The head of the FDIC, Sheila Bair, has come up with a sensible plan to help stop foreclosures. Bair is going to be asking lenders to cut the principle on $45 billion dollars in mortgages acquired from seized banks. Under the average loss sharing agreement the FDIC pays as much as 80% of losses on residential mortgages while the lender acquiring the mortgage from the failed bank is only responsible for 20%. "I think we’re going to gain by reducing re-default rates or delinquencies with people walking away,” Bair said. “We’ll obviously lose by providing loss-share for principal writedowns.
We’re looking now at whether we should provide some further loss sharing for principal write downs,” Bair said. “Now you’re in a situation where even the good mortgages are going bad because people are losing their jobs".
Principle reduction hopefully would give homeowners a better reason to stay and not just walk away which results in foreclosure.
This should also help to stabilize housing prices.
Wednesday, December 9, 2009
Friday, October 16, 2009
$8000 Tax Credit Extended for Some Miltary Personnel
Mortgage News Dailey (MND) has reported that Congress has passed bill HR 3590 which will allow Veterans a one year extension on the $8000 tax credit for first time homebuyers which will terminate November 30th. The Vet must be currrently serving overseas or has been deployed outside the country for 90 days in the last calendar year.
There is a still an ongoing debate about extending the tax credit for everyone and even removing the "first time home buyer" requirement.
Click on the Headline above and you will be directed the MND site for further details.
There is a still an ongoing debate about extending the tax credit for everyone and even removing the "first time home buyer" requirement.
Click on the Headline above and you will be directed the MND site for further details.
Thursday, September 17, 2009
New Underwriting Guidelines-Here we go again!
In the last several weeks lenders have been instituting a new policy.
Once a loan is submitted to a lender it typically takes about 5-7 business days for an underwriter to review the file and then provide a list of conditions they require (no matter what you give them they ALWAYS ask for something). The loan officer then collects the necessary documentation and resubmits it to the underwriter for sign off.
Going forward the underwriter will no longer review the resubmitted conditions on a loan until they have all the conditions, everything they requested which will also now include the TITLE. Typically once the loan has been underwritten and the Loan Officer receives a conditional approval the title is ordered. Now it must be ordered as soon as you take an application or you will lose valuable time in underwriting.
There can also now be a problem with Earnest Money Deposits. Here is a scenario.
The buyer makes an offer which is accepted. The buyer then writes a check (or two, if one was presented with the Offer to Purchase and one with the signing of the P & S) for the earnest money deposit.
It was always necessary to provide a copy of the cancelled check(s) before closing, verifying it came from the buyer's account and has cleared. Because of the new guidelines just instituted the buyer would now have to know when the check(s) were deposited because they will have to go to their bank as soon as possible and get a printout showing the check(s) has actually cleared. Since the underwriters will no longer review conditions until they have them ALL, including the Earnest Money Deposits checks having cleared, this can affect the closing date.
Realtors should consider having the buyer get one certified bank check for the down payment, have the bank print out a statement showing the withdrawal was made from the buyer's account, and make a copy of it, all at the same time. In this way your buyer will not have to wait to get proof any check cleared before the loan can be resubmitted.
On FHA loans get the HUD Amendatory form signed by everyone as soon as possible. This is also a standard condition on FHA loans so this can also potentially delay your closings.
Any documentation you need to obtain from the buyer or seller should be done as quickly as possible.
Loans are now taking a ridiculous amount of time to close and anything you can do to speed up the process should not be overlooked.
Once a loan is submitted to a lender it typically takes about 5-7 business days for an underwriter to review the file and then provide a list of conditions they require (no matter what you give them they ALWAYS ask for something). The loan officer then collects the necessary documentation and resubmits it to the underwriter for sign off.
Going forward the underwriter will no longer review the resubmitted conditions on a loan until they have all the conditions, everything they requested which will also now include the TITLE. Typically once the loan has been underwritten and the Loan Officer receives a conditional approval the title is ordered. Now it must be ordered as soon as you take an application or you will lose valuable time in underwriting.
There can also now be a problem with Earnest Money Deposits. Here is a scenario.
The buyer makes an offer which is accepted. The buyer then writes a check (or two, if one was presented with the Offer to Purchase and one with the signing of the P & S) for the earnest money deposit.
It was always necessary to provide a copy of the cancelled check(s) before closing, verifying it came from the buyer's account and has cleared. Because of the new guidelines just instituted the buyer would now have to know when the check(s) were deposited because they will have to go to their bank as soon as possible and get a printout showing the check(s) has actually cleared. Since the underwriters will no longer review conditions until they have them ALL, including the Earnest Money Deposits checks having cleared, this can affect the closing date.
Realtors should consider having the buyer get one certified bank check for the down payment, have the bank print out a statement showing the withdrawal was made from the buyer's account, and make a copy of it, all at the same time. In this way your buyer will not have to wait to get proof any check cleared before the loan can be resubmitted.
On FHA loans get the HUD Amendatory form signed by everyone as soon as possible. This is also a standard condition on FHA loans so this can also potentially delay your closings.
Any documentation you need to obtain from the buyer or seller should be done as quickly as possible.
Loans are now taking a ridiculous amount of time to close and anything you can do to speed up the process should not be overlooked.
Tuesday, August 11, 2009
Appraisal Issues. The HVCC and the MDIA
Here is the latest on appraisals. Because of the new HVCC (Home Valuation Code of Conduct) dreamed up by the geniuses in congress, on conventional loans (this does not apply to FHA or VA loans) we are no longer allowed to contact the appraiser in any way shape or form.
Now each lender has established accounts with appraisal management companies (AMC's). As a mortgage broker we must now obtain the borrowers credit card info for payment and then go to the lenders website to put a request to order the appraisal.
The AMC is nothing more than a middle man who receives an order from the lender and then in turn contacts one of the appraisal companies on it's approved list and passes the order on to them. This of course adds an additional cost to the consumer as the AMC must get their piece of the pie. A typical appraisal that once cost $300 can be as high as $400.
Now once the appraisal is ordered the appraiser makes an appointment and completes the appraisal. It usually takes 3-5 days to complete the appraisal but depending on the appraisal company it may take 2 weeks just to make the appointment. When the appraisal is completed it is send back to the AMC who does their own in house review. If they have any issues it goes back to the appraisal company for changes. When the changes are completed it is sent back to the AMC who then forwards it on to the lender.
Now the lender reviews it and if they want any corrections it goes back to the AMC and the whole process starts again.
It gets better! Suppose the original lender has rigid underwriting and it 's a problems getting the loan approved. If the loan is sent to a new lender they might not accept a transfer of the appraisal from the first lender. That means a new one has to be ordered AND the borrower will have to pay for another appraisal!
Now on top of that we have a new law called the MDIA or Mortgage Disclosure Improvement Act!! For any loan including VA and FHA loans, an appraisal can no longer be ordered until the application is sent to the lender. The lender must then send a form to the borrower to sign which is then sent back to the lender. At that point the appraisal can be ordered through the process stated above for conventional loans. Some lenders have designed a list with a few forms that they will accept in lieu of the whole application in an attempt to speed up the process. But the bottom line is things are going to take even longer. I strongly recommend you set any closing for a minimum of 45 days going forward which you probably should already been doing. anyway
I think these guys just like to sit around and see what new acronyms they can think up.
Now each lender has established accounts with appraisal management companies (AMC's). As a mortgage broker we must now obtain the borrowers credit card info for payment and then go to the lenders website to put a request to order the appraisal.
The AMC is nothing more than a middle man who receives an order from the lender and then in turn contacts one of the appraisal companies on it's approved list and passes the order on to them. This of course adds an additional cost to the consumer as the AMC must get their piece of the pie. A typical appraisal that once cost $300 can be as high as $400.
Now once the appraisal is ordered the appraiser makes an appointment and completes the appraisal. It usually takes 3-5 days to complete the appraisal but depending on the appraisal company it may take 2 weeks just to make the appointment. When the appraisal is completed it is send back to the AMC who does their own in house review. If they have any issues it goes back to the appraisal company for changes. When the changes are completed it is sent back to the AMC who then forwards it on to the lender.
Now the lender reviews it and if they want any corrections it goes back to the AMC and the whole process starts again.
It gets better! Suppose the original lender has rigid underwriting and it 's a problems getting the loan approved. If the loan is sent to a new lender they might not accept a transfer of the appraisal from the first lender. That means a new one has to be ordered AND the borrower will have to pay for another appraisal!
Now on top of that we have a new law called the MDIA or Mortgage Disclosure Improvement Act!! For any loan including VA and FHA loans, an appraisal can no longer be ordered until the application is sent to the lender. The lender must then send a form to the borrower to sign which is then sent back to the lender. At that point the appraisal can be ordered through the process stated above for conventional loans. Some lenders have designed a list with a few forms that they will accept in lieu of the whole application in an attempt to speed up the process. But the bottom line is things are going to take even longer. I strongly recommend you set any closing for a minimum of 45 days going forward which you probably should already been doing. anyway
I think these guys just like to sit around and see what new acronyms they can think up.
Wednesday, July 8, 2009
New Conventional and FHA Guidelines
Here we go again! There are several more changes in the works in the mortgage pipeline.
We have one lender who will not take any loan if the borrower has a credit score under 660. FHA states the minimum is 620 but the lender says 660. Another lender will only take an FHA loan if the borrower has a credit score of at least 640.
If you read my last blog it stated how big the price adjustments are already for Fannie and Freddie loans if the borrowers credit score is under 740
This is the mortgage business in 2009
1st Metropolitan Mortgage saw the handwriting on the wall and that is why we are in the process of becoming a direct lender within the next several months. We will have our own in-house underwriters and this will also help in our turn around time.
Many lenders are making changes to FHA, Fannie Mae and Freddie Mac loans. Usually when one lender adopts one of these guidelines, they all follow.
CONVENTIONAL LOANS
We have several lenders who have stated that on any Freddie or Fannie loan with less than 20% down payment or equity they will only go to a DTI (debt Ratio) of 41%. This will result in a great many loans no longer being eligible for financing. With the size of the loans as well as the taxes and insurance today many borrowers will not qualify for conventional financing.
FHA
One lender has set the max DTI on FHA to 45-50. If the DTI is over 45 there will need to be a compensating factor.FHA
We have one lender who will not take any loan if the borrower has a credit score under 660. FHA states the minimum is 620 but the lender says 660. Another lender will only take an FHA loan if the borrower has a credit score of at least 640.
If you read my last blog it stated how big the price adjustments are already for Fannie and Freddie loans if the borrowers credit score is under 740
NO CONSISTENCY
As you can see there is no consistency from one lender to another which makes it very difficult to foresee what is needed. This also very much applies to other underwriting parameters. What one lender accepts another lender will rejectThis is the mortgage business in 2009
THE END OF MORTGAGE BROKERS?
The politicians in their infinite wisdom are in the process of trying to eliminate mortgage brokers altogether. Of course this will be a huge benefit to the banks with the big lobbyists and we all know what that means.1st Metropolitan Mortgage saw the handwriting on the wall and that is why we are in the process of becoming a direct lender within the next several months. We will have our own in-house underwriters and this will also help in our turn around time.
Tuesday, June 23, 2009
Exisitng Home Sales and the HVCC
The June 23, 2009 figure for Existing Home Prices indicates vaues have fallen to 4.77M which is lower than the anticipated 4.82M. This is good news for mortgage bonds which is in turn good for interest rates but bad for the economy as a whole.
In associated news, the NAR (National Association of Realtors) has reported a 5% cancellation in purchase contracts resulting from a meriad of problems with the new HVCC appraisal law since it's inception May 1st. Low property valuations, long turn around times and increased fees have all resulted from the HVCC (Home Valuation Code of Conduct). This has also affected refinance transactions. Appraisal management companies have been using inexperienced appraisers and appraisers not familar with specific markets which has contributed to the problem.
If you read my earlier post you will see that this is pretty much what I forecasted would happen. This bill is unnecessary for reasons I mentioned in the earlier post.
Pressure is being brought to bear to have this bill overturned. You may have been lucky enough not to have been affected by this yet, but you will be. Click on this link http://www.hvccpetition.com/ and sign the petition to help overturn the HVCC.
In associated news, the NAR (National Association of Realtors) has reported a 5% cancellation in purchase contracts resulting from a meriad of problems with the new HVCC appraisal law since it's inception May 1st. Low property valuations, long turn around times and increased fees have all resulted from the HVCC (Home Valuation Code of Conduct). This has also affected refinance transactions. Appraisal management companies have been using inexperienced appraisers and appraisers not familar with specific markets which has contributed to the problem.
If you read my earlier post you will see that this is pretty much what I forecasted would happen. This bill is unnecessary for reasons I mentioned in the earlier post.
Pressure is being brought to bear to have this bill overturned. You may have been lucky enough not to have been affected by this yet, but you will be. Click on this link http://www.hvccpetition.com/ and sign the petition to help overturn the HVCC.
Wednesday, June 3, 2009
FHA $8,000 Tax Credit Down Payment Assistance
I don't usually like to post more than once a week but I know there is some interest in this program.
The FHA has just passed the bill that would allow first time home buyers to have the ability to use the $8,000 tax credit for the 3.5% down payment. There are various restrictions that apply and the actual approved FHA mortgagees still have to determine how they will implement the program. There are still some ambiguous areas that have to be ironed out as to who will actually loan the money and what the terms might be. We don't know exactly when this will become fully integrated but it does look like it will really become available at some point.
We will update as more information becomes available.
Stay tuned
The FHA has just passed the bill that would allow first time home buyers to have the ability to use the $8,000 tax credit for the 3.5% down payment. There are various restrictions that apply and the actual approved FHA mortgagees still have to determine how they will implement the program. There are still some ambiguous areas that have to be ironed out as to who will actually loan the money and what the terms might be. We don't know exactly when this will become fully integrated but it does look like it will really become available at some point.
We will update as more information becomes available.
Stay tuned
Monday, June 1, 2009
Your Credit Score May Cost Up to 2.5 points!
I had a disturbing situation come up recently for the first time on a conventional loan.
When applying for a mortgage a "tri-merge" credit report is ordered by the loan officer. Each borrower receives 3 credit scores, one from each credit repository, Trans Union, Equifax and Experian. The underwriter throws out the high and low scores and utilizes the middle score when determining credit worthiness. In the past a middle credit score of 620 was deemed acceptable as the minimum requirement.
In 2008 Fannie Mae and Freddie Mac were both near insolvency and as I am sure many of you are aware, the Federal Government stepped in and purchased both companies.
A decision was then made last year that going forward on any conventional loan borrowers could be subject to a potential fee in the form of points depending on their credit scores. This is referred to as either a "Loan Level Price Adjustment or "Risk Based Price Adjustment"
Recently that fee has been increased. Today, on a conventional loan and a credit score under 740, the borrower will be subject to paying points.
Here is an example. Say the borrower has a mid score of 673 and is putting down 20%. They will be charged 2.5 points! On a $200,000 loan that is an additional cost of $5000! If the middle score was higher at 680, it would STILL be 2 points.
This is ridiculous when a borrower is putting down 20%. How many borrowers today have 20% for a down payment?
This does not apply to government loans such as VA , FHA USDA, only conventional loans.
Don't be surprised when a borrower is told an ADDITIONAL $4000-$5000 will be needed for closing costs.
Usually someone who has shaky credit does not apply for a conventional loan. They apply for a government loan where if they have a 660 score there is no hit for the credit score. Under 660 down to 620 there is a hit but it is 1/4 point.
The main issue here is if someone has 20% for a down payment they would be better served with a conventional loan because there would be no PMI. With an FHA they would still have PMI and the UFMIP of 1.75%.
When applying for a mortgage a "tri-merge" credit report is ordered by the loan officer. Each borrower receives 3 credit scores, one from each credit repository, Trans Union, Equifax and Experian. The underwriter throws out the high and low scores and utilizes the middle score when determining credit worthiness. In the past a middle credit score of 620 was deemed acceptable as the minimum requirement.
In 2008 Fannie Mae and Freddie Mac were both near insolvency and as I am sure many of you are aware, the Federal Government stepped in and purchased both companies.
A decision was then made last year that going forward on any conventional loan borrowers could be subject to a potential fee in the form of points depending on their credit scores. This is referred to as either a "Loan Level Price Adjustment or "Risk Based Price Adjustment"
Recently that fee has been increased. Today, on a conventional loan and a credit score under 740, the borrower will be subject to paying points.
Here is an example. Say the borrower has a mid score of 673 and is putting down 20%. They will be charged 2.5 points! On a $200,000 loan that is an additional cost of $5000! If the middle score was higher at 680, it would STILL be 2 points.
This is ridiculous when a borrower is putting down 20%. How many borrowers today have 20% for a down payment?
This does not apply to government loans such as VA , FHA USDA, only conventional loans.
Don't be surprised when a borrower is told an ADDITIONAL $4000-$5000 will be needed for closing costs.
Usually someone who has shaky credit does not apply for a conventional loan. They apply for a government loan where if they have a 660 score there is no hit for the credit score. Under 660 down to 620 there is a hit but it is 1/4 point.
The main issue here is if someone has 20% for a down payment they would be better served with a conventional loan because there would be no PMI. With an FHA they would still have PMI and the UFMIP of 1.75%.
Tuesday, May 26, 2009
Appraisal Bill has Passed
Unfortunately the new Appraisal law has passed. This means any conventional loan will now have to be ordered directly through the lenders AMC/Appraisal Management company. The AMC is a third party vendor through which appraisal companies will now receive the appraisal assignment. The loan officer will have no input or contact whatsoever with the appraiser.
We have already seen a decrease in appraisal values and an increase in the cost with the new fee increasing from $300-$325 to $345-$385. Government loans do not currently fall under this guideline but they will probably adopt this policy as well in time.
The banking industry had a mechanism already in place to weed out unscrupulous appraisers.
All they had to do was order a review appraisal periodically and remove any appraiser found to be incompetent or unethical. The problem is, they never enforced the policy. When I was an appraiser I would receive requests to review appraisals of other firms. 3-6 months later I would receive another request from the same lender to review an appraiser whom I had already indicated was not performing his job ethically or was incompetent. There was no point in ordering a review if the lender was just going to continue using the same unethical appraisers.
It is my personal hope that in time this new law will be viewed as unnecessary and a detriment to the real estate industry as well as homeowners and will therefore be rescinded.
We have already seen a decrease in appraisal values and an increase in the cost with the new fee increasing from $300-$325 to $345-$385. Government loans do not currently fall under this guideline but they will probably adopt this policy as well in time.
The banking industry had a mechanism already in place to weed out unscrupulous appraisers.
All they had to do was order a review appraisal periodically and remove any appraiser found to be incompetent or unethical. The problem is, they never enforced the policy. When I was an appraiser I would receive requests to review appraisals of other firms. 3-6 months later I would receive another request from the same lender to review an appraiser whom I had already indicated was not performing his job ethically or was incompetent. There was no point in ordering a review if the lender was just going to continue using the same unethical appraisers.
It is my personal hope that in time this new law will be viewed as unnecessary and a detriment to the real estate industry as well as homeowners and will therefore be rescinded.
Tuesday, May 19, 2009
Update on $8000 Tax credit Monetization-Suspended
Here is the Original statement from Mr. Donovan, Secretary of HUD.
HUD Secretary Donovan appeared at a NAR function last week and this is an exact excerpt of his remarks:
"We all want to enable FHA consumers to access the tax credit funds when they close on their home loans so that the cash can be used as a down payment. So FHA will permit trusted FHA-approved lenders and HUD-approved nonprofits, as well as state and local governmental entities to "monetize" the tax credit through short-term bridge loans. We think the policy is a real win for everyone, ensuring that borrowers can tap into the numerous organizations that are already part of the FHA network to receive this additional benefit. FHA will be publishing the details shortly."
Well unfortunately it looks like Mr. Donovan jumped the gun. As of right now HUD has suspended this program. Whether or not it comes back is anyone's guess.
Too bad, it would have been great for first time home buyers strapped for cash.
HUD Secretary Donovan appeared at a NAR function last week and this is an exact excerpt of his remarks:
"We all want to enable FHA consumers to access the tax credit funds when they close on their home loans so that the cash can be used as a down payment. So FHA will permit trusted FHA-approved lenders and HUD-approved nonprofits, as well as state and local governmental entities to "monetize" the tax credit through short-term bridge loans. We think the policy is a real win for everyone, ensuring that borrowers can tap into the numerous organizations that are already part of the FHA network to receive this additional benefit. FHA will be publishing the details shortly."
Well unfortunately it looks like Mr. Donovan jumped the gun. As of right now HUD has suspended this program. Whether or not it comes back is anyone's guess.
Too bad, it would have been great for first time home buyers strapped for cash.
Wednesday, May 6, 2009
Utilizing Child Support Income
One thing that comes up quite frequently is utilizing income from child support to qualify for a mortgage. Many borrowers are under the false impression that just because they have a divorce decree stating the ex-spouse has to pay child support, that this qualify's the child support to be used in the mortgage approval. Actual receipt of child support payments must still be VERIFIED.
In many instances the custodial parent will be paid in cash which means there is no way to verify the actual payments were received. Depending on the underwriter, sometimes they will accept a bank statement showing deposits in the exact amount indicated in the divorce decree, but that is very rare.
One of my past customers always gave the ex a hand written receipt from a receipt book which has the carbon copy for her records. Lenders will not accept this. Anyone can go out and buy a receipt book and make any entry they wish.
The easiest way to prove they received the child support is with a money order. Another way is a statement from the state if the child support is garnished. Of course you can use cancelled checks from the ex-spouses account. Unfortunately many ex-spouses are not on good terms after the divorce and they are under no obligation to provide the cancelled checks if they so choose. Most underwriters like to see 12 months of proof but will often accept 3-6 months worth. The more the better.
One of the more popular mortgage programs today is the USDA Rural Housing as it is one of the few programs left that does not require a down payment. However, the USDA will accept no less than 12 months verifiable proof of receipt of child support payments to be used in qualifying.
If you are a divorced parent and are being paid in cash, make sure you start receiving payment in a verifiable form as soon as possible.
If you are a Realtor make sure your potential customers are aware of this and start receiving payments that can be verified. If you can obtain as least 3 months of proof you stand a better chance of using it. Child Support can be a huge plus in determining the amount for which a borrower can qualify.
Thursday, April 23, 2009
Follow up to new Appraisal Guidelines
There is still a movement underway to attempt to halt the new legislation.
Here is a link http://capwiz.com/namb/dbq/officials/ where you can contact you state reps and
make you feelings known.
Here are other issues that I want to add to the list of reasons not to allow passage of this bill.
1. Because each lender will have ties to their own appraisal management company there will be a serious impact on the portability of the appraisal. Let's say a customer applies to bank "A", pays for an appraisal and then gets denied by bank "A". If he decides to apply to a second bank, bank "B", he may very well have to pay for a NEW appraisal because that appraisal management company may not be on bank"B"'s list.
2. The borrower will now have to pay up front for the appraisal via check or credit card directly to the lender. And because there is now a middleman (the appraisal management company) added to the process the appraisal fees will most likely go up!
This is legislation is not going to be in the best interest of the consumer, you and me!
I urge you to forward this link http://capwiz.com/namb/dbq/officials/ to your mailing list if you have one. Then click on the link and make your opinion known. As I stated in the earlier post, this could result in a serious impact on anyone who makes a living in any field related to real estate. And if you own a home or wish to purchase a home, this will affect you as well.
Here is a link http://capwiz.com/namb/dbq/officials/ where you can contact you state reps and
make you feelings known.
Here are other issues that I want to add to the list of reasons not to allow passage of this bill.
1. Because each lender will have ties to their own appraisal management company there will be a serious impact on the portability of the appraisal. Let's say a customer applies to bank "A", pays for an appraisal and then gets denied by bank "A". If he decides to apply to a second bank, bank "B", he may very well have to pay for a NEW appraisal because that appraisal management company may not be on bank"B"'s list.
2. The borrower will now have to pay up front for the appraisal via check or credit card directly to the lender. And because there is now a middleman (the appraisal management company) added to the process the appraisal fees will most likely go up!
This is legislation is not going to be in the best interest of the consumer, you and me!
I urge you to forward this link http://capwiz.com/namb/dbq/officials/ to your mailing list if you have one. Then click on the link and make your opinion known. As I stated in the earlier post, this could result in a serious impact on anyone who makes a living in any field related to real estate. And if you own a home or wish to purchase a home, this will affect you as well.
Tuesday, April 21, 2009
New Appraisal Requirements
HOME VALUATION CODE OF CONDUCT (HVCC)
As of May 1, 2009 there will be significant changes in the way real estate appraisals will ordered and handled by the lenders for conventional loans.
Banks and mortgage companies will now be required to utilize appraisal management companies who in turn will expedite the appraisal order. There will be several appraisal management companies on the lists of the different lenders. The appraisal management firms will act as a clearing house and select the appraiser or appraisal company on a rotational basis.
The loan officer will have no input with the appraisal management company in the selection of the appraisal company selected and will not be allowed to contact the appraisal company or the actual appraiser of the property. There many appraisal management companies and there are numerous new ones entering the field as a result of this legislation.
The idea here is that by using a rotational system with no contact with the loan officer who originated the loan there will be no pressure on the appraiser to "hit" the number.
That sounds good in theory but there is a significant potential downside.
First of all lenders are already being much, much tougher on appraisals. I do not see a need at this time for this legislation.
Now consider this, an appraisal is nothing more than an opinion of value, an estimate. There is no appraiser alive that can tell EXACTLY how much any home will sell for. Instead of having the possibility of over appraising a home, there is a likelihood appraisers will now become overly conservative and UNDER appraise properties. I have never heard of an appraiser getting scrutinized for appraising a home too low, only for appraising it too high.
It would therefore be in the best interest of the appraiser to utilize conservative adjustments and place a value in the low end of the range. There is nothing for him/her to be gained for being truly objective in the final value estimate.
This can have an enormous impact on the real estate and housing market. It could result in fewer homeowners being able to refinance to a lower rate and payment which in turn could affect insurance companies, mortgage lenders/brokers, real estate agents, builders etc.
Having previously been an appraiser for 12 years and prior owner of an appraisal company with 8 employees, I know of what I speak.
I hope I am just being overly pessimistic here. We shall see.
Once again this only affects conventional loans........... FOR NOW!!
As of May 1, 2009 there will be significant changes in the way real estate appraisals will ordered and handled by the lenders for conventional loans.
Banks and mortgage companies will now be required to utilize appraisal management companies who in turn will expedite the appraisal order. There will be several appraisal management companies on the lists of the different lenders. The appraisal management firms will act as a clearing house and select the appraiser or appraisal company on a rotational basis.
The loan officer will have no input with the appraisal management company in the selection of the appraisal company selected and will not be allowed to contact the appraisal company or the actual appraiser of the property. There many appraisal management companies and there are numerous new ones entering the field as a result of this legislation.
The idea here is that by using a rotational system with no contact with the loan officer who originated the loan there will be no pressure on the appraiser to "hit" the number.
That sounds good in theory but there is a significant potential downside.
First of all lenders are already being much, much tougher on appraisals. I do not see a need at this time for this legislation.
Now consider this, an appraisal is nothing more than an opinion of value, an estimate. There is no appraiser alive that can tell EXACTLY how much any home will sell for. Instead of having the possibility of over appraising a home, there is a likelihood appraisers will now become overly conservative and UNDER appraise properties. I have never heard of an appraiser getting scrutinized for appraising a home too low, only for appraising it too high.
It would therefore be in the best interest of the appraiser to utilize conservative adjustments and place a value in the low end of the range. There is nothing for him/her to be gained for being truly objective in the final value estimate.
This can have an enormous impact on the real estate and housing market. It could result in fewer homeowners being able to refinance to a lower rate and payment which in turn could affect insurance companies, mortgage lenders/brokers, real estate agents, builders etc.
Having previously been an appraiser for 12 years and prior owner of an appraisal company with 8 employees, I know of what I speak.
I hope I am just being overly pessimistic here. We shall see.
Once again this only affects conventional loans........... FOR NOW!!
Tuesday, April 7, 2009
Homeowner Affordability Plan
On April 6th the new affordability plan was put into action. The plan was designed to assist homeowners who would like to refinance and lower the interest rate on their current home and mortgage payment but as a result of the decrease in property values do not have enough equity. Another problem is the fact they may have enough equity, but not the 20% needed to avoid paying PMI. If they did have 20% when they took out the original mortgage they did not have to pay PMI. Having to pay it now would offset the possible lower mortgage payment and defeat the purpose of refinancing. This program only applies to mortgages currently held by Fannie Mae or Freddie Mac. Fannie Mae has named their program DU Refi Plus and Refi Plus which are explained below.
FANNIE MAE
Today we will mainly be addressing the DU Refi Plus as this the plan most borrowers will be seeking and Refi Plus has many similarities .
DU REFI PLUS
Under this plan the borrower must demonstrate that they have not been late on their mortgage. Due to a decline in home prices or where mortgage insurance (PMI) is not available they have been unable to refinance. The loan must be underwritten through Fannie Mae's Desktop Underwriter Program.
If you have an adjustable rate mortgage and would like to change to a stable fixed rate mortgage, this would plan would also apply.
The property must a 1-4 unit.
The loan must be held or guaranteed by Fannie Mae or Freddie Mac.
The new loan amount cannot exceed 5% of the appraised value. Let's say your home appraises for $150,000 you will be able to refinance up to $157,500. So if you currently owe $152,500 you should be able to also include most if not all of your closing costs in the new mortgage.
There must also be a positive benefit to the borrower such as:
1. A reduced monthly mortgage principal and interest payment
2. Move from an adjustable to a fixed rate.
SECOND MORTGAGES
No new subordinate financing is allowed. If you currently have a second mortgage the second mortgagee must subordinate. This means the second mortgagee must agree to let you refinancing ad agree to remain in the second position. This would be to their advantage because you are more likely to be able to meet the new reduced mortgage payment
CREDIT SCORES
There are no credit score minimums however if your credit score is too low you may have to pay additional fees or have a somewhat higher rate than someone with good credit. There may also be a higher cost depending on the loan to value.
ADDING OR REMOVING BORROWERS
The original borrowers must remain on the new mortgage unless there are extenuating circumstances. Adding new borrowers is acceptable under certain conditions.
There are other factors that must meet underwriting guidelines.
PRIVATE MORTGAGE INSURANCE (PMI)
You will not have to pay PMI if:
1. You did not have PMI when you purchased the home
2. It was removed as a result of paying down your mortgage balance
3. Your home's value had appreciated and the PMI was removed
Even if you borrow over 80% of the appraised value of your home when you refinance, you will not be required to pay PMI.
If you currently have PMI then you will be required to obtain it again through DU Refi Plus.
Lender Paid PMI is allowed.
REFI PLUS
The main difference between DU Refi Plus and Refi Plus is that the latter requires the refinance be serviced through the original lender. With DU Refi Plus the lender does not have to be the original servicer.
FREDDIE MAC
Freddie Mac's program is called Relief Refinance Mortgage. The biggest difference with this program is that if the new mortgage payment does not increase by more than 20%, the lender will not have to re-underwrite the borrower.
IS MY LOAN HELD BY FANNIE MAE OR FREDDIE MAC ?
Here are the links to the sites to determine if your loan is held by either Fannie Mae or Freddie Mac:
http://www.fanniemae.com/index.jhtml
https://ww3.freddiemac.com/corporate/
FANNIE MAE
Today we will mainly be addressing the DU Refi Plus as this the plan most borrowers will be seeking and Refi Plus has many similarities .
DU REFI PLUS
Under this plan the borrower must demonstrate that they have not been late on their mortgage. Due to a decline in home prices or where mortgage insurance (PMI) is not available they have been unable to refinance. The loan must be underwritten through Fannie Mae's Desktop Underwriter Program.
If you have an adjustable rate mortgage and would like to change to a stable fixed rate mortgage, this would plan would also apply.
The property must a 1-4 unit.
The loan must be held or guaranteed by Fannie Mae or Freddie Mac.
The new loan amount cannot exceed 5% of the appraised value. Let's say your home appraises for $150,000 you will be able to refinance up to $157,500. So if you currently owe $152,500 you should be able to also include most if not all of your closing costs in the new mortgage.
There must also be a positive benefit to the borrower such as:
1. A reduced monthly mortgage principal and interest payment
2. Move from an adjustable to a fixed rate.
SECOND MORTGAGES
No new subordinate financing is allowed. If you currently have a second mortgage the second mortgagee must subordinate. This means the second mortgagee must agree to let you refinancing ad agree to remain in the second position. This would be to their advantage because you are more likely to be able to meet the new reduced mortgage payment
CREDIT SCORES
There are no credit score minimums however if your credit score is too low you may have to pay additional fees or have a somewhat higher rate than someone with good credit. There may also be a higher cost depending on the loan to value.
ADDING OR REMOVING BORROWERS
The original borrowers must remain on the new mortgage unless there are extenuating circumstances. Adding new borrowers is acceptable under certain conditions.
There are other factors that must meet underwriting guidelines.
PRIVATE MORTGAGE INSURANCE (PMI)
You will not have to pay PMI if:
1. You did not have PMI when you purchased the home
2. It was removed as a result of paying down your mortgage balance
3. Your home's value had appreciated and the PMI was removed
Even if you borrow over 80% of the appraised value of your home when you refinance, you will not be required to pay PMI.
If you currently have PMI then you will be required to obtain it again through DU Refi Plus.
Lender Paid PMI is allowed.
REFI PLUS
The main difference between DU Refi Plus and Refi Plus is that the latter requires the refinance be serviced through the original lender. With DU Refi Plus the lender does not have to be the original servicer.
FREDDIE MAC
Freddie Mac's program is called Relief Refinance Mortgage. The biggest difference with this program is that if the new mortgage payment does not increase by more than 20%, the lender will not have to re-underwrite the borrower.
IS MY LOAN HELD BY FANNIE MAE OR FREDDIE MAC ?
Here are the links to the sites to determine if your loan is held by either Fannie Mae or Freddie Mac:
http://www.fanniemae.com/index.jhtml
https://ww3.freddiemac.com/corporate/
Friday, March 27, 2009
Converting Existing Homes into Rental Income
Fannie Mae, Freddie Mac and the FHA have all instituted policy's for current home owners who cannot sell their current primary residence but would like to buy a different home in which to reside.
According to reports, some home buyers who have chosen to vacate their existing principal residence and purchase a new residence have provided misleading information regarding the rental income of the property being vacated to qualify for the new mortgage. In affect they will have two mortgages and need to show rental income from the vacated home to offset the expense of the new mortgage and assure they can afford the two mortgages.
The guidelines state that no rental income from a single family home currently occupied by the owner can be used except under two situations which will be explained below.
FROM HUD
"This guidance is directed to prevent the practice known as "buy and bail" where the home buyer purchases, for example, a more affordable dwelling with the intention to cease making payments on the previous mortgage." This will obviously end up in a foreclosure situation.
There are two exceptions in which the rental income can be considered in the underwriting analysis:
1. RELOCATIONS:
The home buyer is relocating with a new employer, or being transferred by the current employer to an area not within reasonable distance. A properly executed lease of at least one year's duration after the loan is closed is required and evidence of a security deposit and first month's rent is paid.
2. SUFFICIENT EQUITY IN VACATED PROPERTY:
The home buyer has a loan-to-value ratio of 75% (70% for a Fannie Mae/Freddie Mac loan) or less as determined by an appraisal no more than 6 months old or, by comparing the unpaid balance with the original sales price of the property.
If the home being vacated had an FHA mortgage and the new home is also going to be financed through the FHA there are additional guidelines.
If you own and live in a 2-4 family dwelling you may be able to utilize the rental income to qualify under the following conditions for an FHA mortgage.
You can use the income from the tenant units as long as you can provide tax returns that show a history of rental income from those units.
To use rental income from the unit that the owner is planning on vacating you will need to provide a copy of the following:
1. Cancelled Check for one month's security deposit
2. Cancelled check for one month's rent
3. A 12 month lease by signed by the owner and the new tenant.
In summary, if you own a home, particulary a single family home, you need to check if you can use rental income from the current home to offset the fact that you will have two mortgages and still qualify to buy another home.
According to reports, some home buyers who have chosen to vacate their existing principal residence and purchase a new residence have provided misleading information regarding the rental income of the property being vacated to qualify for the new mortgage. In affect they will have two mortgages and need to show rental income from the vacated home to offset the expense of the new mortgage and assure they can afford the two mortgages.
The guidelines state that no rental income from a single family home currently occupied by the owner can be used except under two situations which will be explained below.
FROM HUD
"This guidance is directed to prevent the practice known as "buy and bail" where the home buyer purchases, for example, a more affordable dwelling with the intention to cease making payments on the previous mortgage." This will obviously end up in a foreclosure situation.
There are two exceptions in which the rental income can be considered in the underwriting analysis:
1. RELOCATIONS:
The home buyer is relocating with a new employer, or being transferred by the current employer to an area not within reasonable distance. A properly executed lease of at least one year's duration after the loan is closed is required and evidence of a security deposit and first month's rent is paid.
2. SUFFICIENT EQUITY IN VACATED PROPERTY:
The home buyer has a loan-to-value ratio of 75% (70% for a Fannie Mae/Freddie Mac loan) or less as determined by an appraisal no more than 6 months old or, by comparing the unpaid balance with the original sales price of the property.
If the home being vacated had an FHA mortgage and the new home is also going to be financed through the FHA there are additional guidelines.
MULTI FAMILY DWELLINGS
There is more leniency with 2-4 unit owner occupied properties.If you own and live in a 2-4 family dwelling you may be able to utilize the rental income to qualify under the following conditions for an FHA mortgage.
You can use the income from the tenant units as long as you can provide tax returns that show a history of rental income from those units.
To use rental income from the unit that the owner is planning on vacating you will need to provide a copy of the following:
1. Cancelled Check for one month's security deposit
2. Cancelled check for one month's rent
3. A 12 month lease by signed by the owner and the new tenant.
In summary, if you own a home, particulary a single family home, you need to check if you can use rental income from the current home to offset the fact that you will have two mortgages and still qualify to buy another home.
Thursday, March 19, 2009
Latest Interest Rate News
Wednesday the Fed announced they were going to help stimulate the credit markets and increase liquidity by purchasing over $700 billion in mortgage backed securities (MBS), double what they originally stated. This announcement resulted in a very large run up in Mortgage Backed Securities as well as a steep drop in the treasuries. The combination of these two factors are very favorable to a decrease in mortgage rates. Wednesday MBS increased by 132 basis points. A normal day would see a movement in the range of 10-20 basis points so the increase was substantial. We received numerous emails from our rate services forecasting very large decreases in mortgage rates. Thursday rates did drop between 1/4% to 1/2% with different lenders to a low of 4.875%, but we were actually expecting even bigger decreases. Today (Friday the 20th of March) as I write this post at 10 AM, rates are INCREASING and giving back some of the gains made on Thursday.
The most likely reason for this is due to the lack of manpower at the various wholesale lenders. Over the last two and a half years over 300 lenders and brokers have ceased doing business. At the same time those who remained in business were cutting their workforce drastically. Therefore, you have fewer lenders with fewer workers and fewer investors buying loans. When any sudden and significant drop in interest rates occurs, these lenders become overwhelmed with new loans and cannot cope with the volume in new business. Today the average loan can take 45-60 days to close. And if you are dealing with a foreclosure or short sale it can easily take 3-4 months. Lenders will raise rates back up to slow the market down until they can get a handle on things.
And let's not discount the potential for profit. If all the other factors remain the same, by increasing wholesale rates and not passing on the the lower rates to consumers, the lenders make more money.
The feeling is that rates will gradually decline over the next 6 months with temporary increases from time to time so the lenders can keep up with the demand. If you are looking to apply for a mortgage any time soon and your loan officer contacts you about declining rates it might be wise to take the bird in the hand. Trying to get the absolute lowest rate is no different than trying to time the stock market, it's nearly impossible. Rates could well drop into the low to middle fours this year. But they could just as easily go higher. There is no guarantee either way.
The affects of a global economy make the financial markets unpredictable.
I don't know about you, but I'm not a gambler.
Just my 2 cents.
The most likely reason for this is due to the lack of manpower at the various wholesale lenders. Over the last two and a half years over 300 lenders and brokers have ceased doing business. At the same time those who remained in business were cutting their workforce drastically. Therefore, you have fewer lenders with fewer workers and fewer investors buying loans. When any sudden and significant drop in interest rates occurs, these lenders become overwhelmed with new loans and cannot cope with the volume in new business. Today the average loan can take 45-60 days to close. And if you are dealing with a foreclosure or short sale it can easily take 3-4 months. Lenders will raise rates back up to slow the market down until they can get a handle on things.
And let's not discount the potential for profit. If all the other factors remain the same, by increasing wholesale rates and not passing on the the lower rates to consumers, the lenders make more money.
The feeling is that rates will gradually decline over the next 6 months with temporary increases from time to time so the lenders can keep up with the demand. If you are looking to apply for a mortgage any time soon and your loan officer contacts you about declining rates it might be wise to take the bird in the hand. Trying to get the absolute lowest rate is no different than trying to time the stock market, it's nearly impossible. Rates could well drop into the low to middle fours this year. But they could just as easily go higher. There is no guarantee either way.
The affects of a global economy make the financial markets unpredictable.
I don't know about you, but I'm not a gambler.
Just my 2 cents.
Wednesday, March 11, 2009
Foreclosure or Bankruptcy
This post is a further review of credit issues and dealing with a bankruptcy (BK) or foreclosure when looking to purchase or refinance a home.
The best program available dealing with these two issues is currently the FHA and here are their guidelines. You will still be required to qualify based on the usual standards of income, assets, employment etc.
The best program available dealing with these two issues is currently the FHA and here are their guidelines. You will still be required to qualify based on the usual standards of income, assets, employment etc.
1. Chapter 13- If you have had a chapter 13 BK and have made your payments on time for one year from the date of the filing, you will qualify for a purchase mortgage. You must also have re-established good credit.
2. Chapter 7- The BK must be at least 2 years ago and re-established good credit. Unlike the Chap 13 this is based on the DISCHARGE date not the filing date. The discharge is typically a few months after the filing date.
3. Foreclosure or Deed in Lieu of Foreclosure- After 3 years borrower can be approved. If the foreclosure was the borrower's primary residence AND the foreclosure was due to extenuating circumstances (medical, or spouse died etc) AND the borrower has since re-established good credit, exceptions can be made. Poor money management is not a qualifying factor for the exception.
Credit letters will usually be required explaining the reason the BK or foreclosure and what plan will avoid a similar result.
Most lenders now are requiring a minimum Credit Score of 620 for FHA loans. On a "hard" pull credit report or tri merge which is required by the lenders, a borrower receives a credit score from the three credit repositories, Transunion, Equifax and Experian.
They each have their own software that calculates your score. The high and low scores are throw out and your middle credit score will be the determining factor. Often I will have a customer who has had a credit report from some free site on the Internet. These usually only provide one score and it is almost always higher than a tri-merge report. I would not put a lot of weight on these free reports as they cannot be used in a mortgage application.
2. Chapter 7- The BK must be at least 2 years ago and re-established good credit. Unlike the Chap 13 this is based on the DISCHARGE date not the filing date. The discharge is typically a few months after the filing date.
3. Foreclosure or Deed in Lieu of Foreclosure- After 3 years borrower can be approved. If the foreclosure was the borrower's primary residence AND the foreclosure was due to extenuating circumstances (medical, or spouse died etc) AND the borrower has since re-established good credit, exceptions can be made. Poor money management is not a qualifying factor for the exception.
Credit letters will usually be required explaining the reason the BK or foreclosure and what plan will avoid a similar result.
Most lenders now are requiring a minimum Credit Score of 620 for FHA loans. On a "hard" pull credit report or tri merge which is required by the lenders, a borrower receives a credit score from the three credit repositories, Transunion, Equifax and Experian.
They each have their own software that calculates your score. The high and low scores are throw out and your middle credit score will be the determining factor. Often I will have a customer who has had a credit report from some free site on the Internet. These usually only provide one score and it is almost always higher than a tri-merge report. I would not put a lot of weight on these free reports as they cannot be used in a mortgage application.
If you find there are inaccuracies on your report and you have supporting documentation I may be able to increase your credit score with letters to the credit agencies.
For more serious issues there are legitimate credit repair companies out there who can raise your score in several months and they can be a useful tool. I can put you in contact with such a company.
Monday, March 2, 2009
Follow up to Last Post
I need clarify the new FHA loan limits I addressed in the last post. The maximum limits of $475,000 in RI is the FHA Jumbo limit. FHA Jumbo loans have a 3/8% to 1/2% higher rate. To stay under the Jumbo guidelines the loan cannot exceed $417,000, this is the limit for non-jumbo loans. This is similar to the conventional guidelines of $417,000.
Friday, February 27, 2009
FHA Loan Limits for 2009
These are FHA's new loan limits for 2009. Click on the grid directly above for the new limits in the state of RI.
Here is the link https://entp.hud.gov/idapp/html/hicostlook.cfm to HUD'S site to check the limits of the other 49 states and counties.
FHA loan limits have changed as a result of the American Recovery and Reinvestment Act
(ARRA) signed into law February 17, 2009. These limits are effective for those loans for
which credit is approved in calendar year 2009 and will remain in effect until December 31,
2009.
Under ARRA, the revised FHA loan limits for 2009 will be set at the higher of the loan limits
established for 2008 under the Economic Stimulus Act of 2008 (ESA) or those established for
2009 under the Housing and Economic Recovery Act of 2008 (HERA)
(ARRA) signed into law February 17, 2009. These limits are effective for those loans for
which credit is approved in calendar year 2009 and will remain in effect until December 31,
2009.
Under ARRA, the revised FHA loan limits for 2009 will be set at the higher of the loan limits
established for 2008 under the Economic Stimulus Act of 2008 (ESA) or those established for
2009 under the Housing and Economic Recovery Act of 2008 (HERA)
THIS IS FROM HUD'S WEBSITE
HUD will increase FHA loan limits up to $729,750 in high-cost metropolitan areas such as New York, Los Angeles, San Francisco and Washington, D.C. There are 73 counties in the U.S. that will now be eligible for the highest loan limit of $729,750. Previously, FHA's loan limits in these high-cost areas were capped at $625,500. The change in loan limits is applicable to all FHA-insured mortgage loans originated until December 31, 2009.
Increasing loan limits will help FHA continue to provide needed stability to housing markets across the country. As conventional sources of mortgage credit have contracted, FHA has been filling the void. From September to December 2008, FHA facilitated $97 billion of much-needed mortgage activity in the housing market, $35 billion of which was through FHA's refinancing products. By focusing on 30-year fixed rate mortgages, FHA helps homeowners avoid and escape the risks associated exotic subprime mortgage products, which have resulted in rising default and foreclosure rates.
Increasing loan limits will help FHA continue to provide needed stability to housing markets across the country. As conventional sources of mortgage credit have contracted, FHA has been filling the void. From September to December 2008, FHA facilitated $97 billion of much-needed mortgage activity in the housing market, $35 billion of which was through FHA's refinancing products. By focusing on 30-year fixed rate mortgages, FHA helps homeowners avoid and escape the risks associated exotic subprime mortgage products, which have resulted in rising default and foreclosure rates.
Thursday, February 26, 2009
Homeowner Affordability and Stability Plan
Part of the Stimulus Plan has been designed to help homeowners who are current on their mortgage and those in default. Today I will address those whom have not fallen behind and would like to refinance to a lower rate (if available) but are unable to do so primarily due to lower home values. This applies to homes securitized by Fannie Mae and Freddie Mac .
In a typical refinance of a single family home, owner occupied, where the borrower is just looking to lower their rate and monthly payment and there is no cash paid to the borrower at the closing. This is referred to as "rate and term. Limited cash out (under $1,000) is also allowable. You must still have sufficient equity in the property for either loan. The Fannie Mae guidelines state that you can borrow up to 95% of the value of the home. Maximum cash-out exceeding $1,000 is 85%. However, if the property is located in an area determined to have declining values, the maximum LTV is lowered by 5%, to 90% and 80% respectively. Most areas of the country are experiencing declining values and many borrower's who purchased in the last 4-5 years do not have enough equity in their property to meet the minimum 90% LTV threshold.
The new plan states eligible loans (including any refinancing costs) can be as high as 105% of the current appraised value of the home. Lets say your home is worth $200,000 but you owe $210,000 or less, you may be able to qualify to borrow up to the $210,000. While this may help some homeowners, many will still be left out as homes in many areas have declined 20-30% in value. This will primarily help those who purchased the home in the last year or so and those who have adjustable rate mortgages which are set to adjust higher.
Send me an email and I will provide you with a question and answer form which details the plan further by addressing first and second mortgages, eligibility, multi-family homes and more.
In a typical refinance of a single family home, owner occupied, where the borrower is just looking to lower their rate and monthly payment and there is no cash paid to the borrower at the closing. This is referred to as "rate and term. Limited cash out (under $1,000) is also allowable. You must still have sufficient equity in the property for either loan. The Fannie Mae guidelines state that you can borrow up to 95% of the value of the home. Maximum cash-out exceeding $1,000 is 85%. However, if the property is located in an area determined to have declining values, the maximum LTV is lowered by 5%, to 90% and 80% respectively. Most areas of the country are experiencing declining values and many borrower's who purchased in the last 4-5 years do not have enough equity in their property to meet the minimum 90% LTV threshold.
The new plan states eligible loans (including any refinancing costs) can be as high as 105% of the current appraised value of the home. Lets say your home is worth $200,000 but you owe $210,000 or less, you may be able to qualify to borrow up to the $210,000. While this may help some homeowners, many will still be left out as homes in many areas have declined 20-30% in value. This will primarily help those who purchased the home in the last year or so and those who have adjustable rate mortgages which are set to adjust higher.
Send me an email and I will provide you with a question and answer form which details the plan further by addressing first and second mortgages, eligibility, multi-family homes and more.
Friday, February 20, 2009
$8,000 Tax Credit for First time Homebuyers
The new stimulus package recently passed includes an tax credit for first time home buyers. The credit is 10% of the purchase price but is capped at $8,000. The great thing about this bill is the fact you will not have to pay back the $8,000!
To be considered a first time buyer, you must be someone who hasn't owned a principal residence (meaning you lived in the home full time) for at least 3 years. So if you have only owned a second/vacation home or investment property for the last 3 years you would still qualify.
However, should you purchase a principle residence in 2009 you will have to keep the home for at least 3 years or you will be required to return the tax credit.
The previous plan included homes purchased in 2008 and 2009. This bill eliminates homes purchased in 2008 and now only applies to homes purchased between December 31, 2008 and December 1, 2009. If you purchased a home in 2009 and have already filed a 2008 return for the previous tax credit of $7500, you should file an amendment for the balance of $500.
There are also income limits or restrictions. Single persons need a modified adjusted gross income of no more than $75,000 and married couples no more than $150,000. If you look at line 37 at the bottom of the first page of your 1040 tax return you will see a line that states adjusted gross income. This is the figure that will be utilized.
Finally, even if you do not have a lot of taxable income you are not omitted from the tax credit and may still be eligible.
There is also a section in the Stimulus Plan addressing homeowners who are currently in trouble making their mortgage payment AND, it also addresses homeowners who may feel they will have trouble in the future do to loss of income and thus have high debt to income ratios. I will address this in my next post.
To be considered a first time buyer, you must be someone who hasn't owned a principal residence (meaning you lived in the home full time) for at least 3 years. So if you have only owned a second/vacation home or investment property for the last 3 years you would still qualify.
However, should you purchase a principle residence in 2009 you will have to keep the home for at least 3 years or you will be required to return the tax credit.
The previous plan included homes purchased in 2008 and 2009. This bill eliminates homes purchased in 2008 and now only applies to homes purchased between December 31, 2008 and December 1, 2009. If you purchased a home in 2009 and have already filed a 2008 return for the previous tax credit of $7500, you should file an amendment for the balance of $500.
There are also income limits or restrictions. Single persons need a modified adjusted gross income of no more than $75,000 and married couples no more than $150,000. If you look at line 37 at the bottom of the first page of your 1040 tax return you will see a line that states adjusted gross income. This is the figure that will be utilized.
Finally, even if you do not have a lot of taxable income you are not omitted from the tax credit and may still be eligible.
There is also a section in the Stimulus Plan addressing homeowners who are currently in trouble making their mortgage payment AND, it also addresses homeowners who may feel they will have trouble in the future do to loss of income and thus have high debt to income ratios. I will address this in my next post.
Wednesday, February 11, 2009
Stop Listening to Suze Ormon
This post does not specifically deal with the mortgage industry but I think can be applied to mortgage advice. It deals with investment advice and since a home is probably the largest investment most of us will ever make I decided to write about something I saw on the MSN homepage.About a year or so ago I was telling my wife about Suze Ormon who I had seen on TV claiming to be a financial expert. She had appeared on a number of TV shows, including her own.
I personally found her advice to be seriously lacking any substantive information. It was along the lines of "Buy Low and Sell High". In my opinion her advice was extremely rudimentary and was filled with a lot of psycho-babble. In other words, "where's the beef"?" I was surprised to see her gain more and more notoriety over the next year. If there is one thing I can give Suze Ormon credit for, it's her ability to self promote.
Evidently someone else agrees with my wife and I as they have taken the time to address her on MSN's home page. Here's the link to the article.
http://articles.moneycentral.msn.com/RetirementandWills/CreateaPlan/CreateaPlanDyn.aspx?cp-documentid=17714458>1=33013
Sometimes when we see some personality on a popular show, such as Oprah or Larry King, we might tend to assume that somehow that personality has attained some degree of hard earned credibility. However, even the producers of Oprah and Oprah herself make faulty judgements. As an example, author James Frey, who appeared on Oprah and who she touted in her book club, appeared again later and had to admit he made up material in his book of memoirs.
We all need to be careful from whom we obtain our advice and be of mindful of media hype.
Click on the link above and decide for yourself whether or not Suze Ormon is someone to whom you should entrust your financial well being.
In August of 2008, after my meager IRA portfolio lost 20% and declined to an even more meager amount, I called my advisor at Bank of America and told him I wanted to move the money currently in Mutual Funds into cash, like bonds or T-bills. The Dow had dropped from about 13,000 and was trading near 10,500. The advisor tried to convince me that this was the wrong move, that the market would rebound. I stuck to my guns and he did as I requested. Today as I write this, the DOW is at about 7400. I would have lost another 20-30% had I listened to him. After the change my balance has actually gone up a little. At least I did not lose anymore.
Just because someone claims to be knowledgeable and/or an expert does not make it so.
Bernard Madoff's victims can vouch for that fact.
No one cares or will care about your money as much as you do. Do some research on your own before you make any decision that could affect your savings or investments.
Ok, so how does this apply to buying a home or getting a mortgage. Well, we've all seen the TV ads offering some ridiculously low rate, followed by the inevitable fine print so small it's not even readable. Or there is a voice over at end where the guy is talking so fast you thought you were at an auction. Naturally once you actually look into it you find out it's the old bait and switch. Or perhaps you've read an ad in the local paper that states "bad credit is no problem!". If you've called around and someone is quoting a ridiculously low rate, you should at least be suspicious.
Before you take any action I recommend the first step should be to talk to friends and family members who have owned a home and ask them about their experiences.
When speaking to a loan officer ask for references from past customers and ascertain if they were satisfied with his services.
Also, if you are utilizing a Realtor (and you should be if buying a home) ask for a recommendation or referral. They will have worked with many loan officers and are not going to suggest someone that they do not trust or think highly of as it directly affects their livelihood and their reputation.
A little due diligence will go a long way. Don't blindly accept or believe everything you see or read in the media.
Wednesday, February 4, 2009
Removing Bad Credit From Your Credit Report
One question that pops up every once in a while is " How long does it take to have bad credit removed from my credit report?"
Just because there is an adverse account still showing up on your credit history does not necessarily mean it affects your credit scores. Even after your have resolved these bad accounts they may still be showing up on your credit history for a period of time.
I am not professing to be a credit repair specialist. I am merely relating my experience as a loan officer in dealing with underwriters and credit issues with homeowners trying to be approved for a mortgage.
First you must understand that, other than bankruptcy's or foreclsoures, FIRST you have to pay off or resolve the issue before it will ever be removed.
Most consumer debts such as credit cards, auto repo's, and phone bills (which is one we see a lot) take 7 years to be removed. Over time most of these will appear as "chargeoff's" on your credit report.
I hate it when I see several small accounts like phone bills or small balances on credit cards in default because it can seriously affect credit scores. These debts will eventually be placed with collection agencies.
Bankruptcy's and foreclosures typically take 10 years. Depending on the type of bankruptcy it may or may not have to be paid before it will be removed. When dealing with bankruptcys it's best to consult an attorney who specializes in that field.
It's possible that judgements and tax liens can stay forever. If you have one of these you will have to have it resolved which usually means paying it.
Make you sure it is recorded at your local court house once you do resolve it so that it will show up as "satisfied" on your credit report.
If you find there are items on your credit report that are incorrect you will need to dispute these items.
Here are links to the three credit reporting agencies:
Transunion: www.annualcreditreport.transunion.com/tu/dispute/order.jsp?package=DisputeDisclosure
Experian: https://www.experian.com/consumer/cac/InvalidateSession.do?code=CDI
Equifax: http://www.equifax.com/online-credit-dispute/
First you must understand that, other than bankruptcy's or foreclsoures, FIRST you have to pay off or resolve the issue before it will ever be removed.
Most consumer debts such as credit cards, auto repo's, and phone bills (which is one we see a lot) take 7 years to be removed. Over time most of these will appear as "chargeoff's" on your credit report.
I hate it when I see several small accounts like phone bills or small balances on credit cards in default because it can seriously affect credit scores. These debts will eventually be placed with collection agencies.
Bankruptcy's and foreclosures typically take 10 years. Depending on the type of bankruptcy it may or may not have to be paid before it will be removed. When dealing with bankruptcys it's best to consult an attorney who specializes in that field.
It's possible that judgements and tax liens can stay forever. If you have one of these you will have to have it resolved which usually means paying it.
Make you sure it is recorded at your local court house once you do resolve it so that it will show up as "satisfied" on your credit report.
If you find there are items on your credit report that are incorrect you will need to dispute these items.
Here are links to the three credit reporting agencies:
Transunion: www.annualcreditreport.transunion.com/tu/dispute/order.jsp?package=DisputeDisclosure
Experian: https://www.experian.com/consumer/cac/InvalidateSession.do?code=CDI
Equifax: http://www.equifax.com/online-credit-dispute/
In another post I will address how to improve your credit scores.
Friday, January 30, 2009
Introducing Mortgage Blog USA
I've been in the mortgage business for the last 12 1/2 years. During this time I have seen the highs and lows or peaks and valleys. The mortgage industry, and the country in general, is in one of the most challenging times in memory.
I decided to start a blog that may assist borrowers, especially first time homebuyers, in navigating through these "troubled waters" (que Paul Simon).
CHANGE HAS COME TODAY
This industry has been under constant change for the last 12-18 monthsand for the most part these changes were necesaary. Believe me when I say the way we do business today changes on almost a daily basis. Many programs such as stated income, option arms and 80/2o loans and others are no longer available. These programs were responsible for banks and mortgage brokers going out of business at a record rate, over 320 since 2006 according to the site http://ml-implode.com/.
It doesn't appear any institution is safe. Even Bank of America is facing difficult times.
I intend to address many issues here from the different type programs available today to what market factors affects mortgage rates.
For my first post I am going to keep it simple. How to get quoted an accurate interest rate.
WHAT'S YOUR RATE TODAY?
Talk about a loaded question. That's like asking a car salesman "how much are your cars?".
Your friendly neighborhood salesman would need just a little more information than that to quote an accurate price. As example, if you were interested in a Yugo it would be a slightly different price then say, a Toyota. Let's say you're interested in a Toyota (I don't know if they even make Yogo's anymore. And if they do, they should stop! They should have named them Yu-don't-go).
Next the salesman would need to know what model Toyota. A Corolla, a Camray, a Prius, etc. Once he knows the model he will probably ask you what features or accessories you would like such as leather versus cloth seats or perhaps a sport package or GPS and so on and so on.
The point is, there is not just one price for all automobiles any more than there is one shoe size that fits all feet.
In comparing this to an interest rate there are also a number of factors that must be addressed.
There is not just ONE loan or program that fits all situations for all people. And the rate can vary depending on WHAT program is right for you.
Are you buying or refinancing, fixed rate or adjustable, fully amortizing or interest only?
If buying how much do you have for a down payment? Will you be getting a gift for the down payment?
If refinancing, are you looking for some cash at the closing? How much do you estimate your home is worth and how much do you currently owe? Do you have a second mortgage?
These are just some of the questions you may be asked in order to narrow down the right program and rate.
And today more than ever, for any loan, one of the most important questions is........do you have good credit?
Suppose you're only planning on staying in your home for the next 2 years. While not right for most people, an adjustable rate or interest only loan may be the right program for your specific situation.
All of these items will factor into what program and therefore what rate is available.
Different programs such as FHA versus Conventional offer different rates as do VA and USDA.
And if you are quoted one rate in the morning and do not lock in that rate, do not be surprised if you are quoted a different rate later (higher or lower) in the day. Rates can change at any time during the day, sometimes several times in a day.
The mortgage industry, as most people know, has changed dramatically. And it is still very much in a state of flux.
So please understand that when you call a bank or broker about interest rates, they will need to ask a few questions to decide if you're looking at a Hyundai or a Lexus.
P.S. Anyone interested in a "nice" Toyota Opel. Just kidding.
I decided to start a blog that may assist borrowers, especially first time homebuyers, in navigating through these "troubled waters" (que Paul Simon).
CHANGE HAS COME TODAY
This industry has been under constant change for the last 12-18 monthsand for the most part these changes were necesaary. Believe me when I say the way we do business today changes on almost a daily basis. Many programs such as stated income, option arms and 80/2o loans and others are no longer available. These programs were responsible for banks and mortgage brokers going out of business at a record rate, over 320 since 2006 according to the site http://ml-implode.com/.
It doesn't appear any institution is safe. Even Bank of America is facing difficult times.
I intend to address many issues here from the different type programs available today to what market factors affects mortgage rates.
For my first post I am going to keep it simple. How to get quoted an accurate interest rate.
WHAT'S YOUR RATE TODAY?
Talk about a loaded question. That's like asking a car salesman "how much are your cars?".
Your friendly neighborhood salesman would need just a little more information than that to quote an accurate price. As example, if you were interested in a Yugo it would be a slightly different price then say, a Toyota. Let's say you're interested in a Toyota (I don't know if they even make Yogo's anymore. And if they do, they should stop! They should have named them Yu-don't-go).
Next the salesman would need to know what model Toyota. A Corolla, a Camray, a Prius, etc. Once he knows the model he will probably ask you what features or accessories you would like such as leather versus cloth seats or perhaps a sport package or GPS and so on and so on.
The point is, there is not just one price for all automobiles any more than there is one shoe size that fits all feet.
In comparing this to an interest rate there are also a number of factors that must be addressed.
There is not just ONE loan or program that fits all situations for all people. And the rate can vary depending on WHAT program is right for you.
Are you buying or refinancing, fixed rate or adjustable, fully amortizing or interest only?
If buying how much do you have for a down payment? Will you be getting a gift for the down payment?
If refinancing, are you looking for some cash at the closing? How much do you estimate your home is worth and how much do you currently owe? Do you have a second mortgage?
These are just some of the questions you may be asked in order to narrow down the right program and rate.
And today more than ever, for any loan, one of the most important questions is........do you have good credit?
Suppose you're only planning on staying in your home for the next 2 years. While not right for most people, an adjustable rate or interest only loan may be the right program for your specific situation.
All of these items will factor into what program and therefore what rate is available.
Different programs such as FHA versus Conventional offer different rates as do VA and USDA.
And if you are quoted one rate in the morning and do not lock in that rate, do not be surprised if you are quoted a different rate later (higher or lower) in the day. Rates can change at any time during the day, sometimes several times in a day.
The mortgage industry, as most people know, has changed dramatically. And it is still very much in a state of flux.
So please understand that when you call a bank or broker about interest rates, they will need to ask a few questions to decide if you're looking at a Hyundai or a Lexus.
P.S. Anyone interested in a "nice" Toyota Opel. Just kidding.
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