The most confusing document in the entire loan package is the
Truth-In-Lending Disclosure Statement. I’ve heard more than
one escrow officer refer to it as the “Confusion-In-Lending” and simply
ask the borrower to sign with a cursory explanation usually saying it’s
the loan costs rolled into the interest rate or something similar.
While not entirely inaccurate, it doesn’t really explain the
“TIL” as it’s referred to in the biz.

With so many engineers in the Valley of the Sun, it’s tough to fudge on
numbers during a signing. They were the impetus for me to
know the TIL, and to be able to explain it if a borrower required me to
do so… Here’s what I learned:

The Annual Percentage Rate or APR, is not the interest rate.
It is a number expressed in terms of an interest rate created
by the government to enable consumers to comparison shop lenders.
The APR does factor in the fees paid by the borrower.
This is accomplished by creating a new number called the
Amount Financed. The formula for the amount financed is:

Actual Loan Amount – Prepaid Finance Charges = Amount Financed

Prepaid Finance Charges are defined by the government as follows:

Prepaid Finance Charges are
certain charges in connection with the loan and which must be paid upon
the close of the loan. These charges are defined by the
Federal Reserve Board in Regulation Z
defines these charges and the borrower must pay the charges.
Non-Inclusive examples of such charges are: Loan origination
fee, “Points” or Discount, Private Mortgage Insurance or FHA Mortgage
Insurance, Tax Service Fee. Some loan charges are
specifically excluded from the Prepaid Finance Charge such as appraisal and credit
report fees.

So if a borrower had zero Prepaid Finance Charges, the Amount Financed
would equal the Actual Loan Amount. The APR would also be the
same as the actual interest rate. This scenario is extremely
rare. We all pay fees to the lender and title company, so the
Amount Financed will always be less than the Actual Loan amount.

So how does this affect the APR? Amount financed has a direct
impact on the APR. Here’s where the fun starts.

Let’s assume a loan of $100,000 at 5.25% interest on a 30 year note.
The principal and interest would be $552.50 These
are fixed figures that will not change.

Let’s also assume Prepaid Finance Charges of $2,000. Since
the TIL requires knowing the Amount Financed, we see that $100,000 -
$2000 = $98,000 (our Amount Financed). What the TIL
does now is take the Amount Financed and assume for the purposes of the
TIL that it is the loan amount. So if the monthly payment
remained at $552.50, but the loan amount was $98,0000, what would the
interest rate be for a 30 year loan? The answer is 5.427% and
this is also the APR!

The most important takeaway from this post is the more you pay
in fees, the bigger the difference between the actual interest rate and
the APR. It really is basic math, once you decipher the
definitions provided by the government, and as we all know, sometimes
that isn’t easy…

A while back, I said I was going to begin a series of posts with the “really?” theme associated with some of the odd things I see happen in my business. So, once again, it is time to vent just a tad…

If you know me, you know that I have a pet peeve about some of the things that happen in the real estate industry. Many of these things have to do with the “different rules for different people” mentality.

For instance, I often wonder why/how the major home builders get away with saying you “must use our lender” and you “must use our title company” for services. I know most of the reasons – that will probably be a whole new post on a whole new day. The main excuse reason was/is that they have bulk rates with “preferred vendors”, etc.

Getting back to today’s rant, I’ll focus on the “Sellers’ Property Disclosure Statement” or “SPDS” (spuds is a common term we use).

Many of the banks and short sales have the language of “no SPDS” in their property profile sheets. Basically, they must feel like they are limiting their liability by trying to get a buyer to waive receipt of something so common to our residential resale real estate purchase contract it is pre-printed into the document.

Well, since the banks are doing it, why shouldn’t others, right? Today, I saw this language written in the agent remarks section of an mls print out. Not that it is the first time I have ever seen it, this just happens to be the first time I have vented about it, to you.

“Property Sold As/Is. No Disclosures or Warranty Provided. Owner is a licensed real estate broker in AZ and the listing agent.”

No disclosure? Really? Why not? In Arizona, and I assume other states as well, every buyer is entitled to a SPDS. The fact is, even if someone has never lived in a property, there are many questions on the Seller Property Disclosure Statement that an owner would know.

Some basic questions from an Arizona Seller’s Property Disclosure Statement are:

1. From line 3:  Property address.
2. From line 6: Legal owner(s) of property:
3. From line 21: Are you aware if there are any association(s) governing the property?

Many of the questions are pretty basic and any owner “could” answer a number of the questions. Granted, banks or an owner that has never lived in a home might not be able to completely fill out a “SPDS” as much as we would like.

It is recommended that if a buyer is refused a SPDS by an owner of a property they would like to purchase, a blank copy of that document be given to the buyer for review. The blank document might be beneficial in helping to bring attention to possible items of concern or importance. Another form that is helpful in determining things to consider is called a “Buyer’s Advisory” form which can be a very good resource of information.

If you have any questions about any of the forms mentioned, please feel free to call me to discus, I’m always glad to talk shop…

The Arizona real estate market, like many others, continues to change at a rapid pace. While the trend is currently looked at by many as “distressing,” there are those who look at this market as an opportunity to purchase real estate in an environment of low interest rates and at price levels not seen for quite some time.

One of my long time “partners” in the real estate business is Fidelity National Title. For those of you that have worked with me for a long time, you might be familiar with them. Recently, I got some very interesting statistics from my friend, Jennifer Weller, an account rep for Fidelity. We discussed some of the current issues banks are dealing with when handling distressed properties.

1. 40% of the subprime loans written in ’06 & ’07 had no income verification.

2. Chase has a new program that if you lose your job-they will reduce your payment to $500 for months to help homeowners not lose their home.

3. It costs lenders on avg 75-125k per bank owned property.

4. fannie mae loan-primary residence…foreclosure=ineligible for 5 yrs for a FMae mortgage, short sale=2 yrs

5. investor ineligible for a Fannie Mae loan for 7 yrs in Foreclosure, short sale=2 yrs

6. foreclosure lowers credit 250-300 pts for avg of 3 yrs…and stays on credit for 10+ yrs
These 6 items are from Jen’s “Twitter” feed while attending a seminar. I hope to go over the details with her in the near future and will gladly update you with any questions you might have. We will be reviewing the notes and updating / adding to the information in the near future.
As in every market, it is best to understand and make good educated decisions before buying or selling. There is always a seller that wants to sell and a buyer that wants to buy.
Let’s discuss your situation before you decide to make a move. As always, I’ll give you my honest opinion of your current situation. If it makes sense for you to make a move, I am happy to assist. If it doesn’t, I will be glad to tell you so.

If you just want to “get a feel” for prices of homes in an area, (including foreclosure lists) you may visit my FREE map-based home search page to begin the process. As always, remember to “Just Call Nick” with any questions or comments!