Category Archives: Seattle Real Estate Stats

Twice as many Open Houses!

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In case you didn’t know, this weekend [June 28, 2009] is WA Open House Weekend. Net result is if you are in the process of looking at houses to buy, or a seller looking to make comparisons with other homes on market, this Sunday you can double the effectiveness of your Sunday afternoon efforts.

According to my recent conversation on Twitter with @MattGoyer of Redfin, the number of Open Houses is about double the norm for Sunday, June 28th, 2009.

While Redfin site doesn’t have all the Open Houses due to the “block” put on the mls feature by some brokers, any agent can send you a link to hopefully more or even all, as long as the Open House data isn’t blocked agent to agent vs. broker to public sites, which they don’t seem to be. I will put a couple of those links into this post and can do more by request in the comments section. The links will only be good for 30 days, but for Open House purposes, that is more time than we need them to be accurate and working.

Some agents will decide on Sunday Morning (after reading this post) to participate in the event, so expect there to be at least 10% more Open Houses than are currently or eventually “visible”…possibly more.

I cordially invite you to visit me from noon to 5 p.m. on Sunday, June 28th at 519 Federal Avene E (rear unit) in Capitol Hill. I am extending the hours by two additional hours to accommodate those who will be attending the Gay Pride events in Seattle on Sunday, and will stay past five if someone arrives shortly before 5. The sellers also reduced the price by 5% even though we have only been on market a short time, to celebrate the Open House Event.

Here’s the current link for Open Houses around 519 Federal Ave. E. (area 390)directly from the MLS showing 74 Open Houses for Sunday at present.

My partner, Kim Harris, will be our at condo listing at Sundance – Klahanie in Issaquah on Sunday from 1-4 where the seller is offering to buy down the interest rate below 5% in honor of Open House Weekend. Here’s a link to the 26 open houses in Issaquah.

If you like to see houses, this is a good weekend to see more than usual in one trip!

Live Video Streams on RCG? With Facebook Chat?

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I’ve been told my interest in using Facebook for marketing is a bit unhealthy, but I’ve been having so much fun, and this week I pushed the limits in some ways that I thought I’d share in the hope we could spark some interesting conversations…

275x229First off, I’ve been really fortunate to work with the team behind a really interesting movie called The Stoning of Soraya M. that’s being released in selected theaters today (and Seattle on July 17th). It’s a controversial movie based on the true story of a woman who was stoned to death in the Iran after being accused of adultly adultery by her husband. To help with outreach for the movie, I built (with some ridiculously well-timed help from Loren Nason of the Future of Real Estate Technology) a Facebook app that let me combine both a live video stream with a streaming facebook chat-style app. The result was an interview with the director where we took questions from the Facebook community. You can see a recording of the video on the Spinnio app page where we hosted the conversation.

However, before I was ready to go live with the app for the movie, I decided to use the Spinnio app to record a weekly radio show that I run with Rob Hahn called the RE:RnD (Real Estate Radio with Rob and Dustin)… Normally, Rob and I record our radio show form opposite sides of the country, but this week, we were both in Orange County for REBCOC. We took advantage of some of the great real estate people in attendance to interview:

You can watch the video here:

But wait, there’s more!!!

seattle-channelI happen to think the technology of streaming video with Facebook Chat is simply too interesting to resist… so I created a page on RCG that combines the live stream from the Seattle Channel with a chat box that lets you comment on the video with anyone else on RCG watching the video. While I doubt this page will get the critical mass to be extremely interesting, hopefully you can see how cool it could be and just where the Facebook chat/status update technology is heading.

Also, I’m somewhat hesitant to throw a generic chat on RCG in a prominent place, but what do you think?

FB.init(“639647c0b027e22dfc546244ab17a875”, “files/xd_receiver.htm”);

(By the way, this works! Feel free to try it out, although be prepared that each comment leaves a “status” update on your profile.)

I’ve never liked the idea of adding a message board because I simply don’t have the time to moderate it, but I have a feeling that this would be pretty self-moderating considering it’s tied to people’s Facebook account… But what do you think? Should I create a place on RCG where you can leave comments and engage in conversations that aren’t tied to any blog post?

Calculating Income of Employed W2 Borrowers for Mortgage Qualifying

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Jillayne wrote a post about the upcoming national licensing exam that mortgage originators will have to take and pass (unless they work for a depository institution) due to the SAFE Act.   She provided examples of questions that may be on the exam.  One of them is how to calculate income–which is receiving quite a few comments on her post.

If an applicant works 40 hours every week and is paid $13.52 per hour, what is the applicant’s
monthly income?
(A) $2,163.20
(B) $2,343.47
(C) $2,379.52
(D) $2,487.68

The correct way to calculate this is 13.52 x 40 hours x 52 weeks divided by 12 months = (B) $2,343.47.   The mortgage originator should also review the last two years W2’s to make sure the income is steady or increasing.   If it’s decreasing, this will need to be explained and the income may be averaged or a lower income may be used.   For example, if the borrower recently had their hours cut due to the economy, the new lower figure will most likely be used.   What’s most important is steady hours for the hourly employee…a recent jump in hours may not be considered either.

It’s important that the borrower has a minimum of a two year history in their line of work in order to be able to use the income (secondary education may be able to count towards the two year requirement).   If someone started a second job one year ago as a waitress for supplemental income, it might not meet the criteria to be factored towards income unless the borrower had a second job in the same industry over the past two years.

Overtime and bonus income needs to be received for the past two years to be factored for qualifying as well.   Again, this boils down to stability and trends with income are heavily considered.    

Commission incomes (W2) requires a two year history as well and the income is averaged.  If a borrower’s commission income is more than 25% of their annual income, they’re treated more like a self-employed borrower.  They’ll need to provide their last two years complete tax returns and non-reimbursed business expenses that are claimed on the tax return will be deducted from the gross income (they’re treated more like a self-employed borrower).  A situation that I’ve seen is where a borrower was paid a salary and then received a promotion where they had greater earning potential.   The employer reduced their base and added a commission structure.   Because the commission was a new feature to the income, only new lower base income was used for qualifying.

It all pretty much boils down to showing stability over the past 24 months and recent trends when calculating income.   Also be prepared to complete a Form 4506–even if you’re paid salary–as a measure to prevent fraud.   Lenders may also require a Verification of Employment with your employer to confirm the information provided regarding employment, income is accurate and that employment is likely to continue prior to funding your new mortgage.

There are many other types of income–for purposes of keeping this post short, sweet and simple, I’ve stuck to income that’s reported via a W2 and a “full doc” loan.  

Hopefully you’re working with a Mortgage Professional who reviews your income documentation upfront and calculates it correctly…and I hope you’re quickly providing the information that is being requested so that you’re properly qualified in the beginning of the process.   Nobody likes to get involved with a transaction to find out that the underwriter is not going to use the income that was used on the application because it was figured incorrectly.

Questions?  Ask!  🙂

Settlement Statement: Is the interest rate of the Note disclosed on the form?

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It is routine for escrow departments of title companies and independent escrow firms to provide a Settlement Statement to a loan officer (and agents) prior to making appointments with clients to sign their paperwork.   Once loan documents are received by escrow the closing staff move to get this accomplished as quickly as possible.  This is done for a variety of reasons but mostly to assist in ironing out any discrepancies prior to meeting with the client.

If you reconciled a “yes,” the interest rate is on the Settlement Statement, you are correct.   So, where is it:

  • Line 901 of the Settlement Statement
  • If a borrower has a loan, it is on Line 901 to calculate interest (see screenshot)

Can this be missed even after escrow receives a HUD approval “green light,” “all OK,” “call the borrowers to make an appointment?”   Unfortunately, yes.   Hopefully this post will assist consumers and those in the business that were unaware that this is on the Settlement Statement and to prevent situations where escrow is meeting a client at their home at 8pm to sign docs and hear the client remark, “this is not the rate/program we were quoted.”

Interest rate on HUD

Will the New National Loan Originator Exam be Too Easy?

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I just took a look at the sample questions provided by the National Mortgage Licensing System for the new national loan originator exam and I must say these are so easy why even bother with a test?  Let’s take a look:

If an applicant works 40 hours every week and is paid $13.52 per hour, what is the applicant’s
monthly income?
(A) $2,163.20
(B) $2,343.47
(C) $2,379.52
(D) $2,487.68

The requirement for private mortgage insurance is generally discounted when the loan-to-value ratio falls below:
(A) 20%
(B) 50%
(C) 80%
(D) 90%

Which of the following documents itemizes all settlement costs including lender charges?
(A) Agreement of sale
(B) HUD-1 form
(C) Form 1003
(D) Forbearance agreement

A discount point is BEST described as a charge the borrower pays to:
(A) a lender to decrease the interest rate on the mortgage loan
(B) a mortgage broker at the time of application to obtain a favorable rate
(C) the seller as part of the closing costs of a loan
(D) a lender to ensure against foreclosure

Which of the following methods of disclosure does NOT meet the requirements of the Equal Credit Opportunity Act (ECOA)?
(A) E-mail
(B) Mailed letter
(C) Telephone
(D) Faxed letter

What does a loan originator use to determine the estimated value of a property based on an analytical comparison of similar property sales?
(A) An appraisal
(B) A market survey
(C) An area survey
(D) A cost-benefit analysis

But perhaps I’m being to harsh. We have a vast number of unlicensed loan originators who are working for companies licensed under the Consumer Loan Act. We call these folks “consumer loan lenders,” or “non-depository lenders.”  Rhonda Porter sometimes refers to these folks as “correspondent lenders.”  They differ from a mortgage broker because by definition, a lender is an entity that has the ability to make the loan (fund the loan) and a broker is a middleman who does not make or fund loans, but FINDS the lender for a fee.  Mortgage broker LOs are licensed in WA State but consumer loan company LOs are not.  Yet. 

Consumer loan company LOs can start to take their new national exam beginning July 31, 2009. Their real deadline is July 1, 2010 so it looks like I need to block off May and June 2010 for exam prep classes next year as predict the majority will put it off until the last possible days.

Anyone who has been originating for any length of time need not be afraid if the test questions are going to be this easy.  Once the test launches I will go take it and let you know. 

Perhaps for folks who are brand new to mortgage lending, these test questions might seem a little more challenging. That is the whole purpose of national testing and licensing: To create a minimum barrier to entry.  The regulators at the federal level have put a lot of time and care into the education portion of the new law.  Let’s hope that their chosen test vendor, Pearson Vue (who absorbed Promissor) doesn’t use the same old tired bank of test questions that’s been around for a decade.

Update: Prometric is also a test vendor for the new NMLS exam.  Here’s a link to their website.

New Condo Buyers Seeking Out of the Contract: “Whiners” or Respectable Citizens?

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There’s been some “buzz” lately about buyers of new construction condos who purchased pre-construction now wanting out of the deal with a return of their earnest money. Motivations vary: they are no longer able to get financing (“WHAT? I need a down PAYMENT!? Since when??”); their life situations have changed (baby + one bedroom condo = problem); or they simply don’t want to be under water the moment they close (those 2007 prices are not so attractive now…). Regardless of the motivation, though, the developer’s response is almost always the same: “Go pound sand. The earnest money is mine.”

Luckily for buyers, there are various federal and state laws designed to protect consumers that may give the buyer a right of rescission (and thus the right to a full return of the earnest money). For example, several decades ago the federal government enacted the Interstate Land Sales Full Disclosure Act (known to its afficionados as “ILSA”), 15 USC 1701 et seq. specifically to protect buyers of new construction. Generally speaking (its a complex statute), a developer must register the project with the Dept of Housing and Urban Development (HUD) and provide buyers with a comprehensive set of disclosures. However, the developer is exempt from the registration and disclosure requirements if it contractually obligate itself to complete the building within two years.

For reasons unknown, many of the new condo developments in the area decided to structure the purchase and sale agreements to fall within this “two year” exemption. Unfortunately for the developers, it is more difficult than first appears, and most of the contracts at issue at least arguably fail to qualify for the exemption. Thus, the buyers of those condos arguably have the right, under ILSA, to rescind the contract and receive a full return of their earnest money. (My partner Marc Holmes and I recently prevailed in an action against WA Square on this basis, so in at least one case its no longer “arguable” — the developer failed to comply with the statute and the buyer had a right of rescission.)

All of this raises an interesting question: Is it unethical for a new construction buyer to seek a legal basis for getting out of the contract with a full return of the earnest money? Our very own Ardell has argued that, if a buyer simply changes her mind about the purchase, the buyer should lose her earnest money. Other people have voiced a similar opinion. Is that right? Is it morally wrong for a buyer to seek a return of the earnest money? Does the buyer’s motivation in seeking to get out of the contract even matter?

I think the answer to that question can be determined by flipping it around. New condo developers are large entities typically owned by sophisticated multi-millionaires. What if one of those multi-millionairre owners signed a contract that required her to perform her contractual obligations two years later, and when the date for performance arrived she stood to lose substantial money if she performed? What if the owner just changed her mind for some other reason? In either case, I think its safe to say that the owner would not perform her obligations. Rather, she would hire a lawyer to identify each and every possible basis for avoiding her contractual obligations. The lawyer would then approach the other party to the contract and see if the parties could reach a compromise. Rich people got rich for a reason: they don’t intentionally make a bad business decision, and when faced with a situation that will cause them to lose money, they hire an attorney to negotiate their way out of it. They use the law in every way possible way to protect and advance their interests.

Which is, of course, the purpose of the law. It only works when it is applied to a particular situation. ILSA was designed to protect consumers. Developers should comply with this law. If they don’t, the law gives consumers the right to avoid their contractual obligations. There is nothing immoral or unethical in using the law to protect and advance your interests. It’s what is expected of every citizen, and its certainly what is done by every citizen who can afford legal counsel. If you’ve decided to not buy that condo –for whatever reason — then you should determine whether the law is on your side. It’s what every person should do — and what wealthy people do all the time.

Longer Waiting Period to Evict Tenants After Foreclosure in WA State Effective July 26, 2009 and Free Legal Aid for WA Homeowners Facing Foreclosure

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There was a new law signed by Governor Gregoire this past legislative session,  SB 5810. Here is the link to the legislative page for the bill. Click on the “final bill report” for a quick summary.  The law gives TENANTS 60 days to vacate a residential home after foreclosure. Currently it’s 20 days (scroll to the very bottom of this page for details.)  Althought I sympathize with the tenants, it’s important to point out that lenders will think about this as they price new mortgage loans in Washington state. Today, any tenant renting a home or condo must wise up fast and do a thorough check on the landlord so their first, last, and damage doesn’t end up taking a walk with the seller.

This new change to 60 days is only good for tenants occupying a home that was sold during foreclosure. If a homeowner is occupying the foreclosed property, they will have to vacate in 20 days.

It looks like the law was also changed to add an additional 30 days to the foreclosure process in a residential, owner occupied foreclosure. This adds a step: The lender MUST make a detailed attempt to contact the homeowner and must make a declaration that they have taken steps to contact the homeowner. 

NEW SECTION. Sec. 2. A new section is added to chapter 61.24 RCW to read as follows:
(1)(a) A trustee, beneficiary, or authorized agent may not issue a notice of default under RCW 61.24.030(8) until thirty days after initial contact with the borrower is made… (b) A beneficiary or authorized agent shall contact the borrower by letter and by telephone in order to assess the borrower’s financial ability to pay the debt secured by the deed of trust and explore options for the borrower to avoid foreclosure…(c) During the initial contact, the beneficiary or authorized agent shall advise the borrower that he or she has the right to request a subsequent meeting and, if requested, the beneficiary or authorized agent shall schedule the meeting to occur within fourteen days of the request. The assessment of the borrower’s financial ability to repay the debt and a discussion of options may occur during the initial contact or at a subsequent meeting scheduled for that purpose. At the initial contact, the borrower must be provided the toll-free telephone number made available by the department to find a department-certified housing counseling agency and the toll-free numbers for the department of financial institutions and the statewide civil legal aid hotline for possible assistance and referrals.

There are some exceptions to the new law. Follow this link and click on “bill as passed by the legislature” to read along with me:

Subsections (1) and (5) of this section do not apply if any of the following occurs:
The borrower has surrendered the property as evidenced by either a letter confirming the surrender or delivery of the keys to the property to the trustee, beneficiary, or authorized agent; or the borrower has filed for bankruptcy, and the bankruptcy stay remains in place, or the borrower has filed for bankruptcy and the bankruptcy court has granted relief from the bankruptcy stay allowing enforcement of the deed of trust.

This section applies only to deeds of trust made from January 1, 2003, to December 31, 2007, inclusive, that are recorded against owner-occupied residential real property. This section does not apply to deeds of trust:
(i) Securing a commercial loan;
(ii) securing obligations of a grantor who is not the borrower or a guarantor; or
(iii) securing a purchaser’s obligations under a seller-financed sale.

This law will go into effect July 26, 2009.  Will it help?

There are some good things we can say about getting in the defaulting homeowner’s face with more correspondence.  The letter sent to the homeowner will provide information on how to contact the Dept of Financial Institutions, HUD-approved housing counselors, and information on how to connect with the WA State Bar Association, which recently launched a community outreach program to offer FREE legal services to homeowners facing foreclosure.

The Washington State Bar Association (WSBA) is pleased to announce that its Home Foreclosure Legal Aid Project is accepting clients. In response to the current foreclosure crisis in our state, the WSBA is partnering with the Northwest Justice Project (NJP) to provide free legal assistance to Washington residents in danger of losing their homes. The goal of the project, which will last through May 2010, is to help Washington homeowners avoid foreclosure and stay in their homes. Homeowners in need of help who are unable to afford a lawyer can sign up by calling a toll-free number, 1-877-894-HOME (4663)

Information is also available on the WSBA website here.  I am hopeful that a measurable percentage of homeowners in default will open that letter and contact the Bar Association. Maybe this will help homeowners avoid predatory loan modification salesmen and foreclosure rescue scams. During the bubble run-up, we had many homeowners who used stated income loans and flat-out lied about their income. We had homeowners who lied about occupancy. We had non-English speaking homeowners who were duped by people from within the industry and some of who knowingly lied to their lender. I could think of at least 10 more examples but these three will do. I hear that some of these folks are afraid to talk to their lender. They get phone messages from the default department and they see the letters, however, they are afraid that if they talk to the lender they might be confronted with evidence that might lead to negative consequences, so they ignore all communication and let the lender foreclose.

In class this week, an agent told me that 95% of all available listings under $300,000 in Kent are short sales.  I’m afraid the foreclosure train has left the station and is rolling down the tracks towards the mid to upper price tiers.  The 60 day eviction waiting period is going to slow down REOs returning to the market, adding more hold-time to the lender’s balance sheet losses and pushing the housing bottom out longer.  Score one point for the tenants, zero points for the lenders, and two points for homeowners who get to stay in their home payment free for another 30 days. Maybe we can justify giving the lenders half a point if they get to collect rent from the tenant for the 60 days.

We will pay the piper on this one: Higher rates and bank/lender fees are in our future.

The legislature also slipped in something interesting: The foreclosing bank must prove that they hold the note before the bank can foreclose.

What you may be missing about a short sale

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Below is a simple diagram of a “normal” sale.  Buyer makes offer AFTER verifying  everything is in order to close, except the appraisal. Downpayment funds in bank? Check. Pre-approval for mortgage? Check. Cash for closing costs in bank? Check. Ready to make offer. Appraisal comes in at the sale price. Buyer ready to close.

We’re just following the money here. We don’t need to show the Earnest Money, as Earnest Money is not “additional” amounts needed by the buyer. It’s just an advance against monies later needed at escrow to close.

Ardell_Normal_Sale

In the example of a “normal” sale, the amount provided by the buyer is in excess of the amount needed by the seller to pay all seller costs and payoff all monies owed on the property, including lienable utilities.  As long as the amount offered exceeds the amount the seller needs, the sale closes.

Now let’s look at all the things that go wrong, creating a “short sale” situation, in the graph below.

Ardell_short_sale

First notice that the main reason the buyer is often impatient and confused is that everything the buyer does is exactly the same in a short sale as it is in a normal sale.  Everything that goes wrong, and everything that may or may not be done to fix it, is out of the buyer’s control.

That is why you often see questions like:

1) How can I contact the seller’s creditors?

2) How can I contact the seller?

3) How can we find out exactly what is going on!?!?

Now look very closely at the diagram above.  I want you to go to the last box on the right. Aha… that’s the part everyone seems to be missing.

Just because the value of a property is obviously less than the amount owed, that does not mean that the seller’s lienholder is going to approve the short sale. In most cases no one involved in the transaction knows what is in that last box.  Escrow doesn’t know, the agents don’t know and very often everything proceeds for months as if what the seller has in assets and cash outside of the sale of the property is meaningless.

Now ask yourself this: You lend your friend $10,000 to buy a car. He decides to sell it when he still owes you $8,000.  He tells you someone is willing to pay $5,000 for the car and he wants you to take $5,000 as payment in full.  You look at his offer, you find out he he has $15,000 in a savings account.  You find out the blue book value for the car is $6,500. The person who wants to buy the car for $5,000 is getting impatient wating for an answer. What would you do?

That’s a “short sale” pure and simple.  Do you take the $5,000 because you can get it in a few days? Oh but wait, your friend won’t sell the car to get you the $5,000, unless you agree, in writing, that you won’t EVER come after him for the remaining $3,000 you owe him. Should you just take the car and try to sell it for the $6,500 or better, so that you can still collect the amount your friend owes you after you sell the car?

Tell me, what are the odds in that situation that you are going to say “sure, I’ll take the $5,000 and leave you alone”?  If you know there is $15,000 in the bank AND the car is worth more than $5,000, why WOULD you say…sure, no problem.

Almost never do you see anyone talking about why the bank WOULD NOT approve the short sale, because they are always talking about how the bank should be happy to get a fraction of what is owed, and $60,000 or more less than what it’s worth.

But what about the owner’s money in the bank? What about the owner’s $120,000 income a year, but he moved and bought a new house and stopped making payments on the old house? What about the equity in the seller’s other house…oh and he made that big downpayment on his NEW house by refinancing (taking the cash out of) this one that is now short.

So if you are buying a short sale and are simply waiting for the bank to say yes, remember it sometimes takes a really long time for someone to say YES to something that they don’t want to say yes to. On the other hand if all you want is a fast answer, anyone can pressure the bank to say NO in a matter of days.

There’s a lot more to a short sale approval, and most of it has to do with whether or not the bank is willing to forgive the remaining debt, or the seller is willing to sign a note agreeing to pay the remaining debt.

No one asks this question, before they make an offer. No one knows the answer to this question while they are waiting for approval. Most of the time the delay is because the owner wants forgiveness of debt, and the lender needs the owner to prove current and long term “hardship” in order to release them from the future obligation to pay.

Is Your Open House In The NWMLS For ALL To See?

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FrontThe last few weeks have been extremely busy open house wise for us in Seattle – mostly in the $400,000 and under price range or close to it.  Agent hits on the NWMLS for those listings has also soared and the web traffic in general has increased for this price point.   The buyers are definitely out there poking around!

Many of  my recent open house visitors have been Redfin buyers.  They seem to expect to be treated poorly by other agents at opens.   Maybe this is just my own perception, but they are physically cringing upon entrance.  I guess it could be my outfit or my hair, but more likely it must have to do with the typical reception a Redfin buyer might get.  The point of an open house has always been for the hosting agent to meet, network, and possibly pick up new clients.  Although it is also great exposure for the listed property, very rarely does the open house sell the home – at least it didn’t used to. 

Enter Redfin. 

Redfin arguably has one of the nicest real estate search websites and their open house feature is probably second to none.  I can’t keep up with their changing business model and have no idea how effective or not they are for their clients, but do love their site and always welcome Redfin buyers to my open houses.  Redfin buyers seem to almost always be actively looking for a home.  They meticulously schedule and map out the open houses they plan to visit and they come with questions prepared.  In short, they are serious.

One little problem: 

Open houses that show up on the site are swept from the NWMLS when a listing agent enters the information in the “public open houses” field of their listing and not all listing agents do this.  Some companies prefer to hold on to that information and only enter their open houses on their corporate site alone.   Soon enough, though, most agents will hopefully catch up and realize that not entering their opens for all to see is a disservice to the seller.    Just looking at Seattle stats alone in the NWMLS, Redfin has sold 62 residential properties and 9 condos since the beginning of the year.  Redfin buyers are clearly putting a dent in the inventory. 

Redfin aside, it is just smart business and good representation to enter your open house into the NWMLS so that you expose your seller’s property to as many potential buyers as possible.