This series was inspired in part by a friend who is a very successful Realtor. He maintains that 90% of the fallout today is caused by bad lenders. With so many new folks in the business, there are plenty of incompetent and unscrupulous people. Some are your client’s friends, some family members. Most are inexperienced. Protect yourself.

Part I was devoted to down payment. Here is the 2nd key question every agent should ask.

Question #2: Can you document your income?

A lot of buyers won’t know what you mean. That’s okay; just get them talking. You want to determine the quantity and the quality of their income and job history. Lenders want to see a reliable steady income stream. They will often average income over two years because they are as concerned about the quality of your client’s income as they are about quantity.

A couple of tenured teachers making $100k year together have good quantity and good quality. But a recently self-employed person with an aggressive accountant may have neither. From their answer, you still won’t know how much debt they have or their debt ratios, but you may be able to figure out quickly whether they are a full doc or a stated income borrower.

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Preventing fallout is a high priority right now in this shakey market. Escrows are falling apart at unusually high rates. The usual issues, repairs, property values, and buyer’s remorse, are now coupled with short-sales, bank REOs, and contingent offers. These are professional realities for those of us in the business, and much of this stuff lies beyond our control.

But one factor within every agent’s control is buyer pre-qualification.

Over the past few years we successfully taught buyers to get pre-qualified before they go home shopping. Then we kicked back, thinking the job was done. Today, buyers show up already pre-qualified, and they don’t necessarily want to talk to your lender.

No seasoned agent I know today would think of putting a buyer in their car without first knowing they can qualify. And yet most will accept a pre-qualification letter from a total stranger. So, to better control that which we can, here are 5 Questions Every Agent Should Ask when a borrower comes to you pre-qualified by someone you don’t know.

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I’ll be away for a couple of weeks of R&R with the family at an undisclosed location….unless you can guess of course. Here are some hints…

Unbelievable…….

….Unforgettable

My Chase rep called this morning to tell me that Chase is pulling their 100% SISA (stated income/stated asset) loans at the end of the month.   I can’t say this is unexpected, since the noose had been slowly tightening.  The 100% SISAs for prime A paper borrowers had survived until now only in the rarified atmosphere of 740+ Fico scores.  

Chase was one of the few left with a low enough default rate to find buyers on Wall Street.  Apparently the numbers are in, and Chase got its butt kicked on 100% loans originated in 2006, particularly on the 2nds that are commonly piggybacked on 80% 1sts to reach 100% CLTV.

Expect the 100% SIVA (stated income/verified asset) loans to follow shortly.  The word on the street is that everyone else, National City,  CitiMortgage, Aurora, et. al. are also bailing.  Wall Street has completely lost its appetite for these and will no longer buy them.  

Protect your pipeline.  Sometimes we don’t get any warning. 

What will it take to shock the Sacramento real estate market back to life?

Behind the mask of false bravado and feeble optimism worn by industry insiders who think wishing can make things true, there is an undercurrent of worry. Let’s face it. The patient is ill. What will turn things around? In a word, affordability.

It’s pretty clear that we chucked the idea of affordability in the early 2000’s as home prices and incomes parted company. People bought homes they couldn’t afford with loans that offered low initial payment but blew up after a couple of years. The speculative fever that ensued was supported by low interest rates, easy-qualifying loans and 100% financing. Builders responded by flooding the market with new homes geared to the move-up market, at prices affordable mostly to those who had previously experienced windfall profits. Then the music stopped, and all the chairs were gone.

So here we lie. Too much inventory, too few buyers. Sales are slow at every level, though Sacramento real estate prices have retreated to mid 2004 levels. Despite sellers’ attempts to get in front of the decline, buyers pitch low-ball offers on everything. I attended a recent auction featuring the last 6 homes in a 220 unit Elk Grove subdivision. The seller, a national home builder, was able to unload only 3 of those 6 homes even at steeply discounted prices. What’s the problem? Again, affordability.

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Like every other lender and Realtor today, I am the target of a daily assault of emails pitching seminars, webinars, CDs, coaching programs, mortgage leads, and the secret map to instant riches. It seems like refugees from our industry have fashioned new careers selling the secrets of the overwhelming success that apparently drove them out of the business.

This one is so good I just had to share it with you.

The Newly Discovered Secret Weapon That Builds Instant Trust And Credibility With Your Prospects And Turns Shoppers Into Closed Deals For Less Than The Price Of A Grande Latte, GUARANTEED.

Wow! It’s new; that’s really great. And the weapon part is cool. But I do feel a little foolish at having wasted time honing my professional skills while this guy was busy finding the secret. And it’s cheaper than a latte!

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The benchmark 30 year conforming fixed rate mortgage ended the week essentially unchanged from last week.  Freddie Mac’s weekly survey showed an average of 6.16% with .8 points cost for the western U.S. 

WEDNESDAY’S FOMC MEETING

The Fed meeting adjourned Wednesday without any change to key short-term interest rates. This was widely expected, however the Fed went on to express continued concern about inflation and wage pressures, creating volatility in late trading.

PPI & Retail Sales

On Friday, the core PPI rate reported flat for the second month in a row, increasing hope for a Fed easing of rates later in the year.  Compounding the sentiment was a decline in April retail sales, the biggest drop since September and worse than expected.  Earlier in the week a spike in consumer revolving debt use—mostly credit cards—to 9.2% in April from 2.9% in March indicating that consumers will continue to prop up the economy even if it means increasing debt to do it.

There has been plenty of hub hub lately about BofA’s new No Fee Mortgage Plus loan. The Truth About Mortgage had this article, Zen Personal Finance wrote this post, and Matt Carter of Inman News adds his own take.

And if you watch CNBC in the mornings, you’ll see rubber lips, the Countrywide guy, performing the same sleight of hand. And hey, no one can do you up like Countrywide can. (I always imagine Anthony Mozillo laughing as he dumps hundreds of thousands of shares of CW stock. Can you say insider trading? …but I digress).

So I thought this would be a really good time to lend some clarity to the subject of no cost mortgages

IS THERE A FREE LUNCH?

Only at the soup kitchen. But let’s get one thing straight. There are no free mortgages.

There are loans without any up-front fees. That’s different; we’ve been doing that for years. But free loans? Nope. Nunca.

You will always pay to obtain a mortgage. If you’re not paying up front for your appraisal, credit, underwriting, processing, and points, then one of two things is happening. Either the fees are being added to the loan balance, or the fees are being added to the rate. To illustrate this, let’s have a look at BofA’s latest offering.

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The 30 years conforming fixed rate loan ends this week unchanged at 6.16 with .5 points, according to Freddie Mac’s weekly survey.

BEHIND THE NUMBERS

The April jobs report showed the slowest job growth rate in two years, as predicted earlier by Wednesday’s ADP jobs report.  The Wall Street Journal reports 88,000 new jobs, fewer than than the 110,000 consensus figures, along with a small rise in unemployment.  This could well be the delayed reaction I mentioned in yesterday’s article.  Coming on the heels of weak 1st quarter GDP growth, hopes for a Fed rate cut before the end of year were rekindled.

I’ll apologize in advance for the length of this article. But it will enlighten you if you have the patience to finish.

Despite the bursting housing bubble and a fall in housing starts of over 30%, unemployment remains very low. How can that be? Home builders downsize crews, shrink their land acquisition and development departments, and put the brakes on construction.

Yet the employment statistics remain strong. Don’t get me wrong. I’m happy, but puzzled. So I’ve been poking around trying to understand this phenomenon since the real estate downturn got its full head of steam last year.

Recently I was talking with Jim Bayless of Treasure Homes, who shed first light on this for me. He explained to me that much of the construction labor employed by sub-contractors consists of undocumented workers. Since these folks are never officially on the employment rolls to begin with, they don’t show up in the unemployment numbers when the work dries up. That’s pretty nice for us, an extra big shock absorber on the plane’s landing gear so we get that “soft landing” everybody’s talking about.

But where do those folks go? Well they go on home, or they move on to someplace where there is work.

THE HIDDEN WORK FORCE

Then I ran across an article by Nouriel Roubini entitled: Falling Remittances from the U.S. to Latin America as Evidence of the Housing Slump which references a recent Wall Street Journal story and research by Walter Molano at BCP Securities, who writes:

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