Oregon Mortgage News: March 2008

The slumping economy is now forcing baby boomers to move back with their parents, resulting in financial consequences for all. Some have lost jobs. Others are suffering the consequences of overextending themselves with larger houses then they could afford, real estate investments gone bad, or just buying to much "stuff". While this is inconvenient for the "kids", it can be devastating for the parents.

According to an Associated Press article more and more "kids" are moving back home with their parents to help make ends meet.

Financial planners report receiving many calls from parents seeking advice about taking in their grown children following divorces and layoffs. Kim Foss Erickson, a financial planner in Roseville, Calif., north of Sacramento, said she has never seen older children, even those in their 50s, depending so much on their parents as in the last six months. "This is not like, 'OK, my son just graduated from college and needs to move back in' type of thing," she said. "These are 40- and 50-year-old children of my clients that they're helping out."

Parents "jeopardize their financial freedom by continuing to subsidize their children," said Karin Maloney Stifler, a financial planner in Hudson, Ohio, and a board member of the Financial Planning Association. "We have a hard time saying no as a culture to our children, and they keep asking for more."

But plenty of well-meaning parents must delay retirement or scale back their dreams because they have to help their children, Stifler said. Parents feel guilty if they don't offer help, but she warns them to be careful with their savings.

A new survey by the retiree-advocacy group AARP found that one-fourth of Generation Xers, those 28 to 39 years old, receive financial help from family and friends. The on-line survey of nearly 1,800 people ages 19 to 39 also found 57 percent believed they were "financially independent." But in a separate question, 33 percent said they received financial support from family and friends."

This combined with the inflation, decreasing home values and an unstable economy, could jeopardize the retirement of many seniors. One option that will become more and more necessary for some is to access the equity in their home through a government insured Reverse Mortgage. Used judiciously, a Reverse Mortgage can supplement the retirement income without having to eat up the principle of the retirement account.

Feel free to call if you have any questions. Larry Morris 503-421-0096.

102% Financing for Sherwood, Oregon.

Guaranteed!!

It is becoming harder and harder for a home-buyer to purchase a home, yet there are still many affordable homes if you have a down payment or the advantage of a program that helps you qualify for more home.

Through a litle used federal government loan program, we are able to offer financing up to 102% of the appraised price on the purchase of a new home. This allows for the purchase price, seller contributed closing costs and the cost of the one time mortgage insurance.
 

Eligible Persons

• Have an adequate and dependable income.
• Must be a U.S. citizen or be legally admitted to the United States for permanent residence.
• An adjusted annual household income that does not exceed the published limits for Washington county . Call me for information on the income limits. Income includes the total gross income of the applicant, co-applicant, and any other adult in the household. It excludes certain expenses and adjustments. The larger the family, the more income is acceptable
• A credit history that indicates a reasonable willingness to meet obligations as they become due.
• Demonstrate repayment ability.
   

How to Apply

Click on the following link. Oregon Rural Loans

Homes that Qualify

• Guaranteed loans can be made on either new or existing homes.
• Plumbing, heating, water, waste disposal, and electricity must be certified as adequate and the dwelling must be free from termites and dry rot.
• No restrictions exist on the size or design of the dwelling financed, but must be considered modest.
• Must be a residence, not a farm.
• Dwellings with in-ground swimming pools, are prohibited.
• Homes must be located in rural areas. Rural areas include open country and places with a population of 10,000 or less and, under certain conditions, towns and cities with less than 20,000 population. Call me for a list of additional eligible areas..

Larry Morris is a loan Officer with American Nationwide Mortgage in Newberg, Oregon. He specializes in relocations and Sherwood, Oregon neighborhoods and Yamhill County. He can be reached at larry@PDX-Mortgage.com. His website is www.PDX-Mortgage.com. This material is copy protected 2007 by Larry Morris, Mortgage News that Matters. All Rights Reserved His opinions do not necessarily represent the views of Equipoint Financial Network.

Licensed in: OR, WA.

According to MarketWatch, "Sales of new homes in the United States fell to a 13-year low in February, dropping 1.3% to a seasonally adjusted annual rate of 590,000, the Commerce Department estimated Wednesday. Sales have fallen four months in a row and are off about 30% in the past year. The number of homes on the market dropped by 2.1% to 471,000, the lowest since July 2005, an indication that builders are trying to work off their bloated inventories of unsold homes. The inventory represented a 9.8-month supply at the February sales rate, unchanged from January and the highest since 1981. The median sales price fell 2.7% in the past year to $244,100."

This sounds bad, and for the most part it isn't great news. However, until we can get the "bloated inventories of unsold homes" off of the market, we won't see real improvement. Builders are still sitting on homes they started before the credit crunch when it was easy to get a loan. Now, they are faced with unsold properties, paranoid borrowers (or bargain seekers) and construction loans now due. Many are still holding out for sales prices that they easily could have received last summer.

Once we get to a healthy level of homes for sale, both new and existing construction, we will see prices stabilize and a "normal" market.

In Oregon, we're lucky, existing homes are still appreciating in most markets and it's still a great time to buy. There are still some great loan programs available for most borrowers.

According to MarketWatch, J.P. Morgan Chase & Co. reportedly has agreed to buy Bear Stearns Cos. for $2 a share in a stock-swap deal.  Evidently the set price will be $2 per share. It appears that both boards have approved the sale and are trying to put it together prior to Monday's Asian market opening.

Get ready for a rough Monday. The markets will not like this. It has the possibility of sending Mortgage Rates much lower since they generally move in the opposite direction of the Stock Market. However, since Bear Stearns is a strong player in the mortgage industry, Mortgage Backed Securities might not like it either.

While it's curious that a couple of days after a Fed bailout they are selling at a bargain, the "loan" was for only 30 days. Who knows what pressure the Fed put on them for a quick resolution to stabilize the markets. It will be interesting to follow.

Since we ended Friday in a nice position for Mortgage Rates, it might be prudent to lock rates tonight if you have a lender who allows weekend locks. If not, get ready for an interesting day!

Larry Morris is a Certified Mortgage Planning Specialist (CMPS) with Equipoint Financial Network in Newberg, Oregon. He specializes in financing for Senior Citizens and Rural Properties. He can be reached at larry.morris@equipoint.com. His website is www.PDX-Mortgage.com.

This material is copy protected 2008 by Larry Morris, Mortgage News that Matters. All Rights Reserved His opinions do not necessarily represent the views of Equipoint Financial Network.

If you are adding seller paid concessions on top of the purchase price in an amendment do not be surprised if the loan doesn't close!! This "common" practice has been a borderline fraud issue for a while. CWBC, has now made it official that they will no longer fund loans where the Purchase Agreement has been modified  (increased) to cover seller concessions.

In an email from my Account Executive today:

"Purchase Price/Property Value

I want to make sure that you are aware of our policy regarding adjusting the purchase price of a property upward to cover the seller paid closing costs after the initial sales agreement.  This is not allowed!  If you have an accepted offer, we can not allow them to raise the purchase price to cover the closing costs.  The original purchase price would have to be used as the value. (Or, the appraised value if it is less)  If your borrowers and the sellers agree to the seller paid costs up front, it is totally acceptable for the seller to pay for the closing costs and prepaids up to the allowable percentage for the loan program.  If they want to change it after the fact, and raise the purchase price to cover the fees, that is when it isn't allowed.  It can appear that they are artificially inflating the value to cover the closing costs.

So, make sure that when you send in your file to us all of the negotiations have been made between the buyer and the seller.  The original purchase agreement should spell out the seller contributions, if applicable.  Let me know if you have any questions."

I wrote about this in a post entitled "Are You Committing Fraud With Seller-Paid Concessions?"  This was featured and the responses were all over the map. Some agreed and others felt that I was wrong.

My stance was based on a CE classI took over 2 years ago on mortgage fraud taught by an expert in the field. One of his speakers was the Oregon Asst. Atty Generalwho confirmed what was being taught.

I highly recommend that you read the previous post as it gives more clarification as to why it's considered fraud and some work-arounds.

Countrywide isn't calling it fraud, but are no longer allowing it. I haven't checked with my other lenders, but would assume that they have similar practices.

Loan Officers: Stop suggesting that the purchase price be increased. If you get an offer that has it, be sure to clarify with an underwriter that they will allow it.

Realtors: Find out up front if your buyers are going to need Seller-paid Concessions and build them into the initial Purchase Agreement.

Buyers: Make sure that you let your loan officer and Realtor know that you will need Seller-paid concessions built into the original purchase agreement, even if they suggest that you add it later.

Sellers: Don't be afraid of Seller-paid concessions, it's only 2-6% of the sales price. If it means a closed sale, then it could still be worth it. Have the discussion with your Realtor when you are determining the price that you want to start with PRIOR to listing the home.

UPDATE:

I found a post online that sheds some interesting light, Another Look at "Sellers' Concessions" in Real Estate by Stephen J. Dubner. It speaks to some of the issues raised in the comments. If there is full disclosure, what's the harm?  Well, here's an interesting take from the seconday market's perspective. It's a pretty chilling assessment of today's market written in June of 07.:

"...In other words, where is the fraud if everyone is aware that this is going on? However, an astute observer must ask two questions: (1) if the seller had advertised her house in the market and the highest bidder was $200,000, how did the appraiser just a few short weeks later appraise the home for $240,000?; and (2) why doesn't the bank just advertise that they are willing to provide loans in excess of 100% of the contract price?

The answer to this riddle may lie in the fact that most banks securitize their home loans - that is, they do not hold these loans on their balance sheets but sell them to the capital markets. While there may be no fraud on the buyer, the seller, or the bank, there may yet be a fraud if this new type of financing is not fully disclosed to the capital market investors.

If this practice is disclosed, then it can be presumed that the investors factor it into their models and price their purchases of mortgage backed securities accordingly. If it is not, then it is a safe assumption that they are holding a portfolio that is much riskier than they had bargained for. If the loan was in excess of the market value from Day 1, as the housing market declines, this difference - and the capital market investors' losses - will grow accordingly.

As they start to lose money on these portfolios, the willingness of the capital market investors to supply of capital to the housing market will decline. When people are unable to obtain mortgages, the demand for houses will fall. As demand falls house prices will fall. And as house prices fall, the losses that capital market investors sustain will increase, making them less willing to supply capital to the housing market ..."

Kind of sound like where we're at today?

 2nd Update: An Appraiser Weighs In

Sara Goodwin posted on the previous blog a few minutes ago and I asked her permission to place that post her. I feel it is relevant to the discussion.

"Hello Larry -

Excellent post.  I have a friend that is an appraiser and loan officer who went to a similar class with Tim Spencer.  He said that LOs had the same reaction as you stated (especially after going over the fines for such incendences).

Tchaka wrote the following:

On the other side of the coin, appraising is an art, not a science and there is an allowable leeway.  3% leeway isn't out of whack, so by that token, that $100k home might really be worth $103k.

Where I think it gets more complicated is in your notion that appraisers will take the seller concessions into account when appraising.  That may be so, but most realtors don't take that into consideration when pricing homes.  Does every MLS even give that info?  So if some realtors don't know and they're pricing based on sales price alone, they are manipulating the market.

Now, the Oregon ACLB (appraiser's board) sent out a letter last year that said in short: Realtors are not required to disclose concessions to the public, but we appraisers are required to ask.  This means that if the concession information is not disclosed to us (which is not required) then we have to make the assumption that there were no concessions.  Imagine report after report with 3% concessions that were not confirmed for the sales comparison adjustments.  Compounded over time, it does make a difference. It will falsely increase values. 

RMLS has this dandy private remarks area where Realtors can go in after the sale closes and type in any concession information, short sale, etc.  I can't tell you how much this helps everybody because I don't have to hold up an appraisal waiting for a call-back from a Realtor regarding concessions...

... It occurred to me that I wrote a post on this very subject a while back.  Here is the link to the post with the letter from the ACLB. "

Again, it looks like the issue is full disclosure. If seller concessions were used and the RMLS wasn't updated to reflect it, then future comps could be artificially inflated.

Larry Morris is a Certified Mortgage Planning Specialist (CMPS) with Equipoint Financial Network in Newberg, Oregon. He specializes in financing for Senior Citizens and Rural Properties. He can be reached atlarry@PDX-Mortgage.com . His website is www.PDX-Mortgage.com .

This material is copy protected 2008 by Larry Morris, Mortgage News that Matters. All Rights Reserved His opinions do not necessarily represent the views of Equipoint Financial Network.