Archive for the ‘Mortgage News’ Category

An effort to stem strategic foreclosures

July 6, 2010

Turn on the TV or surf the web and you’ll learn about home owners walking away from their homes because they can’t afford it anymore, are underwater on the mortgage, lost their job, or all of the above.

This strategy might appeal to an individual home owner in this situation, but it continues to hurt the property values and borrowing power of those who continue to make their monthly mortgage payments on time. This has gone on for so long now, it seemed nothing could be done to prevent it. Until now…

Fannie Mae recently announced (and I assume Freddie Mac will follow soon with a similar announcement) that “defaulting borrowers who walk-away and had the capacity to pay or did not complete a workout alternative in good faith will be ineligible for a new Fannie Mae-backed mortgage loan for a period of seven years from the date of foreclosure.”

That is a great start, but someone considering walking away probably isn’t thinking about not being able to own a home for seven years. That may be why this next part was added – “Fannie Mae will also take legal action to recoup the outstanding mortgage debt from borrowers who strategically default on their loans in jurisdictions that allow for deficiency judgments.”

Now this is where it gets interesting. If the home is owned in a state that does allow deficiency judgements, and the home owner chooses to walk away without selling the home OR have the bank agree to a short sale, they are exposing themselves to a potential lawsuit where Fannie Mae will seek to recoup the remaining mortgage balance.

How will this be implemented? No one really knows for sure because the policy was recently announced, but at least it is something to make home owners think twice before strategically walking away.

Until this trend is stopped, home owners making on-time monthly mortgage payments will continue to be the ones who really suffer from the walking away strategy – not to mention its affects on the mortgage industry, real estate sales, the economy, and the economic recovery. If it isn’t obvious by now, all of this is interconnected.

While this action won’t completely stop home owners from strategically walking away, it is definitely a step in the right direction to try and prevent it from continuing.

An old wives’ tale comes true

June 24, 2010

I’m sure you’ve read or heard about things not to do when trying to get a mortgage that could disqualify you from buying or refinancing a home. You know what I’m talking about – a story that happened to someone somewhere, but could never happen to me…

I remember hearing a story of a couple that bought two luxury cars days before closing on their new home. Long story short – they no longer could buy the home!

Now it is doubtful that many of us would go out and buy one (let alone two) luxury cars right before closing. But that old wives’ tale may be coming true more often now than it ever has before.

I always warn my customers not to do anything in regards to credit once I’ve obtained a copy of their credit report. Don’t buy a car, don’t open a new credit card, don’t run up a higher balance on an existing credit card, don’t pay anything off or down if it isn’t needed to qualify. That advice is needed now more than ever thanks to Fannie Mae’s Loan Quality Initiative.

The purpose of the Loan Quality Initiative is to keep a close eye on any potential changes to a borrower’s circumstances from the application date to the closing date. Lenders will do this by pulling a copy of a loan applicant’s credit report up to the day of closing. This has always been a possibility – a random credit pull for quality control purposes – but now it is becoming standard practice.

If your credit report is pulled on the day of closing, and there is a credit account opened after your initial credit pull, your loan could be pulled back into underwriting to be reviewed before being allowed to close. If that happens, there will definitely be a delay in closing.

How can you prevent this from happening? Don’t do anything to your credit once you’ve been qualified for a new loan. Don’t apply for any credit, don’t let anyone make an inquiry on your credit report, don’t go out and purchase furniture or appliances on existing credit cards.

In short, don’t do anything until after you close on your loan. You’ve heard about the credit crunch, and this is simply another aspect of it. Remember this isn’t a single lender or bank’s guideline, but one from Fannie Mae. That means everyone will be subject to these new standards.

Have questions or comments? You know how to find me!

There’s still time

April 26, 2010

It seems many potential buyers are not aware of the “fine print” details of the current tax credits for buying homes (either as a first time home buyer OR repeat buyer). Most believe that it is too late to take advantage of the tax credit since it comes to an end this Friday (end of April). That is definitely NOT the case!

Home buyers only need to be under contract by the end of April, then they have another 60 days to complete the purchase. That means buyers still have all week to find a home and get under contract!

Bottom line – if you haven’t given it much thought, have been sitting on the fence, or unsure of what to do, don’t worry, you do still have some time. Just get under contract by the April 30th because 60 days is MORE than enough time to work with a mortgage consultant to complete the purchase.

New licensing requirements

March 9, 2010

With the passing and implementation of the SAFE Act (Secure and Fair Enforcement of Mortgage Licensing Act of 2008), I am often asked about the licensing requirements prior to the SAFE Act. The answer is actually kind of frightening…

There was no test (federal or state)… there were no educational requirements… individuals only needed a pulse, pass a background check, and work under a licensed mortgage broker or bank. Anyone could transition from being a cook, mechanic, insurance agent, car sales, etc. and move into the mortgage business the next day! (this is not THE reason for the current real estate and mortgage environment, but it certainly didn’t help)

The SAFE Act is designed to set a minimum standard for the mortgage industry and to reduce fraud by requiring loan originators to be individually licensed by completing 20 hours of pre-licensing education, passing a federal test, passing a state-specific test, and passing a back ground check. Anyone looking to move into the mortgage industry must complete the same requirements.

The deadline to complete and apply for an individual MLO License (Mortgage Loan Originator) is March 31, 2010. NMLS (National Mortgage Licensing System and Registry) will not have the entire process/paperwork complete by that date, but will grant a temporary license to loan originators who have completed all requirements by March 31st. This will allow responsible loan originators to continue helping borrowers buy and refinance homes.

Never one to wait until the last minute, I have completed the 20 hours of pre-licensing educational classes, passed the federal and state specific exams, authorized a back ground check AND officially applied for my individual license! It is a relief to know I will avoid any last minute headaches, but that will not be the case for everyone.

If someone fails the test (and one-third of loan originators are failing), they have to wait 30 days before taking it again. Anyone failing the test in March will not make the March 31st deadline and won’t be granted a temporary license. That doesn’t mean those individuals are permanently banned from the mortgage industry. However, it means they won’t receive a temporary license and will either have to wait until the entire process is complete (possibly several months) OR work for a bank.

No joke. Bank employed loan originators are not currently required to be licensed. That could be an interesting development…

More on the new good faith estimate

February 17, 2010

Since blogging about the new good faith estimate in January, I’ve had the chance to listen to clients and other loan professionals’ feedback on the new three-page form… and the feedback has been consistent.

As the recent post states, there are some great benefits to the new good faith estimate:

  • the terms, interest rate, and loan amount are clearly stated on the first page leaving no room for confusion
  • lender fees quoted must match at closing
  • other fees (attorney, credit, etc.) are also clearly identified leaving no room for ambiguity

The areas needing improvement are still there:

  • there is no signature line/page on the new good faith estimate for borrowers to acknowledge they received the form
  • total closing costs are not shown. Instead, prepaids and closing costs are mixed together.
  • total cash required to close is nowhere to be found
  • monthly mortgage payment is also nowhere to be found

Solving the first problem is easy – all mortgage professionals must create a form for borrowers to sign acknowledging they received the good faith estimate.

In order to help our clients with the rest, we created another form. This additional page shows the itemization of closing costs and prepaid items along with the cash required for closing and the monthly mortgage payment – problems solved!

The one item out of our control is how other mortgage professionals quote estimates for property taxes and homeowners insurance. This is one area that the burden is on the borrower to ensure the good faith estimates they review use the same amounts for property taxes and insurance. Only then will a borrower have a true apples-to-apples comparison.

As with all things in life, there are pros and cons, and the new good faith estimate is no different. As a colleague of mine said in one of his recent posts, the keys to helping our clients through the pros and cons haven’t changed – be simple, honest, and professional:

  • quote closing costs honestly and don’t try hiding or under quoting fees
  • quote real interest rates and not something abnormally low to get the phone to ring
  • keep your word!

Mortgage professionals able to do that will help to keep themselves, their realtor partners, and clients happy as we all navigate the new (and sometimes confusing) three-page good faith estimate (oh, and don’t forget the extra page showing the itemization of closing costs, and one more page to confirm receipt of the new good faith estimate).

New Year, New GFE, New Problems

January 27, 2010

As of January 1, 2010, the new, standard Good Faith Estimate (GFE) implementation was underway for all banks, lenders, and brokers was underway. The new estimate design was to clear up any misconceptions or misunderstandings about a borrowers loan terms, interest rate, closing costs, etc.

Some of the highlights of the new GFE include:

– providing a summary of the loan showing the interest rate, term, if the interest rate can rise, if the loan balance can increase even with regular monthly payments, and if there is a prepayment penalty
– showing a total fee for all services required for a loan including lender fees, attorney fees, recording fees, etc.
– containing a graph showing the fees that can’t increase for any reason at closing along with the fees that can change so long as they do not exceed a 10% tolerance limit

The benefits?  That is easy – gone are the horror stories of dramatic increases in closing costs at the closing table… no confusion about the terms of the loan… makes comparison shopping easier than before.

However, nothing in this world is perfect and there are couple of items that could use some improvement on the new GFE.

– Borrowers must receive the new GFE within 3 business days of a completed loan application. Ironically, there is not a signature page for borrowers to sign and acknowledge they received it.
– The total monthly mortgage payment for the loan is not listed anywhere on the new GFE.
– The required cash needed at closing (combination of the down payment, closing costs, and prepaids) is also not listed on the new GFE.
– The new GFE shows an itemized list of the costs for services rendered (total attorney fees, total lender fees, etc.), but does not show an itemized summary of those costs. For example, say the GFE shows the attorney fee is $1,000.  That would include the cost of the attorney’s services, title exam, title insurance, etc., but it doesn’t show the dollar amount for each of those items.

Change can be a good thing, and overall, the new GFE is a good thing for consumers and a step in the right direction. That said, it will take some time to adjust – especially for borrowers looking to buy their second or third home. This format is completely different from their prior experiences!

Be sure to work with a loan originator who knows the new good faith estimate, can explain it, but also offer you some of the missing information – like the total monthly mortgage payment!

Out with the old…

December 31, 2009

… and in with new FHA guidelines. Given the time of year, it seems almost appropriate.  Regarding the new change…

FHA loans now require borrowers to not only have a minimum qualifying credit score to be approved for a loan, borrowers also need to have at least three trade lines (accounts) in their credit history.  The three trade lines must:

  • Trade lines can be a credit card(s), student loan, car loan, mortgage
  • Have at least 12 months of history (current or closed account)
  • If an account is closed, it cannot be closed more than 24 months ago or it will not be counted toward the required three trade lines

Because of this new change, even if a borrower has the minimum down payment (3.5%) and a qualifying credit score (620+), they would still not qualify if the new trade line requirement is not met.

Why would FHA require this? There has not been an official statement, but they could be thinking “if there are only one or two trade lines, is the credit score an accurate score based on the limited history.” Regardless of the reason, this is just one more item to keep in mind when looking to buy a home.

I’ve said this before and I will say it again, planning ahead is key.  Knowing where you stand, how much you can afford, and when it the best time to move forward is essential in this ever changing market.

it’s official

November 6, 2009

The new bill extending the first time home buyers tax credit passed through both the House and the Senate.  The last stop is President Obama’s desk.  Once signed, the law goes into affect.

Several aspects of the bill are the same, but there are some new twists this time around.

  • First time home buyer tax credit of $8,000 extends through April 30, 2010. Home must be under contract by that date and closed on or before June 30, 2010.
  • As before, first time home buyers are individuals who have never owned a home OR have not owned a home in 3+ years.
  • A “moving up” tax credit of $6,500 is available for current home owners buying a new home.  To qualify, home owners moving up must have lived in their current residence for 5+ years.
  • Income levels for a single purchaser are limited to $125,000 adjust gross income (up from $75,000) and $225,000 for couples (up from $150,000).
  • Home buyers with adjusted gross income above those levels can still qualify for the tax credit, but the amount of the credit diminishes as you move above the income limits.
  • In order to cut down on fraud, home buyers must be at least 18 years old and must submit a copy of the HUD-1 settlement statement from closing.

There you have it.  New life in the tax credit and let a new countdown begin… only 175 days left before you must have a home under contract to qualify for either of the tax credits.

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Seems that time is not running out

November 2, 2009

There has been a lot of talk coming out of Washington regarding extending the first time home buyer’s tax credit.  There are those that want it extended for another year.  Others that want it phased out gradually over the next year.  There are some who want it to end now.

After weeks of hearing about it, there are actual developments to report on a possible new bill that will extend the tax credit.  Note the use of the word “possible” because this is not a done deal.

  • the tax credit applies to first time home buyers (never owned a home OR not owned a home in 3+ years) and could also apply to buyers moving up to a larger primary residence (must have owned current home 5+ years)
  • the first time home buyer credit would remain at $8,000 and the trade up credit would be $6,500
  • home buyers (first home or new home) adjusted gross cannot exceed $125,000 ($225,000 for couples filing  jointly)
  • homes must be under a signed contract by the end of April and close no later than June 30, 2010
  • tax credit only applies to homes $800,000 or less

As of this posting, the bill has not been passed and no vote is scheduled.  What does that mean? If you want to make sure you get the $8,000 tax credit as a first time home buyer, start the process now and own your home before the end of November.

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The end is near

October 19, 2009
5 Minutes to Midnight

5 Minutes to Midnight

I’ll admit that the doomsday clock at about 5 minutes to midnight (meaning the end of the world is upon us) is a little over dramatic – even for me.  The point I’m trying to make is simply this… time is running out on the $8,000 tax credit and low interest rates.

Let me explain…

$8,000 tax credit expires on November 30, 2009– As of this post, there are only 30 business days remaining before the deadline (remember we lose a couple of days because of Thanksgiving). While it may seem like there are 6 weeks to go, there are only 30 working days left. 

There is talk of extending the credit and some people are being creative in trying to define what part of the buying process needs to be completed by the 30th… Bottom line, if you want to be sure to get the tax credit, a first time home buyer’s purchase must be closed on or before November 30th.

Historically low interest rates– Last November, the Federal Reserve announced a plan to purchase up to $1.25 Trillion in mortgage back security bonds.  This would increase their value and push interest rates down (as bond prices go up, interest rates go down – and vice-versa).

Shortly after the announcement, interest rates dropped about a half of a percentage point — on just the announcement of the plan!!!  Once the Feds actually began buying bonds, rates dropped into the 4’s.

Those days are coming to an end as the Feds begin (over the past couple of weeks) to scale back the purchasing of bonds.  They plan to be out of the bond buying business at the start of the new year.

What does this mean for interest rates? Well, the past couple of weeks have seen the market trend in the wrong direction pushing mortgage rates slightly higher.  One can only expect this trend to continue as the Feds move away from buying bonds. 

All hope is not lost. At this moment, it is not too late.  If you haven’t taken advantage of these historically low rates to purchase a home or refinance your existing home (if you current rate is over 6%, we need to talk), rates are still historically low.  Also, there is enough time to still buy a home and qualify for the tax credit if you start today.  Let’s get started by calling or emailing me!

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