DON'T OVERLOOK ASSUMABILITY CLAUSE ON FHA LOANS

A few years ago, FHA loans were about as common as eleven game winning streaks for the Colorado Rockies (I had to slide that in somewhere - go Rockies!). Today, however, they account for about half of all mortgage loans being originated.

The primary reason that FHA has become so dominant in the marketplace is that these loans are insured by the federal government - if the borrower defaults, the government steps in and pays off the lender who made the loan, provided the underwriting of the loan complied with FHA guidelines. They're the safest loans lenders can make, because Uncle Sam is acting as a backstop.

The other reason is that, as you have heard, banks aren't making loans like they used to. At least, not with their own money.

The underwriting guidelines on conventional loans are tighter today than they have been in 15 years. This is an over-reaction (albeit, an understandable one) to the massive losses the banks have suffered as housing markets have crashed around the country.

So into the gap has stepped FHA.

FHA loans allow borrowers to purchase a home for as little as 3.5% down - and that money can be "gifted" from family members or other sources.

But here's the other key - the hidden value of an FHA loan that will make these loans of today look even better two or three years down the road...

FHA LOANS ARE FULLY ASSUMBALE WHEN YOU SELL YOUR HOME (AND MOST CONVENTIONAL LOANS ARE NOT!)

Let's take a look at why this matters.

With the government engaged in unprecedented spending to prop up the economy right now, the big fear on the horizon is inflation - which means higher interest rates.

So let's say you decide to sell your home in three years, and by that time interest rates are (hypothetically) in the 8% range. You paid $175,000 for your home in 2009 and decide to sell it for $190,000 in 2012.

If your interest rate was 5.5% on a 30-year fixed rate FHA loan, after three years your loan balance is appoximately $162,500 (provided you made a 3.5% down payment on the original purchase and have stayed current with your payments).

The payment on your FHA loan (principal and interest) is approximately $971 per month.

In an assumption, the buyer agrees to take over your loan and make the payments going forward, while paying the seller the difference between the agreed upon purchase price and the loan balance at closing.

If a buyer was to make a $27,500 down payment and take out a $162,500 loan at 8% (in our 2012 purchase scenario), their new payment would be $1,192 - or $221 per month more than the payment on your existing FHA loan.

But it gets even better...

Your original FHA loan originally had 360 scheduled payments - of which you made 36, under our scenario.

So the loan your buyer assumes has only 324 remaining payments... instead of 360 payments as would be the case under a new loan.

Can you see why FHA assumptions can be powerful?

This is something very few people are recognizing right now, for whatever reason, but I'm telling you... in a few years the buyers of today using FHA financing are going to come out smelling like a rose.

This truly is the best buying opportunity at the entry level of our market in 15 years or more.

BRAND NEW GOLF COURSE TOWNHOME LISTING IN AURORA

Just a quick note to highlight a new listing of mine along the 13th fairway of Heather Ridge Golf Course in Aurora.

2431 South Xanadu Way #A is a two bedroom, 1,091 square foot townhome that has been completely remodeled from top to bottom with new carpet, new tile, new cabinets, new fixtures and brand new appliances - all at an entry level price!

Offered at just $107,900, this sparkling townhome with golf course and water views is an amazing value. This home has been pre-inspected, the AC unit has been cleaned and serviced and the furance is certified.

Perfect for all four seasons, there is a wood-burning fireplace in the family room for those colder winter nights and a great, south-facing patio area adjacent to the kitchen that's ideal for summer barbecues. Plant flowers in the spring and watch leaves turn and flutter in the fall. And remember that all exterior maintenance is handled by the HOA.

Check out some fantastic virtual tour scenes by clicking below, or call me at (303) 416-0087 to set up a private showing.

Click Here to view the Virtual Tour!

WHAT HOME BUYERS WANT TODAY

Each year there are numerous regional and national surveys that reveal the latest trends in what buyers and sellers want and expect in a real estate transaction. The latest of these surveys has just been released by CAR - the findings are summarized below:

Buyers...

- Who use the Internet want agents to respond faster (31% expect instant responses).
- Want to preview more homes before writing an offer (12.7% in 2008 compared to 9.3% in 2007).
- Are taking longer to make a decision (8.3 weeks in 2008 compared to 5.2 weeks in 2007).

And what does this net the agent? Significant declines in satisfaction ratings.

Buyers who said their agent "surpassed expectations" was a huge drop: from 91% in 2007 to only 39% in 2008. While buyers may not be as satisfied, this hasn't altered the fact that 88% of buyers still used an agent last year - exactly the same percentage as 2007.

However, satisfaction levels seems to be less about the agent and more with factors outside the agent's control. The economy has slowed, and this has made the process of looking for a home one filled with caution and delibertion for many buyers.

The two biggest factors motivating people to buy right now are:

- declining home prices
- low mortgage rates

Buyers are online...

Not only are buyers actually working with an agent longer, they are taking more time online to research homes before contacting an agent. Buyers averaged 8.2 weeks of researching homes before contacting an agent in 2008, versus 7.6 weeks in 2007.

Buyers are looking for the right agent...

Along with viewing more homes, buyers are also interviewing more agents. This is actually good news for the good agents. It means that buyers recognize that agents bring more value than ever to the table and they are taking more time to find the right agent. The survey shows 64% interviewed two or more agents in 2008, compared to 53% in 2007.

What are they looking for in an agent?

- 44% hire the most responsive agent
- 22% hire the most qualified agent
- 19% hire the most aggressive agent
- 9% hire the most knowledgeable agent
- 5% hire the quickest or first agent

Agent satisfaction...

There were two things that made the biggest impact on whether a buyer was satisfied with his agent:

- how quick they were to respond
- how aggressively they felt the agent negotiated on their behalf

Kinds of info buyers want...

We all know that the bulk of people are using the Internet in the real estate process, but what features/functionality do they want?

87% - multiple photos and virtual tours. One again, these two top the list among Internet shoppers, listing them both as "very or extremely important"
80% - maps/directions
74% - agent contact options

One thing buyers would change...

In closing, here are things buyers said they wish they could change about their online home buying experience:

- 53% want a better understanding of where the market is heading
- 19% want their transaction to close on time
- 17% wanted better negotiation skills from their agent
- 8% hoped for a better response time from the selling agent
- 2% said less paperwork
- 1% said a better understanding of interest rate trends

It is no surprise that buyers want more from their agents and want them to respond faster, be more knowledgeable, more accessible, and negotiate harder than ever on their behalf.

The days of the "part-time agent" are fading fast.

Consumers expect (and demand) professionalism from their agents like never before, which is good news for those who are committed to real estate as a 100% full-time vocation.

RUMBLE RUMBLE... RATES JUMP 26 BASIS POINTS ON WEDNESDAY

For the past six months, mortgage interest rates have essentially been "on sale".

They have been on sale because the federal government is subsidizing artificially low rates by purchasing huge amounts of debt on the open market, which (without large purchases by the Federal Reserve) would otherwise be priced higher to attract skittish investors.

I have been preaching this for months, and I am working very hard right now for my clients because I believe the overall attractiveness of buying into this market is based in large part on the exceptionally low interest rate environment that we are in.

Understanding markets is not easy, and none of us can guarantee what will happen tomorrow.

But if you don't think 30-year rates in the low 5's are temporary and an aberration, talk to your parents, aunts and uncles about the rates they have paid on their home loans. When I was first licensed, in 1994, I began my real estate career by cold calling homeowners promoting interest rates at 8.75% - because back then rates under 9% were a big deal.

When rates rise, you lose purchasing power. In fact, a one percent jump in rates is going to cost you about 10% of your purchase power, and it's not like you can wait around for rates to cycle lower. Once the government stops buying mortgage debt, we're headed higher.

I don't know how much more clear I can make it.

TODAY SHOW REAL ESTATE EXPERT CALLS DENVER NATION'S BEST MARKET

Today show real estate "expert" Barbara Corcoran picked Denver as the number one market to lead a real estate recovery in the United States.

I have seen this blogged about everywhere, and people seem excited.

I'm going to take a more reserved approach - it's good news, for sure, but I have always advised my clients to make purchases based on fundamentals, not the hope for future appreciation.

Real estate investors make their money going into a deal, not getting out of it.

First-time buyers are getting discounted prices and low interest rates, but I wouldn't buy a house just because of those two things. The neighborhood has to work. The home has to be a good value. There needs to be upside in the deal, because too many buyers ignore exit strategy when they purchase a home.

Do not ignore exit strategy.

Having said that, here's the video from the Today show:

Visit msnbc.com for Breaking News, World News, and News about the Economy

TEN THOUSAND HOURS

Have any of you read Outliers, by Malcolm Gladwell?

I'm about half way through it, and it's a fascinating read.

In the book, Gladwell studies the traits, characteristics and commonalities of the most successful people in a variety of fields, as well as cultural and social issues that impact the professional development of those in different fields of work.

One chapter is called "The 10,000 Hour Rule", and the premise of the chapter is this...

It takes about 10,000 hours of sustained, committed engagement with a subject to become a world-class expert. This applies whether you are talking about athletics, concert pianists, fiction writers, composers, plumbers, or even master criminals. It's a minimum of five years of full-time engagement, unbroken, coupled with an unyielding commitment to apply new principles, learn from mistakes and persevere when others quit.

The book discusses how, when other bands were playing gigs one or two nights a week, the Beatles spent their formative years playing eight hours a night, seven days a week in Hamburg, Germany before they burst on to the global scene. It talks about Bill Gates, who became infatuated with computers at the dawn of the mainframe era and often spent 24 hours a day working on code as a student at Lakeside High School in Seattle. And Mozart had been playing the piano 20 years before he began to write his greatest concertos.

The point of this posting is that, in real estate, I see this principle play out every day. It takes years to master many of the complexities of this business, as well as persistence and a commitment to finding out the answer every time you run across a question or issue you have not seen before. Over time, we become a collection of our experiences... but only if we are committed to learning from them and applying the knowledge we acquire going forward.

Real estate brokers are not commodities, any more than second basemen, defense attorneys or practicing physicians. We are all different, with different skillsets, experiences and levels of commitment.

HERE COME THE APPRAISAL HEADACHES

In March, I wrote in this space about the big changes coming in the appraisal industry.

In short, Fannie/Freddie regulations which took effect May 1 now require mortgage brokers to assign appraisal work through newly-created appraisal management companies (AMCs), which then randomly distribute jobs to licensed appraisers in their appraisal network.

In the past, lenders could contract directly with competent appraisers with expertise in certain geographical areas or with certain types of properties, such as horse properties, duplexes or other unique dwellings. Now it's a crapshoot.

The Denver Post ran a story today about the problems this system is already creating, and they have to do with out-of-area appraisers attempting to value homes in unfamiliar areas, or worse yet, having struggling, semi-competent appraisers taking assignments away from some of the hardest working and most skilled appraisers in our area.

The intent behind this new rule was to create more transparency behind appraisals and keep unscrupulous lenders from partnering with unscrupulous appraisers.

What we now have, already, are problems caused by appraisers who no longer have accountability and who are operating outside of their areas of expertise.

Pass the Tylenol.

In an effort to stop the bad guys, regulators have stopped the good guys too.

And frankly, I feel bad when a client spends $350 on an inspection and then another $350 on an appraisal for a correctly-priced house that he or she loves... only to have an unqualified appraiser torpedo the deal.

Most appraisers are skilled, and most work very hard to correctly value the property they appraise. But the playing field has now been leveled for both the highly skilled and barely competent... and that means there's now another wild-card in the "under contract" process.

Once again, we're all going to pay for the behavior of the cheaters.

RENTAL SCAMS CONTINUE TO GROW

Over the past three years, I have probably looked at 1,000 REO foreclosures in the Denver metro area. I've seen (or smelled) everything, from abandoned pets to smashed out drywall to bathrooms flooded on the way out the door.

And so, invariably, conversations with many of my clients come around to the "foreclosure market" and the trials and tribulations therein.

We know that everyone has keys to these homes, that window coverings, dishwashers and ceiling fans "disappear", that the banks won't convey appliances ("if they're still there at closing, it's a BONUS")... but I'm increasingly shocked at how brazen people have become with rental scams.

The Federal Trade Commission recently issued a warning that online rental listings are often used as ruses by fake landlords to filch funds from unsuspecting renters. The warning states:

“These scams play out a number of ways. Some scammers hijack a bona fide rental or real estate listing by changing the e-mail address or other contact information, and placing the modified ad on another site. The altered ad may use the name of the person who posted the original ad. Other rip-off artists make up listings for places that aren’t for rent or don’t exist, and try to lure you in with the promise of extra low rent. Their goal is to get your money before you find out."

I've also heard of cases where people in the final stages of foreclosure rent out their homes, sometimes to multiple parties (with staggered move-in dates), collecting first and last month's rent (plus security deposits) before heading out-of-state with the loot.

There is a lot of desperation in our economy, and sometimes it manifests itself in ugly ways. You must keep your eyes wide open in dealing with people you don't know. You need good counsel in making financial decisions, and you need to align with people who will protect your interests.

I'm amazed at the creativity of scammers, and the willingness of the scammed to go along. Now more than ever, we all need to keep a heightened sense of awareness about who we are dealing with when we pick up the phone or tap on a keyboard.

HISTORICAL TRENDS SUGGEST HIGHER RATES COMING SOON

The monthly chart to the left shows average conforming, 30-year fixed mortgage rates since 2006. The blue bars represent May, June, July and August.

Beginning near the start of May of each year, mortgage rates embark upon a multi-month climb before peaking in late-July or early-August. Then, into the New Year, mortgage rates recede.

We're currently on the front-edge of the Summer Rate Spike pattern.

On April 30, mortgage rates began to ascend. Slowly at first. Then, this week, they barreled higher. In some cases, conforming mortgage rates are up by a half-percent.

The speed and force of the uptick is representative of both the respect and the fear that Wall Street has for Washington and what it's done to stimulate the economy this year. Investors know the stimuli are working -- they're just scared it's working too well and will lead to massive inflation.

Inflation is the enemy of mortgage rates and causes them to rise.

Therefore, use the mortgage rate chart to your advantage. You can see what's happened to mortgage rates in each of the last three summers -- it looks like 2009 is about to follow suit. And when the mortgage market turns for the worse, it's going to turn quick. Be ready for it.

APRIL INVENTORY DOWN 21%

The contraction in the Denver real estate market continues.

April statistics released by Metrolist this week show that the number of active, single-family residences for sale fell from 26,171 in April of 2008 to 20,705 last month - a decline of 21%.

Fewer homes on the market - especially at the lower price points - coupled with high entry-level demand is pushing values up in the sub-$200,000 market for the first time in years.

Currently, there are about 5,500 homes for sale priced under $250,000... accounting for 29% of all active listings. But homes in this price category are accounting for about two-thirds of all sales. That spells continued upward pressure on pricing for homes under $250,000.

There's also some better news for homes in the $250,000 - $400,000 range. In April, the inventory of homes for sale in this category fell from 6.32 months to 5.85 months. In January, there was nearly a 13-month supply of homes in this range, so things have improved significantly here as well since the stimulus bill was passed in February.

In short, at the lower and mid-level price points, the Denver real estate market is performing better than at any time since at least 2004. Above $400,000, things remains slow. And above $600,000, there is simply too much ongoing fear about the economy for people to confidently make purchase decisions.

But it's evident the stimulus package, low interest rates and the $8,000 first-time buyer tax credit have created a positive shift at the lower price points.

We know that interest rates are going up, the tax credit is going away November 30 and prices are increasing by the day. So the question is, will the gains of this spring and summer hold up when fall comes around?

The answer to that question will go hand-in-hand with whether or not the larger economy can get some traction after eight months of financial turmoil.

GETTING TWITTERY

I've been playing around on Twitter lately... not sure I get it, but I'm willing to give it some thought.

Twitter is sort of like text messaging your way through life... "Reading Outliers by Malcolm Gladwell"... "Just closed another first-time buyer on a great starter home"... "Thinking about taking a vacation in December - but no breaks until then"...

Twitter limits you to 150 characters per entry, and everyone who chooses to "follow" you sees your postings when they log into their Twitter home page, or they can even choose to have your messages sent via text to their phone (I do NOT recommend this!).

Barack Obama, Shaquille O'Neal, Tony Robbins, Oprah... it seems everyone is Twittering today. These postings range from fascinating to a complete waste of time. So the jury is still out.

Are you Twittering? If so, what do you think?

INTEREST RATES AND THE "HOT SHOWER" THEORY

In a few months, I will either be proven right or proven wrong. But I know which side of the fence I am on when it comes to interest rates.

My biggest concern for the Denver housing market, which frankly is just sizzling under $200,000 right now, is that we are going to see interest rates spike sooner than anyone thinks.

I heard a respected colleague recently use the "hot shower" analogy.

When you turn your shower on in the morning, the water is cold. So you turn the handle all the way over to the hottest setting, trying to warm things up.

(That's the stimulus package)

Then, a short time later, scalding hot water comes out of the tap.

(That's economic activity)

The Fed's job is to keep economic activity warm, but not hot. As soon as that scalding water starts pouring out of the shower head, the Fed will immediately crank the handle back towards a milder setting, and it will do this by raising interest rates.

Interest rate increases are inevitable, and in this climate they are likely to come faster and be more volatile than any time in recent memory.

(Ditto for inflation, which isn't necessarily a bad thing if you own a fixed asset like a house)

This is why I'm still advising clients to lock sooner rather than later, and buy today instead of six months from now. The hot water will come, it will cause interest rates to spike, and buyers are likely to see their purchase power diminished when it happens.