New Closing Process coming in August - Be prepared!

New MORTGAGE Information - Important

On August 1st, there will be a new roadblock to closing on a house

New integrated disclosure forms will wreak havoc in the home closing process.

On Aug. 1, 2015, the new TRID (TILA-RESPA Integrated Disclosure) forms replace the HUD-1 Settlement and Good Faith Estimate. The Consumer Financial Protection Bureau’s mission is to rebuild the mortgage banking landscape so that the industry will avoid the type of conditions that led to the Great Recession. The CFPB replaces the Department of Housing and Urban Development for oversight because HUD did not provide specific consumer protection.

Everyone agrees that increasing consumer protection is a desirable goal. Nevertheless, the unforeseen ripple effects from these changes could seriously disrupt how the closing process is conducted.

The new rules will require a new three-day waiting period when there are any changes in the TRID forms. The recommendation is to allow an extra 15 days to close your transactions. In other words, 30-day contracts will now require 45 days, and 60-day contracts will require 75 days.

Who will be hit the hardest?

The states that will be hardest-hit are those where the agents or principals must be physically present for the closing. “Escrow” states, like South Carolina,  where the documents and signatures are normally submitted a few days prior to closing, will be less likely to have issues.

In “closing table” states, clients, agents and attorneys are accustomed to routinely making changes at the closing table and still closing the sale on same day. The new three-day waiting period will severely limit this practice for items covered in the TRID documents.

The biggest headache: the moving van

When transactions don’t close on time, it’s common for one or more of the principals to be stuck with furniture on a moving van and nowhere to go. Any agent who has experienced an irate client in this situation knows how nasty this situation can be.

In most cases, these issues are resolved and the transaction closes the next day. Nevertheless, more than one agent has footed a hotel bill for their clients (especially those who are relocating). Moreover, if there are multiple properties involved, any delay on one home’s closing could delay others from closing, too.

Now imagine how much more complicated this could become if there is an error that retriggers the three-day TRID waiting period. Everyone will be scrambling to handle late closings — not just for one day, but for at least three days or more.

If this happens, can you allow the buyers to move in early? If so, you must enter into a separate lease agreement or Right-to-occupy prior to closing, then collect the first month’s rent plus a security deposit to protect both the buyer and the seller. Given how tight some buyers are on cash at closing time, this may not be an option.

Other potentially costly issues include situations where one of the principals must close by a certain date to take advantage of the tax breaks on the sale of their primary residence — or situations where one of the principals is involved in a 1031 tax-deferred exchange. The lost tax-benefit costs of a late closing could run into hundreds of thousands of dollars.

Interest rate games

If you have been in business for more than 10 years, you have probably experienced the shenanigans that some lenders pull when the interest rates increase. In fact, I have personally witnessed the scenario described below since the early 1980s. Here’s what happens:

Your buyer locks in an interest rate for 60 days. There is an increase in the interest rates. This means that the lender can no longer sell the buyer’s loan on the secondary market. As a result, the lender demands additional documentation. You submit the documents in a timely matter, but the underwriting department takes days to get to your changes. In the meantime, the buyers’ interest rate lock expires, and the property doesn’t close on time. At this point, the lender requires a higher interest rate in order to close the transaction.

It doesn’t take much imagination to see how easily this could play out with the new TRID three-day waiting period.

A tough transition

What will be particularly thorny are transactions closing in late July. If they fail to close by Aug. 1, 2015, how will they be handled? Does entirely new documentation have to be drawn? How long will the delays be?  Even lenders can’t answer these questions yet.

As we move closer to the Aug. 1 change date, clients need to know that there will be unexpected delays in obtaining loan approval, potential changes in the documentation during the transaction, and a host of problems I probably can’t even begin to imagine. When closing on a property with a mortgage you should always expect the unexpected, however these changes will impact all closings and will cause delays.  Set your mind to accept these changes, communicate often with your Realtor and Lender and you should still be able to enjoy the experience.  Better Start preparing now.

2013 appeared to be an amazing year for the Real Estate market nationally, but how did it fare where your property is located?  You've heard that Real Estate is Hyper-local and that proved to be very true along the Grand Strand in 2013.

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Welcome to 2014; the year of the Amazing Real Estate market, right?  If you are a believer that past performance is an indication of future results you are taking the 2013 results and increasing them for this year, right?  Well, I have the good fortune to speak with dozens of people daily that have learned a lesson in Real Estate over the past 5 years and most are not on the bandwagon.  Before we look ahead to what may be in 2014, let's look back to 2013 and see how it fared against the previous year of 2012.  We have to see where we have come from, annualized, to see where we may go this year.  In its entirety, 2013 did prove to be a good year for housing.  Selling volume and sales prices were broadly higher in 2013 while inventory levels and days on market were lower.  The Grand Strand's inventory started the year with 9.5 month supply of homes and 10.5 month supply of condos (including Town homes) and ended the year down 15.7% & 5.6% respectively.  The tightening of the supply side aided in homes that sold getting slightly better selling prices with homes up 5.5% and condos up 2.5% for the year.  Been a while since any increase in pricing has been discussed, right?  Good News!  As for the demand side; single family homes had a whopping 19.2 annual increase and condos saw a 5.4% increase!  Remember these numbers.  The amount of time it took to get a property sold decreased slightly over the year with homes being down 6 days and condos down 9 days.  In review, the market had good positive numbers for the year along the Grand Strand with a gradual. slow climb out of the low levels it reached and has remained since 2010.  How can you use this information to look ahead?  Well, there are a few important numbers I believe can give us a general idea of what may happen.  As with any market you need to look at the supply vs.demand and the outcome.  Take a look at the previous numbers of single family home demand - UP 19.2% from the previous year, which effected pricing by 5.5%.  Would it be safe to think that another 19% increase would net us another 5.5% increase?  Sure, but there are other factors too; mainly the supply.  The Supply of homes did continue to decrease throughout 2013 and the decrease had a positive effect on pricing too.  I don't believe it will be the same in 2014.  There are two important things happening in the market right now that will effect supply in 2014; First, builders are building again.  Ride through any of the neighborhoods that have sat quiet that last few years and you'll see it happening.  The trucks are back and the cranes are flying trusses.  New Home construction will be a player in the supply side of the market this year.  Second, the holders-on are moving forward now.  The homeowners that haven't been able to swallow the market pricing over the past few years are going on the market now.  Many of these sellers are priced way out of the market, but they are on the market.  Some never left!  I actually came across a listing the other day that had been on the market for over 2,000 days!  It is an injustice!  Anyway, these homeowners will supply the market with homes at least for the first part of the year in hopes that the market has come up to meet their selling price.  In many cases, it won't.  There are also two important things that will happen in mortgage lending that will impact home sales in 2014.  First, rates will be higher.  Many estimate rates to jump to 5.5% range in the first quarter.  While it is still an amazing rate the threshold has been set and most Buyer's will be disappointed that 4.5% is not available any longer.  Others that can still afford to buy will hold back for a few months hoping for a rate decline before coming back in the market.  The second thing is the QM Rule.  The Qualified Mortgage rule is part of the Dodd-Frank act and will eliminate more Buyer's from qualifying for a mortgage.  There are industry-wide restrictions that cannot be broken by lenders in an effort to reduce high-risk loans.  This is another of the safety nets put into place after the real estate meltdown that will prevent 2006/2007 real estate markets from ever happening again.

Looking into the future (and making some assumptions), I see a market very similar to last year ahead of us.  I believe both single family homes and condos will see low single digit appreciation with higher than expected demand.  We will continue to see pockets of distressed (primarily Foreclosure) properties in the market, but the saturation levels should remain below 8% overall.  Short Sales have simply become so difficult for approval due to lender valuation many sellers aren't even trying any longer.  I do believe interest rates will rise, but our Buyers along the Grand Strand are generally smart to understand the small impact 1% can make.  Investors will remain in the market, but won't be the driving force this segment was in 2012 or 2013.  Certain sub-markets will see very high demand and the great properties in these markets will get multiple offers before selling, but only at what the market will bear.  Many Buyer's still know there is selection out there and won't get caught up in fighting over a market price.  The balance of pricing will be somewhat controlled by New Home supply, at least in single family homes.  There won't be any volume in condo New Construction until 2015 or 2016.  

I am very excited about the market ahead for both Buyer's and Seller's.  We won't be back in a market that sees 20% appreciation in a year, but given where we've been I think 3% - 5% appreciation is something to get thrilled about!

If you would like a full 13 page detail of the market in review emailed to you just let me know.  Email me at ben@benguyton.com with 2013 Market Report in the subject line.

I look forward to our next conversation!

Is 4% the new 3.5% for mortgage rates?

Mortgage interest rates have remained at historical lows for a long time now.  Sure, they have fluctuated between 3% and 3.875% for over a year, but the 4% threshold has been reached and it may not come back below it again.  The problem with low, low rates is that when the new lowest rate is seen it then becomes the benchmark that all rates are judged against.  Let's face it 4%, 5% for a mortgage are great rates, but it does reduce your buying power.

Rising rates either eliminate your from being able to buy, reduces your ability to cash-flow and investment property, or reduces the size of the home you can purchase.

Rates have now been over 4% for over a week now and seem to be stable.  There is an absolute here; We can't all wish for a better overall economy and expect mortgage rates to stay low.

When are you going to make the decision to buy?

Real estate prices have remained flat all year and demand for properties has remained high.  If the current market continues into next year we will see segments of the market in Myrtle Beach metro start to increase.  Today, it costs you more to buy a property (the same property) as it did last month because of rates.

Could the new low for mortgage rates be 4.5%?

Time will tell.  Are you willing to take the risk?