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A New Year With New Challenges: A Lender’s Look at The Year Ahead

By Alexandra Swan (NMLS 117371), Willowbend Mortgage, Member of CCAR’s REALTOR®/Lender Committee

Happy New Year!  It’s hard to believe that the holidays have come and gone and a new year is upon us.

Both the REALTOR® and Lender communities experienced challenges in 2018, and as we roll into January those challenges will continue. The FED is expected to raise rates at least a couple more times in 2019, although they signaled in December that there might be fewer rate hikes than previously expected. Those rate hikes do not directly affect the mortgage rates, however they do affect the cost of other loans and the interest paid on everything from cars to auto loans. Higher interest rates mean that consumers are generally paying more to borrow money, which leaves less money for other expenditures—such as housing. We are also expecting higher mortgage interest rates in 2019 which will directly impact monthly mortgage payments and the amount of house that borrowers can afford.

As rates continue to rise, we are going to see markets continue to soften. Most experts believe that we are transitioning into a buyer’s market in 2019. That will create special challenges for a new generation of real estate professionals and loan originators who have never worked in a more balanced market.

On a brighter note, we are entering 2019 with a 6.9% increase for the new conforming loan limit for all of Texas. The new conforming loan limit of $484,350 for a single-family residence means that a consumer purchasing a $605,000 home can put 20% down and get a conforming loan rather than going into a first and second lien or a jumbo. Likewise, the new FHA loan limit of $395,600 for a single-family residence will allow FHA borrowers to have a wider selection of qualifying properties.

Additionally, Texas, and especially Collin County, remain strong economically. Collin County ranked #54 on the 2018 list of U.S. News 2018 healthiest communities and received “honor roll” status (updated November 20, 2018). The ranking scored Collin County on a number of factors, including education, access to healthcare, housing affordability and employment. We live and work in a thriving community that people from across the U.S. still choose as home. We have a lot to celebrate, and much for which we can and should be grateful.

In keeping with the CCAR 2019 mantra to “engage, equip and empower,” the REALTOR®/Lender Committee will work to engage with both the REALTOR® and Lender members to share ideas and solutions, to equip our members to better serve the consumers and each other through education about new products and programs, and to empower each member to learn and use new tools as we grow personally and professionally.

We meet on the second Tuesday of the month after the Plano Business Development meeting at the CCAR headquarters. We hope that you will make plans to join us as we make the most of the opportunities before us.

Customer Service is The Way of the Future

The National Association of REALTORS® (NAR) officially launched a new program aimed at making you more successful. Aptly named “The Commitment to Excellence” (C2EX), the program scores and rewards agents who exhibit excellence and professionalism to their clients, and is completely free to NAR/CCAR members.

The C2EX is a “cutting-edge program that empowers REALTORS® to evaluate, enhance and showcase the highest levels of professionalism” says the NAR website. To begin the process, agents simply go to www.C2EX.realtor and take an initial self-assessment tool. The assessment measures 10 aspects of professionalism for agents, 11 for brokers, and creates a plan of action to move you to the next level.

You will receive an interactive dashboard, where you can log-in and check-off tasks as they are completed, as well as send out surveys to clients for feedback. At completion, REALTORS® receive the NAR official “Commitment to Excellence” endorsement.

The program marks a significant movement within the real estate industry: Professionalism.

Log on to www.c2ex.realtor to see your personalized steps recommended by NAR to take your business to the next level.

Collin County Housing Market Approaching Balance; Still Better to Be a Seller

The Collin County Association of Realtors (CCAR) reports that the real estate market continues to favor sellers, but if trends continue, North Texas may soon find itself in a more balanced market. Over the past 12 months, median sales price has increased 1.5 percent to $301,500, which is 6 percent less of an increase than the year prior.

Simultaneously last month, the real estate market experienced 15 percent more homes for sale as compared to October 2017, supplying the market with 3.2 months of inventory. A market is considered balanced when it has six months of home inventory, a seller’s market if it has less, and a buyer’s market if it has a surplus above six months of inventory.

“It is important to remember, despite an increase in home inventory, those homes are still selling, and for more money than the year before,” says CCAR President Melissa Hailey. “It is still a great time to be a seller, Collin County is still experiencing growth, and buyers are excited to buy.”

The CCAR Pulse, which delves into the real estate markets of 37 local communities, supports Hailey’s thoughts, projecting that year-to-date closed sales have increased by 9.4 percent.

For the buyer, Hailey has encouraging news, “You are less likely to find yourself in a bidding war, and sellers are open to reviewing comps and setting a competitive listing price.”

On average, buyers paid 95.4 percent of the original list price of a home in October and homes stayed on the market an average of 49 days. The most popular segment of homes among buyers purchasing in October were those priced from $300,000-$499,999.

Last month, the housing affordability index declined 14.8% compared to the same time last year, hitting its lowest point in 2018. In addition, median household income was only 98 percent of what is necessary to qualify for the median-priced home under prevailing interest rates.

While many are anxious to see if the market continues to trend towards balance, the month of October gave both buyers and sellers reason to smile.

What Starbucks Holiday Cups Mean to You

Starbucks has a new seasonal cup out, and that means something major for you. It’s time to plan and execute your winning winter marketing strategy.

Need some fresh ideas? We have compiled a list of fun and effective ways to reach your clients and make your name one they will remember all the way to warmer months.

Seven Fun and Effective Holiday Marketing Strategies

Provide your clients with winterization tips and tricks

It is always a good idea to help clients protect one of their largest investments. Provide them with simple checklist of winterization basics and set them up for success. To deliver extra value to your clients, consider working with a local gutter cleaning company or other service provider to create a promo code for special savings.

Take care of their holiday photo

Hire a local photographer to come to your office and set-up a festive back drop. Invite all your clients to come by and have their family photo taken free of charge. Your clients will be so thankful to you for organizing a traditionally expensive and overwhelming task on their behalf that they will be bragging to everyone about their awesome REALTOR®.

Create a calendar of local holiday events

Remind your clients of why it is awesome to live in their town. Research your town’s unique holiday markets, festive parades, and family-friendly events to craft an easy to read calendar they can reference all season long.

Provide year-end review stats

Provide an approachable and informative year-end market review that shows off your industry knowledge and reminds your clients why they trust you with their business. Bonus: If your client purchased a home during the year, be their hero by proactively providing them with their settlement statement for their upcoming taxes.

Create a pumpkin pie tradition

One successful agent mails reminder cards to all his clients November 5, reminding them to come by his office the Wednesday prior to Thanksgiving to pick-up their pumpkin pie. Annually, he gets to see his clients, they never stress about making a pie for Thanksgiving, and they brag about their awesome REALTOR® while consuming pie the following day.

Host a toy drive or canned food drive

Partner together with your clients to help those less fortunate this holiday season. Create your own toy drive, or become a collection site for the Care for Kids Drive by picking up a decorated collection box at CCAR.

Get a new certification or designation

These courses don’t just mean extra letters at the end of your name, they mean more value for your clients. Take initiative this season to earn a new certification or designation, and then write a newsletter to your clients to let them know why you decided to complete the program.

Once you have found your unique approach to reaching clients during the holiday season, set an annual reminder on your calendar so you never forget your holiday marketing tradition. Quickly you will become part of your client’s seasonal traditions and their forever REALTOR®.

Giving Thanks: An Optimistic Overview of Market Conditions

By Alexandra Swan (NMLS 117371), Willow Bend Mortgage, and member of CCAR’s Realtor/Lender Committee

Give thanks!

Here in DFW, we in the real estate community (and all related industries) have a lot to celebrate this Thanksgiving season. And while a cooling market and rising interest rates may seem to some like the beginning of the apocalypse, those of us involved in CCAR’s REALTOR®/Lender Committee who have been around a few years want to remind everyone of a few of the many blessings we can count this year at the Thanksgiving table.

All statistics come from the Dallas Morning News, October 18, 2018.

  1. Statewide, sales are slowing as the market cools, but DFW still saw the largest number of home resales year over year from third quarter 2017 to third quarter 2018, with the total number of resales at 27,660 homes. The next closest market for number of houses sold was Houston at 24,028.
  2. In DFW, prices are up 3.9% year over year. The median resale price in DFW is currently $265,034.00.
  3. Although price appreciation is now slowing, median home values have risen more than 40% over the past five years, which means that many North Texas residents continue to enjoy strong equity in their homes—a significant advantage for move-up buyers wishing to sell a current property.
  4. DFW enjoyed the largest inventory increase of any of the major metros, up 14.5% from the third quarter of 2017.
  5. The average number of days on the market for a house is now 37—just one day more than the third quarter of 2017.
  6. The average number of months of inventory is now three—up from 2.6% in the third quarter of 2017. More inventory makes it easier for buyers to find the perfect home without getting crushed in a bidding war or consistently and repeatedly losing potential homes to cash offers.
  7. Interest rates are still amazingly low. Yes, you read that correctly. Twenty years ago, when some of us began our careers, 8.5% on a 30-year fixed rate loan was a good rate. Rates in the low 7% range triggered a sea of refinances in the early 2000’s. When rates fell to the mid 5’s after 9/11, consumers lined up to take advantage of the savings they could enjoy by reducing their interest rates and payments. Now, 17 years later, we have seen shockingly low interest rates for so long that we have forgotten that a 30-year fixed rate mortgage in the 3% range is not a reflection of normal market conditions. When we examine the past few decades of history, we see that interest rates are still very low, and housing remains affordable—especially as compared to other major U.S. markets.
  8. The overall economy remains strong in the third quarter of 2018, which is a good indicator for the continued health of the real estate market.

Author Andy Andrews states that perspective is the only thing in life that can change the outcome of a situation without changing any of the facts. Right now, rates are rising and an on-fire market is slowing down—compared to the last few years. By applying some perspective to the true state of our housing market, though, we can appreciate that our collective glasses are much more than half-full. We are in one of the nation’s top real estate markets, and our housing industry remains strong and viable.  We have much to be thankful for.

Happy Thanksgiving, from your REALTOR®/Lender Committee.

Phased Inspections: A Crucial Step in the Purchase of a New Home Build

By Lee Warren, Prospect Inspectors, Inc. (License #8411), and member of CCAR’s Affiliate Committee

It has become obvious in the last few years that the DFW Metroplex is growing in vast numbers. With this substantial growth, there is also the inevitable demand for new houses. Many people have the perception that new homes have no deficiencies. Many builders will tell you that they do their own inspections, they hire third party inspectors, and that there are the city inspectors to ensure that the house is built correctly. However, even with these three layers of inspections, one thing is absolutely consistent about them: Not one of them work for the buyer of the home.

It is vital for a buyer of a new home to have an inspection performed on that home. It is one of the largest purchases that one will make in their lifetime. Many people may simply get an inspection done when the house is complete. However, the best time to start having the house inspected is when they first start on the lot.

Many licensed professional inspectors offer “phased inspection” services. This means that they will inspect the property from the time they start moving the dirt, right up until it is completed. Keep in mind that this is the only time that you, as a buyer, will know what is getting installed before the foundation is poured, and before the drywall is installed. Contact a CCAR inspector to determine if they perform phased inspections and find out the benefits that a phased inspection can bring to your client with their purchase.

Keep in mind that some builders have certain requirements of inspectors before they will allow them to perform inspections on the home. Some of these requirements can be excessive, and this can lead some to believe that this may be an effort to prevent the inspection of the home. Many inspectors will not inspect homes by certain builders because of these excessive requirements.  Please ensure that you have a thorough conversation with a builder prior to having your client sign a contract with them. If the builder states that they have no extra requirements for an inspection, make sure that you get it in writing so that they cannot later impose this roadblock when your client’s earnest money is on the hook.

Know Your Financing Options/Outcomes for Taking Cash Out of an Existing Property

By Tracy Walden (NMLS 1048123), Great Western Home Loans, and Member, CCAR’s REALTOR®/Lender Committee

There are so many reasons for getting a cash-out refinance and many different types of loans. Reasons to get a cash-out might include:

  • Adding a pool or doing some home improvements.
  • Fixing up a home prior to selling it and taking out a loan for the improvements.
  • Using some of the equity in the current home to pay-off a high interest credit card.
  • Tapping into the existing home’s equity for a down payment to use on the new home. This often occurs so a borrower can close before he/she sells their current home and then pay-off that loan as soon as they sell the current home.

There are several options to accomplish each one of the scenarios above. However, CCAR’s REALTOR®/Lender Committee reminds you to have your clients find a trustworthy lender and to share what they need the loan for and what their ultimate plans are for that loan. Sometimes, there are options that are quicker with much less to pay in fees that can accomplish the same purpose as a more expensive refinance. It is best to be educated in all options prior to making that decision.

Many people are not aware that when you pay-off a first lien on a home after just a few months of originating it, the bank, and sometimes loan officer, can be hit with a large penalty. The deed of trust states that the borrower plans to live in the house for a year after closing. Although we understand that life changes for people, the expectation is that, at the time of closing, the borrower does expect to live in that house for at least 12 months. For this reason, it is very important for you to disclose to your loan originator any plans to sell the house or pay-off the mortgage within the first year.

The following scenario is a common example of a cash-out refinance used in conjunction with a home sale: Your client needs to fix-up their home before they put it on the market to sell it.  They have heard of getting a cash out refinance, so they call the bank and fill out the application for the cash out refi. The house isn’t listed, and they never mention to the lender that they plan on selling the home soon. The loan closes, and they get their cash. They do the improvements and list the house. It sells quickly, and they buy a new home at the same time.

In the scenario above, if your client had talked to the lender and asked him/her to walk them through all of the options and had been open about their end plan, the lender could have also shared some options like a home equity second lien, home improvement loan, or HELOC. Each of these options have minimal fees and usually close a lot faster than a primary cash-out refinance.

Refinances are not cheap and usually cost more in fees, and when the loan is paid off very quickly, the amount of the fees over the life of the loan are typically not recovered. Not only does the cash-out refinance cost the borrower unnecessary fees, but the lender will be hit with a huge penalty when the new loan is paid-off through the sale of the property. Since these losses are normally passed onto the individual loan originator, he/she wants to make sure that your buyer is in a loan type that is going to make the most sense for all parties.

CCAR’s REALTOR®/Lender Committees recommends that you ask your client to discuss his/her options with your trustworthy lender partner. Even if this isn’t a loan that your lender partner can originate (like a HELOC), they will be able to help the client know what his/her options are and connect them with someone who can help.

For these and other questions about lending, contact CCAR’s REALTOR®/Lender Committee at RealtorLender@ccar.net. And, if you’d like to join us, the REALTOR®/Lender Committee meets the second Tuesday of every month after the Plano Business Development Meeting (approximately 1 p.m.) in the CCAR Banquet Room.

Bank Statement Loans and How They Benefit Your Clientele

By Dawn Ferreiro (NMLS 514152), Service First Mortgage and Member, CCAR’s REALTOR®/Lender Committee

One of the most common reasons that self-employed borrowers are unable to obtain mortgage financing is due to the nature of their tax returns, and specifically how much they are able to write-off on their return in relation to their reported profits. Currently, the Government-sponsored Enterprises, or GSE’s (Federal National Mortgage Association or Fannie Mae and Federal Home Loan Mortgage Corporation or Freddie Mac), along with the Federal Housing Administration (FHA) require that lenders underwrite a self-employed borrower’s income utilizing the net income on their return/returns as opposed to the gross income. REALTORS®, by the very nature of their own employment, are all too familiar with this scenario and it remains a common frustration for the self-employed individual.

Thankfully, we are now seeing a rise in the market place for Bank Statement Loans. These products allow us, as Mortgage Professionals, to qualify buyers without the use of W-2’s or tax returns. Borrowers who have been self-employed for a minimum of two years will be allowed to provide their bank statements in lieu of their tax return (bank statements may be personal statements, business statements or co-mingled statements, however certain caveats do apply in each of these scenarios). There is certainly a well-deserved place in the market for these types of products, as there are currently an estimated 15-16 million self-employed individuals in the United States. Projections indicate that 27 million Americans are expected to leave full-time jobs from now through 2020, bringing the total number of self-employed to 42 million.

That being said, there are a few things to bear in mind when it comes to these loans. First, it is important to note that the borrower is responsible for providing some type of accounting of the expenses incurred by their business. The following options are allowable:

  1. A Profit and Loss Statement prepared by the borrower’s CPA
  2. A Profit and Loss Statement prepared by the borrower
  3. An Expense Statement from a tax professional in the form of a letter outlining the borrower’s average expense percentage over a specific timeframe.

In addition, deposit and expense patterns must be reasonable for the type of business. If any single deposit exceeds 75% of the monthly average deposit balance, it will have to be sourced.

While these loans are non-QM (Qualified Mortgage) and Non-Agency (agency being FNMA, FHLMC, or FHA), that does not necessarily mean that they are higher risk. The loans are ATR compliant, meaning they fall under the “Ability to Repay” rule of Dodd Frank, in which creditors are required to make a reasonable, good faith determination of a consumer’s ability to repay any consumer credit transaction secured by a dwelling. And, most borrowers with these loans will actually have good or excellent credit scores.

The typical profile of these loans purchased in Q2 of 2018 are as follows:

  • 65% loan-to-value (35% down payment or 35% equity in the home for refinancing)
  • 36% debt-to-income ratio (conventional loan products allow up to 50% in some cases)
  • 699 FICO score
  • $518,483 loan amount

With this information in mind, we certainly recommend reviewing your client database to identify those clients who were unable to purchase a home due to their self-employed status combined with a low net income reported on their return, to see if this exciting new program might be of benefit to them!

For these and other questions about lending, contact CCAR’s REALTOR®/Lender Committee at RealtorLender@ccar.net. And, if you’d like to join us, the REALTOR®/Lender Committee meets the second Tuesday of every month after the Plano Business Development Meeting (approximately 1 p.m.) in the CCAR Banquet Room.

How to Close Smoothly During Peak Purchase Season

By Jake Perry (NMLS #231682), Fairway Independent Mortgage Corporation and Member, CCAR’s REALTOR®/Lender Committee

The time between May and September is typically the busiest time of year for Americans buying and selling homes. Some mortgage companies experience delays in underwriting that can lead to delays in loans closing. Even the best mortgage companies must closely manage and adhere to the timelines to avoid these types of delays.

How can REALTORS® help their lending partners ensure that timelines are met, delays are avoided, and ultimately customers are happy? The REALTOR®/Lender Committee has a few useful tips for CCAR REALTOR® members.

We recommend qualifying your borrowers as early as possible in the process. Sometimes, clients believe they can wait until they are actually ready to start making offers. However, we do not recommend waiting to qualify. Too often what the borrower believes about their ability to qualify, and the reality are very different. For this reason, we recommend having borrowers qualify sooner rather than later. A good rule of thumb is 120 days from the time a borrower is ready to go search is when they should speak to a lender and qualify. Credit reports are usually good for approximately 90-120 days. This time-frame allows lenders and borrowers to plan for delays.

REALTORS® should encourage borrowers to send their paperwork quickly. Mortgage companies are using technology to reduce paperwork and times, but both lenders and REALTORS® should prepare borrowers for documents related to income, assets, and credit to be sent to mortgage companies right away. Many lenders use various technologies to securely receive these types of documents. Borrowers need to be mentally prepared to send documents completely and urgently.

The property inspection and appraisal are important parts of the home purchase process. Many REALTORS® consider it a best practice to order inspection and appraisal at time of contract execution. Sometimes, REALTORS® prefer to receive the inspection before appraisal is ordered, as it can be a factor in repair negotiations. All parties should be aware that a delayed appraisal could lead to a delay in closing. In the summer months, the average turnaround time for appraisals is 6-8 days. In addition, the purchase contract has a box for CSS access to be checked. This box allows the appraiser to schedule the appraisal viewing.

The timelines required by TRID are more important than ever. Most mortgage companies require a loan approval prior to the Closing Disclosure issued, while some lenders require Clear to Close/Final Approval. Other lenders have other specific conditions beyond approval and prior to CTC that must be met. All lenders must send a Closing Disclosure to be signed three days prior to loan consummation. Business days (including Saturdays) count towards the three-day requirement. Regardless of the various requirements by lenders, you must work with a lender that has a good system in place to prohibit delays.

Finally, communication and preparation are imperative for a successful transaction for both REALTORS® and lenders. If problems arise, which they often do, REALTORS® and lenders should communicate with each other. For example, if delays occur due to repair negotiation, the REALTOR® must be prepared and open to a delay with the closing date. Many transaction milestones cannot occur until all parties have agreed to move forward, so there is a resulting impact to lenders. Although repair negotiations do not always lead to closing delays, it is often the case that REALTORS® need to communicate the possibility of a delay.

For these and other questions about lending, contact CCAR’s REALTOR®/Lender Committee at RealtorLender@ccar.net. And, if you’d like to join us, the REALTOR®/Lender Committee meets the second Tuesday of every month after the Plano Business Development Meeting (approximately 1 p.m.) in the CCAR Banquet Room.

What is a Residential Service Contract (Home Warranty)?

By Howard Zimmerman, Dallas Area Rep – Choice Home Warranty and Member – CCAR’s Affiliate Committee

What is a Residential Service Contract (home warranty)?
A Residential Service Contract (RSC) is a service policy that offers to repair or replace the major mechanical systems and appliances in a home. A seller can protect their home with a policy while their house is listed and a contract can also be offered with the sale of the home to the buyer.

What are RSC’s designed to do?
Their function is to reduce the policyholders’ repair and/or replacement costs of failed, covered mechanical items in their home.

How do RSC’s work?
Homeowners can either call the warranty company to place a claim or go online to do so when a problem occurs. The company will then notify a licensed and insured third-party contractor
to contact the homeowner to set an appointment.

After the contractor/technician diagnoses the cause of the failure, he/she will contact the warranty claims department with his/her findings. The claims department will then apply the technician’s diagnosis over the contract terms to determine if the claim will be declined or approved. When the claim is approved, the chosen level of coverage will determine the non-covered and/or out-of-pocket expense for the claim. As you can see, the technician’s diagnosis is a critical part of the claims process.

As a whole, RSC’s do not provide coverage for:

  • Commercial properties, residential properties converted into a business, or commercial grade appliances.
  • Items that are not stated in the contract as a covered item.
  • Upgrade of existing covered items (i.e. changing from a 40 gallon to a 50 gallon water heater).
  • Items that do not have a mechanical failure.
  • Items that fail due to a manufacturer defect.
  • Design flaws and structural issues.
  • HVAC systems that are undersized for the home.
  • Reimbursement to a homeowner for services performed without approval.
  • Known, pre-existing conditions.

Why should REALTORS® tell sellers and buyers about RSC’s?
Disclosure is one of the fiduciary duties of a licensed Real Estate professional. REALTORS® are required to protect their clients from foreseeable risks by recommending they seek expert assistance for services that are outside the scope of the REALTOR®’s expertise. Making your clients aware that home warranty plans are available takes care of many foreseeable and unforeseeable risks.

Disclosure about RSC’s greatly reduces the risk that Agents or their Broker will be held liable for subsequent mechanical failures, should the client decide not to obtain a warranty.

“Do’s and Don’ts” of RSC’s:

  • Do recommend that your client have a licensed HVAC company perform a thorough inspection of the a/c system during the home inspection.
  • Don’t solely rely on the home inspection. Since most inspectors are not licensed HVAC technicians, plumbers, or electricians they are limited by law to performing visual inspections.
  • Do call for quotes on homes that are greater than five thousand square feet.
  • Don’t assume the other agent will order the policy.
  • Do give your client a copy of the contract and tell them to read it. It has exclusions and limits of liability like any other contract.
  • Do have your client check the “decline coverage” box if they choose not to purchase a residential service contract and keep this form in your file.
  • Do show and highlight the company’s phone number and website for placing claims.
  • Do tell your clients about the many benefits of residential service contracts.