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Wells Fargo Kicks The Can Down The Road

With the acquisition of Wachovia Wells Fargo acquired one of the largest portfolios of Option ARMs, sometimes known as Pick-A-Pay loans.  These loans offer 4 payment options one of which is not enough to cover the interest due each month and are thus termed “differed interest loans”.   Most Option ARMs are tied to indexes that have remained artifically low masking what could be another massive wave of foreclosures.  This wave on the horizon is referred to as the “Alt-A” bomb.

Thousands of homes in South Florida were purchased or refinanced using Option ARMs.  As mentioned in a recent article in Realtor Magazine Wells Fargo started proactively reaching out to those former Wachovia clients that have Option ARM’s and is offering to modify the notes to more traditional interest only mortgages and differ balances for as much as 10 years.

While this is not the ideal fix for the problem I applaud Wells Fargo’s effort to address the issue before it becomes another mortgage sunami.

HVCC May Be History!

The HVCC has been an unmitigated disaster since it’s implementation on May 1st.  Any real estate professional who is active in their market can tell you of the horror stories that HVCC has created, the dreams of home ownership it has destroyed and the high price to the economy, the housing market and the consumer.

But hope springs eternal and it appears that some of the elected officials on Capital Hill are starting to realize that HVCC was just one big mistake.  The House Financial Services Committee has just passed an amendment to the Consumer Financial Protection Agency Act to sunset the HVCC.

An amendment offered by Rep. Gary Miller (R-Ca) would place an 18 month moratorium on HVCC giving legislators an opportunity to create a workable set of standards to oversee the appraisal industry.

“I have repeatedly expressed concern that the HVCC has potential to increase costs to consumers, significantly hinder a consumer’s ability to obtain legitimate and reliable appraisals, and adversely impact small business professionals who work in the very neighborhoods where these consumers are looking to purchase homes,” said Congressman Miller. “In fact, since the implementation of the HVCC on May 1, there are numerous examples of higher costs for appraisals, poor service, the inability to use one appraisal for more than one lender, questionable quality of appraisals, and the inability to make corrections to inaccurate information on an appraisal report.”

A moratorium would mean that lenders could start ordering appraisals through the more seasoned appraisers who work local markets and would no longer be required to use management companies that deliver inferior quality reports completed by the less experienced and the out of area.

The elimination of HVCC would give a significant boost to the housing market at a critical time when the $8,000 first time home buyer tax credit is about to expire and the end of the Fed’s program to purchase mortgage backed securities is on the horizon.

$8000 First Time Home Buyer Tax Credit Extended

The House of Representatives has voted to extend the FTHB Tax Credit to those most deserving, our military personnel.   HR3590 will allow eligible military personnel to apply for the credit for up to one year past it’s current deadline of November 3oth.

It is only logical that the Senate will follow the Houses lead and pass this same legislation and we can only hope that our elected officials realize the importance of extending the tax credit deadline for all home buyers into the new year.

The availability of this tax credit has had a positive impact on the South Florida real estate market and the recent development of County funded programs that allow for the tax credit to be used towards down payment further enhance the effectiveness of the legislation.

Good News For Luxury Real Estate and Jumbo Loans

The national media, typically slow to pick up on anything related to real estate that is positive has noticed that the national average for jumbo 30 year fixed rate mortgages has dropped below 6% for the first time since 2005.  As mentioned in the Business Week article of October 12th jumbo loan (loan amounts over $417,000) rates have continued to fall.

The Business Week article also mentions that some luxury home buyers have run into difficulty with appraisals.  In most cases in the South Florida market issues with properties not appraising are due to the fact that the appraisal is ordered through an appraisal management company and an out of area appraiser is given the assignment.  Under current market conditions it is imperative that the appraiser on any assignment have an intimate knowledge of the market in which the subject property is located.

Oh and the good news……..we are HVCC compliant but we don’t order our appraisals through a management company.  We use local seasoned appraisers with years of experience appraising Luxury homes in the South Florida market.

Lower Down Payments For Jumbo Loans

I love the smell of  liquidity in the morning….smells like, victory.  Ok so clearly that is a rip off / paraphrase of Robert Duvall’s line from the epic 1979 file Apocalypse Now but you get the point.   As I alluded to in my post of August 13 liquidity is returning to the Miami and South Florida mortgage markets for luxury homes and as a result the down payment requirements for jumbo mortgages have been relaxed.

There are many buyers in the current market that want to buy but do not want to sell equities (stocks) or other assets in order to raise the capital needed to make a 20 or 25% down payment for a new home.  Relief for this issue has come in the form of 10% down financing for purchase prices of as high as $1,650,000.  In fact for the right client we have been securing financing with less than 20% down for purchase prices as high as $4,500,000.

The most encouraging thing is that this down payment relief is not limited to just the private banking world.  Several other local and regional banks are offering jumbo financing with less than 20% down.  Ruben Aboy is a mortgage banker with Regions Bank and has advised me that they too are offering a 15% down program for purchases as high as $1,500,000.  Other local banks are offering Doctor and Lawyer loan programs that provide financing for new professionals with just 10% down financing.

The Miami mortgage market is changing rapidly and this time it’s for the better.  If you or your client is in need of jumbo financing with less than a 20% down payment have them contact me and I will ensure that we get them to the right lender.

If You Disagree With Me It’s Because You Are Wrong

The aptly described “most interesting man in the world” has yet again, through the use of narration, coined a new mantra for the current generation.  ”If you disagree with him it is because you are wrong” is a most succinct description of the current socio-political environment.  Regardless if you are discussing the massive amount of tax payer dollars spent on the bailout or the pros and cons of health care reform it is clear that the national discourse on all major issues has deteriorated into a school yard game name calling and general disrespect.  The major political parties have both taken the stance of “if the other side proposes it then we oppose it”.

I am certain that the most interesting man in the world wouldn’t discuss money or politics in mixed company but then again he enjoys of the luxury of being a work of fiction.  We on the other hand do not enjoy this luxury and therefore must wallow in the proverbial mud if we want to express an opinion on topics usually reserved for talking heads and the lunatic fringe.

What does this have to do with Jumbo mortgages or South Florida real estate….actually a good bit.  You see we are entering into a regulatory environment where the compliance threshold will be so high that it will preclude many from engaging in otherwise good business and at the same time we are entering into an economic environment where the expansion and inflation will be the order of the day.  Don’t misinterpret this to mean that I do not support increased regulation of the financial markets, I do as the markets have clearly illustrated that left alone they will run amok.  However increased regulatory thresholds need to be sensitive to how business gets done not how partially informed politicians think business should get done.

In my opinion the new regulations being put in place regarding the real estate and mortgage industries are not only ineffective but damaging.  The vast majority of the new Reg-Z and HVCC regulations not only fail to defend the consumers interest but in many cases hurt it.

For example Reg-Z’s focus on APR disclosures when anyone with an understanding of how APR is calculated will tell you that it is in most instances a meaningless calculation devised by politicians not mathematicians.  This issue could be resolved by incorporating a time element into the Truth In Lending/APR disclosure.  Given that the average lifespan of a mortgage in the US is only 4 or 5 years I would suggest that the APR be calculated and disclosed in 3, 5, 10 and life of loan time frames to give the consumer a true indication of loan cost.

And HVCC  a real gem ensuring the delivery of inferior quality appraisal reports through a process that forces appraisers to cover a larger geographic area in order to make a living.  A possible fix here would be to repeal the misconceived HVCC in favor of actually enforcing the rules and regulations set forth by USPAP.  A national appraisal certification standard should be put in place under the underfunded yet watchful eye of the Appraisal Foundation.

I think that the most interesting man in the world, while sipping a cold Dos Equis, would be interested in what you have to say on these topics so I invite you to share your opinions free of the fear of retribution.

30 Yr Fixed Rates Below 5%…Again!

As a result of the Fed’s manipulation of the mortgage backed securities market coupled with international appetite for U.S. Treasury obligations conforming 30 year fixed rates have fallen below 5% again.

My fear is that both the public and real estate professionals across the nation have become accustom to conforming interest rates in the 4% range.  When the government stops buying mortgage backed securities in an aggressive manner rates will return to levels not seen since early 2008 and many buyers will have missed a great opportunity.

Jumbo rates have also fallen and with just a 20% down payment rates are now in the high 5% range.  This biggest challenge I see for those buyers of luxury properties in South Florida are down payment and reserves  requirements both of which have been relaxed in recent weeks.

The planets are aligned but they won’t stay that way for ever.

90 Day Seasoning Rule, a Ghost In the Machine

By now most real estate professionals are familiar with the FHA requirement that a seller of a property be on title for 90 days before they can sell to a new buyer.  What many are not aware of is that by the end of this past August most lenders adopted this same rule for conventional financing as well.   One of the most compelling aspects of being a real estate professional is that you learn something new every day and my recent experience with the 90 day seasoning rule was a great example.

I have the privilege with working with many successful and talented Realtors and recently had the opportunity to provide financing for a family member of one of South Florida’s best.  In an effort to be proactive regarding the 90 day seasoning rule for conventional financing I emailed a copy of the Miami Dade County tax roll for the subject property to the underwriter on the file.  The closing date for the current owner was reflected as on the tax roll 5/28/09 and as confirmed by the underwriter in writing we should be fine to close any time after 8/28/09.  What I and no one else in the transaction were aware of was that the investor/owner had originally closed on the property on 5/28/09 but had subsequently transferred ownership to another company that he owned.  The result of this transfer that did not show on the tax roll is that the continuity of title date from an underwriting perspective was the transfer date and not the original sale date pushing the earliest possible closing date back a full 30 days to 9/28/09.

The transparent transfer was only revealed by the title search and not being aware of the 90 day seasoning requirement the title agent did not think it would be an issue as it never had been in the past.  When we were informed that this would be an issue for underwriting we made every effort to obtain an exception on the 90 day rule even going as far as asking the attorney in the transaction to write an opinion on the subject but to no avail. 

In the end my incredibly supportive employer agreed to portfolio the loan at the same low 30 year fixed rate as originally promised to the client and close right away as opposed to waiting for the conventional financing to be available at the end of the month.

The lesson in this scenario is that when it comes to the 90 day seasoning rule for FHA and Conventional financing you CAN NOT rely on the tax roll to determine when the clock starts ticking.  In my opinion if you notice the sale or transfer of a property you or your client has under contract at any point in the last 12 months you should investigate further and call your title agent immediately.

Liquidity Returning To Mtg Market ~ Recovery Spreads To Europe

CitiBank isn’t really in the business of lending directly to home buyers or home owners these days but they have earmarked $2 Billion  of the $45 Billion they received from the Federal Government to lend to independent mortgage firms.  This is yet another sign that the liquidity is returning to the secondary mortgage market which is good for home owners, home buyers and the economy in general. Read the full story here….

A broad based recovery of the global credit markets appears to be forming as highlighted by Germany and Frances unexpected return to growth last quarter.  Read the full story here….