Date Archives January 2014

Smoke and Stinky Houses

Thanks for the photo

I’ve said for years that sellers shouldn’t have stinky homes. In 2012 I ranted a bit about the smelly things sellers use to cover up other smelly things. But what impact does cigarette smell have on houses’ marketability?

I had clients a couple years ago who drastically changed my perspective on smoke smells when they introduced me to the concept of third-hand smoke. Third-hand smoke is

“Third-hand smoke is tobacco smoke contamination that remains after the cigarette has been extinguished,” says Jonathan Winickoff, a pediatrician at the Dana–Farber/Harvard Cancer Center in Boston and author of a study on the new phenomenon published in the journal Pediatrics. According to the study, a large number of people, particularly smokers, have no idea that third-hand smoke—the cocktail of toxins that linger in carpets, sofas, clothes and other materials hours or even days after a cigarette is put out—is a health hazard for infants and children.

But what impact does a smoky house have on price? As with almost everything, the answer depends in large part on the buyer. My reasonably educated guess –

– 70-80% of buyers will just walk away (particularly those with limited budgets/timelines or with kids).
– 10-15% will move forward, with reasonable estimates + 10-15% for painting, cleaning and other necessary things for remediation.
– 5-10% will do something that I wasn’t expecting. (maybe more, maybe less. Humans are human.)

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Search for homes in Charlottesville – Now Draw a Polygon

I know. I’m a real estate dork, but this is something that I think will be tremendously useful if you’re searching for a home to buy in Charlottesville. Many areas of Charlottesville just aren’t well defined and thus not easily searchable. Searching by zip code is far too broad. There are 113 listings displayed in the 22903 Zip Code, but only 10 in the Fifeville neighborhood within the 22903 zip code. (see below) Searching by radius is still an option as well.

But really, search for homes yourself. (here are some tips on how to search)

Take North Downtown for example –

Search for North Downtown Search all homes for Sale in Charlottesville MLS - Charlottesville

Or this part of Fifeville –

Fifeville Homes for sale in Charlottesville.jpg

If you have questions about any of the homes you see (and don’t already have buyer representation) you could always ask me your questions.

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Qualified Residential Mortgages – New Rules’ Impact on Buyers & Sellers

Part 2 of 2 . Questions? Ask ‘em. This stuff matters, folks. I know enough about them to know that I need to recommend experts to my clients; Matt is one of those experts. As such,

Part 1 by Matt Hodges with Presidential was posted on Friday and is a primer on the new Ability to Repay rules.

Okay, ATR (Ability to Repay) is straight-forward and all are common sense. What about Qualified Mortgage (QM)?

First, a QM (Qualified Mortgage) must comply with all ATR requirements. Next, and probably most misunderstood today is the 3% compensation rule. The CFPB created a 3% maximum compensation to the broker/lender/correspondent. This means that the commission that a broker makes is capped by the CFPB, but a lender or correspondent is only capped on other fees and non-bona fide points. Individual lenders are still creating rules to comply with this and there is still much debate about how to comply. Here is what the CFPB states: “…points and fees generally may not exceed 3 percent of the total loan amount…” There is a higher percentage allowed for loans below $100,000. Finally, QM’s Average Prime Offer Rate (APOR) must not exceed 1.5% over Annual Percentage Rate (APR). These are considered Higher Priced loans, and do not comply with ATR. Second liens must not exceed 3.5% and certain Small Creditor and Balloon transactions also may exceed APR by up to 3.5%.

Here’s one of the big questions – What about the 43% Debt to Income rule? Debt to income has always been calculated, though diffently applied maximums. It is the percentage of your mortgage debt to your gross monthly income or percentage of your total monthly debt to your gross monthly income. Well, it’s not really a rule today, UNLESS lenders overlay the Fannie/Freddie guidelines. The reason it’s not really a rule is Agency QM (Fannie and Freddie) uses their own determination software for maximum debt to income. The CFPB gave, for exactly seven years from implementation on January 10, 2014, both Fannie Mae and Freddie Mac an exemption, though that could be shortened if either departs federal conservatorship. Certain lenders have decided to institute the 43% rule, but generally those are not the typical 30 year fixed conforming. What I have witnessed is ARMs over $417,000, and thus a jumbo loan. Further, VA, FHA and USDA loans are exempt from this rule.

So, if 43% isn’t really “real” right now, what is?

Right now, Fannie and Freddie will regularly go to 45% DTI and for the right file, 50%. FHA will go to 46.99% on mortgage DTI and 56.99% total DTI and VA does not have a maximum. Generally, all three types will need automated underwriting System (AUS) approval, and as loan officers, we use Fannie Mae’s Desktop Underwriter and Freddie Mac’s Loan Prospector for conventional, FHA and VA loans. Guaranteed Underwriting System is used by USDA. If a loan is manually underwritten, per guides, DTI ratios are almost always lower.

Now, the 3% rule – probably the most misunderstood as well as applied most harshly against mortgage brokers, versus bankers or correspondents. There are six categories which comprise the 3% max on loan at $100,000 or greater:

  • Finance charges. Non-refundable up-front mortgage insurance premiums, loan level pricing adjustments (such as lower credit score “hits”) as well as excessive points
  • Loan originator compensation
  • Real estate related fees
  • Premiums for credit insurance and the like – very unusual
  • Maximum prepayment penalty
  • Prepayment penalty paid during a refinance

Brokers are required to disclose actual or maximum compensation on their Good Faith Estimates, but neither correspondents, nor lenders are. Further, total compensation may not be known, as “of the date the interest rate for the transaction is set,” because lenders often hedge their loans, rather than locking them with their investors. So, while legal and common place in the lending industry, a locked loan is guaranteed to the borrower at that rate and points, but some lenders may actually be “floating” the loan and, thus, the total compensation may not be known and thus, that component of the 3% rule may not have to be complied with, legally. Lenders and correspondents have an advantage in this realm. Blame politics and lobbyists – brokers lack a voice in Washington. We’ve even heard from some wholesalers, which price loans to brokers that they are increasing the costs to brokers, just to help pay for the administration of QM.

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Vegan Resources in Charlottesville

From the Central Virginia Vegan Meetup Group to various restaurants and grocery stores, including a wonderful Vegan Guide to Charlottesville restaurants, it seems that Charlottesville offers an awful lot of options for vegans and vegetarians. I’m not nearly educated enough on this topic as I should be, but when incoming buyer clients asked me about Charlottesville options, I turned to the best resource available to me – Twitter and Facebook.

Practicing real estate is absolutely about representing buyers and sellers, but it’s also about educating and introducing clients to my town and providing local insight that they might not get from the google.

Click through to see the embedded storify with Charlottesville Vegan and Vegetarian resources.

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Qualifed Mortgages Started Today. So What?

Part 1 of 2. (here’s part 2)

Qualified Mortgages and the FUD associated with them are very much in the (real estate) news right now – they’re new, they’re as of yet unknown and they’re going to have an impact on the residential real estate market. As many readers know, I’m an advocate of seeking experts and borrowing and sharing their knowledge and expertise. Matt Hodges with Presidential Mortgage is one of those experts (and one of the lenders I recommend to clients).
Qualified Mortgages…what? Yes, the Consumer Finance Protection Bureau (CFPB) issued their final report in December, 2013 entitled “Ability-to-Repay and Qualified Mortgage Rule”.

These regulations officially go into effect on January 10, 2014.

Is this much ado about nothing or drastic changes to the mortgage industry? Let’s examine. Specifically, Home Equity Lines of Credit (HELOC), Reverse Mortgages, land loans, construction loans and most bridge loans are excluded. We are primarily describing changes to first lien, “forward” mortgages on homes.

The Ability-to-Repay (ATR) section includes eight features, most of which we have been complying with for years:

  • Income and/or assets needed to qualify will continue. Lenders must not count on verbal income assertions from clients… we must verify that income is real and will continue.
  • Current employment has been verified.
  • Monthly mortgage payment is used to qualify. An additional change is that certain Adjustable Rate Mortgages must be qualified at a higher than start rate, versus the “teaser” initial rate. Initial interest only periods must be ignored, and borrowers must be qualified, as if the mortgage was amortized.
  • Monthly payment for any simultaneous loan/line is calculated in debts – i.e. HELOCs. These are often used in conjunction with a first loan in order to avoid mortgage insurance or non-conforming/jumbo loans.
  • Inclusion of taxes, insurance and home owner’s association fees, if applicable must be included in the debt load.
  • Debts, alimony and child support should be calculated.
  • Debt to income (DTI) and/or residual income must be calculated. We’ll come back to this one – it’s important. ATR does NOT state a maximum DTI.
  • Credit history. Wow, that’s a shocker!

Lenders may and have instituted residual income calculations for conventional loans, like Wells Fargo. From a common sense perspective, this is reasonable. VA loans (except Interest Rate Reduction Refinance Loans- IRRRL) include that calculation, to insure that those debts not found on a credit report are included. Those include child care costs, maintenance and utilities on the home and deductions from gross pay.
What if a loan goes into default? If the lender can prove they followed the eight steps and something occurred like an unexpected layoff of the borrower’s employment, then the lender has a “safe harbor”, safe from liability or a “rebuttable presumption.” I’m no lawyer, so I won’t delve further.

Part 2, coming Monday, will cover Qualified Residential Mortgages themselves.

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Buyers – Do you Think about This when You Post on Facebook?

In January 2012 I noted that you should Choose Your (Social) Friends Wisely – “ They Could Affect Your Ability to Buy a House.

In April 2012 I wrote words of warning to those involved in real estate transactions (real estate agents, too) to Don’t Talk about your Real Estate Negotiations (on Social Media)!.

2014 brings word that lenders are more avidly farming social media to ascertain buyers’ creditworthiness. This makes complete and total sense. I google many (most?) of the people I meet. If deciding to hire someone, checking out their social media profiles is a reasonable step of due diligence. Why wouldn’t lenders check potential borrowers’ social media? (other than the fact that big banks can’t be trusted)

From the Wall Street Journal:

Lending companies … are looking at potential problems such as whether applicants put the same job information on their loan application as they posted on LinkedIn, or if they shared on Facebook that they had been let go by an employer. A small business that draws negative reviews on eBay EBAY -0.95% also could undermine its chances of getting more credit, lending companies say.

“It’s one of the tools we use to do underwriting,” said Sasha Orloff, co-founder and chief executive at LendUp, which is backed by companies including Google Ventures and expects to make 300,000 loans in 2014. “Do you have 4,000 friends but none are that close, or do you have 30 people but they’re very close? There are ways to measure how engaged and how strong your community ties are,” he said.

I can imagine that life insurers would check to see if someone who says they’re not a high risk is prone to skydiving on weekends, or other such risky adventures. Reasonable, right?

In other words – Be careful what you post online.

I do wonder … could lenders one day ask for your gmail login credentials to see your networks? Or if buyers could use “do you check my social media profiles” as a means to evaluate lenders?

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Brief Real Estate Market Update for January 2014

A snippet from my monthly note:

Market Update for Charlottesville and Albemarle:

Single family home sales in December 2013 vs December 2012: 87/89 – Same, as far as I’m concerned
Single family home sales in 2013 vs 2012: 1302/1215 – Up 7%

Attached home sales in December 2013 vs December 2012: 23/24 – Close enough to be the same.
Attached home sales in 2013 vs 2012: 441/339 – Same

Condo sales in December 2013 vs December 2012: 6/13 – Down 54%
Condo sales in 2013 vs 2012: 167/234 – Down 29%

Keep in mind that these stats are likely not completely up to date, as agents are still entering in closings from 2013. But they’re likely close enough to say that there were a few more Charlottesville/Albemarle single family homes sales in 2013 than 2012, attached home sales were about the same and condo sales were way down (mainly because Walker Square condos sold out in 2012). And you know what? We’re due for some stability, free of spikes and drops.

List sooner rather than later (Y’know, I’m a Realtor. You could call me . 🙂 )

I suspect that we’re going to see more inventory as the year progresses.

More inventory means more competition and selection for buyers. More competition means potential price appreciation for sellers is likely to be diminished.

Charlottesville MSA Listed, Contract, Sold.png

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