?Three Rules of Work: Out of clutter find simplicity; from discord find harmony; in the middle of difficulty lies opportunity.? ~ Albert Einstein
?During the last three years we?ve been introduced to many new concepts. Mortgage modifications, robo-signers, qualified residential mortgages, Appraisal Vendor misManagement firms, mortgage backed security put backs, TARP and HAFA immediately come to mind. We?ve dealt with new RESPA regulations, new TILA regulations (several times), and coming soon new rules from the Consumer Finance Protection Bureau. Somewhere, amid all the change, there must be opportunities, right?
?One opportunity that we?ve pursued involves short sales. That?s when the seller?s mortgage holder agrees to take less than what is owed on the loan but still releases their mortgage. We?ve dealt with short sales for about five years. By and large, they?ve been very disruptive to our closing business. Each one was a fire drill and no one involved was ever happy with the process. Last winter we decided that there must be a better way.?
?That better way we call ISSAC?Improving Short Sale Approvals and Closings. The goal of ISSAC is to help Realtors? and their clients by prequalifying short sale sellers, submitting complete short sale packages to lenders for approval, and closing the transaction in a reasonable time frame. (Reasonable for most short sales is sixty to seventy-five days.) Kara Oltman, our Vice-President, Settlement Services is in charge of the program. Both Kara and I completed extensive training and earned professional designations as Certified Default Resolution Closing Specialists. ?
?So how many potential short sales are there? To get an idea, look at the Mortgages under $50,000 chart in our report. Several years ago thousands of home equity and piggy back mortgages were made in Monroe County. Some banks lent to 125% of assessed valuation. Although locally our values haven?t cratered like some markets, there still are a number of upside down homeowners in our community.
?The ISSAC program includes a two hour training session in our office, currently conducted once a month. Short sales applications are similar to mortgage loan applications. There are a number of details and contingencies that must be accounted for. The training session covers all of that. After the training Realtors? are better equipped to represent their clients on either side of a short sale transaction.
?We feel that ISSAC benefits the entire community. Each approved short sale is one less home lost to foreclosure; Sellers get to move on and start over; Buyers get the home they want; the neighborhood avoids an abandoned house with three feet of weeds and broken windows.
?We?re excited to offer our assistance. Contact Kara, Tammy Walker or me for further details.
?Good news and bad news in the May numbers.
Commercial lending is slowly showing improvement. There were twelve commercial mortgages securing loans in excess of one million dollars recorded in May. More broadly, there were thirty mortgages over $500,000 recorded in April and May of this year. Last year in April and May there were only fourteen such mortgages. This increase confirms anecdotal evidence that I?ve heard. Some banks?but not all banks?are making commercial loans in well qualified situations. A welcome sign of improvement.
The residential side of the market is still very soft. Our mainstay barometer of market activity is recorded mortgages securing between $50,000 and $500,000, as these most often represent residential first mortgage transactions. Only 497 such mortgages were recorded in the last two months. This is the lowest April/May total in the fifteen years that we?ve been providing our report. We seem to be in yet another ?interest rates will never be this low again? market. Yet, consumers are not paying attention. Or more likely, they may be unable to qualify under today?s standards.
The oppressive effect of regulatory and underwriting excesses is clearly taking its toll. According to a recent article in the Wall Street Journal, loan application rejections increased to 26.8% of all applications at the nation?s ten largest mortgage lenders in 2010. It would be hard to argue that increased rejection rates are not reflected in our own market. The numbers don?t lie. Hopefully, at some point, government officials and regulators will come to their senses. Without a strong housing sector, there?s little hope of the country enjoying a robust economic recovery.
On a more positive note, our acquisition of Meridian Title?s Bloomington office is transitioning well. I?ve attached a recent update for those who may have missed it. At this point, I can?t imagine how things could be going better. Thank you to all who offered their congratulations and well wishes. All of us here at John Bethell Title truly appreciate that.
?The four basis premises of writing: clarity, brevity, simplicity, and humanity.?
~ William Zinsser
This week the Consumer Finance Protection Bureau released two samples of its proposed combination Good Faith Estimate (GFE) and Truth in Lending Disclosure (TIL). I must say that I?m surprised and impressed. Each of the two page samples are huge improvements over the present combination of a three page long GFE, a two page long TIL and a one or two page cash to close worksheet. I?ve included copies of each of the proposed forms (one from Ficus Bank and one from Pecan Bank) with this month?s report.??
The Pecan Bank disclosure is the one that I?d choose if it were up to me. Buyers typically want to know what their cash to close is, what their payment is and what their rate is. The Pecan disclosure gives them the cash to close number first. The payment information is right next to it. You?ve got to hunt for the rate a bit, but I wouldn?t characterize it as buried or hidden.??
I also like the way the actual costs of the loan over five years are clearly stated. This seems a much more meaningful and easy to comprehend number than the algorithm used to compute the APR.
I also like the CFPB?s tag line??Know Before You Owe.? I appreciate the subtle implication that the borrower has some responsibility to know what they?re signing up for.?
If you?d like to receive updates from the CFPB or comment on the form, you can sign up at the CFPB?s website. Here?s the url: http://www.consumerfinance.gov/You can comment on the form by following the link to the newsroom tab at the bottom of the page.
?For every problem there is a solution which is simple, clean, and wrong.?
~ H. L. Mencken
Banks and other mortgage investors are still struggling with the effects of a bad business model. A model where more than ten percent of the people they were lending money to are not paying them back. For some mortgages, like sub-prime, a third or more of the loans are not being repaid.
To prevent banks from making such a poor business decision in the future, the proposed regulatory solution is to deny many first time homebuyers access to the housing market. Risk retention rules will reduce the number of their choices. Higher rates will be charged by those lenders that remain resulting in fewer borrowers qualifying. And if the indiscriminate application of excessively conservative down payment requirements and credit worthiness algorithms continues, the field of eligible first time homeowners will be even smaller.
It?s hard for me to see how this is a win for anyone but big banks. They can afford the risk retention whereas many smaller competitors can?t. And they can use the new regulatory scheme to justify charging higher margins.
I?ve included with this month?s report a white paper prepared by several real estate and mortgage finance organizations. The paper analyzes the effect that the proposed Qualifying Residential Mortgage rules will have on the ability of first time home buyers to enter the market. Whether or not you agree, the paper does a good job of identifying the issues.
Quick takes about the first quarter of 2011:
Recorded sales in the period are about the same as each of 2009 and 2010 first quarters. Is this really a sign that the market is improved since there are currently no significant federal home buyer incentive programs driving activity? I think so.
Although mortgage originations are up, January was the by far the best month. In our office, refinances have returned to the normal fifteen to twenty percent of originations.
New foreclosures started and recorded sheriff?s deeds both continue to show declines. This trend is about six months old. It?s either a sign that the foreclosure problem locally is in remission or that the process since Robo-signer-gate is messed up beyond belief.
?To simplify complications is the first essential of success? ~ George Earle Buckle
The Good Faith Estimate (GFE) mandated fourteen months ago is in my opinion creating more and not less uncertainty for consumers. The GFE just doesn?t tell them what they want to know. The form tells them what the lender is going to charge. The form tells them what the seller might pay for title insurance. The form tells them what other settlement service providers might charge. The rule that created the form results in some lenders grossly over estimating settlement costs. That avoids cutting the dreaded out of tolerance check at closing but seriously, how does that help the consumer?
The consumer wants to know ?What will my total payment be?? The GFE gives them some of the parts of the payment, but not everything, like the tax escrow amount. The consumer wants to know ?How much money will I have to bring to the closing?? There?s nothing remotely close to that answer on the form. The GFE does tell them their interest rate, which they want to know for comparison purposes. But by itself that information doesn?t help them complete their transaction.
One of the mandates of the new federal Bureau of Consumer Finance Protection (CFP) is to combine the Good Faith Estimate disclosure form with the even less useful Truth in Lending Disclosure. What might such a single form look like?
The American Land Title Association, the title industry?s national trade group, (ALTA) suggested a form of disclosure which it is currently discussing with the CFP. I think it?s a pretty good form and I?ve attached a sample at the end of this month?s report.
The current TIL and GFE forms total six pages. The ALTA?s form gets all the same information plus some more into three easy to understand pages. The three important questions?payment, rate, and cash to close?are all right there on the first page. Any seller?s contributions to the buyer?s costs, another omission in the current GFE, are clearly stated. The itemization of charges on page two looks remarkably similar to the actual HUD-1 closing statement. That will further minimize confusion. And instead of providing a shopping list format that few consumers use or pay attention to, it contains enough instruction to direct the engaged borrower to effectively comparison shop.
I think that the ALTA has done a great job. Hopefully their recommendations will be carefully considered by the CFP.