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FANNIE AND FREDDIE PROVIDE GUIDANCE ON 2009 CONFORMING LOAN LIMITS

Fannie Mae and Freddie Mac have each released guidance on conforming loan limits for high cost areas that are scheduled to take effect in 2009. Unless Congress acts during a possible lame duck session after the election, conforming loan limits in some high cost areas will go down. For 2008, the loan limits are 125% of the area median house price, up to $729,750, but not less than $417,000. Starting in 2009, the limits will be 115% of area median, up to $625,5000, but not less than $417,000. NAR supports making the 2008 limits permanent.

On October 16, 2008, Fannie Made issued Announcement 08-27 providing detailed guidance on what it calls "high-balance mortgages" under the statutory authority that takes effect in 2009. On October 17, 2008, Freddie Mac issued a Bulletin explaining how it would treat the conforming loan limits for high cost areas that take effect on January 1, 2009 (these policies were previewed in a Freddie Mac email dated October 3, 2003). Freddie is using the term "super conforming mortgages" instead of high-balance mortgages.

NAR CALLS FOR LAME-DUCK SESSION; SEEKS 4-POINT HOUSING STIMULUS

NAR is offering a four-point legislative plan to reinvigorate the housing market and calls on Congress to act during a lame-duck session. NAR believes its plan will give a boost to the economy and help to calm jittery potential home buyers.

"Housing has always lifted the economy out of downturns, and it is imperative to get the housing market moving forward as quickly as possible," says NAR President Richard F. Gaylord. "It is vital to the economy that Congress take specific actions to boost the confidence of potential home buyers in the housing market and make it easier for qualified buyers to get safe and affordable mortgage loans. We are asking Congress to act right away."

All of the provisions in NAR's plan are consumer driven:

1. First-Time Home Buyer Tax Credit

Remove the requirement that first-time home buyers repay the $7,500 tax credit, and expand the tax credit to apply not only to first-time buyers but also to all buyers of a primary residence.

2. Conforming Loan Limits

Revise the FHA, Fannie Mae, and Freddie Mac 2008 stimulus loan limit increases to make them permanent. The Economic Stabilization Act, enacted in February, made loan limit increases temporary, and subsequent legislation reduced the loan limits and made them permanent. This has broad implication for homebuyers in high cost areas.

3. Credit Crunch

Use a portion of the allotted $700 billion that was provided for the purchase of mortgage-backed securities from banks to provide price stabilization for housing. The Treasury department should be required to use the newly enacted Troubled Assets Relief Program to push banks to:

a. Extend credit down to Main Street, making credit more available to consumers and small businesses; b. Expedite the process for short sales; c. Expedite the resolution of banks' real estate owned (REOs) properties.

4. Banks Out of Real Estate

Make permanent the prohibition against banks entering real estate brokerage and management, further protecting consumers and the economy. Gaylord said that NAR will strongly pursue those proposals and is calling on Congress to return to enact housing stimulus legislation in a lame-duck session after the national elections in November.

PUBLIC RESPONSE DELAYS NORTHERN COLORADO WATER PROJECT

A large number of public responses to the draft environmental impact statement for the Northern Integrated Supply Project (NISP) will delay the project for a year. The Army Corps of Engineers and the Northern Colorado Water Conservancy District agree that the project needs more study before the Corps issues a permit allowing NISP to go forward. The NISP proposes to construct two reservoirs and a pipeline that will deliver water to 15 municipalities and water districts, including southwestern Weld County cities and towns. Frederick, Firestone, Dacono, Erie and the Lefthand Water District are included in the NISP. Glade Reservoir is proposed northwest of Ft. Collins and a second reservoir is proposed east of Ault. The cost of NISP is estimated at $450 million and would be constructed by 2015.

NUISANCE PROPERTY LAW GOING TO VOTERS IN 2009

On September 9, 2008 the Broomfield City Council passed a new, expanded and tougher nuisance property law, giving officials increased authority to require owners to maintain their property or face punishment. A citizen group responded, gathering enough voter signatures to force a public vote on the new regulations. The ordinance defines a nuisance property as one in violation of any three conditions out of 17 listed in the regulation. Typical violations include structural damage, weeds exceeding 12 inches, unlawful outdoor storage, obstructing a public sidewalk or trail, peeling pain on 25% or more of a structure, etc. Faced with the prospect of having to spend up to $118,000 to conduct a special election this year, council members elected to suspend enforcement of the ordinance and schedule the issue for the November 2009 general election ballot. Council members say they enacted the law in order to protect property values. In the short time the contested ordinance was being enforced, two property owners were cited for nuisance violations.

Home inspections are part of the buying and selling transaction.  Nearly all contracts are contingent (meaning if the buyer doesn't like it they can get out of the deal and get their money back) on a satisfactory inspection.  Every inspection uncovers at best a few deficiencies and in some cases 40 or more items.  Some items can cost thousands of dollars to correct and worse are potential deal killers. 

The buyer usually hires a "Professional" home inspector after they negotiate the terms and conditions of the purchase with the seller.  The inspection should occur within the first week after the acceptance of the contract both for the benefit of the buyer and seller.  There is no point in waiting to find out you can't get past inspection issues.

After the inspection buyers and sellers renegotiate the contract to address what, if anything, the seller will fix, how much money will be credited to the buyer.  This is often where negotiations get acrimonious.  Sellers are insulted because they think the requests are not reasonable.  It is not uncommon for a seller to say "We lived with it for years and it wasn't a problem.  What do they think they are getting - a brand new home"?  Of course buyers always feel they came up to the seller's pricing demands and their request is not unreasonable. 

The difficulty for the brokers is how to negotiate a settlement agreeable to the parties while protecting the best interests of their client.  At times clients become so engrossed over the small details of an inspection negotiation that they overlook the big picture which is buying or selling the home.  Tell me truthfully, would you really let a deal worth hundreds of thousands of dollars go over $1,000? How about $3,000?  I mean honestly you are going to return to daily cleaning and vacating your home for showings for another month or two.  As a buyer are you telling me you don't really care that much about the home you just wrote the biggest contract offer of you life upon and that you can't wait to jump back in the car and find a replacement?

Let's get serious and relax.  THE TRUTH IS BUYERS AND SELLERS ARE ALL LOUSY NEGOTIATERS!  Worse yet, an inexperienced real estate broker is scared of offending their client.  They simply become an go between repeating the demands of the parties instead of acting like an experienced professional and asking in depth, insightful and probing questions to enhance everyone's understanding of the situation so as to improve the communication of the negotiations and help their client achieve their ultimate goal which, incase you forgot, is selling/buying the home - not saving $500 or $1,000 on inspection items.   

I am not telling you that you should simply fold in the negotiation process.  What I am suggesting is that the inspection is just one part of the transaction process and creating ill will here may cost you dearly in the long run.  You want that seller to deliver the home timely and in good condition right?  You want the inspection items corrected properly - not on the cheap, right?  You want the buyer to close on the deal don't you? 

The big ticket, big scary inspection items are always - electrical, plumbing, roofing, Radon Gas, structural and furnaces.

9 SELLER TIPS TO AVOID INSPECTION PROBLEMS: 

    1) Consider paying for a "pre-inspection" of your home especially if you have an older home.  This helps you understand what kinds of problems the buyer's inspector may uncover.  Then take the time to fix the major problems.  Remember, a buyer wants you to hire professionals to "Replace" when it might be less expensive and easier to "Repair" instead. 

    2) Hire a handyman for one day to come fix sticky doors, loose cabinets, drippy faucets, drywall cracks, paint touch up, loose toilets, minor electrical issues, replace broken shingles, fix sticky windows, clean the furnace, fix down spouts and tip downs, and back fill negative drainage areas around the foundation. TOTAL SAVINGS = The cost of hiring a plumber, electrician, furnace technician, roofer, window company = $1,000 or more. 

    3) Cleaning inside your furnace with a vacuum and sponge and replace the filter will save you $300.  Inspectors do not look at furnaces.  They tell you they do but really they are scared about the liability of making a mistake.  What they do is open the cover, see a dirty furnace and filter, then recommend that a professional furnace contractor service the furnace - your cost $300!  While you are at it clean your air conditioner.  This will save you another $200. TOTAL SAVINGS $500.

    4) Replace burned out light bulbs.  Inspectors turn on the switch.  If it doesn't work they recommend having an electrician look at the electrical system to determine if their is a problem. 

    5) If you finished the basement or added another electrical circuit make sure it is wired into the service panel correctly.  I can't tell you how many "do it yourselfers" cowboy the electrical installation.  Electrical is a BIG DEAL for a buyer.  Hire an electrician and get everything fixed before you get a contract!  TOTAL SAVINGS = the value of your saved contract.

    6) Call a roofing company to come evaluate your roof.  They typically do this for the homeowner for free.  They will identify missing and damaged shingles and flashing.  Usually repairs are between $250 and $1,000.  Wait for the buyer to find it and they will request a new roof to be installed.  TOTAL SAVINGS = up to $10,000.

    7) Repair and repaint cracks in the drywall.  Buyers see this as a structural problem when 99% of these are just minor issues.  Don't wait for the buyer to find them.  Don't rely upon the buyer's agent to tell them that these are minor either.  Most agents don't know and we are not licensed engineers so we avoid this liability.  TOTAL SAVINGS = the difference between getting an offer and not getting an offer.

    8)  Caulk and seal the cracks in your driveway, porch and sidewalk.  This demonstrates to the buyer and their inspector that you are a conscientious homeowner who doesn't want water getting under the concrete.  TOTAL SAVINGS = $500 to $2,000 for replacement of the concrete.

    9) Call your local glass company to service any sticky windows or failed windowpanes (foggy windows).  If you know who manufactured your windows they often come with lifetime guarantees.  Call the manufacturer for service. 

    10) Provide a third-party home warranty for $350 for a year to cover the major appliances and components of your home.  This increases buyer confidence. 

 3 BUYER TIPS FOR AVOIDING THE INSPECTION PROBLEM:

    1) Get the home inspected by an ASHI or ISHI certified home inspector.  Preferably one who offers a guarantee to repair or replace anything they inspected that fails within the first year.  A_PRO Home Inspections http://www.a-pro.net/ is probably the only inspection service who guarantee their work this way.  Most other inspectors guarantee is up to the cost of the inspection - Gee, thanks!  You can call my guy Jeff Lyons at 303-485-8800 or email him at jeffrey.lyons@aproweb.com for more info. 

    2) Ask the seller to provide a one-year home warranty from companies like American Home Shield (AHS).  I can't vouch for them but the cost is nominal around $200 to $400 for a year.  You can extend this as you wish.  If the seller won't provide it maybe it would give you peace of mind to do it yourself.

    3) DON'T SWEAT THE SMALL STUFF! So what if the light switch is crooked or their is a cosmetic crack in the drywall.  Forget about the loose door knob.  Concentrate on the big ticket items.  If their aren't any be happy and ask the seller for a $200 to cover half of a day for a handyman.  Wouldn't you prefer to supervise the repairs rather than the seller who will never see the home again?

Final comments:  The smoothest and happiest deals for buyers and sellers occur when the inspection negotiations go smoothly.  Refer to the tips here to help this.  There is just too much at stake to get hot and bothered half way through the closing process. 

Also, don't pimp your broker or the other broker to pick up the tab for the inspection items.  Threatening them either overtly or passively by suggesting that if someone doesn't pay you won't close is dirty pool; a morally weak negotiation strategy.  Keep the negotiation is between you and the other party.  If they won't pay and you won't pay then just move on.

Homes for a million or more are common in our corner of Colorado.  While the most expensive properties in Boulder County tend to be located in the City of Boulder, there are a substantial number of them throughout the rural areas of the county including Niwot.  I thought it might be interesting to see what this real estate and financial mess is doing to the high end market and here is what I found.

Since the beginning of the year 103 homes have sold throughout Boulder County for more than $1 million.  This means about 10 homes per month are selling.  The median price of these sales is $1,450,000. 

To put this in context I looked at previous year sales to compare.  In 2005 160 homes sold or about 13 homes per month with a median price of $1,250,000.  In 2006 185 homes sold at a median price of $1,340,000.  In 2007 204 homes sold or about 17 homes per month at a median price of $1,360,000. 

You might say, "Wow, 10 homes, 17 homes for more than $1,000,000 selling per month.  That is a lot".  I don't disagree but lets look closer at what the trend is in 2008. 

Compared with 2007 the median price is up by 6.6% but adjusted sales will likely be down by 40%. 

A more concerning number may be the current demand curve for homes over one million dollars.  As of today there are 297 homes available on the market.  However, only 11 are under contract.  That means only 3% of the market is under contract.  A healthy market for sellers would see about 25% under contract. 

The rate of absorption for the million dollar plus market for the year is 10 homes per month meaning that there are 2.5 years of inventory!  I expect this to increase to 3 years by years end. 

What is effecting this?  There are many factors but the big two are huge losses in wealth in the stock market and a general fear of making large ticket purchases until the economy settles down.  Another factor is the expense and difficulty of borrowing "Jumbo" amounts of money. 

So what does this mean for you? For sellers it really depends upon what micro market your home is in.  Are you on Uni Hill, Newlands, Mapleton?  How about Somerset, Legend Ridge?  Each of these markets has its own dynamics which effect home values and sale-ability. 

In general the numbers suggest a slowing market that is heavily favoring the buyer.  You will probably see median and average prices decline over the next twelve months.  I expect inventory to decline as well as homeowner's "give up" and remove their homes from the market. 

If you are a buyer and you have the means and need to move, this is your chance to buy it right.  Don't forget you have been waiting for this moment.  It is your turn to take advantage of the market.   

An interesting option that buyers are overlooking these days is asking the seller to pay discount points to reduce the interest rate on a loan.  Many buyers look at just reducing the price through negotiation yet forget that a discounted interest rate alone or in addition to a reasonable price negotiation might end up saving them many more dollars in the long run.  For example:

Example: A buyer looking at a home in Boulder for $675,000.  He/she has 20% for a down payment.  They negotiate $25,000 off of the price, get the home for $650,000 and feel great about the discount.  Their loan amount is $520,000 which is a jumbo and they go for a fixed rate for 30 years which at 7.5% (jumbo fixed rates are expensive).  Their monthly principle and interest payments are $3,636 per month and after five years they have paid $190,000 in interest and reduced their principle balance by $28,000.  They now owe $492,000.

versus

They offer $670,000 for the home and ask the seller to pay four discount points to reduce their interest rate by 1/2%.  They obtain an adjustable rate mortgage which is fixed for the first five years at 5%.  Their payments are $2,877 principle and interest per month.  This is a monthly savings of $759.  After five years they have paid $129,000 in interest and reduced their principle balance by $44,000.  They now owe $492,000 yet they saved $45,500 in payments. 

The net to the seller is the same either way yet the total discount to the buyer with the adjustable rate and discount point option is $70,500 instead of just $25,000. 

To some this is a clear as day.  To others it is probably as confusing as the Chinese dictionary.  My suggestion is you speak with someone like Dennis Stengel at Dominion Mortgage http://www.dominionmtg.com/officers.stengel.shtml.  Contrary to what the media is telling you, these type loan progams are still available and make lots of sense especially considering the cost of a conventional fixed rate mortgage these days.  Dennis tells me they can loan up to $650,000 (great for jumbo borrowers) at a fixed rate of 5.75% for 5 years (the rate will change daily of course).   No financial penalty or added costs for credit scores as low as 680. 

I guess you have to start somewhere.  This won't carry much interest for the seasoned blogger but it something I am excited to get going.  I am not sure how to get people to read or even respond to this so if you do come acrossed it please just drop me a note or even advice. 

As everyone is aware the real estate and credit markets are a mess right now.  Unfortunately there is so much bad info out there that buyers have simply locked themselves away and decided now is not the time to buy.  It is hard to blame them when finances seem uncertain and the press takes every opportunity proclaim that loans are unobtainable or prohibitively expensive. 

Nothing could be farther from the truth.  Sure, if you don't have a job, assets or decent credit getting a loan could be difficult or impossible.  Then again, maybe you wouldn't deserve a loan.  However, the loan rules and guidelines are no different than they were 20 years ago.  If you have 3% of your own money or more you can get a loan from FHA.  Up to 20% down you can get a conventional loan from FreddieMac or FannieMae with mortgage insurance (last time I checked you could write mortgage insurance off - check with your tax person).  20% or more down - you are gold as long as your credit doesn't stink. 

Do what you can to maintain good credit.  If you need a lender who can educate you on rebuilding your credit I suggest contacting Dennis Stengel at Dominion Mortgage in Boulder dennis@dominionmtg.com.  He has a program where he signs you up for idnetity theft protection and then moves into credit repair.  This may take some time if you have defaults and lates.  But if you are close he can help you rearrange things in a way that boosts your score.  Since good credit now starts at a 750+ score rather than the 700+ you must be diligent. 

If you are scared about buying or selling right now I have these thoughts for you.  First, prices in the Boulder/Front Range area are as depressed as they are going to get.  As a buyer you won't necessarily benefit from waiting because if there was a bottom we passed it last week. 

As a seller in our area you have not taken much of a hit.  Real Estate markets are local not national.  Just because California and Florida are 30% to 40% in the tank doesn't mean everybody is.  In fact, our statistics show Boulder has flatlined but not gone negative.  You might not be making much but at least you are not losing. 

If your plan is to sell next spring you should get stated as soon as you can.  It takes longer today because buyers are definitely moving slower.  Additionally, this buyers market is a beauty contest.  You better be the best house, in the best condition at the best price.  If you are you no doubt will sell and sell quickly. 

What would I buy if I could?  Find new construction.  Unlike a typical homeowner, builders are not sitting on equity.  They are desperate because they rely on the cash flow from building and selling.  This is where the rock bottom best deals are. 

Some people are wondering about shortsales and foreclosures.  Deals can be had but this is a pain in the you know what!  Unless you have cash and a willingness to rely upon the unknown you should forget about foreclosures until after the bank takes them back.  Remember you cannot inspect them, insure them or take possession immediately.  Shortsales are time consuming and uncertain.  If the home was any good and worth the money it would have sold without the need for a shortsale.  If you are looking at one of these you better be getting a great deal.

I know you are not supposed to blow your own horn in a blog so I will give you only one piece of self serving advice.  You need experienced, trustworthy professionals now more than ever.  Help You Sell declared bankruptcy for a reason.  It is because people discovered that when times get tough you need full service professionals helping you. 

Get a good lender, good broker, good attorney and a good accountant. 

Do they call it a blog because that sounds like blah blah blahg.  This is starting to sound like that so I will check out for now.