Maryland and Virginia Real Estate and Homes Blog

MY BUSINESS MODEL IS BUILT ON TRUST.

MIKE IN TUSCON inspires me to write about TRUST. 

Trust is the basis for my business.  In any given year, year after year, I refer about 1,000 home buyers a year to agents in my market area.  I am always, always seeking experienced real estate brokers and agents I can trust to:

• (1) do a good job for the buyers and sellers I refer, and
• (2) pay me the agreed referral fee. 

The number 1 criteria for including an agent or broker in my referral network is TRUST.

WHY REFER?  Referrals have been a recognized and respected component of real estate brokerage for as long as there have been real estate brokers.  We are not and can never be all things to all people.  In fact, the REALTORS^® Code of Ethics specifically advises:

• REALTORS^® shall not undertake to provide specialized professional services concerning a type of property or service that is outside their field of competence unless they engage the assistance of one who is competent on such types of property or service, or unless the facts are fully disclosed to the client. Any persons engaged to provide such assistance shall be so identified to the client and their contribution to the assignment should be set forth. (Amended 1/95) (Emphasis added)

REFERRALS ARE AN INTEGRAL PART OF MANY BROKERAGE MODELS.  Many large real estate companies have entire divisions devoted to referrals:  incoming referrals, outgoing referrals, buyer referrals and seller referrals.  These “RELO” divisions generate an income stream that can be an important percentage of the company’s overall profits.  I was inspired by my very first real estate broker who generated about 50% of her annual income from outgoing referrals.  Since she was a productive listing broker, she communicated with many home owners who were selling through the company’s relocation services.  This smart broker also offered her experience and services to assist her seller clients in finding a good agent to help them find a home in their new location. 

IDENTIFYING REFERRAL CANDIDATES

Field of competence.  I routinely receive contacts through my web sites from consumers seeking brokerage services that are: outside my “field of competence”, which in my case would be commercial, land, multiple-family real estate. 

Outside your market area.  I also routinely receive contacts through my web sites from consumers seeking brokerage services that are outside my market area.  Due to a comprehensive Internet presence, consumers from across the country contact me for information about or help with purchasing or selling real estate.  My #1 resource for locating and referring consumers for real estate services outside my market area is ActiveRain. 

Do you have more business than you can handle?  Since about 1995, my answer to this question has been an unqualified YES.  I advertise real estate brokerage services on the Internet and do, indeed, generate more business than I can handle.  In past years, I have employed real estate agents to share in the benefits of this flow of business.  When I referred buyers to agents in my company, all settlement checks were processed by my office and my broker split was retained as a bookkeeping transfer.  However, for referrals to agents/brokers not in my brokerage, I rely on the referral agents to make sure that my referral fee is paid fully and timely.  This is where trust becomes important. 

WHY DO SOME AGENTS NOT PAY?  Beats me!  Many agents or brokers appear to believe that trust means that they pay if and when they get caught.  However, when I find an agent or broker whom I can trust, I not only refer good business to them, I work hard to generate good business for them.  I have the on-line platform and the ability to focus advertising in specific market areas and fields of expertise.  Since my focus has been buyer brokerage since 1994, I generate more buyer referrals than seller referrals.  So, I rely on the wonderful agents and brokers in my network to help these buyers succeed in finding a home. 

Experience is a great teacher.  Over the years, I’ve had to track sales and confront agents who didn’t process my referral fee when they sold my referrals.  It’s not fun.  The agents become very defensive and, of course, I’ve lost a referral resource.  Sometimes, the agents process payment to me on several sales and then fail to do so.  Sometimes they fail to pay the referral fee from the very first referral.  One of the reasons I prefer to refer to brokers is because I know that they have a policy of paying referrals.  Some brokers are clearly better than others.  One local broker has made me chase and wait for referral fees to a point where I believe it’s a company policy to delay payment of referral fees.  I found out that one broker in Florida doesn’t pay referral fees to out of state brokers.  Fat chance of collecting a fee from him if I referred to one of his agents.  Fee are broker to broker.  While agents can assist the payment, they don’t write the checks. 

MY REFERRAL NETWORK includes:

• Brokers who were once agents in my company,
• Brokers and agents I’ve known over the years as experienced practitioners who communicate timely with telephone and e-mail,
• Agents and brokers I’ve met through years of participation on on-line networks, most recently ActiveRain, and
• Partnerships with brokers outside my market area to generate business for their company. 

Why Bryant Tutas, Broker Bryant, Tutas Towne Realty?

About a year ago, I contacted Bryant Tutas about referring home buyers (or sellers).  My thought was, with prices of homes falling so dramatically, that retirees in the Maryland and Northern Virginia area would respond to the web site and contact me and I, in turn, would refer the consumers to Bryant. 

The idea was for me to create a few web pages for his market area, Central Florida and refer any contacts from the web site to him for a referral fee.  We agreed and a week or so later (we speak Google), the web site was prominent in Google SERP for important keywords.  This web site was a cooperative effort.  Since Florida is outside my area of expertise, content and expertise was provided by the Florida Real Estate Broker.  My contribution was technical and creative.  Yes, I created a Florida Map. 

 Click to enlarge. 

Over the next year, these web pages generated a few referrals, but nothing substantial.  Of course, real estate sales in Florida were not setting any records either.  However, we did generate a wonderful buyer couple recently who purchased a home that closed  just a couple of weeks ago. 

WHY BROKER BRYANT?  All of the above comes down to one word - TRUST.  

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

                              * * * *  WARNING, HARD CORE REAL ESTATE TALK  * * * *

PENDING HOME SALES UP STRONGLY says NAR

NAR Chief Economist Lawrence Yun says that home buyers are responding to more affordability. 

NONSENSE!

I disagree with Mr. Yun.  I believe that the 8.8 percent rise in pending home sales for August simply reflects the rush of home buyers, agents and lenders to beat the clock ticking down on the Charitable Gift Programs which provided down payment assistance to home buyers. 

NUMBERS DON’T LIE.  Many builders attributed up to 25% of their home sales to the down payment assistance programs, Nehemiah and Ameridream.  The deadline was September 30, 2008.  None of the efforts to persuade Congress and HUD to keep their hands off the programs were successful. 

LOAN OFFICERS KNOW.  ActiveRain member Jeff Belonger put his money and time where his mouth is and traveled to Washington DC to petition Congress to preserve these valuable programs.  Jeff was relentless in educating ActiveRain members about the pending demise of these valuable programs.  However, the Down Payment Assistance programs are gone, at least those the relied on a contribution from the seller, and that, in my opinion is the cause of the uptick in pending home sales for August. 

OUR MARKET IS PRIMARILY FIRST TIME HOME BUYERS.  Far too of what in past years would have been “move up buyers” are not in the market because they can’t sell their existing home.  So, the First Time Home Buyers has become more important to the market.  I spend a lot of time looking for help for First Time Home Buyers. 

Prices are down in my area, one of the markets identified by Mr. Yun, but speaking from experience, of the many prospective home buyers with whom I speak daily, the loss of the Down Payment Assistance programs ending September 30, 2008 is the cause of the rise in pending home sales in August 2008.  I would estimate that 90% of the contacts I receive from prospective home buyers in moderate price ranges, under $350,000, their #1 need is down payment.  This is the biggest barrier to home ownership in my market.  The VA borrower has an advantage over FHA or Conventional home buyers these days.  The VA buyer can still buy with no down payment.  However, FHA and conventional borrowers have to meet some cash minimum to buy.  I have identified one program in Maryland that requires $1,000 of the purchase price from the buyer.  If the meet income and credit score requirements, we can help.  In VA, there is a program that limits the buyer’s cash needs to about 15 of the purchase price. 

We’ll see.  Prices are still down so we should see another rise for September, which I’m sure we will.  After all, the Down Payment Assistance programs didn’t die until September 30, 2008.  Let’s see how October, November turns out. 

With mortgage loans harder and harder to qualify for by moderate income families, the new FHA minimum down payment of 3.5% simply added another burden to an already stretched family budget.  Higher credit scores and higher down payments needed??  How can that help?? 

Of course, I hope Mr. Yun is right. 

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

YOU GOTTA LOVE THE WALL STREET BAIL OUT, er um, BANK BAIL OUT.

Ain’t it wonderful to be so big that the government wants to make sure you’re confident?

The government is injecting $250,000,000,000 into the largest, most successful, richest, major BANKS in the country. 

Why?

Because they, the banks, are not lending to each other. 

Why? 

Because they are not confident.

Why? 

Because they don’t trust the balance sheets of their competitors.

Why?

Because too many of them have gone under overnight when off balance sheet hedges, swaps, investments, etc., have caused them to fail.

Why? 

Because they didn’t want the Fed, FDIC, SEC, etc. to know how much they are really worth.

Why? 

Because there was a huge amount of manipulation and illegality and unregulated activity involved.

Why?

Because they made big bucks on unregulated transactions.

So, in order to give these huge entities, major banks, confidence, the Fed will inject between $25,000,000,000 and $2,000,000,000into them.   The bigger thay are, the more of our money they will get. 

Ain’t confidence wonderful?

PENDING HOME SALES UP STRONGLY says NAR

NAR Chief Economist Lawrence Yun says that home buyers are responding to more affordability. 

NONSENSE!

I disagree with Mr. Yun.  I believe that the 8.8 percent rise in pending home sales for August simply reflects the rush of home buyers, agents and lenders to beat the clock ticking down on the Charitable Gift Programs which provided down payment assistance to home buyers. 

NUMBERS DON’T LIE.  Many builders attributed up to 25% of their home sales to the down payment assistance programs, Nehemiah and Ameridream.  The deadline was September 30, 2008.  None of the efforts to persuade Congress and HUD to keep their hands off the programs were successful. 

LOAN OFFICERS KNOW.  ActiveRain member Jeff Belonger put his money and time where his mouth is and travel led to Washington DC to petition Congress to preserve these valuable programs.  Jeff was relentlessin educating ActiveRain members about the pending demise of these valuable programs.  However, the Down Payment Assistance programs are gone, at least those the relied on a contribution from the seller, and that, in my opinion is the cause of the uptick in pending home sales for August. 

Prices are down in my area, one of the markets identified by Mr. Yun, but speaking from experience, of the many prospective home buyers with whom I speak daily, the loss of the Down Payment Assistance programs ending September 30, 2008 is the cause of the rise in pending home sales in August 2008.  I would estimate that 90% of the contacts I receive from prospective home buyers in moderate price ranges, under $350,000, their #1 need is down payment.  This is the biggest barrier to home ownership in my market.  The VA borrower has an advantage over FHA or Conventional home buyers these days.  The VA buyer can still buy with no down payment.  However, FHA and conventional borrowers have to meet some cash minimum to buy.  I have identified one program in Maryland that requires $1,000 of the purchase price from the buyer.  If the meet income and credit score requirements, we can help.  In VA, there is a program that limits the buyer’s cash needs to about 15 of the purchase price. 

We’ll see.  Prices are still down so we should see another rise for September, which I’m sure we will.  After all, the Down Payment Assistance programs didn’t die until September 30, 2008.  Let’s see how October, November turns out. 

With mortgage loans harder and harder to qualify for by moderate income families, the new FHA minimum down payment of 3.5% simply added another burden to an already stretched family budget.  Higher credit scores and higher down payments needed??  How can that help?? 

Of course, I hope Mr. Yun is right. 

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

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THE HOUSING MARKET IS HAVING THE SALE OF THE CENTURY.  HOME PRICES IN NORTHERN VIRGINIA ARE THE LOWEST SINCE ABOUT 2003.  Buyers waiting for the market to reach the “bottom”, need to go shopping. 

FORECLOSURES ARE SELLING.  Short Sales are moving.  Home owners who must sell because of job transfers, family growth, good deal on new construction or other reasons have dropped prices dramatically and in many cases, will help buyers with closing costs.   

NORTHERN VIRGINIA REAL ESTATE IS ON SALE

FHA Financing is available for financing for all of the average price ranges above. 

VA financing is available for all of the above price ranges with NO DOWN PAYMENT and the seller can pay all of the buyer’s closing (negotiable).   Many homes are affordable for VA buyers reassigned to Northern Virginia through BRAC transfers. 

SUGGESTED LIST OF IMPROVEMENTS, UPGRADES, RENOVATIONS AND REPAIRS FOR FHA 203(k) or Conventional Home Improvement Purchase and Finance Loans. 

GENERAL, Chimney repair, Additions, Additional bath(s), Skylights, Finish attics, Finish basements, Repair termite damage, Treat termite infestations

REMODEL Bathrooms,Kitchens, replace appliances

UPDATING Exterior siding, Adding a second level, Add porch(s), Add stair railings, Attach Carport, Garage

ADD OR REPLACE SYSTEMS, Plumbing, Connect to Public Service, Heating, Air conditioning, Electrical systems, New plumbing fixtures, including whirlpool bathtubs.

WATER AND SEWER SYSTEMS, Add or replace well, Add or replace septic system (depending on lot size),

EXTERIOR, Roofing, Gutters, Downspouts, Siding.

INTERIOR, Flooring, Tiling, Carpeting.

ENERGY EFFICIENCY, Double pane windows, Insulated exterior doors, Insulation, Solar hot water systems, Caulking, Weather stripping.

LANDSCAPING, Patios and decks, Erosion control, Grading, Tree removal if safety hazard, Repair walkways, Repair driveways, Fencing (if in addition to first $5,000 minimum),

ACCESSIBILITY FEATURES, Remodel kitchens for wheelchair access, Lower kitchen cabinets, Install wider doors and ramps.

For more information, contact Lenn Harley, Broker, Homefinders.com, 800-711-7988, E-Mail.

MARYLAND AND NORTHERN VIRGINIA HOME BUYERS CAN TURN FIXER UPPER REAL ESTATE INTO BEAUTIFUL HOMES

FIXER UPPER HOMES FOR REHABILITATION IN MARYLAND AND NORTHERN VIRGINIA

Real estate in Maryland and Virginia offers many opportunities to buy homes in need of repair or upgrading.  The key is to find homes that need repair and can be purchased in the area preferred and in the price range that is comfortable and that includes the cost of rehabilitation, repair, upgrade. 

ALL THE HOME BUYER NEEDS IS A VISION 

Upgrades may include new windows, landscaping, steps, siding, roof, deck, garage, and more.

           Fixer Upper Homes * Foreclosure * Rehab Homes * Upgrade Kitchens * Repair Homes for Sale 
                                       Sweat Equity * FHA 203 (k) Loans* Conventional Rehab Loans

Maryland and Virginia home buyers are smart.  They know that there are many properties on the market that, with some repair and modernization, would make wonderful family homes.  Further, they understand that, after making upgrades and repairs to a house, the owner can realize a significant increase in property value. 

IT’S OPPORTUNITY TIME FOR HOME BUYERS 
The growth in the number of foreclosures in the area makes the fixer upper property a viable source for your first home purchase.  The missing link in buying a foreclosure or vacant home in need of repair is the financing.  HOWEVER, smart real estate agents know that financing is available. 

STEP BY STEP process to buy a fixer upper and make it into a beautiful residential property.

Parties in the transaction include
        The Home Buyers
        The Buyer’s Agent
        The Home Inspector
        The Mortgage Lender
        The Contractor
        The Consultant (FHA Loans)
        The Appraiser
        The Title Company

THE HOME BUYER NEEDS THE VISION. The home buyer is the most important party in the process of buying a fixer upper.  We, their Buyer’s Agents will show them a number of properties in their qualifying price range.  However, the home buyer must have the vision to know that when the upgrades to what is now an old kitchen with old appliances and cabinets, after upgrading, the kitchen will be not only functional, but beautiful and with “state of the art” appliances. 

Upgrades may include new cabinets, new flooring, new appliances, paint, and more.

THE BUYER’S AGENT HAS THE EXPERIENCE. Where the home buyer has the vision, the Buyer’s Agent has the understanding of the rehabilitation loan process to help the home buyer realize their goal.  Working together to locate the property that suits the price and location needs, the Buyers Agent will manage the contract process from search to settlement.   It is the Buyer’s Agent that coordinates the home selection, feasibility analysis, cost estimates, contract management through to the settlement with the seller who may be a foreclosing bank, investor or home owner with no funds to make repairs or upgrades to put the home in good marketable condition.

Areas in Maryland where many foreclosure and vacant properties suitable for rehabilitation loans may be located include:

MARYLAND foreclosure and vacant home locations include: Annapolis, Beltsville, Bowie, Clinton, Columbia, Ft. Washington, Frederick, Gaithersburg, Hyattsville, Lanham, Laurel, New Carrollton, Pasadena, Silver Spring, Upper Marlboro, Waldorf and more. 

VIRGINIA foreclosure and vacant home locations include:  Alexandria, Annandale, Ashburn, Bristow, Burke, Centreville, Denton,Dumfries, Falls Church, Fredericksburg, Gainesville, Greensboro, Herndon, Leesburg, Lorton, Manassas, Ridgly, Springfield, Sterling, Woodbridge and more.

                  Maryland and Northern Virginia areas served by Homefinders.com Network.

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

SEARCH LISTING OF HOMES FOR SALE IN MARYLAND AND VIRGINIA HOMESDATABASE.COM - All active listings from the MLS in Maryland and Northern Virginia.  Experienced Brokers and Agents ready to help.

WE CAN HELP!   

ALL I WANTED TO DO WAS MAKE A BUYER REFERRAL.

Earlier this week, I received a contact from a prospective home buyer about a property in DC.  I thought of Patricia Kennedy, one classy lady whom I knew would give these buyers the thoughtful and experienced service I seek in referral agents.  What followed led to an adventure in doing business on the Internet and concomitant technology beginning with:

• A Blackberry that was not operating.
• Phone messages not received.
• A blog loaded with extreme porn.
• More telephone messages.
• An e-mail acknowledgment.
• A phone call received.
• A referral made. 
• The porn removed from the web site.

SPAM FOR BREAKFAST EVERY DAY.  Over my years on the Internet, beginning in 1994, I have had to fight spam, hackers, spy ware, viruses, worms, more spam, and more porn and smut than any teen aged boy would want to hide under his mattress. 

It’s an ongoing battle that is annoying and costly.  In past years, when I tried to control the spam, I helped the spammers by having my e-mail address on my web sites, little realizing that was exactly where the spammers were getting my e-mail address when they crawled the Internet.  By 2004, it was taking me up to 2 hours just to download and dump the overnight spam volume.  A couple of years ago, I wised up and use a web based e-mail link that requires manual input.  Getting my e-mail address off my web pages reduced the spam volume considerably. 

Finally, in 2005, I installed spam filters on my Internet server which eliminated 95% of the daily volume.  Most of the rest I controlled with e-mail filters in my e-mail client.  As of today, the spam that comes to my e-mail box is minimal.  Who knows how much legitimate business is lost by these Draconian measures to protect myself and my business from absolutely choking on spam?  Who knows? 

DON’T LET YOUR GUARD DOWN.  This is a wonderful example of why it is imperative to monitor our Internet presence. 

I had one blog attached to Homefinders.com hacked.  Google caught it deindexed that page because the hacker had installed spyware.  Rather than try to repair it, I dumped the entire blog.  The risk of having my flagship web site hacked was too great.  There was clearly a hole in the Wordpress system big enough for a hacker to drive through.  I updated the Wordpress for all of my blogs to more secure issues.  My other outside blogs get a bit of spam and some smut but I have to approve them, which I don’t.  I add content to these little blogs regularly and the first task when I go in is to dump the comments.  Monitoring blogs is time consuming, but has to be done. 

It’s sad that, not only do we commit time and resources to Internet advertising, we are bombarded by the kooks and criminals that are way smarter than the law enforcement entities that purport to protect us.  Most of these intrusions into our blogs have little to no business intent, but are hacking for the sake of hacking or posting smut for the sake of posting smut.  They gain little if any benefit and merely operate to cause chaos.  Some very sick people get some very sick satisfaction of harming innocent and legal entities and individuals by their actions.

We are powerless to stop them.  So, we must be vigilant and do what we can to protect ourselves. 

ACTIVERAIN GOT IT RIGHT.  We complain when we get a single unsolicited e-mail from an itinerant Nigerian spammer trying to give us $23,000,000.  However, I am of the opinion that the systems in place on the ActiveRain system and servers are absolutely wonderful, professional and effective.  Protecting the ActiveRain blog from hackers and spammers was clearly paramount in the ActiveRain management planning and they did a good job.

SPAM will be with us for ever.  I personally would like to see some perp walks, but then, I always do. 

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

FAX THE OFFER TO 222-555-8888.  YOU WILL BE NOTIFIED OF ANY DECISIONS IN 2-8 WEEKS.

Over the past year, we’ve read many posts by real estate agents and brokers detailing their frustration trying to SELL foreclosure or short sale listings. 

LET’S SET THE STAGE.

• Buyer is fully approved for more than the list price.
• Buyer is non-contingent and ready to take possession.
• House has been on the market for more than 6 months.
• House has been reduced in price from $379,900 to $299,000.

Buyer’s Agent has a few questions about the existence of other offers and tries to contact the listing agent.  Buyer’s Agent gets Listing Agent’s voice mail with the instruction:  “Fax offers to 222-555-8888.  You will be notified in 2-8 weeks of any decisions. 

BUYER’S AGENT WRITES AN OFFER FOR THE BUYER AND FAXES IT TO THE LISTING AGENT FOLLOWING THE INSTRUCTIONS IN THE MLS LISTING. 

• Buyer waits 3 days and calls his agent. 
• Buyer:  “Have you heard anything?” 
• Agent:  “No, the agent says it may take weeks to get an answer.”
• Buyer:  “Call the listing agent and tell them that if we don’t hear something in 24 hours, we’ll buy something else.”
• Agent:  “I’ll do that and get back to you.”

AGENT CALLS LISTING AGENT AND LEAVES THE MESSAGE THAT THE BUYER IS WAITING 24 HOURS FOR A RESPONSE OR THEY WILL BUY SOMETHING ELSE. 

No response from listing agent in 5 days after leaving many telephone messages.  Buyer instructs his agent to withdraw the offer and show him other properties, IF the buyer’s agent is lucky.  Often, a buyer will hold his agent responsible and move to another buyer’s agent.  This is one of the reasons so many experienced buyer’s agent decline to work with buyers who include foreclosures in their search for a home to buy. 

The above is a “worst case” scenario.  But, the result is the same in that the property has been listed for months, has lost significant value and there is a viable buyer and offer on the table that goes nowhere.

WHY DIDN’T THE LISTING AGENT RESPOND TO THE BUYER’S AGENT’S CONTACTS?  Because the listing agent:

The listing agents has no authority to negotiate for the bank.

The listing agents has no management authority to do anything other than transmit the buyers contract offer.

The listing agent has many listings from the same mortgage company and would be bogged down all day on the phone if they took a personal contact approach. 

The listing agent has given the foreclosure listings low priority because the mortgage company listings pay far less than consumer listings.

WHY DOESN’T THE MORTGAGE COMPANY THAT FORECLOSED ON THE PROPERTY ACT IN WAYS THAT WOULD MAKE THESE PROPERTIES MOVE FASTER??

BECAUSE THEY DO NOT KNOW WHAT THEY ARE DOING!!

The mortgage company employee that is in control of the portfolio of foreclosures,

• is NOT a real estate agent, real estate broker,
• has never sold real estate,
• has no understand of the real estate market,
• does not have any experience negotiating real estate sales,
• is a salaried employee and will receive a pay check no matter when the properties in their portfolio sell or for how much.
• final decisions for price, terms and conditions for ratified contracts is not in the authority of the loss mitigation clerk communicating with the listing agent.
• final decisions on contract approvals are often scheduled weekly or bi-weekly by committee.  

The primary reason these transactions are so difficult for the buyers agents, buyers and listing agnets is because the mortgage company, their representatives communicating with the listing agents have no experience selling real estate. 

• They have never been to real estate school.
• They do not have a real estate license.
• They have never showed a home to buyers.
• They have never written an offer for a buyer.
• They have never presented a contract to a seller.
• They have no understanding of the real estate market.
• They have no knowledge of real estate brokerage.
• They have no knowledge of condition or inspections.
• They have no understanding of disclosure.
• They have no understanding of presenting offers, counters timely.
• They get paid whether or not the contract closes.

The skill sets required for employees of the mortgage companies for loss mitigation representatives are not transferable to real estate sales or real estate brokerage. 

FACT:   BANKS AND MORTGAGE COMPANIES DO NOT KNOW HOW TO SELL REAL ESTATE.

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

IT’S BEEN A ROCKY 2-3 YEARS.   Many real estate agents are working twice as hard for 1/2 the money, and they’re the lucky ones.   Many loan officers spend weeks documenting, getting approvals only to have a loan denied funding the day before closing.  No one ever really learns why but the implecation is always that the borrower didn’t qualify for one reason or another, more documentation, more money to close, house in wrong location.  I love that last one, house in wrong location.  A few years ago, many of these loans would have been approved and worthy home buyers would be moved in to their newly purchased dream home and making payments timely.

WHAT HAPPENED?  PERHAPS THERE IS JUST NO LOAN PRODUCT TO FIT THE NEEDS OF TODAY’S BORROWERS. 

REMEMBER THE ALT-A?  A LOAN PRODUCT REVIVED FOR A NEW MARKET.  When did we first learn of the Alt-A loan?  Seems to me it was sometime in 2002-2003, although I’m not sure.  I got an e-mail from a loan officer with whom I had done a lot of business over the previous 10 years. 

Lenn
Contact me about a the Alt-A loan product.
Alt-A loans will help buyers with good credit without income documentation.

The Alt-A was not a sub-prime PRODUCT.  The loans were purchased by Fannie Mae.  They met a need for consumers who “didn’t quite fit the traditional loan PRODUCT”. 

Interesting, I thought.  Goodness, this loan product must have been designed for some of our home buyers.  In the previous few months, we had prospective home buyers interested in taking advantage of falling interest rates but who couldn’t document sufficient income to qualify for the price range in which they wished to buy.  These buyers were either self employed contractors, business owners, sole proprietors, private duty nurses, software company partners, etc.  Many of these borrowers had been offered sub-prime loans because they couldn’t adequately document their income.  These buyers were almost all self employed, some with incomes to qualify at conforming rates or FHA but didn’t want to pay the high mortgage payments with the sub-prime rates.   The Alt-A loan PRODUCT was meant for this group of home buyers.

Primarily credit-score driven, the Alt-A loan product alleviated the limitations and due diligence headaches associated with documentation as well as assets and income verification. Translation:  If the credit score was high enough, the loan would be approved.  The borrower would pay a premium of 1/8 to 1/2% for the same interest rate, but they could buy their dream home.  Actuarial models had proven over and over again that borrowers with sufficiently high credit scores, 720 or above, were good risk borrowers.  WHAT?  No due diligence on the part of the loan officer/lender/investor???  Exactly.  The interesting thing about the Alt-A and similar loan products is that the guidelines do not require that the loan officer/lender/underwriter show that the borrower have the ability to repay the loan.  Such a deal! 

Of course, we know what happened.  The guys on Wall Street got greedy and designed a series of loan PRODUCTS that would permit more and ever more buyers to “qualify” but who didn’t have to demonstrate the ability to repay.  As long as Fannie Mae would buy the loans, bundle loans, chop them up and sell them to ever widening pools of big monied investors; investment bankers, hedge funds, sovereign wealth funds, etc., who knew that, as long as the American home owner continued to make their mortgage payment, their mortgage backed security was a safe investment. 

Alt-A Loans are defaulting left and right. 

What a difference 3 years make.  When home prices increased almost 100% in 4 years, the entire landscape of home buying and mortgage lending changes.  

• Folks who wanted to sell could not.
• Folks who wanted to buy could not.
• Mortgage brokers lost investors.
• Mortgage companies tightened guidelines.
• Fannie Mae ran out of money. 

YOUR LOAN IS NOT APPROVED!!  An interesting thing happened when Fannie Mae ran out of money.  Rather than admitting their incompetence and perfidy, they severely tightened the mortgage loan guidelines in an attempt to shift the blame for the lack of mortgage funding ability to the consumer borrower.  Loan officers were caught in the middle.   They knew the borrower met the guidelines when the buyers were approved.  The guidelines had become a moving target.

Fannie Mae and Freddie Mac ,who were experiencing monumental losses, falsified their  to be able to continue to borrow at advantageous rates to continue to buy loans on which no one had established the ability of the home owner to make their mortgage payments.  Of course, those same falsified financials permitted the Director, Franklin Raines, of Fannie Mae to receive multi-million bonuses. 

In 2004, $100,000 income qualified the average home buyer for a mortgage loan of about $525,000.  Many home buyers could qualify for 80/20 loans with $ZERO down payment.  As long as the credit score was high enough, a family could buy their dream home and qualify for a loan LTV of about 30-35% and often higher.  No longer did the ratios have to meet the traditional 28/36 test.  Millions of families took advantage of the liberal qualifying requirements.  Real estate agents sold a lot of real estate.  “Ah!  I remember it well.” 

In 2007, $100,000 income qualified the average home buyer for a mortgage loan of about $400,000.     Not only did the 2007 home buyer qualify for a much lower mortgage due to rising interest rates, the homes had increased in price almost 100% between 2002 and 2006.   The 4 bedroom Single Family Colonial on a 1/4 acre that was available in 2003 with a $100,000 income was now a 3 bedroom Town Home for the same $100,000 income.  Not only that, the buyers needed a down payment and a higher credit score to qualify for any loan.  Not only that, many buyers were pre-qualified, qualified, pre-approved, approved, provided a loan commitment, etc. only to find out 2 days before closing that their loan was not funded and their broker couldn’t find an investor.  Or, they got to the settlement table and found out that they needed another $4,000-$10,000 to close.  Why does everyone look at the real estate agent when that happens??

The above does not compare identical loan instruments because many of the loan instruments available in 2003 no longer existed in 2007.  Home buyers are often less interested in loan types than the monthly mortgage payment.  I love the American home buyer, but I do not give them any credit for understanding market value or mortgage loan products.  The consumer is focused on the monthly payment.  When it is low they know they can make it.  The fact that the payment will increase substantially is rarely the focus of the borrower.  They fully intend to refinance out of the ARM but need it to qualify to buy their dream home today.  There’s a bit of Scarlet O’Hara in most of us.   The American consumer is also very optomistic and very trusting of mortgage professionals.  They have to be.  They don’t understand what is happening.  Just give me my house!

WAIT, IT GETS WORSE!  For the first time in the history of the real estate market, not only did the home buyer / borrower have to qualify for the loan, so too did the property.  Remember the “DECLINING MARKET SYNDROME”?   Homes in some neighborhoods that had declined in market value or were thought to have the potential of declining in value at some unknown time in the unknown future, THROUGH A PROCESS OF DEVALUATION, were denied appraisals and the loan was denied. 

This was the most illogical force in mortgage lending in my memory since racial red lining. 

By about late 2006 to early 2007, home buyers looked at what they were qualified to buy and said “I don’t want that piece of junk”.   They stayed where they were and are just now coming back to look at the market, albeit, very, very slowly and with a lot of trepidation. 

Sure, it was a buying frenzy.  Prices were going up.  Interest rates were going down and, suddenly, families realized that it was an opportunity to buy in that great school district or buy that wonderful 4,500 square foot home that they had dreamed about for many years.  If they didn’t buy now, they might not be able to next year.  Of course, there were many buyers who purchased with the clear intention of reselling immediately following settlement.  Not a small percentage of these investment buyers were in the real estate industry. 

WHAT HAVE WE LEARNED?  A few things come to mind.

Just as car manufacturers design new vehicle models to respond to consumer demand, the mortgage industry designs mortgage products to respond to market changes.  Innovation is a good thing.  New products and new ideas fuel the engine of free enterprise.  However, in light of the disaster that is the real estate industry and mortgage industry today, in the future, I suspect that most of us will be just a bit more careful, run those numbers, and if a buyer doesn’t appear to qualify and show the ability to repay their mortgage loan, let them know it.  Show them the numbers today and 3 years from now.  Run that amortization table.  It’s an eye opener for many prospective home buyers.   

Courtesy, Lenn Harley, Broker, Homefinders.com.