Appraisal Management companies often negotiate lower appraisal fees with appraisers.  Instead of making $350 on an appraisal an appraiser might agree to a smaller amount of say, $250, in return for steady business from the appraisal management company.  Appraisers can then cut corners and one of those corners is not completing the Cost Approach in the appraisal.

While lenders certainly use Market Value when making a loan decision it’s the insurance company who needs the Cost Approach.  That’s what the insurance company might have to pay out if the property had been destroyed.

Problems occur when insurers are forced to use the Market Value to establish premiums, often far more than a Cost to rebuild.  That means people might not qualify for a loan due to higher premiums.  It can also mean a potential delay in closing if the appraisal needs to be updated by the appraiser to include the Cost method.

Good loan officers always check for this but always ask your clients if they’ve not only reviewed their appraisal but received a competitive insurance quote comparing both Market Value and Cost.

You’ll be a genius.

But I couldn’t call the appraiser.  Actually I can if there’s a mistake on it but appraisers are too paranoid with the rule that they simply won’t take the call.

But my agent could call them, there’s no rule against that.  So I called my agent and told them what happened.  The agent called the appraiser and pointed out the errors and voila!  A $55,000 adjustment!  Not the $400,000 we were looking for but we got close enough we could still close the sale.

Agents, you know the market better than anyone.  Don’t be shy about calling the appraiser before they go see the property.

that's me

Today in New York.  My advice has appeared in the Wall Street Journal, the New York Times, Kiplinger’s, and literally thousands of newspapers and magazines throughout the country.  All geared towards helping the consumer make solid decisions when it comes to home loans.

This site however is dedicated 100% to the Realtor instead of the consumer.  These articles are designed to help you, the listing or buying agent, close more deals and bulletproof your transactions.  Sure, there are other columnists and financial pundits who have tackled the mortgage market, but as a practicing mortgage banker in Austin, Texas with 20 years of mortgage experience, I walk the talk.  And I know lending guidelines inside and out.

If I am able to save just one transaction for you then I have done my job.

Questions?  Think your client is getting screwed?  Want some advice from an industry pro that will give you the unvarnished truth without trying to promote a loan program or special mortgage product?  Send me an email and I’ll answer it.   Maybe even be famous and I’ll post it!

David Reed

This cowboy says they’re playing it cool.  This cowboy says on March 26th (a Friday) they’ll announce a temporary extension of purchases through maybe about 90 days.

If that happens, rates will drop 1/2% in one day.  For a few weeks, anyway.

That’s my story and I’m sticking to it.

The 3% cap on concessions can be used up rather quickly.  Listing agents take note and buyers start finding additional sources for cash to close if you’re going to need it.

#2 and #3 is expected to take effect sometime this Summer but no word yet on the exact implementation date.

I recall we had rate sheets from BankofAmerica, Countrywide, NationsBanc, First Franklin…some of those you may have heard of.  And some you probably hadn’t heard of like Dollar Mortgage or Trilogy Mortgage.  When a buyer applied for a mortgage I was always confident that I could beat any bank in terms of both product and price.

But no longer.  Gone are the “niche” loan programs…all that is available is the standard conventional and government fare.  Brokers no longer have an advantage of offering unique loan progams…they don’t exist.  Rate shopping?  Sorry, but once an applicant applies for a mortgage the loan is then disclosed by the mortgage broker’s selected lender.  If the broker tries to move the loan to another lender the applicant will likely have to pay for a brand new appraisal, as appraisals can’t be transferred.

Further, many banks who used to work with mortgage brokers have chosen not to do so.  Default rates for brokered loans are higher than ones originated by bankers and such defaults carry a higher premium in rate.

Whether by design or by accident, the future of the mortgage broker looks grim.

Lenders haven’t been given any real guidance on how to apply these rules, in fact, there isn’t any assurance on which forms actually need to be used to disclose to borrowers their closing costs.  There’s the Truth in Lending (TIL) form but the GFE doesn’t break down all the charges in 2010 but instead gives “lump sum” fees.  Does that sound better?  It probably does, but after presenting the new GFE to 2010 clients, I”ve heard:

“How much is it for title insurance?”

“Why am I charged for owners title policy when the seller is paying it?”

“I thought I cold roll in my MIP.  This says I’m paying for it.”

Needless, the new GFE will make your eyes glaze over.   I’ve taken three classes on the new forms, one with a group of RE lawyers, and I’m still trying to figure it out.

More later.

But when the Fed announced they would begin such purchases they at the same time announced when they would stop.  That date is March 30, 2010.  You can expect rates to begin to rise around that time when mortgage bonds have to lower their price to offer an attractive yield.  That = higher mortgage rates.

Recently however, there have been more than rumors that the program would be extended although no one would come out and admit it.  When the Fed released their most recent meeting minutes it showed that more than a few of the Board Members were in favor of extending the purchase program.  On the other hand, there were still a few more that were against it.

Today, Bernanke didn’t rule out extending the program but he didn’t quash the rumor, either.  Instead he simply said that the Fed would wait until the end of the program before deciding to extend it.

My guess is that the Fed won’t make any announcements anytime soon but will make an announcement at say, March 29th that the Fed will extend the program but by only two more quarters.

That’s my bet.  Any takers?

You read it here first:  At the end of January, a conforming 30 year fixed rate will average 5.75%.

I’m also doing the very same thing to those who have contracts in hand and are waiting for the right time to lock.

I’m right more than I’m wrong when it comes to interest rate predictions but I see rates moving up after the first of the year….and that’s soon, folks.

Last summer, I predicted rates would fall to current levels by year end then begin to creep back up.  But it appears they might be creeping back up a little sooner than anticipated.

Of course, no one can accurately predict these things but as of this writing 30 year fixed rates have lost nearly 1/4% in two weeks time.  That may not sound like much but when rates move above the 5.00% barrier then psychologically it sounds higher than it really is.

That’s why oil changes are $18.99 and not $19.00.  It just sounds better.

How high will they go?  I’m betting that rates will get into the mid five percent range by February (rates we temporarily saw last summer).  And that move does have an impact on affordability.

For instance, when interest rates are at 4.5 percent someone making $5,000 per month could qualify for a loan of around $325,000.

But when rates get to 5.50 percent that qualifying amount drops to about $290,000.  If a buyer put 20 percent down on each example that’s a sales price difference of $406,250 and $362,500 respectively.  6.50 percent?  Try a sales price of $326,300.

That’s an $80,000 dollar swing.

What’s causing this recent rise?  One, there are pockets of good economic news from better payroll numbers in November to higher pending home sales.  And inflation is currently no threat.

Finally, the Fed ends its mortgage-backed security purchases in March as expected.  Last September this desk wrongly predicted the Fed would extend the purchase to keep mortgage rates low but they’ve indicated the program will stop as scheduled.

It’s sort of a “bird-in-the-hand” scenario.  If rates are at near record lows now then why chance it?

The prudent move?  Lock and load.  And say goodbye to lower rates.