Realtor Coaching & Training: Case
Pre-Qualification vs Pre-Approval
Does this sound easy to answer? Which came first, the chicken or the egg? How about this question….
Do you know the difference between a pre-qual letter and a pre-approval letter?
Both answers could differ greatly, depending on who you speak to and who is a professional on the subject matter and who isn’t. I just wanted to dig a little deeper into this. There seems to be a major misunderstanding in my opinion.
Keep in mind that these definitions/explanations are not from Webster or an online site, but that they are based on my opinions with 16 years in the mortgage industry.
Pre-Qualification Letter - The loan officer screens the borrower while asking questions and pulling their credit. Each loan officer has their own way of asking specific questions. I am not here to say which is right or wrong. But I will say that some of these questions are never asked in the initial screening process.
Pre-Approval Letter - There are a few ways to look at this. In my opinion, and from talking to a few seasoned loan officers; you should be collecting pay stubs, bank statements, and running a credit report. Depending on the type of work that the borrower performs, you might need W-2’s and or tax returns. If it’s a complicated pay history, then you need to order a VOE, verification of employment. This will tell the story of that borrowers’ pay history for the last 2 years and their year-to-date.
Once the information is verified, you then run it through one of the different automated approval systems. Then the documents should be verified and reviewed by an underwriter. Now, here is where the debate comes into play.
By having an underwriter or a junior underwriter review these documents, you are essentially giving them a full approval. But from the technical word of Pre-Approval, essentially what this means is that you are approving the borrower without a property address.
Commitment Letter - Now the fun begins and who said mortgages were boring. You can basically say that a pre-approval letter should be like a commitment letter. With a commitment letter, you already verified income, assets, and credit. There would be other conditions on the commitment letter though. If an appraisal has been done or not, that would be on there. Another condition would be for clear title and homeowners insurance. The rate and term would also be on this commitment letter.
As stated, this can be an interesting topic with varying answers. I am not saying that my statements are 110% correct, but I will be stern with my statements to say that I would love for anyone to debate them, to tell me that I am off base per se. Here is the reason why…
In order to offer a pre-approval letter without running the documents through underwriting and in some cases, not even asking for documentation upfront, but taking the word of the borrower (yes, loan officers actually do this), you need to be better than good. Even a good loan officer might miss these items, which could cause caos prior to settlement. Here are some of the items in question :
- if you don’t know how to read a pay stub in calculating their income – ie : if the borrower is paid twice a month and not every 2 weeks, the calculation is different. – 24 pay periods and not 26 pay periods.
- or that you don’t look at the details of the bank statements and didn’t notice any large deposits, which need to be explained no matter what
- or on the pay stub, you missed their child support payments
- or not going over their credit line by line, but just assuming that their credit score fits the program, that you are okay….
Conclusion : Yes people, this happens more often than one would think. Loan officers are able to hand out a pre-approval based on what we have asked and sometimes see. Hence why I tell most realtors that my pre-qualification letter is just as good as my pre-approval letter. If I don’t feel comfortable with the debt-to-income ratios, then I run it through the automated underwriting system.
Popularity: 2% [?]
Facebook For Realtors
How-To Use Facebook For Realtors….what NOT to do!
Facebook has become a crucial aspect of any agents online marketing plan. Facebook is proving to be a powerful, effective (and mostly FREE) way to get the word out about your real estate business.
Its important that you know the public (and secret) rules for using Facebook.
Its crucial that you understand that you DON’T own your content that you post to FB. They do. You could spend hours and hours posting, updating content to your FB account just to have your account ’suspended’ for breaking one of these ‘rules’.
1) Don’t add too many friends. FB will send you a warning if you are seen as adding too many friends…but, once you get that warning it may be too late. There is no published ‘official’ info on how many friends you can add per day…so, be careful. You can have only 5000 friends max.
2) Not completing your profile. You wont have your account shut down for an incomplete profile but, if will make you look unprofessional. Remember, your real estate clients ARE searching for you on Facebook. Make it so when they land on your FB page your presentation is professional.
3) Spamming your friends. This includes: posting to too many groups, posting to too many users walls. YES, FB is a social network and yes your goal is to engage with others. But, if you do this too much…kiss your FB account bye-bye. By the way, no warning is granted for this one…your account will simply go ‘poof’.
4) Joining too many groups. Sort of like the prior point.
5) Not using your real name. Facebook wants you to use your real name…for example: http://www.Facebook.com/TimandJulieHarris
6) Tell the truth. This one should be of no surprise..Don’t lie in your profile. For example, don’t lie about your education level, schools attended etc. FB may find out and you can say bye-bye to your account.
7) Don’t poke too many people. Once you are on FB you will know what that means. (I know for the unititiated this point may sound a tad obscene)
8)4:1. Remember that ratio. You will be given the opportunity to ‘update your status’ on FB as often as you would like. The ‘golden ratio for updates’ is 4:1. 4 personal-ish updates for every 1 commercial-ish update. In other words, DO update your profile with personal stuff. You can decide how personal you want to be. Warning: BE PROFESSIONAL. Every 4th post you can talk about a listing etc.
9) NEVER bash anyone online. Aside from the recently passed NAR guidelines for social networking, which should be enough of a reason not to snipe others…its just rude and will make you look bad. Remember, despite what you may believe you are NOT anonymous on line. You can be sued for libel.
10) Don’t log-in to FB too often or over stay your welcome. Facebook has been known to shut accounts down if the user is spending too much time on their site. The average FB user spends 20 minutes per day on FB. So, if you are spending significantly more time on their site…they may give you the virtual boot. Why? Because you are using their bandwidth, their servers..and costing them money.
11) ENGAGE. A great idea (I just learned this one) is to post questions for your status updates. Ask questions that will lead to potential clients engaging with you….for example: ” Need to buy my daughter a 16th B-Day gift…any ideas?”, or “Looking for a new book to read…any suggestions…open to any topics?”. You can also ask more ‘commercial’ type questions…”just listed an amazing 4 family with cash flow postitive #s…less than $200k!…interested?”
12) Placing ads in Marketplace vs the paid Social Ads. Hey, guess what…FB wants to make money…big surprise, right?! Facebook will go after Realtors who place property listing ads in their MarketingPlace section (free) vs their new Social Ads (paid). We have been experimenting with Social Ads with good results.
13) The Golden Social Networking Rule. You know the Golden Rule…’Treat others like you would like to be treated”. Well the ‘Golden Facebook Rule’ is to engage (speak with) your FB friends the way they want to be communicated with. In other words, if someone posts a comment on your FB Wall…comment back. If someone invites you to join their Fan/ Business Page…JOIN!.
14) Start a Fan/ Business FB page. This is IN ADDITION to your primary Friends Page. Consider taking FB up on their offer to start your own Fan/ Business Page. The benefits of doing this are many…unlimited ‘Friends’, you are given way more levity for commercial marketing etc. Oh, and its FREE.
15) What Starts On-line must be taken off line. Last one…you must take your online connecting…offline. So, you have 300 FB friends. You have been following these rules and have earned their trust due to your diligent and thoughtful contributions, status updates etc. You then read how one of your FB Friends is talking about real estate. Maybe their status update is?: ” Neighbor just listed their home…wonder how much they are asking“…you need to engage with that person. Its not enough to just comment on their status update…you need to…..pick up the phone and call them. You might say something like this…” Hi, this is Tim Harris….I am one of your firends on FB (if they dont already know)….I noticed that you were asking about the list price of your neighbors home…I can look that up for you right now….while I do that….would you like for me to do a free CMA on your home….(Yes)…Ok, great…by the way…how soon would you like to put your home on the market?” The point is….call them…..and engage!
Listen, I know that for many of you all of this social networking stuff sounds as appealing as fingernails on a chalk board. Please don’t be intimidated by what you don’t yet understand. I promised you this stuff is WAAAAY easier…and in many cases actually a lot of fun to use. Here is a great FREE video on how you can get started using social networks. Go here now to watch the Free Agent Tech Secrets video.
Popularity: 9% [?]
Luxury, Highend Foreclosures
We have been warning all of you that the no price segment or region of the country would go unaffected by this housing correction/ recession/ depression….whatever you want to call it. Now, the high end homes are experiencing the harsh realities of this market….
With the U.S. economy and financial markets showing signs of life, optimistic analysts are looking for a recovery in the all-important housing sector. They got some ammunition on June 2 from the National Association of Realtors, which said that its Pending Home Sales Index jumped in April by the most in more than seven years.
But housing can’t revive as long as the market is being flooded with homes that are falling into foreclosure. And far from going away, the problem is broadening. It’s not just about subprime anymore. Now, people with excellent credit who never dreamed of getting in financial trouble are being dragged down by a dangerous cycle of rising unemployment and falling home prices. That is going to prolong the foreclosure crisis and, inevitably, inhibit the recovery of the rest of the economy.
Any illusion that prime loans would emerge unscathed was shattered by a May 28 report from the Mortgage Bankers Assn. “For the first time since the rapid growth of subprime lending, prime fixed-rate loans now represent the largest share of new foreclosures,” the bankers said. The grime in prime was responsible for the worst performance on record for the U.S. mortgage sector in the first quarter: Nearly 13% of loans were delinquent or in foreclosure, the most since the bankers started keeping tabs in 1972. The problems were worst in the bubble states of California, Florida, Arizona, and Nevada.
The biggest factor in this second wave of foreclosures is the inability of distressed homeowners to sell in order to pay off their debts. Prices in bubble cities such as Los Angeles, Phoenix, and Miami are down less at the high end of the market than at the bottom, according to data from Standard & Poor’s/Case-Shiller home price indexes. But that’s cold comfort to people who haven’t managed to sell at all. According to research by the National Association of Realtors, there are enough $750,000-plus homes on the market to cover more than 40 months’ worth of demand at the current rate of sales. That’s four times the rate of oversupply in the housing market as a whole.
Realtors, learn how to become a REO Listing Agent. BE the agent with all the buyer baited REO Listings. Watch the FREE Agent REO Secrets video and download the FREE Agent REO Secrets book now!
Unemployment is exacerbating the problems at the top of the market. The jobless rate for adults with a bachelor’s degree or more may not sound too high at 4.4% in April given the overall April jobless rate of 8.9%. But it’s more than double the rate of 2% a year earlier. And many families in that segment of the population built their finances on the assumption of continuous full employment, so they can’t cover the mortgage when even one spouse is out of work.
Consider the plight of Stephanie and Bob Walker, who bought a $799,000, three-bedroom home in Los Angeles with a view of the Hollywood sign in 2006 but are losing it because last year Bob stopped getting computer consulting work that used to pull in about $240,000 a year. Bob eventually landed a job paying $60,000, and Stephanie found work as a $13-an-hour temp, but it wasn’t enough to cover their mortgage and credit-card debt, which was swelled by about $130,000 worth of home renovations. They listed the house last year for an “optimistic” $875,000 but didn’t get any takers. After months of price cuts and threats of foreclosure from the bank, they’re days from closing on a sale at $700,000 that will assuage their primary mortgage lender—but leave them under pressure from other creditors. “We had no expectation things would come crashing down as fast as they did,” says Stephanie. “We had no one to blame but ourselves. We didn’t have a backup plan if he lost his job.”
The economics at the top of the market aren’t as advantageous as they are at the bottom, where first-time home buyers are flocking to lower-priced homes, spurred by low interest rates, temporary tax credits, and a drop in prices that has made owning cheaper than renting in many cities. At the high end, homes are too expensive for most first-time buyers, and move-up buyers can’t purchase a home without selling property they already own. What’s more, financing is far costlier, if it’s available at all, because private investors have lost their appetite for big mortgages. Rates on “jumbo” loans—that is, those too big to be purchased by Fannie Mae (FNM) or Freddie Mac (FRE)—are roughly a percentage point higher than those for loans that conform to Fannie and Freddie’s purchase limits. (Those limits range from $417,000 to $730,000, depending on local housing costs.)
An inflation panic in the fixed-income market is the latest blow to homeowners who are trying to sell to avoid foreclosure, because it’s pushing up mortgage rates and pushing potential buyers out of the market. Rates on 30-year fixed, conforming mortgage loans jumped nearly half a percentage point, to 5.25%, in the week ended May 29 from a week earlier, according to the Mortgage Bankers Assn. Meanwhile, the market is unlikely to get much help from the Obama Administration’s foreclosure-prevention program. Although it’s somewhat more ambitious than the Bush Administration’s program, it is voluntary for lenders and is off to a slow start since its March inception.
Why are some agents struggling in this market while others are making a fortune? 2 words: Short Sales. Learn NOW how to easily list and sell short sales. Watch the FREE Agent Short Sale Secrets video and download the FREE Agent Short Sale Secrets book.
When will this second wave of foreclosures crest? David Crowe, chief economist of the National Association of Home Builders, doesn’t see the peak coming until 2011, later than most other experts predict. Foreclosures typically top out after unemployment does, and Crowe doesn’t expect that to occur until late this year. After that, Crowe says, more people will lose their homes because of upward resets on adjustable-rate mortgages. Credit Suisse says mid-2010 is the peak for scheduled resets, and resets will stay high well into 2012. While most of the subprime loans issued during the boom years have been washed out by now, there are still about half a trillion dollars’ worth of option ARMs, which allow borrowers to add unpaid interest to the principal they owe. There’s an even more alarming $2.5 trillion in “alt-A” loans, which are between prime and subprime and include a big chunk of the mortgages that required little or no proof of income or assets. Most of these loans were issued to people with relatively good credit who were buying more expensive homes.
A key unknown is how many middle- and upper-income homeowners will simply walk away from homes that are worth less than the mortgages on them. So far few have. Whitney R. Tilson, managing partner of New York investment firm T2 Partners and co-author of the book More Mortgage Meltdown, expects the ranks of walk-aways to increase, exacerbating foreclosures. But Rick Sharga, senior vice-president of RealtyTrac, a foreclosure data specialist, disagrees. “To sign a contract for a house and then walk away from it runs counter to everything we were taught,” says Sharga, who predicts foreclosures will dip slightly in 2010.
Even if foreclosures don’t rise, the rate is already so high that it will put considerable pressure on the national housing market for at least two more years, says Mark Hanson, managing director of Field Check Group, a Menlo Park (Calif.) research firm.
While forecasts differ in detail, the clear message is that foreclosure is going upscale. And that means the housing bust won’t end anytime soon.
Source: BusinessWeek.
Popularity: 1% [?]
Homes Back to 02 Values...Mortgage Balances are not.
House prices are taking a long ride in the wayback machine.
Unfortunately, Americans’ housing-related debt isn’t going anywhere fast.
Prices in big U.S. cities posted their biggest-ever decline in the first quarter, according to the most recent S&P/Case-Shiller National Home Price index. After nearly three years of declines, house prices nationwide are back at 2002 levels — and still falling.
Yet as bad as that is for overburdened homeowners and their bankers, the mighty mountain of mortgage debt Americans have taken on is an even bigger concern – especially for those who believe an economic recovery is in sight.
Even though the amount of home mortgage debt outstanding declined in 2008 for the first time since the Federal Reserve started keeping track in 1945, mortgage debt levels remain distressingly high.
Home mortgage debt outstanding was 73% of gross domestic product last year, according to government data. That’s the third-highest reading on record, after the 75%-plus bubble years of 2006 and 2007.
Getting that ratio down to a more manageable number will mean more lean years ahead, as Americans further cut spending to rebuild their savings and banks struggle to boost their capital amid heavy loan losses.
How long this process might take is a key question for those trying to gauge the prospects for an economic recovery.
To get the mortgage debt-to-GDP ratio down to a more normal level such as the 46% average of the 1990s, Americans would have to cut their mortgage debt to $6.6 trillion from $10.5 trillion at the end of 2008. The last time the national mortgage debt count was below $7 trillion was 2003, according to Federal Reserve data.
Realtors, this housing crisis is forcing millions of homeowners to list their homes with agents who know how to do short sales. DO YOU? Learn now how to easily list and sell short sales. Watch the FREE Agent Short Sale Secrets video..then download the FREE Agent Short Sale Secrets book.
We might call this mortgage overhang the $4 trillion elephant in the room for policymakers, who have spent the past year injecting liquidity into the economy – a course of action that will do little to solve the problem of too much debt.
Of course, these figures reflect only back-of-the-envelope estimates. Depending on the level of interest rates and how successful officials are in restoring the vigor of the lending markets, mortgage debt may or may not need to drop that far to relieve some of the stress on consumers.
Still, there is little doubt that above-average debt levels will impede the sort of consumer-driven economic rebound that has taken place after the last few recessions.
“I don’t think that there is any magic to the ’90s debt levels,” said Dean Baker, an economist at the Center for Economic and Policy Research in Washington. “The point is that with higher debt levels, people will be consuming less.”
Borrowers who are overstretched on their mortgages are less able to spend money on other goods and services, and more apt to fall behind on payments. That could mean more painful writedowns ahead for already troubled banks.
The scale of the mortgage overhang may help explain why, even after banks such as JPMorgan Chase (JPM, Fortune 500) and Citigroup (C, Fortune 500) received generally upbeat stress test results, some prominent skeptics of the housing bubble are warning that the financial system’s problems aren’t over.
“There is still a very large unfunded capital requirement in the commercial banking system in the United States and that’s got to be funded,” former Fed chief Alan Greenspan said last week in an interview with Bloomberg. He added that “until the price of homes flattens out we still have a very serious potential mortgage crisis.”
Source: Money.CNN.com
Popularity: 1% [?]
Harris Real Estate University students (and future students) here are the latest Case-Shiller home price indices. 
The March report(.pdf) for the S&P Case-Shiller Home Price
Indexes shows a record decline of 19.1 percent in the quarterly National Home Price Index and a slightly less severe rate of decline for the 10-city and 20-city indexes. Price indexes for all 20 cities are shown below.
The top to bottom position on the right (corresponding to the order of the legend in the upper left to aid in viewing the data) saw a few changes last month, San Francisco, Las Vegas, Minneapolis, and Phoenix continuing to move down.
The index for Detroit now stands at 71.67, well off the bottom of the chart.
As shown below, Phoenix maintained its leadership role in year-over-year price declines with an astonishing 36.0 percent plunge. Las Vegas and San Francisco are not far behind with declines of more than 30 percent, all underlined in red.
Home prices in Minneapolis continue to tumble at an astonishing rate, down more than 6 percent in March with a year-over-year drop of 23.3 percent, sixth worst of the 20 cities.
David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s
Declines in residential real estate continued at a steady pace into March. All 20 metro areas are still showing negative annual rates of change in average home prices with nine of the metro areas having record annual declines. Seventeen metro areas recorded a monthly decline in March, with Minneapolis, Detroit and New York posting record monthly declines.
On a positive note, nine of MSAs are reporting a relative improvement in year-over-year returns and nine of the 20 metro areas saw an improvement in their monthly returns compared to February. Furthermore, this is the second month since October 2007 where the 10- and 20-City Composites did not post a record annual decline. Based on the March data, however, we see no evidence that that a recovery in home prices has begun.Realtors, the CEO and Founder of RE/MAX said that every agent must be doing short sales! What are YOU waiting for? Watch the FREE Agent Short Sale Secrets video now and then download the FREE Agent Short Sale Secrets video. Learn NOW how to easily list and sell short sales.
There’s your “green shoot” for the day – March was the second month in the last six where neither index showed a record annual decline in home prices.
Source: TheMessThatGreenspanMade.com
Popularity: 1% [?]
S&P Case Shiller Home Price Index
Harris Real Estate University students (and future students) here is the most recent Case-Shiller Home Price index information.
Read this and then share your comments with us…Do you think housing has reached bottom? (If not, when will it?)
After deteriorating relentlessly for nearly three years, the much-watched S&P/Case-Shiller Index showed a brief glimmer that plummeting home prices are at least slowing their fall.
Prices are still plunging: Home prices in 20 major cities across the country have fallen 18.6% between February of this year and last, according to the index released Tuesday. That painful drop, however, is an improvement from January, when prices fell an unprecedented 19%.
“This is the first month since October 2007 where the 10- and 20-city composites did not post a record annual decline,” says David Blitzer, the Chairman of the Index Committee at Standard & Poor’s, in a statement with the release. “We will certainly need a few more months of data before we can determine if home prices are finally turning around,” he cautioned.
Realtors, learn now how to become a REO listing agent. Watch the FREE Agent REO Secrets video now…then, download the FREE Agent REO Secrets book. Become a REO Listing Agent NOW!
The Case-Shiller Index paints a particularly brutal portrait of the housing bubble in American cities. All 20 cities in the index have seen home prices decline by more than 10% since their bubbles burst. In Phoenix, a market particularly flooded with foreclosures, home prices have fallen 51% since June 2006.
Six other American cities have seen declines of more than 40% since their peaks: Detroit, Las Vegas, Los Angeles, Miami, San Francisco and San Diego.
Home prices are still falling in every city tracked by the index. But in 16 of the index’s 20 cities, home prices are no longer falling as quickly. Historical data from the Case-Shiller Index show home prices beginning to charge up a mountain in the mid ’90s; by 2004, home prices were posting record improvements, with the 10-city index showing annual price increases of 20%.
Then, in 2004, the size of the increase began to slow (in mathematical terms, the second derivative became negative). By 2006, prices were falling, and by 2007, the fall accelerated to the highest rates the 20-year-old index had ever recorded.
It is at least a glimmer of good news for the battered housing market, even if it does not mean price recovery has begun. The plummeting housing market is a key barrier to economic recovery.
Falling home prices have decimated consumer confidence. Economist Robert Shiller of Yale University, one of the designers of the Case-Shiller Index, told Forbes earlier this month that, despite tentative evidence that confidence is stabilizing, “I do think it is too soon to draw any conclusions that confidence has bottomed out, especially since home price indices have been continuing to fall, and if this continues it will continue to damage balance sheets.” Not knowing when home prices would stop falling has hindered banks in pricing mortgage-related assets.
The housing report is also good news for the “stress tests” the Federal Reserve is administering to the country’s 19 biggest banks to determine how well they can weather a deep recession. The tests evaluated whether or not the banks could survive a 22% annual decrease in home prices.
Many economists feared this assumption was not pessimistic enough–that banks could survive the stress test, but still perish when the economy proved even worse. Today’s index provided a glimmer of hope that the economy could at least outperform the adverse stress test.
Source: Forbes.com
Popularity: 1% [?]
Realtor Coaching students, pay close attention to this new information about home values. The pace of depreciation is increasing not slowing. For the last few months of 2008 many real estate industry experts were calling for a bottom in mid 2009. Little chance of this happening considering the overall economy and the simple fact that housing is still overpriced in most housing markets.
Here is the new data:
Home prices continued to drop in October, according to the S&P/Case-Shiller home-price indexes, with home prices in the Sun Belt continuing to be hit hardest.
“The bear market continues; home prices are back to their March 2004 levels,” said David M. Blitzer, chairman of S&P’s index committee. He added that both composite indexes and 14 of the 20 metropolitan areas are reporting new record declines. As of October, the 10-city index is down 25% from its mid-2006 peak and the 20-city is down 23%, Blitzer said.
The indexes showed prices in 10 major metropolitan areas fell 19% in October from a year earlier and 3.6% from September. The drop marks the 10-city index’s 13th straight monthly report of a record decline. In 20 major metropolitan areas, home prices dropped 18% from the prior year, also a record, and 2.2% from September. None of the regions was able to stave off a decline from September to October. (Read full story, “Case-Shiller Index Shows Sharpest Declines in Sun Belt“)
Below, see data from the 20 metro areas Case-Shiller tracks, sortable by name, level, and year-over-year change — just click the column headers to re-sort.
(About the numbers: The Case Shiller indices have a base value of 100 in January 2000. So a current index value of 150 translates to a 50% appreciation rate since January 2000 for a typical home located within the metro market.)>
Metro Area October 2008 Change from September Year-over-year change Atlanta 119.77 -2.4% -10.5% Boston 159.17 -1.1% -6.0% Charlotte 128.02 -1.8% -4.4% Chicago 145.49 -1.6% -10.8% Cleveland 108.76 -1.0% -6.2% Dallas 120.60 -1.1% -3.0% Denver 129.05 -1.5% -5.2% Detroit 86.10 -4.5% -20.4% Las Vegas 142.57 -2.7% -31.7% Los Angeles 179.82 -2.6% -27.9% Miami 173.42 -3.0% -29.0 Minneapolis 135.71 -3.4% -16.3% New York 190.04 -0.9% -7.5% Phoenix 135.18 -3.3% -32.7% Portland 166.44 -1.9% -10.1% San Diego 159.12 -3.0% -26.7% San Francisco 139.44 -4.2% -31.0% Seattle 170.45 -1.4% -10.2% Tampa 165.44 -3.4% -19.8% Washington 184.92 -2.7% -18.7% Source: Standard & Poor’s and FiservData
Popularity: 1% [?]
