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Donna Ferrell's Blog

By Donna Ferrell, Broker | Broker in Los Angeles, CA
  • Homepath, Not the Golden Ticket!

    Posted Under: Home Buying in Los Angeles, Foreclosure in Los Angeles, Home Insurance in Los Angeles  |  September 28, 2012 12:02 PM  |  530 views  |  No comments

    What is Homepath?

    Fannie Mae started offering HomePath loans and HomePath renovation mortgages in 2009 to unload the thousands of homes the agency repossesses through foreclosure.

    The little-known program has been gaining popularity in recent months, but many buyers are not aware of it and don't understand the pros and cons of HomePath financing until a broker or agent suggest it to them.

    How HomePath works
    Fannie Mae does not directly lend to buyers. The agency sets the guidelines that lenders need to follow if they want Fannie to buy the loans after they are originated. In the case of HomePath, Fannie allows lenders to finance properties owned by Fannie Mae with as little as 3% down for buyers who plan to occupy the home and 10% down for investors. HomePath also offers renovation loans for buyers purchasing properties that need minor or substantial repairs. The financing can be for up to 97% of what the home is expected to be worth after the repairs.

    Now what do I think and have experienced?
    I thought things could not get any worse, Countrywide, BOA, Merrill Lynch all selling the average bear down the river. Now we have Fannie Mae joining the party!

    They are the drunk guy who is an A$$$hole drunk and only brings beer for himself. To break it down, they insured toxic loans and now had to pony up the cash when the buyer took a powder. They have all the bells and whistles of a legit and knowledgeable foundation; but don’t get fooled Alice, that would be an oxymoron for this government-subsidized company!

    Don't expect professionalism and competency from them! The truth is they have outsourced the listings and this is now the EBAY for Real Estate:

    1. You have to navigate this really long and crazy website offer submittal, the listing agent CAN NOT take any faxed, emailed, carrier pigeon offers.

    2. They give both investors and consumer buyers the chance to bid

    3. You can wait up to a week or two and then may not even get a return call or notice of where you stand on your offer, until you see the site say "under contract"

    My buyer never had a chance!

    4. When you go to the listing agent, they are of no help at all! They have no power over the process and they are not showing fiduciary to the Buyer as they are required to do.

    Final thoughts, are this is not homepath but the path of most resistance, and the bigger offer gets the deal. There is no accountability (here we go again) and frankly I shudder to think of all the laws and code(s) of ethics that are being broken as I write this.

    When you screw over your fellow human, and no one hears it, does it make a sound?

  • Appraisal can trip up mortgage rate quote

    Posted Under: Home Buying in 90015, Home Selling in 90015, Property Q&A in 90015  |  October 7, 2011 9:51 AM  |  1,346 views  |  3 comments
    When borrowers cannot lock the price quote that was instrumental in their decision to select the lender, which is usually the case in the post-crisis market, the price they finally lock is more likely to be higher than the original quote than it is to be lower.

    The major reason is that lenders can usually avoid reducing the price when a reduction is called for by a decline in the market price or by an upward correction of the borrower's credit score. Most borrowers are content when the lock price is the same as the price they were quoted earlier.

    The lock price can also be affected by corrections in property value and loan amount. The lender will replace the borrower's estimate of property value with a figure drawn from an automated valuation program, but that figure could be adjusted later -- perhaps a number of weeks later -- when an appraisal becomes available.

    Changes in property value may affect the price by shifting the ratio of loan amount to property value (called the "LTV") into a higher or lower band. These bands are 65.01 to 70, 70.01 to 75, 75.01 to 80, 80.01 to 85, 85.01 to 90, and 90.01 to 95. Borrowers who take a loan amount that places them at the top of an LTV band are highly vulnerable to a price increase resulting from even a small reduction in value.

    For example, a borrower who believes his house is worth $100,000 and applies for a $90,000 loan has an LTV of 90 percent. If the lender corrects the value to $99,000, the LTV jumps to the next-highest band, which requires a higher mortgage price -- or perhaps outright rejection. To remain at an LTV of 90 percent, the loan amount must be reduced to $89,100, which requires a down payment increase of $900.

    Of course, the corrected property value can be higher than the borrower's estimate, but if the borrower is at the top of an LTV band, the value increase required to shift him into a lower LTV band must be large. To shift the borrower in the example above to the next-lower LTV band requires a corrected property value of $105,883, or a value increase of almost 6 percent. This compares to the negligible reduction in value required to shift him into the next-highest LTV band.

    On top of that, when a significant value increase does shift the borrower into a lower LTV band, the lender may ignore it -- and most borrowers won't notice.

    The borrower at the top of an LTV band is also in danger of being forced into the next-higher band if she encounters unanticipated settlement costs, including escrows, and doesn't have the cash to cover them. For example, if the borrower at an LTV of 90 percent in the example must add $500 to the loan in order to cover an unanticipated expense, the LTV would jump to 90.5 percent, which places her in the higher band.

    In sum, because of the tendency of borrowers to gravitate to the top of LTV bands, corrections in property value and in the loan amount are much more likely to shift borrowers into a higher-price LTV category than into a lower-price category.

    Further, when corrections do shift the deal into a lower-price LTV category, the lender may not pass through the price reduction the borrower deserves. Few borrowers are alert enough to catch this.

    This problem is beyond the reach of any mandatory disclosures. To be assured that they are getting the correct price, borrowers would have to have access to their lender's internal pricing system -- the same access the lender provides to its loan officers. The only lenders that do that now are the Upfront Mortgage Lenders listed on my website at www.mtgprofessor.com, which provide borrowers with the means of continually updating their price until they lock. The network I am developing will provide the same facility covering all participating lenders.

    Jack Guttentag is professor of finance emeritus at the Wharton School of the University of Pennsylvania.
  • Number of new homes for sale at a record low in August

    Posted Under: Home Buying in 90015, Home Selling in 90015, Property Q&A in 90015  |  October 7, 2011 9:50 AM  |  1,317 views  |  No comments

    The number of new homes available for sale nationwide dipped to 163,000 at the end of August -- a new low in records dating back to 1963. And the sluggish sales pace, which translated to 6.6 months of new-home inventory, could make 2011 the worst year on record for homebuilders.

    Sales of new homes fell 2.3 percent from July to August to a seasonally adjusted annual rate of 295,000 per year, according to the latest numbers from the Census Bureau. Looking back a year, new-home sales were up 6.1 percent but the median price of new homes fell 7.7 percent, to $209,100.

    The months' supply of new-home inventory peaked in January 2009 at 12.2 months. Although the months' supply is now closer to the 6 months that many analysts consider to be a more healthy balance between supply and demand, there's still no shortage of new homes at the current pace of sales, which isn't expected to pick up any time soon.

    In a forecast issued this month, economists at Fannie Mae said they expect new-home sales will total 305,000 this year, which would be a 5.6 percent decline from 2010 and the lowest total on record. Fannie Mae projects that new-home sales will remain subdued next year, totaling 329,000, before climbing to 462,000 in 2013.

    New-home sales exceeded 1 million a year from 2003 through 2006. In the last two housing downturns, new-home sales bottomed out at 509,000 in 1991 and 412,000 in 1982.

    The picture varies at the regional level. In the Midwest, new-home sales were up 8.2 percent from July to August, and up 65.6 percent from a year ago. In the Northeast, new-home sales fell 13.6 percent from July to August and 36.7 percent from a year ago.

    While new-home sales in the South were down 2.4 percent from July to August, they were up 9.3 percent from a year ago. In the West, new-home sales were off 6.3 percent from July to August and down 10.6 percent from a year ago.

  • Three ways to buy into high-demand real estate market

    Posted Under: Home Buying in 90015, Home Selling in 90015, Property Q&A in 90015  |  October 7, 2011 9:49 AM  |  1,327 views  |  No comments

    You'd think with so many homes for sale, there would be no problem finding one to buy. However, plenty of buyers who would like to buy now to take advantage of low interest rates and prices can't find the right home.

    One problem is that the most desirable areas don't have an oversupply of good homes for sale. Sellers who don't have a good reason to sell now aren't, so the supply of good listings is low.

    Many listings that are available in these coveted areas either need a lot of work or are overpriced for the market.

    Fixer-uppers aren't popular because they add to the uncertainty of the transaction. Most buyers are already concerned about the market, their jobs and the state of the economy. They shy away from homes that need a lot of work because it raises more questions and uncertainty. How much will it cost? Could it cost more than expected? How long will it take to complete the job?

    HOUSE HUNTING TIP: Buyers who have the vision to imagine a home in its fixed-up condition can keep costs down if they live in the home while the work is being done. Expect it to be a stressful experience and plan on the work taking longer than anticipated. Uncontrollable factors, like rain, can hold a project up due to no fault of the contractor.

    Most contractors like to work on a time and materials basis, which leaves the ultimate cost unknown. A fixed-price contract may cost more, but if unanticipated work needs to be done, it won't cost you more. It's like paying for insurance.

    A listing that has been on the market for some time is likely to be overpriced. Try making a low offer. You might be able to negotiate a mutually acceptable price. Before making an offer, ask your agent to find out if the sellers are planning on reducing the price. If so, make your offer quickly. When listings are lowered to the market price, more than one offer can appear.

    Have your agent search the multiple listing service to see if there are any listings that might suit your needs that didn't sell and were withdrawn from the market. If the owners still want to sell and are willing to be flexible on price (the listing probably didn't sell because it was overpriced), make an offer and see if you can reach an agreement. First, ask to see disclosures and reports to find out if there's any reason, other than price, why you wouldn't want to buy the property.

    Another approach is to broaden your search. If you've been focusing on only one area, you might consider several other neighborhoods that could work for you. This opens you up to more new inventory.

    One couple was set on buying in a specific area for the location and schools. There was so much demand in their price range and so few listings that they were priced out of that niche market. They bought a home in a neighboring county where they got much more for their money and good schools, although they had to sacrifice on location.

    Easing up on your home-buying requirements helps you to buy sooner rather than later. For instance, if you'd like a view but can drop that requirement, you'll have a much easier time finding a home to buy. All home buyers need to make compromises. But don't buy a home that won't serve your ongoing housing needs. In this market, it makes sense only to buy for the long term.

    THE CLOSING: It's better to rent until the right place comes along than it is to buy a home that you'll need to sell again soon.

    Dian Hymer is a real estate broker with more than 30 years' experience, and is a nationally syndicated real estate columnist and author.

  • Identify “junk” forms at real estate closing

    Posted Under: Home Buying in 90015, Home Selling in 90015, Property Q&A in 90015  |  October 7, 2011 9:47 AM  |  1,274 views  |  No comments
    At the end of a mortgage loan process that takes weeks and sometimes months, all the pieces come together at a "closing." The major objective of a closing is to sign contracts and disburse the loan funds.

    But that objective in itself would require only a few documents -- not the 30 or more that borrowers must deal with in a typical closing. The barrage of documents often makes the closing process a frightening ordeal for borrowers.

    Most of the additional documents are either required by the federal or a state government, or by lenders protecting themselves against legal liabilities imposed on them by government. Disclosures mandated by government often lead to new lender disclosures where the borrower acknowledges that the mandated disclosure was received.

    If a borrower at closing read every document and raised questions about everything he didn't understand, the process would take days to complete. In practice, everybody involved, usually including the borrower, wants to be out within one or two hours and wants to view the closing as largely ceremonial.
    That works for the lender, but very often it doesn't work for the borrower.

    In fact, very few borrowers are adequately prepared for the closing.

    While borrowers have the legal right to receive all the documents no less than 24 hours before the closing, few do.

    Without guidance on what to look for, it wouldn't do them much good, in any case. The purpose of these articles is to provide such guidance.

    The document package

    A document package is a set of documents applicable to an individual transaction. Document packages differ for conforming, nonconforming, Federal Housing Administration (FHA) and Department of Veterans Affairs (VA) loans. Different types of mortgages require different documents, and the same is true of different types of property.

    Individual states have their own document requirements, and the same is true of many individual lenders. This means that the different document packages number in the millions.

    To meet the need to generate the right package of documents for every transaction, an industry of mortgage document specialists has arisen.

    While no one document package is likely to contain exactly the same documents as any other, many documents -- including those required by the federal government -- appear in all packages, and others appear in many. The closing documents described below appear in all or most document packages.

    Categorizing documents

    Documents can be placed in four groups based on their usefulness to the borrower, and on when the borrower should consult the documents, as summarized in the table below.

    Type of Document

    - Junk

    Document Characteristic

    - Of no value to borrowers

    Preparation Required

    - Identify in order to sign quickly

    Type of Document

    - Educational

    Document Characteristic

    - Borrower should digest this information

    Preparation Required

    - Read carefully well before closing

    Type of Document

    - Transactional

    Document Characteristic

    - Contains critical loan information

    Preparation Required

    - Requires detailed check the day before closing

    Type of Document

    - Future Use

    Document Characteristic

    - Borrower may need this information after closing

    Preparation Required

    - Place in folder for easy retrieval after closing

    Weeding out junk documents: About half of the documents borrowers receive can be signed quickly and pushed aside because they impart no useful information. Most are merely acknowledgements that a disclosure that the law requires lenders to provide has, in fact, been provided.

    For example, the federal government mandates that borrowers must receive a Good Faith Estimate (GFE) disclosure within three days of submission of a loan application. At the closing the lender may require that the borrower sign another document acknowledging that the GFE was received within the required period.

    Other documents acknowledge that the borrower has been told that the lender who made the loan may not service it, that the borrower has received the appraisal report, that payment delinquencies will be reported to a credit bureau, that the borrower has the right to have an attorney at the closing, and so on.

    Jack Guttentag is professor of finance emeritus at the Wharton School of the University of Pennsylvania.
  • "Urgency" sells homes

    Posted Under: Home Buying in Los Angeles, Home Selling in Los Angeles, Property Q&A in Los Angeles  |  October 7, 2011 9:47 AM  |  1,239 views  |  No comments

    After the tech bubble burst, people were leery about putting money into the stock market, and instead poured money into housing. It was easy to get financing -- too easy, as it turned out. The inventory of homes for sale was low, and demand was high. When the demand is high and supply is low, prices go up.

    Rising prices created a sense of urgency; buyers couldn't buy fast enough. They wanted to own as soon as possible in order to take advantage of home-price appreciation that was rising rapidly in many areas.

    This resulted in the housing bubble that burst in 2007. The housing market has been struggling ever since.

    Nationally, home prices have declined 30 percent to the level they were in 2002. Even low interest rates, coupled with low home prices, haven't been enough to ignite home sales.

    Part of the problem is that there is still too much inventory of unsold foreclosure properties, mostly located in areas where people can't find work.

    Another factor holding the market back is the stringent mortgage qualification requirements. In the San Francisco Bay Area in 2006, more than 50 percent of home purchasers bought using loans that didn't require conventional qualification, such as stated-income or no-cash-down mortgages. Those loans aren't available today.

    Many lenders today require a cash down payment equal to 20 percent of the purchase price. To get the best interest rate, your FICO (Fair Isaac Corp.) credit score needs to be 720 to 740. Before 2007, 620 got you a good rate. You also need to be able to verify a meticulous employment history.

    The pool of qualified buyers has diminished significantly due to tightened lending criteria. Equity loss has kept many would-be trade-up buyers from moving forward. Of those who can afford to buy, many are nervous about buying now because of recent economic news indicating that the economy is slowing and unemployment is rising.

    HOUSE-HUNTING TIP: This doesn't mean that all homes aren't selling, just a reduced number. This is because, in most cases, sellers are marketing their homes to fewer buyers. To be a successful seller in this environment, the goal is to create a sense of urgency by preparing the listing for sale and pricing it right for the market so that buyers feel that if they don't buy it now, someone else will.

    Sellers are often in denial about how much a buyer will pay for their home.

    They have difficulty seeing their home from a buyer's perspective. This is unfortunate, because buyers know current market value better than most sellers do.

    Today's buyers study the market carefully before they buy. They know the sale price of recent listings in the area that sold. They know when a listing is priced at, under or over market.

    Sellers whose listings aren't selling should ask their real estate agent to give them feedback about buyers' reactions to their home. If the objections are about features that can't be changed, like a location on a busy street, the list price will need to be adjusted to account for the incurable defect.

    During a hot seller's market, buyers often overlook incurable defects because they don't want to miss out on swift appreciation. Affordability is motivating today's buyers. They don't expect to see appreciation soon.

    In some places, prices could decline further before turning around. Low interest rates make homes more affordable for buyers. So do lower home prices. Overpriced listings reduce affordability, and they don't sell.

    THE CLOSING: The best time to reduce the price of an overpriced listing is as soon as the market indicates that it's priced too high.

    Dian Hymer is a real estate broker with more than 30 years' experience and is a nationally syndicated real estate columnist and author.

  • Refi before sale can backfire

    Posted Under: Home Buying in 90015, Home Selling in 90015, Property Q&A in 90015  |  August 9, 2011 7:46 PM  |  1,282 views  |  No comments

    Homeowners who anticipate that they will be selling their house within a few years want to net as much from the sale as possible. The usage of the verb "net" indicates that what matters is not how much they receive for the house but how much they have left after repaying the mortgage.

    Real estate agents counsel borrowers on ways to get the best sale price, such as repairing obvious defects, keeping the house sparkling clean for potential buyers to view, and so on.

    But some owners view an impending sale as a way to save money on the mortgage if they can refinance into a lower payment. The borrowers who do this often ignore the impact of the refinance on the size of the loan balance that they will have to pay when they sell. Here is an example:
    The current balance on a 4.125 percent mortgage is $300,000, with a payment of $1,685 and 23 years remaining. The borrower expecting to sell in two years refinances into a new interest-only adjustable-rate mortgage (ARM) at the same rate, reducing the payment to $1,031.

    The refinance cost is $6,000, but the borrower reduces his payment by $654, which over two years sums to $15,696. Hence, by his logic, he is ahead by $15,986 minus $6,000, or $9,986.

    What he has overlooked is that if he had stayed with his existing mortgage, he would have paid down the balance by $16,307, which would have resulted in net proceeds at sale $16,307 larger. His supposed gain of $9,986 is actually a loss of $6,321.

    Of course, if the new loan has a significantly lower interest rate than the existing loan, the refinance could result in larger net proceeds at sale. But if the refinance is profitable over a short period, it would be even more profitable over a longer period, which means that the borrower should do it despite an impending sale rather than because of it.

    Can you time a lock to your advantage?
    Home mortgage prices are based on the secondary market prices of mortgage-backed securities (MBSs), but changes in MBS prices seldom impact mortgage prices immediately. Typically, mortgage lenders set the prices they deliver to their loan officers and mortgage brokers in the morning, after markets open, and keep them unchanged through the day unless MBS changes during the day are large enough to justify the cost of another change.

    The MBS market closes at 3 p.m. Eastern Standard Time (EST). Mortgage borrowers who have been cleared to lock by their lender can do it between 3 p.m. and 5 p.m. EST, and sometimes even later. In principle, therefore, a borrower who knows what happened to MBS prices that day could judge whether mortgage prices the next morning would be higher or lower, and therefore whether they should lock then or wait another day.

    Some advisors encourage borrowers to lock as soon as possible, on the grounds that 1) borrowers can't predict future interest rates, and 2) locking ASAP may prevent larcenous behavior by the lender.

    Jack Guttentag is professor of finance emeritus at the Wharton School of the University of Pennsylvania.
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