FHA mortgages may still beat loans available from private-sector rivals

Original Post Date: April 24, 2011

By: Kenneth R. Harney

Reporting from Washington—

Is the Federal Housing Administration losing some of its post-boom, post-bust oomph? Is the Obama administration’s plan to gradually throttle back the FHA’s home mortgage insurance volume already having effects — and if so, what might this mean to you as a buyer? There are definitely signs that something is brewing:

•Total applications for FHA-insured single-family mortgages are down 30% year over year through March, according to the agency’s data. Applications from prospective home purchasers are down 35%. The FHA’s popularity with buyers previously had sustained its high origination volumes.

•The FHA put its second increase in premium charges in six months into effect April 18. Higher premiums mean higher monthly payment requirements for buyers and could have the effect of squeezing some consumers with tight budgets out of the market entirely.

•The private mortgage insurance industry, which competes with the FHA for borrowers who make small down payments, is touting its newly resurgent conventional mortgage products, which may offer significant monthly savings compared with the FHA.

•Some of the agency’s long-standing advocates are wondering aloud whether the administration’s policy tilt toward more private-sector involvement in the mortgage arena may be hurting first-time buyers who can’t bring large cash resources or high credit scores to the table.

“Here you have our last refuge for ordinary people to buy a home, and the government is making it tougher to qualify” by raising insurance premiums, said Mario Yeaman, senior loan officer for Milestone Mortgage in Manhattan Beach.

Brian Chappelle, a principal of Potomac Partners, a mortgage banking industry consulting firm in Washington, D.C., said he worried about the direction the FHA had begun pursuing. “FHA’s role was designed to be the first rung on the homeownership ladder. If you raise fees, increase down payments and lower mortgage limits, it would be a serious impediment for future buyers and the economy.”

Chappelle’s concern about higher down payments stems from the Obama administration’s February “white paper” on housing reform in which policymakers called for higher down payments across the board — including at the FHA. To date, no increases have been proposed by the agency, but some analysts believe that a move to a 5% minimum down payment — up from the current 3.5% — would not be surprising in the months ahead. The FHA’s maximum loan amounts might also drop significantly in October if Congress does not renew the economic recovery law ceilings, which now top out in high-cost areas at $729,750.

Given these developments, how does FHA financing stack up against rivals in the low-down-payment space? Private mortgage insurers have a quick response: They say their lower monthly costs already are winning back some of the business they lost to the FHA during the recession.

For instance, Radian Guaranty Inc., a major home loan insurer, claims that in the wake of the FHA’s premium increases, a low-down-payment conventional mortgage carrying its insurance coverage requires monthly payments 15% lower than FHA-insured mortgages for borrowers with FICO credit scores above 720.

Radian provided this cost-comparison example to illustrate: Say you’ve got a FICO score above 720, and you need a $285,000, 30-year loan with 5% down at a 5% interest rate. The FHA mortgage would cost $1,806 in principal and interest a month. The same loan insured by Radian would cost from $1,530 to $1,753 a month, depending on the type of premium payment plan you chose.

Brien McMahon, chief franchise officer of Radian, said that as a general rule, private insurance on low-down-payment loans would beat the FHA whenever the buyer put down 5% and had a 720 or higher FICO score or put down 10% and had at least a 680 FICO.

So does this mean that all buyers with low down payments should abandon the FHA and switch to conventional loans? Hardly. David Van Waldick of Western Realty Finance in Carlsbad, Calif., said the majority of FHA users couldn’t fit into the private insurers’ high-FICO, strict-underwriting model, so those vaunted savings may be illusory.

The FHA, by contrast, continues to offer much higher and more flexible maximum debt-to-income ratios, far more generous underwriting and lower down payments, and will accept FICO scores that conventional lenders and private insurers won’t touch.

Bottom line: If you’re purchasing a home with a small down payment, check out both the FHA and the private alternative with your loan officer. It’s true that the FHA has just gotten a little more expensive. But it may still have the total package you need to do the deal.

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Don’t become a crime victim when you show your home to potential buyers

Original Post Date: April 24, 2011

By: Lew Sichelman

Reporting from Washington—

As crime victims go, real estate agents don’t compare to taxi drivers, who suffer the highest rate of homicide of any occupation, according to government statistics.

But every so often an agent is killed, robbed or beaten while showing a house for sale. So realty companies and trade organizations have made their agents’ safety a top concern.

Rarely, though, do agents pass along safety tips to their clients. As a result, sellers may go about the business of putting their homes on the market oblivious to the dangers.

Andrew Wooten, a crime prevention expert in Jacksonville, Fla., who counts numerous realty boards and real estate firms as clients, maintains that “agents do a good job” of communicating the potential dangers to their clients.

Yet during a Web seminar this month sponsored by the National Assn. of Realtors, Wooten started off by saying that “safety often takes a back seat” when agents are rushing about to get ready for showings.

None of this is to say that you shouldn’t hold an open house or allow someone to examine your property. But to be safe and to keep from becoming a victim, you should be aware of the risks.

Usually miscreants are after whatever they can jam into their pockets as they roam from room to room. But sometimes they are there to case the place for a future burglary. And occasionally they have worse things in mind. So here are some precautions sellers should take to protect themselves and their property:

•First and foremost, Wooten said, trust your instincts. The safety expert calls this your “checkup from the neck up,” and stresses that intuition is your most powerful crime-fighting weapon. So if something or someone makes you uncomfortable, be extra alert and extremely careful.

•If a prospect or unknown agent shows up at your door unannounced, have him or her call your agent to schedule an appointment. No exceptions.

“Don’t open your door to strangers,” said Wooten, who wrote “The Real Estate Guide to Safety” and is president of SAFE Inc. “Call your agent. That’s why you have one.”

•Never let a stranger into your home when you are alone.

Agents are advised not to show houses alone, and neither should you. Ask a neighbor to come over while you show the visitor around. If no one is available to keep you company, tell the visitor to come back later or call your agent. It’s better to lose a sale than your life. “There is safety in numbers,” Wooten said.

•Identify your visitors. Agents often insist that everyone sign a guest registry to show their control and professionalism. They also screen their clients by putting them through a prequalification process.

At the very least, you should keep a visitors log. Ask for a driver’s license or other photo ID and make sure the picture matches the face of the person in front of you. Get the visitor’s address, phone number and license plate and driver’s license numbers. Also jot down a brief physical description of the visitor and his or her automobile.

Before you let anyone inside, call someone and give that person the security data you have collected. And be certain that you do this within earshot of your visitor. That way, the visitor will know you are taking precautions.

This might seem cumbersome, but security experts say you can never be too prudent. And anyone who finds this request unreasonable is probably not someone you want to invite into your home anyway.

•Identify unknown agents too. It’s easy for someone to print up fake business cards, so call the agent’s office to make sure that the person is who he says he is. Never let an agent directly into your house. Instead, make that person open the lockbox your agent placed on your door to gain access. Non-agents won’t be able to.

•Don’t make an appointment with potential buyers unless they provide their names and phone numbers and you have called them back to verify the number.

•Beware of callers who knock on your door at strange hours, either late at night or early in the morning. No matter who they say they are, ask them to make an appointment at a more reasonable time. If someone says he can view your house only at this particular moment, don’t believe him.

•Before letting anyone in, turn on all the lights and open all the blinds, shades and curtains. Homes are safer for showing when someone outside can see inside.

•In advance of an open house, remove your valuables, including jewelry, artwork and electronic equipment. You’re going to be packing them when you move anyway, so you might as well put them away for safekeeping.

And never leave money, mail, bank statements, credit cards or keys lying around. Keep them on your person, not in a drawer. It’s too simple for a petty thief to open a drawer when no one is looking. Lock up your prescription drugs too. Wooten suggests that you make a list of things that need to be locked away and following it every time there is a showing.

•Pay attention to the way prospects view your house. Professional burglars often linger in rooms, looking for items they can dispose of quickly. They also search for ways to get in and out, scouting possible escape routes and checking for security devices. Couples up to no good often split up so one can case the joint while the other keeps you occupied.

•Be mindful of someone who is asking unusual questions that have nothing to do with the house. Are you married or single? Do you live alone? What times does your spouse leave for work and return? What time do the kids come home from school?

All these queries could be an attempt to determine how long you’ll be alone or when the house will be empty. Never let potential buyers know your schedule.

•If a prospect asks you to show him around, let your visitor enter the room first so you can’t be attacked from behind. Don’t turn your back on him or lead him around, Wooten advises. “Direct him as opposed to letting him follow you.”

•Plan your escape route in case something goes wrong. “Figure out in advance how you are going to get out of trouble if trouble presents itself,” Wooten said.

Overly cautious? Probably so. But it’s better to be safe than sorry.

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What Must Be Fixed Before I Sell?

Original Post Date: April 22, 2011

By: June Fletcher

Q. I must sell my house, but because the market is still bad, I stand to just about break even on it, after paying real estate agents and other expenses relating to closing. It is 27 years old, and I have not done much to update it over the years. I can’t afford to redo the kitchen and bath, but I realize that I will have to do some things to attract a buyer. What’s the bare minimum?


A. The bare minimum is just a little bit more than what the nearest comparable house on the market has done—plus scrupulous attention to cleanliness and order, inside and out.

To be more specific, you will need to fix all of the delayed maintenance items, from loose gutters to doorknob dents in the wall that buyers can use to either cross your home off their list or use as a bargaining chip in negotiating a sales price. And remember that even if the buyers fall in love with the home and are blind to some of these issues, their agent and their home inspector won’t be.
You could hire your own home inspector to point out these flaws before you list, but since that would cost you a few hundred dollars that could better be spent on fixing things, I don’t recommend it. Rather, ask a picky friend, and your own real estate agent, to tour your house and point out every flaw they see. Take notes, and then ask your agent to recommend handymen and other contractors who can address these issues.

Meanwhile, attack as many problems as you can on your own. Take down your screens, particularly if they have small holes or rips, and store them. Then rent or borrow a pressure washer and clean the windows, doors and siding—you’ll be amazed at how much that will make your house sparkle. Paint your front door and polish the knob. Replace or paint any outside light fixtures and the mailbox. Pull any weeds, seed any bare spots and spread down fresh mulch.

Inside, repair and paint—or at least touch up—any holes, cracks and dings. Re-caulk the area around the tub and sink, and clean the grout. Rent a carpet cleaner for wall-to-wall carpeting. Polish wood floors and cabinets, too—there are a number of new products available that can be wiped on and off, and don’t require stripping the wood. Invest in some new cabinet hardware—and if you can afford it, new light fixtures—to replace dated ones. Fix any dripping faucets and replace the guts of any leaking toilets. Spray lubricant on any squeaky hinges and sticking windows.

Also buy some plastic bins, color-coded by room, into which you can place clutter like extra books, knick-knacks and rarely used kitchen appliances so your countertops and rooms will look less cluttered and larger. These can be stored in the basement, a shed or an off-site storage facility while your house is being shown.

Obviously, this is a lot of work and seems daunting, but if you can enlist your family to help—or can afford to hire some professionals to take on some of these tasks—you’ll get through the checklist. There is, however, one professional that you should hire regardless before you list—an exterminator. Older houses tend to acquire critters and creepy-crawlies without owners realizing it—and nothing will kill the sale of your house faster than the rustle of a mouse in the basement or an ant crawling across a windowsill.

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Buyers’ Market? Stressed Sellers Say Not So Fast

Original Post Date: April 25, 2011

By: Nick Timiraos

Falling home prices should give aspiring homeowners the upper hand this spring, but in a growing number of locations, it doesn’t feel like a buyer’s market.

Blame the nearly five-year slide of home prices. Those declines, which accelerated over the past two quarters, have left many sellers unable or unwilling to lower their prices. Meanwhile, buyers remain gun shy about agreeing to any purchase without getting a deep discount.

That dynamic has fueled buyers’ appetites for bank-owned foreclosures. Those homes often hit the market at bargain prices, but they are being snapped up by investors who are paying in cash.

At a focus group earlier this month, the mood among buyers was “nasty,” says Glenn Kelman, chief executive of Redfin Corp., a Seattle-based brokerage that operates in nine states. “There’s a shortage of attractive inventory,” he says. “Customers just keep getting outbid on the houses that they want.”

It took Susan Hunter just one month to unload her home in Redondo Beach, Calif., last fall. But she has been outbid on four homes at a lower price point in Eagle Rock, an emerging neighborhood in northeast Los Angeles. Some sold to investors who paid cash. Other listings, she says, are being resold by investors at prices that she says are too high.

“It’s the Wild West out here. It’s a daily, tireless search,” says Ms. Hunter, who works in television production and marketing. Demand is up because “we haven’t been able to find homes here below $500,000 since the 1990s.”

Last year, software engineer Young Hammack gave up looking to buy after being outbid on three properties. This year, he has his eye on a four-bedroom foreclosed house with a pool in Citrus Heights, Calif., that hasn’t yet hit the market. He hopes to pay about half the $492,000 it fetched six years ago.

But the 32-year-old, who is relying on a 3.5% down-payment mortgage backed by the government, is at a disadvantage against buyers who can pay cash. “It’s a false buyer’s market,” he says. “If you think prices are cheap, wait until you start putting offers in.”
Many buyers are looking for discounts because they lack confidence that prices have reached a bottom, and sellers won’t have much pricing power as long as buyers such as Mr. Hammack and Ms. Hunter are in no hurry. “It may take some time, but I’m willing to wait,” Ms. Hunter says.

The Wall Street Journal’s quarterly survey of housing-market conditions in 28 major metro areas shows inventories of unsold homes remain high but fell during the first quarter. Listings were down by nearly 25% from one year ago in Miami and Orlando, and by 12% in Phoenix and Portland, Ore., according to figures compiled by John Burns Real Estate Consulting.

Other markets, including New York’s Long Island and Charlotte, N.C., still face imbalances. At the current sales pace, it would take more than 16 months to sell all homes listed for sale in each market. A balanced market typically has a six-month supply.

Meanwhile, home values fell in every metro area for the second straight quarter, according to data from Zillow Inc. Prices were down by more than 5% in Chicago and Detroit, the largest quarterly drops, to levels not seen in more than a decade.

Values have fallen so far that many sellers with equity aren’t willing to drop their prices. Those without equity can’t cut the prices unless the bank agrees to take a loss in what is known as a short sale. Such sales can take months to complete and fall through at the last minute, deterring some buyers. Still, short sales hit a new high, accounting for 9% of all transactions in January, according to CoreLogic Inc.

“Frankly, until we start building some equity, the market is just going to sit here and do pretty much nothing for the next few years,” says Christopher Thornberg, a housing economist at Beacon Economics in Los Angeles.

Homes that don’t need much repair work and that are located in choice neighborhoods near transit hubs or with good schools are in demand. “What’s selling is the cream of the crop, and they sell fast,” says Steve Capen, a real-estate agent with Keller Williams Realty in St. Petersburg, Fla. “If it’s not cream of the crop, it’s getting hammered.”

Mike Morea and his family have outgrown the 800-square-foot, two-bedroom home he bought eight years ago in Seminole, Fla. He hopes the bank will approve a short sale for about $85,000 for a $50,000 loss. In December, Mr. Morea saw first-hand why buyers are more attracted to foreclosures: he bought one for himself, a $200,000 three-bedroom home in a nicer neighborhood 10 minutes away.

“That’s what every seller is running into,” says the 31-year-old police officer. “Nobody is going to buy your home at retail price if there are 30 foreclosures available.”

While foreclosures are in demand, mortgage companies’ processing problems have sharply curtailed the flow of bank-owned properties onto the market in states such as Florida, New Jersey and New York, where courts must process foreclosures.
To be sure, some of the challenges facing the housing market are easing as the economy adds jobs, boosting demand and easing mortgage delinquencies.Depressed prices coupled with low interest rates have made housing more affordable than at any time since 1975, according to Zillow.

But the legacy of the housing market’s collapse has left two big structural problems. First, the huge erosion in homeowners’ equity has deprived housing markets of the all-important “trade up” buyer. Even those with equity often aren’t willing to sell at current market prices, exacerbating what housing analyst Ivy Zelman calls the “stuck factor.”

Second, foreclosures are still weighing on housing markets. While mortgage delinquencies are down from their 2009 peak, an all-time high of 2.2 million loans were in foreclosure at the end of March, according to LPS Applied Analytics.

Economists say the “shadow inventory” of another 4 million potential foreclosures will keep a lid on prices for years. Even in markets with rising demand and falling inventory, prices won’t go up because “there’s too much on the horizon, so nobody’s in a hurry,” says Ron Leis, a broker in Sacramento, Calif.

Tighter credit standards have also left markets with fewer buyers at a time when more would help. When he needed to move into a bigger home four years ago, Todd Loewenstein sold his Redondo Beach home and began renting. “Now, we want to get back in, but it hasn’t happened,” says the 44-year-old technology entrepreneur.

He fell out of escrow one week before closing on an $850,000, three-bedroom home in October after the lender turned down his loan. Mr. Loewenstein, who was prepared to make a 20% down payment, says he has never missed a payment in his life and has enough savings to last several years.

But he wasn’t able to meet the bank’s tight income-documentation requirements. The home, which sold for $1.25 million in 2005, is still on the market. Mr. Loewenstein says he scans listings every day and is still looking to buy.

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Are you getting your money’s worth with appraisal?

Original Post Date: April 17, 2011

By: Kenneth R. Harney

Reporting From Washington—

When you pay $450 to $550 for an appraisal on a home purchase or refinancing, do you assume that all or most of the money is going to the appraiser who comes to the house and performs the valuation?

That’s logical, but probably not correct. Despite Federal Reserve regulations that took effect April 1 requiring lenders to pay appraisers fair fees, growing numbers of them say they are still being offered $200 to $250 — even as low as $134 — for work that gets billed to consumers at $450 and higher.

Last year’s Dodd-Frank financial reform law mandated that appraisers receive fees that are “customary and reasonable” for their local market areas, yet the largest national appraisal organization — the 25,000-member Appraisal Institute — says that is not happening.

“The average fees across the country today are … nowhere near reasonable or customary” in most markets, says Leslie Sellers, a former president of the group.

Who’s getting the difference between what consumers are billed and appraisers are paid? Management companies that connect lenders with local appraisers take a percentage for their services, but often lenders turn appraisals into a profit center of their own.

Should you care? Absolutely, for several reasons:

•Accurate appraisals are in your interest as a consumer. They can be deal-breakers if they’re lowballed. But performed competently, they are accurate measures of your equity when you refinance or seek a second mortgage.

•Most experienced independent appraisers refuse to work for $200 to $250 because they can’t pay their overhead at these rates. Less-experienced appraisers who sometimes have to travel long distances from their home markets tend to be more willing to work for the lower amounts.

Tom Kirchmeyer, president of Kirchmeyer & Associates Inc., an independent appraisal management company based in Buffalo, N.Y., with 8,000 affiliated appraisers around the country, says consumers often have no idea what they’re really paying for because “there’s no transparency” in the process. Kirchmeyer favors mandatory disclosure of how much the appraiser is receiving and how much is going to the appraisal management company that arranged the assignment. So does Richard Hagar of American Home Appraisals in Seattle, who says major lenders who own or are affiliated with appraisal management companies oppose it because they know that if the financial facts are disclosed, “consumers are going to riot.”

In a hypothetical example, say the appraiser receives $250 and the management company receives $100, how can the lender, which is charging $500 for “appraisal services” on the HUD-1 standard settlement sheet, justify the $150 difference?

It can’t, said Gary Crabtree, head of Affiliated Appraisers in Bakersfield. Worse yet, he says, employing “subprime” appraisers for low fees also often leads to lowballed valuations that are harmful to homeowners and buyers.

As a recent example, Crabtree says an unhappy homeowner showed him a valuation performed by a low-cost appraiser hired by the appraisal management affiliate of a large national bank. The house, located next to a country club, was 4,000 square feet and the owner had just spent $250,000 in renovations on the property.

Crabtree, who refuses to do appraisals for the low fees paid by the bank’s affiliate, said the house should have been valued at around $600,000. But the appraiser hired for the assignment valued it at just $320,000, using distressed sales and properties outside the area as comparables.

How is this happening when Congress clearly mandated higher “customary and reasonable” fees? Appraisers say much of the blame goes to the Federal Reserve, which created a giant loophole for lenders and management companies that wanted to keep playing lowball games with fees. The Fed rule allows them to consider their own low payments in their calculation of what is “customary and reasonable” — a concept that was never part of the Dodd-Frank legislation.

The Appraisal Institute’s Sellers says his group and others are seeking to persuade the Fed to tighten its regulations. But in the meantime, consumers should demand transparency: Of my $500 appraisal fee, who got what? And why?

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A Second Shot at the First-Time Home Buyer Tax Credit?

Original Post Date: April 8, 2011

By: June Fletcher

Q. I bought a condo in 2008 and took the first-time home buyer tax credit. Then, in 2010, I sold the condo, got married, and my wife and I bought another home. She had never owned a home before. We closed on the house in July 2010. Can we take another first-time home buyer tax credit?


A. I don’t think so, unless you qualify for an exception I’ll explain later.

As you may know, the first-time home buyer tax credit of up to $7,500 that you took on your 2008 return was really more of an interest-free loan. It applied to only to residences purchased between April 8, 2008 and Jan. 1, 2009. Since you sold the home with the 36-month period of when you bought it, you will have to repay the entire credit with your 2010 tax return.

Later the rules changed more favorably for buyers. As it stands now, if you entered into a binding contract to buy a residence after Dec. 31, 2009, and on or before April 30, 2010, and closed on or before Sept. 30, 2010, you can claim a maximum credit up to $8,000, or $4,000 for married filing separately, as long as your modified adjusted gross income doesn’t exceed $225,000 for joint filers, or $125,000 for single filers. The credit is reduced for income levels above that, and completely eliminated if your modified adjusted gross joint income exceeds $245,000 or $145,000 for single filers. The good news for those who qualify: If you use the residence as your main home for at least 36 months after purchase, you don’t have to pay back the credit.

The IRS is pretty loose about what you can call home—it can be a condo, coop, mobile home or even a house boat. But the purchase price of the home cannot exceed $800,000, and at least one of the purchasers must be at least 18 years old on the date of purchase and can’t be claimed as a dependent on anyone else’s return.

So far, so good? Ah, but there’s a wrinkle in your case. According to IRS Form 5405, you and your spouse cannot be considered first-time buyers if either of you owned another main home during the three-year period ending on the date of your purchase.

Long-time home buyers who file jointly can also take a credit of up to $6,500, or $3,250 if married filing separately. But you don’t qualify for this, because you must have used the same home as your residence for five consecutive years during the eight years before the home was purchased.

However, there is an exception that allows members of the uniformed services, Foreign Service or the intelligence community to take the credit for a home bought in 2010. The IRS says that if such individuals qualified for the credit, but then married someone who does not qualify for the credit—and are claiming the credit for the year that they married—they can claim up to an $8,000 on a joint return or $4,000 if married filing separately.

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Why Buy an Owner’s Title Insurance Policy?

Original Post Date: April 1, 2011

By: June Fletcher

Q. I’m buying a home and the lender insists that I buy a title insurance policy before it will give me the loan. Now my real estate agent tells me that I should buy a policy for myself, too. This seems like overkill. The house I’m buying is only five years old, and the sellers are original owners. Is the agent right, and if so, why do I need this insurance?

–Hillsborough, Calif.

A. Imagine that you’ve bought and settled in to this house. One day, a woman knocks on your door and says that she and her husband had split up shortly before he put the house on the market, and that he forged her name on the deed. She says the sale was invalid and that she’s still the owner—and she wants you out. You and the woman go to court where she proves that her story is true. She gets the house back, and you are evicted. Meanwhile, the husband has vanished with the money from the sale.

Or imagine that you discover after closing that there are “clouds” against the title, like liens for unpaid contractor bills (called “mechanic’s liens”), legal judgments or taxes. Or perhaps you learn that a former owner has a life estate in the property.

Any of these situations could happen to the buyers of any house, even relatively new ones purchased from original owners. That’s why most lenders won’t fund a mortgage unless the buyer purchases a title insurance policy to protect it (but not you) from losses due to such claims. And that’s why I believe that you should have a separate policy, too.

During a title search, a professional examiner searches through public records, either in person or online, looking not just at the chain of ownership but also at other issues that might affect whether title can be cleanly delivered to a future owner, such as undisclosed leases or restrictive covenants that affect how a property can be used. In many cases, should a problem be found, the title company will quietly fix it. Once the title is clean or “marketable,” the underwriters will issue a policy that essentially says that it will defend the policyholder’s title in court should anyone challenge it.

The lender’s policy is attached to the mortgage, so should you refinance, you will have to purchase them another one. The owner’s policy is attached to the property, however, so you won’t have to buy another one as long as you own the home. Whether the seller or buyer pays for an owner’s policy is typically a matter of local custom, but it can be negotiated as part of the purchase. Since costs vary widely, it pays to shop around for the best rate.

To be sure, some people argue that because public records can be searched so easily by computer these days, title insurance is a rip-off. They maintain that because the incidence of claims is so low, the cost, which can top $1,000 in some areas (paid in a one-time premium at closing), is unconscionable. Indeed, citing high costs, Iowa has created its own title guarantee program. Other states have launched investigations into title insurance companies that give kickbacks or other inducements to agents who recommend them.

Despite these problems, I think an owner’s title insurance policy is a necessary evil. Sure, it’s not very likely that a wronged spouse or a long-lost heir is going to turn up at your doorstep, but if you are unlucky enough to find yourself in that situation, you will be very glad that you have that policy.

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Casual comments can cost a home buyer or seller

Original Post Date: April 3, 2011

By: Lew Sichelman

Reporting from Washington—

The agent in Cory Brewer’s Mercer Island, Wash., Re/Max office received an offer that was far below his client’s asking price. But before the contract could be presented to the seller, the would-be buyers posted on their Facebook page how badly they wanted the house and how much they really were willing to pay.

Bad move. The seller saw the posting and countered at the higher price. The buyers accepted because they loved the place that much, and the deal closed a few weeks later.

The moral to this little tale: When it comes to something you would rather the other side not know, keep it to yourself.

“Don’t talk publicly about what’s in your real estate contract, at least not until afterward,” Brewer said. “You never know when something you say might come back to bite you.”

That’s why when he was a real estate agent in Milton, Canada, Chris Newell posted this warning on his office refrigerator: “Anything you say to any real estate agent can and will be used against you to get a lower price for your home.”

With its big, bold letters, the sign is a little garish, acknowledged Newell, who now trains other agents about counseling senior buyers and sellers. But it got the point across. Loose lips can just as easily dynamite a real estate deal as they could torpedo a destroyer during wartime.

Or, as Gwen Daubenmeyer, an associate broker with Re/Max in the Hills in Bloomfield, Mich., says: “Loose lips, opportunity slips.”

It’s not that you are trying to hide anything. With today’s disclosure laws, everything about the house is going to be laid out there for the world to see anyway. And what’s not clearly visible is likely to be uncovered by a competent home inspector.

But if you ramble on when you speak with a prospect or an agent, chances are good you will reveal something about yourself or your situation that gives the other side a distinct negotiating advantage.

Any little tidbit can be used against you. Mention that you are about to close on your new home, that you want to be in your new place by the time your daughter has her baby or that your company is helping with your move, and your chances of receiving a full-price offer will be greatly diminished.

Who would divulge that kind of vital information? You would. Maybe not intentionally, but perhaps as passing, casual conversation.

Once, when Celeste Barr’s clients were outside washing their cars, someone pulled up and motioned for them to come over to discuss their house, which was on the market. The sellers got caught up in the conversation, during which the passerby mentioned the house was priced “way above what he could afford.”

Being comfortable thinking the person was not an eligible buyer, they shared their “bottom line” price. And the very next day, “Boom,” said Barr, an agent with Keller Williams Realty in Barrington, Ill., “an offer arrived from the passerby at that bottom-line number.”

Sellers talk so much — and buyers too — that the other side’s agent loves it when they strike up a conversation with one another. Once they get to talking, you never know what kind of vital information is going to pop out.

Sellers reveal how much they owe on the place, that a divorce is imminent and they have to move right away, or that they hate the neighbors or neighborhood. Buyers blab that they’ve fallen in love with the house and just have to have it, or blurt out the size of the mortgage for which they’ve been approved.

Buyers and sellers who are too open will often find that the other side’s agent uses their chattiness against them. Hank Miller, an associate broker with Keller Williams Atlanta North, “routinely” tries to engage sellers in small — “but very important” — talk. He asks a simple question, like, “Where are you guys headed?” or “Have you found anything yet?” and the dam breaks.

“There’s no set routine, and the specific approach varies,” Miller says. “But sellers talk way too much, and if I catch them, there’s rarely a time we don’t leave with good info that will be used against them.”

That’s why the Georgia agent always advises his sellers not to chat with the opposing side’s agent, under any circumstances. If the agent tries to start a dialogue, he tells them to find a reason to disconnect.

“I tell them to carry their phone and pretend they felt it vibrate, pretend they need to pick up someone and leave the agent alone, go check the mail or take the dog out,” Miller says.

The urge to bond with the other side is so great that it’s the main reason agents advise sellers to leave the house when there’s a showing.

“I always ask my sellers to make sure that they are away during a showing,” says Chris Blackstone of Mid-Island Realty, a Re/Max office in British Columbia. “They can easily give away their bargaining position without even knowing it, and a simple slip can cost them thousands of dollars.”

“Sellers should have their Miranda rights read to them if they choose to remain,” said Linda Humphrey of Humphrey Home Connections in Reno. “Invariably, I find they blab things that are not in their best interest.”

There are other reasons to vacate the house during a showing. Buyers tend to be uncomfortable when the seller is home — or worse, walking with them through the house. So they aren’t as thorough as they should be. Instead, they rush through their visit, exiting much more quickly than they might have had they been able to tour unescorted.

“Let the house speak for itself,” advises Karla Oppliger of Prudential Dunnigan Real Estate in Sacramento, who also warns visitors to keep their comments to themselves until they are long gone. You just never know what might be overheard — good or bad — and passed on to the seller.

But if you absolutely, positively have to be there, casual discourse should be verboten. You need not be rude, says Charita Cadenhead of Bham WIiRE Realty in Birmingham, Ala. But you should “defer to your agent” and let the agent speak on your behalf so you won’t unwittingly provide information that may be used to your disadvantage.

Jan Duke of Re/Max Gold in Yuba City, Calif., agrees. Exchanging information is the agent’s role, she says, so let him or her do what he or she is paid to do: sell the house. “The owner’s eagerness to assist can cost a lot of money.”

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Extra interest charged to pay off FHA loans early comes under fire


Original Post Date: April 3, 2011

By: Kenneth R. Harney

Reporting from Washington—

Could the federal government’s booming FHA mortgage program be forcing homeowners to pay tens of millions of dollars of extra interest charges when they sell their houses or refinance their loans?

Critics say yes. The government says the critics aren’t providing the full picture.

Those critics include Sen. Benjamin L. Cardin (D-Md.), who is sponsoring legislation that would prohibit Federal Housing Administration lenders from collecting a full month’s worth of interest from sellers and refinancers who pay off their mortgages — close escrow — before the final day of the month.

No other major source of financing — not Fannie Mae, Freddie Mac or even the VA — requires interest payments from borrowers beyond the date they pay off their loans. On an FHA loan, however, if you sell your house and close early in the month, you are charged interest through the rest of the month.

To illustrate: Say you pay off a $200,000 FHA-insured mortgage April 5. You’ll be charged an extra $820 to cover interest for the remaining days of the month, according to estimates prepared by the National Assn. of Realtors, which supports Cardin’s bill. If you pay off the same loan April 15, the additional interest would total $492.

Where does the money go? Ted Tozer, president of the Government National Mortgage Assn. (Ginnie Mae), which bundles FHA loans into bonds and sells them to investors, said it flows to the bondholders, who are guaranteed payment of interest for the full month even if the balance is paid off much earlier.

Tozer said the approach afforded FHA borrowers a slight discount on their initial interest rates — probably in the range of 0.10% to 0.15% — compared with conventional loans.

But critics charge that the extra interest payment has a far greater economic effect on FHA sellers and refinancers — often cutting their proceeds by hundreds of dollars — than the barely perceptible rate break they received on the mortgage itself.

“This is an issue of fairness,” Cardin said. “Homeowners should not have to pay interest on loans that they have fully repaid.”
His bill, the Reduce Excessive Payments Act, would prohibit the practice and require FHA lenders to compute payoffs on a per-diem basis rather than a full-month basis.

Real estate agents are especially critical of FHA’s interest prepayment policy because they say it squeezes money out of sellers who have little or no control over the timing of their closing. Many sellers don’t know about the FHA’s requirement, realty agents say. Even if they do, the buyers of their houses generally are in a better position to control the closing date because they are dealing directly with title and escrow companies.

The National Assn. of Realtors says the out-of-pocket costs to unwary consumers are huge. Citing the most recent statistics on early payoffs that it claims it could obtain from the FHA, the group says that during 2003:

•FHA borrowers paid $587.4 million in “excess interest fees” because of the full-month rule.

•Only 16% of loans were prepaid during the final five days of the month.

•The average “excess interest” payment from borrowers to lenders and investors was $528.

Between January 2000 and January 2004, according to the Realtors’ analysis of FHA data, borrowers paid more than $1.375 billion in excessive interest. The corresponding amounts today could be significantly higher since the FHA has a much larger market share.
Asked for comment, Vicki Bott, who heads the FHA’s single-family mortgage office, acknowledged the controversy and said the agency was “examining this issue very closely” and considering a regulatory change.

Tozer said Ginnie Mae could readily sell its FHA mortgage-backed bonds using the per-diem payoff approach that is standard in the conventional mortgage marketplace. But investors would still need to be compensated for the full month’s worth of interest, he said, and that would probably require a slightly higher rate on the mortgage.

Where is this headed? With pressure coming from Congress, the FHA may move off its disputed practice.

In the meantime, if you have an FHA loan and plan to refinance or sell your house, try hard to schedule the close at the end of the month. You could save a bundle.

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