Behind The Mortgage

Is Your Pre-Approval Letter Worthless?

Alex Stenback — Thu, 19 Aug 2010 18:48:16 +0000

Let’s do a little exercise in comparison/contrast, shall we?

The following is an image clipped from a pe-approval letter I recently received as an attachment to a purchase agreement. Anonymized for obvious reasons:

Translation: “Based on information that may or may not be either unverifiable or outright fiction, which we’ll only verify completely once you have taken your home off the market, our client is pre-qualified.” Congratulations indeed.

Confidence inspiring? No. Would you be comfortable buying or selling a home based on that letter? I hope not.

It clearly states nothing has been verified about this borower. Not income. Not credit. Not down payment. Nothing. Read closely and it appears the loan application is not yet complete.

I mean, why bother? According to that letter, the whole thing is a figment of imagination. So good luck, I guess.

To be fair, this is not the worst pre-approval letter I have seen, and all pre-approval letters have some qualifying language. After all, Minnesota Statute 58.13 Subdivision 1 (12)says: [No person acting as a loan originator shall] “issue any document indicating conditional qualification or conditional approval for a residential mortgage loan, unless the document also clearly indicates that final qualification or approval is not guaranteed, and may be subject to additional review;”

But still, surely this lender can do better for their clients, agents, and other interested parties.

In the interest of full disclosure, and as an example of a strong pre-approval, here’s what I send (in addition to a $10,000 guarantee to the seller that the loan will close):

I’ll close with a rhetorical question: Which letter would you rather have in a competitive situation, or if you are selling your home?

The Fed and Mortgage Rates

Alex Stenback — Wed, 11 Aug 2010 14:45:03 +0000

“the Committee will keep constant the Federal Reserve’s holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities. The Committee will continue to roll over the Federal Reserve’s holdings of Treasury securities as they mature.”

That snippet of inimitably impenetrable prose from yesterday’s Federal Open Market Committee policy statement effectively means that interest rates, including mortgage rates, are likely to stay at incredibly low levels for a while.

This no guarantee, mind you, but that’s the intent.

Another way to look at this: With the economy showing real signs of stagnation (without the HUGE amounts of Fed intervention, it might even be shrinking) the Fed is content to keep the pool full and the heater on.

While that’s a good thing for interest rates, don’t forget that someday, maybe sooner than we think, somebody is going to stroll by and drop a toaster into the deep end.

“The Thing” Launches: Twin Cities Real Estate Info-Porn at Your Fingertips

Alex Stenback — Thu, 22 Jul 2010 17:15:33 +0000

The Minneapolis Area Association of Realtors has just officially launched their proprietary, web-based, interactive market analytics tool, otherwise known as “The Thing.”

It is in a word, awesome, but we’ll let MAAR riff on this a little:

“Users can combine metrics like median sales price, months supply or days on market with breakouts like home types, foreclosures and new construction. The many possible combinations can be further broken down to geographic area, including cities, counties, ZIP codes and MLS areas. And none of this will take more than a few clicks. 10K products are built to be highly localized, visually elegant and intuitive.”

That makes it sound a little clunkier that it actually is, so check it out right here. Also, you know the best thing? Best thing is that it is open to anyone, not just industry professionals.

Taking valuable data and turning it into easy to use, informative, real estate market eye candy is something we can dig on, and you should too.

Congress Passed Last Minute Home-Buyers Tax Credit Extension

Alex Stenback — Thu, 01 Jul 2010 16:50:10 +0000

Borrowers concerned that the paperwork might not clear in time for them to close on their purchase before today’s deadline (homebuyers eligible to receive first time buyer or move-up tax credit needed to close by July 1st) can rest easy – late last night, lawmakers voted to approve an extension. From the NYT:

Congress has sent President Obama a plan to give home buyers an extra three months to qualify for up t0 $8,000 in federal tax credits. Buyers who already have signed contracts will now have until Sept. 30 to complete their purchases. Under the current terms, buyers had until April 30 to get a signed sales contract and until June 30 to complete the sale. The House approved the measure on Tuesday. Legislation in the Senate was approved Wednesday night by unanimous consent.

Note that this ONLY applies to buyers already under contract by April 30th.

Home Buyers Tax Credit Extended [NYT]

Fannie Cracking Down on “Strategic Defaults”

Alex Stenback — Wed, 23 Jun 2010 21:35:22 +0000

From Fannie Mae today:

WASHINGTON, DC — Fannie Mae (FNM/NYSE) announced today policy changes designed to encourage borrowers to work with their servicers and pursue alternatives to foreclosure. Defaulting borrowers who walk-away and had the capacity to pay or did not complete a workout alternative in good faith will be ineligible for a new Fannie Mae-backed mortgage loan for a period of seven years from the date of foreclosure. Borrowers who have extenuating circumstances may be eligible for new loan in a shorter timeframe.

This is a good thing, though true strategic defaults are trickier to distinguish from other defaults than one would think.

Also, for borrowers out there considering foreclsoure or a foreclsoure alternative: Bear in mind that in the future, the burden of proof (that you could not afford the home, or DID make a good faith effort to work things out) will be on you, so speak with your servicer, and keep meticulous records – you will need them to get a mortgage in the future.