Coastal Real Estate and Lifestyles

The loan officers I work with do a good job of keeping me (and I’m sure their other Realtor contacts) up to date on any news about loan changes or updates from their companies.  I got an email notice yesterday from one of the loan originators I refer to, Gordon Ling at Bank of America.  He provided BofA stats on their company’s purchase money loans for 2009 - they closed the most purchase money loans in 2009 for San Mateo and Santa Clara counties then other lending institutions, including jumbo loans, according to Gordon’s reports.

Gordon represented one of my clients last year with a jumbo loan (over $1 Million loan amount) with an extremely competitive rate and a smooth close.  I was referred to Gordon by a mortgage broker who knew she could not provide the best loan product for my clients’ needs - a professional approach I appreciate.

These are the rates as of yesterday.  As you know they change daily and the final rate is subject to the borrower’s overall situation.  Gordon advises borrowers still need to pay special attention to major job, asset or income changes, and self-employment.  These rates are for general information only.

Thanks to Gordon for his care and service to my clients.  Fortunately, I have found a few loan officers who provide an exceptional level of integrity and service over the years.

As a footnote, I just want to add it’s not just about the rate, but also whether your mortgage professional stands behind his/her words, and can get the loan funded in a challenging lending environment.

I got up close and personal with one short sale transaction this past year.  The lack of standard procedures can be unsettling and challenging in preparing your clients for what to expect.

Here’s the story…My extremely well qualified and patient buyers submitted an “at market” offer on a short sale listing last Spring.  The sellers had two liens on the property – both with the same bank.  There were 5 other offers, we were told at the time.  After a month, we were informed that our offer was selected and that the bank approval should occur in about a week.  One, two, three weeks…nothing in writing.  The agent told me they would inform me of updates, but they weren’t coming very regularly.  Every week or so, I check in with the listing agent to obtain a status – so I could document my file with something…anything.  I believe they were doing the best they could.  We then get an Addendum signed by the bank, but the approval was yet to come.  My buyers still hang in there. 

I learn they have offered the 2nd lien holder a few thousand dollars.   Another couple of weeks pass by. We then learn that the first lien would be 100% covered, so it did not need to participate in the short sale.   The listing agent would need to now work with the 2nd lien holder to accept a short sale without the first loan involved.  While the listing agent and loss mitigators at the bank were negotiating, at least that’s what I think is going on, (maybe the file is just sitting on someone’s desk, I don’t know), my clients change their mind.

By this time, my clients decide that it is not making any sense that an over asking, market value, cash offer is not good enough, on top of the minimal and sometimes conflicting communications that we were receiving.  I could not give them any real reason for the delays from the information I was getting.  They asked me to cancel the contract in the Fall; they received their small initial deposit back and found another property, where they are currently very happy.  As for this short sale property, it appears to have closed as a private sale in November 2009.

The national average of short sales in 2009 was 12% according to the National Association of Realtors.  Here on the Coastside we were at approximately 6% of all 2009 sales according to MLS Listings - half the national average.  We’re learning from distressed property specialists in other parts of the Bay Area and California who have been in the distressed property trenches for over a year that there may be more coming.  Time will tell - a recurring theme.  More important, stories of short sale fraud are finally being reported.

A recent CNBC article exposed that second lien holders - when there is one - (not the first mortgage, but the 2nd or subordinate loan) are asking for additional money “under the table” in order to agree to the short sale.  According to the article:  “…But here’s what’s not legal and what’s apparently happening quite often recently.  Since many second lien holders are getting very little, they are now allegedly requesting money on the side from either real estate agents or the buyers in the short sale.  When I say “on the side,” I mean in cash, off the HUD settlement statements, so the first lien holder doesn’t see it.”

And here’s the facts:  The New RESPA Rules FAQ 12/30/2009 on the HUD website as it relates to the current activity being discussed in the media right now:

Q: Can items be listed as “Paid Outside of Closing” (POC) on the Good Faith Estimate (GFE)?

A: No, the totals included in the column on page 2 of the GFE must be the sums of the prices or fees, by category, for all settlement services that are required to be shown on the GFE.  Where individual components of these totals are required to be itemized, each third party settlement service must be identified and the estimated total price or fee to be paid for that service must be stated to the left of the column.  The standardized GFE form does not allow information to be included on any part of those totals that would be paid outside of closing.  Such information would not help borrowers to shop for loans and would not facilitate comparison of the charges on the GFE with the charges on the HUD-1.

Tomorrow I’ll post my first-hand short sale experience from a few months ago.

The Cliff House Restaurant views were amazing as usual.  I was invited to a Coldwell Banker Northern California Top Producer lunch hosted by CBNorCal’s President, Rick Turley, yesterday.  Realtors from places such as Santa Rosa, Marin, Palo Alto, San Francisco, Half Moon Bay-Coastside, Petaluma, Burlingame, among other areas, enjoyed a delicious meal in the light filled private room overlooking the Pacific.  Last time I attended one - earlier this year, we went around the tables introducing ourselves and giving a quick overview of our local markets.  This time, Rick asked us to share an old lesson and a NEW lesson of this past year.  I always know I’m in the right field for me when I listen to colleagues at these types of events.  Here’s what top producers are saying about their businesses right now:

• The Market “is what it is” - not good or bad
• It’s our job to educate and interpret the massive amounts of information and data as it applies to our clients
• Our clients are watching the market too, respect that
• It’s not about the number of listings but the quality of the listings - some agents are turning down listings if the seller is unrealistic
• Always remain calm
• Listen to your clients, really listen
• You can’t be at your best for your clients if you don’t also take time for yourself and family
• We create solutions and we do it  honestly
• We are communicators and problem-solvers
• This year it’s not unusual to write multiple offers for one client - we heard of 17 offers being written before the buyer got the house
• Understand and take seriously the “internet buyer” - someone who contacts us via an email rather than a phone call
• Respect your fellow Realtors, always

On my way back from lunch, I received a call from another Realtor who asked me if I had time and would be interested to represent a prospective buyer on her listing because her seller client did not want her to represent both sides and the Realtor who the prospective buyer had tried to call wasn’t calling her back.  We’re writing an offer today.

Let me start by saying, I know this is a dry subject, but if you’re in the market, you want to know this stuff.  So grab a coffee or glass of wine and read it, including the good linked articles…

Getting a loan in the current economic environment.   If you plan to borrow any money from a lender to complete your purchase, you will quickly realize that it is not the same loan process of a year or two ago.  A few consideration points…

1)  Will you use a mortgage broker, direct lender, mortgage banker?  They’re the money person who will play an integral part in getting your escrow to a successful close, not to mention determining your monthly payment.  What are the differences and how will those differences affect what is best for you?  Ask questions until you feel comfortable.

Mortgage broker - A mortgage broker works with many lenders, perhaps hundreds, to locate the best loan product for your needs.  Some may favor certain lenders; you can ask why if they say they mostly work with one or two.

Direct lender - some borrowers go directly to the bank they currently do business with as a starting point.

Mortgage banker - A mortgage banker accesses only that lender’s portfolio of programs.

Two important changes related to the getting a loan took affect this year:

1)  Mortgage Disclosure Improvement Act of 2008 (MDIA) as part of the Housing and Economic Recovery Act (HERA) took effect on July 30, 2009.  In a nutshell:

• Timely delivery of the Good Faith Estimate (GFE) following loan application.
• Mandatory three day review period for loan documents.
• New disclosures required if your interest rate changes (not sure how much it has to change).
• Rate locks can be extended up to 3 weeks, down from 4 weeks.
• The cost of a one week rate lock extension is one-quarter of a percentage point of the loan amount.
• Another 3-day waiting period may be required during escrow if the annual percentage rate (APR) on the loan increases by at least an eighth of a percentage point.

Our local in-house lender, Susan O’Driscoll provided this PDF handout:  MDIA Information Sheet

New York Times 8/16/09:  New Law May Cause Delays for Borrowers 

2) Home Valuation Code of Conduct (HVCC) took effect May 1, 2009. (i.e. the new appraisal process)

• The code does not require or prohibit use of foreclosure data as comps.
• A lender may order appraisals directly from an appraiser.
• A lender may not accept an appraisal prepared by an appraiser that was ordered by a Mortgage Broker.
• The borrower may not pay the appraiser directly for the appraisal.
• The lender must provide the copy promptly upon completion of the appraisal, but no less than three business days prior to closing. (by “closing” they mean the signing of the loan docs).
• Appraisers and Realtors are able to communicate with each other; “Realtors can often be a source of data in the market in which the subject property is located. ” quoted from Fannie Mae 2009 HVCC FAQ July 2009 (link below).

Local market side note - the appraisal for a Montara property where I was representing the buyer came in over list price and over the offer price.  The lender was Wells Fargo; the appraiser they sent was from Fremont.  I provided him with not only local comps, but first hand information about the houses and locations.  He was planning to use a Clipper Ridge neighborhood house for this ocean view Montara house.  He seemed grateful for the local info… also called twice to get clarification on comps before finalizing the appraisal.

July 2009 update to HVCC FAQs.

Examiner.com 6/26/09:  Home Valuation Code of Conduct

The Big Picture 8/19/09:  Home Appraisal Reform:  WSJ vs NYT

The housing crisis solution is, at least, two-pronged:
1) decrease the number of Notice of Defaults (NOD) by doing loan modifications for responsible homeowners.
2) reduce the number of homes that are foreclosed upon already.

Both lay primarily on the shoulders of the banks.  This idea addresses the second issue.

The Ford Foundation, through a consortium of non-profits, is planning to assist in stemming the number of foreclosures that banks are still holding (i.e. not yet listed, sold, or otherwise absorbed).  It’s called the National Community Stabilization Trust.  The Wall Street Journal reports,  “The trust aims to serve two main functions. It is courting major financial institutions — including J.P. Morgan, Bank of America Corp. and GMAC Financial Services — and negotiating discounted prices on foreclosed homes before they are listed.”

If the Trust successfully negotiates to remove the “toxic” assets from the banks’ books at a discount without the associated costs of putting them on the market, then the non-profits may be in a better position to buy and then refurbish the properties associated with those loans to improve their communities’ affordable housing needs.

It seems like the same Foundation also funded loan modification efforts beginning last summer - is it helping?

If you think this doesn’t affect our little community because we have very few foreclosures, think again.  As long as there are large numbers of foreclosures on lenders’ books, from whom our local buyers are hoping to fund their dream coastside property, lending guidelines will continue to be very tight, and property values will continue to be suppressed.

As of today, ForeclosureRadar.com shows 11 bank-owned properties between Pescadero, Half Moon Bay, El Granada, Moss Beach, and Montara.  23 in Pacifica.  331 in all of San Mateo County.  For pre-foreclosures, there are 52 between Pescadero, Half Moon Bay, El Granada, Moss Beach and Montara.  106 in Pacifica.  1,875 in San Mateo County.  Below are bank-owned properties in the San Mateo County coastal communities that are currently listed in the MLS:

 Map-based search of current San Mateo County County Coastside bank-owned listings.

It seems like buyers and sellers ought to know about a new rule affecting appraisals…which may affect values differently…which may affect loan approvals…which may affect loan contingency timing, loan lock timing, and possibly even successful escrow closings. 

The Home Valuation Code of Conduct (HVCC) goes into effect on May 1, 2009 for all Freddie Mac and Fannie Mae loans.  I haven’t heard too much about it yet, but I expect I will in the next several months.  This post from Matrix provides a interesting overview.  So just consider this a heads up at this point so you’re aware that appraisal procedures for your refinance and home purchase will be changing.

As pointed out in the RESPA Lawyer Blog, “Consumers and state & federal regulators need to watch very carefully to see what impact the new HVCC rules will have on the real estate home buying and refinancing process.”

 As a buyer, your offer strategy could include discussion with your Realtor about the pros and cons of adding in a separate appraisal contingency.  Pro-active measures would call for paying attention to whether the appraiser knows the local market or not, when the appraisal is done, getting a copy, reviewing it for accuracy, asking questions if anything doesn’t make sense, and discussing what the results mean for any future negotiations and, of course, a successful close of escrow.  Again, each transaction is different, so that’s for you and your Realtor to understand and implement the best strategy for you and that particular property.

 If you have additional information about this, please share.

Another tax credit for California.  This one applies to purchases between MARCH 1, 2009 - FEBRUARY 28, 2010 - for homes that HAVE NEVER BEEN OCCUPIED - only $100,000 allocated - first come, first served.  The Coastside doesn’t have large home developments, but we do have spec homes that are built by individual local builders.  Pacifica has a new home development (some lots with ocean views) that I’ve previewed called Connemara.

The State of California Franchise Tax Board’s website outlines details.

Here’s new construction listings on the Half Moon Bay Coastside that may qualify:

Thanks to colleagues Arn Cenedella, just “over the hill from us” on the San Francisco Peninsula and Kappy Mann of Truckee and Lake Tahoe’s north and west shores, for also sharing information about this and bringing this to my attention.

Contra Costa Times article.

The U.S. Senate passed the American Recovery and Reinvestment Act of 2009 last weekend with the final tab for the stimulus bill at $787.2 billion.  The next step is President Obama’s signature.

The housing highlights:

1) The conforming loan limit cap that was reduced to $625,500 on January 1, 2009 (from the temporary increase of $729,750) is again reset to $729,750 through December 31, 2009.
2) The first-time home buyer credit is increased by $500, from $7,500 to $8,000, and removes the requirement that the credit be paid back if the buyer stays in the home for at least three years.  There are income limits.
3) The timing for the first-time home buyer credit is extended from July 1 to Dec. 1, 2009.  Home buyers must have purchased a home after Jan. 1, 2009, and before Dec. 1, 2009, to be eligible for the $8,000 credit.

An important piece of getting things moving again will be resolution; the fact that something was done.  Having said that, I don’t think it ’s going to make it easier to buy a house in the short term, but it could facilitate buyers and sellers getting off the fence in an attempt to move on with their lives, which will include either buying their first home, making a long-term real estate investment, selling their home, or finally considering a move-up purchase.  The Half Moon Bay Coastside trends will probably follow what happens in greater San Mateo County.  The Coastside is also a bedroom community for the San Francisco Peninsula, San Francisco, and Silicon Valley employment.

Using the 2008 Coastside* median price of $819,000 as an example, down 4.8% form 2007, that would still require a down-payment of approx. 10% (819,000 – 729,750 = 89,250; 89,250 is 10.8% of 819,000) to keep the loan within the new conforming loan limit.  If you are considering a purchase, consult with a mortgage broker or direct lender to discuss ALL your options.

Coastside for this purpose is Half Moon Bay, El Granada, Moss Beach and Montara, combined.

Chart comparing the current housing tax credit to the new plan’s tax credit.  Thanks to the Peninsula Real Estate Guru for locating this chart.

Consult your financial advisor and tax professional to fully understand how this new plan may affect you.