the wasserblawg

by Michael H. Wasserman Apparently, we have learned nothing over the last 8 years. Folks are actually starting to tout no and low down payment loans again. Worse yet, many consumers seem ready to follow their suggestions. Back before the bubble burst, the markets were giddy with buyers purchasing homes and investment properties with no (or next to no) down payments. Conventional wisdom at that time held that property values could only go. up. Huge equity gains were inevitable. Profits would flow to anyone smart enough to buy a home - even more so for those who bought without actually paying anything out of pocket. Then the market collapsed in 2007 and the fallacy of that theory became painfully apparent. Property values plummeted. Owners went from no equity to negative equity. Severely. HELOCS were frozen or worse yet, called due by lenders. Properties became unsalable - sellers could not afford to pay out the shortages. You remember, don't you? The after-effects from all o...

By Michael H. Wasserman You might not know it from a look out the window or a walk around the block just yet, but the spring real estate market is upon us, and home buyers are out en masse in Chicago searching for the right opportunities.  Everyone’s favorite semi-governmental real estate entities, Fannie Mae and Freddie Mac both seem intent on capitalizing on this now to further reduce their respective REO inventories. Each has announced new incentive packages to try to entice prospective buyers. Notable in the two announcements is the differing strategies they are using. Fannie Mae is offering fairly sizeable incentives to buyers themselves. Freddie Mac, while offering a token to buyers seems to be much more focused on motivating the sales agents that guide buyers. 

By Michael H. Wasserman Closing on residential properties in Chicago generates a lot of paperwork. Particularly if when mortgage financing is involved. Part of my job as an attorney for home and condo buyers is to help with loan application/documentation and to review the at-closing loan package with them. The number of documents presented at closing seems to grow every year. It can take a while to slog through the reams of disclosures, authorizations and certifications most lenders send to the closing table. Pens run out of ink. Rest breaks are often needed. Stacks of paper get pushed from one end of the table to the other and then back again. The two most typical reactions to all of the signing are (A) recognition of all the trees that "give their lives” in service to the lenders and title companies, and (B) Hopes / wishes for paperless closings. The mortgage financing process for some  home buyers is getting a bit "less inconvenient" and a step closer to paperle...

Mark Greene at Forbes Magazine nailed it earlier this month in his article the perfect loan file , which really does capture the rigor with which lenders are scrutinizing every mortgage loan application these days. In my opinion, this should be mandatory reading for every buyer in the marketplace now. Lenders demands for proper / acceptable supporting documentation can be pretty daunting.  I see many clients with qualifying income and credit scores being driven to tears by the excruciating process. In recent weeks more than a couple have simply quit. Some are using all cash to make their deals, avoiding the hassle altogether. Others are giving up their dreams of home ownership. If I never hear a loan originator ask for (or a client complain about) "just one more thing,"  I will be a happy man. Certainly understandable that lenders are being  very  cautious while processing their loans applications. No one wants to see loan failures given the s...

Local buyers hoping to finance their home purchases with a loan from a parent or other family member are going to need to change their plans. Quickly. Sellers offering financing to prospective buyers too.  As of January 1st, 2011, ONLY Illinois mortgage licensees, regulated/licensed banks, savings & loans, credit unions, insurance companies, and the like can make residential mortgages for gain or profit.. Non-interest bearing mortgage loans are still allowed. The new rule was enacted to implement a Federal law intended to enhance consumer protection and reduce fraud in the mortgage industry. That protection it seems, comes at a cost. Consumers have no choice now. Licensed mortgage lenders are the only game in town. At least for residential transaction. THE FEDERAL LAW: The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (“SAFE Act”), was passed on July 30, 2008.  The federal obligated each of the 50 states to enact their own laws requiring licensure...

Homeowners - think back a moment to your last re-finance or purchase transaction.... How did you chose your lender? According to a just released study by Lending Tree & Harris Interactive , chances are you probably signed on with the first lender you spoke with. True?  Lending Tree reports that roughly 40% of homeowners surveyed went with the first loan officer they spoke to. As restated in a Forbes article on the report, 2 out of 5  buyers take the very first home loan deal presented to them, regardless of whether a better one could be had. Curiously,  96% of the survey participants said they compared prices when shopping for anything else besides mortgages.  Heck, the average consumer compared at least three home computers before buying. And special question for all the Realtors: How many houses did that buyer look at before picking "the one" to make an offer on?  The end result? Only   28% surveyed felt confident that they got the best possible...

On Monday, the Federal Reserve Systems' Board of Governors issued a final rule that places strict new limits on the way in which mortgage loan originators can get paid. The new order: Prohibits lenders from paying originators added compensation when borrowers agree to accept higher interest rates or other loan terms than they might otherwise qualify for  (the yield spread premium or "YSP"). Disallows originators receiving compensation from lenders or other third parties if the borrower pays them too, and Mandates that originators not "steer" consumers to loans that increase originator compensation but that are not in the consumer's best interest.  Consumers have long been at risk when dealing with loan originators who are compensated based on the terms of the loans offered. Loan officers, having superior knowledge about various loan programs were often offered very lucrative in Publish Post centives (i.e. more money) if they could convince (or mislea...

It is just not getting any easier for home buyers hoping to finance their deals with mortgage backed loans. Beginning June 1, lenders originating mortgages being sold to Fannie Mae will have to pull a second credit report just before the loan closes. According to the National Mortgage New s, the new quality control requirement is designed to prevent a type of mortgage fraud called "shotgunning," a mortgage scam in which someone obtains several loans (from multiple, unwitting lenders) on the same property. all at the same time. Typically, a shotgun fraudster skips town with the proceeds of all his loans. Most of the lenders do not recoup a cent because their mortgages are subordinate to the first one recorded and the home will not fetch enough in a sale to cover the junior liens.  The second credit reports, it is thought, will alert lenders to other creditors who have recently requested information about the mortgage applicant.  Buyers are cautioned (as always) to defer ...

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...

Remember HUD Secretary Shaun Donovan's proclamation back in May? "We all want to enable FHA consumers to access the home buyer tax credit funds when they close on their home loans so that the cash can be used as a downpayment". I blawged about it here . I've represented a dozen or so first time home buyers in Chicago area closings since then. I've seen many more first time buyers while representing sellers, too. Still waiting to see someone who is actually use the tax credit at the closing table. Noone in Illinois seems to have figured out how to implement the FHA's proposal. Not so for Massechusets. The Commonwealth's MassHousing loan program , announced yesterday, is one of the only programs accross the nation that actually monetizes the tax credit (allows Buyers to use the tax credit at closing, rather than wait for a benefit when they file their federal income tax returns). Those cream pie eating, red hose wearing, celtic loving types better act quick...

The first day of spring offers new opportunities for well qualified, upper bracket buyers: Bank of America has announced that it is re-entering the Jumbo Loan markets. As reported in the Daily Herald , they will be offering loans of $730,000 to $1,500,000 on 30 year amortizations and interest rates below 6.00%. Borrowers will have to make 20% down payments, have proofs of income, hold cash reserves of six months of monthly payments (principal, interest, taxes and insurance) and have golden credit ratings. Jumbo loans are too big to be insured by Fannie Mae or Freddie Mac. They are typically only funded if private mortgage insurance is available. Those PMI companies took a pounding when loan default rates exploded. Consequently, they started charging prohibitive premiums to meet the increasing risks associated with such large loans. For a while there it was nearly impossible to fund Jumbos for a while. But it stands to reason that there are great rewards out there for lenders who will...

Earlier this week, the U.S. Senate approved an amendment to the proposed economic stimulus plan that is of particular interest in the real estate community. The Liberman - Isakson Amendment , as proposed, would extend and broaden last years first time home buyers tax credit. (Keep in mind that the Senate has not yet voted on the bill; the House still has to agree, and the President must sign the law before it might take effect.) Here are the essential points as proposed: Home Buyers will receive a pure tax credit (a reduction of the taxes otherwise owed) The credit would be 10% of the purchase price , up to $15,000.00. Provided that the home purchased becomes the buyers primary residence, for at least two years You can only use the tax credit one time. If the home is purchased in the first year this law exists, you can elect to take the credit as if the house was purchased on December 31, 2008 (that is, the credit can be applied on 2008 returns . Or, if a home buyer prefers, the ...

By all outward appearances, state government in Illinois has ground to a complete halt, with all eyes focused on the Governor's "problem" and all the related fal - der -rah. Its hardly business as usual in Springfield, but not everything has ground to a halt. Several new bills have been introduced this week. That is not to say that they will be of benefit to we the people. Nonetheless, the cogs and gears are turning, and we are hoping for the best. One such proposal comes from Rep. LaShawn Ford of Chicago's west side, who is himself a real estate broker and entrepreneur . He is the author of House Bill 155 , introduced & referred to the Rules Committee Wednesday. It seeks to address one of the most common problems I am seeing in condominium resale transactions these days; the tension between many Declarations of Condominium and FHA loan guidelines. Many Condo Declarations provide Associations with a "right of first refusal," which basically allows t...

The Inman News Wire is almost always good for an interesting read or two (assuming of course you find the business of real estate news even remotely interesting) but I was particularly taken by Jack Guttenberg' s column today. The self-proclaimed "Mortgage Professor" has a very particular and analytical approach to mortgage financing. His web site is a GREAT jumping off point for anyone who wants to begin the process of understanding what, and where, to shop for a loan. The good doctor surveyed the current landscape for fixed rate, adjustable, and interest only loans, both jumbo and conventional in mid December. Specifically, he checked in with seven (un-named) internet based lenders and the four major "depository" lenders (i.e. chase, citi, boa and wells fargo). Read the whole article here for the details . Bottom line #1: Borrowers can save a ton of money by shopping loan providers. Bottom line #2: Buying down the interest rate is a very good investment.

Yesterday, the United States Department of Housing and Urban Development released a study conducted by the Urban Institute that suggests that "[m] any American consumers overpay by thousands of dollars in total closing costs when they purchase their homes. There are significant and unsupported variations in loan charges, title fees and other closing costs charged to unsuspecting (most typically minority) home buyers . The study found significant disparities in closing costs even when it compared borrowers with identical credit scores, loan terms and mortgage amounts. Variations appeared to be based on education level, geography, race and ethnicity. Of course, in an information-era, free market system this shouldn't happen. HUD mandates that all mortgage loan applicants receive two critical documents: a " Good Faith Estimate of Closing Costs " and a " Truth in Lending Disclosure Statement " (the "TIL") that should enable consumers to compare t...

The news media is rife with reports of significant declines in home sales and high foreclosure rates. At this point, this is pretty old news. Just ask any realtor, real estate attorney, or title company employee. We know this from our own levels of activity, or lack thereof. So what do we do when we run out of work? We try to figure out who's to blame! There is much finger pointing and hand wringing over the causes; lax loan underwriting; irresponsible buyers/borrowers; greedy institutional investors; poor governmental overshight; mortgage scammers. Chose your favorite. All share responsibility to some degree. Myself, I have always looked first to unscrupulous, opportunistic loan originators. Not ALL loan originators, lets be very clear about this. The ones who over-promised, over-sold, and under-delivered. I have equally dim views of some insurance/annuity salesmen, car finance guys, and boiler room stock brokers. A common denominator among them all is that they are all commis...

Never mind that the lender might send a letter telling you that the size of your line of credit is going to be lowered, if you are even remotely considering a sale of your home and purchase of another, NOW might be the time that WANT/NEED to get that HELOC anyway. With a slow market, there is just no guaranty that you are going to be able to sell your home in time to buy the next one. You might be able to offer to buy the next house contingent on the sale of yours, but there is no guaranty that the seller will agree, or that you will find a buyer who can fulfill the contract to buy yours. Mortgage markets are tightening for everyone. You may need to tap into that built-up equity in your current home before you sell it, in order to buy the new one. THE PROBLEM: Most mortgage lenders will not want to remortgage your house for you once you have listing on the MLS. As suggested by Dan Green at Mobium Mortgage , "If there's even a remote chance that you'll need your home...