Posts Tagged ‘mortgage market’

Mortgage That Matters: Remember The Eight Track Player?

By Rick Soukoulis | May 21st, 2012 0 Comments

It’s beginning to feel a bit like ground hog day. For the past five years it seems that the beginning of summer is marked by some huge event that causes turmoil in the world’s financial system. This year the Greeks are up to it again and the international accounting rules appear to be changing around how banks hold mortgage servicing…

Why do I watch these sorts of events? And what does it mean to us at a local level?

Well……. I have been saying for months now that the future of lending is the regional mortgage banker. Not the mega banks. Over the past few years, Chase, Bank of America, MetLife and others have either stopped lending in the mortgage market all together or have cut back on mortgage staff to bare bones. Given the pending new accounting standards, Wells Fargo, the only 800 lb gorilla left in the space, will have to curtail their aggressive approach to their mortgage business. The new rules will create a level playing field with mortgage bankers who will simply outperform the banks.

What does this mean to that old fashion thing call service?

A borrower called Bank of America Corp. in March to ask about refinancing the mortgage on his Oconomowoc, Wis., home, a saleswoman told him the company was “swamped with business” and that it would call him back in 60 to 90 days. 60 to 90 days? Really? I could be dead, divorced or unemployed by then.

As rates have fallen (they are currently at historical lows), many lenders, especially big banks, have not been able to or have not desired to hire staff to keep up with demand. It now takes the nation’s biggest mortgage lenders an average of more than 70 days to complete a refinance according to Accenture Credit Services, up from 45 days a year ago.

The result? Frustrated consumers who have to wait months to lower their payment and Banks who charge more for loans to slow business down enough for them to catch up. Based on FNMA’s historical pricing, mortgage rates should be around 0.50 percentage point lower . That gap is going straight into the big banks pockets. Where’s my bail out?

So let’s get this straight; the government is trying to encourage lenders to lend, the housing market is in desperate need of lower financing costs to sell houses and borrower’s budgets are in dire straits but banks are taking 70+ days to lower your rate and are charging a whole lot more for their terrible service. Their per loan revenue is higher than it’s been in decades.

How did this happen you ask? The nation’s four largest banks now account for 55% of all loan originations, up from 38% in 2004. This is the classic “He who has the gold” scenario that FNMA is seeking to reverse.

It looks something like this:

FNMA and FHLMC, the government sponsored entities that everyone loves to hate, has actually encouraged the trend of adding more approved lenders nationally and has been adding staff to review and process thousands of regional mortgage bank applications.

They know the future of mortgages looks more like a neighborhood lender than it does a huge national bank. Last year FNMA only had 400 lenders selling them loans out of the 1,100 approved seller/servicers. That 400 represented a tremendous amount of concentration or what we call “counter party risk”. You can only imagine the “he who has the gold” conversations that went on between FNMA and the likes of a Bank of America when it came to buying back a loan.

Today FNMA sees the homeowner being best served by thousands of lenders across the nation who can quickly scale up and down given rate movements and consumer demand. Local service, where customers could actually come in to meet with a human or make their payment has a strong allure for customers. Local lenders, who make or break their reputation in their own back yard everyday may find it a whole lot easier to do right by those same customers.

The massive leverage the big banks have wielded over the agencies and us borrowers for years is about to end rather abruptly. It is my prediction that 24 to 36 months from now, entrusting one of the “Big Four Banks” with your mortgage loan will be a little like having an 8-track player in your car and a phone that you carry around in a suitcase.

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Are Bank Owned and Short Sales Always a Good Deal?

By Russ Boyd | January 25th, 2010 0 Comments

All home buyers have one thing in common: Everyone wants a great deal. The buying public seems to think that “great deal” equals foreclosure, short sale or bank-owned property. The truth is that these properties may appear to be bargains, but in many cases you could be buying someone else’s problems. So the real issue is whether the foreclosure, bank owned or short-sale property you’re considering is a bargain or problem. If you’re looking for a bargain property, here are some key issues to consider:


1. What is your time line for purchasing?
You may find the perfect short-sale property, and the seller may accept your offer. The challenge is that you don’t have a deal until the bank approves the short sale. At many large lenders, a single short sale processor may have hundreds of files to handle at one time. I’ve experience delays of up six to get an offer approved. The wait can be extremely frustrating and it can also be costly.

For example, months from now the offer made today you may be too high or to low. Also, interest rates are more likely to go up rather than down during the coming year. And, just because the seller has accepted your price, it doesn’t mean the bank will. You will have a better shot at buying a short sale where the bank has preapproved the sales price. It still may take a long time to close, but not as long as it would if the price was not preapproved.


2. Are you prepared to be in a multiple-offer situation?
You’re not the only one looking for a “bargain.” Many buyers are searching for distressed properties and the approval process takes so long, multiple offers are common. The sellers agent or lender will not tell you about the details of other offers.


If another offer comes in at a higher price and at better terms, the bank is obligated to take the best offer. If the property is a short sale, the seller’s signature on the document merely opens the negotiation – it does not finalize it. Furthermore, the seller/lender may continue to market the property even after they have signed a contract with you.

3. Ask the agent if the seller participated in the “Cash for Keys” program
The best candidates for good bargains are those properties where the sellers are still occupying them. Many banks have a program called “Cash for Keys.” This program pays the owners of foreclosure and short-sale properties money to keep the owner from trashing the property when they move out. It’s not uncommon for disgruntled owners or tenants to remove or damage appliances, plumbing and electrical systems. Cash for Keys is designed to minimize these behaviors.


4. Beware of tenant occupied and vacant properties
It’s never a good practice to purchase a property without doing a physical inspection. Also, be sure you have stipulated the right to make a final inspection prior to closing.  This is especially important with distress sales.  Also, if the property is tenant occupied be sure the contract states the property must be delivered to you vacant.  Trust me, you don’t want to be responsible for evicting a tenant.   Also, the longer a house stays vacant, the more likely it is that problems will develop.  Not only vandalism, but rats and mice are more likely to move into vacant properties. Rodents can chew through the wiring and generally wreak havoc with the home’s electrical systems.


5. Is the deal more important than your lifestyle?
A property can be a great deal in terms of the price, but is it worth it if it’s in a poorly rated school district or if you end up with an extended the commute? A “bargain price” won’t make up for a poor floor plan, airplane, train or traffic noise or the occasionally whiff of the sewage treatment plant? When you purchase, it’s important that you take all of these issues into consideration rather than focusing exclusively on the price. A property with any of these types of problems will be harder to sell in the future.

As you can see, it’s important to consider the price in conjunction with the quality and the convenience of your lifestyle once you move in.

Of course there are good distressed property deals out there. Nevertheless, don’t limit your search. Keep in mind that, depending on the neighborhood and price range, anywhere for 10 to 50 percent of the sales may be distress sales. This means that 50 to 90 percent of the available homes are likely occupied by owners that are maintaining their homes and in better neighborhoods. In the long run, they may be a much better bargain.


A true bargain is when you find a home in the neighborhood and price ranges that fits your lifestyle. A house you will be proud to call home.

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