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The New HUD-1

January 28, 2010

Yesterday, we talked about the new Good Faith Estimate.  One of the biggest changes there was the introduction of tolerances – what fees can vary from estimate to closing, and by what amount.  We’ll see that concept again in this, the HUD-1 Settlement Statement.

The HUD-1 is a document you get when you go to sign your loan and closing documents at the escrow office.  It details out settlement costs and credits.  And now, it calculates the difference between costs in your estimate and actual costs.

Since every transaction is different, going through each section of the HUD-1 would be fairly difficult, since who pays for what and how much varies widely.  Your escrow officer will review yours with you at closing.  In light of that, we’re going to make a quick review of some of the changes you’ll see, and then look closely at the tolerance section.  That’s the section where they look at the difference between estimated and actual costs.

There’s a sample copy of a HUD-1 here.

Page 1 is largely the same, so we won’t review it other than to point out one thing.  In Arizona, using the AAR purchase contract, it is typical for a seller to provide a title insurance policy to the buyer, called an Owner’s Title policy.  It is default in our contract language here.  However, these were charges estimated by the lender in the Good Faith Estimate, and the escrow officer has to account for that.

In order to meet with the new disclosure rules, the Owner’s Title policy is shown as a charge to the buyer, here in the 1100 section of page 2.  Those two columns at the end?  The one on the left is the Buyer’s side, the one on the right is the Seller’s side.  So here we see a charge to the buyer of $1285 on line 1103:

And then on the first page, that gets reconciled.  The 200 section on the left hand side below lists credits given to the buyer.  So on line 204 there is a $1285 credit to the buyer – the buyer has been charged and credited, so that’s a sum of zero to the buyer.  But now the seller has to pay for it, so you see a charge on line 506 to the seller for that policy.

(For those of you counting at home, that’s 3 times the owner’s title policy gets listed on the HUD, in order to charge it to the proper person…)

With the new HUD-1, there’s a concept called “inside” and “outside” the column that – quite honestly – is more detail than is worth getting into here.  On that very first screen shot, lines 1107 and 1008, the agent and underwriter portions of the insurance premiums?  Those are “outside” the column.  Sometimes, you’ll see charges outside the column that are just disclosure items, like those two lines.  Sometimes those items are added up and put “inside” the column – placed on either the buyer or seller’s side columns.  Because those things vary so much by section, we’re just going to leave that be.  It’s too much for this kind of format.

Let’s skip to page 3, which is completely new to the HUD-1.

This is the tolerances section.  Remember from the good faith estimate that some charges cannot increase, some can change by 10%, and some can change completely?  This is where they compare the estimated charges to the actual charges.

This first section are the charges that were not allowed to increase.  You see the description of the charge on the left, the value from the Good Faith Estimate, and then the actual value as listed on the previous pages of the HUD-1.  In the example below, the origination charge actually went down a little bit.  That’s okay.  These costs can decrease, they just can’t increase.

The next bucket of charges can’t increase more than 10%.  Below, you see some of the costs changed a little, and the title cost was rather poorly estimated!  Each of the columns is added, and then the percent change is calculated.  In the example below, you see there was a 9% change – within tolerance.

So what would happen if that 10% tolerance was exceeded?  Or if those costs in the previous section went up instead of down?  Well, the lender is held responsible for that, and has to fix all tolerance violations by reimbursing the Buyer.  They’ve got up to 30 days to send that refund.

Beware that tolerance violations will not delay closing.  You will pay the higher amount and get a refund sent to you within 30 days.

The last section of charges are those that can change – these are mostly third party services that the buyer selected, or costs related to the interest rate.  These items are basically impossible for a lender to predict accurately on the GFE.

Lastly, the HUD-1 reviews the terms of the loan, similarly to the GFE.  Please note that your escrow officer fills out this section but is not required to fact check it against the GFE. 

So there you have it!  The new HUD-1. 

The New Good Faith Estimate – GFE

January 27, 2010

Yesterday, we talked about the RESPA reform that took effect January 2010.  That change means you’ll be seeing a new Good Faith Estimate when you apply for a home loan.

A Good Faith Estimate – or GFE – is a disclosure document.  It gives you an estimate of the charges and loan terms specific to the loan for which you’re applying.  Basically, it details out the costs of a loan, as well as the interest rate and applicable dates.

Here’s a sample Good Faith Estimate.

A lender must provide a GFE within 3 business days of application, and the terms there are good for at least 10 days, unless otherwise specified.  Oh – except for the interest rate and rate related charges, because those can change daily (if not more frequently). 

We’ll go section by section.  Which means this post will be a little long, but – i hope – comprehensive.

Page 1:

The GFE starts with some basic contact information.  There’s a couple of important dates here.  At the upper right, the “Date of GFE” – the terms in this estimate are good for 10 days from that date, unless otherwise stated in #2 of the “Important Dates” section.  #1 in “Important Dates” tells you how long that lender will honor that interest rate quote – remember that interest rates can change very frequently.  #3 tells you the duration of your rate lock, if you were to lock in that rate.  The duration of your rate lock needs to be coordinated with the closing of your purchase.

This section is a summary of your loan.  This section is fairly self-explanatory: loan amount, terms, and disclosures about variable rates, prepayment penalties, and balloon payments.

This A+B section is the end of page one – and all these costs come from the next page.  We’ll go through where they come from, but that final number is an estimate of what you’d need to pay at closing.

Page 2:

This section is all about paying your lender for their services.  These are – more or less – the only charges the lender is in complete control over.  Lenders collect their fees in two ways – either up front with an origination fee, or by giving you a higher rate and being paid for that when they sell the loan to someone else.  It’s called a yield spread premium (YSP).  Or a combination thereof.  You also have the option of paying more money up front to buy down your rate – we call it paying discount points.  So if you want a really  low rate and have extra cash, you could elect to do that.

Disclosure of those fees is in this section.  In this example, the origination fee is $6,750.  The buyer is paying a slightly higher rate, so they’re going to get a credit of $3000 because the lender will make that money when they sell the loan and therefore won’t collect it from the buyer.  We subtract the two, and the lender origination fees are $3,750.  This figure gets carried over onto the front page in that A+B section.

If a buyer was paying discount points to buy down the rate, you’d have seen the third box checked and a charge instead of a credit.

Here’s where things get a little more complex.  These are charges for everyone else involved in the home purchase.  The lender, most often, does not control these costs, and some of these service providers the buyer gets to pick.  So the lender has to estimate these charges, but may not know the exact figures for the service providers you select.

Which puts the lender in a bit of a pickle.  Because at closing, the cost estimates provided here can only vary by a certain amount.  And the lender bears the burden of responsibility.  Which hopefully should make charge estimates much more accurate.

Couple items to watch for:

#3 – the estimate here is not allowed to go up at closing.  The price for those services quoted here should be accurate.  If anything, that figure can only go down.

#4 & #5 – these two items have a 10% tolerance.  These are estimates for the title insurance, escrow services, any endorsements, that sort of thing.  At closing, the sum of these items can’t be more than 10% different than what was estimated.

#6 – these are services that a Buyer can select.  Because the buyer gets to pick, the estimate of these charges can change completely at closing.

So you add all those things up – line item “B” – add it to the origination (item A) and that’s the estimate of what you’ll need to close the deal.

Still with me?

Page 3:

In that last section, we talked about how some costs can’t increase, some can change by 10%, and some can change completely.  This section at the start of page 3 breaks down which costs belong to which bucket.

 

Remember at the start of page 2 we looked at the origination fees?  And how you can pay more up front for a lower rate or pay less up front for a higher rate?  This tradeoff table shows you how that works in a little more detail. 

The first column is the description of the loan as quoted.  But – if you were to decide you needed to hold on to more of your cash, you could elect to take a higher rate and hold on to more money.  That’s the option in column 2.  If you’ve got plenty of cash and are going to hold on to the loan for long enough, you might choose to pay more up front for the lower rate.  That’s column 3. 

  

Finally, they give you a handy-dandy table to compare loans, so you can get other estimates and compare them.

And voila!  That’s the new Good Faith Estimate.

Tomorrow – the new HUD-1 Settlement Statement…

Welcome to Acronym Week! RESPA, HUD, and the GFE – Oh My!

January 26, 2010

There are some changes afoot in the way loan disclosure and closing cost statements are made.

The Department of Housing and Urban Development decided to try to make understanding your loan costs a little bit easier for the average consumer.  Tried to make it easier to shop for a loan.  Tried to make it easier to understand when the costs you were charged don’t match what was told to you up front.

Whether they succeeded or not, well, you be the judge.  Either way, these new rules are in effect and you should understand what is going on.

This week, we’ll dive into these new documents and the new rules, so that you’ll understand what you see when you get a Good Faith Estimate from a lender (or GFE, in industry lingo), and so that your closing cost statement makes sense – that’s the “HUD-1″ you get from the escrow officer at the end that breaks down all the charges and credits to everyone.  We’ll gather the loan officer’s viewpoint and the escrow officer’s opinion as well, so that we understand how these changes impact just about everyone in the transaction.

But first – some background.

RESPA – the Real Estate Settlement and Procedures Act – is a law regulated by HUD (the department of Housing and Urban Development).  RESPA was created in 1974 to regulate, among other things, the disclosures you get when you get a residential mortgage loan, and has rules about economic relationships between entities involved in getting that loan – potentially relationships between a title insurance company and a lender, or appraisal bureau, or credit reporting service.

So HUD created an update to RESPA that took effect at the start of 2010.  The objective was to encourage consumers to shop for the best loan, to disclose loan information in an easy-to-understand format, to make comparisons easier from up front cost estimates and actual costs, and to limit cost variances on certain items from the up front estimate to the final figure. 

All lovely goals.

The big disclosure documents affected by the RESPA update are the Good Faith Estimate and the HUD-1 Settlement Statement.  I’ll show you examples of both during the week, but generally a Good Faith Estimate, or GFE, is what your lender gives you when you apply for a loan that explains the interest rate and costs associated with that home loan.  The HUD-1 Settlement Statement is an itemization of closing costs for both a buyer and seller that you see at the end of a transaction, produced by the Escrow Officer.  These list the final costs for the home sale, and should more or less match the costs that were quoted to you at the beginning.

Still with me?  Good.  Tomorrow we’ll look at the new Good Faith Estimate…

Central Tucson Real Estate Market Report – December 2009

January 25, 2010

Central Tucson always has a strong seasonal sales trend – more sales in summer, fewer over winter.  There were 888 homes listed and 109 sales in December 2009, just a bit off from the previous month.

That gives Central Tucson an overall absorption rate of 8.2 months – meaning one in 8 units on the market (roughly) manage to sell.  If you just look at single family homes, that figure improves to 7 months.  Absorption rate tends to move inversely to sales – sales go up, months of inventory goes down, assuming no major shifts in the number of homes for sale. 

The condo market – like most of the condo market across Tucson – is flooded.  143 for sale, and 4 that closed in December 2009.  Condo prices are dropping fast due to the glut of inventory.  The average condo cost $56,375.

Townhomes fare a little better – a little less inventory, a few more sales – but town home prices are still on the decline overall.  A typical townhome cost $111,445 in December 2009 in Central Tucson. 

The average house cost $164k.  December 08, the average house cost $179k, showing a year over year decline in values of 8%.

Of the 109 sales, 11 were short sales and 36 were foreclosed homes, making distressed sales 43% of the market. 

You can always see the chart versions of this data too, at my Central Tucson Market page.

The raw numbers:

	SFR		Townhome		Condo		All
	Value	%change	Value	%change	Value	%change	Value	%change
Avg LP	$237,050	0.2%	$163,500	-5.2%	$130,713	-1.0%	$211,229	-0.6%
Avg SP	$164,084	1.3%	$111,445	2.1%	$56,375	-43.3%	$153,370	0.1%
Med SP	$142,900	-4.7%	$106,600	-16.7%	$51,500	-45.5%	$127,500	-12.7%
#Listed	640	-6.4%	105	-10.3%	143	-1.4%	888	-6.1%
#Sold	91	-6.2%	14	7.7%	4	-20.0%	109	-5.2%
MOI	7.0 months	-0.3%	7.5 months	-16.7%	35.8 months	23.3%	8.2 months	-1.0%

South Tucson Real Estate Market Report – December 2009

January 25, 2010

The average sale price in South Tucson has been hovering around the $100k point for nearly a year now – sometimes a little higher, sometimes a bit lower.  In December 2009, a house in South Tucson cost $94,435 on average.  In 2008 at the same time, the average house was $108,513.

Since there are so few sales in high price brackets in South Tucson, the median sales price very closely follows the average – coming in at $90,000 for December 2009.

There are very few condos and townhomes in South Tucson – only 24 listed and 3 sold in December.  Depending on which communities had sales, the average sales price for those tends to either be around $30k or $60k.  For December, the average townhome/condo went for $35,567.

Of 484 listings, 80 of them sold, for a months of inventory (or absorption rate) of 6.1 months.  That means one in roughly every six homes listed managed to snag a buyer – a decent rate for the area which has shown steady improvements in absorption rate since the start of 2008.  A little higher than last month, but sales typically slow over winter anyway.

Of those 80 closed sales in South Tucson, 14 were short sales and 46 were bank owned foreclosures, making distressed property sales an incredible 75% of the market.  Distress sales tend to make home values drop like a rock, especially when they’re such a huge percentage of the market.  Given how low the prices are in South Tucson, we’re seeing a lot of investors and first time buyers picking up these homes because of home affordability.  Since the activity in South Tucson has been increasing, values there aren’t declining as quickly as one might expect.

You can always see the chart versions of this data too, at my South Tucson Market page.

The raw numbers:

	SFR		Townhome/Condo		All
	Value	%change	Value	%change	Value	%change
Avg LP	$118,121	0.2%	$67,896	0%	$115,630	-0.1%
Avg SP	$94,435	-10.4%	$35,567	-43.8%	$92,227	-10.3%
Med SP	$90,000	-11.7%	$32,000	-56.8%	$90,000	-8.6%
#Listed	460	0.7%	24	14.3%	484	1.3%
#Sold	77	-16.3%	3	-50.0%	80	-18.4%
MOI	6.0 months	20.3%	8.0 months	128.6%	6.1 months	24.0%

North Tucson Real Estate Market Report – December 2009

January 25, 2010

North Tucson is actually several markets in one.  There’s the condos, there’s the lower end homes, and the luxury market.  And they’re all doing different things.

The condos are still in trouble.  There is an oversupply and low demand – months of inventory were at 15.8 months in December 2009 for North Tucson.  Prices continue to generally decline.  Over much of 2009, condo prices were swinging around the $150k mark.  There was a slight tick up in December 2009 to $164k, but I do not interpret that as a trend.

Lower end homes make up the bulk of the sales in North Tucson – and “lower end” in North Tucson means $350k – $500k.  The median sales price of a single family home has been in the mid $400ks all year.  In December, it was $475k. 

And then there is the luxury market.  Or the lack thereof, might be a more accurate statement.  See how the average home list price was $908k and the average sale price was $579k?  That shows you the enormous glut of high end properties sitting on the market and not selling.  In the $800k+ price range, there were 7 sales and 145 units for sale.  that’s nearly 21 months of inventory.  HUGE imbalance of supply and demand.

Of the 65 sales, 3 were short sales and 10 were foreclosed property, making distressed homes 20% of the North Tucson market – one of the smallest proportions in all of Tucson. 

By the way – the most expensive short sale that closed in North Tucson in December 2009?  Sold for $1.1mil, had a roughly  $1.5mil lien, was on the market for 8 days, got an offer, and then took 7 months to close.  Short sales are not a game for the impatient buyer.

You can always see the chart versions of this data too, at my North Tucson Market page.

The raw numbers:

	SFR		Townhome		Condo		All
	Value	%change	Value	%change	Value	%change	Value	%change
Avg LP	$908,735	-1.3%	$305,941	0%	$155,551	-2.2%	$651,229	-2.2%
Avg SP	$579,602	31.8%	$270,043	15.5%	$164,782	19.9%	$453,872	47.3%
Med SP	$475,000	16.1%	$234,000	12.5%	$164,300	42.9%	$377,000	39.6%
#Listed	457	-3.0%	114	-7.8%	158	30.9%	729	1.7%
#Sold	42	-37.0%	13	183.3%	10	0%	65	-9.0%
MOI	10.9 months	53.9%	8.8 months	-67.4%	15.8	30.0%	11.2 months	11.7%

Think You’ll Never Pay Full Price in this Market?

January 22, 2010

“Well, in this market, I’d never pay full price.”

Not so fast there.  There’s a big difference between paying full price and paying full value for a home.  There’s absolutely nothing wrong with paying full price – or more – for a house if the value is supported.

Consider the list price to be a general relative indicator of value – we’ll assume when we first see a home that the list price is somewhere in the ballpark of true value.  Sometimes the list price is too high and sometimes it is too low.  Not every seller is overpricing their home.  Some are serious, ready to sell, and price their homes very well.

Be more concerned with value, and not hung up on price.  To find value, we’ll look at what other homes are selling for in the area, make adjustments for condition and location and amenities, make adjustments for the effects of the market in general over time. 

If we think a home’s value is greater than the price, well, you just might need to offer something over the list price in order to get it.  And you’ll very likely find yourself in competition for that home.

Think it doesn’t happen?  Fourth quarter of 2009, in Central Tucson – of the 267 sales, 127 were at or above list price.  That’s means 48% of the sales were AT or OVER the list price.

If you find yourself a great deal, priced under value, then move on that – and quickly.

How Long After A Short Sale Until I Can Buy A House?

January 21, 2010

Short sales can get you out from under an unmanageable mortgage, but they don’t come without repercussions.  Depending on how the short sale goes down, it can lower your credit score greatly, and you may owe taxes on the amount forgiven, as examples.

Eventually, some people want to buy another house.  But with a short sale on your record, you may have to wait a couple of years before anyone will give you a home loan.  My agent friend in Oakland County, Michigan, Maureen Francis has an article on her blog that explains the different rules.  An excerpt:

FHA has recently changed their rule so that if a short sale occurred and all of the borrowers payments were made on time (no late payments) then they may be eligible for a new mortgage as long as the short sale was due to extenuating circumstances and not to simply take advantage of market conditions (see below). As you can imagine, this may be difficult to demonstrate. Otherwise, if any payments were made late or you cannot demonstrate extenuating circumstances, then it is a 3 year period before new FHA financing can be considered.

Fannie Mae policy is pretty straight forward – It is a minimum of 2 years to re-establish credit after a short sale.

The article is written by a lender that works with Maureen.  Go check out the rest of the article here.  Thanks Maureen!

Southwest Tucson Real Estate Market Report – December 2009

January 20, 2010

Southwest Tucson has been a mixed blessing recently.  Prices continue to generally decline, but inventory levels are lower than what we’ve seen recently.  Usually, lower inventory levels tend to shore up prices – and indeed, the price decline has been somewhat slower recently.

The average sales price in Southwest Tucson in December was $122,229, with a median sales price of $119,345.  Last year at this time, the average sales price was $127,017, with a median of $120,000 – about a 4% drop in home values, year over year.

No town houses or condos sold in December on the Southwest side.  There aren’t that many over there to begin with.

Overall, there were 419 units listed for sale in Southwest Tucson, and 92 of them sold.  That’s a 4.6 month supply, or absorption rate, meaning a little better than 1 in 5 homes on the market actually sold.  That’s a decent rate for Tucson – I consider anything between about 4-6 months of inventory to be a generally balanced market, at least in terms of supply and demand.

Of those 92 home sales, 12 were short sales and 54 were bank owned property.  That makes the distressed home market an incredible 72% of all sales in Southwest Tucson.

Popular neighborhoods in December were Midvale and Star Valley.  Midvale is a mix of neighborhoods on the near Southwest side with good freeway access and nearby shopping and entertainment.  Star Valley is out further Southwest, one of those newer master planned communities that popped up in the early 2000’s construction boom.

You can always see the chart versions of this data too, at my Southwest Tucson Market page.

The raw numbers:

	SFR		Townhome/Condo		All
	Value	%change	Value	%change	Value	%change
Avg LP	$150,581	0.7%	$119,664	3.4%	$148,810	0.8%
Avg SP	$122,229	-3.5%	n/a	n/a	$122,229	-2.9%
Med SP	$119,345	0.3%	n/a	n/a	$119,345	0.3%
#Listed	395	-8.8%	24	-4.0%	419	-8.5%
#Sold	92	35.3%	0	-100%	92	33.3%
MOI	4.3 months	-32.6%	n/a	n/a	4.6 months	-31.4%

Northwest Tucson Real Estate Market Report – December 2009

January 20, 2010

The Northwest side of Tucson had a bit of a jump in average sales price in December, to $269,126 – but that’s a bit deceptive.  There were 70% more sales over $500k than last month, when the average sales price was a more reasonable $240,042.  Last December, the average sales price in Northwest Tucson was $256,348.

The median sales price was $210,000, again, telling us that the jump in average sales price was most likely the influence of more larger sales during the month.  Last year at this time, the median was at $212,000.

A typical home sold for $280k, townhomes went for $189k on average, and the condos at $121k.

Both inventory and sales went down in December in Northwest Tucson.  There were 1865 active listings at the end of the month, and 187 sales, for a months of inventory of 10 months.  That means one in ten homes on the market sold – a rather slow rate, indicating a fairly strong buyer’s market.  There’s a lot of choice out there in Northwest Tucson, and prices are still heading down – albeit somewhat more slowly than before.

There were 23 closed short sales and 47 bank owned homes that sold, making distressed properties 37% of the market.

Popular neighborhoods are the big master planned communities – Continental Ranch and Rancho Vistoso.  Gladden Farms is starting to sell again as well, starting to recover after being hit with that whole FEMA floodplain fiasco a few years back.

You can always see the chart versions of this data too, at my Northwest Tucson Market page.

The raw numbers:

	SFR		Townhome		Condo		All
	Value	%change	Value	%change	Value	%change	Value	%change
Avg LP	$388,462	-3.7%	$230,150	3.2%	$145,270	4.3%	$371,350	-3.3%
Avg SP	$280,254	15.0%	$188,600	8.7%	$120,671	-26.5%	$269,126	12.1%
Med SP	$216,458	5.6%	$187,500	5.1%	$109,900	-31.2%	$210,000	2.4%
#Listed	1687	-5.1%	134	-21.1%	44	-14.8%	1865	-1.5%
#Sold	168	11.2%	14	-46.7%	5	100%	187	8.3%
MOI	10.0 months	-14.7%	9.6 months	47.9%	8.8 months	-57.4%	10.0	-9.1%

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