Saturday, July 31, 2010

Heard It Through the Broker Vine Vol. 1 - No More HVCC ?

I heard something the other day through what I call the "broker vine" that was very interesting.

First, let me tell you what the "broker vine" is - it's a mortgage broker "huff & puff" fest that generally happens once or twice a month.

Here's how it works - some loan officer or broker hears some "news" from some inside or unknown source and begins having these "impromptu" meetings all over the office about some good or bad legislation or law that's coming down the road real soon (whether real or imagined).

These sessions are almost always followed by a series of hoots and hollers and high fives for good news, and a lot of fist clenching, teeth gnashing and swearing at the ceiling at bad news.

Huff & Puff. Get it ?

You want to know EXACTLY what I mean. Visit tbws.com. These guys are the huffiest, puffiest mortgage guys on the internet, period. Watch one of their daily videos. You'll see what I mean...

Alright - Back to the Point.

I was told the other day that the Home Valuation Code of Conduct, or HVCC, is going to be nixed within the next 90 days. Apparently, President Obama just signed The Death of HVCC with the signing of the Dodd-Frank Act. It must be true, because news sources all over are stating that is for real. But still - Like I said, it's "huff & puff".

The HVCC bill came about from an agreement New York Attorney General Andrew Cuomo made with Fannie Mae and Freddie Mac on requiring new rules and standards over appraisals. It seems the New York Attorney General, in a short period of time, turned himself into a "real estate appraiser guru", and decided he knew what was best. For ALL of US. I like Andrew Cuomo. But. Dude. Bad Idea. Really.

Why HVCC Does Not, and Will Not Work

This is a true story. Borrowers are going to use Lender A to finance their new home purchase. Lender A orders appraisal for the property through Appraisal Management Company A. Appraisal cost equal $400, paid by borrower. Appraisal equals the sales price of the home on the Purchase and Sale Agreement. Lender A cannot close the loan for the borrowers. Per Lender A, borrowers do not qualify.

Borrowers leave Lender A and make a loan application with Lender B, while still under contract to purchase the home. Lender B approves loan. However, because of HVCC rules, Lender B cannot transfer the appraisal from Lender A. Lender B orders new appraisal from Appraisal Management Company B. Appraisal cost an additional $500 ($400 plus $100 "rush fee". Trying to still go to closing on time). Appraisal comes back from appraiser $20,000 short. And the appraisal was just completed by AMC A about 30 days ago. There are negotiations between the AMC and the appraiser, but he will not re-consider the value.

All of a sudden, the appraiser becomes GOD. All parties of the transaction are willing to do whatever it takes to get the deal done. BUT, the appraiser is NOW GOD, and GOD SAYS NO.

The appraiser unduly influences the transaction. And he is protected by HVCC. Not by his Appraisal Management Company mind you, because they opted to negotiate with the appraiser on behalf of the buyers. It did not work.

Lender B orders another appraisal through AMC B. This is appraisal number three. And that will be another $400 please. This appraisal comes in low as well. But it's $10,000 lower than the original appraisal - not $20,000. This number is much more reasonable, and it is negotiated between the buyer and seller. Deal Done. Transaction closes.

Here's the problem - Besides the borrower spending $1,300 on appraisals. Besides the HVCC rule that basically does not allow transference of appraisals from one AMC to another (in some cases it works, but from what I have seen and heard, it's rare). In the story above, Appraisal Management Company A & B are THE SAME COMPANY.

The AMC managed to bilk $1,300 from the borrower with 3 appraisals, and were not able to transfer the original appraisal so that the borrower could use it with the new lender. It seems that there is some rule that once you generate a transaction number for one appraisal, you cannot change it to another lender. And there is no way you can transfer a Conventional appraisal into an FHA appraisal. Before HVCC, the appraiser had to do some additional work, but as long as he was a Certified FHA Appraiser, he could definitely change a Conventional appraisal into a FHA appraisal. No Big Deal.

So, going back to the "old way" of doing business is going to be a welcome change to what we are currently muddling through. It's time to get the ball rolling again. I believe the real estate industry is the bedrock of the U.S. economy. If we can get all of the inventory sold, new housing starts rising, and real estate sales to begin to tick up again, maybe we can get America back to work and on it's feet. HVCC was as sure-fire way to make sure an economic recovery was going to be a long, drawn out ordeal, for sure.

The phasing out of HVCC couldn't come any sooner. Hopefully this barrier to the real estate industry will be put to bed forever, never to return...

Sunday, July 25, 2010

My New Real Estate Hero - Jean Gregoire Sagbo, First Black Politician in Russia

I have never heard of Jean Gregoire Sagbo, until I read the article today from Associated Press and Yahoo! World News titled "A Russian Milestone..."

He negotiates Real Estate sales in Russia. He has lived in Russia since 1982, is married and has two children. Sounds Normal, right ?

But Apparently, He in anything BUT normal. He is special. He is a member of the Town Council, and is not paid for his services. He is heavily civic minded. He cares about the people and his community, and the townspeople of Novozavidovo, Russia know it. So, in what has been the called the town's first fair and honest election, Mr. Sagbo was elected as a Councilor.

Mr. Sagbo is also African. He is the first Black person to ever be elected to a Russian political office. EVER.

He has what it takes to cross the color lines, and make people color blind. The people of Novozavidovo do not see race or color when they think of Mr. Sagbo. They just see a fellow Russian who cares about his community in a way that is necessary and welcomed. However, he does not like being compared to President Obama. He believes his situation is very different than the current U.S. President's, and who can argue with him ?

The world needs more people like Jean Gregoire Sagbo. My goodness, DO WE. Congratulations Mr. Sagbo. You are MY HERO for the day...

Photo of Mr. Sagbo from Associated Press via Yahoo! News

Friday, July 23, 2010

DEATH of a MORTGAGE BROKER...Loss of YSP to Remove Brokers from Mortgage Market...

Well, they have went and done it now. If you read my posts regularly, you know I am a staunch advocate for Mortgage Brokers and Yield Spread Premium.

I have worked with different mortgage brokerages for the last 7 years, and have seen the benefits of being a broker versus being a lender or a bank.

Mortgage brokers have built-in flexibility in the way they do their business. They can move fluidly from one lender to another, and the borrower does not have all of the hassle of making multiple applications and credit report pulls from different banks or lenders. And that's the simple part.

Mortgage Brokers are the kings of the low interest rate. I do not care what bank or lender you walk into off the street and that institution offers you an interest rate - the mortgage broker is almost always going to be able to beat the rate you just received. FROM THE SAME BANK OR LENDER.

Why ? You guessed it - Yield Spread Premium. Lets call it "YSP", for short. YSP, or the percentage a bank or lender will pay to a broker for a certain interest rate sold to a borrower, RULES.

The lender will offer YSP as an incentive for mortgage brokers to send them their borrowers. It's a great way for lenders and banks to supplement their mortgage loan pipeline. Quite often, banks and lenders offer better rates to mortgage brokers (wholesale) than they offer on their own websites or in their branches (retail). With retail interest rates, the bank is rolling all of the costs of the bricks and mortar into the interest rate. Somebody has got to pay the light bill. Might as well be the customer...

Ultimately with YSP - The BORROWER is the winner. How - You may ask ? Well, the mortgage broker can give some relief to closing costs by switching some of the burden to YSP. That way, the seller's contribution on a purchase can be used to help pay more than just the closing costs - now money can be extended to the escrow account, etc...Everybody Wins...

Banks do have interest rate YSP as well, but it is not disclosed. So what do you think will happen if you do not have to disclose YSP and there is not competition from mortgage brokers ? Artificially higher interest rates. The banks make a killing. Guess What ? You lose, Mr. & Ms. Borrower...

You would think the U.S. Congress would understand the way this works. Apparently they don't. Or they do and do not care. Or, they are just trying to give more business to banks. Who knows what their motivation is to legislate pure, unadulterated garbage ?

Enter the Game Changer:

The Financial Regulatory Reform Bill, or H.R. 1728, is going to change everything - or make the mortgage industry a good bit different than it has been for quite some time. According to the National Association of Mortgage Brokers, borrowers will have two choices - 1) Pay all closing costs out of pocket, or 2) put ALL closing costs into their interest rate. Now, that is not going to have that much of an effect on refinances (most refi's roll the total closing costs and escrows into the new refinance loan), but it is going to have an adverse affect on purchases. Go to the NAMB site and read their press release concerning Bill HR 1728. If you are so inclined to read more about Bill H.R. 1728, Save yourself some time - go to the Bill H.R. 1728 Summary site to get a snapshot of what we are dealing with here.

When purchases are negotiated, there is usually money contributed by the seller, and the borrower can use these funds to help pay for closing costs, prepaids, etc...But what if the seller has little to no funds available to contribute to the transaction ? Here comes the mortgage broker to the rescue. The loan officer can lower or eliminate the closing costs by utilizing YSP, and allow the borrower the flexibility to pay less or pay zero closing costs at closing, AND keep a decent interest rate.

The interest rate staying low is in the best interest of the borrower and the lender. The borrower can remain qualified with their debt-to-income ratio and payment, and the lender has a better chance of getting the monthly payment from the homeowner because they can afford to pay the mortgage payment. Well, guess what just destroyed THAT practice ?

If the borrower must roll all of his closing costs into the interest rate, then they may not qualify. Either go buy a cheaper home or forget it. In the Metro Atlanta area, that can be quite easy to do. In Charleston, West Virginia, well - Good Luck ! Or, they lose the house because they cannot DTI, nor do they have the additional funds to pay ALL of the Closing Costs. Lose/Lose...

Mortgage Brokers are not the only losers with the new legislation. Lenders who use brokers for their pipeline are going to lose as well. The lenders I currently work with count on me and other mortgage loan originators to feed them fresh, highly qualified borrowers to keep their businesses viable and solvent. If a lender does not have retail outlets to handle customers, and borrowers have never heard of them so they will not consistently receive internet traffic, then what are they going to do ? Collateral Damage is at play here. The Winners ? The Big Banks. Hmmm...Aren't they the ones that got us into this big mess in the first place ?

You may ask about the rampant fraud in the mortgage industry, some of it due to mortgage brokers doing a lot of illegal activities just to get a deal done. Well, in some cases the lenders own employees where steering a lot of mortgage brokers into doing a lot of "shady" things so they could get things done. The income margins for some lenders employees was so low during the housing boom, employees where doing whatever they could to make more income. But that is not excuse for bad behavior.

Bottom line is this - fraud was rampant in the mortgage industry. Builders, Real Estate Agents, Closing Attorneys, Mortgage Brokers, Lenders, Banks, Buyers, Sellers, Appraisers, Borrowers, Home Inspectors, ANYONE involved with a real estate transaction - ALL sectors of the real estate industry were committing mortgage fraud.

Hence the regulatory changes to common practices we have seen in all sectors of the real estate industry. Some of the changes are good. For instance, I do not particularly like HVCC (it gets in the way of getting things done - not everybody is a crook, for gosh sakes), but I think it serves it's purpose. And the Mortgage Disclosure Improvement Act of 2008 portion of the Truth In Lending Act (TILA or Regulation Z) requirement surely offers protections for borrowers by not allowing them to go hastily to closing.

But this new legislation if just plain bad. Misplaced, Misunderstood, Misjudged, Misaligned - It just Misses, Know What I Mean ? It's like a $4 bill. Just wrong...

Borrowers for purchases and refinances are going to be the Ultimate Losers. And when the borrowers lose, WE ALL LOSE.

Tuesday, July 20, 2010

Vacation House Swapping - The Modern Day Way to Get Away...

So, I am reading this article on YahooFinance! about the kid that, through a series of trades on Craigslist - started trading an outdated cell phone and ended up with Porsche.

Nice...!! I like cars, so naturally I am going to read the article. Kudos to the kid for having so much business prowess at such a young age.

But, that's not really what caught my eye. The article goes on to mention something very interesting:

Vacation House Swapping.

It is becoming more and more popular since the economy has basically tanked. Instead of people booking a hotel for vacation, they are swapping homes with others in their destination city.

I do not know how simple this would be for me, but I think a lot of families would really reap the benefit of savings from the cost of hotel accommodations versus house swapping.

Go to this website for instructions on how to swap vacation homes using CraigsList. The rules appear to be simple. Look for someone who wants to swap. Get to know that person beyond email. Talk to them on the phone. Remove valuables, ask neighbors to watch, then SWAP !

Now, that was easy...

Saturday, July 17, 2010

Isn't This Living ? 89 Square Feet Per Person...

For the past few years, all homebuyers in the area I live in have been interested in one thing and one thing only - Square Footage.

"I want the biggest house my money can buy", was their motto. Somehow, we equate Square Footage with prestige. If you have a big house, everyone will think You have Made IT - You have arrived.

What a myth !! Now, I must admit I live in a 1-1/2 story traditional frame home, with about 1,900 square feet. It's roomy enough, especially for two people. As I get older, I am beginning to not like the floor plan. Maybe I need to knock down some walls or something. Haven't figured it out yet...

Sorry for the interruption - To get back to my reason for writing this blog: I think the accesses of the 80's and 90's ingrained in our brains that we needed to have more - better cars - hence the rise of BMW, better clothes - the rise of designer jeans (I guess, I don't know much about clothing. I like t-shirts, shorts and jogging shoes. That's it), and all of the other excessive purchases that really proved that we had arrived.

No wonder when the interest rates dropped beginning in 2003, and the lenders invented the "liar loans", everyone decided - "I need a bigger house too. This will accentuate my portfolio of wretched excessiveness".

Remember growing up in the home with you parents and your brother and sister in a 1,200 square foot home. It had a living room, dining room, kitchen, 3 bedrooms and a basement. And that's it.

Ahhh...But we are better than that. We have arrived - We need a room for our exercise equipment, and another one for the television. And so went the housing boom.

Well, it's bust time now. A lot of people have lost their t.v. and exercise rooms to foreclosure. Some are looking to downsize, but cannot sell their behemoth McMansions.

We all are re-thinking what it means to own a home. And how big does it need to be ?

And THEN, there's this guy. Meet Jay Shafer. Jay has this whole Square Footage thing figured out. I recently had a three person family purchase a home with over 5,000 Square Feet. Absolutely Ridiculous. By Jay's measurements, they would be good with about 267 Square Feet. Which is the size of their den. The downstairs den.

With all of that extra space, they have to have a excessive use of cooling in summer and heating in winter. No wonder we use up to 25% of the worlds energy resources. BIG HOUSES with no one living in them (or not enough people, I guess I should say).

Jay - My hat is off to you and those like you. Maybe we all need to get our own version of "Tumbleweed". I actually would be interested in a tiny home, but I am almost finished buying the home I currently live in. Yes - I have been here that long. Oh well - Maybe it could be a Second home ?

Here is Jay's video. Enjoy...

Friday, July 16, 2010

Part II - Why Homeowners Need to Understand that Ownership Is Not a Business...

I wrote a blog the other day rebuking the idea that a Strategic Default was, and is a "Business Decision".

In my opinion, that's the furthest idea from the truth. Now I have ammunition to back it up.

An article written by US News reporter Luke Landis, "5 Homeownership Myths To Avoid" suggests that buying and living in a home is almost exactly the opposite of running a business:

Your home is a good investment. A business relies on ROI (Return on Investment) and P/E (Price to Earnings) ratios in order to stay relevant and viable. Maybe that's part of the problem we are in today. Some people are looking at the numbers and deciding it's not a good way to invest. It's your home, you moron. It protects you and your family from the rain. If you want to invest, buy gold. If you want to gamble, go to Vegas.

Taxes breaks. Easily offset by the homeowner having to buy a new furnace. Or water heater. Or lawn mower. Whatever.

Renting. Renting can be cheaper than owning because of the upkeep issues associated with owning a home. And it makes the renter much more flexible when it comes time to move.

Forced Savings. That's funny. Forced SPENDING is more like it. Ever heard of the Home Depot ?

Your home is not a good investment. In fact, here's an article with that title "Your House is Not a Good Investment". Hmmm...I wonder what the article is about ?

I understand that during the past 5 years, everyone wanted to be a "real estate investor". People would sell their old home and move into a bigger, better house in that brand spanking new neighborhood. And keep the old property as an "investment".

But there is a significant difference between an actual investor and a "forced" investor. The real investor has knowledge. Expertise. Understanding of the market place. They are professionals. It's their job. It's a BUSINESS.

In my opinion, these "forced investors" should have sold their homes before moving into new ones. Or else stayed put. If it was a new job or requirement to move for one reason or another, that's understandable. But I would almost bet they were not. People moved because "everyone was doing it". And now a lot of these so called "investment" properties set on the foreclosure rolls of the banks and other financial institutions.

Others would take advantage of the newly available "liar loans" and go out and buy five or ten investment properties with Interest Only loans, thinking that real estate would continue to appreciate in perpetuity. These activities were the drivers of the housing boom. And they were also the same activities that drove the housing market into the ditch.

The myth that your home was a good investment has led to society thinking that owning a home was also "good business". Your home has nothing to do with business.

Your home is where you raise your children, grow your tomatoes, play with your dog, get married, cut the grass and paint the walls. Where you work is business.

If you are a homeowner, your home is simply where you LIVE.

What ever happened to just living ?

Wednesday, July 14, 2010

In Memory of PFC Jacob A. Dennis, 22, of Powder Springs, Georgia...

I did not know Pfc. Jacob A. Dennis, 22, of Powder Springs, Georgia.

But I am deeply saddened he is not here anymore. War on Terror News reports the following:

"Pfc. Jacob A. Dennis, 22, of Powder Springs, Ga., died July 3 at Landstuhl Regional Medical Center, Landstuhl, Germany, of injuries sustained June 30 in a weapons system accident at Forward Operating Base Lane, Afghanistan (Zabul province)."

I never knew the kid even existed. But I am from Powder Springs, Georgia. I have been a resident her for the past 19 years. And I have a son that is 23 years old, and a Step Son who is 21. All of these boys would have been in High School together. Hearing the death of PFC Dennis reminds me of how much anguish I would feel if one of my boys were gone. I do not know what I would do with myself...

My heart goes out to his family. I wish there were never wars where we have to send our children into harms way. As parents, we try so hard to protect them as they grow up. When they become adults, they are free to do and be as they wish.

I did not know you PFC Dennis, but I honor you and respect you for serving your country, and for protecting my rights to say what I feel, think what I want, and do as I wish...

May God Bless Your Soul Forever. Rest in Peace, My son...

Wednesday, July 7, 2010

Strategic Default - A Business Decision. Really ?

I have heard quite a few conversations lately in which people have decided to call the act of Strategic Default a "business decision", so I decided to take a look at the meaning of the phrase "business" "decision".

The Free Dictionary Online site defines the word "business" in the following ways:


a. The occupation, work, or trade in which a person is engaged: the wholesale food business.
b. A specific occupation or pursuit: the best designer in the business.

Commercial, industrial, or professional dealings: new systems now being used in business.

A commercial enterprise or establishment: bought his uncle's business.

Volume or amount of commercial trade: Business had fallen off.

Commercial dealings; patronage: took her business to a trustworthy salesperson.


One's rightful or proper concern or interest: "The business of America is business(Calvin Coolidge).
b. Something involving one personally: It's none of my business.

It's not until you get to definition# 6 that it actually becomes personal. There are five other more relevant definitions that describe the word business. That's a lot. So using the word "business" as a personal description of an action, or DECISION, is weak at best.

Here is the dictionary's definitions for the word "decision":


1. The passing of judgment on an issue under consideration.

2. The act of reaching a conclusion or making up one's mind.

3. A conclusion or judgment reached or pronounced; a verdict.

4. Firmness of character or action; determination.

5. Sports A victory won on points in boxing when no knockout has occurred or in wrestling when no fall has occurred.

6. Baseball A win or loss accorded to a pitcher: has four wins in six decisions.

However - the use of the word "decision" does make sense. People are deciding to default on their loans. But this has nothing to do with business. It's a personal decision.

Using the phrase "Business Decision" sounds much better than "default decision" or "foreclosure decision" or "failure to pay your contractual obligation decision". We do this to lessen the blow, to ease the mental picture of shirking responsibility, and to allow ourselves to do what we know is not right.

Throughout human history, man has used alternative words or phrases to ease his mind of guilt, and to allow the unthinkable or the absurd to take place, simply because they changed what the act was called.

Calling Strategic Default a "business decision" is no different.

Unless you are in the business of buying and selling homes, commonly known as an "investor", your primary dwelling is not part of a business. A person does not buy their home with the idea they are going to treat it like a business, at least not normally. Buyers purchase homes out of sheer passion, or emotion. That's why people who have a family which consist of a father, a mother and one child will purchase a 5,000 square foot home, even though a 1,500 square foot home would serve all of their needs. Unless their building and selling furniture out of their garage, the house purchase has nothing to do with business.

I personally have lost at least 30% in equity in my own home. And I am one of the lucky ones, because I still have 25% or 30% in equity remaining. The reason: I have lived in my current home for the past 17 years. Think of my neighbors that purchased in my area in 2005. They are drowning.

There are currently 3 - 5 foreclosures in my subdivision of 200+ homes. I can't keep up with how many there are, because it seems to change almost every day.

My point is this - if 30% of the defaults are strategic "business decisions", then 1 or 2 of the current foreclosures in my subdivision is due to some homeowner just walking away. Does that hurt ? You darn right it does. Instead of the appraiser having to go outside of my neighborhood to get a more decent comp, he's going to count that strategic default and it's going to keep my appraised value down. It's going to hurt...

People are going to say what they want to say and do what they want to do, and that is their right, it's their prerogative. This is America. But that does not change the fact that when you perform an act such as a Strategic Default, it damages the bank that lent you the money, your neighbors, your community, your state and your country.

And calling it another name does not lessen the infliction of pain we all are feeling now...

Monday, July 5, 2010

The Re-Forestation of America - The Foreclosures for Forest Initiative...

It now looks as though there is a real plan to make the massive amounts of foreclosures to serve some common public good for the general population - Foreclosure properties for parks, recreation and re-forestation.

A Fortune Magazine article written by Nin-Hai Tseng reports there is a movement towards returning foreclosed properties back into usable green space for the public.

To me, this is extremely ironic. And is shows how incredibly inefficient things can be when the top priority is your financial statement.

Woodlands, forest, pastureland, farms, lakes, streams, what have you - have all been razed across the country simply to build tract homes, subdivisions and neighborhoods. I am almost certain the level of real estate development in the U.S. for the past decade out-paced development in any other decade, hands down.

Billions and billions of dollars have been spent developing land for new homes. And wasted. Within a five mile radius of my home, there are at least 10 incomplete subdivisions that all the land has been cleared, but there is not one house on the land. Just poles sticking out of the ground. Everything came to a screeching halt in late 2008 after the banks froze lending to developers. And the land just sits there. Empty.

Now the land is full of grasses and small shrubbery. All of the beautiful hardwoods, naturally occurring Dogwoods, and other native plants and shrubbery are gone.
What a waste.

The Non-Profit organization Trust for Public Land has been helping state & local governments & private citizens transform their otherwise unusable land and properties into usable space, with a focus on conservation for decades. That's good to know, but it would have been nice if the areas had not been destroyed in the first place.

There is hope, however. TPL also has been known to take vacant, foreclosed properties in good shape and turn the properties into affordable housing. There are a lot of properties that have been completed but never occupied in my area as well. They are an eyesore, as the roads are not finished, the ac units are missing, and many windows or doors are boarded up.

Hopefully the Trust for Public Land, which is now beginning to work with banks and their foreclosed portfolios, and others like them, can help the U.S. transition into a state of stability in the housing market by transforming the foreclosed properties, land and homes into something meaningful and useful, one tract at a time...