Sarahiously Speaking

I have received a nasty-gram from USAA about this post.  They aren’t very happy about my disclosures.  They have pointed out that some of my information is inaccurate, in their eyes, while admitting to most of it, or choosing to read my words in a way that suites their purpose.  The purpose of this post is to explain to consumers why I will not participate in their program, nor will I work for a company that does.  If a consumer chooses to be a part of their incentive program, that is their right.  It is my right and duty as a licensed REALTOR(R) to offer the best services to my buyer clients without the intervention of a bank.  If you would like more information about their incentive programs, go to their websites and look it up.

Nor Do I Want To Be

It seems that as the market begins to show real signs of stabilization, more and more buyers are looking at purchasing a home.  In recent weeks I’ve received several calls from perspective buyers asking about my services and wanting to hire me.  For the first time in 2 years, many of these buyers are bringing up the USAA and NAVYFED Incentive Programs.  For those readers who are not familiar with these incentive programs here’s a recap.  If a buyer or seller uses a USAA or NAVYFED Preferred REALTOR(R) and obtains a USAA or NAVYFED loan product, the buyer will enjoy a cash incentive at closing.  The cash incentive is based on the purchase price of the home and changes depending on how the market is doing.  Most cash incentives are around $1000.  Seems like an awesome deal, doesn’t it.  However, cash isn’t free and banks aren’t in the business of giving money away.  USAA and NAVYFED are not required to make many disclosures about this program to the consumer.  So, I will make the disclosures for them.

The buyers calling me are a little shocked to find out that I am not a USAA or NAVYFED Preferred REALTOR(R) and if they choose to be in that program they have to choose a buyer’s agent from specific brokerages in the area.  So, if they want to be in the program, USAA or NAVYFED will require them to use a brokerage and agent they may not have chosen on their own?  Yes.  To top it off, not all agents in a preferred brokerage are certified or qualify to be in the program.  How does an agent qualify for the program?  The agent has to take classes to be certified for the program.  Some agents are told they must pay a few hundred dollars for the privalege of taking the class.  This fee can be charged yearly.  Is the training good?  If you are not a disciplined agent, yes, the classes can be beneficial.  They teach you how to make yourself accountable to your clients.  But more important to USAA and NAVYFED, they teach the agent to be more accountable to them.  It’s the agent’s job to make sure the buyer doesn’t stray from the USAA or NAVYFED loan product… even if another lender has better options.  An agent can lose their certification by not closing enough business with USAA and NAVYFED.  So, who does the agent work for?  The buyer or the bank?  As a buyer’s agent I have a legal obligation to look out for my client’s best interest.  How can I do that with a big bank breathing down my neck every other week?

Let’s move on to another issue.  Where does the incentive money come from?  As I stated earlier, banks don’t just give money away.  It has to come from somewhere.  If it’s not coming from them and it’s not coming from the consumer, then it must be coming from the agent.  Yes, in order to be a Preferred REALTOR(R), the agent must agree to pay USAA and NAVYFED a portion of their commission to cover the incentive program.  Some consumers may say, “$1000 isn’t alot for an agent to give up if the bank is funneling clients to them.”  It’s not $1000.  The agent actually gives up upwards of 47% of their commission to participate.  If a house costs $250,000 and a 3% buyer’s commission is being offered by the seller, the commission is $7500.  If an agent is paying the highest referral fee they would be giving the bank $3525.  The consumer is only getting $1000.  Who gets the rest of the money?  USAA and NAVYFED.  They are getting the equivalent of a loan origination fee out of the real estate agent.  By the way, I’ve just made 2 disclosures for these banks.  1.  The money doesn’t come from the bank, it comes from the agent.  And 2.  The bank is not required to tell you what they do with the overages.

Here’s my last disclosure about this program; and this only has to do with USAA.  If your loan is not a jumbo loan, roughly $625,000 and over, you aren’t getting your mortgage from USAA.  This can account for the crappy service you receive.  The mortgage is actually coming from PHH.  PHH Mortgage is a “mortgage outsourcing solution.”  Yeah, otherwise known as a third party originating loans under someone else’s brand.  This is NOT disclosed  to USAA mortgage clients.  When most consumers are getting a USAA loan, they aren’t actually getting a USAA loan.  They are calling into a large call center and becoming a number on a file.  I can’t tell you how special I feel when I become a number at a call center.  You won’t meet your loan officer which limits the accountability needed in today’s real estate transaction.  I’ve actually been told by a PHH loan officer, working under the USAA name, that my client’s file had been placed on the back burner while she dealt with larger loan amounts for others.  Okay, I’m paying a company thousands of dollars to treat my buyer like crap?  How does this make sense?

In case you missed it, I don’t like the USAA and NAVYFED Preferred REALTOR(R) programs.  It’s not because I’m jealous that other agents are getting the clients.  I’ve actually had many clients opt out of the program in order to work with me.  I don’t like the program because it is dishonest.  If the bank thought the program was on the up and up, they should have no problem disclosing all aspects of the program.  They actually forbid Preferred Agents from disclosing these things to consumers.  I also believe that once an agent starts losing money on a transaction, even the most ethical and fantastic agents, customer service begins to slip.  It’s the difference between a server at McDonald’s and a server at Old Town Steak and Seafood.  You do your job better when you know you will be rewarded for your work.  The policies of the program also don’t allow me to carry out my fiduciary duties.  I can’t be loyal to a bank and be loyal to my client.  One of them has to lose out.  In my world, it will always be the bank.

** It would only be prudent for me to disclose that I was banned from being a USAA Preferred Agent 4 years ago for expressing my dislike for how my client was being treated by USAA on the internet.   I took to Twitter and tweeted that I hated USAA.  USAA contacted my broker and demanded I be sensored.  I chose to work for another broker. **

Oh, the banks are at it again!  News has surfaced over the last 2 weeks that GMAC Mortgage and GP Morgan Chase are suspending foreclosures in 23 states (Virginia is NOT included!).  Bank of America announced late last week they were halting foreclosures in all 50 states in order to investigate their foreclosure process.  But this raises an important question:  Have banks been foreclosing on borrowers who are not delinquent?  Will this latest action save a borrower’s home? 

My opinion on this matter may not make me any friends, so let me start by saying that I do not support predatory lending.  I also am an advocate for short sales and think that banks need to be more willing to work with short sales with legitimate hardships.  However, if you have defaulted on your mortgage, the only recourse the lender has is to foreclose.  Last time I checked, we still weren’t giving houses away.  I don’t think many people signed their mortgage paperwork while intoxicated, drugged, under undue duress, or without being told some disclaimer about the terms and conditions of the mortgage.  I do think that many consumers took out very risky loans because they were caught up in the mentality that real estate was a guaranteed quick money maker.  I do know that there are some exceptions to this rule.  I have had clients that really didn’t know what they were signing.  Or, they were told one set of mortgage terms, but at the settlement table there were different terms.  They felt that they had to sign the papers or be in default of the contract.  But, I’ve found that these consumers haven’t waited until the 11th hour to get help. 

So, will consumers who are in default be saved from foreclosure by these latest moratoriums?  The answer is a resounding NO!  Defaulting borrowers will still lose their homes.  Banks will continue to foreclose on homes when the borrower proves they can’t pay the mortgage.  What this moratorium does is gives banks the opportunity to let the government and consumer know that they are not the evil vultures they are portrayed as being.  These investigations will assure the banks that their paperwork is in order. 

In states, like Virginia, that adhere to nonjudicial foreclosure, this moratorium has little bearing on the market.  Virginia borrowers sign their rights away when they sign their mortgage instrument at the settlement table.  There is a clause in the deed of trust that states that the borrower gives the lender the right to repossess the property if the borrower fails to make their mortgage payments when the mortgage payments are due.  There is no court action that needs to be taken for the lender to pursue a foreclosure.  Simply, it is very easy for a lender to foreclose on a property in a nonjudicial foreclosure state.  Foreclosure has a very quick timeline in Virginia, as well.  Some foreclosures in Virginia may have to start over, but the house will still be foreclosed.

Defaulting borrowers should not look at this latest news as the answer to all of their prayers.  This is more of a postponement of the inevitable.  They should still make plans to bring the mortgage current, pursue a short sale, or find a rental.

Ahhhh… the new million dollar question.  So, we’ve all heard that HAMP (Home Affordable Modification Program) is supposed to save defaulting home owners from the disaster that is short sales and foreclosure.  But, you may have noticed that not many consumers who are in distress are actually being approved to modify their loans.  Well, there are several reasons for this.  Let’s examine a few. 

It’s important to remember that banks are NOT in the business to lose money and give away houses.  Banks are in the business  to MAKE money.  How do banks make money?  Banks make money on the interest they charge on their loan products.  The lose money by paying interest to consumers who have deposited money at that bank.  The interest earned on the loan products exceeds the interest paid out to depositors.  The profit the bank makes is the difference between the two.  This difference can make or break a bank.  The more money the bank has going out to consumers, the more money the bank needs coming in from interest payments.  In this market, banks are not getting the interest payments because consumers are not paying their mortgages.  However, banks are still required to pay depositors.  Banks also make money off the fees charged to consumers to make loans, but the big money is still in collecting interest on the actual loan product.  The bank will collapse if their accounting books get too far off balance.  We have become all too familiar with banks collapsing. 

In steps the loan modification alternative.  It is advantageous for banks to grant loan modifications to certain consumers.  Many large banks agreed to pursue loan modifications as a part of the Bail Out Bill passed in 2008.  If the banks are in the business to make money and defaulting borrowers are preventing that from happening, the bank may agree to allow the defaulting borrower to have a trial loan modification period.  This period is usually about 3 months.  If the borrower can make the modified mortgage payments in-full and on time, the bank may make this a permanent loan modification.  Banks are going to look at various factors in determining who gets the permanent modification.  

The #1 factor is risk to the bank.  If you have a history of not making your mortgage payments, is it a good risk to modify your loan terms and give you another chance?  In many cases, the answer is no.  So, banks have found a way around the HAMP requirement.  Banks are using the trial period as a way to get money from defaulting borrowers that they otherwise would not be getting.  Receiving three months of a reduced mortgage payment is better than receiving nothing at all.  After the trial period is over, banks can determine if foreclosure is a better option than a permanate loan modification.  Since risk is the #1 factor in determining permanate loan modification qualification, banks are offering non-defaulting borrowers the opportunity to modify their existing loan.  How does this benefit the bank?  Well, in a time when refinancing a home is so difficult, loan modifications can achieve a similar goal.  The borrower who now has the lower mortgage payment is also very happy with their lender and are likely to express this to their friends, family, and co-workers.  Banks can use all the postive press they can get!  And, banks are fulfilling their duty to pursue loan modifications as outlined by the Bail Out Bill. 

Who can get a loan modification?  Simple, people who are current on their mortages and are good risks for the bank.  What does loan modification mean for the person who is in default?  It gives you time to pursue a short sale.  The short sale is still your best option to get out of an excessive mortgage payment.  It may not be your ideal option, but it is still the most viable option.

The Federal Housing Administration gave a break to investors in September by relaxing the 90-day flipping rule for a period of one year.  The previous rule stated that FHA would not insure a mortgage on a property if the previous sale of the property had occurred less than 91 days before the current sale.  In essence, if a property was purchased on May 1, a purchaser could not secure FHA financing for the same property until 91 days after this initial sale.  Since FHA financing is the largest form of financing in the Fredericksburg area real estate market today, this prevented many investor-owned properties from being sold.  There were a few exemptions to this rule, but most of the exceptions did not apply to out areas market condition. 

David Stevens, Assistant Secretary for Housing - Federal Housing Commissioner, sited several reasons for the temporary change in FHA policy.  

1.  By relaxing the 90-day rule, FHA hopes to minimize the effect of foreclosures and abandoned properties on the surrounding neighborhood.  The faster a home becomes occupied, the less likely the neighborhood will become stigmatized and experience excessive decreases in property values.  

2.  Relaxing the 90-day rule would also help fuel the efforts of the Neighborhood Stabilization Program enacted in the summer of 2008.  $3.92 billion was appropriated to local and state governments to begin rehabilitating foreclosed and abandoned properties.  These grant funds can be levied to sub-contractors and developers.  These properties are then to be sold to low to moderate income families as affordable housing.    The most popular financing option for low to moderate income families is FHA financing.  Relaxing the rule allows for third parties to take title to the properties in question, rehab the properties, and then sell them to buyers that meet the Neighborhood Stabilization Program criteria.

3.  By FHA authorizing this waiver of the 90-day rule, it allows FHA and HUD to more effectively implement other stabalization programs they are backing. 

  However, there are still requirements for qualifying for the waiver.  The property in question must have been previously foreclosed or abandoned.  A non-profit or for-profit entity must have acquired the property and is now reselling it.  Funding for rehab and renovations needs to come from the Neighborhood Stabilization Program and the entity must perform under agreements with state and local government agencies.  The key for investors to take advantage of this rule relaxation is to become a part of the Neighborhood Stabilization Program.  For more information click here. 

Purchasers of REO, real estate owned or bank owned, properties are still able to enjoy a relaxation in a similar FHA rule.  The purchaser of a foreclosed property can still qualify for an FHA mortgage even if the title has not seasoned under the new owner’s name for 90 days.  This is good news in a state like Virginia, where we have no right of redemption on foreclosures.  The Foreclosure banks can put the REO property on the market as soon as the foreclosure is recorded and the property qualifies for FHA financing.  However, this waiver is set to expire May 10, 2010.