My New Blog

We all know that closing costs for a mortgage are HIGH, but did you know that closing costs for a refinance transaction are much higher?  Why?  and is there anything we can do to change this?

1.  In a purchase transaction, the seller pays some of your escrow and title costs.  This helps reduce your closing costs. In addition, it is not uncommon for a buyer to ask the seller to contribute more of the closing costs, in exchange for a slight increase in the cost of the home.  Lenders still allow this, as long as the house appraises for more than the buyer is paying (including closing costs,)

2.  In a refinance transaction, of course, there is no seller to help out.  So, escrow costs in particular, are much higher.  But, in addition to the usual closing costs, the client must also pay required "escrow, impounds, or reserves" towards payment of future taxes and insurance.  Here's the catch.  Your current lender is already holding "reserves" towards those future tax and insurance bills.  But, under current law, this lender is allowed to hold those reserves for up to 30 days after your loan is paid off. They can use your funds, interest free, for 30 days!  Then they send you a check for the impound account balance they were holding.  In the meantime, your new lender must collect these "reserves" again.  As the borrower, you must either come up with cash for these reserves, or add these funds to your "closing costs" and new loan amount.  (First of all, these are NOT closing costs.  These are funds YOU need to pay YOUR bills.)  But more important, adding this amount (sometimes several thousand dollars) will increase your loan amount, increase your payment - AND worst of all, could cause you to NOT qualify for the loan you want because it increases your debt ratio, and your loan to value ratio. 

Is there a solution?  While our good senators are busy arguing about consumer protection and changing all the mortgage laws, perhaps they could add to all their rhetoric, a requirement that your current lender MUST subtract your current reserve balance from your current loan payoff amount?  Why not write your Congressional respresentative today and ask that these changes be included in the new rules they are making.  Links to find and write both your Congressperson, and Senator are provided below.

www.house.gov/writerep

www.senate.gov/contacting/index.cfm

This is important people.  You never know when you might need or want to refinance your property.  This could affect YOU!

Warm Regards

Shelby

The S & P Case Shiller report was released yesterday for housing sales in the 20 largest metropolitan areas. 

The bad news is that home values are still falling nationwide, and ALL 20 cities show value declines since July 2007 (when the housing bubble popped.)

The areas that showed the greatest losses are still Miami and Las Vegas.  In general, the sunbelt cities have been hit the hardest by this downturn.  The sun is actually shining more brightly on the Pacific NW where Seattle and Portland are among the cities least affected by the housing downturn. 

Charlotte, ND   -.1%

Dallas, TX - 3.4%

Denver, Portland -4.7%

Seattle, WA -4.9%

In fact, Portland showed an increase in values of .74%.  Does this mean that Portland has hit bottom?  One report for one month does not mean that much.  We would have to see increases for several months to conclude that we are in fact at the bottom.  And, there are still builders out there with huge inventories they want and need to sell - so great values exist.  Unfortunately, as builders "give away the farm," they are bringing down the values for all of our metro area. 

Also, it should be noted that the Case Shiller report is based on median prices of homes sold in any period of time.  It could be that for April (top spring selling season), more expensive homes were sold than in March. 

The one positive trend noted in the report is that prices are declining at a slower pace than in prior months, so perhaps the bottom, for Portland, is closer than we think. 

This is a hard question to answer because, in all honesty, after the run up in rates, even after the housing crisis hit us last year, I was surprised to see rates fall to the lows they hit again in 2008. 

But, here's what I'm seeing lately. 

We are still seeing extreme volatility in mortgage pricing.  Mortgage rates are tied, for the most part, to the pricing and yield on the 10 year Treasury Bond.  When the pricing drops, and the yield rises, we usually see mortgage rates rise as well.  Historically, Bond prices usually move contrary to the way the stock market is moving.  When stocks are down, investors "flee to the safety of bonds," so bond yields drop. 

We are seeing some different influences at work lately.

1.  We are told that there are trillions of dollars on the sidelines waiting for some type of stabilization of the economy and the markets.  So, while the markets are volatile, they do not swing as wildly as they did before all this money withdrew based on economic news. 

2.  Good news still drives stocks up, and visa versa - but not 400-500 points in either direction.  And, sometimes, bad news does not cause the market to drop at all.  This is because there has been so much bad economic news in the last year, that much of the bad news is not unexpected anymore and has already been "built into the pricing."

The trends I am noticing in the last few months are that we are seeing higher lows, and higher highs - which signals to me that mortgage rates will continue to move higher for the near future.  Each time the rates move higher, they move very much higher, as in this morning.  In early May 2008, we saw rates for the 30 year fixed rate mortgage as low as 5.625%.  In spite of all the fluctuations recently, we haven't seen that rate again.  Eary last week, we saw the best rate at 5.75%, but while we had a rate pullback this week, we haven't seen 5.75%.  But today, we are seeing 30 fixed rate up around 6.25% - 6.375% on basically the same bond yield we had last week.  It seems there are other influences driving rates, in addition to the bond yield and pricing. 

I am trying to find out what those influences are, but in the meantime, we continue to see tight credit, with ever increasingly difficult guidelines to meet in order to qualify for a mortgage. 

Still, I believe we must keep this all in perspective.  A rate of 6.25% is a very low mortgage rate historically, AND, it is a very low rate internationally.  I have searched, and cannot find a single country lending at the rates available in the United States. 

Stay tuned for more updates.

Warm regards

Shelby

I think that most of you realize that a real estate loan, whether residential or commercial, is not an easy process.  By the time you have furnished all the required documentation to the lender, some of you will ask if we would also like your first born son? 

I've often said, smiling, that by the time we're finished, I'll know everything personal about you, except the size of your underwear. 

Seriously, this is not an easy process.  In the not so distant past, getting a loan, especially if you had good credit, was almost as easy as signing your name.  Your good name and good credit got you almost anything you could want.  Sadly, those days are gone.  Yes, "stated income" loans are still available from a few lenders, but you, as the borrower, pay a very much higher rate for that privilege, and you must have very good credit.

Since the decline of home values, lenders are very concerned about being able to sell your mortgage to either Fannie Mae or Freddie Mac (how many of you knew about Fannie or Freddie a few years ago?  How many of you knew, or even cared, that almost all mortgages are sold?)  Prior to the decline, there were investors of every shape and size.  Mortgages originated in the United States were sold worldwide.  Most of us don't have a clue who actually owns our mortgage.  We know only who services the loan. 

 Because our home values were increasing in value so quickly, investors weren't concerned about defaults.  They knew the housing market was so hot that if anyone defaulted, selling the home could be accomplished faster than a foreclosure could, or would take place.  Welcome to 2008.  House vacancies stand at an all time high.

Lenders and investors do NOT want to see a foreclosure.  They could actually LOSE money on your loan if you don't keep your payments current now.  So, we've gone back to the days when you must have good credit, you must document your income and assets, you must have a recent appraisal (with a lender approved appraiser), and frequently an appraisal review by the lender....... and, at the discretion of the underwriter, you might be required to provide even more information and documentation.  The process is not only cumbersome, it's exhausting for some borrowers.  You give us all the paperwork I ask for, and then the file is submitted.  The underwriter can, and usually does, come back and ask for more. 

We used to be able to close a good loan in 2 weeks.  Now, we are lucky to close a good loan in 30 days.  More often we are looking at 45 days.

The process is exhausting and frustrating for me too. Fortunately I have been in this business for quite some time.  I have long established relationships with appraisers, escrow officers, lenders, underwriters, etc.  Those relationships do help get us through this process.  There are times when I can go back to an underwriter, for instance, and beg for mercy.  Don't laugh.  Sometimes, it can actually help. 

As always, I will always put forth my best effort for each and every one of you.  I will try to make the process as painless as possible. 

I wish you all the best.

Warm regards

Shelby