Erin Attardi, Realtor - Sacramento, CA 916-342-1372

With the bulk load of short sales that I am negotiating, there is an interesting phenomena I am running into more and more these days.

Lenders are placing their own mortgage insurance policies on loans. This is not your typical private mortgage insurance (PMI) that a borrower pays on a loan in instances they put less than 20% down. Instead, the lender places it on the loan after it is originated at their own expense and without the borrower's knowledge. As a short sale listing agent, often times I will not even discover this information until I get to an advanced stage of negotiation. Low level lender customer service, collections, and loss mitigation departments will not necessarily have this information.

Why is this a big deal? The mortgage insurance company gets involved in analyzing the short sale, and has the final say in whether or not the short sale is approved!

So what does this really mean? Basically it means that the short sale approval will ultimately take longer to approve (longer is a relative term!). The mortgage insurance company, faced with having to pay a large claim to the mortgage company, sometimes will demand a larger payoff that what is being offered. If the insurance is covering a first position loan, the mortgage insurance company may ask the seller to pay a promissory note, ask the seller to make a contribution toward the close of escrow, or ask for a higher overall selling price in the short sale. If the insurance is covering a second position loan, the mortgage insurance company may ask for a larger payout from the first position mortgage, or that the seller makes a contribution to close the escrow. I have seen promissory note requests from mortgage insurance companies range from $10,000 - $92,000. I have also seen cash contribution requests range from $10,000 - $25,000. No joke!

You might think - if a seller has a large chunk of cash laying around, then why do they need a short sale?

These scenarios can be properly negotiated by someone who specializes in short sales...and what I refer to above is not true of FHA short sales.

Most of my buyer clients ask me for a referral to a loan officer as they start their loan pre-approval process. Before I divulge who I recommend, I would like to describe what buyers should look for in their ideal lender. Over the last 90 or so days, there have been several new laws and regulations that affect how the lending process functions. There are several critical pieces that buyers should look for in a lender that will make things run more smoothly in your purchase transaction. Ideally you will choose a direct lender (not a broker). One that lends its own money. One that does underwriting internally and locally. One that funds loans locally. One that works with local appraisers. One that provides you proper and accurate truth-in-lending disclosures up front.

Some important questions to ask of your loan officer as you move forward:
-Is your company a direct lender, or a mortgage broker?
-At what location does your loan processing and underwriting take place?
-Does the Appraisal Management Company (AMC) your company uses engage the services of ONLY local appraisers who are familiar with the local market?
-What is the average turn-around time from the date you order to the date you receive an appraisal report?
-What is the anticipated number of business days I can anticipate for underwriting? For loan document drawing? For final review and funding?
-Does your company fund its own loans?
-What company services loans originated by your company?

Ultimately, it does not matter to your agent what company or loan officer you decide to go with, as long as your loan does not get messed up or take too long to go through the process. Your loan officer and your agent will work very closely together throughout your entire purchase process.

What I can tell you about Vitek Mortgage Group in Sacramento, for example, is that they are a direct lender (a mortgage bank / not a broker) and lend their own money. They also are a "direct endorsement" lender for the programs of other banks. This is very important in today's market, especially if you seek to purchase a bank-owned home (many banks require that you get a loan pre-approval through them, even though you will not be required to use that bank...a direct endorsement lender can provide you a Bank of Americal pre-approval without you actually having to go to BofA and fill out another loan application). Vitek lends its own money, and has a staff of underwriters locally that review your file, and its staff that funds loans is also local. They work with local appraisers that are familiar with our Sacramento marketplace. They are very dilligent in providing borrowers/buyers with proper, accurate disclosures that show you your downpayment, closing costs, and monthly payment (monthly payment includes loan principle, interest, insurance, and property tax).

If you decide to speak with someone at Vitek, I recommend Marlena Olson at 916-486-6931 or molson@teamvitek.com.

If you follow me on Twitter or Facebook, you will already know that earlier this week I chatted with Jim Wasserman of the Sacramento Bee for an article he was writing about home buyers who use the internet to start their home search.

You can view the article that appeared on the front page of today's Sacramento Bee here.

It's funny to see a 20-minute conversation distilled down to a couple sentences.

Most of my clients initially find me online...this year's closed transactions to date are of similar proportion to last year in 2008. Today's article focused mainly on home buyers, however many of the folks who find me online are looking to sell. Most of the sellers who find me are looking for information regarding Sacramento short sale agents to list their homes.

If you are a first time reader of my blog, thanks for checking it out, and please peruse my posts!

I hesitated to blog about my recent experience with HVCC appraisals until this particular transaction closed...but thankfully my buyer clients closed on their Elk Grove home on Friday, so now I will share this awful experience with the world.

For those of you not familiar with the Home Valuation Code of Conduct (HVCC), it is legislation that went into affect on May 1, 2009 that regulates how conventional lending appraisals are conducted. I have blogged about the HVCC a couple times, and you can read up on HVCC here.

At the end of May, some first time buyer clients and I wrote an offer on a great Elk Grove home. There were offers from multiple buyers on this property, and we ended up with a contract price slightly above the original list price. My clients were extremely excited, because this was a great house that was not bank-owned and not a short sale, and also because the market for Elk Grove homes in their price range is quite brisk with lots of competition from other buyers.

Their loan officer ordered their appraisal a few days into the transaction. Due to HVCC guidelines, an appraisal management company randomly assigned an appraiser to do the appraisal. The appraiser did not contact the listing agent to get access to the house until 5 business days later. The appraisal report itself was not delivered to the loan offer until 4 business days after that...if you are paying attention, you will realize this is more than 2 weeks into the transaction. Ridiculous.

Well, it turns out this appraisal management company sent an rookie appraiser from Pleasanton who was not familiar with Elk Grove to do the job. He valued the property $50k below our contract price. The appraiser neglected to use the most relevant recent comparable sales from the same neighborhood. He also refused to use a comparable sale in his analysis that was sold 'by owner' (and was not in MLS).

The seller was completely insulted. The buyer was heartbroken. This was an obvious speed bump in our transaction...the lender would only lend a certain "loan-to-value" based on the appraised value. Given this set of circumstances, my clients would be unable to obtain financing...even though they were willing to pay the higher contract price for the house, they could not.

We immediately filed an appeal with the appraisal management company. It took 5 business days to get the results of the appeal. The value was left unchanged by the appraisal management company. ARRGGHH!!!

What to do...? After a couple days of going back and forth with the listing agent, I was able to convince the seller to pay for a new appraisal for my buyer client. A new appraisal from a new appraisal management company was ordered. This appraiser contacted the listing agent the same day for access to the property. The inspection was completed within 2 business days, and the appraisal report was received by the lender within 2 more business days. This appraiser was also not from the Sacramento area. While the value of this appraisal was substantially higher than the first appraisal, the value was still much lower than the contract price.

Thankfully, after lots of back-and-forth with the listing agent over a few days, I was able to re-negotiate the entire contract for my buyer. The seller agreed to lower the price to the appraised price, however some of the seller concessions (credits for closing costs) they had originally agreed to were reduced.

So in the end, our 30-day escrow took 55 days to close. My buyer clients were extremely lucky that the loan program (a special CalSTRS mortgage program for teachers) they were using offered a 60-day interest rate lock, otherwise they might have lost their low interest rate. They were also fortunate that the seller was willing to pay for a second appraisal, which cost about $400...and finally, they were fortunate to be able to purchase an outstanding property for several thousand dollars less than what they had originally intended to spend, but they had to come out of pocket several thousand dollars more due to the reduction of the seller concessions.

The sellers on the other hand - they were pretty unhappy, and rightfully so. They had already purchased another home, and really needed to sell this one. The escrow took almost twice as long as it was originally supposed to, and they were responsible to make another monthly mortgage payment. They ended up paying that $400 for a second appraisal. They were going to have to disclose the presence of these other low value appraisals to any subsequent buyer, and may have had the same issue had they with my buyer if tried to re-market the property to a different buyer - so they sold the house for less than the originally agreed upon price.

I know the HVCC was originally intended to protect the consumer, but does this situation really seem fair?

Per an article in the online edition of the Sacramento Business Journal, Bank of America has allocated up to $150 million nationwide to assist certain borrowers who experienced a foreclosure, short sale or deed in lieu of foreclosure on mortgages originated by Countrywide. Borrowers will be notified by letter if they are eligible for a settlement payment (settlement amounts will vary). There are several qualifications for this program. you can view an FAQ here. Inquiries concerning the foreclosure-relief program should be directed to Rust Consulting at (866) 411-6987.