Sequestration: FHA Delays, Department of Agriculture, USDA Loan Processing and How It Will Affect The Real Estate Market in Northern Virginia

Sequestration is here and it is going to affect a lot of areas of our life – some people more so than others.  The initial $85 billion cuts will include furloughs for 2.1 million federal workers for five months.  They will be required to take 22 unpaid days beginning in April and will end in September.  This 20% reduction in pay to many people has the potential to put them behind in their mortgages resulting in an increase in default notices.  This in turn could result in more short sales and foreclosures thereby affecting prices and more importantly the housing recovery.  Additionally, if people are making less money, they do not have the ability to “move up” so we will continue to see a lack of inventory in housing.  Worse yet, in some cases if people with security clearances fall behind with other bills, they could lose those clearances and their jobs.Image

Speaking of housing, FHA has acknowledged they will see delays in endorsements/claims time frames which will impact settlement dates because of getting loans not being completed in time for closing.  FHA is responsible for approximately 25% of loans so this is a big deal and you should pay attention to your closing dates.  Along these same lines, cuts in the Department of Agriculture will mean there will be delays in the processing of USDA loans.  These loans typically take a minimum of 75 days – I would encourage you to look at a minimum of 90 days to be safe.

In addition, people who rely on Federal Housing Assistance are going to lose their benefits which would leave them homeless.  These people include veterans and the disabled.  One other area that is affected is foreclosure prevention aid to nearly 75,000 people – keep an eye on this development.  People who receive Housing Choice Vouchers will be cut.  These vouchers are used for renting apartments.  Approximately 125,000 will be affected here potentially leaving them homeless.

A majority of the cuts will come from defense spending.  It is estimated that nearly 207,000 Virginians will lose their jobs with 75% of those residing in Northern VirginiaCalifornia will also lose a total of over 200,000 jobs with Maryland not far behind with over 100,000 jobs lost.  In totality, it has been predicted 2.14 million people would become unemployed as a result of sequestration.  There will be unintended consequences resulting from these cuts which will total $1.2 trillion by 2021.  One area that comes to mind is travel by air.  Fewer air traffic controllers and fewer TSA employees will result in delays at the airports for sure.  Another area is Hurricane Sandy victims, their aid will be diminished as well.  Lastly, when the hardworking, lower middle class government workers get 20% of their income slashed, there will be less discretionary spending which could have broad sweeping consequences – let’s see what else will be impacted.

Success as Appraisal Concerns Rise In Northern Virginia Real Estate

Uh – oh some appraisals are low!
As we enter the spring market I have growing concerns over appraisals here in Northern Virginia. As we come out of the “slower” winter months, appraisers have fewer homes to choose from to help catch them up with the market today. We are seeing 20-30 people regularly at open houses which is rare for this time of year. There are only 3,081 houses for sale in all of Northern Virginia – a true supply issue for the number of buyers in the marketplace. As a result, it is rare not to see multiple offers on houses listed today. This is not an artificial “run up” of housing prices and we are not stretching prices as we are still below the highs of the housing bubble in many areas. The law of supply and demand should dictate property values in my opinion.
Here are examples of the last few appraisals we have come across. Two single family homes in the same neighborhood in Fairfax both recently came in low – one was sold at $850,000 and appraised for $847,000 – really? The other one sold at $877,000 and appraised for $811,000. How can these numbers be so far off from each other and where is the real estateAppraisal Concerns scottymacsblog market headed today? One of our agents listed a town house in Countryside for $320,000. They received 3 contracts in the first weekend – an obvious issue of supply and demand. Well, it sold for $326,500 and appraised for $300,000. The appraiser used a short sale that had closed several months prior to this sale at $260,000 as a comparable. Short sales are less than 8% of the market plus if it closed several months prior to this sale, because of the short sale process, the contract was written several months prior to closing – how is this truly a reflection of the market today? We also had an offer come in on a town house in Centreville recently which sold for $450,000 and appraised at $435,000. The appraiser used a new town house in a community down the street that settled in July of 2012. Again, as it was new build, the contract was written a few, if not several months prior to the settlement – is this a true indication of market value today? What’s worse is there was a closing in the same neighborhood which was a higher value that settled in December that was not used to support the price of our town house. Lastly, we had a condo in Sterling that came in low by $8,000. The sales price was $175,000 and it appraised for $167,000. I think you can understand our issue.
What can be done? First, provide information to your sellers and buyers early. Set the expectation that the property may not appraise for the sales price and discuss the potential options with them so they understand what the next steps would be for them. Let them know that the appraisers may have difficulty finding suitable comparable sales – this is where you must be diligent and provide solid comparable sales to the appraiser. If you are dealing with an FHA appraisal and the sellers of comparable properties paid closing costs for their buyers, let them know the appraiser will take that amount off the top of the sales price which could bring down your value. As there are many multiple offer situations, some buyer’s agents are putting in high offers to get an approved contract knowing they won’t get the needed appraised amount – let your sellers know this is the case and the highest price is not always the best offer. If you are selling a new home, most builder contracts do not have appraisal contingencies in them for their protection, not the buyers. As prices of new homes are escalating this becomes a concern for buyers today. Remind them that an appraisal is a snap shot in time based upon historical data that is already behind our escalating market.
In addition to providing information to your sellers and buyers, provide extensive details to the appraiser. Plus, don’t just provide them with information, meet them and discuss what you and they are seeing in the market – build rapport by sharing your stories and listening to theirs. Share with them your comparable sales and why they should be considered. Explain the Home Pricing Wizard to them in detail and how it helped you determine the market value. Provide them with copies of the competing offers so they can see it is a desirable property. Share with them your feedback from Showing Suite that shows other agents that visited the property how they felt the property was priced at market value – or below. Bring market data from RBIntel that shows the market is increasing in value, as well as, articles that point to this fact. You must be diligent in your representation of our clients and do all you can to get the houses to appraise.
The good news is not all properties are appraising low, but there are enough that are, so this is why you need to pay attention and educate our clients on what is happening in the market. This separates you from other agents and makes you a professional. Get it? Got it? Good!
Now, go sell something!

What’s up with our market?

There are home buyers out in Northern Virginia but they are savvy, price sensitive and condition critical.  As we have seen in the papers, read online, and heard on the news, the rest of the country is experiencing a double dip in home prices, and waves of foreclosures are going to hit the market spiraling prices even further.  All of this has made buyers in our area become very cautious and has lowered consumer confidence nationwide. 

Why do you ask are they this way?  Well, most of them are from someplace else and they have seen streets riddled with real estate signs, are from areas that have a 41 month supply of houses versus our 3.1 month supply of houses or have friends and relatives who have been unable to sell their house in other parts of the country.  This has an impact on their buying decision here and yes, they hear our area is different and understand the underlying reasons why our market is strong but they are still looking for “a deal”.  They scrutinize each property looking for excuses not to buy them versus finding reasons to buy them.  When there is a home that offers the right price (often below market)  that has been staged (painted in neutral or trendy colors, new carpeting and de-cluttered), in perfect condition (no broken window seals, leaky faucets, etc.) and in a great location (backing to trees, end of cul-de-sac, etc.) they swarm on this property like vultures.  Many times we will encounter multiple offers on these types of properties and see them escalate above list price.

If you are a seller and your home hasn’t sold, what should you do?  Lower the price – it is the least common denominator and makes up for many areas where the home may be lacking such as in condition or location.  Get the home staged, by a professional.  You could also offer a higher commission to the buyer’s agent as an inducement to sell your house.  Many sellers or listing agents are offering a lower commission as many buyer agents have accepted lower commission rates in the past few years  as a result of short sales and foreclosures (banks) only paying a lower fee so paying more can set you apart from the competition.  Be ready to negotiate to get your house sold.

If you are a buyer, what do you do?  You should be ready to be in competition if you are looking for the perfect house at the perfect price and be prepared to include an escalation clause with your contract.  As was mentioned early, these properties are typically seeing multiple offers that go above list price.  Buy a new home – pick your own colors, location, and avoid the competition.  Many builders have adjusted to the market and are priced to sell.  Make an offer on an almost perfect house and see what happens.  Often times, as homes stay on the market and sellers have many visitors with no contracts, they tend to be more reasonable with what the market is telling them in regards to pricing.  The idea for buyers is to just buy.  The housing affordability index hasn’t been this high since 1979!  Interest rates are at their lowest level this year and prices are reasonable plus, we have jobs and stability in our market place.

If you need to sell, this is a great time to do so.  If you are a buyer, you shouldn’t delay – prices and rates are not going to get lower in our area making this an opportunity of a lifetime.  Contact your RE/MAX Gateway professional today and get packing!

Get in the Know…now!

We recently attended the RISMedia convention in New York and have compiled notes that I will share with you on what was discussed and comment – occasionally how it will affect our business and ask that you do research on certain topics to inform yourself to give our clients the most up-to-date information so they can make the right decisions when buying or selling a house.

Finance update


There have been two price increases on FHA loans recently – upfront MI and monthly MI.

-Lenders paid less on FHA loans.

-FHA loan amounts decrease.

-Potential increase in down payment requirements are also on the horizon.

-FHA Loans are 30% of the market.

-MI – 5% down training on MI is required for agents who want to stay in the know!

Additional facts on the market:

-2/3 mortgage applications don’t go through.

-Do consumers understand the process of obtaining credit – no – Agents are transactional

-7 million people have been out of work for 26+ weeks.

-19.8% of all prior mortgages are 90+days delinquent.

-Eminent defaults are on the horizon – stay tuned.

-60 million + people with less than 630 credit score.

Lenders are looking for point of sale contact with Realtors

-Want to help you grow your biz and attract more agents into their database?

The question is how?

-Training and education

-Shared marketing dollars


-Exposure to listings through marketing ventures.

– What else can they provide?

GSE’s are stagnant on Capitol Hill and we shouldn’t expect progress anytime soon.  Too much else is on their plate.

270 points in Dodd-Frank bill – The lending industry WILL change.  We are expecting to receive talking points of the bill for you to share with your clients so stay tuned!

Do you know what Qualified Residential Mortgages are?  It is important to stay up on the trends.  QRM will push a 1/3 of Buyers out of market.  The comment period on QRM ends 6/10/2011 – get in the know and make your comments to your elected officials!

“Stuff” is thrown up against the wall right on Capitol Hill now to see what sticks

 – A tax on new home sales was proposed so that the existing home inventory could get absorbed and new home sales would subside as a result.

What is the HAMP Mod’s default rate within 6 months?  It occurs 60% of the time.

Average consumer has 13 credit obligations – 9 credit cards.

48% of college students leave school with bad credit

58% of college grads move home because of poor credit.

Ask your clients, “What is likelihood of you buying furniture, blinds, etc., if you do, can you really afford this house with this additional debt?”

Become a long term trusted advisor for your clients – provide valuable content – early and often.

Education is a continued effort so get educated.  Get it?  Got it?  Good!

Now, go sell something!


A meeting of even greater minds…

One agent says it is slowest quarter in 3 years but he also agrees that results he is achieving are a direct result of the activities he has participated in the previous 120 days.  We all know what we need to do – you just have to do it.  Others continue to stay busy.  Here is the office activity the last  few weeks:  36 sales 14 listing, 18 sales 10 listing, 30 sales 20 listings, and 20 sales 5 listings  – a little up and down don’t you think?

Houses have to be jazzed up – granite, stainless, hardwood floors but most importantly price.  Buyers want everything in the house with nothing to have to do to fix it up and at the lowest price.  Pricing is a fine line today…price it right, not a little high to getter done

Banks are negotiating cash or financing loans to offset the differences.  Joe negotiated a deal with bank, they were $250,000 upside down bank wanted $40,000 cash to close – he negotiated $30,000 loan for 10 years no interest or $15,000 cash at any time.

Inventory levels are up – where is the market?  Not completely crystalized on the next quarter and what it is going to bring us.  Rates need to bump up to get people off the fence – we keep saying they are going up but they are at the lowest point this year.  Only things selling are the “good” deals are selling.  If nothing grabs the buyer, it is not selling. 

New homes are doing really well.  Brambleton had a record year last year – 354 sales last year and through the end of April they had sold over 200.  Toll Brothers has sold 52 year to date in South Riding. – Broadlands is crushing it too.  Pulte at East Market is selling at a record pace because of price and location.  Stanley Martin is ahead of last year’s record pace.  And NV Homes sold 7 homes in Saranac versus 1 for Brookfield – not many other new homes for sale

Sellers dominate the landscape amongst the agents in Platinum Club.  If you need new buyers – hold open houses:  18 people went through one open house last week in Centreville, 47 people went through another one in Fairfax – Home Buying Seminars are working now too, one agent had 50 people attend – internet advertising is working too.  You have to be actively involved in the business to get business.  Buyers have so many avenues to find properties plus they have access to so much information that they feel they don’t need an agent.  You need to develop relationships, get referrals and build the bridge or else you won’t get them – best way is to have a face to face buyer presentation.  Therefore, the adage of listers last will ring true for years to come.

First time buyers are getting bumped out who are using FHA loans – cash, conventional and even LFMI loans are beating them out.  The first time market continues to be red hot.

You have to meet appraisers now more so than before to get the house to appraise.  Most are open to your feedback so show up and do your job to protect your sellers and your contract.

Google yourself and see what happens.  Get it?  Got it?  Good!

Now, go sell something!

Notes from Scott’s Desk

There are houses selling…2 contracts per listing of late – and
in different price points, $250,000 and $850,000.  The contracts came in close to list price even
though they were in competition.

Some agents like Equator, the new Bank of America short sale
portal – because of their quick responses and live chat, but some still have
repeated problems with acceptance of forms in particular formats.  Once in the final stage of approval, it takes
about 6 weeks to close, and they take precautions to stave off foreclosure.

Ask for 90 day short sale contingency approval – don’t pull
contract in final stages of negotiation, swap out contracts with same terms to
keep the ball rolling – you don’t want to have to go back to the beginning.

Short sale listings are finding agents – agents aren’t
pursuing them as much, they are just coming in.

Go back to database – reach out and talk to your people to
grow your business.  We are in a
relationship business – build those relationships deeper and your success will

What will happen at the end of April when the tax credit is
gone?  No, what will happen at the end of
March when the Fed stops buying MBS?  The
market will slow…buyers will be back on the fence…financing is tough enough –
hopefully the restrictions on obtaining financing won’t get any worse…rates
will increase – buyers will drop out of market – will prices drop?  Message to send out: look at the positive
side of things…rates are great, inventory is available, prices remain low, we
know what loan programs are available…we need to list out true picture of the
market, it’s our job.

How do properties not listed as short sales end up in hands
of investors prior to courthouse steps?  Are
these investors negotiating directly with the seller or going to the trustee at
the steps or are they going directly to the bank?  This is a question our group would like to
know the answer too.

Appraisers are asking to have snow removed from the roofs of
properties…appraisals are coming in low…fewer sales make appraisals a problem
this time of year…appraisers aren’t going into the house in some cases…on FHA
loans, the lender has the option of using the first appraisal or ordering a
second one, if you are caught in a low appraisal situation with FHA loans on
your listings, switch lenders…

Housing starts rise in January 2.8% – RISMEDIA, February 22,
2010—Nationwide housing production hit its strongest pace in the last six
months this January, posting a 2.8% gain to a seasonally adjusted annual rate
of 591,000 units, according to figures recently released by the U.S. Commerce

According to the latest indexes (Zillow and the Feds “flow
of funds report) negative owner equity has dropped as prices have begun to
increase and between the 1st and 3rd quarters last year,
home equity rose by $1 trillion as a combination of increased home values and
principal pay down.  Although this news
was good for a lot of the country, the sand states (FL, AZ, NM & CA)
continue to be viewed as a high risk factor.

Josh Burruss of Potomac Mortgage Group mentioned the
upcoming FHA financing changes and dates to keep in mind to create buyer

The following are some images from our monthly Real Estate Exchange in Gainesville. 



IMG_7869     IMG_7872 

IMG_7877     IMG_7878


The Numbers tell the Story

As many of you know – and as my DISC profile told me Friday – I like numbers to support my case.  Well, the numbers I am going to share with you are facts you need to know to help you in your business and show us trends in the business:


33% of agents have been licensed fewer than 5 years – just 2.5 years ago at the RE/MAX Broker/Owner Convention, that number was 59%!  In my predictions for 2010 I believe we will continue to see even more agents drop out of the business because of the continuous changes that are occurring and the specialization that is required of agents to serve their clientele.


53% of agents have been licensed fewer than 10 years – again, from the same conference just 2.5 years ago, it was 78% of agents were licensed fewer than 10 years.  The lower this number goes, the better it is for us ethical and professional agents.

And, in my opinion, you have to own what you sell – 91% of Realtors own a home compared with the national home ownership rate of 67%.


In a survey of buyers and sellers this information was gathered…the 3 things buyers want from their agent:


1 – Find them the right home to purchase.  Do you know what this means?  You have to listen!  Check out my blog from earlier this week… and while you are there, click the RSS feed in the lower right hand corner to subscribe to my blog site please – you don’t know what you are missing if you don’t register!  Oh yeah, it’s free!


2 – To negotiate the price.  Quick question…when was the last time you practiced your negotiation skills?  What new techniques have you found valuable?  Have you read any good blogs, books or magazine articles lately about negotiating?


3 – To negotiate the terms of the sale.  Hummmm sound familiar to #2?  Are you marketing yourself as a negotiator?  Do you have testimonials to back you up if you do?  When you meet with clients, do you have specific stories that relate to how you negotiated on behalf of a buyer in a particular situation?  Oh, by the way, listening is a huge part of negotiating!


Now, here is what the sellers say they want from their agent – see if you realize what is missing:


1 – Price the home competitively.  You have to know your comps, market conditions, and trends to know how to price accordingly.  Basically, do in depth research of the market to get it done for you seller.  What are the per square foot prices, pricing trends – are they up or down and how much, the correlation between tax assessed values and sales prices, number of competing properties, average days on market, and where to price it to get maximum exposure while on the market.


2 – Sell the home to sell within a specific timeframe.  Again, this requires you to price it to sell and what else?  Get it in the right condition and get it to show well…let’s see what is next!


3 – Find a buyer for the home.  Well, what do you need to know to do this?  You have to know where buyers go to find houses…other agents, and the internet.  Basically, you have to market your listings where the buyers go to find them.  Research the sites that get the most exposure, the most hits from buyers, what agents sell the most homes in the price range of the house you are selling, etc.  It’s not rocket science.


4 – Market the home to potential buyers.  As previously mentioned – you’ve got to know how to market on the internet – Social Media sites, your website, other real estate related sites, etc.  Also you need to know what they want to see when they get there – multiple pictures and in my opinion, videos.  Pictures and videos of the house, yard, views up and down the street, neighborhood, schools, and shopping centers – get creative!  Also, do your research on MLS and get your listings in front of Realtors who have buyers in your properties price range – get the word out!


5 – Find ways to fix up the home to sell it for more.  Have the listing pre-inspected to have the home in the right condition.  When buyers see one thing wrong, they begin to look for more things that are wrong and then pick at the price.  Have the home staged to have your stager recommend low cost items that get the biggest returns for your sellers. 


When houses are pre-inspected, staged and priced right – they sell in the timeframe your sellers desire.


So you ask, what was missing.  Well, in my opinion – negotiating.  If you can’t negotiate, you can’t get them to price it right or get them to get it in the right condition to sell it in the timeframe they want it sold within.  Also, you have to negotiate with buyers and agents to get your sellers what they want when they want it so learn how to negotiate and market yourself as a negotiator.  Have specific stories that tell sellers what you have done for others to get them what they wanted from the sale of their home.


The more you appeal to buyers and sellers through showing your experience in areas that are important to them, the more success you will have in our business.  Get it?  Got it?  Good!

Conversations with Dave Stevens from FHA


At RE/MAX Gateway, we strive to bring the most current information and speakers to our agents enabling them to rise above our competition.  This past Friday was no different.  Our office of just 90 agents was able to secure the Commissioner of FHA to speak one on one with me and answer all of our agent’s questions – as candidly as he could – and took nearly 2 hours out of his busy schedule help us understand the role of FHA and the direction it is headed to aid in our economic recovery.  As we sat down with Dave Stevensfrom FHA, we thought we would share some highlights from our conversation.

· Where do you get your info?  There is no number one source, market data is complied on a weekly basis.  His belief is that Realtytrac has ineffective data and their foreclosure numbers are way off. NAR’s numbers aren’t accurate either, so FHA scrubs data from different sources. SIFMAis one of those sources (a bond tracking market group on Wall Street that reviews mortgage data). Looking at bonds reflects mortgages that are securitized, they won’t count any other mortgages that aren’t securitized. The majority of mortgages are securitized with Fannie Mae as the servicer for all Fannie and Freddie loans. As a part of Dave’s plan, he wants to have more numbers up on the HUD website for everyone to see and use.  

· Information for policy changes depends on the policy. For RESPA, that change started in 2005 and took until 2010 to be complete, pass and get out to the public.  Sometimes they can happen more quickly as is the case with mortgagee letters.

· We have been reading about upcoming changes for mortgage brokers, what will these changes reflect? Lenders will need to be directly responsible to FHA for the loans they underwrite for brokers.  As it stands today, lenders have different guidelines for loans they originate for themselves and others that they originate for brokers.  So, at this time, brokers don’t underwrite or fund loan their own loans and therefore if someone defaults, it is on the US taxpayer to foot the bill on the defaults for loans they originate.  Today the guidelines to be FHA approved are:  a broker only needs $250,000 in net assets; only $67,000 needs to be in tangible assets; of the $67,000 only 20% of theses tangible assets need to be in cash – only $13,400. This change was proposed because brokers can’t back the loans they are originating, so when goes into default, who do they go after?  The taxpayer.  FHA wants to make sure that they can stand up to what the loans they are generating. 

· The world has no faith in our mortgage system right now. The Bank of China was the largest buyer of MBS (mortgage backed securities); basically they were buying our debt. The government had to step in and start buying because China has lost their faith in our system and stopped buying them.  They got burned from the foreclosures so many people had from the loose underwriting policies of lenders.  Not everyone should be a home owner – some need to be renters.

· So what are some other policy changes on the horizon at FHA?  Some noted changes that we will see in the coming months are…

o   Currently, the Streamline Refinance will allow you to refinance and give you a new fixed rate, no questions asked. No appraisal, no credit check and at 105% loan to value. In January, streamlined FHA Refinance’s will be full document loans with appraisals, etc. One of the reasons behind this is because a company, Fortress bought MBS and bought distressed assets, got them to perform, turned them into FHA loans, then streamline refinanced them and then went into default – with no recourse. Now, one true streamline refinance is left. It’s a refinance from balance to balance where the owner pays closing costs, etc. and it will stay in effect for a while. All other refinances through FHA will be subject to full document review.

o   Appraisals will see a new policy which takes the good parts of HVCC (House Values Code of Conduct) to create a new model. FHA would like to see more arms length transactions.   They are going to discontinue allowing the lender to order the appraisal because FHA feels they are too involved in the transaction as it is.  FHA is also working on shortening the term of getting another appraisal if a contract falls through and a new buyer purchases that home.  The new buyer will be assigned a new FHA case number and would not have to utilize the first appraisal.  Going forward, they would be able to get a new number and appraisal even if it’s within that 6 month window that is currently in place. Also, FHA is not mandating that lenders use an AMC (Appraisal Management Company) just the originator and appraiser cannot speak.  The lender could designate someone in their office to order the appraisals and that is acceptable with FHA. Additionally, the appraiser must know the local market in which they appraise.   There will not be a required mile radius for appraisers because of rural areas vs. suburban areas.  As agents we will also be able to deal with appraisal issues through dispute resolution which can be an issue for lenders who send appraisers without local knowledge and could result in litigation.

o   The capital reserves required for lenders to indemnify loans (loan loss) will go up to one million dollars immediately! Then $2.5 million in 2 years.  Again, 20% of that number has to be in tangible capital and even that number might change.  FHA wants lenders to have more skin in the game.  There will be more changes to come from Fannie, Freddie, etc. and for lenders who can participate with these programs will have to be more legit and have more money.

o   Brokers are not going to be approved by FHA.  They have no ability to pay for loans they originate that go into default. 

o   For Short sales, the Treasury Department and HUD have created a new process and it will take some time to figure it all out. There is a lot of concern with flips, unfair advantages of the system, etc.  These new guidelines roll out April 5th.  Dave is meeting with servicers on Monday to discuss these guidelines.  As we know, the government is pushing for loan modification.  Going forward, FHA will publish a scorecard monthly on how lenders are doing with loan modifications.  FHA is very concerned about moving distressed properties off the market while their main concern is keeping people in their homes.  Short sales guidelines discussion started in July.  FHA felt that we put too many people in houses who couldn’t afford them, now they have to do something to fix it.  Not every bank will sign up for the new program.  To see who is participating, a list of the banks that will be uploaded on the HAMP website.  A couple of large banks refuse to participate and they didn’t take tarp money, so there is nothing FHA can do to make them abide by the guidelines.  

We have heard about some policy changes at Fannie such as the increase in minimum credit scores and lower debt to income ratios, can you speak to these changes?

· Fannie is going to 640 min credit scores and FHA is going to follow suit shortly more than likely.

· 18% of borrowers with FHA loans are in default and FHA feels that raising the FICOscore will lower that default rate.  As of the beginning of 2009, the average FICO score of an FHA borrower is 693 and virtually none of those borrowers are in default. The previous problems in 2004-2008 was in the down payment assistance programs which caused $10.4 billion in losses going forward…it was a disaster. 

If 2009 programs are working, then why change now?

· FHA forecasters are concerned about a double dip in home prices. Home price forecasts that at a minimum there will be another 9-10% drop in home prices through the first quarter of 2010…nationwide. They are looking at current unemployment trends as a huge factor in determining this drop.  It has been forecasted to remain high and as such, we are looking at a jobless recovery. Surprisingly, 2009 has been the best quality book (year economically overall) in a long time.

· Scenario forecasting in a jobless recovery shows that you won’t get the home appreciation rates that you normally would. Growth is predicted at .7% over the inflation rate which is very low and will take several years to have housing prices come back to the levels they are today. They are looking for ways to make it work to avoid another bailout.

· The real estate industry will be a better industry once it’s all done with better lenders in business.  FHA is looking at the rent vs. own index, MSA (Metropolitan Service Area) by MSA, borrower behavior, etc. in order to make cautious decisions as we bottom out and experience a  slow recovery.  Some factors, if not approached soon enough, could have us go into a recession again.

So what’s next – with the extended tax credit, no more government purchase of MBS, there will be a raise in rates, fewer first time home buyers, and then a predicted foreclosure release in the second quarter of 2010?

· Dave said there is an expected ¾ to 1 ½ point rate increase when the Fed backs out of the market (the Fed has already spent $1 trillion and has committed to spend a total of $1.4 trillion).  At this time the government is not buying Ginnie Mae MBS as they are selling verywell in foreign markets. China continues to waitand doesn’t want to start buying again until we decide what we are going to do with Fannie and Freddie. If the government doesn’t continue to purchase MBS, then the MBS will become worthless.  Banks who have huge deposits with no loan demand and may possibly start buying MBS to offset their deposits.  When the Fed pulls out, we will feel an immediate effect of an increase that is expected to be 300-600 basis points above current interest rates which equates to .75% to 1½% in rate increase.

· Before the Fed bought MBS, rates were up 1 ½% above where they are today , so they think that will be the premium to get investors to start purchasing MBS. Currently, we are totally dependent on foreign capital to keep our housing market afloat and America is bankrupt in that department.

· The tax credit is the single biggest expense of the government.  The government stimulus is an artificial growth for the economy.  A lot of people in the government want out of helping the housing market.  They feel they have done enough.  By slowly pulling out of purchasing MBS and discontinuing the tax credit, the housing market should be able to sustain itself.

· If the Chinese economy starts to take a downturn, the first asset they are likely to sell will be US Treasuries and then we’ll really feel it because currently they are the largest buyer of US Treasuries!

· There is a legislative cap of $1.4 trillion for the rest of MBS that the government will buy and they might hit that cap before the program is phased out.  

· So Dave’s advice for Realtors is to be prepared and look forward for what is going to happen, keep growing, invest in your business, get back to basics, don’t deal with uncontrollable and drive forward.

· The government has no money, social security will run out on paper, but the money is already spent. In order to buy these MBS, they have to sell debt; the more debt auctions will drive prices up, so have to drop the price for debts and treasuries which would almost equal the cost for the debt. The spread will have to be there or it’s not good for taxpayer.

· Dave’s big concern is about the disadvantaged as well as sustaining safe housing for all.

· FHA’s HAMP loan modification program, where they tack the excess loan balance due to the back of loan and adjust the payment to a level to a level they can afford, has a 96.6% success rate for no defaults. The majority of the distressed market is due to cultural and language barriers. Dave’s asked for a budget of $75 million for next year to add more counseling services in distressed communities.

· Hardship will be a big factor in the new short sales guidelines. Too many people are taking advantage of the process which is a moral hazard.

· Condo approvals will be more stringent. They will have a permanent policy in place soon and currently have a temporary policy in place.

In closing….

FHA needs to back out of the market and get back to why it was created; Freddie and Fannie can’t be government owned forever and a lot of work has to be done in the process.

Anyone who predicts the future is wrong, homeownership=community stability.  Agents are the key to this recovery. They did it all wrong and the only way to get out is with the real estate agent.

We need to get faith back in the system. Safe act for loan officers, RESPA changes, etc. are just the beginning of the changes that have to take place to stabilize the industry.  

Finally, be excited about the work you do and remember, you are key to the economic recovery.

November Listing Exchange

Listing Exchange 004

We are experiencing short sale success!  One agent got a short sale approved with
clients being current on their mortgage, another one was approved in 3.5 weeks,
many are being approved with the commission negotiated with the sellers, and
one agent got one approved while sitting in the exchange – 6 months after
submission but it was still approved. 
Bank of America is now retaining the right to pursue a deficiency
judgment and letting the seller know that the MI Company may also pursue the
deficiency.  More banks may follow suit –
stay tuned!

Inventory is dropping all over Northern Virginia and the
market continues to be extremely price sensitive.  A home was listed at $275,000 received 3
contracts and the price was escalated up to $300,000 and appraised close to the
sales price.  As luck would have it, the
loan was denied due to fraudulent tax returns being submitted.  Property was relisted for $300,000 because of
the appraisal and 27 showings occurred with no contracts in 2.5 weeks so price
was reduced to $275,000 and two offers are coming in – price properties
correctly and they will sell.

At a recent Buffini
conference he noted:  in 2010 be a Go
Getter or be a Go Goner;   Be a stay
puter and be a bankrupter;  be a do
nothinger and be an out of the businesser! 
What are you going to be next year?

4 million foreclosures expected in 2010 – filings are
slowing down after 6 consecutive months of increases in foreclosure filings.        

Rates are at near low rates for the year.  MBS being purchased by the government will
stop in March – what will happen to rates? 
Who will be a buyer of mortgages at that time?  Right now, we are in a high 4’s market will
probably be in a high 5’s market now.  Again,
now is the time to buy a house!

FHA has reserves of .5% because of demand on their
insurance…what will happen?  Will we need
higher down payments?  Will upfront
mortgage insurance be higher?

In a recent survey of buyers, they felt that on a scale of 1
– 10, 10 being difficult to obtain a loan, getting a loan today ranks as an
8.1.  Lenders are requiring more
paperwork, analyzing loans more and are more difficult to get through.

As most of us know, the tax credit has been
extended…but most REALTOR’s and lenders are not explaining it correctly.  Take advantage of the opportunity and explain
it to your clients and ask for new business!

Upcoming events:

Food Bank ends Friday – please contribute

December 4th is our Quarterly meeting featuring
Dave Stevens – please register!

Breakfast with Santa is December 5th in the
Chantilly office – invite all of your clients!

At our events, the education is great, the food is plentiful
and the networking is awesome – you need to attend.  Get it? 
Got it?  Good!

Now go sell