Loren Johnson, CMPS

As I'm sitting in front of my fireplace planning out another week....and hearing the weather report telling me to expect a 35-degree low for tomorrow morning, I'm starting to think about getting ready for winter. Not just the "last lawnmowing, cover the plants, get out the Christmas Lights" planning, but the "get the holiday excuses for less business ready" planning.

Don't get into the trap that 90% of our brethern get into......of using an easy excuse of "holiday blues" to not make the phone calls, or follow-up meetings, or just plain getting lazy. Have you started your business plan for 2009 yet? Don't start working on it for 3 weeks....and stop your marketing, use the weekends for some clear, reflective thinking....and then go get 'em on Monday morning.

People don't stop needing new houses, or needing cash from a refinancing that makes sense, because it's November....in fact, they may need it more than ever! While your competitors are sitting on the sidelines, you can help those folks into a new home!

Are YOU ready for winter yet?

In the current economic situation, improving the relationship between loan officers and mortgage customers is critical to customer satisfaction, according to the J.D. Power and Associates 2008 Primary Mortgage Origination Satisfaction Study(SM) released this week.

The study measures customer satisfaction in four key factors of the mortgage origination experience: application/approval process; loan officer/representative or mortgage broker; closing process; and problem resolution.

The study finds that customers have higher levels of satisfaction and are more committed to their lender when the loan officer takes the uncertainty out of the mortgage origination experience by setting expectations, proactively communicating and maintaining personal contact with them during the loan process. For example, customers have considerably higher levels of satisfaction when their loan officer provides a time frame for their application approval. Similarly, customers are more satisfied when status updates are provided, last-minute requests for information are limited, mortgage servicing options are discussed, and when loan officers meet with customers in person and attend the closing. In addition, customers who report being highly committed to their lender as a result of a superior origination experience are two and a half times more likely to recommend the lender to others and to use the lender for another mortgage.

These highly committed customers also use twice the number of additional financial services with their lender, on average, compared with customers with lower commitment levels.

"Many customers blame financial institutions for the current economic situation, and many also have doubts about their futures," said Tim Ryan, director of the financial services practice at J.D. Power and Associates. "In such an uncertain environment, it becomes especially important for lenders to re-establish trust with customers through the loan officer relationship. About one-half of mortgage customers express some level of doubt about whether their loan representatives are acting in an ethical and honest manner and in their best interest, which indicates an opportunity for higher levels of satisfaction through an improved customer-lender relationship."

Despite increased doubts about the financial market and mortgage lenders, the study finds that mortgage customers are more satisfied overall in 2008 compared with 2007, with the industry average increasing slightly, to 757, which is up 7 points from 2007.

Improvements are evident in several key performance measures: fewer customers report being asked for additional information after submitting their application; more customers are being provided with timeframes for application approval; and fewer customers report that their closing costs are higher than originally estimated.

"The increase in overall satisfaction can be attributed, in part, to lower customer expectations," said Ryan. "After hearing so much bad news throughout the industry, customers have come to expect less from their lenders, so they are often pleasantly surprised when those expectations are met or even exceeded. At the same time, lenders are more diligent in delivering the elements of the experience that drive satisfaction."

The study also finds that customers can improve the quality of their experience when obtaining a mortgage by keeping the following guidelines in mind:

- As part of the selection process, ask whether the loan will be sold or its servicing transferred - and if so, how billing, payment, and escrow management might be affected.

- Ask for a full explanation of the entire process from application to closing (e.g., what the steps are, what will be required, expected timeframes).

- Discuss the initial estimate of closing costs in detail, and determine which of the costs could change and why.

- Request updates or status reports at key junctures in the process - for instance, when preliminary approval has been given or when the appraisal is complete.

- Prior to closing, ask to review and get an explanation of the following: the closing document; final closing costs; and billing and payment options.

"Satisfaction is a two-way street, and customers too often underestimate how much they can contribute to a positive outcome for themselves," said Ryan. "Following these five simple steps can lead to a more satisfying mortgage origination experience."

The 2008 Primary Mortgage Origination Satisfaction Study is based on responses from 4,256 consumers who originated new mortgages within the previous 12 months. The study was fielded in June 2008.

Good Sunny afternoon in Minnesota!

While driving around the North St. Paul/Maplewood area, I was struck by how many 'clusters' of homes with For Sale signs were out there. Is that a new phenomenon in the past year or two? Is there so much 'pent-up demand' to sell that as soon as a neighbor puts a sign out then everyone else calls a realtor?

What are you Realtors seeing out there for 'customer cluster behavior'?

Real estate has been in the news just about every day as housing prices have "fallen". There are all kinds of opinions about what's going on and where this is all heading. But these opinions are just guesses and do not take every piece of the puzzle into consideration. History has shown us that the economy goes up and down all the time, and real estate has long coincided with these fluctuations. Economic cycles of all kinds (stock, macroeconomic trends, housing, etc.) are known for a tendency towards extremes and that market corrections have a way of over-reacting which is exactly what we are seeing today in the real estate market.

So where are we in the current real estate cycle? Is waiting to buy a brand new home a safe option? These are very valid questions that require credible answers in order for home buyers today to achieve the confidence that the future can and will be better than the past.

First, don't panic over newspaper headlines. Make an informed decision. Run your own numbers. For most buyers, there is no real need to wait for the market as a whole to officially adjust out. The bottom of the market is not a date, but a band of time or season, and therefore what constitutes the bottom for the entire country is meaningless for those looking to buy and sell homes in their own communities. If you sit on the fence and wait for the absolute best deal, you could end up literally waiting for years. And most likely, your guess on market timing would be wrong. But if you choose to buy now, you will not only be in the driver's seat during the buying process, you will also reap the gains of price appreciation once you become a home owner.

Waiting for the right time to buy puts you at risk of missing it and getting caught in a market on the upswing. Plus, for some first-time buyers, owning simply makes better economic sense than renting. In some areas in the Twin Cities, rents are getting close or surpassing a mortgage payment. And you don't receive any tax benefits from paying rent, nor do you accumulate any price appreciation, as you would if you owned a home of your own.

Next, realize there are always some people who need to move because of job relocations, expanding families, or a desire for better schools. In sought after neighborhoods, there's a price to pay for waiting. You have to ask yourself, "If the price goes down much more, I'll have other people trying to buy it, even if it's not the absolute bottom of the market." In the end, you might erase the savings you thought you had achieved by waiting.

My advice to buyers is simple, Live in the right home. There's no reason to compromise in buying the home that is right for you. Make a priority list of things that are ‘must-have' versus ‘nice to have' versus ‘not important.' Write it all down and use this as a checklist to unlock the reasons about the home you're searching for, where you want to live, and what it will take to get you there.

With the Federal governments re-emphasis on the FHA as a key vehicle for resuscitating the real estate market, now is a good time to review FHA in more detail.

Let's start with some basics. First, the FHA insures loans that approved lenders make, it does not purchase them as Fannie and Freddie do. If a FHA insured home goes into bankruptcy, FHA pays off the mortgage to the Lender, takes ownership of the home, and then proceeds to sell it (a HUD home.)

To mitigate its risk and provide income to offset foreclosures and defray their expenses, FHA charges the borrower insurance premiums, both an up-front and a monthly premium. The up-front premium can be included in the mortgage amount.

FHA loans are available for purchasing or refinancing a 1 to 4 unit, owner occupied home. There a number of FHA programs that cover the gamut of real estate offerings, from your "vanilla" FHA loan to Condos to REO's to Reverse Mortgages to Rehab to Veteran loans and more. In subsequent articles we will be reviewing these programs in more detail.

Over the last number of months, FHA began implementing some changes to their programs. In addition, the Housing and Economic Recovery Act placed additional changes in FHA practices, some of which modified FHA proposed changes. I have listed some of those changes below.

Converting Existing Homes to Rentals

The FHA changed their underwriting rules to limit the ability of a homeowner to use rental income from a previous residence that it converted to a rental property, when applying for a new mortgage on a second property. Under the new rule, the homeowner must prove sufficient income to make both mortgage payments without the rental income or has an equity position in the rental property that it will not likely result in defaulting on that mortgage. There can be an exception to this rule for employment relocations.

This change mirrors the announcement by Fannie in August. Apparently, homeowners, in increasing numbers, are choosing to vacate their existing principal residence and purchase a new residence. They are then providing misleading information on the rental income of the property being vacated to justify the new mortgage. These changes effectively end "bail and buy" loans.

Moratorium on Risk Based Premiums

The Housing and Economic Recovery Act provided for a one-year moratorium on the implementation of the FHA's risk based premiums beginning October 1, 2008. The effect of the risk based premium was to increase the premium based on the amount of the down payment.

This will not delay the implementation of an upfront premium as well as well as monthly premiums on all loans.

Seller concessions of 6% are still allowed; however, down payment assistance programs have been eliminated effective October 1, 2008.

Down Payment Requirements

The Housing and Economic Recovery Act also called for an increase in down payment required to 3.5%. That change will not go into effect until January 1, 2009.

As with any loan program, there are a number of stipulations that need to be met to gain approval. That is why it is important to choose the right Mortgage Professional. Not all FHA approved lenders service all FHA loan programs.