As we head into the last month of the year, sellers usually wonder if they should take their home off the market for the holidays. While no one has a crystal ball, there are many good reasons to consider leaving your home on the market until it sells.
Granted, there will be fewer buyers looking for homes in December than there are during the spring and summer months. However, those buyers who are looking to buy a home during the winter months are often serious buyers and not casual lookers. And, it only takes one good buyer to achieve a sale.
There will also be less competition from other home sellers. By the end of the year, many sellers who have been unable to sell simply give up and take their homes off the market. Less competition increases the odds of a sale for sellers whose homes are on the market.
Interest rates are another factor that could work in your favor. Interest rates were tame during the September and October, which was the opposite of what was expected.
Most economic forecasters thought earlier this year that fixed rate mortgages would increase to 7.5 percent by the fourth quarter of 2004, but this has not come to pass. In fact, as short terms rates increased during September and October, long terms rates actually decreased. In mid-October, the interest rate on 30-year fixed-rate conforming mortgages was well under 6 percent.
When interest rates are low, and there seems to be no threat that rates will rise quickly, buyers tend to become complacent. They don't feel pressure to buy now. But, if rates start an upward climb again as they did earlier this year, we could see a spurt in home sales. When this happens, homes that are listed for sale, particularly in a market that's low on inventory, tend to benefit. It's difficult to time the market, so the way to take advantage of a surge of activity is to have your home on the market.
Some sellers think that their chances of a good sale will be better in the spring. But there's no guarantee that next year's market will be better than this year's. We're winding up one of the best years for home sales on record.
Forecasters are mixed on how next year will compare. The range of opinions varies from a somewhat slower market next year to a flat market. A lot will depend on the overall economic condition and on the direction of interest rates. If rates spike, home sale activity will wane. If you wait until next spring to bring your home back on the market, you'll surely face more competition and possibly a softer market.
Another argument against keeping your house on the market during the holidays is that it's darn inconvenient. You may have houseguests, parties and sundry other commitments. Keeping your house ready for showing, and abiding the interruptions could add to an already hectic schedule.
HOME SELLER TIP: One way to minimize the disruption of having your home shown during the holidays is to set up a modified showing procedure. Rather than have a lockbox attached to your front door knob, ask your real estate agent to remove the lockbox and leave it with you. After an agent has made an appointment to show your home, you can leave the lockbox in a suitable place, like on the front porch. This gives you more control over the showing process.
http://www.americanhomeguides.com/homebuying_tips_view.php?RowID=200
Saturday, June 2, 2007
Mortgage disclosure amendments do more harm than good
The grapevine says that the Department of Housing and Urban Development (HUD) is seriously considering a proposal by the National Association of Mortgage Brokers (NAMB) for amending mortgage disclosure requirements. Is their proposal good for borrowers?"
Yes and no. It improves disclosure from lenders in a way that makes sense, but it reduces disclosure from brokers in a way that would make them even less accountable to borrowers than they are now. It would eliminate Upfront Mortgage Brokers (UMBs), who charge borrowers a set fee negotiated in advance, because it would no longer be possible for borrowers to determine from closing documents how much the broker made on the transaction.
A serious problem for borrowers in dealing with brokers is the difficulty in discovering how much the broker is charging. The fee paid out of the borrower's pocket is disclosed on the Good Faith Estimate, a required disclosure, but today this is the smallest part of broker income. The larger part is the fee received from the lender, which typically is not revealed until late in the transaction when the borrower is already committed, and then is often shown in an obscure way that many borrowers miss.
A major section of HUD's recent proposals for reforming the market was directed toward this problem. The proposals were shelved earlier this year because of intense opposition from NAMB and other industry groups. NAMB's current "remedy" for incomplete disclosure is no disclosure! But it has cleverly bundled its proposal to eliminate broker disclosure altogether with one that improves disclosure of lender fees.
NAMB would collapse the multiplicity of itemized lender fees into one total of "origination costs" that would be guaranteed (within some margin of error) by the broker or lender. Any fee that the borrower pays the broker would be included in the total but not separately identified. Fees paid by the lender to the broker would not be shown either.
The logic of this proposal is that so long as borrowers receive accurate information on total origination costs, the breakdown of these costs is irrelevant. What should matter to the borrower is the total price, period. The retail lenders with whom brokers compete don't reveal their markups, and there is no reason for brokers to either.
This would be a valid argument if most borrowers were willing and able to shop prices effectively. The reality is, however, that most borrowers depend entirely on a single loan provider, whether broker or lender, in the hope and expectation that they will be fairly treated. Sometimes they are, but often, much too often, they are not.
Because shopping is complicated and demanding, borrowers should be able to purchase the services of a specialist to shop for them. Upfront Mortgage Brokers are brokers who agree to work as the borrower's agent, negotiating a fee in advance for their services. This fee includes payment to the broker from the borrower, the lender or both. If the fee is $3,000, for example, and if the lender pays the broker $2,000, the borrower would pay $1,000. Currently, there are 80 UMBs listed on my Web site.
If the NAMB proposal were adopted, the UMB option would be eliminated. Since broker compensation would no longer be disclosed in closing documents, borrowers could no longer verify that the broker complied with the compensation agreement. Any broker could claim to be a UMB, and could offer services at any price, without fear of being exposed.
n my view, the proposal should be amended to recognize that borrowers can follow two legitimate paths toward obtaining a mortgage. In one path, they shop for the best deal, whether the loan provider is a lender or broker doesn't matter, and the components of the origination costs do not matter. NAMB's proposal to collapse all origination costs into one total would help such shoppers significantly.
But borrowers who don't want to shop, preferring to retain an expert mortgage broker as their agent to shop for them, should have the option of selecting that path. The disclosure form should indicate the choices clearly, and if the borrower elects the agency path, the form should break out the total compensation to be received by the broker.
The two-paths toward obtaining a mortgage should also be recognized by those proposing mandatory counseling of first-time home buyers, or other mortgage borrowers. Counseling someone on how to select a broker as his/her agent is very different from, and much simpler than, counseling that person on how to shop for a mortgage.
http://www.americanhomeguides.com/homebuying_tips_view.php?RowID=193
Yes and no. It improves disclosure from lenders in a way that makes sense, but it reduces disclosure from brokers in a way that would make them even less accountable to borrowers than they are now. It would eliminate Upfront Mortgage Brokers (UMBs), who charge borrowers a set fee negotiated in advance, because it would no longer be possible for borrowers to determine from closing documents how much the broker made on the transaction.
A serious problem for borrowers in dealing with brokers is the difficulty in discovering how much the broker is charging. The fee paid out of the borrower's pocket is disclosed on the Good Faith Estimate, a required disclosure, but today this is the smallest part of broker income. The larger part is the fee received from the lender, which typically is not revealed until late in the transaction when the borrower is already committed, and then is often shown in an obscure way that many borrowers miss.
A major section of HUD's recent proposals for reforming the market was directed toward this problem. The proposals were shelved earlier this year because of intense opposition from NAMB and other industry groups. NAMB's current "remedy" for incomplete disclosure is no disclosure! But it has cleverly bundled its proposal to eliminate broker disclosure altogether with one that improves disclosure of lender fees.
NAMB would collapse the multiplicity of itemized lender fees into one total of "origination costs" that would be guaranteed (within some margin of error) by the broker or lender. Any fee that the borrower pays the broker would be included in the total but not separately identified. Fees paid by the lender to the broker would not be shown either.
The logic of this proposal is that so long as borrowers receive accurate information on total origination costs, the breakdown of these costs is irrelevant. What should matter to the borrower is the total price, period. The retail lenders with whom brokers compete don't reveal their markups, and there is no reason for brokers to either.
This would be a valid argument if most borrowers were willing and able to shop prices effectively. The reality is, however, that most borrowers depend entirely on a single loan provider, whether broker or lender, in the hope and expectation that they will be fairly treated. Sometimes they are, but often, much too often, they are not.
Because shopping is complicated and demanding, borrowers should be able to purchase the services of a specialist to shop for them. Upfront Mortgage Brokers are brokers who agree to work as the borrower's agent, negotiating a fee in advance for their services. This fee includes payment to the broker from the borrower, the lender or both. If the fee is $3,000, for example, and if the lender pays the broker $2,000, the borrower would pay $1,000. Currently, there are 80 UMBs listed on my Web site.
If the NAMB proposal were adopted, the UMB option would be eliminated. Since broker compensation would no longer be disclosed in closing documents, borrowers could no longer verify that the broker complied with the compensation agreement. Any broker could claim to be a UMB, and could offer services at any price, without fear of being exposed.
n my view, the proposal should be amended to recognize that borrowers can follow two legitimate paths toward obtaining a mortgage. In one path, they shop for the best deal, whether the loan provider is a lender or broker doesn't matter, and the components of the origination costs do not matter. NAMB's proposal to collapse all origination costs into one total would help such shoppers significantly.
But borrowers who don't want to shop, preferring to retain an expert mortgage broker as their agent to shop for them, should have the option of selecting that path. The disclosure form should indicate the choices clearly, and if the borrower elects the agency path, the form should break out the total compensation to be received by the broker.
The two-paths toward obtaining a mortgage should also be recognized by those proposing mandatory counseling of first-time home buyers, or other mortgage borrowers. Counseling someone on how to select a broker as his/her agent is very different from, and much simpler than, counseling that person on how to shop for a mortgage.
http://www.americanhomeguides.com/homebuying_tips_view.php?RowID=193
How would a truly flexible mortgage work?
Lat week I had little good to say about Fannie Mae's new Payment Power Program (PPP), which allows a borrower to skip up to two mortgage payments in any 12-month period, and up to 10 over the life of a loan. A skipped payment results in an additional loan, equal to the payment plus a healthy access fee, tacked on to the balance. As an emergency source of funds, it is much more costly than accessing a home-equity line of credit (HELOC).
My view is that borrowers don't need a high-cost way to borrow for emergencies. What they need is a no-cost way to accumulate a reserve within their existing mortgage that would allow them to skip or reduce payments when necessary. A truly flexible mortgage would provide this. Here is how it would work.
The flexible mortgage would base the borrower's payment obligation on the loan balance. A schedule of required balances, declining month by month over the life of the loan, would be part of the contract. If the borrower made all the scheduled payments, his balances month by month would correspond exactly to the required balances. But if he paid more in some months, his actual balance would fall below the required balance, the difference constituting a "reserve account," which he could draw on by paying less later on.
For example, the loan is for $160,000 at 5.5 percent for 15 years, with a monthly payment of $1,307. The borrower receives a bonus every Christmas from which he pays an extra $1,000 on his mortgage. With each extra payment, the gap between his actual balance and the required balance widens. If he does this five years running and then loses his job, he can skip his payment entirely in months 72, 73, 74, and 75, and in month 76 he can pay only $575. At that point, the actual balance and required balance are equal, so his "reserve" is exhausted.
Or suppose the borrower inherits $10,000, which he decides to use as an extra payment in month 12. If he falls sick in month 37, he can skip eight payments and most of a ninth before his reserve is exhausted.
In many cases, a borrower wants only to reduce the payment, as opposed to skipping it entirely. If the borrower who prepaid $10,000 in month 12 needed to cut his payment from $1,307 to $1,000 starting in year 4, he could do it for 39 months before exhausting his reserve.
The beauty of the flexible mortgage from a borrower's perspective is that once he/she gets ahead of the game, his/her payment can be anything he/she wishes. The only limitation is that the actual balance must stay below the maximum balance each month.
This flexible mortgage is not rocket science. The numbers cited above were drawn from an Excel spreadsheet that required only a minor add-on to an existing amortization spreadsheet. The payment option adjustable-rate mortgage (ARM) that many lenders offer today is far more complicated.
Servicing a flexible mortgage presents only modest challenges. At a minimum, the lender would have to inform the borrower of the minimum payment required each month, something they do now on option ARMs. It would not be difficult to provide a wider range of possibilities, or to allow borrowers to test their own preferences by accessing their account over the Internet.
Since the borrower's obligation on a flexible mortgage is defined in terms of the balance rather than the payment, delinquency and default would also be defined in this way. Delinquency would be a single occurrence where the actual balance exceeded the required balance, and default would be a succession of months (perhaps three) in which this happened.
The flexible mortgage encourages borrowers to save nuts for the winter. Hence, I would expect that both delinquencies and defaults would be lower than on our current mortgages.
Some lenders in the United Kingdom, Australia and South Africa provide mortgages with much greater payment flexibility than anything available in the United States. At least one large lender in South Africa allows complete payment flexibility so long as the balance does not exceed the original balance, which is much more radical than using a declining required balance.
On some automobile loans in the United States, a borrower who makes a double payment one month can skip paying the next month. If the borrower makes a triple payment, he can skip two months, and so on. This is not nearly as flexible as the declining balance proposal, but it is very simple and would be a step forward.
http://www.americanhomeguides.com/homebuying_tips_view.php?RowID=187
My view is that borrowers don't need a high-cost way to borrow for emergencies. What they need is a no-cost way to accumulate a reserve within their existing mortgage that would allow them to skip or reduce payments when necessary. A truly flexible mortgage would provide this. Here is how it would work.
The flexible mortgage would base the borrower's payment obligation on the loan balance. A schedule of required balances, declining month by month over the life of the loan, would be part of the contract. If the borrower made all the scheduled payments, his balances month by month would correspond exactly to the required balances. But if he paid more in some months, his actual balance would fall below the required balance, the difference constituting a "reserve account," which he could draw on by paying less later on.
For example, the loan is for $160,000 at 5.5 percent for 15 years, with a monthly payment of $1,307. The borrower receives a bonus every Christmas from which he pays an extra $1,000 on his mortgage. With each extra payment, the gap between his actual balance and the required balance widens. If he does this five years running and then loses his job, he can skip his payment entirely in months 72, 73, 74, and 75, and in month 76 he can pay only $575. At that point, the actual balance and required balance are equal, so his "reserve" is exhausted.
Or suppose the borrower inherits $10,000, which he decides to use as an extra payment in month 12. If he falls sick in month 37, he can skip eight payments and most of a ninth before his reserve is exhausted.
In many cases, a borrower wants only to reduce the payment, as opposed to skipping it entirely. If the borrower who prepaid $10,000 in month 12 needed to cut his payment from $1,307 to $1,000 starting in year 4, he could do it for 39 months before exhausting his reserve.
The beauty of the flexible mortgage from a borrower's perspective is that once he/she gets ahead of the game, his/her payment can be anything he/she wishes. The only limitation is that the actual balance must stay below the maximum balance each month.
This flexible mortgage is not rocket science. The numbers cited above were drawn from an Excel spreadsheet that required only a minor add-on to an existing amortization spreadsheet. The payment option adjustable-rate mortgage (ARM) that many lenders offer today is far more complicated.
Servicing a flexible mortgage presents only modest challenges. At a minimum, the lender would have to inform the borrower of the minimum payment required each month, something they do now on option ARMs. It would not be difficult to provide a wider range of possibilities, or to allow borrowers to test their own preferences by accessing their account over the Internet.
Since the borrower's obligation on a flexible mortgage is defined in terms of the balance rather than the payment, delinquency and default would also be defined in this way. Delinquency would be a single occurrence where the actual balance exceeded the required balance, and default would be a succession of months (perhaps three) in which this happened.
The flexible mortgage encourages borrowers to save nuts for the winter. Hence, I would expect that both delinquencies and defaults would be lower than on our current mortgages.
Some lenders in the United Kingdom, Australia and South Africa provide mortgages with much greater payment flexibility than anything available in the United States. At least one large lender in South Africa allows complete payment flexibility so long as the balance does not exceed the original balance, which is much more radical than using a declining required balance.
On some automobile loans in the United States, a borrower who makes a double payment one month can skip paying the next month. If the borrower makes a triple payment, he can skip two months, and so on. This is not nearly as flexible as the declining balance proposal, but it is very simple and would be a step forward.
http://www.americanhomeguides.com/homebuying_tips_view.php?RowID=187
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