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Delayed Closing? Maybe It's You

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | November 6th, 2015

Closing on a mortgage became easier in October. For borrowers, at least.

As of Oct. 3, TRID forms are the law of the land. TRID stands for TILA-RESPA Integrated Disclosure -- with TILA standing for the Truth In Lending Act, and RESPA for the Real Estate Settlement Procedures Act -- and it means slightly fewer procedural hoops to jump through.

Borrowers will find that four key mortgage documents have been reduced to two: The new Loan Estimate -- given to you when your loan application is approved -- has now replaced the old Good Faith Estimate and initial Truth-in-Lending statement, and the new Closing Disclosure -- given to you three days prior to closing -- replaces the old HUD-1 Settlement Statement and the final Truth-in-Lending statement.

Now you will be able to clearly see exactly what you'll be paying in interest, mortgage insurance and other loan costs. You'll also be told exactly how much money you'll have to bring to the table, so there will be no surprises. And you'll be able to make sure your lender hasn't jacked up the charges from what you were originally quoted.

For now, the pressure's on lenders -- many of whom dragged their feet and pled software problems during implementation -- to get the forms done right. But that doesn't mean consumers can't gum up the works or force unnecessary delays.

For starters, as a borrower, you should know what you want in terms of loan products. The Consumer Financial Protection Bureau (CFPB) offers a suite of online tools (cfpb.gov) to help you learn about your options. Discuss your choices thoroughly with your loan officer.

Once you settle on the best mortgage for your situation and submit your application, you should receive a Loan Estimate that details the terms of the mortgage within three business days.

It's important to stick with your choice of loan -- say, a 30-year, fixed-rate mortgage over one with an adjustable rate. If you change your mind five days before closing, the whole process must start all over again, and that will push back the closing.

At the same time, Melissa Kozicki of Mortgage Builder, a Michigan-based mortgage software company, says you shouldn't feel that you have to go forward with any step in the process if you have a legitimate concern.

"Borrowers should never feel obligated to proceed," she says, but should "understand that changes could cause delays."

Ask the lender what should happen next, and when. Lenders are now responsible for the closing and the accuracy of the final closing documents -- not title companies or escrow agents -- and there are now definitive guidelines that must be followed.

Previously, the title company would prepare the closing papers after going back and forth with the lender on various fees. Then the papers would be sent to the lender for a "final blessing," says Dave Jacobin, president of 1st Mariner Mortgage in Baltimore, "but the lender still did not own them."

Now, though, Jacobin believes the new rules "will make settlements run smoother with less confusion and error. The change in regulation places more responsibility and burden on the lender, but the increased clarity of the transaction benefits everyone in the long run."

Still, you can slow the process if you don't quickly send in all the documents -- bank statements, tax returns, etc. -- needed to approve your loan. This has always been the case, but it used to be that there was a window, and it wasn't a big deal if borrowers were slow. Now, says John Meussner of California's Mason-McDuffie Mortgage, it is "imperative" that you communicate with the lender and "return requested documents immediately."

"You'd better be ready to get your lender what they need, when they need it," he advises.

As settlement day approaches, you should receive a Closing Disclosure, which is a summary of the final terms of the loan. You should compare the disclosure form with the loan estimate you were given when you first applied for your mortgage.

In the past, borrowers wouldn't see the final numbers until they sat down at the closing table. That gave them little or no time to check the good-faith estimate against the final HUD-1 settlement sheet, which often changed dramatically, or even ask questions. If borrowers were uncomfortable with the final figures or couldn't get answers, they often felt railroaded to continue. After all, the moving van was packed and the kids were waiting in the car.

Now, you have the opportunity to thoroughly check the final numbers before you get to the closing. If the figures have changed from what you were told originally, you have time to ask questions and find out why.

Finally, Ted Rood of MB Financial Bank in St. Louis warns not to change your closing date at the last minute.

"Don't set the closing for a Monday, then decide to take a long weekend and reset the date for Tuesday," he says. That would require the lender to rework the Closing Disclosure, and that means at least a three-day delay.

Above all, though, realize that you can stop the process anytime you like. You always could, but now, says Kozicki, "you have a louder voice. ... You do not have to sign a contract just because you signed an application or other documents."

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If You Have an Open House, Make It an Event

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | October 30th, 2015

Is the good old-fashioned open house still a powerful marketing tool, or is it now pointless in this age of electronic media?

It's a question that's debated often among real estate agents. Some love open houses, some hate them. But many still use them, if not to snag a buyer, then at least to hook new clients.

According to a recent poll by the trade magazine Real Estate, agents are almost evenly divided about open houses, with 44 percent in favor and 56 percent against. At the same time, though, 62 percent -- almost two-thirds -- host one to three open houses every month. Only 24 percent won't sit in a house on a Saturday or Sunday, waiting and hoping for a buyer.

If you are going to hold an open house, you should make sure your agent doesn't simply stick a sign in the front yard and hope prospects show up. Rather, he or she should make it an event, like the folks at Chicago's Kuehl Group brokerage do.

"We take open houses seriously and consider them an important initiative in our marketing strategy," broker-owner MaryEllen Kuehl posted on the ActiveRain real estate site recently.

Some sellers don't like open houses. After all, selling a house is stressful enough without adding a weekend or two where they have to leave for several hours, kids and pets in tow, allowing anyone and everyone to walk through their pristine palaces.

But Kuehl said in an interview that once she lays out her plan, most of her clients agree to give it a shot. "They understand they need to do some work, too," she said. "They realize the benefit. The more qualified people who see their house, the more quickly it will sell."

To stage an open house, Kuehl says preparation is key, and that it should start months in advance. Here are some of the steps her agents take to make open houses a success.

-- In selecting the day and time for your open house, your agent should do some research into what's going on in your area to minimize conflicts and optimize attendance. If there's a big ball game on Saturday or Sunday, for example, skip that weekend and pick one where there's relatively little going on.

-- Advertising is key. The Kuehl Group sends postcards to the neighbors, because often a neighbor will know someone who is in the market for a place close to theirs. For example, a nurse I know just sold her house to her next-door neighbor's father without having to do any marketing.

Kuehl Group agents also send email announcements to every agent and broker in the Chicago area, as well as to her own agents' private mailing lists. The client's sphere of influence is also notified via social media, and the event is publicized on specialized open house websites.

-- "The online marketing should be complete and flawless," says Kuehl. Social media is important, she says, since "most visitors will check out a house online" before dropping by.

Toward that end, she hires a professional photographer to take pictures, which she then puts on a custom site for each seller's home. These individualized sites feature virtual tours and the day and time of the open house. The company goes so far as buying targeted ads on Facebook to run the 24 hours prior to the event.

-- Next, Kuehl agents help their clients with staging the property so it shows as well as possible. They make suggestions on arranging furniture, presenting each room's highlights, removing personal items and setting up lighting.

-- On the day of the open house, directional signs are placed at every point of entry into the neighborhood. The sign placed in front of the house is adorned somehow, often with balloons or flags. If the weather is inclement, a sign at the front door asks visitors to remove their shoes, with "footies" provided to cover stocking feet.

To keep the home fresh in visitors' minds, Kuehl agents also offer custom water bottles with pictures of the house on the label.

-- For a good first impression, sellers are asked to mow their lawns just prior to the event. It also is suggested that they freshen flowerbeds and put down a new doormat.

-- Just before the anointed hour, agents put some cookies in the oven or boil lemons on the stove. Plan B: scented candles. "The wafting smells are so inviting," Kuehl says.

Her agents disdain putting out food, though. "Sellers work too hard to keep their places clean to have crumbs all over the place," Kuehl explains. Food is only for open houses held for local brokers agents, and even then, she doesn't think it's really necessary: "Some just come for the food."

As you can see, it's not easy to pull off a top-notch open house. But it could be well worth the trouble if the house sells quickly, and for top dollar.

Always, the Chicagoland broker advises, the goal should be "to make sure homes show like a shiny new dime and bring in the best possible pool of prospective buyers. We know buyers are picturing themselves living in the house as they tour, and we do everything in our power to make it easy for them."

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Flood Pool Is Underwater

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | October 23rd, 2015

Consumers looking for coastal real estate quickly learn the difference between an "ocean peek" unit and an "ocean view." A "peek" apartment is on the lower floors and offers only an obstructed view of the water, so it is less valuable. But the peek can sometimes become a view, and the unit's value may not be enhanced at all. In fact, quite the contrary.

What we're talking about, of course, is what can happen if your property is unlucky enough to take a hit from Mother Nature in the form of a hurricane. The results can be pretty devastating.

Take the case of a mid-Florida building about 50 yards from the Atlantic Ocean, where a friend (who asked to remain nameless) owns an apartment. When struck full-on by two hurricanes a few weeks apart in 2004 -- Frances and then Jeanne -- his unit and others were heavily damaged and the building's lobby became a swimming pool.

While you may believe the chances of a hurricane, tornado or other natural disaster are slim, their effects are being felt in the government's National Flood Insurance Program (NFIP). Even the general rise in sea level is having an impact.

The insurance pool, if you will pardon the pun, is already underwater -- and projected to become even more so.

In fact, if you don't have flood insurance, or not enough to satisfy the NFIP requirements, Uncle Sam allows lenders to place expensive flood insurance on properties on which they hold the mortgage. And guess what? Lenders don't pay the premiums; you do -- and the rates are often much higher than if you purchased coverage yourself.

The New York State Department of Financial Services has a short and sweet explanation of the process:

"Force-placed insurance, also known as creditor-placed, lender-placed or collateral protection insurance, is an insurance policy placed by a lender, bank or loan servicer on a home when the property owners' own insurance is canceled, has lapsed or is deemed insufficient and the borrower does not secure a replacement policy. This insurance allows the lender to protect its financial interest in the property."

New York regulators have some direct experience with the problem of rapidly rising sea levels. One of the buildings where it has offices along the riverfront in Manhattan's Battery Park was extensively flooded by Hurricane Sandy.

But as it turns out, rising water in the Battery Park area has been tracked for a long time. In the last century, the level of the water there has risen nearly 12 inches, according to the National Oceanic and Atmospheric Administration. While that doesn't sound like much, an extra foot of water flooding your property adds geometrically to a storm's destruction.

Flood damage, which can run into the tens of the thousands of dollars, isn't always caused by storms. Sometimes the cause is a broken pipe, or a major rain storm. And who pays for the necessary repairs depends on whether or not you have flood coverage, which isn't included in your homeowner's policy.

With the passage of the Biggert-Waters Flood Insurance Reform Act in 2012, Congress decided that the federal flood insurance program should be actuarially sound, meaning the premiums collected should be enough to pay for the insurance claims the program paid out.

The NFIP's current deficit has been estimated at anywhere between $24 billion and $28 billion. And that's only going to increase. But shortly after the Biggert bill went into effect, consumers began to squawk when their premiums rose, some to as much as $28,000 a year, according to the National Association of Realtors.

When the screaming became loud enough, the mortgage and real estate businesses lobbied successfully to obtain relief from big jumps in premiums. And just two years after lawmakers passed Biggert, they backtracked a bit by passing the Homeowner Flood Insurance Affordability Act, which set limits on how much premiums could increase in any one year.

Now, premium increases are limited to 25 percent annually until the full actuarial rate is reached. People who buy existing homes or condos fall under the same formula. But buyers of brand-new units in flood-prone areas must pay the full cost from the get-go.

Even then, the flood insurance program may never be self-sustaining.

A study commissioned by the Federal Emergency Management Agency (FEMA) has some pretty stark projections on the increase in the number of flood insurance policies and the cost of claims in this century. It attributes 30 percent of the increases to added population and 70 percent to climate change.

"Under the assumption of a fixed shoreline, the total number of NFIP policies may increase by approximately 100 percent by the year 2100, with the number of riverine policies increasing by about 80 percent and the number of coastal policies increasing by as much as 130 percent," the FEMA study said. "The greater number of coastal policies is the result of the enlargement of the SFHA (Special Flood Hazard Area) caused by sea level rise."

In addition, according to the report, the average loss cost per policy could increase 50 percent and the average premium rise by 40 percent.

Information on the NFIP is available at FloodSmart.gov.

(Freelance writer Mark Fogarty contributed to this report.)

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