Realtor Coaching & Training: credit
Robert J. Shiller
HREU Students and future students…listen to this guy… Dr. Robert Shiller was among the very few to warn of a housing bust before it happened. Shiller is the co-creator of the closely watched S&P/Case-Shiller Home Price Indices.
Dr. Shiller believes that housing could indeed be approaching a bottom. But, don’t pop the champagne corks just yet…
He predicts that prices might remain ‘at the bottom’ for years to come as the United States remains in a liquidity trap very similar to what caused the Great Depression.
During a recent interview, Newsmax.TV’s Dan Mangru asked Shiller where he sees the housing market going from here.
“In the United States, home prices have been dropping at a rapid clip,” Shiller responded.
“However, in the latest S&P/Case-Shiller data, the rate of decline seems to be reduced, and in fact, in seven of our 20 cities, home prices were rising in April. So it does seem to me that we are getting closer to a bottom at the very least.”
Last week, demand for home-purchase loans decreased and the unemployment rate now stands at 9.5 percent, Mangru pointed out, and asked: Are home buyers just scared?
“I think having really high unemployment is naturally scaring people,” Shiller said.
“And we don’t know that it’s over yet. We had a really bad unemployment report, and unemployment could easily exceed 10 percent. People know that. That’s one reason the personal savings rate has risen to 6.9 percent, levels we haven’t seen in decades.
“Even though the confidence surveys seem to be relatively upbeat, I don’t know if it really translates into willingness to purchase yet.”
Even though this is a housing lead recession..housing WON’T lead up out as some have hoped for.
He told Newsmax.TV he doesn’t think some proposals calling for increased tax credits for all home buyers is a good idea.
He sees the $8,000 tax credit for new home buyers as stimulative because it forces new home buyers into the market rather than existing homeowners who would put their existing properties up for sale.
In discussing the overall economy, Shiller said the United States had avoided an economic catastrophe because of intervention by the Federal Reserve and Treasury, but the nation remains in a bad recession.
Instead, Shiller foresees a risk of a weak economy for years to come.
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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% [?]
HREU Students, here is a snap shot of what is happening across the US.
Never mind a profit. Breaking even would have been nice.
But Tammy and Charles Bloomer are losing more than $100,000 on their Silver Spring home, which they bought for $525,000 four years ago. The house, now under contract to be sold, lost value even though the couple had remodeled the kitchen and replaced the roof, furnace and windows.
“Unfortunately, we bought at the peak of the market,” said Tammy Bloomer, a federal worker who is moving to take a job in Chicago. “The market is terrible now.”
In the past six months, most Washington area sellers have lost money on houses they purchased since prices started climbing in 2000, according to a Washington Post analysis of residential sales. In the first three months of this year, 62 percent of local home sellers accepted less than they paid for their homes, in part because aggressively priced foreclosures have dragged down prices around the region.
ad_iconWhile the drop is painful for sellers, experts say it is a necessary part of getting past the excesses of the boom years. This region experienced one of the sharpest run-ups in home prices in the nation. Those prices must be brought down in order for buyers and sellers to deal with each other on more equal footing, as they had for decades before the boom.
Predictions vary about when the region’s prices will hit bottom. They may keep tumbling until late 2009 for close-in communities and until 2011 in outlying suburbs, according to a study by real estate research firm Delta Associates and the local Multiple Listing Service. But so much depends on whether the economy suffers some unforeseen blow and on how many more foreclosures the banks add to an already-bloated housing supply.
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Of course, these falling prices are reason to celebrate for would-be home buyers, especially coupled with low mortgage interest rates and the $8,000 federal tax credit for first-time buyers.But as long as distress sales continue to dominate, the market will not bounce back to normal, said Nicolas P. Retsinas, director of Harvard University’s center for housing studies. “The norm requires that a preponderance of transactions take place between willing buyers and sellers, not sellers who would take any price to unload a property.”
By that measure, Kimberly Thompson’s Upper Marlboro community has not hit bottom.
In Thompson’s Zip code, the proportion of homes in some stage of foreclosure is twice the national rate, according to RealtyTrac, a private company that follows those statistics. Many more homes, including her own, are listed as short sales. Those are arrangements that allow homeowners to sell for less than they owe on their mortgages.
Thompson and her husband bought their house for $564,000 in late 2007. He lost his job six months later. By then, the home’s value had dropped by $100,000. This week, it is under contract for $372,000.
“We were down to one income, one kid and one on the way,” said Thompson, a computer programmer. “We realized we did not have money to cover the mortgage and our other expenses.”
Never mind a profit. Breaking even would have been nice.Not everyone selling a home is doing so under duress. Many long-time homeowners with plenty of equity are making money when they sell, though not as much as they would have a few years back. Others may be losing money, but that does not mean they are on the brink of foreclosure.
This StoryEmily Lenzner, for instance, has plenty of equity in her Adams Morgan condominium. She bought the condo in 2005 for $715,000. Two years later, she moved to a house with her new husband and their four kids. She rented out her place for a while, then listed it for $849,000. No takers. It’s back on the market for $674,000.
“I’m going to take a loss, but I can really use the cash,” Lenzner said.
As the region’s foreclosure crisis has deepened, outlying suburbs have taken a bigger hit than more established areas. That’s because there was a higher proportion of recent sales in those fast-growing suburbs, leaving them more exposed to the subprime mortgages that were popular at the time.
Subprime loans catered to people with blemished credit, often allowing them to buy homes they otherwise could not afford. That helped inflate prices. But these borrowers began defaulting in record numbers in 2007. Foreclosures followed. The markets that crashed the hardest were the ones where prices had climbed the fastest.
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Home prices have held steady in the District, according to The Post analysis. In the Virginia and Maryland suburbs, prices for single-family homes are down to where they were five years ago. In Prince William and Loudoun counties, a flood of foreclosures has pushed prices so low that bargain hunters have flocked there in recent months, helping to boost sales.
But while in past slumps a surge in sales has signaled the start of a rebound, this downturn is unlike any in recent times and it’s premature to call a recovery, said Barry Merchant, senior housing policy analyst at the Virginia Housing Development Authority.
The encouraging signs have been offset by more troublesome ones, he said. After tapering off for a few months, foreclosures in Northern Virginia are starting to creep up again and may keep climbing now that several lenders have lifted foreclosure moratoriums.
Meanwhile, the year-over-year sales increases of the past few months are petering out in some Virginia suburbs, suggesting that interest in the fire-sale prices may have peaked, Merchant said. In April, Loudoun sales declined 12.5 percent from a year earlier.
“If sales are not increasing and foreclosures are on the uptick, then the question is: ‘Is there another shoe to fall?’ ” Merchant said. “Maybe what we were hoping was the bottom was just a bump on the way down.”
The shrinking supply of homes for sale may not be a sign of much, either. As of April, if sales continued at the same pace, the Washington region would have had a 7.7-month supply of homes. That’s down from 10.9 months at the same time last year but still worse than the five- to six-month supply found in a healthy market, the Delta report said. This region had But it may be that individual sellers are pulling their homes off the market, refusing to compete with foreclosure prices.
“I can’t tell you how many listing appointments my team scheduled only to have the client say: ‘You know what, we’re just going to just stay put and hold out on selling for a while,” said Melissa Stewart, a Century 21 real estate agent who works in Fredericksburg. “We’ve had probably eight of those in the past month and a half.”
The Bloomers did not have that luxury. When they bought their Silver Spring house, they thought they would make enough money when they sold it to buy another home and to help pay off their son’s college loans. Now, they are hunting for a rental in Chicago.
Source: The Washington Post.
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Its not uncommon for a reader of this blog to wrongfully accuse us of being overly pessimitic about the housing market. You see, they think that the only time you can make money in real estate is when the housing market is going up…..up….up.
I understand why they think like this. On the surface it makes sense that its easier to sell homes and be successful in real estate in a housing bubble. And maybe for agents with low to no real skills, this true.
But, what is happening now….late 2008…is a massive shift in our industry.
A shift towards agents who embrace learning the skills that this market demands. Case in point, 2 years ago we were the first coaching company to tell Realtors that knowing how to do short sales would become not just necessary but, required. (Now, I am not bragging when I tell you this…but, Harris Real Estate University is now the #1 online real estate university. We have over 30,000 agents participating in a HREU program every day. Guess what one of our top programs is…..yep, Agent Short Sale Secrets.) We were widely ridiculed for telling agents to learn how to do short sales. Literally, we were called ‘fools’ for telling agents to learn how to become their markets short sale expert. Guess what happened, now short sales are one of the best ways to sell a home in this market. The word ’short sale’ is now being used in Realtor’s ads as a selling benefit. On for-sale yard signs throughout the country agents have replaced the typical sign riders..’4 bedroom, 3 bath’ with the word ‘Short Sale’. Agents who know how to offer short sales to their sellers are making a fortune.
And, its going to only get better for these agents. This new breed of agents share the mindset of service and learning whatever it takes to help their sellers. The agents who are the leading, top producers across the country are almost always different agents who were the top sellers in the previous market.
Then came REOS. Believe it or not the REO opportunity is still in front of us. Many will tell you that the banks have already selected their agents to list their REOs. The simple fact is that the greatest numbers of REOs havent even hit the market yet. We have been predicting on this blog that the housing bottom wont be widely reached until 2011-2013. Why, because the simply massive volume of foreclosures that will be coming on the market in late 09-2011. Agents, learn how to list REOS.
Loan Mods. No question that the incoming administration is going to be throwing fuel on the loan mod fire. (Watch this free How To Start Your Own Loan Mod Business Now) Lead by the FDIC loan mods are the first line of defense against foreclosures. YES, early loan mod programs had dubius results. But, there will be a new breed of loan mod programs fully endorsed by the fed that will (more or less) make it so the lenders have to create easy, streamlined loan mods. Please understand that maybe 3 our of 10 upside down sellers you speak with will actually close on a loan mod. That leave 7 that will become….short sale listings.
Again, we will often get blog comments about how we are overly pessimistic about the housing markets. To those agents who feel this way I challenge you to:
1) Question yourself why you think the only way to be successful in real estate is in a bubble market. Whereby the reality is that there is actually more opportunity in a market like the one we are in now.
2) Why you may be reluctant to learn what this market requires. Do you think that somehow the ‘clouds will clear’ and the market will magically become like it was 2000-2008 all over again? That market will never happen again. Ever. If you have made it through 07 and 08 you have already proven that you have the gumption to become successful Realtor in this market. Now, take action and learn what this market demands. The greatest opportunities are still in front of us.
3) Learn the facts. Study what the non-real estate economists are saying about the macro economy. Unlike my fellow real estate bloggers, I like Laurence Yung the NARs economist. He has the toughest job in real estate and we need to support him vs tearing him down. How would you like to be the guy who has to constantly tout ‘buying a home’ in the midst of the greatest housing downturn in history. Here are a few facts for you…Credit Suisse forecasts more than 8 million mortgages will go through foreclosure over the next four years. That’s roughly 16% of U.S. households with mortgages. Analysts Rod Dubitsky and Larry Yang write that foreclosures could climb to 10.2 million if the recession is severe.
On the other hand, if banks do many successful loan modifications to help borrowers afford their mortgage — the forecast drops to 6.3 million.
Yet while those are big numbers it’s worth noting that 32% of all owner-occupied households, or roughly 23.9 million, have no mortgage at all, according to Census data.
All things being equal, Credit Suisse estimates 1.8 million mortgages will have entered foreclosure by the end of this year.
Here’s a clip from the report, which is not available online as far as I can tell (emphasis added):
Despite some initial signs that subprime foreclosures were near a plateau, the combination of severe weakening in the economy, continued decline in home prices, steady increase in delinquencies, particularly in the prime mortgage space, ensure that foreclosure numbers, absent more dramatic intervention, will march steadily higher. While loan modifications and similar interventions (such as the Hope for Homeowners FHA refinancing program) could help to reduce the march of foreclosures, the proliferation of generally timid loan mod programs with confusing loan features raises significant doubt as to whether the current loan mod momentum is sufficient to reduce foreclosures materially. Further, though mortgage walkaways have been important, the disease hasn’t infected the general population. However, should the downward spiral in home prices, neighborhood condition and equity deterioration continue, more and more mainstream borrowers are likely to walk away from their homes. Thus far, the population of subprime borrowers in the US is relatively small. However, the severe recession that appears more and more likely, coupled with the collapse of confidence in housing and resultant foreclosures and the impact on credit scores, risks transforming the US into a subprime society. That is, the deeper the foreclosure crisis penetrates into the gene pool, the greater the percentage of American consumers with impaired credit, and therefore limited ability to access credit. Therefore, foreclosures aren’t only a housing-related phenomenon and should foreclosures spread, a large percentage of of the population could suffer impaired credit, which in turn would hurt credit availability.
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