..the Fannie Mae pendulum is swinging the changes below at us….

Interest-only loans and amortizations greater than 360 months will no longer be eligible.

• 7/1 and 10/1 ARMS will qualify at the greater of the fully-indexed rate (index+margin) or the note rate.
• 6 month to 5/1 ARMS will qualify at the greater of the fully-indexed rate or note rate + 2%.
• MAXIMUM 95% Loan-to-values. (no more 97% LTV mortgages)
• Deed-in-Lieu Foreclosures or Pre-Foreclosures
  • The lender will need to document that the event was completed 2 or more years from the credit report date.
• Bank statements will be needed covering a 2 month period (as compared to 1 month presently).
• Credit reports will be good for 4 months.
• Quarterly asset statements will be good for 4 months.

What does all this mean to you? Your 800 plus credit scores will no longer trump amended tax returns or self employed income. Your financial records will be scrutinized under a magnifying glass. So…qualify every deposit into your bank account and don’t use your credit cards if you plan on making a real estate purchase.

If the television program Boardwalk caught your interest last season, you may want to explore Long Branch New Jersey. An historic city on the coast, the opportunity for investment in real estate, whether a new home or a commercial building, is excellent. I had the opportunity to connect with the Realtors at RH Dembling Realty and I know you will find them to be excellent people to help you with all of your New Jersey real estate business.

Key to my own real estate business is honesty and personal integrity. RH Dembling shares this values with me in their business. You will find their website interesting and filled with information. It is easy to navigate, and you can choose from a variety of REaltor’s for your investment or residential needs. Check them out!  In turn, I am happy to show anyone from New Jersey the high points of the Oregon Real Estate Market.

Sorry, we can’t take your home back!

The state of affairs for mortgages is amazingly foggy. Here is how I see it. You might be under water. You decide to give up that house you considered your dream home just two or three years ago. You understand that your credit will be damaged, but you are hoping that it won’t be a problem for long because so many other people are in the same boat.

You stop making payments. You get the letter indicating that foreclosure is coming from your bank. You list your house for sale, beneath the amount of the debt you have against the house which is called your mortgage.  Maybe, you think, you can short sale it! Not quite as bad as foreclosure. Sure enough, a buyer is attracted to your property and makes you a ridiculously  low offer. You negotiate and settle on a price with the buyer. Yippee! Wait! Don’t break out the champagne just yet. The bank who holds your mortgage needs to agree to accept less than you owe them. You submit them the offer. You wait. And wait. And wait. No one gets back to you or your Realtor. The buyer is getting antsy.

What is taking so long? Doesn’t the bank realize that this buyer has money to spend and wants to buy your property? What are they doing?

Well, here are some things the bank might be doing. The bank might have taken out an insurance policy on the mortgage they gave you a few years ago. Now they are checking to see if the insurance claim will pay them more than your buyer’s offer. They are looking at their own records: can they afford to accept less or are they better off going forward with foreclosing and then having your property on their books as a declining asset?And oh look at this! When the mortgage holder reviews the original mortgage documents, they find a mistake……and now they are exploring whether or not they can force the loan originator to take the mortgage (and its risks) back!! If that is the case, you will be negotiating with a different lien holder.

This takes time, and the buyer waltzes out the door to buy a property that is more affordable and can close more quickly. The buyer is dealing with  fluctuating loan rates and more (and more) inventory to choose from. Remember, the buyer must also preserve his excellent credit score and not assume any additional debt…..so he has to put off buying that Super Bowl T.V. that is on sale right now if he still wants to buy your house. So the buyer decides to make other plans instead of buying your house.

Now let’s say the bank finally does decide to foreclose on your house. You feel guilty and miserable; you find a rental or move in with your in laws; your hours at work are reduced yet again. No, regardless of that hardship letter you wrote, the bank does not care what happens to you. And can you blame them? After all, you broke your own promise to pay them back!

So what is the bright side? Life does indeed go on.

Wow.  Times are stressful for homeowners and for people just looking for shelter! It is time for a new perspective on the human condition in tough economic times and a seriously changing economy.  I see our community as reaching deep for connections….just take a look at all the social networking sites! And then, pow! your site gets hacked, and you take it down. Then you are unconnected. Or are you? Everyone from Google to Dictionary.com is selling the places your curiosity takes you on the internet. We have never been so connected….photos of our friends and family, our summer vacation trips, experiencing the first day of school for our children or grandchildren….all of it is out there in the clouds for the world to see. And beneath all that connectivity is the rumble of disrespect.

When I opened my company in January 2009, a service I added for my client’s benefit was property management. My thought was, if my client could not sell their property for a decent price, and renting it worked for them within their personal financial situation, then I could honestly tell them  to hold on to their property for a year or so with the goal of selling it when times improved. OK….like everyone else, I thought they might improve a bit sooner, but that is another story. I wanted to provide a good choice or option for my clients. What I discovered when I began renting out property was two things: the owner of the property had a deeply held belief that any renter would wreck their property. That no one who could not afford or choose to buy a home would treat a home well. That a renter would pound holes in the walls, scratch the floors and generally live like a low life because they did not own the property. The second thing I learned was that there are terrific renters in Portland who choose to rent for a number of realistic reasons. They might not have a down payment, they might be waiting for market improvement, they haven’t worked at their present job for long enough to pass underwriting standards for a mortgage, they want to try out living in an apartment or a house before buying or they couldn’t sell their own home but needed to move for some other reason.

My last conversation with a home owner was disturbing on some level. In my initial interview with her, she rolled right over my questions about her home. She wanted to tell me her views of renters. The conundrum here is that while she wants to rent out her condo, she dislikes and disrespects all people who could afford to rent it. She does not believe that a good person, who values a clean and well maintained home, is looking for a place to rent. She confuses a high rental income with a high quality renter. If they can afford a high rent, then what is wrong with them that they don’t just buy a home? I began to realize that no matter who applies to rent her home, once they move on, she will regret having rented it even if it comes back to her unscathed.

Ironically, owners of property in the lower rent area, are much more respectful of their renters. They try harder to make their property desirable. And they get a top quality renter. So what is the answer? Or maybe, what is the question! We are definitely transitioning as a society. But the truth of home ownership still stands: it has been the key wealth builder for the average American for many generations. Renters should be respected. As I tell my clients: People who rent are buying a home; it’s just not their own. They are buying it for you. I suggest thanking them by believing that they will take care of your property, being realistic about the fact that there may be some upkeep and damage while they live there, protecting your investment through insurance and through choosing the right person to rent your home, and establishing clear, business-like expectations for their tenancy. Be a good landlord, but also be a human being.

I attended a property appraisal for one of my listings in SE Portland…..right on the edge of East Moreland. I met the appraiser there. He and his sidekick looked like hipsters with long scraggy hair and gel spikes. The rolled up in an old beater, and climbed out of the car looking like they needed a morning cup of strong roast. I realize this description ages me, but really…in a real estate market that is relying more and more on professionalism these guys did not give me a strong sense of security about their ability to accurately appraise this property.

That said, the main appraiser told me he has been doing appraisals for 9 years. We compared outlooks on the long look of the market in Portland. He sees the older, more established neighborhoods as stabilizing now. He sees prices lowered but accepted offers as being close to the listing price in well established neighborhoods in close in Portland. That would include neighborhoods like Irvington, Moreland, Sellwood … pretty much anything west of 82nd. I think this is very optimistic news.  He also observed that new construction prices are not finished dropping. He predicts they will continue to decrease through the end of 2010 and in to 2011. That would be in areas West of downtown Portland….more in the Beaverton area.

My own perspective is a bit different. I am not seeing much market improvement in Portland Oregon real estate for the next 18 months. Why? Unemployment is one reason. I am noticing that Portlanders are really creative about surviving; they will take their skills to the market and do what it takes to stay afloat. People are freelancing and working virtual as tech support, marketing and graphic arts specialists, writing, trying to sell their art or working part time at small jobs to make ends meet. So they don’t show up in the employment statistics but the big effect is that as far as getting a mortgage, they are still unemployed. They won’t have a solid enough work calendar to be considered for a good mortgage.

Based on the National Association of Realtor’s statistics and also on blog articles about mortgage rates, I continue to suggest that we won’t be stabilized for at least 18 months.  We will see a gradual increase in mortgage rates over that time period, ending in 24 months at over 6%….close to 7%. Those increases will directly impact buyer’s ability to purchase, especially if listing prices do not adjust. In Portland Oregon we are not seeing listing prices decrease in relation to unemployment or market inventory. Savvy buyers will buy now, or in the next 6 months. If buyers continue to wait for the ‘best price’ they will miss the market opportunity of both low prices and low interest rates.

Your Money for Nothin’

Short sales are defined as property that sells for less than the debt secured by the property. The caveat is that the lender or mortgage holder, lien holder, whatever you call them, has to agree that they will take less than they are owed. This is not really new news. But here is what I am seeing in the market that may influence your understanding of the short sale phenomena. Let’s say you are a property owner of a property that you purchased at the height of the market frenzy. Now your property is worth, on the local market, 75% of what you paid for it. And now, let’s say that when you bought the property, you expected to make a good profit on your investment because you were seeing appreciation leaps in the 10% per year range give or take a few thousand dollars. So you decide to sell it right now. After all, it is not worth the money you paid for it. You decide that you want to short sale this property. You are not unemployed; in fact, your financial situation has not really changed much in the last 3 years except that your investment property ( which may be your home) is not worth what you paid for it.

But wait! You also don’t want to damage your credit score. This is a conundrum. You want to list the property for its market value (75% of what you paid) but you will still make the mortgage payments until it sells.  Here is the news: the lender is not willing or encouraged to give up their security interest in your property for less than its value to save you a ding on your credit score. You have to stop paying your mortgage….and yes, that will put your mortgage into default so it will make a black mark on your credit. But wait! There’s more: The bank did not invest in your property with you. Search your paperwork carefully for the words “this loan is made to you as long as your property appreciates in value, and when or if it depreciates in value, we will discount your loan”. If you find it, call the newspaper….because that is BIG news!

The lender made you the loan. You spent the loan on property. The property secured the loan. The loan is not otherwise tied to the property. Your signature, and your promise on that pesky piece of paper called Note in which you promise to repay the loan is the important part. Don’t get me wrong; I am not in any way supporting the banks and their business practices. But I am pretty surprised when people talk to me about giving up their property towards short sale or foreclosure or deeds in lieu or any other means.  Do you really think that the bank should take the full financial hit for this investment fiasco? OK….then, if the market had increased by 10 to 20%, would you be willing to share your profit with the bank? So you make $25,000 on the sale of your home; are you willing to give the bank a bonus of $2500 because they loaned you the money to buy it and therefore invested in it with you?  You can see how confusing this is. But, now what? More to come on where do you go from here.

Thought I would share this story about purchasing an REO (bank owned property) in Portland. I represented the Buyer. Buyer makes a low offer, and Seller (Bank) counters. Fortunately Seller has a good, experienced REO Realtor. We came to agreement on price….but not until the seller rejected our offer, and immediately adjusted the list price to match our best offer. We came back at it with another offer at that price. Seller accepted it. We are off to the races now. Buyer has a property inspection. Whoa! The heat system is shot. Buyer gets a bid….Whoa! again….the price tag is $23,000! We ask the seller to cover the cost. Well, they didn’t kick us to the curb, but they negotiated hard. They finally came to the table with $10400 toward the new heat system plus the $10,000 of closing costs they had already agreed to pay. We negotiated hard too. Buyer did lose patience, but , as they said, at least one of the buyer’s (husband and wife) kept their cool at each cross road. They finally closed on a really nice house on a very big lot, for a great price. It did take lots of patience on their part, and a lot of hard negotiating on my part to represent their needs and wants if they took possession of this property. The seller’s agent was also great. What home seller’s and buyer’s sometimes don’t know if that so much negotiating goes on between the agents……..not that the agents negotiate something without their client’s knowledge, but the agents often worry the know on troublesome transactions until they come up with a reasonable solution that will meet each of their client’s needs. We earn our money in this negotiation process.

[listingsearch type=”listingids” listingids=”9040681″]We are experiencing some uneven-ness with appraisals. As you have read, there are new rules concerning how appraisals are ordered by your mortgage broker or lender. They no longer can influence the appraisal or choose who is going to appraise your new home or your existing home. Recently I had the experience of having an appraisal ordered by my Buyer client’s lender. The order went out and was received by who I can only assume was a non experienced appraiser who did not have her own real estate key to access the property. She contacted the listing agent for access. This is not unusual. What then happened is that the listing agent asked her to direct a copy of the appraisal to him (ie the Seller). She agreed to do this. So the seller had the proprietary information on her appraisal before the buyer had access to it. During the negotiations for the repairs, the seller used this information to deny any reasonable request to repair a defective heat system in the house because the property had appraised at the purchase price. It was later determined that the appraiser used the com-parables that the listing agent provided to her to determine the appraised value instead of searching the data base available for actual com-parables. The bottom line is that she was influenced by the listing agent instead of providing a neutral valuation, and she shared proprietary information of the buyer with the seller.  I am now asking my buyer clients to make a direct request in writing to the lender that the lender specify on the appraisal order form that the appraisal be shared only with the buyer and the buyer’s lender.Find YOUR way Home!

The federal tax credits are coming to a close….maybe. If you qualify for one of them, be sure to get the paperwork together when you pay for it …. ie: when you purchase your house, or when you install an energy efficient furnace or hot water heater. Portland homeowners are thrifty so you may qualify for one of these credits and that will give you a nice little bit of spending money to reinvest in home improvement next year!

The market in SE Portland is particularly strong right now. Cool bungalows are being bought up by first time home buyers. Gardens are going in, bulbs are in bloom. Prices have corrected, and both buyers and sellers are negotiating seriously. Portland is a great place to live, and reflects the heart of a lemonade stand…entrepreneurship! Financing is available. The important thing is to work with professionals, both in the lending side and the Realtor side. Enjoy Spring!!

Sailing at Sunset on the Columbia River

I am seeing some great properties for sale in close in neighborhoods in POrtland Oregon. These homes are compact, have hardwood floors, dry basements and sunny yards.  The Portland market is kind of active right now, and I expect that to be the case through the second quarter, but after that I predict a flat market for the next 18 to 24 months.

Access to affordable loans and low down payments plus underwriting constraints will dampen the market here, especially the condo market. None the less, you have to live some where, and if you shop carefully, you should be able to find excellent value in close in neighborhoods.