Today was the deadline in Michigan for Mortgage Originators to register or be illegal!
On April 1, 2008, the state of Michigan passed a law called the, “Loan Officer Registration Act” (LORA) that required all mortgage originators to register with the Office of Financial and Insurance Regulation (OFIR).
The law was passed to root out the “bad apples” in the mortgage business that helped contribute to the housing crisis by putting people into loans they couldn’t afford. Loan originators working for federally chartered institutions are exempt from the state law, but all brokers must comply.
The state had to extend the original January 1st, 2009 deadline to April 1, 2009, due to some issues with fingerprinting.
What’s interesting is that even with the extension, the number of complying originators was very small. OFIR sent out a memo to all mortgage brokers on February 24th, 2009 titled, “Alarmingly Low Number or Mortgage Loan Officer Registration Applications Received by OFIR”. OFIR noted that they expected 10,000 applications, but as of that date had received less than 1,000 applications with only 55 being approved.
On March 27th, 2009, OFIR sent out a warning letter titled, “Loan Officer Registration, Loan Officer Notification, and Loan Officer Enforcement”, warning of coming investigations and penalties for noncompliance.
So, where are we at the deadline?
Well, as of the close of business March 31st, 2009 OFIR’s website showed only 1,490 mortgage originators are registered to legally originate mortgages in the state of Michigan.
Several consumers recently found out the mortgage broker they were dealing with, Capita Management Group in Southfield, was operating without a license. OFIR issued them an “Order to Cease and Desist” on March 19th, 2009.
So, if you’re looking to buy a home or refinance your existing mortgage, you might want to make sure that the loan originator you’re working with is operating legally.
By the way, feel free to look me up on OFIR’s list of REGISTERED mortgage originators.
Tuesday, March 31, 2009
Saturday, March 28, 2009
Just When the Public Thought it was Safe to Buy Houses Again…
Appraisal issues will affect more purchase transactions after May 1, 2009.
Homebuyers looking for deals on foreclosed homes will face another challenge after May 1, 2009 when new appraisal ordering guidelines will be required by FNMA and FHLMC.
In response to inflated appraisals contributing to the housing crisis, mortgage brokers will no longer be allowed to have any contact with appraisers and instead will have to order appraisals though Appraisal Management Companies or banks.
I anticipate numerous challenges and problems including, the approval process taking longer and increased costs to consumers as they’ll be forced to pay for appraisals they can’t use.
The “pendulum” did swing too far in the direction of inflated values, but is now swinging too far in the conservative direction.
Let me share an example with you to illustrate:
A homebuyer recently applied with us for a mortgage on a home purchase transaction. The home was an average three bedroom, single-family home that happened to be a foreclosure. The buyer had a sales contract on it for a modest amount in the $60,000 range. They thought they were getting a pretty good deal on it as it had sold a few years ago for over $120,000.
Upon applying with us for their mortgage, we ordered an appraisal on the property from an appraisal company we’ve done business with for several years. The appraised value came in a couple of thousand dollars above the sales price. We submitted the appraisal with the application package to a wholesale lender – and that was when the fun began.
After 10 business days in underwriting (approvals take a lot longer than they used to), the underwriter returned a suspense on the application due to the value of the property being “questionable”. Because of previous issues with fraud and rapid depreciation, most underwriting departments now use sophisticated computer programmed Auto-Valuation Modeling systems (AVM’s) to estimate property values. Zillow is a popular consumer version of these types of programs, but since it’s free, it pales in comparison as to accuracy.
The system used by the underwriter had come back with a lower value exceeding the tolerance allowed when compared with the appraised value. The underwriter’s company had a policy regarding situations like this – they would reject our client’s application for “unacceptable collateral” or we could order a review appraisal from a list of THEIR approved appraisers for an addition $300. They didn’t allow the appraiser we originally contracted to defend his value or allow any other options.
Our client’s options at that point were 1) allowing us to submit their application to a different company and start the process all over again, putting their closing date in jeopardy or 2) paying the additional $300 and continuing the process with the current company. They chose to pay the additional $300 and move forward with the current company.
A week later the review appraisal came in with a value well under the purchase price. We were allowed no contact with the review appraiser and were not allowed to see a copy of the review appraisal. In discussing the situation with the underwriter, we were told that foreclosed properties were used as comparables to determine the value of the review appraisal. When we pointed out that the original appraisal had better comparables, we were told that because there were so many foreclosures in the city of Hazel Park, the review appraiser was justified in using them as comparables. Our client’s application was then rejected.
Now before anyone jumps on their soapbox and tries to point out that our clients would have been better served going to a bank rather than a mortgage broker, I’d like to share one more bit of information – we sent our client’s application to the same lender that OWNED the foreclosed property they had bought. The same lender who had set the sales price of the property and negotiated the terms of the purchase contract through the real estate agent they’d hired to represent them. We had done this deliberately to avoid potential appraisal issues as we were well aware of the foreclosure comparables issue in Hazel Park. We even pointed this out to the underwriter, all to no avail.
Our client’s story did end well as we sent their application to a nonbank company where the appraised value turned out to be a non-issue. We didn’t meet the closing date on their purchase contract, but their real estate agent was able to get a 10 day extension for no cost. Our client though, did have to pay an extra $300 for a useless review appraisal.
Starting May 1st, 2009, stories like this will take place more frequently.
FNMA will implement its “Home Valuation Code of Conduct”, that no longer allows mortgage brokers anywhere in the country, to directly order appraisals.
The Code of Conduct was triggered by a lawsuit brought against an Appraisal Management Company (AMC) by the New York Attorney General, Andrew Cuomo in 2007. The lawsuit involved appraisals ordered by Washington Mutual (WAMU), a Savings & Loan BANK.
What’s even more interesting is that January 7, 2009 FNMA announced an amended Code of Conduct that allows BANKS like WAMU (now owned by Chase Bank) to own AMC’s and still use their own internal appraisal staffs!
Hello! Can you smell major bribery, oops, I mean lobbying here? A BANK got caught, but banks don't get penalized?
This is another perfect example of our government “protecting the consumer” but in reality doing nothing more than requiring more paperwork. The ONLY net effect the Code of Conduct will have is to penalize mortgage brokers. For banks, it’ll be business as usual. First American & eAppraiseIT weren’t even penalized. How’s all that for justice?
Mortgage brokers will adapt and continue to provide value to their clients. We’ve been testing Zillow values against actual appraisals for several months. We’re also looking into accessing the more advanced computerized auto-valuations modeling systems, but will have to charge for this. We’re doing all this for the benefit of our clients so they don’t waste $300 on useless appraisals - whether for purchase or refinance transactions.
Homebuyers looking for deals on foreclosed homes will face another challenge after May 1, 2009 when new appraisal ordering guidelines will be required by FNMA and FHLMC.
In response to inflated appraisals contributing to the housing crisis, mortgage brokers will no longer be allowed to have any contact with appraisers and instead will have to order appraisals though Appraisal Management Companies or banks.
I anticipate numerous challenges and problems including, the approval process taking longer and increased costs to consumers as they’ll be forced to pay for appraisals they can’t use.
The “pendulum” did swing too far in the direction of inflated values, but is now swinging too far in the conservative direction.
Let me share an example with you to illustrate:
A homebuyer recently applied with us for a mortgage on a home purchase transaction. The home was an average three bedroom, single-family home that happened to be a foreclosure. The buyer had a sales contract on it for a modest amount in the $60,000 range. They thought they were getting a pretty good deal on it as it had sold a few years ago for over $120,000.
Upon applying with us for their mortgage, we ordered an appraisal on the property from an appraisal company we’ve done business with for several years. The appraised value came in a couple of thousand dollars above the sales price. We submitted the appraisal with the application package to a wholesale lender – and that was when the fun began.
After 10 business days in underwriting (approvals take a lot longer than they used to), the underwriter returned a suspense on the application due to the value of the property being “questionable”. Because of previous issues with fraud and rapid depreciation, most underwriting departments now use sophisticated computer programmed Auto-Valuation Modeling systems (AVM’s) to estimate property values. Zillow is a popular consumer version of these types of programs, but since it’s free, it pales in comparison as to accuracy.
The system used by the underwriter had come back with a lower value exceeding the tolerance allowed when compared with the appraised value. The underwriter’s company had a policy regarding situations like this – they would reject our client’s application for “unacceptable collateral” or we could order a review appraisal from a list of THEIR approved appraisers for an addition $300. They didn’t allow the appraiser we originally contracted to defend his value or allow any other options.
Our client’s options at that point were 1) allowing us to submit their application to a different company and start the process all over again, putting their closing date in jeopardy or 2) paying the additional $300 and continuing the process with the current company. They chose to pay the additional $300 and move forward with the current company.
A week later the review appraisal came in with a value well under the purchase price. We were allowed no contact with the review appraiser and were not allowed to see a copy of the review appraisal. In discussing the situation with the underwriter, we were told that foreclosed properties were used as comparables to determine the value of the review appraisal. When we pointed out that the original appraisal had better comparables, we were told that because there were so many foreclosures in the city of Hazel Park, the review appraiser was justified in using them as comparables. Our client’s application was then rejected.
Now before anyone jumps on their soapbox and tries to point out that our clients would have been better served going to a bank rather than a mortgage broker, I’d like to share one more bit of information – we sent our client’s application to the same lender that OWNED the foreclosed property they had bought. The same lender who had set the sales price of the property and negotiated the terms of the purchase contract through the real estate agent they’d hired to represent them. We had done this deliberately to avoid potential appraisal issues as we were well aware of the foreclosure comparables issue in Hazel Park. We even pointed this out to the underwriter, all to no avail.
Our client’s story did end well as we sent their application to a nonbank company where the appraised value turned out to be a non-issue. We didn’t meet the closing date on their purchase contract, but their real estate agent was able to get a 10 day extension for no cost. Our client though, did have to pay an extra $300 for a useless review appraisal.
Starting May 1st, 2009, stories like this will take place more frequently.
FNMA will implement its “Home Valuation Code of Conduct”, that no longer allows mortgage brokers anywhere in the country, to directly order appraisals.
The Code of Conduct was triggered by a lawsuit brought against an Appraisal Management Company (AMC) by the New York Attorney General, Andrew Cuomo in 2007. The lawsuit involved appraisals ordered by Washington Mutual (WAMU), a Savings & Loan BANK.
“The lawsuit, announced on November 1, 2007, detailed a scheme in numerous e-mails showing First American and eAppraiseIT caved to pressure from Washington Mutual to use appraisers who provided inflated appraisals on homes. E-mails also show that executives at First American and eAppraiseIT knew their behavior was illegal, but intentionally broke the law to secure future business with Washington Mutual. Between April 2006 and October 2007, eAppraiseIT provided over 250,000 appraisals for Washington Mutual. “
What’s even more interesting is that January 7, 2009 FNMA announced an amended Code of Conduct that allows BANKS like WAMU (now owned by Chase Bank) to own AMC’s and still use their own internal appraisal staffs!
“In-house appraisers: A lender may now rely on appraisals performed by a lender’s in-house appraisal staff if they meet the specific requirements outlined in section IV.B (1)-(8) of the revised Code.
Appraisal management companies: The lender’s ownership of or affiliation with an appraisal management company is no longer restricted. However, any appraisal management company that provides the lender with an appraisal must adopt written policies and procedures implementing the revised Code.”
Hello! Can you smell major bribery, oops, I mean lobbying here? A BANK got caught, but banks don't get penalized?
This is another perfect example of our government “protecting the consumer” but in reality doing nothing more than requiring more paperwork. The ONLY net effect the Code of Conduct will have is to penalize mortgage brokers. For banks, it’ll be business as usual. First American & eAppraiseIT weren’t even penalized. How’s all that for justice?
Mortgage brokers will adapt and continue to provide value to their clients. We’ve been testing Zillow values against actual appraisals for several months. We’re also looking into accessing the more advanced computerized auto-valuations modeling systems, but will have to charge for this. We’re doing all this for the benefit of our clients so they don’t waste $300 on useless appraisals - whether for purchase or refinance transactions.
Sunday, March 22, 2009
We Can Afford How Much on Minimum Wage?
First-time homebuyers may be surprised at how much they can afford, especially in today’s market!
METROPOLITAN DETROIT, MI – The biggest economic meltdown since the Great Depression and the resulting foreclosures have had a profound affect on the housing market.
Housing values across the county have dropped over 25% from their peaks. In some parts of the country, double-digit unemployment has pushed values down even further.
All this is creating an incredible buying opportunity for homebuyers, especially first-time homebuyers who don’t have to worry about dealing with an existing home.
Just how much can a first-time buyer afford to buy?
Well let’s take a look at a couple earning minimum wage.
Minimum wage is currently $6.55/hour and slated to go to $7.25/hour this July. Let’s use the $6.55 amount. An individual working full-time would then have gross earnings of $13, 100 based on a 40 hour work week for 50 weeks a year (assuming 2 week unpaid vacation). A couple would have earnings of twice that equaling $26,200 annually or $2,183 per month.
One of the best first-time buyer programs currently available is the department of Housing & Urban Development’s (HUD) FHA program (Federal Housing Administration). FHA requires a down payment of only 3.5% and allows a seller to pay up to 6% of the purchase price towards everything else EXCEPT the down payment for the buyer.
To qualify for a mortgage, FHA allows 31% of borrower’s gross monthly income to be used for a housing payment - including the mortgage, property taxes, home insurance and condo association fees. In our example, 31% of $2,183 in monthly gross income equals $677 for a monthly housing payment.
CAUTION – qualifying for a mortgage also takes into account other debts payments like car payments, credit cards and student loans. For FHA the total amount of debt payments, including housing, cannot exceed 43% of monthly gross income. In our example this 43% would equal $939/month. If our example couple already had monthly debts of $350/month, then subtracting this from the maximum allowed of $939 would only leave $589 for a monthly housing payment.
So what can a buyer purchase with a $677 monthly payment? This is where it gets complicated.
Property taxes can vary from house to house and interest rates change daily. The higher both these go, the lower the corresponding purchase price.
For our example we’ll have to make some assumptions. Let’s assume property taxes of $2100 and home insurance of $840, both annually. For an interest rate, we’ll assume 5.5% (this is not a quote, but federal law requires us to include the APR of 6.227%). Given these parameters, a $677 monthly payment would equate to an approximate purchase price of $72,000.
What can a homebuyer get for $72,000? Let’s keep in mind that if we take into account the recent 25% drop in housing values, that homebuyers are looking at houses that were valued at almost $100,000 just a couple of years ago.
How many homes will buyers have to choose from in this price range? A search of listings on RealComp performed March 22, 2009 shows the following statistics:
These numbers show there are numerous homes available for first-time homebuyers in several areas.
Now, many of them are foreclosures and may need work to get them in livable condition, but FHA also offers a renovation program called the 203(k) that allows repairs to be financed and included in the loan amount.
Again, our example makes some assumptions that homebuyers need to be careful about. Please check with a competent mortgage originator before signing a purchase contract.
METROPOLITAN DETROIT, MI – The biggest economic meltdown since the Great Depression and the resulting foreclosures have had a profound affect on the housing market.
Housing values across the county have dropped over 25% from their peaks. In some parts of the country, double-digit unemployment has pushed values down even further.
All this is creating an incredible buying opportunity for homebuyers, especially first-time homebuyers who don’t have to worry about dealing with an existing home.
Just how much can a first-time buyer afford to buy?
Well let’s take a look at a couple earning minimum wage.
Minimum wage is currently $6.55/hour and slated to go to $7.25/hour this July. Let’s use the $6.55 amount. An individual working full-time would then have gross earnings of $13, 100 based on a 40 hour work week for 50 weeks a year (assuming 2 week unpaid vacation). A couple would have earnings of twice that equaling $26,200 annually or $2,183 per month.
One of the best first-time buyer programs currently available is the department of Housing & Urban Development’s (HUD) FHA program (Federal Housing Administration). FHA requires a down payment of only 3.5% and allows a seller to pay up to 6% of the purchase price towards everything else EXCEPT the down payment for the buyer.
To qualify for a mortgage, FHA allows 31% of borrower’s gross monthly income to be used for a housing payment - including the mortgage, property taxes, home insurance and condo association fees. In our example, 31% of $2,183 in monthly gross income equals $677 for a monthly housing payment.
CAUTION – qualifying for a mortgage also takes into account other debts payments like car payments, credit cards and student loans. For FHA the total amount of debt payments, including housing, cannot exceed 43% of monthly gross income. In our example this 43% would equal $939/month. If our example couple already had monthly debts of $350/month, then subtracting this from the maximum allowed of $939 would only leave $589 for a monthly housing payment.
So what can a buyer purchase with a $677 monthly payment? This is where it gets complicated.
Property taxes can vary from house to house and interest rates change daily. The higher both these go, the lower the corresponding purchase price.
For our example we’ll have to make some assumptions. Let’s assume property taxes of $2100 and home insurance of $840, both annually. For an interest rate, we’ll assume 5.5% (this is not a quote, but federal law requires us to include the APR of 6.227%). Given these parameters, a $677 monthly payment would equate to an approximate purchase price of $72,000.
What can a homebuyer get for $72,000? Let’s keep in mind that if we take into account the recent 25% drop in housing values, that homebuyers are looking at houses that were valued at almost $100,000 just a couple of years ago.
How many homes will buyers have to choose from in this price range? A search of listings on RealComp performed March 22, 2009 shows the following statistics:
These numbers show there are numerous homes available for first-time homebuyers in several areas.Now, many of them are foreclosures and may need work to get them in livable condition, but FHA also offers a renovation program called the 203(k) that allows repairs to be financed and included in the loan amount.
Again, our example makes some assumptions that homebuyers need to be careful about. Please check with a competent mortgage originator before signing a purchase contract.
Thursday, March 19, 2009
Playing Limbo with Mortgage Rates
How low will they go, but more importantly – for how long?
March 19, 2009 -- BLOOMFIELD, MI – The Federal Reserve met yesterday and shocked the markets with their announcement of aggressively buying government debt to kickstart the economy.
Oh, by the way, they also announced they were leaving the Fed Fund Rate at the previous target amount of 0-0.25% as expected.
The real news was obviously the buying of debt. The markets reacted with Treasury & Mortgage Backed Security (MBS) prices soaring, pushing yields and rates down to their lowest levels since January 8, 2009.
Note: the chart above shows MBS prices which are the opposite of interest rates. So the higher the better, green is good news!
The challenge for many homeowners looking to take advantage of this rally and refinance is – timing. I’ve been advising my clients and warning prospects to get their mortgage applications in ASAP. We can float the interest rate while getting the loan approved by underwriting. Several of my clients took my advice and we’ll be looking to lock their loans today and close quickly.
Those that didn’t take my advice will be facing an uphill battle of trying to get their documents to us, so we can generate an application, which they then have to sign & get back to us with an application fee, so we can then lock their interest rate in. Not only that, underwriting turn times are terribly long currently and many 30 day locks may be blown. We’ll be looking to do 60 day locks for new clients because of this, but that means an 1/8% higher interest rate.
If you’re reading this and thinking of refinancing, please understand that just like the economy is going through challenges we’ve never seen, the same is true in the mortgage industry. It’s not business as usual! Those that have gone through a refinance in the past need to understand it’s much more difficult in today’s environment.
There are fewer choices for funding sources & products, pricing rarely allows “no cost” refinances, application to close cycles are much longer and underwriters are asking for a whole lot more documentation. Are we still doing loans? Yes, both purchases and refinances. In many ways, we’re back to the way things were done in the mid 1990’s.
Federal Reserve Buying Binge
So, what caused rates to plunge?
Well, the Fed announced that they’d be buying $300 billion in Treasuries, an additional $750 billion in MBS (on top the $500 billion pledged in December) and $200 billion in FNMA & FHLMC debt.
That’s 1.25 trillion dollars in debt!
How can the Fed do this? Remember the Federal Reserve is not part of the government, but can print money. They’ll be printing tons of money to fund all this! Taking this amount of Treasuries & MBS out of the market will affect the supply and demand dynamics of the market, which is why prices for both jumped yesterday (lowering rates).
Inflation is the major concern though. All this borrowing will eventually lead to higher interest rates once the economy recovers. I hope the Federal Reserve stays on top of this.
Please give us a call or email us if you have any questions on any of this or have a referral for us.
# # #
Drew Sygit is President of The Lending Edge and holds mortgage industry designations CMPS, CMC, CRMS, CMLO, CALO, has an MBA and is an approved industry instructor. He’s spoken for HUD, has written numerous articles and is a mortgage industry advocate for loan originator licensing and consumer education. He can be reached at 248-356-3739, dsygit@TheLendingEdge.com or read his blog: http://drewsmortgagenews.blogspot.com/.
March 19, 2009 -- BLOOMFIELD, MI – The Federal Reserve met yesterday and shocked the markets with their announcement of aggressively buying government debt to kickstart the economy.
Oh, by the way, they also announced they were leaving the Fed Fund Rate at the previous target amount of 0-0.25% as expected.
The real news was obviously the buying of debt. The markets reacted with Treasury & Mortgage Backed Security (MBS) prices soaring, pushing yields and rates down to their lowest levels since January 8, 2009.
Note: the chart above shows MBS prices which are the opposite of interest rates. So the higher the better, green is good news!
The challenge for many homeowners looking to take advantage of this rally and refinance is – timing. I’ve been advising my clients and warning prospects to get their mortgage applications in ASAP. We can float the interest rate while getting the loan approved by underwriting. Several of my clients took my advice and we’ll be looking to lock their loans today and close quickly.
Those that didn’t take my advice will be facing an uphill battle of trying to get their documents to us, so we can generate an application, which they then have to sign & get back to us with an application fee, so we can then lock their interest rate in. Not only that, underwriting turn times are terribly long currently and many 30 day locks may be blown. We’ll be looking to do 60 day locks for new clients because of this, but that means an 1/8% higher interest rate.
If you’re reading this and thinking of refinancing, please understand that just like the economy is going through challenges we’ve never seen, the same is true in the mortgage industry. It’s not business as usual! Those that have gone through a refinance in the past need to understand it’s much more difficult in today’s environment.
There are fewer choices for funding sources & products, pricing rarely allows “no cost” refinances, application to close cycles are much longer and underwriters are asking for a whole lot more documentation. Are we still doing loans? Yes, both purchases and refinances. In many ways, we’re back to the way things were done in the mid 1990’s.
Federal Reserve Buying Binge
So, what caused rates to plunge?
Well, the Fed announced that they’d be buying $300 billion in Treasuries, an additional $750 billion in MBS (on top the $500 billion pledged in December) and $200 billion in FNMA & FHLMC debt.
That’s 1.25 trillion dollars in debt!
How can the Fed do this? Remember the Federal Reserve is not part of the government, but can print money. They’ll be printing tons of money to fund all this! Taking this amount of Treasuries & MBS out of the market will affect the supply and demand dynamics of the market, which is why prices for both jumped yesterday (lowering rates).
Inflation is the major concern though. All this borrowing will eventually lead to higher interest rates once the economy recovers. I hope the Federal Reserve stays on top of this.
Please give us a call or email us if you have any questions on any of this or have a referral for us.
# # #
Drew Sygit is President of The Lending Edge and holds mortgage industry designations CMPS, CMC, CRMS, CMLO, CALO, has an MBA and is an approved industry instructor. He’s spoken for HUD, has written numerous articles and is a mortgage industry advocate for loan originator licensing and consumer education. He can be reached at 248-356-3739, dsygit@TheLendingEdge.com or read his blog: http://drewsmortgagenews.blogspot.com/.
Saturday, March 14, 2009
FHLMC Allows Refinancing with No Income or Asset Requirements
New guidelines allow lenders to refinance more homeowners, but will they allow their underwriters to do so?
FHLMC is moving quickly to roll out guidelines in accordance with President Obama’s recently announced plans to address the nation’s housing crisis. FHLMC, a Government Sponsored Enterprise and formally a private company, was taken over by the federal government late last year.
For homeowners looking to refinance, FHLMC has introduced their, “Freddie Mac Relief Refinance Mortgage”.
Here are the program’s highlights:
- Primary residence only.
- No 30 day late payments in the last 12 months.
- Allows loan amounts up to 105% of the appraised value.
- The new loan must either reduce the borrower’s interest rate, length of loan or use a fixed-rate mortgage to replace an ARM, interest only or balloon mortgage. 
- If the new mortgage payment is within 120% of the existing payment, borrower does not have to re-qualify. This means no proof of income or assets is required! Employment verification is not addressed though.
- Appraisal waivers may be granted using Home Value Explorer software to estimate property values.
- If no existing PMI, none is required on the new loan.
- Existing 2nd mortgages and lines of credit do not factor into the 105% value, but must be subordinated.
A homeowner’s mortgage must be currently held by FHLMC to be eligible. Homeowners can check if FHLMC has their mortgage via phone or the internet:
Freddie Mac
1-800-FREDDIE (8am to 8pm EST)
www.freddiemac.com/avoidforeclosure
This is great news for homeowners whose current mortgage was obtained without verifying income and/or assets, or who no longer can do so. The release notes on the program though, do not address if employment must be verified. Hopefully, lenders will aggressively interpret that they don’t need to.
To what extent lenders embrace this program is the big question mark. Many banks and lenders have been exceeding FHLMC and FNMA underwriting guidelines for some time. An example: FNMA recently increased their FICO score requirements for FHA loans to 620, even though FHA doesn’t require credit scores at all. It often appears underwriters are so afraid of making a mistake, that they reject all but the perfect loan applications.
It’ll be interesting to see if the larger FNMA follows FHLMC’s example and also allows income and/or assets to be ignored on refinance transactions.
The biggest question though is, if & when FNMA or FHLMC will do away with appraisals on
refinances entirely like the FHA Streamline program does. Rumors continue to float that such a program is being discussed.
Hundreds of thousands of homeowners who owe more than 105% of the value of their homes, are hoping for such a plan.
Thursday, March 5, 2009
Refi’s, Loan Mods, Foreclosures, Oh My!
Obama’s administration announces latest guidelines on Homeowner Affordability and Stability Program (HASP).
March 4, 2009 -- BLOOMFIELD, MI – Get ready for the wild, wild, west of saving homes from foreclosure. Obama’s administration released dozens of pages of guidelines today to clarify their February 18th introduction of HASP.
The two week delay shows that Obama’s administration thought the program was important enough to rush the announcement on February 18th, even though all the details hadn’t been worked out. The administration believes any economic turnaround will begin with stabilizing housing values and is committed to making that happen.
The details released today cover a lot of material that will bore most homeowners to sleep.
So, let’s summarize the important details:
HOME AFFORDABLE REFINANCE PROGRAM
If you’re making your payments on time, but can’t refinance because you’re upside down, this program MAY provide some relief. The program is expected to help 4 to 5 million homeowners. Requirements known at this time:
- The mortgage must be owned or securitized by FNMA or FHLMC
- The property must be owner-occupied
- Mortgage payments must be current
- No cash out allowed, only transaction costs can be rolled into new loan amount
- The new mortgage may not exceed 105% of the property’s current value
- Second mortgages & lines of credit that exceed the 105% may be subordinated if the lien holder agrees.
- Program ends in June 2010
To determine if your mortgage is FNMA or FHLMC eligible toll-free phone & web systems have been set up to aid homeowners. The information is not a guarantee of eligibility for the program though.
Fannie Mae,
1-800-7FANNIE (8am to 8pm EST).
resource_center@fanniemae.com
Freddie Mac
1-800-FREDDIE (8am to 8pm EST)
www.freddiemac.com/avoidforeclosure
What’s most interesting about the clarifications offered today is what wasn’t addressed:
- Can a second mortgage or line of credit be rolled into the new mortgage?
- What about other possible liens on title, like IRS liens?
- Will PMI be required if a homeowner doesn’t have it now?
- Can an escrow account be rolled into new loan if one doesn’t exist now?
The Treasury Department deferred to FNMA & FHLMC on these questions and more with this cryptic paragraph:
“GSE lenders and servicers already have much of the borrower’s information on
file, so documentation requirements are not likely to be burdensome. In
addition, in some cases an appraisal will not be necessary. This flexibility
will make the refinance quicker and less costly for both borrowers and lenders.
The Home Affordable Refinance program ends in June 2010.”
What about homeowners whose primary residences are upside down by more than the 105% allowed?
Stay tuned as there are rumors that FNMA/FHLMC may eventually copy the FHA Streamline Program (as I’ve been recommending since October of last year) and ignore appraised values, income & assets for refinancing homeowners who are current on their payments. It makes sense – if you’re making your payments now, lowering your interest rate & payment will only decrease the chances of you defaulting on your mortgage.
Also of note in the latest announcement, you don’t see anything about 4.5% interest rates. The Fed is still buying Mortgage Backed Securities, but it’s now more to stabilize mortgage rates, not force them down. So, if you’re waiting for rates to go back down under 5% to refinance, you may be waiting a looong time.
HOME AFFORABLE MODIFICATION PROGRAM
This is the real focus of Obama’s HASP initiative which is shown by the amount of content. It’s expected to aid 3 to 4 million homeowners in avoiding foreclosure by reducing their mortgage payments. We’ll summarize the details, but first let’s consider why this program is so important.
To stabilize the housing market & housing values in the current economic climate, housing ownership payments must be brought inline with housing rental payments.
Assume you’re a homeowner, you’re upside down in your home and you can rent the exact same home you’re in, for less than your current mortgage payment. What’s your incentive to stay, keep making your payments and wait for your home’s value to recover? Not a lot, especially if you’re struggling financially.
If your mortgage payment can be brought down to the level of market rents though, you won’t be able to live anywhere cheaper without moving into a smaller home. So, your incentive to stay and tough it out is going to be a lot higher. Also, if you hold onto your home, it’ll eventually go up in value and you may have equity again someday. So, modifying mortgage payments to make this happen will lead to a lot less walk-aways and the resulting foreclosures, which lower housing values further.
Of course, if you’ve lost your job, been laid-off or otherwise can’t afford the market rent for your home, than you have no choice but to down-size or move to cheaper area of town to lower your housing costs.
Now let’s review the hi-lites of HASP modifications:
- Only mortgages closed before January 1, 2009 are eligible
- The program takes effect immediately, modifications end December 31, 2012
- Owner-occupied homes only, no vacant or condemned properties
- It doesn’t matter how upside down the property is
- The government is giving financial incentives to lenders to modify loans that are NOT in default if the borrower can prove imminent hardship.
- Homeowners who make on-time mortgage payments will be eligible for annual principal reductions of $1,000 for up to 5 years.
- All borrowers must document income and sign an affidavit of financial hardship & a 4506-T
- Lenders will follow a specific sequence of steps to reduce monthly payments to no more than 31% of verified gross monthly income. Second mortgage & lines of credit are not included in this calculation.
- Homeowners with total debt payments over 55% of their income will be required to participate in HUD-certified consumer debt counseling program to be eligible. (Hope Hotline at 888-995-HOPE (4673), website http://www.hud.gov/offices/hsg/sfh/hcc/fc/)
- Homeowners in bankruptcy may still be eligible
- Homeowners will have a 90 day trial period to prove they can make modified payments, during which any foreclosure proceedings will be suspended.
- If homeowner defaults on modification plan, they are not eligible for any additional modifications.
- Lenders will receive incentives to allow short-sales or deeds-in-lieu instead of foreclosing.
- Incentives will be offered to extinguish second mortgages and lines of credit (to be determined)
- Participation in the program is voluntary for lenders, but will be required if they receive Financial Stability program funds.
- Private Mortgage Insurance companies have agreed to work out settlements on modified loans.
For all those homeowners expecting the balance of their mortgage to be reduced as part of a loan modification, it’s the last thing the government wants to do. Here’s the specific step-by-step procedure outlined in the plan to reduce a homeowner’s payment to qualify:
· Lenders may add to loan amount to be modified: accrued interest, past due real estate taxes and insurance premiums, delinquency charges paid to third parties in the ordinary course of servicing and not retained by the lender, any required escrow advances already paid by the lender and any required escrow advances by the lender that are currently due and will be paid by the lender during the Trial Period. Late fees are not included.
· The interest rate will be reduced in 1/8% increments (subject to a floor of 2%) until the payment equals 31% of the homeowner’s income.
· Next, extension of the term of the mortgage up to 40 years is allowed. The 40-year term begins at the start of the modification (after the borrower successfully completes the Trial Period).
· Finally, IF necessary forbearance of principal is allowed. If there is a principal forbearance amount, a balloon payment of that forbearance amount is due on the maturity date, upon sale of the property, or upon payoff of the regular mortgage. The modified balance must be no lower than the current property value.
· There is no requirement to use principal reduction under the Home Affordable Modification program.
There is much more to the program, but these are the details most relevant to homeowners. If you’d like to read more, here are links to what’s been published so far:
http://www.mmla.net/associations/6085/files/HASPguidelines_summary.pdf
http://www.mmla.net/associations/6085/files/HASPmodification_program_guidelines.pdf
http://www.mmla.net/associations/6085/files/HASPhousing_fact_sheet.pdf
http://www.mmla.net/associations/6085/files/HASPcounselor_qa.pdf
NOTE: we strongly recommend that homeowners suspend any & all payments to mortgage modification brokers until their eligibility under this program is determined. Many of these services charge $2,500 or more and have a suspect track record of success. We put all our client loan modifications on hold after the initial announcement on February 18th and will be actively assisting our clients to qualify for this program instead. If you’d like our assistance in this matter, we will do so for a nonrefundable consulting fee of $375.
Monday, March 2, 2009
Are You Working with a Soon-to-be Illegal Loan Originator?
The State of Michigan is worried as few loan officers are complying with Michigan’s new registration law.
Michigan - Back in April of 2008, the Michigan legislature passed a law called the Michigan Loan Officer Registration Act (LORA).
The law was basically passed to get as many of the bad players out of the mortgage industry as possible. Loan officers now have to do the following to work in the industry:
- Take a 24 hour class if they have less than 4.5 years experience in originating loans.
- Pass a test focused on national & state mortgage regulations.
- Get fingerprinted.
- Pass a background check with no felonies in the last 10 years.
The government set up the registration process late and ended up pushing the original cutoff date back from January 1, 2009 to April 1, 2009. Despite all the talk in industry circles about this registration law since it passed, some are still clueless about it! I spoke with one of my competitors in early February and they claimed to have never heard about the law. What’s scary is that they’ll probably be writing loans illegally after April 1st.
Early numbers on the testing showed over 40% of loan originators failing, probably because they thought the test would just be on products and qualifying borrowers for loans. The test is actually focused on knowing the laws regarding loan origination.
It’s interesting to note that loan originators working for federally charted banks are exempt from the state law and don’t have to register with the state.
I just wish the local papers would do a better job of covering this, so the public would understand what’s going on and ask loan originators to validate they are in compliance.
So few originators are actually registering that the state is worried enough to have sent out the following letter to all mortgage brokers in the state:
JENNIFER M. GRANHOLM
governor
OFFICE OF FINANCIAL AND INSURANCE REGULATION
Department of Energy, Labor & Economic Growth
Stanley “Skip” Pruss, Director
KEN ROSS
commissioner
February 24, 2009
TO: All Mortgage Broker, Lender, and Servicer Licensees and Registrants
RE: ALARMINGLY LOW NUMBER OF MORTGAGE LOAN OFFICER REGISTRATION APPLICATIONS RECEIVED BY OFIR
The Mortgage Brokers, Lenders, and Servicers Licensing Act, 1987 PA 173, as amended, MCL 445.1651 et seq. (MBLSLA) and the Secondary Mortgage Loan Act, 1981 PA 125, as amended, MCL 493.51 et seq. (SMLA) require each mortgage broker, lender, and servicer licensee/registrant to register its individual loan officers with the Office of Financial and Insurance Regulation (OFIR) by April 1, 2009. To “register” as a loan officer means receiving formal notification from OFIR stating that the individual is approved as a loan officer registrant.
I am very concerned with the low number of mortgage loan officer registration applications that have been submitted by mortgage broker, lender, and servicer licensees/registrants pursuant to the MBLSLA and SMLA. To date, less than 1,000 loan officer registrant applications have been submitted in the Nationwide Mortgage Licensing System (NMLS), with only 55 of these applications being complete and receiving formal OFIR approval. Based on past mortgage broker, lender, and servicer annual reports, we estimate that approximately 10,000 loan officers should be applying for loan officer registration.
Each mortgage broker, lender, and servicer licensee and registrant is responsible and is accountable for getting its loan officer registered with OFIR. An individual that is not a registered loan officer is not authorized to be compensated for a mortgage loan transaction originated beginning April 1, 2009.
Violation of the MBLSLA or SMLA by an unregistered loan officer is a misdemeanor, subject to[pb1] fines/penalties and up to 1 year imprisonment[1]. Violations of the MBLSLA or SMLA intended to circumvent the loan officer registration requirements, including utilization/compensation of an unregistered loan officer, can lead to civil fines and possible revocation of a mortgage company license/registration[2].
Links to the loan officer amendments to the MBLSLA and SMLA have been sent to every mortgage broker, lender, and servicer licensee and registrant. Also, OFIR sent each licensee/registrant multiple e-mail and postal mail notifications that provide updated information and instructions regarding the loan officer registration requirements and timeframes.
Loan Officer Registration Deadline
February 24, 2009
So only 55 out of 1,000 applicants have completed the registration, from an expected pool of 10,000! I'm sure the state is also missing the revenue from all this also.
It’ll be very interesting to see how many loan officers get arrested for operating illegally after April 1st.
Will your loan officer be one of them?
Michigan - Back in April of 2008, the Michigan legislature passed a law called the Michigan Loan Officer Registration Act (LORA).
The law was basically passed to get as many of the bad players out of the mortgage industry as possible. Loan officers now have to do the following to work in the industry:
- Take a 24 hour class if they have less than 4.5 years experience in originating loans.
- Pass a test focused on national & state mortgage regulations.
- Get fingerprinted.
- Pass a background check with no felonies in the last 10 years.
The government set up the registration process late and ended up pushing the original cutoff date back from January 1, 2009 to April 1, 2009. Despite all the talk in industry circles about this registration law since it passed, some are still clueless about it! I spoke with one of my competitors in early February and they claimed to have never heard about the law. What’s scary is that they’ll probably be writing loans illegally after April 1st.
Early numbers on the testing showed over 40% of loan originators failing, probably because they thought the test would just be on products and qualifying borrowers for loans. The test is actually focused on knowing the laws regarding loan origination.
It’s interesting to note that loan originators working for federally charted banks are exempt from the state law and don’t have to register with the state.
I just wish the local papers would do a better job of covering this, so the public would understand what’s going on and ask loan originators to validate they are in compliance.
So few originators are actually registering that the state is worried enough to have sent out the following letter to all mortgage brokers in the state:
JENNIFER M. GRANHOLM
governor
OFFICE OF FINANCIAL AND INSURANCE REGULATION
Department of Energy, Labor & Economic Growth
Stanley “Skip” Pruss, Director
KEN ROSS
commissioner
February 24, 2009
TO: All Mortgage Broker, Lender, and Servicer Licensees and Registrants
RE: ALARMINGLY LOW NUMBER OF MORTGAGE LOAN OFFICER REGISTRATION APPLICATIONS RECEIVED BY OFIR
The Mortgage Brokers, Lenders, and Servicers Licensing Act, 1987 PA 173, as amended, MCL 445.1651 et seq. (MBLSLA) and the Secondary Mortgage Loan Act, 1981 PA 125, as amended, MCL 493.51 et seq. (SMLA) require each mortgage broker, lender, and servicer licensee/registrant to register its individual loan officers with the Office of Financial and Insurance Regulation (OFIR) by April 1, 2009. To “register” as a loan officer means receiving formal notification from OFIR stating that the individual is approved as a loan officer registrant.
I am very concerned with the low number of mortgage loan officer registration applications that have been submitted by mortgage broker, lender, and servicer licensees/registrants pursuant to the MBLSLA and SMLA. To date, less than 1,000 loan officer registrant applications have been submitted in the Nationwide Mortgage Licensing System (NMLS), with only 55 of these applications being complete and receiving formal OFIR approval. Based on past mortgage broker, lender, and servicer annual reports, we estimate that approximately 10,000 loan officers should be applying for loan officer registration.
Each mortgage broker, lender, and servicer licensee and registrant is responsible and is accountable for getting its loan officer registered with OFIR. An individual that is not a registered loan officer is not authorized to be compensated for a mortgage loan transaction originated beginning April 1, 2009.
Violation of the MBLSLA or SMLA by an unregistered loan officer is a misdemeanor, subject to[pb1] fines/penalties and up to 1 year imprisonment[1]. Violations of the MBLSLA or SMLA intended to circumvent the loan officer registration requirements, including utilization/compensation of an unregistered loan officer, can lead to civil fines and possible revocation of a mortgage company license/registration[2].
Links to the loan officer amendments to the MBLSLA and SMLA have been sent to every mortgage broker, lender, and servicer licensee and registrant. Also, OFIR sent each licensee/registrant multiple e-mail and postal mail notifications that provide updated information and instructions regarding the loan officer registration requirements and timeframes.
Loan Officer Registration Deadline
February 24, 2009
So only 55 out of 1,000 applicants have completed the registration, from an expected pool of 10,000! I'm sure the state is also missing the revenue from all this also.
It’ll be very interesting to see how many loan officers get arrested for operating illegally after April 1st.
Will your loan officer be one of them?
Sunday, March 1, 2009
A Brand New Program to Reclaim Foreclosures!
Low down payment, include repair costs, no income limitations.
How many more houses could be sold if buyers could pick a foreclosed property in the neighborhood of their choice, then select their own colors, kitchen cabinets, bathrooms, carpeting & more, and finance all of it in the same mortgage used to purchase the property?
How about if buyers could put less than 5% down, finance most (if not all) of the closing costs, get a great rate and not have to worry about income limitations?
I bet you’re thinking this program sounds almost too good to be true.
Made you look and got you curious though, didn’t I?
The program is not too good to be true. It exists and has been around for quite some time, but it’s remarkably ignored, despite being an almost perfect solution for today’s housing market.
The program is HUD’s FHA 203(k) program. You might have heard of it, but probably forgot about it.
I had to resort to a little bit of hype to get your attention. If the title of this article had mentioned “203(k)”, you probably wouldn’t have read it.
The program though, is a great solution given all the foreclosed properties out there that won’t qualify for a normal mortgage. Many of these properties can be bought for less than 50% of their values, are solid homes just in need of some TLC and are in good neighborhoods.
Here’s a bit more about the program:
- Purchase price + repairs can be included in the loan amount up to appraised value
- Maximum loan amount equals the FHA limit ($297,500 in Detroit, Michigan tri-county area)
- Roofs can be redone, basements finished
- Kitchens & bathrooms can be gutted & redone
- All electrical and plumbing can be replaced, new furnace and central air included
- Appliances can be included
- Driveways and sidewalks are eligible
- A home can be made energy efficient under the program
- What else can you think of?
Many buyers purchase a home ina neighborhood they like, planning on remodeling it later when they can afford it. Why wait? The FHA 203(k) program allows the home to be remodeled now instead of years later.
So, whether you’re a buyer or real estate agent, keep this program in mind when you’re out looking at houses and find one that would be a great purchase if it was fixed up.
How many more houses could be sold if buyers could pick a foreclosed property in the neighborhood of their choice, then select their own colors, kitchen cabinets, bathrooms, carpeting & more, and finance all of it in the same mortgage used to purchase the property?
How about if buyers could put less than 5% down, finance most (if not all) of the closing costs, get a great rate and not have to worry about income limitations?
I bet you’re thinking this program sounds almost too good to be true.
Made you look and got you curious though, didn’t I?
The program is not too good to be true. It exists and has been around for quite some time, but it’s remarkably ignored, despite being an almost perfect solution for today’s housing market.
The program is HUD’s FHA 203(k) program. You might have heard of it, but probably forgot about it.
I had to resort to a little bit of hype to get your attention. If the title of this article had mentioned “203(k)”, you probably wouldn’t have read it.
The program though, is a great solution given all the foreclosed properties out there that won’t qualify for a normal mortgage. Many of these properties can be bought for less than 50% of their values, are solid homes just in need of some TLC and are in good neighborhoods.
Here’s a bit more about the program:
- Purchase price + repairs can be included in the loan amount up to appraised value
- Maximum loan amount equals the FHA limit ($297,500 in Detroit, Michigan tri-county area)
- Roofs can be redone, basements finished
- Kitchens & bathrooms can be gutted & redone
- All electrical and plumbing can be replaced, new furnace and central air included
- Appliances can be included
- Driveways and sidewalks are eligible
- A home can be made energy efficient under the program
- What else can you think of?
Many buyers purchase a home ina neighborhood they like, planning on remodeling it later when they can afford it. Why wait? The FHA 203(k) program allows the home to be remodeled now instead of years later.
So, whether you’re a buyer or real estate agent, keep this program in mind when you’re out looking at houses and find one that would be a great purchase if it was fixed up.
Subscribe to:
Posts (Atom)
Posts
