How to Find Short Sales in the MLS

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It’s important for real estate agents to track the percentage of listings where the homeowner is in financial distress as well as REOs (real estate owned), compared to the overall number of listings in a given market area. When short sales, pre-foreclosures, and bank-owned property make up a larger percentage of the overall available number of homes for sale, this has a downward effect on home values in that area. Yes, neighbordhood to neighborhood there “may” not be any short sales or bank-owned listings…today.  However, we are on an upward trend with foreclosures and watching what’s ahead can help home sellers make good decisions about how to choose a more agressive listing price if they are truly motivated to sell. We’ve done some research in the past on this. Galen wrote a post about search terms that work on Estately.  A few months ago I taught a Short Sale class in Snohomish County and an agent remarked that he had a buyer in a specific price range, I believe it was between $200K and $250K and he was looking for home in Everett, North to Marysville. He said ALL the listings in that price range and area were short sales with only one exception. Yikes! More short sales and bank-owned REOs mean more downward pressure on home values as the short sales that don’t close turn in to REOs and banks bring more and more REOs on the market. At this time, searching for short sales is not an option on the public-side MLS (Multiple Listing Service) per rule. Perhaps this is because the commission is paid by the seller and many believe it’s not in the sellers best interest to disclose the short sale status because that may draw low-ball offers. Now that we’re in a buyer’s market, perhaps home sellers and voting members of the MLS rules board would see that it’s in everyone’s best interest to attract the right kind of buyer. Investors have poured into California scooping up low end REOs because the sales price is low enough to allow for the home to be rented for enough to cover the mortgage payment long term. At some point, when Seattle area prices are more in line with rents, investors will want to search for short sales and REOs here.   Until then, by doing keyword searches we can also keep track of possible “ghost inventory” (REOs being held off the market by the banks) making an appearance here in the Seattle market. 

Here are some possible short sale and REO search terms to use besides just “short sale” and “REO.”

foreclosure
preforeclosure
pre-foreclosure
short payoff
motivated seller
subject to lender approval
bank approval needed

bank owned
corporate seller
corporate owner
vacant
no repairs
fixer
instant equity

What search terms should we add to the list?

Refinancing with a Second Mortgage? Patience, my Friend, patience.

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I really try to lean towards writing about purchases here at Rain City Guide…don’t know why that is…it just is.  But the fact is, there are a lot of refinances going on right now and many may have second mortgages that are not going to be paid off as part of the refinance.    A recent comment on my post about unhonored rate locks prompted this post…it’s probably not his mortgage professionals fault his refi is taking this long…it’s his second lien holder.

helocIf a second mortgage is not paid off, the new first mortgage will require it to be subordinated.  This means that a subordination agreement must be recorded to make it public record that the second mortgage (often times a HELOC) is in second lien position and not first lien–this all boils down to who gets what rights in the event of a foreclosure.

Just because a lender request a second mortgage/HELOC lien lender to subordinate, doesn’t mean they have too…they get to mull it over and they can refuse to subordinate…which means that with the refinance, if the first mortgage (the proposed refinance) or the home owner cannot pay off the existing second mortgage, it’s probably a dead deal.

Some home owners want to keep their second mortgage or HELOC (home equity line of credit) because:

  • they can’t get a new one based on today’s guidelines and lack of availability.
  • they have a great rate that can’t be replaced.
  • their refinance will be classified as a cash out refinance if the second mortgage/HELOC was not obtained when they purchased their home.  (It doesn’t matter if the home owner refianced the orignal purchase money second mortgage and NEVER took cash out of the home–it’s treated as “cash out” with a whole new set of rules and pricing).
  • including the second mortgage pushes the home owner over certain loan limts (conforming, FHA, etc.).

Most second lien holders will not consider subordinating until the have a copy of the appraisal for the refinance and full underwriting approval from the first mortgage….then you wait for them to process it.   Some banks are taking more than a month AFTER receiving the appraisal and loan approval before they will CONSIDER IF they will subordinate…and there’s no guarantee they’ll do so.    I’ve seen some banks charge $250.00 to process a subordination REQUEST (no guarantee).    A borrower may be out the appraisal cost and the subordination fee with no refinance worse case scenario.

Have an honest conversation with your mortgage professional and ask questions…

  • Should or can you pay off the second mortgage with your refinance?
  • How long should the subordination take?  (some banks or credit unions take longer than others)
  • What happens if you lock and the subordination takes longer than expected?

If you’re a home owner with a second mortgage/HELOC that you want to subordinate, be prepared for a much longer closing which means, if you’re locking at application, a slightly higher rate or more in points–the longer the lock period, the more expensive it is.   Or you can risk floating your rate.  The choice is yours and there is no guarantee that the second mortgage/HELOC lien holder will subordinate…any risk (borrower or lack of equity remaining in the home) may cause the bank to give the subordination a thumbs down.  It’s nothing new.

Unhonored Rate Locks

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Did you know that a locked rate is a commitment for a loan to be delivered to a lender?   Mortgage companies and loan originators are often judged by how many loans they deliver or what their lock fall-out ratio is.   A normal expection used to be around 70-75% of locked loans to be delivered–now I’m hearing reports of 30-40% of locked loans actually being delivered to the lender.  

This is dangerous for mortgage brokers and correspondent lenders.  Why?  Wholesale lenders are cutting back and “cherry picking” which companies they’ll work with.   A significant factor is lock-fall out.  If odds are, a locked  loan is not going to be delivered, why should they work with that mortgage company?    

Sometimes the wholesale lender may be ordering the mortgage company to be “cut off” of future business and sometimes it may be the wholesale lender having their Account Executives that they need to reduce their client base to a certain amount of accounts (as a way to reduce the commission they’re paying the AE’s). 

There can be many reasons for a locked loan not to be delivered, such as:

  • the loan could not be approved because of the property (appraisal issues) or the borrower.
  • private mortgage insurance issues.
  • the borrower decides not to proceed with the transaction.

Here’s how one wholesale lender rates fallout:

  • 0-24.99% = Full approval.
  • 25-34.99% = Monitor
  • 35-49.99% = Watch
  • 50-74.99% = Probation
  • 75% or more = Inactivated.   Good by wholesale relationship with that lender.

Wholesale lenders don’t care if it’s due to the borrower not proceeding with the refi or if it was their underwriting that “killed the deal”…it often counts towards that dreaded lock fallout ratio.

A disturbing trend I heard from a local title insurance company is “double applications”.  Where a borrower is proceeding with a refinance transaction with two different lenders.   If both loan originators have the loan locked, someone is going to lose!   Not to mention, the expense to the title and escrow companies who are working on a transaction a consumer is not going to honor.   The only way this is caught, is if the title or escrow company happen to be the same one that the two loan originators the consumer is using.   Regardless of if both loans are locked or not, it’s unscrupulous behavior.    

Borrowers–please do not have two loan applications going on at the same time with two different loan originators.   When you do decide to lock in a rate with a mortgage professional, understand it IS a commitment.

Sellers Leaving The Mess Behind

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Cleaning up after yourself is in the contract…

Recently, there seems to be some confusion as to item number 5 of the NWMLS form 22D (optional clauses addendum to the purchase and sale agreement).  Maybe the sellers are deciding that the buyer already got a good deal and they shouldn’t leave the home in decent condition?  ARDELL recently mentioned that some sellers are feeling disenchanted with this market and as a result the houses are not being exhibited in their best light.  This is definitely happening and unfortunately is being carried forward to when the sale closes and home ownership is transferred.

Item #5 on the NWMLS Form 22D:

“Items Left By Seller.Any personal property, fixtures or other items remaining on the Property when possession is transferred to Buyer shall thereupon become the property of Buyer, and may be retained or disposed of as Buyer determines. However, Seller agrees to clean the interiors of any structures and remove all trash, debris, and rubbish on the Property prior to Buyer taking possession.“

Plainly stated: Take all your belongings and clean the property prior to handing over the keys. Clear enough? One would think, but what about when you line item #5 up to item #4 in the very same Form 22D and apply it to a seller who never had their home clean to begin with and had trash all over the place while the home was being shown?

Item #4 of 22D addresses the issue of “Property and Grounds Maintained

2009 Loan Limits Confirmed by OFHEO

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It’s official!  OFHEO has announced the return of the 2008 limits:

Loan limits for mortgages originated in 2009 are set under the provisions of the American Recovery and Reinvestment Act of 2009.  Under that legislation, loan limits for 2009-originated loans are set at the higher of the 2008 limits and those that were originally announced for 2009 under the terms of the Housing and Economic Recovery Act of 2008. 

I’m anticipating that lenders will immediately endorse these limits.  Here are the revised 2009 loan limits:

King, Snohomish and Pierce Counties

  • $567,500 – One Unit
  • $726,500 – Two Unit
  • $878,150 – Three Unit
  • $1,091,350 – Four Unit

Other counties, including Kitsap, Jefferson, San Juan, Clark and Skamania counties are also at higher limits than other Washington State counties which are not part of the “high cost areas”.   For all Fannie and Freddie loan limits, click here.

Still unknown is how this will be priced.   FHA should be following with their revised loan limits as well. 

Update 2/25/2009: FHA loan limits for Washington Counties thru 2009 are here.

Sellers are “leaving money on the table”

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If you have been out looking at homes for sale since the first of the year, you will clearly see that sellers are NOT all on the same page.

I deal primarily in property North and East of Downtown Seattle, so I do not speak for Tacoma, Renton, Auburn, Federal Way, Kent or South Seattle.  The lower priced single family homes I am seeing are in Kenmore, Bothell parts of Kirkland, Lake Forest Park , Shoreline and the lower part of Snohomish County.

I am seeing two groups of “seller thinking”:

1)  The first group of sellers are over-priced with meticulously maintained, clean, “updated” and sometimes staged homes. 

2) The second group of sellers have more realistic asking prices, but they are not even bothering to clean up the dishes in the sink for a showing.

Many of the sellers who are bothering to  clean and stage their homes, are also asking more for their homes than they should be in today’s market. By the time a seller gets to the price where they feel they are “giving the home away”, they don’t want to put any effort into its condition.  They are thinking that at THIS ridiculously low price (in their opinion) the buyer should “suck up” much, but that is NOT the case. 

It’s a buyer’s market, and buyers want it ALL.  They want a good price, a home they can move into without much work, AND they want a cleaner inspection at the end of the day than they expected in the higher priced hot market.

“Fair Market Value is the price at which neither party is exceedingly happy.”

There is always a lot of crying and whining in a Buyer’s Market. Sellers aren’t happy at the prices they are getting.  Buyers are walking away from the home inspection because there is a squeak in the floor, or because the bathtub needs some caulk.

Sellers, remember that people who are choosing to buy right now are very afraid of the future.  Pulling the trigger on a purchase is terrifying, even if they are getting “a screaming deal”.  The reality is that you have to do ALL the things you would be doing to get a great price.  Forking out money for professional staging may not be in the picture for many sellers, but do the best you can with what you have to work with.

1) Dirty homes with pet odors sell for less, always.  It doesn’t matter that you “reduced your price by 20% from peak”.  A dirty, smelly house is going to sell for less…in any market.

2) Stacking all of your belongings into the garage, because you don’t want to pay for storage in this economy, is not the way to go.  See if your friends can each take a portion of the items you want to store.  Better yet, get rid of things you know you won’t be moving with you when your home does sell. Not being able to go into the garage because it is filled to the brim with crap, is not going to help your home sell.

3) Thinking you are NOT going to address ANY items that come up in the home inspection, because you were pinned to the mat on sale price, makes NO sense.  Just because you accepted a lower price than you wanted, does not make the inspection phase any different. You can scream “AS-IS” all day long…that won’t keep a buyer in escrow if the home inspection reveals items that need to be addressed. Staying in escrow is just as important as getting into escrow. Refusing  to address minor repair items could cost you dearly in the long run, when you later sell your home for even less.

You have to work at least as hard, and sometimes even harder, in a difficult economy.  This is true of both workers generally, and sellers of homes. Getting less doesn’t cut you any slack in terms of the effort you must expend.

FHA – Is it “assumable”?

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FHA – Whether you are an owner deciding whether to sell or refinance, or a buyer in today’s real estate market, talk with a lender about “assumable” provisions of the mortgage.

While no one can see into the future, we can see into the past.  I don’t think anyone will be surprised that we may be looking back on today, from some year in the future, at dramatically lower interest rates. Most are expecting interest rates to be 7% or more, a few years from now.  Most are expecting home prices to stay down and flat for some years to come.  That means the cost of selling will be hard to recoup, and finding a buyer for the home you are trying to sell will not improve greatly from where we are today.

IF the buyer of your home 3 or more years from now, can assume your lower interest rate mortgage of today, that will be a selling feature.  It happened before in the last recession, and it will happen again.  The buyer will still have to qualify.  The buyer will have to come up with the difference between the sale price and the loan they are assuming from you that has a lower interest rate (so don’t go overboard with downpayment on an FHA loan).

To the best of my knowledge, most if not all, conventional loans are NOT assumable.  Most, if not all, FHA and VA loans ARE assumable.  I’m sure Rhonda will chime in here and give us the scoop on that.

This weekend I was speaking with a young man who may be eligible to refinance his home and stay in it, though he is worried about possibly losing his job and having to sell in the next couple of years.  I told him to try converting to an FHA loan when he does his refinance, keep the LTV as low as possible, and make sure there is an assumable feature.

I am a real estate agent, and not a lender.  All I know is that if he tries to sell two years from now and interest rates are 7%, and he has an assumable mortgage at 5.5% or below, that could be of great help in a future market with more sellers than buyers.

Speak with an attorney about the potential downside of a “purchase money loan” vs. a refinance, in the event of future default, before refinancing an original purchase mortgage. More on that in one of my other posts of the day.

Seattle Area Open House Information Sources

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Can you tell me where I can find a list of all the Open Houses that are happening in my area this Sunday?

boy-looking-at-toy-houseI’ve been asked this question lots of times and I have always had to answer, “I’m sorry. There is no single, good source. Everyplace is going to list the ones they are promoting.” Sadly, this is still the case. The Seattle Times classifieds was the defacto hub of information for Open Houses during the pre-internet-print-is-king era. Now that the web has taken over as the main source of any information, a “Complete Open House Times and Locations Guide” should be as easy as pulling up a Google Map. But it’s not.

Enter the major Brokerage Firms
Our NWMLS (Northwest Multiple Listing Service) does publish open house information if the agent requests it. However the larger brokerage firms restrict their agents from participating in publishing this information. Why? Because they all want you to come to THEIR websites and just see THEIR listings. God forbid that smaller companies might ride on the coattails of this and reap the benefits of centralized exposure to the public of their listings.

Meanwhile, the consumer looses. They don’t care which brokerage has the open house. All they care about is finding out about ALL of them in their desired price range and location. Until the brokerages figure out that not sharing is a loose-loose proposition, they are going to hold on tightly to one of the few pieces of information that they think they can control, even to the detriment of the industry as a whole.

Enter the free upstart website
Craigslist is generally a good source for open house information and has been devastating to the Seattle Times Classified section as more and more Sellers and agents realize that this is a popular source of information for Buyers to find out about real estate listings and open houses. The problem is that it is hopelessly unorganized and difficult to filter well. Properties scroll off quickly and the average consumer misses a number of worthwhile ads.

For now, here is a list of a few of the various companies Open House sites where you can find Seattle area open house information and then assemble it yourself.

Coldwell Banker Bain Open Houses

Winderemere Open Houses

John L Scott Open Houses

Re/MAX Open Houses

Craigslist Open Houses
(I recommend you search for “open” rather than “open house’ – otherwise you may miss alternate titles eg. “Open Sunday”. Use price and bedrooms to filter further.)

Seattle Times Open Houses
Keep in mind that ads placed in the company-sponsored sections of the The Seattle Times classifieds (often referred to as “block ads”) DO NOT automatically show up when you search on the NWSource website. If available, these ads are often an extra charge to the agents and may or may not be included in the ads they have placed.

nwmls-open-house-mapping

NWMLS Open House mapping feature could be a GREAT tool for agents AND consumers. But because the major brokerages and some of the smaller brokerages refuse to participate, and because it currently doesn’t differentiate between “Brokers Open” and “Public Open” events, consumers are on their own to dig and find the open houses they may want to see. (sources tell me that in the next major update, the NWMLS will be able to break out public vs. brokers open houses) Hopefully the NWMLS will start offering a report of this that can be emailed or subscribed to. That might be the tipping-point that would get other brokerages to participate.

Then there is the old-fashion way
The one sure method for Buyers: Get in your car and drive around the areas you are interested in. Agents almost always put out a sign to lure you in, even if the collective NWMLS Brokers won’t help them online.