Category Archives: General

How Long is a Preapproval Letter Good For?

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I recently had a newly preapproved client ask me that question.  It’s quite a timely one!  Before this market, I would say that a preapproval letter used to be good for about 90 days assuming that none of the information on provided on the loan application has changed.  Now-a-days, you have to factor in guideline changes and interest rates.   You’re really not approved by the sales price or loan amount, it’s based on the total mortgage payment and funds for closing (down payment, closing costs, prepaids/reserves, etc.) along with any other conditions (such as having a certain amount in your savings account after closing).

Assuming that the loan program you’re preapproved with does not have guideline changes and still exists, before you write an offer on a home, I recommend that you contact your mortgage originator to make sure you’re still approved based on that home’s property taxes and current interest rates.  In fact, it wouldn’t hurt to get an updated Good Faith Estimate with current rates and actual property taxes.  If you’re asking the seller to pay closing costs, let your mortgage originator know so they can verify the amount will be allowed per guidelines.  If you’re offering less than you’re preapproved for, your real estate agent may want to have a preapproval letter that is written specifically for the offer (especially if you’re asking the seller to pay closing costs).

Program changes? Boy, we’ve had a few.  There are also changes with private mortgage insurance and various lender guidelines too.  I recommend that people who are in the market right now as “preapproved” buyers, check in with their mortgage originator on a weekly basis (if you’re actively looking) and before you present that offer to make sure it meets current guidelines and that you are still qualified based on the present rate.

Don’t be surprised if your mortgage originator requires you to provide your most recent paystubs and copies of your asset accounts (where your down payment is coming from) before providing an updated preapproval letter.

Last note: Be careful when searching blogs for information on mortgage programs and guidelines.  If the posts are even a few months old, the information may very well be outdated (if it was correct in the first place).

Note: I have modified this post.  I had incorrect data (kind of ironic).

Draft Proposal on Financial Rescue Regulation

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The House votes on Monday and the Senate apparently will vote on Wednesday.  Here is the “Draft Proposal on Financial Rescue Legislation”

From Office of Speaker Nancy Pelosi — Sept. 28, 2008
REINVEST, REIMBURSE, REFORM
IMPROVING THE FINANCIAL RESCUE LEGISLATION

Significant bipartisan work has built consensus around dramatic improvements to the original Bush-Paulson plan to stabilize American financial markets — including cutting in half the Administration’s initial request for $700 billion and requiring Congressional review for any future commitment of taxpayers’ funds. If the government loses money, the financial industry will pay back the taxpayers.

3 Phases of a Financial Rescue with Strong Taxpayer Protections

Reinvest in the troubled financial markets … to stabilize our economy and insulate Main Street from Wall Street

Reimburse the taxpayer … through ownership of shares and appreciation in the value of purchased assets

Reform business-as-usual on Wall Street … strong Congressional oversight and no golden parachutes

CRITICAL IMPROVEMENTS TO THE RESCUE PLAN

Democrats have insisted from day one on substantial changes to make the Bush-Paulson plan acceptable — protecting American taxpayers and Main Street — and these elements will be included in the legislation

Protection for taxpayers, ensuring THEY share IN ANY profits

Cuts the payment of $700 billion in half and conditions future payments on Congressional review

Gives taxpayers an ownership stake and profit-making opportunities with participating companies

Puts taxpayers first in line to recover assets if participating company fails

Guarantees taxpayers are repaid in full — if other protections have not actually produced a profit

Allows the government to purchase troubled assets from pension plans, local governments, and small banks that serve low- and middle-income families

Limits on excessive compensation for CEOs and executives

New restrictions on CEO and executive compensation for participating companies:

No multi-million dollar golden parachutes

Limits CEO compensation that encourages unnecessary risk-taking

Recovers bonuses paid based on promised gains that later turn out to be false or inaccurate

Strong independent oversight and transparency

Four separate independent oversight entities or processes to protect the taxpayer

A strong oversight board appointed by bipartisan leaders of Congress

A GAO presence at Treasury to oversee the program and conduct audits to ensure strong internal controls, and to prevent waste, fraud, and abuse

An independent Inspector General to monitor the Treasury Secretary’s decisions
Transparency — requiring posting of transactions online — to help jumpstart private sector demand

Meaningful judicial review of the Treasury Secretary’s actions

Help to prevent home foreclosures crippling the American economy

The government can use its power as the owner of mortgages and mortgage backed securities to facilitate loan modifications (such as, reduced principal or interest rate, lengthened time to pay back the mortgage) to help reduce the 2 million projected foreclosures in the next year

Extends provision (passed earlier in this Congress) to stop tax liability on mortgage foreclosures

Helps save small businesses that need credit by aiding small community banks hurt by the mortgage crisis—allowing these banks to deduct losses from investments in Fannie Mae and Freddie Mac stocks.

Brad DeLong has a better idea: nationalization and “it’s the best way to deal with the moral hazard problem.”

Paul Krugman agrees with Brad DeLong but ponders whether nationalization has broad political support.

Nouriel Roubini says the bailout is a “Disgrace and Rip-Off.”

This way of recapitalizing financial institutions is a total rip-off that will mostly benefit – at a huge expense for the US taxpayer – the common and preferred shareholders and even unsecured creditors of the banks. Even the late addition of some warrants that the government will get in exchange of this massive injection of public money is only a cosmetic fig leaf of dubious value as the form and size of such warrants is totally vague and fuzzy.

Seems like the only people who are happy with the draft proposal are the politicians. Seems like both presidential candidates are supporting it.

“This is something that all of us will swallow hard and go forward with,” Republican John McCain said in an interview with the ABC television network. “The option of doing nothing is simply not an acceptable option.”

Democrat Barack Obama said he was likely to back the package. “My inclination is to support it,” he told CBS television’s “Face the Nation.”
 

Update: Here is the 108 page PDF of the bill, now called the ‘‘Emergency Economic Stabilization Act of 2008’’.

Bailout Bill Agreement Tentatively Reached

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Several news sources are reporting that a bailout bill agreement has been tentatively reached between congressional leaders and the White House. 

Update: the “Summary of the Draft Proposal to Rescue U.S. Financial Markets” has been posted inside the comments.

From the Wall St Journal

“Senate Majority Leader Harry Reid (D., Nev.), in an appearance on the Senate floor Saturday, said there are only a “handful of issues still lingering” for lawmakers to finalize. He said his goal was for the Congress and the Bush administration to at the very least release an outline of the bailout plan before Asian markets open Sunday evening.

Saturday evening, a Senate aide familiar with the talks said a number of specific ideas appeared to be gaining traction, most notably the concept of creating a “financial stability” fund financed by Wall Street…

Also gaining steam was a proposal to eliminate the tax deductions for companies on executive compensation for top officers that is above $400,000….

One issue still to be resolved was how the $700 billion authority to Treasury to buy up toxic assets will be meted out.

Lawmakers want Treasury to receive the authority in tranches, receiving $250 billion immediately and another $100 billion if needed as certified by the president. The remaining $350 billion would be subject to a Congressional vote, giving lawmakers the opportunity to vote to rescind the funds. But a Senate aide familiar with the discussions said Treasury was pushing for a larger initial authority, likely around $500 billion.

Lawmakers appeared to have the advantage on the issue ahead of the evening talks, the Senate aide said, though no part of the deal had been completely finalized.”

From Reuters

WASHINGTON (Reuters) – U.S. congressional leaders on Sunday said they had reached the broad outline of a deal to put in place a $700 billion bank bailout but were awaiting details on paper before declaring it final.
 
“We’ve made great progress,” House of Representatives Speaker Nancy Pelosi told reporters after a night of marathon talks. “We have to get it committed to paper so we can formally agree.”

Jillayne here. So, they’ve reached an agreement, but they still have some disagreements. To me this sounds like we still don’t have an agreement, but the pressure was on to announce that perhaps they’re closer.

I’d like to know if we the taxpayers are going to be able to read the agreement and give our feedback to our elected representatives BEFORE the House votes.

Another one bites the dust…

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It’s pretty amazing how in the span of just under 3 weeks that…

  • Fannie Mae & Freddie Mac were seized by the government
  • Leman Brothers went into bankruptcy
  • Bank of America buys Merrill Lynch before they go into bankruptcy
  • The Federal Reserve gives AIG an $85 billion loan
  • President Bush seeks a $700 billion Bailout
  • Goldman Sachs & Morgan Stanley turn into regulated commercial banks
  • Warren Buffet buys $5 billion of Goldman Sachs stock
  • Washington Mutual is seized by the government & sold to JP Morgan Chase

I’m just in a state of shock and near disbelief witnessing the carnage unfold on Wall Street so fast.

    

Has the Distressed Conveyances law curtailed foreclosure rescue scams?

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In this Sunday’s Seattle Times there was an article on “foreclosure rescue scams.” I found the timing interesting given the recent enactment of the Distressed Conveyances law effective in June of this year. This law was specifically enacted to curtail these practices and even provides a rather large “stick” to use in convincing people that they should not lure owners into such transactions (in the form of punitive damages of up to $100,000).

Does anyone have any insight into whether these scams continue unabated? Unfortunately, I have no direct personal insight into the issue. [CAUTION: Plug Ahead.] Although I offer a very affordable consultation that is well-suited for anyone who has been approached by a “rescuer,” I have yet to generate much business. So, I really have no idea whether the new law is having the desired effect. Unless the Seattle Times is behind the curve, it would seem that the new law has yet to achieve the desired impact (i.e., make this practice less common).

Blog Roundup on the Bailout Proposal

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Calculated Risk
Paulson Plan: Will it Work?

The primary goal of the Paulson Plan is to get the banks to lend again – or “unclog the system” as Secretary Paulson put it. Secondary goals are to “protect the taxpayer” and hopefully minimize moral hazard.

Will the plan achieve the primary goal? I think the answer is yes. By removing these troubled assets from the balance sheets of the financial institutions, the banks will able to lend again without lingering doubts about their solvency and viability. At first glance, the size of the plan seems sufficient.

It is almost guaranteed that there will be unintended and unanticipated consequences, but the plan will probably achieve the primary goal. And making sure the banks continue to lend will minimize the impact of the credit crisis on the general economy.

Unfortunately the Plan fails to address the secondary goals….

Yves at Naked Capitalism:
Why You Should Hate the Treasury Bailout Propsal

the shockingly short, sweeping text of the proposed legislation has lead to reactions of consternation among the knowledgeable, but whether this translates into enough popular ire fast enough to restrain this freight train remains to be seen.

First, let’s focus on the aspect that should get the proposal dinged (or renegotiated) regardless of any possible merit, namely, that it gives the Treasury imperial power with respect to a simply huge amount of funds. $700 billion is comparable to the hard cost of the Iraq war, bigger than the annual Pentagon budget. And mind you, $700 billion is not the maximum that the Treasury may spend, it’s the ceiling on the outstandings at any one time. It’s a balance sheet number, not an expenditure limit.

But here is the truly offensive section of an overreaching piece of legislation: Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

Dr./Prof. Paul Krugman
Thinking the Bailout Through

…the plan does nothing to address the lack of capital unless the Treasury overpays for assets. And if that’s the real plan, Congress has every right to balk.
So what should be done? Well, let’s think about how, until Paulson hit the panic button, the private sector was supposed to work this out: financial firms were supposed to recapitalize, bringing in outside investors to bulk up their capital base. That is, the private sector was supposed to cut off the problem at stage 2.

It now appears that isn’t happening, and public intervention is needed. But in that case, shouldn’t the public intervention also be at stage 2 — that is, shouldn’t it take the form of public injections of capital, in return for a stake in the upside?

Let’s not be railroaded into accepting an enormously expensive plan that doesn’t seem to address the real problem..

Housing Wire
U.S. Taxpayers to Bail Out Foreign Debtholders too?

“Participating financial institutions must have significant operations in the U.S., unless the Secretary makes a determination, in consultation with the Chairman of the Federal Reserve, that broader eligibility is necessary to effectively stabilize financial markets,

Sitting Shivah for the Financial Sector

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For those who have emailed me out of concern, because I have not written a post in over a week, I have taken a minute away from the services to let you all know that I am OK. I little depressed as is to be expected under these conditions, but OK.

Next week’s Catholic Funeral for the Financial Sector will require that all women wear black mantillas. My choice is the one noted below which you can buy for only $24.99 from HeadCoverings by Devorah

WaMu Endgame

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Surprise: WaMu is looking for a buyer.  From the New York Times:

Goldman Sachs, which Washington Mutual has hired, started the process several days ago, these people said. Among the potential bidders that Goldman has talked to are Wells Fargo, JPMorgan Chase and HSBC. But no buyers may materialize. That could force the government to place Washington Mutual into conservatorship, like IndyMac, or find a bridge-bank solution, which was extended to thrifts in the new housing regulations.

Citigroup is also considering an offer, but would likely be able to buy Washington Mutual only if it emerged from a receivership, according to a person close to the situation. JPMorgan is maintaining its posture that it will not bid unless it receives government support, according to another person briefed on the matter.

I’m not so sure that any bank is in shape to purchase WaMu in its current form. Perhaps it could be broken up into smaller pieces. Its deposit base is probably worth more than anything else on its books right now.

I’m sad. I can remember walking into Washington Mutual Savings in Downtown Everett on the corner of Colby and Pacific with my dad to open up a passbook savings account.  I’ve had an account there just about my whole life.  My daughter’s school savings accounts are there.  I know many people who work at WaMu.  I worked at WaMu as a bank teller many years ago under a very smart, savvy woman named Margaret Bradley who was a very fine role model for a young woman like me in the early 1980s.  Washington Mutual was “The Friend of the Family.”  I bought that old commercial line and repeated it for years.

I know. It’s just a bank.  I’ll get over it. 

There are many WaMu employees that live and work here in the Seattle area who had much of their retirement investments within WaMu’s stock options.  Whatever the outcome, this can’t bode well for our employment numbers here in the greater Seattle area.  I’m under the FDIC limit and will keep my accounts open, and will not be moving them to a new bank. I’ll be seeing this through with them. 

This makes me wonder if it will be easier for homeowners to get their short sales and loan modifications approved. 

Wall St Journal: TPG Move Opens Doors for WaMu

Bloomberg: WaMu’s Biggest Shareholder Waives Compensation Pact

Calculated Risk: WaMu For Sale

Seattle Times: With Stock Sinking, WaMu Appears Headed for Sale

Seattle PI: WaMu Puts Itself up For Sale

Get with the times

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sad_face

I had an newer agent call me the other day, a bit consternated about how to evaluate a property for which his client had requested a CMA.  Sometimes — often — it is hard to evaluate certain properties in this changed/changing market; it can help to get other opinions. 

The conversation went something like this:

Agent: “I have a client who is selling the townhouse I sold him last year.”
Me: “Okay.  Did you find any any good comparable sales?”
Agent:  “Oh yes, there’s an identical unit that just sold in the same complex for the same price my client paid and another one that is on the market for a few thousand dollars more.”
Me:  “Well that helps.  What does that tell you about what your subject property is worth?”
Agent:  “It seems like it’s worth what he paid for the place, maybe a little less.  So should I just add the other closing costs to what he paid and list it for that price?  I’d hate for him to take a loss!”

I know, this seems silly when you read it from the sidelines.  Of course, we have to be honest and direct with our sellers, especially in this market.  Sometimes it’s brutal honesty that clients appreciate the most, and it hurts a lot less than trying do something that can’t be done — like sell this townhome for 10% more what it sold for last year.  So the answer is, price the unit at what the market will bear — which is what the direct comp unit just sold for, or more advisedly, for maybe a few points less.

For years we’ve been the bearers of great news:  “Guess what?  I sold you this little Wallingford bungalow in ’93 for $161,000, and now it’s worth $650,000!”  Sure it was worth maybe $735,000 last May, but still, it sounds pretty good telling your client they have this nearly $500k windfall.  And since ’91, our conversations with sellers have been something similar to that.  But now, times have changed.  This isn’t news to any of RCG’s readers, but it’s really important for agents, for professionals, to deliver the goods:  Clear, honest, and yes, sometimes brutal, information to our clients.

Spike in LIBOR rates may pressure ARM mortgage holders.

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I know everyone (including me) is rather distracted by the events going on in the financial market mayhem over the past two weeks, but many mortgage holders of ARM’s tied to the LIBOR Index should be re-evaluating their long term mortgage strategy.    Because LIBOR has been very low, many were complacent to make serious consideration of refinancing into a fixed rate.  I read many comments about LIBOR Index being very favorable, and to an extent is has been true, until…….

Bloomberg’s report

The overnight Libor rate in US dollars ratcheted up 3.3 percentage points to 6.44 percent, the largest increase in 7 yrs.

This could change the tone of all the ARM mortgage holders, whose mortgage index is tied to the LIBOR, who were hoping for little payment change when their adjustment period arrives.

About 6 million U.S. mortgages, including almost all subprime home loans and 41 percent of prime ARMs, are linked to the London Interbank Offered Rate, or Libor, according to First American CoreLogic in Santa Ana, California.

Further down the article, Seattle’s Bill Fleckenstein remarks:

“If the Libor market seizes up and stays that way, it’s going to complicate everything,” said Bill Fleckenstein, president of Fleckenstein Capital in Seattle. “What you are seeing is the unwinding of the financial system as we know it.”