Another thigh-slapping installment of Fun with MLS Photos!
Do the Bus People convey with the home? What about the Red Bull promo display cooler? Can my buyers keep that in case the fridge croaks?
Do you think the flashlight doggy is communicating with aliens or just has a skin allergy?
Is this on the wall of a tween living in the home or is this the listing agent’s car magnet?
Note: agent, if you take your own photos, do not take them after happy hour when you are lying on the ground sideways.
These people really went all out on staging.
Speaking of staging. 101: Blow up mattress in the living room? Check. Dirty sheets? Check. Lamp askew? Check.
Doesn’t it make you want to run over and shut it for them?
The caption under this bank-owned photo read “master bath/spa”.
I couldn’t resist. There is some lesson in here about how presentation matters in maximizing profitability…staging and professional photography…all that stuff too. These were just some of the MLS photos that, over time, made me laugh out loud and right click them to enjoy at a later date. It’s like Realtor® Geek-Speak.
Did you ever wonder why banks seem to approve so few loan modifications and often just foreclose instead? For any home owner, that seems ludicrous. Any rational person would think, “Why can’t they just fix my adjustable rate mortgage at today’s rate and keep me in my home and paying my mortgage? Why would they want to risk having me stop making my payments and incur all those legal fees associated with a foreclosure? Aren’t there government programs that incentivize banks to work with home owners to modify loans?” But you are a rational person, not an insider at the bank. It’s whole different story if you know which rock to turn over.
The cold, hard truth is banks may make more money when they foreclose on a house than when they modify its loan. At this point, it becomes relevant to distinguish between a loan servicer and the investor that actually owns the debt. For example, Bank of America may collect the monthly payments but not own the actual loan. B of A is often only the servicer for an investor who coughed up the cash (or bought the mortgage backed security) for the actual loan amount. Loan servicers (B of A in this example) may make more money when the property forecloses. Being professional paper-pushers, they slap delinquent accounts with late fees, legal fees and other random “processing” fees. If the home forecloses, those back fees must be paid because the servicer is pretty high on the food chain of lien holders. If a loan is modified, often the servicer must waive those junk fees or roll them into the modification agreement. If the fees are rolled into the loan, the servicer gets paid back over the course of 30 years as the borrower pays off their mortgage. The servicer who is not only processing your monthly payments but also handling all your loan modification paperwork asks themselves: “Would I like all my money paid in full soon or potentially have to waive all my fees to process this modification?” To take it a step further, if the investor agrees to modify the loan from 6% to 5% interest rate, the servicer loses money over the long run too. These are the people processing the loan modification applications. No wonder they “lose” so much paperwork from well-intentioned borrowers.
To answer the question “Aren’t there government programs that incentivize banks to work with home owners to modify loans?”…well yes. The Home Affordable Program (HAMP), birthday March 2009, offers banks between $500 and $1500 to work out a loan modification with home owners. Let’s do the math. Thousands of dollars’ worth of junk fees waived + a reduced interest rate = let’s just say it’s more than $500 – $1500. I’m pretty sure servicers can do that math. (Source: HAMP Compensation Matrix, updated Nov 9, 2010).
Let’s consider the investor who is neatly tucked behind the servicer. The servicer is out in front taking all the heat from consumers and the press because they think that servicer actually owns the loans they process payments for. That investor isn’t stupid. They insured the loan on the property in the first place. (Think: AIG). When the house forecloses, it’s very likely the investor is paid in full by their handy insurance policy. That’s why we buy insurance, right? Then when that house goes up for sale on the courthouse steps, that investor (or sometimes the servicer) sends out their people to “buy it back”, so it becomes a “bank-owned property”. If there is no one else bidding on the home, they buy it back well under market value. Then they list the property as an REO / bank-owned property and sell it. As the owner/seller, they bank the profit. Then…this is the gross part…if the home owner refinanced that loan at any point, the investor can also sell the borrower’s “debt forgiveness” to debt buyers for pennies on the dollar. See: http://en.wikipedia.org/wiki/Recourse_debt They can sell the right to collect on that “shortfall” to some vultures for a couple thousand dollars that then have the right to pursue the unfortunate borrower until the day they die. I am not being dramatic here. There is literally no statute of limitations on how long the debt buyer (aka collection agency) has to pursue that borrower. The debt buyer who paid $1000 for the loan then has a tremendous opportunity to make a killing trying to collect as much as they can wring out of the borrower. The grand finale: the investor reports the re-financed loan’s shortfall to the IRS as income to the borrower. Let’s do the math. Insurance pay-out + profit from selling the house as a bank owned property + a little cash on the back end to peddle it to a debt buyer = let’s just say it’s more than $500 to $1500. I’m pretty sure the investors, like their buddies on the servicing end, can do that math.
The media rages: “Why isn’t the HAMP program helping more people stay in their homes? It’s an utter failure! It doesn’t make sense!” Right, it doesn’t make sense to the banks either. Can you imagine what the government would have to pony up to compete with the profitability equation the banks enjoy when they foreclose on a house? If people thought the TARP bailout was over the top, it would pale in comparison.
Just a few ideas about why the banks (servicers and investors) might choose to foreclose on a home rather than modify the loan. My guess is this is just the tip of the iceberg.
As a Realtor®, I find myself having some pretty quirky conversations about credit scores with my clients. I get to tell stories that sound like old wives’ tales and recipes. For example: “I had some clients who were so excited about buying their first home, they went running out and bought a whole new bedroom set. They fell into the ‘No Interest for 3 Years!!!’ trap and financed their new ‘free’ furniture. They almost lost that new home over coveting a new bed.” What? Yep, your lender pulls your credit again just before they ship out the piles of loan documents for you to sign. They want to see if anyone went out and bought a new car, stopped paying their credit cards or…bought a bed.
As you can see from the lovely pie chart depicted above, there are 5 ingredients mashed up into your FICO score dessert. Take, for example, the bedtime story. When my eager young buyers went to Store Credit A-Go-Go (not the real vendor’s name, the real vendor is – uh – bankrupt), they took advantage of the in-store credit option. That carves up that “15% Length of Credit History” piece and mixes it in with the “10% New Credit” ingredients of the pie. 25% of their credit score was hanging in the balance. Since they were only a few points above the threshold required for their loan qualifications, they dropped just enough to fall out of eligibility for their loan program. No dollop of whipped cream on that serving. Their lender barely had time to switch them into a different loan program so they didn’t lose their first home. They ended up paying a higher interest rate because they were deemed higher risk borrowers.
Or my funky ditty about my buyer’s new computer… “I had this buyer once who saw an ad for the biggest, baddest computer known to mankind with monthly payments of only $24 per month (on approved – wait for it – credit)”. Unlike the first scenario, she had a FICO score with plenty of room to move. Instead, she served up a heaping slice of “30% The Amounts You Owe”. When her lender pulled her credit a few days before closing, her total amount owed hopped right out of the mixing bowl into a splat on the floor. You see, boys and girls, even if you only pay $24 a month for your fancy abacus, your score says you owe the whole $3000 now. With her house on the line, she coughed up the $3000 to bring her debt ratio back into the acceptable range required by her loan’s underwriting standards.
Then there’s the new refrigerator another buyer decided she wanted to get from Lowe’s because she could get 10% off if she put it on her new, shiny Lowe’s card. That is a cholesterol- busting combo of “10% New Credit” + “10% Types of Credit” + “30% The Amounts You Owe” + “15% Length of Credit History”. Ouch.
I am chock-full of Betty Crocker greatest hits of close-call credit nightmares. Too bad I get to be the wet blanket all over my buyers’ consumer aspirations while in escrow. “Don’t buy anything. Don’t close any credit card accounts. Don’t move a muscle.”
Fair Isaac Corporation (FICO) launched a consumer education website. (www.scoreinfo.org) They came up with that fancy pie chart showing the breakdown of the factors under consideration when reporting agencies whip up your credit scores. This is not your mama’s apple pie. You should check out the recipe.
I was recently reviewing multiple offers for a listing. I research the buyer, their agent,
their lender and loan before presenting an offer to my sellers. I come prepared to give
a well-rounded picture of the strength and potential liabilities of each scenario. In a
multiple offer situation offering price does not exclusively win the day. Secondary
considerations come into play. The goal in selling a home is not opening an escrow
but in closing one.
What other factors come into play when considering an offer and comparing it to others?
There is the low hanging fruit: offering price, length of escrow, requests for the seller to
pay closing costs, down payment and type of loan. What if all those things are more or
less equal? Or what if the seller can counter multiple offers so they become equal?
Secondary contract terms can tell a lot about the strength of the offer. For example:
how much earnest money is the buyer bringing in? That indicates how much skin
the buyer is willing to have in the game or how much money they have in their bank
account depending on how you look at it. Is their pre-approval letter with a loan broker
or a direct lender that you can verify is actually closing loans? Then there is the basic
question of “is the contract filled out correctly?” Why does this matter? Because it
tells you a lot about the agent who wrote it. The buyer’s agent is their advisor. They
recommend lenders to pre-approve with, how much to offer, how to interpret the seller’s
disclosures, who to hire to complete inspections: how to negotiate every last item
throughout the marriage of the transaction. If this agent is steering the buyer ship how do
we decide if they are a credible captain?
The buyers may not have interviewed multiple agents before settling on one…so my
sellers and I need to look into the matter ourselves. The no-brainer: is their real estate
license valid and current? This basic question is one of the reasons the agent’s DRE
license number is required on all contracts and marketing materials. Second, does this
agent have any restrictions on their license (read: hand slaps) or any pending complaints
or judgments? Who is their broker? What is that broker’s reputation? Agents can look
up another agent’s production to see what homes they have sold, where, with whom and
for how much.
Back to my recent experience in “spying” for my sellers. The offers were different but
the seller would counter them so they’d end up the same. She needed to take in the whole
picture to decide who had the best potential to actually close the sale. This is when I
summarized what I learned about the buyer’s agents. One agent was a “part time realtor”
by his own definition…he said he “does real estate on weekends and summer breaks”
because he is a teacher. He explained this to me when I asked (in a very polite manner)
why he hadn’t closed any sales in the 4 years he had been licensed. One agent was his
own broker and also happened to be doing the buyer’s loan too. He wouldn’t allow his
buyer to pre-approve with another lender. I guess his double-dipping paycheck was too
important to risk that. Don’t even get me started on the quality of work done by someone
straddling two very complex roles of both loan and real estate broker. One realtor was
brand new and had completed just one sale. But in researching her I discovered that
her more seasoned team agent had worked with a realtor I know well so I called for a
reference. What she told me confirmed my initial impression of the newer agent…high
quality, smart and committed to going the extra mile. Everyone has a first and a second
transaction. You need to start somewhere. The fourth buyer’s agent was a broker who
had been licensed for many years but had not closed any sales since July 2008. With all
the changes in the market since then, could they anticipate speed bumps on behalf of their
buyer to avoid the deal falling apart? One in five escrows currently falls through so that’s
a valid question. Lost market time can cost my seller money.
We discussed the offers, the buyers, their loans, their agents and my seller’s priorities. In
guiding my seller through the totality of the strength of each offer, what I learned about
those buyer’s agents became relevant. The depth and experience (and yes, sometimes
agenda) of the buyer’s agent often explains why the buyer’s offer is what it is. The
buyer’s agent may not be the reason a seller should accept or decline a particular offer,
but it’s important to know who you will be working with. It’s not a popularity contest, it’s
a business transaction. It’s best to see the spike strips before they hit your tires. As Edna
Mode from The Incredibles says “Luck favors the prepared”.
Sellers shop for realtors. Buyers shop for houses. Buyer beware! Not all agents are
created equal. Your agent may be compensated by the seller but hire them like you are
paying them out of your kid’s college account. Because that’s what it can cost you. You
can pay too much for your house or miss opportunities to get the most for yourself out
of the sale – like closing costs paid for, cheaper affiliated services or better loan terms to
name a few. And in some cases you can miss the boat altogether.