E-Mortgages on the horizon??

The dream of today's mortgage lenders, brokers and borrowers: paperless e-mortgages. The Internet and the digital era have opened the door to almost everything else – why not replace those piles of mortgage paper documents with a fast and easy paperless digital system? It could save a lot of time, money and frustration, but there are obstacles to its development.

For the past eight years, the Mortgage Bankers Association has been trying to establish voluntary e-mortgage standards. However, originating and securing a mortgage is a complicated procedure. For beginners, you have to know that there's a real property securing the mortgage, and the worth of that property, and whether or not it has a clear title. It's vitally important to have everything properly checked and recorded. Also, a lot of people are involved in processing and closing a mortgage – loan officers, underwriters, appraisers, surveyors, termite companies, title firms and others. They all play a role in processing a mortgage application. It's a real challenge bringing them all together in a practical, efficient e-mortgage system.

The only system that will really work is one that equally benefits both mortgage professionals and borrowers. If it's a one-way benefit for mortgage lenders and brokers, it will never be accepted by consumers. Applying for a mortgage represents a huge commitment for most families. It's only natural that applicants are extremely cautious about communicating their personal information via cyberspace. There's some talk now about offering mortgage applicants a discount on their fees if they agree to use a paperless electronic system. It's one way to push the public acceptance of the e-mortgage concept.

A boost for solar homes

On October 12-20, the U.S. Department of Energy's third Solar Decathlon will bring students from 20 of the world's leading universities to Washington , DC to transform the National Mall into a Solar Village . The student teams will start assembling their energy-efficient homes on October 3.

Seasoned home builders may soon learn some valuable lessons about incorporating solar energy in home designs from these young university students. The teams of students are competing to design, build and operate the most attractive, effective and energy-efficient solar-powered home. The project is sponsored by the DOE.

The competing students are from the United States , Canada , Spain , Germany and Puerto Rico . Their work will culminate in a display at an innovative, one-of-a-kind Solar Village created on the National Mall in Washington , DC . The event in Washington will give the public an opportunity to observe the powerful combination of solar energy, energy efficiency and the best in home design, according to a DOE spokesperson. The teams' houses and educational exhibits will be part of the Solar Village .

In striving to stretch every last watt of electricity that's generated by the solar panels on their roofs, the students absorb the lesson that energy is a limited and precious commodity, it was noted. They are using high-tech materials and design elements in very ingenious ways. A lot of learning takes place while they build their homes.

The teams transported their solar houses to the competition site on the National Mall and will virtually rebuilt them at that point in the Solar Village . The teams are competing in a variety of contests. However, the students really win the competition through the many months of planning, designing, analyzing, redesigning and finally building and improving their homes.

“Today's solar houses connect with nature to take advantage of heat and light from the sun and cooling breezes and shading,” the DOE spokesperson said. “They crank this natural advantage way up by using the newest products and technologies on the market.” For more information about the DOE competition, visit their Web site at: www.solardecathlon.org/ .

Smaller homes coming

Smaller, trendy homes is the hot plan for today's new houses. The super-sized homes that were gaining popularity in recent years are losing their appeal in today's market, while smaller floor plans are in. That seems to be the consumer's response to high prices and tougher mortgage financing requirements. Builders are keying-in to current market trends and consumer demands by planning smaller, lower priced units, according to Kermit Baker, chief economist for the American Institute of Architects.

For the past 30 years or so, prosperity and a demand for space to accommodate home theaters, offices, gyms and large kitchens has pushed up the average size of newly constructed single-family homes by nearly 45 percent, as the size of the average family has declined.

Last year, the median size of a newly completed single-family home reached 2,248 spare feet, up from 1,560 square feet in 1974, according to the U.S. Census Bureau. The expansion continued into the first quarter of this year, with the median home size inching up to 2,302 square feet. It then began slipping downward in the second quarter, and many analysts predict further declines in future months.

This creates a dilemma for some home builders, particularly those who have paid high prices for land on which they plan to build and sell homes. The lower price squeezes their profit margin significantly. They can only hope a higher sales volume will offset the lower per-home margin.

Deceptive mortgage ads

An increasing number of mortgage lenders, brokers and consumers are complaining about highly deceptive ads, often carried on radio stations. A saturation schedule of radio ads costs a lot less than many other forms of advertising, and certain loan companies are using that media to hawk their offerings in unethical ways. Many of the ads slam competitors and make misleading claims that barely comply (if at all) with advertising requirements in the federal Truth-in-Lending Act. Here's example copy:

“If your mortgage broker charges any fees at all, they are predatory lenders. Come to us, an honest broker. We charge no fees.”

Some consumers will bite on that bait. That's the reason they keep carrying the ads. But many more understand that there is no such thing as a no-fee mortgage. The lender may offer a mortgage that does not require any up front cash for fees. But those fees are either wrapped into the balance of the loan, or the interest rate or points are bumped up to compensate for not charging the fees up front. One way or another, the fees are paid. That type of offering may work well for some borrowers. But it's important for lenders and brokers to educate borrowers accurately and completely.

Most mortgage lenders and brokers are professional and honest business people. They understandably object to such deceiving claims by a few unscrupulous loan companies that will make any claim in radio or print ads that might attract prospective borrowers. Eventually, this type of unethical practice will tarnish their reputation to the point where they may leave the business.

Constructive changes taken by title industry

The title insurance industry is finally taking positive steps to correct problems and overpricing that has been pervasive in the industry for many years. Working on recommendations by the Government Accountability Office (GAO), the title industry's major association launched “The Title Industry Consumer Initiative.” It details a five-pronged strategy designed to solve or mitigate current problems.

The initiative includes a consumer education program, the adoption of a “Principles of Fair Conduct,” and a member education series on regulatory compliance and ethical standards. It also includes a plan for working more closely with state and federal regulators to ensure the title industry is meeting the needs of consumers.

“This sweeping initiative marks a significant milestone in our 100-year history,” said Gregory Kosin, president of the American Land Title Association, creator of the initiative. “The title industry has been widely criticized over past years – some of it deserved. Unfortunately, these criticisms have caused some to question the value of title insurance. Our new initiative addresses the GAO's recommendations on how the industry can improve. Historically, most consumers have relied on their real estate agent, attorney or lender to select their title company and are not always aware that they have a choice. Our new Web site helps consumers understand the process as well as their rights and choices concerning title insurance,” Kosin said. The address of ALTA's recently developed Web site is: www.homeclosing101.org/ .

“When members of our industry engage in unlawful practices in order to gain business, they create an uneven playing field for everyone else,” Kosin added. “Many of the regulatory bodies lack adequate enforcement resources and we believe that members of our industry are in the best position to recognize violations among their competitors.”

Green Mortgages

An increasing number of mortgage lenders are offering exceptionally favorable terms to home owners and buyers who incorporate environment-friendly features in their home. They are joining the “green” trend, favoring applicants who make energy-efficient improvements. These special loans are sometimes called “green mortgages.”

For example, one major lender has launched a program that offers $1,000 off closing costs with its energy-efficient mortgage through the end of this year. Another national lender offers an Energy Credit mortgage that gives borrowers a $1,000 credit toward closing fees on homes that meet efficiency requirements set by the government's Energy Star program.

Many of these energy-efficient mortgage products are structured like traditional adjustable or fixed-rate loans, but they incorporate the cost of energy-efficient improvement, such as insulation, windows and cooling systems, into the mortgage so customers can pay the cost over the life of the loan. When customers want to buy a home, they have an energy audit done by a certified third party that evaluates the home and creates a list of energy-efficient improvements that can save the homeowner money on utility bills.

New FHA mortgage rules opens door of opportunity to buyers

FHA home mortgages – those insured by the Federal Housing Administration – may soon be a viable financing option for many more prospective borrowers. A current proposal, already passed by the House of Representatives (at this writing) would raise the FHA loan limit to $417,000 in high-cost areas, reduce the minimum required down payment to 1.5 percent of the home's purchase price, and extend the maximum amortization term to 40 years.

The new provisions are part of an FHA reform bill (H.R. 1852) making its way through Congress. The basic objective of the legislation, according to the bill's text, is “to modernize and update the National Housing Act and enable the Federal Housing Administration to use risk-based pricing to more effectively reach underserved borrowers, and for other purposes.”

It will give FHA the capability to be more effective in helping past borrowers of high-risk subprime mortgages. Some of those who are having difficulty in making their monthly payments, thus facing possible foreclosure proceedings, may have the opportunity to refinance into a more friendly FHA loan. There has been pressure on legislators for years to bring FHA mortgage financing up to real-world economic conditions. Without these new and more flexible provisions, FHA would continue to be a dying breed of home financing options – or at least an endangered one.

An amendment attached to the bill would modify FHA loan limits to permit loans up to the lower of 125 percent of the local media home price, or 175 percent of the national conforming loan limit, with additional authority by the Department of Housing and Urban Development (HUD) to raise limits by area by up to $100,000 if market condition warrant.

Minimal commuting desired by home buyers

One out of every five homeowners plan to move within the next five years, according to a recent survey. About 43 percent of them want to purchase a home closer to work – up 10 percent from a similar survey last year. That points up an interesting trend. The high cost of gasoline and increasing problem of traffic congestion (thus extending commuting time and frustration) is motivating more families to move closer to their point of employment and family members. Commuting is becoming less attractive all the time.

For older consumers considering a move to a retirement home, 70 percent place a high priority on a location close to family and friends, it was noted in the new survey conducted by ERA Real Estate and Opinion Research Corporation. For those in the market for a second or vacation home, about 45 percent say they would share the property with other family members.

As for type of home most often wanted, the single family home is the winner. Of the one if five thinking about moving in the next five years, 65 percent indicated a preference for a single family home. That's consistent with a report by the Joint Center for Housing Studies of Harvard University indicating few baby boomers will be looking to downsize in the near future.

In fact, about one-quarter (24 percent) of survey respondents said the reason they would purchase a home would be to upsize their home, compared with 15 percent last year. Of those who currently own single family homes, only 11 percent would now consider purchasing a condo or town home.

An interesting new question was asked in this year's survey: If you could choose anyone, who would be your ideal neighbor in your new home? Among the U.S. presidential candidates, most preferred neighbors were Senator Hillary Clinton, Fred Thompson, John Edwards and Senator Barak Obama – in that order. Preferred celebrity neighbors listed were golfer Tiger Woods, Regis Philbin and Ellen DeGeneres.

Impact of lowered Fed rate

A recent development that should help lenders provide restructured or refinance mortgages for troubled borrowers is the substantial lowering of the federal funds rate by a half percentage point on September 18.  This will ultimately bring down mortgage rates and related monthly payments, according to many economists. The lowered rate will probably help home buyers as well as those needing assistance with their existing loan. However, some economists disagree, saying the lower Fed rate will have little or no impact on mortgage rates.

"By cutting the federal funds and discount rate by a half a percentage point, the Fed has sent a strong signal to financial markets and consumers that it intends to ensure that the economy keeps moving ahead and the housing market regains its strength," said Brian Catalde, president of the National Association of Home Builders.