May 252011

Amid the entire current flap, you’ve probably heard some noise about legislation to change the QRM (Qualified Residential Mortgage) requirements. As I understand it, the change would mean:

  • Certain mortgage types would be eliminated
  •  You would need to put a minimum of 20% down
  •  You would need a minimum 690 FICO score
  •  The ratios of income to both the mortgage payment and overall debt would become much more conservative (28% and 36%)

This has caused quite a stir and a certain amount of “the sky is falling” hype. Even the National Association of Realtors has issued a “call to action” requesting REALTORS ask members of congress to defeat this legislation. I’m not so sure that’s a good idea.

First, we need to understand that this doesn’t mean only those who meet the criteria above are going to get a mortgage. There will still be programs available for people who don’t; they’ll just be a bit more costly in terms of interest rates and other costs. (And why shouldn’t lenders be able to charge more for higher risk loans?)

Second, we need to learn the lessons of history. Relaxed borrowing standards are partly responsible for the mess we’ve been in. Accuse me of over-simplification and I’ll probably plead guilty, but let’s not ignore the fact that a ton of “bad loans” were made At least one source reports that delinquency rates are 2 to 2.5 times higher for “non-QRM” loans.. We can debate the reasons, but this seems to be a bit of an effort to set a standard that suggests mortgages should be made to people who can afford to make the payments and have some equity in the balance.

I think that makes sense.

For a slightly different perspective, let’s assume you have your property listed for sale and I’m your agent. Let’s also assume you don’t have a mortgage on it… maybe it’s a second home or piece of land. A buyer approaches us with an offer to purchase but asks for owner financing. No problem, right? He’s offering full price! You’ll get to charge interest…

So far I’ve left out one important detail. When the buyer made that offer I asked him why he was requesting owner financing. He replied, “Well, I just lost my house to foreclosure and can’t get a mortgage.” (Believe it or not, I’ve had this happen more than once and the buyers often don’t “get” the fact that if the bank isn’t going to loan them money, the seller probably won’t either.)

“Ah,” you say. “Let’s make the deal. So what if he can’t pay? I’ll just take the property back and keep any payments he does manage to make.” Before we make the deal, here’s an easy assignment. Call an attorney and ask her just how easy it is to foreclose and how much it costs. Oh, and did I mention that after you finally manage to foreclose Continue reading »

May 212011

Okay… would you like to play the numbers game again? The Maine Real Estate Information System issued a press release recently informing us that for the month of April, unit sales of single family homes was down nearly 24% over the previous year. Part of the explanation for this huge drop was that last year’s numbers were “skewed by the homebuyer’s tax credit…”  Obviously, that’s a tough statement to disagree with but it does raise the question “by how much of the decrease can we blame on last year’s tax credit?”

Opinions are easy and it’s mine that last year’s tax credit for the most part rewarded people who were intending to purchase a home anyway and probably succeeded in “condensing” those transactions into a tighter time period. (In other words, if we’d left things alone most of those sales would have taken place anyway—just not necessarily at the time they did.

In another attempt to rationalize the downward sales trend, lenders are coming under fire because lending standards have become stricter and “frustrating.” Again, that’s a tough statement to disagree with, but it wasn’t too many months ago everyone was blaming lenders for not having strict enough standards.

Speaking of standards, here’s an interesting observation from the Real Economy Watch by Stephen Cook:

For the month of April, 45% of foreclosed properties were damaged and not inhabitable without renovation. Because mortgage financing is generally not available for foreclosed properties that need major repairs, investors often buy these properties for cash. Fifty-five percent of damaged foreclosed properties were bought by investors in the month of April, while only 27% were bought by first-time homebuyers.  (These are national numbers, not Maine.)

Maybe I’m not asking the right people, but I’m not sure why or how we should fault lenders for not making loans to people who might be considered “poor risks” on properties that are considered poor risks. If there’s an explanation Continue reading »


Lucy’s Love Bus

 Posted by at 10:56 am
May 132011

One of the great benefits of having your own site/blog is that you get to make, break, and change rules and policies. I’ve always had an unwritten policy that I would keep the promotion of causes to a minimum here… and try to stay focused on real estate and education. This won’t be about real estate but it MIGHT be about education.

There’s a really awesome organization based in Northeastern Massachusetts that I’d like to bring to your attention… if you live in that general area there’s going to be an “Art, Love, and Lucy Gala and Auction” on Saturday at the Amesbury Cultural Center.  Whether or not you can attend this event, please visit Lucy’s Love Bus to find out who this incredible young lady was and learn about her legacy. There’s a lot to learn here.  A word of warning: have a box of tissues and your wallet close by; I’m pretty sure you will want to support this program.

It doesn’t matter how long we may have been stuck in a sense of our limitations. If we go into a darkened room and turn on the light, it doesn’t matter if the room has been dark for a day, a week, or ten thousand years — we turn on the light and it is illuminated. Once we control our capacity for love and happiness, the light has been turned on.

– Sharon Salzber


I Thought I Owned It!?

 Posted by at 7:22 am
May 022011

One thing that no longer comes as a surprise to me is the occasional prospective listing client who, it turns out, doesn’t actually (legally) own the property he or she wants to list for sale. Sometimes it’s a mere technicality; sometimes a misunderstanding. These issues are often referred to as “title defects” or “title problems.”

These situations also can affect buyers. During one recent transaction where I represented the buyer we discovered the “seller” ( a corporation) no longer existed–it seems the owner(s) of the corporation dissolved it and took title personally. The good news was they had done it properly. The bad news was they hadn’t told anybody–including their listing agent.  I didn’t point out to him that technically he was no longer the listing agent since his contract was with a non-existent corporation.

Some of the more common are created by confusion over similar names, missing heirs or surviving children left out of a will, wills not probated, signatures of minors or people of questionable competence. Undischarged mortgages and tax liens are also fairly common.  In short, there are a lot of things that can “go wrong” when title is transferred from one owner to another. Sometimes these escape notice for several transactions.

So what happens if somebody comes knocking on your door and announces they believe they have a claim against the title to your property?

You did buy title insurance, right? When you did the Title Insurance Company ordered a title search of public records to determine whether or not someone other than you might have an interest in the property.  Any discovered risks were either mitigated (or excepted) prior to your purchase. That policy is your protection against legal fees and any losses you might suffer based on a claim.

The “even better” news is that most of these policies cover you after you’ve sold the property! But wait, there’s more! You only paid one premium, at closing. (If you financed the property, there were two policies involved–a lender’s policy and an owner’s policy. The lender’s policy covers the lending institution’s interest for the life of the loan.) If you are in the market for a real estate purchase, make sure you understand the concept and buy some peace of mind!