Week of April 2nd: Economic Roundup

April 5, 2012 by · Leave a Comment 

Mortgage rates are on a bit of a recent roller-coaster ride and mostly due to shifting expectations of future Fed policy.  The volatility began on March 13 following a Fed announcement as investors lowered their expectations for additional quantitative easing (QE3).  Last week, however, comments from Fed Chief Bernanke caused investors to raise their expectations for future QE3 and mortgage rates dropped.  Yesterday, the Minutes from the recent Fed meeting were revealed and investors did not like them and have again lowered their expectations for QE3.  The Minutes suggest that most Fed officials would support QE3 only if the economy performs much more poorly than expected.  Who knows where we go from here but one thing seems probable, further volatility.

The biggest economic report due out this week is Friday’s Employment Report.  As usual, this data on the number of jobs, the Unemployment Rate, and wage inflation will be the most highly anticipated economic data of the month.

The 6 Most Common Home Inspection Problems

April 5, 2012 by · Leave a Comment 

Foreclosures continue to dominate the market.  This creates incredible buying opportunities, however, because most of these properties are sold “as-is”, buyers must be very cautious and do proper due diligence when purchasing a foreclosure.  A good home inspection becomes a critical tool for a buyer during this process.  According to HGTV, here are the six most common problems uncovered through the home inspection process and the main issues that a home buyer needs to investigate before buying a foreclosure:

1. Water problems.  Leaky pipes, unseen leaks behind siding or in roofs, and water intrusion into basements and attics are the #1 problem uncovered on home inspections.  These are serious issues that can be quite costly to fix.  In 36% of homes inspected, poor grading and drainage were observed, which often times is the source of major water problems.

2. Roofing.  The roof is a difficult part of the house to inspect and inspectors don’t always climb atop roofs when preparing the home inspection report and much can be missed from the ground.  Roofs don’t last forever and they will begin to show diminishing performance over time.  Some roofs have also been improperly installed leaving gaps for water, rodents, and insects to enter the home.  Make sure the roof is safe and effective before pulling the trigger on a foreclosure.

3. Electrical wiring.  Incorrect or undersized wiring can be disastrous and dangerous for home owners.  Older homes were never wired to handle the amount of appliances, electronics, and modern conveniences that they must today, and when overloaded, have the potential for fire.  Another major problem seen by inspectors is do-it-yourself projects that result in overloaded circuits and exposed wiring!

4. Plumbing.  Unfortunately, the most common places for plumbing leaks are behind walls, under floors, and in connections between pipes.  In addition, the water often runs down walls and often collects in places nowhere near the true source of the leak!  Thus, fixing these leaks can be quite problematic and expensive.  It can also lead to consequences like mold damage or even pests like carpenter ants.

5. Heating and Cooling.  An inspector will run a furnace and air conditioner through a cycle to ensure they are working but home buyers should also investigate how much the longer the units will last.  If they need replacing any time soon, then this cost should be built into the projected cost of the home.

6. Decks.  A beautiful outdoor space can actually be covertly hiding structural problems or poor workmanship.  Investigate who built the deck and when.  If the home owner built the deck be extra careful with the due diligence.  Make sure the deck is structurally sound and safe.

There are fantastic deals available in the market place today, but it is more important than ever that buyers do proper due diligence to make sure the money saved does not disappear in costly repairs.

FHA Underwriting Changes

April 5, 2012 by · Leave a Comment 

FHA made a number of key underwriting changes this week, some good, some bad.  Below is a brief summary of the most important changes made:

  • For self-employed borrowers, a year-to-date Profit & Loss Statement (P&L) and Balance Sheet are required if three months have elapsed since date of most recent filed and submitted tax returns.  In addition, if income from the P&L is being used to increase the amount of qualifying income for the borrower, then the P&L must be audited by a CPA.  These are much stricter requirements for self-employed borrowers.
  • “Disputed” items showing on a borrower’s credit report will not be as much of an issue as in the past and don’t have to be addressed if they are less than $1000 and more than two years old.
  • Collections showing on a borrower’s credit report also won’t be too much of an issue up to a certain degree.  If the total outstanding balance of all collection accounts is < $1,000, the borrower is not required to pay these off.  However, if the total outstanding balance of all collection accounts is > $1,000, the borrower must either pay off the collection accounts in full or show a payment arrangement with at least three months of timely payments having been made (this payment would have to be counted in debt ratio as well).  Paying down collection balances to reduce the balance under $1,000 is not allowed.   
  • Judgments showing on a borrower’s credit report have to be paid in full unless a payment arrangement is in place with at least three months of timely payments can be documented.  Also, tax liens always have to be paid in full.