10
Mar
10

appraisal dodge can mess up your closing

With the advent of the HVCC and Appraisal Managements Companies, some appraisers have begun not completing the “Cost Approach” on the appraisal.  There are two values on a residential appraisal, the “Market Value” which uses comparable sales to establish value and the Cost Approach which makes a determination how much a property would cost if replaced from scratch.

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.

19
Feb
10

…you can talk to the appraiser…

I’ve been getting some pretty rotten appraisals lately.   Some just flat out terrible.  For instance, one property was appraised at $340,000.  Problem?  We thought it was worth at least $400,000.  Was killing the deal.  I reviewed the appraisal and saw where the appraiser had made a glaring mistake; the appraiser hit a “double whammy” on about $40,000 worth of adjustments.  Don’t ask for specifics, just trust me on this one.

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.

28
Jan
10

real estate agent’s field guide to finance…why i do this

I’ve written seven books on the topic of real estate finance.  I have appeared on CNBC, CNN and

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

28
Jan
10

the fed spaketh…but i don’t believeth

FOMC meetings adjourned today announcing their announcements but some had hoped the Fed would announce an extension of their MBS buying past 1Q2010.  They said they wouldn’t.  Rates began to rise today after the announcement.

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.

25
Jan
10

fha gets tough

FHA has been bleeding red ink for quite some time and they let it be known last year they would institute some serious changes and here they are:
1:  FHA’s Mortgage Insurance Premium, or MIP, will increase from 1.75% to 2.25%, up 50 basis points.  On a $200,000 FHA loan the MIP goes from $3,500 to $4,500.  That’s another $1,000 added to the borrowers loan amount.
The MIP is essentially the insurance policy borrowers purchase at closing and this premium is typically included in the loan amount.

This change is scheduled to be implemented sometime this Spring but so far no exact date.

2:  FHA has never had a credit score requirement, Lenders did that for them (currently 620 for most lenders) but FHA has entered the score arena.  If the credit score is below 580 FHA will ask for a minimum of 10% down.

Lenders have essentially taken care of score rules for FHA by requiring their own credit score minimums.  Even though an FHA loan has an insurance policy (the MIP) to offset mortgage defaults if a lender continues to make bad FHA loans they could ultimately wind up losing the ability to originate and fund FHA deals forever.

I’m sure there will be some lenders that will allow for an FHA loan with a sub-580 credit score but don’t expect any of the “big” players to do so.  We at Land aren’t going anywhere near that number, regardless of FHA policy.

3:  This is the big one.  Seller concessions have been reduced from 6% to 3%.  That’s right, cut in half.
The big benefit with FHA loans is the low down payment requirement (3.5%) and having the seller pay up to 6% of the buyers closing costs. This would most often mean the buyers would have to come into closing with nothing more than their down payment.
Now hold that thought for a moment.
New GFE rules require lenders to include the Owners Title policy in their GFE regardless of who pays for it.  In Texas, that policy can be 1% of the loan amount.  And currently that 1% is considered a seller concession even if it is usual and customary for the seller to pay for the Owners policy in a particular market area (like Texas).
Now, if the lender charges a one percent origination fee or there is a discount point, that’s 2% seller concessions already, leaving only one more available for the buyer to apply towards their closing costs.  Appraisals and lender fees typically add up to around $1,000 leaving little if anything left for other fees.

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.

19
Jan
10

mortgage broker utility dead

Many, many moons ago in San Diego I became a mortgage broker.  In the year 1990 to be exact.   As a broker, we were able to offer a variety of loan programs at very competitive rates.  On a regular basis, I could out-quote any retail bank or savings and loan.  In addition, many of the “bricks and mortar” operations of big banks and S&Ls didn’t offer a full array of available loans.  But as a mortgage broker we did.

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.

14
Jan
10

hello confusion 2010

January 1.  Okay, not January 1 but January 2.  Sorry, but January 4, the first business day of the New Year.  The first day that new RESPA and GFE rules are applied.  Gone are the days with the confusing one-page GFE, now we’re welcomed with a more simplified, confusing three-page GFE.

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.




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