OfflineTwo of the Three Little Pigs Would Have Trouble Getting a Loan
Odd Homes Built of Tires and Trash Lure Environmentalists, Turn Off Bankers
By Anton Troianovski and Nick Timiraos
The Wall Street Journal
March 18, 2010
HOT SULPHUR SPRINGS, Colo.—Like many Americans, Jon and Laura Hagar are searching for a lender to refinance their home loan. But banks are leery of the Hagars. Their rural Colorado house is made of 17,000 old tires.
A niche mortgage mess is brewing in homes made of earth, tires, concrete and trash. Environmentally minded people built them, hoping to conserve energy and to re-use what might otherwise wind up in a landfill.
Such sentiments in some cases have been no match for the new resolve of the banking industry in the wake of the housing bust. Banks have become much pickier about examining sales of comparable homes, in deciding whether and how much to lend. Owners of odd homes can be out of luck.
The Hagars built their 2,700-square-foot house by stacking tire bales—five-foot-wide blocks of compressed tires—to form the exterior walls. They plugged gaps between the bales with cans, bottles, plastic plates, and other junk and moved in toward the end of 2008.
"We lovingly call it the trash house," Ms. Hagar says. The Hagars covered up all that trash with concrete, clay and stucco and installed south-facing windows to capture light, heat and views of the snowy slopes.
To pay for it, the Hagars in 2007 took out a $240,000 line of credit from Red Rocks Credit Union in suburban Denver. In the old days of easier credit, appraiser Lori Slota couldn't find another tire-bale home that had recently sold but said the house would be valued at $500,000 when complete, citing the listing of a straw-bale home as well as other houses in the area.
Last year, with the home finally finished and interest rates at record lows, the Hagars started trying to refinance into a long-term, fixed-rate mortgage. But in February 2009, they got the bad news from loan officer Bill Schimel, who wrote in an email, "I think we have really hit a brick wall here."
So far as anyone can tell, no home made from tire bales has sold recently in the state of Colorado. Lenders have been telling the Hagars they can't value the property and won't give them a regular mortgage.
Getting financing for unusual homes has never been easy. Near Granby, Colo., Richard Messer opted not to look for a conventional mortgage because there was nothing conventional about what's inside his walls: 50 tons of paper Coors beer packaging used as insulation. Mr. Messer got a $60,000 loan from friends to help pay for it. "The problem for anyone trying to do a unique house is financing," he says.
Wayne Bryant, a 56-year-old steamfitter, spent much of last year looking for a way to refinance a $417,000 construction loan on his underground house high in the San Juan Mountains in southwest Colorado. The first appraiser to examine his property didn't even come down from Denver to look at it, saying he had made a few phone calls and determined that there were no comparable transactions in the area, Mr. Bryant says.
At times, Mr. Bryant says, he and his wife feared they would lose their home. (Their construction lender, Fred Arnold of Owner Builder Loan Services says he foreclosed on several log homes in 2009 when borrowers couldn't refinance.) Eventually, the Wells Fargo & Co. branch in nearby Durango obtained an acceptable appraisal and agreed to give the Bryants a mortgage.
"People like us that want to build these types of homes—we're basically at the mercy of the mortgage companies," Mr. Bryant says.
Brad Blackwell, Wells Fargo's national sales manager for Western markets, said lenders are scrutinizing home values much more closely than in years past before they make a loan—making it harder for people in unusual properties to get mortgages.
"It's simply a fact of the mortgage lending environment in general that determining value on a property is more important than ever today," Mr. Blackwell said.
Complicating matters, government-backed mortgage-finance giants Fannie Mae and Freddie Mac adopted a new code of conduct for appraisers last spring. In the past, mortgage brokers could call on appraisers who had developed a niche by tracking oddball homes.
The new code bars mortgage brokers and real-estate agents from any role in selecting appraisers. During the go-go years, appraisers frequently complained that they were being pressured by brokers to inflate estimates. The rules have a wide reach because Fannie and Freddie account for more than 70% of the mortgage market today.
Pagosa Springs, Colo. mortgage broker Connie Giffin is one casualty.
During the boom, she raked in as much as $295,000 a year just for arranging financing for what she calls earth-friendly homes.
She helped appraisers value unusual homes by guiding them to comparable properties in a database she kept. To finance a seven-bedroom dome-shaped house in Yuma, Ariz., Ms. Giffin pointed the appraiser to domes around the state.
Among the comps listed in the appraisal: a property 250 miles away with a dome-shaped observatory.
Under the new rules, Ms. Giffin is no longer allowed to work with appraisers for loans that may be bought by Fannie or Freddie.
Last year, her total was $16,000, and this year, Ms. Giffin says she is pretty much out of business. She has converted her office into an art gallery.
The Hagars are still hoping. Don Arkell, a vice president at Red Rocks, says he is looking for a way to refinance their loan and is still testing the secondary mortgage market. He worries that the house is so unusual that he won't be able to sell the loan to investors, meaning the credit union would have to keep the loan on its own books. With regulators concerned about the health of small banks, Red Rocks is focusing on making loans that can be easily sold should it need to raise cash.
"It is pretty bleak out there for people in properties that are hard to value," he says.
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This article can be found at: http://www.stockmarketsreview.com/realestate/2010/05/28/understanding-th...
When buying real estate, buyers usually have several types of loan programs from which to choose. The terms of the loan are an important deciding factor also. After you secure the loan, there may be instances where additional types of loans are needed. These types of mortgage terms are defined below.
HELOC – An acronym that stands for Home Equity Line of Credit. A HELOC is a revolving line of credit with certain limitations that works similar to a credit card. Your home is the collateral and this loan is typically a second position lien.
Unsecured loan – A loan that is made by a lender with no pledge of collateral required. An advance of funds that poses a higher risk to a lender and is backed up only by a borrowers agreement to pay. Since the loan is not secured by collateral, interest rates are typically higher than that of a secured loan.
Upside-down loan – When the balance of an outstanding mortgage loan is greater that the fair market value of a home. This is also known as an “underwater” loan. If a homeowner would decide to sell their home, we call this a “short sale”.
VA loan – A loan issued and guaranteed by the Department of Veterans Affairs (VA) that is long term and requires little or no down payment. It is only available to qualified individuals who have served in the military or are eligible through other entitlements. Qualifying veterans must produce a “Certificate of Eligibility”.
FHA loan – A mortgage loan insured by the Federal Housing Administration of the Department of Housing and Urban Development (HUD). This loan is offered to qualified home buyers and issued by approved lenders who adhere to FHA guidelines and regulations. While the FHA places price range limits on the loans, the parameters are flexible enough to accommodate many buyers.
Conventional Loan – A secured loan on real property typically with a fixed mortgage rate. This type of mortgage is not insured or guaranteed by HUD. It also follows the guidelines set forth by Fannie Mae and Freddie Mac.
First mortgage – The first mortgage, usually determined by the date in which it was recorded, will be repaid before any other mortgages that are recorded against the property. It has the first claim in the event of default and takes priority over any other liens which are considered financial encumbrances with the exception of property taxes.
Second mortgage – A second residential loan that ranks below a home buyer’s first mortgage. It is always subordinate to the first mortgage.
Secured loan – Typically, a general purpose loan backed by a borrower’s assets such as a home or automobile. If the borrower defaults on the loan, the lender has the right to seize the collateral and sell it to satisfy the loan debt.
Adjustable Rate Mortgage (ARM) – A mortgage in which the interest rate is subject to change periodically, based on fluctuations in a designated market index. Monthly payments can increase or decrease at set intervals and according to a margin determined by the lender. The initial interest rate on a loan is typically lower than a fixed rate mortgage.
Fixed-rate mortgage – A mortgage loan that has a fixed rate of interest for the life of the loan. A higher rate of interest is usually charged for this type of residential loan, which most commonly is available in 15 and 30-year terms.
There are several risk factors for the consumer when selecting or deciding on a particular type of loan. By understanding the types of loans and the potential consequences and risks involved, the buyer will have more confidence in his loan decision process.
Exclusive representation to buyers and sellers is a complex venture. Real Estate Homes, LLC philosophy has accomplished this with great success. For more information on real estate and mortgage terms or the Phoenix Real Estate or Tucson Real Estate markets, please visit Real Estate Homes, LLC where you can search for all available homes for sale.
This article can be found at: http://www.stockmarketsreview.com/realestate/2010/05/28/understanding-th...
When buying real estate, buyers usually have several types of loan programs from which to choose. The terms of the loan are an important deciding factor also. After you secure the loan, there may be instances where additional types of loans are needed. These types of mortgage terms are defined below.
HELOC – An acronym that stands for Home Equity Line of Credit. A HELOC is a revolving line of credit with certain limitations that works similar to a credit card. Your home is the collateral and this loan is typically a second position lien.
Unsecured loan – A loan that is made by a lender with no pledge of collateral required. An advance of funds that poses a higher risk to a lender and is backed up only by a borrowers agreement to pay. Since the loan is not secured by collateral, interest rates are typically higher than that of a secured loan.
Upside-down loan – When the balance of an outstanding mortgage loan is greater that the fair market value of a home. This is also known as an “underwater” loan. If a homeowner would decide to sell their home, we call this a “short sale”.
VA loan – A loan issued and guaranteed by the Department of Veterans Affairs (VA) that is long term and requires little or no down payment. It is only available to qualified individuals who have served in the military or are eligible through other entitlements. Qualifying veterans must produce a “Certificate of Eligibility”.
FHA loan – A mortgage loan insured by the Federal Housing Administration of the Department of Housing and Urban Development (HUD). This loan is offered to qualified home buyers and issued by approved lenders who adhere to FHA guidelines and regulations. While the FHA places price range limits on the loans, the parameters are flexible enough to accommodate many buyers.
Conventional Loan – A secured loan on real property typically with a fixed mortgage rate. This type of mortgage is not insured or guaranteed by HUD. It also follows the guidelines set forth by Fannie Mae and Freddie Mac.
First mortgage – The first mortgage, usually determined by the date in which it was recorded, will be repaid before any other mortgages that are recorded against the property. It has the first claim in the event of default and takes priority over any other liens which are considered financial encumbrances with the exception of property taxes.
Second mortgage – A second residential loan that ranks below a home buyer’s first mortgage. It is always subordinate to the first mortgage.
Secured loan – Typically, a general purpose loan backed by a borrower’s assets such as a home or automobile. If the borrower defaults on the loan, the lender has the right to seize the collateral and sell it to satisfy the loan debt.
Adjustable Rate Mortgage (ARM) – A mortgage in which the interest rate is subject to change periodically, based on fluctuations in a designated market index. Monthly payments can increase or decrease at set intervals and according to a margin determined by the lender. The initial interest rate on a loan is typically lower than a fixed rate mortgage.
Fixed-rate mortgage – A mortgage loan that has a fixed rate of interest for the life of the loan. A higher rate of interest is usually charged for this type of residential loan, which most commonly is available in 15 and 30-year terms.
There are several risk factors for the consumer when selecting or deciding on a particular type of loan. By understanding the types of loans and the potential consequences and risks involved, the buyer will have more confidence in his loan decision process.
Exclusive representation to buyers and sellers is a complex venture. Real Estate Homes, LLC philosophy has accomplished this with great success. For more information on real estate and mortgage terms or the Phoenix Real Estate or Tucson Real Estate markets, please visit Real Estate Homes, LLC where you can search for all available homes for sale.