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alstry (36.27)

Good Luck Selling Your Condo Now

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April 19, 2009 – Comments (14)

Fannie and Freddie are seemingly adding new restrictions and fees each month....and some think foreclosures are slowing?????

From the LA Times(ht CalRisk):

Reporting from Washington -- Mortgage rates and house prices are down -- which sounds great for buyers and refinancers. But mortgage industry underwriting and appraisal changes taking effect this month are putting new hurdles in the way of borrowers and loan officers.

Take Fannie Mae's and Freddie Mac's add-on fees for loans purchased after April 1. In some cases, applicants are being hit with extra fees of 3% to 5% because of the type of property they want to buy or refinance, their credit scores or the size of their down payment.

Some major lenders who sell loans to Fannie and Freddie are going further -- tightening underwriting rules beyond what either corporation requires. For example, as of April 6, Wells Fargo, one of the country's largest mortgage originators, imposed a new minimum FICO credit score of 720 -- up from the previous 620 -- on all conventional loans purchased through its wholesale system that have less than a 20% down payment. It also began requiring a total debt-to-income ratio maximum of 41% -- down from the previous 45%.

Fannie Mae now has a mandatory fee of three-quarters of a percentage point on all condominium loans, no matter how high the applicant's credit score. For a once-popular interest-only condo loan with a 20% down payment and a borrower credit score of 690, Fannie imposes the following ratcheted sequence of add-ons: one-quarter of a percentage point as an "adverse market" fee; 1.5% for the below-optimal credit score; three-quarters of a percentage point for the interest-only payment feature; and the same because the property is a condo. The total comes to 3.25% extra, which can be paid upfront or rolled into the loan.

On top of these extra fees, borrowers are now starting to get hit with two sets of cost-raising appraisal rule changes. Fannie and Freddie have begun requiring all appraisers to complete an extra "market condition" report that includes detailed statistical analyses of local sales and pricing trends -- above and beyond the regular appraisal data. Many appraisers are charging an extra $45 to $50 for the time required to complete the form. Home buyers and refinancers can expect to pay the higher fees.

On top of that, beginning May 1, Fannie and Freddie are refusing to fund loans with appraisals that do not follow a set of new rules known as the Home Valuation Code of Conduct. Among the procedural changes: Mortgage brokers no longer can order appraisals directly, but instead must allow lenders or investors to use third-party "appraisal management companies" to assign the job to appraisers in their networks.

How does that affect the consumer? Consider the notification one Connecticut brokerage firm recently received from a major lending partner: Starting April 15, all good faith estimates provided to applicants must indicate a flat $455 charge for appraisals arranged through the appraisal management company. The broker previously charged $325. Consumers will now have to pay the appraisal fee upfront -- before any inspection or valuation is completed -- using a credit card, debit card or electronic fund transfer.

What happens if the appraisal comes in low and the applicants can't qualify for the refi or purchase program they sought? Tough luck: They'll have just two choices: Pay another $455 for a second appraisal -- with no assurance that it will solve the problem -- or cancel the application.

Jeff Lipes, president of Family Choice Mortgage Corp., which serves the Hartford, Conn., area, said the net effect of the underwriting, credit score and pricing changes was to "squeeze some people who are creditworthy by any reasonable standard out of the market."

For instance, as a result of the restrictions on condos, Lipes says "whenever we hear the word 'condo' [from an applicant], we shiver" because the deck is stacked against them. Even for prime borrowers with 800 FICO scores and 50% down payments, Lipes said, "I can't tell them that we're certain we can get you a mortgage."

A welter of recent rule changes from Fannie Mae has made some condo units in projects with commercial tenants or high percentages of investor units almost impossible to refinance.

In Naples, Fla., John Calabria, president of Bancmortgage Corp., said, "It has become such a nightmare to lend money" because of the layers of add-on fees, higher mandatory down payments and FICO scores. One high-income client sought to put down 25% ($200,000) to buy an $800,000 condo as a second home but couldn't because the minimum down payment on such a unit is now 30%.


"That's ridiculous," Calabria said. "Some of this just doesn't make sense."

14 Comments – Post Your Own

#1) On April 19, 2009 at 10:52 AM, dwot (43.80) wrote:

Don't remind me, my sister is trying to sell ...

I should repeat my post on what mortgage lending standards ought to be...

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#2) On April 19, 2009 at 10:54 AM, dbjella (< 20) wrote:

It seems the market is pricing the risk of downward price pressure of any new assets.  I remember when I worked at mortgage investor and they were deathly afraid of appraisals of subprime properties.  They had started collecting Tax Id numbers, because there was so much fraud.

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#3) On April 19, 2009 at 11:50 AM, ralphmachio (28.44) wrote:

does anyone have any inside perspective on real estate, and when a good time to buy might be? I'm looking In up state NY, and other nearby areas.

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#4) On April 19, 2009 at 12:25 PM, IIcx (< 20) wrote:

thanks alstry -- good article.

It looks like there's a new market for owner financed mortgage instruments that don't have all the red-tape ;)

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#5) On April 19, 2009 at 12:27 PM, alstry (36.27) wrote:

Dated but Dead ON!!!!

Linda R.. Monk, J. D., is a constitutional scholar, journalist, and nationally award-winning author. A graduate of Harvard Law School , she twice received the American Bar Association's Silver Gavel Award, its highest honor for law-related media.. Her books include The Words We Live By: Your Annotated Guide to the Constitution, Ordinary Americans: U. S. History Through the Eyes of Everyday People, and The Bill of Rights: A User's Guide. For more than 20 years, Ms. Monk has written commentary for newspapers nationwide, including the New York Times, Washington Post, Los Angeles Times, and Chicago Tribune

 

By Linda Monk

 

The Crash of 2008, which is now wiping out trillions of dollars of our people's wealth, is, like the Crash of 1929, likely to mark the end of one era and the onset of another.

The new era will see a more sober and much diminished America .

The "Omnipower" and "Indispensable Nation" we heard about in all the hubris and braggadocio following our Cold War victory is history.

Seizing on the crisis, the left says we are witnessing the failure of market economics, a failure of conservatism.

This is nonsense.

What we are witnessing is the collapse of Gordon Gecko ("Greed Is Good!") capitalism.

What we are witnessing is what happens to a prodigal nation that ignores history, and forgets and abandons the philosophy and principles that made it great.

A true conservative (Rep or Dem) cherishes prudence and believes in fiscal responsibility, balanced budgets and a self-reliant republic.

He believes in saving for retirement and a rainy day, in deferred gratification, in not buying on credit what you cannot afford, in living within your means.

Is that really what got Wall Street and us into this mess -- that we followed too religiously the gospel of Robert Taft and Russell Kirk?

"Government must save us!" cries the left, as ever.

Yet, who got us into this mess if not the government -- the Fed with its easy money, Bush with his profligate spending, and Congress and the SEC by liberating Wall Street and failing to step in and stop the drunken orgy?

For years, we Americans have spent more than we earned.

We save nothing.

Credit card debt, consumer debt, auto debt, mortgage debt, corporate debt -- all are at record levels.

And with pensions and savings being wiped out, much of that debt will never be repaid.

Our standard of living is inevitably going to fall.

For foreigners will not forever buy our bonds or lend us more money if they rightly fear that they will be paid back, if at all, in cheaper dollars.

We are going to have to learn to live again within our means.

THE PARTY'S OVER!

Up through World War II, we followed the Hamiltonian idea that America must remain economically independent of the world in order to remain politically independent.

But this generation decided that was yesterday's bromide and we must march bravely forward into a Global Economy, where we all depend on one another.

American companies morphed into "Global Companies" and moved plants and factories to Mexico , Asia, China , and India , and we began buying more cheaply from abroad what we used to make at home: shoes, clothes, bikes, cars, radios, TVs, planes, computers.

As the trade deficits began inexorably to rise to 6 percent of GDP, we began vast borrowing from abroad to continue buying from abroad.

At home, propelled by tax cuts, war in Iraq and an explosion in social spending, surpluses vanished and deficits reappeared and began to rise.

The dollar began to sink, and gold began to soar.

Yet, still, the promises of the politicians come.

Barack Obama will give us national health insurance and tax cuts for all but that 2 percent of the nation that already carries 50 percent of the federal income tax load.

John McCain was going to cut taxes, expand the military, move NATO into Georgia and Ukraine, confront Russia and force Iran to stop enriching uranium or "bomb, bomb, bomb," with Joe Lieberman as wartime consigliore.

Who are we kidding?

What we are witnessing today is how empires end.

The Last Superpower is unable to defend its borders, protect its currency, win its wars, or balance its budget.

Medicare and Social Security are headed for the cliff with unfunded liabilities in the tens of trillions of dollars.

What we are witnessing today is nothing less than a Katrina-like failure of government, of our political class, and of democracy itself, casting a cloud over the viability and longevity of the system.

Notice who is managing the crisis.

Not our elected leaders.

Nancy Pelosi says she had nothing to do with it.

Congress is paralyzed and heading home.

President Bush is nowhere to be seen.

Hank Paulson of Goldman Sachs and Ben Bernanke of the Fed chose to bail out Bear Sterns but let Lehman go under.

They decided to nationalize Fannie and Freddie at a cost to taxpayers of hundreds of billions, putting the U. S. government behind $5 trillion in mortgages.

They decided to buy AIG with $85 billion rather than see the insurance giant sink beneath the waves.

Unelected financial elite is now entrusted with the assignment of getting us out of a disaster into which an unelected financial elite plunged the nation.

We are just spectators.

What the Greatest Generation handed down to us -- the richest, most powerful, most self-sufficient republic in history, with the highest standard of living any nation had ever achieved -- the baby boomers, oblivious and self-indulgent to the end, have frittered away.

Added Comments:

How do WE THE PEOPLE put the villains who are responsible under oath and sit them down at public hearings to determine whose necks should meet the guillotine?

Hypocritically, those who had oversight responsibility such as Senator Chris Dodd [Chairman of the Senate Banking Committee] and Barney Frank [Chairmen, House Financial Services Committee] who helped get us into this mess are on every TV channel voicing their righteous indignation and pompously sitting on their elevated platform glaring down at those they are chastising and grilling, trying to pass the blame to others.

WE THE PEOPLE should be on the elevated platform in judgment and execution of the likes of Chris Dodd, Barney Frank and the rest of the band of thieves and conspirators who are responsible for the financial collapse of the USA .

To name just a few of the culprits:

Henry Paulson Jr, Secretary of the Treasury

Alan Greenspan & Ben Bernanke -- Chairman Federal Reserve

Christopher Cox, SEC Chairman.

But not to worry -- YOUR PUBLIC SERVANTS who fear being voted out of office will take their self-awarded Golden Parachute Congressional Retirement, give WE THE PEOPLE the finger one last time and head for their safe havens as the World Citizens they are.

However, before they waddle off into the sunset, they will go on record one last time denouncing corporate greed, lavish salaries, and bonuses for their key felons at Fannie May, Freddie Mac, Lehman Brothers & AIG.

Meanwhile, WE THE PEOPLE fiddle while Rome burns and are too lazy and indifferent to vote the scum out of office.

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#6) On April 19, 2009 at 1:07 PM, checklist34 (99.73) wrote:

ironically, i am also loosely looking for a house/condo in upstate new york, ralph.

it is a good time to buy.  will a better time exist at some future point?  possibly, but w/o any doubt this is a good time to buy.

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#7) On April 19, 2009 at 1:44 PM, dwot (43.80) wrote:

I am in the process of buying a house, I take possession in 2 weeks.  For me the cost of owning is no different then renting in shared accommodation, which is what I have now.  If I continue in shared accommodations, ie, rent a room, the return on my home purchase investment is about 5-6%.  If I convert the the home so I have a suite the return goes to about 10%.  The cost of owning a house here is about 20-25% of the cost in Vancouver, at least at the peak.

So, I guess my message to those thinking about buying is to actually punch the numbers.  The risk of job loss or wage cuts, and I don't care how secure you think you are, is significant and needs to be included in decision making.  In this economy if you can't afford to buy with 80% of your income covering all costs of living I would say pass.  A 10-20% wage cut can happen easily and if you do not have a good buffer of disposible income you will be quite screwed.  I have been there, and lived the wage cut thing, and came out ok because I never accepted what the banks would loan as reasonable.  I felt mortgaged for life borrowing about 55% of what the banks would loan. 

 I bet with the tightening of credit standards the banks would still loan me 20-30% more then what I think is reasonable (about 70-75% of what they would loan before), so do not go thinking that the new lending standards are "safe," or reasonable.  I think they will still get way too many people into trouble. There is probably enough of a cushion to protect the banks, but the individual can be wiped out financially and irrecoverably.

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#8) On April 19, 2009 at 1:59 PM, alstry (36.27) wrote:

Good advice anytime.  Excellent advice when many should expect 20-50% wage cuts.

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#9) On April 19, 2009 at 3:13 PM, devilinside (55.93) wrote:

Altry, that was a great post and it is dead on. Our society has become to dependent on credit as is our Gov't. It's time to take back what is rightfuly ours as a nation. It's time to vote out those who think they know what's best for us.

I don't care if you are Rep. or Dem, 90% of our elected officials in Wash. are not looking out for the best interest of our nation. It's time for the power hungry polititians to go back to work and make a real living.

It is deplorable that elected officials will come out of Washington with a nice fat retirement even if they only served 1 term. How nice would it be.

People are just plain fed up in Utah with our current Represenitives and ready to give them all the boot, Republicans and Democrats alike.

It is time for change and this time around it's sure to take place at the ballot box. It's time that the American people also demand term limits with no retire benefits. If you truly want to serve your country, then serve it and ask for nothing in return other than a handshake and a thank for a job well done (if you did a good job).

The TEA paties aren't over. There will be more to come.

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#10) On April 19, 2009 at 3:57 PM, IIcx (< 20) wrote:

Historic Muse
Under the 1785 land Ordinance, section 16 (640 acres) of each township was set aside for school purposes, and as such was often called the school section. (Section 36 was also frequently used as a school section.) The various states and counties ignored, altered or amended this provision in their own ways, but the general (intended) effect was a guarantee that local schools would have an income and that the community schoolhouses would be centrally located for all children.

source related to: http://en.wikipedia.org/wiki/Land_Ordinance_of_1785

It appears the "effort" on behalf of the people isn't a new problem in politics as there isn't a section 16  left to its intended purpose ;)

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#11) On April 19, 2009 at 4:20 PM, Alex1963 (28.79) wrote:

Alstry good post.

My take is this. As a full time realtor for 23+ years and as a condo specialist for much of it (conversions particularly) I can tell you that I think these changes are overall for the better and will not significantly harm loans to those buyers actually quailified to purchase.

1) As the article states much of the fees can be rolled into the loans and at todays % rates the monthly pymt increase resulting is negligible (each $1,000 at 5% on a 30 yr fixed rate is about $4.20/month). And tho some buyers will be squeezed out for now the increased down payments required for some transactions or property types will have a positive net effect on the overall market and the on every transaction "downstream" all the way to renewing the faith of mortgage backed securities and even their derivatives. In fact these heightened standards are likely aimed more towards the long term health of the real estate market as a whole. If the end buyers of the notes feel more confident in the underlying product/loans then more investment will likely flow back to FNMA FNMC GNMA etc and subsequently back to the mortgage originators adding critical liquidy & thus creating a future climate where todays added restrictions may be eased as conditions warrant. 

2) The appraissel restrictions mentioned are not unusual and though we're used to hearing about "no appraissel" fees for refi's and purchases in strong markets, paying that up front and having it be non-refundable is historically the norm. In addition many sellers are willing to at least consider paying or splitting the 2nd appraissel fee especially if the realtor is savvy enough to prep them in advance for the possibility. It is an easy sell since if the seller wants that sale and believes the property is worth the sale price. It is a very small gamble to take & results in far less out of pocket then the typical negotiating process and home inspection can end up reducing the sellers net. Worst case for the seller they see they cannot fight the tide and make a needed price adjustment and the realtor can use that to better leverage the sale. ("Condo For Sale-Priced at appraissel" etc). BTW I say a realtor should prep their seller (and buyer also) way before this potentially occurs because otherwise it appears to the client that they are advising for the 2nd appraissel just to make an easier commission. In my mind a client is perfectly within their rights to ask why a realtor didn't anticipate and prep them for this eventuality. After all we're supposed to know the market, pricing, and potential loan pitfalls. Plus for purely selfish reasons a realtor not prepping the client in advance vastly increases the chance that the realtor themselves will be a least participating in the 2nd appraissel if not outright footing the whole bill)

Personally I ran into this appraissel issue most of my career. The truth is that condos have always been penalized in a sense because appraissel standards required comps from within the same building if available and only allowed for modest increases if at all unless there had been demonstable value added (by remodeling etc). In fact many realtors simply looked at the last sale and that price was the asking price they'd recommend! Whereas detached properties had far more leeway to a % increase over similar comparable sold propertiess. This meant that if even one seller in a condo assoc had underpriced their place, especially within the previous 6 months, it hurt everyone in the building. It was then very difficult to not only get the initial contract but to get it to closing. For me prepping sellers for this and shepherding both buyer, seller and co-op realtor thru the process was a routine occurance. It was only in the very late 90s and early 2000's that this became somewhat less frequent/stringent.

3) On a final note I give little credence to anecdotal evidence from realtors or loan folks. I'm sorry to say that the industry in still made of of 70% -80& of the sales made by 20-30% of the agents. The weak or infrequent agents often find reasons to blame the market or conditions for their results (I believe the market average income for a realtor is still in the 30K net range but for the top 20% it is well over 100K-200K, depending on their market location, and up into the millions for the superstars). Of the strong agents there are always those who advocate for anything that could ease sales to increase their own profits even at the expense of the overall and/or long term strength of the market as a whole. As to that ridulous comment by the loan company president you can never be "certain" someone will get a mortgage.

For those who are considering buying ( checklist34 ,  ralphmachio )  I wrote you both some tips and caveats and it got a little long & is off topic for Alstry's blog so I'm posting it it my own blog under "Are U A Property Buyer Or Seller-Tips From a Caps Realtor. It'll be up in few minutes. 

I hope these comments added some value to this post. 

Good luck to you potentail byers. Happy Hunting!

Alex 

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#12) On April 19, 2009 at 4:31 PM, alstry (36.27) wrote:

Worst case for the seller they see they cannot fight the tide and make a needed price adjustment and the realtor can use that to better leverage the sale.

I agree completely. 

The only issue is whether that price adjustment is higher than the outstanding mortgages.

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#13) On April 20, 2009 at 7:03 PM, guiron (26.59) wrote:

Using the government as the spender of last resort is not the same as fraudulent loans and securitization ratings. It's micro vs. macro economics. Keynesian economic theory applied does not equal liar and NINJA retail loans. It's not debt that's the problem. It's that regulation is poor to none where it counted, which is where all the hot money went, and banks are leveraged far too high. With tighter regulations and unwinding the over-leveraged positions, we could get back to normal in the housing market, but that also means 20% down or golden credit, and don't plan on using your existing equity for loans you can't afford, nor for a quick gain by flipping.

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#14) On April 25, 2009 at 10:07 PM, getrichdietrying (83.19) wrote:

The federal gov. ownes it! The feds could print money legally..not the state.

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