Cash for Cottages, Castles and Condos: NO TRADE-IN REQUIRED!

August 8, 2009

by Brian Short, CMC, CRMS, GMACertified Mortgage Professional

            The US Senate just approved another $2 Billion for the auto industry’s stimulus program referred to as “Cash for Clunkers” after the first $1 Billion was used up last week in only 3 days.  It seems, at first glance, that this auto industry bail-out program might be havingCash for Clunkers some positive affect on another ailing US industry.  At least the players are allowing the program to work.  The Feds are giving away money (whether you agree with this approach or not), the dealers are accepting the qualifying vehicles and giving a $4,500 trade-in allowance toward a new qualifying car, and US consumers are using up the allowed funds to work this program.

            The housing industry has witness many attempts by the Feds to “jump-start” the stalled industry for the past 12-18 months.  One of the first was the FHA Secure Program with “impossible to qualify” underwriting guidelines for those who had made late payments on their adjustable mortgages.  Most of the national wholesalers were not participating and none of the FHA participating lenders would approve these borrowers for this program. 

            The Troubled Assets Recovery Program (TARP) initiated by then Treasury Secretary Henry Paulson and President Bush and expanded by the Obama administration attempted to infuse cash into the ailing national and regional banks so they would be more willing to free up credit to business owners, home owners and borrowers.  However, with the expansion of this TARP program came the announcement that the Feds could jump into the books of any bank who received these funds to determine if they were “financially solvent enough” to avoid a federal government take over.  Some banks refused the money, others returned it and most who received it held on to it to bolster their bottom line figures.  Either way, no credit was freed up and no home owners, home buyers, home builders or Real Estate industry players have received any relief from such a misguided and over funded Federal effort.

            The recent announcement by President Obama to design a federal loan modification program has been met with delays and unresponsiveness by Bank of America and Well Fargo – the nation’s two largest remaining banks holding the largest number of servicing rights on most of America’s residential mortgages.  On the one hand, these banks appear very unwilling to work with their customers to write down loan balances or interest rates to keep the existing home owner in the home, and yet on the other hand, they are all saying that they do not want any more foreclosed properties and the process of foreclosing on US homes is causing home values to dive bomb unlike anything we have ever experienced.

8000 dollars The one program still being promoted – “$8,000 tax credit of first-time homebuyers” – is far too limited in its scope.  This author was calling for this approach long before the Feds rolled out their version.  However, we were calling for a tax credit for any down-payment and closing costs used to buy a house by ANY buyer.  Only this breadth of a program which would include Real Estate investors, buyers of second homes and “move-up” or “move-down” buyers will truly have any effect of the most critical industry in our downward spiraling US economy. 

            Again, I am calling for the inclusion of those solid borrowers, experienced buyers and business owners to be enticed to get off the sidelines and risk THEIR capital (rather than the future Federal tax revenues for generations to come!) to help get the housing industry out of the dumps. 

            The average first-time homebuyer is still too scared and too inexperienced to be a major player in rescuing the ailing housing industry.  They are fearing for their own job security and seeing house prices plummet causes them to be squeamish about investing what little cash they can scrape together to buy something which may be worth less than what they paid in 2-3 years when they might be ready to sell and buy something bigger or in a different location.  This group of buyers does not have the “staying power” to be the key to a housing industry recovery.  Bring in the Pros!  We need the seasoned home buyers and investors to be encouraged to buy up the housing inventory busting at the seams so builders will be enticed to start building again.

            In the meantime, those who desire to take advantage of the $8,000 tax credit have less than 4 months to get their first-time home purchase selected, financed and closed.  This is not much time in light of heightened underwriting requirements, appraisal delays and turn times in wholesale approval processes.  Those who can benefit from this limited time tax credit must move quickly to get the benefit of the $8,000 “give-away” by the Feds. 

            If you or someone you know has not owned a house in the past 3 years and desire to buy a house before the end of the year to take advantage of this $8,000 refund of all tax withholdings during 2009 and an outright rebate of whatever the difference is between what has been withheld and $8,000, they must get into the game quickly by contacting a Certified Mortgage Professional to get pre-qualified before going out to shop for houses with a Realtor.  The clock is ticking.  There is no promise that the Feds will extend or revamp this program once it expires on December 1, 2009, regardless of how many housing experts, like this author, call for a program which will really help the struggling housing industry.  Sellers are motivated to sell, there is a record-breaking level of houses included in the existing home inventory, and Realtors and Certified Mortgage Professionals have time to give a first-time buyer the time and attention they need to make a great choice to get into (or back into) the housing market.

            The good news is – no “clunker” trade-in is required to participate in this cash give-away.  You can buy anything you want and still get the $8,000 tax credit – a cottage, a castle or a condo!  COME ON DOWN!  You’re already a winner!

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New Appraisal Rules Bad for Consumers and Recovery

June 9, 2009

By Brian Short, CMC, CRMS, GMA

Beginning on May 1st of this year (2009) any home buyer or homeowner getting a new mortgage on their house will be up-charged $150-$250 for their appraisal and generally charged an additional $968 to close their new loan!  You mean, you never heard about this?  You thought the government was doing all it could to stimulate the struggling housing industry?  Guess again!

A year ago, one attorney general in New York, with a famous last name,

NY AG Andrew Cuomo

NY AG Andrew Cuomo

Cuomo,  struck a deal with Fannie Mae and Freddie Mac to keep them out of a potentially very ugly and very public law suit because of blind eyes they had been turning to a now bankrupt bank, Washington Mutual. 

You see, WaMu (as they are known in the banking world) had a side business they were operating where they started an Appraisal Management Firm where they required their loans to include an appraisal only from those “independent” appraisers who would join their firm and work for 3/4 of what most professional-level appraisers would work. 

Keep in mind, this did not lower the cost to the consumer.  Their appraisals still cost the same.  It was simply another income stream for the bank and a way to control who did their appraisals.  These appraisers soon learned who “buttered their bread” and were very careful to give the federally chartered bank the value they needed to get their loan closed.  Sounds fishy, huh?  YOU BET IT DOES!

Now enters the young Cuomo, called Andrew, with his eyes on bigger political prizes.  He uncovers this corruption and sues WaMu, Fannie Mae and Freddie Mac – who all seemed to know that WaMu was doing this.  (Countrywide/Bank of America STILL own their Appraisal Management firm – Landsafe!)  To head off this embarrassing high-profile lawsuit they struck an “out-of-court” settlement which goes far beyond the jurisdiction of the state attorney general.

He asked for, and received, assurances that no Fannie Mae or Freddie Mac loans would ever be accepted by federally chartered banks who required that their appraisals were done by their own appraisal management firms?  Right?  Wrong!!  Wrong!!  Wrong!!

This new agreement which went into effect on May 1st exempted ALL FEDERALLY CHARTERED BANKS!  The new agreement, crafted in Albany, NY was never approved by Congress or any state legislature. It was drawn up in some back-room to avoid a trial against a corrupt bank doing corrupt business with a corrupt Appraisal Management firm they owned – most likely known about by both corrupt Government Sponsored Entities (GSE’s) Freddie Mac and Fannie Mae!  And to top it off, ALL FEDERALLY CHARTERED BANKS are exempt!  This new “back-room agreement” only affects mortgage brokers and bankers who are generally supervised or chartered by state banking regulators.

WaMu is NoMoIf that was not enough, it now requires all appraisals to be ordered through APPRAISAL MANAGEMENT FIRMS!!!  This very same corrupt system that WaMu used to artificially inflate their appraisal values to ensure that their loans would close – making sure that no independent third parties were involved in the process of assigning values to the properties under consideration!  What?!?!? 

I thought it was the corrupt Appraisal Management Firm model of business that had proven itself to be untrustworthy in the New York back-room in that courthouse in Albany?  Why is it that Mr. Cuomo would wrongly insist that ALL APPRAISALS now be ordered and up-charged by centralized corporate middle-men who do not know local property values, local building standards, and local business practices.  This new layer of New York mandated bureaucracy is required all across the country without a single vote or hearing from industry insiders on how it would negatively affect the struggling mortgage and Real Estate industries. 

These “middle-men” are unregulated by any federal or state agency but have been given the task of arranging for 70-80% of all mortgages being closed in the country and up-charging the cost of that appraisal by $150-$250 per order and passing that cost on to the unassuming buyer or homeowner.  Those $300 appraisals are now costing $400 – $500 for someone outside the state to assign the work to someone with whom they have a working agreement who may or may not live in the area, ever work in the area, or have ever researched the housing market in the area of where the appraisal needs to be done. 

What is their qualification for getting to do this appraisal for this Appraisal Management Firm?  They have promised to work cheap and fast!  Is that who you want to do your appraisal?  Cheap and fast?!?  Who benefits from this arrangement?  The host of newly formed unregulated and unsupervised Appraisal Management Firms are making out like bandits!  Everyone else in the transaction is supervised by a state or federal agency or governing board – Realtors, Mortgage Professionals, Home Inspectors, Insurance Agents, Surveyors, Builders, Title Agents, Appraisers – they’re all tested, licensed, and regulated.  Who tests, licenses or regulates the Appraisal Management Firms?  Why should they be making any money in this transaction?  What are they professionals at doing?  Looking at the next name on a list of random appraisers who have agreed to work for what they will pay them – even if they are not local professionals themselves.

It is reported that this new layer of middle-men have added another 5-10 days on the already very slow loan underwriting timetable causing delays in loan closings which cost the borrower an additional $500-$1,000 to extend the rate lock so they still receive the rate they agreed to receive at the time of the loan application.  Some have estimated that this new over-reaching agreement will cost Americans $2.8 BILLION EVERY YEAR and cause weeks of delays in closing Real Estate mortgages!

Let me make sure I get this right – the consumer is paying anywhere from $650- $1,250 to get an inferior appraisal done which takes longer to get back simply because a nationally chartered bank had an Appraisal Management Firm in their “back pocket” and they were so corrupt that they are no longer in business.  That was the punishment put on all American borrowers by one attorney general in one state up in the northeast because he had dirt on some crooks at Fannie Mae and Freddie Mac?  This can’t be good! 

Would you like to join the thousands of housing industry professionals in calling those who forced this on you and your neighbors without a single vote or hearing?  CLICK HERE to see who you can call and make your voice of protest heard.