Dean's Blog

As you may recall from my earlier post, the Making Home Affordable Refinance Plan allows a homeowner to refinance their first mortgage up to 105% of the current value without regard to any existing second mortgage.

Yesterday, Fannie Mae announced an increase to the maximum allowable loan-to-value ratio to 125% for mortgage loans that qualify for the Refi Plus™ (manual underwriting) option. Specific requirements will apply to these loans when the LTV ratios exceed 105%.

By the way, this plan does have a nice little feature for people who have been trying to sell their home. Normal guidelines require that a house be off the market for up to 6 to 12 months, depending on the new lender, before a new refinance can be considered. This program allows the lender to consider the refinance without regard to the length of time off the market. Of course, lenders can put their own limitation on this, but we have at least one lender that will allow the refinance with only 1 day off the market.

This is also good news for Realtors^® whose clients have been unable to sell their homes for what they need (which is usually different than what the market will bear). Sellers can take their house off the market and refinance into a more affordable package. No, this doesn’t put commissions in the agent’s pocket, but it can save a relationship!

Since this announcement was just made yesterday, it may take lenders a couple of weeks to issue guidelines on this revision. I’ll post again when more information is available.

Welcome to today’s appraisal process:

• Out of town appraisers getting paid less to value properties on which they may not be experts
• No direct system to question or challenge the results
• No accountability to a time frame resulting in longer turn times
• Purchase transactions are falling apart
• Much needed refinances are being halted

Yes, that’s what’s happening in today’s market due to the Home Value Code of Conduct (HVCC), which was recently adopted by Fannie Mae and Freddie Mac, the two largest purchasers of home mortgages. This new code was the result of an investigation by New York’s attorney general into collusion between Washington Mutual and eAppraiseIT, an appraisal management company.

You see, WaMu was influencing the appraiser to come in at value or risk losing future business – a threat which is in violation of the law. While WaMu wasn’t the only culprit, it certainly was the largest single case uncovered by investigators. The idea of HVCC is to separate the appraisal process from the loan originators, but that has had many negative consequences, some of which are listed above.

Now, not all appraisals are impacted by this new rule. Government-backed loans, such as those sponsored by FHA and USDA (Rural Housing), still allow the appraisals to be ordered directly by the loan originator. NOTE: VA loans have had a similar process to HVCC in place for years, but their system works well, has accountability levels and doesn’t result in increased fees to the borrower.

What’s being done about this problem? Many groups (including the National Association of Realtors, the National Home Builders Association and even appraisers) are petitioning people – and several websites have been setup – to complain to their legislators and try to overturn this ruling. At the very least, there is a bill being floated around which would suspend the rule for 18 months.

In the meantime, if you are in the process of purchasing or refinancing your home with a Fannie- or Freddie-backed loan, read through these questions and answers, and at least be aware of the increased turn-around times, higher costs and potential for a lower value.

In the most recent 2009 National Housing Pulse Survey as published by the National Association of Realtors^®, most Americans still consider having enough money for downpayment and closing costs to be the biggest obstacles to buying a home.

There are some other interesting factoids, but let’s first address the downpayment and closing costs.

Two of the more popular programs in the last year or so in the northwest corner of Washington State have been FHA and USDA’s Rural Housing program. These programs provide financing with 3.5% and 0% downpayment, respectively, and each also allows the seller to pay all the closing costs for the buyer. So, if a buyer can get into a home with 3.5% down or even no money down – not even for closing costs – why is it that the survey respondents feel downpayment and closing costs are a barrier to entry?

Often times we must look at real estate from a local perspective, not the national once that carries the news stories every night. As Dan Green states, the national real estate market is like a mosaic which forms one large picture. However, when you delve deeper into the details, you’ll find that the larger picture is made up of a bunch of smaller pictures, and each of those smaller pictures may not represent the entire picture as a whole.

First, FHA has loan limits – you cannot borrow over a certain dollar amount, and that limit varies by county. Here are the single-family limits for 2009 by our most local counties:

• Skagit County - $373,750
• Whatcom County - $375,000
• Island County - $381,250

Second, Rural Housing has geographic limits – their goal is to encourage people to buy houses outside of the urban areas. North of Seattle, the areas that are NOT eligible include:

• City of Bellingham
• City of Mount Vernon
• The I-5 corridor from Seattle north to Marysville and east to Snohomish

What does this mean for home buyers in our area? If you are trying to borrow less than about $375,000 or you are in a rural area, low- to zero-money down financing with no closing costs CAN be a reality.

Unfortunately, the opposite is also true. If you are trying to buy in a metropolitan area or with a loan amount higher than $375,000, those options may not be available to you.

So, while the broad picture may tell you one thing, the details tell you quite another.

Some key results of the survey are listed below, and you can also view a presentation of the survey or read the executive summary.

• Eight in 10 Americans (82%) still consider having enough money for downpayment and closing costs to be the biggest obstacle to buying a home. 
• Two-thirds of Americans think job layoffs and unemployment are a big problem; 83% cite these issues as a barrier to homeownership. 
• 83% of Americans still believe buying a home is a good financial decision. 
• Three-fourths of those surveyed also believe now is a good time to buy a home, a number that has increased steadily the past two years. 
• The number of those who feel buying and selling activity has stabilized or stayed nearly the same has grown significantly, up more than 44% since last year. 
• The majority (58%) report that activity in their market has slowed. 
• Regarding home sales, nearly eight in 10 say it’s harder to sell a home in their area today than it was a year ago, despite the fact that nearly three-fourths of respondents say home prices are less expensive. 
• Foreclosures remain a real concern among survey respondents. Slightly more than half (51%) say foreclosures are a big to moderate problem in their area. 
• The rate of foreclosures is generally seen as stabilizing; 41% say the rate of foreclosures in their area is about the same as last year. 
• 92% of respondents said neither they nor members of their immediate family have experienced a foreclosure in the past year, yet it is still a personal concern for many. One in five respondents said they are very or fairly worried that they will have difficulty making their mortgage payments over the next year. 
• 32% say it’s a big or moderate worry that they, or a member of their family, may have their home repossessed or foreclosed because they are unable to pay rising monthly mortgage payments. 
• In 2008, more than half of respondents (54%) were open to the federal government taking a more active role in overseeing mortgage and lending practices – the number dropped this year to 47%. 
• 42% of Americans believe the country is back on the right track, more than double the number last year (16%).