Maryland and Virginia Real Estate and Homes Blog

                               *  *  *  *  HARD CORE REAL ESTATE TALK  *  *  *  *

AVOIDING CONTRACT FAILURES is important for home buyers.  If you have a contract of sale on a home in Maryland or Northern Virginia, make sure that the financing is in place and that your loan officer is doing their job. 

DON’T LOSE YOUR DREAM HOME because of poor financing letters.

We regularly read about contracts that “fall apart” because the buyer cannot get financing.  Homefinders agents will make sure that you, our home buyer, are aware of the critical dates in your contract. 

Make sure that your loan officer understands that they need to get the mortgage financing process completed sooner rather than later.

Experienced buyer’s agents in MD and VA know that a missed deadline in the contract can cause a home buyer to lose a home. 

Use a Financial Statement!   Agents need to learn to read the numbers!!

Homefinders.com agents know how to read a financial statement.  We will alert you early on if there are matters in your financial profile that need to be addressed BEFORE you submit a contract offer.

We use a simple Financial Statement.  We use a simple calculator.  We look at our buyers assets and liabilities and “qualify” our buyers or buyers who write contracts on our listings. 

We do not rely on loan officers to qualify.  Qualifying a prospective home buyer  isn’t rocket science.  This is a simple calculation.  We’re not qualifying buyers for credit and we rely on trusted loan officers to do that.  We use qualifying ratios to determine price range.  However, the agent needs to do two calculations.  One for the ratio of mortgage payment/income and one for all debt/income. 

FRONT RATIO/BACK RATIO.  We use ratios of 30% for an estimated PITI/gross monthly income and All Debt/monthly gross income.   30% of your income is an average for home buyers to spend on housing.  Many buyers prefer to pay less.  Some are willing to spend more. 

30/40%.  The concept was learned in real estate school.  It is further perfected in our CE classes for Real estate finance.  It’s important and separates the agents who consistantly have successful closings from the agents who simply write a lot of contracts. 

Step 1.  Provide the buyer with a Financial Statement Form.

Step 2.  Run a qualifying loan amount based on 30% of Gross Monthly Income.

Step 3.  Add the down payment, if any, for the estimated price range.

Step 4.  Run a qualifying 40% of gross monthly income for all debt.

HOMEFINDERS.COM agents and brokers know how to qualify and back it up with help from qualified loan officers, if there are any questions about credit. 

When writing an offer, the first document is the Financial Statement handed to the buyer to complete while the agent runs an Estimated Closing Cost.  Those two documents alone will determine whether or not the offer should even be made.  The Financial Statement is going to give the agent information to qualify a buyer and the Estimated Buyer’s Closing Costs is going to put in writing the cost to close.  Often buyers are surprised by these numbers.  Sure, if the buyer’s have made loan application they should have received a Good Faith Estimate from the loan officer.  Yet, every week we read of buyers who are “disqualified” at the last minute. 

This is just good business practice.  The cost of a failed contract is enourmous to the buyer and seller, not to mention the agents and brokers.  Failed contracts are almost completely avoidable. 

* * * *  HARD CORE REAL ESTATE TALK  * * * *

WHAT’S THE HOT NEWS THIS MORNING?  METALS AND MINING STOCK IN FREE FALL! 

Well, it was!!

You wonder what the housing and banking industry would look like today if the Congressional oversight committees chaired by Barnie Frank and others had looked at the numbers when the Fannie Mae financial statements proved to be falsified by the CEO Franklin Raines in order to provide about $40,000,000 more in income and bonuses to himself.  What would have happened if they had simply asked the question, “what else could be wrong here?”.   If Fannie Mae had not lowered the standards for the secondary mortgage market,would The Wall Street Gangs have been able to get their grubby mitts on the volume of MBSs to fuel the world market for these securities?  Without the MBSs from Fannie, et al., there would have been no worldwide distribution of securities backed by mortgages that were destined to default when the ARMs reset and the owners couldn’t refinance, which was often the justification for taking the ARMs in the first place. 

FACT:  When about 25% of the residential properties in the U.S. cannot be sold for a price that will pay off the mortgage on that property, defaults, short sales and foreclosures are inevitable. 

FACT:  When about 25% of the U.S. properties are “out of the market”, the result is a collapse of the housing market which fuels the economy of the United States. 

FACT:  A viable housing industry is critical to the financial health of the U.S.  

FACT:  The loss of real estate values pushed a high percentage of U.S. home owners into negative equity. 

FACT:  Negative equity caused the loss of the primary financial asset, home equity, of a large percentage of U.S. households. 

FACT:  With no significant financial assets, the U.S. home owners STOPPED SHOPPING for anything but necessities and price became the motivator. 

• Nordtrom:  Down
• Wal-Mart:  Up

THE DOMINO EFFECT:  When the American consumer stops shopping, the world markets for basic commodities respond in a downward price spiral.  In a classic “supply and demand”.  Manufacturers know that, with consumer demand down, prices will fall. 

EXAMPLES: 

Copper prices fell 3.5% on Thursday as warehouse stocks rose and most industrial metals sank. Dismal economic data from the U.S. and Europe added to evidence of ever-weaker demand.      

Mounting fears of a prolonged recession in the US, triggered by grim jobless figures there yesterday, weighed on metal prices and mining stocks, and helped drive the FTSE 100 down for a second day.

“as the effects of global economic downturn caught hold, demand for all commodities weakened.”

THIS IS A CLASSIC bottom up market dynamic.  The consumer stops shopping and the commodities and banking industries falter and fail. 

WHAT IS THE LESSON?  The U.S. and world governments, the U.S. Congress, the Department of the Treasury, the Federal Reserve, the Securities and Exchange Commission all believed that it was the banks that needed to be saved in order to save the U.S. economy. 

WRONG!  WRONG!  WRONG?

Buying “TOXIC ASSETS” of the banks has not worked and could never work.  The banks and financialhouses on Wall Street tnat caused the mortgage mess by inventing and marketing securities without looking at the underlying asset, mortgages that were doomed to failure when the interest rates reset and the home owners defaulted in massive numbers.  THE EXPERTS WERE WRONG!  Giving $Trillions of Dollars to the financial industry was like giving a 14 year old boy control of the family budget.  They are likely to buy a dirt bike before buying bread and milk.  The banks used tax payer money to buy each other and pay dividends.

WHAT’S THE SOLUTION?  Get rid of the negative equity that has caused the financial collapse of the U.S. consumer. 

WHAT WOULD IT COST?  What difference does it make??

                               “Honey, Susie has outgrown her school clothes.  Can we shop yet?”

                             “Not yet, Dear.  Our mortgage payment is going up again next month.”

             **  FROM THE DESK OF THE CZAR OF COMMON SENSE IN GOVERNMENT  **

WHY DID NOT THE GOVERNMENT MANDATE MORTGAGE BALANCE REDUCTION FOR BANKS RECEIVING TARP MONEY???

IN THE SPIRIT IF A TRUE BELIEVER IN THE CONSPIRACY THEORY, it all makes sense now.

James Downing’s post this a.m. DARN IT - I got one of “THOSE” calls today… was enough to cause a few little brain synapsis in my head to begin stirring. . . .

One fact that James’ article reinforces is that the banks will do nothing to assist a home owner if their mortgage payments are still current.   So, faced with the inability to sell their home because the home owner owes more than the house will sell for, SHORT SALE is the only alternative to foreclosure. **

WHY DO BANKS REQUIRE THAT A HOME OWNER BE IN ARREARS BEFORE SHORT SALE APPROVALS?

“WE DON’T LOOK AT SHORT SALE PACKAGES UNTIL THE HOME OWNER IS BEHIND IN THEIR PAYMENTS.”  How many times have we hears that?  There is no benefit to a mortgage company to modify a home loan.  If a mortgage loan is modified to reduce the principal amount, the credit rating of the mortgagor will not be affected.  The mortgagor’s credit rating would not be affected by a reduction of the mortgage note.  The only change in the home owner’s credit report would be the balance owed to the mortgagee. 

I’ve been advocating for a write-down of the principal balance of home mortgage amounts to appraisal or assessment numbers, but it would take a significant amount of money from the government to cover that loss to the mortgage companies and, if we know anything, we know one thing:  The government is not going to do anything that would cause harm to the profitability of the financial institutions that originate or service or hold the millions of home loans.

That the government is dedicated to preserving the profitability of the banks is a given.  Why then are the financial institutions and the government determined to force a home owner in trouble to ruin their credit before any relief by the mortgage company will even be considered??  That is the question of the day.

MORTGAGE LOAN MODIFICATION WOULD NOT HARM THE CREDIT RATING OF THE CONSUMER.

However. . . .

ONE 30 -60 DAY LATE MORTGAGE PAYMENT WILL REDUCE A CONSUMER’S CREDIT SCORE FOR YEARS.

Could it be that the new “sub-prime”, “Alt-A” mortgages will be mortgage instruments invented to serve the millions of consumers with a short sale transaction on their credit report??

What is the benefit to the banks to force the home owner to ruin their credit rating?  Could it be the higher interest rate that can be charged to home buyers with a previous short sale on their credit report?

What could this new mortgage instrument with higher than market rates be named? 

The “SS” loan, for “Short Shrift”. 

The “SSS” loan, for “Shafted By Short Sale”

The “SS2″ loan, for  the “Short Score” loan

The “Stiff” loan, for “Stiffed by Short Sale Score” loan

No matter what happens or doesn’t happen, the consumer loses.  As the number of home owners who accrue 1, 2, 3, months late on their credit reports, they are prime suspects for future home loans with higher interest rates. 

Of course, they are also prime suspects for credit cards with even higher interest rates. 

** A change in the bankruptcy law/code that would permit bankruptcy judges to modify loan principals was a solution proposed.  However, it didn’t get through Congress. 

Courtesy, Lenn Harley, Broker, Homefinders.com, 800-711-7988, E-Mail. 

                                            ”HEY DAD, WHO’S LOOKING OUT FOR US??”

WHERE DO YOU PLAN TO ADVERTISE YOUR SERVICES IN 2009 - Magazines, Newspapers, Web Site . . . . . . . Chapter 3.

WHERE TO SPEND YOUR ADVERTISING DOLLARS?  How do we advertise our services?  As stated in Chapter 2, “The last thing real estate agents and brokers need to hear in a recession, when every dollar is important, is “just give it a try”.   Advertising dollars should be invested, not gambled.” 

Chapter 1 and 2 of this series examined the potential value of:

DEAR PRESIDENT OBAMA - I WANT A JOB IN YOUR ADMINISTRATION - CZAR OF ECONOMIC COMMON SENSE

PROPOSAL FOR POSITION OF CZAR OF ECONOMIC COMMON SENSE

Dear Mr. President. 

   Re:  COMMON SENSE IN GOVERNMENT

POSITION:  Kindly accept this application for the newly created position of CZAR OF ECONOMIC COMMON SENSE.  Hopefully, you’ll consider making this a cabinet level position because many Americans understand that common sense is sadly mission from government today.

STATEMENT OF NEED:   The United States of America is in recession.  Strong and innovative management of the economy is essential for the viability of financial health of the citizens of this great country.  Management of the economy of the country has been reactive, wrongheaded and dangerous to the financial stability of the American family. 

STRATEGY:  I suggest that you make this position a “Recess Appointment” at the first opportunity.  Sadly, there is little hope that any Congress, present or future, would approve anyone for a post in your administration that required Common Sense because the concept of Common Sense is alien to a Congress that can be relied upon to seek personal gain over benefit to country. 

The legislative records of the present Congress has a track record that:

• Puts Party above constituent.
• Rewards campaign contributors with tax advantages.
• Manipulates legislative order to reward cronies.

We know from your pronouncements since winning the election to the highest office in the country, that you are a man of open mind and flexibility. 

PRIORITY:  The economic condition in the United States is dire.  The former administration was one of reaction and not one of leadership.  While the new appointments to the economic management posts in your administration have the credentials for strong, sensible leadership, sadly, they have no history of common sense in any office in which they have served.  It is necessary that the citizens of the United States have a voice for common sense in your cabinet. 

Management of the Economy of the United States is critical and deserves priority over other interests. Without sound economic management, the U.S. taxpayers will not be able to fund the interests of the environmentalists, organized labor, industrial manufacturing, health services, scientific research, foreign trade, and other well represented special interests. 

WHY A CZAR OF ECONOMIC COMMON SENSE?  A high percentage of American citizens, the families and individuals who pay taxes to fund the budget of the United States are in a diminishing financial condition.  Not only is the income of the average American providing less and less buying power, the primary financial asset of most Americans, the equity in their homes has vanished. 

THE PROBLEM WITH THE ECONOMY:  The American tax payer has lost their capital, their credit, their savings, their leverage, their voice.  The American home owner finanances the building industry, the home improvement industry, the real estate industry, the home mortgage industry, the home furnishings industry, local public schools and more.

THE FINANCIAL INDUSTRY PROFITED FROM ILLEGAL ACTS PERPETRATED AGAINST AMERICAN BORROWERS.  The Department of the Treasury and Board of Governors of the Federal Reserve reward the criminals on Wall Street with about $350,000,000,000 to replace their lost capital and encourage the banks and financial institutions to resume providing consumers with credit to finance the purchase of homes, automobiles and consumer goods. 

THE FINANCIAL HOUSES AND BANKS TOOK THE MONEY.  Yet, mortgages loan approval is more difficult than at any time in the past 30 years.  Automobile financing is at an all time low causing the callapse of the American Automobile Manufacturing companies and the chain of businesses that provide jobs for about 10% of the American tax payers. 

Giving money to the financial industry that designed the financial instruments that caused the decline of the housing industry made no COMMON SENSE.  It is clear that the President of the United States, the Secretary of the Treasury, the Chairman of the Board of Governors of the Federal Reserve and other decision makers do not understand the critical nature of the health of the housing industry and have made policy decisions that made so little common sense, that they defies logic. 

COMMON SENSE dictates that the first priority of the Government of the United States is the financial health of the American home owner.

I WANT THAT JOB.  Someone needs to look out for the folks.

THANKS! TO ALL OF THE HARD WORKING LISTING AGENTS OUT THERE WITH PROPERTIES FOR SALE.

WHAT WOULD A BUYER’S AGENT DO WITHOUT HOMES TO SHOW?

I JUST SPENT THE WEEKEND SHOWING HOMES TO A LOVELY BUYER FAMILY IN LOUDOUN COUNTY.  Business may be slow for all real estate agents and brokers, but, I can tell you from experience, that this market must be a lot harder on listing agents than buyers agents. 

BUYERS AGENTS AND BROKERS ARE NOT FACING THE CHALLENGES EXPERIENCED BY LISTING AGENTS AND BROKERS IN TODAY’S REAL ESTATE MARKET PLACE.

THERE!!!  I SAID IT.  Of course, I have always admired the skill and hard work of good listing agents.  Without them bringing good homes to market, what would we buyers agents sell??

TIMES HAVE CHANGED.  Who would have thought a few short years ago that listing agents, which includes about 95% of all licensees, brokers and agents, would be faced with the complexities of learning about foreclosures and short sales for the first time. 

• SHORT SALES as a routine market segment.
• FORECLOSURES as a larger percentage of listings than at any time in memory.
• SELLERS who believe that the real estate market hasn’t moved since early 2005.
• BUYERS who believe that any listing will be half the price next month.

LISTING AGENTS CAN’T JUST PUT THEIR HEAD IN THE SAND.  What does an experienced listing agent tell home owners who are faced with the prospect of not being able to compete with the Short Sale and Foreclosure listings in their neighborhood in price.  What do they tell sellers who wish to move up to a new home or larger home after 3-4 years in the town that they planned on owning for only a couple of years. 

LISTING AGENTS ARE OFTEN THE FIRST TO BEAR THE BAD NEWS.  How does even the most experienced listing agent tell a home owner to whom they sold their home 3-4 years ago that, even if a buyer would pay their desired price, the property would not appraise?

HOW DO AGENTS PRICE PROPERTIES IN TODAY’S MARKET?  What does a listing agent do when they research a property for a listing presentation that homes in the neighborhood are now selling for 3/2 of what the owners paid 3 years ago?

I KNOW YOU LOVE THAT LILAC DINING ROOM, BUT. . . . How does a listing agent tell sellers who drop in to an Open House that there are 6 homes in the neighborhood that are priced more attractively and in better condition, but this home is priced based on what the owners owe and the children selected the color of the paint on the walls.

IF I GIVE YOU THE LISTING, WHAT ARE YOU GOING TO DO FOR ME?  How much is the listing agent supposed to spend for advertising in the newspapers, magazines, etc. knowing full well that the most likely buyer will come from the IDX or MLS through a co-operating agent.  Of course, there are listing agents who excel in the real estate market place of today.  However, I suspect that even they would admit that it is a lot harder than in the “Halcyon Days” of years past when listing a property usually meant selling a property.

WHAT HAPPENS WHEN A HOME BUYER LOOKS AT ACTIVE LISTINGS ON THE INTERNET?

In my area for homes priced between $150,000 and $750,000, prospective home buyers are going to see:

• FORECLOSURE LISTINGS, which are going to be priced about 10% lower than regular listings.
• SHORT SALE LISTINGS, which are going to be priced about 10-25% lower than regular listings.
• REGULAR LISTINGS which are going to be priced about 20-35% higher than the foreclosures and short sales. 

FOR SIMILARLY LOCATED SIZE AND LOCATION, the foreclosures and short sales are the homes that the prospective home buyer asks to tour.   Of course, we could look at the comparable listings and include some “regular” listings in the tour, but it doesn’t take long for a buyer to see the value in the foreclosures and short sales.

BUT, WHAT ABOUT CONDITION?  When a property is priced 25% lower than 75% of the listings in a community, the buyers will consider anything other than structural defects, mold, wet basement, etc. to be nothing more than cosmetics that they can take care of themselves. 

IT’S ROUGH OUT THERE.  I SUSPECT THAT FEW LICENSEES TRULY UNDERSTAND HOW ROUGH IT IS THAN LISTING AGENTS IN A MARKET WHERE HOME PRICES ARE FALLING DAILY. 

ALL I can say to the listing agents in my market is:

THANKS!  GOOD JOB. 

Courtesy, Lenn Harley, Broker, Homefinders.com, 800-711-7988. 

SELL A HOME RATHER THAN RENT ONE?  There may be very good reasons. 

AGENTS:  DON’T DENIGRATE YOURSELF BECAUSE YOU SOLD A HOME TO RELOCATING HOME BUYERS. 

I WON’T HOLD IT AGAINST YOU! 

I read a post on ActiveRain this morning castigating agents for selling a home to a relocating family rather than renting them a house.  Trying to make me feel guilty is a total waste of time.  If my mother-in-law couldn’t do it, no one can.  I suppose it was the rather sanctimonious tone of the post that got my attention.  Interesting.  I don’t agree and that may be because our markets are so different.  Sure, real estate is slow, that means that there are some wonderful opportunities out there for our relocating home buyers.  

Further, for most relocating families, renting now simply means moving again in a year and we can’t see into the future.  Also, if there are children, it could mean changing schools again.  If you’ve ever raised teenagers (5 of them for me), you know that to a teenager, their friends are often their life.  Move a teen and you risk ripping their heart out.  Also, in my area, it’s often hard to find rentals in some school districts that suit a family where they may be buying a year from now.

Finally, what about the mortgage interest tax deduction?  That means a lot to higher income buyers. 

Then there’s the matter of planting those spring bulbs and annuals.  Too late to plant tulips here now, but next year????  Who wants to plant a border of Zinnias in a rental? 

IMO, it is a very rare case when a rental is desireable over buying a HOME.

The exception for me is active duty military transferrees.  They have noknowledge of how long they will need to own a home.  I recommend that active duty military transferees rent rather than by and have since 2005 when I saw the market stall and knew that the average home price has exceeded the ability of the average home buyer to qualify.           

Courtesy, Lenn Harley, Broker, Homefinders.com.  Serving home buyers in MD and Northern VA.

HOT OFF THE PRESSES. . . .  Government modified mortgages are defaulting.   Why am I not surprised?

WASHINGTON(MarketWatch) - Office of the Comptroller of the Currency director John Dugan on Monday released statistics showing a high re-default rate on mortgages that have been modified in the first two quarters of 2008.  More. . . . .

Does this surprise any experienced real estate watcher???  I seriously doubt it. 

HEY FHA.  The only persons who could qualify for mortgage modification are home owners who were already in default.

However, If I remember correctly, there are an estimated 25% of all mortgagors who are upside down on their home loan who are not in default.  They do not qualify for mortgage loan modification.  What sense does that make?

The value of this monsterous program has been suspect from the outset.  Many of us questioned the requirement that, in order to qualify, a home owner had to first destroy their credit.  I remember writing about it back in September 1997. 

The results were entirely predictible.

When the average American family owns a home, sees the mortgage payment adjust and through loss of income or other unforseen circumstances, has difficulty making the mortgage payment, they

• Get a second job
• Get a third job.
• Cut back on luxuries.
• Get rid of the 3rd automobile.
• Stop using credit cards.
• Send the child to public school.

For most American home owners, many, actions are taken to change the family budget other than default on the home mortgage or default on any credit account.  Families pull together and help each other make mortgage payments.  

Americans value their credit rating.  They do not default on a mortgage unless they absolutely have no choice.

HOME OWNERS WHO PARTICIPATED IN THE GOVERNMENT SPONSORED PROGRAMS ARE NOT REPRESENTATIVE OF THE MAJORITY OF AMERICAN HOME OWNERS.

WHERE TO SPEND YOUR ADVERTISING DOLLARS?  The last thing real estate agents and brokers need to hear in a recession, when every dollar is important, is “just give it a try”.   Advertising dollars should be invested, not gambled. 

Chapter 1 of this series examined the potential value of: