WKZO AM 590
3/31/2008
Treasury Secretary Henry Paulson proposed a set of sweeping changes on Monday aimed at modernizing the nation’s financial system in what could herald the biggest regulatory overhaul of Wall Street since the Great Depression.
The plan, which would broadly expand the Federal Reserve’s powers, comes as concerns about the housing crisis and its fallout in the financial system continues to fuel calls for change in Washington. The Paulson changes, if enacted, would be largely invisible to consumers but would drastically alter how the financial services industry is regulated.
On the housing front, the plan would allow for the creation of a federal regulator for the mortgage industry, dubbed the Mortgage Origination Commission. The commission would aim to rein in the questionable practices of both lenders and brokers, who are now required to abide by a patchwork of state regulations.
Jay Morris:
They’re going to change the way things happen. They’re coming up with this Mortgage Origination Commission. Now if you’re thinking what does it all mean? I had that question too. Put some context on this speech if you could.
Scott:
The biggest problem we have right now, and I think everybody knows this, is that adjustable rate mortgages are becoming a huge issue with a lot of the consumers that got wrapped into this in 2002, 2003, 2004. They’re trying to find a way to streamline these people that have this type of program. The biggest problem is that a lot of these programs have gone away since they’ve done this. They’re trying to find a way to help these people with this ARMs stay with their current lenders and kind of come up with a streamlined way to get back into a fixed rate mortgage and stay in their homes, which is a number one priority.
Jay Morris
From a federal level is it the best way to do it?
Scott:
It’s not a government-backed thing. There are so many people who still have the ARMs who are going to adjust and they’re getting killed…I’ve talked to people in the 10-11-12 percent range on $150,000, $200,000 mortgages. Obviously, you and I both know that when you go from these really low rates that they had in 2003, and then you add double or triple, it’s a huge increase that you’re not used to and can’t even handle for that matter.
Jay Morris:
So it’s not the federal government getting more involved in the process, it’s really them trying to find ways to get people out of these ARMs and into fixed-rate mortgages.
Scott:
FHA has done their part. They’ve come up with the FHA Secure. If you are behind on your mortgage and it’s strictly due to the ARMs, they’re allowing you to actually refinance under that program. A website you should mention is www.hopenow.com. If you go there, it has all of the lenders who are trying to help with this. One other thing I want to mention is I’ve talked to a couple of clients that they’re actually giving forebearances to, kind of like student loan, only it’s with mortgages. They don’t sell houses..they sell money. They’re trying to keep everybody in their house. Not only that, they’re trying not to lose thousands and thousands of dollars. They’re taking what’s called a forebearance, moving all the money to the end and recalculating it and giving them a fresh start, if you will.
Jay Morris:
So what you’re saying is that if you’re in trouble, or you’re having this difficulty, is this maybe the first time these mortgage folks, the banks, are willing to work around and negotiate?
Scott:
More and more we’re seeing banks willing to work with their clients. I guess the biggest thing to say is don’t bury your head. Don’t ignore the statements. Don’t think this is going to fix itself. You have to take the first step and make these calls to your current lenders. Everybody is trying to help out with this kind of situation. Don’t ignore it. One other thing I want to say is that in Kalamazoo home sales are up. Interest rates are good. It’s a great time to make that phone call.
Jay Morris
So are we on the other side of this? It sounds like we hit this early and we’re coming out the other end whereas nationwide, they’re hitting it now.
Scott:
Ever since late last year they’ve been trying to come up with a solution to the ARMs. The biggest problem that I see what we’re having is they keep taking away the programs. A lot of people got into it because they were self-employed or it was a great rate at the time. So many loans that were done back then, you didn’t need anything. Now the only ones that are available, I have to verify your income, I have to verify that you’re working. Not only that, we’re having value issues.
Jay Morris:
Is it a good time to talk about refinancing?
Scott:
It’s a great time. The prime rate has come down to 5.25. Rates are good.
Jay Morris:
What’s the best way to get a hold of you?
Scott:
The best number is 269-488-9530. They can always visit my blog at www.kalamazoomortgage.com.
Whether you’re a first time buyer or a veteran of the real estate game, buying a home can be a mammoth process. It’s an emotional time often accompanied with difficult choices. Those same difficult choices are tied directly to costs and your ultimate return and happiness.
Finding the right home for your family’s needs is hard, but managing to avoid paying too much is a another mastery of skills entirely. The following will show you not only how to make sure you’ve found the right house, but also how to negotiate the right price.
* Know what you’re shopping for before you start -
This first step is understanding what you are seeking. Your family has certain needs which must be fulfilled. Also there are many desires which may or may not ultimately be fulfilled. Take an unemotional look into those needs and desires.
Do you choose a three-bedroom home with room for your family to grow or the one with a large back yard, perfect for entertaining? Is having a large kitchen more important than having an extra room?
Two lists should be created - a wish list (your desires) and a reality list (your needs). The reality list consists of those items which your family really needs. They are “non-negotiablesâ€. On the other hand, the wish list contains those items which would be nice to have. Prioritize the lists and the goal is clear - your next home needs to have most, if not all, of your reality list items and hopefully a few of the top wish list items. These lists will keep your efforts channeling in the proper direction.
* Shop for a mortgage before you shop for a home -
Getting a loan pre-approval is the smart way to shop for a home. It tells the sellers that you’re a serious prospect and you’ll know in advance the maximum mortgage you can afford. Make sure you get a commitment in writing.
It’s easier than ever to qualify for a home loan. Lenders have modified qualification rules and created programs designed to help people even if they have problems in their credit and employment histories. Many programs dramatically reduce down payments, so if money’s tight now you can still make that purchase.
First-time home buyers can benefit from the many lender programs that now exist. Reduced down payment is an example of such programs.
* Pick the right real estate professional -
From finding the right home to selecting a lender to meet your financial needs to getting proper property inspections to negotiating the best deal, it can be taxing for even the hardiest of souls. You need the right Realtor on your side.
The right real estate professional must have the high level of care, skill and due diligence to ensure your best interests are at heart. They also have a team of other professionals to put at your disposal - lenders, lawyers, home inspectors, movers, etc.
Most sellers you encounter will have a team in their corner. Having a professional on your team is the best way to make sure you get the best deal possible.
* Make sure your agent knows what you are looking for -
Once you have a clear understanding of your reality and wish lists make sure your agent has those same lists. This communication is critical. Otherwise you’ll both waste your time looking at home you’re really not interested in and you could possibly miss out on the one that truly meets your needs and desires. Your shared goal is to find a place that meets your needs: your agent will then try to satisfy as many of your desires as possible.
A good agent will ask you many questions about what you’re looking for and what you can afford. And then they’ll listen carefully to your answers.
* Yes, that too… location, location, location -
The desirability and resale of your home-to-be depend on location more than any other single factor. The simple truth is - the value of your home is affected by the homes that surround it.
Assuming you’ve already considered the items that make up a desirable home and community - character, quality of schools, access to work and services, recreational facilities, entertainment, etc. - there are several elements that combine to make a good location.
Your first consideration is the neighborhood. Every neighborhood has its own unique character; you need to make sure you’d be comfortable in the one you’re thinking of living in. Take a long walk and observe carefully. Do people take care of their yards and homes? Are the yards fenced? Do children play in the streets? Talk to the neighbors and ask questions that give you a better feel for the area. Be careful not to appear judgmental - you might be talking to a future neighbor.
If the neighborhood is to your satisfaction, look at homes on the market in the area. Extremely large homes surrounding smaller ones tend to appreciate less than a large home among other large homes. Conversely, the smallest home in a neighborhood tends to be “pulled” up by the other homes on the block. However, it might take longer to sell that smaller home when the time comes because many people are unwilling to pay extra for the neighborhood.
The outer edge of a neighborhood is usually not good for resale value. There are noticeable dividing lines between unlike neighborhood. It could be a difference in architectural styles, home size, property use or something else. Look at a home in the middle of a community of similar homes; it will hold its value better.
An exception to this rule is a home on the edge of a neighborhood bounded by woods, park land, a golf course or other open space. Natural boundaries appeal to most buyers and these ”edge” homes can actually command a higher price. The exception is when there’s an unpleasant use planned for the open space. An open field with a babbling brook is nice; a new freeway, strip mall, or warehouse is not.
Other things that can negatively affect property values are traffic, sounds, smells, etc. Be sure to give the neighborhood a long, hard look. Preview the area at various hours of the day. The home you’re interested in may be perfect, but if the neighborhood has problems, your investment won’t be worth as much when the time comes to sell.
*Use your real estate professional to narrow the prospect list -
A good agent brings to the table an in-depth knowledge of the current housing inventory in the area and continually updates that knowledge by touring homes as they are placed on the market. This is to your advantage. Trying to personally see every available home that might fit your needs would be an overwhelming process . If you are thoroughly communicating your needs and desires to your agent, then your agent can help you narrow down the list of prospective homes to those that best suit your family. This will save you much time and energy.
When the time comes to settle on one home, you can do it with the confidence that you’ve made a well-informed choice.
* Show a little interest in everything you see -
As you tour the homes on your short list, find something to admire in each one. If you don’t show any interest until you’ve finally fallen in love with a home, then you’ve put yourself at a competitive disadvantage. Never let anyone know how badly you want a home - it will cost you money!
* Shop with your head, not your heart -
Don’t forget the purpose of your reality and wish lists. Shopping for a home is an emotional process. Your heart will cost you money; using your head will save it.
* Don’t ignore red flags when evaluating a home’s pluses and minuses -
When evaluating the advantages and drawbacks of a particular property, be sure you know the difference between acceptable and unacceptable problems.
Some issues - peeling paint, worn carpeting, ugly wallpaper - are cosmetic and can easily be remedied. In fact, you can use these ”problems” during negotiations to lower the asking price; after all, you’ll need to spend money to bring the house up to date. Make note of what you see that can be used to your advantage. Although hold back from nit-picking. If taken to extremes, you could end up alienating the seller and creating a hostile atmosphere.
Other problems may be warnings to walk away. Major foundation cracks, evidence of previous water damage, signs of serious dry rot or termite damage, antiquated electrical systems or plumbing - any one of these may cause to reconsider your interest.
Don’t let a house’s positive attributes blind you to very real problems. If you do, the chances are good that you’ll end up spending much more than you ever expected down the line.
* Hire a professional home inspector -
Failing to do so, made the biggest home buying mistakes list.
Spending a few hundred dollars for a professional home inspection may be the best investment you’ll ever make. A professional inspector brings experience in examining a great many homes, good evaluation standards and an unbiased perspective. And a written report can be an excellent negotiating tool.
A Typical Inspection Looks at:
* Foundation (slab, crawlspace, basement, etc)
* Electrical, heating and plumbing systems
* Floors, walls and ceilings
* Attic
* Roof
* Siding and trim
* Porches, patios and decks
* Garage
* Property drainage
Make sure you accompany your inspector on the tour. You/ll learn a lot about the home you’re thinking of buying.
Once you have your evaluation, the decision to proceed is yours. A home inspector only gives you a professional opinion of the home’s condition, not advice as to whether or not you should buy.
*Not all fixer-uppers are good buys -
You may be the type who looks at a home in need of significant work as a challenge and an opportunity to make money. Many people have bought fixer- uppers at below market rates, invested a little sweat equity or a little more money on renovations, then eventually put it back on the market at a profit.
But if it isn’t priced low enough, you won’t recoup your investment of time, trouble and expense. Before you proceed , do a careful evaluation of what you’ll have to invest and consult you real estate professional to learn what you can reasonably expect to make when you put the home back on the market. And be sure to include the unexpected. There’s no such thing as a “sure thing”.
* Choose a home with an eye toward future needs -
Buying a home is a large investment. If you can stretch a little today to buy a home that you can grow in - whether it’s having a child, running a home-based business, or having room to build an addition - do it. In the long run, it will probably be less expensive than moving up to a marginally larger home when the need does arise.
* Clarify who your agent is -
Make sure you know who the agent you’re talking to represents. All agents have the responsibility to be open and honest with you and to let you know who they represent - the buyer, seller or both. On-site agents of new communities most often represent the seller (new home builder), not you.
* Ask for a written comparative analysis -
One way to ensure that you don’t offer too much for a home is to ask your agent to prepare a written comparative market analysis. A CMA will show you the sale prices of comparable homes in the neighborhood. It also lists the asking prices of other homes in the area currently on the market.
You may find that the asking price is above what comparable homes in the neighborhood are actually asking for. Or you might even find another home in the area that’s a better choice. When you make an offer, you can use the CMA as evidence to show the seller why you believe your offer is reasonable.
* Learn as much as you can about the seller -
It’s true what they say… Knowledge is power. The reason behind a sale can often be used to your competitive advantage during negotiations. For example, a seller whose company has transferred him to another city is probably more motivated to sell than someone who is still looking for a new home.
Other signs of a motivated seller include a vacant house, or a house that’s been on the market for several months with several reductions in the asking price.
* Keep your own situation to yourself -
Information can be used against you as well. How much you’re willing to spend, the size of mortgage you can afford, your move-in deadlines - it all can be used to extract more money out of your pocket. Be sure to tell your agent everything they need to know to be effective on your behalf, such as, how much you have for a down payment, the size of the mortgage you can afford, etc. However, keep your personal circumstances and timeline to yourself.
* Use time to your advantage -
Just as you have a time frame in which you wish to buy, seller almost certainly has a deadline of his own. If you can learn the seller’s deadline, it’s another piece of information that can be used to negotiate a better deal.
* Check your emotions at the door during negotiations -
One of the costliest mistakes you can make is letting the sellers know how much you love their home. Once you’ve let it slip, you can forget about negotiating the price; the other side knows how motivated you are. In fact, a seller may see it as an opportunity to squeeze a little more money out of you even when you’ve made a good offer to start.
No matter how wonderful a home is, no matter how much you want it, keep it to yourself.
* Don’t be afraid to negotiate -
You may be the type who prefers a hard-and-fast price tag on everything. I don’t like to haggle is your approach. But negotiation is the key to getting a good deal. If your goal is to get the best home possible for the least amount of money, then you had better be prepared to play the negotiating game.
* Stay out of bidding wars -
Sometimes the seller’s agent will try to scare a hesitant buyer with the threat of another serious potential buyer. Don’t fall into this trap, it will only cost you money.
If there is another buyer, then the seller’s agent will try to get a bidding war going. In these situations, whoever wins also loses because the buyer ends up overpaying.
If there isn’t another buyer, there’s a good chance that the seller’s agent will come back with the other deal fell through. Be sure to let the other side know that you might be interested if that happens before you walk away.
* Know your hidden costs -
There’s more to buying a home than the mortgage. Don’t forget to factor in mortgage insurance, appraisal fees, inspection fees, title insurance and every other dollar you’ll have to spend in order to know what you’re really paying for your home. With the help of a good agent, you should identify all of the costs.
If you are planning on purchasing a new home it is best that you begin to prepare at least three months in advance.
First, make sure your credit history is being reported accurately. Don’t be fooled or ripped off by companies that will charge you a lot of money and promise to remove negative credit from your report. You cannot remove accurately reported information. But, you can make sure what is there is correct. And there are ways to improve your score. The section on credit repair goes into greater detail and will show you how to do this. Remember, You can do it yourself.
FUNDS TO CLOSE:
The money you are going to use for your down payment and closing cost typically have to be sourced and seasoned for three months. If you already have your money in an institution (bank, CD, 401k,) you are ok. However, if you have $20,000 under your mattress and intend to buy a house with it today, you would be turned down. Lenders must see that you have had the money for three months, they must see where it came from. So, put the money in the bank and leave it there for three months. Some loan programs will allow a gift. (FHA and a few non-conforming lenders) However, even the gift must be sourced and seasoned in some cases. The are a few programs that do not source and season funds but the interest rate is considerably higher.
RENT:
If you are renting your home or apartment, ALWAYS pay by check. It is the only way you have proof that you paid on time. Some loan programs require twelve months cancelled checks! I have seen people turned down because they can’t produce 12 cancelled checks. Money orders usually will not work. And of course, Always pay on time.
MORTGAGE:
The same applies here as rent payments, ALWAYS pay by check. If a lender miss-reports your payment history, cancelled checks are the only way to correct it. Or if your mortgage is with a private party the cancelled checks will be mandatory.
BILLS:
Calculate your debt to income. If it is a little high, pay off some of your smaller bills. Installment loans are not counted if you owe less than 9 payments. Revolving accounts must actually be closed or the minimum payment will be used to calculate your DTI even if you have a 0 balance. Lenders don’t like to see a lot of revolving accounts. Get rid of them. It will also increase your credit score.
COLLECT YOUR DOCUMENTS:
You will be required to bring to your broker the following documents. They cannot even start your loan without them and they must see the originals so don’t bother making copies, your loan officer will do that for you. Don’t leave the originals with them. You will need to collect: 3 months bank statements, all pages, all accounts. Last 2 years W2’s and or complete tax returns if you are self employed or paid on commission. One full month of pay stubs from your job. Divorce papers. Bankruptcy papers. 12 months cancelled checks if your rent/mortgage is paid to a private party. There may be other documentation requirements depending on the type of loan and your situation.
DON’T:
Change Jobs. Open any new accounts. Be late on any payment. Have any NSF checks show up on your bank statements.
DO:
Make your mortgage payment. No matter what your loan officer tells you or when you think your new loan is going to close. ANYTHING can happen and if your loan is delayed, and your payment shows up late not only will your credit suffer, but you may no longer qualify for the new loan.
The type of loan you are applying for will determine the length of time required completing your loan. Different loan types require different documentation. As an example, If you have good credit and lots of equity in your home and you are applying for a 2nd mortgage the lender may not require an appraisal. If you are getting a Line of credit on your equity, that documentation can be completed with some lenders in a matter of days. If you qualify for automated processing (DU, or Loan Prospector) it is sometimes possible to close in less than 14 days. Your loan officer should walk you through the process up front so you will know what to expect. Typically, most loans take 3 to 4 weeks to close.
Here is the process:
APPLICATION:
The application process is where you fill out the application, sign various forms that authorize the lender to process your loan, and deliver your documentation requirements. (Bank statements, pay stubs, W2s, etc…) Obviously if you are doing this through the mail it can take a week or more but if you go into the office it usually only takes an hour or so. You should understand that the next process cannot begin until these documents are completed and or received.
PROCESSING:
When all of your documentation is received it then goes to a processor who verifies and validates all of the information to be true and correct. Verification requests may be sent to your employers, mortgage holder/landlord and lending institutions. This is done by fax when possible. It is usually during this time frame that the appraisal and the title policy are ordered. When all the information is collected the processor then verifies that basic lender loan requirements have been met, then the file is packaged in a manner the lender specifies. The completed package (including the appraisal and title report) is then sent to the underwriting department either in house or to a lender-specified location. The processing of your loan usually takes about a week but it is often delayed when third parties do not respond to the validation requests or appraisals are delayed. If your loan qualifies for DU (Desk top Underwriting) or Loan Prospector, these are computer automated systems, the documentation requirements are often cut in half and the process can be completed in one to three days depending on the volume of loans the processor has.
UNDERWRITING:
The underwriter reviews your loan package to make sure it conforms to all the guidelines required for that loan product. They also review the appraisal and title report and may do additional validation of employment, mortgage payments, and credit. And, anything else they feel is necessary to document your loan. They have ultimate power and decision authority over the approval of your loan. The time required to do this is driven by the volume in the market. If the market is flooded I have seen it take two weeks but under normal conditions it only takes one to three days.
AUTOMATED UNDERWRITING:
Most lenders today use Automated Underwriting (by computer).The advantage is less documentation and it speeds up the process. The computer actually makes the approval decision and the underwriter only reviews the supporting documentation and the appraisal. However, if any documentation is missing, inaccurate, or does not agree with the 1003 (application), the loan will be kicked out of this system until documentation requirements are met or the loan is turned down or resubmitted. This can cause delays but they are usually resolved quickly. Automated Underwriting can be completed in just a matter of hours. But, ..If the market is flooded expect it to take longer.
CONDITIONS TO CLOSE:
When the underwriter is done reviewing your loan she will send “conditions to close” to your loan officer. These are normally just requirements for further documentation to support your file. When these needs have been satisfied the underwriter will give a final approval and “clear to close”.
CLEAR TO CLOSE:
When the loan officer gets the clear to close he then schedules and coordinates with all the parties the time and location to sign the final documents to close the loan. This normally only takes an hour.
DRAW DOCUMENTS:
When everything is scheduled the lender then draws the document package and sends it to the closing company. This can be done by overnight delivery, fax, or electronically. It can take one to two days. You meet, sign the papers, and pick up the keys.