Real Estate News and Commentary

December 2, 2009October 5, 2019

A step backward for affordable homeownership?

In a press release circulated on Monday, November 30, the FHA announced new proposed rules to “Strengthen Risk Management.” The proposed changes include increasing financial worth of FHA lenders, tighten underwriting requirements for borrowers, and require FHA lenders to take on the liability for the loans they originate.

FHA has a history of providing low down payment mortgages to millions of home owners since 1934. FHA sparked the resurgence of a very flat housing industry when it was created by providing affordable mortgages with acceptable terms at a time when mortgages had very stringent underwriting guidelines as well as very harsh terms. . FHA has played a major role in subsequent recessions and housing downturns to help stabilize the marketplace by assisting cash strapped home buyers purchase their first home.

FHA’s role in the housing industry has undoubtedly increased the value of homeownership by making homeownership affordable. Unfortunately, it seems as if FHA is another victim of the financial crisis as it no doubt suffered losses by bailing out troubled home owners through such programs as HOPE for Homeowners.

In a time when home buyer sentiment is wavering, increasing financial and credit requirements for potential home buyers will further diminish the value of homeownership. Increased financial and credit requirements in a time when recessionary forces have already reduced home buyer resources will undoubtedly affect the recovering real estate market and shift the consequences of the financial crisis to many potential home buyers by making home ownership less affordable.

This article is not intended to provide nor should it be relied upon for legal and financial advice.

November 30, 2009October 5, 2019

Overcoming the new obstacles of selling your home

The 2008 National Association of Realtors Profile of Home Buyers and Sellers reports that 93% of home buyers surveyed indicated they financed their purchase (Realtor.org). Real estate agents have become accustomed to and usually can anticipate most hurdles that came with a typical transaction; agents can usually prepare home sellers for home inspections, FHA appraisals, and shaky buyers.

These days, however, home sellers may feel as if they are trapped in an obstacle course. If finding a home buyer isn’t enough, home sellers are finding that closing the deal is getting more difficult as changes in the mortgage industry creates new obstacles.

Changes in home buyer sentiment and mortgage underwriting guidelines have created a new trend – uncertain closings. A continued disparity between the price home sellers are asking and what home buyers are willing to pay, along with increasingly tightening mortgage guidelines and indeterminate appraisals would make any home seller skittish.

Tightening mortgage guidelines are increasing the pool of unqualified home buyers, while questions of home values have made some closings problematic. Such obstacles have forced some real estate agents to using creative techniques to get their clients to close; some of these techniques have not been used since the 1980’s, when lenders also tightened underwriting guidelines in the wake of the S&L crisis.

One technique is the use of seller financing and land contracts. Home sellers looking to sell to a home buyer who does not qualify for a mortgage and/or get a higher sales price can possibly bypass the mortgage lender by offering seller financing. Once the note is consummated, the seller may decide to sell it to an investor; there are many investors who specialize in purchasing private mortgage notes.

Seller financing is not for everyone. Besides the fact that many home owners need the proceeds of the sale to purchase another home, it requires the seller to assume the risk of the home buyer defaulting. Additionally, sellers looking to cash out their notes may only get a percentage of the sale because investors purchasing these notes usually offer a percentage of face value. If considering seller financing, it is a good idea to consult an attorney to assist you and ensure you comply with local and federal laws.

Another creative technique that is gaining in popularity is “permanent” home swapping. Home swapping has been around for a long time, and has been popularized as a means of ensuring short term accommodations for vacations and sabbaticals. In fact, home swapping has become more chic as evidenced in its use in a recent episode of “Million Dollar Listing” (Bravo Channel; www.bravotv.com/million-dollar-listing) when two parties liked each other’s properties but couldn’t agree on terms. Due to an increasing number of home sellers consider permanent home swapping, more resources are becoming available to identify like minded home sellers. Of course, an experienced attorney should be consulted to facilitate such a transaction.

Although market conditions continue to stabilize, home sellers are encountering new obstacles to selling their homes. Real estate agents and home sellers are increasingly considering alternative and creative means to overcome problems. Before you embark on non-traditional means to sell your home, consult an attorney and other professionals for information that will help you determine if creative home selling is for you.

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of November 30, 2009. Copyright © 2009 Dan Krell

November 28, 2009June 27, 2019

Can you know your real estate agent by the car they drive?

Want to know a little about your agent, check out their car- right? When the market was hot earlier this decade, it seemed as if many real estate agents were driving some sort of Mercedes, BMW, and Lexus. So, at that time it was interesting to see what type of Mercedes or BMW being driven. Many of my colleagues drove the “S” class sedan, while some drove the less expensive “C” class. Of course, most of the cars were black, but I remember a few white and silver ones too. Of course, there were also agents who drove Hummers, land rovers and an assortment of SUVs. And of course, many drove and still drive their Camry’s.

According to Kathleen McCleary (The Car You Drive: USA Weekend Edition; 10/20/2002), a car says a lot about person’s personality (www.usaweekend.com)

The problem with ascribing a personality trait to a real estate agent because of the car they drive is that just like the clothes they wear and smile they put on when they leave their home, many agents want their car to personify a successful personality they may want to express to the public (sometimes making up for what they lack). Whether or not your agent is successful, if they drive a luxury car they want to let you know that they are successful (or at least they want to be). Of course, whether or not they can afford a luxury car, many agents opt to drive more practical cars- probably because they are sensible about money.

What does a car say about your agent? Success? Power? Assertiveness? Maybe and maybe not. Your agent’s car may tell you more about their station in life or personal aspirations than their ability and inter-personal skills. The agent’s car may scream practical, yet they’re a negotiating bull dog; or they may drive the latest Mercedes, yet not be a very effective agent. Judging a book by its cover may not yield you an accurate picture of your agent; you may not get a true picture of your agent until you see them in action!

So, what does your agent drive?

November 27, 2009October 5, 2019

Is this a valid offer or a scam?

These signs are all over the Silver Spring area. The sign reads: “Learn to make $$ in real estate in today’s market…” Given that these signs are handmade, written on poster board with marker on a wood tacking strip- you have to wonder how much money these guys are actually making in real estate!?

Is it a scam? I haven’t called the number on the sign, so I don’t have enough information to make a judgement on the offer. But, given the amateurish signs and unlisted phone number make me wonder about the validity of the money making claim and business. In general, the fact that many people are drawn to offers to make money will most likely make scam artists busy.

Before embarking on such endeavors, it is probably a good idea to call Montgomery County Office of Consumer Protection (240.777.3636), or the Maryland Attorney General-Consumer Protection Division (www.oag.state.md.us/consumer) to ask about such “money making” offers or businesses.

I’m curious, has anyone else seen these signs (in MD or elsewhere?) What do you think?

November 24, 2009October 5, 2019

The link between employment and home ownership

It became very clear this past summer that rising unemployment was inhibiting attempts in stabilizing the real estate market. Efforts in reducing rising mortgage defaults through government interventions seemed to be a reactionary response rather a forward looking model. Ruth Simon and James R. Hagerty were to the point in their Wall Street Journal article entitled, “Unemployment Vexes Foreclosure Plan” (June 26, 2009), saying that government foreclosure programs were a response to the poor lending practices which led to the sub-prime crisis. Until recently, foreclosure prevention programs were primarily focused on modifying payments, lowering interest rates, or a combination of the two.

As unemployment has crept higher through the third quarter of 2009, foreclosures rates continue to climb. The U.S. Bureau of Labor and Statics (bls.gov) reported that the unemployment rate for October rose to 10.2% (the highest since 1983). Although Maryland’s unemployment rate rose to 7.3%, the unemployment rate in Montgomery County was reported in September to be 5.3% (dllr.state.md.us).

Meanwhile, the Mortgage Bankers Association (mbaa.org) reported on November 19th that delinquencies and foreclosures increased in the third quarter of 2009. The MBA press release reported that the increase in delinquencies and foreclosures are not in sub-prime mortgages, but rather driven by prime fixed-rate loans and FHA mortgages.

Although many economists predicted unemployment to continue long after the recession was declared technically “ended” in September, MBA’s Chief Economist, Jay Brinkmann, stated in the MBA November 19th press release, “Job losses continue to increase and drive up delinquencies and foreclosures because mortgages are paid with paychecks, not percentage point increases in GDP. Over the last year, we have seen the ranks of the unemployed increase by about 5.5 million people, increasing the number of seriously delinquent loans by almost 2 million loans and increasing the rate of new foreclosures from 1.07 percent to 1.42 percent…”; essentially, the foreclosure rate increased by about 24%.

To his credit, Massachusetts Congressman, Barney Frank, has recognized the link between unemployment and foreclosure. His attempt to throw a life preserver to unemployed homeowners, possibly in the form of government loans to help preserve their homes, began in June. As reported in the Boston Globe (“As jobs remain elusive, foreclosures rise again” by Jenifer B. McKim, November 20, 2009), Congressman Frank will attempt to push through the measure to possibly offer loans to come from the $2 billion fund that was created with repaid TARP funds.

Employment and housing data continue to show glimmers of hope, only to be countered by further declines. This instability may be the reason why the Maryland Department of Labor, Licensing, and Regulation placed the statement, “…should be viewed with cautious optimism…” after the report of an addition of 1,500 jobs to the state in October (at a time when the state’s unemployment rate went from 7.2% to 7.3%).

Some experts look towards the second half of 2010 for employment to stabilize; others are not certain. However, the good news is that recession and growth periods are cyclical; so although we are enduring difficult times now, we are sure to encounter prosperous times again. Is it ironic that residential housing loosely mimicking the “boom-bust” cycles of the economy, often experiencing a positive bump after a major recession? No, because employment and home ownership are closely linked.