It seems the tea parties held this week are driving the left nuts. They just don’t know what to make of ordinary people taking time out of their day to register their disdain with politics as usual.
This was not about Republicans vs Democrats. What is 
misunderstood is there is a growing disgust for both parties.
Things must change all right. The change we need is to return to adhering to the Constitution.
Hope you enjoy this pictorial collage from our local tea party.
Feel free to post a picture of your tea party in the comment section.
Jay Williams
It’s that time of year. The first Monday in April marks the men’s basketball NCAA National Championship Game.
This year will be one of great interest to me and the hometown hero’s of the University of North Carolina with take on the Spartans of Michigan State.
I have always considered March Madness to be the hardest college national championship to win. Many 
years as you come to this weekend your team is out of the tournament.
One and done. Teams are so evenly matched and any game can go any way. Win or go home!
I’ve lucky however. I live in North Carolina. Did you know there are only 14 schools that have ever won more than 1 national championship, yes that’s right. Three of those are from the state of North Carolina.
The Wolfpack of NC State have won 2, Duke has emerged victorious 3 times. The official record book only counts 4 National Championships to the Tarheels. But according to UNC they have won 5 as they count 1924 as a championship year. This was before the NCAA started keeping track in 1939.
One must give credit to Michigan State as being on of the 14 schools with multiple championships in 1979 and again in 2000.
But this blog is about the Tarheels of the University of North Carolina. Did you know?
This promises to be a good game between two basket ball schools with great tradition.
In case you missed the games Saturday or just want to watch the highlights, enjoy
If you are a Tarheel supporter weigh in with your comments-------OK, if you are a Spartan fan we 
would like to hear from you as well.
Go Heels!
Jay Williams
One of the major culprits of the current financial crisis, in my opinion, has been a complex and little understood accounting principle. This accounting principle is called “mark to market”.
I am no accountant and will be the first to admit I don’t fully understand this hideously complex financial accounting standard. So I have to think of it in terms I understand.
For the purpose of this prose let’s suppose you live in a sub-division. You bought your home for $250,000. Your current mortgage balance is $200,000. You are paying your mortgage payments on time and you have no intention of selling your home.
However, the terms of your mortgage is such that every three months the value of your home and your outstanding mortgage balance is subject to “mark to market” accounting.
During the most recent three months your neighbor had to relocate 
due to a job change and she sold her home for $200,000 or 80% of the prior market value. Your mortgage holder contacts you and says “Your home is worth 20% less than it was three months ago and under the terms of our agreement we need for you to reduce your mortgage balance by 20%.” By the way we need this $40,000 today. Somehow you make this payment and you now owe $160,000.
Another three months goes by and one of your neighbors has lost their job, went into foreclosure and the property was sold for $160,000 or 20% less than the last sale. Your mortgage holder comes to you requesting $32,000 and again yes you need to pay this today. You drain your resources and now you owe $128,000.
Over the next three month there were no sales in you neighborhood. Your mortgage holder makes some calls asking investors what they would pay for homes in your neighborhood. Due to the uncertainty they receive indications that investors would only pay $80,000 if they were to purchase today. You mortgage holder then contacts you and tells you we need for you to reduce your mortgage by another $64,000. You pick up the phone and call your Uncle Sam and scream help I need a bailout.
Do you think this is insane?
This is an oversimplification of what has been happening to the financial institutions with the huge holdings of mortgage backed securities. You don’t hear much about this in the media. It is much more fun to talk about evil lenders and irresponsible home owners.
Much of this financial crisis could have been averted and cost a whole lot less money if action had been taken on this financial accounting principle. But why did this happen in this cycle? The rules on this accounting principle were set by Congress just a few years ago; A legislative overreaction after the fall of Enron, WorldCom, etc.
The good news is this week the Financial Accounting Standards Board, this week, has announced some relaxing of these “mark to market” accounting rules.
Crisis leads to Congressional and regulatory over reach that yields huge unintended consequences down the road. What will we reap in the future? Only time will tell.
One imminently facing us on the horizon is the new appraisal requirement for the Market Conditions Addendum. Read my blog on this subject.
Comments are always welcome. I would like to hear your opinion.
Jay Williams
This week FHA issued a mortgagee letter to respond to declining markets. These changes go into effect for all FHA appraisals beginning April 1, 2009. This aligns the FHA appraisal requirements with FNMA which also requires new reporting as of April 1.
Appraisers are currently expected to note the trend of property values. Are property values increasing, stable of declining? They are to provide conclusions as to the supply of properties in the subject neighborhood. Is there a shortage, in-balance or over supply of homes for sale? Additionally appraisers are to provide data of the marketing time for properties for sale. Is it taking under three months, three to six months or over six months to sell the property?
All appraisals performed beginning April 1 must include the Fannie 
Mae for 1004/MC, the market conditions Addendum. This form addresses the following data points to determine the current market conditions:
As a real estate professional let me encourage you to learn about the market conditions addendum. I am including a link to Fannie Mae’s training for this.
Also included is another link to a video presentation for the explanation and training for this addendum.
Click here to view the video presentation.
It strikes me that pricing your listings correctly may be more important than ever. Part of this analysis includes (a) the ratio of list price to sales price and (b) the tracking of include the original list price, any revised list prices, and total days on the market (DOM).
My opinion is this, do not contribute to you market area being deemed a declining market by allowing your sellers to over price their property to today’s market. This will have the effect of decreasing the ratio of list price to sales price as well as increasing the number of days on the market.
An additional opinion, if you are working with low ball buyers, let them know this is having a detrimental effect on the market. Paying a fair price is appropriate, but taking advantage of sellers is hurting everyone and is contributing to the housing difficulties. Maybe you should think of not representing those that continue to make low ball offer after low ball offer.
Real estate agents, I welcome your thoughts and comments on the impact this additional analysis by appraisers may have in your market.
Appraisers, please weigh in on this topic. I am interested in what you know and think.
Jay Williams
I recently completed a six part review the Homeowners Affordability and Stability Plan. In many of these 
posts, I mused about the Unintended Consequences that may be associated with elements of this plan.
As a disclaimer I must inform you this six part series was written between the time of the announcement of the plan and the March 4th date of details being released. I will need to conduct further review now that details have been released. I took a break and wrote about other subjects last weekend and Good News I’ve been really busy with my day job, originating mortgages in Greenville, NC.
The Obama administration, in the Affordability, section of the plan advanced the concept that borrowers with loan to value exceeding 80% could not benefit from the current refinance environment. This left me scratching my head, because this was, in large part, untrue. Then the light went on, there will be unintended consequences!
In the conventional lending space changes aplenty are occurring for both pricing and loan program guidelines. Let me share with you just a few! This is by no means an all inclusive list. It would take too long to detail them all. In fact, I haven’t even absorbed them all. Good News, I’ve bee too busy booking loans ahead of the changes!
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Coming Soon To A Lender Near You, If Not Already Implemented |
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Change |
Old Guidelines |
New Guidelines |
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LTV’s > 95% |
Allowed under certain conforming programs |
The maximum LTV is 95% |
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LTV’s > 80% |
The minimum credit score was 620 on conforming programs |
The minimum credit score is now 680 on conforming programs for LTV’s > 80% |
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Second Homes |
The maximum LTV was 90% on conforming programs |
The maximum LTV is now 80% for second homes |
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Cash-Out |
The maximum LTV was 85% on conforming programs |
The maximum LTV is 80% for cash-out loans on conforming programs. And paying off subordinate liens (second mortgages) is now deemed as cash out and is not allowed above 80% |
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Maximum Debt to Income Ratio |
The maximum DTI was 45% for LTV’s > 80% or determined by automated underwriting systems |
The maximum DTI is now 41% for LTV’s above 80% on conforming loans regardless of the automated underwriting system findings |
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Reserves |
Were determined by automated underwriting |
Minimum two months reserves and stricter requirements may apply for all conforming loans above 80% LTV |
Well, I’m no longer scratching my head! What was untrue is becoming true. I haven’t even touched pricing 
changes and I think I will save that for another day.
I will share additional changes for soft markets. Any of you ever heard of the soft market policies? I thought so!
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Soft Market Guideline Changes Coming Soon To A Lender Near You, If Not Already Implemented |
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Credit Score |
The minimum credit score was 680 for LTV’s between 80.01%--90% |
The minimum credit score will be 700 |
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Condominiums |
Condos were allowed up to 95% LTV |
The maximum LTV is now 85% for condos in soft markets |
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Interest Only |
Previously, interest only was allowed for LTV’s 80.01%--90% |
Interest only no longer allowed for LTV’s > 80% in soft markets |
Mortgage clients, now more than ever, you will need to be working with a knowledgeable home loan professional!
Realtors and builders, if you are not firmly aligning your business model to include a true partnership with a trusted mortgage professional, then you can expect messy and difficult transactions.
So here we go, expect more Unintended Consequences! Wait a minute are the consequences intentional? You be the judge!!!
As always, your comments are welcome.
Related Posts
Jay Williams
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Integrity is the cornerstone of my business. I believe a mortgage should be about building relationships, and helping my costumers achieve their home financing goals, not just a transaction.
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