Presidential Candidates Thoughts on Housing Market

McCain offers tough love on housing woes - Boston.com

In this Boston.com article (link above) Republican Nominee Sen. John McCain speaks to the responsibility lenders and borrowers have when participating in the housing market. Many times housing industry insiders talk about the benefits of home ownership and lenders advertise the wonderful "opportunities" out there for consumers. Nobody seems to want to stand up and remind people that any time you borrow hundreds of thousands of dollars there is a promise that you will pay back not only every penny of that borrowed amount but also every penny of the interest needed to borrow that sum of money.

I have to say that it seems like all sides of this discussion seem to follow "traditional party lines." The one possible exception is Sen. McCain seems to be taking a pretty strong conservative line in this article. It will interesting to see how far we have to let things "self-correct." The President and many Republicans are subscribing to the belief that the free market will continue to balance itself and any interference will only put us in danger of increased damage. The Democrats and both candidates for the nomination advocate for immediate government intervention to help stabilize the housing and mortgage markets.

One thing we've seen this week is J.P. Morgan Chase's quick move to rescue Bear Stearns is a prime example of the free marketplace moving into self-correction mode. It is in the best interest of all parties for both of these firms to remain as strong as possible. Similar efforts between Bank of America and Countrywide seemed to shore up Countrywide's position as a major future player in the marketplace. Again, both examples are extreme cases of marketplace self-correction and we hope that no major financial institutions get to this point ever again. That being said, the marketplace is showing a willingness to support itself and maybe allowing it to go, with government supervision and observation, is the way to go? Thoughts?

Hey Hey, Ho Ho, Countrywide Has Got to Go???

I was just enjoying a peaceful rainy day lunch at my favorite Coolidge Corner lunch stop when I heard the above chant coming through the windows. It seems like a group called the "Massachusetts Alliance to Stop Predatory lenders" and the "Neighborhood Assistance Corporation of America (NACA)" have banded together to protest at all of Boston's Countrywide offices. Never one to pass up an opportunity I asked a nice gentleman handing out fliers to explain to me why we were trying to stop Countrywide. Let's just say he wasn't quite sure why. My conversation with the non-home-owning NACA representative actually centered around the fact that Countrywide is not a financial adviser or an attorney contracted to protect your rights.

Every single one of my customers and clients knows that when we have discussions about homes they want to look at, lenders they want to pick to finance those homes, and legal counsel they want to represent them at the closing (as opposed to Banks' counsel) we make sure that everything starts with one question. "How much are you comfortable spending each month?" Where in this crazy market did we lose personal accountability? I actually ask my buyer clients to fill out an extensive questionnaire before we proceed too far into the home search process to make sure that they're not following a harmful path.

One of the fears we have in the real estate brokerage business is how easy it is to get a license to sell Real Estate. There is no practical training to steer you through the potential pitfalls. Nobody trains you on consumer protection. In fact, all you have to know to get a license in MA is what method of mapping is used by communities and what parties you can't discriminate against. Buyers, in their quest to go to the path of least resistance will not hire a buyer's agent to protect them. Around and round we go until we end up at the closing table without representation and all of a sudden a buyer has been "mislead" or "misinformed" about their purchase.

I'm sure we'll hear more "big" news from the lending industry in the not-too-distant future, but when we boil it down to facts, homeowners must understand that in purchasing a house they are putting themselves into significant debt. If managed properly their purchase has a tremendous potential for upside, but improperly used it can destroy their financial well-being.

5 Things You Should Expect in a Mortgage?

My TiVo Home Screen today had the Bank of America paid advertisement for "5 things you should expect in a mortgage." I would not be doing my job if I didn't check it out, so here goes:

You can go online and apply for this mortgage with no application fee. From there you can get pre-qualified in minutes. After that, you pay no PMI (private mortgage insurance), you pay no closing fees and then they have a "best value guarantee." Finally they offer a "close on time" guarantee.

Let's break this down:

1) No application fee, but is there a processing fee, a credit report fee, an appraisal fee, a title fee?

2) Pre-qualified in minutes through their website, but is your application going to someone who understands that yes, a condo might actually be worth $2,000,000 where you live?

3) No PMI. Sounds nice, but let's just look at the news recently. It seems to me that the stock market just dropped everyone carrying "risky" loans on their heads. PMI is insurance the lender takes out when less than the traditional 20% of the purchase price is being but down up front. How does the lack of PMI affect the rate?

4) You pay no closing fees. Sounds great, but what about closing costs? There is an underwriting fee, a document recording fee, there are title fees, and then each bank has a closing attorney they have to employ. These are just a very few of the things that you need to close EVERY loan, at least here in Massachusetts. So who pays them? I promise you Bank of America is not paying those costs themselves. Take a look at your APR or your rate as well as your "Good Faith Estimate of Closing Costs" that each and every lender must provide by law to every borrower prior to closing.

5) You will get the best "value." Now, that's a little subjective, isn't it? What determines value? Who dictates which part of it causes the best "value" return. Nowhere do they say you get the best rate or the lowest closing costs. Simply put, there are a TON of holes in this.

6) Close on time guarantee. Well, that means that within their window to turn things around, they will close on time. An airline can schedule 3 1/2 hours for a 2 3/4 hour flight. If they land at 3:05 they got you there "early" right? Can they close the loan from application to payment in less than 30 days? Can they adjust on the fly if something comes up in your purchase and sale and has to be dealt with?

My experience with large, non-community banks, is you're in a lot of trouble when it comes time to getting a loan approved for "high-value" real estate markets. The loan processor in Indiana does not know what they're looking at when the appraisal is submitted and thinks that our real estate values are completely out of whack. Also, is your loan origination team going to be able to sit down with you (or your agent) in person to talk through the speed-bumps that come up in the process? Are they going to have an attorney who you have access to available to help settle any issues? Finally, with no PMI, are they going to be able to guarantee a competitive rate?

My advice: find a local lender. They can work for a major national company (Countrywide, Wells Fargo, etc...) but make sure the team you are dealing with knows your town well and can go to bat for you when the going gets tough. Also, make sure you find someone who will give you an honest answer when things start to go wrong. I've seen good lenders swoop in and save a deal with 24 hours notice, and I saw one truly impressive one close a loan that another bank had messed up with literally hours to spare before Christmas Eve.

Bank of America is fine for your checking account or your debit card, but let's leave lending to the few people out there who are still going strong and know how to do it.

What do they know that we don't?

The big news in Brookline real estate this week is the purchase of the McCourt estate by John Henry. For those who don't follow these things, Frank McCourt is the owner of the Los Angeles Dodgers and one of the people who lost out to the Henry/Werner ownership team when the Red Sox were last bought. John Henry has made (and lost) billions in commodities trading and other financial ventures prior to his Sox tenure. My question to the world is...if the market is so bad, why is someone with as much financial knowledge as John Henry has buying a 16.5 million dollar property now?

The answer is simple. This is an amazing time to buy because the prices have shown they're not free-falling as predicted, and for now mortgage rates are going down. Not that John Henry is getting a jumbo loan on this house or anything, but still the buying climate is great. Add Henry's decision to the speculation last week that Warren Buffet was considering buying a portion of Countrywide and you're seeing that a lot of very successful and financially powerful people think we might have reached the bottom.

Here we are at Labor Day Weekend, the second "season" for real estate is about to start. Property is still going under agreement, and there is no better time to buy than now.

Thoughts from the media

Today I was forwarded an article that appeared on the 26th in the New York Times. The article was an editorial piece on Countrywide Home Loans and their aggressive telemarketing campaign which was designed to lead buyers into higher cost (and higher Countrywide profit) loan programs.

[Disclaimer: My home loan is through Countrywide and I have had nothing but the best experience with them]

Here's my initial reaction: How many of these buyers chose to engage in a Buyer's Agency Representation contract? I've had the pleasure of interacting with a disproportionately high number of you buyers out there, and I know your initial reaction is to avoid working with an agent until you find the house you fall in love with. Well, guess what? Now you've found your agent and you don't know if you actually like him/her, you just know you like the house they allowed you into. This is now the person who will "guide" you to your mortgage and legal representation. Are they qualified? Do they know your financial strengths and weaknesses? Can they make sure you're matched up with the mortgage company that will have the best programs available for you?

My guess is the answer to these questions is a resounding "no." Buyers, you spent hours, days, weeks, and months trying to find the perfect house. First, that's not your job, it's mine. Second, now you're stuck with someone you don't even know and have most likely barely even spoken to. How can you qualify the advice they're giving you? Yes, they're most likely qualified to give you advice, but do their experiences and knowledge base match up with your specific needs and interests? I hope for you they do...

Why did you not interview three or four agents (like you would if you were selling) to see what services they offer their buyers? Why did you not get a feel for how they'll react and respond to you during the negotiating process? Why have you not already struck up a relationship with and "shopped" their preferred list of lenders/attorneys/inspectors before settling on your next home? These are the reasons people ultimately walk away disappointed in the process and then think they can do as good of a job on their own.

Now all of a sudden people are in mortgage programs they were not full prepared for. Now they're finding out they didn't find out enough in the beginning, and now everyone is on edge.

STOP

Take a second to interview an agent. Find out which one (there are lots who are all good) fits your needs and personality the best. See which lenders/attorneys/inspectors they have a relationship with and make sure they they're able to help you negotiate the best rates and programs possible. This is still an amazing time to be in the market, it simply requires a little more planning and homework now.