Alternative sexier titles to this post are: “Your Escrow Officer is a NARC” or “No More Quicky Closings” or how about “The Escrow Hills have [photopress:detctive_1.jpg,thumb,alignright]Eyes”. There are some major changes brewing with how escrow will be practicing their business in 2008. Escrow companies may become “undercover
The FOMC announced that the Fed Funds Rate and Fed Discount Rate are both being reduced by 0.25%. Remember (I can never say this enough) this has no direct impact on your mortgage interest rate EXCEPT for home equity lines of credit which are based on Prime Rate. If you have a HELOC, your rate will decrease by 0.25%. Lucky you!
Mortgage rates are based on mortgage backed securities (bonds) and will adjust based on how the markets react to this adjustment. The 0.25% drop is pretty much what was being anticipated by the markets and has been priced into mortgage rates. This is why I’ve been urging borrowers to lock in before today and last Friday’s Jobs Report since mortgage rates (bonds) tend to react negatively to inflation.
What will happen now is everyone will be interpreting what the future may hold based on the Fed’s Statement. Although this cut is what they expected, many are disappointed with the statement:
“Incoming information suggests that economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending…. core inflation have improved modestly this year, but elevated energy and commodity prices, among other factors, may put upward pressure on inflation.”
The closing comment suggests they are prepared to cut again or do what ever they feel is needed:
“The Committee will continue to assess the effects of financial and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth.”
The Fed has now cut rates a full point since September. Currently the stock market is reacting negatively. I will update this post should we see dramatic changes to mortgage rates following this action by the FOMC.
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Are we throwing out a program that works, the FHA Down Payment Assistance Program, in this case the baby, while trying to fix the sub prime mess, the bathwater? I guess it all boils down to how valuable home ownership is and how well it helps drive a healthy economy.
A lot of realtors, including myself, have used an FHA non profit down payment assistance program (NDPA) with borrowers that want to own a home but can’t save a down payment fast enough to keep up with rising home prices. FHA programs, like Nehemiah or AmeriDream, allow more options for buyers, including the gifted down payment portion, and now that zero down payments are hard to find, this program is needed even more.
The non profit down payment assistance programs are going to be stopped in February unless Congress votes to extend the program. In the HUD Appropriations bill, congressional members are being influenced by a study done by HUD that shows that the default rate from the non profit down payment programs is 1% higher than other down payment assisted loan programs.
However, there is a further study by George Mason University that contradicts the HUD study and calls into question the validity of that statistics. For instance, the HUD sampling was limited to four US cities that had a higher than normal use of the programs and decreasing home values. Because of this study, the bill extending the programs may not pass.
The George Mason University study as well as the HUD bill is available by emailing me. It is long and takes time to get through, but here are the key findings, extremely edited!
1. 627,000 NDPA loans in 5 years.
2. National economic benefits as a result of these loans in the same time period is 4 times the estimated costs.
3. Those using this program had total wealth growth of 9.6 billion of this period.
4. NDPA homeowners contributed 228 million in property taxes in that time period.
5. NDPA homeowners generated 7293 jobs just in using more utilities due to their home ownership
6. Spending on household items created 60794 jobs, 1.8 billion in personal income, and 5.8 billion in total economic output.
Senator Patty Murray has voted against this bill possibly because of the influence of the HUD study. I hope she changes her mind. Since over 95% of all homebuyers using this program have not defaulted, we would be punishing those hopeful buyers and throwing out a wonderful and productive program.
It was a wet day yesterday, what with landslides and 4+ inches of rain (7+ near Bremerton). Four inches is a little over 11% of Seattle’s annual 36 inches of rainfall. I know of at least a couple of people who were pulling soggy belongings out of their basements last night. My stuff: not on the floor of my basement. I learned that one early on. If you’re collecting your damp belongings from your basement, you can count your blessings that you can still get into your home and there is still stuff there – some people aren’t so lucky.
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The Hope Now program currently being proposed in the other Washington is designed to assist current homeowners with Adjustable Rate Mortgages (ARM’s) in which their ARM’s may adjust upward causing financial hardship. An issue of immense concern is how do you sift through the thousands of homeowners and qualify those who’s mortgages are about to recast to some ugly interest rate? Further, how do all the stakeholders and investors of these mortgages see this playing out—that’s the part Attorneys will have to fight about (what say you Attorneys?).
If the Government players in this program, including one of the lead Conductor’s in this orchestra, Treasury Secretary Paulson, have their way, the investors of these loans will have to be a good sport and play along, never mind losing copious amounts of money, nor the other legal implications.
‘The modification of existing contracts, without the full and willing agreement of all parties to these contracts, risks significant erosion of 200 years of contract law,’ said Joshua Rosner, managing director at an independent research firm in New York.
[photopress:st_joseph.jpg,thumb,alignright]A couple of weeks ago I was contacted by one of the producers of The Story with Dick Gordon to do a radio show on the practice of burying St. Joseph statues. The call came to me as a result of a brief interview and quote of mine in The Wall Street Journal. You may have seen it in The Seattle Times when they picked it up and ran it on more than half of the of the Real Estate section’s front page. I’ve even seen articles complaining that WSJ’s original article was the most emailed link, over and above many more “important” articles.
I’m not going to rehash the story of whether or not you should. The link to the radio program gives my general feelings on that issue. This post is to help with the confusion of which statue one should use. You will notice that the photos in The Wall Street Journal’s piece show two completely different St. Joseph statues. The first one is more like the one on the left. The image further down in the article is like the one on the right.
Can you order St. Joseph Online? Or do you have to make the trek to Kaufer’s at 9th and Harrison and get the statue shown on the left, sold separately in the box on the lowest shelf, and not the version sold in the kits?
I recently accompanied an agent to Kaufer’s who needed two statues for two homes and advised her to buy one of each. St. Joseph is one of the saints who has more than one cause for intercession. He is the Patron Saint of Families and he is the Patron Saint of Workers. For those with a more curious interest here is a list of the Patron Saints of various endeavors and maladies.
So if the Father of the family has been relocated and his concern is for the separation of his family, then the statue of St. Joseph holding Jesus may be more appropriate than the one sold in the kit. If the family is in distress as a result of the home sale or purchase, then St. Joseph as Father of Jesus shown on the left is the statue to use. If you are an agent who wants to sell the house as a result of your hard work and efforts, then you would use the statue on the right. This is the one sold in the kits and the one an agent would use most of the time.
For flippers who have done everything well and right within their power to improve the home, and have been reasonable in your sale price expectations, well then possibly St. Joseph on the right will do the trick. But if you have piled up the carrying costs to the point where selling anywhere near the price needed to make you whole is even remotely possible, you may want the statue sold just to the left of St. Joseph on that bottom shelf at Kaufer’s. It is the Statue of St. Jude. The Patron Saint of Lost Causes.
Seems hard to believe that just last week it was sunny and bright with not the faintest hope of snow. One of my Thanksgiving houseguests from California was hoping to see snow falling, something he has never seen in his life.
I snapped a couple of shots for Mike to show that his prayers were answered. Just a week or so late.
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We’re lucky to be living far, far away from the mortgage fraud happening in other parts of the United States, right? Not so fast. In part two of this three part series, we’ll take a look at some mortgage fraud cases in Washington State.
Case Study: Century Mortgage; How to succeed in a down market and earn six figures your first year with no experience.
This case involved a mortgage broker, loan originators, a Realtor, an escrow closer, and an appraiser. Homes in a Spokane neighborhood had been on the market for many months with no sale. The mortgage broker talked the Realtor into taking the homes off the market and then relisting them with an increased price. Straw buyers were found; people who could not otherwise qualify to purchase a home but wanted to become homeowners. The terms were as follows: 80% first mortgage loan and a 20% second mortgage carried back by the seller. The mortgage lender was very happy with the 80% LTV loan. At closing the seller’s second mortgage was discounted to $1.00 and paid off. So the lender believes they are making an 80% LTV loan when they are really making a 100% LTV loan. Of course the home must appraise for the higher amount so the appraiser made some extra cash off of each on of these deals as did the Realtor and escrow closer, for knowingly hiding the facts from the lender. The Century Mortgage scheme (no relation to defunct subprime lender New Century) was played out in many neighborhoods in the Spokane area. The mortgage broker, loan originators, Realtor, closer, and appraiser all lost their license, and banned from the industry for life or for a specified number of years, and some were sentenced to do jail time in the federal pen. What concerns me about this case is that this could likely happen again because this scheme needs one important element: desperate sellers.
Case Study: Property Flipping; How to get rich quick and then go directly to jail
Ekram Almussa and Josh Kebede bought homes in Seattle and on the Eastside, and sold the homes in a matter of days and sometimes hours later, for thousands more. Here’s an example of how it went down: They would purchase a home for, say, $315,000 and hire an appraiser, the same one each time who magically finds that the home is worth $415,000. The homes are sold to straw borrowers whose names show on title and on the new mortgage documents, but agree to make payments to Almussa and Kebede, who in return promise to pay the mortgage. All the loans were owner occupied, but none of the properties were occupied by the owner of record. All the loans were sent to the same underwriter at the now defunct subprime lender New Century, Almussa and Kebede’s lender of choice each time. Almussa and Kebede pocket the $100K, plus the mortgage payments that went into their pocket. Both Almussa and Kebede were arrested and pleaded guilty to federal fraud charges. John Gonzalez, who helped verify employment for the straw buyers, decided to testify against them.
Case Study: Church is where the sinners are
Liza Bautista was a mortgage broker with a strong client base inside her Christian church in Tukwila. After successfully closing several prime loans for folk with A-paper credit, she targeted consumers who were turned down by lenders in 2005 and 2006 (Hello? Who couldn’t get a mortgage in ’05 and ’06?) and created two sets of loan [photopress:liza_1.jpg,thumb,alignleft]documents. She submitted the credit history and identity of her prime, A paper clients to the lender funding the loan. When it was time to sign papers, she forged her A paper client’s names on the loan documents and sent everything in for funding. For the poor credit clients, she hand carried a second set of documents to be signed and then made a special offer to personally hand carry their mortgage payment to the lender each month. (Note to consumers, don’t ever agree to this.) Of course, the payments never made it to the bank. Liza kept the money and subsequently, the lender started to foreclose on the A-paper owners, whose name appeared on title as the owners of record. When the A-paper clients were finally contacted by the lender and claimed they did not own said house, Liza started running out of places to hide. The poor credit clients who were thrilled to be homeowners were obviously upset that their name were not on the title to the home and they were evicted after foreclosure. Liza has lost her mortgage broker’s license. Rumor has it that she is still originating loans under a different name. From a quick search of the King County Court records (search by her name) you can see several court actions indicating the A-paper former clients have sued and won. The escrow company that Liza used had been operating without a license at the time.
As you can see, the most egregious cases of mortgage fraud are more than just a single person acting alone. There is usually a charismatic ringleader who recruits others. Sometimes the ringleader will target new or financially struggling loan originators, Realtors, escrow companies, and appraisers, who are all offered additional cash for participating.
The question that remains is how many defaults/foreclosures are the result of large-scale, organized mortgage fraud, and how many are the result of much smaller scale fraud that likely won’t see prosecution. There never has been nor will there ever be enough government resources to regulate every single transaction written by every single industry person out there. It is up to us to help point investigators in the right direction.
Consumers as well as those of us in the industry can report mortgage fraud tips by following this link.
On CalculatedRisk, I recently read a blog post about securities rating agency Fitch (link opens the 11-page PDF report and requires site registration, but it’s free) opening up 45 loan files inside one of the failed CDOs, and guess what they found? Mortgage fraud galore and very shoddy underwriting which I will outline in Part 3.
Part 1 Mortgage Fraud Basics
Part 2 Case Studies
Part 3 Recent Mortgage Fraud Developments, and Future Outlook
Over on Beach Drive Blog in West Seattle, help is wanted to find homes decked out in Christmas Lights. The Paper Noose and the Holiday Artwalk in Georgetown.
Mid Beacon Hill the insiders POV of Beacon Hill , and Cosmo Seattle on Downtown Seattle citizens for parks.
Broadway Seattle on Capitol Hill is a Walker’s Paradise, and walkability in Issaquah Highlands.
Capitol Hill on new Public Art on Capitol Hill, and an afternoon moon in Kirkland 52.
Captain Columbia City, keeping an eye on seismic activity in Seattle neighborhoods. Leaves + drains = problems and how neighbors can partner up with the city to remove problems at Miller Park Neighborhood Association.
Kirkland Weblog and enjoying a fine dinner at favorite place, and a sweet spot in Issaquah Undressed .
West Seattle Blog – the annual Christmas lights are up on Beach Dr’s best home display. Lastly, where to find the snowiest place on Capitol Hill Seattle, you might want to know if the weatherman is right and we get snow this weekend!
I’ve blogged a couple of times here at RCG about the benefits of using a self-directed IRA as an investment vehicle in Real Estate. When I originally set up my self-directed IRA I loved that I could control my retirement funds not only in securities but also in real estate. I had to educate myself by going to seminars and talking to the very few professionals that understood the process. However, being the do-it-yourselfer that I am, I traveled around the country attending lectures and symposiums until it started sinking in.
I set up the necessary entity and rolled over my IRAs and Seps into a Roth IRA (paid the taxes), created an LLC to buy real estate and then had my Roth IRA buy shares of my LLC. This has been a great way to grow my retirement without ever paying taxes on the profit.
However, the process was cumbersome, I never thoroughly understood all the scary laws that would cause my self-directed IRA to loose it’s status and it was not always as fluid as I’d like. Such as, had I not attended the classes and done the research, I wouldn’t have even known where to go for the custodian that is required for the self directed retirement accounts. Then, I had to find an accountant and an attorney who specialized in them. Again, hard to find. Additionally, although I had good services in my chosen Custodial firm, I didn’t have the ability to have instant access to my money, and in fact, last month when I tried to take a distribution, it took over a week to get the cash out. What if I’d wanted to purchase a home on the court house steps? not possible with my custodian. I have no access to cash, nor do I have a checkbook.
Recently, I’ve learned of a completely different way of investing with self-directed IRA’s that’s being offered here in our own backyard in Bellevue. The company is Guidant Financial and they’ve developed a product called ‘Auriga’, (Auriga means the helsman of one’s ship). Although I’m just learning about this product, it appears to provide a solution to problems inherent in custodial accounts by giving you checkbook control over your retirement account. Additionally, Auriga allows the retirement plan to invest in more than one vehicle, and in my case, where my LLC sometimes is the owner of the property and sometimes is the lender, it allows for that flexibility. Guidant is not the Custodial account for the IRA’s but has negotiated a very low fee thru a custodial business relationship that is not based on increasing the fee as the account increases in value. The way they do this is to provide all the legal, accounting and guidance as Guidant Financial, streamlining the custodial role. My experience is that the custodian cannot give legal, accounting or much of any assistance in setting up the account, but it does charge an annual fee based on the size of the account. Guidant Financial charges a one time up front fee for the setup and continued operation of the IRA account. As your account value grows, the costs are still minimal since the custodian fees are not based on the size of the asset.
For more information there will be a webinar on Wednesday November 28 at 12pm. I know that I’m not alone out there with my self-directed real estate investing.