Sunday Night Stats – More signs of stability

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King County Home Sales

King County Home Sales for the last 8 years, the only time July volume was higher than June homes sold was in 2003. That 2008 is lower than 2007 is old news. The good news is that the relationship of sales month to month is following a predictable pattern and a normal relationship.King County Home Prices

King County Home Prices June and July

King County Home Prices June and July

Same as to prices.  Even in the boom years, the relationship of prices from June to July was pretty much the same as it is now.  Prices are running slightly above where they were this time of year in 2006.

Both of the above graphs are for King County Residential (not condo).  The question isn’t whether or not August will be down, but whether it will be down in a normal relationship to June and July.
The text is centering and I can’t stop it 🙂  Since it’s almost 1 a.m., I will do the regular weekly stats in the morning and post a link here.  I was more interested in end of July stats.  A few more will trickle in for months, so I’d say July was not a bad month overall.
Stats not compiled or published by NWMLS (required disclosure)

Deceptive Advertising Update: Linden Home Loans, Paramount Equity and Assurity Financial

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Linden Home Loans received a “Statement of Charges” back in Dec of 2007  for a deceptive television and radio ad.  The Department of Financial Institutions discovered that Linden promised consumers residential mortgage loans at “1% interest, with no points and no fees,

Do you know where to find info on septic systems and your responsibilities?

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A client of mine is planning on selling a property soon and he’s trying to get his proverbial “ducks in a row” before going on market.  He asked me about what his responsibilities are with regard to his septic system and he also wanted to know if he needed to do an inspection or pumping of the system prior to selling.  If you are not familiar with this process either as a buyer or seller, here is a great website with details about septic systems for you to learn about.  It’s specific to King County so if you live outside this area you’ll want to see if your own county has a similar website with info for you.

If you just want to learn more about septic systems (also called onsite sewage systems) and how to use them properly and care for them you can read through this information, also from King County.

And the FED…does nothing.

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The markets anticipated the FOMC to leave the Fed Funds rate alone at 2% and that’s just what they did.   The markets are reacting accordingly by not swinging drastically either way.   The DOW is enjoying triple digit gains while oil has been under $120.   What does this mean to mortgage interest rates?

As you know, the FOMC does not directly control mortgage interest rates as mortgage interest rates are based on bonds–mortgage backed securities (MBS).  Traders will react to what the FOMC does and does not do and THIS will impact mortgage interest rates.

The FOMC press release states:

“Economic activity expanded in the second quarter, partly reflecting growth in consumer spending and exports”.   I’m wondering how much of the growth in consumer spending is from the economic stimulus checks?

This statement is quickly followed with: “…labor markets have softened further and financial markets remain under considerable stress. Tight credit conditions, the ongoing housing contraction, and elevated energy prices are likely to weigh on economic growth over the next few quarters”.

Bonds react negatively to inflation, I’m anticipating that we will see mortgage rates continue to trend higher.   Here’s a bit from the FOMC regarding the “i-word”:  

“Inflation has been high, spurred by the earlier increases in the prices of energy and some other commodities, and some indicators of inflation expectations have been elevated. The Committee expects inflation to moderate later this year and next year, but the inflation outlook remains highly uncertain.”

You can read today’s FOMC statement here.

PS:  As the Prime Rate is tied to the Fed Funds Rate, your HELOC is unchanged for now.

Remember Dustin's Project Blogger Apprentice?

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Million Dollar Listing

Million Dollar Listing

Back in April of 2007, Dustin chose Madison as his Project Blogger Apprentice.  My Apprentice, Kevin Tomlinson of South Beach Luxury Condo Fame (also very hot), clued me in today on Madison’s Cover debut on PlayGirl Magazine.

Madison is also one of the stars of Million Dollar Listing

Madison Hildebrand Million Dollar Listing

Madison Hildebrand Million Dollar Listing

Your Mama of The Real Estalker reported a few posts ago about one of the other stars of the show being released on $100,000 bail.  If you are into “hard core real estate porn”, I highly recommend The Real Estalker.  It’s a fast paced great read, and one of Kevin’s Favorite Blogs.

Someone wanted to do a “Where are the Apprentices?” a year later, but I don’t think anyone would have guessed “On the Cover of Playgirl Magazine” 🙂

The new (2nd) season of Million Dollar Agent airs Tuesday Night, August 5th on Bravo.

Why do banks take so long to approve a short sale?

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This question comes up over and over again from Realtors, homeowners and homebuyers everywhere I go. A one sentence answer doesn’t exist for this question. If you truly want to know the answer to the question, “why” continue reading.  This means you will have to take a step back from your particular emotional situation enough to really listen to what’s being said because everyone wants their deal approved NOW. 

Banks are under no obligation to approve your short sale.  I know what you’re thinking, reader. You’re thinking, “Well if the G.D. bank would just approve my short sale faster, they wouldn’t be losing so much money!”

Let’s start at the beginning. A homeowner is said to be in a short sale situation when he or she owes more than what the home is currently worth, is in default and must sell.  Traditionally, homeowners agreed to pay back the difference between what was owed and the sales price. The short sale seller signed a new, unsecured note at closing and promised to pay back the difference in regular monthly installments.  The only cases where the debt was “forgiven” was for true financial hardship cases where there was absolutely no way the homeowner could ever repay the difference. An example would be the untimely death of one of the breadwinners. But that was then.

In today’s politically charged, loan modifications for all, HoHo, let’s-dump-everything-into-FHA environment, homeowners in a short sale situation today are receiving debt forgivness and even temporary tax exemptions on top of that.  Don’t worry, the rest of us tax payers will pick that up for you.

The first step in figuring out why your short sale is taking so long to be approved is to inquire about whether the homeowner is asking the bank to forgive the difference or if the homeowner is gainfully employed and able to pay back the difference.  This all must be proven and documented to the lender’s satisfaction.  If the homeowner is asking for debt forgiveness, the short sale will take longer to approve if the bank does not have all the required documentation.

Thought question: Why would any lender approve a short sale, especially one that requires debt forgiveness, unless there is proof that foreclosure is imminent? Answer: They won’t.  Lenders have to weigh the costs associated with the short sale proposal against the cost of foreclosure.  If a homeowner has not yet defaulted on their loan, the bank has little motivation to approve the short sale. Why not wait for a better offer to come along?  (Note, homeowners reading this article should always consult with an attorney if you are selling short, in default, or will be in default on your mortgage loan(s).)

All loan servicing departments have processes in place for dealing with short sale approvals.  They may not have fancy computer systems so that everything is automated but maybe that’s a good thing. Look where automated underwriting got us.

Next step: Homeowners must prove that they do not have the money to make up the shortfall. This means sending in copies of all bank statements, tax returns, w-2s, and other supporting documents to verify that the homeowners is financially insolvent. Short sales are reserved for people with NO MONEY. 

Gentle reminder: The new sale must be an arms-length transaction.   Another common problem that lenders must watch for is when the real estate agent on the transaction happens to be the “assigned” buyer on the purchase and sales agreement.  The lender is not going to be thrilled in paying a real estate commission on that kind of transaction. Further, there are plenty of foreclosure rescue scams happening nationwide. Lenders scrutinize short sale offers to look for signs of fraud.  Tanta reminds us:

Is it the job of the Loss Mitigation Department to care about clearing your local RE market? No. Is it their job to care about keeping your buyer wiggling on the hook long enough to get papers signed? No. Is a short sale supposed to be a painless alternative to foreclosure for anyone involved? No. There are no painless alternatives. There shouldn’t be. There cannot be.

Next, everyone who is patiently waiting for the bank to approve the short sale must now realize that once the bank says “okay” to the short sale, there very may be a long list of investors who own pieces of this mortgage loan. Each and every investor will have to give their approval for the short sale.  We enjoyed many years of growth in the real estate industry and the overall economy thanks to the invention of Residential Mortgage Backed Securities.  RMBS made millions of dollars for many people.  The downside to securitizing mortgage loans and then selling off slices of each mortgage to different investors is that when it comes time to tell the investor “you’re going to have to take a haircut” that investor gets to have a say in the matter.

Calling loan servicing and yelling at them over the phone will get you nowhere.

I would like to be first to predict that the next meltdown will be loan servicing.  But perhaps my prediction is so obvious as to not be much of a prediction at all.  How much longer can they sustain this level of stress and pressure, with their current staffing levels, while the banks are facing enormous losses?  Of course when that meltdown happens, I predict our government will step in and mandate harsher regulations on servicers, which will be passed on to the consumer in the form of higher interest rates.

Loan servicing use to offer what it said: “service.”  It was treated as a cost center on a bank’s balance sheet.  Over the past 15 years, servicing became a “profit center” and the highest expense, namely labor, was cut to achieve profit goals.  This is one more lesson in underpricing. The cost of “good” loan servicing in which phones are answered and files processed smoothly, would have cost us all way, way, way more on the retail end, than what we paid. 

Let’s say we could create instant loss mitigation nirvana today.  All phones are answered on the first ring, all short sales are approved with no questions asked, no documentation required, no proof of hardship necessary, no proof of financial insolvency needed, and all Realtors receive their full 6% commission. 

The consequences of not performing due diligence at the loss mit stage are disaster for all of us. Compare this to the current nirvana we just left behind: A world where anyone could get a mortgage loan with no verification of ability to repay, with massive fraud still being uncovered.  We need to do it right this time, and it takes TIME to do proper short sale loss mitigation.

Sunday Night Stats

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It’s too early in the month to post the end of July stats.  We’ll do that next week as many agents will post their month end closings during this week.  Seems to me that August closings may keep pace with July and July will be down from June as to price, and maybe volume too.  Two of my listings are pending inspection for August closings, and one has been on market for quite sometime.  Another is at least a bridesmaid…waiting to hear if it made it to bide.  If there’s no offer, it was at least a close second  So it seems to me that some people who have been looking and looking, are starting to move in and make offers.

 

King County Condos

2004 – 1Q – 1,694 – $188, 2Q 2,636 – $199, 3Q 2,540 – $196, 4Q 2,176 – $195

2005 – 1Q – 2,066 – $198, 2Q 2,925 – $209, 3Q 2,769 – $226, 4Q 2,266 – $224

2006 – 1Q – 1,956 – $242, 2Q 2.748 – $252, 3Q 2,737 – $269, 4Q 2,217 – $278

2007 – 1Q – 2,042 – $295, 2Q 2,862 – $302, 3Q 2,676 – $311, 4Q 1,618 – $294

2008 – 1Q – 1,258 – $299, 2Q 1,508 – $287

Changes in condo stats for this week

Active Listings: 4,030 – DOWN 70 – median price $319,950 – MPPSF  asking $310 – DOM 65

In Escrow:  793 –  DOWN 39 – median asking price $289,950  – MPPSF asking $291  – DOM – 50

Sold YTD :  3,060 – UP 134 – median list price $289,950 – median sold price  $285,000 – MPPSF – $289 DOM 49  

Residential King county

2004 – 1Q 5,650 – $152, 2Q 9,237 – $160, 3Q 8.737 – $163, 4Q 7,467 – $165

2005 – 1Q 6,402 – $173, 2Q 9,093 – $185, 3Q 9,131 – $192, 4Q 7,301 – $195

2006 – 1Q 5,596 – $201, 2Q 8,248 – $214, 3Q 7,771 – $216, 4Q 6,204 – $217

2007 – 1Q 5,304 – $222, 2Q 7,393 – $230, 3Q 7,944 – $229, 4Q 4,301 – $221

2008 – 1Q 3,640 – $219, 2Q 4,641 – $220

Changes in residential stats for this week

In Escrow: 2,559 – DOWN 125- median asking price $419,950 – DOM 48 – MPPSF $204.8

SOLD YTD: 9737 –  UP 420 – median asking $449,950 – median sold price $440,000- DOM 49 – MPPSF $217 

Actively for sale 12,307 – DOWN 210 – MPPSF <$800,000 is $220 – MPPSF >$800,000 is $332

Stats not compiled or published by NWMLS. (Required disclosure)

When to sue for an undisclosed defect

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This post is not legal advice. For legal advice, consult an attorney, not a blog.

You just bought a house! 🙂 Congratulations! You just discovered that foundation is cracked, although the seller said the foundation was fine… 🙁 My condolences…

The next logical question: can you get some recovery from the seller given his failure to disclose and/or concealment of this defect? The absolute first step in answering that question is to determine the amount of money it will cost to fix the problem. There is only one certainty in litigation: it’s expensive. Where the cost to fix the problem is less than the amount you would expect to incur in attorney’s fees and costs, it may very well be in your best interest to bite the bullet and pay for the repair without seeking compensation.

Let’s assume your cracked foundation will cost $50k to repair. That is more than enough to seriously consider threatening and possibly proceeding with a lawsuit. The next step would be to consult an attorney who could analyze your facts and render an informed opinion as to the likelihood of your prevailing. If you’ve got “good facts” (e.g., seller affirmatively represented condition of foundation, crack appeared to have been purposefully concealed, you performed your own inspection that did not identify the crack), then it may be time to take the very serious step of suing the seller (assuming he refuses to compensate you voluntarily).

But what about those attorney fees? They will still eat up most, if not all, of what you seek to recover. (In the case of Stieneke v. Russi, which I discussed in my last post, the cost of repair was $72k, but the attorney fees and costs through appeal were $175k.) Will you be able to recover those from the seller too?

The answer to that question is a very definite “probably” — hardly the assurance you are looking for. Some courts (particularly those in Eastern WA) have determined that this type of claim (fraud) is unrelated to the contract for sale, so that even though the contract contains an attorney’s fees clause (which allows for an award to the prevailing party), no fees are available. Other courts (particularly those in Western WA) have determined that, because the contract is central to the dispute, the attorney’s fees provision would apply. Given this degree of uncertainty in the law, there is a chance that you may win but still end up losing money given your legal costs.

One final note: the attorney’s fees clause in the contract, if it applies, cuts both ways. So, if you sue and lose, you very well may be liable for the seller’s legal fees and costs, in addition to your own. In that case, your total cost for the unsuccessful suit could approach $100k, even if you don’t appeal. Accordingly, it is essential to get good legal advice about the merits of your case and the likelihood of prevailing before filing suit.

Housing Market Predictions from RE Connect

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To follow up from last week’s Inman Connect, here are the answers from panelists to the question, “When will the housing market recover?”

Noah Rosenblatt, Founder of Urbandigs
Severe and deep recession, housing may bottom at the end of 2009 with recovery in 2011.

Dottie Herman, President, Prudential Douglas Elliman
We’ll hit bottom in the first quarter of 2009, after the election and stay flat for a few years.

Avram Goldman, President and CEO of Pacific Union GMAC Real Estate
We’re in a recession now. Some markets will do fine and go up, some markets will be down a long time.

Yves Smith, NakedCapitalism
I wish I could say 2010.  The Alt-A ARM resets bother me because they will peak in 2011.  Market will bottom in 2010 and stay flat for a long time.

John Williams, Economist; Shadowstats.com
We’ll have an L shaped decline, hyperinflation, and a great depression.

CR, CalculatedRisk
Foreclosures are moving upstream. Notice of defaults will rise in the mid and higher price ranges. They’ll never reach the foreclosure levels of the subprime loans, but foreclosures in the mid and higher price ranges will rise.  Wonders if our government is out of tricks; the new housing bill doesn’t do much, but we have to have confidence in our GSEs.  Different areas will bottom out at different times: 2010 to 2012.

Same question, two days later, different panel. Here are their answers:

Alex Perriello, CEO Realogy
We’ll have a sloppy, rocky, bumpy bottom. It’s not pretty where we are today. Inventory is key.  We can support 4.6 to 4.8 million sales nationwide. The last time inventory was this high (nationwide it is 11 months) was in 1986.  Inventory drives price.  Realtors should datamine their clients who bought 2002 and prior: Sell them a new home! Market to renters! Alex says it’s too early to call the bottom.

Joel Singer, EVP, California Assoc of Realtors
Prices are exploding downward in CA. Worried that if anything happens to the GSEs all bets are off. There’s a lot of wild cards in the financial sector. Cali seems to have hit a bottom but this may be a false bottom.

Patrick Stone, Chairman, The Stone Group
What hasn’t been fully communicated is that price stability has been achieved in a third of the country.  In the next six months, we’ll see another third achieve it.  The last third will achieve price stability in “probably one year” unless we have a cataclysmic event where the impact on our economy could be severe. The stability of our financial system is paramount to finding the bottom.

Jonathan Miller, Co-Founder, Miller Samuel, inc.
It’s very challenging for appraisers to come up with a value when there’s a lower pace of sales. Until progress is made with the credit markets, it is too soon to talk about the bottom.  To call a bottom is not professional. We can’t do it.

More Fannie Changes for Investment Properties and Second Homes

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Effective tomorrow (August 1, 2008) borrowers who convert their existing residence to an investment property or second home will be treated to tougher standards if they’re using a Fannie Mae loan.    Here are the new requirements:

Converting existing residence to a “second home”.

  • Borrower must qualify for both payments (this is not new).
  • Unless the borrower has at least 30% equity in the existing property, they will need 6 months PITI for both properties in reserves. 

Converting existing residence to “investment property”

  • The borrower may only use rental income (75% credit) of their existing property if they have at least 30% equity in the property.   Otherwise, they must qualify with both full payments (no credit for rent).
  • Rental income must be documented with a fully executed lease agreement and a receipt showing the security deposit from the tenant has been deposited into the borrowers account.
  • If the borrower does not have 30% equity in the proposed investment property (former residence) then they will need 6 months PITI for reserves for both properties.

Either an appraisal, AVM or Broker Price Opinion is used to determine if there is 30% equity in the existing home that is being converted to a second home or investment property (this may be determined by underwriting).  

Last, be careful when reading guideline changes, such as this.  Underwriting guidelines and loan programs are changing constantly, post like this are quickly “dated material” and no longer applicable–do verify information you find on the internet with your Mortgage Professional to make sure the information is still valid.