I had lunch on Monday with Zach Krause, a loan officer with Park National Bank in Naperville. Thankfully, we no longer shot messengers or else Zach would have had multiple holes in him. This from the Freddie Mac Bulletin on April 22nd:
With this Single-Family Seller/Servicer Guide (Guide) Bulletin, we are making the following changes to
our selling requirements:
■ Revising our requirements for second home Mortgages to restrict the number of 1- to 4-unit financed
properties owned by a Borrower
■ Revising our requirements for Investment Property Mortgages to reduce the number of 1- to 4-unit
financed properties that may be owned by a Borrower who owns more than one financed Investment
Property
■ Revising our "no cash-out" and cash-out refinance Mortgage requirements
■ Announcing that we are enhancing the Freddie Mac Selling System (Selling System) to:
Permit the sale of Mortgages under the fixed-rate Mini Guarantor Program
Expand the Life Cap ranges for certain adjustable-rate Mortgages (ARMs)
■ Providing information regarding Freddie Mac's calculation of loan-to-value (LTV) ratio
We are also updating the Guide to reflect the changes to credit requirements announced in our special
February 21, 2008 Bulletin, and refining those requirements to provide that also effective for Mortgages
with Freddie Mac Settlement Dates on or after June 1, 2008:
Section 184 Native American Mortgages with LTV/total LTV (TLTV)/home equity line of credit
TLTV (HTLTV) ratios greater than 97% remain eligible for purchase, in addition to Home Possible
Mortgages with a minimum Indicator Score of 700, FHA/VA Mortgages and Section 502 GRH
Mortgages
Sellers must also reduce the maximum HTLTV ratio when a property is located in a market with
declining values
Finally, we are providing additional guidance to assist lenders in implementing First-Time Homebuyer
education requirements for Home Possible purchase transaction Mortgages, which we modified in our
February 21, 2008 Bulletin.
If you are an investor, THIS IS A BIG DEAL. This goes into effect on loans with a settlement date of August 1st, 2008. Fannie Mae will not be far behind in implementing similiar regs (they may have, but I haven't seen or heard them yet)
I have spoken with 4 lenders as of today about this new cap. All 4 had no alternatives for financing. All 4 agreed that this certainly an invitation to mortgage fraud (which we certainly do not need). All 4 agreed this is not the end of credit tightening.
I will be writing an article on this later in the week and when I find a LEGAL alternative for investors (if you're considering mortgage fraud, please remove me from your rolodex), I will be passing it on.
Nothing like having a reason to toot your own horn on a Monday morning...really makes you want to get at it!. So what am I talking about? My article on "Walk Away" foreclosures was selected as a winning article for this week's Carnival of Real Estate #91 which is being hosted by Aaron Dickinson at the Minneapolis Real Estate Blog.
If you're not familiar with the Carnival of Real Estate, you need to check it out. It is weekly collection of the best blog posts about real estate from around the country. The posts are aimed at both consumers and real estate professionals, and there's always something that will tickle your fancy.
Thanks for the honor Aaron & congrats to the other honorees.
As long as there have been mortgages, there have been foreclosures. In times past, the unfortunate or unexpected would happen, and the unlucky homeowner would find themselves on the street. This occurrence, however, was an anomaly. According to research from the FDIC, foreclosure rates on conventional loans from 1951 to 1979 hovered in the lower end of a 0.04% to 0.78% range. Rates grew through the 1980's and reached a plateau of around 1% in the 1990's and into the 2000's.
Now with the bursting of the housing bubble in the last couple of years, we see rates spiking, with, according to Realty Trac, Q1 2008 numbers up 112% on a year-over-year basis.
So why were foreclosure rates so low years ago? And maybe more importantly, how did we get where we are today?
Simply stated, lenders used to apply stricter lending standards and required borrowers to have more equity in their homes. Logically, a homeowner with significant "skin in the game" is less likely to go bad on their loan. It would usually take a spark such as divorce or job loss to trigger a default. As lenders loosened their guidelines, as Loan-to-Value ratios (LTVs) rose, homeowners had less equity and less to lose which beget rising rates. Throw in the "cooling off" of the real estate market in the last couple of years, voila spiking rates!
So rising foreclosure rates can be chalked up to poor lending decisions; but how do we explain a growing trend of homeowners "walking away" or abandoning their homes? Realty Trac found that in March 2008, default notices were up 54%, bank repos were up 129%, but that auction notices were up only 32% "indicating that more defaulting homeowners are simply walking away and deeding their properties back to the foreclosing lender".
No simply stating this trend; no unequivocally laying this at the feet of the mortgage industry. Walking away, in the eyes of this solitary Realtor®, is a symptom of a society that is "less attached".
Ironically, as we have grown more "connected" (via the Internet, blogging, social networking sites, etc.) we have become less "attached". We live in neighborhoods where we do not know our neighbors names. We chat with virtual friends and our kids even have virtual pets. In this Information Age, we know more details of each other's lives and less about one another.
Contrast that with the past where I imagine the financially distressed homeowner of the 1950's was not only attached to his home, he was a part of his neighborhood and his community. He was on a first name basis with the banker who held his mortgage. Losing his home meant more than losing a house; it damaged his reputation with his neighbors, impacted his standing in the community, and brought harm to his local banker. That struggling homeowner risked violating societal mores and that was a powerful deterrent that only the most extreme event could trigger.
Only recently, are we like the frog who has suddenly felt the heat of the boiling water. Reform, in one shape or another, is on the way for the mortgage industry. We'll not be returning to the 50's, but eventually better lending decisions will stem the tide of this current foreclosure crisis.
In the meantime, I think I'll "walk towards" my neighbor and find out his name.
Man, I love Trulia Voices. Its good for exercising my noggin and really gets me to consider questions and concerns that my potential clients may have.
A well-spoken, potential seller posited: Why should I use a Realtor® to sell my home?
My visceral reaction was how I respond to my 8 year old: CAUSE I SAID SO! Of course, after I got over that, I gave it some thought, and distilled them into this manifesto:
I think you framed your question perfectly; asking about the advantages of using a Realtor® vs. whether you can do it FSBO. As Realtors®, we often get testy when the concept of For Sale By Owner is raised. We take it as an article of faith that it should be obvious that you can't sell without a Realtor®. That someone questioning that is, by proxy, questioning us, our abilities, and our "career" reason for being. Congrats on a good question; a question every seller should ask.
So it sounds like you have a good handle on the market in your neighborhood, you have a flexible schedule, and you are willing to do the marketing to make your home standout. You appear to be someone who is going to have success selling FSBO.
But most of the FSBOs I list are doing their best to sell their home. So why do they choose to use me and why do 70% of people who start out FSBO end up listing with a Realtor®?
When I list a FSBO, one that has really tried to sell their home, what I tend to find out is that they decided that the effort of trying to sell their home by themselves wasn't worth the savings. They started out with the best intentions, but over the course of time they got tired/frustrated with the process. It's been a couple of weeks (or months) and their house hasn't sold. They question whether they are doing things right; pricing, marketing, staging, etc. (It's the same thing that happens every January when I resolve to get in shape)
Invariably, I also notice that they started out with unrealistic expectations. If average market time is 180 days, they are frustrated when the home hasn't sold in 90 days. If market value is in a $20K range, it seems they're always at the top of that range. So why do they do this? It's not because their dumb; they tend to be bright people. They do it because they are "invested" in the sale of their home and that "investment" clouds their judgment. Some Realtors® do this too: they're so invested in getting the listing; they'll take it at a reduced commission or at an unrealistic list price. I think its human nature.
But for sake of discussion, let's say that you can be objective and unbiased about your home. That you (or you and your spouse) can acknowledge (if true): "there's 10 other homes like mine for sale in my neighborhood/building and mine is the 4th best; average market time is 200 days, but we think it could take 300 to sell; we know that it's worth $400K, but we'll take the 5% off the top that FSBO buyers do and sell it for $380K". You can do this so you are going to be part of the 30% that persevere. So what are the logical reasons (outside of marketing/exposure) for using a Realtor®?
There's one that sticks out for me; it's so you have a "fail-safe" option when you do get a contract. Prior to contract, usually the worst thing that can happen is that you have wasted your time. Not so when you are presented with a contract. Assuming that you have negotiated the best price for your home (a concern in itself), once you have signed a contract you now have contractual obligations to that buyer.
With those obligations comes potential liability when a contract falls out. Your Realtor®, as mentioned in an earlier post, carries Errors & Omissions (E&O) Insurance. E&O, as defined by Insurance Journal, is "the insurance that covers your company, or you individually, in the event that a client holds you responsible for a service you provided, or failed to provide, that did not have the expected or promised results". When you sell FSBO, you go without that protection. And while the unexpected rarely happens, when it does you are hit with the double whammy: you don't have the training/knowledge to fix the problem and you are unprotected when that problem leads to litigation.
I break it down for my clients into 2 analogies. To me the marketing or selling portion of getting a home sold is like the choice between cooking a gourmet meal or dining out at a fine restaurant; both may end up tasting great, but I'd bet on the chef. The closing portion is like making the choice to have life insurance when you are 30 and have young kids. Odds are you aren't going to need it, but what happens if you do. This is the largest financial transaction you may ever make, so how much risk are you prepared to take?
I apologize for the lengthy post, but selling FSBO can have significant ramifications and, as I mentioned earlier, it's a topic that Realtors® usually don't like to discuss. I hope that I have given you something to consider and I wish you good luck with your decision.
FELLOW AGENTS: this post is from my local blog and was intended to be some quick thoughts on what to look for in a listing agent; not the "soup to nuts" answer. I'm always a little suprised, though, at the lack of questions (outside of how much is my home worth) I do get on my listing appointments. I would love to hear your thoughts/experiences about listing appointments
A prospective homeseller posted a question at Trulia recently asking what questions she should ask agents when interviewing them to list her home. Its a great inquiry because us real estate agents sometimes forget that most folks don't live and breath real estate, yet selling your home is probably the largest financial transaction most of us will ever make. It must be like how I feel when I'm at the doctor's office.
As is my custom, I expanded my answer to cover what to look for in a listing agent. I have posted the "meat" of my reply below:
EXPERIENCE: Being a veteran in the RE business with a bunch of designations isn't the only type of experience. In a market such as the current one in Northern Illinois, experience with (AND THE WISDOM TO SOLVE) problems when they crop up (and they do) is more important than time in the industry. I would ask, " Do you see any issues with my homesale, and if so, how are you planning to handle them?"
MARKETING PLAN: Ask for a written marketing plan TAILORED FOR YOUR HOME. I won't go into the types of marketing concepts, but the agent should be able to provide you with a clear and concise plan for marketing YOUR home; not just what their brokerage firm does in general.. Also a marketing budget and suggestions for getting the highest value for your home.
SALES PLAN: This veers into the world of dual agency (where the agent represents you and the buyer) so if you are not comfortable with that you can ignore this. Often, agents get the listing and hope that another agent sells the home for them. I would want to know how much buyer prospecting that agent is doing. Is their marketing aimed at other agents or buyers?
PRICING: Shannon hit it on the nose; you want an agent that can give you a range for the value of your home and a rationale for that value. Ultimately, you are going to chose the marketing price, but if they are meek enough to let you just list at any price, then how strong are they going to be when it comes to negotiating on your behalf.
COMFORT: You don't have to become best friends with your agent , but with average market times of 6 months (and longer), you need to be able to work well together as a team.
We are proud to announce that Wells Fargo Home Mortgage® has agreed to join ChicagoLand Foreclosure Tours as our Exclusive Lending Partner, with Dale Noble as our Home Mortgage Consultant.
About Wells Fargo Working with Wells Fargo for your home financing means you're working with one of the industry's leaders:
We are the nation's leading retail mortgage lender1, providing funding for one out of every 16 homes financed in the United States.
The majority of the Fortune 100 companies conduct their employee relocation business with us.
Wells Fargo Home Mortgage is the nation's leading lender to buyers of newly constructed homes.2
We are a leading provider of jumbo mortgages and adjustable-rate mortgages (ARMs), as well as the nation's leading retail originator of reverse mortgages.
Wells Fargo Home Mortgage has one of the most diverse and extensive product lines in the industry.
1 Based on year-end 2006 statistics by Inside Mortgage Finance, 2/23/07. 2 Based on 2006 year-end MarkeTrac® data. 3 Based on 2006 year-end statistics by Inside Mortgage Finance 3/02/07
Subject Line: FHA Risk Based Pricing (courtesy of Dale Noble, our office's Wells Fargo Loan Officer)
Of course, the subject line elicted an "ah #&%@!" comment from me, but I was pleasantly surprised when I read Dale's comments:
Well, the subject line says it all. FHA is going to risk based pricing. That's the bad news. The good news is that it will make barely a dent in the payment. HUD has announced that beginning July 14, the up front mortgage insurance premium on FHA loans will be based on credit score. As of today, we don't know what the credit score ranges will be. The current up front premium of 1.5% is charged to buyers regardless of credit risk. The new premiums will range from 1.25% - 2.25%, a little good news for those who have favorable credit scores. So, the effect the worse case scenario ( 2.25% ) would present to a payment for example, is $8.99 per month, on a $200,000 loan.
What differentiates this plan from the new conventional loan guidelines of risk pricing below a 720 credit score is that the premium/penalty will be on the MI Premium rather than the rate. This should mean business as usual with FHA loans.
Hopefully, this will be the extent of the tightening of FHA loans (and of lending guidelines in general). Unfortunately, I think that is just wishful thinking.
Note: I have not seen this reported in my news feeds, but Wells Fargo always hears about this well in advance of the rest of us non-mortgage professionals. Let me know if you've seen official details of this change.
UC=Number Homes Under Contract in Last 30 days Avg MT=Average Market Time of UC Homes Median=Median List Price For UC Homes Listed=Number of Homes Listed in MLS Avg MT=Average Market Time of Listed Homes Mon Inv=Months To Sell Entire Inventory of Homes, the AR Rate Closed=Number of Homes Closed in Last 30 Days
This is my post from our blog at ChicagoLand Foreclosure Tours:
When I came up with the concept for ChicagoLand Foreclosure Tours, the thought crossed my mind that some might view the project as well...ghoulish. Of course, we won't be busting in on financially distressed homeowners; we are going to be touring either vacant Bank REO properties or properties where the homeowner WANTS US there to prompt a short sale or pre-foreclosure transaction.
Nonetheless, when I was emailing a local news editor this morning, that ghoulish pang hit me again. That the perception of the tour by the general public might be that we were treading lightly about a subject, financially distressed homeowners, that has the nation in crisis and individual homeowners stressed.
That we fiddled while Rome is burning.
Certainly the "tour" is the most marketable (some might say salacious) portion of our business. It is a marketing angle to generate business. Guilty as charged. And we certainly are looking to make money for our clients and ourselves. Again guilty.
The flip-side is that we hope to help financially distressed homeowners. We want to make that short sale or pre-foreclosure deal so the homeowner can avoid a foreclosure on their credit. That they can escape the stress of the foreclosure process and get back to some modicum of normalcy.
Ideally, thru advertising and publicity of ChicagoLand Foreclosure Tours, we also hope to reach some homeowner who is behind on their payments or has just been filed on. We can offer them our knowledge and expertise of the process and, just maybe, help them save their home (wouldn't that would be a great way to make a customer for life). We have added a page to our website so that distressed homeowners can contact us for help.
And while I'm not that narcissistic to believe that a couple of Realtors® can cure the housing crisis, I'd like to think that we at least showed up with a fire-hose.
Disclaimer: ActiveRain Corp. does not necessarily endorse the real estate agents, loan officers and brokers listed on this site. These real estate profiles, blogs and blog entries are provided here as a courtesy to our visitors to help them make an informed decision when buying or selling a house. ActiveRain Corp. takes no responsibility for the content in these profiles, that are written by the members of this community.
When I came up with the concept for 
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