Charleston Real Estate Blog

Watch Out for Regulation Z

2009-11-10T21:47:00.004-05:00

Just one of the many new regulations put into place by the Fed as a consumer protection, Regulation Z has the potential to create long delays in your closing. The primary component of Reg Z is the requirement for proper notification and disclosure to a borrower regard their mortgage. The regulation modifies certain provisions of the Truth in Lending Act (TILA). Lenders are required to mail good faith estimates of mortgage loan costs within three business days of receiving the application and before fees are collected. However the delays can come when everything is set for your closing and something triggers a change in your APR.

The new reg states that if your APR increases by more than .125% (which is an 1/8 of a percent) the lender is required to mail you new notice and disclosure with a required waiting period. The mailing time is 3 days, excluding Sundays and holidays, combined with 3 additional days to review the new TILA. Even if you, as the buyer, are perfectly OK with the new terms, you are required to wait the perscribed time period. So, just when you thought you were ready to move into your new home, you could be facing a 6 to 8 day delay! Better notify the movers.............

Charleston Area Foreclosures Growing

2009-06-09T23:41:00.003-04:00

I guess it's not a surprise to see the increase in the number of properties in some stage of foreclosure. But the total is quite staggering. According to RealtyTrac.com the total number in the Charleston area has exceeded 2500. This presents a variety of problems for the local market.
The primary issue, aside from the obvious fact that people are losing their homes along with substantial equity, is the use of foreclosure sales as comps. In the past, appraisers working for banks would footnote or discount a foreclosure when appraising a property under contract to determine market value. However now it is common for appraisers to use these distressed properties as comps. Why, because there are so many of them, they are setting the basis for the market (what a buyer is willing to pay for a property). Of course buyers are keying off of this as well to determine what they believe is an appropriate value. All of this has the effect of bringing property values down.
This phenomenon is great for buyers however it is reeking havoc on sellers. Property values in the Charleston area dropped about 30% last year and an additional 15% so far in 2009. Unfortunately this decline is not likely to hit bottom for a while. The reason is that our real estate bubble was so large. To give you some history, between 1980 to 2000, the average increase in the value of real estate was 5% per year. However between 2001 and 2007, real estate increased a whopping 89%. That was great, but now we are paying for it.
Looking ahead, we are not likely to see the bottom until some time in 2011. And prices will likely not return to todays level until 2014! So the longer you wait, the lower prices will be dragged down. The bottom line is, if you are in a positon where you must sell your home, you need to get very agressive with your pricing to sell it quickly.

Fed's "Bad Bank" Plan

2009-02-02T11:26:00.002-05:00

On Wednesday, the Fed announced that it decided to keep the Fed Funds Rate steady at the current 0 - .25% range, the lowest ever. They also indicated that "economic conditions are likely to warrant exceptionally low levels of the Federal Funds Rate for some time" and that "inflation pressures will remain subdued in coming quarters".
Also last week, the Federal Deposit Insurance Corp (FDIC) announced that it may set up a "bad bank" as a vehicle to buy toxic or illiquid assets from banks. What does a "bad bank" do? Lenders and the entire financial sector are struggling with "mark-to-market" accounting issues, and in the absence of a repair of the mark-to-market system (see Jan 22 blog post) , lenders are forced to sell assets in a market where there are few buyers. Hence the bad bank plan, to create an entity that will purchase the assets that no one else will buy, which is yet another very creative way for the government to breathe life back into the financial sector. This action is not finalized, so we'll keep watching closely to see how it plays out in the days ahead.
Existing Home Sales came in a bit better than expected, but 4th Quarter Gross Domestic Product (GDP) numbers showed the economy contracted in the 4th quarter, as you can see in the chart above. While the numbers were better than estimates, the economy was still at its slowest pace in 26 years.
Last week was indeed action packed, and Bonds and home loan rates felt the effect, with rates ending the week about .25% worse than where they began. 30 year fixed rate conforming loans are still some of the best we have seen in recent history hovering around 5%. A 3/1 ARM can be found as low as 4.75%. One thing to keep in mind these days regarding mortgage rates, banks are beginning to look harder at individual applicants and their credit worthiness. With banks running scared, loans are being quoted on a client by client basis. The better risk you are, the better rates you can get, and visa versa.

Pre-Foreclosure 101

2009-01-23T20:38:00.004-05:00

A lot of people have been asking about foreclosures and short sales these days. Often times the conversation begins with how to define these terms. To begin with, a Short Sale is when a bank allows a home owner to sell their property for less than the bank is owed on the mortgage.
A property enters pre-foreclosure after the owner misses a number of mortgage payments (usually three or more) and thus defaults on the loan secured by the property. At that point the lender files either a Notice of Default or Lis Pendens (pending lawsuit) against the borrower/owner.
During the pre-foreclosure period, the owner may be able to stop the foreclosure by paying off what is owed (known as curing or reinstating the loan), by selling the property or by transferring ownership of the property to the bank (known as a deed in lieu of foreclosure). If the owner does nothing to stop the foreclosure, the property will be sold at a public foreclosure auction at the end of the pre-foreclosure period. The length of the pre-foreclosure period is determined by state law.
Buying a property that is in pre-foreclosure involves creating a win-win-win scenario for everyone involved — the owner who gets out from under the property he can’t afford without damaging his credit, the lender who doesn’t want to be a property owner to begin with, and the buyer who purchases the property at a substantial discount.
Creating such a winning scenario takes persistence, careful research of profit potential and a willingness to walk away from deals that don’t make sense financially. But a properly structured pre-foreclosure purchase usually allows you to buy property at a discounted price.
Buying during pre-foreclosure also offers some distinct advantages over buying at other stages in the foreclosure process. Unlike buying at a public auction, you don’t have to produce a large amount of cash on the spot and you’re able to conduct a full inspection of the property before taking ownership. And unlike buying a bank-owned property, you don’t have to pad your offer price with the extra tens of thousands of dollars that it can cost a bank to completely foreclose and repossess a property.
There are currently over 330 pre-foreclosure properties listed in the Charleston area. If you'd like more details on these properties let me know.

Where did the all the money go?

2009-01-22T22:20:00.003-05:00

Many of you have asked why and how did we get to this place where banks are in trouble and markets messed up. Well I was going to write an article explaining all this, but instead found a video that explains better than I could. Any way, please take the time to watch the video if you really want to understand it better. The video is about 10 minutes long but it will help answer the question everyone has about why the Fed made funds available to the major banks and why the banks are not making those funds available to loan. http://www.mortgagesuccesssource.com/go/markmarket/