WASHINGTON – July 15, 2009 – Less than three months after new rules for home appraisers kicked in, the real estate industry is in an uproar.
Realtors, homebuilders, mortgage brokers and the appraisal industry itself all agree the rules are causing problems. Some are backing a bill in Congress to kill them.
The new guidelines essentially put a firewall between lenders and home appraisers. They also ended the practice of lenders using their in-house staff for initial home appraisals and prohibit the use of appraisal-management companies owned or controlled by lenders.
But since they went into effect May 1, the rules have created a slew of unintended consequences that critics say are causing delays in closing sales, or undermining sales because botched appraisals are coming in too low.
“This thing is not only preventing the housing market from recovering, it’s destroying the housing market,” said Marc Savitt, president of the National Association of Mortgage Brokers. “We’re eliminating competition, and we all know what happens when you eliminate competition: Prices go up.”
After a homebuyer and seller agree on a price, the buyer applies for a mortgage. The lender then orders an appraisal to ensure the value of the property, because if the borrower defaults the property will be sold to satisfy the debt. The appraisal fee, which can run between $250 and $500, is usually paid by the buyer.
To determine what a home is worth, the appraiser compares prices of similar homes that were recently sold in the area and makes adjustments for different features, such as a swimming pool or extra bathroom. If the property appraisal comes in below the agreed upon price, the buyer usually has to make up the difference and may instead walk away.
Suzanne Wilhelm, who has been trying to sell her home in Henderson, Nev., for six months, blames an appraisal done under the new rules for scuttling what had been a done deal with a buyer several weeks ago.
The appraisal valued her four-bedroom, 2,000 square-foot house at $190,000 - $45,000 less than the price the buyer agreed to pay. Wilhelm, who paid $187,000 for the house in 2001, believes the appraiser based his estimate on the sale of several foreclosed homes in the area but ignored sales of regular homes that would have reflected a higher price.
“It’s very unfair that we’re put into the same bracket as those people who were so irresponsible in buying their homes,” said Wilhelm, a teacher.
The rules, dubbed the Home Valuation Code of Conduct, are meant to eliminate conflicts of interest that created pressure on real estate appraisers to inflate the value of a property. Lenders, agents and brokers have been known to pressure appraisers to “hit the number” that the homebuyer and seller agreed on so the deal would close and everyone could collect their fees. Inflated appraisals were partly blamed for fueling the housing bubble.
But under a settlement last year with New York Attorney General Andrew Cuomo, Fannie Mae and Freddie Mac agreed only to buy loans from lenders that don’t directly hire appraisers. The move sent shock waves through the industry because Fannie Mae and Freddie Mac own or guarantee about half of all U.S. home loans.
So lenders started giving more business to appraisal management companies, which critics say draw appraisers from a pool of candidates willing to do the job for less money and who, in some cases, may be unfamiliar with a neighborhood.
Paul Conforti, a broker with Prudential Douglas Elliman in Merrick, N.Y., said he’s seen appraisers based as far as Maryland, about 200 miles away, come into New York’s Nassau County to evaluate homes there.
“If you’re appraising a house, all you really have to go on is the” recent sale of similar properties, Conforti said. “If the person doesn’t know the area ... they end up using comparables from another town. It doesn’t make sense.”
Almost 60 percent of builders are reporting that inadequate appraisals are causing serious problems in the market, often comparing newly built homes to foreclosures without considering the money needed for property repairs. Of those reporting appraisal problems, more than half said the appraisal amount was actually less than the cost of building the home, according to a survey released this week by the National Association of Home Builders.
Cuomo’s office maintains the rules are necessary, and that critics are using the appraisal rules as a scapegoat for a declining housing market made worse by the recession.
“With homes prices falling and foreclosures rising, this complaint is simply wrong and risks returning us to a corrupt system filled with conflicts of interest that promoted artificially inflated values,” said Emily Browne, a spokeswoman for Cuomo.
Browne added that there’s no evidence of a spike in appraisal delays in the two months that the rules took effect.
“Even if there are some delays, there is no reason to think the (rules are) the cause, as opposed to the unrelated, nationwide drop in home values which has made the appraisal process more complicated,” she said.
But the real estate industry is coming out against the rules in force.
The National Association of Mortgage Brokers went to court in February to block the changes, which it claims limit competition. Since then, other key industry groups, including the Appraisal Institute, have voiced their opposition to all or elements of the home appraisal guidelines.
Last week, the National Association of Realtors urged members of Congress to support a bill that would impose an 18-month moratorium on the new appraisal guidelines. The measure is still working its way through Congress.
The Realtors said the new appraisal guidelines are hurting the real estate industry. It contends that appraisers hired by appraisal management companies are not hired “for their competency and qualifications, but for their turnaround time and price.”
Freddie Mac tried to address some of those concerns last week when it issued new home appraisal “best practices” guidelines for lenders.
Among its recommendations, the mortgage finance company said appraisers must be certified or licensed in the state where the property being appraised is located and be familiar with the local market.
Fannie Mae issued similar guidelines in April.
“We’re optimistic that the push to quality will in fact solve some of the problems,” said Ken Chitester, spokesman for the Appraisal Institute. “If consumers are demanding that qualified appraisers perform the valuation on the properties, then that’s a big step in the right direction.”
Copyright © 2009 The Associated Press
Wednesday, July 15, 2009
Lobbyist pushes to extend homebuyer tax credit
LAS VEGAS – July 14, 2009 – Realtors’ lobbyist Jerry Giovaniello thinks he has better than a 50-50 chance of getting Congress to extend the $8,000 tax credit for first-time homebuyers past its Dec. 1 deadline.
He’s also pushing to raise the tax credit to $15,000 and expand it to all homebuyers, though that will take a lot more work, Giovaniello said Friday at Bally’s.
Giovaniello, senior vice president of government affairs for the Washington, D.C.-based National Association of Realtors, detailed three major bills on Capitol Hill and how they’ll affect the real estate industry for the Greater Las Vegas Association of Realtors.
The most important legislation is the energy bill, he said. It started at about 1,100 pages, including 50 pages on energy auditing for existing homes.
The legislation would require inspections to determine the energy efficiency rating of any home before it could be sold.
“This is not something we could live with,” Giovaniello said.
“The buyer has to buy a new water heater, a new furnace. This would be a lender red line on older homes.”
Irene Vogel, executive director of Greater Las Vegas Association of Realtors, said real estate agents don’t have the expertise to look at SEER rating, or seasonal energy efficiency rating. She told one of her friends whose husband was laid off from his job as construction superintendent that he should go for SEER certification.
“Now we’re opening up a new field,” Vogel said. “What a business. You know home inspectors will do it.”
The Nevada Legislature in 2000 passed a statute requiring an energy audit of all homes sold effective 2011, but buyers can waive the audit for the sellers, said Kit Cooper, government affairs director for the local Realtors.
Giovaniello said the homebuyer tax credit has been popular and seems to be working. It would end up costing the Treasury to raise the amount, but members of Congress have children trying to buy homes, so they understand the need, he said.
The recent increase in the loan-to-value ratio for refinancing under President Barack Obama’s loan-modification program may help some areas, particularly high-cost areas, Giovaniello said.
“California, Vegas, Massachusetts – essentially the paradigm there is different and there should be recognition of that,” he said.
© 2009 The Las Vegas Review-Journal
He’s also pushing to raise the tax credit to $15,000 and expand it to all homebuyers, though that will take a lot more work, Giovaniello said Friday at Bally’s.
Giovaniello, senior vice president of government affairs for the Washington, D.C.-based National Association of Realtors, detailed three major bills on Capitol Hill and how they’ll affect the real estate industry for the Greater Las Vegas Association of Realtors.
The most important legislation is the energy bill, he said. It started at about 1,100 pages, including 50 pages on energy auditing for existing homes.
The legislation would require inspections to determine the energy efficiency rating of any home before it could be sold.
“This is not something we could live with,” Giovaniello said.
“The buyer has to buy a new water heater, a new furnace. This would be a lender red line on older homes.”
Irene Vogel, executive director of Greater Las Vegas Association of Realtors, said real estate agents don’t have the expertise to look at SEER rating, or seasonal energy efficiency rating. She told one of her friends whose husband was laid off from his job as construction superintendent that he should go for SEER certification.
“Now we’re opening up a new field,” Vogel said. “What a business. You know home inspectors will do it.”
The Nevada Legislature in 2000 passed a statute requiring an energy audit of all homes sold effective 2011, but buyers can waive the audit for the sellers, said Kit Cooper, government affairs director for the local Realtors.
Giovaniello said the homebuyer tax credit has been popular and seems to be working. It would end up costing the Treasury to raise the amount, but members of Congress have children trying to buy homes, so they understand the need, he said.
The recent increase in the loan-to-value ratio for refinancing under President Barack Obama’s loan-modification program may help some areas, particularly high-cost areas, Giovaniello said.
“California, Vegas, Massachusetts – essentially the paradigm there is different and there should be recognition of that,” he said.
© 2009 The Las Vegas Review-Journal
Tuesday, July 14, 2009
Condo associations forced into bankruptcy as fees dry up
MIAMI – July 14, 2009 – At least seven Florida condo associations have filed for bankruptcy since the real estate market took a nose dive – and there may be more on the way.
For a growing number of strapped condo associations, bankruptcy could be the last defense against their hallways going dark and their spigots running dry.
In one of the most recent Chapter 11 filings, the creditors of Maison Grande in Miami Beach are planning to meet Tuesday to discuss the bankruptcy.
A rare occurrence in better days, such filings now are seen as a last-ditch bid by associations to shield themselves from bill collectors and find a way out of mounting financial problems. While an association is in bankruptcy, utilities can’t cut off the power or turn off the water, problems that have already surfaced at some South Florida condos.
“Without question it’s being talked about and asked about,” said Robert White, a managing director for KW Property Management in Coral Gables, “especially in some of these associations that have delinquencies that exceed 30 percent. They’re looking for options about how to solve the problem.”
Maison Grande, a complex of 502 luxury condos in Miami Beach at 6039 Collins Ave., filed for Chapter 11 protection in June after Dorten developers sued the association for about $658,000 in back payments on a recreational lease for the pool and parking areas. Chapter 11 bankruptcy offers private companies protection from creditors while they reorganize their debts, restructure contracts and find new sources of revenue.
Forty-four units are in foreclosure at the Maison Grande, and about 165 owners are two months or more past due on association payments.
Also last month, the Legacy Park town home association in the Central Florida city of Davenport filed for Chapter 11. Among its biggest creditors: Comcast, which says the association owes $105,305 for a past-due cable bill.
With the weak economy, many condo associations – which are classified as not-for-profit corporations – find bills are piling up as units enter foreclosure and homeowners stop paying association fees, putting enormous financial strain on residents left holding the bill.
A risky alternative
Still, filing for bankruptcy is a costly endeavor – and may not be a cure. It’s unclear whether any Florida association has successfully reorganized in bankruptcy in recent years.
Bankruptcy attorney Thomas Lehman with Tew Cardenas in Miami said he wasn’t sure how bankruptcy could benefit associations, because their only assets are the property’s common areas and, possibly, their ability to assess individual unit owners.
Corporations need an exit strategy when filing Chapter 11, Lehman said. He added it wasn’t clear how an association having trouble covering basic monthly services could reorganize. They also have nothing to sell off, except common areas such as the lobby and rec room.
“They’re better off trying to negotiate with vendors to come up with an out-of-court restructuring plan,” Lehman said.
Last month a Miami bankruptcy court dismissed a bankruptcy petition by View West Condo in Kendall essentially because its creditor, Z Roofing, won a state case upholding its lien and forcing a special assessment on unit owners to pay a balance of more than $100,000 for repairs.
“The thing about a condo association is that often times their main asset is really only its accounts receivable from unit owners paying maintenance fees or assessments,” said Carla Barrow, an attorney who represented Z Roofing in the matter.
The company also won approval from a state court to foreclose on individual unit owners who failed to pay their share of the assessment.
Filing of the petition did little to protect the association, Barrow said, because it still owed the roofing company for the work, as well as $50,000 in legal fees and court costs – not to mention fees owed to its own attorney.
Punishing the payers
While a condo association’s ability to repay creditors by levying special assessments could be a stumbling block, Lisa Magill, an attorney with condo firm Becker & Poliakoff, said a high rate of fee delinquencies could make that less of an issue.
“If you have nonpayers, and those who are paying don’t have the ability to pay more and you have a significant number of owners that have abandoned the property, your ability to levy assessments is limited,” Magill said. There comes a point when paying owners may also throw in the towel and stop payments if their assessments rise too much.
Despite the potential pitfalls, Magill said there are benefits to be gained by filing.
Bankruptcy protection allows debtors to renegotiate onerous leases, like the one saddling Maison Grande. It could also delay, and even prevent, creditors from seizing assets and garnishing bank accounts.
Utilities and other vendors would have to get court permission to drop services, said Robert Kaye, a partner with Kaye & Bender law firm in Fort Lauderdale, which represents close to 700 homeowner associations.
After several months of investigating the matter, residents of St. Andrews condo in Miramar decided against filing bankruptcy earlier this year, even though nearly half its unit owners at the time were in foreclosure and the association had fallen behind on several bills.
William Quigley, who served on his association’s budget advisory committee, said the association determined that filing for bankruptcy would cost more money than it would save. They were told, he said, it would cost about $30,000 to pay lawyers just to file the petition, not to mention costs going forward.
“Now you are going to have to assess the community to file rather than working out what you owe to your vendors,” Quigley said.
In the end, the association decided to level with vendors and find ways to begin slowly paying off past due balances.
Copyright © 2009 The Miami Herald
For a growing number of strapped condo associations, bankruptcy could be the last defense against their hallways going dark and their spigots running dry.
In one of the most recent Chapter 11 filings, the creditors of Maison Grande in Miami Beach are planning to meet Tuesday to discuss the bankruptcy.
A rare occurrence in better days, such filings now are seen as a last-ditch bid by associations to shield themselves from bill collectors and find a way out of mounting financial problems. While an association is in bankruptcy, utilities can’t cut off the power or turn off the water, problems that have already surfaced at some South Florida condos.
“Without question it’s being talked about and asked about,” said Robert White, a managing director for KW Property Management in Coral Gables, “especially in some of these associations that have delinquencies that exceed 30 percent. They’re looking for options about how to solve the problem.”
Maison Grande, a complex of 502 luxury condos in Miami Beach at 6039 Collins Ave., filed for Chapter 11 protection in June after Dorten developers sued the association for about $658,000 in back payments on a recreational lease for the pool and parking areas. Chapter 11 bankruptcy offers private companies protection from creditors while they reorganize their debts, restructure contracts and find new sources of revenue.
Forty-four units are in foreclosure at the Maison Grande, and about 165 owners are two months or more past due on association payments.
Also last month, the Legacy Park town home association in the Central Florida city of Davenport filed for Chapter 11. Among its biggest creditors: Comcast, which says the association owes $105,305 for a past-due cable bill.
With the weak economy, many condo associations – which are classified as not-for-profit corporations – find bills are piling up as units enter foreclosure and homeowners stop paying association fees, putting enormous financial strain on residents left holding the bill.
A risky alternative
Still, filing for bankruptcy is a costly endeavor – and may not be a cure. It’s unclear whether any Florida association has successfully reorganized in bankruptcy in recent years.
Bankruptcy attorney Thomas Lehman with Tew Cardenas in Miami said he wasn’t sure how bankruptcy could benefit associations, because their only assets are the property’s common areas and, possibly, their ability to assess individual unit owners.
Corporations need an exit strategy when filing Chapter 11, Lehman said. He added it wasn’t clear how an association having trouble covering basic monthly services could reorganize. They also have nothing to sell off, except common areas such as the lobby and rec room.
“They’re better off trying to negotiate with vendors to come up with an out-of-court restructuring plan,” Lehman said.
Last month a Miami bankruptcy court dismissed a bankruptcy petition by View West Condo in Kendall essentially because its creditor, Z Roofing, won a state case upholding its lien and forcing a special assessment on unit owners to pay a balance of more than $100,000 for repairs.
“The thing about a condo association is that often times their main asset is really only its accounts receivable from unit owners paying maintenance fees or assessments,” said Carla Barrow, an attorney who represented Z Roofing in the matter.
The company also won approval from a state court to foreclose on individual unit owners who failed to pay their share of the assessment.
Filing of the petition did little to protect the association, Barrow said, because it still owed the roofing company for the work, as well as $50,000 in legal fees and court costs – not to mention fees owed to its own attorney.
Punishing the payers
While a condo association’s ability to repay creditors by levying special assessments could be a stumbling block, Lisa Magill, an attorney with condo firm Becker & Poliakoff, said a high rate of fee delinquencies could make that less of an issue.
“If you have nonpayers, and those who are paying don’t have the ability to pay more and you have a significant number of owners that have abandoned the property, your ability to levy assessments is limited,” Magill said. There comes a point when paying owners may also throw in the towel and stop payments if their assessments rise too much.
Despite the potential pitfalls, Magill said there are benefits to be gained by filing.
Bankruptcy protection allows debtors to renegotiate onerous leases, like the one saddling Maison Grande. It could also delay, and even prevent, creditors from seizing assets and garnishing bank accounts.
Utilities and other vendors would have to get court permission to drop services, said Robert Kaye, a partner with Kaye & Bender law firm in Fort Lauderdale, which represents close to 700 homeowner associations.
After several months of investigating the matter, residents of St. Andrews condo in Miramar decided against filing bankruptcy earlier this year, even though nearly half its unit owners at the time were in foreclosure and the association had fallen behind on several bills.
William Quigley, who served on his association’s budget advisory committee, said the association determined that filing for bankruptcy would cost more money than it would save. They were told, he said, it would cost about $30,000 to pay lawyers just to file the petition, not to mention costs going forward.
“Now you are going to have to assess the community to file rather than working out what you owe to your vendors,” Quigley said.
In the end, the association decided to level with vendors and find ways to begin slowly paying off past due balances.
Copyright © 2009 The Miami Herald
Monday, July 13, 2009
Mortgages: More rules and longer waits
WASHINGTON – July 13, 2009 – People trying to buy or sell a home may be seeing the process drag out longer than expected and wondering why.
Until recently, a real estate deal could close, on average, in 30 days, real estate agents said. But, bankers and real estate agents said increased scrutiny and tighter restrictions following the subprime mortgage meltdown, and an increased demand for government insured FHA loans has pushed closing times to 45-60 days.
Or longer.
Ask Morgantown, W. Va., resident Denny Vac, who tried to sell his house to a friend. It took 85 days for the loan to close.
That “is a long time,” Vac said. “It seems to me if they’re trying to get an economic recovery going, they’d be trying to make this a little easier to get through.”
Jerry Hall, a broker at Morgantown’s RE/MAX office, said he’s experienced the delays.
“Underwriters have been looking at properties with a microscope,” he said. They’re scrutinizing the loans, too. Properties may drop out the day before closing.
He had one sale hit a snag the day before closing because of the underwriter, he said. It was a bungalow with minor foundation problems. Two inspectors said it needed monitoring but not immediate repair. However, the underwriters wanted it fixed before the money was released. The sale took an extra month. Asked if he also considered the problem counterproductive to economic stimulus, Hall said “very much so.”
There are two distinct issues affecting the home loan process, bankers told The Dominion Post, depending on whether buyers are working with a conventional loan or an FHA loan.
FHA loans
Vac’s friend is pursuing a Federal Housing Administration (FHA) loan through BB&T, Vac said.
FHA says its loans can be good for several types of homebuyers: first-timers, those with little money for a down payment, and those with less-than-perfect credit, among others.
Jane Haines, vice president for mortgage sales at Clear Mountain Bank, said homebuyers putting less than 20 percent down on their homes are required to obtain mortgage insurance to protect against default in the event of foreclosure. Private mortgage insurance firms provide the insurance for homebuyers using conventional loans.
For FHA loans, the FHA doesn’t lend the money, but it insures the loans against defaults, said U.S. Department of Housing and Urban Development spokesman Lemar Wooley. This can make lenders more willing to part with their money.
And, while underwriters for conventional home loans are requiring at least 5 percent down, bankers said, the FHA requires only 3.5 percent and the rules are less strict about where that money can come from.
Vac put his house on the market with a realty firm for $180,000, he said, but listed it with the exception his friend could buy it for $150,000 without involving a real estate commission. His friend was pre-approved by BB&T and they signed a contract between April 16-20, expecting the deal to close not later than June 20.
Vac encountered various frustrations and problems during his long wait. The bank sent the wrong appraiser, and there have been communication problems.
When the deal started dragging out, he said, he considered renegotiating the contract at a higher price, but because of the way the appraisal system works, the house was appraised at $155,000, so he and his friend would have to start the whole process over again.
So he waited. His accountant told him the delay was costing him about $120 a day to hold onto the unoccupied, unrented house – more than $3,000 all told. Meanwhile, the buyer had to rent an apartment for an extra month, costing him more money, too.
BB&T media relations manager A.C. McGraw couldn’t address Vac’s specific situation, but said BB&T has a “longer processing time [on FHA loans] because of increasing volume. ... We’re literally pushing more loans through the pipeline.”
There are also more documentation requirements, she said.
McGraw said BB&T doesn’t keep separate statistics for closing times on conventional and FHA loans, but overall they’re averaging 45-60 days.
In cases like Vac’s, she said, “I’m sure other factors are involved.”
McGraw said BB&T is trying to prioritize home loan processing “to meet sales contract deadlines.”
Wooley said the FHA has noted “no appreciable increase in time for closures,” but the weak economy, the subprime mortgage market meltdown and tightened lending practices produced an “absolute increase in demand” for FHA-insured loans. The market share ballooned from less than 4 percent of all home loans in 2004, to 18 percent now.
“More and more people are turning to FHA as a safe product,” he said.
But Haines is among the local bankers who has seen “a lot longer turnaround” time for FHA loans – because of their growing popularity.
“It may take three weeks to hear back” from the FHA, she said, “and they want more information.”
“It is frustrating for the customer, the Realtor and the banker,” she said.
Another appealing factor for FHA loans, she said, is credit scores. FHA requires only a 620.
Credit scores can range from about 300 to 850, as rated by the credit-scoring system Fair Isaac Co. (FICO), according to various banking sources, and major lenders like to see scores at 700 or above, but typically offer “prime” loans (best interest rates) to folks at 650 or above. A score below 620 is considered bad credit, with a high risk for default.
Despite the increased lag time, Haines said, FHA is still the best route for many people. “Without FHA, more people would be unable to get into homes.”
Conventional loans
Jeff Stewart, associate broker at Pat Stewart Realtors, said, “There are more hoops to jump through. ... It’s just been difficult.” Underwriters will sign off sometimes, he said, and then come back with more requirements.
Another problem he and Hall have observed is appraisals. They’re taking longer, and sometimes homes are getting evaluated by nonlocal appraisers. Hall said that stems from a new regulation designed to prevent conflicts of interest. Banks are no longer permitted to contact the appraiser – the job has to be set up by someone not connected to the loan. For some banks, Hall said, that means bringing in people less qualified who don’t know the area or the market.
Haines and Centra Bank President and CEO Doug Leech said their banks are still using local appraisers. “We know our appraisers,” Leech said, but he’s aware it’s an issue elsewhere.
Centra, he said, has about $1.2 billion in assets, and lent out more than $500 million in 2008. Lending at that rate means Centra would exhaust its assets in about two years. So Centra and other banks sell their mortgages on the “secondary market.” This means Centra approves the mortgage and issues the money to the borrower. But then it packages its mortgages and sells them to megalenders such as Freddie Mac, Fannie Mae, Citibank or GMAC. In this way, Centra gets its money back and puts it back into the lending pot.
Leech said Centra is still closing 99 percent of its loans in 30 days. Haines said Clear Mountain’s in-house loans are going as quickly as ever, while there is a “slightly longer turnaround” for conventional mortgage loans.
But, Leech said, since the economic meltdown, requirements for conventional mortgages are more stringent. He ticked off a number of issues:
“Appraisals are scrutinized like never before.” An appraiser may say a home is worth $200,000, but the underwriter may mark it down.
They focus on the neighborhood and “comparables” – similar homes within the local geographic area.
They want higher downpayments.
“The days of the 100-percent loan are gone,” he said. The secondary lenders want a minimum of 5 percent down, but some don’t like that little.
People with credit scores at 680 or higher could at one time get a loan for 100 percent of the home’s value, he said, but now they want a near-perfect 720 or higher to even consider it.
They want a lower debt-to-income ratio. It used to be 50 percent to 60 percent, he said. That means 60 percent of a borrower’s income could be committed to debt payments. But now they want 36 percent to 40 percent.
They want to make sure the buyer has sufficient assets after closing, he said, to provide padding in case of job loss, income cut or other issues.
“Any one [factor] makes it difficult, but the combination makes it more difficult,” he said.
Customers are also more cautious, he said.
When housing prices rose, some people expected incomes to rise, too, but that didn’t happen.
“People don’t have the confidence to go out on a limb quite as much.”
Copyright © 2009 The Dominion Post
Until recently, a real estate deal could close, on average, in 30 days, real estate agents said. But, bankers and real estate agents said increased scrutiny and tighter restrictions following the subprime mortgage meltdown, and an increased demand for government insured FHA loans has pushed closing times to 45-60 days.
Or longer.
Ask Morgantown, W. Va., resident Denny Vac, who tried to sell his house to a friend. It took 85 days for the loan to close.
That “is a long time,” Vac said. “It seems to me if they’re trying to get an economic recovery going, they’d be trying to make this a little easier to get through.”
Jerry Hall, a broker at Morgantown’s RE/MAX office, said he’s experienced the delays.
“Underwriters have been looking at properties with a microscope,” he said. They’re scrutinizing the loans, too. Properties may drop out the day before closing.
He had one sale hit a snag the day before closing because of the underwriter, he said. It was a bungalow with minor foundation problems. Two inspectors said it needed monitoring but not immediate repair. However, the underwriters wanted it fixed before the money was released. The sale took an extra month. Asked if he also considered the problem counterproductive to economic stimulus, Hall said “very much so.”
There are two distinct issues affecting the home loan process, bankers told The Dominion Post, depending on whether buyers are working with a conventional loan or an FHA loan.
FHA loans
Vac’s friend is pursuing a Federal Housing Administration (FHA) loan through BB&T, Vac said.
FHA says its loans can be good for several types of homebuyers: first-timers, those with little money for a down payment, and those with less-than-perfect credit, among others.
Jane Haines, vice president for mortgage sales at Clear Mountain Bank, said homebuyers putting less than 20 percent down on their homes are required to obtain mortgage insurance to protect against default in the event of foreclosure. Private mortgage insurance firms provide the insurance for homebuyers using conventional loans.
For FHA loans, the FHA doesn’t lend the money, but it insures the loans against defaults, said U.S. Department of Housing and Urban Development spokesman Lemar Wooley. This can make lenders more willing to part with their money.
And, while underwriters for conventional home loans are requiring at least 5 percent down, bankers said, the FHA requires only 3.5 percent and the rules are less strict about where that money can come from.
Vac put his house on the market with a realty firm for $180,000, he said, but listed it with the exception his friend could buy it for $150,000 without involving a real estate commission. His friend was pre-approved by BB&T and they signed a contract between April 16-20, expecting the deal to close not later than June 20.
Vac encountered various frustrations and problems during his long wait. The bank sent the wrong appraiser, and there have been communication problems.
When the deal started dragging out, he said, he considered renegotiating the contract at a higher price, but because of the way the appraisal system works, the house was appraised at $155,000, so he and his friend would have to start the whole process over again.
So he waited. His accountant told him the delay was costing him about $120 a day to hold onto the unoccupied, unrented house – more than $3,000 all told. Meanwhile, the buyer had to rent an apartment for an extra month, costing him more money, too.
BB&T media relations manager A.C. McGraw couldn’t address Vac’s specific situation, but said BB&T has a “longer processing time [on FHA loans] because of increasing volume. ... We’re literally pushing more loans through the pipeline.”
There are also more documentation requirements, she said.
McGraw said BB&T doesn’t keep separate statistics for closing times on conventional and FHA loans, but overall they’re averaging 45-60 days.
In cases like Vac’s, she said, “I’m sure other factors are involved.”
McGraw said BB&T is trying to prioritize home loan processing “to meet sales contract deadlines.”
Wooley said the FHA has noted “no appreciable increase in time for closures,” but the weak economy, the subprime mortgage market meltdown and tightened lending practices produced an “absolute increase in demand” for FHA-insured loans. The market share ballooned from less than 4 percent of all home loans in 2004, to 18 percent now.
“More and more people are turning to FHA as a safe product,” he said.
But Haines is among the local bankers who has seen “a lot longer turnaround” time for FHA loans – because of their growing popularity.
“It may take three weeks to hear back” from the FHA, she said, “and they want more information.”
“It is frustrating for the customer, the Realtor and the banker,” she said.
Another appealing factor for FHA loans, she said, is credit scores. FHA requires only a 620.
Credit scores can range from about 300 to 850, as rated by the credit-scoring system Fair Isaac Co. (FICO), according to various banking sources, and major lenders like to see scores at 700 or above, but typically offer “prime” loans (best interest rates) to folks at 650 or above. A score below 620 is considered bad credit, with a high risk for default.
Despite the increased lag time, Haines said, FHA is still the best route for many people. “Without FHA, more people would be unable to get into homes.”
Conventional loans
Jeff Stewart, associate broker at Pat Stewart Realtors, said, “There are more hoops to jump through. ... It’s just been difficult.” Underwriters will sign off sometimes, he said, and then come back with more requirements.
Another problem he and Hall have observed is appraisals. They’re taking longer, and sometimes homes are getting evaluated by nonlocal appraisers. Hall said that stems from a new regulation designed to prevent conflicts of interest. Banks are no longer permitted to contact the appraiser – the job has to be set up by someone not connected to the loan. For some banks, Hall said, that means bringing in people less qualified who don’t know the area or the market.
Haines and Centra Bank President and CEO Doug Leech said their banks are still using local appraisers. “We know our appraisers,” Leech said, but he’s aware it’s an issue elsewhere.
Centra, he said, has about $1.2 billion in assets, and lent out more than $500 million in 2008. Lending at that rate means Centra would exhaust its assets in about two years. So Centra and other banks sell their mortgages on the “secondary market.” This means Centra approves the mortgage and issues the money to the borrower. But then it packages its mortgages and sells them to megalenders such as Freddie Mac, Fannie Mae, Citibank or GMAC. In this way, Centra gets its money back and puts it back into the lending pot.
Leech said Centra is still closing 99 percent of its loans in 30 days. Haines said Clear Mountain’s in-house loans are going as quickly as ever, while there is a “slightly longer turnaround” for conventional mortgage loans.
But, Leech said, since the economic meltdown, requirements for conventional mortgages are more stringent. He ticked off a number of issues:
“Appraisals are scrutinized like never before.” An appraiser may say a home is worth $200,000, but the underwriter may mark it down.
They focus on the neighborhood and “comparables” – similar homes within the local geographic area.
They want higher downpayments.
“The days of the 100-percent loan are gone,” he said. The secondary lenders want a minimum of 5 percent down, but some don’t like that little.
People with credit scores at 680 or higher could at one time get a loan for 100 percent of the home’s value, he said, but now they want a near-perfect 720 or higher to even consider it.
They want a lower debt-to-income ratio. It used to be 50 percent to 60 percent, he said. That means 60 percent of a borrower’s income could be committed to debt payments. But now they want 36 percent to 40 percent.
They want to make sure the buyer has sufficient assets after closing, he said, to provide padding in case of job loss, income cut or other issues.
“Any one [factor] makes it difficult, but the combination makes it more difficult,” he said.
Customers are also more cautious, he said.
When housing prices rose, some people expected incomes to rise, too, but that didn’t happen.
“People don’t have the confidence to go out on a limb quite as much.”
Copyright © 2009 The Dominion Post
Friday, July 10, 2009
Average 30-year mortgage rates fall for second-straight week
Mortgage Rate Trend Index
Don’t expect much change in mortgage rates over the next 30 to 45 days, say 44 percent of the experts polled by Bankrate.com this week. A significant number (37 percent) predict a rate drop, while the remaining 19 percent foresee an increase.
McLEAN, Va. – July 10, 2009 – Average rates for 30-year mortgages fell for the second-straight week, but still remained above record lows reached earlier this year, Freddie Mac said Thursday.
The average rate for a 30-year fixed home loan was 5.2 percent this week, down from 5.32 percent last week, Freddie Mac said. At this time last year, the average rate for a 30-year fixed mortgage averaged 6.37 percent.
Rates on 30-year mortgages fell to a record low of 4.78 percent earlier this year, spurring refinance activity.
But rates then rose as high as 5.6 percent in June after yields on long-term government debt, which are closely tied to mortgages rates, climbed as investors worried that the huge surplus of government debt hitting the market could trigger inflation.
Since then, the yield on the 10-year Treasury note has fallen back from an eight-month high of 4.01 percent reached in June to 3.38 percent on Thursday.
Frank Nothaft, Freddie Mac’s chief economist, said rates for 30-year fixed-rate mortgages fell for the second week in a row to the lowest level in six weeks “amid market concerns over a weakening labor market.”
“The weak employment situation coupled with declining home values in many markets has added to greater defaults on home equity loans and lines of credit,” Nothaft said.
The American Bankers Association reported that the number of home equity loans that were 30 days or more delinquent rose to a record high of 3.52 percent in the first quarter, Nothaft noted.
Freddie Mac collects mortgage rates on Monday through Wednesday of each week from lenders around the country. Rates often fluctuate significantly, even within a given day.
This week, the average rate on a 15-year fixed-rate mortgage fell to 4.69 percent, down from 4.77 percent last week, according to Freddie Mac.
Average rates on five-year, adjustable-rate mortgages were 4.82 percent, down from 4.88 percent a week earlier. Rates on one-year, adjustable-rate mortgages fell to 4.82 percent from 4.94 percent.
The rates do not include add-on fees known as points. The nationwide fee for 30-year and 15-year fixed rate mortgages averaged 0.7 point, while the fee for five-year and one-year adjustable rate mortgages was 0.6 point.
Copyright © 2009 The Associated Press
Don’t expect much change in mortgage rates over the next 30 to 45 days, say 44 percent of the experts polled by Bankrate.com this week. A significant number (37 percent) predict a rate drop, while the remaining 19 percent foresee an increase.
McLEAN, Va. – July 10, 2009 – Average rates for 30-year mortgages fell for the second-straight week, but still remained above record lows reached earlier this year, Freddie Mac said Thursday.
The average rate for a 30-year fixed home loan was 5.2 percent this week, down from 5.32 percent last week, Freddie Mac said. At this time last year, the average rate for a 30-year fixed mortgage averaged 6.37 percent.
Rates on 30-year mortgages fell to a record low of 4.78 percent earlier this year, spurring refinance activity.
But rates then rose as high as 5.6 percent in June after yields on long-term government debt, which are closely tied to mortgages rates, climbed as investors worried that the huge surplus of government debt hitting the market could trigger inflation.
Since then, the yield on the 10-year Treasury note has fallen back from an eight-month high of 4.01 percent reached in June to 3.38 percent on Thursday.
Frank Nothaft, Freddie Mac’s chief economist, said rates for 30-year fixed-rate mortgages fell for the second week in a row to the lowest level in six weeks “amid market concerns over a weakening labor market.”
“The weak employment situation coupled with declining home values in many markets has added to greater defaults on home equity loans and lines of credit,” Nothaft said.
The American Bankers Association reported that the number of home equity loans that were 30 days or more delinquent rose to a record high of 3.52 percent in the first quarter, Nothaft noted.
Freddie Mac collects mortgage rates on Monday through Wednesday of each week from lenders around the country. Rates often fluctuate significantly, even within a given day.
This week, the average rate on a 15-year fixed-rate mortgage fell to 4.69 percent, down from 4.77 percent last week, according to Freddie Mac.
Average rates on five-year, adjustable-rate mortgages were 4.82 percent, down from 4.88 percent a week earlier. Rates on one-year, adjustable-rate mortgages fell to 4.82 percent from 4.94 percent.
The rates do not include add-on fees known as points. The nationwide fee for 30-year and 15-year fixed rate mortgages averaged 0.7 point, while the fee for five-year and one-year adjustable rate mortgages was 0.6 point.
Copyright © 2009 The Associated Press
Thursday, July 9, 2009
Your home’s true worth: Who can tell these days?
ORLANDO, Fla. – July 9, 2009 – One of the biggest mysteries in the region’s tumultuous housing market these days is: How much is that house worth?
Appraisers, real-estate agents, buyers and sellers across Central Florida are in a quandary about whether to include bargain-basement sales in the price mix when determining the value of a nearby, comparable home.
“It’s really causing havoc in the market right now,” said Les Simmonds, president of the Orlando Regional Realtor Association. “Hopefully it will turn around as we go through inventory of foreclosures and other distress sales. But I want to emphasize that could take some time.”
The confusion over local home values in a changing market is compounded when it takes weeks – or even months – for actual sale prices to reach government and commercial Web sites. One nationwide Internet sales site is taking on that problem by rolling out next-day closing prices, with the hope that it will draw potential customers by helping take some of the guesswork out of determining the worth of nearby properties.
Realtor.com has started posting sale prices the day after the transactions close in 22 U.S. markets – including the Daytona Beach area, parts of Brevard, the Miami area and Northeast Florida.
“If you’re trying to track trends in your neighborhood, you can find out what homes sold for in 24 hours. You don’t have to wait 60 to 90 days,” said Julie Reynolds, a spokeswoman for the Web site, which serves as a national, consumer version of local Realtors’ well-known Multiple Listing Service. “With the rapidly changing market trends, especially in Florida, it’s an art to establish the right list price or the right bid.”
Current sales information also can affect homeowners who are considering whether to sell or refinance their property, she said. The sales information is available in the “Find Home Values” feature on Realtor.com’s home page.
Leah Selig, executive director of the Space Coast Association of Realtors, said her group voted to disclose its members’ sales-price information to the public on a next-day basis to give the Realtors’ Web site an advantage over competitors such as Zillow.com, which provides property listings and estimated home values for houses throughout the country.
“Some of these public sites are publishing data that is not always current or accurate,” Selig said. “And you’ve got consumers out there relying on that information when it’s really months old.”
Zillow posts sale prices within about three weeks of closings in most markets.
So far, the Orlando Realtor association, with members throughout the region, hasn’t embraced next-day reporting of sale prices. The group voted against the idea about a year ago, noting that the information typically becomes available on government Web sites within a few weeks of a closing, Simmonds said.
But he added that the Orlando group is likely to review its earlier position, perhaps as soon as next week.
Though quicker reporting of sale prices can give the public more-accurate snapshots of the home market as a moving target, it won’t untangle confusion over whether foreclosures and short sales should affect the value of other homes.
Orlando real-estate analysts have tried to keep such “distress sales” from sullying the rest of the housing pool by separating the two in monthly price reports. On the other hand, Orange County Property Appraiser Bill Donegan often includes foreclosures when his staff computes home values in particular neighborhoods.
The state Department of Revenue has advised county property appraisers that they are allowed to, but don’t have to, use foreclosure sales when determining the value of nearby properties. Donegan said his staff is factoring foreclosures into property values in areas that contain numerous bank-sold houses.
“It’s got to be more than one, or even five, foreclosures spread out among 3,000 houses,” Donegan said. He said his appraisers are “being awfully cautious, based on what they did before [the housing bubble deflated]. They’d rather be low than high.”
The Orlando Regional Realtor Association has taken to distinguishing between the prices paid for foreclosure properties and those paid for homes sold through conventional methods. In May, for instance, the median price paid for all distress sales was $140,000, compared with the $165,000 median for “normal” sales, the association said.
Simmonds said he thinks it’s important to categorize the two types of sales because people need to understand why prices overall have continued to drop, even as monthly sales volume has been improving compared with a year ago.
Copyright © 2009 The Orlando Sentinel,
Appraisers, real-estate agents, buyers and sellers across Central Florida are in a quandary about whether to include bargain-basement sales in the price mix when determining the value of a nearby, comparable home.
“It’s really causing havoc in the market right now,” said Les Simmonds, president of the Orlando Regional Realtor Association. “Hopefully it will turn around as we go through inventory of foreclosures and other distress sales. But I want to emphasize that could take some time.”
The confusion over local home values in a changing market is compounded when it takes weeks – or even months – for actual sale prices to reach government and commercial Web sites. One nationwide Internet sales site is taking on that problem by rolling out next-day closing prices, with the hope that it will draw potential customers by helping take some of the guesswork out of determining the worth of nearby properties.
Realtor.com has started posting sale prices the day after the transactions close in 22 U.S. markets – including the Daytona Beach area, parts of Brevard, the Miami area and Northeast Florida.
“If you’re trying to track trends in your neighborhood, you can find out what homes sold for in 24 hours. You don’t have to wait 60 to 90 days,” said Julie Reynolds, a spokeswoman for the Web site, which serves as a national, consumer version of local Realtors’ well-known Multiple Listing Service. “With the rapidly changing market trends, especially in Florida, it’s an art to establish the right list price or the right bid.”
Current sales information also can affect homeowners who are considering whether to sell or refinance their property, she said. The sales information is available in the “Find Home Values” feature on Realtor.com’s home page.
Leah Selig, executive director of the Space Coast Association of Realtors, said her group voted to disclose its members’ sales-price information to the public on a next-day basis to give the Realtors’ Web site an advantage over competitors such as Zillow.com, which provides property listings and estimated home values for houses throughout the country.
“Some of these public sites are publishing data that is not always current or accurate,” Selig said. “And you’ve got consumers out there relying on that information when it’s really months old.”
Zillow posts sale prices within about three weeks of closings in most markets.
So far, the Orlando Realtor association, with members throughout the region, hasn’t embraced next-day reporting of sale prices. The group voted against the idea about a year ago, noting that the information typically becomes available on government Web sites within a few weeks of a closing, Simmonds said.
But he added that the Orlando group is likely to review its earlier position, perhaps as soon as next week.
Though quicker reporting of sale prices can give the public more-accurate snapshots of the home market as a moving target, it won’t untangle confusion over whether foreclosures and short sales should affect the value of other homes.
Orlando real-estate analysts have tried to keep such “distress sales” from sullying the rest of the housing pool by separating the two in monthly price reports. On the other hand, Orange County Property Appraiser Bill Donegan often includes foreclosures when his staff computes home values in particular neighborhoods.
The state Department of Revenue has advised county property appraisers that they are allowed to, but don’t have to, use foreclosure sales when determining the value of nearby properties. Donegan said his staff is factoring foreclosures into property values in areas that contain numerous bank-sold houses.
“It’s got to be more than one, or even five, foreclosures spread out among 3,000 houses,” Donegan said. He said his appraisers are “being awfully cautious, based on what they did before [the housing bubble deflated]. They’d rather be low than high.”
The Orlando Regional Realtor Association has taken to distinguishing between the prices paid for foreclosure properties and those paid for homes sold through conventional methods. In May, for instance, the median price paid for all distress sales was $140,000, compared with the $165,000 median for “normal” sales, the association said.
Simmonds said he thinks it’s important to categorize the two types of sales because people need to understand why prices overall have continued to drop, even as monthly sales volume has been improving compared with a year ago.
Copyright © 2009 The Orlando Sentinel,
Wednesday, July 8, 2009
$8K tax credit downpayment challenges Florida officials
TALLAHASSEE, Fla. – July 8, 2009 – Trying to get the $8,000 tax credit downpayment loan to help a homebuyer? Local officials charged with administering the SHIP (State Housing Initiatives Partnership) program and, by extension, the Florida Homebuyer Opportunity Program’s (FLHOP) $8,000 tax credit bridge loan peppered state officials with questions yesterday in a conference call.
On the positive side, Florida lawmakers decided to offer a bridge loan to first-time homebuyers eligible for the federal government’s $8,000 tax credit through an existing state program. That gives the loan program an existing framework and avoids setting up a new system for disbursing money. On the negative side, the FLHOP program rules differ from SHIP rules, and local SHIP officials voiced a number of legal and pragmatic concerns over the new loan program.
In reality, the program likely kicks off on Aug. 1. It became effective July 1, but the funding mechanism for the loans also started July 1 without any money and must rely on current home sales’ doc stamp taxes to build the reserve.
In addition, some local SHIP officials may not have everything ready by the Aug. 1 date as they struggle to formalize rules and regulations. Since the Florida program operates as a type of mortgage loan, it comes with rules and caveats like many found in first or second mortgages. While up to $8,000 is advanced without interest or penalties if paid within the first 18 months, for example, loan docs must also address potential problems.
“Some (local SHIP officials) are really on top of this and are ready to go,” says Stan Fitterman, a member of the Florida Housing Finance Corporation (FHFC). “Others are very leery to start until the check is in the bank.”
In yesterday’s conference call, many local SHIP officials voiced frustration and confusion. While some of their questions were answered, it became clear that most of the policy decisions must be implemented on the local level.
As a result, Realtors who have questions must contact their local SHIP office. To find your local SHIP office, go to: http://apps.floridahousing.org/StandAlone/FHFC_ECM/AppPage_SHIPLGContacts.aspx
The Florida Housing Finance Corporation, which oversees local SHIP officials, released a FAQ list about the Florida Homebuyer Opportunity Program in conjunction with yesterday’s conference call. While directed to local SHIP officials, the FAQ provides some answers being asked by Florida Realtors. The complete FAQ can be found on the FHFC website at: http://www.floridahousing.org/Home/HousingPartners/LocalGovernments/FL_HOP.htm.
For additional tax credit info, videos, radio ads, an IRS form, posters, flyers, downpayment programs and REO resources, visit FAR’s Homebuyer Center at: http://www.floridarealtors.org/AboutFar/homebuyercenter/index.cfm.
© 2009 FLORIDA ASSOCIATION OF REALTORS
On the positive side, Florida lawmakers decided to offer a bridge loan to first-time homebuyers eligible for the federal government’s $8,000 tax credit through an existing state program. That gives the loan program an existing framework and avoids setting up a new system for disbursing money. On the negative side, the FLHOP program rules differ from SHIP rules, and local SHIP officials voiced a number of legal and pragmatic concerns over the new loan program.
In reality, the program likely kicks off on Aug. 1. It became effective July 1, but the funding mechanism for the loans also started July 1 without any money and must rely on current home sales’ doc stamp taxes to build the reserve.
In addition, some local SHIP officials may not have everything ready by the Aug. 1 date as they struggle to formalize rules and regulations. Since the Florida program operates as a type of mortgage loan, it comes with rules and caveats like many found in first or second mortgages. While up to $8,000 is advanced without interest or penalties if paid within the first 18 months, for example, loan docs must also address potential problems.
“Some (local SHIP officials) are really on top of this and are ready to go,” says Stan Fitterman, a member of the Florida Housing Finance Corporation (FHFC). “Others are very leery to start until the check is in the bank.”
In yesterday’s conference call, many local SHIP officials voiced frustration and confusion. While some of their questions were answered, it became clear that most of the policy decisions must be implemented on the local level.
As a result, Realtors who have questions must contact their local SHIP office. To find your local SHIP office, go to: http://apps.floridahousing.org/StandAlone/FHFC_ECM/AppPage_SHIPLGContacts.aspx
The Florida Housing Finance Corporation, which oversees local SHIP officials, released a FAQ list about the Florida Homebuyer Opportunity Program in conjunction with yesterday’s conference call. While directed to local SHIP officials, the FAQ provides some answers being asked by Florida Realtors. The complete FAQ can be found on the FHFC website at: http://www.floridahousing.org/Home/HousingPartners/LocalGovernments/FL_HOP.htm.
For additional tax credit info, videos, radio ads, an IRS form, posters, flyers, downpayment programs and REO resources, visit FAR’s Homebuyer Center at: http://www.floridarealtors.org/AboutFar/homebuyercenter/index.cfm.
© 2009 FLORIDA ASSOCIATION OF REALTORS
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