Friday, December 30, 2011
I have been studying goal setting for years now, and doing presentations on the topic.
It never ceases to amaze that the one simple act of writing goals down makes such a tremendous difference. Even when none of the finer points of effective goal setting are employed, it never fails that many of the written goals have been achieved by the time they are reviewed.
I will be offering free personal coaching on the topic to my business associates locally (San Diego area) in the 1st quarter of 2012. Just drop me a call or an email.
Even if we haven't met, send an email and I will send you the reasons most New Year's resolutions fail, the mistakes people make in goal setting, and links to the best mobile, online and computer apps for goal setting to help you get started!
Tuesday, November 22, 2011
President Obama signed into law Friday H.R. 2112, a bill that among other things has raised the mortgage limit on Federal Housing Administration (FHA) loans. On October 1st of this year, the lending limits for high cost areas was slashed, with the national maximum being reduced from $729,750 to $625,000 and San Diego County's maximum also declining from $697,500 to $546,250. This bill will extend the pre-October 1st high cost area limits from now through December 2013. This increased limit only applies to loans backed by the FHA, as Fannie Mae and Freddie Mac loans were not included in this bill.
This raising of mortgage limits was done for those in high cost areas who simply cannot get a home for the same prices as those in other areas of the country. FHA was created to help low and middle income families acquire loans with very little down payment, encouraging home buying for those who can afford their monthly mortgage payment but otherwise might struggle to come up with the down payment. San Diego is a prime example of a high cost area. The national limit for FHA basic standard mortgages is now 271,050.00. A quick Zillow search of single family homes yielded 21,279 homes on the market in San Diego County. Of those only 9,844 were priced lower than the national limit, the majority being condos or apartments. San Diego is an expensive market to live in, therefore what is considered middle class housing here is higher than in places such as the Midwest. This bill will remove the penalty of living in an expensive region of the country and provide opportunities to purchase great homes for the middle class. If one couples the FHA loans low down payments with the historically low interest rates, this bill will enable more middle class families to afford homes in the county.
This bill will be beneficial to San Diegans, as there will be far more homes eligible for FHA loans and refinancing. Another Zillow search for homes between the prices of $546,250 (previous limit) and $697,500(new limit) shows 1521 homes. This means that 1521 homes in San Diego are now eligible under the FHA programs that were previously ineligible. The FHA wants to encourage home buying, as it stimulates economic growth. With so many more eligible homes home buying should increase, helping both our local and national economies after what has been a rough few years. Purchasing a home now while prices, down payments, and interest rates are low is an excellent investment in the future, and the FHA can make this possible for you.
Monday, November 14, 2011
Consumers applying for a mortgage will be sharing more of their personal information with lenders next year.
FICO scores have been based on a person's credit history. But now, tools are being developed to help the lending industry dig deeper.
Fair Isaac Corp., and CoreLogic recently announced a joint project that will result in a separate score that will be available to mortgage lenders and will include payday loans, evictions and child support payments. In the future, the status of utility, rent and cellphone payments may also be included.
Experian, Equifax and TransUnion have recently begun providing estimates of consumer income as an option to the credit report. Experian has also begun including data on on-time rental payments in its reports as of this year.
All this new information could have positive or negative impact for consumers: It may open the door to homeownership to some consumers who otherwise lack sufficient credit histories, and it may help more affluent homeowners who show little use of credit.
On the negative side, the extra information could make a borderline borrower look even worse on paper.
The FICO-CoreLogic partnership will not result in a credit score that will eliminate a borrower for a mortgage backed by FNMA, FHLMC or FHA. This is because the report required for such a loan does not rely on the additional CoreLogic data. It could affect mortgage fees or interest rates charged by lenders who use a risk-based pricing model.This model rewards the most creditworthy borrowers with low rates and tack extra fees onto loans for those with lower credit scores.
It will be interesting to see if the new information will actually expand the number of people who can get a mortgage.
Tuesday, October 25, 2011
Yesterday, Oct 24, 2011, President Obama announced changes to the Making Home Affordable Refinance Program (HARP) so that a person can refinance a first mortgage that is upside-down.
That mortgage must be owned by Fannie Mae or Freddie Mac on or before May 31,2009.
The changes announced yesterday also extend the program to the end of 2013, and will allow a refinance of a first mortgage with no cap on the loan-to-value (LTV) ratio.
Another important enhancement is the elimination of certain risk-based fees for borrowers who choose a shorter term (see examples below) and lowering fees for other borrowers.
No lenders are offering the program yet, although some major lenders have stated they are working on it’s release.
The requirements released to date are as follows:
1. 1st mortgage owned by Fannie Mae or Freddie Mac
2. No late mortgage payments within the previous 6 months
3. No more than 1 late mortgage payment within the past 12 months
4. 2nd mortgages must agree to go back in 2nd position
5. The loan cannot have been refinanced previously under HARP unless it was between March-May of 2009.
6. Condominiums continue to be eligible under the program.
Lenders are expected to receive guidelines, including implementation dates by November 15, 2011.
Some of the enhancements may be available as early as December 1, 2011,
However, availability of the loan for LTV's greater than 125 is not expected until after December 31, 2011.
The FHFA announcement can be found here:
The program is only one of many refinancing options available to homeowners. It is unique in that it enables borrowers who owe more than the home is worth to take advantage of low interest rates and other refinancing benefits.
Assume a homeowner currently has a mortgage on which he or she owes $200,000 and
has an interest rate of 6.5 percent – a monthly payment of $1264. If the house is worth $160,000, the homeowner has a current loan-to-value (LTV) ratio of 125 percent.
*These examples are purely illustrative and are not meant to represent interest rates borrowers should expect to pay. They do show that some HARP-eligible borrowers, depending on their circumstances and priorities, may benefit from a shorter term mortgage.
Friday, October 21, 2011
Here is how assumable FHA loans benefit the buyer:
The benefits are two fold. The buyer may get an interest rate that is much lower than the current interest rate they could get from a bank AND they have an accelerated pay off schedule because there are less years remaining on the note!
The FHA mortgage is one of the most expensive when it comes to closing costs, although the costs can be financed. To counter that cost, it helps to remember that your FHA mortgage is assumable. When you sell your property you will have an edge over your competition because of the assumable financing you can offer.
The value of assumability is as high as it is ever likely to be because of the broad consensus that interest rates in future years will be higher than they are now.
Loans insured by the FHA are assumable; conventional loans, with a few exceptions, are not. That means that a home buyer who finances the purchase with an FHA-insured loan and who sells the house later, when interest rates are higher, will be able to offer a potential buyer the right to assume his low-rate FHA loan.
After approval of the buyer by the FHA, the buyer would assume all the obligations of the mortgage upon the sale of the property, and the seller would be relieved of liability, provided the loan being assumed was originated after December 14, 1989. It will be just as if the loan had been made to the buyer.
Friday, September 30, 2011
Borrowers must apply to have their VA loan eligibility restored by filing a copy of VA Form 26-1880 to the Winston-Salem Eligibility Center.
One thing could prevent a buyer from getting eligibility restored right away. If the VA paid a compromise claim as part of a short sale, the borrower may be indebted to the government as a result of that claim. The Department of Veterans Affairs may not restore eligibility if the applicant still owes money to the government.
Here is the specific wording:
“…although the veteran’s debt was waived by VA, the Government still suffered a loss on the loan. The law does not permit the used portion of the veteran’s eligibility to be restored until the loss has been repaid in full.”
If a VA loan applicant is notified that a debt to the government exists, or was aware of the debt prior to applying for the loan, the applicant should contact the VA directly to work out the details of repayment before applying for a new VA mortgage.
A borrower may still be able to take advantage of any unused VA loan eligibility. Any remaining entitlement may be allowed if a borrower did not use the full entitlement on the previous VA mortgage.
A borrower’s debt for a compromise claim may be factored into the debt-to-income ratio, unless the lender feels the compromise claim debt is too great compared to other financial factors. That debt may result in the need for a down payment, or a larger down payment than usual – requirements will vary from lender to lender.
Monday, September 26, 2011
with no change in loan terms. Generally, a loan without a "Due-On-Sale Clause" is assumable.
If loan rates have increased since the seller got the loan, the old loan may carry a lower interest rate than a new loan, and the buyer won't have to pay as much in fees.
Also, more of the monthly payments on the loan will be going toward the principal balance instead of interest because the loan term will be reduced by the time since the loan began.
There are two ways to assume a VA loan,but only one of them is a good idea for the seller.
First, if the new buyer is a qualified Veteran, he can "substitute" his eligibility for the eligibility of the seller. In addition, the new buyer qualifies through VA standards for the mortgage payment.
This is the safest way for a seller to allow their loan to be assumed. The new buyer is responsible for the loan and the seller has no further liablility for the repayment of the loan. By obtaining a "release of liability" from the VA, the seller can then use their full eligibility to purchase another home right away using their VA loan.
The second way is if the new buyer is not a veteran or qualified for a VA loan, they have no eligibility to give the seller. If the seller grants permission for the new buyer to take over their loan, the seller does not get back their eligibility to use on another home, and the seller is still liable for the payments should the buyer default!
For this reason, A VA seller and their realtor, should be very careful about offering their home with an assumable loan.
Tuesday, September 20, 2011
|County||Max FHA Price|
|San Luis Obispo||$581,554|
|San Luis Obispo||561,200|
Tuesday, September 13, 2011
Uniform Residential Appraisal Report (Fannie Mae Form 1004/Freddie Mac Form 70)
Individual Condominium Unit Appraisal Report (Fannie Mae Form 1073/Freddie Mac Form 465)
Exterior-Only Inspection Individual Condominium Unit Appraisal Report (Fannie Mae Form 1075/Freddie Mac Form 466)
Exterior-Only Inspection Residential Appraisal Report (Fannie Mae/Freddie Mac Form 2055)
Here is the checklist for the new codes:
UAD‐01: Real estate taxes and/or special assessments are to be entered in whole dollars only.
UAD‐02: If there are no HOA fees or Special Assessments, enter the numeral zero (0).
UAD‐03: If there is a HOA or the subject is a condo, answer yes or no for the question, “Is the
developer/builder in control of the Homeowners’ Association (HOA)?”
UAD‐04: If the subject property is currently offered for sale or has been offered for sale in the 12 months
prior, report the data source(s) used, offering price(s), Days on Market and date(s). If the answer is ‘No,’ the
data source(s) used must be provided.
UAD‐05: For a purchase transaction, in the contract section state what the sale type is.
UAD‐06: Provide an outline of the neighborhood boundaries clearly delineated using ‘North’, ‘South’, ‘East’,
UAD‐07: For sites/parcels that have an area of less than one acre, the size must be reported in square feet ‐
whole numbers only. For sites/parcels that have an area of one acre or greater, the size must be reported in
acreage to two decimal places. The unit of measure must be indicated as either ‘sf’ for square feet or ‘ac’ for
acres. (for subject and comparables)
UAD‐08: View rating must be N, B or A along with an abbreviated factor. (site section and grid)
UAD‐09: For utilities, other must be accompanied with a description; if it is not present, enter ‘None’.
UAD‐10: Indicate whether the street or alley type is ‘Public’ and/or ‘Private’. Enter ‘None’ in the appropriate
description field if there is no street or alley.
UAD‐11: # of stories (and # of levels for a condo) can only be numeric; omit descriptors.
UAD‐12: If there is commercial space in the condo project, check yes at the bottom of page 1and indicate
overall % of commercial space – 2 digits, whole numbers only.
UAD‐13: Design style should be an architectural design such as ‘Colonial’, ‘Rambler’ ect. Descriptors such as ‘2
stories’ or ‘conventional’ are not architectural styles.
UAD‐14: If year date is unknown, estimate the year it was built with a tilde (~) preceding the year built.
UAD‐15: Indicate the basement size in square feet and the percentage of the basement that is finished. If there
is no basement, enter the numeral zero (0) in both fields ‐ whole numbers only.
UAD‐16: If there is no heating or cooling source, indicate ‘Other’ and enter ‘None’.
UAD‐17: For amenities, enter the numeral zero (0) in the appropriate space if there are no fireplaces or
woodstoves. Enter ‘None’ in the appropriate space if there is no patio/deck, pool, fence, porch, or other
UAD‐18: For car storage, enter the number of spaces in whole numbers only for each type. If none, enter the
numeral zero (0) for # of cars.
UAD‐19: Baths should include the total number of baths above grade. A three‐quarter bath is to be counted as
a full bath in all cases. Quarter baths (baths that feature only a toilet) are not to be included in the bathroom
count. The number of full and half baths must be entered, separated by a period. The full bath count is
represented to the left of the period. The half bath count is represented to the right of the period.
UAD‐20: Condition must state the rating, then indicate ‘Yes’ or ‘No’ if there has been any material work done
to the kitchen(s) or bathroom(s) in the prior 15 years. If ‘No’, the text ‘No updates in the prior 15 years’ must
be provided; if ‘Yes’, additional information for kitchens and bathrooms must be provided including ‘not
updated’, ‘updated’ or ‘remodeled’ and the timeframe.
UAD‐21: Condition rating (for the subject and comps) must be in UAD format; select one of the following: C1,
C2, C3, C4, C5 or C6.
UAD‐22: Addresses for the comparables must include the address, city, state and zip code.
UAD‐23: Proximity must be in miles and 2 decimal places, along with the word ‘miles’ and direction (NW).
UAD‐24: The subject sales price must match the contract price in whole dollars.
UAD‐25: Data source for comparables must be given with the identifying number; then DOM must appear. If
not listed, enter numeral zero (0). If DOM is unknown, enter ‘Unk’.
UAD‐26: Indicate the sales type for each comparable property with the UAD abbreviation.
UAD‐27: Enter the financing type in UAD abbreviation; and total amount of concessions. If none, enter the
numeral zero (0). If other, indicate if sales transactions with below‐market financing are used for comparable
UAD‐28: Enter the status type abbreviation for the settlement date; followed by the contract date in mm/yy
format. Use ‘Unk’ if the contract date is unknown.
UAD‐29: Location rating must be N, B or A along with an abbreviated factor.
UAD‐30: Actual age for a new construction less than a year old should be (0) do not enter additional
information such as ‘years’. If actual age is unknown, estimate the age with a preceding tilde (~).
UAD‐31: Quality of construction rating (for the subject and comps) must be in UAD format; select one of the
following: Q1, Q2, Q3, Q4, Q5 or Q6.
UAD‐32: If no basement, enter (0) in the grid, otherwise indicate finished sq ft, do not indicate a % finished.
Type of access should be wo, wu or in. Then indicate the type of finished rooms by abbreviation or enter (0)
if there are no rooms of a particular type.
UAD‐33: Enter any energy efficient items or enter ‘None’.
UAD‐34: Off‐street parking spaces are to be entered on the garage/carport line or enter ‘None’.
UAD‐35: If no adjustment is warranted, enter a zero (0). When the features are the same, leave the field blank.
UAD‐36: Active listings must state ‘Active’ in the date field.
UAD‐37: Leave the supervisory appraiser field blank; do not enter N/A or none.
UAD‐38: AMC name should be entered in the Lender/Client section of the certification only
Interior/Exterior Complete Inspection Reports:
Overall Condition Rating – The appraiser must select one of the following ratings
that best describes the overall condition of the subject property or unit. Only one selection is permitted. The rating for the subject property must match the overall condition rating that is reported in the
Sales Comparison Approach section.
The definitions for the ratings listed above are provided in Exhibit 1:
Level of Work Completed:
Definitions for the Level of Work Completed are provided in Exhibit 2:
Requirements – Definitions of Not Updated, Updated, and Remodeled.
less than one year ago
one to five years ago
six to ten years ago
eleven to fifteen years ago
Monday, August 29, 2011
The aim is to streamline the appraisal process and make appraisals more uniform. Appraisal management companies are working to teach and train appraisers to use the UAD, which will change the way appraisals are documented by setting standards throughout the appraisal process.
The UAD is part of a larger effort toward improving the appraisal process. In addition, a Uniform Collateral Data Portal (UCDP) will enable lenders to submit appraisal report forms electronically. Either format may be used in advance of the January 1 implementation date.
Previously, the implementation date for the UAD was set to September 1.
Thursday, July 28, 2011
July 28 2011 - The demand for properties in the $650K-$750K space is now shrinking. We can expect softer prices ahead in Orange County, L.A., and the Bay Area. In San Diego, the impact extends down to $555K.
Why? Changes in the maximum loan limits for FHA and high balance conventional loans take effect in the weeks ahead. Filling the void are jumbo loans with higher rates (which require higher income to qualify) and higher down payments and reserves, which require substantially more assets.
For Los Angeles, Orange County, and the Bay Area the maximum loan limit for FHA and conventional (high-balance) lending is reduced to $625,500. For San Diego, it is $546,250.
Originally scheduled for Dec 31,2010, FHA loans need to fund by Sept 1, 2011 to allow time to insure by Oct 1, 2010. Conventional high balance loans must be originated before Sept 30, 2011.
Softer prices ahead in this part of the market spell opportunity for buyers who still qualify. Historically low interest rates remain in effect.
Friday, July 22, 2011
Starting September 1, the way appraisers report their findings and the way they deliver a report will change. UAD stands for Uniform Appraisal Dataset which is the first part in a series of changes for how the overall loan is delivered to the GSE’s. They are doing this to make the appraisals more standardized as to what an appraiser might consider good condition in Texas is vastly different than what an appraiser in Connecticut might think. There are a total of 72 additions to the form with 60 being mandatory and 12 being optional. Phrases like neutral, beneficial and adverse will become standard. Very Good, Good and Average will be replaced in condition and quality fields with a 1 through 6 rating with 1 being exceptional and 6 being horrible. Appraisals will also have to be delivered in both a pdf and xml format. The appraisal software companies have started to release the UAD reports now with the xml capabilities within a week.
Some of the important changes are
1) FHA and VA are also using the UAD reports but not the delivery method
2) Appraisals MUST be sent to the GSE’s before the loan for conventional and jumbo loans (Not FHA or VA)
3) If the lender orders a field review that review is sent with the loan and not the original appraisal
4) If an appraisal is sent to the GSE’s in the new format incorrectly it will be kicked out and deemed unacceptable
5) GSE’s wont accept a C5 or a C6 rating for condition
6) Any C6 issue makes the whole property a C6 rating unless subject to repair
Make no mistake, these are major changes in the appraisal world in both reporting and technology.
Here is a link to a webinar if you would like to familiarize yourself with the changes.
Tuesday, June 7, 2011
This has sparked concern within the real estate industry and among those who recognize the importance of a healthy real estate market to the nation’s economic recovery.
Perception that these changes will take place overnight are unfounded.
Treasury Secretary Geithner has predicted a 5 to 7 year timeline for implementation.
Federal Reserve Chairman Lacker has declared that any near-term moves could be too destructive to the housing sector.
On February 9th, 2011 the House Financial Services Subcommittee held a hearing on GSE’s.
Meanwhile, on another front, Republican legislators have released 8 bills intended to accelerate the process of winding down Fannie Mae and Freddie Mac and increase oversight, promising more to follow.
These include H.R.1859, which would schedule a reduction of portfolio retained from over 700 billion currently to 250 billion in 5 years, and require a 20% down payment 1st mortgage (allowing a 10% seller-carry-back second). The bill calls for the eventual complete replacement of Fannie Mae and Freddie Mac with ”housing financing guaranty associations”. Another bill aims to end all affordable housing goals set by Fannie Mae and Freddie Mac. A hearing was held in the Financial Services Subcommittee on May 25th. The Subcommittee is likely to hold a markup of the bills sometime in June (except H.R. 1859, for which no promise to hold a future hearing or markup was made).
Tuesday, March 8, 2011
The two fees are an attempt to make the popular loan program self-sustaining and to eliminate or at least minimize the frequent interruptions suffered by the program.
When the bill was passed an upfront fee of the full 3.5 percent rate authorized by Congress was put into effect. The AN issued on February 3, notifies lenders that USDA will be lowering the upfront fee to 2 percent of the loan amount and implementing an annual fee of 0.3 of the unpaid principal balance for all purchase loan transactions. The changes will go into effect on October 1, 2011.
The SFHGP ran through its $13.1 billion program funding early in 2010 and home buyers encountered long delays in completing their purchases until Congress reauthorized additional funding in late July. Depleted funding had been a nearly annual occurrence for the program that guarantees loans for single family homes in designated exurban and rural areas.
According to the AN, "the intent of the annual fee is to make the SHHGLP subsidy neutral, thus eliminating the need for taxpayer support of the program."
The program is popular with borrowers because of a low required down payment and with lenders because of the 90 percent government guarantee and because the loan size is limited to 115 percent of the area's median income.
Monday, February 28, 2011
Waiver has been extended to 12/31/2011.
The waiver to the FHA flipping rule is limited to those sales meeting the following general conditions:
* All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction.
* 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 sale meets specific lender conditions. (Typically, these will include a copy of the HUD-1 from the previous closing. If more than 20% markup, copies of receipts and contracts for rehabilitation.)
Conventional loans flipping rules will vary from investor to investor, 90 days from purchase is generally required.
A study in Nevada found that more than half facing foreclosure didn't know about federal and state programs aimed at helping them. Furthermore, almost as many said their lenders were "not willing at all" to work with them.So if troubled Nevada owners aren't getting the message that help is available, it's a safe bet to assume that neither are owners in other states.
With that in mind, here is a quick rundown of the federal programs aimed at keeping people in their homes.
Under the broad Making Home Affordable initiative, Uncle Sam offers several options to owners — but not to investors — including the Home Affordable Refinancing Program (HARP) and the Home Affordable Modification Program (HAMP).
If you are on time with your payments but cannot take advantage of today's lower interest rates because you owe more than your home is currently worth, HARP can help if either Fannie Mae or Freddie Mac holds your loan; the two mortgage giants touch perhaps half of all loans.
If you are struggling to make your payments because your income has been curtailed or your interest rate has increased, you may be eligible to have the terms of your loan changed under HAMP. The amount you owe must be less than $729,250, your loan must have been taken out before Jan. 1, 2009, and your total monthly housing outlay — principal, interest, taxes, insurance and homeowner-association dues — must be more than 31% of your current gross earnings.
For owners who are having a tough time making their house payments because they have a second mortgage, the Second Lien Modification Program (2MP) offers a way to lower the payments on the junior loan when the primary mortgage is modified under HAMP.
Under 2MP, which is meant to be complementary to HAMP and is somewhat more complicated than the other alternatives, the owner of the second lien and the company administering the loan on the lien owner's behalf are given monetary incentives to reduce your rate, extend the term or possibly even extinguish the loan altogether.
If you can no longer afford your home but want to exit gracefully and avoid the negative effects of foreclosure, the Home Affordable Foreclosure Alternatives (HAFA) program offers up to a $3,000 cash stipend to help you transition into more affordable housing. To qualify, you cannot be eligible for a trial loan modification, fail to complete a successful trial mod or miss two consecutive payments during the trial-mod period.
HAFA is designed to streamline two popular options to foreclosure, a short sale and a deed-in-lieu. With a short sale, the loan servicer allows you to sell the property for less than what is owed. With a deed in lieu of foreclosure, you voluntarily transfer ownership to the servicer with the understanding that foreclosure proceedings will be dropped.
If you are considering a short sale, work only with a real estate agent who has short-sale experience. These deals are so tricky and time-consuming that only a professional who has done several of them will do. If your agent claims to know what he or she is doing, ask for references from several satisfied customers just to make sure.
Mortgage servicers who participate in the Making Home Affordable program are required to evaluate your eligibility for a loan modification before looking at your other options. If you request a mod and are determined to be mod-worthy, you will enter a trial period.
Modification possibilities include lowering your interest rate, extending the term of your loan, allowing you to skip several payments or even reducing the balance owed.
If you don't qualify for any of the above options, your servicer will evaluate your situation for possible inclusion in proprietary programs. HOPE Now, a private, voluntary alliance of servicers, investors, insurers and nonprofit counselors, says its members completed twice as many loan modifications under their own programs as under the government's.
If any of these possibilities seem as if they even remotely apply to your situation, nose around the government's Making Home Affordable website at http://www.makinghomeaffordable.gov.
It's also a good idea to consult with a local housing counseling agency that can help you wind your way through the maze you are about to enter. Such an agency usually charges a minimal fee — or nothing at all — so stay away from anyone who wants money from you in advance, pressures you to sign the house over to him or her or tells you to make a payment to anyone other than your lender.
Counselors also will have their fingers on state and local initiatives to help citizens stave off foreclosure.
For a list of government-approved agencies, visit the Department of Housing and Urban Development's website at http://www.hud.gov or call (800) 569-4287 to be connected to HUD's interactive voice system. A few other good resources are the National Foundation for Credit Counseling at http://www.nfcc.org; NeighborWorks America, http://www.nw.org, a leader in affordable housing and community development; and the Consumer Credit Counseling Service of Greater Atlanta, http://www.credability.org, a nonprofit with a local name but a national footprint.
- Lew Sichelman, LA Times
Monday, January 31, 2011
After years of virtual exile from the home loan arena, is the adjustable-rate mortgage staging a quiet comeback? Could an ARM be on your shopping list the next time you need to buy a house or refinance?
You might be surprised.
A new survey of 112 lenders by mortgage giant Freddie Mac found that ARMs are starting to attract applicants again. Adjustables accounted for just 3% of new home loans in early 2009 but are projected to be picked by nearly 1 out of 10 borrowers in 2011. In the jumbo and super-jumbo segments, the share will be even larger, according to Freddie Mac chief economist Frank Nothaft.
How could this be, with fixed 30-year rates at half-century lows, hovering just under 5%? Isn't it axiomatic that it's always smarter to lock in a low fixed rate for as long as possible rather than gamble on a loan whose rate might bounce around in the years ahead?
That logic still holds up for most people, but not for everybody. Here's why. The boom-era models of the ARM have pretty much disappeared — there are no more of the two-year adjustables that hooked record numbers of consumers in 2003 and 2004 with teaser rates that needed to be refinanced with heavy fees within 24 months. No more "pick-a-pay" ARMs that were mass-marketed with loosey-goosey underwriting and the potential for negative amortization.
The most popular ARM in the market today, according to the Freddie Mac survey, is the 5-1 hybrid. Its rate is fixed for the first five years of the loan, then adjusts annually for as much as the next 25 years, with rate caps to cushion payment shocks if rates suddenly soar. There are also 7-1 and 3-1 hybrids. The antique one-year ARM still is available but doesn't get a lot of takers.
The real key to the growing popularity of hybrid ARMs is in their pricing. Rates are significantly lower than fixed 30-year alternatives, with no teasers or negative amortization involved. In some cases, they also come with other attractive terms, such as more flexible underwriting standards.
According to data supplied by Dan Green, a loan officer with Waterstone Mortgage Corp. in Cincinnati and author of TheMortgageReports.com blog, the rate spread between 5-1 hybrid ARMs and 30-year fixed-rate loans has widened to around 1.625 percentage points.
To illustrate, say you're interested in a $250,000 conventional loan to buy a house. You've got a FICO credit score of 740 and want to close in 45 days. You could opt for a 30-year fixed loan at 4.75%, requiring a monthly principal and interest payment of $1,304. Alternatively, you could opt for a 5-1 ARM fixed at 3.125%, costing $1,071 in principal and interest per month — a $233 saving.
But now check out the niche where hybrid ARMs really shine: jumbo and super-jumbo mortgages. Generally jumbos range from $417,000 to $729,750, depending on home prices in your local market. Super jumbos can go into the millions.
Say you need a $450,000 mortgage with a 45-day closing and you have a FICO score of 740. According to Green, you should be able to get a 30-year fixed-rate jumbo for around 5.625%. Monthly principal and interest on a fixed-rate jumbo would total $2,590 a month.
Compare that with a $450,000 hybrid 5-1 ARM: 3.5% for the initial five years, requiring $2,020 a month in principal and interest. That's a rate spread of 2.125 points — "the best we've seen in years," Green said. "It's very aggressively priced" by banks that want to originate the loans to hold in their own portfolios.
The savings go even higher in the super-jumbo space — a $1-million 5-1 ARM goes for 3.5% and saves a borrower $1,266 a month compared with a competing fixed-rate 30-year loan at 5.6%.
Cathy Warshawsky, president and senior loan officer of Bay Area Loan Inc. in San Jose, cites another advantage for some jumbo borrowers — special enhancements in payment terms. For example, a client of Warshawsky's needed a $950,000 mortgage at the lowest rate and monthly payment. She signed him up for a 5-1 hybrid at 5.75%, interest-only.
None of this is to suggest, of course, that hybrid adjustables make financial sense for everybody. They don't. But if you fit one of the niches — you need a jumbo, you know you're likely to be transferred or you expect to sell the house within five to seven years — they merit a serious look.
By Kenneth R. Harney January 30, 2011 firstname.lastname@example.org
Copyright © 2011, Los Angeles Times
With millions of homeowners still struggling to stay in their homes, the Obama administration’s $75 billion foreclosure prevention program has been weakened, perhaps fatally, by lax oversight and a posture of cooperation—rather than enforcement—with the nation’s biggest banks. Those banks, Bank of America, Wells Fargo, JPMorgan Chase, and Citibank, service the majority of mortgages.
Despite a dismal showing for the program, rising complaints from homeowners, and repeated threats from officials, the government has levied no penalties against even the most error-prone banks and mortgage servicers. In fact, despite issuing public warnings for more than a year about imposing penalties, the Treasury Department told ProPublica this week they don’t even have the power to punish servicers for wrongfully denying help to homeowners. Instead of toughening the program, Treasury has actually loosened it in the face of industry lobbying.
Over the past year, ProPublica has been exploring why the government’s program has helped so few homeowners. Over the coming weeks, we will be detailing how the administration quietly retreated from a plan to get tough on banks, why the mortgage servicing industry lacks incentives to invest in helping homeowners, how the industry succeeded in thwarting oversight, and what reforms could lead to more help for homeowners.
The stories are based on newly disclosed data, lobbying disclosures, dozens of interviews with insiders, members of Congress, and others. Today’s story looks at the timidity of Treasury’s oversight, a conclusion echoed in a government report Wednesday.
“At some point, Treasury needs to ask itself what value there is in a program under which not only participation, but also compliance with the rules, is voluntary,” says the new report, from the special inspector general for the TARP. “Treasury needs to recognize the failings of [the program] and be willing to risk offending servicers. And if getting tough means risking servicer flight, so be it; the results could hardly be much worse.”
The administration launched the program nearly two years ago, in early 2009, promising it would help three million to four million troubled American borrowers rework the terms of their mortgages. Amid widespread reports that servicers have been wrongly rejecting homeowners, losing paperwork, and otherwise breaking the program’s rules, it appears the program will fall far short. The Congressional Oversight Panel now estimates fewer than 800,000 homeowners will ultimately get lasting mortgage modifications.
An early problem for the program was that banks and other mortgage servicing companies were quickly letting homeowners into the program on a trial basis, but failing to make decisions regarding hundreds of thousands of homeowners while multiple government deadlines passed.
To push banks to solve the problem, senior Treasury official Michael Barr, who has since left the department, warned in a November 2009 conference call with journalists that if the banks didn't clear their backlogs, the firms would "suffer consequences." Treasury issued a press release the same day saying banks could face “monetary penalties and sanctions.”
It turns out Treasury had already taken most penalties off the table.
The program rests on contracts that Treasury drafted and banks signed onto. To participate in the program and receive potentially billions in government incentives, banks and mortgage servicers agreed to offer homeowners modifications under guidelines subsequently drawn up by the government. In exchange, they would receive $1,000 for a completed modification and up to $4,000 if the loan continued to perform.
The contracts say Treasury can withhold or claw back incentive payments to servicers when they violate the contract. Members of Congress and homeowner advocates have long pushed Treasury to issue such penalties. There have also been calls within Treasury itself.
Around the same time that Barr and other officials were making public threats, Treasury staffers were looking at reports showing that some banks were modifying virtually no loans. Frustrated, they called at an internal meeting for withholding payments to the worst offenders or imposing fines, according to a person familiar with those discussions. But the staffers were walked back by Treasury lawyers, who said the government was only party to a commercial contract with servicers and not acting as their regulator.
Despite Treasury officials appearing before Congress and elsewhere warning of potential penalties, the department told ProPublica after months of questioning that its hands are tied. Treasury now says it has a very narrow authority to withhold incentives under the contracts. Only in cases where the servicer incorrectly granted a modification and claimed a payment can Treasury withhold or claw back a payment as a punishment.
That interpretation of the contracts means that if a homeowner was wrongfully denied help through the program, there is no possible financial penalty.
“There is no provision in the contract that permits Treasury to assess punitive fines or penalties for a servicer's failure to modify a loan, for an improper modification of a loan, or for failure to adhere to any other program requirements,” said a Treasury spokeswoman.
Experts say Treasury is handcuffing itself. Alan White, a law professor at Valparaiso University, called Treasury’s interpretation of its own contracts “extremely crabbed.” Treasury does have the power to punish servicers for broad violations by withholding incentive payments, he said, and it could also sue servicers for not fulfilling the contract.
Additionally, Treasury has the power to change the contracts, said Julia Gordon from the Center for Responsible Lending. (The Sandler Foundation is a major funder of both the Center and ProPublica, which operate independently of each other.)
The reason Treasury hasn’t changed them, Gordon said, is that Treasury is afraid servicers would drop out of the voluntary program, known as the Home Affordable Modification Program (HAMP), in the face of real penalties.
"If servicers don't get paid for future modification activity, there is a risk that they will be less inclined to continue completing HAMP modifications or to follow HAMP guidelines to evaluate homeowners for all loss mitigation options before referring them to foreclosure," said a Treasury spokeswoman.
Instead of getting tough with servicers, Treasury says they work with banks to make sure problems are fixed.
When government audits of banks' modification practices revealed they were frequently breaking the rules, Treasury officials worked through a process they call "remediation."
One audit, conducted on Treasury's behalf by the government-supported mortgage company Freddie Mac, found that 200,000 struggling homeowners had not been told they were eligible for the program, as servicers are required to do. Auditors also found 15 of the largest 20 participating servicers were incorrectly using the Treasury formula that determines if homeowners qualify for the program.
Rather than imposing penalties, Treasury simply asked the servicers to contact the homeowners that had been missed and rerun the numbers for those who had been wrongfully denied because of the formula error.
"The servicer says, 'you've caught me this time,' but it doesn't improve widespread non-compliance because there's no real penalty," said Alys Cohen of the National Consumer Law Center.
Dawn Patterson, Treasury's chief of compliance for the program, explained that the idea was to allow servicers time to get "their programs built, their processes more shored up." Patterson says Treasury is continuing to use that approach.
Treasury’s own records call into question the impact of those efforts. Documents obtained by ProPublica via a Freedom of Information Act request show homeowner complaints to a Treasury-sponsored hotline have actually increased during the past year. The most common complaint is that the servicer has violated the program's guidelines.
Servicers have also at times been uncooperative with the government’s own auditors. Even getting the right documents from servicers has "been a cumbersome process," the head of the government's audit team, Paul Heran, said last year at an industry conference. It seemed, he added, the task was often relegated to low-level staff who didn’t understand the requests. Another manager in the unit, Vic O’Laughlen, said servicers tended to respond with “at best fifty percent of what we’re expecting to see.”
A Treasury spokeswoman said that "servicer operations, especially in larger organizations, are complex," and producing the documents can be difficult.
The government’s oversight has also been hampered by a lack of transparency by Treasury itself. The department has kept its audits of servicers secret. It also does not have a written policy for how it would address rule violations by banks, an omission criticized in a Government Accountability Office report last year and not yet addressed. Treasury says it does have a process for dealing with banks' noncompliance, just not a written one.
The lack of oversight has been particularly damaging, since mortgage servicers have little incentive to do modifications on their own.
Servicers handle homeowner payments for investors who own the loans. Since servicers don’t own the vast majority of the loans they service, they don’t take the loss if a home goes to foreclosure, making them reluctant to make the investments necessary to fulfill their obligations to help homeowners.
"By every metric, the failure of the largest servicers to carry out the program is obvious," said Prof. White. The noncompliance has gone unpunished, he said, because "Treasury staff are preoccupied with friendly relations with the banks. Sometimes it seems the banks own Treasury.”
Meanwhile, the industry has continued to lobby for changes in the program.
Last summer, Treasury significantly weakened a tool that would have helped keep servicers accountable after officials met with industry lobbyists, documents show.
When banks entered the program, they agreed to certify annually that they've followed the rules of the program. But lobbyists from the Financial Services Roundtable and the Mortgage Bankers Association suggested adding exemptions.
Instead of certifying that banks had followed all the rules, the industry proposed that they could ignore problems affecting less than five percent of homeowners eligible for the program. In the case of Bank of America, which handles more mortgages than any other bank, that meant the bank would not have to report an error that occurred nearly 20,000 times.
The industry also suggested that no matter how widespread a problem, servicers could assert they were complying with the law as long as they pledged to fix problems "to the extent practicable." The previously unreported proposal was disclosed through an administration policy of releasing lobbying contacts related to the TARP.
Later that month, the Treasury revised its certification requirements, making them similar to those the industry sought. Under the new rules, servicers can define for themselves what violations were significant enough to disclose.
The new policy is "not only like putting the fox in charge of the hen house," said Cohen of the National Consumer Law Center, "but asking the fox to fine itself for each chicken eaten."
A Treasury Department spokeswoman said the industry's lobbying did not affect the final guidance, because Treasury was already going to make several of the servicers' suggested changes. It was never the department’s intention that “a servicer submit a list of every individual instance of non-compliance.” If servicers give themselves inappropriate leeway, she said, Treasury would work with them to address the problem.
Unless servicers fear real penalties, the troubled program is unlikely to improve, said Richard Neiman, New York state's chief bank regulator. "There needs to be a greater effort on enforcement, on assigning sanction and fines where there has been noncompliance. We cannot rely solely on servicers to police themselves."
-Thursday 27 January 2011 by: Paul Kiel and Olga Pierce
All republished content that appears on Truthout has been obtained by permission or license.
Sunday, January 16, 2011
One side effect of that policy had been to stifle purchase-and-renovate projects by legitimate, small-scale investors who buy houses after foreclosure or loan defaults and then resell them in substantially improved condition. In many parts of the country, first-time and moderate-income buyers often sought to buy these fixed-up houses using FHA-insured mortgages with 3.5% down payments, but were prevented from doing so by the "anti-flipping" rule.
This left large numbers of foreclosed, vacant houses sitting unsold and deteriorating, with negative effects on the values of neighboring properties.
Last January, FHA Commissioner David H. Stevens announced a one-year suspension of that rule, permitting qualified buyers to obtain FHA mortgages on properties that were acquired by rehabbers less than 90 days before. The plan, set to expire at the end of this month, came with safeguards for purchasers, including inspections and multiple appraisals in some cases to document the amounts spent by investors on the improvements.
Vicki Bott, deputy assistant secretary for single-family housing at the FHA, confirmed in an interview that the agency expects to continue the policy for another year. Not only have first-time buyers responded overwhelmingly to the opportunity to buy "turnkey" renovated homes with low down payments, she said, but they have performed well on their mortgage obligations.
"Obviously we have concerns about flipping in general," Bott said, but the FHA has seen none of the fraud problems, defaults and re-foreclosures that cost the agency millions in insurance payouts in earlier years.
Investor Paul Wylie, who with a group of partners and contractors specializes in acquiring, renovating and reselling foreclosed and distressed houses in the Los Angeles area, says the government's policy "has been a very positive approach" because "it recognizes the role that [private investors] can play in helping the housing market get back on its feet."
In the L.A. market, Wylie said, FHA financing accounts for 40% of all home purchases and 60% of purchases in predominantly Latino and African American communities.
Buying foreclosed houses "comes with a lot of risk factors," Wylie said. "There's no title insurance. We don't have a good idea of the extent of the defects" inside properties that have been sitting vacant or vandalized for months. Some houses come with delinquent property taxes, which Wylie's group typically must pay.
Then again, the profit opportunities can be significant as well. Most of the Wylie group's houses sell for more than 20% higher prices than Wylie paid at acquisition — a quick turnaround gain that potentially works for buyers, sellers, neighborhoods and, yes, the FHA itself.
Distributed by Washington Post Writers Group
Copyright © 2011, Los Angeles Times
Tuesday, January 11, 2011
The ruling Friday in twin cases involved mortgages that were sold off and pooled with other loans in complex processes to create mortgage-backed securities, a type of bond widely traded by investors worldwide.
It's another setback for the home lending industry, which has been rocked by such disclosures as "robosigning" -- the practice at big banks of having employees certify in court to facts underlying foreclosures without taking the time to read the supporting paperwork.
Lenders including Bank of America Corp., JPMorgan Chase & Co. and Ally Financial Inc.'s GMAC Mortgage unit say they have been redoing the paperwork in those robosigning cases and are proceeding with the foreclosures.
But the issue of whether ownership was properly transferred to firms foreclosing on securitized mortgages appears potentially more problematic. It could affect states such as California, where foreclosures generally are allowed without court approval.
While the foreclosures at issue in Friday's ruling were made in the names of Wells Fargo and U.S. Bank, neither of those banks had written the mortgages involved. Instead, they were acting as trustees, or financial caretakers, for pools of loans made and serviced by other lenders.
The ramifications of Friday’s ruling by the Supreme Judicial Court in Boston were unclear. A trade group for the mortgage securities industry said the problems merely involved improper paperwork and not the procedures used. But shares of Wells Fargo & Co. and and other participants in the mortgage securitizing and customer-service business traded sharply lower before recovering somewhat later in the day.
U.S. Bancorp spokeswoman Teri Charest said that since the bank was only the trustee for the pool of loans at issue, not the owner of the mortgage, the ruling would not affect its bottom line. Wells Fargo did not immediately respond to a request for comment.
Walter H. Hackett, a Walnut attorney who has represented aggrieved homeowners in mortgage cases, said the principles involved in Massachusetts may well apply in California.
Hackett said he hoped such rulings would make it easier for distressed borrowers to obtain loan modifications while the mortgage ownership issues are sorted out. He cautioned homeowners, though, not to interpret the court's opinion as a "free house" ruling absolving delinquent borrowers of their debts.
Christopher Whalen, co-founder of the bank research firm Institutional Risk Analytics, saw less significance in the ruling, calling it "media hype over substance."
"It will be a mess for banks but in general is not nearly as big a deal as other issues," he said.
-- E. Scott Reckard, January 7, 2011