New Lending Regulations May Affect Your Boulder Area Home Sales

We all know that the real estate market and the mortgage industry has been going through many changes. With past mortgage fraud leading to an all-time high number of foreclosures, the government is taking measures to prevent deceptive lending practices and ensure that buyers are better protected and informed. In 2008, the Home Ownership and Equity Protection Act (HOEPA) and the Housing and Economic Recovery Act (HERA) were passed by Congress, and the Federal Reserve Board published new regulations under the Truth in Lending Act. In addition, Fannie Mae and Freddie Mac adopted the Home Valuation Code of Conduct (HVCC), which will take effect July 30, 2009. These new regulations will affect several aspects of real estate closings.

• Lenders are now required to use an appraiser from a national pool of independent appraisers from around the country. In the past, lenders maintained longstanding relationships with local appraisers, and were sometimes able to influence the values in order to secure financing, which led to some appraisals being inaccurate. The intention of this new regulation is to put more separation between the lender and the appraiser to ensure fair, accurate appraisals. In reality, it also means that the appraiser who is evaluating a property may not be experienced in that specific market. Before the appraiser is scheduled to come to appraise a house, Sellers should have any documentation about the house that might be helpful in the valuation – receipts for work they have had done, a list of improvements they have made and special features about the house. This will help an appraiser who is less familiar with that area deliver the most accurate evaluation possible.
  
• Buyers are now required to receive a copy of their appraisals no less than 3 business days prior to the closing of their loan. The intention of this rule is to make sure they have ample time to review the appraisal and fully understand the value of the property they are purchasing.
  
• The earliest any home purchase transaction can close is 7 business days after the homebuyer is issued his or her initial Truth in Lending disclosures from the lender. These documents are typically given to a buyer at the time of the application, but if the buyer and lender don’t meet in person, the requirement allows extra days for mailing (e-mailing isn’t currently an acceptable form of delivery). Again, this insures that Buyers have time to review all the documents.
  
• Upfront fees that have been typically collected at the time of application can no longer be collected until the Truth in Lending disclosures are received, and the same rules apply as stated above – there needs to be time built in to allow for mailing of these disclosures unless the buyer meets with the lender in person.
  
• And lastly, any increase in more than .125% in the APR from the initial Truth in Lending disclosures (which can happen for a number of reasons, including a change in the loan amount, an un-locked rate or a re-lock in a rate, changes to fees, etc.) requires the disclosures to be re-issued and received by the buyer at least 3 business days before closing.
  

Ultimately, what this all means for buyers and sellers is that parties need to allow ample time between contract and closing to address all these issues. Working with a knowledgeable, experienced Realtor who is up to date on the latest rules will ensure that your transaction is structured appropriately to avoid any closing delays due to these new regulations. At Colorado Landmark, Realtors we strive to be up to date on the latest industry issues to provide exceptional customer service to our clients.

This article contributed by:
Jennifer Fly, Broker Associate
Colorado Landmark, Realtors
303-302-8823 (office)
jenniferfly@coloradolandmark.com
www.twitter.com/JenFlyColorado

Yet ANOTHER Potential Deal Breaker – Loan Locks, Buyer Credits and Escrowed Funds

In the last week our office has dealt with yet another new challenge in residential real estate sales. Two of our transactions have been at risk of complete derailment due to the increased lender “stickiness” that many people are experiencing in this market.

Consider these scenarios – you have a willing buyer who goes under contract on a property and locks in their loan rate for 45 days. You have a willing seller who has agreed to undertake some major home repairs in order to get the deal to close. With the two cases our office is dealing with, one transaction involves the replacement of an entire septic system to the tune of $18,000. In a second separate transaction it is some major roof repairs that will top out at $25,000.

In both transactions the sellers determined that it would not be possible to have the major repairs/installations completed by the scheduled closing date. So what? The obvious solution is to push the closing date out so that the work is completed prior to the sale. But this means the buyers would lose their loan rate locks. No surprise that since rates have increased neither bank would extend the buyers’ loan lock past the original 45 day time period! In both cases the sellers generously offered up several options: 1) credit the buyers with cash back at closing for the agreed upon estimated full cost of the work; 2) escrow funds at closing sufficient to cover all costs with any remainder going back to the sellers after the work is completed; or 3) reduce the purchase price prior to closing by an agreed upon estimated amount for the full cost of the work.
This time 2 years ago, or even last year, most lenders would not have had any issues with any of the above options. Not so now! In the case of the septic system, the lender would not allow the credit or the escrow of funds, but would allow the sellers to reduce the purchase price. In the case of the major roof repairs, the lender won’t allow any of the options, so the buyers and sellers are still trying to work out a way to get the deal done. The current option on the table is for the sellers to begin repairs prior to closing and pay the contractors “as they go”. At closing the contractors will provide written estimates of the remaining work and the sellers will put appropriate funds into escrow so the contractors will be paid that remainder upon completion. We’ll see how this works out. Speaking from personal experience, all of these options created a great deal extra stress for the sellers.

What’s going on here?? Why are lenders sabotaging these deals?

The crux of the story here is that the lenders have us by the “huevos”, meaning that realtors have to be proactive with their buyers and sellers. What advice and assistance can we offer clients in these types of scenarios? How do we earn our keep?

• For buyers, get the longest loan lock possible from your lender. Do the research ahead of time to find a lender that is willing to be flexible should a situation like this arise.


• For sellers, make every effort to get work done prior to closing. Start immediately getting bids, estimates and work scheduled within the timeframe of the contract. Have a pre-inspection done prior to listing the house to identify major issues that might come up. Repair what you can ahead of time.


• For realtors, make sure you have strong working relationships with several good reputable lenders. If you represent the buyer make sure you communicate their loan lock situation to the seller’s agent so that all parties know the time constraints. For your sellers, encourage them to do pre-inspections and repairs prior to listing. Make sure you and/or your office have good resources for contracting - companies that you refer business to often that will give your clients top priority scheduling, reliable estimates and timely service.

It’s easy to blame the lenders for the challenges of our new real estate world, and maybe they do deserve it (ummm, maybe?). But the reality is that, like it or not, realtors have to operate within constantly changing economic and market parameters. It is our job, no … our RESPONSIBILITY to be informed, to be knowledgeable, and to be proactive problem solvers for our clients at all times. THAT is how we add value and justify our existence in this new world. A Colorado Landmark Boulder real estate agent has the knowledge and resources to successfully help you navigate through these tough issues.

This article contributed by:

Pam Metzger

Director of Relocation and Business Development

pam@coloradolandmark.com

303-302-8839 (office)

www.twitter.com/pmcolorado