Condos, The New NO NO!

Last week we had to make a decision on weather or not to order an appraisal for a Condo being purchased by my borrower. If we ordered the appraisal before we determined project lending requirements, then our client would risk losing 425.00 on an appraisal (FHA). The issue stems from the crack down by both FHA and Fannie Freddie that requires upfront  reviews of  project documentation provided by the Condo HOA or management company running the project. In the old days, FHA would merely spot approve individual units based on a questionnaire, review of that questionnaire and adequate Blanket Liability insurance. Fannie, Freddie were more lenient.  So long as the Insurance, Owner Occupancy and the no one entity owned 10% or more of the units all was right with the world. Fast forward and today the game has changed,dramatically. FHA now requires upfront approval of the entire project which will not happen unless approval is granted after review of all condo documents including Budget, Insurance, Questionnaire, Bi-laws, minutesof the last two meetings, etc. If the budget doesn't include a 10% reserve of the annual budget and is not collected and line items monthly, then its a no go. In our case we were missing the Signature page of the governing documents and since no one had needed to locate that document for over 20 years it was non existent. Btw, the HOA provided a random signature page with a different sequence (page) number than the documents they provided. I become the bad guy very quickly as the Realtors are trying to appease both buyer and seller and I'm protecting my buyer while the process takes 6-8 weeks to sort through. Many requests for documents from the HOA go unanswered for days at a time. The clock is ticking folks and FHA doesn't care.  My advice is to avoid any Condo projects that you cant verify approval by either FHA or Fannie Freddie, upfront. Before any offer is made on a specific unit, this needs to be known. Order that appraisal and you've thrown away the cost and created a frustrated client. We did and now we wont! 

News-Housing and the Economy

The big news of the week revealed housing starts down 10.0% in May to an annual rate of 593,000 units. Closer inspection of the report reveals that all the drop came from the South. In fact, housing starts were actually UP in all other regions of the country. The South suffered in May with the Gulf oil spill disaster and major flooding. It's understandable that these unfortunate occurrences would make everyone, including home builders, more risk averse than usual. In any case, starts are UP 24.3% above their low a year ago April, with single-family starts UP 15.3% in the last year.


A little more worrisome was the 5.9% decline in building permits, which was seen nationwide. Of course, any slowdown in building will help speed up the reduction in new homes inventory. Nonetheless, permits are UP 4.4% overall and UP 3.1% for single-family units from a year ago.

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Wednesday, Fannie Mae announced "Special Relief Measures" for borrowers whose properties or income are negatively impacted by the Gulf oil spill. Servicers may suspend or reduce these borrowers' mortgage payments up to 90 days to determine the impact of the disaster on the property or the borrower's financial condition. If you know someone who may qualify for this relief, please forward them this link: http://www.fanniemae.com/newsreleases/2010/5062.jhtml?p=Media&s=News+Releases

Bond Market and Rates

After yesterday’s slide for Mortgage Bonds, which was driven by the rally in Stocks, we are seeing a bit of a reversal this morning – again driven by the action in Stocks, where a battle between the Bulls and Bears over the important 200-day Moving Average is being waged. Yesterday, both the Dow and the S&P500 indices were able to climb above their respective 200-day Moving Averages. Both Bulls and Bears know what an important line in the sand this level is…and the Bears aren’t relenting just yet. The Bears attempted to push Stocks back beneath the 200-day MA early in today’s trading session. This helped Mortgage Bonds achieve their highs around the same time. But then – the Stock Bulls mustered enough momentum to bring prices back above this important level, reducing both the losses in Stocks and gains in Bonds.


And this is where we are currently trading. We’ll keep an eye on this important battle throughout the day, as it will certainly influence the direction of Mortgage Bonds. A convincing break above the 200-day Moving Average would be troublesome for Bonds, as the next move higher for Stocks could be to test the January highs. This means that Mortgage Bonds could give up .25 - .50% in rate, should this take place. But another failed attempt at the 200-day Moving Average – and there have already been a couple in the past few weeks – should give Bonds a boost and help them move towards last week’s highs.

Also helping Bond prices this morning are investors growing concerned with Spain. There is speculation that a bailout is being prepared for the country, even though the European Central Bank insists that a scheduled meeting this Friday with the International Monetary Fund and Spain has nothing to do with a bailout package. However, the markets may not be buying the ECB's denial, as Spanish Bond prices fell sharply today. This news has sparked some safe haven buying in the US Bond market. News from Europe will continue to cause more volatility in the marketplace. It’s difficult to get Europeans to adopt meaningful austerity measures. Just today, France announced their big move towards austerity – an increase of retirement age from 60 to 62, by 2018. If you are laughing, we don’t blame you…but the situation is far from humorous.

Back at home, we had some economic releases, starting with the Producer Price Index (PPI). The headline number dropped 0.3%, when economists were looking for a 0.5% drop. Be mindful that energy prices have moved higher in recent weeks, so we may see a pickup in headline PPI next month. When stripping out volatile food and energy costs, the Core rate rose to 0.2%, above the 0.1% expected. On an annual basis, headline PPI rose 5.3% and in line with estimates. And the year-over-year core reading was 1.3%, slightly above forecasts but still near the lower range of the Fed's comfort zone. Tomorrow brings the more closely watched Consumer Price Index (CPI).

Housing Starts in May were 593,000, well below the 655,000 expected. That number is down 10% from the prior month's reading, but still up 7.8% year over year. Building Permits were 574,000, well below the 631,000 that were expected. Another interesting way to view these numbers is to take housing starts as a double edged sword. While more housing starts would show expected optimism from builders, fewer starts and permits are not necessarily all bad news. Adding less supply and inventory may be healthier in the long run, and aid in moving some of the existing homes in the marketplace.

Industrial Production and Capacity Utilization were both reported higher than expectations, suggesting a pickup in manufacturing and output. The positive readings did help Stocks recover from their worst levels, and this is a good leading indicator that could bode well for the future.

Next Wednesday the Fed will release their interest rate decision and Policy Statement. There is speculation that the Fed may lower their 2010 and 2011 growth targets for GDP. It was just two months ago – in April – that the Fed raised their 2010 GDP projections to a range of 3.2 - 3.7%. A possible cause for the Fed to lower their target would be the significant slowdown in Europe and weakness in the Euro. This has caused the Dollar to gain strength, making our exports a bit more costly. And lowering the target – along with the most recent disappointing Jobs Report – may give the Fed enough consensus, amidst grumblings from its more hawkish members, to maintain their "extended period" language. In any case, it is all making for a very interesting and important Fed Meeting next week, as it could have an important bearing on the carry trade and the direction of mortgage rates.

Friday Closings

Need I say more? My advice would be to close any day but Friday. Consider this. There are many steps prior to you getting the keys that must take place before you go to closing. So, if your planning on having all weekend to have and to hold your new dream home then close Wednesday or Tuesday or any other weekday, just not Friday! Check out the list list of what will happen before your loan closes and funds. It's a mile from there until you get the keys.

Loan is Fully Approved

Closing documents sent to the Title company

Settlement statement is generated

Cross checking of same between Lender and Title Company
until fully approved. Multiple corrections will be made

Instructions for loan closing revised

Buyer and seller both sign

Documents faxed to review by lender

Final Documents or missing signatures requested

Loan Funds

You get the Keys, Assuming no bumps!

Close on any other day or you may lose the weekend.

You'll be glad you did!

Locking in an Interest Rate

I'm asked this question so often I felt it needed some attention. What is locking in and when can I do it?

Lets start with Rate Lock time period.

Rate locks are based on the amount of time needed once you lock a rate until the amount of days needed for the loan to close and fund. So if your lock is good for 30 days then your loan must close and fund within that 30 day time period. If it does not, the lender can charge you a per day extension or take you to current market which could change your rate for the worse. Lets say you locked a rate and your rate was low and you miss your closing date and rates are now higher. In this case it would make sense to extend the lock and pay a per day charge to do so. Your lender will be able to tell you what that is. Lets say your closing is 45 days and you are worried that interest rates may rise.

You ask "Can I go ahead and lock my rate now and if rates move lower can I take that rate"? Some lenders offer a one time free float down so long as your within 20 days or less of the closing date. Normally some form of commitment is required to participate and is refunded at closing.
What is the difference if you lock 45 days vs. 30 days vs. 10 days? The answer is, the longer your lock, the higher the price for the rate.
Generally and I do mean generally, 15 days on a lock will cost about .25 percent of your loan amount.

If your interest rate was Zero Points at 4.75% on a 30 day lock, then a 45 day lock would have cost you .25% more. On a 100,000 loan that would mean 250.00 for the extra 15 days or .25% of the loan amount. For rate quotes visit me at homeloanapproval.com

Alan

Leave Emotion Out of It.

Although I'm not sure this is even possible, consider your home loan to be like any other business transaction. Its just happens to be the largest financial decision you'll ever make! Remember, If you have a trusted advisor that keeps your best interest at heart, then you can feel good about your mortgage process and make the most of  what normally drives some folks over the edge. Do you really want to look back and say, "Wow, that was the worst experience of my life?" Probably not. The key is to be proactive 100% of the time. If you think about something pertaining to your loan, call! If your not sure what is going on, call! If your Realtor tells you something that could impact your loan, closing costs, sales price, closing date, call! Call and then call again! Seriously, the communication effort you make will pay off in the end.

Alan Felch
HomeLoanApproval.com

Take your Realtors Advice!

If your looking for the fastest way to home loan approval, then you should rely on your realtors referral partners for a proven track record. A warm referral buy your experienced Realtor  to a Loan Officer they have had experience with is almost always the best way to get to closing with the least amount of delays.

Getting Approved

So your loan Officer gives you the "List". These are the items you need to provide that will document your income, assets and any other information critical to the approval process. Think detail here. If your bank statements show you are overdrawn  periodically an UW is not going to like that and will ask why. You better have a great excuse because this is seen as your ability to manage money. Never deposit large sums of money without clearing it with your loan officer first. Credit card advances, money from a friend are not good! Don't do it. Always talk to your loan rep about any movement of cash. Even its from one of your own accounts to another. You must document, document, document. One missed transaction by you can stop the closing. Closing ugly is not an option!

More to come!

Alan

Closing Ugly! Most Common Mistakes to Avoid...

You ready? Here it is! The most common reason for not getting a loan approved is not being prepared with the minimum paperwork requirements. That's it. Nothing else comes close to being a game changer as the documentation you are providing your lender. Seriously, do you think a loan officer really wants to give you bad news two days before closing? An underwriter doesn't care.  If its not documented it wont get approved. My next blog will address the most common documentation problems

Stand by.....

Alan