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…

In addition to watching our mls system and looking at a lot of homes around town, I get a LOT of email and blog updates to help keep an eye on the real estate market. While I firmly believe there is no way for anyone to give a “one size fits all” answer to the market, it is interesting to watch trends. In my opinion, you need to look closely at a specific neighborhood before making a sound decision on buying or selling. I am enclosing material from an email that was sent to me this morning.

Pending Home Sales on a Record Roll

WASHINGTON (September 1, 2009) Contract activity for pending home sales has risen for six straight months, a pattern not seen in the history of the index since it began in 2001, according to the National Association of Realtors.

The Pending Home Sales Index, a forward-looking indicator based on contracts signed in July, increased 3.2 percent to 97.6 from a reading of 94.6 in June, and is 12.0 percent higher than July 2008 when it was 87.1. The index is at the highest level since June 2007 when it was 100.7.

NAR’s Housing Affordability Index stood at 158.5 in July, below the peak set in April but is still 36.0 percentage points higher than a year ago. The HAI is a broad measure of housing affordability using consistent values and assumptions over time, which examines the relationship between home prices, mortgage interest rates and family income.

Not all areas and price ranges are seeing the same fluctuations in pricing, availability and sales. If there is an area you are interested in or if you have seen a “for sale” sign that you want to know more about, “Just Call Nick!” I’ll be glad to help…

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.

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.

We have discussed, at length, the real estate market and the fact that the media has basically been telling people NOT to buy real estate for quite some time. Just as the market had been “over-hyped” into an unhealthy frenzy a couple of years ago, I have felt the same thing has been happening over the past several months, or so.
Recently, I have seen a couple of articles that have mentioned the fact that, gasp, some homes are actually selling! I also had an opportunity to meet with some nice folks at one of the large news channels recently to discuss a new series that will be talking about real estate. Wow, imagine that, they are actually going to promote real estate! There will be television commercials and featured space on their web site for several different areas.
Will this be enough to get people off of the fence? Are they really waiting, as some have suggested, for the media to tell them it s “ok” to buy real estate again? Only time will tell but it looks like a step in a new direction to me. Let’s watch.. In fact, check back soon for a special announcement!

While I sometimes disagree with Catherine Reagor of the AZ Republic, I found this video of the valley’s most expensive homes to be very interesting and well done.

There was also an interesting piece tracking the sales of million dollar + homes since 1998.
The growth of these sales is pretty impressive. I can recall a time where million dollar sales were a really big deal in Arizona.. Happens all the time these days..

Want to know the recent values of homes in YOUR neighborhood? Would you like me to send list of multi-million dollar home to you via email? It’s easy.. “Just Call Nick!”

Apparently, Homes Illustrated Magazine is one of the latest casualties of the current market. In an email I received yesterday, they said; “This market has been hard on all of us, both you our customers and our industry as a whole.”
I’m not 100% convinced that the market had as much to do with their decline as did “marketing” practices in our business. While they have a web site, the focus on an expensive print format was something that is not nearly effective today as it was many years ago. I had ad space in their publication for many years but decided, 5-6 years ago that web based advertising had a much better result for our clients. Just about any serious buyer begins their search on the web today. Our listings pages on sites like realtor.com and azcentral.com are able to reach a far better audience. Like magazines, many agents and mortgage companies are “folding” like crazy. In just about any industry, change is good. I promise to be around for a long time. For help or advise.. “Just Call Nick!”

Here is a recent article I wrote for one of our news letter’s. I hope you find it interesting! We are located in the South East Valley of Arizona:
Quick Update:
“Recently I was in a meeting with several long-time industry pros to discuss current market trends. With approximately 46,000 active listings (up from 30,000 just a few months ago), there is a greater need than ever for seller’s homes to be correctly priced and in tip-top showing condition. Builders are offering some amazing deals to move their inventory. (good time to buy a new home?) To attract buyers, many of the new home builders are offering huge incentives. I have seen in excess of $70,000 in builder incentives! Rather than reduce prices by a ton (and thereby potentially decreasing the value of the area), builders are trying to make it easier and more appealing to buy a new home as opposed to a resale property. Sellers are facing stiff competition from these deep-pocketed builders.

Of course with gas prices and housing inventories both up, many people are looking for more centrally located homes. You will find that certain parts of the Valley are doing much better than others.

And while it is certainly true that many people have been priced out of the market, the need for housing never goes away. This is illustrated by the strengthening rental market. Rents are up and landlords can be more picky about tenants.

Another thing to watch is the foreclosure rate. Many bought at the top of the market and were talked into bad loans. This may be a problem if they were relying on unrealistic appreciation to help.
As always, I will be watching the market closely, so if you have any questions, “Just Call Nick!”