MERRY CHRISTMAS!!!

THIS IS NOT YOUR MOTHER'S SPRING!!

Yep kids, 2012 will NOT be your mother's spring. We are in that holiday season and I have heard it more than I like. " I will wait till spring to sell, I will get more more money and more buyers." Any other spring in the history of mankind I would NOT argue with you about that point. However, this year I will plead with you not to wait. This is a mostly visual blog and I don't want you to take my word for it. I want you to take the words of CNN Money, Realtytrac, JP Morgan Chase (which happen to hold a bundle of foreclosures), Clear Capital and Standard and Poors.  Two truths will be revealed to you in the coming months of early 2012.

1) FORECLOSURES WILL FLOOD THE MARKET IN AN ATTEMPT TO MOVE THROUGH THE INVENTORY ONCE AND FOR ALL

2) WHILE THERE WILL BE MORE BUYERS (DEMAND), YOUR SUPPLY OF BELOW MARKET VALUE HOMES WILL HAVE INCREASED DRASTICALLY (SUPPLY) = SUPPLY MUCH HIGHER THAN DEMAND

Think JP Morgan Chase might be telling you when they are processing their foreclosures??

BOTTOM LINE: IF YOU ARE GOING TO SELL IN THE NEXT 8 MONTHS, WAITING TILL SPRING WILL COST YOU. 

Stage It From The Start!

FACT: Professionally staged homes sell 80% faster than non – staged homes. On average, within 35 to 40 days.  WOW! That is a strong statistic when the average days on market in Greenville is in excess of 4 months.  I work with a fabulous stager and today I want to give you some staging tips.

 Tip #1 – Strip it down; de-personalize your home.

 The way you live in your home and the way you sell your  home are two very different things. Buyer’s do not care about your likes, dislikes or more importantly, your taste. They need to see themselves in the home, not you.  Take down pictures, art work, anything that can be distracting. Remember, you want them looking at your home, not your wedding photo’s or your favorite nude art painting.  (Don’t laugh, I have been in a few homes where they seem to embrace nude art…not so much when selling the home.)

Tip #2 – Organize your closets

Yep, people look in that “cave”  where you like to throw all your junk. You know, the stuff you don’t want people to see. They are like a moth to a flame with closet doors. Remember you are selling sq. ft. and storage is many times a hot button for people. Take some clothes out and organize. It will make that space seem larger and appealing.

Tip #3 – Less is more on the kitchen counter.

Kitchens and bathrooms sell houses. We know this. People want to see counter space in a kitchen so fight the urge to put out all your nick nacks.  Keep it clean with a staged item here or there.

Tip #4 – Contact a professional stager.

 They can give you guidance on how to rearrange furniture, what paint colors to use, etc. I offer this for my listing clients and it makes a huge, huge difference in the entire selling process.

 

Remember the first 30 days are key in selling your home. Any and everything you can do to make your home shine on day one only helps you get to the finish line quicker!

The dreaded "U" word...underwriters!

“It’s in underwriting.”  If you have bought a house in the last year you have learned to dread that phrase! But what does it mean? What do these little mythical creatures we call “underwriters” actually do? This is a great explanation of what underwriting is and how to survive. J

CAPACITY

CAPACITY is the analysis of comparing a borrower’s income to their proposed debt. It considers the borrower’s ability to repay the mortgage. Lenders look at two calculations (we call ratios). The first is your Housing Ratio. It simply is the percentage of your proposed total mortgage payment (principal & interest, real estate taxes, homeowner’s insurance and, if applicable, flood insurance and mortgage insurance – like PMI or the FHA MIP) divided by your monthly, pre-tax income. A solid Housing Ratio (often called the front end ratio) would be 28% or less; although, many times loans are approved at a significantly higher number. That’s because your front end ratio is looked at in conjunction with your back end ratio. The back end ratio (referred to as your Debt Ratio) starts with that mortgage payment calculation from the Housing Ratio and adds to it your recurring debts that would show up on your credit report (auto loans, student loans, minimum credit card payments, etc.) without taking into consideration some other debts (phone bills, utility bills, cable TV). A good back ratio would be 40% or less. However, many loans are granted with higher debt ratios. Understand that every application is different. Income can be impacted by overtime, night differential, bonuses, job history, unreimbursed expenses, commission, as well as other factors. Similarly, how your debts are considered can vary. Consult an experienced loan officer to determine how the underwriter will calculate your numbers.

CREDIT

CREDIT is the statistical prediction of a borrower’s future payment likelihood. By reviewing the past factors (payment history, total debt compared to total available debt, the types of monies: revolving credit vs. installment debt outstanding) a credit score is assigned each borrower which reflects the anticipated repayment. The higher your score, the lower the risk to the lender which usually results in better loan terms for the borrower. Scores below 620 are difficult (though not impossible); scores from 620-660 are mediocre; those from 660-720 are considered good; and above 720 are very good. Your loan officer will look to run your credit early on to see what challenges may (or may not) present themselves.

CASH

CASH is a review of your asset picture after you close. There are really two components – cash in the deal and cash in reserves. Simply put, the bigger your down payment (the more of your own money at risk) the stronger the loan application. At the same time, the more money you have in reserve after closing the less likely you are to default. Two borrowers with the same profile as far as income ratios and credit scores have different risk levels if one has $50,000 in the bank after closing and the other has $50. There is logic here. The source of your assets will be examined. Is it savings? Was it a gift? Was it a one-time settlement/lottery victory/bonus? Discuss how much money you have and its origins with your loan officer.

COLLATERAL

COLLATERAL refers to the appraisal of your home. It considers many factors – sales of comparable homes, location of the home, size of the home, condition of the home, cost to rebuild the home, and even rental income options. Understand the lender does not want to foreclose (they aren’t in the real estate business), but they do need to have something to secure the loan against, in case of default. In today’s market, appraisers tend to be conservative in their evaluations. Appraisals are really the only one of the 4 C’s that can’t be determined ahead of time in most cases.

Now, each of the 4 C’s are important, but it’s really the combination of them that is key. Strong income ratios and a large down payment with strong reserves can offset some credit issues. Similarly, long and strong credit histories help higher ratios….and good credit and income can overcome lesser down payments. Talk openly and freely with your loan officer. They are on your side, advocating for you and looking to structure your file as favorably as possible.

What QRM Means To EVERY Home buyer

QRM will affect every person who buy’s real estate, period.  This stands for Qualified Residential Mortgage.  Basically it is a set of criteria a loan must meet in order for Fannie or Freddie to purchase the loan.  What could this mean to you? Higher down payments and tougher pre-qual requirements. These are “proposed” changes so please keep that in mind. Many in the RE industry are fighting these changes but with the gov. trying to remove themselves from the mortgage business, it could come to fruition. 

Let’s dissect what this really means…

1)  A Product-Type qualified residential mortgage is a first-lien mortgage that is for an owner-occupant  with fully documented income, fully amortizing with a maturity that does not exceed 30 years and, in the case of adjustable rate-mortgages (ARMs), has an interest rate reset limit of 2 percent annually and a limit of 6 percent over the life of the loan.

2.)  A PTI/DTI qualified residential mortgage has a borrower’s ratio of monthly housing debt to monthly gross income that does not exceed 28 percent and a borrower’s total monthly debt to monthly gross income that does not exceed 36 percent.

3.)  An LTV ratio qualified residential mortgage must meet a minimum LTV ratio that varies according to the purpose for which the mortgage was originated. For home purchase mortgages the LTV ratio is 80 percent.

4.)  A FICO qualified residential mortgage has a borrower’s FICO score greater than or equal to 690 at the origination of the loan.

This is not to say that every mortgage will fall under these guidelines. Banks that decide not to sell their mortgages (conventional loans with 20% down) will not have all of this criteria, however, fees are likely to increase as a result. 

The most complete study I could find on this issue was JP Morgan’s 55 page report on Securitized Products. According to their research, in order to entice lending institutions to replace government lending, mortgage interest rates could increase 3%.

 “…in this new world of higher capital requirements, mortgage rates would need to rise by more than 300 basis points (3%) from current levels…”  

That’s assuming the banks would be looking for the same returns they normally receive. The report went on to say that perhaps the banks would be satisfied with a smaller return.

“This is not to say that the new capital requirements will necessarily drive interest rates 3% higher…the mortgage rate impact could be anywhere from 1% to 3% higher.”

Let’s assume the eventual increase in mortgage rate is 2% (the middle of that 1% – 3% window). What impact would that have on a purchaser? Today, interest rates are approximately 4.5%. A two percent increase would bring them to 6.5% which happens to be about where they were prior to government intervention. On a $200,000 mortgage, a buyer’s monthly mortgage payment (principle and interest) would go from $1,013.37/month to $1,264.14/month.

Food for thought. If you are on the fence, consider jumping off.

Seller's Who Don't Want To Sell

Every agent has met one; the seller that does not want to sell.  “What? Is that possible” you say? Are these people who are out to waste an agent’s time? NO! These are people who are not informed about the market. I want you to be informed so you are NOT one of those people. Here are the basic principles you need to understand in order to be a seller who wants to sell!

#1 - PRICE MUST BE COMPELLING                                                                           

Homes ARE selling! Existing sales reports in April 2011 (courtesy of NAR) showed that homes were selling at a rate of 5.10M or approx. 14k a day! That’s a great statistic, but for this discussion I want you to keep this in mind also; 25% of homes that list don’t sell. This is most often times b/c of price. Of that 14k homes a day, 40% were distressed properties and 60% were “normal” transactions. Like it or lump it, distressed properties affect you if they are in your area. Good news; the number of distressed properties on the market is decreasing. However, there are thousands of properties , non distressed, that sellers want to move. Price point is most often the first criteria agents consider when finding homes to show. Know you area, your competition (active homes and withdrawn listings) and your comparable sales. Price compellingly with that data in mind and you won’t be disappointed. REMEMBER, right now with interest rates as low as they are, you can make it up on the buying side…cost vs. price!

#2 – MAKE YOUR HOUSE SHINE LIKE NEW MONEY

It is not uncommon to show several homes in a day. Most of them identical in every way; a virtual sea of sameness, I like call it. It is hard to remember one from the other.  Translation = none of those houses are screaming “buy me”.  Set yours apart! CLEANLINESS is next to godliness, especially when you are selling your home! Even an older clean home will show better than a newer dirty home.  STAGE your home! As a courtesy to my listing clients, I have a professional stager come in and make suggestions. It makes a world of difference! CONSULT A REALTOR BEFORE YOU GO ON THE MARKET. You can save your self the heartache of making a costly improvement that will not affect the value of your home one bit. There are simple, inexpensive things you can do that will give you the bang for your buck you are looking for. Ask your realtor and then make your improvements.

#3 – DO NOT TURN DOWN SHOWINGS UNLESS YOU ARE DEAD OR DYING

Is it a pain in the butt to have your house “show ready” at all times or to leave at an hour’s notice?ABSOLUTELY! But you are selling and that is the name of the game! It is a buyer’s market and when you get a chance to show your home, you do it!  Often times agents stack appointments to see the most they can in one day. Many times buyer’s are on a timeline and they make decisions in a day’s time. If you turn down the showing, you are in essence giving the sale of your home to someone else.

Obviously there are many things to consider in selling, I just hit the high points here. Location, obviously, is key also in selling. Having said that, you have little control over where your house sits or what is around you. I wanted to focus today on what you can control.

Risk Retention

PMI (Private Mortgage Insurance); most of us have it and most of us hate it. It is a necessary evil of mortgages when you have less than 20% equity in your home.  It affects your monthly payment and b/c of a thing called “Risk Retention” that cost could rise after April of 2011. It is all part of the Dodd-Frank Wall Street Reform and Consumer Protection Act . 

I won’t lie. This is not a glamorous or sexy topic but it is good to keep yourself informed. This information is from Steve Harney and his crew. I thought he gave the best explanation, so best to leave it in his words.

Risk Retention is a new burden for those who securitize mortgages- those entities that bundle closed loans into pools and sell them in the secondary market. These are typically Wall Street style entities. They have little to no direct impact with the consumer, but play a vital role in maintaining liquidity in the housing market. Their role is to replenish the cash available for lenders to lend by buying closed loans from lenders (thereby providing new cash for lenders to lend again).  While it seems that loans guaranteed by the government (FHA, VA, USDA, etc) will have their securities exempt, there is still a huge number of conventional loans (including loans slated for Fannie and Freddie) that will be impacted.

As a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act, these securitizers will be required to retain an interest in many of the loans. Up-to-now they mostly have just been a pass-through entity. That adds costs to their operations; costs that will have to be passed on to the consumer.

What will be the cost?

Good question! Although this is slated for enactment and enforcement in April, there is no clear definition or direction from the government. The bill talks about retention of 5% of the risk, but what is the risk? We are confident in saying it’s not 5% of the loan amount because typically a lender doesn’t lose all their money in a foreclosure and not every loan gets foreclosed on. There is some sentiment that “risk” might be defined as 2% of the loan amount; and 5% of that would only be 10 basis points, but that would likely mean a 10 basis point hike in mortgage interest rates to capture the additional cost from the consumer. That hurts home buyers, sales prices, and slows recovery.

Understand that everyone is taking educated guesses. We can see scenarios where lender would be almost forced to avoid lower loan amounts which would have an even bigger impact on the areas that fuel recovery- neighborhoods for first-time buyers. If it lowers the number of first timers who become home buyers, it will hurt those sellers who are looking to move up. Higher rates coupled with lenders shying away from lower cost neighborhoods…..bad recipe.

A lack of clarity and a lingering start date are forcing some of the major securitizers to start implementing strategies to protect themselves from a compliance prospective. Many lenders have focused on lobbying for a narrow definition of “risky” loans and have promoted eliminating convention loans that are fully documented with certain credit scores or income documentation, for example.

But, NOT Wells Fargo….

Wells Fargo is on record as proposing that anyone who buys a home utilizing conventional financing with less than a 30% down payment should be required to get Private Mortgage Insurance- a significant increase from the 20% now required. (Having that PMI, would make the loan virtually risk-less for the securitizer.) Of course, that PMI would bring with it additional costs for borrowers and, once again, make buying a home more expensive (in this case for many of the “A Borrowers”).

I want to point out that we are 90 days away from SOMETHING that is going to make home buying more costly and force some renters to stay put. If you are looking to buy, GET MOVING! If you are looking to sell, PRICE YOUR HOME TO COMPEL BUYERS TO MAKE OFFERS. Time is running out. Tick Tock!