Learning from our mistakes

Have you seen the video from the season premiere of the Oprah show, where the audience that covered 2 blocks danced in unison to the Black Eyed Peas song? It is now in the Guinness Book of World Record as the largest crowd performance. Way cool. Look at it on You Tube. Will the USA get into this Guinness Book as the country that couldn't even get along? Imagine the possibilities if we did all get along, as this crowd did on the Oprah show. Currently, our country is severely divided by bipartisanship, and it does not feel good. Government against Mortgage, Lenders against Appraisers, Bank against Builder, and Homeowner against Taxing Authority, ........catch my drift? The list goes on and on. It was refreshing to hear yesterday on a morning news station, Former Governor Jeb Bush (R) say nice things about our President. He was encouraging both sides to get along. It was a really nice interview, and he commended Obama on his desire to strengthen education. Its good we all have opinions, but there has to be common ground.

Same rules apply in the mortgage industry. Daily, we are being bombarded by new regulation that is 'guilty until proven innocent'. But how could we not be? We are the industry responsible for the largest meltdown in US History. Just yesterday, a Houstonian woman, 32 years old, was convicted of conspiracy to commit wire and mail fraud, money laundering, engaging in a monetary transaction in criminally derived property. Do you know how? By stating the homes were primary residences, when they were not. They were really investment properties. She faces over 20 years in prison, on each count. This is serious stuff friends. We must continue to be careful about what we represent, and how the clients are conducting themselves. It is our business to know, as lenders, as realtors. Its our duty to ask.

Interest rates have enjoyed continual low levels UNTIL YESTERDAY. Our analysts predict they will never get this low again (we saw 4.375% last week for 2 hours). We have had 2 days of increases, and at least 3 reprices a day for the worse, as the stock market has gained some ground with positive earnings, lower than expected unemployment. Just remember, mortgage bonds hate news of recovery.

Values (in some areas) continue to decline. We just had a borrower, that their home in Needville has declined in the 4 months since they began to build (Needville is south of Sugarland). By 5-7%. That is a lot in a 4 month period. Appraisals continue to attract scrutiny from our investors, and that transposes to more stringent underwriting guidelines.

There is still no word on the First Time Homebuyer Credit being extended. Likely, we will not see that until the current deadline has passed. In order to keep the momentum going for year end. Strong numbers. Isn’t that what its all about? Temporarily inflating our sense of security so we can have profits now, and put together the pieces later? When will we learn?

Some Consumers Still Don't Get It

Let's get to the point. This morning's release of unemployment (down from June) and payrolls up did not help things either. Once again, giddy investors trying to look for the silver lining to make themselves feel good about investing in the stock market. So once again...they pull their money out of bonds to invest in those stocks. This makes bond prices fall, as they want to attract more buyers with the low price, and yields (rates) go up on those bonds. Hence, there you have it, the mortgage backed securities are affected. Yesterday we had a reprice 2 times, and today already once.

So what is the takeaway? How about I explain it like this. I had a prospect email me yesterday and linked me to a graph (from the internet) of what the benchmark 30 yr fixed 'potentially' could do in the next 9 months. He is nervous. Doesnt know if he should buy. When? How can he assure himself the best rate?

He had asked for my opinion, so I gave it to him. No sugarcoating. In the nicest , most diplomatic way I know how, I implored him to consider that this was the home he was going to raise his family. Spend his free time, throwing ball with his kids. This was NOT Vegas, and trying to play the market by estimating the exact time to get in on a 5% rate was surely setting him up for disappointment. Surely. And further, that anything under 7%, historically speaking, is a gift. So in summary, I advised him to make an offer when the timing and the price seemed right for his family, and not to gauge it on what rate he thinks he will/will not get . Rates will increase. That is a given, with inflation surely soon to set in.

I'll end this weeks thoughts with a short story. I had a friend call me about a refinance. Her husband has bad credit, so the loan has to be in her name (she has 700 score). But she has no job. Husband earns cash, and deposits in her account. She recently went to get a car loan, and they gave it to her, without checking the employment, and thought surely this meant that now she could get a mortgage by just verifying deposits to her bank account each month, and 'saying' the job was hers. At first, I was not sure how to respond, thinking it must be April Fools day. But then very politely, and patiently, I said that (1) we cannot verify cash , and (2) It was not willing to mislead my employer about her work history when that was not true (aka: Fraud!= Jail).

Takeaway on this short story? SOME CONSUMERS DONT GET IT. So rather than wondering if they qualify or not, get them to us EARLY for pre qualification. That way we can set the record straight early on.

KNOW AND LOVE YOUR LENDER

Hmmmm. What to write about on a Friday afternoon at 3:30? The fact that I survived the week? Or the ‘new’ regulation that began yesterday that no lenders can figure out, because it keeps changing? Or the fact that appraisals are a sore topic of discussion for us on a daily basis? Can anything go right? Yes it can….mortgage backed securities enjoyed a nice rally today as GDP was released, showing companies are hiring, economy may be stabilizing. But wait! Usually this type of news makes rates go up. We don’t like good news! But trailing behind the horizon is news that consumers still are not spending. The bitter doom and gloom that the bond market loves, at least for today at 3:30, rates are attractive. Monday may be another story.

Thought for the weekend: KNOW AND LOVE YOUR LENDER. In these legislative times, and with regulation changing constantly, it is more important than ever that your clients know and trust their lender. Do I need to say more?

What I am seeing in the Real Estate Market

The term 'be careful what you wish for' is so overrated.....but true. Stocks and bonds were mixed this week. With good news of the earnings reports for some companies, and increased home sales, mixed with the bad news of unemployment, a jobless recovery and health care reform battles, NO WONDER bonds did not know how to price mortgage rates!

I did see a glimmer, and I mean glimmer, of 4.875% on Wednesday, for about 90 minutes. Then it was gone, as quickly as my winnings in Vegas last summer.

What am I seeing in the market? Lots of contracts, lots of backup offers, increased close times, so-so quality on appraisals, increased documentation from our investors, lots of review appraisals, longer underwriting times, lock extension fees, and volatility in rates. What else is new? This is the world we live in folks. And it may get worse before it gets better.

Ongoing advice to you is COMMUNICATE, and do it early - with everyone in the transaction. If you are not a list maker, BE ONE. If your client refuses to get pre approved early, THINK TWICE, and if you sense something does not seem right with a lender, title co, etc, ACT EARLY. And last but not least, BE FLEXIBLE. Your closings will be delayed when you least expect it. Advise your sellers not to move out until docs are at title, and don't let your buyers schedule movers that cannot be changed either. THIS WILL HAPPEN TO ALL OF US, even with the best intentions. Even when we are all on top of it. Something will come up, I promise you.

Tips to survive the recent TILA changes effective July 30

Let me preface the next paragraph by saying that Patriot Bank Mortgage is committed to the success of your business! We have been embracing changes as they happen, so that we can ease the transitions and complexities of the real estate industry as we know it today.

Now, for the news. On the heels of the HVCC (appraisal) changes we saw May 1, we now have disclosure changes that affect how mortgage companies will have to disclose to consumers. HERA (The Housing and Economic Recovery Act) was passed by Congress and the Federal Reserve to provide a more transparent, level and fair regulation of the real estate industry. These additional steps (effective July 30, 2009) are to help avoid deceptive lending practices:

The earliest a home purchase transaction (with a loan) can close is 7 BUSINESS days after the homebuyer is issued his initial truth in lending disclosure from the lender. M- Sat are considered business days. ·

Application fees cannot be collected until the initial disclosures are received (this could delay appraisals being ordered) ·

ANY change to the loan amount (ex. Sale price), days of interest, or fees (that all affect the Truth in Lending disclosure) , will trigger a new 3 day disclosure and waiting period until the transaction can close. Hence, last minute changes to the contract, or change in closing date from initial application, ‘could’ (not always) impact the closing date.

Tips to ensure timely closings: ·

• Set realistic expectations with listing agents, seller and buyer for potential closing dates)- 30 days min . is a ‘wise’ choice·
• Be sure the lender and title company are in contact as early as possible in the transaction. Title and mortgage need to work together on fees/disclosure , etc more than ever.·
• Be sure homebuyers understand that if their loan is not locked until later toward closing (if they choose to float), this could impact the APR, and therefore trigger new disclosure 3 day period, therefore delaying closing. Borrowers should NOT expect to be able to float down their rate or switch lenders last minute. This would trigger close date changes for sure.·
• Be in constant contact with the lender, and ensure title/lender have a ‘preliminary’ HUD 4 days prior to closing, in case a new TIL disclosure required.·
• Make changes to the contract (lowering price, seller credits, etc) is done as EARLY as possible, and that lenders have those amendments asap, so they can redisclose early.

In the Chronicle, July 15, business section, Scott Burns had a wonderful article titled ‘Buying a Home Takes a Miracle’. He sums it up nicely in the last paragraph : “There is no way you can accumulate enough paper to substitute for human judgement. The No Paper System did not work, It created the housing crisis. The Infinite Paper system that replaced it doesn’t work either. It will extend the crisis. Scott, those are wise words. Only time will tell. We have no choice, Jennifer, but to embrace this change, and hit it head on with changing the way we do business. We must be more tenacious than ever, and encourage team work more than ever as well.

No Democracies with Fannie/Freddie - Happy 4th!

May you enjoy and cherish this precious day, and remember what a gift FREEDOM is! We are so blessed to live in a country with the ideals of independence and democracy. The thought of managing 302 million people is overwhelming! No wonder our legislators cannot agree. But that is the beauty of it all! We need balances, so that we can continue to function as a democracy.

As for the mortgage industry, no democracies here! It is Fannie /Freddie way or the highway. We continue to see increased regulation, silently trickling into our everyday lives. More disclosures. More verifications, and ultimately, more cost to the consumer. That is what ultimately will happen. In many cases, it already has.

Why do we think the rates are not lower than they are? If they followed the 10 year bond as in historic past, the yields would be below 5 for sure. But investors are tired (not to mention poor), and they are not going to 'give it away' this time around like they did in 03/04 during the last rate craze. They want profits, and they want them big. What we have seen is a 'no mercy 'attitude from our lenders. No exeptions, no forgiveness, no anything. It is brutal, but we are managing and shielding this from our clients as much as we can, to continue to ensure a stress free transaction!

This weeks letter is short, and as promised last week, more information on the July 30 changes is coming in my next letter. This week was crazy with month end and I dont have all the facts yet. I hope you are off somewhere fun , and relaxing.Until next week.........

$8,000 First Time Homebuyer Credit- as good as it seems?

If you read the paper, you will have noticed on Thursday in the Chronicle Business section the article stating ‘A break for first time homebuyers ‘. Well…….there is a catch. Isn’t there always? Last month, the legislators came up with a feel good plan for buyers to access this $8,000 before they actually earned it. What a shocker! They now made it possible , in theory, for buyers to access these funds for closing costs (only) when they buy the house, not having to wait until next spring when the return is filed. The issue since this was released is ‘ WHO’ is going to forward this money? No agencies have really stepped up. There have only been a few. So as of this week, the State of Texas (via the Texas Dept of Housing and Community Affairs – TDHCA), will make that possible. BUT WAIT!!! Let’s look at the fine print. First, it says ‘some ‘ of the tax credit. Second, only 700 borrowers for the first wave of approved money. And thirdly, the most important, is it has to be paid back within 90 days to remain interest free.

Well, let me give you a hint here. If the people using it today for buying a home could afford to pay it back within 90 days, do you think they would take this in the first place? So what we will have is yet another quagmire of a government agency earmarking some federal money to this program, in hopes people pay back in the 90 day period, and when they don’t, the program will freeze because they have no more money to advance.

I am not sure you really want to know my thoughts about this. But I’ll give it a shot. You can stop reading if you want to. WHY CANT WE ALL JUST BE COMPLACENT WITH THE DELAYED GRATIFICATION OF ‘ FREE’ MONEY IN 2010? Why do we have to look for ways to get ourselves in trouble with borrowed/advanced funds, yet again?

Rates are down this week! Hip Hip Hooray! The reason? Do we really care? Soon enough we will own the bragging rights of having an interest rate below double digits, or won’t we? That remains the million dollar question. In summary, they are low, so get out there and spend it.