In a kind of crisis intervention, IndiSoft is working on computer programs that track borrower behavior so that if a life-changing event occurs, steps can be taken to ensure timely payments are made.
The day is coming when lenders will no longer turn their clients loose after they leave the closing table, never to be heard from again unless someone misses a payment or two.
Think of it as crisis intervention. Rather than waiting for previously solid borrowers to ask for help, lenders will monitor their borrowers over the life of their loans, looking for signs of trouble before borrowers even realize a problem is at hand.
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It won't happen this year, or even next. Lenders are too busy right now cleaning up the current mess of bad loans. But Sanjeev Dahiwadkar, president and chief executive of IndiSoft, a Columbia, Md., mortgage-technology company, believes it won't be too long before lenders begin keeping tabs on their customers for as long as their loans are on the books.
"That ship has already started sailing," Dahiwadkar says. "Historically, servicers have always waited for problems to materialize before trying to do something about them. But they are going to be watching their portfolios much more closely in the future."
IndiSoft writes computer programs for the default-management business, the underbelly of the lending community that works to turn nonperforming loans into performing assets. The company's clients include everyone who has a stake in saving problem loans: the investor that purchases the loan from the funding lender, the servicer that collects the payments on behalf of the investor and the insurance company that promises to cover part of the investor's losses should the borrower stop paying.
Currently, IndiSoft's technology comes into play the day a borrower stops paying. But Dahiwadkarsays the company is working on programs that monitor borrower behavior so that if a life-changing event such as a divorce or layoff occurs, an IndiSoft client can take whatever steps are necessary to make sure the borrower continues to make timely payments as promised.
The client might choose to simply monitor a particular loan more closely than it would otherwise, perhaps sending a friendly reminder a few days after a payment is due rather than waiting until it is 30 or 60 days late. Or it could take bolder steps such as calling the borrower to make sure that all is well and offering help right away instead of when the borrower is 90 days behind.
Right now servicers are so overwhelmed trying to work through the millions of mortgages that are in some stage of the foreclosure process that slow-paying or minimally late-paying loans are getting little or no attention.
Worse, most borrowers tend to stick their heads in the sand when they get behind, figuring that they'll solve their problems on their own. But even when borrowers call in an attempt to avert a potential crisis, short-handed servicers typically relegate them to the end of the line because they have their hands full with more extreme situations.
Eventually, though, the foreclosure mess will clear. And when that happens, Dahiwadkar believes that stakeholders will become far more proactive in managing risk than they are now. Instead of reacting to problems as they occur, he says, they will look for a pattern of behavior — clues, if you will — that indicate a problem is on the horizon.
This goes far beyond the latest underwriting wrinkle of reevaluating a would-be borrower's credit just before the mortgage closes to make sure that the person hasn't taken out any other loans or run up other bills that would impinge on the ability to make house payments. And it could go way beyond monitoring for life events such as a major medical issue.
For example, the lender might ask you to sign a document at settlement that gives the servicer the right to run periodic credit reports to see whether you are having any difficulty paying your bills. If the servicer knows you've missed a couple of credit card payments or you are late on your auto loan, it might call to find out what's up.
But permission to monitor your credit goes even deeper than that. If all of a sudden you start paying your bills on the 15th of the month instead of the first, for example, programs developed by IndiSoft or other technology companies will alert the servicer, which can then step up its surveillance.
"There are different ways to analyze risk," Dahiwadkar says. "A change in behavior is something to be cautious about. So if a payment pattern changes, it could be a trigger for putting a loan on a 'watch' list."
Then, if you don't seem to be handling your finances well, the company might offer credit counseling so you don't also fall behind on your mortgage. Or if you've been laid off, the servicer could offer to rework your loan or allow you to miss a few payments until you get back on your feet.
But Dahiwadkar says servicers and other stakeholders will be watching their borrowers' behavior much more closely so they also can separate those who are truly experiencing financial difficulties from deadbeats simply refusing to pay.
If someone stops paying the mortgage but continues to make credit card payments on time or takes on new debt — a second mortgage, for example, a car loan or a loan from a finance company — the IndiSoft executive says, "It's pretty certain you are dealing with a borrower who is not paying because he doesn't want to, not because he can't."
December 10,2010, by lsichelman@aol.com, Distributed by United Feature Syndicate.
Copyright © 2010, Los Angeles Times
Monday, December 13, 2010
Friday, December 10, 2010
Home prices in many U.S. markets hit bottom
Home prices in many U.S. markets hit bottom in the third quarter, but some large metropolitan areas, particularly in Florida, are still in trouble, according to data from Local Market Monitor.
The real estate analytics company said home price data may be skewed because of recent halts of foreclosure sales as servicers reviewed possible documentation problems.
Local Market Monitor reported a "definite bottom" in Southern California, specifically the San Francisco Bay area, where the average home price stands at $642,159, a 17% drop from the peak in the third quarter of 2006. Analysts forecast that price to hold over the next year and possibly increase 1% over the next two years.
Home prices in Washington, D.C., Minneapolis, Honolulu and Boston also bottomed out in the third quarter.
The biggest drop over the next year is set to occur in the Daytona Beach, Fla. area, where Local Market Monitor said prices should drop another 11%. A number of other Sunshine State cities — Jacksonville, Lakeland, Ocala, Orlando and Cape Coral — should all see prices drop by 5% or more over the next year.
"Our 12 month forecast is still very modest, because the job situation is still weak, but it won't be a surprise if home prices in these markets actually do better," according to the report.
Local Market Monitor reported three Texas areas, Austin, Forth Worth and Dallas, have seen good job growth and "have the potential to beat forecasted price increases over the next year."
-Housing Wire, Dec. 10th, 2010
The real estate analytics company said home price data may be skewed because of recent halts of foreclosure sales as servicers reviewed possible documentation problems.
Local Market Monitor reported a "definite bottom" in Southern California, specifically the San Francisco Bay area, where the average home price stands at $642,159, a 17% drop from the peak in the third quarter of 2006. Analysts forecast that price to hold over the next year and possibly increase 1% over the next two years.
Home prices in Washington, D.C., Minneapolis, Honolulu and Boston also bottomed out in the third quarter.
The biggest drop over the next year is set to occur in the Daytona Beach, Fla. area, where Local Market Monitor said prices should drop another 11%. A number of other Sunshine State cities — Jacksonville, Lakeland, Ocala, Orlando and Cape Coral — should all see prices drop by 5% or more over the next year.
"Our 12 month forecast is still very modest, because the job situation is still weak, but it won't be a surprise if home prices in these markets actually do better," according to the report.
Local Market Monitor reported three Texas areas, Austin, Forth Worth and Dallas, have seen good job growth and "have the potential to beat forecasted price increases over the next year."
-Housing Wire, Dec. 10th, 2010
Monday, November 29, 2010
FTC clamps down on mortgage modification scammers
Criminal enterprises posing as do-gooders who promise to get you out of the mortgage jam you're in: They claim they can persuade your lender to cut your monthly payments, forgive all penalties, slash your interest rate and even get your loan balance reduced. If your lender won't cooperate, they say they'll perform "forensic audits" on your mortgage and convince a court that your entire loan transaction should be canceled because of technical mistakes in the paperwork.
Bogus firms always insist on getting your money upfront — often thousands of dollars — and then do little or nothing.
The agency plans to ban almost all upfront payments, institute mandatory disclosure rules and place new restrictions on lawyers.
-Kenneth R. Harney, November 28, 2010, L.A.Times
Bogus firms always insist on getting your money upfront — often thousands of dollars — and then do little or nothing.
The agency plans to ban almost all upfront payments, institute mandatory disclosure rules and place new restrictions on lawyers.
-Kenneth R. Harney, November 28, 2010, L.A.Times
Thursday, November 11, 2010
Credit scores to be revised amid soaring mortgage defaults
Found in the LA Times this article from Ken Harney
Reporting from Washington —
With foreclosures soaring — and homeowners with unblemished payment histories abruptly walking away from their houses with no warning to lenders — the two major producers of credit scores have begun changing how they evaluate consumers' risks of default. The revisions could affect you the next time you apply for a loan.
In late October, both Fair Isaac Corp., developer of the FICO score, which dominates the mortgage field, and VantageScore Solutions, a joint venture by the three national credit bureaus and marketer of the competing VantageScore, outlined modifications they were making to handle the vast credit disruptions caused by the housing bust, the recession, high unemployment and behavioral changes by consumers.
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Overall, credit industry experts agree, consumer creditworthiness has deteriorated in the U.S. since 2006 — especially among what used to be considered the credit elite, people with the highest scores. For example, a study this year by VantageScore found that the probability of serious delinquency — defined as nonpayment for 90 days or more — had increased 417% among "super-prime" borrowers between June 2007 and June 2009. Default risk during the same period rose 406% for the second-highest-rated category of "prime" consumers, and nearly doubled for those at the "near prime" scoring level.
The driving force behind the score revisions, according to Sarah Davies, VantageScore's senior vice president for analytics and research, is the "significant change in consumer credit repayment behavior" that began during the housing bust and recession.
Not only are borrowers who previously were rated outstanding credit risks far more likely to default today, she said, but many homeowners are defying long-standing credit industry assumptions by going delinquent on their first mortgage payments while continuing to pay their credit card balances and second mortgages on time. Strategic defaults, or walkaways, by high-score borrowers also have been an unexpected development, she said.
To adjust its statistical models to these new realities, VantageScore says it conducted intensive research on 45 million active credit files obtained from the databases of its joint venture partners, Equifax, Experian and TransUnion. The research examined the same files — with personal identifiers removed — during set time periods between 2006 and 2009 to capture emerging behavioral patterns associated with defaults on various types of credit accounts. The resulting VantageScore 2.0, which is expected to be rolled out nationwide to lenders in January, focuses on the subtle warning signs of credit stress that might have been missed earlier and penalizes or rewards consumers with higher or lower risk scores than they would have received before.
Joanne Gaskin, director of mortgage scoring solutions for Fair Isaac, said her company's new FICO 8 Mortgage Score was based on similarly exhaustive research into consumer credit behavior changes over the last four years. When used by a lender to rate the risk of new applicants or existing mortgage customers, Gaskin says, the Mortgage Score is likely to be 15% to 25% more accurate in detecting signs of future default compared with the standard FICO model.
Though she would not discuss proprietary details about the early warning signs the new score monitors, Gaskin gave an example of how the new score might work: Say a borrower with a 720 FICO score has average balances on a first mortgage, home equity lines and other accounts that are higher than norms pinpointed by the revised scoring software. A 720 FICO is considered a good score by most mortgage lenders, often qualifying for favorable rates and terms. However, the same applicant might rate just a 680 FICO or lower if the lender used the new Mortgage Score. The lender would then have a choice: Reject the applicant, quote a higher interest rate on the mortgage or require a larger down payment.
Gaskin said the reverse could also occur: The FICO 8 Mortgage Score could come in higher than the standard FICO — indicating lower risk for the future — in situations where formerly troubled borrowers manage to put themselves back on a healthier credit track.
Experts in the credit industry say the new scoring efforts by Fair Isaac and VantageScore should prove to be a net positive for the housing and mortgage industries if they can do what they claim: spot subtle risk patterns and nascent hints of improvement.
But as a mortgage applicant you should know that your next score might not look anything like the score you thought you had. You might end up getting a better deal — or worse than you wanted — when lenders quote you rates and terms.
Reporting from Washington —
With foreclosures soaring — and homeowners with unblemished payment histories abruptly walking away from their houses with no warning to lenders — the two major producers of credit scores have begun changing how they evaluate consumers' risks of default. The revisions could affect you the next time you apply for a loan.
In late October, both Fair Isaac Corp., developer of the FICO score, which dominates the mortgage field, and VantageScore Solutions, a joint venture by the three national credit bureaus and marketer of the competing VantageScore, outlined modifications they were making to handle the vast credit disruptions caused by the housing bust, the recession, high unemployment and behavioral changes by consumers.
Get a daily snapshot of market numbers and trends, delivered right to your mobile phone. Text BUSINESS to 52669.
Overall, credit industry experts agree, consumer creditworthiness has deteriorated in the U.S. since 2006 — especially among what used to be considered the credit elite, people with the highest scores. For example, a study this year by VantageScore found that the probability of serious delinquency — defined as nonpayment for 90 days or more — had increased 417% among "super-prime" borrowers between June 2007 and June 2009. Default risk during the same period rose 406% for the second-highest-rated category of "prime" consumers, and nearly doubled for those at the "near prime" scoring level.
The driving force behind the score revisions, according to Sarah Davies, VantageScore's senior vice president for analytics and research, is the "significant change in consumer credit repayment behavior" that began during the housing bust and recession.
Not only are borrowers who previously were rated outstanding credit risks far more likely to default today, she said, but many homeowners are defying long-standing credit industry assumptions by going delinquent on their first mortgage payments while continuing to pay their credit card balances and second mortgages on time. Strategic defaults, or walkaways, by high-score borrowers also have been an unexpected development, she said.
To adjust its statistical models to these new realities, VantageScore says it conducted intensive research on 45 million active credit files obtained from the databases of its joint venture partners, Equifax, Experian and TransUnion. The research examined the same files — with personal identifiers removed — during set time periods between 2006 and 2009 to capture emerging behavioral patterns associated with defaults on various types of credit accounts. The resulting VantageScore 2.0, which is expected to be rolled out nationwide to lenders in January, focuses on the subtle warning signs of credit stress that might have been missed earlier and penalizes or rewards consumers with higher or lower risk scores than they would have received before.
Joanne Gaskin, director of mortgage scoring solutions for Fair Isaac, said her company's new FICO 8 Mortgage Score was based on similarly exhaustive research into consumer credit behavior changes over the last four years. When used by a lender to rate the risk of new applicants or existing mortgage customers, Gaskin says, the Mortgage Score is likely to be 15% to 25% more accurate in detecting signs of future default compared with the standard FICO model.
Though she would not discuss proprietary details about the early warning signs the new score monitors, Gaskin gave an example of how the new score might work: Say a borrower with a 720 FICO score has average balances on a first mortgage, home equity lines and other accounts that are higher than norms pinpointed by the revised scoring software. A 720 FICO is considered a good score by most mortgage lenders, often qualifying for favorable rates and terms. However, the same applicant might rate just a 680 FICO or lower if the lender used the new Mortgage Score. The lender would then have a choice: Reject the applicant, quote a higher interest rate on the mortgage or require a larger down payment.
Gaskin said the reverse could also occur: The FICO 8 Mortgage Score could come in higher than the standard FICO — indicating lower risk for the future — in situations where formerly troubled borrowers manage to put themselves back on a healthier credit track.
Experts in the credit industry say the new scoring efforts by Fair Isaac and VantageScore should prove to be a net positive for the housing and mortgage industries if they can do what they claim: spot subtle risk patterns and nascent hints of improvement.
But as a mortgage applicant you should know that your next score might not look anything like the score you thought you had. You might end up getting a better deal — or worse than you wanted — when lenders quote you rates and terms.
Monday, October 18, 2010
Appraisal Reforms 2010: New Rules
Beginning October 19, 2010, residential mortgage appraisal rules will get a major overhaul due to the passage of the Dodd-Frank financial reform legislation over the summer. The Home Valuation Code of Conduct (HVCC) is out and a new set of appraisal rules and standards are in.
The Dodd-Frank legislation has triggered several major appraisal changes, including: Broad Appraisal Reforms, which replace the Home Valuation Code of Conduct. Title XIV, the Mortgage Reform and Anti-Predatory Lending Act, creates enforceable appraisal independence standards within the Truth in Lending Act and amends other requirements, with significant penalties for non-compliance.
Like the HVCC, the new standards prohibit parties in mortgage transactions from influencing appraisal outcomes. Unlike HVCC, the new law doesn't bar loan originators from ordering appraisals, and demands that “customary and reasonable” fees be paid to appraisers – or risk TILA penalties for an unfair and deceptive act. Appraisal management companies will be subject to registration and state and federal oversight for the first time. The new rules apply more broadly than the previous Fed standards.
The Dodd-Frank legislation has triggered several major appraisal changes, including: Broad Appraisal Reforms, which replace the Home Valuation Code of Conduct. Title XIV, the Mortgage Reform and Anti-Predatory Lending Act, creates enforceable appraisal independence standards within the Truth in Lending Act and amends other requirements, with significant penalties for non-compliance.
Like the HVCC, the new standards prohibit parties in mortgage transactions from influencing appraisal outcomes. Unlike HVCC, the new law doesn't bar loan originators from ordering appraisals, and demands that “customary and reasonable” fees be paid to appraisers – or risk TILA penalties for an unfair and deceptive act. Appraisal management companies will be subject to registration and state and federal oversight for the first time. The new rules apply more broadly than the previous Fed standards.
Monday, October 11, 2010
BofA halts foreclosure seizures nationwide
Reprinted from L A Times
With calls mounting for a national moratorium, Bank of America Corp. said Friday that it would halt the sale of foreclosed homes indefinitely in all 50 states as the nation's largest lender widens its investigation into how it seized homes from troubled borrowers.
The freeze, which takes effect Saturday, came after lawmakers, consumer groups and civil rights organizations called for a moratorium on bank seizures. State attorneys general across the country, including California, have also called on lenders to prove that they are complying with state laws as they process record numbers of repossessions.
The action could put off a day of reckoning for hundreds of thousands of homeowners, including Renee P. Lee, 53, a call center operator for the California Franchise Tax Board who has taken a pay cut because of the state budget crisis. She said she had been fighting Bank of America to keep her home for 18 months.
"I was ecstatic," Lee said of the moratorium. "I said, 'Thank you, Jesus!' "
Another Bank of America customer, Cha Cha Ramos, 60, of Victorville, said the lender spurned her family's efforts to stay in their home of 30 years.
When her husband lost his job driving a truck, she said, they missed some payments and tried to work with the bank to modify their loan after he got a new job. After seven months of making payments, she said, they were notified that the property was going into foreclosure Oct. 24.
"The bank wanted more and more and more," Ramos said.
A Bank of America spokeswoman said she could not immediately comment on the individual cases, but added, "We are going to do everything we can to try and see what the issue is."
The bank could not say how many homes would be affected by its action. It had 420,000 properties in some stage of foreclosure through the first half of the year, according to Irvine-based RealtyTrac. About 126,000 of those were in California, which has been among the states hit hardest by the foreclosure crisis.
The freeze comes as disclosures of alleged irregularities, including mishandling of records in the foreclosure process, have raised concerns that lenders have been evicting homeowners using flawed procedures.
BofA's announcement is likely to increase pressure on other big banks to declare similar national moratoriums, analysts said.
"It is going to give politicians more ammunition to say, 'If Bank of America can do it, don't tell us you can't," said Guy Cecala, publisher of Inside Mortgage Finance.
PNC Financial Services said Friday that it was reviewing its foreclosure practices, and Litton Loan Servicing, a mortgage servicer owned by Goldman Sachs Group, said it had suspended foreclosure proceedings in certain cases while it completes a review.
Before Friday, three major banks — Bank of America, Ally Financial Inc. and JPMorgan Chase & Co. — had said they were suspending foreclosures in the 23 states that process repossessions through the courts. California is not one of these judicial foreclosure states, and the vast majority of repossessions conducted in the state are done without a court order.
The foreclosure crisis, which began with a collapse in housing prices, has been worsened by continuing high unemployment, now at 9.6% nationally. More than half of all people who applied for modifications under a government program cited loss of income as the reason they were missing payments, said Paul Habibi, a professor of real estate at the UCLA Anderson School of Management.
"When labor markets are in a state of disarray, you're naturally going to have a downward spiral in house prices," he said.
But economists said a move to halt foreclosures could hinder the housing market's recovery, essentially delaying the inevitable, because many borrowers simply cannot afford to pay their mortgages.
"It is highly likely that mistakes are being made when you have that volume of paperwork going through the system," said Richard Bove, a banking analyst with Rochdale Securities.
"I am sure there are a lot of people that are being treated unfairly, but I think the vast majority of them can't pay their mortgage, and if they can't pay their mortgage they are going to lose the house anyway."
Bove estimated that the moratorium could cost BofA about $400 million every three months.
In 2009, banks slowed the pace of foreclosure under pressure from the Obama administration and state governments, including California. This year, however, the rate of foreclosures has picked up as temporary loan modifications and other measures expired.
Now, with foreclosures grinding to a halt again, home sales could be hurt as buyers grow concerned about investing in a foreclosed property, said Jill Berni, a Sacramento real estate agent.
"We have a lot of confusion," Berni said. "A lot of people are just reacting and freezing in place."
The moratorium will also mean that fewer houses are available on the market, which could make it more difficult for buyers to find homes, said Christopher Walker, a Riverside broker.
In an open letter to Congress two financial industry groups, the Mortgage Bankers Assn. and the Financial Services Roundtable, said a national foreclosure moratorium could be detrimental to the economy.
"Calls for a blanket national moratorium on all foreclosures are a bad idea and would cause significant harm to communities at risk, the unstable housing market and the fragile economy," the letter said.
Although it will halt seizures and sales of foreclosed homes, BofA said it would continue foreclosure proceedings against homeowners who are late on their payments.
If a borrower is delinquent, the bank will still issue a notice of default and pursue efforts to modify certain mortgages, the bank said.
"Our ongoing assessment shows the basis for foreclosure decisions is accurate," BofA said in a statement posted on its website.
Politicians and consumer advocates, however, called on other lenders to follow Bank of America and stop foreclosures until the questions can be resolved.
California Atty. Gen. Jerry Brown — who said his office has held discussions with Bank of America, Ally, Chase, Wells Fargo and OneWest over their foreclosure practices — called for a statewide moratorium on home seizures until those banks could demonstrate that they were complying with state law.
"All lenders should halt foreclosures until they clear up this mess and ensure that the process is fair," Brown said. "Bank of America has taken an important step, and the other major lenders should follow its lead."
Consumer advocates said the move by BofA suggested that the problems mortgage servicers were facing with processing foreclosures were more widespread than initially thought.
"There is a serious problem with the reckless and careless way in which the banks and servicers are processing foreclosures and taking people's homes," said Kevin Stein, associate director of the California Reinvestment Coalition.
By Alejandro Lazo and Alana Semuels, Los Angeles Times
October 9, 2010
Copyright © 2010, Los Angeles Times
With calls mounting for a national moratorium, Bank of America Corp. said Friday that it would halt the sale of foreclosed homes indefinitely in all 50 states as the nation's largest lender widens its investigation into how it seized homes from troubled borrowers.
The freeze, which takes effect Saturday, came after lawmakers, consumer groups and civil rights organizations called for a moratorium on bank seizures. State attorneys general across the country, including California, have also called on lenders to prove that they are complying with state laws as they process record numbers of repossessions.
The action could put off a day of reckoning for hundreds of thousands of homeowners, including Renee P. Lee, 53, a call center operator for the California Franchise Tax Board who has taken a pay cut because of the state budget crisis. She said she had been fighting Bank of America to keep her home for 18 months.
"I was ecstatic," Lee said of the moratorium. "I said, 'Thank you, Jesus!' "
Another Bank of America customer, Cha Cha Ramos, 60, of Victorville, said the lender spurned her family's efforts to stay in their home of 30 years.
When her husband lost his job driving a truck, she said, they missed some payments and tried to work with the bank to modify their loan after he got a new job. After seven months of making payments, she said, they were notified that the property was going into foreclosure Oct. 24.
"The bank wanted more and more and more," Ramos said.
A Bank of America spokeswoman said she could not immediately comment on the individual cases, but added, "We are going to do everything we can to try and see what the issue is."
The bank could not say how many homes would be affected by its action. It had 420,000 properties in some stage of foreclosure through the first half of the year, according to Irvine-based RealtyTrac. About 126,000 of those were in California, which has been among the states hit hardest by the foreclosure crisis.
The freeze comes as disclosures of alleged irregularities, including mishandling of records in the foreclosure process, have raised concerns that lenders have been evicting homeowners using flawed procedures.
BofA's announcement is likely to increase pressure on other big banks to declare similar national moratoriums, analysts said.
"It is going to give politicians more ammunition to say, 'If Bank of America can do it, don't tell us you can't," said Guy Cecala, publisher of Inside Mortgage Finance.
PNC Financial Services said Friday that it was reviewing its foreclosure practices, and Litton Loan Servicing, a mortgage servicer owned by Goldman Sachs Group, said it had suspended foreclosure proceedings in certain cases while it completes a review.
Before Friday, three major banks — Bank of America, Ally Financial Inc. and JPMorgan Chase & Co. — had said they were suspending foreclosures in the 23 states that process repossessions through the courts. California is not one of these judicial foreclosure states, and the vast majority of repossessions conducted in the state are done without a court order.
The foreclosure crisis, which began with a collapse in housing prices, has been worsened by continuing high unemployment, now at 9.6% nationally. More than half of all people who applied for modifications under a government program cited loss of income as the reason they were missing payments, said Paul Habibi, a professor of real estate at the UCLA Anderson School of Management.
"When labor markets are in a state of disarray, you're naturally going to have a downward spiral in house prices," he said.
But economists said a move to halt foreclosures could hinder the housing market's recovery, essentially delaying the inevitable, because many borrowers simply cannot afford to pay their mortgages.
"It is highly likely that mistakes are being made when you have that volume of paperwork going through the system," said Richard Bove, a banking analyst with Rochdale Securities.
"I am sure there are a lot of people that are being treated unfairly, but I think the vast majority of them can't pay their mortgage, and if they can't pay their mortgage they are going to lose the house anyway."
Bove estimated that the moratorium could cost BofA about $400 million every three months.
In 2009, banks slowed the pace of foreclosure under pressure from the Obama administration and state governments, including California. This year, however, the rate of foreclosures has picked up as temporary loan modifications and other measures expired.
Now, with foreclosures grinding to a halt again, home sales could be hurt as buyers grow concerned about investing in a foreclosed property, said Jill Berni, a Sacramento real estate agent.
"We have a lot of confusion," Berni said. "A lot of people are just reacting and freezing in place."
The moratorium will also mean that fewer houses are available on the market, which could make it more difficult for buyers to find homes, said Christopher Walker, a Riverside broker.
In an open letter to Congress two financial industry groups, the Mortgage Bankers Assn. and the Financial Services Roundtable, said a national foreclosure moratorium could be detrimental to the economy.
"Calls for a blanket national moratorium on all foreclosures are a bad idea and would cause significant harm to communities at risk, the unstable housing market and the fragile economy," the letter said.
Although it will halt seizures and sales of foreclosed homes, BofA said it would continue foreclosure proceedings against homeowners who are late on their payments.
If a borrower is delinquent, the bank will still issue a notice of default and pursue efforts to modify certain mortgages, the bank said.
"Our ongoing assessment shows the basis for foreclosure decisions is accurate," BofA said in a statement posted on its website.
Politicians and consumer advocates, however, called on other lenders to follow Bank of America and stop foreclosures until the questions can be resolved.
California Atty. Gen. Jerry Brown — who said his office has held discussions with Bank of America, Ally, Chase, Wells Fargo and OneWest over their foreclosure practices — called for a statewide moratorium on home seizures until those banks could demonstrate that they were complying with state law.
"All lenders should halt foreclosures until they clear up this mess and ensure that the process is fair," Brown said. "Bank of America has taken an important step, and the other major lenders should follow its lead."
Consumer advocates said the move by BofA suggested that the problems mortgage servicers were facing with processing foreclosures were more widespread than initially thought.
"There is a serious problem with the reckless and careless way in which the banks and servicers are processing foreclosures and taking people's homes," said Kevin Stein, associate director of the California Reinvestment Coalition.
By Alejandro Lazo and Alana Semuels, Los Angeles Times
October 9, 2010
Copyright © 2010, Los Angeles Times
How to qualify for an FHA 203K loan
If you want to buy a house that needs major repairs, your best option may be an FHA 203k loan. This loan pays for the cost of the repairs by adding it to the loan.
Qualifying for this loan is like qualifying for any other mortgage. You will need to have a job, and the lender will check your debt-to-income ratio and credit score, among other things.
#1 Explain to your FHA lender that you would like to secure rehabilitation funding in addition to the purchase loan to replace or repair the home. The FHA lender will have the knowledge to begin the necessary steps.
#2 Allow a feasibility study. This is similar to an appraisal. A feasibility study consultant evaluates properties for repair and write estimates of repair costs. The written estimates are then explained and presented for your approval.
#3 Authorize the consultant to create a work write-up. A work write-up is a repair expense itemization which can financed into the loan. Once an agreed-upon loan amount is reached, an actual appraisal will be ordered based on the work write-up. The appraisal is ordered to establish an "after improvements" value on the property.
#4 Allow the lender to submit the loan to underwriting. While the loan is being approved, home builders may submit bids to compete to complete the work on your home. When the loan has final approval, a payment is made toward the property's purchase price. The remaining funds remain in escrow until the repairs or replacements are completed. Builders may be paid during the rehabilitation process as work is completed, or they will get paid all at once when all of the work is done. All repairs must be completed within six months of the purchase date.
For more specific information about this loan and the type of repairs covered: http://directlender.blogspot.com/2010/04/203k-loan-to-finance-and-rehab-property.html
Qualifying for this loan is like qualifying for any other mortgage. You will need to have a job, and the lender will check your debt-to-income ratio and credit score, among other things.
#1 Explain to your FHA lender that you would like to secure rehabilitation funding in addition to the purchase loan to replace or repair the home. The FHA lender will have the knowledge to begin the necessary steps.
#2 Allow a feasibility study. This is similar to an appraisal. A feasibility study consultant evaluates properties for repair and write estimates of repair costs. The written estimates are then explained and presented for your approval.
#3 Authorize the consultant to create a work write-up. A work write-up is a repair expense itemization which can financed into the loan. Once an agreed-upon loan amount is reached, an actual appraisal will be ordered based on the work write-up. The appraisal is ordered to establish an "after improvements" value on the property.
#4 Allow the lender to submit the loan to underwriting. While the loan is being approved, home builders may submit bids to compete to complete the work on your home. When the loan has final approval, a payment is made toward the property's purchase price. The remaining funds remain in escrow until the repairs or replacements are completed. Builders may be paid during the rehabilitation process as work is completed, or they will get paid all at once when all of the work is done. All repairs must be completed within six months of the purchase date.
For more specific information about this loan and the type of repairs covered: http://directlender.blogspot.com/2010/04/203k-loan-to-finance-and-rehab-property.html
Friday, September 10, 2010
Closing costs have become more accurate
The federal government now requires lenders to stand by the good-faith estimates they provide to mortgage applicants or face fines.
Mortgage closing costs may look as if they've skyrocketed, but it would be more accurate to say that they've just gotten real.
On the surface, the headlines were rather arresting: An annual survey released in August by financial services website Bankrate.com showed that closing costs nationwide in the last year were a twitch-inducing 36.2% more expensive than a year earlier — and much higher in some states.
Although it might seem that the closing costs for such services as title insurance, credit checks and appraisals had gone through the roof practically overnight, it wasn't quite that way, according to Holden Lewis, who covers the mortgage business for Bankrate.com and who helped compile the study.
"When I interview the lenders, [the costs] haven't gone up 37% and 41% — they've gone up 2% or 5%," he said.
So how could this be?
The difference, Lewis said, is to be found in three letters: GFE. That would be the good-faith estimate, the document that lenders are required to provide early in the mortgage-application process so that borrowers better understand what they're getting into and, theoretically, shop around for the best price on a loan.
What's changed in the last year is that the federal government — after a prolonged and tense regulatory dance with the real estate industry — this year standardized the GFE and made the lenders stand by their estimates (with some categorical exceptions) or face fines.
"This year, the GFEs are just more accurate," Lewis said. "I wouldn't say that in past years they consciously and consistently underestimated the fees on purpose, but I do think they did tend to understate fees."
In other words, "good faith" is no longer quite the laughable misnomer it traditionally has been. For years, many consumers complained that the "estimate" was merely a low-ball enticement, the source of many a "yikes!" moment near the end of escrow when consumers were presented with actual costs that were more painful than expected.
This year, the requirements and specifics of the GFE changed. Now, within three days of applying for a mortgage, consumers should receive an estimate that clearly spells out likely costs.
Among other things, the amount, term of the loan, initial interest rate and monthly payment should be stated clearly; the form should tell whether your interest rates and your monthly payment could rise. Lender charges, including points paid to reduce the interest rate and the total of all other originators' charges, should be stated in simple terms.
Those things (and the costs of transfer taxes) shouldn't change between the issuance of the GFE and the closing. Some other things might change because they're beyond the control of the lender — if you obtain your own title insurance or homeowner's insurance, for example. But if you obtain these products through your lender, the GFE should list a ballpark price that by law can't vary more than 10% when the deal closes.
A GFE sample can be viewed at the website of the federal Department of Housing and Urban Development: hud.gov/offices/hsg/ramh/res/gfestimate.pdf
Some mortgage lenders have beefs with the new form. They complain, for instance, that some borrower costs that once were itemized are now bundled together, confusing consumers and causing them to question the charges.
Lewis said the industry seemed to have come generally into compliance with issuance of the new GFEs, with some interesting exceptions.
"Some lenders, instead of giving an applicant a GFE, they give 'worksheets' that aren't officially GFEs, and technically they're not in compliance," he said. "There are a couple of reasons they do that.
"One of them is, frankly, to be more flexible on the closing costs — they say, 'OK, here's a ballpark of what the GFE might say, and once we get further along, we'll give you a GFE,'" Lewis said. "But that's not the law."
In another instance, such as when a consumer doesn't have a specific house under contract but is looking to "prequalify" for a loan for a house that's worth a general amount in a specific neighborhood, a lender might draw up a worksheet that anticipates the GFE — an estimate of the estimate, he said.
In those cases, the lender probably isn't skirting the law, Lewis said — the GFE regulations stipulate that the GFE is required when certain purchase conditions have been met, and one of them is having a concrete address, he said.
For the record, California ranked 17th among the 50 states and Washington, D.C., with closing costs averaging $3,097. The most expensive place was New York, where costs this year averaged $5,623. The least expensive place was Arkansas, where costs were $3,007.
Source:-Mary Umberger, Chicago Tribune 9/5/2010.
Mortgage closing costs may look as if they've skyrocketed, but it would be more accurate to say that they've just gotten real.
On the surface, the headlines were rather arresting: An annual survey released in August by financial services website Bankrate.com showed that closing costs nationwide in the last year were a twitch-inducing 36.2% more expensive than a year earlier — and much higher in some states.
Although it might seem that the closing costs for such services as title insurance, credit checks and appraisals had gone through the roof practically overnight, it wasn't quite that way, according to Holden Lewis, who covers the mortgage business for Bankrate.com and who helped compile the study.
"When I interview the lenders, [the costs] haven't gone up 37% and 41% — they've gone up 2% or 5%," he said.
So how could this be?
The difference, Lewis said, is to be found in three letters: GFE. That would be the good-faith estimate, the document that lenders are required to provide early in the mortgage-application process so that borrowers better understand what they're getting into and, theoretically, shop around for the best price on a loan.
What's changed in the last year is that the federal government — after a prolonged and tense regulatory dance with the real estate industry — this year standardized the GFE and made the lenders stand by their estimates (with some categorical exceptions) or face fines.
"This year, the GFEs are just more accurate," Lewis said. "I wouldn't say that in past years they consciously and consistently underestimated the fees on purpose, but I do think they did tend to understate fees."
In other words, "good faith" is no longer quite the laughable misnomer it traditionally has been. For years, many consumers complained that the "estimate" was merely a low-ball enticement, the source of many a "yikes!" moment near the end of escrow when consumers were presented with actual costs that were more painful than expected.
This year, the requirements and specifics of the GFE changed. Now, within three days of applying for a mortgage, consumers should receive an estimate that clearly spells out likely costs.
Among other things, the amount, term of the loan, initial interest rate and monthly payment should be stated clearly; the form should tell whether your interest rates and your monthly payment could rise. Lender charges, including points paid to reduce the interest rate and the total of all other originators' charges, should be stated in simple terms.
Those things (and the costs of transfer taxes) shouldn't change between the issuance of the GFE and the closing. Some other things might change because they're beyond the control of the lender — if you obtain your own title insurance or homeowner's insurance, for example. But if you obtain these products through your lender, the GFE should list a ballpark price that by law can't vary more than 10% when the deal closes.
A GFE sample can be viewed at the website of the federal Department of Housing and Urban Development: hud.gov/offices/hsg/ramh/res/gfestimate.pdf
Some mortgage lenders have beefs with the new form. They complain, for instance, that some borrower costs that once were itemized are now bundled together, confusing consumers and causing them to question the charges.
Lewis said the industry seemed to have come generally into compliance with issuance of the new GFEs, with some interesting exceptions.
"Some lenders, instead of giving an applicant a GFE, they give 'worksheets' that aren't officially GFEs, and technically they're not in compliance," he said. "There are a couple of reasons they do that.
"One of them is, frankly, to be more flexible on the closing costs — they say, 'OK, here's a ballpark of what the GFE might say, and once we get further along, we'll give you a GFE,'" Lewis said. "But that's not the law."
In another instance, such as when a consumer doesn't have a specific house under contract but is looking to "prequalify" for a loan for a house that's worth a general amount in a specific neighborhood, a lender might draw up a worksheet that anticipates the GFE — an estimate of the estimate, he said.
In those cases, the lender probably isn't skirting the law, Lewis said — the GFE regulations stipulate that the GFE is required when certain purchase conditions have been met, and one of them is having a concrete address, he said.
For the record, California ranked 17th among the 50 states and Washington, D.C., with closing costs averaging $3,097. The most expensive place was New York, where costs this year averaged $5,623. The least expensive place was Arkansas, where costs were $3,007.
Source:-Mary Umberger, Chicago Tribune 9/5/2010.
Thursday, August 26, 2010
FNMA Nothing Down?
found at http://affordable homeownership.info
Washington -- A policy change last week by the giant mortgage investor Fannie Mae symbolized a market transformation of huge importance to home buyers across the country. By adding zero down payment mortgages to its standard line of product offerings for the first time, Fannie Mae closed the door on an era: From colonial times through the last century, conventional home mortgages took various forms, but they always required a cash contribution by the home buyer - the mandatory down payment.
The down payment served to assure the lender that the buyer had a personal investment in the property and would be strongly motivated to pay off the debt. In the 1980s and '90s, however, down payments began to shrink. Private mortgage insurers were willing to provide back-up coverage to lenders that allowed them to offer 10 percent, 5 percent and, more recently, 3 percent down payments.
Smaller down payments, in turn, helped fuel the unprecedented housing boom of the past decade, pushing the national rate of home ownership to its current historical high of around 67 percent. Houses that were impossible for young couples to buy with 20 percent cash out of pocket became readily affordable with 5 percent down.
Last fall, Fannie Mae's competitor, Freddie Mac, announced that it would push the envelope to the next level and buy zero down payment home loans as a standard product, but Fannie cautiously held back until last week. Now, virtually anybody anywhere in the country with a good credit history can buy a house with no cash down. Fannie Mae's program is aimed at first-time buyers. The maximum loan is $275,000. The buyers needn't invest any money in the house itself, but they have to be able to cover closing costs of 3 percent.
Even the closing costs don't have to be from their own pockets, however. It can be a gift or an unsecured loan from a family member or a nonprofit agency, assistance from an employer or a grant from a local government agency. All the buyers have to do is contact any of the thousands of mortgage lenders who do business with Fannie Mae. The key criterion for applicants is a good credit history.
People who don't pay their rent on time, who max out on multiple credit cards or who fail to pay their auto or student loans need not apply. Fannie and Freddie's programs represent just part of the zero down payment opportunities now available to aggressive shoppers. Hundreds of lenders, including most of the biggest and best-known mortgage companies, offer other types of nothing-down plans. Lenders using private mortgage insurance make standard loans as high as $375,000 that represent 103 percent of the price of the house.
That means you put zero dollars down when you buy a $364,000 new house, and the mortgage also finances the closing costs, up to a total of $375,000. Andrew May, vice president of product development for United Guaranty Corp., Greensboro, N.C., says the typical zero-down home buyers his company insures are financially solid 35-year-olds buying their move-up or second home. They "want the flexibility to do what they want with their cash," he says. They prefer to invest it in assets with stronger profit potential than their house - their own business ventures, for instance, stock funds or retirement plans. "These (zero-downers) are people who understand the meaning of Ôopportunity cost,' " says May.
That is, they know that a mandatory down payment of 10 percent or 20 percent could potentially cost them substantial financial returns elsewhere. Given the choice between sinking their cash into their residence or into a higher-yielding business venture, they vote with their high-yield instincts: They go nothing-down. Other mortgage insurers also offer coverage on loans over 100 percent of home value.
The industry's biggest insurer, MGIC Investment Corp., will insure up to 103 percent for people whose FICO credit scores are above 700 and whose overall debt-to-income ratios do not exceed 41 percent. FICO scores are the dominant credit-evaluation tools used by American lenders. The acronym stands for Fair, Isaac & Co., the firm that developed the software that produces the scores. A 700 FICO, on a scale that runs from the 300s to over 900, is considered excellent credit. Is the zero-down mortgage option for you? For some people - young couples with good incomes but no savings - it may be the only way to buy the house they want.
For others, keep these points in mind: Zero-down is going to cost you more in mortgage payments every month, not just in higher principal and interest charges, but in mortgage insurance as well. In the event of a job loss or economic downturn, you could find yourself on the wrong side of the bargain, upside-down on your home debt: Your mortgage may be more than your house is worth, and you may be forced to sell for a loss.
Washington -- A policy change last week by the giant mortgage investor Fannie Mae symbolized a market transformation of huge importance to home buyers across the country. By adding zero down payment mortgages to its standard line of product offerings for the first time, Fannie Mae closed the door on an era: From colonial times through the last century, conventional home mortgages took various forms, but they always required a cash contribution by the home buyer - the mandatory down payment.
The down payment served to assure the lender that the buyer had a personal investment in the property and would be strongly motivated to pay off the debt. In the 1980s and '90s, however, down payments began to shrink. Private mortgage insurers were willing to provide back-up coverage to lenders that allowed them to offer 10 percent, 5 percent and, more recently, 3 percent down payments.
Smaller down payments, in turn, helped fuel the unprecedented housing boom of the past decade, pushing the national rate of home ownership to its current historical high of around 67 percent. Houses that were impossible for young couples to buy with 20 percent cash out of pocket became readily affordable with 5 percent down.
Last fall, Fannie Mae's competitor, Freddie Mac, announced that it would push the envelope to the next level and buy zero down payment home loans as a standard product, but Fannie cautiously held back until last week. Now, virtually anybody anywhere in the country with a good credit history can buy a house with no cash down. Fannie Mae's program is aimed at first-time buyers. The maximum loan is $275,000. The buyers needn't invest any money in the house itself, but they have to be able to cover closing costs of 3 percent.
Even the closing costs don't have to be from their own pockets, however. It can be a gift or an unsecured loan from a family member or a nonprofit agency, assistance from an employer or a grant from a local government agency. All the buyers have to do is contact any of the thousands of mortgage lenders who do business with Fannie Mae. The key criterion for applicants is a good credit history.
People who don't pay their rent on time, who max out on multiple credit cards or who fail to pay their auto or student loans need not apply. Fannie and Freddie's programs represent just part of the zero down payment opportunities now available to aggressive shoppers. Hundreds of lenders, including most of the biggest and best-known mortgage companies, offer other types of nothing-down plans. Lenders using private mortgage insurance make standard loans as high as $375,000 that represent 103 percent of the price of the house.
That means you put zero dollars down when you buy a $364,000 new house, and the mortgage also finances the closing costs, up to a total of $375,000. Andrew May, vice president of product development for United Guaranty Corp., Greensboro, N.C., says the typical zero-down home buyers his company insures are financially solid 35-year-olds buying their move-up or second home. They "want the flexibility to do what they want with their cash," he says. They prefer to invest it in assets with stronger profit potential than their house - their own business ventures, for instance, stock funds or retirement plans. "These (zero-downers) are people who understand the meaning of Ôopportunity cost,' " says May.
That is, they know that a mandatory down payment of 10 percent or 20 percent could potentially cost them substantial financial returns elsewhere. Given the choice between sinking their cash into their residence or into a higher-yielding business venture, they vote with their high-yield instincts: They go nothing-down. Other mortgage insurers also offer coverage on loans over 100 percent of home value.
The industry's biggest insurer, MGIC Investment Corp., will insure up to 103 percent for people whose FICO credit scores are above 700 and whose overall debt-to-income ratios do not exceed 41 percent. FICO scores are the dominant credit-evaluation tools used by American lenders. The acronym stands for Fair, Isaac & Co., the firm that developed the software that produces the scores. A 700 FICO, on a scale that runs from the 300s to over 900, is considered excellent credit. Is the zero-down mortgage option for you? For some people - young couples with good incomes but no savings - it may be the only way to buy the house they want.
For others, keep these points in mind: Zero-down is going to cost you more in mortgage payments every month, not just in higher principal and interest charges, but in mortgage insurance as well. In the event of a job loss or economic downturn, you could find yourself on the wrong side of the bargain, upside-down on your home debt: Your mortgage may be more than your house is worth, and you may be forced to sell for a loss.
Wednesday, August 25, 2010
Shopping around for title insurance can cut closing costs
Good reading about why you need an owner's title policy:
If you finance your home through the normal lending process, a title search will undoubtedly turn up any liens for delinquent property taxes, unpaid loans and unsettled claims by subcontractors for labor and materials.
Titles aren't exactly riddled with hidden defects, but problems sometimes arise. Some of the more common hidden deficiencies include forged deeds recorded in the name of a fictitious owner, conflicting wills filed by heirs of a previous owner who had bequeathed the property to more than one person and missing heirs who turn up years later with a legitimate claim to a house.
This is why mortgage companies insist on a search of the courthouse records. Before they lend anyone any money, lenders want to be sure that the seller really owns the property and that there is nothing to cloud the line of ownership.
One in three title searches reveals a problem — such as an unpaid contractor or a forgotten tax bill, according to the American Land Title Assn. And for the most part, those issues are resolved before closing a home sale.
Sometimes, though, something is overlooked or there's a problem that could not be found in a search of the public records. This is why lenders not only require title searches but also an insurance policy in place that protects the lenders' investment should a problem surface sometime down the road.
But most borrowers don't realize that they can shop for title insurance, just like they can shop for lenders. For the most part, buyers choose whomever their real estate agent suggests. And there's nothing wrong with that. After all, agents want a quick, clean closing as much as you do.
But if you are hoping to save some money, it often pays to look around for the best deal. Timothy Dwyer, founder of Entitle Direct, a new Web-based direct-to-consumer shopping channel, says borrowers can cut their title insurance premiums by an average of 35% by using his service.
We'll get back to that in a moment. First, although it is nearly impossible to generalize about title insurance, here are some things you need to know:
•There are two types of title insurance: the required loan policy that protects the lender and the owner's policy that protects the buyer. The borrower pays for the loan policy, but who pays for the owner's coverage depends on local custom. In much of the West the seller buys the policy for the buyer, but on the East Coast the buyer typically pays.
If you choose not to take the owner's insurance you may be asked to sign a waiver, depending on your state. But you should realize that the loan policy won't protect you should a defect in the title present itself in the future.
If there is a claim, title insurers have two options. One is to cure the title defect by spending whatever it costs to correct the problem. If the defect can't be cured, the other option is to reimburse the insured for the difference between what the property was worth without the defect and what it's worth with the defect.
For example, assume there's a defect that can be fixed by spending $25,000. If the title insurer can establish that the value of the property with the defect is above the amount owed on the loan at the time the defect is discovered, the lender has suffered no loss. And if there is no loss, then in almost all cases the claim can be denied.
At the same time, however, the homeowner will now have a property with a title defect that reduces the value of the property if it is not cured.
Also, depending upon the nature of the title defect and the terms of the loan documents, the lender may require the owner to correct the title defect. Many deeds of trust contain a provision requiring the borrower/owner to warrant to the lender that the title to the property is "clean" and to maintain it that way for the life of the loan.
If the lender has this right and exercises it, the owner would be responsible for curing the defect. If you have an owner's policy, the title insurer would pay to rectify the problem. But if you have no coverage, you would have to pay out of your pocket whatever it costs in legal fees to make the defect go away.
•Insurance rates are one-time fees that are paid at closing and are set in different ways in different places. In Florida and Texas, each company is required to charge the same rate, so there may be a zero price differential. Thus, when shopping for title coverage, you will be shopping not for price but for service and competence of the closing agent.
Elsewhere, state regulators approve rate requests. Once a rate goes into effect, an insurer can lower its rate but never raise it.
•There are different rates for different situations. There's a basic rate for the lender's policy and a reduced simultaneous rate if lender's and owner's policies are issued together.
If you are refinancing, you won't need a new owner's policy because the one you bought at closing is good for as long as you and your heirs own the property. But even if you remain with the original lender, you will need a new lender's policy because the lender wants to be sure there are no new encumbrances on the property. However, you may qualify for a reduced refinance or reissue rate, depending on your state.
•Roughly 80% of the premium goes to the closing or escrow agent, who orchestrates the entire settlement. The agent researches the title, pays off the old lender and the seller, pays recording fees and taxes, files the necessary paperwork at the local courthouse and sends the buyer's down payment to the new lender. In addition, these agents charge a fee for closing the loan.
•Shopping for service is tough enough, but shopping for the cost of title insurance is nearly impossible. That is why former investment banker Dwyer started Entitle Direct, an online platform at http://www.entitledirect.com where consumers can shop for prices. The company is licensed in 35 states, including California, and the District of Columbia. It is seeking approval in eight more states.
Of course, if you go with Entitle, you will have to close with the agent selected by the company.
On a $750,000 house in California with a $600,000 mortgage, for example, Entitle charges $1,647 for both lender's and owner's policies issued simultaneously, whereas a competitor might charge $2,480. That's a difference of $833, or 34%.
lsichelman@aol.com By Lew Sichelman August 8, 2010
Distributed by United Feature Syndicate.
Copyright © 2010, Los Angeles Times
If you finance your home through the normal lending process, a title search will undoubtedly turn up any liens for delinquent property taxes, unpaid loans and unsettled claims by subcontractors for labor and materials.
Titles aren't exactly riddled with hidden defects, but problems sometimes arise. Some of the more common hidden deficiencies include forged deeds recorded in the name of a fictitious owner, conflicting wills filed by heirs of a previous owner who had bequeathed the property to more than one person and missing heirs who turn up years later with a legitimate claim to a house.
This is why mortgage companies insist on a search of the courthouse records. Before they lend anyone any money, lenders want to be sure that the seller really owns the property and that there is nothing to cloud the line of ownership.
One in three title searches reveals a problem — such as an unpaid contractor or a forgotten tax bill, according to the American Land Title Assn. And for the most part, those issues are resolved before closing a home sale.
Sometimes, though, something is overlooked or there's a problem that could not be found in a search of the public records. This is why lenders not only require title searches but also an insurance policy in place that protects the lenders' investment should a problem surface sometime down the road.
But most borrowers don't realize that they can shop for title insurance, just like they can shop for lenders. For the most part, buyers choose whomever their real estate agent suggests. And there's nothing wrong with that. After all, agents want a quick, clean closing as much as you do.
But if you are hoping to save some money, it often pays to look around for the best deal. Timothy Dwyer, founder of Entitle Direct, a new Web-based direct-to-consumer shopping channel, says borrowers can cut their title insurance premiums by an average of 35% by using his service.
We'll get back to that in a moment. First, although it is nearly impossible to generalize about title insurance, here are some things you need to know:
•There are two types of title insurance: the required loan policy that protects the lender and the owner's policy that protects the buyer. The borrower pays for the loan policy, but who pays for the owner's coverage depends on local custom. In much of the West the seller buys the policy for the buyer, but on the East Coast the buyer typically pays.
If you choose not to take the owner's insurance you may be asked to sign a waiver, depending on your state. But you should realize that the loan policy won't protect you should a defect in the title present itself in the future.
If there is a claim, title insurers have two options. One is to cure the title defect by spending whatever it costs to correct the problem. If the defect can't be cured, the other option is to reimburse the insured for the difference between what the property was worth without the defect and what it's worth with the defect.
For example, assume there's a defect that can be fixed by spending $25,000. If the title insurer can establish that the value of the property with the defect is above the amount owed on the loan at the time the defect is discovered, the lender has suffered no loss. And if there is no loss, then in almost all cases the claim can be denied.
At the same time, however, the homeowner will now have a property with a title defect that reduces the value of the property if it is not cured.
Also, depending upon the nature of the title defect and the terms of the loan documents, the lender may require the owner to correct the title defect. Many deeds of trust contain a provision requiring the borrower/owner to warrant to the lender that the title to the property is "clean" and to maintain it that way for the life of the loan.
If the lender has this right and exercises it, the owner would be responsible for curing the defect. If you have an owner's policy, the title insurer would pay to rectify the problem. But if you have no coverage, you would have to pay out of your pocket whatever it costs in legal fees to make the defect go away.
•Insurance rates are one-time fees that are paid at closing and are set in different ways in different places. In Florida and Texas, each company is required to charge the same rate, so there may be a zero price differential. Thus, when shopping for title coverage, you will be shopping not for price but for service and competence of the closing agent.
Elsewhere, state regulators approve rate requests. Once a rate goes into effect, an insurer can lower its rate but never raise it.
•There are different rates for different situations. There's a basic rate for the lender's policy and a reduced simultaneous rate if lender's and owner's policies are issued together.
If you are refinancing, you won't need a new owner's policy because the one you bought at closing is good for as long as you and your heirs own the property. But even if you remain with the original lender, you will need a new lender's policy because the lender wants to be sure there are no new encumbrances on the property. However, you may qualify for a reduced refinance or reissue rate, depending on your state.
•Roughly 80% of the premium goes to the closing or escrow agent, who orchestrates the entire settlement. The agent researches the title, pays off the old lender and the seller, pays recording fees and taxes, files the necessary paperwork at the local courthouse and sends the buyer's down payment to the new lender. In addition, these agents charge a fee for closing the loan.
•Shopping for service is tough enough, but shopping for the cost of title insurance is nearly impossible. That is why former investment banker Dwyer started Entitle Direct, an online platform at http://www.entitledirect.com where consumers can shop for prices. The company is licensed in 35 states, including California, and the District of Columbia. It is seeking approval in eight more states.
Of course, if you go with Entitle, you will have to close with the agent selected by the company.
On a $750,000 house in California with a $600,000 mortgage, for example, Entitle charges $1,647 for both lender's and owner's policies issued simultaneously, whereas a competitor might charge $2,480. That's a difference of $833, or 34%.
lsichelman@aol.com By Lew Sichelman August 8, 2010
Distributed by United Feature Syndicate.
Copyright © 2010, Los Angeles Times
Tuesday, August 24, 2010
Banks Face Less Competition as Brokers Exit
An interesting article by Jeff Swiatek:
Mortgage broker is becoming a vanishing breed: Market downturn, subsequent regulations have squeezed many out of the industry.
Aug. 24, 2010, By JEFF SWIATEK The Indianapolis Star
In Indiana, the number of licensed mortgage brokers has fallen by nearly three quarters during the past five years. The decline was precipitated by falling home values and rising regulations. Banks appear to be the beneficiaries of the fallout.
Ken Blaudow has felt the pain of the housing finance industry turmoil.
The owner of Indy Mortgage in Indianapolis had 85 employees originating home loans in 2003. Now he has three and is about to give up his leased office in Castleton and move his company into two bedrooms of his house.
"It's drastically down," he said of his industry. "And there are a lot of funky new rules."
At least Blaudow's still around.
Most of the mortgage brokers that seemed to populate every office building and commercial street in Indianapolis and many other cities just five years ago have vanished.
The number of Indiana mortgage brokers and loan originators licensed by the state has plunged 73 percent since 2005, from 4,008 to 1,080, according to the secretary of state's office.
Brokers and loan originators find lenders for people seeking a mortgage on a new home purchase and charge a fee for that service.
With a sharply reduced membership base, the trade group that represented them, the Indiana Association of Mortgage Brokers, is gone.
"The industry most assuredly has been thinned out," said Douglas Brown, an Indianapolis attorney and the trade group's former general counsel.
Much of the decline has been due to the implosion of the housing sector since 2007. Prices and sales plunged during the recession. Foreclosures hit record highs almost everywhere.
As government rushed in to respond to the crisis, caused in part by overselling of risky mortgages by brokers who got rich on exorbitant fees, regulations on the industry multiplied.
Indiana and other states in the past two years began requiring brokers to pass licensing exams and undergo background checks. A criminal record, even a past bankruptcy, can now prevent someone from writing a mortgage. If states don't already do it, a federal law coming in January will require licensing exams and criminal background checks nationally.
Many of the sometimes-exotic products that independent brokers used to push -- jumbo loans, subprime mortgages -- also have been restricted or banned.
The new industry that's emerging is much more conservative, regulated and, some would say, less consumer-friendly.
"I don't think (the changes) will be better for the industry. It costs more to do business. And the consumer has fewer choices. But those are the cards we have been dealt," said Al Thorup, executive director of the Indiana Mortgage Bankers Association.
One regulation in Indiana caps fees to brokers and others involved in processing a loan at 5 percent of its value. That makes lenders reluctant to give smaller loans, especially now that loan processing has become costlier and more time-consuming.
"I've got some lenders who won't go below $65,000," Blaudow said. "On a smaller loan . . . there's not enough money to go around" to pay closing costs, he said.
A study by Bankrate, a financial information supplier, found that mortgage fees are on the rise, jumping 23 percent in the past year alone. Nationally, the average fees that a homeowner paid for a $200,000 loan are $3,741, compared with $2,739 last year. This does not include fees for real estate agents typically paid by the seller.
Closing costs on a $200,000 mortgage in Indiana, with 20 percent down, average $3,465, slightly below the national average. But while Indiana ranked dead last among the states last year in closing costs charged by lenders, this year it came in 35th, suggesting its fees are rising faster than most other states'.
Bankrate says the jump in mortgage fees is due in large part to the increased scrutiny lenders must give every loan, under tougher guidelines from federal regulators and two quasi-government companies that guarantee loans, Freddie Mac and Fannie Mae.
"It takes five to six times the work to get a loan to close than it did two years ago," Blaudow said.
Credit histories must be dutifully compiled for all borrowers. And any number of new criteria can lead to a refusal to lend. One new practice closes the door on loans to anyone who's done a short sale -- a way of selling a house when the sale proceeds fall below the balance on the mortgage -- in the past three years.
Banks have actually fared well in the restructuring of the mortgage industry.
That's because many banks didn't engage in the riskier lending practices, such as granting adjustable loans at subprime rates to people with less-than-stellar credit, that some independent brokers and their companies did. Banks also have dodged some of the state regulations that have crimped brokers.
Brandy Schroeder, manager of the Greenwood and Plainfield offices for national lending giant Wells Fargo Home Mortgage, said she's looking to expand her staff of 22 loan officers "as quickly as I can staff up desks and space."
The new regulations on loan originators, who typically find buyers of mortgages and then broker the loans to banks or other buyers to hold long-term, "is taking away the competition" from banks, Schroeder said.
"You're happy because you're getting more business. But you feel bad for them," she said.
Banks also will be better able to bear a coming federal regulation that will require any company handling federal FHA or VA loans to have $2.5 million in assets.
Ron McGuire, president of F.C. Tucker Mortgage in Indianapolis, said the changes in the mortgage industry mean "we're back to the way underwriting was 20 years ago when you had to have a down payment, you had to have a job. And that's a good thing, there's no doubt."
But McGuire said he worries that the decline of independent brokers now gives a handful of large national banks more of a chance to dominate the mortgage industry in many markets, and that new government regulations, such as restrictions on the way loan officers are paid, are too heavy-handed and come too late to do much good.
Mortgage broker is becoming a vanishing breed: Market downturn, subsequent regulations have squeezed many out of the industry.
Aug. 24, 2010, By JEFF SWIATEK The Indianapolis Star
In Indiana, the number of licensed mortgage brokers has fallen by nearly three quarters during the past five years. The decline was precipitated by falling home values and rising regulations. Banks appear to be the beneficiaries of the fallout.
Ken Blaudow has felt the pain of the housing finance industry turmoil.
The owner of Indy Mortgage in Indianapolis had 85 employees originating home loans in 2003. Now he has three and is about to give up his leased office in Castleton and move his company into two bedrooms of his house.
"It's drastically down," he said of his industry. "And there are a lot of funky new rules."
At least Blaudow's still around.
Most of the mortgage brokers that seemed to populate every office building and commercial street in Indianapolis and many other cities just five years ago have vanished.
The number of Indiana mortgage brokers and loan originators licensed by the state has plunged 73 percent since 2005, from 4,008 to 1,080, according to the secretary of state's office.
Brokers and loan originators find lenders for people seeking a mortgage on a new home purchase and charge a fee for that service.
With a sharply reduced membership base, the trade group that represented them, the Indiana Association of Mortgage Brokers, is gone.
"The industry most assuredly has been thinned out," said Douglas Brown, an Indianapolis attorney and the trade group's former general counsel.
Much of the decline has been due to the implosion of the housing sector since 2007. Prices and sales plunged during the recession. Foreclosures hit record highs almost everywhere.
As government rushed in to respond to the crisis, caused in part by overselling of risky mortgages by brokers who got rich on exorbitant fees, regulations on the industry multiplied.
Indiana and other states in the past two years began requiring brokers to pass licensing exams and undergo background checks. A criminal record, even a past bankruptcy, can now prevent someone from writing a mortgage. If states don't already do it, a federal law coming in January will require licensing exams and criminal background checks nationally.
Many of the sometimes-exotic products that independent brokers used to push -- jumbo loans, subprime mortgages -- also have been restricted or banned.
The new industry that's emerging is much more conservative, regulated and, some would say, less consumer-friendly.
"I don't think (the changes) will be better for the industry. It costs more to do business. And the consumer has fewer choices. But those are the cards we have been dealt," said Al Thorup, executive director of the Indiana Mortgage Bankers Association.
One regulation in Indiana caps fees to brokers and others involved in processing a loan at 5 percent of its value. That makes lenders reluctant to give smaller loans, especially now that loan processing has become costlier and more time-consuming.
"I've got some lenders who won't go below $65,000," Blaudow said. "On a smaller loan . . . there's not enough money to go around" to pay closing costs, he said.
A study by Bankrate, a financial information supplier, found that mortgage fees are on the rise, jumping 23 percent in the past year alone. Nationally, the average fees that a homeowner paid for a $200,000 loan are $3,741, compared with $2,739 last year. This does not include fees for real estate agents typically paid by the seller.
Closing costs on a $200,000 mortgage in Indiana, with 20 percent down, average $3,465, slightly below the national average. But while Indiana ranked dead last among the states last year in closing costs charged by lenders, this year it came in 35th, suggesting its fees are rising faster than most other states'.
Bankrate says the jump in mortgage fees is due in large part to the increased scrutiny lenders must give every loan, under tougher guidelines from federal regulators and two quasi-government companies that guarantee loans, Freddie Mac and Fannie Mae.
"It takes five to six times the work to get a loan to close than it did two years ago," Blaudow said.
Credit histories must be dutifully compiled for all borrowers. And any number of new criteria can lead to a refusal to lend. One new practice closes the door on loans to anyone who's done a short sale -- a way of selling a house when the sale proceeds fall below the balance on the mortgage -- in the past three years.
Banks have actually fared well in the restructuring of the mortgage industry.
That's because many banks didn't engage in the riskier lending practices, such as granting adjustable loans at subprime rates to people with less-than-stellar credit, that some independent brokers and their companies did. Banks also have dodged some of the state regulations that have crimped brokers.
Brandy Schroeder, manager of the Greenwood and Plainfield offices for national lending giant Wells Fargo Home Mortgage, said she's looking to expand her staff of 22 loan officers "as quickly as I can staff up desks and space."
The new regulations on loan originators, who typically find buyers of mortgages and then broker the loans to banks or other buyers to hold long-term, "is taking away the competition" from banks, Schroeder said.
"You're happy because you're getting more business. But you feel bad for them," she said.
Banks also will be better able to bear a coming federal regulation that will require any company handling federal FHA or VA loans to have $2.5 million in assets.
Ron McGuire, president of F.C. Tucker Mortgage in Indianapolis, said the changes in the mortgage industry mean "we're back to the way underwriting was 20 years ago when you had to have a down payment, you had to have a job. And that's a good thing, there's no doubt."
But McGuire said he worries that the decline of independent brokers now gives a handful of large national banks more of a chance to dominate the mortgage industry in many markets, and that new government regulations, such as restrictions on the way loan officers are paid, are too heavy-handed and come too late to do much good.
Friday, August 20, 2010
New FHA MIP & UFMIP changes date changed.
HUD has announced that the changes reported in the previous post will now take effect as of 10/4/2010.
Wednesday, August 11, 2010
FHA loan cost is going up
FHA loan cost is going up on Sept 7th, 2010, unless you have an accepted contract by this date and your lender has a case number. (Case numbers can only be obtained if there is an address.)
Monthly mortgage insurance will increase from .50% to .90% for loans over 15 year term. (Despite the new ability to charge 1.55 percent, FHA officials say an increase to 0.90 percent would be sufficient to self-insure its loans.)
In everyday terms, assuming a $200,000 mortgage, the math to a homeowner looks as follows:
* Current Premium (0.55%) : $91.67 monthly mortgage insurance premium
* Expected Increase (0.90%) : $150.00 monthly mortgage insurance premium
* Maximum Increase (1.55%) : $258.33 monthly mortgage insurance premium
The news is not all terrible, however.
FHA has also said it plans to reduce its upfront mortgage insurance premium paid at closing from 2.25 percent down to 1.000 percent.
On the same $200,000 mortgage, that would reduces closing costs by $2,500.
However, the potential for reduced seller paid closing costs from a maximum of 6% down to 3% will mean higher entry cost and higher monthly payments for minimum down buyers.
The California Tax Credit Application Deadline is August 15,2010. Funds are limited, and not all applicants will be accepted.
All in all, several compelling reasons for minimum down homebuyers to get into contract now!
Monthly mortgage insurance will increase from .50% to .90% for loans over 15 year term. (Despite the new ability to charge 1.55 percent, FHA officials say an increase to 0.90 percent would be sufficient to self-insure its loans.)
In everyday terms, assuming a $200,000 mortgage, the math to a homeowner looks as follows:
* Current Premium (0.55%) : $91.67 monthly mortgage insurance premium
* Expected Increase (0.90%) : $150.00 monthly mortgage insurance premium
* Maximum Increase (1.55%) : $258.33 monthly mortgage insurance premium
The news is not all terrible, however.
FHA has also said it plans to reduce its upfront mortgage insurance premium paid at closing from 2.25 percent down to 1.000 percent.
On the same $200,000 mortgage, that would reduces closing costs by $2,500.
However, the potential for reduced seller paid closing costs from a maximum of 6% down to 3% will mean higher entry cost and higher monthly payments for minimum down buyers.
The California Tax Credit Application Deadline is August 15,2010. Funds are limited, and not all applicants will be accepted.
All in all, several compelling reasons for minimum down homebuyers to get into contract now!
Sunday, August 8, 2010
Home Affordable Foreclosure Alternatives Program Update
The Home Affordable Foreclosure Alternatives (HAFA) Program, a part of the HAMP program, provides additional options to avoid costly foreclosures and offers incentives to borrowers, servicers and investors who utilize a short sale or deed-in-lieu (DIL) to avoid foreclosures. HAFA alternatives are available to all HAMP-eligible borrowers who: 1) do not qualify for a Trial Period Plan; 2) do not successfully complete a Trial Period Plan; 3) miss at least two consecutive payment during a HAMP modification; or, 4) request a short sale or deed-in-lieu.
HAFA has been revised effective April 5th, 2010 in Supplemental Directive 09-09, replacing original Supplemental Directive 09-01.
In a short sale, the servicer allows the borrower to list and sell the mortgaged property with the understanding that the net proceeds from the sale may be less than the total amount due on the first mortgage. Generally, if the borrower makes a good faith effort to sell the property but is not successful, a servicer may consider a DIL. With a DIL, the borrower voluntarily transfers ownership of the property to the servicer - provided title is free and clear of mortgages, liens and encumbrances. With either the HAFA short sale or DIL, the servicer may not require a cash contribution or promissory note from the borrower and must forfeit the ability to pursue a deficiency judgment against the borrower.
HAFA simplifies and streamlines the short sale and DIL process by providing a standard process flow, minimum performance timeframes and standard documentation. A loan must be HAMP eligible and meet other requirements to be eligible for incentive compensation. Among the requirements: The property must be borrower's principal residence and the loan was originated on or before January 1,2009. The program sunsets December 31, 2012.
The borrower may receive a one-time payment of $3,000 in the month the Short Sale/DIL Loan Set Up transaction is received after the closing has occurred.
The guidelines for HAFA are detailed further in the documents found here:
https://www.hmpadmin.com/portal/programs/foreclosure_alternatives.html
https://www.hmpadmin.com/portal/docs/hafa/sd0909r.pdf
HAFA has been revised effective April 5th, 2010 in Supplemental Directive 09-09, replacing original Supplemental Directive 09-01.
In a short sale, the servicer allows the borrower to list and sell the mortgaged property with the understanding that the net proceeds from the sale may be less than the total amount due on the first mortgage. Generally, if the borrower makes a good faith effort to sell the property but is not successful, a servicer may consider a DIL. With a DIL, the borrower voluntarily transfers ownership of the property to the servicer - provided title is free and clear of mortgages, liens and encumbrances. With either the HAFA short sale or DIL, the servicer may not require a cash contribution or promissory note from the borrower and must forfeit the ability to pursue a deficiency judgment against the borrower.
HAFA simplifies and streamlines the short sale and DIL process by providing a standard process flow, minimum performance timeframes and standard documentation. A loan must be HAMP eligible and meet other requirements to be eligible for incentive compensation. Among the requirements: The property must be borrower's principal residence and the loan was originated on or before January 1,2009. The program sunsets December 31, 2012.
The borrower may receive a one-time payment of $3,000 in the month the Short Sale/DIL Loan Set Up transaction is received after the closing has occurred.
The guidelines for HAFA are detailed further in the documents found here:
https://www.hmpadmin.com/portal/programs/foreclosure_alternatives.html
https://www.hmpadmin.com/portal/docs/hafa/sd0909r.pdf
Monday, August 2, 2010
USDA Rural Housing Bill Passes
One government housing program that had run out of funds months ago was revived by Congress yesterday.
The Senate yesterday passed HR 4899 to reestablish the popular U.S. Department of Agriculture Single-Family Housing Guaranteed Loan Program (Section 502 Housing) as a self-sustaining program.
The Rural Housing program had run through its $13.1 billion funding by early this year and many buyers hoping to finance home purchases using Homebuyer Tax Credits were unable to close their loans. Depleted funding has been a nearly annual occurrence for the program that guarantees loans for single family homes in designated exurban and rural areas. The new legislation will end the annual uncertainty by putting the program on a self-funding basis through enacting a 3.5 percent guarantee fee paid by the borrower. The fee, while substantial, can be included in the total amount financed.
Senator Michael Bennet released the following statement, "The Rural Housing Preservation and Stabilization Act increases the maximum loan guarantee fee that USDA's Rural Housing Service has authority to charge for new housing purchases from 2.0 to 3.5 percent and allows an annual fee of not more than 0.5 percent per year on the balance of the loan. The bill would also enable the Rural Housing Service to waive these fees for low-income borrowers for up to $679 million in loans. Together, these changes will enable the USDA-Rural Development's Rural Housing Service to continue offering loan guarantees through the duration of the year and to become self-funding."
Despite the low down payment required to participate in the program, it is generally considered to be a good risk by lenders because of the 90 percent government guarantee and because the loan size is limited to 115 percent of the area's median income. This keeps the loans small; the average loan size is $112,000. Last year the foreclosure rate for these USDA loans was a reported 1.72 percent compared to 3.32 percent for Federal Housing Administration loans.
The bill now goes to President Obama for signature. As we went to press, USDA had not commented on the action and we are still waiting for guidance from lenders.
Source: Jann Swanson on July 30, 2010, MND Newswire
The Senate yesterday passed HR 4899 to reestablish the popular U.S. Department of Agriculture Single-Family Housing Guaranteed Loan Program (Section 502 Housing) as a self-sustaining program.
The Rural Housing program had run through its $13.1 billion funding by early this year and many buyers hoping to finance home purchases using Homebuyer Tax Credits were unable to close their loans. Depleted funding has been a nearly annual occurrence for the program that guarantees loans for single family homes in designated exurban and rural areas. The new legislation will end the annual uncertainty by putting the program on a self-funding basis through enacting a 3.5 percent guarantee fee paid by the borrower. The fee, while substantial, can be included in the total amount financed.
Senator Michael Bennet released the following statement, "The Rural Housing Preservation and Stabilization Act increases the maximum loan guarantee fee that USDA's Rural Housing Service has authority to charge for new housing purchases from 2.0 to 3.5 percent and allows an annual fee of not more than 0.5 percent per year on the balance of the loan. The bill would also enable the Rural Housing Service to waive these fees for low-income borrowers for up to $679 million in loans. Together, these changes will enable the USDA-Rural Development's Rural Housing Service to continue offering loan guarantees through the duration of the year and to become self-funding."
Despite the low down payment required to participate in the program, it is generally considered to be a good risk by lenders because of the 90 percent government guarantee and because the loan size is limited to 115 percent of the area's median income. This keeps the loans small; the average loan size is $112,000. Last year the foreclosure rate for these USDA loans was a reported 1.72 percent compared to 3.32 percent for Federal Housing Administration loans.
The bill now goes to President Obama for signature. As we went to press, USDA had not commented on the action and we are still waiting for guidance from lenders.
Source: Jann Swanson on July 30, 2010, MND Newswire
Wednesday, July 21, 2010
VA Loan Limits California Counties
County Limit
Alameda $962,500
Contra Costa $962,500
El Dorado $418,750
Los Angeles $593,750
Marin $962,500
Mono $512,500
Napa $443,750
Nevada $418,750
Orange $593,750
Placer $418,750
Sacramento $418,750
San Benito $633,750
San Diego $437,500
San Francisco $962,500
San Luis Obispo $487,500
San Mateo $962,500
Santa Clara $633,750
Santa Cruz $568,750
Ventura $486,250
Yolo $418,750
Alameda $962,500
Contra Costa $962,500
El Dorado $418,750
Los Angeles $593,750
Marin $962,500
Mono $512,500
Napa $443,750
Nevada $418,750
Orange $593,750
Placer $418,750
Sacramento $418,750
San Benito $633,750
San Diego $437,500
San Francisco $962,500
San Luis Obispo $487,500
San Mateo $962,500
Santa Clara $633,750
Santa Cruz $568,750
Ventura $486,250
Yolo $418,750
Friday, June 4, 2010
First Time Homebuyer Tax Credit: How Long Will Funds Last?
These estimates give a general idea of the number of applications received and the amount requested for the First-Time Buyer Credit. 57% of the estimated requested credit is shown since the $100 million cap will only be reduced by 57% of the credit allocated to the buyer. The amounts do not reflect actual amounts which will be allocated. Once the state determines that they have received sufficient applications to allocate the full $100 million, they will stop accepting applications for the First-Time Buyer Credit. There is also a separate "New Home" Credit.
First-Time Buyer Credit Applications
As of # Apps Received 57% of Estimated Requested Credit
05/04/10 430 $ 2,351,000
05/11/10 2,470 $ 13,283,000
05/18/10 4,830 $ 25,473,000
05/25/10 7,330 $ 38,357,000
06/01/10 9,760 $ 50,948,000
Applications are quickly absorbing available funds.
At this rate, I don't expect the credit to last much past July 2010.
First-Time Buyer Credit Applications
As of # Apps Received 57% of Estimated Requested Credit
05/04/10 430 $ 2,351,000
05/11/10 2,470 $ 13,283,000
05/18/10 4,830 $ 25,473,000
05/25/10 7,330 $ 38,357,000
06/01/10 9,760 $ 50,948,000
Applications are quickly absorbing available funds.
At this rate, I don't expect the credit to last much past July 2010.
Housing Prices Improve 6.8%
House prices rose 6.8% in May 2010 from last year. A report from real estate data provider Clear Capital states that this is the largest yearly increase since July 2006.
Last year Clear Capital reported a 19.3% drop in May house prices from the previous year.
"We continue to see sustained price growth throughout much of the country with yearly price gains reflecting the housing recovery off of last year's lows," said Alex Villacorta, senior statistician at Clear Capital. "The expiration of the tax credit at the end of April has certainly contributed to the growth of prices we are observing and as more sales close before the June 30 deadline we expect that markets across the country will continue to see strengthening of prices."
The amount of REO properties on the market appears to be declining, too, according to Clear Capital. The national REO saturation rate dropped 27.8%, down from 41.7% last year.
"This dramatic shift in price trends reflects the unprecedented volatility over the last couple of years and the delicate state of local real estate markets around the country," Villacorta said.
Last year Clear Capital reported a 19.3% drop in May house prices from the previous year.
"We continue to see sustained price growth throughout much of the country with yearly price gains reflecting the housing recovery off of last year's lows," said Alex Villacorta, senior statistician at Clear Capital. "The expiration of the tax credit at the end of April has certainly contributed to the growth of prices we are observing and as more sales close before the June 30 deadline we expect that markets across the country will continue to see strengthening of prices."
The amount of REO properties on the market appears to be declining, too, according to Clear Capital. The national REO saturation rate dropped 27.8%, down from 41.7% last year.
"This dramatic shift in price trends reflects the unprecedented volatility over the last couple of years and the delicate state of local real estate markets around the country," Villacorta said.
Wednesday, May 26, 2010
A Peek inside the Credit Scoring Engine
On May 7th. 2010, I wrote about how little credit it takes to have a great score. Today we look into this a little further, and contrast two different credit profiles. It’s all in the management!
Here is an example of damaged credit:
Total Credit Lines in history: 6. “DLA”=Date of Last Activity
1. Open Collection $481 Balance
2. Auto Loan. $16574 High Credit Limit. 62 Months old. $0 Balance, Paid off 6 months ago. No lates.
3. $146 High Credit Limit. Paid Charge off. 46 Months ago.
4. Medical Collection. $100 High Credit Limit. Paid 47 Months Ago.
5. Bank Credit Card. $600 High Credit Limit. 40 months Old. 0 Balance. DLA 39 Months ago. No lates.
6. Store Credit Card. $0 Balance. 12 Years Old. DLA 9 years ago. No lates.
The Credit score is 643. Although one collection and one charge off were paid off several years ago, the open collection is still damaging the score. Another factor is the ratio of good-to-derogatory credit items. In this case, addressing the open collection (in the right way), creating occasional activity on a new line of credit or two and on trade lines #5 &/or #6 will help to re-build this score over time.
Let’s compare this example with another.
Total Credit Lines in history: 4.
1. Secured Credit Card 72 Months old. High Credit Limit $300. Current Balance $204. DLA 1 month ago.
2. Secured Credit Card 72 Months old. Reported Stolen, $0 Balance. DLA 48 months ago. (Re-issued as account #1.)
3. Credit Card 3 months old High Credit Limit $1000. Balance $0. DLA 3 months ago
4. Charge Account. 48 Months Old. High Credit Limit $550. Balance $0. DLA 4 months ago.
The credit score is 783! This shows that if obligations are met, it is not necessary to have several different types of credit, more than a couple of trade lines, frequent activity, or even more than modest amounts of credit available to achieve an outstanding score.
Here is an example of damaged credit:
Total Credit Lines in history: 6. “DLA”=Date of Last Activity
1. Open Collection $481 Balance
2. Auto Loan. $16574 High Credit Limit. 62 Months old. $0 Balance, Paid off 6 months ago. No lates.
3. $146 High Credit Limit. Paid Charge off. 46 Months ago.
4. Medical Collection. $100 High Credit Limit. Paid 47 Months Ago.
5. Bank Credit Card. $600 High Credit Limit. 40 months Old. 0 Balance. DLA 39 Months ago. No lates.
6. Store Credit Card. $0 Balance. 12 Years Old. DLA 9 years ago. No lates.
The Credit score is 643. Although one collection and one charge off were paid off several years ago, the open collection is still damaging the score. Another factor is the ratio of good-to-derogatory credit items. In this case, addressing the open collection (in the right way), creating occasional activity on a new line of credit or two and on trade lines #5 &/or #6 will help to re-build this score over time.
Let’s compare this example with another.
Total Credit Lines in history: 4.
1. Secured Credit Card 72 Months old. High Credit Limit $300. Current Balance $204. DLA 1 month ago.
2. Secured Credit Card 72 Months old. Reported Stolen, $0 Balance. DLA 48 months ago. (Re-issued as account #1.)
3. Credit Card 3 months old High Credit Limit $1000. Balance $0. DLA 3 months ago
4. Charge Account. 48 Months Old. High Credit Limit $550. Balance $0. DLA 4 months ago.
The credit score is 783! This shows that if obligations are met, it is not necessary to have several different types of credit, more than a couple of trade lines, frequent activity, or even more than modest amounts of credit available to achieve an outstanding score.
Tuesday, May 25, 2010
How Top Real Estate Agents Tackle Tough Times
How Top Real Estate Agents Tackle Tough Times is the sub-title of Shift, the latest book in the Millionaire Real Estate agent series by Gary Keller, the CEO of Keller Williams Realty. Published in 2010, the focus is on the current market environment. Real Estate is cyclical. I highly recommend this easy to read book. (It's light on commas, but you’ll quickly adapt to its conversational style.) It clearly breaks out into 12 tactics exactly what is necessary to succeed in the current market environment. Here are two essential key nuggets (bolds are mine):
Shift, Gary Keller, p. 175
YOUR FINANCING TEAM
Shift, Gary Keller, p.219-220
If you take away nothing else from the book, be sure to implement these two key steps. Your bottom line will improve significantly!
…after the sub-prime, free-lending ways of the early to mid 2000’s, mortgage lenders created another “ability” crisis for buyers. In response to previous loose lending practices suddenly lenders tightened their lending standards. They quit offering many popular programs, asked for stricter appraisals, required higher credit scores, and demanded more money down. In both shifts many buyers were less able to buy and some could no longer even qualify.
To counter such challenges you must find workable financing solutions and counterattack or put to rest any false ideas buyers may have about their ability to buy a home. Knowledge and a great loan officer are the keys. By teaming up with a loan officer immediately you’ll not only serve the best interest of the buyer, but also increase the number of people you can help. As soon as you meet someone help them understand whether they qualify. And if they do qualify then help them find out if they can buy what they want and need.
Shift, Gary Keller, p. 175
YOUR FINANCING TEAM
So how does a real estate agent add “master creative financing” to their ever growing list of important tasks to do? They don’t. You only need to have a clear understanding of the market, the players, and their options. With this knowledge you can effectively expand the choices for your buyers and sellers and leave the details to your financing specialist.
Meet separately with your top two loan officers every week. These meetings should be on your calendar for the entire year. The goal of each of these brief meetings is to brainstorm the issues you and the market are facing. Ask them to put all the financing options on the table that might work in the market for each of your buyers and sellers. With that list in hand, you can set the expectation that these same lenders will take ownership of the forms, the timelines and the processes needed to put these ideas into action on each loan they get.
Shift, Gary Keller, p.219-220
If you take away nothing else from the book, be sure to implement these two key steps. Your bottom line will improve significantly!
Tuesday, May 18, 2010
The second last-minute credit report before closing
Up till now, realtors and homebuyers were infrequently affected by this practice. Starting June 1st, 2010, it becomes the rule rather than the exception. Your lender is likely to order a second credit screening immediately before closing. It is part of Fannie Mae's "loan quality initiative" to cut down on slipshod underwriting and fraud by borrowers. This second report is designed to find out whether you have obtained, or even shopped for, new debt between time of loan application and the closing. If you have made applications for credit of any type, the closing may be put on hold pending further investigation, and your transaction could potentially fall through.
How should a borrower prepare for the new credit check procedures? Just follow one basic rule: total abstinence. Resist new spending completely between loan application and closing. And don't apply for new credit or increase credit lines without discussing it with your lender first!
How should a borrower prepare for the new credit check procedures? Just follow one basic rule: total abstinence. Resist new spending completely between loan application and closing. And don't apply for new credit or increase credit lines without discussing it with your lender first!
Friday, May 7, 2010
Can a young person achieve an excellent credit score?
With banks now expecting a middle score of 720, or even 740 to extend the best pricing or terms to you, it is now important to build up your credit profile to achieve these levels. Not only that, but many lenders don't want to see much variance between the scores from Equifax, TransUnion and Experian. A mix of 673, 735 and 751 would not be considered excellent because of the one score below 680, even though the mid score is well above 720.
Common knowledge is that it takes years and a mix of several different kinds of trade lines to build up a high score. We'll see by the examples below that this is not necessarily true.
It is true that to have little credit history is equal to having bad credit. But it is not as hard as one might think to build up a great score from nothing. Of course, you must always pay on time, and have no derogatory items (such as collections, judgments or charge-offs) to maintain a high score. The examples shown below have done that.
Now let's look at 2 actual real-life examples:
Example #1:
Total number of Trade Lines is three.
1st one is a credit card , opened 7 months ago. The High Credit (amount available) $500. The balance is 63, the minimum payment is $25.
2nd is an auto loan, opened 42 months ago. High Credit $3000. This account was satisfied in 18 months and has 0 balance.
3rd is a $1000 credit card opened 66 months ago. It has a 0 balance.
Pretty minimal number of trade lines and amount of borrowing power, yes? What would you guess the credit score to be? Maybe 680 at best?
Example #2:
Number of trade lines is two.
1st one is a credit card opened 5 months ago. The balance is $63, the minimum payment is $25.
2nd one is an auto loan. It was opened 33 months ago. High credit was $5836.
It has a 0 balance.The "months reviewed" is 2. This means the loan was payed off early.
Do you think that just 2 trade lines could achieve a 680 score? Maybe?
Both accounts have had 2 inquiries in the last 12 months.
Both of these accounts have Key Factors impacting the score of:
1. Length of time Accounts have been established
2. Length of time revolving accounts have been established
3. Too many inquiries in last 12 months
4. Proportion of balances is too high on bank revolving or other revolving accounts
Now what do you think?
(drum roll, please)
Score #1: 786
Score #2: 741
Interesting, isn't it?
What have we learned?
Credit reports all show the same Key Factors items 1-4 above,
even if you have the highest possible score!
To have an excellent score:
It is not necessarily to have five or more trade lines of different types.
It is not necessary to have shown an ability to handle 5 and 6 figure high balances and 4 figure payments.
It is not necessary to have 6 or more years of credit history.
Owing a small percentage of your available credit has a positive impact on your score. (FYI, under 30% for credit cards is best.)
And by the way, our examples are 23 and 22 years old!
Go forth, use credit accordingly, and prosper.
Common knowledge is that it takes years and a mix of several different kinds of trade lines to build up a high score. We'll see by the examples below that this is not necessarily true.
It is true that to have little credit history is equal to having bad credit. But it is not as hard as one might think to build up a great score from nothing. Of course, you must always pay on time, and have no derogatory items (such as collections, judgments or charge-offs) to maintain a high score. The examples shown below have done that.
Now let's look at 2 actual real-life examples:
Example #1:
Total number of Trade Lines is three.
1st one is a credit card , opened 7 months ago. The High Credit (amount available) $500. The balance is 63, the minimum payment is $25.
2nd is an auto loan, opened 42 months ago. High Credit $3000. This account was satisfied in 18 months and has 0 balance.
3rd is a $1000 credit card opened 66 months ago. It has a 0 balance.
Pretty minimal number of trade lines and amount of borrowing power, yes? What would you guess the credit score to be? Maybe 680 at best?
Example #2:
Number of trade lines is two.
1st one is a credit card opened 5 months ago. The balance is $63, the minimum payment is $25.
2nd one is an auto loan. It was opened 33 months ago. High credit was $5836.
It has a 0 balance.The "months reviewed" is 2. This means the loan was payed off early.
Do you think that just 2 trade lines could achieve a 680 score? Maybe?
Both accounts have had 2 inquiries in the last 12 months.
Both of these accounts have Key Factors impacting the score of:
1. Length of time Accounts have been established
2. Length of time revolving accounts have been established
3. Too many inquiries in last 12 months
4. Proportion of balances is too high on bank revolving or other revolving accounts
Now what do you think?
(drum roll, please)
Score #1: 786
Score #2: 741
Interesting, isn't it?
What have we learned?
even if you have the highest possible score!
To have an excellent score:
And by the way, our examples are 23 and 22 years old!
Go forth, use credit accordingly, and prosper.
Tuesday, April 27, 2010
As FHA tightens requirements, Private mortgage insurance companies return to market
Beginning this month, down payment requirements on FHA-insured loans have been increased. Although borrowers with credit scores of 580 or above will still be able to make the traditional 3.5% down payment, those with lower scores will need 10% down.
In addition, the upfront mortgage insurance premium has been raised from 1.75% to 2.25%. The premium can be financed as part of the mortgage.
FHA has asked Congress for authority to increase the maximum monthly insurance fee from the current 0.5% level. The agency is seeking permission to hike the monthly charge to 1.55%, but has said it needs to raise it to only 0.9% at this time.
FHA is reducing permissible seller concessions from 6% of the loan amount to 3%. This change conforms to industry standards, and means that even if a seller were to agree to pay all of the borrower's closing costs, the borrower could count only that portion equal to up to 3% of the loan amount as if it were his own money.
Meanwhile, several private mortgage insurers have returned to backing 5% down payment loans to borrowers anywhere in the country.
Today, while FHA loans are generally considered to be the less expensive alternative, that's not always the case. Savvy borrowers would be wise to consider both before jumping to a decision.
Generally, PMI pricing is more affordable for borrowers making a down payment of 10% or more.
Source: Lew Sichelman, United Feature Syndicate 4/25/2010
In addition, the upfront mortgage insurance premium has been raised from 1.75% to 2.25%. The premium can be financed as part of the mortgage.
FHA has asked Congress for authority to increase the maximum monthly insurance fee from the current 0.5% level. The agency is seeking permission to hike the monthly charge to 1.55%, but has said it needs to raise it to only 0.9% at this time.
FHA is reducing permissible seller concessions from 6% of the loan amount to 3%. This change conforms to industry standards, and means that even if a seller were to agree to pay all of the borrower's closing costs, the borrower could count only that portion equal to up to 3% of the loan amount as if it were his own money.
Meanwhile, several private mortgage insurers have returned to backing 5% down payment loans to borrowers anywhere in the country.
Today, while FHA loans are generally considered to be the less expensive alternative, that's not always the case. Savvy borrowers would be wise to consider both before jumping to a decision.
Generally, PMI pricing is more affordable for borrowers making a down payment of 10% or more.
Source: Lew Sichelman, United Feature Syndicate 4/25/2010
Monday, April 26, 2010
FNMA to shorten waiting periods for some troubled borrowers to get new home loans
Good news for people who have given the deed on their house to the bank because of financial problems, or done a short sale to avoid foreclosure: You may not have to wait 4 to 5 years to requalify for financing to buy a home.
It could be as little as 2 years. FNMA issued a bulletin to lenders April 14, saying it is relaxing the previous rules that prevented loan applicants who had participated in short sales or deeds in lieu of foreclosure from obtaining a new mortgage for extended periods of time. The new rules are scheduled to take effect July 1.
Homeowners who've done short sales — such as under the Obama administration's new Home Affordable Foreclosure Alternatives program — will also be able to qualify for a mortgage in as little as two years.
The fine print: To qualify for a new loan in the minimum two years, most of these borrowers will need to come up with down payments of at least 20%.
However, if borrowers can demonstrate that their mortgage problems were directly attributable to "extenuating circumstances" — such as loss of employment, medical expenses or divorce — they may be able to qualify for new loans with minimum 10% down payments in just two years.
The main potential complication is in FNMA's credit rehabilitation requirements. To qualify for a new mortgage, FNMA expects borrowers to reestablish their credit enough to get passing grades from the company's automated underwriting system, which considers credit bureau data among other factors.
Source: Kenneth Harney, Washington Post Writers Group 4/25/2010
It could be as little as 2 years. FNMA issued a bulletin to lenders April 14, saying it is relaxing the previous rules that prevented loan applicants who had participated in short sales or deeds in lieu of foreclosure from obtaining a new mortgage for extended periods of time. The new rules are scheduled to take effect July 1.
Homeowners who've done short sales — such as under the Obama administration's new Home Affordable Foreclosure Alternatives program — will also be able to qualify for a mortgage in as little as two years.
The fine print: To qualify for a new loan in the minimum two years, most of these borrowers will need to come up with down payments of at least 20%.
However, if borrowers can demonstrate that their mortgage problems were directly attributable to "extenuating circumstances" — such as loss of employment, medical expenses or divorce — they may be able to qualify for new loans with minimum 10% down payments in just two years.
The main potential complication is in FNMA's credit rehabilitation requirements. To qualify for a new mortgage, FNMA expects borrowers to reestablish their credit enough to get passing grades from the company's automated underwriting system, which considers credit bureau data among other factors.
Source: Kenneth Harney, Washington Post Writers Group 4/25/2010
Thursday, April 15, 2010
Next Wave of Foreclosures to hit So. Cal. 4- 2010
Bank of America, the nation's largest mortgage lender, ramped up its foreclosure activity in March, sending hundreds of letters warning delinquent borrowers in the region that it could sell their homes at auction in as little as three weeks, according to North County Times analysis of data from ForeclosureRadar.
The bank said the increased activity was a natural consequence of borrowers running out of options.
Analysts and real estate agents said the moves by the Charlotte, N.C., banking giant, which controls a large share of the Southern California mortgage market, could signal a final reckoning for homeowners who have been protected by government programs for months or even years.
Last month, a Bank of America division called ReconTrust N.A. sent out a flurry of "notices of auction," which alert owners of the date their homes could be sold in foreclosure proceedings.
The notices went to 230 homeowners in North San Diego County, a 69 percent increase from February, and to 391 owners in Southwest Riverside County, up 67 percent from February.
By comparison, in March 2009, ReconTrust sent a total of 31 such letters to both regions combined.
ReconTrust was formed as the foreclosure division of Countrywide Financial Services Inc., the company that helped drive the real estate boom of the 2000s with its no-documentation "liar loans" and enormous subprime portfolio.
As borrowers could no longer make payments on such loans, home values plummeted, dragging with them much of the national economy.
More foreclosures expected
When Bank of America agreed to take over Countrywide in January 2008, Countrywide said it managed 9 million loans valued at $1.5 trillion.
The purchase made Bank of America the largest manager of home loans in the nation.
Richard Simon, a Bank of America spokesman, wrote in an e-mail that he couldn't speak to the sharp increase of notices in San Diego and Riverside counties, but that the bank has expected more foreclosure activity.
"We have reported recently that we anticipate a rise in foreclosure activity through the coming months as homeowners are unable to qualify for loan modifications, fall out of modification programs or go into delinquency due to the ongoing stress in the economy," he said.
Bank of America has permanently lowered monthly payments for 12,700 borrowers through the Treasury Department's Home Affordable Modification Program, more than any other lender.
But the program as a whole is widely deemed a failure, because just 17 percent of applicants nationally have managed to qualify and keep up their payments, according to the latest Treasury report.
Data showing that Bank of America borrowers were falling out of HAMP and into foreclosure in rising numbers didn't surprise analysts.
"That makes sense," said Jamie Peters, a financial analyst who covers Bank of America for the investment research firm Morningstar Inc.
"'We've given them the chance, it hasn't worked, we need to move ahead' type of idea," Peters said.
Another analyst who tracks Bank of America, Shannon Stemm of investment bank Edward Jones, said the loans now being foreclosed are "older," meaning borrowers had plenty of time to try a modification, and the bank had to get the delinquent loans off their books.
"A lot of the bad loans we're seeing from a couple of quarters ago are getting to a place where (Bank of America) need to make a decision for what to do with that bad loan," she said.
Morningstar's Peters thought the bank might be taking advantage of a strengthening California housing market.
"It's going to be in part an assessment of the ability of the market to handle some more real-estate owned (foreclosed) properties," she said.
A local look
In San Diego County, the widely respected Standard & Poor's Case-Shiller Home Price Index in March showed home values rising at a 12.5 percent annual rate since hitting a bottom in May.
Riverside County also has begun to see a rise in the median home price, and real estate agents in both counties said they often get multiple offers on the lowest-priced homes.
Peters also noted that moving more foreclosed properties into the market in spring and summer, the traditional buying season, made a lot more sense than foreclosing in November.
But there will be a little more delay before these properties reach the market.
After a notice of auction is sent, state law requires lenders to provide public notice in a newspaper three weeks before the property is sold.
That explains why locally, foreclosures haven't suddenly jumped: Notices of auction sales in March were down 74 percent in North County and down 64 percent in Southwest Riverside County, compared with the same month in 2009.
Such notices go to borrowers who typically are unlikely to suddenly get caught up on their payments.
A notice of auction is the second warning of impending foreclosure, sent three months after a notice of default, which is customarily sent after borrowers have missed three payments.
A surge in available listings could give a lift to real estate agents, who have complained about frustrated buyers amid tight supplies of homes for sale.
"My Bank of America asset manager told me we'd really start to get hit with inventory in mid-May to June," said Teri Garcia, a real estate agent based in Escondido who sells Bank of America foreclosures.
"If they're sending notices of auction in March, that about fits," she said.
Garcia said the local supply of foreclosed homes has been low all through the winter. She was thrilled to hear that more homes might be coming onto the market this summer.
"Let's get them on the market, get them sold, and get through all this," she said.
By ERIC WOLFF , North County Times, April 13, 2010
Tuesday, April 13, 2010
FHA 203K Loan to Finance and Rehab property
The borrower can get just one mortgage loan, at a long-term fixed (or adjustable) rate, to finance both the acquisition and the rehabilitation of the property. To provide funds for the rehabilitation, the mortgage amount is based on the projected value of the property with the work completed, taking into account the cost of the work. The 203k can be used to refinance existing indebtedness and rehabilitate a dwelling.
Eligible Property
To be eligible, the property must be a one- to four-family dwelling that has been completed for at least one year.
Homes that have been demolished, or will be razed as part of the rehabilitation work, are eligible provided some of the existing foundation system remains in place.
In addition to typical home rehabilitation projects, this program can be used to convert a one-family dwelling to a two-, three-, or four-family dwelling. An existing multi-unit dwelling could be decreased to a one- to four-family unit.
It can also be used to purchase a dwelling on another site, move it onto a new foundation on the mortgaged property and rehabilitate it.
Condominium Unit
The Department also permits Section 203(k) mortgages to be used for individual units in condominium projects that have been approved by FHA, the Department of Veterans Affairs, or are acceptable to FNMA.
Condominium rehabilitation is subject to the following conditions:
- Owner/occupant and qualified non-profit borrowers only; no investors;
- Rehabilitation is limited only to the interior of the unit. ( except for the installation of firewalls in the attic for the unit);
- Only the lesser of five units per condominium association, or 25 percent of the total number of units, can be undergoing rehabilitation at any one time;
- The maximum mortgage amount cannot exceed 100 percent of after-improved value.
After rehabilitation is complete, the individual buildings within the condominium must not contain more than four units. However, this does not mean that the condominium project, as a whole, can only have four units.
The townhouse exception: A project could contain a row of more than four attached townhouses and be eligible for Section 203(k) because HUD considers each townhouse as one structure, provided each unit is separated by a 1 1/2 hour firewall (from foundation up to the roof).
Eligible Improvements
Mortgage proceeds must be used in part for
rehabilitation and/or improvements to a property. There is a minimum
$5000.00 requirement for the eligible improvements on the existing
structure on the property. Minor or cosmetic repairs by themselves
are impracticable and unacceptable; however, they may be added to the
minimum requirement (in addition to $5,000). The mortgage must
include one or more of the items listed below, with a cumulative
minimum of $5,000.
A. Structural alterations and reconstruction (e.g., additions to the
structure, finished attics, repair of termite damage and the
treatment against termite infestation, etc.)
B. Changes for improved functions and modernization (e.g., remodeled
kitchens and bathrooms).
C. Elimination of health and safety hazards (including the
resolution of defective paint surfaces and/or lead-based paint
problems on homes built prior to 1978).
D. Changes for aesthetic appeal and elimination of obsolescence
(e.g., new exterior siding).
F. Reconditioning or replacement of plumbing (including connecting
to public water and/or sewer system), heating, air conditioning
and electrical systems.
F. Roofing, gutters and downspouts.
G. Flooring, tiling and carpeting.
H. Energy conservation improvements (e.g., new double pane windows,
insulation, solar domestic hot water systems, etc.).
I. Major landscape work and site improvement, patios and terraces
that improve the value of the property equal to the dollar amount
spent on the improvements or required to preserve the property
from erosion.
J. Improvements for accessibility to the Handicapped.
When basic improvements are involved, the following costs can be
included in addition to the minimum $5,000 requirement for the
existing structure:
- Construction or rehabilitation of a detached garage or an
attached unit(s) to the existing dwelling (if allowed by the
local zoning ordinances).
- New cooking ranges, refrigerators and other appurtenances
(Used appliances are not eligible).
- Interior or exterior painting.
Luxury items and improvements are not eligible as a cost rehabilitation. However, the homeowner can use the 203(k) program to finance such items as painting, room additions, decks and other items even if the home does not need any other improvements. All health, safety and energy conservation items must be addressed prior to completing general home improvements.
Recently Acquired Properties
Homebuyers who purchase a property with cash can refinance the property using 203(k) within six (6) months of purchase, the same as if the buyer purchased the property with a 203(k) insured loan to begin with. Evidence of interim financing is not required; the mortgage calculations will be done the same as a purchase transaction. Cash back will be allowed to the borrower in this situation less any down payment and closing cost requirement for the 203(k) loan.
Mortgage Payment Reserve. Funds not to exceed the amount of six (6) mortgage payments (including the mortgage insurance premium) can be included in the cost of rehabilitation to assist a mortgagor when the property is not habitable during rehabilitation. The number of mortgage payments cannot exceed the completion time frame required in the Rehabilitation Loan Agreement.
Maximum Mortgage Calculation
REFINANCE:
Based on the lesser of:
1) The existing debt on the property before rehabilitation, plus the estimated cost of rehabilitation and allowable closing costs or
2) The lesser of the As-Is value plus rehabilitation costs or 110 percent of the After-Improved value multiplied by the appropriate LTV factor.
NOTE: If the property was owned less than one year, the acquisition cost plus the documented rehabilitation costs must be used.
PURCHASE:
The maximum mortgage amount is based on the lesser of 1) or 2) of the below multiplied by the appropriate LTV factor.
1) The As-is value or the purchase price of the property before rehabilitation, whichever is less, plus the estimated cost of rehabilitation or
2) 110 percent of the After-Improved value of the property.
Principal Residence (Owner-Occupant) & HUD Approved Non-Profit Organization. For purchases with 203(k) financing: the maximum mortgage amount is to be based upon the HUD estimate of value in 1) or 2) above, less the statutory investment requirement. For refinances under the 203(k) program: the maximum mortgage amount is to be based upon 97/95/90 percent of the HUD estimate of value in 1) or 2) above.
Cost of Rehabilitation
Expenses eligible to be included in the cost of rehabilitation are materials, labor, contingency reserve, overhead and construction profit, up to six (6) months of mortgage payments, plus expenses related to the rehabilitation such as permits, fees, inspection fees by a qualified home inspector, licenses and consultant and/or architectural/engineering fees. The cost of rehabilitation may also include the supplemental origination fee which the mortgagor is permitted to pay when the mortgage involves insurance of advances, and the discounts which the mortgagor will pay on that portion of the mortgage proceeds allocated to the rehabilitation.
Please email any questions.
Eligible Property
To be eligible, the property must be a one- to four-family dwelling that has been completed for at least one year.
Homes that have been demolished, or will be razed as part of the rehabilitation work, are eligible provided some of the existing foundation system remains in place.
In addition to typical home rehabilitation projects, this program can be used to convert a one-family dwelling to a two-, three-, or four-family dwelling. An existing multi-unit dwelling could be decreased to a one- to four-family unit.
It can also be used to purchase a dwelling on another site, move it onto a new foundation on the mortgaged property and rehabilitate it.
Condominium Unit
The Department also permits Section 203(k) mortgages to be used for individual units in condominium projects that have been approved by FHA, the Department of Veterans Affairs, or are acceptable to FNMA.
Condominium rehabilitation is subject to the following conditions:
- Owner/occupant and qualified non-profit borrowers only; no investors;
- Rehabilitation is limited only to the interior of the unit. ( except for the installation of firewalls in the attic for the unit);
- Only the lesser of five units per condominium association, or 25 percent of the total number of units, can be undergoing rehabilitation at any one time;
- The maximum mortgage amount cannot exceed 100 percent of after-improved value.
After rehabilitation is complete, the individual buildings within the condominium must not contain more than four units. However, this does not mean that the condominium project, as a whole, can only have four units.
The townhouse exception: A project could contain a row of more than four attached townhouses and be eligible for Section 203(k) because HUD considers each townhouse as one structure, provided each unit is separated by a 1 1/2 hour firewall (from foundation up to the roof).
Eligible Improvements
Mortgage proceeds must be used in part for
rehabilitation and/or improvements to a property. There is a minimum
$5000.00 requirement for the eligible improvements on the existing
structure on the property. Minor or cosmetic repairs by themselves
are impracticable and unacceptable; however, they may be added to the
minimum requirement (in addition to $5,000). The mortgage must
include one or more of the items listed below, with a cumulative
minimum of $5,000.
A. Structural alterations and reconstruction (e.g., additions to the
structure, finished attics, repair of termite damage and the
treatment against termite infestation, etc.)
B. Changes for improved functions and modernization (e.g., remodeled
kitchens and bathrooms).
C. Elimination of health and safety hazards (including the
resolution of defective paint surfaces and/or lead-based paint
problems on homes built prior to 1978).
D. Changes for aesthetic appeal and elimination of obsolescence
(e.g., new exterior siding).
F. Reconditioning or replacement of plumbing (including connecting
to public water and/or sewer system), heating, air conditioning
and electrical systems.
F. Roofing, gutters and downspouts.
G. Flooring, tiling and carpeting.
H. Energy conservation improvements (e.g., new double pane windows,
insulation, solar domestic hot water systems, etc.).
I. Major landscape work and site improvement, patios and terraces
that improve the value of the property equal to the dollar amount
spent on the improvements or required to preserve the property
from erosion.
J. Improvements for accessibility to the Handicapped.
When basic improvements are involved, the following costs can be
included in addition to the minimum $5,000 requirement for the
existing structure:
- Construction or rehabilitation of a detached garage or an
attached unit(s) to the existing dwelling (if allowed by the
local zoning ordinances).
- New cooking ranges, refrigerators and other appurtenances
(Used appliances are not eligible).
- Interior or exterior painting.
Luxury items and improvements are not eligible as a cost rehabilitation. However, the homeowner can use the 203(k) program to finance such items as painting, room additions, decks and other items even if the home does not need any other improvements. All health, safety and energy conservation items must be addressed prior to completing general home improvements.
Recently Acquired Properties
Homebuyers who purchase a property with cash can refinance the property using 203(k) within six (6) months of purchase, the same as if the buyer purchased the property with a 203(k) insured loan to begin with. Evidence of interim financing is not required; the mortgage calculations will be done the same as a purchase transaction. Cash back will be allowed to the borrower in this situation less any down payment and closing cost requirement for the 203(k) loan.
Mortgage Payment Reserve. Funds not to exceed the amount of six (6) mortgage payments (including the mortgage insurance premium) can be included in the cost of rehabilitation to assist a mortgagor when the property is not habitable during rehabilitation. The number of mortgage payments cannot exceed the completion time frame required in the Rehabilitation Loan Agreement.
Maximum Mortgage Calculation
REFINANCE:
Based on the lesser of:
1) The existing debt on the property before rehabilitation, plus the estimated cost of rehabilitation and allowable closing costs or
2) The lesser of the As-Is value plus rehabilitation costs or 110 percent of the After-Improved value multiplied by the appropriate LTV factor.
NOTE: If the property was owned less than one year, the acquisition cost plus the documented rehabilitation costs must be used.
PURCHASE:
The maximum mortgage amount is based on the lesser of 1) or 2) of the below multiplied by the appropriate LTV factor.
1) The As-is value or the purchase price of the property before rehabilitation, whichever is less, plus the estimated cost of rehabilitation or
2) 110 percent of the After-Improved value of the property.
Principal Residence (Owner-Occupant) & HUD Approved Non-Profit Organization. For purchases with 203(k) financing: the maximum mortgage amount is to be based upon the HUD estimate of value in 1) or 2) above, less the statutory investment requirement. For refinances under the 203(k) program: the maximum mortgage amount is to be based upon 97/95/90 percent of the HUD estimate of value in 1) or 2) above.
Cost of Rehabilitation
Expenses eligible to be included in the cost of rehabilitation are materials, labor, contingency reserve, overhead and construction profit, up to six (6) months of mortgage payments, plus expenses related to the rehabilitation such as permits, fees, inspection fees by a qualified home inspector, licenses and consultant and/or architectural/engineering fees. The cost of rehabilitation may also include the supplemental origination fee which the mortgagor is permitted to pay when the mortgage involves insurance of advances, and the discounts which the mortgagor will pay on that portion of the mortgage proceeds allocated to the rehabilitation.
Please email any questions.
Monday, April 12, 2010
Californians Get $10,000 Homebuyer Tax Credit
California Senate passed a new state $10,000 Homebuyer credit to pickup where the federal tax credit left off. Bill AB 183 passed on March 22, 2010.
The bill authorizes a credit against those taxes in an amount equal to the lesser of 5% of the purchase price of a qualified principal residence, as defined, or $10,000, for purchases made between May 1, 2010, and on or before December 31, 2010, or on or after December 31, 2010, and before August 1, 2011, subject to specified restrictions, including the submission of a certification to the Franchise Tax Board by either the taxpayer or seller, made under the penalty of perjury, that the residence has either never been occupied or that the taxpayer is a first-time home buyer. To qualify, the buyer must not be a dependent and must purchase a home that does not belong to a relative.
Last year's credit was also worth up to $10,000 spread over three years but applied only to new homes, not existing ones. The new credit is available to anyone who buys a newly built home or to first-time home buyers who buy a newly built or existing home.
To save $10,000, a homeowner must owe at least $3,333 in state income tax in each of the three years. A homeowner who owed only $2,000 in one year would lose $1,333 in tax savings that year. The unused credit cannot be used to reduce taxes owed in past or future years.
The bill authorizes a credit against those taxes in an amount equal to the lesser of 5% of the purchase price of a qualified principal residence, as defined, or $10,000, for purchases made between May 1, 2010, and on or before December 31, 2010, or on or after December 31, 2010, and before August 1, 2011, subject to specified restrictions, including the submission of a certification to the Franchise Tax Board by either the taxpayer or seller, made under the penalty of perjury, that the residence has either never been occupied or that the taxpayer is a first-time home buyer. To qualify, the buyer must not be a dependent and must purchase a home that does not belong to a relative.
Last year's credit was also worth up to $10,000 spread over three years but applied only to new homes, not existing ones. The new credit is available to anyone who buys a newly built home or to first-time home buyers who buy a newly built or existing home.
To save $10,000, a homeowner must owe at least $3,333 in state income tax in each of the three years. A homeowner who owed only $2,000 in one year would lose $1,333 in tax savings that year. The unused credit cannot be used to reduce taxes owed in past or future years.
Thursday, February 11, 2010
Bernanke Sets Stage for Higher Rates
On Wednesday, February 10th, 2010:
Fed Chairman says interest rates must rise.
He said that "at some point" in the future the Fed will "need to tighten financial conditions" by raising short-term interest rates to ease inflationary pressures.
Bernanke said another economic support program aimed at driving down mortgage rates and bolstering the housing market is on track to end in March. By then, the Fed will have finished buying $1.25 trillion in mortgage securities from Fannie Mae and Freddie Mac. It will also have finished buying $175 billion in debt from the mortgage giants.
Some economists said Bernanke left out what investors are really watching for: when the Fed will move to tighten credit.
FNMA 4.5% 30 year coupon immediately moves higher 60bps.
Fed Chairman says interest rates must rise.
He said that "at some point" in the future the Fed will "need to tighten financial conditions" by raising short-term interest rates to ease inflationary pressures.
Bernanke said another economic support program aimed at driving down mortgage rates and bolstering the housing market is on track to end in March. By then, the Fed will have finished buying $1.25 trillion in mortgage securities from Fannie Mae and Freddie Mac. It will also have finished buying $175 billion in debt from the mortgage giants.
Some economists said Bernanke left out what investors are really watching for: when the Fed will move to tighten credit.
FNMA 4.5% 30 year coupon immediately moves higher 60bps.
Monday, February 8, 2010
FHA Mortgage Insurance Premiums to increase April 2010
Up Front Mortgage Insurance Premium (UFMIP) will be increased form 1.75% to 2.25%. The change will occur April 5th, 2010. This applies to purchase money and refinance transactions.
The FHA will also request legislative authority to further increase the maximum annual MIP they can charge. If they are granted the authority, they will shift some of the raise from the up-front MIP to the annual MIP.
The FHA will also request legislative authority to further increase the maximum annual MIP they can charge. If they are granted the authority, they will shift some of the raise from the up-front MIP to the annual MIP.
Monday, January 18, 2010
Flipping Rule is Waived!
HUD announced that beginning February 1, 2010, they are waiving the 3 month flipping rule.
As of this writing, it will stay in effect for one year.
Below are the details of the lift on the FHA rule.
This waiver is limited to those sales meeting the following general conditions:
1. All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction.
2. In cases in which the sales price of the property is 20 percent or more above the seller's acquisition cost, the waiver will only apply if the lender meets specific conditions.
3. The waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program.
Details can be found at: http://www.hud.gov/offices/hsg/sfh/waivpropflip2010.pdf
As of this writing, it will stay in effect for one year.
Below are the details of the lift on the FHA rule.
This waiver is limited to those sales meeting the following general conditions:
1. All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction.
2. In cases in which the sales price of the property is 20 percent or more above the seller's acquisition cost, the waiver will only apply if the lender meets specific conditions.
3. The waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program.
Details can be found at: http://www.hud.gov/offices/hsg/sfh/waivpropflip2010.pdf
Monday, January 11, 2010
How can the Making Home Affordable Refinance Program help me refinance my conventional loan?
The Making Home Affordable Program can help you refinance into a more affordable mortgage if you’re paying your mortgage on time but you’re unable to refinance to a lower rate because you owe more on your mortgage than your home is currently worth.
Early in 2009, program guidance was issued for loans owned or securitized by Fannie Mae or Freddie Mac.
To find out if your loan is owned or securitized by Fannie Mae or Freddie Mac, go to
http://loanlookup.fanniemae.com/loanlookup/ and https://ww3.freddiemac.com/corporate/
Beware of any organization that attempts to charge a fee for housing counseling or assisting you in finding a lender that will provide a refinance under the Making Home Affordable Plan, especially if they ask for money in advance.
Beware of anyone who says they can “save” your home if you sign or transfer over the deed to your house.
Never submit your mortgage payments to anyone other than your mortgage company without their approval.
Early in 2009, program guidance was issued for loans owned or securitized by Fannie Mae or Freddie Mac.
To find out if your loan is owned or securitized by Fannie Mae or Freddie Mac, go to
http://loanlookup.fanniemae.com/loanlookup/ and https://ww3.freddiemac.com/corporate/
Beware of any organization that attempts to charge a fee for housing counseling or assisting you in finding a lender that will provide a refinance under the Making Home Affordable Plan, especially if they ask for money in advance.
Beware of anyone who says they can “save” your home if you sign or transfer over the deed to your house.
Never submit your mortgage payments to anyone other than your mortgage company without their approval.
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