Category Archives: Agent Advice

Rain City Guide has been covering Zillow since before they launched… Some of our more popular articles include a story about the accuracy of a Zillow Zestimate and as well of some ideas around how you can interpret a Zestimate.

NWMLS to Allow Brokerages to share more Data

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The Northwest Multiple Listing Service has announced policy changes that will allow brokerages to display more information on their websites. This means that if brokerages choose to, people will be able to see the length of time a property has been on the market, referred to as days-on-market (DOM), as well as cumulative-days-on-market (CDOM), along with the listing price adjustment history. The NWMLS will only allow the DOM to be shown if the CDOM is also displayed in order to insure that consumers are not mislead.

Another change for brokerages is that they now have access to three download feeds instead of just two. This could be significant for brokerages that want more options and vendors to choose from to manage their data feeds for property searches, which they make available to agents and the public.

Sellers and Agents: Don't Rule Out FHA Buyers

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I was just working on a finance flyer for a listing agent…something I haven’t done in years!   Anyhow, the home is priced at $442,000 and she requested a 30 year and 5/1 ARM both with 20% down for scenarios…I added FHA at 3% down.  The property is in King County and would qualify under the FHA Jumbo program.   Until the end of the year (I suspect the “economic stimulus” loan limits will be extended beyond) Sellers have an opportunity to expose their homes to buyers beyond the normal “jumbo” or conforming market.  

Here’s a comparison:

30 Year Fixed with 20% down at 5.75% (APR 5.902%).   Principal and interest payment = $2,064.  Cash needed to close = $88,400 plus closing costs of approx. $6,000 (the rate is priced with 1 origintation/discount point) plus prepaids.    This rate requires a mid credit score of 720 or higher. 

5/1 ARM-LIBOR with 20% down at 5.25% (APR 6.810%).  Principal and interest payment = $1,953.   Cash needed to close = $88,400 plus closing cost of approx. $2,350 (the rate is priced with zero discount/origination points) plus prepaids.   This rate also requires a mid credit score of 720 or better.

FHA-JUMBO 30 Year Fixed with 3% down at 6.25% (APR 7.030%).   Principal, interest and mortgage insurance = $2,850.64.   Amount needed to close factoring down payment and closing costs is $20,350 plus prepaids.   FHA is not credit score sensitive (yet) and buyers who are truly FHA approved have done so via a “fully documented” loan.   They’re pretty darn serious!

When you compare 20% down conforming to the 3% minimum down required for FHA; it’s the difference of having approx. $100k for your down payment and closing costs to having a quarter of that.   Some folks have the income (they still have to qualify with FHA) but they’re shy on that kind of savings.   Maybe it’s their first house or perhaps their savings is tied into their retirement or children’s college fund.   These are buyers you don’t want to rule out.

FHA Jumbos allow buyers to have a loan amount of $567,500 in King, Pierce and Snohomish Counties with as little as 3% down payment (some lenders require 5% down).    With second mortgage’s evaporating and fewer “piggy back” options available, buyers who have less than 20% down where their loan amount will be over $417,000 will be considering FHA as an option.    For example, sales price of $625,000 with 10% down (loan amount $562,500) would be an excellent FHA JUMBO candidate…only offering cash or conforming products will pretty much limit your buyers to those with 20% down.   FHA buyers do not have to be minimum down…they can be less than 20% down or have a credit score or perhaps one of the borrowers has a mid score of 679.

I’ve written before about why Sellers should consider FHA…however with the temporary expanded loan amounts…now it’s even more compelling.   

When it's good to know a "wiseguy"

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If you’ve ever watched a show like the Sopranos you know that there is a term out there called wiseguy that has a potentially dangerous undertone.  Well, yesterday, for one of my new listings I was thrilled to know a wiseguy, or rather a Wise Locksmith, Chris Weissman.

While driving from Renton to Bellevue’s Bridle Trails neighborhood, to show this listing, I get a phone call from another agent who has shown up to view it with a client.  He’s having trouble with the door and wants to know if I am aware of any problems or special way of handling the lock to make it turn.  “No, I haven’t had any problem with the lock before and neither have the other agents that have viewed the house already”, I tell him.

Come to find out, after calling one of the sellers, there is a way from the inside of the house to turn a little switch that would lock the home from the interior and it would make it so the master lock wouldn’t work.  Not good.  *Note to sellers – always let your agent know about quirky things like this so we can stop it from happening in the first place.*  Not only was I losing this viewing but the pending showing I was about to do would possibly be lost too.  On top of it, I lost one other possible buyer showing when yet another agent came by while we were working on getting the problem fixed.  My inner MacGyver kicked in.  I wasn’t about to do some fancy trick with a paper clip but I could quickly sort out a possible way to solve the problem.

And here is where my wiseguy comes in.  Chris is actually a former client of mine.  He and his girlfriend, Maridee, sold a condo and purchased a home through me about 18 months ago. I learned at that time that he was a locksmith and I’ve referred him to several clients since that time, with very good results I will say.  So, Chris gets a call from my partner, Michael, to see if he can help and he’s on top of it immediately coming over from the Seattle area during rush hour and actually making it within about a 20-30 minute time frame. I was thrilled.  One of the great things about working with various people and different types of contractors day in and day out is that when you need something fast – most of these wonderful folks will drop everything to come help you.

His first instinct was to try various methods and tricks he’s learned throughout the years to find special ways of opening locks. Unfortunately that didn’t work.  The second attempt through the garage didn’t work but mostly because it is on an electric opener, so then he had to tear off the existing door handle and replace it with a new lock.  I’ll say that it’s a little disturbing to see how easily some of this stuff can be taken off a property – although Chris did say that since he does this all the time he makes it look easy.  He just hates having to destroy stuff.  He didn’t damage the door though and that’s all good.

It ended up that the buyers that wanted to see the house at my scheduled showing ended up coming back (I rang their cell) and we had a successful viewing.  One of the other agents is planning to come back too but I likely won’t know if that 3rd agent comes back.  Either way, the house is accessible again and all is well that ends well.  Since the clients aren’t looking at offers till next Wednesday we should be set but I’ve got Chris on speed dial now, just in case….

Will Real Estate Agents Embrace a Loan Originator with Fiduciary Duties?

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I’m beginning to wonder. I’ve always put the clients best interest first…it’s just something I naturally have to do in order to bevalentinescandy able to sleep at night. There has been a time or two when a real estate agent has told me that my job is solely to provide mortgages and not worry if the mortgage made sense or if someone is capable of making the payment in my opinion. This is one reason why I’m glad that I (and others designated as mortgage brokers) will have official fiduciary duties to their clients. Here’s a scenario for you to chew on that has me wondering if Real Estate Agents will be as accepting of this new responsibility…

Susie and Sammy want to buy a home. They know their credit is lousy and Susie actually giggles about it. However, their friends were able to buy homes over the last few years and so they should be able to as well. Susie and Sammy were referred to me from an agent I’ve worked with for many years. And if it weren’t for bad credit, they’d have none at all. Susie has no credit scores and more collections than you can shake a stick at. Sammy is a fluke of the credit scoring system and has managed a mid-score of 621 although the last time he used credit was three years ago…no one will issue him any new credit due to his proven track record of not paying for any account he opens. Sammy, if the scoring system were perfect and 100% accurate, would be credit scoreless as well. To top it off, they have no savings and would like a zero down loan.

As a “Mortgage Professional”, I review this information with them and I let Sammy & Susie know that they do not currently qualify for a mortgage (because they don’t). If they want to work on their credit and develop a plan, such as practicing making a mortgage payment by paying the difference between the mortgage and their rent into a savings account, perhaps we can develop a long term strategy. In no way is this couple ready for a mortgage. I’m not sure that I could (or would) have provided them a subprime mortgage had they met with me this time last year. As someone who is looking out for their clients best interest, I believe I did the right thing. In fact, even with “subprime” clients of yesteryear, I would let them know of their options: you currently qualify for a subprime mortgage with a rate of X; or you can wait a few months and work on your [what ever is causing you to be subprime] situation and then qualify for a better rate with FHA/VA or conventional. Why encourage people buy “right now” if their finances are a wreck? The choice on what borrowers do with their finances is really their own. Really, it’s not for me as a Loan Originator to determine whether or not they are worthy: we have underwriting and guideline criteria for that. With Sammy and Susie, they really have no options but to work on re-establishing credit and change their spending habits…and they seemed eager to do so. I set them up with a company to help them work on repairing their credit (because it was beyond what I could do) and they were happy (they never followed through with the credit repair).

A few weeks later, I get a voice mail from the agent. He’s upset and wants me to know that Susie and Sammy have found another lender who has referred them to another agent and they’re buying a home. I’ve been checking the county records and Susie and Sammy’s real names are not showing up–I’ll really be surprised if they qualified for anything except the hardest money loan available with a double digit interest rate or seller financing. Regardless, the agent is obviously not very happy with me since I did not “approve” them for a loan and someone else says they did (at who knows what terms). My subprime shoe-horn is gone and I would not have used it here anyhow…this couple is not ready for a mortgage.

Fiduciary duties for Washington State loan originators who don’t work for a bank-mortgage company will be here this summer (effective June 12, 2008). Are you ready? How will you feel if a loan originator with fiduciary duties believes that a home buyer should take six months to a year to improve their credit and have at least 3-6 months of reserves? When this legislation first came out and Jillayne wrote about it. I thought it was an advantage for brokers. Yes, once again it’s more legislation on brokers (excluding mortgage bankers) for the sins of ALL loan originators regardless of institution. Wouldn’t everyone want to work with a loan originator who has a legal responsibility to look out for their best interest (mortgage broker) verses one who has no legal responsibility (mortgage bank)? Perhaps some agents would rather their clients not work with someone who has fiduciary responsibilities. Consumers…you may want to ask your loan originator whether or not they owe you any fiduciary duties.

FHA Jumbo

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Update 10/18/2008: This post was written in April 2008 and since then, many FHA guidelines have changed.  This post has been updated, however it’s very important to not rely 100% on mortgage information from what you read on the web.  Our guidelines are changing too quickly these days!  FHA Jumbo loan limits mentioned in this post are effective through 12/31/2008 and will be reduced to 115% of the median home value 1/1/2009 (estimated at $522,000).  Click here for an update on FHA guidelines.

Update 2/27/2009:  Lenders are applying a minimum credit score of 620 for FHA loans and the 2008 loan limits are returning.  Is it possible for me to chop up this post any more?

I thought it might be helpful to provide some information for you to use for when I quote rates on Friday for the FHA Jumbo mortgage. There are other criteria to be considered beyond looking at the rate. You may not have considered FHA before due to loan limits, now it’s more attractive: how else can you buy a home priced at $584,000 with 3% down and credit scores below 720?

FHA Mortgage Insurance

FHA charges both upfront and monthly mortgage insurance regardless of how much money you’re putting down. Seriously, if you’re putting 50% down and using an FHA insured mortgage, you’re paying mortgage insurance. FHA mortgage insurance does not cancel out automatically when your home has an 80% loan to value. You will pay the FHA mortgage insurance for a minimum of 5 years and 78% of the original value (lesser of sales price or appraised value) of the home.

Upfront Mortgage Insurance

Upfront mortgage insurance for a FHA insured mortgage is 1.5% 1.75% of the loan amount for a purchase. With an FHA mortgage, you have a base loan amount and the adjusted loan amount (after you add in the upfront mortgage insurance). For example, if your base loan amount is at the current King, Snohomish and Pierce County level of $567,500, your adjusted loan amount will be $576,012 $577,431 (567,500 plus 1.5% or 8,512 1.75% or 9,931) . Once upon a time, FHA upfront mortgage insurance could be refunded if the mortgage was terminated early with a balance of the mortgage insurance premium remaining, this is no longer the case for new FHA mortgages (which I believe is part of the reason FHA fell from favor during the subprime boom). The adjusted loan amount is what your principal and interest payment is based on. So if the rate going for a FHA Jumbo was 6.500% (this is not a rate quote; this is for example only), the principal and interest payment would be $3,640.79 $3,649.76 (576012 577,431 amortized for 30 years at 6.5%).

Monthly Mortgage Insurance

Yes…as if paying that 1.5% 1.75% upfront MI wasn’t enough…FHA has monthly mortgage insurance as well…the good news is that it is at a low rate compared to traditional private mortgage insurance (especially factoring in a jumbo loan amount, higher loan to value and credit scores below 720). The rate for FHA mortgage insurance is 0.5% 0.55% (for a purchase) of the base loan amount. Using our current example, your monthly mortgage insurance would be $236.46 $260.10 (base loan amount = 567,500 x 0.5% 0.55% divided by 12).

FHA is a fully documented mortgage loan. You will need to provide 2 years of W2s (tax returns if self employed) and your most recent paystubs covering 30 days of income. Any gaps of employment during the past 24 months will need to be explained. There are no income limitations and the DTI is roughly 43%.

Low Down Payment

FHA Jumbos allow for as little as a 3% 3.5% down payment. This means you could be a home priced around $585,000 with the base loan amount of $567,500. Your down payment must be fully sourced and seasoned. Be prepared to hand over your last 2-3 months of bank statements and any asset accounts (all pages) and to explain any large deposits that are not from your source of income.    The Seller may contribute up to 6% towards closing costs however the buyer has a minimum investment required of 3% 3.5%. Family members can gift funds towards closing costs as well which counts towards the buyer’s required 3% 3.5%.

Update: Effective January 1, 2009, the minimum down payment will be increased to 3.5%.

Speaking of documentation…

I’ve covered FHA before…and the guidelines for traditional FHA are pretty true for the temporary Jumbo FHA mortgages as well. Here are a few more pointers for our current market:

* FHA does not have price or loan to value limits for geographical areas determined to be soft or declining.

 * FHA does not have credit score risked based pricing for credit scores above 620. (Lenders may have their own risk based pricing for credit scores under 620).

Sellers with homes priced around the new FHA jumbo loan limits should consider buyers utilizing FHA financing. A sales price of $584,000 would allow for a minimum down FHA insured mortgage. However a home buyer could always use more towards down payment and opt for a FHA mortgage meaning that if your home is priced higher, you may still want to consider allowing FHA buyers as they may be considering FHA over the price hits conforming has if their score is below 720.

Condo’s are acceptable for FHA financing as well. They may not be on the FHA approved list, however, if the condo meets the requirements for a “spot approval”, they can still qualify for FHA financing.

Act fast…FHA Jumbo is only here until December 31, 2008.  loan limits will be slightly reduced on January 1, 2009.

Major Credit Score Rate Adjustments — The Hits Keep Coming

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Fannie and Freddie are implementing new loan level price adjustments (LLPA) based on credit score and loan to value. This is a
change for the worse from my previous post announcing the original LLPA. Now your credit score is even more critical. Some lenders are implementing these changes immediately with terms on when the loans must be locked and closed.

The following information is for purchases and rate/term refinances with mortgage terms longer than 15 years (cash out refi’s have additional hits).

The hits shown below are “to price” and not to rate.

LTV (loan to value) 60.01% to 70%
Credit Score 720 or better — no hit
Credit Score 640 -719 is a 0.500% hit to price.
Credit Score 620 – 639 is a 0.750% hit to price.

LTV 70.01 or More
Credit Score 720 or better — no hit
Credit Score 680 to 719 is a 0.500% hit to price.
Credit Score 660 – 679 is a 1.250% hit to price.
Credit Score 640 – 659 is a 1.750% hit to price.
Credit Score 620 – 639 is a 2.500% hit to price.

These “hits” are in addition to other factors that are used for pricing rates and even though I quoted lower credit scores, don’t count on Fannie/Freddie (conforming) financing…especially if you’re eyeing the temporary conforming-jumbo which requires a minimum 660 credit score.

So if you have a 719 credit score and are putting 20% down using a 30 or 20 year fixed rate mortgage, you are going to pay 0.5% more in fee than your friend with a 720 credit score. If your loan amount is $400,000, this is an additional cost of $2000. Or the “price hit” may be factored into to the interest rate. Typically (but not always) 0.5% in fee would equal about 0.125% – 0.25% higher in rate. A quarter point difference in rate runs around $65.00 per month ($775 per year).

Recommended read: How to Improve Your Credit Score.

I also encourage anyone who is considering buying or refinancing a home to meet with a Mortgage Professional as soon as possible. A little time and elbow grease may save you thousands.

Fannie Mae's Jumbo-Conforming Loan Guidelines

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I started this post with the plans of announcing the pricing for the Jumbo-Conforming mortgages…however, I just don’t have enough facts to do so yet. It looks like Fannie Mae’s add to rate is 0.25%…however, lenders will most likely have their own add to rate as well. (So far, I’ve only seen a jumbo-conforming rate from one lender which was in the high 6 range for a 30 year). As soon as I have more data, I’ll let you know.

Here is some basic information from Fannie Mae regarding temporary Jumbo-Conforming mortgages (loan amounts from $417,001 – $567,500 for King, Pierce Snohomish Counties):

Purchase Mortgages/Principal Residence
Fixed Rate: Max LTV/CLTV 90%. Minimum Mid-Score LTV>80%: 700 / LTV = or <80%: 660.
ARMs: Max LTV/CLTV 80%. Minimum Mid-Score: 660%

Limited Cash Out Refi (Limited cash out means you can recieve a maximum of $2000 cash back at closing).
Fixed/ARMs: Max LTV 75%/Max CLTV 95%. Minimum Mid-Score: 660
Cash out refinances are not eligible (this includes paying off a second mortgage with a refinance, which is considered “cash out”). Update 4/7/2008: Fannie Mae just issued clarification on this guideline: they will now treat paying off a purchase money second as a limited cash out refinance.

*Full doc only.
*2 months reserves (PITI) are required for primary residence.
*45% maximum DTI ratio.
*ARMS are qualified on the fully amortized PITI at the higher of the note rate or fully indexed rate.
*Limited to four financed properties, including the borrower’s principal residence.

Remember, this coach turns back into a pumpkin on December 31, 2008.

Lenders will start pricing “jumbo conforming” anytime…stay tuned!

Catching Z-Z-Z's Zillow on Mortgage

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No…Zillow with mortgage is NOT boring…quite from it. I’m just a bit worn out after the historic day we’ve all gone through in the mortgage industry today and I’m ready to call it a night. However, just when I’m going to unplug my laptop…Zillow finally provides the public with some more clues on how Zillow will integrate mortgages on their site.

I’m lucky to have been included as one of the Mortgage Professionals getting a scoop before the release. And this has all ready been covered very well at Lenderama, Blown Mortgage and Bloodhound Blog to name a few. What I like the most about this concept (which not all the details have been revealed) is the fact that Zillow is doing background checks by an independent third party before they will accept a Loan Originator to be a part of this feature.

From Zillow’s blog:

While we’re not sharing more details right now, we can say that we’ve built our product around Zillow’s model of openness and transparency that is increasingly important in today’s home lending environment. And, consistent with our information-based model, we have no intention of being part of the transaction. After speaking extensively to both consumers and mortgage professionals about the product, we’re confident that all parties will ultimately benefit from Zillow’s unique approach to home lending that is unlike any other in the market today.

This is the phase for interested loan originators to apply. More zetails to follow…time for me to catch my real z-z-z-z’s.

I Love Brian Brady's Twitter – You Will Too

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I wish I could save this post for Valentines Day!   Earlier this month, fresh from Inman NY, Brian announced that he is going to start posting tidbits of rate info on Twitter.   If you subscribe to Brian’s Twitter, Mortgage Report, you’ll be notified if he feels you should be locking or floating…this is similiar to what I receive by investing my subscription to Mortgage Market Guide (bond quotes).  However, this service is free and priceless!  

Here are the alerts I received from Brian just today (which was an exceptional day):

  • 5:10 a.m. Stock futures are down 5%.  Good for mtg bonds and rates – FLOAT long purchases, LOCK all others – update later
  • 5:48 a.m. Emergency Fed Cut
  • 7:05 a.m. Mortgage bonds up close to half a point.  Expect lenders to offer 30YFRM below 5.5% today (conforming limit)
  • 1:37 p.m. FYI: I locked a 30YFRM at 5.25% with 1 point for a 5.53% apr today.  Expect ARMS to drop this week
  • 6:11 p.m. FLOAT loans closing >15 days, LOCK loans closing <15 days.  Wild day today, tomorrow promises to be as nuts.   You will hear it here 1st

This is simply a brilliant idea and a huge commitment from Brian Brady of Mortgage Rates Report and Bloodhound Blog.   If you can’t wait until the end of the work week for “Friday’s Rates”, subscribe out Brian’s Twitter!  You’ll be twitterpated.  😉

This week according to 4realz…

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I can tell from the comments that many regular readers of RCG have been checking out the what I’ve been doing on 4realz.net. It’s been fun to try out something a bit different as I do my best to summarize the news and gossip of the real estate technology and RE.net communities.

However, besides blogging on 4realz, I’m also committed to sending out a weekly email that summarizes the news and gossip that I think the typical real estate executive should know. Interestingly, I did something like this at Move and I know from feedback I got that the email was definitely appreciated since most executives don’t have the time to follow all the blogs and news sites that they wish they could. However, I do say “executive” pretty broadly since there are a lot of people who would appreciate a weekly summary of news and gossip from the online real estate community.

I’m extremely hesitant to republish the email on 4realz as a blog post each week (despite requests) because it feels like it would be repeating the same stories that would have already been covered on the blog earlier in the week. I still haven’t figured what I will do each week, but this week I thought I would post the email here on RCG!

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While I expected it to be a slow week thanks to the holiday season, there was more than enough action to keep a blogger busy with all the big names making news week:

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By the way, if you want to subscribe to my weekly email (similar to notes above), it is 100% free and 100% opt-in. To get on the list email me at thisweek@4realz.net with a request (a simple “please include me on your weekly emails