Category Archives: General

Are YOU a Contractor?

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Based on recent changes in Washington law, you might be if you own real estate and either work on it yourself or hire others to work on it.

Without great fanfare, the Washington legislature recently made subtle, yet significant, changes to Washington’s Contractor Registration laws (RCW 18.27 et seq.). Generally, the Contractor Registration laws deal with the regulation, registration, and licensing of contractors. Historically, a contractor’s failure to comply with the registration requirements could lead to civil fines and criminal prosecution. The legislature, acting under pressure to better protect consumers, expanded the definition of contractor; stiffened the consequences for violations and strengthened the Department of Labor and Industries’ enforcement powers against unlicensed contractors.

The biggest change occurred in defining who is required to be licensed. RCW 18.27.010(1) now defines a contractor as:

. . . any person, firm, corporation, or other entity who or which, in the pursuit of an independent business undertakes to, or offers to undertake, or submits a bid to, construct, alter, repair, add to, subtract from, improve, develop, move, wreck, or demolish any building, highway, road, railroad, excavation or other structure, project, development, or improvement attached to real estate or to do any part thereof including the installation of carpeting or other floor covering, the erection of scaffolding or other structures or works in connection therewith, the installation or repair of roofing or siding, performing tree removal services, or cabinet or similar installation; or, who, to do similar work upon his or her own property, employs members of more than one trade upon a single job or project or under a single building permit except as otherwise provided in this chapter. “Contractor” also includes a consultant acting as a general contractor. “Contractor” also includes any person, firm, corporation, or other entity covered by this subsection, whether or not registered as required under this chapter or who are otherwise required to be registered or licensed by law, who offer to sell their property without occupying or using the structures, projects, developments, or improvements for more than one year from the date the structure, project, development, or improvement was substantially completed or abandoned. (emphasis added)

These changes now make it clear that businesses engaged in real estate development activities, even on their own property, must now register. For example, under the old law, a developer who subdivided their own property and made required plat improvements would have previously fallen outside this definition. Now, that same developer fits squarely within this definition, especially if the developer does not “occupy or use

FHA: A Siren Who Just Might Break Your Heart

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It’s an FHA love fest! We have national trade organizations smiling and shaking hands with members of the House and Senate over proposed legislation to modernize FHA.  The House approved the bill, suspiciously titled “The Expanding American Homeownership Act of 2007” (I guess “FHA Reform” might have hurt FHA employee’s feelings). This bill will provide some nice upgrades such as increasing conforming loan limits, reducing downpayment requirements, simplifying approval requirements for condos and co-ops, and allowing people with little credit history to use, for example, utility bill records to establish a credit history.  Now we’re waiting on the Senate where opinions differ.

I don’t mean to spoil the FHA happy party, but FHA loans ranked as “seriously delinquent” are higher than subprime ARM loans right now in Washington state as well as overall in the U.S.

See page 13 of this PDF, released last week at the Wash Assoc of Mtg Brokers state convention in Bellevue:

So what do rising FHA delinquencies mean for real estate agents?

Lenders must fully underwrite FHA loans.  If a loan goes into delinquency, the lenders must take a look at what happened:  Lenders and FHA-approved underwriters are held accountable for their bad underwriting decisions. 

What the industry use to do: sell that homebuyer a subprime ARM underwritten on the initial teaser payment rate, which made their debt-to-income ratio look great.

Worse, the industry might have shoved that person into a stated income loan where the borrower “magically” comes up with an income figure that comports with a decent debt-to-income ratio.

This transferred the risk away from the lender and onto the borrower “if” the borrower is unlucky enough to get prosecuted for mortgage fraud.  Stated income subprime high LTV loans are now gone. We’re now living through the painfully obvious proof that borrowers make lousy underwriters.

That risk now falls back on the lender. If the loan defaults, bank auditors and examiners call into question the decisions made by the underwriters.  Recall that with a stated income loan, the borrower inflated the income so the debt-to-income ratio looks great to auditors. With fully-underwritten FHA loans, the bank can go back and examine the decision. Speaking as a former underwriter, banks and their underwriters are not thrilled about re-living their underwriting decisions. If FHA delinquencies continue to rise, banks are going to tighten FHA underwriting policies, as they well should. 

[photopress:FHAsiren.jpg,thumb,alignright]Realtors following this thread ought to continue to be reminded that the “anyone can get a loan” party is OVER and FHA ought not be thought of as an easy and fast way to inject corpses with an FHA drug to bring them to life as first time homebuyers.  Said another way: just because anyone, even zombies, could have received a subprime loan in 2006 doesn’t necessarily translate into FHA-approvable borrowers in 2007 and 2008.

Realtors, add some time to the “loan approval” section in the purchase and sales agreement and please make sure that the FHA borrower is working with 1) a federally chartered bank with current FHA approval (state chartered banks may or may not have this in place); or, 2) a mortgage broker that ALREADY HAS FHA loan approval.  This would mean a medium to large sized mortgage brokerage firm, preferably with an FHA-approved underwriter on staff locally.

If your client is working with a mortgage broker, Realtors: query the LO to see how much experience the LO has with originating FHA loans.  Why let an LO practice on your file? Also, some mortgage brokers might have rules in place that direct the loan originator your client is working with to transfer your borrower’s FHA loan file to a main office. Check on this ahead of time.

Redfin on Guy Kawaski's Blog

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[photopress:guy2_0_1.jpg,thumb,alignright]Over on Guy Kawasaki’s Blog “How to Change the World – A Practical Blog for Impractical People”, Glenn Kelman of Redfin posts their Actual Numbers against “The Redfin Model” figures in a post titled “Financial Models for Underachievers – Two Years of the Real Numbers of a Startup”

Seems the model is based on worst case scenario, to increase the odds of repeated rounds of funding.  Glenn says: “…we heeded Guy’s advice that ‘the three most powerful words you can utter at a board meeting are, We beat projections’. This convinced us to develop the worst possible financial model that could still be used to raise money.”

Hmmmm.  So you set your sights artificially low, so you can say you beat projections when asking for more money.  Had the sights not been intentionally low, maybe there wouldn’t be a new round of funding.  I guess that’s a strategy.  But it sounds a bit deceptive, doesn’t it? 

Surely people spending lots of money, aren’t totally awed when someone says “We beat projections!”.  One would hope that they would first ascertain if those projections were intentionally placed at worst case scenario, just so they could say “we beat projections!” to get more money.  One would think investors on a grand scale are a little smarter than that…or at least we hope they are.  But looks like Guy and Glenn know for fact that they are not, and are capitalizing on that fact.

It really is a great article, and Glenn is offering sanitized versions of the model for others to follow.  But if people looking for money can read this and use that model, wouldn’t the people handing out venture capital also be reading this?  Wouldn’t they in turn learn to scoff when someone says the magic words: “We beat projections!” again and again?

Yup, it’s “A Practical Blog for Impractical People” alright.  Sounds like the practical people are the ones asking for money, and the impractical ones are the people giving the money.

Other blog posts commenting on Guy Kawasaki’s post:

Sneak a Peak Inside Redfin by Joel Burslem on FoREM

Nick Bostic on Radiohead and Redfin (not quite related, but cute and noteworthy)

Greg Swann’s take on it

Tim Berry of Up and Running quotes the quote “Plan slow; Run fast”

 

A Seller's Guide to FHA

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FHA insured mortgages have received a stigma in past years for creating a challenging transaction.  Sellers seem to prefer conventional financing, even subprime financing, over an offer with an approved FHA buyer.   

The Federal Housing Administration was established in the 1930s following the Great Depression.   These innovative low down payment loans were intended to help more people become home owners with intentions of creating more stability in neighborhoods.  FHA insured mortgages are woven into American history.

Here are some reasons you,as a Seller, should consider an offer with FHA financing.

  • Preapproved FHA buyers are full documentation loans.  These buyers have been scrutinized and have provided income and asset documentation in order to have a true preapproval.  
  • FHA mortgages are not going to “disappear

Utilities: Avoid post-closing disputes

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One of the functions of escrow is to pay lienable utilites. Lienable. There is a large segment of the real estate community that interprets that to mean all utilitites. It does not mean all utilities. In addition, escrow firms do not have access to seller’s account information. Sellers and/or their listing agents need to provide this information to escrow.

While Form 22K is clear in stating “lienable” utilities, there is much confusion by the real estate agents as to what constitutes a lienable utility. Escrow Instructions by any escrow firm or escrow department within a title company are very clear. All unpaid utilities not paid at closing by the escrow company are to be paid by the respective parties.

Which utilities are lienable (subject to property location)?

  • Water
  • Sewer
  • Seattle Public Utilities
  • Seattle City Light (power)

PUD and Puget Sound Energy (PSE) do not provide final utility bills to escrow and they are not lienable. PUD and PSE will send the final bill to the seller. Homeowners are responsible for paying all utilies, including phone, cable, garbage and so on.

To help your clients obtain a smooth and trouble-free closing, please have the Form 22K filled out properly with correct account information. Agents can avoid post closing phone calls from clients who are upset about utility bills that another party is responsible for by clarifying how the bills are handled during the escrow process. If you are uncertain or have questions, please contact your escrow office as they are eager to help you and the escrow staff avoid post-closing problems.

One day every pothole will get its moment in the limelight

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I think the running joke about blogs a couple of years ago was that belly button lint blogging was why most blogs would forever remain niche-y and unread. Today much of the “fantastical” thinking about locally-focussed blogs is that citizen journalists will report on everything (everything!) happening in their neighborhoods. When they look up from their navels, the online future gazers say (actually they blog) that we’ll all be served better local news by a cadre of unpaid neighbors noticing things in front of their houses and doing a little snooping. I tended to sneer at this concept until today, when I read every word of this blog post about a pothole in my neighborhood. Yes. A pothole.

Perhaps citizen journalism does have a place…

Jim Cramer says don't buy now…except for Seattle.

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On the Today show yesterday, Jim Cramer from Mad Money told Meredith Viera “Don’t you dare buy now…you will lose money”.   This enraged Realtor Associations across the country who have blasted back that this is a “buyer’s market” and have demanded to NBC that Cramer correct his statements.

Cramer discusses slumping homes market
Cramer discusses slumping homes market

This morning on CNBC Squak on the Street, Cramer was asked if he would like to correct his statements on the Today Show…his only correction was that Seattle is still a good place to buy homes along with a small sector in…was okay to buy.  Click here to watch his “Seattle correction” from CNBC this morning.

I am a Mortgage Dispenser

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Over the past month, I’ve been combing through my database of my closed clients who have either adjustable rate or balloon mortgages.   I’m sending each and every [photopress:july55ad.jpg,full,alignright]one of them a letter reminding them of the terms of their mortgage.   Regardless of how much time I spend explaining how their mortgage program functions, as soon as someone has moved into their new home and they’re unpacking boxes—they’ve forgotten the fine details to the financing that made buying a home possible! 

The letters restate what is disclosed on the Federal Truth in Lending and their Note, including what their margin and caps are.    It also addresses when their first adjustment will take place and what the worse case rate and payment may be.   Worse case payments are currently not disclosed on the Truth in Lending.   

I began my mortgage career on April 1, 2000.   So far, 20% of my closed transactions have been adjustable or balloon mortgages and 3% of my total closed business would be classified as “subprime

Worthy of the public trust?

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[photopress:money_kid.jpg,thumb,alignright]I think this comes under the category of “Out of the mouths of babes”.

I happened upon this description of a real estate agent apparently written by the young man pictured here as a school project for “career day”.  Recently I have been evaluating a large number of agents who are currently with the Company, as well as several asking to join us.  I’ve always been told that my standards are too high.  That my bar is not realistic. 

As I read the young man’s description of what a real estate agent is, or should be, I was stunned by some of the key realities this young man depicted.

“Real estate agents help people buy and sell houses.  They must be able to say approximately how much money a house is worth…Real estate agents work for real estate brokers. Real estate brokers manage real estate offices…They help the seller set the price for the house. To do this, they must know what the house is like. They must also figure out what people would be willing to pay for the house so that it will sell quickly…Good real estate agents also spend time away from the office finding out more about the houses in their town that might one day be up for sale…They should deal honestly with people and have good manners.”

This is just a small excerpt.  I’m thinking of making this young man’s depiction of who we are and what we do required reading for all agents.  More and more I find my standard to be “worthy of the public trust”.  Someone you might hire to help your elderly mother buy a home.  Someone you might seek out if you don’t speak English very well, and need someone who you can trust to have your back. 

More and more I see people using “assistance to savvy buyers” as the benchmark for all that an agent needs to be.  I just don’t see it that way.  A savvy buyer can’t be the benchmark, though options should clearly exist for the savvy buyer.  Lower cost options.  But I think the standard of hiring and retaining agents has to be someone who is worthy of the public trust, because you really can’t forget the people who need an agent most, when setting your standards.

Deceptive Radio Advertising in Mortgage Lending

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Because of the enormous amount of deceptive direct mail, Internet, and email spam advertising currently taking place in mortgage lending, for this blog article, let’s focus on radio advertisements.

Every city I visit, loan originators and brokers complain about deceptive radio ads running continuously, making claims that may or may not be true, slamming the competition, and barely if not at all complying with advertising requirements set forth in the federal Truth-in-Lending Act. When I was in Vancouver WA recently, LOs told me there’s an ad running that says something like this: “If your mortgage broker charges any fees at all, they’re predatory lenders.