Category Archives: Investing

Truliaboy Refinances His Short Sale Purchase

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Truliaboy PuppyBack in early October, I wrote a brief story of a young man (whom I have dubbed as “Truliaboy”) who purchased a nice home via a short sale at 15% under the then current market value. It is a beautiful home on over an acre of land purchased for less than $300,000. With his permission I am posting this follow up story for the benefit of those who purchased “awesome deals” with little down, to show how one person was able to get rid of the Mortgage Insurance Premium via a refinance, and save a lot of money on interest as well, less than one year after his original purchase.

At time of purchase, the Annual Percentage Rate (including up front loan costs) on Truliaboy’s TIL (Federal Truth-In-Lending Disclosure Statement) was 5.336%. The recent refinance that closed last week carries an APR of 4.491%…a considerable savings. On the original 30 year loan, the Total Finance Charges for the life of the loan show as $260,169.12. On the recent refinance the new charges for the life of the loan show as $221,385.09.

Total Savings = $38,784.03.

Back to the issue of the Mortgage Insurance Premium. The Mortgage Insurance Premium on the original loan was $109 a month, and the loan amortization on the TIL included this amount for the first 9 years plus 5 months on a slightly decreasing scale. $109 a month in the first year and down to $93 a month in the final payments. By eliminating the monthly mortgage insurance premium, Truliaboy saved approximately $11,300 in monthly mortgage insurance premium payments.

His original monthly payment, including MIP, was $1,536.60. His new payment is $1,363.05. Total savings in his current monthly payment $173.55 per month.

1) If you purchased a house in the last year or two at significant savings by buying a short sale or a bank owned home with less than 20% down, you should look into the possibility of getting rid of your Mortgage Insurance Premium by refinancing your loan IF the current value is likely 20% less than your new Total Mortgage Amount.

2) Be sure to re-evaluate the Total Savings vs. the Total Cost of the New Loan AFTER the new appraisal comes in. It could cost you a few hundred dollars in “wasted” appraisal fee, but you need to be ready to pull the plug IF the new appraisal does not come in at an amount that will equal a new Loan to Value that is more favorable than your original loan. Make sure the monthly savings via reduced or eliminated Mortgage Insurance Premium (and interest savings if applicable) justify the cost of the refinance. Check your “comps” in advance as much as possible, to help determine the odds of a successful outcome.

3) Be sure to make as many LOW COST improvements to the home (if you have not already done so) to help insure a successful new appraised value. Clean and stage your home for the appraiser’s visit the same as you would for a potential homebuyer.

Part of the success lies in the fact that Truliaboy made some improvements to the home in the short time that he has owned it. The cost of the home’s improvements since time of purchase was approximately $10,000 to $12,000 BUT Truliaboy used his $8,000 First Time Homebuyer Tax Credit to make a huge dent in the cost of those improvements.

That is an AWESOME example of how to spend your $8,000 Tax Credit wisely, and parlay it into additional savings over the time you will be living in the home, by using the improved value to get rid of the PMI / MIP!!!

As in the original story, Truliaboy gets all of the credit from me for a job well done…AGAIN! Though Truliaboy continues to credit St. Joseph for his HUGE success story, I think it was a combination of factors, not the least of which was Truliaboy’s efforts that caused St. Joseph to bless him with this successful outcome.

If you were wise and lucky enough to purchase a home at considerably less than the appraised value at time of purchase in the last couple of “sub-prime crisis” years, and you bought the home with less than 20% down payment, be sure to look into the possibility of turning that “instant equity” into REAL today savings by eliminating the Mortgage Insurance Premium via a refinance.

If it stinks, blame it on the dog.

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my old stinky pug, Orson

my old pug, Orson

The term “mortgage broker” has become bastardized in recent years by the media and our elected officials in Congress.   The term is often wrongly used to describe a mortgage originator who’s gone bad or done something wrong.   Mortgage brokers are blamed for what’s gone foul in the mortgage industry when the room was packed with mortgage originators who work for banks, correspondents and credit unions…it’s just so much easier to blame the dog.

Yesterday, when Jillayne wrote a post about Shawn Portmann, the Seattle PI originally has the title to their article incorrectly calling him a “Mortgage Broker”; after the Washington Association of Mortgage Professionals contacted the author, he corrected the title to read: “Feds to mortgage banker: We want your giant bag of money”.    I considered this a small victory for WAMP and applaud them for getting the Seattle PI to correct their title and for defending the mortgage industry.

I wasn’t so lucky last spring when I tried to get the Seattle Times to correct calling a mortgage orignator who worked for Chase Bank a “mortgage broker“…you might remember the story involving stated income loans for hot dog vendors and limo drivers from Russia who were trying to sue Chase for hundreds of thousands of dollars over their lost earnest money.   She refused to correct her article.   How an employee of Chase is a “mortgage broker” beats the heck out of me.

It’s very convenient for big banks to vilify “mortgage brokers” because somehow they believe it makes their mortgage originators appear to be of a higher quality.   And….once the small mortgage broker industry has reduced to almost nothing, consumers will all have to go to one of three banks or a handful of remaining correspondent lenders or credit unions for their mortgage needs. 

The big bank$ have convinced Congress that it is the “mortgage broker” who has smelled up the industry.   Somehow they forgot to mention that:

  • mortgage brokers only sell bank products and programs.   Wholesale bank reps call on mortgage brokers and correspondent lenders begging for our business.    Back in the subprime days, they’d be lined up out my door pushing Countrywide, Washington Mutual or World Savings/Wachovia option ARMs stated income or 100% financing.   These programs were created by the banks/lenders not brokers.   The broker was the street dealer (sales) and the bank was the drug-lord/meth-lab (supply).
  • mortgage banks/wholesale lenders underwrite the loans that brokers originate for the bank.   Brokers do not make underwriting decisions–mortgage banks do and correspondent lenders do can (per bank guidelines).    If a wholesale lender/bank did not want to make a loan sent to them by a mortgage broker–they could decline it!

This morning, I’m reading the White House Blog’s “Top 10 Things You May Not Know About the Wall Street Reform and Consumer Protection Act” and number 2 is:

“Mortgage brokers will be prohibited from making higher commissions by selling mortgages they know consumers can’t afford.”

First of all, I agree that NO mortgage originator, regardless of the type of institution they work for, should earn a higher commission for selling inappropriate mortgages–in fact, they should not originate that loan <period>.    This point is so poorly written — is it saying that a mortgage banker CAN make a higher commission originating bad loans?   Our own White House has joined in on bastardizing the “mortgage broker”!  

My plea is that Congress and the media use the term “mortgage originator” when in doubt of what type of institution the MLO is employed by or if they’re making a general statement about mortgage originators.   The definition of  “mortgage broker” is not an unsavory mortgage originator.   This is reckless to an industry that is fighting to stay alive.

“Feds to local mortgage originator Shawn Portmann: We want our money”

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From the Seattle PI:

Alleging a long-running fraud involving a cash-packed safe and a garbage bag stuffed with money, federal prosecutors have asked that a mortgage broker be forced to hand over $102,000 to the government…
Since June 2009, Lord argued, investigators came to believe “that Portmann and two other principals at (Pierce Commercial Bank) Home Loans had devised a scheme involving … materially false representations to induce financial institutions to fund and/or purchase loans.”

Portmann was the loan officer on 5,253 loans, amounting to nearly $1 billion in lent money and about 46 percent of the home loans issued by the bank, the federal prosecutor told the court. Federal investigators contend about half of those loans were obtained through fraud.

In addition allegations that he falsified application information, Portmann is accused of drawing cashier’s checks from his personal bank accounts to show that would-be loan recipients could pay their debts. The checks were printed, but the funds were quickly returned to Portmann’s accounts, Lord told the court.

Federal investigators claim 85 checks totaling about $899,000 were cut from the account between 2006 and 2009, according to the July 30 court filing. For securing the loans, Portmann was paid at least $813,000 in premiums from 2006 to 2008.

Speaking with IRS and FBI agents earlier this year, Portmann’s personal assistant said she withdrew about $500,000 from Portmann’s savings account and deposited the cash in a safe at his home, according to the civil complaint. Another person allegedly involved in the scheme turned over a large garbage bag filled with $102,000 in cash, telling investigators that Portmann had given him a backpack in late January or early February containing $100,000 in bundled $100 bills.”

An avid Rain City Guide reader tipped me off to this story. Thanks also to the PI for the update. My students in the south end ask me about this case every week.

This Week in Seattle Real Estate

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Short Sales and Bank-Owned property as a percentage of the total market is a very important topic. One worthy of tracking on a week to week basis. There seems to be a false sense that these are “evenly distributed” throughout the County. Rather than get into a “yes they are; no they’re not” spitting match, let’s look at the actual data.

King County as a whole:
7-12 kc

In the graph above we see that 25% of all property sold in King County this week were “distressed” sales. For those who like the break down, 49 of those 94 were Bank-Owned properties and 45 were Short Sales. Not a significant imbalance one to the other. Not a significant difference in % of total sales on those that went Pending this week. I’m counting Pending Inspection and Pending since that will not duplicate the stats and will capture those that went straight to Pending with no inspection requested. That total is almost 24%…so not a big difference between closed sale data and pending sale data.

BUT when you look at some of the break-downs by area…HUGE DIFFERENCES!

7-12 sold

4 out of 6 of the closings in Auburn were distressed property, but only 1 of the 14 in Bellevue was distressed. 9 of the 14 sold in Renton were distressed property, but only 2 of the 12 in Redmond were distressed. Kirkland’s results are over-stated here and usually look more like Bellevue and Redmond’s numbers. You can see that in The Pending Sale Chart which for some reason would not post here, so I put it over on my blog.

I will try to run the stats every Monday so that we can combine them in 4 week comparison blocks. The results will vary somewhat from week to week, BUT some areas are clearly 50% or more distressed property, while others are only 10% to 15% distressed property. Looking at valuation factors for all of King County as a whole will not tell you enough. You could clearly be overpaying for a home in some areas, if you are using a County Wide % as to how much the market is up or down. There is a HUGE variance, as you can see in the graph here and the one over on my blog.

Again, apologies for not putting that 3rd and final graph down here and diverting you elsewhere to see it. When Dustin gets back from having fun, maybe he can figure out why it wouldn’t take.

(required disclosure – the stats in this post and graph were not compiled verified or posted by The Northwest Multiple Listing Service)

Oil Spill Wildlife Rescue Event – Columbia Tower

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oil spillThursday
*
July 15th
*
there will be a charity event at The Columbia Tower Club at 6:30 p.m. to benefit The Nature Conservancy and help with their Wildlife Relief efforts.

Tickets are $35. Ticket purchase and full event info can be found at the Oil Spill Wildlife Rescue Event site.

For the ticket price of $35 participants will get:

1) Flavor of Seattle local dining cards – normally retailing at $35 (up to $500 in savings).
2) Complementary hors d’oeuvres
3) 10 raffle tickets good for the chance to win some fantastic donated prizes

The 10 raffle tickets alone offer an amazing array of potential side benefits of assisting in this cause:

AUCTION and RAFFLE Items are coming from the below local establishments (list not all inclusive) and the $35 entrance fee gives you 10 raffle tickets toward the drawing.

The Four Seasons
The Hyatt
John Howie Steak
Sea Star Restaurant
Dulces Latin Bistro
Le Gourmand Restaurant
Ray’s Boathouse
Cafe Campagne
Toulouse Petit
Swinery Meats
DeLille Cellars
O-Wines
Secret Stash Seasalts
Chef Amadeus
Liberty Bars
Fresh Seafood
Herban Creations

A great night out in the clouds at The Columbia Tower Club (business casual dress required), a great cause AND a great deal! Hope to see you all there…6:30 p.m. Thursday, July 15th.

Oil Spill Wildlife Rescue Event - Columbia Tower Club

Oil Spill Wildlife Rescue Event - Columbia Tower Club

WA State Real Estate Agents are now Brokers.

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On July 1, 2010, real estate salespeople in Washington State will become brokers.  It’s taken the Department of Licensing a total of seven years from initial research to the final implementation having started in 2003 on this project. The revisions passed the legislature in 2008 and the law is now in effect. There are many, many questions still to be answered during the rule-making process which makes the transition challenging but not impossible.  Here are some of the higlights:

  • There are now two levels of licensure for individuals: broker and managing broker.
  • The ‘salesperson’ category has been eliminated. The entry-level license for an individual is now “broker.”
  • A person with three years of experience as a broker will now be able to become a managing broker.
  • The 2010 license law requires the licensing of brokerage firms. A real estate firm is any business entity (including a corporation, partnership, or sole proprietorship) that conducts real estate activities.
  • All real estate services contracts are between the client and brokerage firm, instead of between the client and any individual licensee. A listing agreement is the property of the brokerage firm.
  • A designated broker is responsible for meeting all recordkeeping and trust fund requirements, plus he/she has supervisory responsibility over all the firm’s licensees.
  • All first-time broker license applicants must submit fingerprint identification.
  • Those renewing their licenses must also submit fingerprints and have their backgrounds checked every six years.
  • Educational requirements have been increased for first time broker licensees as well as managing brokers. Existing licensees must take a transition course to update them on the licensing law changes.
  • A broker with less than two years’ experience (remember, I’m talking about a new real estate agent, now referred to as a “broker) is subject to one additional responsibility: working under a heightened degree of supervision. He or she must conduct all brokerage activities under the direct supervision of a designated or managing broker, and submit all signed documents to the designated broker for her review, within five days of the signing, and submit evidence of their required education courses to the designated or managing broker.

There are more changes relating to recordkeeping, trust accounts, the role of firms, and property management. The complete law and its rules can be found here.

I highly recommend all real estate agents brokers and other interested stakeholders join the DOL’s listserve. DOL sends out a new set of Frequently Asked Questions each week and has been doing a great job of keeping us up to date during the transition.

The following links are from the Department of Licensing
Overview
Frequently Asked Questions
Rulemaking

During the Transition Course, I’ve been asking my students at the end of class if they believe the new law changes will help the industry, hurt, or make no difference.  The majority of students believe the changes will help the industry raise the bar.  The three biggest changes they are happy with are: 1) the increased level of supervision required of new licensees;  2) the mandatory fingerprint/background check; and, 3) the increased level of required prelicensing education for new agents brokers.

As a side-note, I’ve had more than a handful of students ask what kinds of conviction on the background check would dis-qualify them from keeping their real estate license.  For the answer to that question, follow this link and scroll down to the section on “fingerprinting.”

If Your Loan Originator Isn’t Licensed Today, They Need to Work for a Bank or Credit Union Tomorrow

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All mortgage originators who work for mortgage brokers or correspondent lenders/consumer loan companies must be licensed with the NMLS as of July 1, 2010 to take a residential loan application for property located in Washington.   If your mortgage originator works for a bank or credit union, they only need to be registered with the NMLS (which means “do nothing” at this point).

Last Friday, Deb Bortner, Director of Consumer Services for Washington State’s Department of Financial Institutions, issued this statement:

“Unfortunately, many applicants did not submit by the deadline. I want to assure you that, even with the current budget reductions and staffing constraints, our Licensing Team is doing all it can to balance a timely review while complying with the recent provisions of state and federal laws that are designed to provide increased consumer protection. While we will process as many applications as possible by July 1st, we will not be able to fully address the volume of late applications that we are currently receiving.

It is important to remind each member of the industry that on July 1 an individual may not act as a Mortgage Loan Originator unless he/she is licensed or has received official written e-mail communication from DFI outlining the conditions under which that individual can work…”

It’s unfortunate for consumers that Congress made two separate classes of mortgage originators: Licensed and Registered.   You can follow the dollars to figure out how that happened.    In my opinion, all mortgage originators should be held to the same standards.   Consumers should not have to determine whether a mortgage originator is licensed or not and what licensing means verses a simply registered mortgage originator working for a bank mortgage company or credit union.  With that said,  I’m thankful to be in the licensed category since those LO’s who are licensed are held to a higher standard than a registered loan originator per the SAFE Act.  

Tomorrow, many mortgage originators employed at consumer loan companies/correspondent lenders or mortgage brokers who did not jump through the licensing hoops quick enough will either need to cease taking applications or go work for a bank or credit union.  Again, this is for residential mortgage applications on properties located in Washington State (this applies to mortgage originators not in the State of Washington but taking applications on residential property located in Washington).   

You can verify if your mortgage originator is licensed by checking http://www.nmlsconsumeraccess.org .   You can run a search by entering their first and last name along with the state abbreviation.   If your mortgage originator works for a bank or credit union, they’re not required to be licensed and registration is not available for them yet.

Loan Officers Needed – No License Required

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This is an email that I received last night with a bank using the fact that mortgage originators who are employed by a depository bank or credit union are not required to maintain a license.    Here’s more from the email:

[Big] Bank has been in the industry for over 100 years.  As one of the nation’s top federally Chartered banks, [Big] Bank has the size and depth of the larger banks with the mindset of customer service being our #1 priority!

If you are an experienced loan originator looking for a change, HERE IS YOUR OPPORTUNITY!!!

What more can you ask for?  Do NOT miss this opportunity to take your career to the next level.

Am I surprised to see a bank use the fact their mortgage originators are not licensed as a recruiting tool?  Not really. 

I’m sure they feel it’s a great advantage to not have to be held to the same standards as Licensed Mortgage Originators (passing state and national exams, continuing education,  financial stability of the LO, etc).     Banks probably believe that consumers don’t care if the mortgage originator has satisfied what is required of a licensed LO per the SAFE Act–because they’re employed by a big bank and somehow, that makes the consumer safe.  

I’m wondering what type of mortgage originator would say “Hey, I don’t want to have to take the exams, have my credit history checked or do NMLS certified continuing education…I’m going to work for a bank or credit union!‘

Consumers:  Does it matter to you if the person helping you obtain your mortgage is licensed (held to a higher standards per the SAFE Act)?  Or if they work for a big bank or credit union, and are merely “registered”, is that good enough for you?

The Fed Leaves the Funds Rate Unchanged

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benbIt’s no surprise that the Federal Reserve left the funds rate at the current lows of 0 – 0.25% on the heals of continued weak housing data.   What investors are looking for is “what” is being said in the FOMC Statement that is released in conjunction with their rate decision.

If you have a home equity line of credit that is tied to the prime rate, your rate should be unchanged (for now).   Otherwise, this decision does not have a direct impact on mortgage rates.  It does influence the markets (stocks and bonds) which impacts mortgage rates.

Here’s what I extracted from today’s Statement:

Household spending is increasing but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit….employers remain reluctant to add to payrolls. Housing starts remain at a depressed level. Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad. Bank lending has continued to contract in recent months….subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.

Prior to the FOMC Statement, mortgage backed securites are flat (but still at record levels with very low mortgage rates).   Follow me on Twitter to see live rate quotes.   If I have intraday rate changes today, I’ll update this post.