In some real estate markets, the close-in DC Metro area being one of them, the market is strong enough that sellers will not accept an offer contingent on the sale of the potential buyers current home. Sellers figure in a strong market, why should they accept an offer based on a buyer that has a house to sell, and who knows if the buyers are realistic, will price it to sell, and will do all the right things to market and sell it quickly. So sellers wait to get a non-contingent offer, because they know one will come along soon enough.

As a result, I get some buyers who ask me to get them qualified to buy a new home, without the new loan being contingent on the sale of the current home they own. I get asked if bridge loans exist so that they can get the equity out of their current home to use as a down payment on the new home they want. A bridge loan is a loan made based on the equity in the current property owned, that will give the buyer the cash to buy a new home without selling it. I don’t know anyone doing bridge loans anymore, but you can possibly get a home equity line on your current home. But there are two problems with that:

1. Banks lending money for home equity loans want to know you plan to stay in the property, and that you will use the money for renovations, investment, etc. If you said you were going to sell the home soon, and only wanted the money temporarily, they would know they were being used as a bridge loan, and would deny the loan. It takes a lot of effort and money to originate, process and setup a new loan. So to have it paid off in a few months, as a bridge loan would be, is of no use to a bank. There is no profit in offering short term financing. And if you chose not to tell a bank you were applying for a home equity line at that you were moving out, they may find out anyway, if your property was on the market for sale, for example. All underwriters have access to the local Multiple List systems and will check to see if a property is on the market for sale.

2. If you manage to obtain a home equity line, it is fairly rare to find that a potential buyer can carry all that debt. There is the mortgage on the current property, the equity line on the current property, and then the mortgage on the new property. You would have to qualify carrying all that debt, as well as any other debt (car loans, school loans, credit cards, etc.); and not many people can.

So unless you have a substantial income and can carry all the above referenced debt, it is hard to make a non-contingent offer, because bridge loans do not exist, and home equity lines are hard to get when you are moving out of your current home, and its hard to qualify carrying all that debt.

The next option is to double move. This means sell your current home, move into temporary housing, then find a new home. With your home sold you would have already realized your cash gain and can make a non-contingent offer. Of course, many potential buyers push back on this idea because no one likes to move twice, once to short-term housing, and once again to the new house you eventually find.

But there are no other options usually, unless you have a rich Uncle that can pay cash for a new property for you, and you can pay him back when you sell your old house, and then put a mortgage against the new house. When in a strong real estate market, which I realize are rare in this country currently, you will find yourself possibly having a difficult time if you still have a home to sell.

Going dark. All salespeople have experienced this, no matter how good. You educate a potential client, you spend hours and hours with them answering questions, you create a relationship, and you truly seek to help them to earn your commission. And then it happens, they go dark. No contact. No return calls. No email reply. No nothing. It is eerie. You start to wonder what you did wrong. Did I say something wrong? Did I not return a phone call? I thought we were about to close a deal! Where did they go? Are they OK? Are they sick? Maybe they are just out of town, yes, that’s it, they are out of town. For three months? No, can’t be. After enough time you realize they went elsewhere with their business, likely to save a few dollars, and they feel guilty that they milked you for countless hours of free consultation and work only to go elsewhere to save a little. They went dark because they are too embarrassed to tell you directly that they have gone elsewhere after running you ragged.

Here is my issue, and I am obviously going to side with the salespeople since I am one: FIGURE OUT WHO YOU WANT TO WORK WITH FIRST, AND THEN USE THEM FOR HOURS AND HOURS, AND MONTHS AND MONTHS, AND MAKE THEM EARN THEIR FEE!

It is pure laziness to use a service provider only because they are professional enough to always return your calls, provide excellent information, and then only later decide that its time to shop price right before its time to commit. This problem happens so much, that if people would stop this abuse, the GDP would skyrocket 2% per quarter for a year, due to all the increased productivity by salespeople using their time for productive efforts instead of for clients who abuse them and then go dark. I’d guess I waste 15 hours a week, which is 780 hours a year, which is 19,500 hours over the 25 years I have worked as an adult. Do you have any idea how much money that 19,500 hours is worth? It’s a lot. I could retire on it.

Dear clients, a request from all service providers: Stop. Slow down. Think. Ask a lot of questions about experience, unique abilities, price, service, teamwork and background; and then make a choice. We have no problem with you going elsewhere for someone you did your research up front on and think is a better provider. But don’t go dark and go elsewhere with no explanation. Do the right thing and pick wisely up front. Then, and only then, should you start to ask a service provider questions and to do things for you.

And if you have used a service provider recently and gotten good information only to go elsewhere later, don’t go dark. Be professional, contact them and explain your actions, apologize for not deciding sooner. And if you think they deserve it, tell them you will remember them and will try and steer referrals their way in the future.

The Good Faith Estimate (GFE) is one of the worst ways to compare lenders. I must get asked for a GFE 10 times a week, and 10 times a week I try and explain that using a GFE is the wrong way to compare lenders. Below are a few reasons why:

The GFE is one of the most poorly designed forms, designed by government bureaucrats, ever conceived. There was a survey done for a large bank that found that 53% of buyers who looked at the GFE spent very little time doing so. 26% either never looked at it or don't know whether they looked at it. 49% of buyers said the GFE disclosure was too complicated, "a waste of time" or they weren't sure. Just 37% rated it useful. The form used to be a one page form for decades up until recent changes mandated by the Federal Government. Now the form is three pages, somehow with less data on more pages, and its way more confusing than before.

And the most important thing is that when comparing the loan options of different mortgage lenders, you have very few things to compare. What you should be asking is simply:

-what is the interest rate?
-what are the lender fees?

That is it. There is no need to even see a GFE. The GFE has a lot of other fees and monies on it, that are not dictated by the lender. There are fees that are controlled by a title company, or by a state/county/city (like property taxes or recordation tax). For example:

Loan Option #1
30 Year Fixed Rate, 4%
LENDER FEES:
0 points
$895 underwriting fee
$400 loan processing fee
$450 appraisal fee
OTHER:
$800 title company fees
$2,500 title insurance
$3,200 property tax escrows: 8 months at $400 a month.
$1,500 per diem interest: 30 days worth at $50 per day.
$2,000 recordation tax to the county
$11,745 total

Loan Option #2
30 Year Fixed Rate, 4%
LENDER FEES:
0 points
$895 underwriting fee
$400 loan processing fee
$450 appraisal fee
OTHER:
$750 title company fees
$2,300 title insurance
$2,400 property tax escrows: 6 months at $400 a month.
$500 per diem interest: 10 days worth at $50 per day.
$2,000 recordation tax to the county
$9,695 total

Loan Option #2 is the best one, correct? You should pick the lender offering option #2, right? Congratulations on being a smart shopper, right? No. Wrong. These two loan options are exactly the same. If you chose option #2 you chose the better salesperson, not necessarily the cheaper option or the better mortgage professional. Here is a breakdown of why:

30 Year Fixed Rate (the exact same loan type is being offered)

4% (the interest rate is the same on each option)

0 points (the cost is the same at 0 points on each option)

$895 underwriting fee (this fee is the same for each option)

$400 loan processing fee (this fee is the same for each option)

$450 appraisal fee (this fee is the same for each option)

$800 title company fees (there is a 10% variance for mistakes allowed on title fees, and this is a fee the title company controls, not the lender, the lender can fudge it down as happened in option #2, and that will help the lender make his option sound as if it were the cheapest).

$2,500 title insurance (there is a 10% variance allowed on title fees, and this is a fee the title company controls, not the lender, the lender can fudge it down as happened in option #2, and that will help the lender make his option sound as if it were the cheapest).

$3,200 property tax escrows: 8 months at $400 a month. (How many months of property taxes need to be collected to establish the escrow account is a big guesstimate, it will vary depending on what time of year you are settling, and is not one of the fees a lender is responsible to be accurate on; so you can fudge this quote downward, but it may indeed be a higher figure in reality, and the buyer will have to pay that higher figure, but you will have chosen a lender based on a fudged number).

$1,500 per diem interest: 30 days worth at $50 per day. (same concept as with the above on the property tax discussion).

$2,000 recordation tax to the county (this is a fee that most lenders have to be accurate on, and are good at being accurate on).

All you have to ask a lender is what is the rate, and what are the lender controlled fees, and that is it. That is all you need to know when deciding what lender to use. Then, when you choose a lender, you can expect a complete GFE, but realize it may not be anywhere near accurate due to the above reasons. If you really want to compare apples to apples on the loan choice, a Good Faith Estimate is not the tool to use, because the GFE has other costs in it that are not in the control of the lender. It is also a very confusing form, made more confusing in the last few years by the Feds.

Simply compare rate, appraisal fee, document preparation fees, and any other lender fees. Then always consider the experience of the individual loan officer, what type of lender you are working with (use of mortgage brokers and big banks is drastically on the decline, while use of direct lenders has been the preferred choice), what the estimated turn times are, whether or not your source was referred, and whether or not you have a general comfort level with the loan officer you have been talking to.

One thing that gets a lot of people in trouble with their credit scores is a past due account, also known in the industry as a collection or a collection account. These collection accounts stay on your credit report for 7 years. That is bad enough as it is, but it gets worse. Let's assume you have an outstanding five year old collection for $250 on a credit card. These past due accounts are usually sold off many times to different collection agencies that buy the debt for a fraction of what is actually owed and then they try to collect. This is one of the largest profit margin businesses going currently. If you buy a five year old $250 outstanding debt for $15, and then collect $30 of it, the collection agency has a 100% profit margin on that collection!

Credit scoring algorithms mainly focus on the last two years of credit history in general. So in our example, this collection account is still a negative and will hurt your credit score, though it is not as important since its five years old. The last couple of collection agencies that own the debt are usually smaller, less than reputable companies, and usually use scare tactics to get you to pay. They’re well aware that the debt will soon fall off of your credit report, so they get more aggressive as the collection account gets older.

Certainly a person can do the right thing and make payment to the collection company if they really owe the money, but there is a catch. These items stay on your credit report for seven years based upon “date of last activity”. So when you make even a small payment, it is going to start the clock over on the seven year waiting period. This means that if you make a payment years later, suddenly this old collection is going to look like a brand new collection again and stay on for seven more years. And, most importantly, your credit score will fall quite a bit because the credit scoring algorithms will treat this as a recent collection account.

I am not condoning the dismissal of outstanding bills, what I am suggesting is to work out issues like this ASAP, don't just throw your hands up when talking to creditors and tell them, "I don't care what you do, I am not paying the amount you think I owe." You have to come to a solution, and you have to do it quickly, or you will pay for it later.

I just heard that FHFA (Federal Housing Finance Agency) has implemented a hike to the Fannie Mae/Freddie Mac guarantee fee. This is the fee that the GSE's (Government Sponsored Enterprises) which are now actually GOE's (Government Owned Enterprises) pays to the government for their backing. They raised this fee to pay for the Temporary Payroll Tax Cut, signed by President Obama! The announcement said specifically:

The two-month extension of the Temporary Payroll Tax Cut, signed by President Obama December 23, holds immediate implications for the GSEs. The law requires the Federal Housing Finance Agency (FHFA) to increase Fannie Mae’s and Freddie Mac’s guarantee fees by at least 10 basis points over the 2011 average for all single-family, mortgage-backed securities. The increase will be remitted to the U.S. Treasury, rather than retained as reserves by the Enterprises. The law goes into effect immediately. The FHFA must also create a schedule of guarantee fee increases over the next two years. Uh oh, look out. So this means interest rates can go up, because fees go up. Usually interest rates go up because the market pushes them up, but now they are going up because the government is looking to pay for a giveaway! Outrageous! We should all be howling. While the administration is taking credit for this payroll tax cut, it's paying for it on the backs of homeowners over the next several years!

Because of this, I have seen banks already increased their pricing to incorporate this added fee, which looks like it may be as much as 1/8% in interest rate. So some mortgage clients may have noticed interest rates have gone up a bit overnight seemingly. Now they know why.

This deal to increase mortgage fees essentially pays for the ongoing payroll tax holiday through additional fees collected through the GSE’s over the next 10 years, projected to be about $ 70 billion. So the current payroll tax holiday is being subsidized by additional fees on current and future homeowners. This issue is buried, and I highly doubt many people are aware of this. Anyone else mad?

2011 was a difficult year in the mortgage business. We are all still standing, and you can still get mortgages, but it is not fun. I would like to make some 2012 mortgage predictions:

1. Fannie Mae and Freddie Mac will raise the down payment requirement for investor loans from 20% down payment to 25% down payment.

2. Fannie Mae and Freddie Mac will raise the equity requirement for investor refinance loans from 25% to 30%.

3. The incumbent Democratic President will win re-election, but the Republicans will take back the Senate, further housing policy stalemates will ensue.

4. People will cancel their cable TV subscriptions in droves, and will replace it with a TV antenna for local channels, and various internet fed entertainment like Hulu, Netflix, AppleTV, etc. How is this related to the mortgage business? It is not.

5. Apple without Steve Jobs will still be Apple, but we'll all miss him. How is this related to the mortgage business? It is not.

6. Local, State and National governments the world over will realize they took it too far, and now can't pay it back. The inevitable downsizing will follow. How is this related to the mortgage business? Because Fannie Mae and Freddie Mac are controlled by the government now, government's role in mortgages will change as a result. It may grow, or it may recede, but it will change.

7. Interest rates will be about the same all year, they may rise a small amount. Good news in that mortgage money will remain cheap!

8. Obtaining a mortgage will remain a messy proposition, but not impossible. Patience is rewarded. High loan-to-value loans are still available, don't be shy.

9. A Republican controlled Senate and House will not do away with Fannie Mae and Freddie Mac, but they will not pass the Conforming High Balance loan limits of $625,500 into 2013. 2012 will be the last year for these loans from $417,001 to $625,500. Get em while their hot.

10. I will narrowly avoid quitting my job to go sell tacos out of a roadside truck, and will decide to stick around, and continue to do mortgages since its all I know.

Have a great 2012 everyone!

Across the nation potential homebuyers have sat on the sidelines in fear or waiting for home prices to drop more. And in many real estate markets I get that. Prices have been dropping, and jobs remain a concern for some people. Those are issues not to be ignored. However, there are several issues I take with sideline sitters.

One, prices in most markets are very sticky, meaning prices do not correct downward 30% overnight. If you are expecting a big drop, you had better plan on waiting a long time. That means 5-10 years, not one year. And that means being a renter a long time, losing out on tax breaks a long time, and being subject to the whims of your landlord, with possible multiple moves thanks to being a renter.

Two, we have already seen big drops in many markets, if you are waiting for a 30% downward price drop, and we have already seen 20% – 25%, do you really think you can be a brilliant market timer and nail the timing perfectly to get the last 5% – 10% (if its even coming)?

Third, there are some markets that are stable, and a few that are even positive! Yes, the Case-Shiller national home price index decreased between 1.1 percent and 1.2 percent in 2011. House prices have been falling in general for about 5-6 years. However, Detroit and Washington, DC posted increases in house prices in 2011. Detroit's good news is likely due to the fact that its real estate values were pummeled by 45%, and possibly have nowhere to go but up at this point (or at least stay stable). Washington DC has good news more based on the reality of the strength of its local economy, jobs market, etc. You'd have to believe the federal government is going to magically and voluntarily downsize, and dramatically, for real estate to begin to have a gloomy outlook in Washington DC. And there are numerous other positive things going on in Washington DC besides the growth of the federal government.

Real estate values are driven in part by average annual salaries, and salaries were not hyper inflated from 1999-2005 during the real estate boom like real estate prices were. Any rookie economist could have told you the real estate boom would not end well. There was no basis in reality for real estate prices to do what they did, and I said this every year through the early and mid 2000's, and was told I was a fool.

So did real estate prices have to correct? Yes. Are all real estate prices local? Yes. Do you need to analyze lots of different data, like job growth, population growth, etc? Yes. Should you buy in a market that has shown strength, or at least stability? Yes. Should you avoid buying in some markets still? Possibly. It depends on how badly you need a house. If you are a family, renting is not a good option, so maybe being a market timer and waiting longer is foolish. Maybe you should simply buy, just make sure you buy the right home for you and can stay for the longer haul if needed.

The bottom line is that there are a lot of moving parts to deciding if buying a home is right for you. In a weak market that clearly has more room to fall, you may be a genius by waiting. In a stable market or a market that has already been beaten up, it may be time to dive in. In a strong market, like Washington DC, you will be a renter for a long time, and may end up looking foolish, if you decide to wait and time the market.

Happy holidays and a happy and successful new year to us all! This is always the time of year we look back on the year that has passed, and more importantly, we look forward to the new year and we make our new year's resolutions. I'd like to make some resolutions (business and personal) for the new year. And here they are for 2012:

1. I will be more focused on my health, work on my core strength; and help support my back which has taken a beating due to poor work habits, poor posture and irregular exercise.

2. I will always strive to deliver the best pricing I can deliver to the client, while delivering the efficiency and execution people demand (efficiency and execution is not free folks, don't forget). The lowest price usually means the poorest service, and I will strive to be the lowest price or be very close, while still achieving unparalleled service. I won't ever work for a cheap, low cost provider and put my clients through that torture and delay, or even worse, an undeserved loan denial.

3. I will take walks (good for the back, soul, and to clear your mind and think free thoughts).

4. I will always have the latest technology, like Loan Tracking, LoanSifter (helps me shop rates for the consumer), Mortgage Returns (helps me identify refinance opportunities for my clients), and Solve (the latest database software which helps me identify your needs and stay in touch).

5. I will stop buying all the latest tech gadgets (this resolution I may break).

6. I will always work for a Direct Lender, who has control over the process, and has in-house underwriting, loan processing, loan closing dept, and some control over appraisers (see #8 for more on this).

7. I will eat less dessert. Food is only fuel, I need to stop being a slave to my taste buds.

8. I will always work for a direct lender that has some input over the appraisal process, to avoid the nightmare of low-ball appraisals from appraisers that come from way outside the marketplace. This can often happen with a mortgage broker who has no control over appraiser selection, or even a big bank who use massive Appraisal Management companies that are populated with hundreds of appraisers from all over the map.

9. I will smile at people more often.

10. I am seeking multi-state, or even 50 state licensing in 2012, so that I can help my clients no matter where they move in the country.

11. I will have more meaningful conversation with people.

12. I have hired and will retain a team of assistants, to better serve the client, and make sure no issue is missed, and all deadlines are met.

13. I will travel more (which will only be doable thanks to #12), life is too short to sit at my desk all the time.

14. My website will always be up to date and full of the latest tools and content to truly help the consumer, as opposed to most mortgage websites which are simply glossy ads designed to get people to contact them and be pitched something, offering little functionality and almost zero educational content.

15. I will make time to paint.

That's it for me this holiday season, and those are my real, honest 2012 resolutions. I'll be writing again soon, stay tuned for 2012 mortgage news, stories, tips and drama!

Santa versus The Grinch represents so many different scenarios in life, good versus evil, positive versus negative, tortoise versus the hare…..an on time mortgage transaction versus a delayed one. Huh? Wait. What does Santa and The Grinch have to do with the mortgage process?

Since its the holiday season, I thought I'd use Santa and The Grinch to demonstrate how a mortgage transaction can go astray, or how it can happen smoothly and on time. It is not only up to the mortgage lender, it is up to every single party to the transaction to participate. Here is an idea of what I am talking about:

Making Loan Application:
The Grinch is too busy, self important, and urgently doing other Grinchy things. He will have to wait 3-5 days to fill out his loan application, plus he needs a few days off for a preplanned vacation.

Santa would drop everything, and be aware that he is under contract with a large deposit at risk, and the day his offer was accepted would complete his loan application at a pace quite brisk. This way he would ensure he would not be the reason for delay, not by one day, not in any way.

Returning the loan disclosures:
The Grinch thinks the loan disclosures are cumbersome, lengthy, and take too much time to review. He'll do it when he can, and that will have to do.

Santa would sign everything right away, realizing the appraisal cannot be ordered until the disclosures are returned. In this transaction he will not be the reason that anyone gets burned.

Sending in the supporting documents:
The Grinch thinks all this paperwork is unnecessary and absurd; he likes to make his own rules while flipping the underwriter the bird. He sends in bank statements with missing pages, illegible pay stubs, and sends it all in stages.

Santa understands the economy is tough and the rules are severe. He will send in W2's, bank statements and pay stubs, and will send them in on flying reindeer. All the documents are legible and complete, in one package, bound together quite neat.

Appraisal inspection:
The Grinchy listing agent is busy, important and has no time.

But the Santa listing agent would meet the appraiser at the drop of a dime.

I think you get the rest…

The bottom line is that when you wait 3 days to make loan application because you are too busy, and you wait 4 days to return your loan disclosures, and wait 2 more days to send in complete supporting documents; you do not get to be upset with anyone that settlement will be delayed by a day. I know of countless loan transactions where Grinch's want lender's to perform miracles and work faster, because they went slower.

If you engage in an important transaction like a home purchase, then be just that, engaged. It needs to be a priority, you need to put it first, you need to be responsible and take it seriously. Otherwise, when the day before settlement arrives who should be considered The Grinch when you are told your settlement will be delayed, the movers must be rescheduled, you must put your belongings in storage because the people that bought your home are still moving in your place on time, you must call the utility companies and reschedule those, and on and on. Is The Grinch the lender, or is The Grinch in the mirror?

There was some confusion as to how long the latest FHA loan limit increase is going to last, which I blogged about here. Was it through the end of 2011, or 2 full years through 2013, or just through next year and it ends 2012? So the verdict is in, and the latest FHA loan limit increase expires at the end of 2012. So come December 2012, there will be another political fight, and another decision to temporarily fix something.

The official language from FHA is below:

"For FHA mortgages with case numbers assigned on or after November 18, 2011 through December 31, 2012:
The FHA Floor and Ceiling loan limits will remain the same as those that were in effect from January 1, 2011 through September 30, 2011, as announced in ML 10-40."

The loan limits in affect January 1 2011 through September 30, 2011 was as high as $729,750 for high cost areas, so this is what remains in affect until the end of 2012, not through 2013.

It seems all our political decisions these days are temporary, whether related to spending, tax cuts, political appointments, loan limits, entitlement reform, health care, etc. I am not sure how the geniuses at the top of our government expect individuals, families and businesses to make long range decisions and plans when every decision is a short term one. But maybe they know something that I do not….

So get it while its hot, FHA loans up to $729,750 through December 2012, hurry, hurry, hurry!