Opening Titles & Closing Remarks

Slowdown on the Road to Closing

My?real estate closing and title insurance business remained challenging during the first quarter of 2009 but in a totally different way that the previous six months. Opened order counts were the best since the first three months of 2004.

The challenging part for us is not getting the preliminary title work finished-we’re doing an excellent job with our turn times.?Managing all those files waiting to close is getting tougher. While new orders are way up, the percentage of those orders closing is far less than at any time that I can remember. According to my clients, these orders aren’t dead; the process to get to closing is just taking significantly longer due to a number of factors.

First and foremost, loan underwriting is taking a long time . . . a very long time. Reluctant to add staff when this flurry of activity started in December, many lenders now find themselves chasing their workloads, unable to get control of the ever increasing volume. Adding to the drag is that every loan underwriter feels they’ll be seconded guessed on any deal that goes bad so they’re being really cautious; more worried about not making bad loans than losing good ones.

Our market also has its share of valuation and appraisal issues but not nearly to the extent as in other areas. Generally housing values in Bloomington and Monroe County are not really going up much lately, but they’re not going down much either. I’ve heard of some deals where the lender required a second appraisal. Condominium appraisals are very tough right now. Especially in developments with non-owner occupied units.

Even if the industry learns to deal with the volume and tighter loan standards,?there’s another change on the way that will further retard the settlement process. During the second half of the year, lenders and the settlement services industry will begin to implement new procedures in order to comply with changes to the federal Real Estate Settlement and Procedures Act (RESPA) that become mandatory January 1, 2010.

A new form Good Faith Estimate and a new three page form HUD-1 Settlement Statement are major components of the changes. The RESPA changes mandate considerable accountability for lenders with regard to borrower’s settlement costs. The accountability will surely result in a training curve for everyone in the settlement services business. That learning curve is not going to make things happen faster. I’ll be posting more about these significant RESPA changes over the next few months, so be sure to check back.

In the current environment realtors?, lenders, buyers and sellers are well advised to anticipate that closings will be delayed. To minimize that possibility, buyers need to provide their lender with all requested information as soon as possible. Realtors, instead of writing a purchase agreement with the usual end of month closing date, consider a day in the middle of the month and earlier in the week. There’ll be less competition for the loan underwriter’s time and less chance that your deal will be delayed.

Monroe County Homeowners Taking Advantage of Government Stimulus

Federal credit market stimulus is clearly evident when examining mortgage recordings in Monroe County in the first two months of 2009. What is also apparent are those parts of the market that are not benefiting from any government action.

The 729 total mortgages securing loans between $50,000 and $500,000 are the most in this dollar range in the first two months of any of the last seven years. Mortgages in this range tend to be overwhelmingly residential first mortgages. I believe that this increased activity is indicative of the fact that Monroe County homeowners are taking advantage of the lower interest rates resulting from various government actions that began in early December 2008. Judging from new order counts in my company, this trend is still continuing.

On the flip side, mortgages outside that range are down significantly. Mortgages under $50,000 fell 46 percent from year ago levels (195 then, 104 now). These mortgages historically have been primarily home equity credit lines or piggy back purchase seconds. This segment has steadily declined during the last two years. Dollar value of loans over $500,000 (primarily jumbo and commercial) declined over 60 percent from year ago levels (after factoring out one $40 million mortgage securing school bonds). Are the declines in these two market segments reflective of tighter credit standards for loans deemed more risky than high equity first mortgages? I think so.

Monroe County benefits from the lowest unemployment rate in Indiana. The community’s primary employers are?Indiana University, the health care industry and medical supply industry. All three?are?not immediately affected by?the state of the?national economy.

The market is not flooded with vacant foreclosed homes and good values exist in all price ranges. Property values in Monroe County are also faring better than most other places. The worst that can be said in this regard is that values are not current increasing. The Office of Federal Housing Oversight ranks Bloomington for 2008 as the 72ndbest market out of 292 nationally with an appreciation rate of 0.64 percent during last year.

Next month I’ll look at the first quarter numbers for a variety of measurements including recorded deeds and foreclosures. If you’d like to be added to our mailing list and receive a complimentary copy of our monthly statistical package, please contact me or Kara Oltman through the link to our company home page.

How Do You Spell Relief? R – E – F – I

Tuesday I attend a presentation by representatives of Federal Home Loan?Mortgage Corporation (Freddie) in which they discussed?their new Relief Refi program. This is program is a big step in the right direction that will help the many families that are living responsibly within their means and making their mortgage payments.

I’ve?posted here before lamenting the fact that many mortgage borrowers are prevented from taking advantage of the current low interest rates because they no longer qualify for the same loan someone made them two or three years ago. In the brave new world of tightened loan underwriting guidelines their credit scores are no longer good enough or their property value has declined to less than they owe on their mortgage.??The Relief Refi program will help in many of these situations.

The program is based upon the common sense principal that if people are making their payments at 6 ? percent interest they probably will make them at 5 or 5 ? percent interest as well. In most instances, the lender will not need to re-underwrite the loan. One of the few requirements of the program is that during the previous twelve months, the borrower must be current on all their mortgage payments.

The property value issue is addressed by Freddie’s willingness to accept the loan up to 105% of the valuation indicated by their automated appraisal tool. Closing costs and pre-paids may be added on top of the loan up to $2500. Cash-out refinances are not part of this program and all subordinate liens must be re-subordinated.

The program is Freddie Mac’s contribution to President Obama’s Making Home Affordable plan announced a couple of weeks ago. It is for any loan that is owned by Freddie and is serviced (who the payments are made to) by the lender who sold it to Freddie. You can read the?full press release here.

Federal National Mortgage Association (Fannie) also announced two programs of their own. One for existing lenders and one for lenders working to refinance loans made originally through another lender. George Suoto summarized their programs quite well here. Fannie’s?18 page announcement can be found here.

Fannie and Freddie both require that eligible loans be closed on or before?June 10, 2009?(see?correction below)?I encourage homeowners to contact their mortgage company to see if their loan qualifies.

By the way,?Claire mentioned to me that?you’ll want to be at the front of this line. If?these programs?are as popular as?we think they?will be, the entire system is going to be?swamped by the deadline.

Because Freddie and Fannie are now essentially owned by the federal government, the Relief Refi program is in actuality the way for us average Joes to get a piece of the stimulus package. So be patriotic. Do your part to help the economy recover. Take advantage of the Relief Refi and then go out and spend your monthly savings. Seriously. We’ll all benefit in the end.

Correction March 14, 2009. I’m having one of those moments wondering what the heck I was looking at and I’m?feeling kind of stupid. The sunset dates on these programs are June 10, 2010 – not 2009. I apologize for the misinformation. So I’m certain that there’s enough time and capacity in the system to accommodate most borrowers. At least I can take comfort that anyone acting on my misinformation will only save money sooner, than later.