Buyer’s Choice Realty blog

It appears our economy is in a bit of a spot right now. No kidding, right? We learned over the past few days that our U.S. banking system has effectively been nationalized. How did this happen? Hammerin’ Hank, of course.

Paulson conspired worked with his Wall Street buddies, the Federal Reserve, and the FDIC before deciding how to use the first $250 billion that we recently invested into the HPHF.

What do you mean, ‘nationalized’? The always insightful folks at the Wall Street Journal wrote an informative blog post describing what actually happened early this week. Basically, Hank bought a bunch of super senior preferred shares from many of the country’s largest ‘banks’. Goldman Sachs, a bank? Apparently it is becoming one. A few of these firms got $25 billion each, and a few got $10 billion. JP Morgan Chase, Wells Fargo, Citi group, Bank of America, you get the drift. These preferred shares mean that the HPHF owns up to 28% (in the case of Morgan Stanley) of the shareholder equity in each of these companies.

HPHF stands to make out pretty well. They will be paid 5% per year for the next five years on their investment in the form of quarterly dividends. The government gets its share before any other preferred or common shareholders do. After the initial five-year period, they will make 9%.

Hank himself terms this capital injection a ‘temporary investment’ in order to restore confidence in our banking system and encourage private equity to reinvest in these companies.

What effect does this bank bailout have on real estate/the housing market? It is HPHF’s hope that banks will now send that new money through the system by writing new loans and providing liquidity to the credit markets. Will more folks be able to qualify for a loan? Probably not, but here’s hoping. Keep an eye on the LIBOR, which has dropped almost 30 basis points over the past few days, and is a solid indicator of where mortgage rates are going.

Caveat Emptor - Buyer Beware! While this rule usually applies to buying a home in Massachusetts, it also can apply to applying for and obtaining a loan on your home purchase. Boston Business Journal recently reported on a temporary cease-and-desist order taken by the Massachusetts Division of Banks against a company based in New Hampshire that also operates in Mass.

Here are the details, as well as the company involved,

“The order against The Mortgage Specialists Inc. of New Hampshire was taken after examinations by the Division of Banks revealed it had knowingly inflated borrower income and falsified documents to secure loans. The regulatory move requires the company to place all remaining loans with a qualified lender or broker and forbids it from initiating any new mortgage loans pending a Division of Banks hearing on the firm’s practices.”

This is not a permanent order, and the company can appeal the decision. I took a look at their website, and found a message from company president Michael Gill. A highlight,

“We feel that because of the climate in this industry that this has been blown up. We feel confident that we will resolve this with the banking department quickly.”

Gill basically stated that this was a ‘compliance’ issue and defended his company’s integrity and track record. I have never had buyer clients work with this company so I don’t have an opinion, but be sure to do your homework when shopping around for a mortgage so that you can be confident the company that loans you money is reputable and honest. I will update this when more information is available, and a decision has been reached regarding the operations of The Mortgage Specialists Inc.

What is the team approach? All I need is a decent agent and I’ll find a good home and be all set, right? Only in rare cases.

When thinking about buying a home, consumers are often unaware of the complexities involved. Here are the players that should be on your team:

1. An exclusive buyer agent (EBA). This type of agent will work in an office that does not take listings. Why? No potential conflicts of interest. They will put your interests first. An EBA functions as the ‘quarterback’ of the team, helping to find other members of the team and keeping everyone on the same page with effective, timely communication.

2. A qualified, thorough, licensed home inspector. In Massachusetts, only buyer agents are legally allowed to recommend a home inspector. Knowlegeable exclusive buyer agents will often recommend only a select few inspectors, for numerous reasons. They will have worked with each inspector in the past and will know that they will put in the time necessary to find any previously unknown problems in the home, which will save buyers money. Many large firms only allow their ‘buyer agents’ (agents that are designated for that transaction only to work for a buyer) to give a lengthy list of home inspectors so as to avoid liability.

3. A real estate attorney. Agents that are also attorneys pose some problems for clients. Sure, you may get a discount on services, but being an agent and being an attorney are two full-time jobs. Will they get the job done to your expectations? Good agents will be able to tell you attorneys they have worked with in the past, much the same as finding an inspector.

4. A lender/loan originator. Again, firms that offer in-house financing may not be in your best interest. Will the agents in that firm push you to get a loan from the finance officer that they work next to? Of course. You, the consumer, should not be pressured. An agent with no connections like that will be able to tell you what to ask a potential lender or a loan originator, and will help you understand some of the complexities involved in finding a good loan. Again, they will have worked with honest, ethical lenders in the past and will know who offers the best rates and terms. Junk fees can be avoided.

5. A home insurer. The same applies to this person. Solid agents will know who is honest and efficient, as well as who sometimes is not as good. Insurance is so important, especially since most home buyers are making the biggest financial purchase of their lives, and they need and deserve to know that they and their purchase will be protected.

With these five teammates on your side, your home purchase is sure to become a little bit less overwhelming, and maybe even a little fun.

President Bush signed into law today the oft-debated housing bill that recently passed through the House of Representatives on July 23 (vote was 272-152) and the Senate on July 26 (vote was 72-13). Many were pessimistic about the possibility this bill would make it through both sides of Congress - specifically the Senate, where most Republicans threatened to vote against it, but Bush changed his stance and decided not to veto the bill.

There are many implications for the housing market as a result of this bill being signed into law, and many are calling it the most important piece of legislation for our country in a generation. This remains to be seen, but many changes will be happening over the next few days and weeks. For more specifics, you can do a web search of the title of this post, or you can read the final version of the bill here.

The Board of Governors of the Federal Reserve System officially approved Bank of America’s plan to purchase Countrywide Financial Corporation. After Countrywide’s shareholders approve the deal, B of A will become the country’s largest mortgage lender and loan servicer. The Countrywide name will be no longer, and Bank of America is promoting one of their employees to run the new mortgage division instead of using a Countrywide executive. What does this mean for you?

This may be an important step in helping to fix the ongoing credit crisis. Countrywide will have access to B of A’s huge cash reserves and credit power, further allowing them to approve loans at an increased rate. Additionally, consumers can cultivate their relationship with Bank of America as it will become essentially a one-stop shop for all banking and credit needs. Savings, checking, credit card, mortgage, home equity, retirement, investments - you can now obtain all of these services at one location.

It is my hope that consumers can regain that old, small town feel with their bank and banker. As community savings institutions continue to be bought by larger regional or multinational banks consumers do not feel like they know who they are dealing with.

This is by no means an endorsement of either institution. It is my hope that by publishing this news that potential buyers will know that there are many options out there, and B of A will certainly be one of those options. Good luck getting that mortgage!

The folks over at Inman news found out that Fannie Mae, one of the beloved government sponsored enterprises (GSEs), will end their increased down payment requirements for property purchased in declining markets. This will change as of June 1. If you are thinking about purchasing a home, you will still need to come up with 3% down, but the additional 5% that was required starting this past January in areas where prices were falling will be eliminated, at least for single family homes.

Is this good news for home buyers? I would say yes. Hopefully this will ease a bit of the credit crisis as well. However, if private mortgage insurers do not go along with the changes, there will still be trouble. Anyone not putting at least 20% down is required to pay private mortgage insurance (PMI), and the insurers were not approving deals in these same declining markets because of the restrictions imposed by Fannie and Freddie. If the insurers change their policies to reflect the changing ones of Fannie Mae, then we won’t see potential borrowers getting a ‘NO’ on their applications for loans. Time will tell.

Ask your loan officer if you have questions about these ever-changing guidelines, and if you don’t have a good relationship with a lender, ask your agent or anyone you trust for help. It is hard to get a loan at the moment, but seeking answers and being proactive is a great way to start.