home inspection. Factors that affect home inspection price include property size, location, depth of inspection, etc. The average home inspection cost between $300 and $500.

5. Can I Be Present at the Home Inspection?

Actually, the home inspector and real estate agent prefer that home buyers are present at the inspection. This way, you can ask questions. If you like, follow the home   inspector throughout the property. Some inspectors are extremely personable and eagerly explain every aspect of the inspection.