Washington Times, February 10, 2006
By Chris Sicks
Buyers and sellers in Northern Virginia found themselves in a time warp at the end of 2005.
At the beginning of last year, the Northern Virginia communities of Fairfax County, Arlington County and the city of Alexandria were the hottest markets in the region.
Homes sold more quickly, buyers battled harder and prices rose more rapidly in those three jurisdictions than anywhere in the area.
But by the end of the year, it was suddenly 1998 again.
In February 2005, sales chances were 135 percent in Northern Virginia.
Buyers bought homes so quickly that the inventory of homes for sale was at a record low.
Buyers only had 1,584 homes to choose from in those three markets combined.
But by October, more than 7,000 homes were for sale, and they weren't moving quickly.
Sales chances were down to only 29 percent -- lower than in Montgomery, Prince George's and the District.
Sales chances are a measure of market activity, calculated by dividing home sales by inventory. When chances fall below 20 percent, we're in a buyers market. Many Washington-area markets could be there soon.
Another thing changed dramatically between the start of 2005 and the end. In February last year, I wrote this sentence: "Condos are the most sought-after type of housing."
That was true, then. By the end of the year, however, the market was flooded with condominium listings that weren't selling.
Realtors tell me that condos were the hardest type of home to buy early last year, but now they're the easiest. That, too, reminds me of 1998. Condos were not doing well back then, and it appears an abundance of condo inventory is rewinding the clock.
One thing that is different from 1998, of course, is home prices. Even though the Northern Virginia market cooled down more drastically than other parts of the region, home prices didn't fall through the floor.
The median sales price in Northern Virginia fluctuated some last year. In July the median was $500,000. In December it was $479,000.
However, in December 2004 the median there was only $410,000, so whether prices rose or fell last year all depends on what time frame you are looking at.
15 February 2006
As bidding frenzy ends, smart buyers get busy
Washington Times, February 10, 2006
By M. Anthony Carr
Everybody's looking for a good deal. Sellers want the highest price possible and buyers want to buy a house below asking price. They both want the same thing -- a good deal.
After years of a seller's market, many consumers are facing a more normalized market across the country. Particularly, in large metropolitan markets, the normalizing of the market has created a wait-and-see attitude on real estate transactions.
For the wise investor or home buyer, the cautionary phrase of "wait to buy real estate" should give way to "buy real estate, then wait."
One of the keys to savvy real estate investing, whether for personal use or wealth building, is timing. In a seller's market, every buyer who was serious about getting into a home knew it was time for bidding prices up. Getting the best price with the best terms was not a winnable strategy for so many buyers. The name of the game was winning the house.
Interestingly, buyers had no problem bidding up a house $25,000, $50,000, even $100,000 to "win" the house in the Washington-area market just a few months ago. As prices moved upward at a clip of 20 percent per year, more buyers jumped in, buying high in hope of gaining a lot of money in a matter of weeks and months.
Now that price escalations have simmered down to a normal pace -- the buyers have stopped the bidding frenzy -- it is exactly when the smart buyer should enter the field.
In a buyer's market, buyers must understand that those who negotiate win, and they win big. If you find a house on the market for $420,000 and you want to get it for $399,000, the only thing stopping you is your personal will.
Write up an offer for that amount and let the negotiations begin.
In addition, while you're offering less money, toss in a home/radon/roof inspection or $5,000 in closing costs.
Meanwhile, on the other side of the fence, sellers must learn a lesson early in a normalizing market -- it's time to price ahead of the market. That means you must get ahead of the price-reduction curve.
Pricing ahead of the market makes many sellers cringe. They think they are "losing" money on their house.
This attitude makes me shake my head in wonder. Looking over average sales prices as if they were stock quotes, homeowners will talk about how they have "lost" money on their home. The discussion goes something like this: "I lost $30,000 on my house. It's only worth $410,000 now."
"Really? So, you bought it for $440,000?"
"No. But my neighbor's house sold for $440,000 last fall and now the same model is on the market for $410,000. I have the same model, so I must have lost $30,000."
"I thought you bought your house five years ago for $220,000?"
"Yep."
"So where did you lose the $30,000? Sounds to me like you've gained $190,000."
It's all a matter of perspective. If you've gained $190,000 and you want to move up (or down), the level market is the time to get off the fence and make the good financial decision. Although your house's price might have dropped, so has the price of the move-up property you're looking to buy.
Sellers should also heed a bit of advice that all agents know and understand -- the first offer is usually the best offer. As a seller, if the price really looks low, flow with it. Make a counteroffer. Make the terms and price work.
Obviously, beware of bottom feeders -- those who are looking for desperate sellers. However, a price fluctuation of 5 percent is not that bad.
The problem for home sellers is the psychological challenge, realizing that 5 percent might represent $20,000.
If you're moving up, though, keep in mind the $20,000 "loss" on your sale may be leveled out by the $20,000 "gain" on the move-up property.
The hot market of 2006 has begun. The economy is booming, inventory is up, prices have leveled, interest rates are still historically low.
What are you waiting for?
By M. Anthony Carr
Everybody's looking for a good deal. Sellers want the highest price possible and buyers want to buy a house below asking price. They both want the same thing -- a good deal.
After years of a seller's market, many consumers are facing a more normalized market across the country. Particularly, in large metropolitan markets, the normalizing of the market has created a wait-and-see attitude on real estate transactions.
For the wise investor or home buyer, the cautionary phrase of "wait to buy real estate" should give way to "buy real estate, then wait."
One of the keys to savvy real estate investing, whether for personal use or wealth building, is timing. In a seller's market, every buyer who was serious about getting into a home knew it was time for bidding prices up. Getting the best price with the best terms was not a winnable strategy for so many buyers. The name of the game was winning the house.
Interestingly, buyers had no problem bidding up a house $25,000, $50,000, even $100,000 to "win" the house in the Washington-area market just a few months ago. As prices moved upward at a clip of 20 percent per year, more buyers jumped in, buying high in hope of gaining a lot of money in a matter of weeks and months.
Now that price escalations have simmered down to a normal pace -- the buyers have stopped the bidding frenzy -- it is exactly when the smart buyer should enter the field.
In a buyer's market, buyers must understand that those who negotiate win, and they win big. If you find a house on the market for $420,000 and you want to get it for $399,000, the only thing stopping you is your personal will.
Write up an offer for that amount and let the negotiations begin.
In addition, while you're offering less money, toss in a home/radon/roof inspection or $5,000 in closing costs.
Meanwhile, on the other side of the fence, sellers must learn a lesson early in a normalizing market -- it's time to price ahead of the market. That means you must get ahead of the price-reduction curve.
Pricing ahead of the market makes many sellers cringe. They think they are "losing" money on their house.
This attitude makes me shake my head in wonder. Looking over average sales prices as if they were stock quotes, homeowners will talk about how they have "lost" money on their home. The discussion goes something like this: "I lost $30,000 on my house. It's only worth $410,000 now."
"Really? So, you bought it for $440,000?"
"No. But my neighbor's house sold for $440,000 last fall and now the same model is on the market for $410,000. I have the same model, so I must have lost $30,000."
"I thought you bought your house five years ago for $220,000?"
"Yep."
"So where did you lose the $30,000? Sounds to me like you've gained $190,000."
It's all a matter of perspective. If you've gained $190,000 and you want to move up (or down), the level market is the time to get off the fence and make the good financial decision. Although your house's price might have dropped, so has the price of the move-up property you're looking to buy.
Sellers should also heed a bit of advice that all agents know and understand -- the first offer is usually the best offer. As a seller, if the price really looks low, flow with it. Make a counteroffer. Make the terms and price work.
Obviously, beware of bottom feeders -- those who are looking for desperate sellers. However, a price fluctuation of 5 percent is not that bad.
The problem for home sellers is the psychological challenge, realizing that 5 percent might represent $20,000.
If you're moving up, though, keep in mind the $20,000 "loss" on your sale may be leveled out by the $20,000 "gain" on the move-up property.
The hot market of 2006 has begun. The economy is booming, inventory is up, prices have leveled, interest rates are still historically low.
What are you waiting for?
05 February 2006
40 States Re-Examining Eminent Domain
Associated Press, February 5, 2006
By Robert Tanner
The city wants Anna DeFaria's home, and if she doesn't sell willingly, officials are going to take it from the 80-year-old retired pre-school teacher.
In place of her "tiny slip of a bungalow" — and two dozen other weathered, working-class beachfront homes — city officials want private developers to build upscale townhouses.
Is this the work of a cruel government? Or the best hope for resurrecting an ocean resort town that is finally showing signs of reviving after decades of hard times?
Echoes of the debate are happening across the country, after a U.S. Supreme Court decision brought new attention to governments' ability to seize property through the tool of eminent domain.
Some 40 states are re-examining their laws — with action in Congress, too — after the court's unpopular ruling.
"We thought this was going to be our home forever," said DeFaria, sitting in a kitchen cozy with photos of children and grandchildren, quotes from the Bible and a game of Scrabble that she plays against herself. "Now they want to take it away. It's unfair, it's criminal, it's unconstitutional."
Not according to the Supreme Court. In a 5-4 ruling last June that was greeted with widespread criticism, the court found that New London, Conn., had the authority to take homes for a private development project.
The Constitution says governments cannot take private property for public use without "just compensation." Governments have traditionally used eminent domain to build public projects such as roads, reservoirs and parks. But for decades, the court has been expanding the definition of public use, allowing cities to employ eminent domain to eliminate blight.
The high court, in its ruling, also noted that states are free to ban that practice —and legislators around the country are thinking about whether they should do just that.
New Jersey state Sen. Diane Allen, with bipartisan support, is pushing for a two-year ban on all eminent domain actions and for a bipartisan study group to re-examine its use in New Jersey. "Right now government, I think, is using eminent domain to take people's private properties and hand it over to another owner," said Allen, a Republican. "It's really putting a hole in the American dream. Ownership of private property plays such a large role in that dream."
After the court ruling, four states passed laws reining in eminent domain. Roughly another 40 are considering legislation. In Congress, the House voted to deny federal funds to any project that used eminent domain to benefit a private development, and a federal study aims to examine how widely it is used.
The Washington-based Institute for Justice, a libertarian advocacy group that worked for homeowners in the New London case and in Long Branch, argues that state laws should be changed so property can only be seized for public uses like a park or a school — not urban redevelopment that benefits private developers.
Redevelopment usually depends on defining an area as "blighted" or a "slum," though definitions are vague, said Bert Gall, an attorney with the institute. Criteria can include a building's age, lack of compliance with building codes, even the size of a yard.
Abuses are widespread, Gall said, claiming that over a five-year period ending in 2002, more than 10,000 properties were threatened by eminent domain.
Municipal leaders across the country are pushing back, arguing that it's false to claim eminent domain is widely abused and warning that an emotional backlash to the court ruling is putting at risk an important tool that has helped turn around neighborhoods including Baltimore's Inner Harbor and New York's Times Square.
Elected officials have difficult decisions to make, and often must balance a community's needs with a few individuals, said Don Borut, executive director of the National League of Cities.
The plight of homeowners is hard to ignore, he said. "But at the same time ... there are hundreds if not a couple of thousand faces of people you don't see, of people of all levels of income who as a result of the economic development will get jobs," he added.
In Long Branch, there's no doubt the city needed to do something — a comeback wasn't
happening on its own, Mayor Adam Schneider said.
"Most people wouldn't walk down those streets anymore. The worst neighborhood in our city was along our oceanfront. And that's been reversed," he said. Since the redevelopment effort began in earnest in 2002 after a decade of planning, new shops and homeowners have moved in, and new sidewalks have been installed — along with a new boardwalk, parks and an ice-skating rink, he aid.
"What you do is you've improved your city, you've gotten rid of decrepit housing, you've created jobs," Schneider said. "It's easy to play it out as the city is cruel and government is stealing your property. I'm used to it. ... But this has reversed the decline that's been going on in Long Branch for more than 50 years."
Already, people are coming to new shops along the central waterfront, where the old pier burned down back in 1987. Rows and rows of new, sand-colored condominiums shadow DeFaria's one-story home when the afternoon sun sinks low.
DeFaria said she was offered $325,000 for the home she and her late husband bought in 1960 for $6,400. Where could anyone buy a waterfront view on the Jersey coast for that amount of money now?
But it's not the money, she said: $1 million wouldn't convince her. "They're taking my home away — not my house. My home. My life."
By Robert Tanner
The city wants Anna DeFaria's home, and if she doesn't sell willingly, officials are going to take it from the 80-year-old retired pre-school teacher.
In place of her "tiny slip of a bungalow" — and two dozen other weathered, working-class beachfront homes — city officials want private developers to build upscale townhouses.
Is this the work of a cruel government? Or the best hope for resurrecting an ocean resort town that is finally showing signs of reviving after decades of hard times?
Echoes of the debate are happening across the country, after a U.S. Supreme Court decision brought new attention to governments' ability to seize property through the tool of eminent domain.
Some 40 states are re-examining their laws — with action in Congress, too — after the court's unpopular ruling.
"We thought this was going to be our home forever," said DeFaria, sitting in a kitchen cozy with photos of children and grandchildren, quotes from the Bible and a game of Scrabble that she plays against herself. "Now they want to take it away. It's unfair, it's criminal, it's unconstitutional."
Not according to the Supreme Court. In a 5-4 ruling last June that was greeted with widespread criticism, the court found that New London, Conn., had the authority to take homes for a private development project.
The Constitution says governments cannot take private property for public use without "just compensation." Governments have traditionally used eminent domain to build public projects such as roads, reservoirs and parks. But for decades, the court has been expanding the definition of public use, allowing cities to employ eminent domain to eliminate blight.
The high court, in its ruling, also noted that states are free to ban that practice —and legislators around the country are thinking about whether they should do just that.
New Jersey state Sen. Diane Allen, with bipartisan support, is pushing for a two-year ban on all eminent domain actions and for a bipartisan study group to re-examine its use in New Jersey. "Right now government, I think, is using eminent domain to take people's private properties and hand it over to another owner," said Allen, a Republican. "It's really putting a hole in the American dream. Ownership of private property plays such a large role in that dream."
After the court ruling, four states passed laws reining in eminent domain. Roughly another 40 are considering legislation. In Congress, the House voted to deny federal funds to any project that used eminent domain to benefit a private development, and a federal study aims to examine how widely it is used.
The Washington-based Institute for Justice, a libertarian advocacy group that worked for homeowners in the New London case and in Long Branch, argues that state laws should be changed so property can only be seized for public uses like a park or a school — not urban redevelopment that benefits private developers.
Redevelopment usually depends on defining an area as "blighted" or a "slum," though definitions are vague, said Bert Gall, an attorney with the institute. Criteria can include a building's age, lack of compliance with building codes, even the size of a yard.
Abuses are widespread, Gall said, claiming that over a five-year period ending in 2002, more than 10,000 properties were threatened by eminent domain.
Municipal leaders across the country are pushing back, arguing that it's false to claim eminent domain is widely abused and warning that an emotional backlash to the court ruling is putting at risk an important tool that has helped turn around neighborhoods including Baltimore's Inner Harbor and New York's Times Square.
Elected officials have difficult decisions to make, and often must balance a community's needs with a few individuals, said Don Borut, executive director of the National League of Cities.
The plight of homeowners is hard to ignore, he said. "But at the same time ... there are hundreds if not a couple of thousand faces of people you don't see, of people of all levels of income who as a result of the economic development will get jobs," he added.
In Long Branch, there's no doubt the city needed to do something — a comeback wasn't
happening on its own, Mayor Adam Schneider said.
"Most people wouldn't walk down those streets anymore. The worst neighborhood in our city was along our oceanfront. And that's been reversed," he said. Since the redevelopment effort began in earnest in 2002 after a decade of planning, new shops and homeowners have moved in, and new sidewalks have been installed — along with a new boardwalk, parks and an ice-skating rink, he aid.
"What you do is you've improved your city, you've gotten rid of decrepit housing, you've created jobs," Schneider said. "It's easy to play it out as the city is cruel and government is stealing your property. I'm used to it. ... But this has reversed the decline that's been going on in Long Branch for more than 50 years."
Already, people are coming to new shops along the central waterfront, where the old pier burned down back in 1987. Rows and rows of new, sand-colored condominiums shadow DeFaria's one-story home when the afternoon sun sinks low.
DeFaria said she was offered $325,000 for the home she and her late husband bought in 1960 for $6,400. Where could anyone buy a waterfront view on the Jersey coast for that amount of money now?
But it's not the money, she said: $1 million wouldn't convince her. "They're taking my home away — not my house. My home. My life."
30-Year Mortgage Rates Rise Again
Washington Post, February 4, 2006
Mortgage rates around the country went up this week, with rates on 30-year mortgages climbing to their highest since late December.
Mortgage company Freddie Mac, in its weekly nationwide survey released Thursday, reported that rates on 30-year, fixed-rate mortgages rose to 6.23 percent for the week ending Feb. 2. That was up from 6.12 percent last week and was the highest rate since the week ending Dec. 22.
Rates are rising with investors' concerns about inflation.
"Declines in worker productivity coupled with accelerating labor costs increase the threat of inflation down the road," said Frank E. Nothaft, Freddie Mac's chief economist. "Inflationary pressure generated by these two factors pushes long-term mortgage rates upward, which is why we have seen rates rise these last two weeks."
Before that, rates on 30-year mortgages had been drifting downward.
Meanwhile, rates on 15-year, fixed-rate mortgages, a popular choice for refinancing home mortgages, averaged 5.81 percent this week, up from 5.70 percent last week. One-year adjustable rate mortgages increased to 5.33 percent this week, compared with 5.20 percent last week. Rates on five-year hybrid adjustable rate mortgages rose to 5.87 percent this week, from 5.75 percent last week.
Rising mortgage rates also come after the Federal Reserve's decision Tuesday to raise a key short-term interest rate to its highest in nearly five years -- an action aimed at fending off inflation.
The mortgage rates do not include add-on fees known as points. The 30-year and 15-year mortgages, and the five-year hybrid adjustable rate mortgage, each carried a nationwide average fee of 0.5 point. One-year adjustable rate mortgages had an average fee of 0.7 point.
A year earlier, 30-year mortgages averaged 5.63 percent, 15-year mortgages stood at 5.14 percent, one-year adjustable-rate mortgages were at 4.23 percent and five-year hybrid adjustable rate mortgages averaged 5.00 percent.
"Mortgage rates will surely fluctuate in the weeks and months ahead, but the trend now is for higher rates over the long run," Nothaft said.
The Mortgage Bankers Association predicted that 30-year mortgage rates will rise to about 6.4 percent by the end of this year. Some analysts, however, think that rate could end the year closer to 7 percent, if inflation picks up. Either way, rising rates are expected to slow home sales this year.
Mortgage rates around the country went up this week, with rates on 30-year mortgages climbing to their highest since late December.
Mortgage company Freddie Mac, in its weekly nationwide survey released Thursday, reported that rates on 30-year, fixed-rate mortgages rose to 6.23 percent for the week ending Feb. 2. That was up from 6.12 percent last week and was the highest rate since the week ending Dec. 22.
Rates are rising with investors' concerns about inflation.
"Declines in worker productivity coupled with accelerating labor costs increase the threat of inflation down the road," said Frank E. Nothaft, Freddie Mac's chief economist. "Inflationary pressure generated by these two factors pushes long-term mortgage rates upward, which is why we have seen rates rise these last two weeks."
Before that, rates on 30-year mortgages had been drifting downward.
Meanwhile, rates on 15-year, fixed-rate mortgages, a popular choice for refinancing home mortgages, averaged 5.81 percent this week, up from 5.70 percent last week. One-year adjustable rate mortgages increased to 5.33 percent this week, compared with 5.20 percent last week. Rates on five-year hybrid adjustable rate mortgages rose to 5.87 percent this week, from 5.75 percent last week.
Rising mortgage rates also come after the Federal Reserve's decision Tuesday to raise a key short-term interest rate to its highest in nearly five years -- an action aimed at fending off inflation.
The mortgage rates do not include add-on fees known as points. The 30-year and 15-year mortgages, and the five-year hybrid adjustable rate mortgage, each carried a nationwide average fee of 0.5 point. One-year adjustable rate mortgages had an average fee of 0.7 point.
A year earlier, 30-year mortgages averaged 5.63 percent, 15-year mortgages stood at 5.14 percent, one-year adjustable-rate mortgages were at 4.23 percent and five-year hybrid adjustable rate mortgages averaged 5.00 percent.
"Mortgage rates will surely fluctuate in the weeks and months ahead, but the trend now is for higher rates over the long run," Nothaft said.
The Mortgage Bankers Association predicted that 30-year mortgage rates will rise to about 6.4 percent by the end of this year. Some analysts, however, think that rate could end the year closer to 7 percent, if inflation picks up. Either way, rising rates are expected to slow home sales this year.
Don't Believe It Unless It's in Writing
Washington Post, February 4, 2006
By Kenneth R. Harney
Did your loan officer sit you down and walk you through all the key operational details of your most recent mortgage before you signed?
Did you see a copy of the appraisal and have a chance to review it carefully?
Did you understand when, if ever, a prepayment penalty might take effect to discourage you from refinancing? Or was that whole subject left a little fuzzy?
Did you receive a copy of your loan and settlement cost good-faith estimates within three business days of application?
These may sound like the most basic of questions and you may well answer: Duh! Of course I understood everything I needed to, and yes, my loan officer was an absolute font of useful information.
But the recent $325 million multi-state legal settlement involving Ameriquest Mortgage Co. suggests that not all is well on the home loan front, and that even experienced buyers and refinancers need to question more, review more, probe more before committing to what is often the biggest debt burden of their lives.
Ameriquest, of Orange, Calif., is a wholly owned subsidiary of ACC Capital Holdings. Its specialty is financing credit-impaired, or non-prime, borrowers. It is the highest-volume mortgage originator in that segment of the market. The company denied any wrongdoing in its settlement with 49 states and the District, but agreed to pay out a staggering $295 million to an estimated 200,000 borrowers nationwide over the coming year, plus $30 million to state agencies to reimburse them for legal and investigative costs.
The alleged abuses by Ameriquest loan officers that triggered the states' legal actions constitute a how-to manual for mistreating customers. The 51-page settlement document commits the company and its employees to a strict regimen of corrective steps and model standards of future behavior. Though the requirements are limited to Ameriquest, they are relevant to lender-borrower relationships throughout the marketplace.
For example, Ameriquest loan officers covered by the settlement will be required to explain to every applicant exactly how their mortgage works, from rates to discount points to accurate representations about the prospects for future refinancings. Some consumers complained that Ameriquest loan officers convinced them to pay higher-than-market rates with the oral promise that they would be able to refinance to a lower rate at some future date.
The settlement says: Don't believe that from anyone unless there is a commitment in writing in the mortgage contract.
Ameriquest loan officers must also provide good faith estimates in a timely manner, but cannot "disparage, discredit or otherwise encourage [borrowers] to disregard" the estimates. In other words, the loan officer can't tell you: "Yeah, the estimates on this sheet of paper say you'll be paying $6,000 in fees to us, but don't believe it. You'll pay less than that."
Ditto on playing games with prepayment penalties. Loan officers cannot orally promise that, contrary to what the mortgage document says, the lender will waive or reduce your prepayment penalty when you're contacted sometime in the next six to 12 months about the possibility of refinancing. If anybody tells you that at loan application, don't believe it unless it's in writing and signed.
The settlement is exceptionally specific about an important subject many otherwise savvy consumers ignore. What's in your appraisal? Hitting the "contract price" with the use of creative searches for "comparable" properties is not in your best interest. Arriving at an accurate market valuation, with no outside interference, is the only true standard.
Loan officers are prohibited from influencing appraisers to inflate values under the Ameriquest settlement, but they also won't get to select the appraiser anymore, much less dictate the results.
The agreement creates a series of firewalls to separate loan officers from appraisers, essentially keeping the foxes out of the hen houses. The agreement also requires provision of a copy of the appraisal to every loan applicant, not simply those who ask to see it and review it.
The point here: Don't mess with appraisals. Inflated appraisals put home buyers into houses they may not be able to afford and saddle them with debts that may eventually push them into defaults or foreclosure.
The same goes for playing fast and loose with popular "stated income" mortgages that require no hard documentation of borrower assets or income. Ameriquest loan officers cannot "inflate or fabricate, or encourage [borrowers] to inflate or fabricate" earnings, bank deposits or other assets.
Nor can they sign documents on behalf of their applicants. Borrowers themselves will have to sign statements certifying their incomes are accurate, and subjecting them to potential criminal penalties for "any false statements." Regulatory overkill? Hardly. Standards such as these, and dozens of others outlined in the new settlement, should be the ethical bare minimums for the entire mortgage industry.
By Kenneth R. Harney
Did your loan officer sit you down and walk you through all the key operational details of your most recent mortgage before you signed?
Did you see a copy of the appraisal and have a chance to review it carefully?
Did you understand when, if ever, a prepayment penalty might take effect to discourage you from refinancing? Or was that whole subject left a little fuzzy?
Did you receive a copy of your loan and settlement cost good-faith estimates within three business days of application?
These may sound like the most basic of questions and you may well answer: Duh! Of course I understood everything I needed to, and yes, my loan officer was an absolute font of useful information.
But the recent $325 million multi-state legal settlement involving Ameriquest Mortgage Co. suggests that not all is well on the home loan front, and that even experienced buyers and refinancers need to question more, review more, probe more before committing to what is often the biggest debt burden of their lives.
Ameriquest, of Orange, Calif., is a wholly owned subsidiary of ACC Capital Holdings. Its specialty is financing credit-impaired, or non-prime, borrowers. It is the highest-volume mortgage originator in that segment of the market. The company denied any wrongdoing in its settlement with 49 states and the District, but agreed to pay out a staggering $295 million to an estimated 200,000 borrowers nationwide over the coming year, plus $30 million to state agencies to reimburse them for legal and investigative costs.
The alleged abuses by Ameriquest loan officers that triggered the states' legal actions constitute a how-to manual for mistreating customers. The 51-page settlement document commits the company and its employees to a strict regimen of corrective steps and model standards of future behavior. Though the requirements are limited to Ameriquest, they are relevant to lender-borrower relationships throughout the marketplace.
For example, Ameriquest loan officers covered by the settlement will be required to explain to every applicant exactly how their mortgage works, from rates to discount points to accurate representations about the prospects for future refinancings. Some consumers complained that Ameriquest loan officers convinced them to pay higher-than-market rates with the oral promise that they would be able to refinance to a lower rate at some future date.
The settlement says: Don't believe that from anyone unless there is a commitment in writing in the mortgage contract.
Ameriquest loan officers must also provide good faith estimates in a timely manner, but cannot "disparage, discredit or otherwise encourage [borrowers] to disregard" the estimates. In other words, the loan officer can't tell you: "Yeah, the estimates on this sheet of paper say you'll be paying $6,000 in fees to us, but don't believe it. You'll pay less than that."
Ditto on playing games with prepayment penalties. Loan officers cannot orally promise that, contrary to what the mortgage document says, the lender will waive or reduce your prepayment penalty when you're contacted sometime in the next six to 12 months about the possibility of refinancing. If anybody tells you that at loan application, don't believe it unless it's in writing and signed.
The settlement is exceptionally specific about an important subject many otherwise savvy consumers ignore. What's in your appraisal? Hitting the "contract price" with the use of creative searches for "comparable" properties is not in your best interest. Arriving at an accurate market valuation, with no outside interference, is the only true standard.
Loan officers are prohibited from influencing appraisers to inflate values under the Ameriquest settlement, but they also won't get to select the appraiser anymore, much less dictate the results.
The agreement creates a series of firewalls to separate loan officers from appraisers, essentially keeping the foxes out of the hen houses. The agreement also requires provision of a copy of the appraisal to every loan applicant, not simply those who ask to see it and review it.
The point here: Don't mess with appraisals. Inflated appraisals put home buyers into houses they may not be able to afford and saddle them with debts that may eventually push them into defaults or foreclosure.
The same goes for playing fast and loose with popular "stated income" mortgages that require no hard documentation of borrower assets or income. Ameriquest loan officers cannot "inflate or fabricate, or encourage [borrowers] to inflate or fabricate" earnings, bank deposits or other assets.
Nor can they sign documents on behalf of their applicants. Borrowers themselves will have to sign statements certifying their incomes are accurate, and subjecting them to potential criminal penalties for "any false statements." Regulatory overkill? Hardly. Standards such as these, and dozens of others outlined in the new settlement, should be the ethical bare minimums for the entire mortgage industry.
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