Economic Update for Michigan in 2011

Now that the champagne bottle is empty and the gifts are open it’s time to get busy making a living again! Fortunately, at least in my opinion, it’s going to be a better year for business in Southeastern Michigan.

Economic Projection for Michigan
Most of the real estate professionals that I know, including Realtors, Appraisers and Lenders, seem to be in agreement that real estate values in our area have stabilized over the past 6 to 9 months. This should bode well for sales this year as buyers who may have been waiting to see if prices were going lower should get the message that they aren’t and that now is the time to grab up a house at the best value in 20 years. Also, the inventory of homes for sale has declined significantly and days on the market is back to historical norms in most areas.

In Michigan we should also see a stronger local economy as well. Industry experts are expecting a 10 to 12% increase in automobile sales this year and that should set the stage for improved consumer sentiment in our area and boost sales in a general sense in our State economy. Many Michiganders who would like to upgrade their home but have not done so due to job fears may find the comfort level they need this year to make the move into that new home. I believe that our State is going to emerge from this economic recession in front of the rest of the nation and that we are going to have a much healthier Real Estate Market in 2011.

Mortgage Loan Limits for 2011
For 2011 mortgage loan limits will remain unchanged with Conventional loan limit at $417,000, FHA loan limits in the tri-county area set at $297,500 and VA at $417,000. FHA is still requiring a minimum 3.5% down payment; Conventional loans are still available with 5% down and VA with 0% down.

Interest Rate Projection for the New Year
Interest rates reached an all time low in the fourth quarter of 2010 with 30 Year rates in the low 4’s. Since that time rates have moved up a bit and are currently in the high 4’s but are still very attractive and should not discourage any buyers from making a move in the housing market. Rates for this year should remain at historical lows but may move up a bit as the U.S. economy improves this year. It would not surprise me to see rates in the mid 5’s this year but I don’t expect a significant increase in rates until the overall economy really gets on much stronger ground.

So for the New Year I hope to see an uptick in real estate sales, a further firming of house prices, and a significant improvement in our local economy, a more optimistic consumer and a continuation of some of the best mortgage rates that have ever been available. Overall, it should be a good year!

Read more...

FHA Changes to Mortgage Insurance Premiums

U.S. Department of Housing and Urban Development (HUD) announced today that they are changing the amount they collect for mortgage insurance premiums.

Mortgage insurance premiums are collected and pooled in a fund and these moneys are used to offset losses on FHA loans that go into foreclosure. The idea is for the fund to have enough money to cover losses on any loans that default. Recently, with the high levels of foreclosures, losses have exceeded mortgage insurance premiums in the fund and this leaves HUD and FHA in a bad financial position and/or could lead to insolvency and an end to the program.

The changes begin with FHA loans started on or after October 4, 2010 and the new policy will reduce upfront mortgage insurance premiums (UFMIP) and increase monthly mortgage insurance premiums (MMIP). Right now FHA collects UFMIP of 2.25% and MMIP of .55% annually The new requirements are:

Upfront Mortgage Insurance Premiums
Mortgage Type / Upfront Premium Requirement
Purchase Money --1%
Refinance --1%

Monthly Mortgage Insurance Premiums for 30 Year Loans
Loan to Value / Annual Premium Requirement
95% or lower --.85% annually
95% or higher --.90% annually

What does this mean to a homebuyer putting 3.5% down and borrowing $100,000? Under the old rules they would pay UFMIP of $2,250 and monthly mortgage insurance of $45.83. Under the new rules UFMIP is reduced to $1,000 but MMIP is increased to $75.00 per month. That’s a $30 increase in the monthly payment.

It’s a mixed bag really and should not have a meaningful impact on getting borrowers approved for FHA financing. It will, however, improve and strengthen the FHA program and help to ensure we will have FHA loans available in the future!

Read more...

Great Opportunity to Replace old Heating and Cooling Systems in Michigan!

My house is a little over 20 years old and my cooling system just hasn’t been up to snuff this year so I called a heating and cooling contractor to get it checked out. They told me my equipment would probably last a couple more years but was not nearly as efficient as the new stuff they’re making today. Given the state of the economy, and my own personal finances my first thought was to just let it go until I could afford it. Then the HVAC contractor mentioned some great incentives that are available this year:

1) The manufacturer (Carrier - http://www.residential.carrier.com/index.shtml ) was offering a $1,000 rebate on certain high efficiency furnaces and air conditioning systems
2) The IRS has a tax credit of up to $1,500 (http://www.energystar.gov/index.cfm?c=tax_credits.tx_index ) for the purchase of certain high efficiency furnaces and air conditioning systems

3) The State of Michigan has a rebate incentive of up to $650 )(www.michrebate.com)for the purchase of a new high efficiency furnace with a variable speed blower system

All told, I could save $3,150 by installing a new system this year. Wow!

We decided to go ahead and have the whole new system installed and all of the credits and rebates paid for nearly ½ of the total cost – incredible! The contractor we used – Sutton and Sons (248) 673-2224 – did a great job. They showed up on schedule, got the job done on time, cleaned up the mess, took the old equipment with them and showed us how the new system works. My house actually gets cold on a 90 degree day now and the system is so quiet you don’t even know its running. Because we installed a 95% efficient unit with a variable speed blower we should also see a difference in our utility bills. I couldn’t be any happier.

If you, or anyone you know has an older HVAC system in the home they own, or if they just bought a new house that needs a new system, there has never been a better time to upgrade. Most of these credits expire at the end of the year so get busy!

Read more...

The Appraisal Complaint Process

Appraisals have become the biggest problem affecting an otherwise recovering real estate market. I’m not talking about a well documented appraisal that uses good, recent comparable sales data, even when the value is lower than I’d like. No. If the sales price of a home simply can’t be supported by actual relevant sales data, then so be it. What I’m referring to is the appraisal that was thrown together and has inaccurate data, uses comparable sales that are not comparable or refuses to use good comps and uses only poor ones. You know, compares a tri-level to a colonial or maybe a 1,500 sq ft home to a 1,900 sq ft home and so on. When there are more relevant sales to use they should be on the report. This is a follow up to last weeks post How Appraisers and Management Companies are Stifling the Real Estate Rebound.

Just in the past 7 days I have been fighting with an appraiser (actually fighting with the management company because we dangerous loan officers are not allowed to actually communicate with an appraiser) on a home purchase deal I am working on. I’m not even disputing the value which was actually higher than the purchase price. The problem is that the comparables used are all 3 to 4 miles away and two of them are 6 to 9 month old sales. Considering this house is in Rochester Hills, MI, a suburban community, guidelines call for comps to be within 2 miles and to have sold in the past 6 months. So, what happened when the loan was submitted for approval? Denied! Why? Due to poor collateral. I ask the appraiser to provide 2 comps that are within guidelines. The response – nothing available. Naturally I get with the Listing and Selling Agents and we come up with 2 sales and a pending which meet guidelines and I send them in to the AMC (appraisal management company) to forward to the appraiser. The appraiser sends back comments on why none of these can be used. One was “significantly larger” – the subject is 2,800 sq ft and the comp was 3,150. The second was too new – the subject is an all brick home built in 1994 with updated kitchen and baths and the comp was a couple of years old, otherwise they are the same size, style and have similar appeal. What are more relevant, similar homes that are within 1 mile and sold in the past 90 days or sales that are 9 months old and 4 miles away? Arghhhhh.

There is literally nothing I can do at this point because the management company says they cannot tell the appraiser what to use in the report. My only action is to shake up this appraiser by making a complaint with the State in the hopes that she, and other appraisers, will realize that they still have to do quality work or there will be consequences. The State will investigate every complaint and notify the appraiser of the investigation. That should do the job.
Appraisers are licensed and regulated in the State of Michigan by the Department of Energy, Labor and Economic Growth (DELG) and the web address is http://www.michigan.gov/dleg/0,1607,7-154-35299_35395_35396---,00.html. You can look up appraiser’s to see if disciplinary action has been taken in the past, print up a complaint form and get procedures for filing a complaint. When making a complaint be as specific as possible as to exactly what the faults are and offer better data.

It is really up to us, as real estate professionals, and as homeowners, to stand up and fight because nothing is hurting our business, or our property values, more than poorly done appraisals. Every time an appraisal derails the sale of a home or reduces the sales price, that damages a real estate market that is on the mend and an improved real estate market is the best thing for our economy right now. Standup, be counted. The next time a bad appraisal affects you make a complaint!

Read more...

How Appraisers and Management Companies are Stifling a Real Estate Rebound

Southeastern Michigan real estate sales have been brisk over the past 6 months with sales up and inventories down. The law of supply and demand dictates that when supply is down and demand is up then prices can rise. We’ve all been hoping for a rebound in real estate values to help put the economy back on a sure footing but appraisers and management companies are thwarting the natural order of things by capping, and even lowering values.

Market Value is defined as the price a buyer is willing to pay for an item and the price a seller is willing to sell the item for. Both parties agree to the price and that is the market value. As a mortgage lender in Bloomfield Hills, Michigan, the most frustrating thing I’ve been experiencing this year is low appraised values and simply poor appraisal work.

If a homebuyer has looked at dozens of homes in the marketplace he has a very sound idea of what the correct value of a home is at the present time and crafts an offer that fits into the current market. If the seller accepts the offer then that is the market value of the home. However, along comes the appraiser and he values the house at less than the sales price. What happens now? Of course the buyer wants the price reduced but the seller is angry because he got a price he could live with and agreed to it and now an outside factor is having a negative impact on that agreed price.

Effectively, the appraiser has capped the value of the house and hurt future sales of homes around the subject property. So, appraisers are currently one of the biggest factors keeping real estate values from improving and are even pushing values down! I don’t take issue with an appraisal that accurately portrays the current value of a home when it is less than the sales price. The problem is when the appraiser uses bad data to come up with a wrong value, or chooses poor comps that are either too far away, too old or are simply not comparable. Last month I had an appraiser use a ranch and tri-level as comps for a colonial! The appraised value was equal to the sales price but the loan was denied due to the poor value support in the appraisal analysis. When we asked for additional comps the appraiser said there weren’t any. Then we provided sales data to the appraiser and they said it couldn’t be used. They said one of the comps we sent could not be used because it was substantially larger than the subject property. Well, the subject property was 1,900 square feet and the comp was 2,060. That’s less than a 10% difference in size. Are you telling me that a buyer looking at a 1,900 sq ft home is not going to look at a 2,060 sq ft house with the same number of bedrooms and baths??

In the last 90 days I have seen numerous cases where appraised value is less than purchase price. Recently, I had a sale where the purchase price of the home was $265,000 and the appraisal came in at 260,000. The comparable sales used could have easily supported a value of the $265,000 but the appraiser’s opinion of value was $260,000. This individual obviously thinks very highly of themselves as they are able to pinpoint the value of a house! So, the sales price went down and we all suffer. Why?

Appraisal Management Companies (AMC) contribute to and exacerbate the problem because they remove the appraiser’s responsibility to the lender and neither the AMC nor the appraiser cares if the lender is happy with the appraisers work. As the lender I cannot even talk to the appraiser about issues I have with the report. When I call the management company they say they can’t tell the appraiser how to do the job. Nobody does anything to correct the appraisal and loans are denied and real estate that could have sold goes back on the market. Everyone walks away mad except the AMC and the appraiser who get paid regardless. That’s another problem – the AMC is taking a chunk of the appraiser’s fee and that must make the appraiser angry which leads to lousy work. What value is added by the management company anyway? The whole idea of an Appraisal Management Company is a farce and has lead to nothing positive for home buyers, sellers or lenders. Eliminating AMC’s would be a very positive step for a troubled real estate market that could be healing right now.

As a homeowner, I am asking myself how can real estate values ever increase under these conditions? Even when buyers are willing to pay more for a property, appraisers will not allow the sale to be consummated because they are either being so conservative in their valuations, they are ignorant of specific local market characteristics, or they are simply doing poor quality work and coming in with low values. This puts a cap on real estate values and stifles any possible rebound in home prices! The Home Valuation Code of Conduct (HVCC), which created AMC’s is basically derailing current market strength that could restore confidence and stabilize values in real estate across the nation.

We homeowners, sellers, buyers, lenders, real estate agents, and yes, even appraisers need to stand up and tell congress that the HVCC does not work and to eliminate it!

Read more...

FHA Loan 101

In a general sense FHA loans are easier to qualify for than a conventional loan with a similar down payment. Credit requirements are less stringent and underwriting guidelines are more flexible.


Here are the basic FHA Rules and Requirements for Borrowers:

 Credit should be reasonably good. This means the applicant should have at least a 620 credit score and the credit report should show a minimum of 3 trade lines with at least a 12 month history
 Bankruptcy’s should be at least 2 years since discharge and the applicant needs to have re-established credit since the BK and paid their bills on time
 Foreclosure’s should be at least 3 years in the past with clean payment histories since
 Employment must be stable. Typically this means a 2 year employment history in same line of work
 Income must be stable as well. Bonus, overtime or part-time employment income can only be used if it has a 2 year history
 Down payment and funds for closing costs can be a gift from a relative
 Total mortgage payment, including taxes and insurance, should be no more than 33% of buyer’s gross monthly income. This is called the Debt to Income ratio

These are the Requirements for the Transaction:

 Minimum down payment is 3.5% of the purchase price
 Seller can pay up to 6% of sales price towards buyers closing costs and prepaid items, but the seller cannot make the buyers down payment
 There is no separate FHA inspection of the property. Just a standard appraisal inspection and all utilities and water must be on and functioning at the time of the appraisal
 Sellers must be in title for a minimum of 90 days prior to sales contract date! If the seller has owned the house between 90 to 180 days a second appraisal may be required
 Borrower pays FHA Upfront Mortgage Insurance Premium (UFMIP) of 2.25% of loan amount
 Borrower pays Monthly Mortgage Insurance (MMI) of .55% of loan amount (this is annual amount)

Read more...

FHA Increases Cost of Upfront Mortgage Insurance Premium (UFMIP)

This is a very important reminder that for any FHA Case Numbers assigned on or after Monday, April 5, 2010 the cost of UFMIP is going to increase from 1.75% of the loan amount to 2.25%. This is important as it is going to be more expensive to obtain an FHA loan. The increase will add $1,000 to the cost of getting a $200,000 FHA loan. A Case Number can only be obtained for a borrower who has applied for a loan and has an accepted purchase contract. Also, it can take up to 3 days to get a Case Number from FHA so to ensure the case number is assigned prior to the cutoff date it would be wise to request the Case Number as early as possible prior to Friday. FHA has proposed a number of upcoming changes which you can read about in my previous post.

Upfront Mortgage Insurance Premiums (UFMIP) are collected by HUD to cover the losses on FHA loans that go into default. Due to higher default rates in recent years FHA has been forced to increase the UFMIP premium to ensure the health and viability of the FHA loan program.

It is important that home buyers who are considering using an FHA loan be made aware of this change so that it does not come as a surprise to them late in the home buying process!

Read more...