Lonnie Glessner

I have always enjoyed and take great satisfaction in helping people buy their dream home or buy their first home. Especially with first time home buyers it often can be a long and deliberate process for the client and me. I have seen it take 2 years before. Thankfully, I am persistent and/or stubborn. I have always told my clients that I am willing to work as hard as they are.

But, there is one client or one type of client I can't help sometimes. And that's a client who does not listen to and act on my advice. I have one client I have been talking with for nearly a year.

In the spring of 2009 I ordered her credit report and she only had one credit score because she has so little credit in her name. At that time, I had 4 or 5 banks who would lend to her with just one credit score. I encouraged her several times to open an additional credit card or personal loan or to add her name as a co-borrower to a family member's credit account to establish more credit and 2 or more credit scores so that she could be easily approved for a mortgage.

She recently called me about getting pre-approved again for a FHA loan as other mortgage lenders she talked to were not helpful and did not call her back ever. So, I ordered her credit report and guess what? She still only has 1 credit score and only 1 credit account. Ugh! I wanted to scream!

Now, I only have 1 bank that will potentially approve her loan IF we can document non-traditional credit. And this bank charges extra for her lack of credit scores and credit history. In fact, she will now be out of pocket an additional $2,000 because of this decision.

I have read several stories in the last month from organizations like RealtyTrac and others that they estimate that banks own another 3 million homes nationwide that are NOT on the market to be sold yet. This inventory is called shadow inventory and is widely considered to be bad news. Why? This further supply of homes will drop real estate prices lower is the expectation or it will cause the housing recovery to be slower.

But, let's look at the Denver market. Most "experts" think that banks own about 13,000 homes in shadow inventory currently in the Denver area. I would guess that half of those homes are worth $200,000 or less.

According to the local MLS data there is fewer than 3 months of unsold homes on the market priced under $200,000 here in Denver currently. And I would bet a large majority of those homes are short sales that most buyers don't have the patience to wait for.

In fact, over the last 6-8 months most of my clients buying homes under $200,000 have gotten into bidding wars on homes that are not short sales because there is so little inventory available.

Thus, it would be GREAT NEWS if the banks were to release to the market 1,000 or 2,000 of these homes every month in my opinion. What do you think?

I had the privilege of listening to a conference call from Mortgage Market Guide today as they interviewed Paul Mondor a Federal Reserve Attorney about the Fed's new proposed rules on Reg Z. It was easy to tell that Mr. Mondor does not think highly of the mortgage industry and thinks that closing a loan today is simple and easy and that anyone can do it.

After listening to this conference call I came away thinking does the Fed believe in free markets and do they still believe in capitalism? Or is all profit bad now? It's scary to think about.

Here is the crux of the matter and the Fed's Reg Z proposal--they don't want our compensation to be based on any loan terms such as loan amount, interest rate, loan to value, etc. Mr. Mondor said the Fed wants our compensation to be exactly the same on every loan for every borrower regardless of the size of the loan or its complexity. And they would not allow us to even DECREASE our compensation for a certain borrower for any reason. They want to control exactly how much we make!

I thought we lived in a FREE country???

Maybe, we don't anymore.

Imagine as a real estate agent your compensation is now a fixed dollar amount no matter what the price of the home is, or how complex the transaction is, or how much time and money you have to invest to help your clients.

That is what the Fed wants to do to us and the mortgage industry it appears. And guess what? The BIG banks are rooting for this! They would love it if a mortgage professional was no more than a Teller or Paper Gatherer. Think of all the money they could save by paying us less. But, is that what you want?

If this proposal to Reg Z passes guess who loses the most. Our clients. I expect a majority of the great mortgage professionals will probably leave the business as their years of experience, knowledge, and skills may have little to no value in the marketplace as the Fed tries to commoditize our industry.

We as mortgage professionals need the help of every real estate agent and NAR to fight these types of proposals. Why? We are seen as "evil" people by the federal government and they are not listening to us. But, NAR has a powerful voice and we need your help.

This week totally unannounced FHA made some nightmarish changes to their approved condo list. For decades FHA has approved condo complexes around the country and FHA kept a list of all their approved condo projects on-line. FHA announced some major changes last fall; then, after great outcry they decided to delay the changes until end of 2010. They said we could continue to use their approved condo list for the remainder of 2010. In the meantime they would begin assembling a new approval list for condos.

Well this week without any notice or Mortgagee Letter they said no more. Now we can't use the "old" approved list anymore; we must use the new list. Two problems with the new list: first many complexes are not on that list yet and second some condo complexes that should be on the new list did not get transferred correctly by FHA.

For example, a client who just went under contract to purchase a condo in Parker Colorado, his entire complex was approved on the old list; but the new list only has building #4 approved and the other 14 buildings are not approved. It appears to be a technical or software glitch by FHA. So we called FHA and here is their response in a nutshell: "we don't care, it's your problem." That's what we as lenders have had to deal with at FHA and HUD for the last year.

Here are the ramifications-

•· If the condo is not approved by FHA, we can't get a FHA Case Number, which means a FHA loan is NOT possible. This is a nationwide systemic problem for every bank and every lender.

•· We or the HOA must re-approve each complex (as needed) with FHA. The complex must be on the new FHA approved list.

•· How widespread is the problem? We don't know for sure; but Barb Weade, (aka "The Denver Condo Queen"), says it is a nightmare and they are swamped already with desperate calls for help.

•· The HOA or us will need to hire Barb Weade for her help in getting these condo projects re-approved. Currently, Barb charges $750 for this that needs to be paid in advance.

•· Then, after Barb has the paperwork together and it looks good she sends it to FHA for their approval.

•· All of this will take weeks or months most likely to get done. First, because there are very few Barb Weades out there, in fact, we don't know of another one in Denver. Second, because there may be thousands of complexes that need to be re-approved right away.

So, What To Do?

•· If you have a client buying or selling a condo you better check FHA's list again. And make sure your phase and building is included on the NEW approval list.

•· Realize this will kill deals and will hurt consumers!

•· Call, email, and fax our Representatives and Senators in D.C. to let them know of this mess. In fact, I believe people should be fired for this.

•· Let NAR and every Realtor you know about this problem. As I have said many times NAR has a much louder voice than we do.

Here are 4 points or comments from the Fed after their meeting on Wednesday-

•· They are slightly more optimistic about the economy as job losses continue to slow.

•· Inflation remains subdued.

•· Their MBS purchase program will END on March 31^st.

•· The Fed Funds Rate will remain low for an extended period of time.

My Comments-

•· Notice, not a word about jobs being created or saved. That's because it is NOT happening yet.

•· I believe inflation will be nearly non-existent for quite awhile. Normally, inflation or fears of inflation start in one of two areas: labor or oil. With an unemployment rate at 10% that is sure to rise this year, short work weeks, small if any raises, and millions of Americans having left the workforce due to the lack of jobs, inflation will not start in the labor sector for probably at least 3 to 5 years.

•· Normally all the printing of money by the Fed and Treasury would cause inflation or at least fears of inflation; but they are not. Why? At a macro-level our economy still sucks; it just does not suck as bad as it did a year ago. On a scale of minus 10 to a positive 10, I would rate our economy at about a minus 4; whereas, a year ago it was at a minus 8 I would say.

•· Looking at The Consumer Confidence Index supports this as a year ago Consumer Confidence dropped to around 40. This month it's at 55.9. For much of the last 2 decades this number was ABOVE 100! Our economy has a long long way to go to be healthy again and even longer before inflation is truly a concern.

•· This is why the Fed is leaving the Fed Funds Rate at 0-.25%. If you read "between the lines" the Fed is saying our economy sucks; but it does not suck as bad as it did last year.

Come April I still expect that mortgage rates will rise to around 6% as the Fed quits buying mortgage bonds or MBSs. But, unless there is a panic I don't see mortgage rates rising to 7 or 8% anytime soon. Which is reassuring to my wife as we have a ARM that began adjusting December 2009 and will adjust every year thereafter. Nor do I see short-term rates rising either that ARM rates like ours are tied to. I wish we could refinance; but can't as we have a Heloc with Compass Bank and they won't approve our Subordination Agreement.