My New Blog

Welcome to the new and improved Real Estate Insider. Content this quarter summarizes the past year and presents some strategies, deadlines, and outlooks for the year ahead in real estate. I'm proud to have had this article featured as the mortgage market summary for the Minnesota Chapter of the Financial Planning Association which goes out to all of their 900 members. If they want to know this inside information, you need to know it as well. I've highlighted the main topics of each paragragh so you can skim through if you are looking for something specific. I finish with some testimonials. After doing mortgage for over 10 years (working in a small firm and for the largest lender in the country) I strongly believe that the business model I have in place is the best for mortgage delivery. As always "Genuine, Experienced, Resourceful".

If you or someone you know is or will be needing a home loan in the next year, you would be doing them a disservice by not having them check with me to compare.

Much like most industries, change defined 2009 in the mortgage industry. With rates hitting record lows on May 17th and December 8th of last year there was sweeping interest in refinancing as well as record numbers of first time home buyers entering the market. Many large banks left markets or the industry altogether. Minnesota licensed mortgage companies went from the 2006 high of 4,200 to 580 during renewal this fall. Government stepped in to attempt to provide some regulation and standardization which led to a lot of consumer frustration as the banks left standing tried to implement new rules "on the fly" just as many had reduced their workforces significantly. One main area of consumer frustration surrounded the appraisal process which removed contact between the appraiser and the loan officer. This was an attempt to remove possible undue influence by the loan officer by asking the appraiser to find higher comparable values in order to make the loan work. This process, while implemented rather badly by those involved, has seemed to work to the extent of making banks more confident in their loan to value designations and bringing some sanity to house price offerings. It has led to much of the depreciation in overall home prices. A problem with this new regulation is that consumers interested in refinancing now have to pay for an appraisal and hope the value is there. If it isn't the loan doesn't proceed and the person is out that money. In previous days a loan officer could check with an appraiser first on value before the consumer was charged and the appraisal fully executed. The biggest overall change last year was in the documentation area. Banks significantly tightened standards of qualifying and often double and triple checked everything about the qualification process from appraisal to income. Those that were business owners, self-employed, or had previously skated by on stated income programs were hit hard and sometimes were shut out of the refinance process altogether (unless they went back and amended their tax returns to show more income or realize less deductions!). The most oft heard quote around my office was "Boy, we didn't have to show that ___ years ago." The biggest indicators of getting the best rate are loan to value, cash out, and credit score. Read--if you are negative in one or more of these categories banks determine that the loan is a higher risk than most and will charge higher rates. Anything above 80% loan to value comes with about a quarter percent higher rate (anything above 70% if you are taking cash out). Credit scores above 740 will get you the best mortgage rates. If your scores are between 620 and 740 your rate and/or ability to get a loan will be affected depending on the other "risk" factors of the file. The Obama administration rolled out the Home Affordable plan in an attempt to stabilize the market by allowing modifications to lower the interest rate for people that were behind in their payments or by allowing those that had bought at the high mark and now were "underwater" in terms of loan to value to refinance their primary mortgage even if their loan to value was at 125%. Current national estimates are that one in four households with a mortgage are underwater. I applaud the effort, stabilization and then eventual appreciation is in all of our interests. However, the amount of people being helped right now is hampered by only 25% of people in foreclosure qualifying for a modification. Reasons are the elimination of stated income qualifications, one or more heads of household are unemployed, and the overall decrease in average credit scores. As well, the refinance program for those that are current on their payments but owe more than their house is worth, only applied to the 1st lien on a property. Those who have a second mortgage are having to subordinate (keep in place) their second with mixed results. Banks are charging higher interest rates to people having to use this program with the second still in place. At this time most Mortgage Insurance companies and second mortgage providers, who were hit the hardest when the housing market fell are reluctant to participate in this program. Currently, second mortgages above 80% loan to value are hard to come by, have high or adjustable rates, and have disappeared from the investment property market. This program ends in June of this year. FHA loans launched back into popularity because of their low down payment needed for purchase (3 1/2% minimum compared to 5% for conventional loans) and tolerance for lower credit scores. These guidelines are as I write tightening including higher down payment requirements and up front costs for lower credit scores . The drawback of FHA loans is that they are typically 1-2% higher cost than conventional loans at closing because of the Mortgage Insurance Premium. ARM's lost much of their popularity compared to 2003-04 when 1/2 of all loans originated in Minnesota were adjustable. Most consumers are preferring the fixed variety. Exceptions are those seeking jumbo loans larger than $417,000 and consumers knowing they plan to retire and sell their house to move up north or down south. Right now, no lenders want to service jumbos until the market stabilizes and many consumers having to refinance or purchase in this category are doing 3 or 5 year fixed ARMs and waiting for the jumbo market to rebound. Historically, it always has. Construction and remodeling loans have disappeared from much of the market, especially on the high end. These loans have been removed from the retail and broker communities altogether except for the FHA rehab loan product which has a max loan amount depending on the county and has some stringent requirements complicating the disbursement of funds and code regulation. Some consumers are having luck with small to midsize banks that have capital and appealing to the bank president or senior mortgage person on a case by case basis. These loans as well will come back to the fold as values stabilize. "When to refinance?" is another question on consumers' minds. A common rule of thumb is if you can get 1/2 % lower with a no closing cost loan, or 1% lower with some closing costs it makes sense to refinance. Here is the key to this--do you plan to stay in your house significantly past the break even point. The breakeven point is determined by measuring the new payment savings divided by the cost to get the new mortgage. This gives you the number of months to "break even" before you start to fully realize the savings. Anything under 2 years usually makes sense. (The break even for a no closing cost loan is zero months.) "When to buy?" or "When will the housing market hit bottom?" are common questions I get. The key here is timeline versus tightening credit guidelines as well as the low rate considerations. First, because we are probably at minimum 2 years from exhausting all the foreclosure inventory, houses probably won't start to appreciate for another 2 years. (It takes 18 months in Minnesota from the time consumers miss their first payment to the time banks take over, clean, list, and resell properties). You want to make sure that you are prepared to stay in a house you buy now for 5 years or more. Credit tightening should continue for about 2 years as well. So if you are on the border of qualifying right now you may want to move quickly. Finally, rates are very low and at some point probably will go up and stay that way for awhile. Geographically, the Minnesota housing market appears stronger than most. We were #1 on many lists for diversity of the home buying populations, rate of annual decline of depreciation, and sales numbers. This should continue as long as our resident companies stay competitive and the metro area continues the influx of population growth from rural areas in the five state region. Mortgage rates have benefitted from the poor economy, the interest in our debt from foreign markets, and the subsidization of bond purchases by the Obama Administration. All driving bond yields down and with it the rates on short and long term mortgage money. The latter of these is set to end on March 31st of this year. This date is a deadline for many savvy real estate buyers who want to lock in before that time. Inflation and an eventual economic rebound will also send rates higher. To mitigate this, banks may reduce their profit margins this year to keep rates low even if bond yields start to increase. They have some wiggle room because those banks left standing having been reaping high profits from both charging more for each step in the loan process and setting rates about three times the pre-collapse average compared to bond yields. They also benefitted from the TARP zero interest funds loaned to them. The key here is can they continue to "write off" their troubled assets to get these off their books and show profits to shareholders and if the new proposed government tax on large lenders doesn't eat into their profit margins. As I write this rates continue to rival their lowest levels in history. There are two 100% financing options left available to Minnesota consumers. One is the VA home loan and other is the little known USDA rural housing loan. Only available to rural (non-twin cities) residents, the rural housing loan also comes with the stipulation that the person doing this loans' housing situation is improved, along with some other stringent guidelines. The first time homebuyer $8,000 tax credit has spurred purchase levels and is set to end April 30th. Please note that ANY purchaser of a home can get a $6,500 tax credit up until this deadline. Please check with your tax professional for the details. As with any of these deadlines, they could and may be extended. The key to getting a low rate and a great deal on a house is getting through the mortgage process, which right now is a bit of adventure. Happy hunting...

"My clients have been very pleased with the service Todd has provided, especially with explaining options and providing guidance and insight."

Nate Wenner, CPA, PFS, CFP^?, CIMA^? Principal, Regional Director

Wipfli Hewins Investment Advisors

2009 President-MN Financial Planning Association

"I've known Todd for several years now as part of an industry organization. His depth of knowledge and professional approach has led me to use him for my mortgage as well as refer my clients to. My firsthand experience with Todd and his organization has given me confidence to refer clients knowing that they will be treated to high quality service and very competitive rates."

Shawn Jacobson, CFP? Vice President

Legacy Financial Advisors

2008 President--MN Financial Planning Association

"Todd did a super job at exploring all the possibilities for our personal home mortgage loan. When it seemed like all avenues we were on just lead to a dead end, Todd was persistent, and found us something we could work with!"

Alicia C CEO

"I just wanted to take a minute and thank you for referring me to Todd; we closed today, and had a completely problem-free experience with Todd and Stephani. Both of them were super-responsive to my calls and emails, and everything was done quickly, efficiently, and professionally."

Scott R Maple Grove Homeowner

"I have known Todd for over five years now and worked with him on many transactions. He is very knowledgeable, resourceful, and helpful when dealing with people on a case by case basis. In every case, he has succeeded both the clients and my expectations. I will continue to refer my clients to Todd to help them in the loan process."

Grant Rick, Edina Realty