Monthly Archive: July 2012

Jul 23

Sub-Prime Mortgages

Sub-Prime Will Return

The overall condition of the economy is creating an environment that will hasten the return of the sub-prime mortgage.  I was never an advocate of the sub-prime industry but it served a need.  That need is stronger today than ever before.  I predict sub-prime mortgages will return soon.  They may be called something different, may be touted as new and improved, but a rose is a rose.

There are many factors that will push my prediction forward.  Unemployment is very high with disposable income being the lowest it has been in modern time.   This is causing many homeowners to defer maintenance on their home opting instead to put food on the table.

Home inspectors are being super critical as their industry matures, causing many pending transactions to implode.  Not long ago the National Association of Realtors reported the highest fall out ratio since they have been keeping stats.   The number of real estate listings reported as a pending sale then changed back to an active listing is where that bit of information comes from.

Buyers and sellers are both more difficult than I have ever witnessed prior to the last couple of years.  Prior to last year I never had a buyer and seller disagree on a day and time for closing the deal.  This year it has been difficult to get both sides on the same page on any subject, let alone a closing date.  I mentioned in an earlier post that people searching for information on Power of Attorney or POA is the number one subject people are looking for when they visit this site.  They  just don’t want to attend the closing!

Another factor is the middle ground on credit scores seem to be disappearing.   I see either very high or very low credit scores, not much in the middle.  This is a personal observation; I haven’t read anything that supports this.  You would expect a general distribution, a third low, a third in the middle and finally a third on the top.  Not what I see these days, either very high above the top credit tier or very low below the minimum threshold.  Last week I saw several above 800 or in the high 700’s and an equal number in the low 500’s dipping into the high 400’s with none in the mid 600’s.

Finally, the wreckage caused by foreclosures and loan modifications will linger for at least a decade.   The buzz topic has been short sales, but in reality they are a very tiny slice of the pie.  They are a symptom of the times but I don’t think they are as serious to the overall market as the other factors mentioned above.

All of the dynamics mentioned here have one result, stress.   Sellers want to sell and buyers really want to buy but never has it been as stressful even back in the days of very high interest rates.

As the gap widens the mortgage industry will figure out a way to serve the demand that is having trouble moving above the minimum credit score threshold.   That segment of the buyer pool is the only one that is expanding.  The market conditions are not pushing people upwards, only down.   Individuals that have never been late on credit obligations are suddenly finding themselves below the credit thresholds.

The Solution

I don’t have an answer to the overall problem, but I see lots of opportunity.  A few people are doing very well, but most are not.  What I know for sure is the market has changed.  People have changed.  Those that are moving forward have a chance to improve greatly, interest rates are low and prices are good.  It has never been a better time to buy in the last 50 years.

Part of the solution to get things moving is going to be the return of some of the aspects of the sub-prime industry.  I am not calling for a movement, just predicting this is going to happen.

Jul 19

Continuing Education

Spent the entire day in class, continuing ed.  We covered RESPA, ECOA, TILA, Dodd Frank Act, and a lot of other wildly boring topics, most of it a rehash of info that I have reviewed every year for the last two decades.  Guess what wasn’t on the menu.  Not one item aimed at making the process easier for the customer. 

Don’t get me wrong, some of the legislation has done much to weed out the bad guys, but the rest of us are paying the price, including you.  I think it is time the rule makers shift their focus to what the consumer wants, not what someone in an ivory tower thinks we need. 

The instructor mentioned a recent news item about the Bank of Scotland manipulating the LIBOR index, give me a break.  Did it happen? Of course it did.  Our guys are lining up to point the finger across the pond. 

What about one of the largest investors of US mortgage backed securities buying 30 year bonds with proceeds from short term notes?  No one is complaining because the result of the manipulation here is low interest rates.  Everyone wins right?  Not the elderly that are getting paid less than 1% interest on their cd’s.  Think about it, $2,000,000 stuck in FDIC insured cd’s would generate less than $20,000 a year, that should be a crime. 

 

Jul 15

Power of Attorney AKA POA

What is a Power of Attorney?

A Power of Attorney is a written document authorizing one individual, referred to as the Attorney in Fact to act on behalf of another regarding legal matters like signing a contract, deed or other instruments.  The signature of the Attorney in Fact is binding on the part of the individual that conveyed the POA.  There are different forms of POA’s, they can be general and all inclusive or specific for a single transaction.  They must be notarized to be binding.

In theory, when an Attorney in Fact signs on behalf of another it is the same as if the individual signed for them self.  Obviously a POA is a very unique document and requires attention to detail not only in content but in form as well because the agreement signed using one is binding on the party that is not signing on their own behalf.   If a mistake is made it could be a binding error.

When to Use a POA

You should not use a POA unless absolutely necessary.  If a contract or document is important enough to require a signature it should be signed by the individual that is bound by the terms of the agreement.  There are times when this is not possible, that is when one should be used.  For example, an individual that is in the military and is stationed overseas would not be able to attend a real estate closing back home, a POA would be required if the closing is to proceed.

Other examples of when a POA is appropriate would be for an individual that is senile or incapacitated by illness or injury to the point they are not able to conduct their affairs.  In events like these it may be necessary to obtain a court order appointing a relative Attorney in Fact or some other legal capacity.  Another example, in the event of relocation where one spouse moves in advance while the other remains behind to complete the sale of their home.  There are many circumstances when using a POA is appropriate.

When Not to Use a POA

A power of Attorney should only be used if you can absolutely not be present for signing the agreement.  I am not an expert in legal matters, only those regarding the real estate mortgage process.  In the past year I have had more buyers and sellers inquire about using a POA than in the previous 20 years combined.  This is very strange.

In every case this year the request to not attend a closing was not because of distance but simply because they individual did not want to attend the closing.  It doesn’t matter what you would rather do, nothing is more important financially than a real estate closing.   Think about it, if you earn $20 an hour compared to buying or selling a $150,000 house, which is more important?  Take a long lunch hour or use a sick day and attend in person.

One lady that was selling a home told me she just didn’t want to be in the same room as the buyers.  Okay, I can understand that, but there are other ways to accomplish non-contact.  Recently I had a buyer in one room the sellers in another room and the Realtors wanted a little privacy for a chat so we put them in yet another room.  That was a first for me.  I have put many divorcing couples in separate rooms but never used three rooms until then.

Using a POA for Real Estate is NOT Automatic

Lenders do not want the buyer or seller to use a POA.  Especially when it comes to the buyer signing the note and mortgage, most lenders want an original signature of the person that is borrowing the money.  Do not assume that you can use a POA as a buyer or seller.  This is something that should be reviewed and approved long before arriving at the closing.

The actual POA document should be reviewed in advance by the closing attorney or Title Company that is going to officiate the closing.  In addition to this step it should also be pre-approved by the lender long before setting a closing date.  Power of Attorneys are custom documents, no two are exactly alike.  There are different types, some are general in nature while others are specifically designed for a single transaction.  A POA for a real estate transaction should be very specific, spelling out who, what, when, where and how.

Obviously, if an attorney is acting on behalf of a title company they will be very picky about the content of a POA.

Who Can Act as Your Attorney in Fact?

The best individual to act as your Attorney in Fact would be your spouse.  Next would be a very close blood relative, a parent or sibling.  Anyone you appoint that agrees to accept the responsibility is allowed as long as they do not have a financial interest in the transaction.  For example, a seller should not act on behalf of the buyer regardless of the relationship.

What about your Realtor?  This is another bad choice because they are receiving a commission from the sale.  It happens, but it is not a good choice and may not be allowed by the lender or closing attorney.

How about a friend or co-worker?  These are not as good as a close relative but are better than the Realtor.  Keep in mind if something goes wrong you are stuck with the consequences.  Is that really something you want to put on the shoulders of a close friend?

Helpful Hints for Using a POA

If you must use a POA have it prepared by the attorney that will close the deal.  This would eliminate the document being rejected by the closing attorney over form or format.   If this is not possible have it prepared and signed well in advance and provide the closing attorney a copy as early as possible, do not wait until the day of closing!

If it is not possible to attend the closing the documents may be sent overnight to the absent party, they can sign in front of a notary and returned to the closing attorney.

I hope this information is helpful.  If you have questions just give me a call, my direct line is (502) 753-4127.  If you found this information interesting please share it with others.

Jul 09

Searches Leading to The Hub

From POA to Me

Behind the scenes this web site tracks where my traffic originates and creates a list that shows what search terms brought them here.  Thousands of terms and phrases are on the list but a few dominate the top.  A few of the leaders are amusing, some are flattering (specifically looking for me) and a couple are disturbing.

Number one on the list and a winner by a long shot is Power of Attorney or POA.  It shows up more than twice as often as any other search, strange because I advise people not to use a POA if it is avoidable. 

The other words and phrases that head the list remain fairly constant over time with the top three staying the same month after month.  Searches for me personally slip back and forth between the fourth and fifth slots, rotating with the one that I find disturbing, Mortgage Fraud.  People actually search for “How to commit mortgage fraud.”  Good grief!

Here is the top five for the previous 12 months:

1.  Power of Attorney or POA

2.  Creditxpert

3.  Down Payment Assistance Kentucky

4.  Jim Simms

5.  Mortgage Fraud or How to commit mortgage fraud

Some of the phrases about fraud were alarming; many were questions beginning with “how to” while others were obviously worried about crimes they already committed.  

Jul 02

Condo vs Un-Condo, cont.

Why are condos hard to finance?

In the last post we discussed three of the primary reasons it is hard to finance a condominium. In addition to those issues I have always been told the percentage of mortgages that default is higher for condos than it is for a standard single family residence.  However, I was unable to find supporting evidence while researching the subject for this post.  I found a massive amount of information broken down by the type of loan, length of the terms, etc.  But there is nothing that distinguishes a condo from any other form of ownership when it comes to mortgage default ratios.   

It stands to reason if condos are harder to finance they are going to be more difficult to sell.  If they are harder to sell the default ratio will increase.  But try to prove it! 

There is such a big void on the subject it seems peculiar.  Oh well, maybe that is just the conspiracy buff in me coming out.  Surely no one is trying to hide something from us.

Update on Un-Condo

Many more calls about my Un-Condo idea.  It seems the concept is appealing to both buyers and sellers.  There are several unfinished developments in the area that would benefit greatly from this procedure.  It will not work for every property but the Kentucky Condo Law makes it relatively easy for some properties.

Here is what we know so far:

  1. The property must be horizontal, no units stacked on top of each other.
  2. It requires an 80% vote of the owners in favor of un-condo.   
  3. The utilities must be separately metered.
  4. Each unit must contain separate mechanical systems, heat, air, water, etc.
  5. Probably requires individual ingress and egress (your own front door).
  6. Requires a survey with individual lots for each unit.
  7. Must provide for maintenance of all common areas, roads, club house, etc.
  8. Will require approval of the new subdivision plan by planning and zoning.
  9. Deeds from the HOA to the individual owners.
  10. Revised HOA and By Laws if there are common elements or maintenance.

I will add to this list as we uncover other requirements.

Why Un-Condo?

It eliminates the approval process required to mortgage an individual unit, this fact alone is reason enough to consider the proposition if the property lends itself to the procedure.

Eliminating the mortgage approval process makes a unit easier to finance.  Properties that are easier to finance are typically worth more than those that are not easy to finance. 

Conventional financing for condos have higher interest rates than other homes.  Higher interest rates impact the number of buyers that qualify for the required loan amount. 

The size of the pool of buyers that qualify for a particular loan amount increases as the interest rate decreases.  This also has a positive influence on the value of a property. 

Easier to finance + lower interest rate + more qualified buyers = Higher Value

What are the disadvantages?

Good question.  In a condo you own from the paint on one wall to the paint on the opposite wall.  After the Un-Condo process you own the land under your unit, the air rights above your unit and the outside of the unit.  This means if your unit needs a new roof that is your problem, not the home owner’s association.  Guess what, if the HOA doesn’t have the required cash reserves to put on a new roof it is still your problem. Under funded HOA’s are common in our area.  

Pooling funds for outside maintenance gets a better price on repair contracts, right?  Maybe, unless you live in the same development as a friend of mine, funds are missing from her HOA and now she can’t sell or refinance her unit.

What about yard work, not required in a condo, neither is it if you Un-Condo, keep a limited version of the HOA to take care of that if desired. 

This idea isn’t for every property or property owner.  But it is an AWESOME idea for most of the properties that lend themselves to the concept.   

If you have questions or comments or would like for me to review your property please call me direct, (502) 753-4127.