Juicy Estates: Mortgage Blog

Why Did Your Appraisal Come In Low?

We enjoy the luxury of doing primarily purchase transactions and therefore rarely have appraisal issues with our files.  That being said we do secure some of the lowest interest rates in the market and therefore do entertain a significant amount of refinance requests.  It is always amusing (and simultaneously alarming) that appraisals performed on refinance requests are almost universally more conservative than those performed during a purchase transaction.  So the question is, why?

The answer to that question is, in my opinion based more on psychological factors than on accepted appraisal practice.  When a property has been listed on the MLS, given adequate market exposure and two willing parties have entered into a binding contract under the guidance of one or more professional Realtors the appraisal of said property tends to be more accurate and thorough.  I imagine that this is due on large part to the fact that the appraiser is giving credence to, either intentionally or unintentionally to the weight of the contract and opinions of market value communicated by the other professionals in the transaction.  Of course in a refinance transaction the only opinion of market value communicated the appraiser is that of the home owner.

So what happens in a refinance when the home owner is a 20 + year veteran of the real estate industry and regarded as one of the most competent real estate professionals in South Florida?   You can only imagine!  I will spare you the mind numbing details but let us just say that there were 3 appraisers and only one relatively accurate estimate of market value.  Appraiser #1 couldn’t even finish the report and evidently won his appraisal certification at a raffle because he clearly had no experience.  Appraiser #2 missed the market value by almost 30% by using comparables located in a warehouse district from outside the subject’s area.  Appraiser #3 used the most relevant comparables and produced an accurate and well written report that is supported by the market data.

I make these comments not as a participant in the refinance transaction but as someone who voluntarily forfeited his appraisal certification in 2010 after 20 year as a certified appraiser (12 of those as a full time appraiser in the South Florida market).  I forfeited my certification for a few reasons.  The first and foremost is so that I could express an opinion about the quality and/or accuracy of an appraisal, speak to my clients about it and keep a watchful eye on appraisers without violating any provisions of USPAP (Uniform Standards of Appraisal Practice).  The secondary reason is perhaps more interesting to most.  I left the industry after a successful career when I witnessed the advent of appraisal management companies.  In short appraisal management companies have had the effect of commoditizing the appraisal industry.  As a result of this commoditization the quality of the appraisal reports is lower and the persons completing those reports typically less experienced with less appraisal education.   The most seasoned appraisers in the market typically will not complete appraisal reports for the largest appraisal management companies as these companies pay a fraction of the appraisal fee to the appraiser.

In my opinion a well-trained residential appraiser can complete 5-7 reports a week when doing so in compliance with USPAP and giving each subject property the consideration it deserves.   Given that appraisal management companies are only passing along $125 – $200 per report to the appraiser…well you can do the math.

In the end the best defense against a low-ball appraisal is data.  Having accurate, relevant market data that is not distorted by emotional bias is the only way to get an under paid appraiser to see the light.

If you are having appraisal headaches give me a call and we will see what we can do to get you some relief.

How Fast Can You Close?

Several times per week I get that frantic call from a South Florida home buyer or home owner asking, “how fast can I close?”  In the wake of the sub-prime mortgage mess the federal government has put into place mandatory disclosure time lines in an effort to protect consumers.  These time lines must be adhered to and in some instances can cause delays.  In short, given the current regulatory compliance environment I have outlined the current turn times we are delivering at Elements Capital Funding and LuxLev Capital for the relevant loan products and transaction type. 

 

 

Purchase:

Conforming ~ 15 to 20 business days

Jumbo ~ 15 to 20 business days (faster by exception when circumstances warrent)

Private / Hard Money ~ 7 to 10 business days (commercial property only)

Refinance:

Conforming ~ 20 to 25 business days

Jumbo ~ 20 to 25 business days (faster by exception when circumstances warrent)

Private / Hard Money ~ 7 to 10 business days (commercial property only)

The turn times indicated above in large part are predicated on a borrower that provides requested documentation in a timely manner.  Working with a seasoned mortgage broker that can provide you with a comprehensive list of the documents that will be required for your loan approval will go along way to helping expedite matters.

If you have questions regarding how to obtain the best rates and terms on your mortgage feel free to call me directly, 305.389.5061.

Mortgage Rates Miami

Current conforming 30 year fixed rates ended the day at 3.5% (3.528 APR) assuming a 720 credit score and 10% down payment. Jumbo Rates continue to improve with 30 year fixed rates with no points standing at 3.875% (3.89 APR) which again assumes a 720 credit score and 20% down payment.

3 Common Mortgage Road Blocks

Keeping these 3 common road blocks in mind while buying a home can held you achieve a smooth transition from contract to closing.

1)      Provide documentation in a timely manner.

Road Block: Given the new disclosure requirements and stressed underwriting departments it is imperative that all requests for documentation be addressed in a timely manner.  In most instances a complete loan file must be submitted before underwriting will begin looking at the file.  Submitting trailing documents causes timing issues that delay your closing or even result in a denial of the loan application.

The Fix: The loan application and required documentation should be gathered prior to executing a contract on a property.  Meeting with your loan officer and taking some time on the front end of a home purchase will save you hours of time and many headaches.  Most mortgage lenders (yes Elements Capital Funding included at www.ECFLion.com) will provide the ability to complete your loan application securely online.  Doing so will provide the loan officer with insight to your financials and allow her to generate a comprehensive list of the documents that will be needed to complete your loan file.

2)      Provide what is requested.

Road Block:  Many times through no fault of their own loan applicants provide what they believe to be what was requested to ultimately be contacted by their loan officer again with a similar request.  This is aggravating and time consuming to the borrower, an unpleasant task for the loan originator and can cause significant delays.  The most common example of this road block is requests for “complete” bank statements.  Given that many of us, me included do all of our banking online we no longer receives paper statements in the mail each month.  When presented with a request for 2 months bank statements borrowers log on to their account online produce the statements and send them off to the loan officer.  In most instances these online print outs do not include the account holders full name, address and full account number all of which will be required by underwriting.  The other most common partial documents received are tax returns.  For underwriting purposes tax returns need to include all schedules.

The Fix: Most banks provide the ability to generate a PDF of your complete bank statement online which will provide all the information needed by underwriting.  Keep in mind that “complete” bank statements means just that.  If the bottom of the statement says page 1 of 7, then all 7 pages will be required even if blank.  As far as tax returns go most CPA’s can quickly generate a PDF of your entire return however please be cautious when delivering these to the loan officer.  Email is not entirely secure so try an eFax, or document delivery system like Drop box. 

3)      Change contract terms

Road block:  During the course of any real estate transaction there are exists the possibility of contractual term changes along the way.  Many times when these changes made the financing contingency and closing dates set forth in the contract are not extended which can cause severe timing issue.   The most common these delays is a change in contract price that results in a change of loan amount and resulting yield spread premium or other fee changes.  These changes can trigger the need for re-disclosure and a mandatory 3 day waiting period.  Changes of this nature can also require that the loan file be re-underwritten which in some instances can take a few days.

The fix:  Make sure that your loan officer and your Realtor are in close contact and that before andy addendums to the contract are signed that the effects on the finance process are taken into consideration.  Having appraisal, inspections and title work done at the very front of the transaction is a great hedge against these common delays.

If you have questions about the process of obtaining a mortgage for the purchase of your new home feel free to give us a call at 305.446.1948.

Alternative Lending Is Mainstream Again

“And they called me crazy…..”

In January of 2012 I resigned my position at City National bank to found Elements Capital Funding a licensed mortgage lender.  The vast majority of people in my life thought that I had lost my mind which may in fact be true but that’s a topic for a different post.  As many industry insiders are starting to realize as illustrated from this article in The Scotsman Guide an industry leading publication, titled “Saddle Up for Lendings Ups and Downs”, alternative lending is filling the huge whole in the credit  facilities currently being provided by banks.

Through our subsidiary LuxLev we have been pairing private investors with high quality loan requests on some of South Florida’s best collateral.  Our ability to complete transactions in the face of unreasonable bank requirements has proven to be beneficial to our investors and borrowers alike.  As highlighted in the article referred to above we have developed a set of guidelines and underwriting criteria that is far more flexible than those set forth by the banks but do not rely solely on equity in the collateral property as the primary determinant in funding.  As a result of developing this middle tier product set we can deliver a preferred rate of return to the investor while sparring the borrower the pain of having to pay “hard money” terms and points.

If you or your client needs would like additional information on how we can help facilitate a transaction please give us a call.  305.446.1948.

Cash Purchase ~ Conforming Mortgage ~ No Seasoning

Now cash buyers of Miami real estate have it made in the shade!

We regularly receive calls from cash buyers asking to refinance their property to recoup some of their liquidity shortly after they have closed.  Historically this was only possible using portfolio loans but now it can be done using conforming (Fannie & Freddie) loans which offer very low fixed interest rates (see latest mortgage rate update post).  The influx of foreign cash buyers has been a pillar of the South Florida real estate recovery and now we are seeing domestic cash buyers as well. 

With conforming 30 year fixed rates around 3.5% there has never been a more advantageous time to borrow money.  In the not to distant future as the domestic and global economies recover you will be able to walk into you local bank and earn 3.5% on money market.  Of course interest rates are relative so when you can get 3% + on a money market interest rates on mortgages will be north of 6%.

Savvy money managers are borrowing as much as possible in the current environment knowing that creating an arbitrage with those funds will not be a difficult task going forward.

Mortgage Rate Update

30 year fixed rates slide down to 3.375% (3.403 APR) assuming a 720 credit score and 20% down payment.  If you have less than a 720 credit score or are making less than a 20% down payment rates are only 1/8th to a 1/4 of a percent higher.  Single family homes can be purchased in the South Florida market with as little as a 3% down payment using conventional financing, a 3.5% down payment using FHA or 15% using a jumbo loan without mortgage insurance.

Call us with any questions.  305.446.1948

Jumbo Rates Same As Conforming?

In the not so halcyon days from 2003 to 2006, the age of double digit home price appreciation, amidst the seemingly grotesque displays of newly found wealth via the piggy bank of home equity jumbo mortgage rates were only .125% to .375% above conforming mortgage rates.  Many thought that after the subprime mortgage crisis relegated the securitization of jumbo mortgage bonds to the garbage heap of despair that never again would the private securitization of these bonds be the oil that greased the wheels of the domestic real estate market. 

Nietzsche’s proclaimed as that “God is dead” but I assure you that he would not say the same of Jumbo mortgages or the private securitization of the same.  Today 30 year fixed  jumbo mortgage rates are again only .25% above the current FNMA 30 year fixed rate, we have returned to historic norms in this regard.

 Like a phoenix from the flames jumbo is back and in a big way!  In the second quarter of 2012 lenders (primarily non-bank lenders) funded almost $32 Billion in jumbo loans a 77% increase over fundings from the same period a year before.  Lewis Ranieri heralded as the godfather of mortgage finance for his role in pioneering the securitization of mortgage bonds is back in the game with his organization ShellPoint Partners.  Shell Point recently filed a shelve registration to issue jumbo mortgage securities.  There are some regulatory hurdles on the horizon that may have an effect on the efficiency of these markets however all the big players that built the doomsday machine that almost caused the collapse of the global economy are back at it. 

So what does this mean for the consumers and purveyors of jumbo mortgages?  In a word it means “liquidity”.  As the jumbo securitization machine begins to hum along you will see more relaxed guidelines, higher loan to values and rates commensurate with conforming interest rates.  The effect of this liquidity will be more properties trading hands on the higher end of the value curve and yes accelerated appreciation. 

Of course many are fearful that this liquidity will also mean that these mortgage will be utilized by consumers in irresponsible ways potentially leading to another credit crisis.  This risk is always present, and no it is neither possible nor the responsibility of our government to protect consumers from making poor decisions.  Politics aside, this country was built on individual responsibility and any regulation or inane disclosure dreamed up by a petty bureaucrat that runs counter to this notion is simply un-American.

All Things Are Relative, Or Are they?

“All things are relative” it’s a commonly used phrase but it is incorrect because that fact is that ALL things are not relative. 

But one thing that is relative is the trend in mortgage rates along with property values.  Why? because as property values increase so does economic activity and as economic activity increases so do interest rates.  Clearly this is a gross over-simplification but I think you understand the premise.

 So where does this leave us?  Well if you look at this chart it shows that we have reached a point where rates can’t go much lower and we all know that property values in South Florida are stable and even increasing in some areas therefore you could deduce that interest rates will start going up.  But alas, you would be wrong because the Fed is artificially keeping rates low in an effort to encourage more economic activity.  So we are currently experiencing increasing property values but mortgage interest rates are remaining at historic lows which is proof of the assertion I made in the first sentence.

The moral of the story, it’s a great time to buy a house, well that’s actually not a moral but it is a good idea, don’t you think?

Golf Balls & Garden Hoses

“It’s been like pushing a golf ball through a garden hose” is what my client proclaimed after working with another lender for more than 6 weeks in pursuit of his loan approval.  He is not alone in his frustration.   With the Fed’s announcement of the hotly debated QE3 last week mortgage interest rates have dropped down to historic loans with 30 year fixed rates standing at 3.375% with no points…. that’s like free money! It doesn’t take a rocket surgeon (aka rocket scientist) to recognize that now is one of the most advantageous times in the history of this country to buy a home.  The problem is, it’s not easy.

In their infinite wisdom the federal government has done everything within it’s power to jump start the housing market.  But in classic big government style at the same time they have put in place disclosure and regulatory compliance thresholds that dramatically delay the process of obtaining a home loan, not to mention artificially inflate the cost.   Of course these new rules were put in place to “protect the consumer” and of course they do not protect the consumer in anyway shape or form.

So what can you do to ensure that your home purchase or refinance doesn’t get delayed by these bizarre regulations?

1. Apply for a pre-approval prior to executing the contract on your new home
2. Ask your loan officer about interest rate locks and the appraisal process before the terms of the contract are finalized
3. Make sure that your Realtor is working with your loan officer prior to signing the final contract
4. Ask the seller for at least 30 days to close but even better would be 45 to 60 days
5. Provide all documents requested by underwriting as quickly as possible

The fact that it’s a great time to buy may make point number 4 hard to do.  The fact is that sellers are seeing cash offers closing in less than 30 days and in many instances those offers are for more than the original asking price.  Be patient, work closely with your Realtor and loan officer and go find that home!