Palm Beach Real Estate and Loans

Today's post comes from Jason Price of Knightlines Mortgage Services.

Sorry this one is a bit long, but very important.

HVCC: The Mortgage Killer

Whether you live in Bonita Springs, Florida (Lee County), Eustis, Florida (Lake County), Palm Beach Gardens, Florida (Palm Beach County), or anywhere in the USA for that matter, your need to finance a home loan mortgage may be killed thanks to a 'wonderful' idea called Home Valuation Code of Conduct, or HVCC.

What is HVCC? Quite simply it is government intervention that forces a total hands-off involvement of the appraisal process in determining a property value for the purpose of financing. Who is hurt by this?

The Appraiser and the Borrower.

The Appraiser:

1. Forced to join a management company that will collect up to 40% of the appraisal fee. Yes, that is right. The appraiser will now lose almost 50% of his/her income by being forced to join in order to keep working.

2. Only targets appraisers. Other valuation models, such as AVM (Automated Valuation Models) and BPO (Broker Price Opinions) are not affected. This will lead lenders to accept these values (which are less accurate) due to the less restrictions.

3. No communication between the broker or lender or anyone else that stands to earn money from the deal. Single-handedly destroyed all relationships with these entities literally overnight.

Borrower:

1. If a new lender is needed, a new appraisal is needed. In the past, the Broker could simply submit their appraisal to the new lender. (Now the Borrower needs to pay AGAIN.)

2. Increased time to fund loans. Lenders and Brokers can no longer communicate with Appraisers to expedite orders, which means longer rate locks (ie Higher interest rates).

3. Forced to stick with current Lender even if not what they want because of increase fees to having to obtain a new appraisal. And there is one big issue that surrounds this whole crazy plan... what is the property worth? Well, now without the communication from the broker or lender, an appraiser is left to appraise the value of the property. Sounds good in theory, but lets look at reality.

Appraiser is given an order to appraiser property 123 Main Street, Anywhere, USA. Appraiser is not told the loan amount or an estimated value on the property. (PROBLEM 1: IN THE PAST, AS A COURTESY, THE APPRAISER WOULD CONTACT THE BROKER TO SAY YES OR NO ON THE ESTIMATED VALUE BEFORE WASTING ANYONES' TIME OR MONEY.) Appraiser determines value of property, but to keep in good favors with the management group and to avoid future legal actions for why they valued the property at $x.xx shaves several dollars off the top. (PROBLEM 2: THE ORIGINAL VALUE MAY HAVE BEEN THE RIGHT NUMBER TO DO THE DEAL, BUT TO PROTECT THEMSELVES AGAINST A NOW UNKNOWN, THE DEAL IS DEAD.)

Real life scenario: Borrower wants to refinance house. Eligible for RefiPlus, so we can go to 105% of the appraised value. Appraisal was ordered. Cost $400. Original appraisal cost before HVCC $350. (Appraiser needs to charge more because he has to pay someone now.) We needed at a minimum $x.xx to make the deal fly, but appraiser does not know this. Appraisal took over one week to obtain, when in the past took only 48 hours. Appraisal is returned with a value of $10,000 less then $x.xx. Deal is dead. Borrower is out $400. Broker is penalized by lender for fallout of locked loan.

Had this been pre-HVCC. The appraiser could have said it will be a tight deal on the value and let the borrower decide on whether to proceed. Now, the borrower is out $400 and had no decision. Pre-HVCC, the appraiser would have looked harder for comps to get the value that was needed just to keep the relationship with the broker/lender. (There is nothing wrong with this provided that the comps are there and justifiable.) Pre-HVCC would have allowed the borrower to get a 15-21 day rate lock offering a lower interest rate, instead of a 30 day lock or floating the rate in the current volatile market.

HVCC is a big deal when it comes to financing your home. It costs you, the borrower, more money. It eliminates your options to shop with multiple lenders when using a broker, which means you might not be getting the best deal. It is just all around bad news.

Help us help you in getting your rights back when financing your mortgage loan. A moratorium is being requested for 18 months. Should this happen or even if it does not, contact your state legislature to voice your opinion on the issue. Or take the time to sign a petition against HVCC.

Today's post comes from (the slightly aggravated) Jason Price of Knightlines Mortgage Services:

(BTW - I can't stand the term 'pre-qualified'. Shoot for 'pre-approved', but hey, it's not my story!)

When a buyer wants to buy a home, the Realtor they are dealing with usually asks right off the bat: "Have you been pre-qualified or pre-approved for a mortgage?" Why is this such an important questions? There are several things a Realtor will know based on the provided answer and information to follow it.

Here is what the Realtor finds out:

• They have a legitimate buyer.
• They know what price range to shop for.

Okay, now keep that second point in mind as we delve into the pre-qualification process. And to explain this, I am going to use a recent buyers story:

The buyer came to us to be pre-qualified for the purchase of a new home. Based on early findings, we were able to qualify this buyer for a mortgage of $x.xx and a monthly payment not to exceed $y.yy. Now, the monthly payment took into consideration the basic PITI (Principle, Interest, Taxes, and Insurance) for a home of that value for which she qualified for.

When we told the Realtor what the borrower qualified for, we also explained which programs the buyer was eligible for. In this case, if the buyer wanted 100% financing through USDA, then the loan amount could not exceed $a.aa and a monthly payment of $b.bb. If the buyer put 3% down, then HomePath financing was available at a mortgage amount of $x.xx and a payment of $y.yy. Conventional and FHA financing were not options.

Pretty straight forward, right? Wrong. The buyer is insisting on a home in a neighborhood where the HOA fees are over $200/month. Yes, the home prices are in the range that the buyer is qualified for, but the monthly payment is well over $200 for what they are eligible to borrower. Now with HomePath, we were able to get a FNMA DO/DU approval even with this $200 a month increase, but the home the buyer wants is not HomePath approved.

There are homes in that area, in that same neighborhood, in that same model, that are on HomePath, but someone did not show them to the buyer. I am not going to speculate why they were not shown. But I am going to ask, why did the Realtor allow the buyer to enter into a contract, put earnest money down, when they have something in writing that states what the buyer qualifies for and that property does not meet that criteria?

Oh, wait... it does. It meets the value of the house. The Realtor only listened to the buyer when they asked the question, "Have you already been pre-qualified for a mortgage?" The answer was probably something like this, "Yes, I was pre-qualified for a purchase price of $x.xx." So, when the Realtor got our letter, they just checked to make sure the purchase price was what they were told. Monthly payments went right out the window.

Now, I am not pointing fingers as to who is to blame because it can go many directions. But as a potential home owner, the buyer should have said right away when they learned of the $200+ per month HOA fees, that the house was now out of range. However, when we got the approval from HomePath to continue with that price range with the HOA fees, the Realtor should then have switched to HomePath homes for those homes with higher monthly payments.

In the end, a pre-qualification or even a pre-approval is only as good as the terms that are given in it. Going outside those terms, means a big fat DENIED!!! If one does not listen to the terms, then a lot of time is lost and possibly a lot of money. Communication is key. Each player of the buyers team needs to be clear as to what each other team member is doing to help direct that buyer to a victory of a new home. If you find a team member slacking, wake them up and tell them to get on the ball. If they continue, bench them and bring in the second string.

Today's post is from Jason Price from Knightlines Mortgage Services:

"Damn, you're young."

I am stealing that line from Neil Cavuto of Fox Business Network.

In a recent broadcast of Fox News, Cavuto mentioned how someone asked him about mortgage rates. The person was hesitant to buy a new house because mortgage rates went back up. Cavuto asked him what he was going to do... wait to see if they go back down was the response.

Cavuto, in his off tangent thinking, begins to share how "Damn" young this guy is. But his answer to the potential home buyer was "5.25% is pretty good." Then he proceeded to tell the young man to "Shut up."

Why did Cavuto tell him to shut up? The answer is pretty simple. "5.25% is pretty good." Remember when mortgage rates were double digits?Remember when prime was over 20%? Remember when...

Most people, if they think hard enough, will remember those days. Now, doesn't 5.25% or even 5.75% sound "pretty good"?  Yes, it does. And yes, 4.75% sounds better. Unfortunately, those days are in the past, and soon you will be saying I remember when rates were 4.75%. For those of you who waited to see if rates would go any lower, are now going to say, I remember when rates were 4.75%, but all I got was a 5.75% rate. But you know what? That is still "pretty good" compared to what it could be.

So what is the moral of this story? It is shut up about the rates. They are going to be what they are. It is only a matter of how long does a borrower want to wait to lock in their rate. 4.75% is gone. 5%+ is in. It is still a "pretty good" rate.

Oh, and to put this into monetary terms, a $150,000 mortgage at 4.5% over 30 years has a payment of $706. The same mortgage at 5.25% has a payment of $828. That is roughly $30.50 per .25% increase to the rate. That breaks down to just over $1 per day per .25% increase to the rate. Can you afford an extra $1 per day to go to your mortgage if rates went up .25% tomorrow. If the answer is "No," then you need to do something today. If the answer is "Yes," then can you afford a full 1% increase (or $4/day)?

Each day you spend watching the rates go up is just another dollar that you could have been saving.

If you want to watch the Cavuto news clip, click here.

Today's post about commercial mortgages comes from Jason Price of Knightlines Mortgage Services:

Developers looking to minimize their out-of-pocket expenses during construction can do so with Bond/Trust financing. This mortgage loan option allows developers to not make a monthly mortgage payment for up to three years during their construction phases.

Here is how this program works:

The Trust portion of the transaction requires two main aspects before it will even begin: 1) a minimum loan amount of $25,000,000 ($25 million) and 2) a stand-by letter of credit (SBLOC) equal to 20% of the borrowed amount.

Once the Trust has received the SBLOC, it will establish Bonds and obtain a Senior Life Settlements Insurance (SLS) to enhance the Bonds. With the SLS, Moodys will rate these Bonds as an "A" or "AA." This makes the Bonds more desirable on the market because they are backed by the insurance.

The time frame from receipt of the SBLOC to the Bond Sale is approximately 90 days. During this time, most, if not all, of the Bonds are already pre-sold. It is at this 90 day mark that the first draw of funds is made. This makes it perfect for Construction and Development project because not all of the money is needed up front. Following a pre-approved draw schedule, the Trust will then fund the remainder of the project.

Funds from the Bond Sale will be deposited, where it will remain for the 36 month term, allowing the Trust to use the money to create profits. During this 36 month term, construction is done without interest paid or even accrues. At the end of the 36 months, the Trust has a Right of First Refusal on the Permanent Financing. The Trusts terms on the Permanent Financing are: 1) Interest rate is based on the Wall Street Prime Rate + 2% (currently this would yield a rate at 5.25%) 2) Term is amortized over 20 years and 3) locked in at the end of 36 months. If the project is sold at month 36, the payoff to the Trust would be the money advanced for the construction with no additional fees.

Exit strategies for this type of financing include:

• Sell
• Permanent Financing from the Trust
• Permanent Financing from other lender/bank
• Pledge the SBLOC to the Trust in order to Debt Service the loan
• Establish a new Bond for Profit Sharing to Debt Service the loan

Should this financing be the answer to getting your project up and off the ground, call us today to get the process moving forward.

Or simply apply now, by click on the "Apply Now" banner on our website and complete the short form application. We look forward to helping you bring your visions to reality, as you build your project from the ground up and beyond.

OK, by now most consumers realize that they should have financing in place before even starting to look for real estate - so I won't beat up on that topic any more!

(BTW - even if you're not a first time buyer take a look at First Time Home Buyers Rule, it contains great advice for all Buyers.)

What I DO want to emphasize is that you need to be quite sure of the accuracy of what you've been told.

Most people use the terms PRE-QUALIFICATION and PRE-APPROVAL interchangeably and that can lead to a lot of problems.  There is certainly some fogginess in the two terms, but in general this is the way things go:

PRE-QUALIFICATION:

You go to a Mortgage Broker and say you need a loan for $x.  All too happy to help, the Broker asks you a few questions:  Do you have a job? Do you think that you make enough to afford the loan?  How's your credit?  Do you have enough money in the bank for an appropriate down payment?

If all of the answers are proper then YES, you are pre-qualified!!

All valid questions of course.  But we're missing something important here..... PROOF! Without that, you've got nothing.

PRE-APPROVAL:

You're basically going to be asked the same questions about your credit, income and assets BUT you will need to furnish proof of everything before an answer is given.

You'll provide employment history and current pay stubs, a credit report will be run, you'll provide bank statements, etc.

You're basically doing everything in the loan process  - the only thing you don't have is the specific property that you want to buy.

At that point a formal letter is sent out to your Real Estate Agent saying that you are PRE-APPROVED for a mortgage for $x, with y% down for a particular type of property.

If you have any questions, or to get pre-approved for a Palm Beach Gardens mortgage, just call me @ 561-282-7406 or fill out Knightlines' Application form.