Changes to Mortgage Disclosures Coming

The Consumer Financial Protection Bureau has released proposed rules that will change what information is disclosed to consumers, and also how and when those disclosures must be made. They’ve got a phenomenal website, and describe the program as the “Know Before You Owe” program.

Know Before You Owe – Image Source: Consumer Financial Protection Bureau

One of my favorites pages on the site (at least that is focused on this rule change) is the comparison page where you can compare the existing disclosure documents and directly compare them to the proposed mortgage disclosure forms. If you take a look, I hope you agree with me that the new disclosures are much easier to read.

The benefits to the proposed changes, per the CFPB are:

  • Combines several forms into two – reducing paperwork!
  • Uses clear language (vs jargon) and a clean design to make finding information easily.
  • Highlights the information believed to be most important: monthly payment, interest rate, and closing costs will all be on page 1.
  • Provides more info about the cost of taxes and insurance, and how interest rates and payments may change in the future.
  • Warning consumers about features they may want to avoid, like penalties for paying off the loan early.
  • Making the cost estimates consumers receive for services required to close a loan more reliable, for example, appraisal or pest inspection fees. The proposed rule prohibits increases in charges from lenders, their affiliates, and for services for which the lender does not permit the consumer to shop unless a specific exception applies. Examples of the specific exceptions include when information provided by the consumer at application was inaccurate or becomes inaccurate, or when the consumer asks for a change in the services.
  • Requiring that consumers generally receive the final loan terms and costs at least three business days before closing on the loan. Currently, consumers often receive this information at or shortly before closing. This additional time will allow consumers to compare the final terms and costs to the terms and costs they received in the estimate. That will better equip them to raise any questions before they go to the closing table.
  • Providing new and better measures to help consumers compare the cost of different loans offers, including the costs of the loans over time.
  • Improving regulators’ ability to monitor compliance by requiring lenders to retain the new forms electronically
I have to say that, in general, I fully support the changes. My only concern is the 72 hour requirement for final loan terms and costs prior to closing. San Francisco is a highly competitive market, and things often are tight (schedule wise) by the time we get loan docs. I need to look closely at the rule to see if weekends and holidays count, and if the disclosures can be made via email to the consumer or must be emailed. Please don’t get me wrong – I think it is important that buyers absolutely understand the loan they are getting, and consider it a part of my job to make sure they do. But I also know that timelines are always very time sensitive in real estate, and I don’t want to add three days to every escrow if there is a better way to handle it.
The CFPB is taking comments now – be sure to chime in with your thoughts!
What are your thoughts?


All We Need is to Give ‘Condo Conversion’ a Chance?

Will it finally happen?

Long time readers of the site will know that while I’ve personally bought and converted a 2 unit TIC building, I’m not a fan of bigger TIC projects because of the artificial challenges that the city has created as an obstacle to condo conversion. Because of the city-imposed lottery on 3 – 6 unit conversions and outright ban on conversion in buildings with more than six units, TICs tend to be the least liquid real estate investment in the city, and that’s before we get into the challenges of TIC financing, re-financing, and the difference in laws that govern TIC disputes vs condo disputes.

Next week – June 12 to be exact – legislation will be introduced by Supervisors Mark Farrell (Supervisor District 2) and Scott Wiener (Supervisor District 8) will be introducing legislation to the San Francisco Board of Supervisors, to allow any TIC building that either participated in or could have qualified for the 2012 condo lottery to convert to condo, provided that a specified fee is paid. And despite what the scaremongers will say, allowing condo conversion is good for the economy, not bad! The folks over at Plan C have more details about the legislation and rally, but if you are a TIC owner and care about condo conversion (if you are a part of the first group, you should automatically be in the 2nd group).

I haven’t seen the proposed condo conversion legislation yet, so I can’t yet endorse it or argue with it – but if it follows the general contours of what has been previously discussed then I’m probably 100% in favor of it. I think TIC owners have a unique opportunity to get the condo conversion laws changed given the fact that the city is strapped for cash and (for better or worse) landlords and homeowners are usually viewed by the supervisors as a piggy bank that can be emptied on a whim. Let’s hope that the fees are reasonable and not egregious, and that ridiculous requirements aren’t tacked on to the legislation to get it through the board of supervisors.

Either way, here are the details on the condo conversion legislation rally:

What: Press Conference with Supervisors Farrell and Wiener

When: Tuesday, June 12, 12:30PM

Where: City Hall steps, Van Ness Street side

Why: Because we need to show up in real numbers to demonstrate the positive impact passing condo conversion legislation can have for the entire city!

How All Cash Offers Change Everything. For Everyone.

Meet 3928 20th St. in San Francisco. It was recently listed and sold by an excellent San Francisco agent, Bernie Katzman of Herth. The property was on the market for about 10 days, received an incredible number of offers, and closed several days after the offer date (!) in an all-cash offer that was $551,000 over the asking price. The buyer was represented by an excellent Zephyr agent, but it wasn’t Britton or me. You might not be in the market for a single family home (maybe you are thinking condo), and you might not want to live on Liberty Hill/Dolores Heights (but if you could, it is a phenomenal location!), but this is an excellent tale about why all cash offers change the dynamics for all buyers in San Francisco.

3928 20th St. - Image Source: Google Maps

3928 20th St. is in an incredible location. If I recall correctly, it was a trust sale. Go track down the MLS photos and you’ll discover that while the home just wreaked of potential, it also was in a condition very typical for trust or probate homes. Optimists would call it vintage, while pessimists would call it out-of-date. It really doesn’t matter for our tale.

The home is also in an incredible location. It’s probably close to a tech shuttle bus stop, it is close to one of San Francisco’s most popular parks (Dolores Park), has great muni access, is on a block of 20th that dead ends, so it isn’t heavily trafficked and (call me harsh) isn’t attractive to the homeless or otherwise mentally unstable drifters that usually wander down hills, not up them. All of which to say there is a lot to like about this house!

View Larger Map

But I will bet  you my real estate license that if the purchaser of this home was financing the property, an appraisal would have dramatically scaled back the purchase price acceptable to the bank, easily by several hundred thousand dollars. And yes, even with a loan and a large down payment the property could have appraised for well over the asking price, but buyers getting loans tend to place some value on their appraisal, and usually tread pretty cautiously when paying for more than the bank’s opinion of value. As I’ve written about before, in a market where most buyers finance their homes, appraisals act as a buffer from rapid market changes, because the comps are always backwards looking by about 6 months.

In markets where there is plenty of cash – and believe me, San Francisco is one of those markets at the moment – appraisals don’t matter. The buyer of this home, regardless of who they are and what they plan to do with it, saw value at their purchase price. Maybe the value was bragging rights. Maybe the value is in a planned expansion or remodel. Maybe the value was sentimental or historical. Maybe the value was location. But for this particular buyer, the value was there, and they went for it.

What does this mean for the rest of the market is? Anyone in the market for a home – even with financing – now have a comp that is substantially higher than it might otherwise be that appraisers can use in justifying value for other homes. Appraisers now have a comp for a 3 bedroom, 1 bathroom home under 1,500 square feet (per tax, not verified) that was in need of updating but sold for $1,400,000. Which gives buyers that are financing their home a lot more room to offer similar prices on similar homes. Did nearby single family homes just get more expensive for everybody, financing or not?

Yes they certainly did, and that is how all cash offers affect everyone in the San Francisco market.

From $417,000 to $1,403,400

What are the 2012 Loan Limits?

2012 Loan Limits in San Francisco

Curious about how big of a loan you can get to buy a home in San Francisco? The above chart will walk you through what your options are for single family homes, condos, and 2 – 4 unit buildings. Please note that the purchase of a condo home falls under the “one unit” category, regardless of the number of condo homes in the development.

As you can see for a single family home or condo, a conforming Fannie loan is $417,000 and you can go as large as a $729,750 loan through FHA. Regardless of the program (Fannie, Fannie Jumbo, or FHA) you can expect to pay for private mortgage insurance if you have less than 20% down.

Interested in a 2 – 4 unit building? Depending on the building size, you can expect to qualify for a loan of between $533,850 to $1,403,400. If you don’t have 20% down, FHA loans or portfolio lenders (not pictured) are pretty much your only financing options at the moment.

As always, if you have more questions or want details about a particular loan scenario, don’t hesitate to get in touch. We aren’t mortgage brokers or bankers, but we are more than happy to put you in touch with a top-notch San Francisco mortgage broker.