Fannie and Freddie to track loan performance of originator and the appraiser.

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It was announced today that beginning Jan. 1, 2010 Freddie Mac and Fannie Mae will be required to obtain loan-level identifiers for the loan originator, loan origination company, field appraiser and supervisory appraiser. The purpose of the requirement is to prevent fraud and predatory lending, to ensure mortgages owned and guaranteed by those Enterprises are originated by individuals who have complied with applicable licensing and education requirements under the S.A.F.E. Mortgage Licensing Act. In addition, they will use the data collected to identify, measure, monitor and control risks associated with originators’ and appraisers’ performance, negligence and fraud. Hat tip John Long and Gordy. 

Here is the PDF from the Federal Housing Finance Agency, Fannie and Freddie’s new regulator.

“This represents a major industry change. Requiring identifiers allows the Enterprises to identify loan originators and appraisers at the loan-level, and to monitor performance and trends of their loans,

Layoffs at Microsoft

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 Hat tip Sniglet.  From Reuters and the Wall Street Journal:

Microsoft Corp. is seriously exploring significant work force reductions that could be announced as early as next week, in a sign that the weak economy is prompting tough decisions even at one of the steadiest ships in the technology industry.  According to people familiar with its plans, the Redmond, Wash., giant is considering layoffs across its various divisions, a rare occurrence for the world’s largest software company. However, plans for the cutbacks are still in flux and Microsoft could end up finding alternative methods of reining in costs, one of these people said.

Reuters says Microsoft might announce the job cuts when it reports quarterly earnings next week.

Speaking as a Microsoft stockholder I’m pleased to hear the company talk about cutting costs. All signs point to a global recession which means corporations must control expenses.  Microsoft has been growing non-stop for years.  Many employees have never experienced any kind of staff reductions throughout their Microsoft careers.  Layoffs are a good time to get rid of underperforming employees.  Layoffs are typically political.  The employees that make their supervisor’s job a daily hell will be second on the list.  

I’d like to see Microsoft go on a diet.  Let’s ramp up employee productivity and get lean and strong. This is what companies do to survive tough times.  Long live Microsoft.

FHA Mortgage Insurance Fund Down 40%

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Mortgage Law Central reports today on FHA’s Oversight Capability. 

The House Committee on Financial Services held a hearing to look into the recent Business Week story alleging that predatory lenders are alive and well originating FHA loans. The committee listened to testimony from HUD on the approval process for FHA lenders, compliance with FHA regulations, and the level of reserves in the FHA Mortgage Insurance Fund:

“Rep. Stephen Lynch, D-Mass., voiced his concern that FHA’s Mutual Mortgage Insurance Fund levels were decreasing and might go under the required two percent threshold. He said the latest data forecast, from June 2008, was done before the meltdown and he believed that the funds could dip below the 2 percent threshold.  Heist also had these concerns, stating that the results from the Office of the Inspector General’s (OIG’s ) latest actuarial study show that HUD has sustained significant losses in its Single-Family program, reducing the program’s reserves. He said that as of Sept. 30, 2008, the fund’s economic value was an estimated $12.9 billion. This is an almost 40 percent decrease from over $21 billion the year before. “The current $12.9 billion economic value represents 3 percent of the mortgages insured by the FHA,

Chase pulls out of Wholesale Lending with Mortgage Brokers

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I just received this memo from Chase:

“Home lending remains an integral part of our firm’s overall financial strategy, and as such, we have a responsibility to our customers, shareholders and employees. Over the last two years, we have diligently reviewed and adjusted our home lending strategy and practices to address the unprecedented challenges of today’s market. Today, we are announcing a strategic shift that we believe will serve our business and our customers well for the long term.

Moving forward, we have decided to focus on loan originations through the Chase bank branches, our Consumer Direct business, and retail-originated loans acquired from Correspondent lenders. Our new strategic direction is supported through the recent merger with Washington Mutual, which increased our bank branch inventory nationwide and enables us to serve nearly 70 percent of the American population.

As a result of our strategic decision, we will no longer accept any new locks and registrations from or purchase any loans originated by brokers effective Friday, January 16, 2009. As a result of these decisions, we are closing our Wholesale business….”

As of this moment, Chase will continue their correspondent relationships (our company is correspondent with Chase) but mortgage brokers just received another punch to the gut.   You can also see how little notice loan originators receive in this type of climate.  

The question is, how many other banks will follow Chase’s shift away from mortgage broker relationships. 

Sunday Night Stats – 2008

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The charts and graphs will pretty much speak for themselves tonight.

The Median Price Per Square Foot chart above shows medians for each Quarter from 2004 though 2008. You can see the nose dive in prices during the last quarter of 2008.  Popped right through 2006 prices into 2005 year end prices. I expect to see prices come up a bit during the higher volume months of 2009, and then trend back down toward year end.

What are “the higher volume months”?  See the volume graphs below comparing 2008 with 2002.  2002 was the most stable year, prior to zero down loans coming into fashion in late 2003.  There will likely be more late postings for December closings, but the relationship of each piece of the pie is more important than the individual numbers.  “stable market” equals larger slices near the bottom of the circle than at the top and a fairly equivalent ratio.  We did not have that in 2007, but we did in 2008 and likely will see the same in 2009.  2009 will either be fairly similar to 2008 as to volume, or moving a little closer to 2002 volume.  It depends on what happens at the high end of the market.

Current volume is lower than 2002 for two reasons.  One – financing is tighter, as 5% down and 10% down was much easier to get in 2002. Two – financing jumbo loans is very difficult right now, and in 2002 only 412 homes sold for over a million dollars.  In 2008 there are 2,338 homes asking more than a million dollars, of which 942 sold, 79 are pending and 1,317 are for sale as of tonight.

If we do see 4.5% interest rates, I expect many who can, will buy.  But that won’t help the high end as too many people just don’t have the downpayments the lenders are looking for. The year ended up pretty much where I predicted it at $400,000 as to median price, give or take fifty bucks.  Volume was a little lower at 15,700 vs. my prediction of 16,500.

Enjoy the graphs…they speak volumes.

Here is a running list of posts with charts and graphs tracking the market that I have written back to 2006.

Statistics calculated by ARDELL and not compiled or posted by NWMLS (required disclosure)

Don't buy a house that you like

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One of the most important questions people are asking themselves these days when buying a house is, “Will I lose money if I have to sell it?”  Fair question for sure.  The most likely answer is yes, if you are going to need to sell it in the not too distant future.  Stay in it for a decade, is more the order of the day these days.

Of course some people will still be buying houses, regardless.  For those people who are buying a house, I say “Don’t buy a house that YOU like!”  I know that seems like an odd statement, but it is very important that you buy a house that MOST people will like. 

1) Spend hours in a house before you buy it; not minutes.

Don’t you think it’s odd that some people spend less time in a house before they buy it, than I spend picking out a pair of earrings or stockings at Nordstrom’s Rack?

2) Write down what you like and what you don’t like.

If there is nothing on the list that you don’t like, you probably aren’t looking hard enough.  There is no such thing as a house without pros and cons.  Bring some people with you, including your buyer’s agent.  Have everyone quietly write down the pros and cons.  Don’t discuss with each other until everyone is finished.  If your buyer’s agent has no cons on their list, fire them.  Now compare everyone’s lists while still inside the house.  One at a time, each can explain why they do or don’t like various aspects of the house.  It is more likely that you won’t miss something if you take the time to do this.

3) Ask your buyer’s agent what things they might ask you to do to this house, if you called them back to sell it.

Make a list, before you make an offer, of all of the cons and note which can be corrected and which can not.  Traffic noise is not something you can correct when the windows are open in summer.  Seeing cars go by, might be something you can correct with landscaping.  Bright gold switchplates changed out is simple, cheap and takes little time.  Take the time to go through all of the cons to determine if there are any that cannot be corrected. Then try to like something without things that cannot be corrected.

4) Be careful of homes that are just over a price break point 

Everyone knows that an asking price of $599,950 is better than one priced at $609,950.  In these times when people view property on the internet they put in a “cap price” such as $600,000. Consequently, you have a better chance of “breaking even” if you have to sell the house, if you buy it at $580,000 than if you pay $610,000.  Just is.  Don’t argue that point.  Just is.

5) Let the majority rule

Don’t buy a house if you are the only one who likes it.  If it is a vacant house, it’s easier to get a lot of people to come over and spend a bit of time in it.  If 2 people like it, including you, and 10 people hate it…keep looking.  The more you overlook what other people think about the house…the harder it will be to sell it if and when you have to sell it.

Agents often say Price will fix any Problem…but that is NOT true!  In a market in which only 3 of every 10 homes readily sell, you don’t want to be one of the 3 that no one wants at any price.  10 houses for sale = 3 sell because everyone likes them…4 sell because they are a good value…3 get passed over repeatedly.  You don’t want to own one of those last 3 houses. 

Test what you like against what MOST people like.  Better to pay a few dollars more for a house that is generally appealing, then to get a great buy on the house with the most negatives.

Is Excise Tax Payable on Short Sale Debt Forgiveness?

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The Washington State Department of Revenue (DOR) seems to think so.  Background: At an Escrow Association of Washington (EAW) meeting on Nov 13, 2008, Mel Kirpes and Steve Bren from  WA DOR spoke at a regional dinner meeting where it was announced that when there is a short sale, the DOR considers the debt forgiven as additional consideration above the contracted sales price between the parties and that the DOR will be pursuing the home seller for payment of the excise tax. (Reference is a EAW letter dated Nov 25, 2008 from EAW Director Cindi L. Holstrom)
Naturally this had a chilling effect amongst escrow officers.  The DOR responded on Dec 12, 2008 in a letter from Gilbert Brewer, Assnt Director of the DOR:

RCW 82.45 imposes an excise tax on the sale of real estate unless specifically exempt from statute. “The measure of the tax is based on the total selling price of the property conveyed. The incidence of the tax is usually on the seller.  However, if the tax is not paid in full, the tax (together with any interest and penalties) becomes a lien on the real property. This is mandated by RCW 82.45.030 …which defines “selling price” as the “true and fair value of the property conveyed.” If a property has been conveyed in an arm’s length transaction between unrelated persons for a valuable consideration, a rebuttable presumption exists that the selling price is equal to the total consideration paid or contracted to be paid to the transferor, or to another for the transferor’s benefit….”total consideration paid or contracted” to be paid as including “money or anything of value, paid or delivered or contracted to be paid or delivered in return for the sale, and shall include the amount of any lien, mortgage, contrat, indebtedness, or other incumbrance, either given to secure the purchase price, or any part thereof, or remaining unpaid on such property at the time of the sale.”

Since there is an exemption from real estate excise tax in the event of foreclosure or a deed in lieu of foreclosure (see WAC 458-61A-208) this DOR opinion may unfortunately motivate homeowners to consider foreclosure a more viable option. Perhaps the home seller’s Realtor can negotiate with the lender to pay for the additional excise tax lien as well.  However, then that extra amount paid by the lender may also be subject to excise tax.
The Seattle King Co Assoc of Realtors and Washington Realtors believes DOR’s position is incorrect and problematic.  On Jan 8, 2009, The Northwest Multiple Listing Association posted a notice to their real estate agent members as follows:

“RCW 18.86 requires agents to advise their clients to seek expert advice on matters relating to the transaction that are beyond the agent’s expertise.  This duty exists in every transaction but is particularly important in short sale transactions where unique legal and tax issues exist.”

We’ve been saying the same on RCG for many years now. Short sales are way more complex for real estate agents than the average transaction and homeowners are best served when they have retained their own legal counsel to help them understand the lender paperwork as well as this current DOR trainwreck. You may be thinking, “homeowners in financial distress can’t afford an attorney.” However, some attorneys offer low cost options for homeowners facing foreclosure.

UPDATE
January 13, 2009
Department of Revenue: “After receiving extensive input from interested stakeholders and industry representatives about the nature of these transactions, we have carefully reconsidered how real estate excise tax statutes apply to these unique transactions [short sales]….we now see that these short sales are distinguishable from other transactions involving the forgiveness of debt because the seller negotiates separately with the lender for any debt reduction/forgiveness, apart from the actual purchase and sale of the property.  As a result, the loan forgiveness is not “paid or delivered in return for the sale” of the property, as required by RCW 82.45.030.”   Margaret J. Partlow, Senior Policy Counsel, Dept of Revenue. 

(Hat tip Rhonda Porter and Kary Krismer.)

Translation: We are not going to require sellers to pay excise tax on the debt forgiveness  with a short sale.

40 representatives from escrow, title, real estate, attorney, and short sale faciliator companies showed up in Olympia to help educate the Dept of Revenue. Thank you, Escrow Association of Washington, for bringing this to our attention and taking on the state head to head.

Mother Nature Happens…

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…and she doesn’t ask us if it’s convenient or if we’re in the middle of a mortgage transaction, for a natural disaster to strike, such as the current flooding in Western Washington.  When significant natural events occur, it may impact your mortgage transaction.   

Most commonly, the lender will require the appraiser to do a re-inspection (442) of the property for any transactions that are not funded prior to the event.  Even if your home uphill a mile from a flooded river, if you’re in a region (such as a zip code) that’s flooded, where an earthquake, wild fire or other has happened, be prepared for your transaction to be delayed.   The appraiser is typically required to verify:

  • The property is free from damage.
  • The disaster had no impact on the value or marketability of the property. 
  • Include an updated photo of the home.

If the appraiser determines that the property has suffered from the disaster, repairs will be required with a follow up inspection (442) from the appraiser.   All re-inspections from the appraisal are submitted to the underwriter for (hopefully) approval.  It is possible that the underwriter may add additional conditions after the review.   I have found 442’s to cost around $150 (per inspection). 

If the appraisal has not yet been completed during a transaction, the appraiser will most likely need to address the disaster and whether or not it has impacted the value of the home. 

It’s up to the lender (and can vary from lender to lender) on whether or not they will call for reinspections when a natural disaster happens.