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from Local Attorney, Michael H. Wasserman

Saturday, September 19, 2009

FHA LOAN STANDARDS GETTING TOUGHER

At the same time that conventional lenders are starting to show interest in the Chicago condo market, FHA seems to be pulling back a little bit.

On Friday, FHA announced plans that will tighten many lending standards, some outline below. This action is thought to be a pre-emptive effort as FHA will soon notify Congress that its capital reserve ration is dropping below 2% - the minimum threshold mandated in the legislature.

Under the announced changes:
  • Refinance loans will require tighter income & asset verifications and quality controls
  • Appraisals will be required whenever a borrower wants to add closing costs to the transaction.
  • Mortgage brokers will be prohibited from ordering appraisals, but will not be required to use appraisal management companies. (changes here are consistent with the Home Valuation Code of Conduct, or HVCC).
  • Appraisal reports will only be valid for 4 months, down from 6.
There are a couple of less restrictive changes proposed too:
  • Appraisals will be portable (a borrower can ask one firm to turn over an appraisal report to another if he/she decides to change lenders. In some circumstances, they will be allowed to order a 2nd appraisal.
  • FHA approved lenders must will have to prove more than $1,000,000; up from $250,000.
  • FHA supervised lenders will be required to submit annual audited financial statements to assure their financial stability (WAIT - they don't already require this?)
  • Mortgage brokers on the other hand, will not have to file financial statements, meet net worth requirements or register directly with the FHA. Instead, the FHA direct endorsement (approved) lenders they deal with will have guaranty all brokered loans.

NEW HOPE FOR THE CHICAGO CONDO MARKET

Some mortgage lenders are dipping their toes back into the Chicago condo market, a development that could re-ignite local sale transactions. In recent weeks, I have learned of at least two different programs targeting area home buyers who do not want to make large down payment.

Mark Johnson at US Bank is offering a 97% LTV program. Vassili Sakkas at Wells Fargo recently turned me on to his company's new 95% loan products.

Yes, you read that right. At least two lenders are offering conventional, low down payment loans to Chicago are home buyers.

Chicago are condo buyers (and sellers) have faced a pretty tough challenge of late. The only game in town have been FHA guaranteed loans. The underwriting has been tough. Not all condominium buildings qualify for loans, let alone buyers.

The return of conventional lending alternatives should re-engergize the market. At least it will offer Buyers some new choices.

Please let me know if you hear of other lenders offering comparable products.

Thursday, September 17, 2009

CLOSING COSTS ARE GOING UP (AGAIN)

Well, what else would you do if the volume of your business is down, and if the pricing scale for your product is tied to real estate sales prices , and the stockholders & financial rating services are upset that the dividends are being cut? Raise the rates!

Chicago Title has announced another fee increases (The third in the last 15 months). The new fees go into effect October 1.

I understand that Greater Illinois Title has announced a fee increase as well.

Watch for the rest of the still viable title companies to follow suit soon.

Compare title rates on my web site, here.

Wednesday, September 16, 2009

FHA CONDO GUIDELINE CHANGES - DELAYED

Back in June, HUD issued FHA Mortgage Letter 09-19, announcing several dramatic changes to mortgage loan guidelines effecting condominiums. For the first time, FHA direct endorsement lenders will be able to approve condominium projects in whole, rather than on an ad hoc or "spot approval" basis.

Those changes are all ON HOLD for at least 30 days. The Federal Housing Administration is delaying the Oct. 1 effective date of its new condominium policies while it finalizes several modifications. "We'll be issuing new guidance soon, with several modifications to the policy described in Mortgagee Letter 09-19," a HUD spokesman said, with a November 2 effective date.

Title Insurance Company Woes Continue -

The slow real estate markets continue to wreak havoc on title insurance companies.

Fitch Ratings, has downgraded the financial strength rating of Stewart Title Guaranty Co., from "A-" to "BBB+" and the default rating from "BBB" to "BBB-."

Separately, Fitch also downgraded First American's default rating from from "BBB" to "BBB-" and the senior unsecured debt rating from "BBB-" to "BB+".

WHY THIS MATTERS:
Title insurance is only as sound as the company that provides it. A policy is of little good to a homeowner if the title insurer is insolvent and cannot pay claims. Thus, a careful Buyer wants to make sure that the title insurance issued will come from a strong, secure entity.

In Chicago, Sellers select the title company and purchase the title insurance that protects Buyers.

That decision is almost always left to the Seller's attorney who, more often than not, recommends an insurance company that will pay the attorney a compensation for cases they work together on.

Buyers want quality, but many attorneys use different critera: chose the insurer that pays highest compensation, or the one that is closest to the office.

WHAT YOU SHOULD BE DOING NOW:
Buyers can, and should, demand that title insurance be provided by a first class company. If a title claim arises, Buyers want to know that they have reliable insurance to cover any risk of loss.

Sellers should do so as well. If the insurance does not cover a claim, Buyers will likely sue their Sellers for a breach of (title) warranty. Absent title coverage, those Sellers will have to defend lawsuits and pay damages on their own. out of pocket.

I demand quality insurance for all of buy Chicago area home buying clients. I recommend only the best title companies to sellers as well.

UPDATE - Sept 17:
Yestterday, Fitch also dropped Fidelity National's (parent of Chicago Title, Ticor and LandAmerica) default rating by two notches, from "BB" down to "B+."

Thursday, September 10, 2009

Who is (is not) Likely to Provide your Next Mortgage Loan

Sitting around the closing tables (business may be slow, but i do close every now and then) I have been noticing far fewer buyers using mortgage brokers to close their loans lately... and far fewer brokers still in business.

Consolidation and tough, tough market changes are taking a toll on that segment of the money lending industry. How bad is it? Check out this report from National Mortgage News:

The dollar amount of mortgages funded through loan brokers hit a new low in the second quarter in terms of market share — just 14.9% of all originations. Wholesale lenders tabled funded just $87 billion in loans in Q2, out of a total origination pie of $583 billion. Loan brokers' dominance of mortgage lending peaked in the fourth quarter of 2007 just shy of 30%

Business volume cut in half over the last 18 months? yikes!

On the bright side, the brokers who are surviving seem to be doing very nice loans for my clients. The processing times seem to be running shorter than the retail lenders. The "hassle factor" right now seems to be FAR FAR lower too. The retails tout low costs and low rates, but my gosh, can it possibly be worth the aggravation and delays that borrowers must endure to get there? (no.)

If you are in the market for a new home, or have a client or colleague who is, I will be more than happy to introduce you to the survivors - and to the opportunities they afford.

Tuesday, September 1, 2009

ALERT: NEWLY ENACTED COOK COUNTY PROPERTY TAX LAW (and two more pending changes to watch out for)

Like most all of you (I imagine) I have been spending every waking hour by the front door, staring at the mailbox, waiting for the letter carrier person to deliver my 2008 2nd Installment Property Tax bill. OK, maybe not. For the 16th year of the last 17 (by my count, anyway) tax bills will be delivered late. No word from anyone I've spoke with on when to expect them.

But let us leave that sleeping dog lie for a moment. Lets look forward to next year's property taxes... and to pieces of legislation still pending action

NEWLY ENACTED:

Two weeks ago, Governor Quinn signed SB2125 into law. Beginning in 2010, the 1st installment of property tax bills in Cook County will be computed at 55% of the total of each tax bill for the preceding year (up from 50%) The purpose of the bill is to reduce payment pressure on taxpayers when actual tax numbers are calculated and reflected in the second bill.

Counties with 3 million or more residents (i.e., Cook) can also now change their tax cycles from two annual installments to four.

This change does not increase over-all payments in any way. It just puts more of our tax dollars into government coffers earlier in the year.

Homeowners who do not escrow for property taxes with their mortgage lenders should plan accordingly.

Still on the Docket:

HB 250 would suspend the Cook County Assessor's traditional triennial reassessment of Cook County properties (residential, commercial, and industrial) for another year and compel reassessment of the whole county again for 2009. The bill would also preclude the Assessor from using a mathematical or other mechanical factor to conduct the reassessment.

Given the continued decline in property values this year, another re-assessment will likely benefit many taxpayers (yeah!) put added cost into the administration of the assessor's office (ouch!), further diminish governmental tax revenue (so sorry) and - i imagine - cause further reductions of governmental services (oops).

HB296 is the third, triennial legislative revisiting of the "7 percent" Alternative General Homestead Exemption, (actually a 7% percent assessment cap-on-the-cap). Way back in the good old days (2004?), when property values were soaring ever higher, tax assessments (and tax bills) naturally started to follow as well. The cap was a temporary device that would dampen the effects of rising tax valuations by limiting how high a taxpayer's assessments could increase from year to year over the course of the first (and subsequently second) three year cycle.

Perhaps it may seem a bit silly to revisit this "problem" right now, given that property values have (by and large) declined over the last three years, but why should that stop our heroes in Springfield?

As proposed, the cap would increase from $20,000 to $60,000 and finally become permanent. As with HB250, this bill is also currently in the House Rules Committee.