Laguna Beach Real Estate

OK – so who writes this stuff anyhow?

Coming out of Washington, two professors from George Washington University have identified a phenomenon called “cognitive resource depletion” as the reason why homebuyers make bad loan choices. Apparently, after the exhaustion experienced from finding a home in Laguna Beach or any other area, our brains just can’t effectively handle all the loan choices available and we choose high risk loans as a result.

Really?

As they report in the LA Times, “Shopping for a home and choosing between alternative features can deplete individuals’ cognitive resources, resulting in sub-optimal home-financing decisions….”

Wow…so we are more capable of choosing between a gas and electric stove, and less effective at monitoring the financial choices for our families or our wealth buiding.

I guess the professors over at George Washington University haven’t met any of my clients. I think that you are a bit smarter than they give you credit for. Perhaps they need to talk with the scientists that study the awesome capacity and power of the brain.

But there could be another advantage here. If you chose an option arm loan, adjustable rate loan or the like, and are now finding that you cannot refinance because the loan rules have changed in part by the greater credit crises, changing lender and government guidelines, or your home has lost value, perhaps you can blame the loan on a “disease” and a government program will surface to assist you! 

Anyhow, one thing that they do mention in this report which I do agree with is that you should obtain a pre-approval before you start your home search. This has nothing to do with the size or effectiveness of your brain; it is simply a time-saver in this new era of underwriting guidelines.

New Listings Over the Weekend:

There are no pictures available for this one yet, but may be something our investors would want to look at. It is described as two charming cottages on one lot in the heart of the village. The 2bed/1ba is rented for $1900/month; the other unit is a 2bed/2ba and us currently owner occupied. Priced at $1,298,000.

New Listing: 1175 Coast View, Laguna Beach

Priced at $2,595,000

Remodeled down to the studs

3200 sq. ft – 5 beds/4ba

New Listing: 1715 Ocean Way, Laguna Beach

Priced at $9,250,000

3000 Sq.Ft. – 3 Beds/4Baths

Steps to surf and sand

New Listing: 1100 Marine, Laguna Beach

Value Priced at $3,400,000 – $3,900,876

First time on the market in North Laguna

3291 Sq.Ft.-3Beds/3Baths

As always, give us a call, or shoot an email if you have any questions or need additional information.

Until next time…

A few weeks back we wrote about one frustrating Laguna Beach home purchase where the buyer was inundated with last minute underwriting conditions resulting in what we called the “loan approval decathlon” and a delay in the closing of the home. What was made clear with lending in our current credit climate is…”it ain’t over ‘till it’s over!”

The situation was frustrating for all parties. Including, it seems, the lender.

Tips that we took away from that experience were to avoid, if possible, removing any contingencies relating to your loan from the purchase contract. For example:

• We know that lenders have ordered second appraisals, even after the first one has been approved. Therefore, try to keep your appraisal contingency on the purchase contract until the loan has funded;
• We know that they could pull a second credit report right before the loan funds; therefore, be certain that there are no changes to your credit. If they do pull a second report, you want the credit profile to look similar. No new accounts, no major increases in your loan or credit card balances, etc. Now, you will probably not be able to avoid removing this one since you do have control over your credit history…just keep it clean!
• We know that they may re-verify your down payment and reserves. Be sure that your paper trail is accurate, and that you keep the documentation proving these assets. Again, keep it clean – you have control over this.

Now, we have some additional information from our associate over at Bank of America. This information is very helpful. It is a lender’s perspective as to why loans seem so hard to get. Read on…

A Lender’s Perspective

Compliments of Kevin Budde, Bank of America

One of the most regular comments we hear from agents and borrowers is that they believe lenders don’t want to make loans. It has become common place for many last minute underwriting conditions to be added to loans. We are even hearing about lenders who have issued written loan approvals only to have the approval pulled back days later. Sometimes, even after the buyer has removed loan contingencies, the approval is rescinded. What is going on and why is it so hard to get loans through the system?

There is a war going on between the U.S. government and the lending industry. Due to the financial collapse of FNMA and FHLMC the government was required to step in and take over these two housing giants. FNMA just required an additional $11.8 billion dollars of new capital to keep them afloat. The U.S. government is trying to stem these losses by making all of the lenders buy back loans that were sold to these two agencies. If government auditors can find any discrepancy in the file they issue a repurchase agreement to the lender who in turn needs to use their capital to buy the loan back. In response to the increased buyback requests from the government lending institutions are pressuring their underwriters to make sure not one piece of documentation is missing from a loan file prior to the closing of the loan. This often results in conditions that don’t make any sense to the borrowers and agents and can cause major upset prior to closing not to mention closing delays.

In 2009 Bank of America was requested to buy back $425 billion of home loans from FNMA and FHLMC. In 2010 the number is supposed to double. In the first quarter of 2010 Wells Fargo set aside $2.6 billion in reserves just to pay the legal bill for fighting the government and their buyback requests. The pendulum has swung from lenders making practically every loan four years ago to the extreme opposite making getting a home loan a very harrowing experience for the buyers, to say the least.

Is there anything you as agents can do to help make the borrower’s experience less daunting? Absolutely there is. Have all of your clients be thoroughly pre-approved prior to putting them in your car. Unfortunately there are many versions of what a pre-approval entails. Every day we cross pre-approve borrowers for REO and short sale properties. We see regularly the poor job and lack of documentation that made up the pre-approval. We ask for supporting documentation from the buyer only to find out they don’t qualify at all. Had we not been asked to step in and cross qualify the client that escrow would have collapsed shortly.

So what can be done to make sure the very best of efforts is being put forth? One, call the lender that issued the pre-approval letter and ask, “Did you collect income and asset documentation and review it with an underwriter to determine the accuracy of the qualification?” Two, allow time for the lender to take these steps in order to better prepare everyone. We are still asked to write pre-approval letters by talking to the client on the phone when the purchase contract is being written as everyone is in a hurry. This process doesn’t cut it in today’s difficult lending environment. Remember, if the borrower did not submit income and asset documentation to the lender for review then the pre-approval letter in your hand isn’t worth the paper it is written on.