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.
Monday, October 18, 2010
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.
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