FHA Secure: A Political Power Move Disguised as a Helping Hand to Those in Need August 31, 2007
Bush offered America some presidential words this morning to let us know he’s on top of this whole subprime meltdown, credit crunch, liquidity crisis. On his agenda: An FHA bailout in the form of a new feel good loan program: FHA Secure. Let’s pause for a moment and reflect back on how well HUD is currently doing. First of all, in order to originate an FHA loan, the stack of paperwork, hoops to jump through, policies and procedures, exceptions to the policies and procedures, and updates to the policies and procedures, are, shall we say, astronomical, and I’m just talking about qualifying the applicant, let alone underwriting and the appraisal process.
One reason (of many) why brokers pushed subprime loans was because the borrower who qualified for an FHA loan couldn’t get that loan with a broker. Why? Because it also takes an enormous amount of effort for a mortgage broker to become an FHA-approved lender. It’s the small details that really count to HUD, such as annual HUD audits, net worth requirements, submitting audited financial statements, presenting a quality control and compliance plan, and paying your loan originators as W-2 employees. Many brokers pay LOs as 1099 workers. For some small to medium sized broker firms, it was a business decision: make more money selling subprime and leave the hassle of originating FHA loans to the banks. “See ya, wouldn’t want to be ya” was the motto when bank LOs left to work for a brokerage firm where all the women and men were hotties, yield spread rapes were encouraged and celebrated and the underwriters gave unconditional loan approvals because the underwriters reported to the sales manager or were threatened with baseball bats. Check out this conversation from 2005.
Let’s get real: Banks, brokers, and thousands of loan originators have made trillions of dollars in profits over the last 10 years soliciting subprime and Alt-A loans to people who
might have been able to qualify for an FHA or VA loan;
might have been able to qualify for a 30 year fixed, prime conventional loan;
fell for deceptive advertising promising lower payments;
should never have become homeowners in the first place. The loans were bad before the ink was dry.
When I pay my federal income tax next spring, perhaps there will be a box I can check to elect whether or not I’d like to give my taxes over to the corporate welfare plan cleverly disguised as more FHA loan programs and subsidizing pre-foreclosure loan modifications.
Government was never intended to bail out corporations. Let the invisible hand of the free market take its toll. Let the corporations that screwed up go down, let those employees re-enter the workforce elsewhere, let the homebuyers who fell for pay option, interest only, negative am ARMs re-enter the home market as renters. The housing and mortgage market will be far better off for it. Unless someone is whispering things into Bush’s ear that we’re not privy to. Let’s face it, Bush is not smart enough to come up with any of these ideas on his own. Perhaps we’re in for a real economic depression, which is what the bubble writers have been steadfast in saying now for quite a long time. Reality: The only logical reason why Bush would interfere with the market is for political reasons.
Who wins? The banks who probably just dumped several mil into the Republican election funds, and who are already approved to originate FHA loans and probably came up with this idea, along with some of the larger, more well-run mortgage broker firms that already have FHA approval. But let’s not just pin this on the Republican party. Hilary and Co. are also proposing a govie foreclosure bailout. Any proposed government handout is a political power move.
To those mortgage brokers out there whose firms are already FHA approved and never have tolerated predatory lending practices, you’re not seeing yourself in the picture I’m painting of brokers. But let’s face it: the subprime meltdown has taken the reputation of any broker down into the gutter. You will be left standing when this is all over. I wonder how many of you will rise up and support this federal bailout because it will mean more business to your firm.
Bush supports rigorous enforcement of predatory lending laws
Bush, has anyone told you that there is no federal predatory lending law? All consumers have right now is a patchwork of state p-lending laws. Sounds like Bush is all but ready to sign whatever Barney Frank comes up with.
Bush is advocating stronger, more transparent lending practices
Are you trying to tell us that we can expect more federal laws governing mortgage lending, or that if only the laws in existence were actually practiced, the consumer would have been able to “see through” the fine print to the transparent reality of that ARM? Maybe we can expect an updated CHARM booklet (Consumer Handbook on Adjustable Rate Mortgages) which, many loan originators have never even heard of, let alone gave to the consumer.
Bush is expected to support tax breaks for homeowners whose outstanding loan balances were forgiven.
Now I’m concerned for the mental health of our president who is starting to sound like a bleeding heart, liberal, enabler.
Bush says if you’ve been bad, he’s going to find you.
I have news for you, Mr. President. There is not now nor will there ever be enough government resources to locate, prosecute, fine or incarcerate all the cheaters out there. Do you have a plan for how you’re going to pay for all this? I wonder if you’ll be raising my taxes because I can’t imagine that you’d actually tax the corporations that not only allowed all the cheating but trained them how to do it, rewarded the behavior, and promoted the managers.
More federal laws are useless unless enforced. I’ve been in this business for 25 years and have only met one HUD auditor. When was the last time you saw a federal government regulator in your office? At last check, HUD was STILL WORKING on RESPA reform, something the industry has been waiting on for over four years. If HUD would have been working on regulating RESPA instead of reforming it for the last four years, I wonder how many cheaters they would have found?
Laid off mortgage workers: get your resume and application in over at the regional HUD offices. Sounds like you’ll be employed with full benefits for life, without having to be held accountable to the taxpayers for any results, although I’m quite certain that there are no jobs that will let you “make six figures your first year with no experience.”
Sphere: Related ContentAnd now for something completely different…Seattle Neighborhood Round-up
Headlines come and go…life goes on in our Seattle Neighborhoods….
A refreshing Alki twist on an old time summer favorite. On Beach Drive Blog some resident wildlife captured in aerialist feats of fishing. Discovered at West Seattle Blog rare sightings of pink birds are anticipated to be seen in West Seattle yards soon.
Happy 500th Ballard Avenue blog! At Large in Ballard tips us on the BBQ at the BCC.
Up on Capitol Hill at CHS the moon shone a little less brightly last Tuesday and has photos to prove it.
Issaquah Undressed spots a horse of a different color and composition…scrap iron. The City of Redmond Neighborhood BLOG reports on some stormwater solutions happening in Redmond.
Over at Kirkland Weblog a dancing hot dog delights drivers…and captures children’s’ attention at the corner of 124th and 116th. Week 35 at Kirkland 52 drops the hint of fall.
Sphere: Related ContentFriday’s Rates ala Ben and Bush
It continues to be very interesting preparing Friday Rate Quotes. Programs and products availability continue to change due to either lenders
suspending certain products or pricing them out of the market. In addition, some lenders who brokers have had relationships with are playing “dirty” (for example, trying to stall loans so they expire instead of funding or purchasing them) leaving many loan orignators and mortgage brokers hanging in suspense. I do hope that fellow mortgage brokers and correspondent lenders are taking names and will remember which major lenders have shown intregrity in this market and those who have not.
For all you Loan Originators who have been “pursuing wrong doing and fraud”, today President Bush warned “if you’ve been cheatin’ somebody, we’re gonna find you.” Yee Haw! I truly hope so and I hope he’s including consumers who have knowingly committed lender fraud.
Conforming Mortgage Rates (loan amounts up to $417,000 for 1-unit properties). Conforming rate quote below based on owner occupied, “full doc” with minimum credit scores of 680 with an 80% loan to value or lower and a loan amount of $400,000. Rates quoted are priced based on a 45 day lock with 1 point and there are no prepayment penalties on any of the rates quoted below.
Currently conforming ARMs are not offering a significant improvement to rate over fixed rate products (ARMS are still available, they are priced close to fixed rates). Therefore, ARM rates are not reflected on this post.
30 Year Fixed: 6.125% (APR 6.281%). Payment per $1000 = $6.08.
30 Year Fixed with 10 Year Interest Only: 6.500% (APR 6.653%). Payment per $1000 = $5.42.
40 Year Fixed: 6.500% (APR 6.646%). Payment per $1000 = $5.85.
FHA 30 Year Fixed: 6.500% (APR 7.119%) Payment per $1000 = $6.32 (not including MI).
JUMBO (Non-Conforming) Rates. Pricing is based on the same criteria above, with the exception that the loan amount is $417,001-$650,000 (20% down). 10/1 Jumbo ARMs are offering the same rate as shorter term ARMs.
30 Year Fixed: 7.250% (APR 7.402%). Payment per $1000 = $6.82.
30 Year Fixed with interest only payments: 7.375% (APR 7.528%). Payment per $1000 = $6.15.
10/1 ARM: 6.750% (APR 6.906%). Payment per $1000 = $6.48.
10/1 ARM with 10 Year Interest Only: 6.750% (APR 6.906%). Payment per $1000 = $5.63.
This is just a small sample available of rates and products. Rates are as of 9:00 a.m. and may change at any time. Available programs may change at anytime as well. This is not a guarantee nor is it a commitment of interest rate. For your personal rate quote or for loan amounts over $650,000, please contact me.
Sphere: Related ContentMore from the mortgage-junk-mail bag August 30, 2007
The junk mail makers must be working feverishly on new angles to trick consumers. This piece we received yesterday really makes me 
pi$$ed!!! It claims to be from the “Loan Audit Department” and appears a very official letter with warnings of potential fines and a big red “FINAL NOTICE”. This one looks pretty darn real.
Once you open it, you can see it’s the classic piece of $%# (mail) that some mortgage loan company that has to resort to trickery to lure a client into working with them. It’s offering a 5 year fixed rate at 2.35%. The very fine print at the bottom states an APR of 7.12% and claims that “deferred interest may apply”. Ya think?
I’m probably most angry because of the timing and this seems so predatory.
Today one of my past clients called me. She happened to receive this too and others like it. Her comment to me was concerning, she said something along the lines of:
“I keep getting mail from your company soliciting me to refinance”.
Whoa…hold your horses. First of all, I don’t send out solicitations to refinance. I know she’s confusing the mortgage junk mail as something that my company would send out. How many other consumers get confused by these types of mailings?
She then commented that one letter she received stated that her ARM was adjusting soon and she should refi now. She has a fixed period ARM at 4.75% with 2/2/6 caps. Her rate does not adjust until late 2010 and the highest it can adjust to at that time is 6.75%. She does not need to refinance at this time based on her current scenario and plans.
Don’t fall prey to these types of lenders. They must rely on business from people who don’t know them because they are probably not worthy of referrals or repeat business. If you’re considering a mortgage at all, please contact your Mortgage Professional directly.
Sphere: Related ContentDon’t let your “gut check” go to waste…
No, I’m not talking about a new abdominal workout but rather advocating that landlords be on top of things when choosing who to rent to. I bring up the topic to highlight that the majority of landlords don’t do this kind of research using instead a “gut check” to determine if someone is lease-worthy; they can end up hurting themselves or others if they aren’t doing the due diligence to know who they are renting to. It’s also on my mind as we had dinner last night with a client (a couple) who was regaling us with stories of him having to out upwards of 3 felons from a property over the past 2 years. Each of these tenants had been renting in the building prior to them buying it so they hadn’t had the opportunity to do a background check of their own and when you buy a property with outstanding leases you can’t require the tenants to undergo a background check - you just get what is handed to you.
In fact, Washington has just recently passed an offender re-entry housing law under HB 6157 that will impact landlord’s liability for renting property to past offenders.
Sections of this bill show the potential of liability being removed from the landlord BUT ONLY IF the landlord follows certain procedures. The full details are in the RHA newsletter publication dated in August 2007, Vol XXI, No. 8, Section A but I’ll paraphrase here by saying that basically you have to disclose to residents in your building that you have a policy of renting to offenders and that you must take steps to report or halt any criminal activity you have knowledge of on your property premises. You can contact Alice Bartley of RHA (publications@rha-ps.com) to see if she has extra copies of this newsletter available.
One way you can opt out of some of this potential for liability is to have a “no felony” policy as part of your rental screening process. There are several ways that you can screen prospective tenants and one of them is to do a background check for criminal history. In the Puget Sound area you can sign up as a member of Rental Housing Association of Puget Sound (www.RHA-PS.com) and get access to their tenant screening services which can include background as well as credit checks. You can also check for sex offenders online at this website. Even if you don’t sign up for RHA, it’s worth your time and money to do some research, but I HIGHLY recommend people get involved in organizations like RHA because they keep you informed and they also lobby regularly on behalf of landlord rights.
In Wichita, KS you can go online to this website for the KASPER search they have available. (KASPER stands for Kansas Adult Supervised Population Electronic Repository.) Apparently it is the “friendly ghost” for landlords and perhaps anyone meeting and dating online. 
I found the boyfriend of one of my KS tenants on this website - she’s been letting him stay at my property (this started prior to my purchase of the building) but they are moving out as of the end of this month. Good. And Goodbye.
If you are a person looking to buy rental property I would recommend that you ask the seller if they have ALL the records for the tenant screening processes that they’ve used in the past to provide during your inspection process and not just the lease records. You will want to know if there are known felons living on the premises especially if you’ll be responsible for possible liabilities due to a tenant’s bad behavior and a new owner must meet the terms of a lease agreement if it is still in place when buying a property.
Another area where I wonder how it will play out over time is that in residential units (1-4 in WA) the State’s required Seller Disclosure Form has a notice stating that sellers need not disclose if there are sex offenders living near their home. If the home is used as rental property, and a known sex offender is renting at the property, will the seller need to disclose it?
Sphere: Related ContentRecall notice on some GE Dishwashers August 29, 2007
I got a notice the other day, and I’ve had a client receive one before too, asking me to check the model and serial number on my dishwasher to see if it might be one of those that has had problems.
“What is the problem they are concerned with”, you ask? Well, it seems that some liquid rinse-aid products build up a residue on the wires inside the door which can degrade the insulation of the wiring. This in turn has caused electrical shorts and fires in some of their products.
My client’s dishwasher ended up not being one of those on the recall list. However, mine was. The good news for me is that I don’t use any rinse-aid products so the recall won’t necessarily apply to me. It does put me on notice that I shouldn’t use the rinse-aid in the future though.
I’m wondering how people are supposed to notify purchasers of their homes about product recalls like this when they sell? Would it possibly be required on a disclosure form even if the specific dishwasher in your house never had a rinse-aid used in it? The notice from GE says that if you’re the owner of one of these dishwashers and you cannot attest to whether or not the former owner used rinse-aids, then you should repair or replace the dishwasher.
Anyone else have comments on how they would do it? For my own home, I’m thinking about taping a copy of the notice inside the cabinet under my kitchen sink and making a note that I don’t use rinse-aids and then perhaps keeping a copy with all of my other appliance manuals.
If you’ve got rentals with dishwashers you should be sure to check them as well as your own home’s dishwasher.
What is your Mortgage Exit Strategy?
Unless you have a long term fixed rate mortgage, you should develop an exit strategy. An exit strategy is a well thought plan on how you’re 
going to leave your current mortgage. Every time you board an airplane, the Stewardess reviews the “exit strategy”. They’re not planning on an actual emergency landing, they are simply preparing you for a worse case scenario and informing you where the exits are and what you need to do in that event.
You should have a plan if your current mortgage is:
- Any type of adjustable rate mortgage (ARMs)
- Option ARMs (negative amortization a.k.a. deferred interest)
- Any balloon mortgages (recently common with subprime mortgages such as 2/28 or 3/36)
Having a plan (being prepared) does not mean waiting until you receive a notice from your mortgage company that your mortgage payment is hiking because your fixed period on your ARM is over. You need an exit strategy because once fixed period is over and your mortgage adjusts, odds are that your new mortgage payment will not be desirable or affordable.
You need to start developing your plan well in advance. Here’s what I recommend:
- Find the Note for your mortgage (deed of trust) and determine what your new rate may be using the worse case scenario. If you have an ARM, you can figure this out by adding the first cap to your interest rate. For example, if you currently have a 5/1 ARM with a note rate of 5% and the first adjustment rate cap is 5% (5/2/5 is a common cap structure), your new rate could be 10%. If the first adjustment cap is 2% (2/2/6 is another possibility); your new rate could be 7%. If your ARM has an interest only feature and will also be converting to amortized payments (some have longer interest only terms beyond the fixed rate period), you’re in for a double whammo if you’re keeping the mortgage.
- Determine what your worse case payment may be. Your new payment will be amortized over the remaining term of the mortgage. Use an amortization schedule to see what your mortgage balance will be at 60 months (using the 5/1 ARM scenario) and figure your payment based on the maximum possible rate amortized for 300 months. This new payment does not include taxes and insurance. In fact, anyone with an adjustable rate mortgage, regardless how long the remaining fixed term is, should contact their LO to determine what their “worse case payment” may be when their mortgage’s fixed period is over.
- While you have your Note out, review it to see if you have a prepayment penalty and when the term is over. It’s possible that you may or may not want to wait for this to expire depending on your personal circumstances. Even if you have a prepayment penalty, don’t stop preparing your exit strategy.
- Visit www.annualcreditreport.com and review your credit report. You don’t need to sign up for all the credit bureaus extra stuff. In fact, I recommend that you just use one of the bureaus to pull your information for review and select another bureau in 4 months and the last bureau in 8 months so that you are constantly reviewing your credit information.
- If you’re satisfied with the Loan Originator you worked with, contact them and ask them to review this information with you. Most Mortgage Professionals will provide Annual Reviews for their clients which includes assessing their current mortgage, examining their credit report and reviewing goals (including if you’re planning on retaining your current home and/or mortgage).
Of course selling your home is another way to exit your mortgage. In this case, I recommend that you price your home correctly. I’m noticing more “new price” signs on listings in my neighborhood of West Seattle (I guess “new price” sounds more fresh than the old “price reduced” signs). If you wait too long to work on your exit strategy, you may have to sell if you’re not able to refinance due to not being in the posititon to qualify for a new mortgage (this is why I strongly recommend meeting with your Mortgage Professional ASAP).
You cannot start too soon in preparing your exit plan. The more time you allow yourself (at least 12-24 months in advance of a rate change), the more improvements you can make to your credit scores, assets, employment and home equity. Avoid a rough landing and meet with your Mortgage Professional to work on your strategy to be in the best possible position when it’s time for you to exit your mortgage.
Sphere: Related ContentBlog Classes - Everyone’s Getting Into the Act August 28, 2007
I’ve been asked to run some blog classes over at BRIO. Apprently they’ve already set one up, and all RE professionals are invited. Everything’s happening so fast and the first one is on Thursday morning September 6, at 10:00 a.m., right after the holiday weekend.
I looked over Dustin’s format, but while Dustin is my Blogging Guru, there’s not much I can use there. It won’t include an overview of what a blog is. It will get straight to the point. Blog now! LOL. Clearly I don’t want it to be like some of the Web 2.0 classes I’ve been to, where the instructor spends most of the time talking about the days before faxes, and ends with “and now we’re at Web 2.0 thanks for coming”. It also won’t be about what blogs are. It will be a “getting started right now” seminar, much like Project Blogger that produced Kevin’s Blog. (Kev was on the news in Miami today - his blog is gangbusters).
I’ve been wanting to take Jillayne’s class, but better I don’t until after I set up my format. I don’t want to “plagerize”. So it will be my view of Blogging and Web 2.0 and strictly from an agent’s perspective. So while it may be more rudimentary than some of the other classes, I’m hoping that will be an advantage as it also won’t be over anyone’s head. I can send them to Jillanye’s and Dustin’s classes for a broader perspective. Mine will just get them up and running fast and give more tips on some of the pitfalls, like managing comments. Or maybe that will be a follow up class after they’ve set up their blogs and written 20 or more posts.
So Dustin and Russ and Jillayne and now me. RCG seems to be doing more than their fair share of hosting classes on blogging. No cost and no credit hours. Just a sharing of ideas. Most of my agents have expressed an interest in setting up or improving their blogs. Clearly this is a good time for agents to start one, as we have more time in in winter to work on it than we do from January 15th through July.
Personally I thought the Inman Podcast was too much talk about us. Maybe I’ll do a Podcast of my class and I’m planning to set it up more like a workshop. R.S.V.P. if you’re interested in the comments below or email me, so we know how many to plan for. Some have already signed up and I think we’re limiting it to 12 people. But there will be more classes, I’m sure. I’ll need to have at least 25 of them just to train my own agents.
One of the reasons I accepted BRIO’s offer is because there are Geeky Boys there who know how to Podcast. Dustin? Jillayne? Are there any podcasts of your classes available online that I can view beforehand?
Sphere: Related ContentSearching for ruminant with huge appetite for gorging opportunity in gully… August 27, 2007
I love the idea of renting a goat to clear out the unofficial greenbelt area by my house. Not only does it sound effective and “green” in terms of reducing, reusing, and recycling but the idea of having the goats hanging out for a few days seems like an interesting diversion from my daily routine.
The area of possible goat-munching possibilities is an area where the City of Seattle owns the land, it’s a dead-end street in Phinney Ridge, but they don’t do any maintenance on it. My longtime neighbor who has been cutting back the blackberry bushes for the past 30 years is selling his house now and I am concerned that the brush, morning glories, and other weeds will take over permanently and become too much for us to handle if the new potential owners aren’t as into yard work as this neighbor was. My partner, Michael, went out 2 weekends ago and cut back a 3 foot swath (but over many feet long) so that our own plantings wouldn’t be obscured and wiped out, but I’m sure that it will grow back quickly.
The Seattle Times had an article in Sunday’s paper showing the UW maintenance crew using Rent-A-Ruminant to clear out ivy and blackberries from areas of campus that would be too difficult for humans to do safely. I’ve gotta get me one of those goats! :) There is plenty to eat for a few days down in that gully. You can find Rent-A-Ruminant and other grazing alternatives in several states at this website.
Sphere: Related ContentBuying without an agent
There’s a lot of discussion about the condition of the RE market (106 comments in 4 days? That’s gotta be a record…). Certainly one concern is whether it is a good time to buy right now. One way to “hedge your bet” (as well as save some money) is to forego the services of a buyer’s agent. When you do so, you can reduce your offer by up to 3% (or get 3% towards closing costs, or a 3% reduction in purchase price, or any other creative way of realizing the 3% savings) as the seller will not have to pay your agent out of the proceeds. Thus, you can buy the house “below market” up front, as the market takes into account the expected commissions to be paid out of the sale proceeds. This provides at least a little hedge against possible depreciation of the property (or, hopefully, significantly slowed appreciation at worst).
But how do you look at the properties on the MLS without an agent? Most properties have the handy-dandy key box which allows agents the opportunity to access the properties at their clients’ convenience. Absent an agent, how do you get inside to have a look around? While some people are aparently comfortable buying a house they’ve seen only on the internet (as I recall — can’t find a link to such a story right now), that certainly is not for everyone (and probably should not be for anyone).
It takes some effort on your part, but it is very doable. First, find the MLS search engine of your choice on the internet. Ideally, you want to find one that gives as much information as possible about the listing agent. Then search for the home of your dreams. You probably won’t find it, but you’ll certainly find several that may suffice. For each property that sparks your interest, contact the listing agent and let them know that you’d like to see the property. This step may require some additional research about the contact info for each listing agent, as not every search engine provides this detail. Rather, each engine is operated by a brokerage, and a brokerage is far more interested in having you contact them to show you a particular house — i.e., they’d like you to hire them as the buyer’s agent, which will entitle them to that hefty 3% commission. Once you begin contacting the listing agents, you’ll probably want to make a list of all the properties and the dates/times that they’ll be made available. It will make for an enjoyable day of shopping..
The listing agent may not be too happy about having to show you the property, as the agent may consider it not his/her job — that’s why there are buyer’s agents. On the other hand, the agent may be extremely pleasant and more than happy to show you the property. Either way, though, you’ll have the opportunity to personally inspect each property in order to decide whether you should make an offer.
As an alternative, you may be able to find an “a la carte” agent who will perhaps charge an hourly rate to take you to the various properties in which you are interested. This would obviously cut down on the effort needed from you, as you would not have to track down and coordinate with each listing agent. However, not every brokerage is willing to offer such a service. Rather, you either use them for the full 3% commission, or you get out of their office and make way for someone who will. I’ll leave it for another day whether or not that’s a good business model in the rapidly evolving RE business.
Once you find the “nearly-my-dream-home” property, you can proceed with an offer. You can always draft one yourself, but I think every RE professional (agents, attorneys, and probably everyone else) would discourage you from doing so. Alternatively, you can hire an attorney to assist you in the process. There are several in the Seattle area who are building practices in this field, and at least one of them (ahem) works on a flat fee basis. Another attorney offers the forms and provides guidance in completing them — sort of an “attorney lite”. Regardless, for hundreds of dollars, you can save 3% on the purchase price, while getting legal services from an attorney, not an agent.
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