Last year was a year where home prices were low and interest rates were lower. While the media kept perpetuating the idea that homes were barely selling during much of 2011, numbers released by the Arizona Regional MLS show that 2011 saw the second highest number of homes sales this century, which was surpassed only by the “insanity” that was 2005. Go figure.

It’s true, there were 100,959 home sales last year in our market. Of those sales, nearly half ( over 47,000 ) were CASH sales. Yep, greenbacks. No financing, at all. That’s a lot of cash.

Of the homes sold in our market last year, 87% of them were under $200,000 purchases. Of that 87%, we see that a total of 63% of 2011 home sales in our market were below $100,000! Heck, remember 2005?  You were hard pressed to find anything for less than $100,000. We have seen a LOT of investor activity in this real estate market.

Who’s buying homes?

People who have been lulled to sleep or who have not been paying attention to the real estate market for a while seem to be surprised when they have difficulty “stealing” property in today’s market. Inventory is low, rates are good, and the thought of missing the bottom of the market is pulling at people’s wallets.

My question is this. If we now have record low mortgage rates, how long will this trend continue? We are hearing reports of parents buying homes for their kids, investors pulling out of the stock market and buying multiple properties, renters looking to SAVE money on housing expenses, etc. On the other hand, we hear of overall lower home ownership rates as people struggle in this economy.

Short sales and foreclosures made for more than 70% of the sales during the last year. People talk about the “shadow inventory” of bank owned homes, but many people I have talked to in the business don’t see it coming. Many properties are being sold at the “courthouse steps” before they ever go back to the bank. The market is ever changing. Stick around, we’ll have a lot more to talk about in the very near future…

If you have any questions or comments, “Just Call Nick!”

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…

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!

Recently, I wrote about some of the potential changes coming up for down payment assistance. My friend Tammy wrote an article and posted this video yesterday with some more information. I thought it was pretty interesting.

The changes in the mortgage industry have been coming at a break neck pace. Unfortunately, some of the people that vote on the bills don’t appear to have time to pay attention. When my friend Gary Miljour wrote to our Congressman Harry Mitchell asking about Down Payment Assistance loans, such as “Ameridream,” did he really say;
“Unfortunately, some companies that provide down payment assistance were helping lenders to make predatory loans in the height of the housing boom. The down payment assistance provided by some organizations allowed sub-prime lenders to persuade home buyers to assume more debt than they could otherwise afford. As a result, both the Internal Revenue Service and the Department of Housing and Urban Development issued rules to prevent this kind of coercion.” (emphasis mine)

I found this language on the Ameridream web site. “Those programs, operated by charitable organizations in accordance with current law and HUD guidelines, have helped more than one million FHA qualified, low and moderate income families and individuals buy their own homes since 2000.” The emphasis on “HUD guidelines” and “FHA qualified” is mine.
Who exactly runs HUD? Who determines FHA guidelines? Are these considered sub prime lenders? hhmmm.

click here to read Gary’s post and all of the comments..

I have talked to many people recently about one area of major concern in the lending industry. The term is “Buy and Bail” and it can have an effect on all of us. On Wednesday of last week, I received an email from a friend at Wells Fargo that talked about some of the coming changes dealing with people that want to buy another home while keeping their current home. The problem, in case you are not aware, is where people that purchased a home at the top of the market and are now “upside down,” go out and buy another home, at a lower price and then “give the keys” back to the lender for the original home, allowing it to be foreclosed instead of the owner fulfilling their obligation.
Part of the new guidelines are as follows.

The new Fannie Mae BUY & BAIL policy states that a buyer planning to retain and rent out their current residence must: 1) prove 30% equity in the property, 2) provide a copy of the new lease agreement, and 3) provide a copy of the renter’s security account. If these criteria are not met, rental income may not be used to qualify and a reserve requirement is also added. Buyers who plan on keeping their current residence as a second home must qualify on both payments and show 6 months reserves for both house payments.

If this is “clear as mud” to you, please feel free to “Just Call Nick” for a better explanation. As always, I will be happy to discuss current market conditions and some of the “hot buttons” in the industry right now.

Tens of thousands of people have been getting letters informing them that their HELOC loan is no longer available or has been substantially reduced. Yep, fine print at it’s best. You may recall how these same banks offered these loans at “no-cost” and marketed them as a great tool for you to use for college, cars, home improvements and even credit card debt. It sounds like their irrational exuberance has come back to bite their tails just a bit.
Those that don’t have or didn’t get a “second” loan on their home will now find it much more difficult to do so. Countrywide, Chase, Wells Fargo, BofA, WAMU appear to be “reviewing” their guidelines in this market. Before, they made it almost too easy, now, they might be too difficult but hopefully, we will soon be back to “normal.”
If you have questions about the availability of your funds, you might want to call your bank. This is relatively new and a lot of them are just getting started. The fact that you haven’t received a letter yet, doesn’t necessarily mean you still have all of your funds available.
MSN recently ran this story about lenders cutting off the home equity tap that had some pretty good info. Take a look..

My friend Shailesh found this funny video “A British Explanation for the Subprime Mess.” I found it to be “quite amusing!” I hope you will too!

The real estate and mortgage businesses have been on a heck of a ride the past few years. Hopefully, many lessons have been learned during this time. I have heard and read a lot this past week about the coming changes in the FHA guidelines. My friend, Ricky Khamis, tells me that we can expect to see a lot more of the FHA loans in the very near future. (more “favorable” guidelines than many current loans)
While it is sad to hear that so many people are facing foreclosure, I tend to wonder how much of the “mess” was “self inflicted.” Most of the loans were bought by huge companies with huge profits. A large percentage were given to “speculators” and people “keeping up with mr. and mrs. Jones.”
On the other end of the spectrum, you have people like Robert Kiyosaki writing that “bad” markets can be beneficial in the current environment for prudent investors.
Some people strive to have their home “Free and Clear,” while others choose to spend their money on other things while living “week to week.” A good choice might just be somewhere in the middle. Getting caught up in market trends can be dangerous. I believe that real estate is a great, long term investment. Using your homes equity to pay bills, buy the fancy car that you can’t really afford etc. might prove to be what really hurt many of the current people that face foreclosure.. Someone has to pay for all of the fun!
I hope that the vast majority of people that need help can get it through a new mortgage with better terms. I also believe that the market will correct itself and get back to “normal” before we know it. (not tomorrow)
People will always need a place to live and many studies have shown that home ownership can be more beneficial for many people. It will be interesting to see how this one plays out..

No down payment? “No problem” say many mortgage companies. In fact, a recent survey showed that over 35% of loans are “No Down” loans. The VA use to be one of the few ways people could buy a home for no down payment. It also wasn’t long ago when most people assumed that a twenty percent down payment was necessary to purchase a home. I can recall many times when people felt they would “never” have enough of a down payment to buy a home. Today’s world of financing is much different than yesterdays. A recent study by the National Association of Realtors mentioned that the average buyer made a TWO percent down payment. Zero down loans are very common in today’s market for many reasons. First time buyers might have a good credit and a good new job but not a ton of cash in the bank. Most agree that it is better to purchase a home instead of “throwing away” money on rent every month. Others choose to finance as much home as they can and use their hard earned money for other things. Things such as investments, college, home improvements, investment properties etc. etc. Of course, it is hard to pin point a right or wrong answer when deciding on what kind of loan to use for your next purchase. As always, it is best to rely on the help or guidance of people in the real estate or mortgage business. If you have any questions, I’ll be happy to discuss some of your options and to point you in the right direction.. Remember to “Just Call Nick!”