Lender tightening in recent years has made it difficult for most buyers to buy a new home before selling the old one. This may not be the case for homeowners who have plenty of cash for a down payment on a new home and plan to keep the current home as a rental property.

If the rental property will generate a cash flow and the owners have good employment histories and excellent credit, this is a workable strategy. It enables the homeowners to stay put until they find a home they want to buy.

In low-inventory markets, offers made contingent on the sale of a buyer’s property have little chance of success, especially if there are multiple offers from buyers who don’t need to make a contingent sale offer.

In this situation, buyers need to sell first before they can make themselves competitive in order to buy in a neighborhood where they want to live. This usually means making a double move: first to an interim rental, then to their next home. This is inconvenient but necessary in the current home sale market where in many places there are fewer listings of homes for sale than there are buyers eager to buy.

HOUSE HUNTING TIP: There are benefits to selling your home first other than being able to compete. One is that you know exactly how much money you have to put into the next house. You may find that you can afford to pay more or less than you think you can. There’s no way to know for sure until your home has sold and closed.

Becoming a renter while you look for a new home allows you to wait until the right home comes on the market. You don’t feel pressured to buy a less-than-ideal home because you’re under the pressure of a time frame.

One option when you sell first is to ask the buyers of your home to allow you to rent your home back for a period of time. The hope is that you will find a suitable home to buy in that time frame and won’t have to move to an interim rental.

It’s a good idea to reserve the right to rent back for a while after closing. But, unless you think you can find a home to buy quickly, it may be less expensive to move to a rental and take time finding the right long-term home to buy.

Usually, sellers who rent back need to pay buyers an amount equal to the buyers’ principal, interest, taxes and insurance prorated on a per diem basis: the buyers’ cost of owning your home. This may be quite a bit more than you currently pay to own your home.
Buyers who successfully negotiate a contingent sale offer usually have to pay a premium price for that privilege. You’re in a better position to negotiate a competitive price if your offer is contingent on the close, rather than contingent on the sale, of your current home, particularly if all contingencies have been removed from that contract.

In this case, if you have to pay for a few days or a week to rent your home from the buyers, a high per diem should be seen as a convenience fee. Make sure the purchase contract on your home allows you to notify your buyers when you’ll vacate the premises and have the rent prorated accordingly.

THE CLOSING: Be aware that many lenders won’t allow a rent-back for more than 30 days following the closing.

The changes will limit the ability of some borrowers with low credit scores to qualify for loans, and raise minimum down payment requirements and premiums for borrowers taking out mortgages larger than $625,500.

The agency reported a $16.3 billion deficit in a report to Congress in November, raising the specter that FHA will require a taxpayer bailout next year for the first time in its 78-year history.

The U.S. Department of Housing and Urban Development (HUD), of which FHA is a part, noted the changes in an announcement today:

As of April 1, 2013, FHA’s full drawdown reverse mortgage program, the Standard Fixed Rate HECM, will no longer be available to borrowers who seek a fixed interest rate mortgage. Such borrowers will only have access to the HECM Fixed Rate Saver, which “will significantly lower the borrower’s upfront closing costs while permitting a smaller pay out than the HECM Fixed Rate Standard product, thereby reducing risks to the (FHA’s) Mutual Mortgage Insurance Fund,” the agency said. The vast majority of HECM borrowers currently choose the Standard option.

FHA will raise the annual mortgage insurance premium paid by borrowers on most new FHA loans by 10 basis points, or 0.1 percent, which the agency expects will add $13 a month to the average borrower’s monthly payments. FHA will also increase premiums on jumbo mortgages (those $625,500 or bigger) by 5 basis points or 0.05 percent, to 155 basis points — the maximum currently allowed by law. Certain streamline refinance transactions will be excluded from the premium increases, the agency said.

FHA will reverse a policy that automatically canceled required premium payments after loans reached 78 percent of their original value. Most FHA borrowers will now have to continue paying annual premiums based on the unpaid principal balance for the life of their mortgage loan. The agency estimates it lost billions of dollars in premium revenue on mortgages endorsed from 2010 through 2012 because of this cancellation policy.

Borrowers with FICO credit scores below 620 and a total debt-to-income ratio of more than 43 percent will not be eligible for processing through FHA’s automated underwriting system, TOTAL Scorecard. Such will have to be processed manually, with lenders documenting compensating factors such as a larger down payment or a higher level of reserves.

FHA will propose an increased minimum down payment on loans between $625,500 to $729,000 to 5 percent from 3.5 percent. ”This change, coupled with the statutory maximum premiums charged for these loans, will help protect FHA and further facilitate its efforts to encourage higher levels of private market participation in the housing finance market,” the agency said.

FHA will crack down on lenders that advertise under the false pretense that borrowers can “automatically” qualify for an

FHA-insured loan three years after a foreclosure. Borrowers who have experienced a foreclosure must have re-established good credit and meet underwriting criteria, including the policy change outlined above for borrowers with credit scores under 620. FHA is also committed to a new housing counseling initiative that would apply to a number of borrower classifications, including borrowers with previous foreclosures, the agency said.

The changes will fulfill the commitments FHA Commissioner Carol Galante made in December in a letter to Sen. Bob Corker, a Tennessee Republican and a member of the Senate Banking, Housing and Urban Affairs Committee, who in return for the commitments agreed to drop his opposition to Galante’s nomination to be FHA commissioner. The U.S. Senate confirmed Galante to the post on Dec. 30.

“These are essential and appropriate measures to manage and protect FHA’s single-family insurance programs,” Galante said in a statement.

“In addition to protecting the MMI Fund, these changes will encourage the return of private capital to the housing market, and make sure FHA remains a vital source of affordable and sustainable mortgage financing for future generations of American homebuyers.”

The reverse mortgage consolidation was announced today. HUD will provide further details on the remaining changes through announcements in the next several days.

Maryedith…Yours is an interesting question. I need more facts, such as (1) how and where was the price advertised at $168,000? and (2) did you have any contingencies in the sales contract that you presented to the bank?

In order to have a legal and binding real estate contract, three things are needed: (1) offer — typically, the buyer makes an offer to the seller, which can be accepted, rejected or countered; (2) acceptance — the seller accepts the offer; and (3) valuable consideration — usually, this means money, such as the earnest money deposit that accompanies the sales contract.

However, consideration does not always require money. For example, if one party refrained from looking for any other house or put their own house on the market based on the fact they believed they had a contract to buy another house, that can also be considered “consideration.”

In a real estate transaction, the seller will list the property with a broker for an agreed upon price. If a buyer presents an offer at that price — with no contingencies — the broker may be entitled to a commission under the terms and conditions of the listing agreement.

But the seller is not obligated to sell at that price, even if that’s the listed price. The listing agreement is a contract between the seller and the broker but is not considered an offer that can be accepted by a buyer.

The best example: If a large department store advertises a TV set and the price accidentally is shown at $1, the courts have consistently held that this is request for an offer but is not an offer that can be accepted by the public, and therefore not binding on the department store.

By analogy, the bank did not make you an offer for $168,000 but simply requested that you make an offer. Since the bank did not accept your offer, there is no contract and the bank does not have to sell to you at that price.

I think it is reprehensible conduct on the part of the bank, but, in my opinion, not necessarily illegal.

That may have been the case decades ago. But the home sale process has become more complicated over the years. Today, it might be more appropriate to say that the negotiations are over when the transaction closes. That is, if there aren’t any after-closing issues, like a leaky roof that wasn’t disclosed that could require more negotiation.

After a purchase contract is signed — including all the addenda and counteroffers — it is said to be ratified. A ratified contract is binding on both parties and usually can’t be unilaterally changed by one party without agreement from the other party. Any modification to a ratified purchase contract needs to be in writing. Verbal agreements to sell real estate are not binding.

Most purchase contracts include contingencies that provide buyers a time period to comply with certain parts of the transaction. The most common contingencies are for inspections and investigations, loan approval, appraisal of the property, and the sale of another property.

Usually, if the buyers use their best efforts to satisfy these contingencies but are unable to do so, they can withdraw from the contract without penalty and have their good faith deposit returned to them.

You should fully understand any purchase offer you sign as well as the impact of the buyers removing or not removing contingencies before you sign the contract. Not all contingencies contain the same language.

For example, some inspection contingencies give the sellers the right to remedy a defect; others allow the buyers to withdraw from the contract for any reason at the end of the inspection contingency period. Any questions should be directed to a real estate attorney.

HOUSE HUNTING TIP: Even though the ratified contract is legally binding on both the buyer and seller, circumstances can change during the transaction that may result in renegotiation. The most common occurs when the buyers’ inspection contingency is due. If buyers’ inspections reveal new information about the property, the buyers may agree to remove the inspection contingency but only if the sellers repair defects or contribute financially to repairs.

This puts the contract in limbo and requires good faith negotiation to salvage the transaction. Otherwise, the buyers and sellers agree in writing to cancel the contract. The sellers put their home back on the market and the buyers look for another home to buy.

Not all buyers renegotiate the contract when the inspection contingency is due. If the sellers have provided presale inspection reports and thorough disclosures before the buyers made an offer, it’s less likely that the buyers will make further requests from the sellers.

Another trigger for further negotiations can occur when an appraisal ordered by the buyers’ lender values the property at a price that’s lower than the purchase contract price. The effect of this is that the buyers’ lender will lend less than it said it would before the appraisal was done.

The buyers could ask for another appraisal, withdraw from the contract or try to negotiate a solution with the sellers. This might mean that the buyers agree to put more cash down, or they could ask the sellers to lower the purchase price, or a combination of the two. The goal is to reach a price that will work with the lower loan amount.

Buyers who feel they overpaid for the property may be more inclined to request a reduction to the appraised value and hold firm at that price.

THE CLOSING: If the sellers won’t agree, the transaction will fail.

“I’ve seen many situations where external factors, such as living near a bad neighbor, can lower home values by more than 5 to 10 percent,” said Appraisal Institute President Richard L. Borges II, in a statement. “Homeowners should be aware of what is going on in their neighborhood and how others’ bad behaviors could affect their home’s value.”

The Appraisal Institute recommends that prospective homebuyer visit the street where they’re considering buying at different times over the course of several days.

A number of social networking websites allow users to share insight about neighborhoods. They include NabeWise, Nextdoor, BlockAvenue, StreetAdvisor, and Airbnb. Other sites offering data at the neighborhood level include Walk Score and PolicyMap.

Crime is an obvious issue affecting property values. But the Appraisal Institute advises that homebuyers keep an eye out for annoying pets, unkempt yards, unpleasant odors, loud music, dangerous trees and limbs, or poorly maintained exteriors. Buyers should also be aware of a property’s proximity to commercial facilities, such as power plants and funeral homes.

These and other issues can affect not only a property’s current value, but the rate of potential decline in value.

“External obsolescence” may be driven by economic or location factors. It may be temporary or permanent. But there’s often little that property owners, landlords and tenants can do about it.

Property owners who have identified neighborhood issues should speak with other neighbors and get consensus before approaching the bad neighbor together, the Appraisal Institute advises.

Sometimes a bad neighbor’s activities may be prohibited by the local municipal code, subdivision restrictions, or the health department, and can be remedied by reporting them to code enforcement or other authorities.

If all else fails, the Appraisal Institute says hiring an attorney to help resolve a problem will often cost less than the potential loss in home value.

Yet every homeowner with a mortgage has the opportunity to earn a return equal to the interest rate on the mortgage, with no risk, simply by making extra payments. It is the best investment opportunity most homeowners have.

The only downside to using mortgage repayment as an investment is that it has no liquidity — once you make the payment you can’t take it back if you have an unexpected need for funds.

However, most homeowners with mortgages who place their savings in bank deposits or money market funds paying less than 1 percent, rather than earning 3-6 percent by paying down their mortgage, do it for reasons other than a need for liquidity. The main reason is confusion about one or another feature of loan repayment.

1) Confusion about loan repayment as an investment: Some borrowers have trouble viewing mortgage repayment as equivalent to buying a bond or a CD. Yet in both cases, you pay out money now and receive a stream of income in the future based on the contracted interest rate.

The only difference is that the income received from a mortgage repayment is cancellation of interest that you would have had to pay otherwise. The difference between receiving $1,000 of interest and eliminating the payment of $1,000 of interest is one of form but not of substance.

Those with a mortgage can actually earn a little more than the interest rate on their mortgage by taking advantage of the 10- to 15-day payment grace period that is found in all mortgage contracts. By adding the extra payment to the scheduled payment, the borrower will save interest for the entire month, even though he does not provide the funds until 10 or 15 days into the month.

Note: If the borrower makes a separate payment after the grace period, his loan balance may not be reduced until the following month, which would reduce his return on investment.

2)  Confusion over deductibility: Some borrowers who itemize their tax deductions don’t want to repay their mortgage because it entails loss of a deduction. But the loss is exactly the same as that on a taxable investment. For example, a borrower in the 33 percent tax bracket who repays a 3 percent mortgage earns 2 percent after tax. If instead the borrower purchased a CD paying 1 percent, the after-tax return is 0.5 percent. If the before-tax rate on the repaid mortgage is above the before-tax rate on the alternative investment, the same will be the case after taxes.

3)  Confusion over mortgage life cycle: Some borrowers believe that they missed the boat on loan repayment because they didn’t do it in the early years of their mortgage when the regular payment went largely to interest, whereas now most of it goes to principal. But the rate of return on mortgage investment is not affected by where the mortgage is in its life cycle. While the allocation of scheduled payments between principal and interest changes over the life of the mortgage, extra payments go entirely to principal, no matter what stage of its life cycle the mortgage is in.

4)  Confusion over imminent sale or retirement: Some borrowers are immobilized by plans to sell the home, as if somehow this would prevent their obtaining the expected benefit from making extra payments. But it wouldn’t — in fact, the benefit would become glaringly evident in the smaller loan balance they have to pay off out of the sale proceeds.

A similar point applies to those planning to retire with reduced income. If and when they need a reverse mortgage in the future, they will have to pay off their existing mortgage in the process, and the lower the balance, the more they will be able to draw on the reverse mortgage.

5)  Confusion over whether the lender will properly credit their account: Numerous versions have crossed my desk, including a concern that the lender won’t credit their account until the end of the term. This is not true — the account is credited immediately or even a few days early, as noted above.

A variant is that the lender will use the extra payments for some purpose other than reducing the loan balance. The only substance to this concern is that the lender will indeed apply extra payments to any unpaid obligations, of which the most likely is an underfunded tax/insurance escrow account. Aside from that, the only thing the lender can do with extra payments, other than credit them to the loan balance, is to steal them, which they never do.

With one exception, borrowers making extra payments need not provide special instructions as to how the payments should be applied. The exception applies when the extra payment is an exact multiple of the scheduled payment – the payment the borrower is obliged to make each month.

If the scheduled payment is $600 and the borrower sends in a check for $1,200, the lender does not know whether the borrower wants to apply the extra $600 to principal, or is paying for two months. To avoid this problem, do not make extra payments an exact multiple of the scheduled payment.

Aimed at protecting borrowers from risky and deceptive lending practices that contributed to the housing boom and bust, the ability-to-repay rule announced today by the Consumer Financial Protection Bureau will take effect Jan. 10, 2014.

The CFPB was charged with drafting and implementing the rule under the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. The announcement detailing the rule’s provisions sparked mixed reaction from mortgage industry and consumer groups.

Mortgage groups, in particular, had worried that the rule could further restrict an already tight lending environment. They praised a “safe harbor” policy that will provide some protection from lawsuits when borrowers take out lower-priced prime “qualified mortgages” intended for borrowers who are considered low risk.

Government-backed loans — including those eligible for purchase or guarantee by Fannie Mae and Freddie Mac — will temporarily be considered qualified mortgages even when borrower’s debt-to-income ratios exceed the 43 percent debt-to-income limit set by the rule.

The Center for Responsible Lending praised what it called the bureau’s balanced approach, although the group said it would have preferred that the rule allow any borrower to sue lenders who fail to evaluate their ability to repay.

Under the new rule, lenders will have to determine whether the borrower has the financial means to pay both the principal and interest on any new mortgage over the long term. Lenders will not be allowed to consider only introductory “teaser” rates in this calculation.

“No doc” and “low doc” loans will be prohibited. During the housing boom, lenders often made such loans without worrying about the borrower’s ability to repay, because the loans were bundled into securities that were sold to investors.

Easy access to credit fueled an unsustainable increase in home prices that led to a wave of delinquencies and foreclosures that precipitated a financial crisis the nation is still recovering from.

Since September 2008, about 4 million borrowers have lost their homes to foreclosure, according to data aggregator CoreLogic.
“When consumers sit down at the closing table, they shouldn’t be set up to fail with mortgages they can’t afford,” said Richard Cordray, the bureau’s director, in a statement.

“Our ability-to-repay rule protects borrowers from the kinds of risky lending practices that resulted in so many families losing their homes. This common-sense rule ensures responsible borrowers get responsible loans.”

In order to determine a borrower’s ability to repay, lenders must consider and verify eight underwriting criteria:
current employment status;
current income and assets;
current debt obligations;
credit history;
monthly payments on the mortgage;
monthly payments on any other mortgages on the same property;
monthly payments for other mortgage-related obligations, such as property taxes; and,
the monthly debt-to-income ratio or residual income the borrower would be taking on with the mortgage.

If a lender issues a “qualified mortgage,” it will be presumed to have complied with the ability-to-repay rule, the CFPB said.

A qualified mortgage prohibits excessive points and fees (generally, those above 3 percent of the loan amount) tacked on to upfront origination costs; cannot have risky loan features such as a term that exceeds 30 years, interest-only payments that don’t pay down a mortgage’s principal, or negative amortization payments where the principal amount increases; cannot have a balloon payment at the end of the loan term except, under certain circumstances, those made by smaller creditors in rural or underserved areas; and, the borrower’s debt-to-income ratio — his or her total monthly debt divided by total monthly gross income — cannot exceed 43 percent.

Temporary exemption for government-backed loans…

For now, loans with debt-to-income ratios above 43 percent will be considered qualified mortgages so long as they meet underwriting requirements of government-sponsored enterprises Fannie Mae or Freddie Mac, or the U.S. Department of Housing and Urban Development (HUD); the Department of Veterans Affairs (VA); or the Department of Agriculture (USDA) or Rural Housing Service.

The bureau issued the temporary exemption for government-backed loans out of concern “that creditors may initially be reluctant to make loans that are not qualified mortgages, even though they are responsibly underwritten,” the CFPB said in a summary of the rule.

“This temporary provision will phase out over time as the various federal agencies issue their own qualified mortgage rules and if GSE conservatorship ends, and in any event after seven years,” the bureau said.

There are two types of qualified mortgages that offer differing legal consequences for lenders. Higher-priced loans, generally given to borrowers with an insufficient or weak credit history, will have a “rebuttable presumption,” meaning that, legally, lenders are presumed to have vetted the borrower’s ability to repay the loan, but that the borrower can challenge that presumption in court.

Lower-priced, prime loans, given to borrowers considered less risky, will have a “safe harbor” status. Borrowers may sue their lender only if they believe the loan does not meet the definition of a qualified mortgage.

The rule does not affect the rights of a consumer to challenge a lender for violating any other federal consumer protection laws, the CFPB said.

The agency also released proposed amendments to the ability-to-repay rule today.

The proposed amendments would make exceptions for certain nonprofit creditors that work with low- and moderate-income consumers and for certain homeownership stabilization programs that help homeowners avoid foreclosure. They would also deem certain portfolio loans made by small creditors, such as community banks and credit unions, as qualified mortgages.

The proposed amendments also ask for public comment on how to calculate loan origination compensation under the qualified mortgage rule’s point and fees provision.

Reaction from industry, consumer groups…

Debra W. Still, chairman of the Mortgage Bankers Association (MBA) commended the CFPB for the “deliberative and inclusive process” used to create a rule that “may be the single most impactful rule that will affect mortgage lending in this country coming out of the Dodd-Frank law.”

“(W)e applaud the bureau for offering a legal safe harbor to lenders when they originate loans that meet the rigorous ‘qualified mortgage’ standards in the rule. This approach should allow lenders to offer sustainable mortgage credit to a great number of qualified borrowers without having to risk unreasonable and overly punitive litigation and penalties,” Still said in a statement.

She cautioned, however, that “credit is tighter than at any point we can remember,” and that certain parts of the rule could curb competition, increase costs and further tighten credit availability for borrowers.

“In particular, the 3 percent cap on points and fees appears to be overly inclusive as it relates to compensation and affiliates. Loans with the same interest rate, terms and out-of-pocket costs should be treated the same under the rule regardless of the organizational structure or business model of the lender,” Still said.

“Additionally, we will be looking carefully at whether the interest rate threshold for the safe harbor, which is set at 150 basis points above the benchmark rate, will adversely impact too many borrowers. These pricing-related restrictions need to be carefully examined to ensure that they do not unnecessarily restrict consumer access to ‘qualified mortgages,’ including smaller-balance loans, as well as jumbo loans.”

Ultimately, she said, the market will give the final verdict on the rule.

“We believe the rule will effectively block the return of risky product features and inadequate documentation. If it also provides lenders the certainty needed to originate qualified mortgages broadly across the market to creditworthy borrowers, it will have been a success,” Still said.

“However, if the result is a tightening of credit as lenders pull back from offering loans that would create greater risk of litigation, the CFPB may need to quickly revisit the rule to avoid harming the housing recovery.”

Barry Rutenberg, chairman of the National Association of Home Builders (NAHB), said it was essential that the rule strike a balance that will encourage lenders to provide creditworthy borrowers access to affordable home loans, and assure them that they will be protected from lawsuits if they meet the rule’s criteria.

“Our initial review of the QM rule indicates that this balanced approach can be achieved. NAHB is encouraged that regulators heeded concerns from the housing industry to craft a broad standard that includes many of today’s sound mortgage products, including fixed-rate and adjustable-rate mortgages, under the QM standard,” he said in a statement.

Frank Keating, president and CEO of the American Bankers Association, said the rule ensures most consumers will continue to have access to safe credit, but that its complexity presents an additional regulatory burden on lenders.

“Qualified mortgage, as defined by the rule, imposes strict lending standards. While QM encompasses many of the loans being underwritten today, it must also interact with a number of other mortgage rules that CFPB will be issuing this month. There is a very real impact to these rules, and they will transform our lending practices and could restrict access to credit,” he said in a statement.

“We commend the bureau for recognizing the need for a safe harbor to prevent a reduction in credit availability and unwarranted lawsuits that ultimately drive up the cost of loans for consumers.”

The Center for Responsible Lending, a nonpartisan consumer advocacy group, praised the CFPB’s balanced approach to mortgage lending and consumer protections.

“The standard CFPB establishes for a safe, well-underwritten mortgage is appropriately broad enough to include the vast majority of creditworthy homeowners, and it is clear enough for lenders and borrowers alike to understand. And the rules preserve legal protection for borrowers with the riskiest loans,” the group said in a statement.

“Ideally, the new rules would have allowed any borrower with a qualified mortgage to challenge a lender who failed to evaluate if the borrower could afford the loan. However, they do allow borrowers to hold lenders accountable on the riskiest types of mortgages, those in the subprime market where the problems that led to the housing crisis were concentrated.”

Nonetheless, the group said there was still a key issue unresolved: how fees that lenders pay to mortgage brokers will be counted when it comes to defining a qualified mortgage.

“These fees, known as yield spread premiums, provided incentives for brokers to steer borrowers into bad mortgages that fueled the mortgage crisis. The CFPB should not create a loophole that allows high-fee loans to count as a qualified mortgage,” the group said.

Agents don’t necessarily quote posted prices: The problem is that posted prices are not public information. Lenders deliver them to their loan officers, brokers and others authorized to offer their loans to the public. But these agents are not obliged to quote posted prices to mortgage shoppers, and in many cases they do not.

Agents looking to snare the shopper as a customer may price below the posted price (called “lowballing”). It is a common practice because it is often the only method available to the agent to separate herself from the others. After the customer is committed, the agent may price above the posted price (“highballing”) to increase the profit margin.

If the market price subsequently declines, the shopper will receive the early price quote instead of the new and lower posted price. If the market price increases, the shopper will pay the new posted price or higher, probably with an explanation and perhaps even an apology.

Why lowballing works: Agents can’t be held to the prices they quote to shoppers because market prices will change before the price is locked. The information provided by a borrower upon which a price quote depends must be confirmed by the lender before the price is locked.

Validation of some features, such as credit score, is quick, but others including property value usually take days to complete, and sometimes weeks. While the applicant is waiting for the lender to validate her information, the posted price is likely to change with changes in the market, making the early price quote obsolete.

Why highballing works: The typical applicant has no way to know whether she is getting the lender’s posted price at the time the price is locked. By that time, furthermore, the applicant may be committed to the transaction, having invested in an appraisal that is not transferable to another lender, and possibly paid other fees as well. Indeed, if the transaction is a home purchase with a firm closing date, there may not be time to start the process again.

The key to effective shopping is access to posted prices: To avoid lowballing, mortgage shoppers must have access to the posted prices of the lenders being shopped. This assures that their selection of the lender with the lowest price is correct. To avoid highballing, they must have access to the posted prices of the lender they have selected when that lender locks the price. This assures that they are receiving the correct price.

The only way that shoppers can compare posted prices of competing lenders and check that the locked price is the posted price is to access a multilender website that obtains the posted prices of participating lenders for disclosure to shoppers in real time. There are three: mortgagemarvel.com; zillow.com; and mtgprofessor.com, which is mine.

Don’t confuse multilender sites with lead generation sites, such as LendingTree.com and LowerMyBills.com, which do business with hundreds of lenders. These sites do not collect price data from lenders. Rather, they collect financial information including Social Security numbers from shoppers, which is sold to the three or four lenders who will pay the most for it. The shopper remains completely vulnerable to lowballing and highballing by those lenders.

In the months between the time I listed the place as a short sale and the time I lost it, all the tenants’ leases came up and I signed them to new leases, with slightly lower rents based on the fact that I knew the short sale and foreclosure process was very disruptive to their lives, with all the showings and such.

The woman who had withdrawn her short-sale offer was the same one who ended up buying it from the bank at the auction. Now, she is upset and harassing me and the tenants because the lease terms changed between the time she saw the short-sale listing and the time she bought the place from the bank. She has also demanded that the tenants pay as much as 40 percent higher rent than they were paying before. What can we do?  Patrick C., Tempe, AZ

Patrick…I’ll bet you thought your problems with the property were over when the bank foreclosed it, right? Well, in truth, they really are.

The fact of the matter is that the new owner bought the place “as is” at the auction — from the bank, not from you. In truth, you don’t actually owe her anything or any information.

That said, I understand from portions of your letter that were edited for length that you have close relationships with the tenants and would like to make sure they are not taken advantage of. Here are my recommendations for how to wind down your involvement in this matter, without abandoning your tenants outright.

1. Stop communicating with the new owner. If I were you, I’d write her a letter, sending it to the address on record with the county recorder’s office. Tell her you have no contractual relationship or obligation to her, and that she should contact the actual seller (the bank) from whom she purchased the property if she has any further questions or concerns. Period.

If you want to err on the side of caution, you might even retain a local real estate attorney to consult with on the matter briefly, then to write the letter on your behalf.

2. Understand that the law is on your former tenants’ side. Under the federal Protecting Tenants at Foreclosure Act of 2009, your former tenants’ leases almost certainly survive the foreclosure — unless the new owner herself wants to move into the place, which it doesn’t sound like is the case. This law gives your former tenants the right to stay in the property until at least the end of the lease, on the terms set forth in their most recent leases.

Many larger cities have their own tenant protection provisions built into their municipal codes, which, in your city, actually go even further than the federal law in terms of controlling rent increases.

3. Refer the tenants to a legal aid provider. Rather than getting further embroiled in this dispute or smudging the boundaries of practicing law without a license, I’d suggest you refer the tenants to a legal aid society or other nonprofit, low- or no-cost provider of legal services to tenants. Almost every major city has one, and many actually have such organizations that are largely devoted to defending the rights of tenants vis-à-vis their landlords.

Your best bet is to simply advise the tenants that they have rights, and urge them to contact a legal services provider that will work with them for little or no expense to them.

Erroneous beliefs: The following beliefs that prevent or discourage refinancing have been related to me by borrowers. All are false…

*Borrowers have to wait some minimum period after taking a mortgage before they can refinance.
*The borrower who refinances loses the benefit of principal payments already made.
*The borrower who paid points to reduce the interest rate on the current mortgage should wait until such time as the interest savings have at least covered the cost of the points.
*The borrower who has had a mortgage for a long time has to begin the process from scratch, delaying the period until they are out of debt.                                                                                                                                                                                                                              *It is better for a borrower who has been making extra payments to continue that practice, rather than refinance.

Unrealistic fear of adjustable-rate mortgages (ARMs): There are borrowers with fixed-rate mortgages (FRMs) who would not profit from refinancing into another FRM, but who would profit from refinancing into a lower-rate ARM — but they don’t because of fear of a possible future ARM rate increase. In many cases, this fear is not justified because the borrower can pay off the loan within the initial fixed rate period on the ARM, which can be five, seven or 10 years.

To execute this strategy, the borrower must have the capacity to make payments larger than the required payment on the ARM. There is always a payment large enough to pay off the loan fully within the initial ARM rate period, the question being the borrower’s capacity to make that payment. The previous payment on the FRM might be large enough to do the trick, or it might not.

Even if the borrower can’t pay off completely within the initial rate period, paying a higher rate for a few years on a much reduced balance will not come close to wiping out the interest savings during the preceding years.

Failure to exploit a profitable investment opportunity: Many mortgage borrowers can’t refinance profitably, or think they can’t, because their house has declined in value and a refinance would require the purchase of mortgage insurance, which they don’t have now. However, if they have investment assets that can be liquidated to pay down their mortgage balance, the rate of return on investment will be far higher than the return they are earning on those assets now. This is called “cash-in refinancing” because the borrower is putting cash into the transaction, as opposed to cash-out refinancing where the borrower withdraws cash.

Here is an example: John has a 6 percent mortgage with 300 months to go and a $100,000 balance, but his house is worth only $100,000, which makes him ineligible for a refinance. However, if he pays down the balance to $80,000, he can refinance into a 4.5 percent loan with closing costs of 2 percent. If he stays in the house for five years, the rate of return on his investment, consisting of $20,000 in balance paydown plus $1,600 in closing costs, would be 9.98 percent. The return is riskless to the borrower.

Rejected and gave up: Some borrowers have not refinanced because they tried and were rejected, and then gave up. But not all rejections are created equal — depending on the reason, some deficiencies are fixable. Here are a few…

*You met the underwriting standards of the federal agencies (Fannie Mae, Freddie Mac, FHA) but not those of the particular lender who rejected you. Some lenders have “overlays” that impose more restrictive requirements than those of the agencies, and where this is the case, you might well be approved by going to another lender.

*You were rejected because your credit score was too low for reasons that are quickly remediable. Examples would be scores lowered by a reporting mistake, or by credit card balances that are large relative to the maximums.

*You were rejected because your equity in the property was too small based on a faulty appraisal. A new appraisal obtained through a different lender could provide a different outcome.

*You were rejected because your debt-to-income ratio was too high and you have the means to reduce it – for example, by borrowing against a 401(k) in order to pay down other debt.