A Productive Talk With Our Lenders

The board officers and our Education Czar recently invited member lending institutions to the table to discuss the dramatically different landscape we find ourselves in currently, especially with regard to AD&C lending and individual mortgage loans.

Our objective was to better understand both the market and regulatory forces which are creating the changes that affect our industry so substantially. We also wanted to promote dialogue with our lenders and work to convey accurate information to you, our members, so that you know what to expect and understand what changes we need to make to remain successful in an otherwise volatile industry at an incredibly challenging time.

While builders and lenders may have valid grievances with another – we agreed at the outset not to play a blame game. We need to move on and understand the rules of the game so we can position ourselves successfully. We also want the lenders to understand how our members represent the height of this profession and they can use our professional standards to prevent these problems from recurring in the future.

Here are some of what I believe were the most important points from our dialogue:

• A position of equity: For a speculative home, the builder must have some equity in the deal – no more 80% of appraisal. For example, if you own the lot, that value would be taken into consideration.

• More scrutiny – looking at the builder “globally”: I heard lenders saying that when they are lending for spec or a custom, they will be looking at the builder’s history and full financial profile in a very comprehensive way – debt service, cash reserves, insurance, years of experience, completed projects, current projects (including those with other lending institutions, etc.) They want to see a financial statement with liquidity and a comprehensive, itemized budget for the project. Those who are not professional builders will certainly not meet many of these requirements.

• Loan expiration: The lenders said that there have always been clauses in contracts about actions the lender may take after a certain period of time, if the home does not sell. For many years, however, these were nearly moot because homes were selling here in fairly short order. We need to be aware of the “fine print”, so to speak, and well informed about our legal obligations as well as those of the lender.

• Regulatory Hot Button – Appraisals: Those responsible for oversight of the lending industry are focusing intensely on the appraisal process. Some of the fraudulent schemes we’ve seen in the headlines related to manipulating appraisals are driving changes in the process of ordering an appraisal. Some banks are going to a more random selection of an appraiser from an internal list while others are using an Appraisal Management Company – a third party outside the bank that orders the appraisal to keep the process at an arm’s length.

• The Secondary Mortgage Market: this is a driving force behind this appraisal and other changes by making them requirements for those mortgages they are willing to buy. One banker said those eligibility criteria change and expand on a daily basis. This, of course, is also affecting what is required of the purchaser to qualify for a loan.

• Mortgage loans: a buyer will certainly have to provide a well-documented financial position. In the past, there wasn’t a need for the homeowner to sell their existing home before starting a custom. That may not be the case now. While there are still some bridge loans out there, the perspective on this situation is different. Before, banks made an asset-based decision in this equation. Now, it is more an issue of cash flow and whether or not someone can handle two loan payments for a longer period of time if the house does not sell quickly.

I really appreciated our lender members who made the time to come to this meeting to educate us, to listen to us, and to help us move forward in a productive way.

Keeping the Faith
God Bless
Rusty MacLachlan



Read more!!!

Fire Sprinklers "Mandatory Option" is Just what the Doctor Ordered!

A funny thing happened on the way to mandatory fire sprinklers.  The Home Builder’s Association of Missouri and the State Fire Chiefs of the Show Me state hashed out an agreement where the real winner is the buying public.  As you well know the National Association of Home Builder’s attempts to halt the inclusion of Mandatory fire sprinklers in the 2009 building codes failed.  

Faced with mandatory sprinklers in all new homes, the HBA of Missouri caught the attention of state lawmakers with legislative language that would prevent political subdivisions (cities, counties, fire protection districts) from adopting the residential sprinkler mandate. Instead, the legislation we have supported would require all builders to offer complete information to their customers about fire sprinkler systems, their advantages, disadvantages, and costs:

A builder of single family dwellings or residences or multi-unit dwellings of four or fewer units shall offer to any purchaser on or before the time of enterings into the purchase contract the option, at the purchaser's cost, to install or equip fire sprinklers in the dwelling, residence, or unit. 

Notwithstanding any other provision of law to the contrary, no purchaser of such a single family dwelling, residence, or multi-unit dwelling shall be denied the right to choose or decline to install a fire sprinkler system in such dwelling or residence being purchased by any code, ordinance, rule, regulation, order, or resolution by any county or other political subdivision.  Any county or other political subdivision shall provide in any such code, ordinance, rule, regulation, order, or resolution the mandatory option for purchasers to have the right to choose and the requirement that builders offer to purchasers the option to purchase fire sprinklers in connection with the purchase of any single family dwelling, residence, or multi-family-unit dwelling of four or fewer units.

Placing this provision in state law would allow the home buyer to make an informed decision whether to purchase or decline a sprinkler system for their home. This “mandatory option” for homeowners seemed like a reasonable middle ground to us.

Action in Jefferson City began with our trip to legislative day this past February, when the HBA of Greater Springfield showed up to Jefferson City in force.  In meetings with our representatives and senators we clearly expressed our concerns.  They listened and this legislation was drafted to stop what those at the national level could not.  Our “mandatory option” proposal was a move towards the center in hopes of finding a compromise with the fire districts.  Many municipal fire departments and area fire districts were holding firm in their stand for nothing less than full adoption of the 2009 building code, including the fire sprinklers mandate.

The battle lines were drawn, and politically this was a “Hot Potato.”  Senator John Griesheimer, from the St. Louis area, called for a meeting. He asked builders and fire fighters to come to the state capital to find common ground.  Matt Morrow and I journeyed to Jefferson City last week to defend the American Dream.  Senator Griesheimer made it very clear to the group that we needed to come to agreement and work in good faith. He then appointed the Eureka, Missouri Fire Chief as the meeting moderator, and promptly left the room.   

Wow, the odds were not looking good.  But, to the credit to the Fire Chiefs, they showed up ready to work in good faith toward a mutually acceptable solution. And, in the end we all agreed that ultimately the homeowner needs to decide for themselves whether or not to have fire sprinklers in their home. The fire officials believe strongly that if the buying public understands the virtues of residential fire sprinklers, then most will opt in. The primary remaining dispute on this day was over whether the state should enact this bill, or if the matter should be at the sole discretion of local authorities.  

After a long day we agreed to support passage of our state legislative language, but to include a December 31, 2011 sunset to the bill.  At that point the local authorities  will regain control of the issue.  Both sides agreed to jointly draft and sign a letter supporting permanent local ordinance language that reflects the temporary state legislative compromise of the “mandatory option.” This letter will be signed by the Missouri Fire Safety Alliance and the HBA of Missouri, and it will be sent to all state municipalities. The HBA of Greater Springfield will then spend the next 2 ½ years making the case to local and county governments that they should adopt this model ordinance endorsed by the HBA of Missouri and the Missouri Fire Safety Alliance.

The legislative process can at times be messy, but clearly the system works when you stay informed and stay involved.  I have no doubts that our strong presence on legislative day, coupled with a strong PAC is paying huge dividends.  Continue to stay informed, stay involved, and most importantly support our PAC, the Coalition for Building a Better Tomorrow.

Keeping the Faith

God Bless

Rusty MacLachlan

Read more!!!

Fed Action Means Lower Mortgage Rates are on the Way

Yesterday, the Federal Reserve announced some very aggressive steps aimed at unlocking the sluggish credit markets, with a major focus on further lowering mortgage interest rates. The Fed said it would significantly expand its ongoing program of buying Fannie Mae and Freddie Mac mortgage-backed securities (MBS) and debt. The Fed increased its planned MBS purchases by $750 billion, making the new target $1.25 trillion, and doubled its slated debt purchases to $200 billion. In addition, the Fed announced a new program to buy up to $300 billion in long-term Treasury bonds over the next six months. These initiatives are just the thing NAHB has pushed for in our recent meetings with Federal Reserve officials and should send a strong signal to consumers that homes can be purchased on very favorable terms.

Mortgage rates should drop significantly in response to the Fed moves. Some lenders have already lowered posted rates by a quarter of a point. This should be encouraging news for potential home buyers who have been sitting on the fence, waiting for the right reason to get back in the market.

Some dealers have indicated that the 10-year Treasury rate could test the December lows of just over 2%. It is anticipated that the majority of the Fed’s Treasury purchases will be centered on the 5-10 year sector, which will have the most influence on mortgage rates. The immediate result was a widening of MBS spreads as Treasury yields collapsed on the announcement of the new Fed Treasury purchase program. This presents an opportunity, however, for the Fed to methodically drive down this spread, as they proceed in acquiring the enormous volumes of Fannie and Freddie MBS and debt as outlined in the March 18 announcement.

You can click here to read the Fed’s official announcement.

If you have any questions, please feel free to contact Dave Ledford on the NAHB staff.

Keeping the Faith

Rusty MacLachlan

HBA President

FOLLOW HBA PRESIDENT RUSTY MACLACHLAN ON TWITTER!

Read more!!!

Hope Springs Eternal

Good News! Good News!  Good News!  The St. Louis Cardinals are still in first place.  Well so are the Cubs for that matter.  But, opening day is just around the corner and our beloved redbirds are sure to have a banner year.Wow, a little good weather does great wonders for our spirits.  

We just cannot help but believe that winter is over.  The grass is greening up, the trees are budding, the flowers are beginning to bloom.  The signs are all there.  To be sure, there are still a few cold days ahead, but there is just no disputing that spring is pushing winter aside.

We also are seeing early signs that the housing slump is losing steam as well.  Just this week the Wall Street Journal reported that “Home prices are closer to stabilizing today than at any time in the past nine years.”  The data points to a housing affordability index that is at the exact ratio that we last saw in the hay days of the 1980’s.  Of course the hot news on the national press in the last few days celebrated the 22% uptick in national housing starts from January 2009 to February 2009.  This ended 18 consecutive months of decline.  Encouraging news on the national scene!

Locally we can expect our market to rebound even sooner than most.  Zanola Research Group suggests that we need to build 666 homes this year in Greene county alone just to keep pace with demand.  The report went on to point out that southwest Missouri is continuing on a long pattern of job growth.  We see all the reports of job losses but research shows that new jobs outpace job losses in our area.  Add growing wages and a steady climb in population and we are three for three in those areas that matter most for a housing rebound.

Three for Three, that reminds me of baseball.  Yes, opening day is almost here.  Looks like busy days ahead.  God bless!

Keeping the Faith

Rusty MacLachlan

HBA President

FOLLOW HBA PRESIDENT RUSTY MACLACHLAN ON TWITTER!

Read more!!!

Update on HBA & GSBOR meeting

The leadership teams from The Home Builders Association of Greater Springfield and the Greater Springfield Board of Realtors held the first meeting in what is to become a quarterly event. Both associations recognize that we share common concerns over the housing market, and that we have much to offer each other. I am confident that our cooperative efforts will prove to be of tremendous value to a local housing market that is beginning to show signs of recovery.

We explored opportunities for our builders to share a database of custom home sales that will allow realtors and appraisers the opportunity to use custom homes as comparables for appraisals (thereby fostering higher and more accurate appaisals). And, the GSBOR is looking into adding the Builder's name on MLS forms for each and every listing. A builder's membership, or lack thereof, in the HBA could also potentially be noted on each listing. This would greatly increase the importance, and value of, homes that are built by HBA members.

We have agreed to lead a class for realtors on how to choose a builder, why insurance is important, the pitfalls of using a non-professional builder, and how Builders and Realtors can work together on custom homes. We all agreed that a lack of knowledge in how to cooperate on customs has hampered an often times neglected area that can benefit all involved.

In short, we had a very productive meeting of the minds. Both leadership teams agree that our market has slowed in large part because of news media reports about only those markets that have been hardest hit. In southwest Missouri we have have reasons to be hopeful. Spring is coming, and with it the early buds of our housing market are even now showing signs that they are about to bloom.

Keeping the Faith, 

Rusty MacLachlan
Read more!!!

A Rare Opportunity

As Home Show approaches, it is important for us to be able to share the upside of the current market with the public. That is the focus of my message (see below) for the HBA Event Magazine which will be distributed at Home Show and other major events throughout the year.

PRESIDENT'S 2009 EVENT MAGAZINE MESSAGE

After 25 years of marriage I have to let my wife in on a little secret. She’s not my first true love. In fact, as time moves on I find myself longing to find my old love, for just one more day together, just one more trip to the lake. But even if I could find her, I’ll bet time has not been her friend. I am sure she would need a lot of work. Yes that ‘73 Monte Carlo still has a place in my heart. My first investment. Long hot days of work over many summers were required to save enough money to buy that first car. I still can remember the security of those keys in my pocket. The status, transportation, and freedom. I was sure that this 16-year-old who had life all figured out had made a great investment. Until it came time to sell. That $3,500.00 INVESTMENT went for $300.00. WOW! That was sure an eye opener.

Years later I was sold the investment of whole life insurance. I soon discovered that while that policy did have some value, it simply was not the key investment that I needed. My wife and I invested a little in the stock market and that too has proven itself to be a wise decision. But, I’ve found that there’s just something about the stock market that I don’t like. The key to the stock market is “there are no keys”. Oh sure over time the value has gone up and down, admittedly mostly up over the long haul. But, I really don’t know what it's worth. I have to rely on some seemingly random number that pops up at the end of each day to discover what value there is to this invisible investment. I can’t see it, touch it, or really even find it. I can’t get insurance on it so that if a financial storm wipes it out I can rebuild it. Will your friends and neighbors even come to a stock rebuilding party after the storm?

The key investment that I have found true security and value in is my house. You see the key is that there are keys. Not only has the investment in my home outpaced the stock market, I can use this asset daily. At the end of the day, my home provides peace, comfort, and security from the weather and financial storms. Best of all, my home has given me a place where life’s best memories are made. The true value of a home can never be measured in dollars alone. Yet, over the course of time, the American dream continues to be the best financial investment one can make. The investment in a home doesn’t just build wealth, it builds families.

Have you ever heard someone say, “Boy, I wish I had bought a home 3 or 4 years ago?" They kick themselves because the prices and values have continued to climb and they realize that those prices are long gone. Today, we find ourselves in one of those rare places where the clock has been set back 3-4 years. Yes, you can buy or build a new home today at yesterday’s prices. These opportunities only come around once every 25-30 years. In the months to come the prices and values will begin to rise again. In fact, population growth trends indicate that in the next 10-12 years we are likely to face a housing shortage in America.

In my lifetime, I have never seen a better time to buy or build a new home. Interest rates are surprisingly low. Locally, our banks are very sound, willing and able to make very favorable loans. Our local economy is sound. Our area is even experiencing job and wage growth. Now is the time to move. Yes, I still have fond memories of that ‘73 Monte Carlo. But while those old cars hold memories, nothing can replace the deep feelings of home. Taste the American dream. Make the investment of a lifetime today. Invest in a dream. Buy or build your new home today.

Rusty MacLachlan
HBA President

Read more!!!

The HBA is In Good Hands in 2009-2010

If you attended the HBA Christmas Party last week, you had an opportunity to hear in detail my list of "thank yous" to all of those members and volunteers who helped me so much throughout my tenure as HBA President. I won't repeat them all here but I do want to simply say it has been a privilege serving the members of this organization in this capacity. I'm very proud of what we've accomplished and I know that we are extremely well situated for success in 2009 with our new president, Rusty MacLachlan, at the helm.

I've been at a number of leadership meetings in the last week with Rusty and many of our incoming committee chairmen and board members. Rusty has an incredible grasp of both the challenges and opportunities our industry faces at the local, state and national levels. Trust me when I say, he has very detailed plans and the strategic focus necessary to help our industry come through the next two years even stronger. Please engage in HBA activities and events as much as possible in the coming year and make certain you take every opportunity to communicate your ideas to the volunteer leadership and staff. They want to know what you need from your association.

Finally, I want to wish everyone a very Merry Christmas and a Happy New Year. I am already enjoying the holiday - including my uniquely decorated tree (see photo at right) which features my new string of "Bass" lights. This is one good looking tree -- reminds me that fishing season is just around the corner.

Sincerely,

Kevin Clingan

Now, Officially,

PAST President

Read more!!!