Local home sales, mortgages, appraisals operations enter brave new world

By now everyone understands the housing crisis was the epicenter of the recession that is affecting virtually every aspect of life in the U.S. To address the perceived causes of the housing crisis, a major overhaul of how homes are bought and sold now has come down from the federal government.

Locally, every aspect of the housing industry is adjusting to this brave new world.

To revive the housing industry – also credited with putting St. Charles County on the map in the past 10 years – the St. Charles County Association of Realtors has been aggressively marketing first-time homebuyers’ tax incentive initiatives.

Now, a subsidiary of the Economic Development Center (EDC), HOME St. Charles, is teaming up with First Bank in a joint funding venture – the Welcome Home Incentive Program. In this, $1,000 in closing cost assistance is provided to first-time homebuyers and new residents to St. Charles County who are purchasing a newly constructed home here.

While HOME St. Charles provides $500 per closing, the program is available to any banker, builder or mortgage broker to provide the $500 match.

First Bank was quick to sign on, inking the deal at the end of June, according to First Bank’s Residential Mortgage Consultant Patrick Kane.

With all these incentives aimed at first-time homebuyers, what affect is that having on the home sales and loan market?

“The majority of home purchases now are first time homebuyers or those who haven’t owned a home in the last three years,” Kane said.

“As part of our broader economic solutions campaign, the Welcome Home Incentive Program is designed to help attract new residents, sell new homes and impact local jobs in St. Charles County,” said EDC President Greg Prestemon. “We also hope this effort will serve as a challenge to other community groups, businesses and organizations to encourage them to consider how they can refocus resources and programs to have an immediate and positive impact on the local economy.”

Rising to the challenge is the Realtors Association. Public Relations Task Force Chair Merle Schneider said first-time homebuyers are indeed significant. The best scenario is to catch a home in pre-foreclosure, get a low asking price and with the incentive programs, structure an affordable loan for the first-timer, Schneider said. “This helps out the seller who’s in trouble, the bank who has the loan and doesn’t want to foreclose and the buyer looking for affordable housing.

“But these incentive programs have a deadline,” Schneider said. “With this tax incentive, it’s ending on Nov. 30. Now, with the process more complicated, if today you were to make the decision to buy, then started shopping the market and getting pre-approved (for a loan), find the dream home, make an offer, the counter (offer) comes back, you finally settle on a price, then make the loan application, get the appraisal, get all the documents in to the lender, by the time you get to the closing table we’re talking October, November.

“This is the last call if you want to get the benefit of all the incentives that are out there,” Schneider said.

Mike Novak, owner of Alternative Mortgage Solutions, agreed. While there have been a number of systemic changes throughout the home sales and financing industry, the appraisal process has changed most. Rather than working with 10 or 12 different appraisers on a regular basis, an appraiser pool has been created, run by a third party. The pool is created and assignments are made according to positioning on the list.

“A national company cuts the order, sends it down to the local guy next on the list. …the appraiser is a blind order-taker,” Novak said. All this takes extra time and adds a bit more to the appraiser’s fee. “And, the national company takes their cut now,” Novak said. “The consumers are getting less service and paying more for it.”

The federal government blamed a ‘too cozy relationship’ between mortgage consultants and brokers with their appraisers. Kane said, “Yeah, there was some of that. There were some bad players. That wasn’t the majority.”

But now the majority has to play by the rules aimed at the few unethical operators in the field, costing today’s loan applicant more time and money.

Novak said his industry association has been advocating for individually licensed mortgage brokers, which, had that occurred 10 years ago as he recommended, those unhealthy collaborations between unethical mortgage brokers and appraisers could have been headed off.

“The industry has accepted responsibility,” Novak said. “It (the housing crisis) was at every level.”

Again, Kane agreed. “I’ve been in this business 18 years,” he said. For the first half of his career loan practices were conservative. Banks’ loan departments performed their due diligence; loan applicants proved their ability to repay the loans. Then, between 1994 and 2004, the way lending institutions were doing business changed precipitously.

“I called this housing crisis six, seven years ago,” Kane said. “It all changed in every aspect of the business from top to bottom, something changed institutionally. If you had a pulse, you got a loan.”

But industry professionals, from realtors to lenders, are adjusting to the new terrain.

“It’s changed and we’ve gotten up to speed to help our clients achieve their goals,” Schneider said. “There’s still a good inventory of homes out there but the door is starting to close. We’re seeing multiple offers on the same property – that wasn’t happening a few months ago. Closed sales have doubled in the last six months.”

But home prices are lower. Schneider said, “Prices were artificially high. It may seem like your house lost $20,000 in value. It was, actually, overvalued. Accept that and if you’re wanting to downsize, waiting a year isn’t changing the outcome. Interest rates are low now so you’re going to get a good deal on your loan.”

Kane said that from his view, the interest rates are indeed a driving factor. When rates dropped at the end of first quarter, residential home loan activity resulted at the end of April through the first of June. Then, rates inched up and loan applications dropped off.

The Realtor Association’s pending home sales chart reflects Kane’s contention. A leading indicator, pending sales numbers, show contracts written but not yet closed. In April, there were 411 among Association members. In May, there were 461; for June – 469. That is 40 more than June 2008.

“They’re (interest rates) coming back down again,” Kane said. “I just don’t know for how long.”

Novak urges prospective homebuyers to ask good questions of their realtor and loan advisors. “Get pre-approved and then start looking,” he said. “If you’re concerned about something, ask a professional. You want an opinion from someone you can depend on who doesn’t have an ulterior motive.”

He suggests asking for a referral from friends, work associates, relatives, neighbors, your accountant or attorney. “They are our best advertisement,” he said.

Kane and Novak said that by the time the desired home is located, the time to get to the closing table is about 30 to 45 days. That leaves finding the right realtor who will listen, pre-shop the market and help find the right home for your family and budget.

But be warned, the days of buying a $350,000 home with a $50,000 income are over.

Novak’s rule of thumb: The price of the home with interest, insurance and taxes should not be more than 28 percent of gross income. “Total debt should not exceed 36 percent of income,” he added. “That’s total debt: home, car and student loans, credit cards, personal debt.”