New RESPA Rules Take Effect January 1 2010

Just a quick note to everyone that long awaited RESPA reforms are set to take effect on January first 2010. Interestingly there appears to be no clear guidance from the government on how these "reforms" are going to take effect. So what does this mean to the average consumer? In the short term expect confusion. For those of you that have completed mortgage transaction in the past, it's going to be quite a shock to the system when you sit down with an originator, be it a broker or a banker.

The first thing that is going to be troubling to most people is the appearance of the "new" Good Faith Estimate. In the past the Good Faith Estimate broke down every fee associated with completing your transaction. The new Good Faith Estimate on the other hand DOES not. Interestingly the purpose of the reforms was to make the fees MORE transparent. The new form also does not show a client what the total monthly payment will be, only what the principle and interest portion will be. Also I find it strange that nowhere on the new form does it show what the total funds required to close will be, or on a refinance transaction how the net return to the borrower will be. Not that transparent in my humble opinion.

The form seems to place most of its emphasis on what the fees will be. Not only on what the fees charged by the lender or originator are, but what the third party fees will be (appraisal, pest inspections, title insurance, escrow fees). As an originator I am now being put in the position of guaranteeing the third party fees involved in transaction as well as my own. While the theory behind this seems to be that in the end, it will be better for the borrower. I some how doubt it. I for one can say that I would be reticent at best to "sharpen my pencil" and tighten up fees on my estimate. Instead, having spoke with many other loan officers, I think padding the GFE will become more common. Treat every transaction like the world is coming to an end. So in essence, what the client is shopping is a WORST CASE SCENARIO in the extreme, rather than a typical scenario.

I also found it very interesting that many of the rulke changes are geared at focusing attention on COST rather than benefit. Especially when you look at how brokered loans are treated differently than banked loans. Brokered loans are required to disclose the profit margin (yield Spread Premium). Not wanting to stop there, brokers will now be chraging thier clients additional origination fees, and then showing a credit from the wholesale lender to offset those costs. A loan originated at a retail bank or with a mortgage bank, they are not required to disclose their yield on the loan nor play the charge and credit game that the brokers are. This seems to have been put in place to make the broker's loan appear less competetive than the loan offered from the bank, by focusing attention to the "profit" earned by a broker instead of a straight side by side comparison of INTEREST RATE and CLOSING COSTS! It looks like the money spent by the banking industry is starting pay off. It seems distracting the consumer is better than educating them.

My advice to people in the short term is to make sure that they allow extra time in the process of the loan. I have recomended to the Realtors that I work with that they allow 45 days instead of the more cusomary 30 day closing. I am sure that things will shake out and become more efficient over time, but for now I see nightmares at every turn.

Short Sale and Foreclosure Effects on Credit

Sellers may wonder whether doing a short sale would affect their credit less than completing a foreclosure, and whether there are other advantages between the two. While in foreclosure, and depending on state laws, a seller could possibly stay in the property, essentially rent free, for four months to a year before being forced to vacate. But that fact alone does not mean a foreclosure is better.
Whereas a short sale involves offering the home for sale, generally listed through MLS. Potential home buyers will make appointments to view the home, some will make lowball offers, agents might hold open houses and, in general, a seller's life will be disrupted, all in the hopes that a buyer will buy the home.


Basics of a Short Sale

Short sales happen when a lender agrees to accept less than the amount owed against the home because there is not enough equity to sell and pay all costs of sale. Not all lenders will negotiate a short sale, and that is why a real estate agent or a lawyer can be a tremendous help by contacting the lender's loss mitigation department to find out.

Read the whole article here

How Mortgage Management Affects Credit Scores

Your credit score, a numerical rendition of your creditworthiness - or lack thereof - should be at 760 or above if you want the best interest rate, according to FICO, the leading credit scoring system provider.

Mortgage lenders as well as other creditors take a hard look at your credit score when you want to borrow against your home, refinance or buy anew.

If you are struggling financially as a homeowners you may be considering some of the new ways to make your mortgage more affordable, but beware.

Look beyond the savings you can net on a mortgage modification, workout or short sale and carefully consider how those savings could affect your credit score.

According to FICO, if you:
Click here to read the full article

Pre-Approval

There are many steps that are required when purchasing a new home. The most important step is to be pre-approved for a home loan prior to looking for a house.

Now, keep in mind that a pre-approval is very different than a pre-qualification. A pre-qualification is given when the lender talks with you (usually over the telephone) and takes the information that you tell them and qualifies you off of your word without collecting any documentation from you.

The pre-approval process is a little more complete. In this process, the lender will ask you to complete a loan application and return it to them with all the documentation needed to submit to the lender for an approval. These items would include tax returns or W-2’s, paystubs, bank statements, etc. Once the lender received this information, they would run a credit report and submit the loan for approval. When the lender receives the approval, they will write you a pre-approval letter stating the purchase price and interest rate that you qualify for on a new home loan. This letter is then given to the seller at the time an offer is presented to show them that you have your financing in place.

Here are the top 7 reasons why you should get pre-approved for a home loan:

1. A pre-approval will tell you how much you qualify for on a new home loan. This helps you and your realtor to look for a property that is not above the amount that you can afford.

2. A pre-approval gives you the chance to go over the different loan programs available to you with your lender. You will also be able to see what the monthly payment will be on each program.

3. In today’s market it takes time to get a loan approved. Getting a pre-approval puts you ahead of the game by sending all of your paperwork in before you get into escrow. By having a pre-approval, you may be able to shorten the escrow period needed to close a loan. This can make a big difference to a seller that is looking to close as soon as possible.

4. Some real estate agents will not start the process of searching for homes until you have a pre-approval.

5. If by chance you do not qualify for a home loan at the time of the pre-approval, your lender can guide you in the right direction to prepare you to purchase in the near future. Sometimes there are items on the credit report that can be paid off or disputed to help you to qualify. Without sitting down with a lender, you would not have known about these issues until you are in escrow, which would either delay the close of escrow or cause the property to fall out of escrow.

6. You will learn about the lenders guidelines on locking in an interest rate. When can you lock your loan and for how long.

7. You will be able to relax and know that you have your financing in place when you find the right home for you.

The pre-approval process may sound like you are putting the cart before the horse, but in reality it is ensuring that you are buying within your means and gives you the opportunity to understand the different loan options available to you.

Quoting Patricia Barmatz

10 Reasons To Sell Your Home During The Holidays

1.People who look for a home during the holidays are more serious buyers.
2.Serious buyers have fewer houses to choose from during the holidays, so you have less competition.
3.Houses “show better” when decorated for the holidays.
4.Buyers are more emotional during the holidays.
5.Buyers have more time to look for a home during the holidays.
6.Many people want to buy before the end of the year for tax reasons.
7.January is traditionally the month for transfers. Transferees can’t wait until spring to buy. You must be on the market to capture that market.
8.You may still restrict showings during your personal family events.
9.You can sell now, but specify a delayed closing or extended occupancy until early next year if you desire.
10.By selling now you have an opportunity to buy during spring, when many houses are on the market.

Bottom line! By listing now, you may have fewer actual showings, but more qualified and motivated buyers. You’ll have less competition, resulting in a quicker sale and a better price for you

Home Buyer Tax Credit

Great little tip sheet on the extension to the home buyers tax credit. Hit the jump for the article over at the National Association of Home Builders http://www.federalhousingtaxcredit.com/glance.php

Rate Versus Fee

I was speaking with a prospective client a few days ago about the loan for the purchase of his new home. One of the first and most important questions that I ask at the beginning is always, "how long do you plan to live in the home"? He was reasonably sure that he would get transfer ed again within a 4 year time frame. He followed with, "but I don't want any type of adjustable rate mortgage, just in case".

So I laid out a couple of options on the same 30 year fixed rate mortgage. We have a purchase price of around $250,000.00 and he said he can do 20% down payment, leaving a loan amount of $200,000.00 (to avoid mortgage insurance). Option #1 was pretty similar to what he had seen before 4.75% interest rate with a 1% loan fee. Option #2 was the same 30 year loan but at an interest rate of 5% and NO loan fee.

He looked puzzled and asked who in their right mind would take a loan with a higher interest rate? So I did the math for him. The lower rate loan had a principle and interest payment of $1,043.30 and the higher rate loan had a principle and interest amount of $1,073.64. The difference in the payment amount was $30,35 per month. The 1% fee on the higher interest rate loan was $2,000.00. At $30.35 per month it would take 65.9 months to see the benefit of the lower payment. If he sells the home 4 years from today he will have thrown away $543.65.

Little Clip On Foreclosures Peeking Next Year

Interesting Market Numbers for Eugene (week ending Dec. 2)

Eugene Recently Sold Homes

Average Listing Price: $328,881

Median Sales Price: $215,000

Average Prce Per sqft: $153

Number of Sales: 535

Average price per square foot for Eugene OR was $153, a decrease of 7.8% compared to the same period last year. The median sales price for homes in Eugene OR for Sep 09 to Nov 09 was $215,000 based on 535 home sales. Compared to the same period one year ago, the median home sales price decreased 4.2%, or $9,500, and the number of home sales increased 26.2%.

There are currently 952 resale and new homes in Eugene on Trulia, including 217 homes in the pre-foreclosure, auction, or bank-owned stages of the foreclosure process. The average listing price for homes for sale in Eugene OR was $328,881 for the week ending Dec 02, which represents an increase of 0.7%, or $2,380, compared to the prior week. Popular neighborhoods in Eugene include Autzen and Western, with average listing prices of $340,635 and $345,676.

December Update

December Update:
According to a report by the National Association of REALTORS (NAR), Existing homes sales are up over 23 percent from the same time a year ago, and are on pace to reach 6.1 million units by year's end. Current inventory levels in all price ranges have dropped to 3.57 million units nationally, creating a 7-month supply. Much of the recent activity was sparked by first time buyers scrambling to take advantage of an $8,000 tax credit, which was initially due to expire at the end of November. NAR expects market demand to remain strong as the tax credit program has been extended and expanded through April 30.

Freddie Mac is reporting that the average commitment rate for a 30-year, conventional fixed rate loan has dropped below the 5 percent threshold in October, enabling home buyers and facilitating market activity across the country. With interest rates expected to increase next year, buyers have a terrific opportunity to secure a long term loan at historically low rates.

Finance Q and A:
Q: How does the Extended Home Buyers Tax Credit benefit buyers today?
A: The newer Extended Home Buyers Tax Credit offers buyers a great opportunity to stretch their purchase power by reducing their federal tax liability when they purchase a home. A tax credit worth up to $8,000 is available to qualifying first time buyers who enter into a contract to purchase a home between now and the end of April 2010.

The tax credit isn't only for first time buyers, as move-up homeowners can also earn a tax credit of $6,500 when they sell their home to buy another, as long as they have lived in the home they are selling for five of the past eight years. There are a few qualifying guidelines to consider. Contact your mortgage professional today to see how the Extended Home Buyers Tax Credit affects you!

Tip of the Month:
When figuring out what you can afford, it is important to factor in the additional costs of home ownership, beyond the mortgage principle and interest. Be sure to budget for hazard insurance, association dues, property taxes, as well as monthly utilities and other expenses unique to the property. Ask your mortgage professional to help you budget today to get the most out of your next purchase!

Treasury Summons Mortgage Lenders to Meet on Loan Modifications

A nice article over at Bloomberg.com on mortgage modifications. Hit the jump for a complete article. http://www.bloomberg.com/apps/news?pid=20601087&sid=arfLiOez5X2s&pos=6