hoembuyerfirst

http://first-time-home-buyer-s.com

Tell them the truth: You were screwed. Our government failed to reign in the greed of lenders, and Wall Street because they were both making huge campaign contributions. The excesses went on too long. If your loan is in a CDO, the likelihood of working out a modificiation agreement is very small. The government will bail out lenders — and thereby protect lenders (who pretend to worship at the altar of the free market) from the consequences (losses) of their bad decisions. They people - however - will continue to twist in the wind. It is all very sad. Many wonderful innocent people were harmed. This “self inflicted wound” was altogether avoidable. We will be dealing with the carnage for years.

However,

The REO AZ operation is out of control. I have had 5 closings in 2 years, never lost a listing–everyone was a headache–you almost never get the process down to a science. They lie, work behind your back, and try to palm as much non-Realtor work off on you as they can. I am not looking for a second job. Also resent being on the bottom of the food chain for commissions. You get a list letter at 6% and a month later it goes to 5%….

Now, it’s the opposite. On my listing (I’m a homeowner, not a Realtor) I just asked my agent to include the information that the home was NOT bank-owned, and that offers will be approved or rejected very quickly. There’s something to be said for making a home purchase an easy process.

Excellent post.

Actually, Minnesota (and Minneapolis too) is doing a lot better than many areas throughout the country. There’s a few big reasons for the high number of foreclosures/short sales:

* All the ARM mortgages that are readjusting higher

* Some borrowers with poor credit got loans that they simply could not afford or do not have the capability to repay responsibly

* People who need to move but owe more than the house is worth (since they bought 0% down) and have no money to make up the difference

* Declining prices that encourage some owners simply to ‘walk away’

I have an affectionate connection with MN, I like the place and people, but the real estate situation there is worse than I ever imagined.

The one thing I’m not 100% clear about is what’s causing such *huge numbers* of foreclosures? Is this just due to increases in payments following chanes in mortgage terms?

I’m enjoying reading your blog.

On the flip side, I personally have two mortgages with Countrywide. They weren’t flexible with my escrow account and I just got a check for $10,000 because they wouldn’t let me get the extra money paid for a tax payment any earlier. I could have had the interest in something more lucrative, obviously.

They’re a bank and there to make money. Who owns them? I’ve not had the time to check them out. I’m too busy selling real estate.

You are projecting the perception people gleem from the news onto the very specific topic of a property owner wanting to make sure a buyer is qualifed. That is all I’m commenting on. Not the evils of the biz over the last few years.

A property owner wants to qualify potential buyers and is offering a commission to an independent agent to sell that house to someone. That agent, if they plan on lasting through this downturn, will play the game because that is just they way it goes. See, all the points about credit being run, strangers looking at financials etc. is a mute point that only has weight with less then savy business persons.

When a borrower submits a loan application to a mortgage company (broker or banker) a minimum of 3 complete strangers see the entire loan package and in most cases two credit reports get run no matter what. We all know 3,4,5 mortgage related credit pulls don’t do squat to a score so that is a mute point. Secondly, if a buyer has a “principal” dispute with the practice that means the buyers agent didn’t go a good enough job of explaining the situation and why that is a reasonable request. If a buyers agent has a problem with a seller requesting that their mortgage person/company/branch whatever “kick the tires” of a potential buyer then that agent is in the wrong line of work for this market and probably won’t make it through the next few years.

Don’t go getting all macro on me when all I’m talking about are the bullet points made in the original blog post.

I am a VP (lol, aren’t we all) for a national bank that is in mortgage orginations full time. My buyers get more than a letter from their mortgage guy, they get a full blown written loan commitment to present to the seller. Letters in my market (metro Wash DC) from independent brokers are not accepted any longer - only local and national banks.

The issue w/ Countrywide is very similar to the situation w/ major builders with their own mortgage company. Even if it’s on the up and up, the public perception is it’s a tainted situation. Countrywide is just smearing their reputation more within the industry - and I have great compassion for them and their employees. With all of the outrage, by EVERYONE in the industry and as a homeowner, the appearance of any impropriety is the very last thing we need.

I think whoever compared it to letting the fox guard the henhouse said it best.

You said it: “A prequal letter isn’t worth the paper it is written on unless the paper comes from a trustworthy source.” Even in this market, there are still many lenders that have great reputations and are extremely trustworthy.

There are other things you could do to increase your protection, like increasing the earnest money and making it nonrefundable after inspection.

I don’t work for a bank, I’m a cash buyer. My wife and I have properties and are constantly trying to get more at the right price which is why I write so many offers. As an owner of a home for sale I can tell you that I put in my listing the buyer must have a conversation with my mortgage guy before I will agree to sell to that person. To not do so only opens the seller up to hack real estate agents, lying buyers and lying loan originators. A prequal letter isn’t worth the paper it is written on unless the paper comes from a trustworthy source.

You should try selling your home in this market and tell me if you think it is easy and if you would trust every tom dick and harry with a prequal who says they are interested.

These lenders, most notably Countrywide, have been offering no doc or subprime loans and got caught with their pants around their ankles. So, you think the public would buy an REO and trust them with their mortgage? In case you haven’t caught on, the general public is mad as hell and antics like this just fuels the fire. There are many things one can do to ensure a viable purchaser, but letting the seller in on the buyer’s financials, I predict it is going to backfire on them big time.

I appreciate your comments but have to disagree with you on many points. In the case where my buyer refused to do the Countrywide pre-approval, it was HE who dug his heels into the ground… I downplayed the significance of it and urged him to do it since the house was clearly the best option for him. He said he was refusing based on the principle of it.

In the Twin Cities market, Countrywide is the ONLY bank lender I’ve seen require ALL buyers do a pre-approval through them. It sounds like it is different in your market.

The pre-approval I submitted was with Wells Fargo… not some fly-by-night loan company with zero reputation. It didn’t matter to Countrywide… ALL buyers using financing, regardless of the lender, have to use their in-house people. That’s not for protection from bad lenders/buyers, that’s them trying to hog the trough.

Getting all upset over a seller trying to weed out the flimsy and crack pot buyers is a smart move and your job as a SELLING agent looking to earn a commission from that seller is play the game. Your points made above in bullet fashion are absolutely laughable, each and every one of those is what you expect a potential buyer to go through when you refer them to your “loan person” so YOU can have the confidence the job will get done yet, a seller wants the same thing and you get all bunched up over it. Come on guy. If you just dusted off the ole selling skills and explained the process from a sellers point of view (one that most potential buyers will most likely have gone through at least once before) and put it in a good light your buyers wouldn’t care one bit. It is just part of the game. If you frame it to your buyers as you did above in this blog post then they get upset over it and then won’t want to purchase a CW REO. That could end up costing you in the long run because maybe, just maybe their dream home is a CW REO and if you won’t show it and you make a big deal out of the prequal from CW a guy like me who doesn’t care one way or the other about CW’s policy and one with superior sales skills will sell that home to your EX Clients and make the commission.

It is all about playing the game my friend, one that; at the end of the day is necessary from a sellers point of view.

What should really have your panties in a bunch is the fact that Countrywide takes REO properties that are just plain old messed up and need major repairs and then tries to sell them for retail prices instead of discounting them appropriately to actually have a chance at selling. That is a topic worth venting about.

Cheers

Question - Did you call the listing agent and explain your buyer’s situation? - Sometimes they make exceptions.

Article:
http://www.mplsrealtor.com/enotes/buyers-market.pdf

Summary:
In 2006, 44.34% of all listings sold, which is still stronger than the 38.09% that sold in 1989. So another way to look at this is that in 1989 we had a massive buyer’s market and yet there was no subprime borrowing, no 100% financing, etc. Housing goes through cycles, regardless of the reasons for it.

While both offer 100% financing, only the subprime market is in trouble right now. Default rates on “A” paper are still very low and have been.

For those that are not sure of the difference, an “A” paper buyer is one with a high credit score, usually 720 or better, with a clean credit history showing both a long use of credit and an ability to make payments on time for those bills.

Subprime borrowers are also sometimes called “B” or “B-” paper borrowers are those that have had problems with their credit in the past and/or have a relatively short credit history.

Naturally these borrowers carry more risk, which is why they not only pay higher interest rates but they also were more likely to go to an interest-only ARM product to try to keep the rate down. As soon as their ARMs came due and the rate jumped 2% or more, they found themselves unable to pay the bills.

Without differentiating these two groups of borrowers, it makes it sound like all 100% financing is bad when it has in fact been very successful for those that have demonstrated a clear ability to manage their finances.

If you use 100% financing and can give the property back to the bank because of the costs of foreclosure and availability of mortgage insurance, the risk/reward structure is violated. Thus, we now have a horrible market because of the shenanigans over the past 4 or more years. The outer suburbs you mention are battling gas, roads/transportation, interest rates and mortgage issues. Some of the buyers heading out further did so because they could buy more house with their resources.

Those who exercise “undue caution,” as one of the posts mentions, are still penalized because of the buyers who were encouraged to take on home ownership when they didn’t understand it and couldn’t afford it. They were likely told to buy before prices were too high and mortgage rates went up. Well, now we are learning that what many of these mortgage gimicks accomplished was likely to actually lower home ownership.

Now, when real estate professionals tell people it’s a good time to buy, it’s falling on deaf ears. Even though there are some great deals out there, buyers are generally afraid and the real estate/mortgage industries don’t have the credibility to assist in accelerating the market come back.

Pushing unprepared and under financed people into home ownership has hurt the market and will now raise rents for those very people who got burned buying a home they couldn’t afford.

And, we all get to pay for it. This market down turn was manufactured by poor real estate/mortgage transactions, not the economy. It is the result of over reaching that was promoted by some professionals.

Your blog is appreciated.

So yes, price is the most important factor in the home actually selling, but is not necessarily the only reason a property isn’t selling and should not be the first thing that should be adjusted.

Some of the outer ring suburbs like Chaska and St. Michael are down 20% - 40% year over year in sales. With declines that substantial it is difficult for anything to sell at any price.

There are a lot of things that realtors do beyond the simple transactional side of things. Unfortunately though no agent can make a market that doesn’t exist, and that’s where many sellers get frustrated.

At the end of the day, selling the home is the only thing that really matters to both parties. Agents lose money on listing homes for sale… they make money on actually selling them.

In this market agents have been hurt too… rather than get paid hourly, most agents are only paid on a successful sale. Agents spend many hours with both buyers and sellers that do not lead to a paycheck and the ones that do close are requiring significantly more hours to get there. So while commission amounts have not changed much, agents’ “hourly wage” has fallen dramatically in recent years.

Supporters of the free-market approach to lending boast that the surge in subprime loans helped a record number of Americans buy their own homes in recent years. But the nonprofit Center for Responsible Lending offers a sobering counterpoint.

The center, which tracks abusive lending practices, estimates that a million more people will lose their homes to foreclosure in the coming years than were added during the boom times.

Back to my comments.

The government reaction to mortgage fraud has been late, but not hyperactive. You can’t have thousands of foreclosures/short sales hit the market and expect to understand where the market is at. Supply is being fueled further with a continued lessening of demand due to nonqualified individuals previously receiving mortgages. Not so tough to understand.

If I or the association were trying to simply sell you, why would we even mention anything about the bad side of this market?

During the RE mania that was some other markets Vegas, CA, PHX, etc., I think that caution was completely absent. While a house might always be a sensible PURCHASE, the notion that ANY house is a good INVESTMENT does not necessarily hold. Is a house an investment asset class, or is it a living expense? I say both. Therefore we must separate the cost portion from the speculative portion.

The whole overrun in RE pricing and the mortgage debacle was largely caused by a lack of cautious behavior, driven by a can’t-miss attitude.

In this market, telling someone that they are exhibiting “undue caution” to me sounds like someone who wants to sell me something, more than someone who is advising me.

You may disagree, but I am a non-contigent buyer with cash to put down and no personal debt. I didn’t get that way by “jumping in” willy nilly.

Brian

Radon, is as you say, the second leading cause of lung cancer in the U.S. Nationally one in fifteen homes are affected. In Minnesota, the Department of Health recently issued an alert that one in three homes have abnormal levels of radon. This translates into one in a hundred Minnesotans developing lung cancer from this entirely avoidable cause. The costs you mention above seem quite trivial in that light! Thanks for raising awareness!!

Lynne Eldridge M.D.
Author, “Avoiding Cancer One Day At A Time, practical advice for preventing cancer”
http://www.avoidcancernow.com

No one believes in wasteful government, but we all differ on what we think is appropriate. My problem was that the information presented was definitely biased and the message given to our legislators via the signs was in poor taste.

In this more historically normal market, I’m urging all my clients to consider a 3-5 year time horizon in respect to their purchasing decisions.

 {response from Aaron - You know I have done a few things over that side once in a while too… I guess we’ll just have to share }

Thanks to the hard work and good job.
Toby

MP

When estimating appreciation, I estimate it based on the sales price minus any seller paid contributions (i.e. if it was $240,000 with $5,000 seller paid closing costs, then I use $235,000). I say estimate, because appreciation rates are an average of an entire market and can and do vary house to house. I remove seller paid closing costs because my feeling is that a buyer with a cash down payment would have negotiated the price down by a similar amount.

As for figuring improvements into resale value, very few improvements actually net you 100% return on resale. According to the National Association of REALTORS 2005 Cost vs Value Survey, windows in the midwest are worth approximately 83.7% of their cost at resale. (see http://www.realtor.org/rmomag.NSF/pages/feature1dec05_window?OpenDocument) I also believe it depends on how bad the windows were. If they were original single pane and rotting, the replacement has more benefit than if they were 20 year old double pane windows.

Regardless of what you paid, how much it might have appreciated, and what the cost of your improvements were, the true value of your home is of course whatever a buyer is willing to pay. It sounds obvious but many people focus on the statistics and don’t step back to view the big picture.

In today’s market I counsel my sellers to look closely at how their home compares to the others listed, then make theirs just a little bit more competitive. There’s twice as many homes on the market today as when you purchased, meaning buyers have twice as much to consider.

If there are 15 houses under 2 miles apart from each other that are the same style, beds, and baths and are priced within $10,000, then to get an offer a seller has to have the best combination of price and condition, otherwise the buyer will pick another home to offer on.

Many sellers choose to start the price high and plan to either drop it as the go or negotiate a low offer. In the past that worked just fine but now many buyers will simply skip past overpriced homes!

When I’m pricing a home in today’s market I look to see what has Pended or sold in the last 3-4 months (longer than that is ancient history) and then preview the homes and/or show a couple of them to my sellers.

While it is tempting to price according to what is for sale, just because it is priced at that point doesn’t mean it will sell there, so I use the solds to determine the price and then look at the other actives to make sure my clients are priced competitively to the competition.

It may be hard to look at gaining little or no “profit” from the sale of a home, but if moving up to a higher price bracket, remember that the price you negotiate on the buy side will be lower too.

The historic trend is to see 3%-4% appreciation each year and we were higher than that for a decade and will probably now be below that for a few years or longer as interest rates rise and inventory swells. This is perfectly normal but does require buyers, sellers and agents to re-evaluate their thinking.

So to sum it up, look to your agent to help you review the comparables and competition and focus your pricing around that.

Thanks again!