Hallelujah!

After 3+ years of refuting, critiquing and criticising the writings of The Seattle Time’s Elizabeth Rhodes on real estate matters, the Times has finally heard our pleas and replaced her with a new, actual Real Estate Editor. Meet Cindy Zetts. In her first article for the Times in yesterday’s Real Estate section, Cindy quickly demonstrates that “SHE GETS IT!” She has experienced multiple real estate transactions and has taken the time to study, and thus understand, how real estate works.

I am both thrilled, and relieved, that Ms. Rhodes has been demoted in what appears to be a lateral move with the new title of “Business Reporter”. Great! Let her torture the business sector for a few years with her uninformed, poorly researched, and otherwise confusing and misleading articles.

Unless you are in the business, my zeal for this improvement may seem over-emphasized. Allow me to explain: The time that we have spent explaining Ms. Rhodes inaccuracies and wrong-headed view of real estate over the last 3+ years to confused clients and prospects has been frustrating, to say the least. Now we can fully focus on the tasks that matter, helping people navigate the real estate buying and selling processes without fighting the rip tides caused by Ms. Rhodes.

Although it is early in the game, if the first article by Ms. Zetts is any indication, Western Washington may finally have a columnist that will help them in their quest to understand real estate.

Left Out In The Cold?

The help that the Federal Government has pumped into the economy may take a awhile to help home-buyers and those seeking to refinance. The Sunday Seattle Times included an article by Jeff D. Opdyke and Jane J. Kim of The Wall Street Journal. Very good insights as to why we are not seeing conforming 30 year fixed rate mortgages drop to near 5% are offered. ARM’s are no bargain either because lenders are doing all they can to liquidate the ARM’s they already have on their books. This means that the ARM Jumbo you may be seeking will have a tough time being resold into a market already flooded with older ARM’s that lenders are trying to unload, thus your ARM will require a higher rate to attract buyers.

One bit of relief is the reduction in credit card and auto loan rates, as well as home equity lines of credit ["HELOC"].

Good advice is also offered regarding the importance of watching the mortgage market closely for signs of an opportunity. As the market is extremely volatile, be ready to act quickly should the product you desire suddenly drop in price.

The Mortgage Professor

Jack Guttentag, aka “The Mortgage Professor”, is  a syndicated columnist to the Seattle Times. He has often referenced his website: http://www.mtgprofessor.com/Default.htm. Today, I finally decided to pay a visit, as I am considering the alternatives available to me for refinancing my current Jumbo mortgage. There is a lot valuable information there. It is more important than ever to thoroughly research the loan process as lenders attempt to shore up cash flow based on fewer transactions. Learn about “UMB’s” and “MB’s” from the professor, then set your sights on what the best avenue is for you.

As Diana mentioned to me this morning, it is uncanny how acutely aware homeowners and home-buyers are aware of commissions paid to real estate agents, yet have little grasp of how mortgage lenders/brokers are compensated. This web site will open the eyes of would-be borrowers to the web of techniques utilized by unscrupulous lenders that seek to take advantage of borrowers, particularly when their backs are to the wall i.e., facing default on a purchase and sale agreement if they don’t close, or losing a home to foreclosure.

The lack of regulation and standardization is what created the mortgage lending crisis. It is solely up to consumers to decipher what they are getting for their money. This website will educate you to the pitfalls, give you the questions to ask your lender, and resources that you may not have considered. It takes a bit of effort to absorb, but is well worth the time invested………..for all of us. For if we, as a group, bring similar pressure to bear on the lending industry, we might just help straighten out the current crisis, as well as insure that it is not soon revisited.

Rex Agreement: Avoid This Like The Plague

You would think that with the mortgage mess still unsorted, the last thing we would see is another exotic home equity product from a financial institution. The Rex Agreement has to be one of the most abusive instruments I can image. It’s just like taking your home equity to the pawn shop. According to the Sunday Seattle Times article:

1. If you have high equity in your home, and it is worth $500,000 you may borrow up to 15% of its value ($75,000)

2. You get the money immediately, free to do whatever you want with it, interest free.

3. You sell your home 5 years later for $700,000.

4. You are required to repay the original REX loan of $75,000 PLUS 1/2 of the appreciation, for a total of $175,000.

It cost $100,000 to borrow $75,000 for 5 years. Let’s think about that for a moment.

If you borrowed $75,000 with a HELOC (Home Equity Line of Credit) from Bank of America at 6% interest for five years, making 60 monthly interest only payments of $375, it would cost $22,500. Hmmmmmm……..$175,000 vs $22,500.

Make no mistake, this is a highly predatory product designed to tap into good folks’ fears. I can hear the “closers” for this one.

1. “You won’t have to sell your home, you can stay where you are.” [Note that these loans are only for people with high equity and excellent credit i.e., older folks that have been scared to death by the media over the last 6 months and think they should stuff their mattress with cash.]

2. “If your home goes down in value, we will share that loss with you.” ["Oh golly, what incredibly nice guys. How could they possibly be crooked if they are willing to accept half of the risk of my home depreciating?" Are you kidding? If they didn't know that the real estate markets across the country have already bottomed out, and are set for a steady march upward in appreciation, they never would offer this product.]

3. “You won’t pay one cent of interest for this loan.” [Gee, thanks! Over the past 30 years, single family home appreciation has averaged about 4% annually. 5 years would mean about 20% appreciation, and I only have to give you guys half? 10%? Where do I sign.]

4. “These are just standard forms.”[My favorite! Let me say this once. When it comes to lending, THERE ARE NO STANDARD FORMS!!! I think that this has been thoroughly demonstrated by the current record foreclosure rates by homeowners who thought they were signing "standard forms" when in fact they were endorsing a time bomb. If people had taken the time to read their loan docs, the entire mortgage/credit mess may have been averted.

If you know elderly homeowners who might be strapped for cash, probably so that they can pay their ridiculously high property taxes, or unforeseen medical bills, warn them against REX Agreements. It is better to explore the offerings of a bank bank based “reverse mortgage” than to succumb to the vultures that will be peddling REX Agreements. They are already advertising on the radio locally. Warn your elderly relatives and friends. They are the primary targets.

What $1 Million Buys In Homes Across The U.S. by Forbes.com

Honestly, most of the news surrounding housing has me a little depressed lately. Actually, it’s not so much the housing, but the credit debacle that has caused banks across the country to lose their collective minds as evidenced by arcane C.Y.A. policies implemented in the last week: cancelled “HELOC’s” [home equity line of credit], and second position lenders refusing to subordinate for the sake of refinancing a first [see Ken Harney's article from the Sunday Seattle Times]. So I thought it be nice to look on the lighter side of real estate this week. If you would like to see what $1,000,000 buys in other parts of the country, you will enjoy this article by Matt Woolsey at Forbes.com

More Waiting For True Jumbo Relief Required…..

Further exasperating the jumbo loan picture is the idea that Wall Street is going to segregate the new Fannie Mae and Freddie Mac loans that exceed the former conforming limits. This is going to limit the interest rate relief originally sought by the increased conforming loan limit initiative. Read this article from the Associated Press.

Fed Help Not Really Enough For King County….

 Daniel Billett of Response Mortgage in Seattle plans to refinance as soon as the new loan limits are confirmed.

The Saturday Seattle Times featured a cover story by Katie Hafner of the New York Times concerning the Federal stimulus packagerecently signed into law. (For some reason, the Seattle Time’s on-line version is not available, so this link takes you to the NY Times site.) While the story reveals that the new maximum limits for “conforming” loans may be as high as $729,950, it also explains that the limits are set in accordance with regional median sales prices. That means that our new local conforming loan limit will be about $544,000. It will help, but not nearly enough for the many homeowners sitting on 3 to 7 year adjustable rate mortgages in excess of $600,000. And there are a lot of them. The King County market needed a boost in the conforming limit to at least $650,000 on order to avert a looming meltdown in what I call the “upper tween-er market”: homeowners that earn enough to support properties valued from $700,000 to $1M, but are not liquid enough to reduce i.e., pay down their respective loan amounts to get under the conforming limit and refinance before their current jumbo ARM resets or expires.

Builders face a similar problem. With finished building lots coming on line at between $225,000 and $350,000 each, builders generally need to build finished homes worth between $750,000 and $950,000. The new conforming loan limit of $544,000, by itself, is not going to be sufficient to finance this type of product.

Since it has taken sine June of ‘06 to get this much help from the Feds, waiting for additional, or increased, assistance isn’t going to be practical for many homeowners and builders. I think it is more likely that the higher jumbo loan (non-conforming) rates will have to be endured for the foreseeable future. With those rates exceeding conforming rates by 1-2%, and fewer buyers willing to pay those rates, there will be downward pressure on prices of properties in the upper tween-er market.

(Note: I refer to this price range as the tween-er market because owners and buyers in the market above $1.2M generally have enough liquidity that they are comparatively immune to interest rate variances on this scale.)

Should Sellers Do A Pre-Inspection?

There was a brief and nominally informative article in the Sunday Seattle Times: Sellers should consider paying for inspection early in process

One of our most important responsibilities as listing agents is carefully reviewing the “Seller Disclosure Statement“, also referred to as “Form 17“. It is a requirement in the State of Washington that this form be completed by just about every seller of real property. (There are few exclusions) Some view it as an inconvenience. We view it as an opportunity.

In reviewing this form, a seller is presented with a comprehensive array of questions concerning the condition(s) of the many components that make up a residential property: plumbing, electrical, heating, water quality, septic system, etc. It is while going over this form with sellers that we learn about the general condition of a property, as well as important specifics.

When a seller mentions that they used to have a few mice, we see a red flag.

When a seller says his furnace is the original, 25 years old, and is running strong, we see a red flag.

What a seller may see as a minor problem can often mushroom into a very large problem if not properly addressed. An important key to successful selling is to resolve all potential inspection/disclosure issues BEFORE putting your property on the market. When a buyer’s inspector discovers a significant problem it can be extremely difficult to regain a buyer’s confidence.

Every buyer wants to believe that they can trust the seller. When the buyer discovers a problem that was not previously disclosed via the seller’s Form 17, that trust can evaporate. That’s why our motto is, “when in doubt, disclose it”. It is highly unlikely that any seller will end up in court over an issue that was disclosed, in writing, to a buyer prior to the closing of a sale. A buyer will readily sue a seller over an issue that is discovered after closing, and should have been reasonably been known to the seller. Whether the sewer line backs up when it’s cold outside, or the crawl space floods every time it rains hard, such matters should always be addressed, repaired, and disclosed to the buyer. Yes, even if it has been repaired, it should be disclosed.

Oddly, we find that younger clients are more readily up front about issues that should be disclosed. Many older sellers appear to be of the mind that if we, the agents, don’t know about a problem, the buyer won’t either. Sometimes, if we discover a problem, some older sellers will ask us if it is really necessary to tell anyone about it. We try to explain that the days of “buyer beware”, for the most part, are over. We attempt to explain that the buyer’s inspector would likely discover the problem. Then we might be asked, “what if he/she doesn’t find it”? You get the idea. In our experience, younger clients are more trusting, more interested in the process, and more trustworthy than their older counterparts.

Should sellers pay for a pre-inspection?It would be easy to say yes to this question. Unfortunately, the wrong people would be paying for an unnecessary service i.e., those that would have a pre-inspection are usually the folks that are the most knowledgeable about their homes, and the most honest. The folks that should have an inspection are the least likely to do so because (a) they don’t want to spend the money and (b) they don’t want to know about any problems they aren’t already aware of, thinking this absolves them of responsibility. Nothing could be further from the truth.

The Seller’s Property Disclosure form is an excellent template for reviewing the condition of your property. Use the above links to review and print a copy. It is always best to stay ahead of potential problems in order to avoid expensive, and untimely, repairs.

Lending Supply and Demand

If you were among the multitudes calling your lender last week when mortgage rates dropped, you may also have been disappointed when you finally got through. On the heels of the FED’s historic 3/4 point rate reduction mortage rates temporarily dropped to as low as 5.125%. [See the LA Times Article "Interest-rate drop spurs frenzy of refinancing calls".]

But something happened while you were on hold listening to elevator music. The calls were coming in unprecedented volume. In the past, mortgage lenders would rejoice, taking down names and requests and go about hiring new personnel to handle the volume. This time, the lenders view the volume with great caution. They will do the deals they are equipped to handle, but are unlikely to start hiring back all the people they just layed off over the last 6 months. Why? There is no long term solution/replacement to the loss of the sub-prime and/or non-conforming securties market. What this meant to the callers that didn’t get through first was the steady climb in fees and rates throughout the week. This is the lenders’ way of slowing down the flow to that which they can handle AND raising the profit margin for the deals they put together.

Right now, after 6 months of attrition and downsizing, lenders are not about to start looking for additional office space and employees. They will try to earn more per transaction. As such, shopping around is now more important than ever. The differences in rates and fees may be dizzying, but worth sorting through.

Diana’s Opinion Published in the Seattle Times

The “Letters To The Editor” section of the January 19 edition of the Seattle Times featured Diana MacDonald’s opinion regarding Elizabeth Rhode’s prior article “RealEstate Anxiety: What’s Next in ‘08?” from Dec 30, ‘07, which I also panned here under the title “Not The Sharpest Tool” (see Selling Concerns under categories, about 3 articles down from the top). Read Diana’s published opinion, the 4th one down titled “Indulge in moderation”. Rhode’s insinuation that ALL sellers are “out to get” unsuspecting buyers is an unfair characterization of the majority of sellers that just want a fair price, nothing more.