RISMEDIA, December 21, 2009—It’s easy pickings out there for many potential homebuyers. Housing prices are at their lowest in more than a decade, inventories are high, analysts are predicting a new wave of foreclosures and the government is offering two substantial tax credits for which many homebuyers qualify.
But bargain buyers beware, warns Vince Mastronardi, whose property preservation business has been busy preparing foreclosed homes for sale. Continue reading »
After my blog of “We can all breathe a sigh of relief that FHA won’t be adopting HVCC” I found out today that FHA has decided to adopt HVCC as of January 2010! As a Realtor in Northern Virginia with Exit 1st Choice Realty, we are all struggling to get the housing market into recovery mode. The biggest burden in this market is for sellers owning non distressed properties, who would like to sell their properties for various reasons-usually due to changes in their lives. The sellers have a minimum financial goal that needs to be met. If it’s unreachable in this market, they will usually wait to sell. When we have a larger proportion of non distressed properties on the market, we will know that we have turned the corner to recovery.
This news that FHA will be adopting HVCC may not be good news for the market. Here is an article by Mary Thompson, an appraiser from Georgia: http://activerain.com/blogsview/1246425/huge-fha-news-fha-is-adopting-hvcc-as-of-january-1st-get-ready-for-change
Read my previous blog on the HVCC to see how this code can affect a “regular” sale. http://househunterforyou.com/metrorealty/?p=118
By Carol McCarthy, Realtor, ABR, Exit 1st Choice Realty of Woodbridge, Virginia
A few months ago, HVCC (Home Valuation Code of Conduct) was implemented for Conventional loans which wreaked havoc on many pending transactions. What is the HVCC, you may ask? It is a rule that Congress imposed on the Real Estate and Mortgage industry thinking that they were fixing a problem without consulting those with boots on the ground. Essentially, the point was to prevent any direct communication between an appraiser and Mortgage Lenders or Real Estate agents while appraising a property under contract. However, in addition to this, the appraisers now couldn’t be hired directly by the lender and, instead could only be hired by an Appraisal Management Company, who often were hiring less experienced appraisers not familiar with the subject area.
I had such an experience while representing sellers of a beautiful, well maintained, 5 year old custom built house. The appraisal came in $30,000 too low. It was a serious blow to everyone, especially the sellers who were already bringing money to the table. It was also a problem for the purchasers who had locked in a loan at a very low interest rate. It would be a big financial hit for them to start house hunting all over again when interest rates had risen.
The appraiser was hired by an Appraisal Management Company for $250. The usual pre-HVCC fee for an appraiser had been around $400-that would be paid directly to the appraiser. However, under the new HVCC arrangement, in addition to a much lower fee for the appraiser, a portion of that $250 had to be shared with the Appraisal Management Company. It’s obvious that the experienced appraisers are not going to work for perhaps $175 instead of $400. This, inadvertently, drives the more capable, experienced appraisers out and nobody wins when that happens.
Case in point, in the circumstance that I experienced, the appraiser was comparing my seller’s property to three other distressed properties nearby, which of course, was a seriously flawed comparison. Fortunately, I had been inside two of those properties while showing houses to other clients. As a result, I was well aware of their condition; missing appliances, flooring, holes in the wall etc.
Faced with this flawed appraisal, and desperate for a recourse, I discovered that there is a method in place to dispute such appraisals. In order to bring things to an equitable close, however, it is of vital importance that you have all your facts together and on paper. Oh, and make sure you check your emotions at the door. . .in other words, “the appraiser is an idiot” is not one of the facts you need to bring forth.
Once you have your t’s crossed and i’s dotted, everything is then presented to the lender who will then submit it to the Appraisal Management Company. In my case, to garner a few more brownie points, I prepared a spread sheet with comments clearly describing the condition of the distressed properties. I did this, also, because I was sure the appraiser hadn’t taken the time to assess those properties from the inside. I asserted that if those distressed properties were to be used as comparables, then there had to be compensation for their distressed condition. In lieu of that, I offered a more expedient and reasonable course. I simply proposed that we substitute the distressed properties with other properties more comparable, outside and inside, to my client’s property.
It worked! The new appraisal came in $2,000 over sales price! The settlement was delayed a week, but it went through, albeit with 2 agents having gained a few more gray hairs!
The positive part of this scenario, was that, except for the appraiser, all parties were extremely cooperative. The buyers and sellers were very empathetic with one another, as well as the agents and the lender.
So, after this long story, we’ve recently learned that FHA loans won’t be bound by the rules of the HVCC! . . .and thus, we breathe our sigh of relief!
There is some new government regulation which may impact the closing date of new home purchases and refinances that takes effect at the end of this month. The Home Ownership and Equity Protection Act (HOEPA) and the Housing and Economic Recovery Act (HERA) were passed by Congress to add further regulations on the Truth in Lending Act. These new regulations are to provide greater transparency, and to protect consumers from deceptive lending practice. There are four key elements you should know.
First, your home purchase can be delayed. Normally, the buyer and seller agree on a closing date and your lender would make all attempts to have your loan processed, closed and funded by that date. This new regulation sets the earliest any purchase loan can close to 7 business days after the homebuyer is issued their initial mortgage disclosures. Business days do not include weekends or holidays. This part of the regulation is not a major issue as most loans will take longer than 7 business days to complete but it may impact some sales and delay the closing. Continue reading »
Loosely put, mortgage amortization is the repayment of a loan that has been given by a lender for the purpose of buying real estate. Mortgage amortization (mortgage repayment) happens as a consequence of the borrower making regular payments to the lender for an agreed term until the mortgage has been settled.
How Mortgage Amortization Works
The period of accounting for mortgage amortization is usually based upon twelve payment days per year. These payment days usually occur on the first day of each month. The mortgage account itself begins on the first day of the month that proceeds the month that the mortgage became “active”. The first payment that you actually make is called an “interim interest” payment. The interim interest payment covers the period between the date of your mortgage account begins and the date that your mortgage becomes active. The payments that follow the first mortgage payment commence on the first day of the following month.
Mortgage Amortization Examples
A mortgage loan of $200,000 taken out over a 30 year period at an interest rate of 6% becomes active on 15th July. Let’s say the monthly payment amount will be $1,119.12.
The borrower would pay an interim interest amount of $1,119.12 from the 15th July to 1st August. The first actual amortization payment would be made on 1st September. From the 1st of September onwards the borrower’s payments are split into paying interest against the mortgage loan and repaying the loan itself. Interest payments are factored by multiplying 1/12 of the remaining mortgage balance for the last accounting period by the interest rate. Using this example, the interest a borrower would pay on 1st September would be $1,000 ($200,000 ÷ 12 x 0.06 = $1,000). The remaining $199.12 of the $1,119.12 monthly payment goes towards paying the balance of the mortgage loan, bringing it down to $199,880.88.
The amortization and interest payments carry on through each month for the agreed period of the mortgage, but the amount of the monthly payment going towards interest decreases as the amount for the payment of the actual mortgage loan increases. Consequently, on the 1st of October the interest payment will be: $199,880.88 ÷ 12 x 0.06 = $999.40. The mortgage principal would be decreased by $119.72 to make a total sum owed of $199,761.16. Thus over time the ratio between interest and loan payments changes dramatically in favor of loan settlement payments.
Late Payment Fees
Many mortgage lenders will give a “grace period” to borrowers, when repayments can be deferred slightly up to the second week of the month. Most usually though mortgage payments made after the 15th of the month usually incur a late payment fee. This late payment fee can be an amount of up to 5% of the usual monthly payment amount.
Amortization Overpayment
You may want to make an overpayment against your agreed monthly payment. This reduces the balance of the mortgage loan by the exact overpayment amount over and above what is left after the interest payment. The effect of this is compounded over time: as you reduce the loan principal your future amortization payments increase further while interest payments decrease in tandem.
Mortgage Amortization Tools
A tool that can really help you to understand your mortgage payments and the effects of overpayment is a mortgage amortization schedule. Amortization schedules can be demonstrated through the use of spreadsheet packages that contain mortgage amortization formulas that show you the results of ad-hoc “what if?” scenarios such as how overpayment affects the relationship between interest and principal payment amounts. A simple search in a web search engine will give you many possibilities to download mortgage amortization spreadsheet templates at no cost.
If you have any questions regarding mortgages, I highly recommend that you contact John Mills of the Mills-Davis Mortgage Team in Vienna, Virginia at 703 346 3407. Tell him you heard about him on Carol’s blog!
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What kind of debt consolidation help is out there?
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