Strong Warning From CFPB On Misleading Mortgage Advertisments

CFPB- Consumer Financial Protection Bureau

Just last week a warning was sent out regarding misleading mortgage advertisements.  You can read full release here.. What this is saying is they've found some recent advertisements are misleading to consumers and not disclosing all the information about true costs and terms of the loan agreements. 

I actually think this is a good thing.  All the ads out there that show 1% interest rate or super low fees or whatever the case may be is very misleading and I can't tell you how many times customers tell me about these deals and I let them know that those are just bait and switch ads but you won't find out until deep into the process or it's too late and by that time you're pissed off.

Sometimes it works and sometimes it doesn't and they have to go and find out for themselves the truth.  The problem is...now they don't trust anyone and that makes it hard to do business in the future...

...and we wonder why consumer confidence is low with lenders and loan officers in general.  

Now all companies don't do this type of activity but you do see some "creative" advertising to get people to pick up the phone and call.  

I take a different approach because what I have found is people just want you to be real with them.  

They will do business with and buy from people they like and trust and if I can develop a relationship with them; they will not only do business with me but will send referrals. 

Most companies are just in it for the quick buck and that should not be the approach.  

You'll make money and get some business in the short run, but this isn't how champions and professionals do business and it surely will kill you in the long run.  

Anyway...that's my two cents on it. 

I aim to build value and confidence so that customer has a great experience.  And truthfully, if you just explain things to people in plain English; all the terms, go over the benefits of how the loan will solve their problems and have a solution based presentation, people will come chasing you to do business with you.  

I don't really have to prospect anymore I just get referrals from clients, agents, and other sources because they know I'm for real; I don't sugar coat, I know what I'm doing, and I give realistic expectations.  

It's not rocket science here folks...

Just a little warning...for those of you who buy leads from these crap companies, I would stop because they have ads on the web for all kinds of ridiculous things that are misleading to get people to click and give up their information.  

So as the CFPB comes cracking down if you're buying from them ---guild by association.

Plus their sold to multiple people and companies.  The best way is to build your business organic which takes time.  

Check out the release above on the CFPB site and look out for more announcements like this as the CFPB gets up and running on all cylinders inspecting the practices of the all the lenders and brokers out there.  

Get ready we're headed for more changes in the future.  

Who will win in this environment? The Champions will... all the weanies will be pushed out and quite frankly...can't wait to see ya go...

FHA Fund In Deep Doodoo

FHA's Finances

You're probably laughing at the title but it's true folks...FHA is in DEEP doodoo (my spelling I don't care) and has been for a long time.

Rueters released an article recently stating that unless FHA does something soon it will be drawing money from the Treasury...

So what's new in Washington? More taxes, more bailouts, more losses being covered up and now FHA will increase fees yet again to try to shore up the balance sheet and avoid a so called bailout.  However what's the difference right? All of us as consumers are bailing them out by paying higher fees for the mortgages.

The fund is a total disaster and the program is so outdated it's had little changes since it's inception in the 30's.  They know it needs restructured but choose to kick the can down the road. (just like everthing else, ha)

FHA now insures 1.2M mortgages and their share of the market has increased to 15% from 5% in 2006. The article went on to say that it missed needing to draw from the Treasury due to $1B in settlements from servicers...hmmm.. could that be why Wells was the next target?

Estimation is the fund will not be back to it's 2% capital ratio requirement until sometime in 2017...this just strengthens my prediction we're not going to see rates go anywhere upward - they just can't - anytime soon; they're relying too much on new activity and higher fees to keep the ponzi going.

Plus with the lawsuits they're hoping to generate some more revenue for the fund.

We're playing a dangerous game of Russian roulette here.    Just see this quote from Maxine Waters below

"At a time when the private market constricted, the FHA stepped up, providing crucial liquidity and access to the mortgage market," said Representative Maxine Waters, a senior Democrat on the House Financial Services Committee.


She warned against taking any actions that would "precipitously" choke off loan availability.

Oh yea...they know what's up.  If we choke off credit - crash and burn baby...

So What Mindset Should You Have About All of This?

So what does this mean for those in the industry? Consumers? Well folks you can't change it; it's happening and you're not personally going to do anything about it so if you're shopping for a loan and all you qualify for is FHA, you're just going to have to take it from behind...and you'll be forced to like it.

If you're in the business like I am I know what's going on and I understand it.  For the consumer I know it's hard as you don't go through it every day like we do.

The good news, because I try to focus on the good because you'll cause nothing but anxiety and stress if you don't, is that there is a real opportunity to utilize a program FHA offers and to take advantage of it.

What is it? It's the 203k renovation program.  I've said in earlier posts that this will be the new real estate trend, and it already is beginning to be, for some time to come.  Without going into full detail as my blog post will explain, you can buy a fixer upper and finance the cost of the improvements into the loan...
and your maximum financing is based on after improved value of the property...This is an awesome program but it does suck that it will be more expensive now...

However - if you find a property that is priced well below market value and put the right improvements into it, you CAN create instant equity.  Go here for details and read my blog post on it. 

Again folks, please keep in mind it's not your loan officer or realtor who caused all this mess...(see below)


Yeah Buddy!



It's these guys...they know, knew it, and let it happen because there buddy lobbyists were filling their pockets full of cashish. 

Stayed tuned and lets see what happens now that the election is over and we'll get to hear some nice juicy stories like we've been like the General Petraeus's little affair and whatever else they want to release now that Obama is back in for 4 more years.

Hold your hats...







Mortgage Application Tips

Mortgage Application Tips You Can Use

Plan on buying a home soon or in the near future? You will need to be prepared when you go apply so keep these helpful tips handy when visiting your bank, credit union, or mortgage broker. It's very important in this lending environment we find ourselves in to be properly prepared at application to avoid delays in closing your loan on time.

The documentation and accuracy of information is key right now.  Lenders are seeing many loans being audited and being found deficient of the proper supporting documentation by the time it makes to post closing review.  This causes significant fines and penalties and can lead to buybacks (this is when the investor such as FHA or Fannie Mae forces the lender to buy back the loan due to deficiencies found)

So here are some helpful tips to make sure your application process is smooth.

• Provide complete and accurate information on current residence, employment history, any other mailing address you might use, and banking account information including full account numbers.

• Have all the proper documentation as it relates to your situation, ie if you're employed make sure you have two years of w2's; if you're self employed make sure you have personal and business tax returns with ALL schedules and signed for the last 2 years.  Be prepared to answer questions regarding decrease in income if applicable.

• If you own rental property make sure you have complete addresses with estimated values and correct rental amounts and expenses like taxes and insurance information for EACH property

• Have the most recent paystubs available covering the most recent 30 days and make sure they are consecutive in pay periods.  Example: you get paid weekly - just check your stubs to make sure all the checks are for the last 4 week period

• Be prepared for more requests for additional documentation or explanation of information you submit to underwriting.  Now more than ever scrutiny is being placed on lenders so when underwriters request this documentation they are only trying to make sure they have no material findings in the file when audited.

• Stay calm during the process. If delays occur know that this is common these days as lenders are running short staffed and are having difficulty finding qualified people to hire.  During the housing bust many people left the industry to seek employment elsewhere and do not want to leave the new place of employment for a position that may not be permanent. 

• When asked submit documentation as quickly as possible to avoid further delays

• Be patient.  There is a lot of activity going on right now in the housing market with purchases and a refinance boom so it's best to remain calm, patient, and do not make significant concrete plans just in case a delay occurs.  This will onlly frustrate you more.

By following these simple tips you can avoid alot of frustration and emotional hills and valley's during the process. 

FHFA Releases Plan on Fannie and Freddie

Yesterday the FHFA (Federal Housing Finance Agency) released it's plans for the ailing government sponsored enterprises, aka GSE's, and it's no surprise the whole report is blah, blah, blah.  Its the same ole crap we've been hearing - they are going to stabilize markets and increase fees to shore up the GSE's portfolios.  Yea, while they still suck money from the Treasury as they hemorrhage cash, still losing money, while the housing market just muddles along.

So basically they have no long term plan just alot of lip service.  The execs will still keep getting paid the big bucks to run the mortgage market into the ground.  Next month Fannie is raising it's delivery fees yet again.  This cost is spread to the consumer making it even more expensive to get a mortgage loan.  FHFA says it's "market risked-based" pricing but really it's nickel and dime everyone to death because we're bankrupt.

No wonder they keep coming out with these refinance programs so they can keep churning the books with the refi's and yielding higher delivery fees.  The FED keeps pumping the cash into the system helping fuel the refinance frenzy we have going on.  Obama wants to yet again modify the refinance program to allow all non GSE owned mortgages to qualify. 

Read my previous post http://swigartsmortgagejournal.blogspot.com/2012/09/obamas-refinance-plan-take-four.html on the Obamafi program(s) for details.  The market is a mess right now.  We still have lending tightening up more; problems with appraisals; lenders are short staffed and for the sake of profit do not want to hire more people.  I know people in the business working like a slave just banging their heads against a wall with all the hoops you have to jump through to get loans done these days.  It's a struggle from beginning to end.

You can find the story regarding the "strategic plan", if you want to call it that here to read for yourself and formulate your own opinion.  I don't think much will be accomplished until after the November election with regards to Obama's proposal for the new refinance program; or legislation on FHA with changes to mortgage insurance premiums yet again.  Too many distractions right now and the smear campaigns are heating up as we near November election time. 

Mortgage Rates Updated

I submitted a post in 2009 regarding mortgage rates and I'm updating it again now.  You'll hear all kinds of different perspectives from financial advisors; mortgage gurus; industry groups, etc, but in my opinion rates may have some ebbs and flows as major institutions involved in the MBS market modify their portfolios, but but we've gone past the point of no return.

The Fed is stuck in QE infinite.  In other words.... rates are on lockdown and they can't let up on the gas now baby.  How can they?

Can you see what would happen if they do let rates rise? Ummm - market chaos.  Some are going to read this and say I'm crazy; I'm a conspiracy theorist; I say bull and open your eyes to what is going on.

$16 Trillion in debt; foreign governments defaulting on sovereign debt obligations; war all over; they can't stop the pumping the cash now baby it's all in,  all or nothing.  Trillions have been spent and trillions more will continue to be spent. 

The housing market is a huge part of our economy and they keep stimulating it through controlling the interest rates and driving demand. Stimulus galore!

You want a stimulus package, in my opinion, I would use renovation financing as this is a viable way to keep goods and services flowing through the economy.  See my previous post - The New Real Estate Trend. I'm going to do a series of posts on this subject but in short; you can finance the cost of the purchase of the home and the cost of upgrades and/or needed or desired improvements to the property all in one loan with one payment.

You'll hire a contractor to do the work after closing and you can include (depending on the program) anything from light to moderate repairs to major renovations such as additions and foundational work; and even luxury improvements like swimming pools. 

Through this loan you're purchasing materials, improving the property you're buying (not to mention turning the home into one you love and not just one you like) and putting people to work, ie contractor and their subs.  This is a stimulus package with a private sector approach that really isn't rate sensitive. 

Think about it; most improvement loans you get are tied to high interest credit cards or you already own the home and you secure a second mortgage fixed rate loan or what is called a HELOC (home equity line of credit). The difference is these options look at current equity while the renovation loan uses post-renovation value (future equity). More on these differences in my series of posts to come.

. 

Does that mean you should buy now or wait? I can't answer that, only you can assess your financial situation and make that decision.  They call owning a home the American Dream but the American Dream is what your make it.  Not everyone is ready, equipped, or can afford to buy right now and that's okay.  When the time is right for you you'll know it.

For right now I think the low rate environment isn't going away.  Aside for some market adjustments I don't think interest rates are going anywhere - I don't see how they can.  The Fed knows this and you can tell when every time ole Benny Bernanke gets in front of Congress and testifies, this guy will not say the pump will stop.  He always makes some comment regarding more tools at their disposal and are ready to provide more stimulus if the need is warranted. 

Yeah buddy! That means it isn't stopping any time soon. 

Until next time, God Bless

Looking at 2010 for Housing

As we get closer to the end of the first time homebuyer tax credit which has helped get first timers back into the market, we ask will it be extended. I'll agree this was badly needed (the first time homebuyers buying that is) because they are the first domino that leads to all the others falling into place. As sellers list properties for sale - they need the first time buyer to come in and buy their homes - which will lead to them buying someone else's, and so on and so forth. It's a domino effect that needs to begin with the first time buyer.

Will the government extend? I'm really not sure. As the residential market begins to stabilize Congress may not extend the credit as it would, yet again, add to the ballooning deficit which ended 2009 fiscal year at 1.42 trillion dollars. Wow! That's an amazing number; but since trillions and billions has been thrown around like a frisbee in the media lately, when you think of the concept of that much money, it just goes in one ear and out the other. This is boat load of money and its being projected by economists, the deficit will continue to rise unless either spending is lowered or taxes are raised or a combination of both. If you ask me I"m tired of taxes.

But any rate - Congress has a tough decision as we reach the final stretch here and we approach the November 30th deadline. Interest rates have been low all year except for a few weeks in May and beginning of June when we saw massive government auctions that took the market by surprise. Record debt flooded the market and buying just couldn't mop up the access - almost like dipping a sponge in a bucket full of water - the market just couldn't absorb it all so selling forced prices downward and yields up (making interest rates rise).

Now that we've enjoyed almost the whole year with low interest rates; what will happen in 2010? Well inevitably rates will have to go up as the FED exits stage left, and the market adapts to a major buyer disappearing, forcing it to stand on its own. With 1.25 trillion in MBS (mortgage-backed securities) the FED will eventually look to unload those securities which will cause even more downward pressure on bond prices equalling higher mortgage rates as a result. All year it seems as if investors have been trading on policy and not spreads. Will the FED hold its positions? Will it sell most or all of its securities? Who knows but the FED.

If you're in the market - now is the time to jump in and buy while historically low rates still remain. But that's not the only reason you should buy right now. As you know home prices have retracted since their highs of 2006 and owning home has many benefits of which building equity is only one. You have tax advantages along with knowing you've made a long term investment that pays dividends for years to come. Not everyone deserves a home and its something that is earned, and in my opinion, not guaranteed.

Make it a wonderful end to 2009

God Bless!

New Mortgage Rate Lows

Well how about those mortgage rates? Right after Thanksgiving mortgage rates plummeted to new lows driving up refinance volume to new highs. How did this happen? Why the sudden drop? What is going on and how long will it last?

Readers what we're seeing is yet more government intervention trying to stimulate the housing market, which is roughly 16% of the U.S. economy. Starting in 2007 we started to see home prices drop and record foreclosures pulling home prices down even further. Yes i know it sounds so horrible and people are losing their homes and causing banks to lose billions and billions of dollars, but, home prices must come down to restore equilibrium.

You're probably thinking I'm crazy right now. Dustin what are you talking about? Well its simple. Home prices were artificially inflated and rose too high for incomes to catch up. We're not seeing incomes rising in America and with home values and prices sky rocketing into double digits, people couldn't afford to purchase homes. Not to mention the very lax regulatory initiatives from the government to keep predatory lenders at bay. If anything they promoted it.

The Community Reinvestment Act provisions in 1995 set off a chain of events that led us to the current sub-prime, Alt-A meltdown. Guess what? We're not finished. So what has the government been doing lately to promote growth in the housing sector? Well first the Treasury, and now the FED - also known as the Federal Reserve - has been buying up billions of dollars in mortgage-backed securities issued by Fannie and Freddie. Without going into too much detail, mortgage-backed securities are bonds issued by Fannie Mae and Freddie Mac - which are government sponsored enterprises known as the Federal National Mortgage Association and the Federal Home Loan Corporation - aka Fannie/Freddie.

These companies buy mortgages from banks and mortgage lenders, and promote the funding of mortgages by providing liquidity to lenders, through their purchases, freeing up lender capital to continue to fund these loans. Fannie and Freddie then package these loans into securities and sell them to investors worldwide while providing a specific guarantee to investors for any losses and receipt of timely interest payments. When money flows into this secondary market, it drives the price of these bonds higher, resulting in lower yields, thus lower mortgage rates.

Well before the Treasury and Fed stepped in, this market was unstable and had little confidence from investors, and for good reason. Our country was seeing rapid foreclosure with no end in sight. So steps were taken to try to subsidize mortgage rates in hopes that it would make mortgages more affordable thus bringing buyers back into the market, stabilizing home prices, and stimulating the economy.

Its worked in generating business but very few realize what had to be done in order to do this. The Treasury, in order to pay for this, has been issuing billions of new bonds, which is debt, in order to achieve its goal. Now for many of you, this may not send off red flags in your head. Not because you're unintelligent, but because nobody explains it to you. Believe it when I say, if it doesn't want to be known, it won't be told, but that doesn't mean you can't find out or learn.

The government is expected to run a 1.2 trillion dollar deficit in 2009. YES YOU READ THAT RIGHT, 1.2 TRILLION DOLLARS. This means that we are spending 1.2 trillion more than we're taking in and on top of that we are borrowing this money from the Federal Reserve and foreign countries. If Obama gets his stimulus package through Congress it'll turn into 1.6 trillion dollars.

So while I'm very happy to be busy behind keeping up, I'm very concerned about our countries debt load, and the burden it will place on my children and their children for years to come. This debt must be paid and if interests begin to rise again, and they will, this debt will become harder and harder to service putting an even greater burden on the government and leave them to no other option but raise taxes on EVERYTHING they can.

Be very aware of what our government is doing and speak out against actions that will jeopardize the well being of our economy, families, country, and our civil liberties. We are spending our way into bankruptcy leaving us at the mercy of foreign countries who, some of them, don't like us very much. Think your dollar is worth something? Think again. Since the inception of the Federal Reserve in 1913, our dollar has lost 96% of its value and it continues to drop.

WAKE UP AMERICA, its time to be heard!

God Bless!

Copyright © 2008 by Dustin Swigart

FHA vs Conventional

Not many people know the difference between conventional and FHA loans, and up until the recent market turmoil, FHA was a bad word in the housing market. What's the reason? FHA was a little archaic, with no modernized changes in many years, and the complex appraisal process made this program undesirable in a market flooded with no down payment programs.

Well I've got great news for you. I'm going to break down some differences between them. Now I won't be able to mention every single difference here, but I will give you some of the major differences in regards to rates, down payment, mortgage insurance, and underwriting differences.

Conventional loans are offered in many ways ranging from adjustable rates coming in 1,3,5,7,and 10 year hybrid arms, interest only loans, and 10,15,30, and 40 year fixed rate loans. FHA loans are offered in 3,5 yr arms and 15 and 30 yr fixed rate loans.

Some lenders offer different terms but these are the most common offered. Not ever lender will be the same in their product offerings.

So lets get into some of the differences now.

RATES:

Conventional loans in terms of pricing, or rates, have very high risk adjustments for lower credit scores and higher loan to values. Loan to values are calculated on purchases, as the loan amount divided by the purchase price. For example lets use a purchase price of $125,000 and a loan amount of $100,000. The loan to value would be calculated as 100,000/125,000 = 80%.

In this scenario the ltv (or loan to value) is 80% meaning the borrower is putting 20% down. The higher the ltv the higher the pricing. Lets say a borrower has a 650 credit score and they have 10% down, their rate would be considerably higher than someone with a 720 credit score and the same down payment. Conventional loans will also have pricing adjustments for multi-family properties, FHA does not.

MORTGAGE INSURANCE:

Conventional mortgage insurance is issued through private providers such as MGIC, Radian, RMIC, and PMI. These companies have their own guidelines when issuing mortgage insurance on conventional loans. In recent months all of them have gone to minimum credit score requirements and specific underwriting guidelines to mitigate risk. I've seen loans make it all the way to closing and fall apart because mortgage insurance could not be obtained. Mortgage insurance for multi-family properties will vary on conventional loans but will not be impacted on FHA.

Another note on this is unlike conventional loans that use private companies to obtain mortgage insurance, FHA is fully self funded by the upfront and monthly mortgage insurance premiums they collect. When comparing FHA you will see that the upfront costs associated with the loan are a little more expensive. This is because FHA will charge an UFMIP (up front mortgage insurance premium) that is equal to 1.75% (on purchases, streamline refinances are lower) of the base loan amount - I'll explain this in more detail under the down payment section. The monthly mortgage insurance premium will depend on the ltv. It'll will either range from .005% to .0055% of the loan amount. So for a $100,000 dollar loan amount the yearly mortgage insurance would be $500-$550 a year respectively. This is considerably lower than conventional which would range from .0075% - .0099% of the loan amount. Do the math that almost twice as much.

FHA 15 year loans have lower mortgage insurance, and if you put 10% down on a 15 yr loan, there is NO monthly mortgage insurance. This is not the case with Conventional.

Since FHA is fully self-funded, if you are approved for the loan, you're automatically approved for the mortgage insurance. This is not the case with the private mortgage insurance companies.

DOWN PAYMENT:

While as I write this we'll probably be in the process of receiving more changes, this is the most updated information available in regards to down payment. Conventional loans, non jumbo, which are loans above the annual Freddie Mac and Fannie Mae conforming limits, require 5% down payment. If the property is located in a declining market - which would be determined by the appraiser, Freddie or Fannie, or the MI company, you would need an additional 5% down payment. Below is the list of the conforming loan limits for 2009.

General max limits (for single family residences) are $417,000 and high cost areas $625,000.
For Alaska, Guam, Hawaii, and U.S. Virgin Islands, general is $625,000 and high cost is $930,000. For 2, 3, and 4 units these limits are higher. You can visit Fannie Mae's website at www.efanniemae.com for a full chart of loan limits.

For FHA, as of 2008, will be 3% down payment. Starting January 2009 minimum down will be 3.5%. Congress deliberated awhile on what to change the down payment requirements to on FHA loans. Ideas were thrown around for 1.5% or even $0 down. The fear was that FHA would be the new "sub-prime", so they changed it to 3.5%. The idea here is for people to have some skin in the game. If they've invested their hard earned money into the home, they are less likely to walk away from it without exhausting every avenue. FHA loan limits will vary by county and state and will adjust for high cost areas just as Fannie and Freddie do. You can find a detailed list at http://www.hud.gov/pub/chums/file_layouts.html

Now above I spoke about the UFMIP (up front mortgage insurance premium). How this would be calculated is to take the purchase price, in this case we'll use $100,000. You reduce this by the amount of down payment, for this example lets just say you are putting 3% down. This would be a base loan amount of $97,000. You then multiply this by the 1.75%, which equals $1697. This would be added to the base loan amount to get your total loan amount, which would equal $98,697. This is also the number used to calculate your monthly mortgage insurance. This was the additional up front cost I was talking about earlier. Even though you have this on FHA loans, the overall costs after a full analysis could be substantially lower versus using Conventional financing.

UNDERWRITING DIFFERENCES:

I could spend awhile on this section so I'll try to keep it short and sweet. Most lenders use Freddie Mac and Fannie Mae's automated underwriting systems, LP and DU - loan prospector and desktop underwriter - to evaluate loan candidates and shorten the time taken to make an underwriting decision. These systems have built in risk models that evaluate the data submitted and either give an approval or a denial based on that information.

FHA doesn't technically have a minimum credit score requirement, but this doesn't mean that you can get any credit score approved. When talking about having a no minimum credit score requirement, this is concentrating on those who do not have enough credit to pull a credit score. When this is the case, FHA underwriting guidelines will allow you to get what is called non-traditional credit references establishing a credit history with rent payments, utility payments, cell phone, etc. Not having a credit score will not eliminate the borrower from obtaining FHA insured financing. With the private mortgage insurance companies now implementing minimum credit scores for approval, FHA insured financing is the better option for the borrower.

While this isn't nearly all the differences when underwriting these loans, just know that FHA insured financing has more flexible guidelines then conventional loans, so this would be the better option for borrowers who've had credit issues in the past. This would provide them with low cost financing, making the purchase of the home more affordable, which is the goal of the program.

Please keep in mind this is only some of the major differences between the programs and you should still consult a professional when evaluating your options on buying home. This does not mean you shouldn't sit down at the dinner table with a piece of paper and write out ALL of your expenses, to determine if purchasing a home is right for you.

When being qualified for a loan, lenders only use debt reporting on the credit report for qualification purposes so please, do your due diligence and write out how much you have coming in and how much you have going out, taking into consideration things that may come up, before you invest savings, 401k, or other sources of funds into purchasing a new home.

Please be an informed buyer.

Copyright © 2008

What Is Your Rates and Fees?

I hear this all the time. Do you know what I hearing when I hear this? I hear the client asking what am I getting for my money? What service are you going to provide? I need more information.

I can't tell you how many lenders there in this market that have really low rates and fees. But I caution you when dealing with these companies; you will get what you pay for and you do sacrifice something to get the absolute lowest rate and fees. Many of these employees that work for them are paid by the hour and do not know a thing about the guidelines or different solutions that are available to you. They enter your information into a system that tells them whats best. There is no listening involved only data collecting.

These companies have a habit of selling not only your loan, but the servicing rights to your loan as well. What does that mean? The means your loan will get transferred to another lender, and possibly another lender after that.

Take Walmart for example. Walmart has the lowest prices but service is horrible proving that all they care about it sheer volume. You are not a customer to them, only a number. If they sell enough at a low price, they can make a profit.

H&R block is another example. What do you get with H&R block? You get the lowest tax preparation fees but do you get professional service? My point is when asking a lender for rate and fees, find out about who you are dealing with. Is your lender only a mortgage company? Are they a bank? Do you trust who you are doing business with?

What happened to service? To building a long-term relationship with your lender that not only stops with your mortgage; but also your checking, savings, investments, and insurance needs. The subprime mess is an example of not advising clients in the proper way on what solutions are best for them. Its our duty as originators to discuss the full details of the loan, including discussion on debt to income ratios, the responsibilities of a home owner - especially first time homebuyers - benefits and disadvantages, and resources to educate our clients.

Don't just settle for lowest rate and fees, please consider the long-term relationship with your originator and lender. Find out if they sell the servicing to their loans. They will have a servicing disclosure that will disclosure how many loans they've sold the servicing to in the last 3 years.

When shopping for a mortgage, shop for a professional. Why would you originate your loan with someone who doesn't even know how the market works? You are making the biggest purchase you'll ever make so make sure you dealing with a professional.

Ask questions, be informed of your choices, and make sure you trust your originator. Most lenders will have similar programs and similar rates, so think about the relationship. Shopping for a mortgage is not just about rates and fees.

Copyright © 2008

Credit is Starting to Ease

As we all know we've been hammered everyday about the economic conditions we face. It's funny though how, when speaking about mortgages, the media fails to talk about government backed loans. They only talk about Fannie and Freddie but leave out Ginnie, which backs FHA securitized loans.
We still have financing available for first time homebuyers and marginal credit loans through financing with FHA, VA, and USDA rural housing loans. When talking with prospective buyers I keep hearing how "scared" people are to make a move. After I explain some of the conditions in the market and why the stock market is so volatile they settle down and understand what is happening with market dynamics.

The automobile industry used to be the main driver of the economy and signaled the dominance of manufacturing in our economy. Well now the main driver is housing. Yep that's right back in 2001 after the 9/11 attacks government was reluctant to impose regulation on the only part of the economy that appeared to be thriving, the red hot real estate market. Now we are facing the problems that all the credit default swaps, collateralized debt obligations, and other derivatives, that have caused problems for the banks and institutions that had them on their balance sheet.
We are in a flushing out phase and it will end, just not immediately. The Housing Recovery Act of 2008 made great strides to modernize FHA and come out with a tax credit for first time homebuyers in order to get them back into the market. Lets face it we need the first time homebuyers back in to purchase bloated inventory so we can start the domino effect again.

I want to explain a little bit about what is going on in the credit markets. I believe through education, you can ease your prospects minds with important information and convert more leads into sales.

Lets start with the credit markets. Credit markets are vital for individuals and businesses who need to access credit in order to purchase goods and services, make payrolls, expand business operations, make capital expenditures, school loans, and more.

The most important spread being watched right now is the LIBOR/OIS Spread. This is the spread between dollar LIBOR (london inter bank offered rate) and the Overnight index swap rates. This is a good indication of the willingness of banks to lend to each other. To give you a comparison before the credit crunch the LIBOR/OIS spread was 11bps (bps mean basis points which is 1/100th of a percent, example 11 basis points is .11% - 100bps is 1%.) The higher the spread the less likely banks will lend to each other. This week it closed at an a staggering 331bps but dropped from 341bps, which means we are seeing slight improvement.

Now what about all the selling? Well with the craziness in the market and Hedge Funds, investment vehicles for the wealthy, are deleveraging their positions and being forced to sell due to redemptions from their wealthy clients. Hedge funds are down about 19% ytd (estimate), some hedge funds after fees return 20%-26% annually. Hedge funds make their money in the stock market, credit markets, and derivative markets but in some cases borrow heavily to invest and hedge their bets. That's fine and dandy in an economic boom but in a slowdown like this they must sell and deleverage their positions causing downward pressure in the markets and then also selling on the down side, short selling, put options, etc, to keep from losing money from long, bullish positions, which causes more downward pressure. Not to mention mutual fund clients are selling their positions to meet growing redemptions from their clients as well. Thus creating the volatile environment we find ourselves in.

If you had some extra money laying around right now would be the best time to invest in real estate, and stocks pounded and are now undervalued.

The moral of the story, educate your clients in contrary to what is being splattered on the media, we are in election time and some news stations with political agendas are attempting to make this look like this is all the Bush Administrations fault and are attempting to make it sound so HORRID. Both parties failed to take action but many attempts were made but shot down by democrats in Congress. Right now is the best time to buy a home and with the Treasury recently being given 1.1Trillion dollars in buying power to purchase mortgage-backed securities (the main driver of mortgage rates) we should see some easing in the rate volatility here shortly as well.

If I can help with anything feel free to call or email me. Stay positive, do your homework on the market, this kind of thing happened in 1987 as well but how soon we forget.

God Bless!

Questions and Answers to $7,500 Tax Credit

$7,500 First Time Homebuyer Tax Credit

1. How does a tax credit work?

Reduces income tax liability.
Credits are claimed on an individual's income tax return.
Maximum credit amount is $7500.

2. Who can use the new tax credit?

First-time homebuyers or individual who has not had an ownership interest in a principl residence in the previous three years.

3. What if my taxes due on my return are less than $7500?

The difference would be treated as an overpayment and the purchaser(s) would receive a tax
refund.

4. Is there an income restriction?

Based on tax filing status.
Single or head of household < $75,000.
Joint filing < $150,000.

5. Do individuals with incomes higher than the $75,000 or $150,000 limits lose all the benefit of the credit?

No, individuals making up to $95,000 and joint filers making up to $190,000 are eligible for a partial tax credit.

6. Is the amount of the credit tied to the price of the home?

Yes, credit is 10% of the cost of the home, maximum credit of $7,500.
Amount of credit is same for all taxpayers, married or single.

7. Are there property location restrictions?

Property must be located within the United States.

8. How do I apply for the credit?

Claim the credit on the appropriate IRS form 1040, or any special forms the IRS requires.
No pre-purchase authorization, application or similar approval process.

9. Can I use the credit amount as part of my downpayment?

Cannot claim the credit any earlier than the 2008 tax return that will be filed in 2009.

10. What is the repayment feature of the credit?

There is no precedent for repayment of a tax credit created for individuals at this time.

11. Terms for repayment?

Repaid in increments of 6.67% of the amount over 15 years.

12. When do I make a repayment?

Credits taken in 2008 will not be repaid until 2010.

13. Can the IRS put alien on my property for the amount of the credit repayment?

The statue does not grant the IRS that authority.

14. What if I sell my home before the 15-year repayment period?

Any amount of the unpaid credit will be reduced from any proceeds.
If there is a loss or the gain from the sale is less than the amount of the repayment then the liability is forgiven.
15. Any other exceptions to repayment?

If the person dies before credit is repaid the amount is disregarded
There are special adjustments to people who sell as part of a divorce and/or homes that are part of an involuntarily conversion.

16. If I received a refund of a portion of the tax credit because my total tax liability was less than the amount of my tax credit, do I have to repay the amount of the refund?

Yes

This should cover most of the questions. I do not see anything on the IRS website as of yet regarding this but you can call the IRS directly.

FHA's Comeback

One of the things I want to talk about is FHA loans. This program up until earlier this year had maybe 2% penetration into the market place. Reason for this is the influx of money, from investors, into the mortgage market thus creating a plethora of alternative loan programs that were giving borrowers more options. These loans include no income verification loans, stated income an asset loans, piggyback loans to avoid pmi, and others.

The market became very creative and helped fuel a red hot real estate market that set record sales for 5 years in row. Many people don't realize that while the market was creative in providing alternative loan programs to borrowers, lax underwriting guidelines and fraudulent activity created the majority of the mess we now see today. A severe decline in home values played and is playing a major role itself. I'm not going to talk about a lot of bad news here I think we get enough of that already from the media. Lets face it bad news makes the front page. My intent is to provide information about a old but new program that many steered away from but now is one of the only high loan to value options left.

Lets talk about the benefits of an FHA loan.

1. No minimum credit score- FICO scores over the last 15 or so years have been used heavily by lenders to determine the creditworthiness of a borrower to repay a loan. Being in the people business for 7 plus years now and pulling credit and looking over credit reports I can tell you it doesn't give a very good indication. The system is designed to give you a snapshot in time of what borrowers score is and not a trend of creditworthiness. I say this because I've pulled credit on someone with a 700 credit score and 6 months later they have one late payment and their score dropped to 550. Now is that a good indication of the borrowers ability to pay back a loan? Let me answer that for you NO! With FHA you don't need a minimum credit score to qualify however common sense is needed here. A 400 credit score is highly unlikely to get approved. Now this year FHA has added risk-based premiums to their upfront mortgage insurance and that is credit score driven but overall there is not a minimum criteria for a score to qualify.

2. Low Down payment - With FHA, up until Oct 1, 2009, only has to contribute 3% down payment. After October 1 it goes up to 3.5%. The 3% can come from a relative as a gift or borrowers own funds. This is powerful because right now in the conventional world you need a minimum of 5%, if the property is located in a declining market as indicated by the mortgage insurance companies, you'll then need 10% down. Not to mention you need over a 680 credit score to get the mortgage insurance approved. You might be approved for loan but can't get the insurance. Which moves me into my next benefit.

3. Low mortgage insurance - FHA handles their own mortgage insurance so if you are approved your loan will have the mortgage insurance on it. FHA mortgage insurance also is at a lower expense then conventional and if you put 10% and take out a 15 yr fixed loan no monthly mortgage insurance is required.

4. No income restrictions - For the first time home- buyer group this is huge. Most first time home-buyer programs are designed to meet the needs of low to moderate income borrowers. Well if you make more than the income limit these programs are unavailable to you. FHA has no income restrictions to qualify.

5. Purchase or refinance new or existing 1-4 unit homes - This is a big plus. You can still get 97% on the purchase of a 1-4 unit primary residence. Conventional requires more down payment on multi-unit properties. On cash out refinances there are limitations to loan to value.

6. Financing for manufactured homes - With the credit tightening in the mortgage market some areas have an ample supply of manufactured homes. The same 97% guidelines apply on these but they must meet FHA guidelines and be on a permanent foundation.

7. You can use a non-occupying co-borrower - This is a forgotten rule but if you can have a non-occupying co-borrower, as long as they are a relative, sign on the loan and the borrower can still get the maximum financing of 97%. This is limited to 1 unit properties if the ltv is over 75%. Certain restrictions apply.

These are just a few of the many benefits to FHA financing. It provides a solution for many borrowers needs and helps them fulfill the American Dream of owning a home. I've been in the industry over 4 years now and I love providing solutions for my clients to purchase their first or next home. I get great joy out of what I do.

Stay tuned for more of my blogs and industry news. I've never been a big fan of bad news I like to spread good news but we are facing problems in the housing industry but i believe it when I say its a cycle and we'll survive this storm and come out of it with better times. Remember the market is what you make it. There are still many opportunities out there you just have to change your marketing strategy, do things a little differently, try something new to see what works and what doesn't.

Never become victim of all the bad news because you can sure find a lot of it. Now is the time to become more proficient at what you do and become a trusted adviser to your clients and business partners.

God Bless

"Whether you think you can or you think you can't, either way you're right"

Henry Ford

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