NAR Against Banks Owning Real Estate Brokerages

On one level it's no surprise that the National Association of Realtors is against banks owning real estate brokerages, and on the other hand what does the organization itself stand to lose?

Their bullet points are:

1. The same large-scale consolidation that has taken place in the banking industry itself would likely occur in the real estate business.
Fewer entities conducting real estate brokerage would mean less competition. The result: fewer choices and higher costs for consumers.
2. An additional effect of the proposed regulations would be pressure on bank-affiliated real estate brokers and agents to market and sell other financial products such as insurance, securities and credit cards.
3. Banks could share private consumer data obtained in real estate transactions with their affiliates and other third parties business entities.
4. Banking conglomerates would have unfair competitive advantages. These financial institutions that could operate real estate brokerages under the proposed regulations would benefit from access to capital at lower rates – thanks to federally insured deposits. That benefit is not available to local real estate companies.
5. According to a J.D. Power survey, 28 percent of home buyers had problems with their lenders. Those problems included errors in closing documents, miscommunication of loan terms and unavailable or unresponsive loan consultants or mortgage brokers. That means almost one in three home buyers did not get adequate customer service just during the loan process. How will they be better served by banks during the much more complex process of buying or selling a home?

Of course, it piques me to read #5 on their list. I'm not saying it's not correct, it just always bothers me that lenders aren't doing their jobs to the best of their capabilities.

As a Mortgage Broker who doesn't work for a huge company and works hard to compete in the marketplace, I agree that banks owning real estate companies is a mess. However, there has been an erosion of the seperation of banking institutions and commercial activity for some time (thanks to Sandy Weill & Citigroup when they purchased Traveler's Insurance) and it looks like it's going to continue.

I love the independents. And thankfully here in New York's wacky real estate market there seems to be some room for them...for now.

For the rest of this article, click here.

Low down payment financing on a 2 family house

Without getting a subprime mortgage, a borrower can obtain 95% financing on a 2 family home. These loans can be structured in many ways, but the most common is probably an 80% first mortgage and a 15% second mortgage or Home Equity Line of Credit. This can also be done when the purchase price is more than $1,000,000 which is common here in New York City. With these properties, sometimes the first mortgage will be at a better rate if the first mortgage is less than $1,000,000 and the rest is a second mortgage.

Decade High On Default Rate

One thing that is a blessing about focusing on the Manhattan coop market is that the board approval process and the down payment requirements don't create a market for subprime mortgages. I've avoided the subprime market for this simple reason, and I'm glad when I read that the default rate has risen to 10% of the mortgages sold to investors. That's up from 6.62% according to a report by investment bank Friedman Billings Ramsey & Co. I saw this report in REALTOR Magazine's Daily News.

Run for the Hills

According to the January issue of The Real Deal, many local lenders are going out of business and the industry could shed as much as 25% of it's New York workforce in 2007. That's not necessarily bad news. Mortgage Brokers should be focused on the local real estate market, know the players and the nuances of the local property types.

There are still many people in the mortgage business who are more interested in collecting high fees, than getting the deal done. Still too many order takers, who are little more than telemarketers. By focusing on a sub market, and knowing everything one can about their chosen area of expertise, whether it's new construction, coops, condos or mixed use buildings, one can develop a mortgage business that will be profitable and productive.

Buildings on Leased Land

Generally speaking, you should have no problems getting a mortgage in a building that sits on leased land. Here in New York City, some of the finest buildings are on leased land, whether they are cooperatives or condos like in Battery Park.

Generally speaking, if the lease on the land runs longer than the term of the mortgage, there shouldn't be any problems. Often these leases are for many years, such as a 99 year term. Best to get a copy of the lease, read the terms, calculate any rent increases during the term of the lease and find out the expiration date.

It's not the most common type of building, but it's common enough to finance.

MLN out of business as a lender

Recently I've received 2 faxes from a lender, MLN, which stands for Mortgage Lenders Network. The first one said that they were no longer lending in New York, and the second said that they were working on a solution for the loans that were currently in the works with them.

I've never done any business with them. And don't have the skinny on why they are shutting down exactly, but I found it interesting.

Happy New Year

Here's to wishing you and yours a happy, healthy and prosperous 2007

I'm in the Top 50

According to Broker magazine and a National Association of Mortgage Brokers survey, I placed #36 in the US for mortgage originations. Of course I had the list framed...

56% of the 8 out of 10

Wells Fargo & Co. did a survey of property owners with ARMs. Survey shows that 8 out of 10 are worried about their interest rate rising, but only 56% said that they would refinance when the rate changes. 21% said they would take no action when their rate adjusts. The survey found that only 14% of respondents had ARMs.

I wonder if this speaks more about the quality of the loan officer (broker or banker) than it does about homeowner's concern over a rising housing payment.

Anyway, it is important for those with ARMs to have a plan for when their rate adjusts, even if the best action is to do nothing.

Happy Holidays

Have a happy and healthy holiday season...

The Next Carnival of Real Estate Investing

Cash Flow Treasures will be hosting the Sixth Edition. Be sure to check it out. For more information on the Carnival of Real Estate Investing, please click here.

Carnival of Real Estate Investing 5th Edition

Welcome to the 5th Edition of the Carnival of Real Estate Investing. I didn't receive many posts this week, since we are in the full swing of the holidays, so I'll be able to comment on each post that I received.

The top post was a dead heat between two that I found very helpful on a practical level and in the end I chose Photo Marketing Tips To Say "Attention Buyers!" posted by Steve Burns. This is a more personal choice, since here in New York City, even for rentals, it's extremely important to have excellent photos or the ad won't even be viewed. I know that many prospects who search through Craigslist won't even look at the post unless there is a photo. So this information on how to take photos was extremely useful to me as a non-photographer who needs to learn more.

The rest of the posts were also very interesting. I very much enjoyed hosting this week's Carnival. The posts were varied enough to educate and entertain.

Anesia Springborn's New Manager Invites Excuses and Abuses was an excellent personal experience of how tenants are likely to test the waters when a new property manager takes over a rental property. I enjoy learning from others' personal experiences so this post was especially interesting to me.

In the same vein, Paul's Increasing your hourly rate in order to get rich reminds us to work smarter, not harder. I especially liked the focus on education.

Joshua Dorkin's timely post Keeping Your Tenants Happy During the Holidays was a nice reminder to keep our tenants happy and they will reward us by being timely rent paying happy tenants who may be more accepting of a new property manager in the future.

With the Fed being among the most watched bodies these days, Why The Fed Matters to Real Estate by Dan Green was helpful in putting the big picture into perspective.

In keeping with the Fed's influence on interest rates, Nick Gifford shows us some surprising conclusions that Adjustable Rate Mortgages might, in the end, be a better way to go than Fixed Rate Mortgages when historical data is taken into account in his post The ARM vs. Fixed Rate Mortgage Dilemma

Commercial Real Estate: How You Win Even If You Lose by Craig S. Higdon goes into the basics of using financing to purchase real estate even if you've put together a syndicate to provide the down payment. It shows us that when you put together all of the benefits of owning property, you can sell at a loss and still make an overall profit. A very basic primer for those interested in commercial real estate.

Praveen's post Top 10 Real Estate Books of 2006 might help in purchasing a gift for the real estate investor near and dear to your heart this year.

And lastly, Will Chen presents what is fast becoming (in my opinion at least) the "Save Karyn" of the real estate world with this video lecture Must watch video for new real estate investors. Is there a book deal in the works for this guy yet?

I had a great time reading these posts. The Carnival of Real Estate Investing is off for the next two weeks for the holidays. So check back for the next host of the Carnival of Real Estate Investing!

Update - Mortgage Insurance Payments are Deductible

Unfortunately it's not retroactive, but yes, MI (or PMI) payments are income tax deductible starting January 1st 2007. Any new mortgage insurance policies written after the new year will be deductible.

According to BankRate.com there are some caveats:

Caveat No. 1: The tax deduction applies only to mortgages that are closed in 2007. If you have a loan with mortgage insurance in 2006, you won't be able to deduct the premiums in the 2007 tax year unless you refinance in 2007.

Caveat No. 2: There are income limits. You get the full deduction if your adjusted gross income is $100,000 or less. The amount you can deduct phases out rapidly after that, and no mortgage insurance deduction is available if you make more than $110,000.

Caveat No. 3: This is a one-year deal, and Congress would have to renew the deduction to make it apply for the 2008 tax year and beyond. Congress probably will extend the deduction, but you can't know for sure.

Caveat No. 4: If you take the standard deduction instead of itemizing deductions, the new law makes no difference to you. "You need to have a mortgage of about $130,000 or so to even pay enough interest to hurdle the standard deduction," says Bob Walters, chief economist for Quicken Loans. In practice, he says, this means that the deduction is available to households with incomes between $50,000 and $100,000.

For more on the specifics and how mortgage insurance compares to taking a piggy back loan, please see BankRate.com.

Mortgage Insurance is Now Deductible?

I read something today saying that Congress passed the bill making mortgage insurance, or private mortgage insurance deductible. I don't know the details yet, though I'm sure there's more information to come.

Mortgage Insurance is a type of insurance that the lender requires when the mortgage loan balance is greater than 80% of the value of the property. In the last few years, borrowers have been skirting this expense by obtaining second mortgages as piggy back mortgages. This made sense since the interest paid on these loans was deductible whereas mortgage insurance was not.

I was aware that the insurance companies were lobbying for a law change to make mortgage insurance deductible. The insurance lobby is very powerful, so it was only of matter of time.

Might create some more stable loans for buyers with lower down payments.

Carnival of Real Estate Investing

This week, I'm hosting The Carnival of Real Estate Investing. So please submit your posts at www.carnivalofrealestateinvesting.com.

Thanks,

Home Equity Line of Credit for Coops

Yes, you can obtain a Home Equity Line of Credit for your cooperative apartment. Basically, the underwriting guidelines are essentially the same as with any other property type; they are based on loan to value, credit score, debt to income ratios.

Loan to value is the percentage that your total loan amount, including the Home Equity Line of Credit for which you are applying, is of your coop's market value. A $600,000 total loan amount on a $1,000,000 coop has a 60% Loan to Value (LTV). Generally speaking on a coop, the lenders will go a higher loan to value than the cooperative board will allow.

Credit score is the middle score that is pulled from all 3 credit repositories (Equifax, Experian, and TransUnion). Home Equity Line of Credit are very credit score driven, if your score is too low, then you cannot qualify at all, if your score is high enough, you will not have to verify income or assets in order to qualify.

Debt to Income Ratio (DTI) is the percentage that your monthly obligations is of your gross monthly income. If it's below 40% including your housing payment, then you should be in good shape.

A couple of things about the Home Equity Line of Credit, it can be a good financial tool when used properly. However the borrower should understand that the interest rate is generally adjustable based on the Prime Rate as published in the Wall Street Journal. This means that Prime goes, your payment goes -sometimes up, sometimes down. If you have a Home Equity Line of Credit pay attention to the Federal Funds Rate. That will let you know what your interest rate is going to do.

Lenders are now allowing Home Equity Line of Credit borrowers to fix a portion of their balance's interest rate and payment, so you might want to inquire about the details.

Happy Thanksgiving!!!

Have a wonderful holiday.

Conforming Loan Limits Will Remain the Same

It looks like the Office of Federal Housing Enterprise Oversight will not reduce the current $417,000 conforming loan limit for a single family home in 2007. They may raise it if necessary, or let it stand for 2007. If prices drop they will average that against the 2007 levels when deciding the 2008 conforming loan limit.

That's good news for housing from the financing perspective, as it will hopefully keep housing at a more affordable level with favorable interest rates for mortgages.

Gifted Down Payments

So Mom & Dad are finally coming through and giving you the down payment for a brand new New York City apartment. That's great! There's a couple of things to be aware of when applying for a mortgage with a gifted down payment.

In a perfect world, you would receive the gift funds at least 3 months before you plan to purchase the apartment. Underwriting rules for full documentation mortgages require that a borrower show 2 months (occasionally 3 months) of your most recent bank statements showing enough liquid cash for the down payment and the closing costs with no large deposits. A large deposit is defined as any unusual deposit greater than 2% of the purchase price of your apartment. So if mom and dad kick down the cash after you've signed the contract of sale, you may not qualify for a full documentation mortgage since there will definitely be a large deposit in your bank account.

This would also be the easiest way to get around the asset requirements required by the Board of Directors in a cooperative purchase.

If they just can't part with the money until they are sure you aren't going to spend it recklessly at Barney's and the Darkroom, then you'll have to be prepared to document the down payment as gift funds.

This is done by having the donor (mom and dad in this case) sign a statement that they are giving you the money and will not require it's repayment. Additionally they will have to show 2 months of the bank statements of the account that they emptying to give you the funds to prove their ability to give the money without you having to pay it back. I find that parents rarely want to comply with this last step.

So the best move is to either have an extremely high credit score to override the showing of assets or prove to mom and dad that you can handle having the money in your bank account for a few minutes without running to the Nike store.

There is another sneakier way too. Simply put your name on mom and dad's nest egg account that holds that precious down payment money making it a joint account in your name as well as theirs.

Existing Home Sales Ease

Also according to the National Assocation of Realtors:

Existing-home sales eased in September, as did the number of homes available for sale – indicating the housing market is stabilizing. Total existing-home sales dipped 1.9 percent to a seasonally adjusted annual rate of 6.18 million units in September. This pace was 14.2 percent down from a year earlier. David Lereah, NAR’s chief economist, said: “Considering that existing-home sales are based on closed transactions, this is a lagging indicator and the worst is behind us as far as a market correction – this is likely the trough for sales.”