Chicagoland real estate purchases, real estate sales, short sales, foreclosures, first-time buyer representation, Illinois condominium association representation, estate planning for everyone, powers of attorney, quit claim deeds and more...

Terry Savage of the Sun-Times just had a great article on the ins and outs of refinancing. Rates are at record lows, but what's the criteria?

To refinance your mortgage, you need to meet three basic criteria:

Good credit -- If your credit score has dropped below 720, you might be turned down for a loan -- or you could be forced to pay a higher rate. Your lender should check your credit score at no cost, or you can pay $15.95 at www.myFICO.com.

Equity in your home -- Falling home prices could have wiped out your initial down payment or any home equity. Before you pay for an appraisal or application fee, make sure your lender runs a free "automated valuations model" on your property, checking comparable properties in your neighborhood. Then, pay for an appraisal if your lender is reasonably confident that you have at least 20 percent equity in your home to qualify for the refi.

Income -- Even if you have good credit and equity in your home, you still might not qualify if you or your spouse is unemployed. Just keeping current on all your bills to maintain your credit rating isn't enough. You'll have to prove your earnings history for the past two years.

Most people blindly refinance into another 30-year, fixed-rate mortgage. You can use the calculators at Bankrate.com to see how much you'll save on monthly payments at lower rates.

If you're younger, still working and need the break on monthly payments, then stick with that 30-year deal. But if you've been paying on your existing loan for a while and are getting closer to retirement, you might want to consider a 15-year loan. The rate will be about a half a percent less than on a 30-year loan, but, because of the shorter pay-out time, a 15-year loan often doesn't lower your monthly payment, and it could even increase it. Still, you'll have the security of a fully paid home when you retire. Or you can always take the 30-year loan and make extra principal payments every month.

No matter what the term of the loan, make sure that it's a fixed rate. Don't fall for any adjustable-rate loans -- even with a very low interest rate -- because those will have to be refinanced again down the road. If all this money-creation leads to inflation in the future, rates will move much higher. If instead, rates move even lower, you can always refinance again.

It's not just the quoted mortgage rate you want to consider. It's the annual percentage rate, or APR, that takes fees and costs into consideration. For example, a lender might quote a mortgage rate but then charge additional "points" (each point is 1 percent of the loan amount) and fees for arranging the deal. So focus on the APR, which takes those costs into account. The quoted rate and the APR should be within a quarter point.

Also, be aware that if your loan is a jumbo loan (above the $417,000 limit for loans insured by Fannie Mae and Freddie Mac), you will likely pay a higher rate.

And be sure to ask about the total monthly payment. You might be required to put property taxes and insurance costs into escrow as part of the deal, which could increase your monthly bill.

There are two ways to get a mortgage -- directly from the lender or through a mortgage broker. Either way, you'll have to supply a lot of documents to prove your income and submit to extensive credit checks, as well as an appraisal of the property.

Then, after this process called "underwriting," you'll be given a "lock" on a rate for probably no longer than 30 days, during which you have to close on the deal. (If rates drop further after you lock in a rate, some lenders offer the option to "float-down" for free.)

Online matching services, such as QuickenLoans.com and LendingTree.com, allow lenders to compete for your loan deal. But you'll have to sort through those that contact you with offers.

To find a mortgage broker, you can use GuaranteedRate.com or AmericanStreet.com, or you can Google mortgage lenders in your area. But be sure to read the consumer reviews for that company on Yelp.com or Google, or check the Better Business Bureau. This is too important a transaction to trust to blind luck or rate advertisements. And that's the Savage Truth.

The Chicago Tribune reports today that Chicago existing homes sales plunged over 25 percent in July, the worst performance for the month of July since the Illinois Association of Realtors, which issued its report Tuesday, began tracking home sales in 2000. The results marked an abrupt end to the 12 months of consecutive year-over-year sales volume gains for the local market

"After June 30 it was like 'Hello, is anyone out there?'" said Mala Gandhi, a Coldwell Banker real estate agent in Downers Grove. "The only thing that sustained (real estate agents) June 30 to now is the rental market. I haven't had anyone throw their hands in the air and say forget it. But in 45 to 50 days, we'll see frost and that's not a comforting feeling, especially if things are still sitting on the market."

A federal homebuyer tax credit jump-started home sales last fall and again this spring, particularly among first-time homebuyers, and there were expectations that demand would trickle up to repeat buyers. Record low mortgage rates also were expected to propel buyers into the market. And indeed, local monthly sales volumes — but certainly not sales prices — have notched healthy year-over-year gains for the past year.

But the end of the tax credit, job worries and general discomfort over the economy's direction caused a greater-than-expected fall in existing home sales in July. For the Chicago area as a whole, 5,561 single-family homes and condos were sold in July, at a median price of $193,000. That compares with 7,427 homes sold in July 2009 at a median price of $213,500, 9.6 percent higher.

In the city of Chicago, sales of condos dropped 21.2 percent, to 950 units sold, and the median sales price fell 12.9 percent from the same month a year ago, to $257,000. July's sales volume for single-family homes within the city fell 16.9 percent, to 639 homes sold, but the median sales price fell 26.8 percent, from $164,000 in July 2009 to $120,000 a month ago.

The median price is the price at which half the homes are sold for more and half are sold for less.

The slowdown seems to have affected most homes in the Chicago market, regardless of their location or their price point.

In Lake Forest, for example, there are almost 230 single-family homes listed for sale for $1 million or more. In the past three months, 32 homes have sold for at least $1 million, which some would say was a respectable performance. Add up the number of homes sold for $1 million or more for the past 12 months, though, and the total is 79. That means Lake Forest has an inventory of almost three years of million-dollar homes.

"We had a great spring market with a lot of sales at significantly reduced prices, but they were selling," said Lisa Trace, an agent at Griffith, Grant & Lackie Realtors in Lake Forest. "It has really slowed down."

Meanwhile, in Orland Park, 21 detached single-family homes sold in July and 32 were under contract. That compares with 43 homes sold in July 2009 and another 34 under contract. More than 700 homes are for sale in the southwest suburb, not including foreclosures, according to Web site Trulia.com.

Among the Chicago-area counties, the only one to eke out a positive sales performance was Kane County, where July sales rose 1.3 percent from a year ago. Kane County also recorded the biggest percentage drop in median sales price, 18.1 percent below a year ago, to $171,000, from $208,900 in July 2009.

July sales were down 22.9 percent in Cook County; 35.8 percent in DuPage County; 18.6 percent in Kendall County; 29.6 percent in Lake County; 19.8 percent in McHenry County; and 29.9 percent in Will County.

Real estate agents continue to tell home sellers that correct initial pricing is key, particularly with so many homes, including foreclosures, available.

Mike Stodola, an agent at Koenig & Strey Real Living in Libertyville, continues to have clients who offer paid golf club memberships and boat slips as enticements to generate showings at new listings. Meanwhile, he's advising some clients to consider renting their homes because of the number of job transferees into the Chicago area who have to rent because they can't sell their own homes elsewhere.

Stodola anticipates that sales will pick up in the fall, but if demand doesn't escalate, he still will chalk up 2010 as a good year. "If I didn't do any more business the rest of the year, it'd already be better than last year," he said.

For the entire article, click here.

The Daily Herald reports today that foreclosures in Illinois soared about 35 percent higher in July compared to a year ago, keeping the state in the top 10 with the biggest monthly increase nationwide, according to a RealtyTrac Inc. report released today.

The news wasn't any better on the local front. DuPage County foreclosures soared about 54 percent in July, compared to a year ago. Lake County followed with a 47 percent increase. The state and county results defied the nationwide trend that showed a nearly 10 percent drop in foreclosures, the Irvine, Calif.-based company report showed.

Experts said continuing high unemployment has been a major culprit here. Another has been the state law, which went into effect in April 2009, that allowed those facing foreclosure to have a 90-day grace period to save their homes.

That new law delayed the inevitable for some homeowners and artificially lowered the foreclosure rate last year, so this year's comparison is unusually high, said RealtyTrac spokesman Daren Blomquist.

The 90-day grace period has turned into 3 months of not paying the mortgage for some people. If they're unemployed, can't sell their home and its value is underwater, they have little recourse but to submit to foreclosure, said Marve Stockert, executive director of Lombard-based Illinois Association of Mortgage Professionals.

"In some cases, people are just giving up," Stockert said.

Nationwide, foreclosure filings, including default notices, scheduled auctions and bank repossessions, were reported on 325,229 properties in July, a 10 percent decrease from July 2009, RealtyTrac said.

In Illinois, foreclosure activity were on 19,602 properties, a 35 percent jump and the largest nationwide. It was also the third largest state total, the report said.

Illinois defied the national trend, said Blomquist.

"It looks like the state is getting a second wave of foreclosures due to the underlying economic problems, including high unemployment," Blomquist said.

And the rest of the year doesn't look much better. Stockert said things could remain bad or get worse when the new FHA law goes into effect in early October. It will spike the mortgage insurance premium from 50 basis points to as high as 90 basis points. On a $100,000 loan, that would add $500 to $900 a year, all tucked into the mortgage payments. The extra fee is on all FHA mortgages.

"This new law will really hurt," Stockert said. "It will just take more people out of the market, especially those who are especially close to qualifying but won't be able to pay the extra amount."

The Sun-Times is reporting that Governor Quinn has signed into law a bill to provide temporary property tax relief for tens of thousands of Cook County homeowners and property assessment reform for many more Illinois residents. But the law complicates the property tax process for hundreds of thousands of Cook County senior citizens.

The new property tax law will accomplish several things immediately. It extends the Cook County alternative general homestead exemption by three years, reducing the maximum exemption from $20,000 in the first additional year to $16,000 in the second and $12,000 in the final year. The exemption and the accompanying 7 percent cap on assessment increases were both set to expire this year.

On the downside, the new law also requires Cook County's 280,000 homeowners 65 and older to apply every year for a senior citizen exemption.

"Requiring seniors to apply annually for this exemption makes no policy sense," said Eric Herman, spokesman for Cook County Assessor Jim Houlihan.

In the rest of Illinois, seniors will continue to have automatic renewal after they first apply and are approved.

Quinn called the requirement for Cook County seniors an "unnecessary" part of the legislation that can be handled later. He called the Cook County property tax cap "the greater good."

The new law also authorizes Quinn to name seven people to new Taxpayer Action Boards that will be set up in Cook, DuPage, Kane, Kendall, Lake, McHenry and Will counties. Each board will oversee implementation of another new law that requires county assessors to provide property owners with a clear explanation of how tax assessments are determined. Each board will also evaluate how its county assesses residential property and examine the accuracy of computer-assisted mass appraisal.

For veterans returning from armed conflict, the new law expands a current one-year $5,000 exemption to two years.

Quinn said the new property tax law isn't a permanent solution to the state's high property tax problem. But Quinn said he would fight for a permanent property tax structure based on people's ability to pay.

"This is what the battle is about," said Quinn. "I am committed to fundamental property tax reform."

State Rep. Gregory S. Harris (D-Chicago) compared the law Quinn signed Sunday to "putting a Band-Aid on a complicated problem."

But Ray Helm, a retired City of Chicago worker and the owner of the property where Quinn signed the bill, said he was glad the governor is doing something.

"Property taxes are too high," he said. "This has gotta help."

Not too long ago I blogged about lenders pulling loans from clients who were pregnant during the course of processing their loans. Now HUD has begun investigating mortgage lenders to determine if they are discriminating against pregnant women because giving birth could diminish a family's income. The investigation was triggered by a New York Times article stating that maternity leave was being considered a factor in determining loan qualification. HUD has issued a statement saying the practice would violate Fair Housing laws.

This past Sunday the Tribune had an article about how home lenders are getting more and more data on their prospective borrowers, even going to so far as to seeing where you have your food delivered to make sure you're living in the home you said you would live in!

Lenders are also checking credit scores at the time of application, but then also again right before the transaction closes. So be careful if you plan to run up debt or buy that new big screen TV prior to closing! Your lender may deny your loan.

Lenders are even looking at where you shop. Someone who buys at Brooks Brothers vs. someone who buys at say, JCPenney, may have more disposable income.

You complete a form at application and at closing - Form 4506-T, which also allows the lender to pull up from the IRS your latest tax returns and verify your social security number. Borrowers have always been signing this document, but in the past, lenders were not verifying the information. 

The bottom line here is, BE TRUTHFUL! Don't exaggerate or stretch the truth, or flat out lie to your lender. You will get caught, and there will be dire consequences! Big brother is watching!

Reprinted from today's New York Times:

Expectant parents shopping for a home are not the only ones concerned about the date of the baby’s arrival. 

Mortgage lenders are taking a harder look at prospective borrowers whose income has temporarily fallen while they are on leave, including new parents at home taking care of a baby. Even if a parent plans on returning to work within weeks, some lenders are balking at approving the loans.

“If you are not back at work, it’s a huge problem,” said Rick Cason, owner of Integrity Mortgage, a mortgage firm in Orlando, Fla. “Banks only deal in guaranteed income these days. It makes sense, but the guidelines are sometimes actually harsher than they need to be.”

Back in the slapdash days of easy credit, lenders were more likely to overlook the fact that a parent was out on maternity or paternity leave. But now that lenders have become more conservative, they are requiring new parents to jump through more hoops to prove their income will be enough to cover the mortgage.

So before some prospective parents start spending their Sundays at open houses, they should be prepared to deal with some complications. They may have to delay the purchase, deal with the banks’ bureaucracy (and requests for extra paperwork) or buy a home they can afford on one salary.

“Maternity leave or any other leave of absence often prevents a person from obtaining a mortgage,” said John Councilman, president of AMC Mortgage in Fallston, Md. “There are some who long for the days when such strict proof of income was not required.”

The lenders’ new attitude can be traced, in part, to new loan quality-control measures that went into effect earlier this year. Fannie Mae and Freddie Mac, the two quasi-governmental mortgage giants that buy the bulk of conventional loans from lenders, have not changed their rules for qualifying for a mortgage. But the system of checks and balances has been tightened, making lenders increasingly skittish.

Fannie, for instance, now requires lenders to recheck a borrower’s financial situation right before the loan closes. That includes calling an employer to verify employment. Before, lenders required only a statement in writing. Fannie’s new rules went into effect on June 1. Freddie’s similar rule took effect in January.

Both Fannie and Freddie have always required that borrowers have enough income to pay for the loan on closing day — and the lender must document that the income is likely to continue for at least three years.

But here is how some lenders are interpreting the guidelines for, say, a new mother receiving short-term disability insurance for a couple of months (new mothers may receive disability payments while on maternity leave, though the amount and length depend on state law and company policies).

Since the disability payments will not continue for three years, these lenders will not count it as qualifying income, brokers said, and will require the new mother to reapply for the mortgage once she returns to work. (The same logic may apply to an injured employee receiving worker’s compensation.)

That is what happened to Elizabeth Budde, a 33-year-old oncologist who lives in Kenmore, Wash. She nearly lost her mortgage after a loan officer learned she was home with her newborn.

With stellar credit and a solid job, Dr. Budde said she had been notified via e-mail that she was approved for a loan on June 15. But that note prompted an automatic, “out of the office” e-mail reply from Dr. Budde’s work account, which said she was out on maternity leave.

The next day, Dr. Budde received a second e-mail message from the lender, this time denying her loan approval. Since “maternity leave is classified as paid via short-term or temporary disability income,” the e-mail message said, it could not be used because it would not continue for three years.

The message also said the lender could not consider her regular, salaried income because she was not on the job. “I was really shocked,” Dr. Budde said. “At the time, they didn’t know how I was getting paid for my leave.”

The lender suggested that she get a co-signer — her husband is a graduate student, so his income was not enough to qualify — or reapply after she returned to work. But with the help of a representative from her real estate brokerage firm, Redfin, Dr. Budde was finally able to explain that she was receiving her full salary during her time off since she was using accumulated sick and vacation days. Once she provided a letter from her employer, proving her case, she was able to requalify.

“The reason we were buying the house was because we were having a baby,” said Dr. Budde, who is now living in the three-bedroom home, bought for $300,000. “And now we got punished for having a baby.”

Janis Smith, a spokeswoman for Fannie Mae, said there was nothing in its guidelines that would prohibit a borrower on maternity or paternity leave from qualifying for a mortgage, as long as the borrower had proof at the time of the closing that his or her income would be adequate upon returning to work. Letters from a doctor (with a return date) and the employer (stating the return date and salary) should be enough, she added.

Loans backed by the Federal Housing Administration follow a similar protocol. Brad German, a spokesman for Freddie, said its guidelines required underwriters to make sure the borrower’s income was stable and could be expected to continue for at least three years.

But, brokers said, many lenders are clearly reading those guidelines through an increasingly conservative lens. “Lenders are picking and choosing what part of the Freddie and Fannie guidelines they want to use and how they will interpret them because one bad loan could put a company out of business,” said Jeffrey J. Jaye, president of the Upfront Mortgage Brokers Association, a trade group for brokers who disclose their fees upfront.

For some lenders, that may mean approving a loan only after the borrower is back at work “There is no real assurance that the new mom will come back to work after she has the baby,” said Marc Savitt, president of the Mortgage Center, a brokerage in Martinsburg, W.Va. “It’s just prudent underwriting to go ahead and approve the loan, but she has to be back before closing.” (Lenders cannot ask a woman if she is pregnant, brokers said, but they can ask borrowers if they expect their employment or income situation to change.)

Indeed, if Fannie or Freddie learn that a loan does not meet its underwriting requirements, it can require the lender to repurchase the loan. Both companies are performing more quality control checks on the loans they buy or package and sell as securities. And, perhaps not surprisingly, the number of repurchase requests has risen sharply.

The companies said they required lenders to buy back a total of $3.1 billion in loans in the first quarter, up 64 percent from the same period last year.

“While repurchase requests have always happened in the past, it’s never been to the degree that is happening now,” said Kevin Iverson, president of the Reed Mortgage Corporation in Denver, acknowledging that the repurchasing is obviously driven by the high level of defaults. “The end result is lenders are running a bit scared. So when in doubt, they just reject the loan.”

Dave Varni, a real estate agent with McGuire Real Estate in San Francisco, recently learned about lenders’ nervousness about borrowers on leave while working with a couple expecting a baby within weeks. They wanted to make an offer on a home, but they needed both of their salaries to qualify. Ultimately, a mortgage broker told Mr. Varni that the expectant mother would not be considered “employed” when it was time to close the loan, which would probably disqualify her.

“It was eye-opening to me and my clients,” said Mr. Varni, who said the broker explained that lenders were skittish about lending to a new parent who might decide to stay home. “We are going to assess our situation and may have to shift our search to something where he could qualify by himself.”

Roeder on Real Estate in the July 7th Trib:

Hard times are hitting apartment owners in the Chicago area. "Serves them right," some Chicagoans will say, since landlords aren't sympathetic figures.

But if landlords are having trouble, maintenance suffers. Units and neighborhoods deteriorate and family life is disrupted. The supply of affordable and decent housing falls.

nd that's what's happening in Chicago neighborhoods, according to a study by James Shilling, finance professor at DePaul University's Institute for Housing Studies. Among his findings:

• Falling property values in Cook County have put about $13 billion in multifamily mortgages at risk of default, about 30 percent of the total debt. Most of the risky loans are tied up in buildings with six units or fewer.

• Foreclosures of apartment buildings fall heaviest on poor neighborhoods. For the 2-6 unit buildings, the foreclosure rate in 2009 was 13.9 percent for poor neighborhoods vs. 4.2 percent for regions with high incomes. For larger buildings, the comparative foreclosure rates were 7.8 percent and 2.1 percent last year.

• Within Chicago, rents don't cover operating costs for about 74,000 apartments, or one in eight of all units.

Shilling said the situation has forced lenders to play the "extend and pretend" game, delaying foreclosures while hoping that valuations rebound. Or in many cases, banks have foreclosed, taken possession and kicked out tenants, keeping the units empty and boarded up until the market settles down.

A South Side landlord, Carl Pettigrew, agreed that many owners have been backed into a financial corner, especially if they bought their buildings from 2005 to 2007, the years of record volumes in mortgage lending. "I have noticed there are more buildings where people are not putting money into the properties," said Pettigrew, member of New Venture Realty LLC, which owns more than 200 units. "It's often because they paid too much and when the market turned on them, they didn't have the free cash flow."

Shilling's report, a "working paper" for DePaul's housing institute, addresses the importance of Fannie Mae and Freddie Mac, the government-backed mortgage guarantors that now hold about two-thirds of all loans on apartment buildings in Cook County. Policymakers have said the agencies should be forced to limit their exposure to multifamily loans, a move Shilling said would make the market more perilous.

But he speaks carefully when recommending solutions, mindful that the government already has spent $145 billion propping up Fannie and Freddie and may be called on for much more. Shilling suggests an expanded role for the Federal Housing Administration and wonders whether prolonging foreclosures isn't counterproductive.

"The sooner properties are removed from the housing stock, the sooner rents will begin to rise and the sooner the long-run equilibrium will be restored," Shilling said.

WASHINGTON (AP) — Applications for home loans rose last week as consumers raced to refinance at the lowest rates in decades.

The Mortgage Bankers Associations said Wednesday that overall applications increased nearly 7 percent from a week earlier. While they have been increasing in recent weeks, they remain below early 2009 levels.

Applications to refinance home loans were up 9 percent to the highest level since May 2009. But new mortgages taken out to purchase homes fell 2 percent.

Those applications have fallen in eight out of the last nine weeks, after government tax credits that spurred home sales ended on April 30. Applications were 35 percent below last year's levels.

The average rate for a 30-year fixed loan sank to 4.58 percent last week, according to Freddie Mac. That was the lowest since the mortgage company began keeping records in 1971.

Mortgage rates have fallen since mid-April. Investors, nervous about Europe's debt crisis and the global economy, have shifted money into safe Treasury bonds. That has caused the yields on those bonds to fall. Long-term fixed mortgage rates tend to track those yields.

Applications to refinance loans made up 79 percent of total applications, the highest share of refinancing activity since April 2009.

The Mortgage Bankers Association's survey covers more than 50 percent of all applications nationwide and has been conducted since 1990.