Our fellow blogger colleague “Peckhammer” will get credit for this post whether Peckhammer intended for that to happen or not. Hat tip to him/her for inspiring this post.
Regarding consumers capacity to understand loan documents, Peckhammer remarked :
“The loan documents they signed could have been reviewed by an attorney and explained if there were questions.”
Here’s the problem when looking under the hood at the transaction work flow. May I present you the true world of real estate and high finance:
The facts
It is Friday, January 11th, at 4:00 pm, about 1hour prior to the escrow office closing.
Escrow has been promised loan documents on a transaction since early in the week.
By law, borrowers refinancing have a three day right of rescission (meaning 3 days, not including holidays or Sundays) after signing loan documents to cancel prior to closing.
The wrinkle: loan documents can be time sensitive. For example, if you are refinancing, you may have an interest rate lock (a term used in the industry where a borrower is guaranteed a specific loan interest rate for a specific loan program) that may expire very soon. Therefore, the loan documents must be signed within the 3 day rescission period and the transaction must close prior to the interest rate lock expiring.
Escrow receives loan documents at 4:30pm. What in the world?!…..says escrow staff.
Escrow is “expected” to drop all other transaction work (escrow is very time stressed due to a lot of other things going on “under the hood” for other people) and work up the loan documents, prepare a settlement statement (HUD-1 Form for those unfamiliar which is a detailed itemization of fees and credits associated with the transaction) and schedule the clients to sign their paperwork.
Are the clients at work? Have an evening planned? Guess who gets to call the clients with the urgent message which will more than likely put the borrowers into a, how shall I say, grumpy mood. And yes, it’s escrow’s fault; after all, escrow just pays the water bills (sacrcasm & humor on).
To escrow, this is a frequent and absurd scenario that plays out all too commonly.
How does it impact you as a borrower?
It is inconvenient as !#!*%!! for the borrower to be called at 5:30pm on a Friday to tell the borrower they MUST sign their loan docs or…. dominoes start falling.
Or, worse, if this is a purchase, you have the pressure of signing because this little thing called losing earnest money is eating you up in the back of your mind, never mind the fact your belongings are in boxes and the seller is nearly moved out, and your newborn child has started crying in the office where you are trying to sign loan papers.
Call an attorney to review your loan documents? Not going to happen.
How can you have time to digest the loan docs when the only time you’ve seen them is when I show up with them? Remember, escrow tells you the facts, we don’t dispense legal advice or advice about how the loan will impact you financially.
Thankfully, in a refinance transaction you have a 3-day right of rescission. For purchases, you get NOTHING. Zippo.
Solution?
Enforce RESPA (Real Estate Settlement & Procedures Act) to include a provision for a borrower to receive loan documents 3-5 full business days prior to closing when PURCHASING. If they don’t, fine the lender. Currently, as it stands, borrowers are required to have 24hrs review of their Settlement Statement (HUD -1 Form) prior to closing. That’s a joke IMHO. In Washington State, generally, closing occurs when funds are available for disbursement and recording of documents (Deed of Trust, Statutory Warranty Deed) have been completed.
Ask your loan officer that you would like a full week prior to closing to review loan documents and your Settlement Statement. This puts the transaction management squarely where it should be, on the “Conductor of your Orchestra:” loan officer and or agent. If the loan officer waffles at getting loan documents to escrow to prepare for you well before closing you should ask them, why not?
Also, never forget to go shopping, even for third party providers such as escrow.
Is this scenario based upon a real transaction (s) ?
True or False. I’ll give you a hint. It starts with a “T.”
S-Crow
PS. I’ve seen rates today at 5.375% for a 30 yr fixed.
I enjoy discussions here because it’s where consumers are. It is like a laboratory of information. One area that is of interest to me, in a large way, is what makes people do what they do. I’m speaking of three groups primarily: consumers and the two primary players in our business, the loan officers and agents.
2007 has been quite a year in the real estate world. Blogging and transparency has been one of the hottest focal points in the business. Because of the obvious turmoil in the real estate industry as a whole, being that the market is in correction mode and the mortgage/credit markets are stressed due to “writing down” Billions (code for losses) and continues to unfold, many industry-wide issues are at the forefront.
In lending, the recent issue of licensing (both locally and nationally) and the hot potato YSP (yield spread premium or equivalent terminology) topic has been debated heavily. Locally, loan originators have to take a competency exam and go through a background check. Agents have their exam and clock-hour classes to obtain and maintain licensing as well. But, should it stop there? Ok, fine, you say. Where are you going with this? What I’m suggesting is this: is the licensing at it’s face value all you would be satisfied with to work with a real estate professional or allied pro’s such as loan officers, title, escrow, etc…?
“Why not ask them to disclose whether they have had a bankruptcy, or foreclosure or heaven forbid, ask them to disclose their own FICO score? Do you really want people who have a history of making poor financial decisions assisting you with advice on buying, selling or refinancing? Or, is it more complicated than that and therefore is not fair?” - me, S-Crow
For example, over the course of the past four years, our small business has bumped into an opportunity or two or three to expand the business. In all the cases, we were approached by mortgage brokers or agents or both. In each circumstance we passed. Why? A bit of due dilligence revealing situations we were uncomfortable with led us to our decisions. Plus, what was the rush? Get rich, lol?!! (eyes rolling.)
I think the thing that caused the most pause for our counterparts was a question I posed to those who wanted to enter in a business capacity with our small business: “If you want to enter into a business relationship with us then reveal your entire financial lives, personal and professional and we’ll do the same.” As you can imagine, that type of transparency is what I’m after if people want to do business with me in opening other offices in a partnership. And, as you can imagine, it is quite the turn off. Someday, we’ll bump into like minded business people. So far, that hasn’t happened as people don’t want us to see the “naked” financials. You see, in escrow, you deal with money all day long, not quite like a bank, but loosely in the same framework. Therefore, you don’t want people who are in financial hardship running an escrow company or having access to trust accounts. Not a good recipe.
Escrow is highly complicated with lots of moving parts. There is a reason escrow firms follow banking hours, so to speak. There is a reason mortgage funders and escrow staff look at the clock all day long as we have to meet very tight deadlines. Because escrow is a regulated business and actually has audits from the Dept. of Financial Institutions that we have to pay for (thank you not very much), it is an arena where many of our colleagues who wish to open an escrow company find themselves wondering why they even tried. Some days we ask ourselves the same thing, but for other reasons I’ll keep to myself. :)
Anyway, back to my point(s). A few things to consider:
Wouldn’t you as a consumer (existing homeowners in midst of refinancing, first time buyers, etc..) having to divulge most of your financial lives to the loan officer or agent want to know that you are being represented by those parties in a fiduciary capacity? In other words, wouldn’t it be a good thing to know that they are working in your best interests?
This is the crux of the consumer driven push resulting in an issue Congress is meeting about. It is to get lenders & brokers to work on consumers behalf and address the hot potato issue of compensation in the form of YSP (yield spread premiums). One of the questions being asked is when or how is it appropriate to use YSP’s? For those that don’t know, YSP is a compensation mechanism that the lender/investor pays to the broker for originating the loan or loan program at a specified interest rate, or with terms such as pre-payment penalties. Generally, to trigger this additional compensation in the form of a yield spread premium (YSP), the borrower is sold an interest rate higher than would be if there were no YSP. Again, this is a general definition.
I ask tough questions of those wanting to do business with me in a partnership and sometimes the answers received either by my own investigation or their disclosure reveals information that helps me make an informed decision.
So, all that mumbling to say this: will you interview the professionals that are assisting you in your real estate endeavors? Do you have it in you to ask the tough questions? Can you imagine the fallout if, say, a 700 FICO score, was the low end benchmark to qualify for licensing as an agent, loan officer or other professionals involved in your transaction? Now that would have some teeth!
Although I have noticed homes dropping off the market in my neck of the woods in Snohomish Co, generally speaking, for semi-serious sellers, early and mid-October is a bit soon to pull the property off the market. I can understand if it was during the full holiday season from a few days prior to Thanksgiving through New Years. But, if you pull out this soon, the potential for back-firing increases if the thought process is “I’ll try again after the Holidays.” Many others will do the same. Maybe a Realtor can chime in on the efficacy of this reasoning.
I have a sense though that some of these homes going off the market today, either by expiring, Realtors giving back the listing, or mutually taking the home off the market, are being replaced by others. No hard Data, but maybe a Realtor can confirm this.
That being said, one of the things I’ll be curious to follow is if inventory as a whole (system wide) drops without replenishment. If we maintain the current inventory levels going forward, then I would guess the region will be in for quite an increase after Jan. 1, 2008. If that happens, then we will see further downward pressure on prices. It is also important to not forget about the underground market of FSBO’s. I read somewhere that this market is roughly 10% of the inventory/sales that are not accounted for by regional MLS statistics across the country. So in theory, there are a lot more homes on the market than reported.
Remember, many agents suggest to their clients that they can try again after the New Year. All these homes that expired or were mutally taken off-market will come back on the market with the same agent or another real estate company. And, all those reading about market struggles across the country who are holding off until after the first of the year are going to be competing with like-minded-soon-to-be sellers. On balance, my sense is that we are going to see a lot more inventory come on the market after the year.
The list price reductions appears to be on cruise control right now, along with incentives for closing cost contributions, rate buy downs, etc..
Over at Rain City Guide, Rhonda Porter mentioned that 30 yr fixed rates are now under 6% again. That is probably going to move some folks to write earnest money checks for a purchase or refinance.
Musings
I went to the Everett Silvertips game last week with Steve Hatloe of very long time Everett business institution Hatloe’s Interiors/Carpet One. Naturally his business is also dependant upon housing and household improving. Prior to the game he asked me about if he was the only one ‘out there’ who thought to himself, “how are people doing it?” I looked back and said, “gosh, that makes two of us. But, since you asked………”
Someone asked me a while ago what it’s like to be in escrow? I said, “like a referee.” We try to make sure everyones obligations are met, but sometimes the referee get’s the ire of one’s temper.
A thought (actually I LOL) just popped into my brain moments ago after reading all the quotes and comments over the last few weeks both here and at Rain City Guide, particularly since mid August when the liquidity crisis hit. This is meant to have fun on the Blog a bit, but I’m also sincere. “Who is going to be Tim Ellis’ Realtor when he decides it is time to buy?” I thought.
Tim Ellis (”The Tim”) is probably among the very top informed first time homebuyers when it comes to market knowledge, housing economics and mortgage finance…..and how to build those handy Genie Lifts we see all over the place on construction sites.
There have been many instances where Seattle Bubble readers have purchased over the last year. Today, I met another at our office. Thanks for supporting small authentic independant escrow firms (not owned by real estate broker, mortgage broker, title company or any other financial services business). So, when The Tim decides it is time to buy a home, I wonder how he is going to qualify the market knowledge of the Realtor (and Loan Officer) he works with, provided he utilizes a Realtor’s expertise. Working with a knowledgeable Realtor is advantageous, but, my understanding is that consumers rarely REALLY interview the individual assisting them in a very large purchase.
From my recent observations
Some of the consumers are leveraging the market conditions in their favor:
watching time on market of subject home they are interested in
being represented (buyer agency)
closing costs paid by seller
negotiating price down
shopping for best service & price for third party services involved:
inspectors
repair contractors
title insurance
escrow service (those who finalize and close your transaction)
mortgage loans
Use of rebates by individual Realtors or other’s such as Redfin.
Continuing with my premise
One the one hand, a Realtor working with The Tim will probably be easy because he may have all his ducks lined up and ready to go. He will probably have financing already approved prior to jumping into the fray.
On the other hand, Realtors talk quite a bit about how difficult it can be to work with an “engineer” type buyer: those dang-gum-number-crunchers!. In addition, will he be a “marked” man, tongue-in-cheek, as a contributor to the demise of a local market and the idea that if enough people say we are in a Bubble, then mass psychology may start the self fulfilling prophecy? After all, Economist Robert Shiller was at it again today indicating that the unraveling of the market could be the worst since The Depression. Psychology is certainly a factor: we heard no objections when the media continually talked up the market and today it is quite a different story.
So who will be Tim Ellis Realtor? How would you qualify those service providers involved in your purchase? What questions would you ask of a Realtor to find one that is experienced, knowledgeable and works well with you representing your best interests?
National Mortgage News reports that Countrywide received an additional $12 Billion in secured financing and that mortgage powerhouse, WaMu, is exiting the warehouse biz. In addition, there are rumblings that Countrywide employees may be suing Angelo Mozillo et. al, complaining that the company allegedly cheated them out of millions by concealing the true health of Countrywide. Inman News is reporting that First Horizon Home Loans is shuttering offices and reducing staff.
Lots of shifting, merging, consolidation, BK’s, and movement going on the the real estate business as this slowdown works through different areas of the country. I would like some insiders to comment on how WaMu’s exiting of the warehouse business will affect loan officers and their customers.
I just happen to look up at the ticker when I was in Times Square about a week or so ago (8/17) after a quick subway train ride up from Wall Street. Then shortly after, the following message in the picture below showed and I quickly took a shot of it. This was on Friday after the Fed injected another round of Billions into the market. These photos pretty much sums up the market over the last couple weeks.
After arriving home at 2:30AM Wednesday last week I had but a few hours of shut eye and then promptly drove all the way to Idaho. On the way back home this past weekend I felt the urge to take it slow and go HWY 2 and visit the Grand Coulee Dam and then onward to the North Cascades Highway via the beautiful Methow Valley and Okanogan countryside. I told my kids that one of the trips this summer had to include some historical background for a bit of education. The Grand Coulee Dam was it.
Well, during the visit I came away absolutely awestruck. We all went upstairs to the visitors center Theater and watched a 50 minute documentary on why the Grand Coulee Dam was built: It was part of the New Deal by President Franklin D. Roosevelt to put people back to work after the devastation created by the Stock Market Crash of October, 1929. The documentary spent several minutes discussing, with actual 1929 footage of the floor in a frenzy at the NYSE, the events leading to the New Deal by FDR and subsequent Federal backing of building the Grand Coulee Dam.
While only a handful of people were in the Theater, I noticed an old couple sitting two rows down from us and I could not help but notice they were knodding there heads up and down (presumably in agreement with what was being said) and from side to side (presumably in agreement and disbelief that they or people they knew went through that period) during some intense footage of the desperation across America.
During the documentary I could not help but think, my gosh, I was at ground zero (Wall Street) just a few days ago where it all began, and then to see this monumental icon of American engineering, ingenuity, brutal work and symbol of both the dark days of America and at the same time the symbol of what is great about this country. Some of the quotes in the documentary by the financial elite are eerily similar to what we hear today about the economy and health of the banking system. There was even mention of how the FDIC was created back then to guarantee deposits and thus reduce the possibility of there ever being a run on banks.
The Grand Coulee Dam took many years to build and 12 Million Cubic Yards of concrete. It produces the most electrical power in North America and it currently is the largest concrete structure in America and the third largest Hydroelectic plant on earth. Excavation began in 1933 and it was essentially complete in 1941. Subsequent upgrades and pumping stations followed and now irrigates roughly a half million acres of farmland in what is today the Columbia Basin. It is a must see if you ever get a chance.
Photo of the Grand Coulee Dam (a mile long) this past Saturday. A symbol of both the dark and bright periods in American history. Sorry this post too long, but I hope some find the symbolism, as I did, very educational.
