Posts Tagged ‘mortgage advice’

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.

Type of income and prequalification

June 29, 2010

“Why does it matter how I’m paid as long as I get paid?”

I’ve received that question numerous times over the past several years being in the mortgage industry. The question does make sense – as long as income from a job is coming in on a regular basis, why does it matter if someone is self- employed, a W2 employee, or a 1099 contract worker?

Unfortunately, for the self-employed or individuals paid on a commission or bonus structure, it does matter. Why? Due to the up-and-down nature of running a business or income based on monthly/annual performance, underwriters want to see a historical record of income that is earned over the course of up to two years.

Unless you are a W2 employee whose salary will be the same every month regardless of the economy or sales, the only way to document your income is through annual federal tax returns. By reviewing tax returns for the past two years, an underwriter can see documented monthly income for 24 months to gauge expected future income.

Here are some examples of different ways one might be paid and what steps are necessary to document the income:

  • W2 salaried income – this is the easiest to document. All that is needed is the past 30 days of pay stubs. If recently moved to a new job in the same field still as a W2 employee, a pay stub reflecting 30 days on the job with an acceptance letter to the new position should do it.
  • W2 base pay with commission/bonus income – if commission/bonus income is less than 25% of the total salary, then the same rules apply as above should apply. If more than 25% of the total salary, then up to two years of tax returns will be required to document the income.
  • Full commission income – up to two years tax returns will be required. Note that any business expense write offs on the tax return will lower the income that can be used to qualify you for the loan.
  • Self-employed – two years of tax returns will be required. Again, any claimed business expenses (personal or for the business itself) will reduce the income that can be used to qualify you for the loan.
  • Bonus income – two years documented bonus income will be required along with documenting its continuance.
  • Same job at the same company but change from W2 salary to commission/bonus income – This is happening more frequently in the business world. Positions that were once salaried are becoming positions with base pay plus commission. If the base salary is sufficient to qualify for the loan, then only pay stubs are required. However, if the commission is also needed to qualify for the loan, then up to two years of tax returns would be required.

Loan programs such as stated income and no documentation loans are no more due to the credit crunch. This means all income must be verified and documented – making how one gets paid all the more important.

If you are looking to buy a home or refinance an existing one and you are not paid as a W2 salaried employee, it is imperative to speaking with a mortgage consultant to ensure everything is order before you are ready to make an offer. If you are in the state of Georgia, I would enjoy the chance to review your situation and help qualify you to buy a home–give me a call!

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!

Rates holding at historic lows

June 8, 2010

Interest rates are high, aren’t they? The experts predicted higher rates by mid year, and I even mentioned that would happen here, here, here, here, here, and here (if not more). If you read those posts, you will see there were several reasons why I (and essentially everyone else) thought this would happen. These reasons primarily revolved around the Federal Reserve ending their buying mortgage backed security (MBS) bonds.

* – definitely read the first linked post to get some more background information on that program from the Federal Reserve

SO… why are interest rates at their lowest point of 2010? Why did rates not dramatically rise when the Federal Reserve ended their program of buying  bonds?

Thanks to the debacle in Europe (along with our own economy that isn’t back on its feet), investors in the US and around the world are back to buying our debt (bonds) and not those of Europe. It was the heavy investing in Europe and the Euro that caused the precipitous drop in the value of the Dollar, which motivated the Federal Reserve to begin buying MBS bonds in late 2008 and increase their value.

Why is this important? – As the value of MBS bonds rise, interest rates fall. This cause and effect pattern, heavily influenced by the Federal Reserve over the past 18 months, led us to these historically low interest rates. When the program ended this past March, everyone assumed rates would rise. Well, they obviously didn’t and there were plenty of other investors more than willing to step in and buy bonds to keep rates low!

Now for the question we would ALL love to have answered, “What’s next for rates?”

In the past when interest rates got to these low levels, they almost immediately went back up. This seemed to be the self-imposed floor. Today? Not only have rates held, but they have slightly improved. They might actually get lower this time because:

  • The US economy is definitely not back on its feet and private sector hiring is down
  • The problems in Europe are just getting started as Hungary’s credit rating was down graded and Portugal, Spain, & Italy all share similar problems
  • Analysts are mixed whether or not the bailout for Greece will actually work

Regardless of what interest rates do (and it is anyone’s guess at this point), now is the time to speak with someone to get prequalified to buy a home OR to review your current mortgage to refinance. By doing so, you would be in a prime position to take advantage of interest rates at their current levels OR ready to move at a moments notice if rates continued to fall.

If that is you, I would enjoy the chance to speak with you and get everything in order for your new mortgage.

Fannie Mae HomeStyle rehab loan

May 19, 2010

I regularly receive requests for loan programs that will allow borrowers to make repairs on a home and roll those costs into the loan. Due to the financial crisis and the risky nature of these loan programs, conventional rehabilitation loans virtually disappeared.

The only consistent option was the FHA 203k program, which is a great loan program, but only allows cosmetic/non-structural repairs on a buyer’s primary residence. It would be great if there was a program that allowed both buyers and investors the flexibility needed to do more than just cosmetic repairs… and now there is!

Introducing the Fannie Mae HomeStyle loan program. This is a renovation program like the FHA 203k program, and they share some similar traits.

  • Both programs allow for cosmetic remodeling/repairs
  • The funds needed for the work on the property is rolled into the loan
  • Available on primary residences for purchases & refinances
  • Work must be completed by a licensed contractor

There are similarities, but definitely note the differences.

Fannie Mae HomeStyle:

  • Available for borrowers (10% minimum downpayment) and investors (20% minimum downpayment) on purchases and refinances
  • Structural repairs/changes/improvements allowed
  • Luxury items such as pools, hot-tubs, fences, etc. allowed
  • minimum repair amount of $5,000 required

FHA 203k:

  • only 3.5% down payment required
  • No minimum repair amount required
  • Available for primary residence purchases & refinances only
  • No structural repairs/upgrades OR luxury items allowed
Who can benefit from either of these loan programs? Anyone looking for a loan program that will allow you to knock out a wall or two OR investors looking for a way to cover remodeling costs OR even someone looking for a way to pay for carpet and paint in their new home.
If this is you, program options are now available! Don’t hesitate to contact me to learn more or get prequalified for either of these great programs.

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.

3% down and no PMI

April 22, 2010

Yes, you read that correctly. Conventional loan, 3% down, no private mortgage insurance, and to top it off… no appraisal required! The program is known as HomePath Mortgage by Fannie Mae and is available to borrowers looking for a primary residence OR an investment property.

Investors using the HomePath Mortgage program need a 15% down payment, but will not be required to get private mortgage insurance or an appraisal on the investment property. Also, the limit on the number of total properties financed in an investors name is waived.

Fannie Mae designed this loan program to facilitate the sale of their foreclosures. There are numerous properties available, and you can search for them here. However, before you find a home and get ready to submit an offer, remember this is a foreclosed property and there are some things to keep in mind:

  • the property is purchased “as is”
  • the property may require some repairs
  • definitely get an inspection!
  • no contingency offers (on the sale of a current home) allowed

All offers must include a prequalification letter. If you are looking to get prequalified, learn more about interest rates this program, total monthly payments, etc., feel free to call or email me. It would be glad to help you through the mortgage process!

New facebook page

April 19, 2010

Even though there are numerous ways to find your friendly neighborhood mortgage broker (this blog, Twitter, Facebook, LinkedIn, Dunwoody Mortgage), I figured one more couldn’t hurt!

Introducing my Facebook fan page – Clay Your Mortgage Professional

This page contains what one would expect (contact information, summary about my services, links to websites, etc.), but also allows me to post the occasional picture and provides clients, friends, and family the opportunity to post comments.

If you are on Facebook (I believe that literally everyone is at this point), I’d love for you to be a fan! So join me, won’t you?

A round of applause

April 13, 2010

Seems people like to give the government (President, Congress, Federal Reserve, etc.) a hard time when things don’t go as planned. Rarely  does anyone give them the credit they sometimes deserve.

In regards to the Federal Reserve’s plan to lower interest rates and stabilize the mortgage back security bond market (MBS bonds), the Feds deserve a round of applause.

During the initial stages of the current financial crisis (when the markets were in total disarray), the Federal Reserve stepped in to the spotlight. The Feds announced a plan to buy MBS bonds with two goals in mind – to stabilize the value of MBS bonds and push interest rates down below 5%.  The Feds succeeded on both objectives, extended the program twice (for a total of 15 months), and spent over $1 trillion (yes, that is a “T” for trillion) buying MBS bonds.

The new concern became what would happen once the Feds program ended. Posts on this blog theorized that if MBS bond prices soared (and interest rates dropped) on the announcement of the plan in November 2008, wouldn’t the opposite occur once the Feds were finished buying MBS bonds?

Initially that theory proved to be right. In the first couple of days after the Feds stopped buying MBD bonds, those bonds dropped over 100 basis points in value and interest rates rose 0.25-0.375%. However, as the Feds bowed out of the MBS bond market, other investors have picked up the slack. For instance, since the Feds have kept the Federal Funding Rates near 0%, money managers, pension funds, etc. are moving away from playing it safe and keeping cash “on the sidelines” and are now investing in MBS bonds.

In the end, the plan seemed to work like a charm. The Feds were able to push rates below 5% (back below 5% at the time of this posting), stabilize the MBS bond market, and encourage other investors to pick up the slack as they slowly moved away from buying MBS bonds.

Even though the MBS bond market is now performing without a net, the initial “sky is falling” scare is over and interest rates have rebounded to their levels prior to the Feds leaving the MBS bond market. Who knows how this plan could affect the market a year or two down the road, or how rates will respond if they begin moving in the wrong direction (when they do rise, expect it to be sudden and without much warning), but at least for today, credit should be given to the Feds. Thus far, everything is going according to the plan they laid out. Besides, something bad could happen and we’ll think their idiots again tomorrow 🙂

Here today…

April 8, 2010

The deadline for the tax credit is fast approaching. If you haven’t started the process, don’t worry, there is still time!

Unlike the first go around, you do not have to be closed by the deadline – you only have to be under a binding contract by the end of April. You then have 60 days (end of June) to complete the purchase.

This is ideal for all of those fence sitters out there! 🙂

For more details on the tax credits, check out this previous post. Some quick points:

  • First time home buyer (or not owned a home in 3+ years) 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.
  • A “moving up” tax credit of $6,500 is available for current home owners buying a new primary residence.  To qualify, home owners moving up must have lived in their current residence for 5+ years at the date of the binding contract to buy the new home.

If you have ever thought about buying a home to earn one of the tax credits, it isn’t too late to get started. Begin by talking with a mortgage professional, then find a home.

The tax credits are here today, but won’t be for much longer.