Arthur Buhrer, Senior Loan Officer, Washington State

Mary’s husband passed away a couple of years ago and Mary’s life, as she had known it, suddenly changed. The household income was cut by more than half and her responsibility to maintain her life more than doubled. Mary struggled to make the mortgage payments with her single income for two years and even came up short on the property taxes over the last two years. When Mary and I meet she had about a month left before she was going to lose her home.

It was hard to believe but she was about to let her home go and was about to walk away from over $100,000 in equity. See owed $110,000 on her home that was worth about $230,000 and was going to just let the bank have it or file bankruptcy. Mary had just turned 62 which is the first requirement for a Reverse mortgage. She also had a lot of equity in her home, which is the second requirement. After her mandatory counseling session, appraisal, and a lot of behind the scenes processing, we were able to close her new reverse mortgage.

We paid off all the back taxes, 9 months of mortgage payments, late fees, attorney fees, loan fees, and Mary still walked away with $1,500 in cash. She received an FHA fixed reverse at 5.65%. When Mary called to thank me after signing loan documents I sensed tears when she could not describe in words the burden that had been lifted. She was able to keep her home and focus on her full time job of helping others.

1. Excessive Micro management of the appraisal industry. Now instead of sending a piece of paper directly to an appraiser; a third party company gets my order and sends it to an appraiser. This has increased turnaround times, cost, and quality of the appraisal. Appraisal Management Companies (AMC) are up charging for an appraisal without providing any real service.

2. Increased fees to borrowers. Did you know the fee for an appraisal has jumped from $400 to $525 overnight? How many borrowers have paid for 2-3 appraisals when 1 appraisal would have been sufficient? Every piece of legislation aims to decrease borrowing costs to homeowner and yet this is allowed to happen. A recent transaction of mine the borrower had to pay for 3 appraisals.

3. Dictatorship of the independent appraisal industry. How would you feel if someone began to dictate to you that you must wear certain clothing, carry an email capable device in the field, return calls within two hours, return emails within 1 hour, and then told you how much less you will receive for the work you previously charged more for? This is criminal what has happened to the appraisal industry.

None of this addresses the real issue: Responsibility. The entities who are selling pools of loans to investors should be responsible for the quality of the investment. If they are relying on another 3^rd party to tell them their collateral’s value then they have just created another degree of separation. Which is pretty smart if you thing about it. The next time the house of cards come down the banks will simply be able to point to the AMCs and blame them for their mistakes.

I offer two simple solutions.

1. Make banks, brokers, and correspondents use their own personal rolling appraisal lists. AND enforce it in audits.

2. Make banks read appraisals and review them internally.

That’s it. No extra cost to the buyer. No headache to brokers and real estate agents; just plane shifting of attention to what is important.

Why are lenders taking so long to underwrite and fund loans, or even return phone calls? In what used to take two weeks to 30 days tops, depending on appraisal, is now taking 30-60 even 90 days in some cases.

Let's start by adding a declining market, a recession, if you will. Next add corporate layoffs and mortgage industry downsizing to the mix. Stir in a heavy dose of credit guideline changes, almost on a daily bases. Fold in Federal lending rate cuts, dropping mortgage interest rates, and exponentially increasing refinancing (refi boom). Lastly, sprinkle Credit crunch on top with new regulations such as HVCC/HERA and what do you get?
A recipe for the perfect storm of delayed underwriting, increased fees and costs, and frustrated home buyers.

My experience has been pleasant with those refinancing but the home buyers, especially the first timers, have a hard time grasping what is taking so long. The anticipation of the new home seems to get the better of them.

Now, I do have avenues to close the loan quicker but those lenders don't always have all the programs available and their rates tend to be a tad higher.

The best solution I have found is to explain the situation in a way that doesn't add too much to cloud their mind and ensure them they are in good hands. It may take an extra few weeks to close the loan but we have great rates, and a lender that I know isn't going to throw me any wild curve balls. Ultimately the loan will close and the end result will be the same.

As, I finished writing this blog it does seem that most turn times have come back down to reality. Even so, we are just a few interest rate swings away from them going back up again.

Cheers,

Results from my informal 2009 Sequim Home Show survey. 23 People were surveyed.

1. How do you feel about the new President (Positive or negative)?

13 responded positive. 7 responded negative and 3 neutral.

2. On a scale of 1-10 how do you feel about the economy with 10 being good?

-5,2.5. , 2, 2, 1, 2, 1, 6, 8, -1, 4, 3, 1, 2, 3, 4, 4, 3, 3, 5, 1, 4, 4.

3. Will you be making a big purchase in the next 12 months?

16 Responded No, 7 responded Yes. 3 said they were planning on purchasing a home, 2 said furniture for the house, and 1 said a car.

4. Will you be doing any traveling this year?

18 people said Yes, 5 said No. Out of the 18 eight said they would be traveling domestically and six said they would be traveling abroad.

5. Are you retired?

10 responded Yes.

6. Are you self employed?

8 responded Yes.

7. What is your current interest rate?

6%, 0%, 4.5%, 0%, 5.5%, R, R, 0%, 0%, 5.6%, 0%, 5%, 0%, 5.5%, 7%, 0%, 0%. 0% equals they owned their home free and clear, R means they rent.

Please continue the survey in your comment or just leave a comment.

There is a lot of hype surrounding this. However, I don't think it will be all roses for good responsible borrowers.
These new loans will have to be FHA. How else are they going to insure them and the lenders who originate them? That means funding fees and monthly MI. Just to get down to 4% ??

What about the loan modifications? Will that be something a broker will be able to do? OR Are they going to rely on the lenders just like the failed HOPE program?

Solution: Get Fannie and Freddie to play nice and move in a positive direction. They can remove all adverse market overlays, ltv restrictions, etc.. Bring back verbal verification for solid borrowers, and some SIVA loans for certain Borrowers. Take away hits for investment properties. Now I am talking about balance here. I am not suggesting that they open these programs to everyone.

Where are those 80/20's so that the MI companies can jump off a cliff?

Will conventional get a piece of the action here? Are they awaiting the subsidy and jacking up rates in the mean time to get more government cheese when it comes?

Please comment.