At the end of each year, some people look back, while others look to the future. There's nothing we can do to change 2006, so let's look forward.
What will 2007 hold for American home buyers?
Interest rates: Last December, along with most economic forecasters, I predicted mortgage interest rates would be at least 7 percent by the end of the year. We were wrong. However, I am confident that interest rates will rise as we move into the new year. The state of our economy is still fuzzy, which in my opinion means rates will start rising in the months to come. Home sales: If you read the newspapers, you know that real estate sales are down, especially for condominium units. Developers who are faced with many unsold units are offering such things as free plasma television sets or free car rentals to lure buyers. However, there are anomalies, especially here in the Washington area. I recently learned of one cooperative apartment that generated five contract offers. That may be unusual in today's marketplace, but it's not unique.More important, a bunch of new members of Congress (and their staffs) are coming to Washington. That will clearly generate some sales. We all know that when members lose an election, they often stick around to become lobbyists. Thus the new people will be looking for good places to live, and that's good news for this area.
Foreclosures: Unfortunately, too many Americans did not listen when former Fed chairman Alan Greenspan warned against no-money-down, interest-free mortgages. According to the Mortgage Bankers Association, about 4.7 percent of homeowners were late on their mortgage payments in July through September of 2006. This was up slightly from 4.4 percent in the same period for 2005.If you have an old adjustable-rate mortgage that will adjust soon, you should seriously consider refinancing while rates are still hovering around 6 percent. Furthermore, if you have an "interest free" loan, you should carefully read your mortgage papers. You will learn that your loan includes a variable rate that can adjust on a daily or monthly basis. It also may turn into a fixed-rate loan within the next year or two -- and the rate will be based on the then-current mortgage rate. Be warned and act before it is too late.
Predatory lending: Everyone talks about this problem, but little if any real action has taken place. Low-income consumers are vulnerable to the tactics of some mortgage lenders, especially because they often are unable to get loans from legitimate companies.Recently, for example, the Montgomery County Council passed a law that would have gone a long way toward assisting consumers, but the Circuit Court ruled the council exceeded its authority and that the law was unconstitutional and unenforceable.
The judge held that only the Maryland legislature was able to enact such a law. So, when will that body tackle a problem faced throughout the state -- in Baltimore City as well as Prince George's and Montgomery counties?
And when will Virginia and the District address predatory lending? While hopes are high, expectations are low. Consumers do not have the same legislative muscle that mortgage lenders have.
RESPA violations: The Real Estate Settlement Procedures Act prohibits kickbacks between service providers, including mortgage lenders, title companies and lawyers. Recently, it appears there has been a growing trend toward enforcing this law. Consumers pay good money to purchase their houses; kickbacks add to these costs. Prospective home buyers shouldn't just go to a lender or a title company recommended by their real estate agent without shopping around. Often, selecting your own lender or title company will save you money. New-home sales contracts: If you decide to buy a newly constructed house, the builder will present you with a form contract. In the past few years, when sales were strong, it was take it or leave it. Unfortunately, too many of these contracts are one-sided in favor of the seller. Now that the market has cooled, you should carefully read the contract and consult your legal and financial advisers before purchasing. Builders want to sell, which means their form contracts now can -- and should -- be negotiated so that you get the best terms possible.For example, many such contracts do not have a fixed time as to when settlement will take place. In recent years, many potential home buyers have been faced with extraordinary delays, because the builder was unable to deliver the house on a timely basis.
This can be a problem, especially when interest rates may rise. You may have thought you could get a low 6 percent loan, but by the time the house is ready for settlement, interest rates might be much higher -- and obviously even if you can afford the new loan, it will crimp your finances.
Insist on a specific time for delivery with a penalty in case the builder cannot produce on a timely basis.
Loan documents: I repeat my long-standing plea: Lenders, please consolidate your loan documents. Home buyers should not have to sign multiple truth-in-lending statements, affidavits of residency and a host of other documents. In the good old days, we had to sign only three papers -- the settlement statement (called a HUD-1), the promissory note and the deed of trust (the mortgage). Although I may want to look forward, in the case of loan documents, the past was the better course.Benny L. Kass is a Washington lawyer. For a free copy of the booklet "A Guide to Settlement on Your New Home," send a self-addressed stamped envelope to Benny L. Kass, Suite 1100, 1050 17th St. NW, Washington, D.C. 20036. Readers may also send questions to him at that address.
