from Local Attorney, Michael H. Wasserman

Friday, July 23, 2010

Fallin' & Flying

I really enjoyed watching  Crazy Heart on the Netflix with Susan last week. A whole lot more than I expected to.  The scenery and music were really nicely captured. A fair mix or sweet/sappy romance and fortune re-gained. Nice show, with one significant problem - every time Bad Blake hit the chorus on Fallin' & Flyin'  my mind kept wandering from whatever west Texas bowling alley or honky-tonks he was singing in to that other Southwester icon, Wile E. Coyote. More specifically, the look on Wiley's face every time he ran off a cliff while chasing road runner, just after he lost all forward momentum, and looked down. In terms of Chicago area real estate transactions, I wonder - where are we on the falling/flying continuum?

This weeks' Illinois Association of Realtors news release certainly has a lot of  pundits feeling lighter than air. The headline says it all really: Illinois Home Sales Up 10 Months in a Row, Chicago Region a Full Year, Statewide Home Prices Stabilizing. In Chicago, June closings this year bested last year by 27.5%. Comparing the first six months of 2010 to 2009, the numbers increase by 41%. Since then? Well the story seems to be changing. Dramatically. Preliminary numbers suggest that closings are down more than 40% over the first weeks of July. See here  and here

Is the market changing? Over the last six months, the market has been driven by three types of buyers: all-cash buyers, little or no cash buyers (using FHA 95% or 96.5% loans) and buyers who capitalized on the (now expired)  federal first time home buyer tax credit. Those channels all seem to be drying up. There are only a finite number of buyers who have the financial strength to make all cash purchases. Those ranks must be dwindling. The tax credit? sure buyers who missed the "close-by" deadline got a three month reprieve, but that pipeline dried up on May 1 when the "contract-by" deadline passed. That ship has sailed.

Which leaves our hopes for a continued  real estate recovery pinned squarely placed on the backs of buyers using  FHA guaranteed mortgage loans. - Folks who cannot (or do not want to) put much of any money into transactions. Folk who, in many cases, are making the down payments with gifts from families, withdrawals from retirement funds, and seller concessions. Folks who (I suggest) are going to be least able to stay afloat in their mortgages if things go from bad to worse - the most vulnerable of all buyers

FHA, for its part, recognizes that the loans it is guarantying are risky - and they are tightening up. FHA Reform Act H.R. 5072 will increase the annual mortgage insurance premium for an FHA loan from .55% of the total loan amount to up to 1.25%, which is paid monthly throughout the year. Additionally, proposed changes in lending guidelines will further limit seller concessions, mandate higher down payments and credit scores for loan eligibility. All these steps, taken together will likely deter use of FHA loans, and this will in turn, slow home sales further.  

What will bring more buyers into the market? The Coyote, I suspect wants us to call his friends over at Acme to get some sort of  price eroder or tax incentivisor or perhaps their new, easy, no cost financing kit. Perhaps we just need to find the right gadget to keep us from crashing back to earth. If we go that route, I hope we find one that will do the trick, but for the life of me, I just cannot recall a single cartoon episode where Acme products worked out as intended.

Bad Blake on the other hand was falling hard, but he fought back and flew again - certainly higher that he was at the start of the show. He did it using hard work, and discipline, with a healthy dose of help from some supportive friends.

These past few months, closing real estate has felt like flying (just a little bit). Deals may get harder, and harder to come by, but my aim in the coming months - as always - remains the same. Work hard to help clients soar or to at least keep from falling as they make and close real estate contracts... Let me know how I can help you do the same

Thursday, July 15, 2010

Buyers/Sellers Prepare to Pay More to Close your Contracts - Title Rates are Going Up

Chicago Title Insurance Company sent out notice today that, effective August 1st, it is increasing escrow closing fees and title insurance premium charges for residential closings.  Escrow services will cost an additional $100 per transaction. Fees charged for Owners and Lenders insurance policies will also rise, $50.00 each.

I have not yet checked with any of the other title insurance companies but do not be surprised if others follow suit with rate increases of their own in the coming months. For the records, this is CT's 4th rate increase in the last in the last three years. Owners policy premiums have increased 20% since July, 2007. Lenders policies are up 33%. The cost of escrow closings, depending on the amount of insurance purchased, have increased as much as 55% in that time span as well.  (To be clear, these historical rate increases span the whole Chicago Residential Market, not just at CT). 

Chicago Title remains my preferred source for title services. I am an attorney-agent and am proud of  that affiliation. The company has provided my clients with excellent service over the years and I really like working with its closers, examiners and the other support staff I interact with. That said, costs matter - especially in this tough market environment.  There are (at least for now) other, somewhat cheaper alternatives available. One of the many reasons why I write title with several companies. Does a $50 or $150 cost increase matter in the relative scheme of things?  For most people, probably not, but all the same, it  has got to be hard for sellers confronting the deflation of home values (and resulting losses of equity in a sale) to bear increasing costs. Cheaper alternatives exist and I am grateful to have the ability to offer my clients choices.

Let me know if you have any questions about title insurance charges for your next real estate transaction or if you have leads on other cheaper (high quality) alternatives.

Wednesday, July 14, 2010

Illinois Housing Development Authority Awards $2.8 Million to First Time Home Buyers

Last week, the I.H.D.A. announced that it awarded a total of $2.8 million to 436 first time home buyers in the form of down payment assistance and contributions towards closing costs of up to $5,000 and subordinate financing (0% loans of up to $30,000). The funding for this program is derived from the Illinois Affordable Housing Trust Fund, which itself is funded from property transfer taxes.

Has the economic slowdown impacted this very important and valuable program? You betcha. In 2009, the IHDA awarded $4,178,000.

Thursday, July 1, 2010

Welcome to the Machine: the Illinois Anti-Predatory Lending Database Now Playing in Peoria. Kane & Will Counties, Too

Two years ago today, the Illinois Department of Financial and Professional Regulation initiated the Illinois Anti-Predatory Lending Database (IAPLD) project. Since then, details of most every Cook County mortgage transaction have been manually entered into the State's super computers, not once, but twice, sometimes even three times.... all at additional expense to the borrowers the process aims to protect. Closing are taking longer too. Predatory lending, while "discouraged," remains legal.

Today, the program expands to three neighboring counties, Kane, Will and Peoria. As with Cook, all three have been hit hard by foreclosures, many the result of those too-good-to-be-true loans we saw so much of  back in those go-go days before the bubble burst.  

The APLD law requires loan originators to enter details of proposed loans into a state database. The state computer screens the loan and - where appropriate - mandates that would-be borrowers attend  loan counseling from a HUD approved agency before proceeding to a closing. This (theoretically) reduces  the number of foreclosures resulting from unfair loans. The counselors cannot stop borrowers from taking high risk loans, but at least buyers are alerted to risks associated with inappropriate loan programs.

Title company closing agents must also enter loan details into the system to assure that the loan being closed has similar characteristics to the loan entered by the originator (and counselor). Whenever a closing agent discovers material changes to the terms of the loan, the closing must be called off until further re-counseling takes place. 

In my experience thus far, I have had many, many closings delayed while data is entered into the system by loan originators and title companies. I have not yet seen a single closing called off due to a change in the terms of the loan. 

Here is a quick refresher to see just what loans trigger the counseling requirements: 

> The rules apply to one to four unit, owner occupied residential properties.

> Non-owner occupied, commercial, government, and multi-unit (5 or more) properties are exempt.

Counseling is requires if ALL of the borrowers are first time home-buyers or the loan is refinancing a primary residence. AND
  • The loan permits interest-only payments, OR
  • the loan allows for 'negative amortization," OR
  • the borrower must pay 5% or more in total points and origination fees, OR
  • there is any pre-payment penalty, OR
  • the loan has an interest rate that can change (adjust) within three years of closing.