DFI Interpretive Letter on Loan Modifications

DFI has released a first draft of an interpretive letter on loan modifications for Washington State.

DATE: March 10, 2009
FROM: Deborah Bortner, Director, Division of Consumer Services
RE: Loan Modification Services – License Required under the MBPA or CLA
QUESTION PRESENTED: Must loan modification service providers be licensed to offer services to Washington residents?
BRIEF ANSWER: Yes, under the Mortgage Broker Practices Act (MBPA), chapter 19.146 RCW, or Consumer Loan Act (CLA), chapter 31.04 RCW.
DISCUSSION: The Division has received many inquiries regarding the applicability of the MBPA or CLA to loan modification services. According to callers, individuals are communicating directly with borrowers and lenders in order to negotiate loan modifications. In most of the calls, the caller inquires as to what restrictions are applicable to loan modification services.
For purposes of this Interpretive Statement, “loan modification

While waiting for the birds to sing

[Editor’s note: I am more than pleased to introduce, in fact I’m quite excited to introduce and welcome, Jerry Gropp, Residential AIA to the Rain City Guide family of writers. Jerry specializes in MCM, Mid Century Modern design, and has a passion for seeing these homes updated.  Jerry is a native of Seattle.  His own current home on Mercer Island which he updated, is an excellent example of how his talents mixed with his passion for what he does, meld into the best of what the Pacific Northwest has to offer in home style.  Jerry is a graduate of the University of Washington’s School of Architecture.  His talent combined with his passion, have quickly made me a huge fan of his, and I’m sure you will be a fan of his writings in short order.  Welcome Jerry!  I SO look forward to some passionate discussions with you about MCM vs….just about everything else the area has to offer.]

While waiting for the birds to sing, my wife Patty and I decided to take a break in Puebla, Mexico– one of the old/new “Colonial Cities” that we hadn’t visited.
puebla patiojpg

In all the years I’ve practiced custom residential architecure I’ve seen the same thing- nothing happening homewise until somewhat sunnier weather happens.

This year will be no different- pent-up demand combined with stimulus measures will probably get things going again- with this difference– no longer will just any old indifferently-designed “Craftsman” or “Bellevue Chateau”  be snapped-up.  Jumbo “ARM”s will not be available- all to the long-term health of the industry.

What a difference a day makes

It was a gorgeous, sunny, blue sky day today!  The forecast looks like three days of sunshine and 50 plus degrees on Thursday.

Yesterday…taken at Sixty-01 in Redmond, WA. did someone say only 10 days until Spring?  We almost put the Christmas Tree back up for the day.

Taken March 9, 2009 at Sixty-01 in Redmond, WA

Taken March 9, 2009 at Sixty-01 in Redmond, WA

When will we reach the bottom?

Ardell called “We’re at the bottom…” in her post February 7th, 2009. We each have our idea of what the bottom is and in her area maybe we are at the bottom.  From a macro stand point, I feel we are far from the bottom. As I said in my comment to Ardell, I believe the bottom will be reached when an investor could come in and buy a home and receive about a 7% return on investment from  rents.

I am not claiming THIS will be a great time to become an investor, I am saying when someone can come in, buy a house at a price and then rent out that same house and receive a 7%(ish) return the bottom will be in sight.  As Ardell said, maybe that is in 2016, mayb not ever.

An EXTREME example of the bottom is being reached in Detroit as seen with investors coming in and buying up 1000s of houses at once. No matter what the economy is doing, everyone needs a place to stay.

Sunday Night Stats – Housing Market is “Stimulated”

As you can see from the graphs below, there has been a 50% increase in the number of properties going pending in the last 7 days, compared to the week of 2/7 to 2/14 before the $8,000 “first time” homebuyer credit passed.

427 sales went pending in the first week in March. That’s a 50% increase over the 286 that went pending in the 2nd week in February.

The second graph shows the increase in the number of homes that are selling in 30 days or less.  Not sure if that increase is “normal”  for January through the first week in March though.  Still, worth reporting the positive trend upward.
I combined condos with single family homes in King County. I think it’s fair to say that the credit stimulated home sales.  It’s also fair to say that people waiting for the credit, depressed home sales in the previous period.  So the real stimulus may lie somewhere in between.
 
On a side note, I am hearing of a few pending sales falling out, because the owner/seller is now eligible for the new assistance that came out on 3/4, and may not “have to” sell after all.
King County Condo and Home Sales Improved by 50%

King County Condo and Home Sales Improved by 50%

% of homes and condos sold in 30 days or less improving

% of homes and condos sold in 30 days or less improving

 Statistics are not compiled or posted by NWMLS

Twitter: Is it for Twits or Twitteratti?

A week ago, I decided to finally sign up for a Twitter account and probably became the last person in Seattle to join. I’m still trying to figure out if it’s a revolutionary new communication medium or merely the CB radio of the early 21st century (to be honest, I haven’t yet decided what Twitter is yet). I think one MSNBC writer summed it up nicely quite nicely, when she stated Twitter is the Snuggie of social networking. I’m not sure if Twitter is truly useful, but there is no denying it’s the hot thing at the moment.

After all, if the Washington State Department of Transportation has multiple twitter account to broadcast updates on mountain passes and Seattle area traffic events. Many of the local TV news networks & anchors have twitter accounts (Jenni Hogan, Bill Wixey, Jesse Jones, & KOMO news are all there). If that wasn’t enough chatter, even the U.S. President is on Twitter (although he doesn’t tweet now that he’s a President instead of a candidate). Heck, even Senator John McCain is on Twitter. I think Twitter hype hit all time this week, when Google’s CEO declared Twitter A ‘Poor Man’s Email System‘ and the geeky gurus in Silicon Alley are ready to anoint Twitter the new Google killer. Ironically, Twitter has proven itself as a great tool for breaking news about gmail outages and down time.

It’s all very interesting, but is it useful? Well, since I’ve been on Twitter, I’ve discovered lots of interesting blog posts & new articles on topics of interest. I’ve learned that tinyurl.com is bloated compared to tr.im. I’ve even played with the Twitter APIs and tweeted myself. But, I’m still perplexed on what the best way of using this new social networking tool in my arsenal?

For example, would potential home buyers / sellers prefer to get updates on market changes via Tweets instead of e-mail messages, text messages, or RSS feeds? If so, should you be sending direct messages to your clients? (which seems like a poor man’s e-mail system to me). I suppose one could update their status, but if one updates their status every 10 minutes every time a new listing hits the market, one’s followers would probably get follower fatigue.

Suppose you have multiple clients, and that they all want the same information, should you create an account that they all follow instead of direct messages to each? What if you multiple clients that want different information, should you create multiple Twitter accounts, each of which publishes a certain information type (say homes in Redmond, Medina mansions, or condos in Renton)?

Of course, if that becomes popular then Twitter account names may become as valuable and as scarce as internet domain names are today? (BTW – SeattleHomes is already taken, although it doesn’t have any followers yet). Perhaps, everybody will use url shortening services like is.gd instead of domain names, SEO & names/brands of the actual twitter account won’t matter?

I’m not sure I’ll shake my fist at Twitter, like Jon Stewart did but I can’t help but wonder if micro-blogging, will beget a generation of people who can only communicate in phrases of 140 characters or less. I’m already growing nostalgic for thoughtful articles written by people in the news industry. Maybe I just need to read more NikNik & Tyr until I get it?

Perhaps, Twitter is best used to convey the daily minutiae our digital lives to interested parties and shouldn’t be taken seriously? In any event, I’m enjoying my time tweeting (or is it twittering?) like everybody else apparently is.

Homebuyer Credit – Simplified

Pretty simple stuff. For most people it’s just A,B,C + 1,2,3
A. Address of New Home
B. Date you bought it
C. IF claiming 2009 purchase on this 2008 form, check here
+
1. Enter $7,500 or $8,000 unless married filing separately
2. Enter modified adjusted gross income
3. If 2 is not more than $75,000 ($150,000 if filing jointly), skip to line 6 and put amount on line 1 on line 6.  Ta-dah!
You can get Form 5405 and Instructions here:
and it looks like this:

Form 5405 First-Time Homebuyer Credit

The Making Home Affordable Program

The Treasury has revealed their plans as promised which address helping responsible home owners with higher loan-to-values refinance and home owners who are facing financial distress (and may not qualify for a refinance) modify their existing loan.

It appears that the High Balance Conforming Loan Limits will apply to “high cost areas” such as Seattle and Bellevue.   This morning, I’m seeing that banks and lenders are now implementing the new higher loan balance of $567,500 (vs $506,000) which was announced two weeks ago (I’ve received one notice this morning stating this will take place effective March 6, 2009).  Update 4/23/2009:  It looks like banks/wholesale lenders may not adopt the revised 2009 High Balance limits until closer to May 1, 2009 when Fannie will officially begin to purchase these loans.  The few banks who did step up to the revised limit early on, either never did or quickly retracted back to the $506,000 loan amount.

From FHFA Director James B. Lockhart:

Fannie Mae and Freddie Mac will also undertake Home Affordable Refinance, a program that is designed to reduce mortgage rates for 4 to 5 million people whose loans are owned or guaranteed by Fannie Mae or Freddie Mac. The refinance option will allow borrowers that currently owe between 80 and 105 percent of the value of their home to refinance their mortgages.

With the refinance program, it appears to be along the lines of a streamline refi where an appraisal may not be required.  This is not uncommon for “well qualified” borrowers to have an appraisal “waived”.  They have disappeared in recent times…it looks like the waiver is back.    The Home Affordable Refinance program ends on June 2010.

I’m especially pleased with the Home Affordable Modification program which I’m hoping will put an end to unsavory loan mods that were predatory.   This program is geared towards home owners who are at “imminent risk of default” and are in “financial hardship”.   It only applies towards owner occupied residences and this is a “full doc” process where the home owner will have to provide two most recent paystubs, most recent tax returns and sign a 4506T.   Second liens holders will receive compensation when they extinguish their lien rights (mortgage).

Loans to be modified must have been originated on or before January 1, 2009 and this program will run until December 31, 2012.

What now?

Home owners in financial distress should contact their mortgage servicer (where the mortgage payment is sent to) right away.

Home owners looking to refinance should gather their income documents and contact their preferred mortgage originator…and please be patient.   Refinances are taking longer to process and close.  Every aspect of the real estate industry has reduced staff.   Hopefully these programs will recreate a some jobs in the real estate lending industry.

Treasury has doubled it’s buying of Preferred Stock in Fannie and Freddie to $200 billion each in an attempt to keep mortgage rates low.   What needs to happen is to have some of the price hits (LLPA) removed or modified so that these efforts will work “in concert”.

Twas the Night Before March 4: Mortgage Eve

Twas the night before

more information to follow

about the new refinances and cram downs

…almost too much  to swallow. 

Okay…I’ll stop with the rhyme simply because I can’t keep it going!   There are a lot of Mortgage Professionals and Homeowners waiting to hear if they will be helped tomorrow. 

According to the White House Blog, responsible upside down home owners with good credit may qualify to refinance with a loan to value up to 105% with a conventional 30 or 15 year amortized mortgage.  (I’m guessing most would and should opt for a 30 year amortized mortgage)…tomorrow:

  • When can I apply?

Mortgage lenders will begin accepting applications after the details of the program are announced on March 4, 2009. 

I’ve heard nothing as of yet…    I have a lot of questions that I hope will be answered soon.

This from Kenneth Harney’s article on Sunday:

In a letter to private mortgage insurers Feb. 20, Fannie and Freddie’s top regulator confirmed that there would be no requirement for refinancers to buy new mortgage insurance, despite exceeding the 80 percent LTV threshold.

James B. Lockhart III, director of the Federal Housing Finance Agency, described the new refinancing opportunity as “akin to a loan modification” that creates “an avenue for the borrower to reap the benefit of lower mortgage rates in the market.” Lockhart spelled out several key restrictions on those refinancings:

• No “cash outs” will be permitted. This means the new loan balance can only total the previous balance, plus settlement costs, insurance, property taxes and association fees.

• Loans that already had mortgage insurance will likely continue to have coverage under the existing amounts and terms, thereby limiting Fannie and Freddie’s exposure to loss. But loans where borrowers originally made down payments of 20 percent or higher will not require new insurance for the refi, despite current LTVs over the 80 percent limit.

• The cutoff date for the entire program is June 10, 2010.

The “no cash out” factor is concerning.  Refinances where a second mortgage and/or HELOC is included (being paid off) that was not obtained when the home was purchased, is classified as “cash out”.  Even if the second mortgage was refinanced as a rate-term (only to reduce or fix the rate–the home owner never saw a dime of equity from their home in the form of cash).    It appears as those home owners with second mortgages will only be able to subordinate the second mortgage…and good luck with that!  

Banks have yet to adapt the higher conforming loan limitseven though it’s been announced by HUD and FHFA…I’m hoping we’ll see this tomorrow as well “in concert” with the unveiling of Obama’s mortgage plan.

Obama’s plan promises lower mortgage rates…butthese rates are fighting Fannie Mae and Freddie Mac’s LLPAs (huge price hits, such as the 0.75% hit to fee with condos over 75% loan to value).   Why not just get rid of some of these adds that are making rates unactracting…or atleast consolidate some of the brackets.  Is there really a difference between a home owner with a 739 and 740 middle credit score?

We’ll know tomorrow if there is a Mortgage Santa Claus and if he left any goodies under the tree.

Dow dips below 7,000

It’s an historic event that takes us back to 1997.  Below is a chart showing the history of the DJIA from 1929 to present, courtesy of msn money central. the first thing I look at every morning when I wake up.

When I started working in 1972, the Dow was at about 950.  When I switched to real estate in 1990, the Dow was just under 3,000.  It’s interesting to read some of the rationalizations of the 2002 low point. 

Dow Jones Industrial Average History

Dow Jones Industrial Average History

Dow Jones Industrial Average 10 year

Dow Jones Industrial Average 10 year

 

“The ‘game changer’ will be the housing market, and whether (or not) it can stablilize”