Author: Dan Krell

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Expensive mortgages on the horizon

Owning a home takes work. Soon, it will cost more too. In response to a crippling financial crisis, sweeping changes were established in the mortgage industry to not only stabilize the crippled financial sector of the housing market, but to also to temporarily provide access to credit in an all but frozen credit market. Now that the temporary stop gaps are coming to an end, will private investors make home mortgages more expensive or will Congress bow to housing trade groups to extend current interventions?

Since the increase of FHA mortgage down payments to 3.5% a few years ago, there has been talk of increasing it further to 5%. The move comes at a time when mortgage assistance programs are winding down and reliance on FHA mortgages to refinance underwater home owners is diminishing. Concerns over FHA reserves prompted higher annual FHA mortgage insurance premiums and, of course, also elicited calls to increase FHA mortgage down payments to 5%.

Of course, while some look for a solid FHA mortgage down payment increase, some look to future decreases. H.R. 1977: FHA Reform Act of 2011 (introduced May 24th which has been currently referred to committee) creates the position of “Deputy Assistant Secretary of FHA for Risk Management and Regulatory Affairs,” whose job would be, among other things, to review down payment requirements.

Besides the push for increased FHA down payments, the FHA maximum loan amount is set to decrease in October of this year. Temporarily increased to $729,750, FHA loan limits will revert to those set by the Housing and Economic Recovery Act of 2008 (HERA). Unless Congress acts on maintaining the current FHA loan limits, HUD states that 669 of the 3,334 counties or county equivalents that are eligible for FHA insured mortgages will be affected. In “high cost” areas, such as Montgomery County, the maximum FHA loan limit will be reduced to $625,500 (“Potential Changes to FHA Single-Family Loan Limits…A Market Analysis Brief; hud.gov).

In addition to changes in FHA mortgages, conforming loans (mortgages that conform to Fannie Mae and Freddie Mac guidelines) will also change. October 2011 is also when the maximum conforming loan limits will revert to those established by HERA, as stated in a May 26th release from the Federal Housing Finance Agency (FHFA is the oversight agency for Fannie Mae, Freddie Mac, and Federal Home Loan Banks). Although the new loan limit will not differ from the current amount in a majority of regions, FHFA estimates that 250 counties or county equivalents will be affected. The maximum conforming loan limit for “high cost” areas, such as Montgomery County, will also be reduced to $625,500.

Although the current FHA and conforming loan limits were temporary, housing trade associations have warned about possible effects of reverting to lower mortgage limits on an unstable real estate market. Both the National Association of Realtors and National Association of Home Builders have commented on the imminent changes and have called on Congress to make the temporary changes permanent.http://www.blogger.com/img/blank.gif

Recent government interventions in the housing market may have been necessary but they were intended to be temporary. Continued intervention may continue to allow “lower cost” mortgages for some home buyers, but some have warned against maintaining the temporary stop gaps because it hinders private investors from entering the housing market as well as the possibility of artificially inflating housing prices.

by Dan Krell
©2011

This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.

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As-is or as-is

For years, the idea of a simpler home sale was one attraction to selling a home “as is.” However, “as is” is not always what you think it implies. Local Realtor® contracts and associated addendums have several meanings for “as is.” If you’re already confused, don’t feel bad, many real estate agents are often confused too. An “as is” home sale is one of those situations that may merit an attorney consultation to help you understand your obligations as a home seller or home buyer.

Home sellers decide to sell their home in “as is” condition for various reasons, besides attempting to circumvent property condition clauses within the local Realtor® contracts of sale, which require electric, heating, air-conditioning, plumbing, and appliances be in working condition at time of sale. Some reasons a home owner may not want to guarantee the condition of their home may be that they are not entirely aware of the property’s condition, such as when owned for a very long time, or selling a rental property. Estate and trustee sales are often sold “as is” because the sellers also do not typically have knowledge of the home’s condition. And of course distressed properties (such as foreclosures and short sales) are mostly sold in “as is” condition.

Prior to the “as is” clause we have today, many agents and sellers often signed the Maryland Residential Property Disclaimer to convey the home is “as is” condition thinking that they were relieved of their obligations under property condition clauses within the contract of sale. However, savvy agents went further to strike various clauses from the contract of sale to further reinforce the seller’s “as is” claim.

The Maryland Residential Property Disclaimer currently indicates that the home conveys with all defects without making any representation of the condition and without warranties. However, the Disclaimer also states “except as otherwise provided in the real estate contract of sale,” which without further clarification can and has resulted in disagreement and confusion.

To further clarify the meaning of “as is,” the “as is” condition clause was introduced. The “as is” condition clause not only specifies that the seller makes no warranties or representations of the property condition or the systems and equipment in the home, but it also specifies which clauses are deleted from the contract of sale. The clause also indicates the time at which the home is conveyed “as is.” Lenders selling foreclosures require a specific “as is” clause to be signed by buyers.

Buying a home “as is” does not usually preclude you from conducting a home inspection. However, sellers often allow an inspection where the buyer can “walk away” in case they find the property condition unacceptable.

Additionally, “as is” sellers are not relieved from disclosing known latent defects, unless the sale is exempt from Maryland’s Single Family Residential Property Condition Disclosure Law (which defines latent defects as material defects or an improvement to real property that: “a buyer would not reasonably be expected to ascertain or observe by a careful visual inspection,” and “would pose a threat to the health or safety of the buyer or an occupant of the property, including a tenant or invitee of the buyer.”).

Are you still confused about “as is?” Always consult an attorney to interpret your contract and help you understand your contractual obligations.

By Dan Krell
Copyright © 2011

This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.

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Negotiating home repairs

During the housing boom last decade, it seemed as if problems that killed real estate deals were rare. Appraisals almost never came in low, and if it did the buyer gladly paid cash for the difference between the sales price and the appraised value. Loan denials were also rare, because mortgages were easier to obtain. And of course, the home condition almost never seemed a problem because many people forwent home inspections.

Today, however, buying and selling a home feels different than it did in those halcyon days. Although the process remains the same, the rules have somewhat changed. Buyers are more apt to ask the seller to address issues that arise along the way, including problems with the home’s condition. Both the buyer and seller need to be aware of property condition issues that may arise as well as being prepared when encountered.

Home buyers are looking for their perfect home, while sellers already view their home as such. Because of this subjective view, it seems as if home buyers are “walking away” more often these days because they cannot come to terms with the seller on property condition repair items.

Home sellers generally have progressed over the last few years such that they are more open to a buyer’s request to address reasonable and necessary repairs. However, it is not uncommon for repair negotiations to end in a “take it or leave it” scenario when the buyer’s request is deemed excessive by the seller.

The termite inspection can also create tension between buyers and sellers, even though sellers usually treat infestations and/or repair resulting damage. Many buyers and sellers do not realize that the termite inspection is somewhat of a misnomer because the inspection not only checks for termites, but searches for evidence of any wood destroying insects (such as: termites, carpenter ants, and powder post beetles) as well as reporting damage. Infestation of termites and other wood destroying insects can occur anytime in the life of a home; if left untreated, an infestation can feast on a home leaving behind costly damage and in cases left untreated for many years- possibly an uninhabitable home.

Another source of a property condition inspection, that most buyers and sellers are unaware of, originates from the buyer’s lender. Mortgage lenders require the home to meet minimum condition standards, which is reported on the appraisal; the appraiser will “inspect” the home for the lender. For conventional mortgages, the appraiser will rate the overall condition as well as possibly noting condition flaws (such as structural deficits and utility connections). A poor rating will typically raise a red flag for the underwriter to require repairs prior to closing.

FHA and VA appraisers not only rate the home’s condition, they will also list all deficiencies that do not meet minimum underwriting condition requirements to be addressed prior to closing. The list of deficiencies is provided to the buyer, who in turn typically addresses with the seller. The seller can agree or refuse to make repairs; however, the contract is sometimes voided when neither the buyer nor seller agrees to make the repairs.

When it comes to property condition repairs, buyers and sellers should be prepared for extra rounds of negotiations. However, surprises and further negotiation can be minimized if both sides are prepared and understand the scope of the required property condition repairs.

By Dan Krell
Copyright © 2011

This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.

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Should you buy a home?

Last year I attempted to answer the question everyone was asking, “Should I buy a home in today’s economy?” (see: Is now the time to buy a home? The question continues to be as legitimate (or more so) today than it was a year ago.

The recent big surprise (or not) is the increased chatter about a double dip recession. Unlike last year’s mixed economic data and discussion of a sluggish economy, recent economic data suggest continued angst on many fronts, including housing. Unlike previous years’ economic hardships, when stimulus plans and tax cuts encouraged optimism; recent housing data may not only fail to illicit optimism, but has many experts talking about a deeper recession- or even a depression.

But there are bright spots as well!

Although we have not yet reached the levels to declare an economic depression, consider that Zillow (Zillow.com) reported in January of this year that the decrease in national home values from November 2010 further pushed the fifty-three month decline of the Zillow Home Value Index to 26% from the all time high in 2006. Zillow pointed out that the 26% decrease from the all time high in home values exceeds the 25.9% decline of home values between the “depression-era years” of 1928 and 1933.

Further adding to the buzz in the housing industry is the most recent S&P/Case-Shiller Home Price Indices (standardandpoors.com), released May 31st. Analyzing housing data through March 2011, the conclusion was that nationwide home prices are now where they were in 2002. Data indicated that the U.S. National Home Price Index fell 4.2% during the first quarter of this year; compared to the first quarter of 2010, the index revealed an annual decrease of home prices of 5.1%. The Washington DC region was the only city in this press release where there was a quarterly and annual increase in home prices.

Unemployment continues to be a drag on the economy. Solving this issue might very well be the key to solving the continued housing doldrums. A study conducted by the Florida Realors® (“The Face of Foreclosure”; floridarealtors.org) points out the correlation between unemployment and foreclosure. The April 6th 2010 press release quoted, Florida Realtors® vice president of public policy, John Sebree, as saying “”…In most cases, it was a combination of rising living costs, unemployment or decreased pay, health issues and other factors that caused homeowners to get into trouble. Simple answers and trite political responses just don’t tell the whole story.”

Renting is the other side of the housing equation. Although renting is becoming trendy, it is also becoming more expensive. Trulia’s (Trulia.com) most recent rent vs. buy index of second quarter data, released April 28th, indicated that buying a home is more affordable than renting in 80% of the major cities polled! It was more expensive to buy a home compared to renting in the Kansas City, Fort Worth, and New York City regions of the country; the Washington DC region was rated as one of the areas where it was “Much Less Expensive To Buy Than To Rent.”

Home ownership is not for everyone. If you’re thinking of buying a home, consider that timing the market typically yields mixed results. A better approach to home buying is reviewing your long term plans and goals with your financial planner; as well as a keeping tabs on the local market with your Realtor®.

By Dan Krell
Copyright © 2011

This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.

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Disaster prepardness

The seemingly daily reports of floods, tornadoes, and severe weather events are a reminder that we should be prepared for disaster. Although we may not live in “tornado alley” or by the shores of the Mississippi, we do experience our share of natural and man made disasters.

Most people don’t typically go about their daily lives thinking about how to protect their homes and family from a tornado, hurricane, or even- zombies; however, taking the time to be prepared when a disaster strikes could mitigate your losses as well as possibly improving your recovery efforts.

Disaster preparedness at home

The Federal Government offers many resources to assist in disaster preparation. Agencies such as the Federal Emergency Management Agency (FEMA.gov), the Department of Homeland Security (dhs.gov), and the Centers for Diseases Control (cdc.gov) have preparedness programs that offer public education, training, and resources. Additionally, multi-agency programs such as Citizen Corps (citizencorps.gov) maintain local offices to assist volunteers as well as providing local education and response efforts.

One of the most widely offered free preparedness guides is published by FEMA. “Are You Ready? An In-depth Guide to Citizen Preparedness” (which can be downloaded at: disasterassistance.gov) is an instructional guide to preparedness, response and recovery. The guide is not only an informative manual on preparing and protecting your home and family from disasters, it is also a guide to help you recover from a disaster.

The guide recommends that you have a preparedness kit and a disaster plan. Among the pages of FEMA’s “Are You Ready?” is direction on securing your home, preparing a meeting place and/or an escape route, preparing anyone with special needs (i.e., dietary, medical, physical, etc), as well as caring for pets.

You most likely have some type of home owner’s insurance (or renters insurance if you don’t own a home) to help you recover financially from a disaster related loss. Because many home owners don’t know the extent or limitations of their insurance coverage until it’s too late, experts recommend that you review your home owners’ insurance policy with your insurance agent (or insurance company representative) to make sure your coverage is up to date and is able to replace your home and/or possessions in case of a catastrophic loss. Having the proper coverage may help you recover from a disaster quicker than those without coverage.

The American Insurance Association (aiadc.org) offered these tips for home preparedness and recovery in a press release issued during last years’ hurricane season (Sept 2010): Home preparedness can be achieved by: securing doors and windows; ensuring that exterior doors should have at least three hinges and a deadbolt length of at least one inch; replacing older garage doors and windows for systems that are certified for wind and impact; considering storm shutter installation; repairing any cracks or leaks around windows, doors, roof, exterior walls and foundation; ensuring that gutters and downspouts are secure and can drain water at least five feet from your home; inspecting the roof and repair if necessary; removing loose debris from around the home; removing dead or dying trees and shrubs; trimming back tree limbs from your home’s exterior and roof; compiling an inventory of your home’s contents by taking pictures or video.

To get your attention about preparedness at home, the CDC published a recommended preparedness kit (“Preparedness 101: Zombie Apocalypse”; blogs.cdc.gov/publichealthmatters/2011/05/preparedness-101-zombie-apocalypse).

by Dan Krell
© 2011

This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.

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