New GAR Financing Contingency Exhibit

April 20, 2011 by · Leave a Comment 

The Georgia Association of Realtors (GAR) has unveiled a new Financing Contingency Exhibit that has significant changes of which all realtors in GA need to be aware.  Reference the new Conventional Financing Contingency Exhibit, which is effective as of Jan 1, 2011.  Note that similar variations exist for both FHA and VA loans as well.  The exhibit is divided up into seven sections.  Here is what you need to know about each section:

1.  In this section, the buyer is given a limited number of days make loan application.  Getting the application going is of utmost importance and I suggest stating no more than 3-5 days in this blank.  What is new in this section is that the buyer is now required to give the seller evidence, through either a letter or a Good Faith Estimate, that they have made application.  The creation and delivery of this letter adds a new step to the process for both the loan officer and realtor alike.

2.  This section presents the listing agent with an incredible opportunity to influence where the buyer obtains their mortgage.  Here is a great opportunity to require the buyer to make application with the lender and loan officer you most trust.  May I suggest including something like the following in the blank provided:

       James Williamson / Shelter Mortgage Atlanta / 404-329-5595 / james.williamson@sheltermortgage.com/ Submit an online application at https://app.sheltermortgage.com

By including the loan officer’s contact info on this exhibit, you are not requiring the buyer to obtain their loan through this lender.  You are requiring them though to submit an application through this lender.  And, keep in mind, that good lenders do a good job of winning loans and will be able to convert a fair number of these opportunities.  That will certainly minimize how much you need to worry about the financing on those listings!

3.  Nothing new in this section.  The buyer is given a certain number of days to obtain loan approval before the Financing Contingency Exhibit is no longer valid.  I suggest including at least 20 days in this blank.

4.  This section requires another new letter to be provider by the loan officer.  The buyer is now obligated to deliver to the seller a letter confirming their loan approval.  This is super important because if the buyer fails to provide the seller with this letter, the seller may now terminate the agreement within seven days.  Yikes!  You can see that this is an important letter and that both the loan officer and the realtor need to be on this!

5.  This section presents a major change as the buyer is now authorizing the loan officer to talk to the listing agent or seller and inform them of the status of the loan application as well as specifics about the buyer’s ability to obtain the loan, what they have and have not provided thus far, and what conditions remain.  This is a huge change and will no doubt put many loan officers in a precarious position!

6.  Not much to be concerned about in this section.

7.  The appraisal contingency is now conveniently included in the financing contingency consolidating the forms into one.  By signing this form, both parties agree that if the appraisal comes in lower than the sales price, then the buyer can request within a certain number of days from the binding agreement date that the seller reduce the price to the appraised value.  I suggest including the same time period in this blank as the financing contingency in Section 3 (at least 20 days).  The seller is also given the right to accept the lower price and continue with the contract.  Thus, if both parties agree to the lower appraised value as the new price of the home, then the contract survives.

GAR’s new Financing Contingency Exhibit can be a great new tool for you to use in your business. Study up on it and be sure you know exactly how to use it.  Please let me know if you have any questions about this exhibit.

Will the Fed Raise Rates This Year?

April 20, 2011 by · Leave a Comment 

Big recent economic news is that both the European Central Bank (ECB) and China raised rates to fight inflation. Is the US next? Will the Fed increase rates this year? The answer to these questions is very murky at the moment and Fed members seem to be split on what they think should happen next.

Despite rising commodity prices, the majority of Fed officials appear to be in no rush to tighten monetary policy. According to the Fed Minutes released last week and in recent statements, the majority of Fed officials maintain the view that higher commodity prices are unlikely to raise future inflation expectations. To support the economic recovery, they believe that the Fed should move slowly in removing monetary stimulus. There is a more hawkish minority within the Fed though that is gaining support. Several Fed officials have recently suggested that the Fed may need to tighten monetary policy before the end of the year. Bond market investors appeared to agree with this minority as their concerns over the risk of higher inflation recently pushed mortgage rates a little higher. As the debate of whether to raise rates or not continues, investors will continue to keep a close eye on upcoming economic data. 

FHA MIP Factors Increase

April 20, 2011 by · 2 Comments 

Effective with FHA Case Numbers assigned on or after April 18th, FHA increased the Annual Mortgage Insurance Premium (MIP) by .25%.  The chart below shows the old and new MIP premiums as well as how much the monthly MIP will cost for a $200,000 base loan amount.

Old FHA MIP Factors

30 Year Fixed with min 3.5% down        = .90                $150

30 Year Fixed with 5% or more down     = .85                $142

15 Year Fixed with min 3.5% down        = .25                $42

15 Year Fixed with 5% or more down     = .00                $0

New FHA MIP Factors (as of Apr 18th)

30 Year Fixed with min 3.5% down        = 1.15                $192 (increase of $42/mo)

30 Year Fixed with 5% or more down     = 1.10                $183 (increase of $41/mo)

15 Year Fixed with min 3.5% down        = .50                  $83   (increase of $41/mo)

15 Year Fixed with 5% or more down     = .25                  $42   (increase of $42/mo)

There are no changes to the Up-front Mortgage Insurance Premium, which remains at 1%.

Mortgage Rates Improve on Inflation Data

April 20, 2011 by · Leave a Comment 

A lot of economic data has been released over the last week but there has been few surprises. The CPI and PPI inflation reports were the biggest economic releases last week and they both came in as expected. Combined with strong demand at the US Treasury auctions last week, the positive inflation news has led to a slight drop in mortgage rates this week.

In recent weeks, the primary influence for mortgage rates has shifted from global events in Japan and the Middle East to the outlook for inflation. The rate hikes in Europe and China two weeks ago were to fight inflation and they raised concerns that the Federal Reserve was falling behind with its lack of tightening, and mortgage rates moved higher. Last week’s tame inflation data eased those concerns, however, and mortgage rates improved. The March Consumer Price Index (CPI) rose 0.5% from February, matching the consensus forecast, and was 2.7% higher than one year ago. Core CPI, which excludes food and energy, increased at a low 1.2% annual rate, which was a little lower than expected.

Rising commodity prices have focused attention on the distinction between overall inflation levels and core inflation levels. Core inflation excludes the volatile food and energy components, so it is often viewed as a better indicator of short-term inflation trends by economists and Fed officials. While consumers certainly struggle with higher gas prices, longer-term inflation trends generally are more influenced by other factors such as wages and housing costs, which recently have been increasing very slowly. In short, stronger than expected demand for commodities and violence in the Middle East have pushed energy prices significantly higher, but Fed officials forecast that this represents a temporary increase in overall inflation levels. Commodity prices are not expected to climb at this pace indefinitely. If food and energy prices stabilize, then the gap between overall and core inflation levels will likely shrink, and this will be great news for the economy and mortgage rates alike!