When Real Estate is listed for sale the listing contract calls for the seller to pay a set commission to the Realtor’s involved in the transaction regardless of whether that is one real estate agent or two. This means the seller has to pay the same real estate commission whether the property is sold directly through the listing agent or through a buyer’s agent.

As a home buyer you need to have your own representation – an agent specifically working on your behalf. Here are the top 5 reasons to have your own agent:

1) A professional working specifically in your interest and on your behalf to help you find the right home at the right price.

2) The Buyer’s Agent‘s fiduciary responsibility (their loyalty) is to his/her client (you). The Listing Agent has already signed a contract to represent the seller and their first loyalty is to the seller. How can they represent the seller and you at the same time and still get you the best price on the home?

3) A stronger negotiating position and better contract protection for you. You have a separate agent negotiating the price on your behalf with the seller. You also get an independent purchase agreement contract drawn up by your agent to protect you. Plus, your agent holds the earnest money deposit as opposed to the listing agent controlling your money.

4) More candid comparable sales and market transparency. You have your own agent showing you recent sales of similar homes so you can determine the correct offer price.

5) Having your own agent comes at no additional cost to you! The seller has to pay the real estate commission on the sale of real estate so it is costing the buyer nothing to retain the services of a professional realtor.

The bottom line is that it is foolish to not utilize the services of a trained professional Realtor to help you unlock the door to your new home. As a buyer, you have nothing to lose and everything to gain. So, if you’re in the market to buy a house the first step should be to find the right Realtor to work with!

Written by Ken Mascia
Prime Capital Mortgage, 248.644.1200
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1) The terms of the loan – Loan amount, interest rate and number of years to repay
2) The total costs of obtaining the loan broken down by mortgage costs and prepaid taxes, insurance and interest
3) The total cash needed to close including closing costs, prepaid items and down payment
4) The total monthly house payment including all taxes and insurance

Above is the old form Good Faith Estimate which covered all of the important information on one page – pretty efficient and I’d say, easy to understand.

<Here is Page 1 of the new GFE. The new form is 3 pages long. It does a good job of giving you the basic loan terms.

It loses ground on the monthly payment as it only shows the principal and interest payment on the loan and does not tell a borrower what the total monthly cost of the home is including taxes and insurance. This is a very important number!

At the bottom it gives you “Total Estimated Settlement Charges”, however, this figure includes things that, in Michigan, a home buyer generally does not pay for, and as a result, overstates the settlement costs (in my example the costs are overstated by $2,796 – quite a large amount!)

This is the Page 2 of the new Good Faith Estimate. This page is right on the money except for two items.

1) HUD has stated that the cost of Owners Title Policy should be listed regardless of who pays for it. Why, I ask? If the buyer is not paying for it, it should not be included in the settlement charges to the buyer.
2) Transfer Tax also must be included in the buyer’s settlement charges. In Michigan, the seller pays the transfer tax (in 99 out of 100 cases).

So, when you get to the buyers total Settlement Charges they are overstated, as I mentioned above, by $2,796! Maybe it’s just me, but, shouldn’t we stick to telling the buyer specifically what they have to pay for? Why not include the seller’s real estate commission here too?

Finally, Page 3 of the new form. This page summarizes the loan terms, loan payment and total estimated settlement charges. It also gives the buyer a table where they can write in offers from different lenders so they can make comparisons. This page could be pretty handy. I like it.

It also lets the borrower know that the Lender is required to honor their stated Origination Charges and that other specific settlement costs cannot change by more than 10% at closing. I actually love this because it keeps unscrupulous loan officers from quoting low costs and then increasing them at the last minute due to some contrived change in the borrower’s circumstances. Page 3 is a hit and the rules that go with it are great too.

In the final analysis, the New Good Faith Estimate should not include closing costs that the buyer does not pay. It should include the total payment including property taxes and insurance so a borrower can evaluate if they can afford the home. It also should tell a borrower what their total cash to close is including only their closing costs, all property taxes and insurance and the down payment so they are prepared for what they will be required to pay. My question – Why change a 1 page form, which has all of the necessary information on it, into a 3 page document which does NOT give complete and accurate figures to a borrower? Answer – Who knows? Your Federal Government in action. See you next time . .

Written by Ken Mascia
Prime Capital Mortgage, 248.644.1200
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The rules for the First Time Buyer Credit are mostly the same with a couple of variations. If an individual or couple has not owned a home in the preceding 3 years they are considered first time buyers. They would receive 10% of the sales price up to $8,000. The home being purchased must be a primary residence (no investment properties or second homes). Income limits have increased to $125,000 Single and $225,000 married. Also, there is now a limit on the cost of the new home and it is set at $800,000. The other change is that the credit is good for buyers who sign a purchase contract prior to April 30, 2010 but now you don’t have to close until June 30, 2010. So, as long as you have a fully executed contract prior to April 30th you’ll get the tax credit as long as the closing takes place by June 30, 2010!

New Tax Credit for Existing Homeowners Who Purchase a New Home! This is great news. The tax credit has been expanded to include people who own a home and want to buy a new one! If you own a home and have occupied it as your primary residence for 5 of the past 8 years and you purchase a new primary residence then you may qualify for a tax credit of 10% of the purchase price of the new home up to a limit of $6,500. You have to have a fully executed purchase contract between the date the President Obama signs the new bill into law (should happen in the next couple of days) and prior to April 30, 2010 to qualify. Otherwise, the rules are the same as the first time homebuyer tax credit.

This opens the door for a whole bunch of homebuyers to get a big fat check just for buying a house! If you’re interested in buying your first home or would like to upgrade your existing home now is the time to take action. Mortgage rates are low, homes are selling at great prices and combine these factors with a big tax credit and you have to conclude that there has never been a better time to buy a house.

Written by Ken Mascia
Prime Capital Mortgage, 248.644.1200
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1) First time homebuyers will receive a federal tax credit of 10% of the cost of the home with a maximum credit of $8,000. You get the credit when you file your tax return for the 2009 tax year. It is possible to file an amended return for 2008 and get the credit sooner though.
2) A first time buyer is defined as anyone who has not owned a home in the past 3 years (including spouse)
3) Property purchased must be used as a principal residence (no second homes or investment properties)
4) Tax credit is refundable or will offset existing tax liability. Whatever your normal tax refund is you would get that plus the full amount of the tax credit.
5) The credit starts to phase out for individuals making more than $75,000 per year ($150,000 for a joint return)T
6) There is no repayment of the tax credit. However, if the home is sold in the first 3 years the entire amount of the credit is recaptured on sale of the property
7) Tax credit is available for qualified buyers through November 30th of 2009
The main message here is that you have to find a home and close on it prior to November 30th to qualify for the tax credit!
There has simply never been a better time to be a homebuyer. Homes are selling at great prices, interest rates are very low and if you qualify for the tax credit the government will give you up to $8,000 in cash simply to get out there and buy a house. What are you waiting for? Time is running out!

Written by Ken Mascia
Prime Capital Mortgage, 248.644.1200
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Regulation Z is the old law regarding Truth In Lending disclosures. Prior to July 31st Reg Z required mortgage lenders to provide a Truth in Lending disclosure to all home loan applicants within 3 days of making a loan application. A good rule for consumers as your potential mortgage lender had to tell you about the total cost of obtaining the loan you were applying for and this would be helpful for you to make the decision as to whether you wanted to use that lender or not. Many lenders, my office included, would provide potential clients with a Good Faith Estimate and Truth in Lending disclosure prior to an application being completed so they can compare us to other lenders. This is just good honest business.

The new Mortgage Disclosure Improvement Act (MDIA) takes this in a whole new direction. The new rule basically expands in a couple of different ways which will have a significant impact on the length of time it takes to get a borrower from application to closing. The first is that a lender may not collect an appraisal fee or order an appraisal until the 4th business day after a Truth in Lending disclosure is issued to the borrower. Normally if a home buyer comes to me on a Monday to apply for a purchase loan and is in a rush to get the deal to closing we could order the appraisal on Monday. Under the new rule we cannot order the appraisal until Friday and so we basically lose a week right off the bat.

The second problem starts after the loan is approved and you want to close. Once the closing is scheduled we now have to send a new Truth in Lending Disclosure to the borrowers and allow a total of 6 business days for them to receive and review the disclosure before a closing can occur. So, if your loan is clear to close on Monday we could normally close as early as Wednesday. Under the new rule we have to send out a new disclosure Monday and allow 3 days for receipt and 3 days for review and the first day the loan can close is the following Monday – another week lost.

End result – government regulation adds 2 weeks to the time it takes to obtain a home loan! I know your question already; Can the borrower waive these waiting periods? No. Because lenders will be very concerned to be following the rules no one will allow a waiver of any of the waiting periods. What do you need to do if you are buying a home? Add a couple of weeks to the anticipated closing date. The days of quickly getting a home loan are over. Plan on a 45 day time-line to get to closing.

Written by Ken Mascia
Prime Capital Mortgage, 248.644.1200
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Mortgage loan modification is something that has been talked about a lot over the past year as financial hardships have made it difficult for some to manage their monthly payments. Loan Modification is when your lender agrees to make a permanent change to the original terms of your mortgage loan. This could be in the form of an interest rate reduction, fixing the rate on an ARM loan, extending the amortization (i.e., making the loan a 40 year term to reduce the payment), changing the loan terms to require an interest only payment or even a principal reduction (reducing the amount owed). The purpose of the modification is to make it feasible for the borrower to make the monthly payments on the house.

Why would a lender agree to this and under what circumstances will they do it? Well, the lenders’ goal is to have loans it makes perform and, contrary to popular belief, they do not want to foreclose on anyone as owning homes is not the lenders business. So, if the borrowers’ personal circumstances indicate that a specific change in the terms of the loan will make it possible for them to make on-time payments on the debt then the lender will seriously consider making those changes.

Your specific circumstances are going to be the driving factor in whether or not a loan modification is possible. The lender is going to ask you to document your income so they can determine whether you are capable of making the existing loan payments and, if not, whether a modification of the terms will make it possible for you to make the payments. If you make $10,000 per month and your loan payment is $2,000 it’s not likely that your lender is going to modify the loan because it appears that you should be capable of making the payments. If you and your spouse were both working at the time you took the loan out and one of you has lost your job then a loan modification may be feasible as long as the lender believes making the change to the loan will enable you to make timely payments. If you are unemployed then a modification is not likely as the lender will want to know you have a stable income stream to make the new payments. Each case is different and they are going to be looked at individually.

There are a lot of companies that have popped up over the past year that offer to work as a facilitator to work between you and your lender. Generally, they charge an upfront fee (usually several hundred dollars) and give you no guarantee as to the outcome. Some of these companies are reputable but many are not so be careful. You really don’t need a modification company at all as you can work directly with your lender. However, some folks have reported excellent results working with a mod company. I have referred some of my clients to one which purports to have a 90% success rate. What they do is to review your financial data in advance of charging you a fee and then if they feel that your modification has a good chance of success they move forward. If it does not look like the lender will consider the modification they charge you nothing. This seems to be the best approach in my opinion.

So, a loan modification is one way for people who are experiencing a financial hardship to work with their lender and keep their home and their credit standing. It is a viable option and should not be ignored. If you think that you may be qualified for a loan modification give your lender a call and you may be surprised by the result. Good Luck!

Image courtesy of The Truth About Mortgage.com

Written by Ken Mascia
Prime Capital Mortgage, 248.644.1200
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On the day I am writing about interest rates had been very stable in and around 5% on a 30 Year Fixed for a couple of months and it did not appear that anything was going to move the rate up for the foreseeable future. That assumption turned out to be very wrong. On May 26th our rate (30 Fixed) was 5.0% with zero points. The Treasury Bond market was a little jittery at the end of the day because the Federal Government was scheduled to be selling a bunch of new debt over the next couple of weeks and if the bond auctions were not well received by investors then the rate on these bonds would rise. An increase in Treasury Bond rates will cause mortgage rates to rise also. The billions of dollars in 5 Year Bonds the fed sold on the afternoon of the 27th were not very well received and by the end of the day, May 27th, mortgage rates had gone up to 5.5%. In one day – Ouch.

The next day I awoke feeling very positive that this little spike in rates was going to reverse itself over the next week or so. Then on the 28th Durable Goods Orders figures were released and orders were up 1.9% – much stronger than expected. Also, released were new claims for unemployment benefits which were smaller than expected. People buying more stuff and fewer people losing their jobs is good news for the economy’s future but bad news for interest rates. Interest rates go up when the economy is doing well and go down when things are bad. By the end of this day the rate was up to 5.75%.

Rates had gone up ¾ of a point in just a couple of days. Since then this rate has held as more positive economic news has been released. Personal incomes and Outlays (consumer spending) were reported at the end of the week and both were stronger than expected keeping rates pegged at the new higher level.

The good news – we may get out of this economic mess we’re in faster than anyone thought. The bad news – a stronger economy will keep mortgage rates above the super low levels that we had been seeing. Overall though, when you can get a 30 year fixed rate mortgage anywhere in the 5’s that is a really great rate to borrow at. We may see a slight pull back in rates in the near term but as the year progresses there is little doubt that interest rates will be rising some more. If you’re in the market to buy a home I suggest identifying a home to buy, making an offer and getting your rated locked in now. Happy house hunting!

Written by Ken Mascia
Prime Capital Mortgage, 248.644.1200
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FHA 203(k)
An FHA loan is a mortgage loan that is insured by the Federal Housing Administration and because the loan is insured lenders are willing to make these loans are more flexible terms than a conventional loan. This means credit standards are not as tight and down payment requirements are lower. Right now the minimum down payment for an FHA loan is only 3.5% and credit scores of 620 are approvable. The 203(k) loan is a variation on the FHA loan which allows you to buy a house with only 3.5% down and borrow extra money to make specific improvements to the home you are buying. These improvements can include roof, electrical system or plumbing upgrades, flooring, remodeling of kitchen or bath, appliances, window or door replacement, etc (structural problem repairs are not allowed and neither are room additions). What you have to do is get a contractor estimate for the specific repairs and then we appraise the home on an “as completed” basis – the appraisal is based on what the home is worth after the improvements have been completed. The homebuyer is responsible for monitoring and completing the work after buying the house and the repairs may be inspected by the lender. The maximum loan amount can be 100 – 110% of the finished value (the buyer still has to make the minimum 3.5% down payment based on the purchase price of the home). The maximum amount available for repairs can be as high as $30,000 and the current loan limit for FHA loans in our area (SE Michigan) is set at $297,500. This is a great way to buy a house that needs some TLC and finance the repairs at the time of purchase!

VA Loans
A VA loan is insured by the Veterans Administration and is made to eligible veterans of the U.S. Armed Forces. Much like an FHA loan, the VA loan guarantee makes lenders willing to offer these loans at more flexible terms than conventional loans. Depending on the eligibility of the individual veteran it is possible to purchase a home up to $417,000 and put zero down! The seller can even pay up to 4% of the sales price to cover the buyers closing costs, property taxes, etc. This could be used to allow someone to buy a home in today’s market with little or no money out of pocket! Wow, I thought somebody told me zero down loans were all gone?

Working with an experienced, well informed lender that has the right tools and knows how to use them is a must in today’s challenging times. I have the experience and the tools to help you make your dream house a reality so feel free to contact me to discuss options to accomplish your goals.

Written by Ken Mascia
Prime Capital Mortgage, 248.644.1200
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Credit Score Damaged
OK, it goes without saying that your credit score will be hammered. This is not an exact science and depending on what your credit report looks like now will affect the score reduction. However, you can expect your score to go down by 100 maybe 200 points or more and stay that way for several years. The foreclosure itself will stay on your credit report for a minimum of 7 years and you’ll be explaining that to creditors any time you apply for new debt.

New Loans Hard to Get
Lenders of all types – automobiles, credit cards, department stores, gas stations, installment loans, mortgages, home equity loans, every lender uses your credit score and credit report to determine your willingness to repay your debts. If you walk away from a mortgage loan every lender you currently borrow from, and those that you may apply with in the future, are going to wonder “If you didn’t repay that loan what’s stopping you from walking away from our debt?” You will not be able to obtain any mortgage financing for approximately 4 years (and only then if you have re-established good credit) and you may even have trouble leasing a place to live because landlord’s look at your credit score.

Existing Credit Cards Limit Reduced and Rates Increased
Surprising to some folks, your credit card companies review your credit report every year and even if you are paying that bill on time they can and will raise the interest rate on your credit card if your credit score goes down. They may also reduce your credit limit or change the terms on your card or even cancel and close the account.

Higher Insurance Rates
Insurance companies also use credit score as one means to determine risk and they may increase your rates if a score reduction occurs. This can impact your auto insurance, home insurance, even your health insurance!

Home Equity Loans and Second Mortgages can continue Collection Efforts
One thing that most people do not understand about foreclosure is what happens to a second lien on the house. If you have a home equity loan or a second mortgage on the property that lender will be forced to release their Lien on the home for the foreclosure to go through. However, this does not mean that they give up their legal ability to collect on the debt. The second mortgage lender will place a collection account on your credit report for the full amount of the debt and that collection account will not go away until you pay them off or settle the debt. This will make the impact of the foreclosure even worse for your credit score and ultimately you may be forced to pay the debt even after the foreclosure is completed.
The bottom line here is that the impact of a foreclosure has not changed. If anything has changed it’s the perception that letting a home go to foreclosure is somehow OK. Foreclosure will have far reaching implications on you and will continue to haunt you for years to come. If there is a course that you can follow that does not involve “giving the keys to the bank” then you should look hard and long at it because the foreclosure may seem like a good short term fix but in the long run it’s going to cost you a lot of money and heartache!

Written by Ken Mascia
Prime Capital Mortgage, 248.644.1200
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There has been a lot buzz lately about mortgage rates and mortgage availability; Rates are at 5% and the government is going to lower them to 4%. Nobody can get a loan. What’s the real deal? Well, we all know that the federal government does not “set” mortgage rates. Those rates are determined by the supply and demand for Mortgage Backed Securities (MBS) in the market place. When demand is high mortgage rates go down and vice versa. Lately, with all of the foreclosures the demand for MBS has fallen off because when a loan in a portfolio of loans (called a MBS and sold to investors) goes into foreclosure the investors in that pool all lose money, so mortgage backed securities are not the no-risk investment they were once thought of.

In steps the Federal Reserve with a mission to lower mortgage rates in an effort to stimulate the bruised housing market and what do they do? They become a buyer of mortgage backed securities – and a huge buyer to boot. The Fed announced last Wednesday a plan to purchase about a trillion dollars in MBS. The mortgage secondary market was elated and rates went down from 5.5% (conventional loan to $417,000) with no points to a low of 4.875%. Wow! The thing is that this can only be sustained if the Fed continues to support demand by buying and they can’t be a buyer everyday forever. So, as you can imagine, rates started creeping up the very next day and are currently at 5.375%. Still interest rates at or near 50 year lows.

The problem right now with keeping rates low is that the government is creating trillions of dollars of new government debt to pay for all of the various bailouts we are involved in and interest rates have to be attractive enough on this debt to encourage buyers to buy it and that is putting upward pressure on rates in general.

The bottom line on rates is that they are very attractive right now and although there may be some dips the likelihood of a significant drop is not very high.

In terms of availability, if you have good credit and equity in your home (or a down payment to buy) you can still get a great mortgage loan. Contrary to what you may have heard there are even some outstanding Jumbo loans available today. In my office we are doing loans up to $1.5 million at 5.25% on a 7 Year ARM. Granted, you have to have a 30% equity position in the property but if you do 5.25% is pretty incredible on a loan this size.

So, rates are great right now and are probably going to stick around this level for the immediate future, loans are still being made and if you are in the house buying market or considering a refinance the timing may be just right.

Written by Ken Mascia
Prime Capital Mortgage, 248.644.1200
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Mortgage Rate Reduction – There has been a lot of buzz about the government somehow forcing mortgage rates down to 4%. There has never been a clear answer as to how they would do this (mortgage rates are set by a free market pretty much like everything else in the USA!). This bill does not call for any specific measure that would peg mortgage rates at some direct level. It does, however, allow the Fed’s to continue to purchase mortgage backed securities (MBS) in the secondary mortgage market. Keeping this market de-thawed should allow mortgage rates to remain low as they have been for the past 8 weeks. The bottom line is that fixed rate mortgages in the 5’s are pretty great anyway!

Higher Loan Limits – One of the things this bill does is to re-set loan limits to 2008 levels. This is more important than it appears. For example, in our area of Southeastern Michigan, the FHA loan limit had been reduced from $297,500 to $271,050. This might not seem like a big deal but if you’re a homebuyer and want to purchase something that’s $300,000 then it is a big deal! Overall, conventional loan limits will remain unchanged around most of the nation because Fannie and Freddie did not reduce the limits this year so the conventional loan limit for most areas will remain at $417,000.

Changes to the Homebuyer Tax Credit – The homebuyer tax credit has been re-vamped in a couple of ways. The maximum credit amount has been increased to the lesser of 10% of the purchase price or $8,000 (up from $7,500).Now the tax credit does not have to be repaid (this is great!) unless the buyer sells the home in the first 3 years and then they have to repay the entire amount. Also, the time period has been extended and now the tax credit is available until December 1, 2009. All other income limits and first time buyer requirements still apply. The new tax credit begins on January 1. Anyone who bought a home in 2008 under the previous law is still subject to the rules of the old bill but anyone buying in 2009 is subject to these new rules even if they bought prior to the bill being passed as long as the purchase date was in 2009.
This “Stimulus Bill” is enormous – just another way for the government to grow even larger? How are we going to pay for these $800 billion dollar expenditures? What long term effect will printing all of this new money have on our future economy? Who knows! All I know is we have to head off a potential economic disaster and this seems like the best way to do that right now.

Written by Ken Mascia
Prime Capital Mortgage, 248.644.1200
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I applaud the Fed’s for seeking to reduce mortgage rates and inspire home buying.  On the other hand it was very foolish (opinion again) when Treasury Secretary Paulson came out last month and basically stated that the Fed’s were going to push mortgage rates down to 4 ½%.  The problems with this statement are 2 fold:

1. The federal government does not control mortgage rates.  Rates are set by the supply and demand for mortgage backed securities (MBS) in the secondary market.  Rates fluctuate up and down based on whether investors (primarily institutional) are buying or selling MBS.  So, the government can’t make mortgage rates do anything.
2. When Paulson claimed the Fed’s were going to get rates down to 4 ½% that set up an expectation in consumers across the nation.  Instead of saying “Hey look, mortgage rates are at 50 year lows with fixed rate loans in the 5’s and I’m going to go out and buy a house!”, now people were saying “I’m going to wait to buy a new home because I think rates are going lower”.  He basically put the brakes on the whole real estate market!

One of the things the Fed’s have done that has worked out has been the Federal Reserve Bank becoming a buyer of mortgage backed securities.   The Federal Reserve Bank bought billions of dollars in MBS and due to this buying activity mortgage rates fell down to around 5%!  The bad news is that rates started creeping back up again almost immediately as market forces took over again after the fed’s buying spree.

The good news is that mortgage rates are holding pretty steady in the mid 5’s and will hopefully stay in this range.  When you can get a 30 Year fixed rate mortgage anywhere in the 5’s, that’s a great borrowing rate!

There has never been a better time to be a homebuyer with housing affordability at levels not seen in decades (real estate is selling cheap), mortgage rates at 50 year lows and a first time home buyer tax credit of up to $7,500 still available through June 30th.  If you are considering buying a home there has never been a better opportunity!

Written by Ken Mascia
Prime Capital Mortgage, 248.644.1200
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